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Big Data for a Small World: SMEIoT

smeiotIoT

The world is a great big database and algorithmic wizards and mad data scientists are burning the midnight oil to mine the perplexing infinities of ubiquitous data points.  Their goal is to put data to use to facilitate better governance, initiate pinpoint marketing campaigns, pursue revelatory academic research and improve the quality of service public agencies deliver to protect and serve communities. The convergence of Big Data, Cloud Computing and the Internet of Things (IoT) make this possible.

The earth is the mother of all relational databases.  It’s six billion inhabitants track many billions of real time digital footprints across the face of the globe each and every day.  Some footprints are readily apparent and easy to see.  Facebook likes, credit card transactions, name and address lists, urgent Tweets and public records sparkle like alluvial diamonds; all easily plucked by data aggregators and sold to product marketers at astonishing profit margins.  Other data points are less apparent, hidden or derived in the incessant hum of the ever listening, ever recording global cybersphere.   These are the digital touch points we knowingly and unknowingly create with our interactions with the world wide web and the machines that live there.

It is estimated that there is over 20 billion smart machines that are fully integrated into our lives.  These machines stay busy creating digital footprints; adding quantitative context to the quality of the human condition.  EZ Passes, RFID tags, cell phone records, location tracking, energy meters, odometers, auto dashboard idiot lights, self diagnostic fault tolerant machines, industrial process controls, seismographic, air and water quality apparatuses and the streaming CBOT digital blips flash the milliseconds of a day in the life of John Q. Public.  Most sentient beings pay little notice, failing to consider that someone somewhere is planting the imprints of our daily lives in mammoth disk farms.  The webmasters, data engineers and information scientists are collecting, collating, aggregating, scoring and analyzing these rich gardens of data to harvest an accurate psychographic portrait of modernity.

The IoT is the term coined to describe the new digital landscape we inhabit.  The ubiquitous nature of the internet, the continued rationalization of the digital economy into the fabric of society and the absolute dependency of daily life upon it, require deep consideration how it impacts civil liberties, governance, cultural vibrancy and economic well being.

The IoT is the next step in the development of the digital economy. By 2025 it is estimated that IoT will drive $6 Trillion in global economic activity.  This anoints data and information as the loam of the modern global economy; no less significant than the arrival of discrete manufacturing at the dawn of industrial capitalism.

The time may come when a case may be made that user generated data is a commodity and should be considered a public domain natural resource; but today it is the province of digirati  shamans entrusted to interpret the Rosetta Stones, gleaning deep understanding of the current reality while deriving high probability predictive futures.  IoT is one of the prevailing drivers of global social development.


SME

There is another critical economic and socio-political driver of the global economy.  Small Mid-Sized Enterprises (SME) are the cornerstone of job creation in developed economies.  They form the bedrock of subsistence and economic activity in lesser developed countries (LDC).  They are the dynamic element of capitalism.  SME led by courageous risk takers are the spearhead of capital formation initiatives.  Politicians, bureaucrats and business pundits extol their entrepreneurial zeal and hope to channel their youthful energy in service to local and national political aspirations.  The establishment of SME is a critical macroeconomic indicator of a country’s economic health and the wellspring of social wealth creation.

The World Bank/ IFC estimates that over 130 million registered SME inhabit the global economy. The definition of an SME varies by country. Generally an SME and MSME (Micro Small Mid Sized Enterprises)  are defined by two measures, number of employees or annual sales.  Micro enterprises are defined as employing less than 9 employees, small up to 100 employees and medium sized enterprises anywhere from 200 to 500 employees.  Defining SMEs by sales scale in a similar fashion.

Every year millions of startup businesses replace the millions that have closed.  The world’s largest economy United States boasts over 30 million SME and every year over one million  small businesses close.  The EU and OECD countries report similar statistics of the preponderance of SME and numbers of business closures.

The SME is a dynamic non homogeneous business segment.  It is highly diverse in character, culture and business model heavily colored by local influence and custom. SME is overly sensitive to macroeconomic risk factors and market cyclicality.  Risk is magnified in the SME franchise due to high concentration of risk factors.  Over reliance on a limited set of key clients or suppliers, product obsolescence, competitive pressures, force majeure events, key employee risk, change management and credit channel dependencies are glaring risk factors magnified by business scale and market geographics.

In the United States, during the banking crisis the Federal Reserve was criticized for pursuing policies that favored large banking and capital market participants while largely ignoring SME. To mitigate contagion risk, The Federal Reserve  quickly acted to pump liquidity into the banking sector to buttress the capital structure of SIFI (Systemically Important Financial Institutions). It was thought that a collateral benefit would be the stimulation of SME lending.  This never occurred as SBA backed loans nosedived. Former Treasury Secretary Timothy Geithner implemented the TARP and TALF programs to further strengthen the capital base of distressed banks as former Fed Chairman  Ben Bernanke pursued Quantitative Easing to transfer troubled mortgage backed securities onto Uncle Sams balance sheet to relieve financial institutions  of these troubled assets. Some may argue that President Obama’s The American Recovery and Reinvestment Act of 2009 (ARRA)  helped the SME sector.  The $800 billion stimulus was one third tax cuts, one third cash infusion to local governments and one third capital expenditures aimed at shovel ready infrastructure improvement projects.  The scale of the ARRA was miniscule as compared to support rendered to banks and did little to halt the deteriorating macroeconomic conditions of the collapsing housing market, ballooning unemployment and rising energy prices severely stressing SME.

