The multiple economic themes at work as we begin 2015 set the stage for an exciting year. The cumulative effects of the recent elections, plummeting oil prices and healing American economy have created an economic environment that is moving full speed ahead without pause as the new year begins.
To get some idea of what will happen with the American economy as 2015 progresses we spent time with National Funding CEO David Gilbert. National Funding is a large provider of small business loans and also offers products related to working capital, merchant cash advances, credit card processing, and equipment leasing.
In spite of the economic issues some countries are experiencing, Mr. Gilbert sees nothing but positives in the American economy.
“In the U.S. specifically there’s been nothing but bullish signs. Within the U.S. a lot of these global companies have been hit because of issues with the global (external) economy.”
Given the needs of their client base, National Funding is used to finishing the year strong, but the typical pattern is for a bit of a lull to occur at the beginning of the year. No such break this year.
“It’s amazing how quickly this year’s picked up,” Mr. Gilbert said. “December was outrageously crazy for growth and we’re seeing that going into January. To see that this early in the year is a little abnormal”
“The fourth quarter is always great for us. We do primarily alternative loans, short term daily payment loans for our short-term equipment leasing division, so the fourth quarter is always our high point. The fourth quarter is always big because people are doing their year end planning for next year.”
“To borrow money in early early January is a bit abnormal as people already have their plans for the year. Such high activity early in the year is a positive sign.”
The American economy is seeing a boost from dropping oil prices, with the effects felt in many ways.
“Gas savings in the U.S. are being reinvested,” Mr. Gilbert said. “We’re based in San Diego and when you go to the restaurants you can see how many more people are in the parking lot. A lot of these people are saving 20 to 30 bucks a week and it adds up.”
Transportation-related industries are realizing strong gains thanks to contracts negotiated when gas prices were higher.
“In the trucking industry the gas is purely a profit center for them because they are in longer term contracts, contracts which are already in place.”
When those industries are directly linked to the consumer, the benefits quickly spread to them.
“One thing I underestimated was how many fuel surcharges are out there, like with companies like UPS and Fedex,” Mr. Gilbert admitted.
“As those are eliminated because of no need, people who do a lot of shipping and online shopping with delivery through UPS, that’s a lot of money being saved through the consumer level.”
“It’s interesting to see all the savings on all the levels of the economy. That money’s going to go somewhere else.”
Alternative lending had a banner 2014 in terms of IPO’s, with Lending Club and OnDeck making headlines, and 2015 is gearing up with possible moves by Prosper and Cain Capital. The attention the IPO’s bring and the players they attract are both good for the industry, Mr. Gilbert observed.
“Every business has an option to borrow in different formats and I truly believe it is a blessing to have these different formats. For these products to come so late in the world it can only help fuel growth for companies in need at different times in their business cycle. To give them options, whether it is a consumer or business loans is good.”
“(The increased attention) validates the industry,” Mr. Gilbert continued. “For the public markets to accept it and for the big banks to fund these lenders are strong signs. The investment community, whether they are individual investors or institutional ones, the names behind them are pretty strong.”
While Lending Club has seen some post-IPO fluctuations, the underlying fundamentals are good.
“The strong valuations we see shows the value the market sees in them. Whether they go down from here or up the valuations are still strong.”
As the year progresses the new Congress will settle in, but early indications are positive.
“Traditionally when the Republicans take over Congress it favors business, so overall I’d say that’s positive,” Mr. Gilbert observed. “There’s more stability in Congress so that will definitely help out and you are starting to see some of the benefits.”
“We’ll see how the presidential campaign starts to play out. Overall having it divided in the past was causing a lot of friction. Business owners need to see stability in order to make decisions.”
Before 2014 ended the new Congress made one specific change which benefited business and if they follow a similar pattern, that stability which is so important may become more prevalent, Mr. Gilbert felt.
“Last year they extended Section 179 which helped business owners borrow or to expense equipment purchases,” Mr. Gilbert said. “We’ve had those laws in place for a couple of years then they got retracted last year. It took the entire year to make that change so I think you’ll see a better pattern of decision making which will support business.”
An important decision currently in limbo is the initial interest rate hike. Never mind IPO’s, you could make a bundle by correctly guessing when that hits.
“We borrow from a variety of different banks and every banker I meet is ultra-sensitive to rate hikes,” Mr. Gilbert said. “The fundamental feeling is they are going to delay that until there is even stronger stability.”
“You are seeing a lot of stability presently and that’s the concern with raising rates. I know the Fed will be extremely cautious when they make that decision. I’d be surprised if that actually occurs this year.”
Our conversation began on the topic of oil and as we wind down it goes back there once again. Yes, there are many benefits to the lower prices (and some significant drawbacks), but smart companies should not get too comfortable with $45 oil.
“It’s going to go back up,” Mr. Gilbert stated. “Countries are losing money. With this type of disproportion markets will eventually adjust. I don’t see how that’s not going to happen. By nature when markets shift too aggressively they come back and there’s some kind of normality.”
“I don’t expect oil to get back to $100.”
Maybe not but it is going up and the smart investor should be alert.
“This is a huge opportunity to buy stock in a lot of companies that have gone down in value,” Mr. Gilbert suggested. “I think back to Bank of America or Wells Fargo when they were troubled and people didn’t want to invest in them, or any of the big banks.”
Mr. Gilbert is keeping his eye on a few other sectors of the economy too.
“I watch the housing market. There’s some slowness that has started to stabilize. Specifically I am watching the lending rules associated with mortgages to see if they open that up for first-time borrowers. That will spur the economy.”
“I also watch the PayNet report’s small business index, consumer confidence measures and the unemployment rate.”
Given the tight credit conditions at present Mr. Gilbert does not see a bubble forming there.
There is another area doing quite well, and yet again it takes the conversation back to oil and the bigger vehicles being purchased.
“Auto finance is on fire,” Mr. Gilbert said. “You see a lot of consumers buying trucks. Overall vehicle sales are flat but truck sales are on fire. Those lending to consumer trucks I believe there’d be some risk there but overall things are good.”
At some point Corporate America had to address record and near-record old equipment and structures and there are signs that is beginning to occur.
“Most small business are backed up on replacing their equipment and that’s been going on for years.
“It takes an acceleration a high GDP and consumer confidence and we’re starting to see that occur over the last two quarters. Third quarter GDP was on track for five percent. If you start to see those types of numbers you’ll see a country on hyper growth.”
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