The EU offered no better.  As the PIGS (Portugal, Ireland, Greece, Spain) economies collapsed the European Central Bank forced draconian austerity measures on national government expenditures undermining key SME market sensitivities.  On both sides of the Atlantic, the perception of a bifurcated central banking policy that favored TBTF Wall Street over the needs of  an atomized SME segment flourished.  The wedge between the speculative economy of Wall Street and the real economy on Main Street remains a festering wound.

In contrast to the approach of western central bankers, Asian Tigers, particularly Singapore have created a highly  supportive environment for the incubation and development of SME. Banks offer comprehensive portfolios of financial products and SME advisory services. Government legislative programs highlight incubation initiatives linked to specific industry sectors. Developed economies have much to learn from these SME friendly market leaders.

The pressing issues concerning net neutrality, ecommerce tax policies, climate change and the recognition of Bitcoin as a valid commercial specie are critical developments that goes to the heart of a healthy global SME community.  These emerging market events are benevolent business drivers for SME and concern grows that legislative initiatives are being drafted to codify advantages for politically connected larger enterprises.

Many view this as a manifestation of a broken political system, rife with protections of large well financed politically connected institutions. Undermining these entrenched corporate interests is the ascending digital paradigm promising to dramatically alter business as usual politics. Witness the role of social media in the Arab Spring, Barack Obama’s 2008 election or the decapitalization of the print media industry as clear signals of the the passing away of the old order of things.  Social networking technologies and the democratization of information breaks down the ossified monopolies of knowledge access. These archaic ramparts are being gleefully overthrown by open collaborative initiatives levelling the playing field for all market participants.

SMEIoT

This is where SMEIoT neatly converges.  To effectively serve an efficient market, transparency and a contextual understanding of its innate dynamics are critical preconditions to market participation.  The incubation of SME and the underwriting of capital formation initiatives from a myriad of providers will occur as information standards provide a level of transparency that optimally aligns risk and investment capital. SMEIoT will provide the insights to the sector for SME to grow and prosper while industry service providers engage SME within the context of a cooperative economic non-exploitative relationship.

This series will examine SME and how IoT will serve to transform and incubate the sector.  We’ll examine the typology of the SME ecosystem, its risk characteristics and features.  We’ll propose a metadata framework to model SME descriptors, attributes, risk factors and a scoring methodology.  We’ll propose an SME portal, review the mission of Big Data and its indispensable role to create cooperative economic frameworks within the SME ecosystem. Lastly we’ll review groundbreaking work social scientists, legal scholars and digital frontier activists are proposing to address best governance practices and ethical considerations of Big Data collection, the protection of privacy rights,  informed consent, proprietary content and standards of accountability.

SMEIoT coalesces at the intersection of social science, commerce and technology.  History has aligned SMEIot building blocks to create the conditions for this exciting convergence.  Wide participation of government agencies, academicians, business leaders, scientists and ethicists will be required to make pursuit of  this science serve the greatest good.

 

This is the first in a series of articles on Big Data and SMEIoT . It originally appeared in Daftblogger eJournal. Next piece in series is scheduled to appear on Daftblogger eJournal within the next two weeks.

#smeiot #metasme #sum2llc #sme #office365 #mobileoffice #TARP #capitalformation #IoT #internetofthings #OECD #TBTF #Bitcoin #psychographics #smeportals #bigdata #informedconsent

July 9, 2014 Posted by | banking, Bernanke, capitalism, commerce, credit, credit crisis, culture, economics, information technology, internet of things, legal, legislative, metasme, OECD, politics, private equity, psychology, regulatory, risk management, small business, SME, smeiot, TALF, TARP, Treasury, Uncategorized | , , , , , , , , , , , , , , , , | Leave a comment

SMEs Dance to the Basel III Shuffle

cap structure sme eu.PNG
I often wonder, what if Basel II capital accords had been in place prior to the Great Recession? 
 
Could the devastating crisis fueled by the serial pops of credit bubbles rumbling through the dismal landscape of G20 principalities been avoided with better capital adequacy safeguards? 
 
Could the precious Post Cold War dividend been preserved; had the fiduciaries of global solvency not toppled the dominoes of economic prosperity and political stability through extreme selfishness and irrational behavior?
 
Some economists assert that had the guidelines of Basel II been in place it would not have mattered. That may certainly be true, but one is still left to wonder if Systemically Important Financial Institutions (SIFI) had followed better governance frameworks the fissures emanating from the epicenter of the global economic meltdown would not have been as deep or as widespread.
 
The lessons learned from the crisis are being codified in the new governance frameworks of Basel III. Whereas previous Basel Accords focused on capital adequacy and loss reserves aligned to risk weighted assets and counterparty exposures, Basel III looks to strengthen capital adequacy by addressing liquidity and leverage risk in the banks capital structure. Basel III recognizes the primacy of mitigating the systemic risk concentrated in the capital structure of a SIFI and lesser designees, and the contagion threat it poses on its counterparties and the greater economy. 
 
To ally solvency concerns, Basel III installs a leverage ratio and bolsters its Liquidity Coverage Ratio (LCR) which will require all banking institutions to increase its regulatory capital reserves of High Quality Liquid Assets (HQLA). An increase in HQLA reserves will raise the cost of capital for all financial institutions requiring it to raise its spreads on credit products. 
 
SMEs will be particularly affected by Basel III initiatives. SME’s are highly dependant on bank capital and credit products and remain highly sensitive to the cyclicality of macroeconomic factors. D&B’s Small Business Health Index reports that SME business failures in the US were in excess of 140,000 per month in 2013. The OECD reported that during 2012 over 800,000 EC SME’s closed shop in 2012. 
 
Eurofact reported that 60% of all non-financial value add to the EC economy is attributable to SMEs. Though SMEs are generally recognized as principal economic drivers in both the developed and lesser developed economies; during the economic crisis SME’s were rationed out of the credit markets. Large capital infusions and accommodative monetary policy by the central bank authorities principally sought to bolster bank capital and inject liquidity into the faltering global banking system. 
 
As such much of the low cost capital provided to banks did not trickle down to SMEs. Better returns were realized by deploying capital to investment partnerships, energy resource development, the acquisition of strategic commercial enterprises and underwriting speculative trading in the global security markets. 
 
Little of the low cost capital found its way onto Main Street; driving the bifurcating wedge between the real and speculative economy. As a more conservative political landscape emerges from the wreckage of the economic calamity created by “elitist” financial institutions and “remote” Brussels based government bureaucrats, the cause of the SME is resonating in the rising voice of a middle class spoken with a distinct nationalist accent. 
 
Politicians, legislators and advocacy groups are fully invested in the cause of the SME. Stakeholders are advocating more government involvement to underwrite and guarantee sponsored loans. In an era where government involvement in markets is under severe attack, political expediency and prudent economics coalesce to fund the incubation of SMEs. Even if greater government intervention is counterintuitive to laissez faire proclivities of the politically engaged, higher taxes would be required to fund the risk of capital formation initiatives. The securitization of SME loans is also a consideration; but aversion to leverage and the risk to encourage poor lending practices raise fears of creating yet another credit bubble.
 
The Government of Singapore recently rose its guarantee on SME loans to cover 70% of principal in response to the increase in cost of capital banks will charge as a result of Basel III. Spreads on SME loans are estimated to increase between 50 to 80 basis points. This rise in the cost of capital will allow banks to recoup Basel III compliance expenses associated with the segregation of regulatory capital requirements to service SME loan portfolios.
 
The risk premia on SME loans is justified by regulators because it guarantees the availability of credit through the business cycle. The financial health of SME’s are highly correlated to the vicissitudes of the business cycle. During times of cyclical downturns risk factors for SMEs are magnified due to the prevalence of concentration risk in products, regions, markets, client and critical macroeconomic factors germane to the SME’s business. Mitigation initiatives are inhibited due to liquidity constraints, resource depletion and balance sheet limitations. The closure of credit channels exacerbates this problem and Basel III risk premia pledges to fund SMEs through a trying business cycle.
 
To maintain profitability of SME lending, banks will enhance quality standards and haircut collateral margins; a potentially onerous demand since asset valuations remain severely distressed from the effects of the Great Recession. Banks will avoid SMEs with enhanced risk profiles, make greater use of loan covenants, expand fee based services and hike origination fees to protect margins and instill enhanced credit risk controls to minimize default risk.
 
As the strictures of Basel III take root within commercial banks alternative credit channels are opening to better match an SME’s credit requirements and market situation with a financial product that best addresses their business condition. D&B has initiated a timely capital formation initiative for SMEs. Access to Capital – Money to Main Street is an event tour that is bringing together regional providers of funding for SMEs and startups. 
 
The economic recovery is combining with technology to energize innovations in SME funding options. Crowd-funding, micro-lending, asset financing, leasing, community bank loans, credit unions and venture capital channels are a few of the many options available for small business funding. Each channel offers distinct terms and advantages that match a funding option to the specific situation of an SME. 
 
SME associations and advocacy groups are surfacing in the EU that seek to harness the residual capital created by SME failures. Second Chance and Fail2Suceed are initiatives that seek to harness the intellectual capital garnered by entrepreneurs in unsuccessful enterprises. It is a clear recognition that a great failure can be the mother of greater wisdom. This may augur well for the success of Basel III as it seeks to build on the shortfalls of its forebears to better protect the global banking system as it promotes the wealth of nations by equitably funding the growth of the global SME segment.
 
Sum2 offers a portfolio of risk assessment applications and consultative services to businesses, governments and non-profit organizations. Our leading product Credit Redi offers SMEs tools to manage financial health and improve corporate credit rating to manage enterprise risk and attract capital to fund initiatives to achieve business goals. Credit Redi helps SMEs improve credit standing to demonstrate creditworthiness to bankers and investors. On Google Play: Get Credit|Redi
 
Risk: SME, Basel III, commercial lending, political stability, economic growth, USA, EU, alternative credit channels, credit risk, global banking, business failure, OECD, SIFI

April 14, 2014 Posted by | Uncategorized | , , , , , , , , , , , , , | Leave a comment

Announcing SME Risk Management Blog

Sum2 announces the publication of the SME Risk Management blog.  The blog will be integrated into our SME Risk Management Apps as a way to communicate with our growing client base and examine how the risk can be managed and utilized as a driver for business growth.

Sum2 strives to deliver essential risk management apps that are easy to use and highly effective at affordable price points.  Our products help Small Mid-Sized Enterprises (SME) manage…

Our assessment products are early warning detection and opportunity discovery applications that empowers managers to react and take corrective actions that avoid losses and reward business initiative.

Sum2 products provide a rigorous assessment framework for SME’s to determine potential risk events, product threats and emerging market opportunities that are designed as commercial applications of a defined sound practices program.

Sum2 uses industry standard application platforms to create and deliver products.  MS Office, Mobile Office, Drop Box, Google Play, MS Windows and Android are some of the product design conventions employed to deliver effective value driven solutions to our customers.

We welcome the opportunity to demonstrate how our sound risk management practice applications can differentiate your firm and create value for your product brands and company shareholders.

We appreciate your interest in our work. 

We hope to be of service to you.  

Continued success,

James McCallum

president@sum2.us

March 19, 2014 Posted by | Uncategorized | , , , , , , , , , | Leave a comment

Managing Macroeconomic Risk

Yesterday Ben Bernanke’s statements about changing sentiment of the Federal Reserves’ Quantitative Easing program touched off a mini stock market crash. Though you took a solid hit in the value of your investment portfolio and retirement account the changing stance of the Fed will also impact the financial health and business conditions of small and mid-size businesses (SME). The days of near zero interest rates and the massive liquidity infusions by the Fed through Treasury purchase programs are coming to a close. That will effect the availability and the cost of capital for SMEs.

Macroeconomic risks are quickly becoming one of the greatest class of risk factors for SMEs. Credit availability, customer buying power, inflation, supply chain disruption, cyclical and market sector risks are growing in significance and threaten the profitability and financial health of all SMEs and their customers. Unfortunately, some businesses will not be able to surmount the acute challenges posed by these emerging economic risk factors and will find it difficult to continue as a going concern.

A difficult economy presents challenges for all businesses. SME’s require risk assessment tools to help better manage business threats and seize opportunities that fluctuating market conditions produce. Many believe that mitigating macroeconomic risk factors are difficult if not impossible for SMEs to mitigate. After all what can a small business do to immune itself to inflation or spiking interest rates? though it may seem to be an impossible task to shield a business from macroeconomic risks; executives that effectively engage to manage these type of threats Can profit from the opportunities severe market conditions produce.

Sum2’s risk assessment products help SMEs deal with the problem of rising macroeconomic risk factors. Small business managers use our SPOT application to aggregate and score all enterprise risk factors. This helps managers to focus on the most pressing risk factors that ironically have the potential to generate optimal returns on capital employed.

Credit|Redi is a series of assessment applications that help SMEs improve the company’s financial health. As a company’s credit rating improves, access to bank loans and other sources of capital become readily available at more favorable terms to the SME. This is a particularly pressing problem as SME’s have born the brunt of financial distress ignited by the Great Recession. As interest rates rise SMEs borrowing costs will increase placing further stress on profitability and financial health.

It brings us great satisfaction to place world class risk management tools in the hands of small businesses to better manage business threats . The macroeconomic risk module is one of twenty risk assessment modules offered in SPOT.

The effects of rising macroeconomic risk factors will begin to appear in an SME’s operations and target markets potentially stressing the company’s financial health. SPOT potential problems and opportunities before they emerge. SPOT and assess the current business conditions to make adjustments and initiate actions to overcome difficulties and seize opportunities the new business cycle is sure to present.

Sum2 Risk Assessment Applications

Risk: credit, inflation, market, buying power, customer risk, supply chain

June 21, 2013 Posted by | Bernanke, credit, Credit Redi, inflation, recession, risk management, small business, SME | , , , , , , , , , , | Leave a comment

ADP Employment Report: Solid Job Growth Gathers Steam

Private-sector employment increased by 217,000 from January to February on a seasonally adjusted basis, according to the latest ADP National Employment Report released today. The estimated change of employment from December 2010 to January 2011 was revised up to 189,000 from the previously reported increase of 187,000. This month’s ADP National Employment Report suggests continued solid growth of nonfarm private employment early in 2011. The recent pattern of rising employment gains since the middle of last year was reinforced by today’s report, as the average gain from December through February (217,000) is well above the average gain over the prior six months (63,000).

The fears of a jobless recovery may be receding but the US economy has a long way to go before pre-recession employment levels are achieved. As we stated previously the economy needs to create over 200,000 jobs per month for 48 consecutive months to achieve pre-recession employment levels. The six month average of 63,000 is still well below the required rate of job creation for a robust recovery to occur.  The Unemployment Rate still exceeds 9%.

The February report is encouraging because it points to an accelerating pace of job creation. The post Christmas season employment surge represents a 30,000 job gain over January’s strong report that triples the six month moving average. The service sector accounted for over 200,000 of the job gains. The manufacturing and goods producing sector combined to create 35,000 jobs. Construction continues to mirror the moribund housing market shedding an additional 9,000 jobs during the month. The construction industry has lost over 2.1 million jobs since its peak in 2008.

The robust recovery in the service sector is welcomed but sustainable economic growth can only be achieved by a robust turn around in the goods producing and manufacturing sectors. Service sector jobs offer lower wages, tend to be highly correlated to retail consumer spending and positions are often transient in nature. Small and Mid-Sized Enterprises (SME) is where the highest concentration of service jobs are created and the employment figures bear that out with SMEs accounting for over 204,000 jobs created during the month of February.

Large businesses added 13,000 jobs during the month of February. The balance sheets of large corporations are strong. The great recession provided large corporates an opportunity to rationalize their business franchise with layoffs, consolidations and prudent cost management. Benign inflation, global presence, outsourcing, low cost of capital and strong equity markets created ideal conditions for profitability and an improved capital structure. The balance sheets of large corporations are flush with $1 trillion in cash and it appears that the large corporates are deploying this capital resource into non-job creating initiatives.

The restructuring of the economy continues. The Federal stimulus program directed massive funds to support fiscally troubled state and local government budgets. The Federal Stimulus Program was a critical factor that help to stabilize local government workforce levels. The expiration of the Federal stimulus program is forcing state and local governments into draconian measures to balance budgets. Government employment levels are being dramatically pared back to maintain fiscal stability. Public service workers unions are under severe pressure to defend employment, compensation and benefits of workers in an increasingly conservative political climate that insists on fiscal conservatism and is highly adverse to any tax increase.

The elimination of government jobs, the expiration of unemployment funds coupled with rising interest rates, energy and commodity prices will drain significant buying power from the economy and create additional headwinds for the recovery.

Macroeconomic Factors

The principal macroeconomic factors confronting the economy are the continued high unemployment rate, weakness in the housing market, tax policy and deepening fiscal crisis of state, local and federal governments. The Tea Party tax rebellion has returned congress to Republican control and will encourage the federal government to pursue fiscally conservative policies that will dramatically cut federal spending and taxes for the small businesses and the middle class. In the short term, spending cuts in federal programs will result in layoffs, and cuts in entitlement programs will remove purchasing power from the demand side of the market. It is believed that the tax cuts to businesses will provide the necessary incentive for SME’s to invest capital surpluses back into the company to stimulate job creation.

The growing uncertainty in the Middle East and North Africa is a significant political risk factor. The expansion of political instability in the Gulf Region particularly Iran, Egypt and Saudi Arabia; a protracted civil war in Libya or a reignited regional conflict involving Israel would have a dramatic impact on oil markets; sparking a rise in commodity prices and interest rates placing additional stress on economic recovery.

Political uncertainty tends to heighten risk aversion in credit markets. The financial rescue of banks with generous capital infusions and accommodating monetary policies from sovereign governments has buttressed the profitability and capital position of banks. Regulatory uncertainty of Basel III, Dodd-Frank, and the continued rationalization of the commercial banking system and continued concern about the quality of credit portfolios continue to curtail availability of credit for SME lending. Governments are encouraging banks to lend more aggressively but banks continue to exercise extreme caution in making loans to financially stressed and capital starved SMEs.

Highlights of the ADP Report for February include:

Private sector employment increased by 217,000

Employment in the service-providing sector rose 202,000

Employment in the goods-producing sector declined 15,000

Employment in the manufacturing sector declined 20,000

Construction employment declined 9,000

Large businesses with 500 or more workers declined 2,000

Medium-size businesses, defined as those with between 50 and 499 workers increased 24,000

Employment among small-size businesses with fewer than 50 workers, increased 21,000

Overview of Numbers

The 202,000 jobs created by the SME sectors represents over 90% of new job creation. Large businesses comprise approximately 20% of the private sector employment and continues to underperform SMEs in post recession job creation. The strong growth of service sector though welcomed continues to mask the under performance of the manufacturing sector. The 11 million manufacturing jobs comprise approximately 10% of the private sector US workforce. The 20 thousand jobs created during February accounted for 10% of new jobs. Considering the severely distressed condition and capacity utilization of the sector and the favorable conditions for export markets and cost of capital the job growth of the sector appears extremely weak. The US economy is still in search of a driver. The automotive manufacturers have returned to profitability due to global sales in Latin America and China with a large portion of the manufacturing done in local oversea markets.

The stock market continues to perform well. The Fed is optimistic that the QE2 initiative will allay bankers credit risk concerns and ease lending restrictions to SMEs. A projected GDP growth rate of 3% appears to be an achievable goal. The danger of a double dip recession is receding but severe geopolitical risk factors continue to keep the possibility alive.

Interest rates have been at historic lows for two years and will begin to notch upward as central bankers continue to manage growth with a mix of inflation and higher costs of capital. The stability of the euro and the EU’s sovereign debt crisis will remain a concern and put upward pressure on interest rates and the dollar.

As the price of commodities and food spikes higher the potential of civil unrest and political instability in emerging markets of Southeast Asia, Africa and Latin America grows. Some even suggest this instability may touch China.

The balance sheets of large corporate entities remain flush with cash. The availability of distressed assets and volatile markets will encourage corporate treasurers to put that capital to work to capitalize on emerging opportunities. The day of the lazy corporate balance sheet is over.

Solutions from Sum2

Credit Redi offers SMEs tools to manage financial health and improve corporate credit rating to attract and minimize the cost of capital. Credit Redi helps SMEs improve credit standing and demonstrate to bankers that you are a good credit risk.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: John Handy, Hard Work

Risk: unemployment, recession, recovery, SME, political

March 3, 2011 Posted by | ADP, banking, Basel II, commercial, commodities, credit, Credit Redi, economics, government, labor relations, manufacturing, political risk, politics, recession, regulatory, risk management, small business, SME, social unrest, Sum2, Treasury, unemployment, unions, US dollar | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

SMEs Still Starved for Credit

Greenwich Associates highly regarded Market Pulse Study on SME credit availability reports that two-thirds of small businesses and 55% of middle market companies indicate that banks are failing to meet the needs of creditworthy companies.  Half of the 221 small businesses participating in the latest Greenwich Market Pulse Study say it is harder to secure credit today than it was at this time last year including roughly 33% of businesses that say it is much harder to obtain loans today.

The Small Business Lending Fund (SBLF) a $30 billion program established by the Treasury Department to encourage Community Banks to step up lending to SMEs is still trying to get some traction in the marketplace.  The SBLF injects capital into community banks that demonstrate an active SME lending  program will take another quarter to determine its effectiveness.

Community Banks are still transitioning its small business lending focus from an over dependency on real estate development.  SMEs seeking loans for capital improvements, fund operations or business expansion must provide lenders some added assurances about the financial health of the business.

SMEs can take steps to improve their credit standing and get approvals from lenders for loans and expansion for credit.  SMEs must demonstrate they have an excellent understanding of the condition of their firm’s financial health, what they must do to improve profitability and how they will use the credit extended by lenders to produce an acceptable return.

Credit Redi helps SME’s demonstrate the condition of the firms financial health, the risks and opportunities that SMEs must address to improve the firms financial health and identify the initiatives that need to be  funded to achieve desired profitability and growth.  These are the keys bankers look for on applications for loans.  Being able to demonstrate credit worthiness with an industry standard rating methodology determines weather a lender will grant you a loan, what rates you will pay and how much lending institutions will lend.

Since 2002, Sum2 has been helping SME’s manage risk and seize opportunities to grow and prosper under the most competitive market conditions.  Credit Redit is the latest addition to Sum2’s series of SME risk management products.

To determine the condition of your company’s financial health click here: 

Risk: credit, SME, capital allocation, credit rating

January 13, 2011 Posted by | banking, credit, Credit Redi, government, risk management, Small Business Lending Fund, Sum2, Treasury | , , , , , , , , , , | Leave a comment

Credit Redi, Helps Spot Small Business Credit Risk

The recession and credit crunch have shifted financial risk from banks to small and midsized businesses (SME) that often must extend credit to customers to make a sale. When companies extend credit, in effect making unsecured loans, they’re acting like banks but without the credit management tools and experience of a banker.

Credit Redi is designed for small businesses to quickly spot customer credit risk.  Small businesses typically don’t have access to information that provides transparency about customer credit worthiness.  Credit Redi is a credit risk management tool for small and mid-sized businesses.   It only takes one or two bad receivables to damage an SME’s  financial health.  Market conditions quickly change and its critical to have some type of business insight into the businesses SME’s work with.

Credit Redi is also an excellent tool to determine the financial health of critical suppliers.  A key supplier going out of business could have disastrous consequences for SMEs.  Credit Redi  monitors the financial health of existing suppliers and help managers make wiser choices in supply chain and business partner decisions.

Get Credit Redi here: 

Risk: SME, credit risk, supply chain, partnerships, customers, receivables

January 10, 2011 Posted by | business, credit, Credit Redi, product, small business, SME, Sum2 | , , , , , , , | Leave a comment

ADP Report: Job Creation Proceeds At Turtle Pace

Slow and steady may win the race but the pace of job creation by the US economy  continues to move along at turtle speed.  For the 20 million unemployed and underemployed people the pace of job creation remains painfully slow as revealed by ADP ‘s National Employment Report for October. During the month, private sector employment increased by 43,000 on a seasonally adjusted basis. ADP also revised its employment report for September stating that the economy lost only 2,000 jobs rather then the 39,000 it had previously reported.  Following ADP’s upward revision the private sector has produced 41,000 new jobs during the past 61 days.  For the worlds leading economy with a GDP of almost $15 trillion the lackluster growth in job creation is a troubling indicator of an anemic jobless economic recovery.

The October report arrests the September decline in job growth that reversed  seven consecutive months of positive job creation.  During that time the economy averaged employment gains of 34,000 new private sector jobs per month. This rate of job creation does little to reduce the negative overhang  a 10% unemployment rate is having on economic  growth.   A stabilized and expanding labor market is a key ingredient for a sustained economic recovery. Over the past three years the economy lost over 9 million jobs. For a robust recovery to occur the economy needs to create 200,000 jobs per month for the next four years to return the job market to its pre-recession levels.

As we reported last month the expiration of the Federal stimulus program will force state and local governments to layoff  workers.  Sluggish job creation continues to pressure depleted unemployment funds and the expiration of benefits for many of the unemployed is draining buying power from the economy.

Soft consumer demand  threatens retailers and leisure industry segments and has a spillover effect  on the housing market.  Joblessness is a principal factor in mortgage defaults and contributes to the growing inventory of foreclosed properties held by banks.  The ADP report indicates that during October the US economy shed an additional 23,000 construction jobs. It is estimated that it will take 24 months for the housing market to absorb the existing inventory of foreclosed properties. A  healthy turnaround in the construction  industry will  move in step with the improvement in the housing market conditions.

A sustained recovery will require sector leadership by Small and Mid-Size Enterprises (SME)  as principal drivers of job creation.   SME’s  sector strength has traditionally been in the construction, specialty retail, leisure and service sectors.  Among these segments  only the services sector continues to be a consistent driver for job creation.

Macroeconomic Factors

The principal macroeconomic factors impairing recovery are the continued high unemployment rate, weakness in the housing market, tax policy and deepening fiscal crisis of state, local and federal governments.   The results of this weeks mid-term election and the return of congress to Republican control will encourage the federal government to pursue fiscally conservative policies that will dramatically cut spending and taxes for the small businesses and the middle class.  In the short term spending cuts in federal programs will result in layoffs and cuts in entitlement programs will remove purchasing power from the demand side of the market.  It is believed that the tax cuts to businesses will provide the necessary incentive for SME’s to invest capital surpluses back into the company to stimulate job creation.

Highlights of the ADP Report for October include:

Private sector employment increased by 43,000

Employment in the service-providing sector rose 77,000

Employment in the goods-producing sector declined 34,000

Employment in the manufacturing sector declined 12,000

Construction employment declined 23,000

Large businesses with 500 or more workers declined 2,000

Medium-size businesses, defined as those with between 50 and 499 workers increased 24,000

Employment among small-size businesses with fewer than 50 workers, increased 21,000

Overview of Numbers

The 45,000 jobs created by the SME sectors reverses a decline from September and offsets the 2,000 job cuts by large companies.  The strong growth of service sector  jobs is a positive development.  However the continued softness of goods producing segments and manufacturing continues to indicate the continued decline of  US industrial capacity.  The strong rebound in services  may be the result of the expanding practice of companies utilizing outside contractors to fill human capital requirements.  These types of jobs may mask an underemployed and  transient labor pool forced to accept work at  lower wage scales.

The stock market continues to perform well.  Yesterdays QE2 initiative by the Fed to pump $600 billion into the banking system may allay bankers credit risk concerns and ease lending restrictions to capital starved SME’s.  Despite a projected GDP growth rate of 2%, ADP’s employment figures indicates that the economy continues to dwell at the bottom of an extreme down economic cycle. The danger of a double dip recession still lurks as a remote possibility.  Interest rates remain at historic lows and inflation continues to be benign but its danger grows as a weak dollar continues to flounder forcing oil prices to climb while government debt levels continue to spiral upward.  The balance sheets of large corporate entities remain flush with cash.  Analysts estimate that over $1 Trillion in cash swells corporate treasuries remaining underemployed on lazy corporate balance sheets.  The low interest rate environment  has allowed companies to pursue  deleveraging strategies  considerably strengthening the capital structure of corporate America.  To the dismay of politicians and the unemployed,  economists speculate that deployment of this cash is still a few quarters away from finding its way into the real economy.

Solutions from Sum2

Sum2 offers SME’s the Profit|Optimizer to help them manage risk, devise recovery strategies and make better informed capital allocation decisions.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: Theme from Teenage Mutant Ninja Turtles

Risk: unemployment, recession, recovery, SME

November 5, 2010 Posted by | ADP, banking, business, economics, manufacturing, Profit|Optimizer, SME, unemployment | , , , , , , , , , , , , , , , , | 1 Comment

ADP Jobs Report: Reversal of Fortune

ADP has released its National Employment Report for September. During the month, private sector employment decreased by 39,000 on a seasonally adjusted basis. After an upward revision of 10,000 new jobs created for August, the September numbers are a reversal from employment trends that seemed to be stabilizing by arresting two years of employment declines. For seven consecutive moths the economy was creating average employment gains of 34,000 private sector jobs. The September numbers reverses that trend and raises concern about the strength of the economic recovery.

A stabilized labor market is a key ingredient to a sustained economic recovery. Over the past three years the economy lost over 9 million jobs. For a robust recovery to occur the economy needs to create 200,000 jobs per month for the next four years to return the job market to its pre-recession levels.

The Federal stimulus program that directed funds to state and local governments to help stem layoffs has now expired. This will result in further belt tightening by local government agencies and will result in layoffs of employees to meet the fiscal restraint imposed by the poor economy.  This will exacerbate the unemployment problem and further impede the buying power and tax revenues.  This will continue to hurt the retail industry and local governments sales tax receipts.

The reduction in the government work force is symptomatic of the reconfiguration of the economy. During the past decade government employment increased dramatically. Its pairing down will put added pressure on the private sector to incubate new industries to drive the recovery. Manufacturing and the growth industries of the past decade will be hard pressed to create the level of job creation a robust recovery requires.

The ADP report indicates that since its peak in January of 2007, construction employment has lost 2,297,000 jobs. Construction trades along with credit marketing, retailing, community banking and services supporting these sectors have been dramatically weakened and downsized in the wake of the recession. The private sector led by small and mid-size enterprises (SME) will need to incubate growth industries to create jobs and lead the country out of the doldrums of the flailing economic recovery.

Macroeconomic Factors

The principal macroeconomic factors impairing recovery are the continued high unemployment rate, continued weakness in the housing market, persistent deflation concerns, tax policy and deepening fiscal crisis of state, local and federal governments.  The economic impact of the Gulf oil spill was immediate and dramatic to the local aqua-cultural industries, fishing and regional tourist industries. The long term effects of the spill on the ecological communities of the Gulf is yet to be determined.  The geopolitical uncertainty of the wars in Afghanistan and Iraq, persistent worries about Iran’s nuclear program and the sovereign debt crisis of the weaker EU member states are persistent concerns weighing on capital market participants.

Highlights of the ADP Report for September include:

Estimates non-farm private employment in the service-providing sector decreased by 39,000.

Employment in the goods-producing sector declined 45,000

Employment in the manufacturing sector declined 17,000

Construction employment declined 28,000

Employment in the services sector rose 6,000.

Large businesses with 500 or more workers declined 11,000

Medium-size businesses, defined as those with between 50 and 499 workers declined 14,000

Employment among small-size businesses with fewer than 50 workers, declined 14,000

Overview of Numbers

Job loss in the SME sector is troubling. SMEs are the backbone of the construction and retail industries and the continued weakness of these sectors weighs on their ability to become a driver of consistent job growth. The continued deterioration of the financial health of SMEs and their ability to marshal resources from depleted balance sheets and limited credit lines may be impairing the ability to mount an effective response to the dire economic conditions.

Despite the backdrop of the stock markets stellar performance during September, ADP’s employment figures indicates that the economy continues to dwell at the bottom of an extreme down economic cycle. The danger of a double dip recession still lurks as a possibility.  The balance sheets of large corporate entities are flush with cash.  Some analysts estimate that over $1 Trillion in cash swells corporate coffers.  Some economists speculate that deployment this cash is critical to the economic upturn and still a few quarters away from finding its way into the real economy.

Solutions from Sum2

Sum2 offers SME’s the Profit|Optimizer to help them manage risk, devise recovery strategies and make better informed capital allocation decisions.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: Van Halen, Ice Cream Man

Risk: unemployment, recession, recovery, SME

October 7, 2010 Posted by | Uncategorized | , , , , , , , , , , , , , , , , , | Leave a comment

To Regulate or Not To Regulate: Is That a Question?

Last year during the height of the banking crisis I remember Larry Kudlow stating that the US market has a choice. It could pursue the EU model of high regulated markets producing low consistent returns or the American model of less regulation and volatile cycles of high risk and potentially higher returns. If the sole focus of government was the peace of mind and well being of investors Mr. Kudlow’s observation would be valid. Government however must consider a larger community of stakeholders in its scope of concern. Regulatory oversight, the harmony of capital and labor and the incubation of an economic culture that is favorable to and supportive of SMEs are the critical questions confronting all governments particularly those in developed economies.

The EU’s social democratic economic models embody the best and worst aspects of these issues. The social democratic state attempt to combine entrepreneurial impulses of capitalism with the management and administration of social welfare for all its citizens. Democratically “elected administrators” use the apparatus of the state to facilitate and manage the competing interests of capital and labor, free markets and regulation while seeking to balance an entrepreneurship friendly culture with long term sustainability.

Yesterday a toxic tsunami of aluminum sludge coated 16 square miles of pristine Hungarian countryside. It is a telling example of a severe risk event that confronts modern life. A lassiaz-faire approach to the event is not viable and offers no solace to those harmed by this assault.  Communities cannot be asked to suffer a market response that promises to correct the problem of the next instance of this event.  The construction of better berms and the implementation redundant protection devises to safeguard against this risk  for the future is little compensation to those who were killed, injured and lost property or livelihoods as a result of MAL Zrt poor risk management practices.

Better to suffer a regulatory initiative that is based on an understanding of an economic ecosystem as complex and inhabited by competing interests of diverse stakeholders.  The ecosystem including the shareholders of MAL Zrt, residents of the surrounding communities, plant workers (also community residents), small businesses (SME) and down stream farmers making a living on arable land and access to clean water all have a stake,  albeit competing,  in the safe operation of the plant. The possibility that the toxic sludge may find its way into the Danube poses a threat to the water supply of other eastern European nations.  This elevates this catastrophic event to other EU jurisdictions. The inter-dependencies and interconnectedness of the pan-regional and larger global economy requires vigorous regulatory safeguards, mitigation initiatives and enforcement response.

The true cost of this event is potentially staggering. It supersedes the narrow interest and economic value of shareholders rights and capital invested in MAL Zrt.  Bad economic behavior exemplified by BP’s Horizon Deepwater failure to install redundant protective devises to keep production costs to a minimum, ended up costing BP shareholders and Gulf Coast stakeholders dearly.

State intervention in markets and the reemergence of managed economies is a reality of the global economy. The “managed economy” of the Peoples Republic of China places western style “free market” economies at a disadvantage. The managers of the PRC efficiently deploy and manage capital, effect trade and market protections and scrupulously manage currency valuation. It has created enormous social wealth for China and has contributed to its rapid rise as a preeminent world power.  China’s rise requires better coordination of private capital and government to marshal a competitive market response to the challenges posed by managed economies to free and open markets of western democracies. The massive pools of capital deployed by sovereign wealth funds of oil producing regencies and the growing insurgency and power of underground economic activity also pose significant challenges to the viability of unregulated markets.

America’s free market model that eschewed regulation since the 1980’s evolved into a mercantile economy with a weakened economic base. The outsourcing of manufacturing infrastructure loosened free market impulses that left in its place a debtor nation whose warped economy depended on housing/commercial real estate construction (collateral creation/securitization), credit marketing, retailing and a service sector that was designed to support the new economic paradigm. It is a model that has proven itself to be wasteful, costly and unsustainable.

Deregulation has led to the dislocation of the capital markets from the real economy. It has contributed to the massive disparities in social wealth and a crumbling infrastructure.  Milton Friedman’s mistaken belief that free market impulses would preserve infrastructure investment has been proven incorrect. Ironically this has added to the government’s burden to provide social assistance to segments of the population disenfranchised from economic participation. Some believe that the basis for the prosecution of the wars in Iraq and Afghanistan are economic stimulus programs designed to keep the economy going due to the vacuum created by the loss of manufacturing.

China’s example nor the resurrection of the soviet socialist model is not a desirable alternative for western democratic capitalist societies. Centralized control and state economic planning is rife with inefficiencies. State run economies threatens liberty, stifles innovation and encumbers economic dynamism. The virtues of capitalism (innovation, dynamism, liberty) needs to be encouraged and blended into the new economic reality of a highly dependent and interconnected world that requires cooperation, coexistence, sustainability, fair asset valuation, and the equitable sharing of resource and responsibility. SME’s are at the forefront of innovation, value creation and dynamism and will play a leading role in the creation of new social-political values as sources of sustainable growth and wealth in the emerging economic paradigm.

You Tube Music Video: Chevy Chase and Mike Myers: I’m Looking Over a Four Leaf Clover

Risk: regulatory, capitalism, sustainability

October 6, 2010 Posted by | capitalism, compliance, economics, infrastructure, labor | , , , , , , , , , , , , , , , , , , , , , , , , , , | 2 Comments