Commercial Loans and Fun Blog

I've got some superb commercial loan training for you today, but first a slightly racy joke.   

Joke Du Jour:

A 10-year-old girl asked her mum, “How was I born?”  The mother smiled and said, "A long time ago, your Daddy and I decided to plant a wonderful little seed.  Daddy put it in the earth, and I took care of it every single day.  After a while, the seed grew more and more leaves.  In a few months, it grew into a beautiful, healthy plant; so we took the plant, dried it, smoked it, and got so high that we forgot to wear a condom.

Vanilla Shell:

I learned a new commercial real estate (CRE) term this week - vanilla shell.  A vanilla shell refers to how a CRE property is delivered by a developer to the tenant. These properties, sometimes also referred to as ‘white boxes’ or ‘warm shells,’ commonly feature -

•  Finished interior walls
•  Functioning HVAC system (hence the warm shell moniker)
•  Open ceiling concept (drywall) ceilings
•  Basic flooring
•  Restrooms
•  Lighting 

Cash-Out Commercial Loans:

Residential lenders and some banks often look down with distain on residential or commercial mortgage loans where the borrower is pulling cash-out.  Yuck.  

To Blackburne & Sons, the words "cash-out" are the sweetest sound in any language. As I keep pounding into my commercial loan staff, we are in the business of providing cash-out.  It's what we do!

Do you have a commercial or residential borrower who needs cash out?  As they say in the game shows,"Come on down and apply for that cash-out loan!"

Contracts of Sale:

Contracts of sale or land contracts are ways of selling property, where the buyer is given possession of the property but the seller retains bare legal title until the buyer tenders the full purchase price.

To understand contracts of sales, it's easier to go back in time 100 years.  The buyer goes to a bank for a mortgage loan, but the bank says no.  "You are not strong enough."

The buyer goes to the seller and says, "I want to buy your property, but I need to you to carry back the purchase price.  I will pay you every month."  The seller says, "I am not willing to just give you title to the property.  I want to be able to quickly kick you off the property if you miss any payments."  The buyer says, "Okay, you keep title in your name until I have completely paid you off.  If I miss any payments, you can just come in and evict me."

Over the years, many unjust situations arose.  Imagine missing just the last payment. Eventually every court in the land ruled that contracts of sale are no different than mortgages.  They must be foreclosed in the same manner.

Nevertheless, you will still see them occasionally.

Interesting Loan With a Contract of Sale:

Today, my son brought me a commercial loan where the buyer was making payments of a $230,000 contract of sale.  He had only paid the loan balance down to $180,000.  The borrower wanted to pull cash out [gasp] because the property is now worth $500,000.

Cash-out?  OMGoodness!  How would I rule?  Remember, the words, "cash-out," are music to my ears.  We love-love-love cash-out deals.  Yum!

But what about that contract of sale?  The borrower hasn't finished paying it off.  So what?  Remember, think of a contract of sale as merely a mortgage.

Would Blackburne & Sons make a $325,000 first mortgage on a commercial building?      Does my sweet hound, Scarlett, pee on every blade of grass along our two-mile daily walk?  [Chuckle]

Some Thoughts on North Korea:

My old high school roommate from Culver Military Academy (best high school in America) says that Putin met with North Korea to get ammunition for his howitzers.  My old roommate is probably right.  But I have a different theory.

North Korea wants the world economic boycott of North Korea to end.  North Korea has nukes, so no one is going to invade the country.  I would also bet money that North Korea has two satellites in geosynchronous orbit above the United States.  Each satellite has a nuke designed to be dropped and exploded 30 miles above us.  The EMP pulse would fry the entire country's electronics.

North Korea therefore has little to lose.  No one would dare to attack it.  In an attempt to force the world to end the economic boycott, what if North Korea started sending fresh troops to Ukraine to help Russia?  Hmmm.

Joke Du Jour:

A mother and son go out for lunch at a diner.   The waitress says, "Cops and kids under-5 eat for free!”  The mother discreetly nudges her 6-year-old.  The little boy says, "I'm a police."

Great Movie:

For Mother's Day, our three adult kids gave Cisca a $100 gift certificate to Flix Brewhouse, that upscale movie theater which serves food and beer right to your movie seat.  It was a great experience.

We saw Equalizer III, starring Denzel Washington and Dakota Fanning.  You will recall that Dakota Fanning was the precocious little blonde child actress - now all grown up - from the movie, Man On Fire.  Interesting note:  The Equalizer series and Man on Fire are not related, but Denzel Washington brought over Dakota Fanning to the Equalizer series.  She did a good job.

Sooo?  How was the movie?  Fantastic!  The movie was directed by Antoine Fuqua, so it's no surprise that the movie was both fast moving and violent.  A bomb goes off during the movie that was so powerful that everyone in the theater flew back in their seats, checking to make sure that their hands were still attached and that their intestines were not spilling out.

Robert Heinlein:

Robert Heinlein, the famous science fiction writer from the 1960's, once predicted that eventually we would have feelies rather than movies.  If it was raining, a light mist would fall on our head.  The wind would blow through the theater.  You might smell the scent of gun powder.  Your arm rest would create all sorts of feelings and sensations.

Anyway, that explosion scene in Equalizer III was the closest thing I've ever seen to a feelie.

Prime Rate:

Did you know that the prime rate is 8.5% today?  Holy poop.  Since most commercial bank loans are written at prime plus 1% to 2% floating, some folks are paying 9.5% to 10.5% interest on their bank loans.  Those are almost hard money rates.  Just eighteen months ago, Blackburne & Sons, our commercial hard money shop, was writing loans at 10.9%.  Yikes.

Commercial Loan Lesson:

Try to grasp this concept.  Banks are herd animals.  They tend to charge the same interest rates, and they tend to all move in and out of markets together.

A permanent loan is a first mortgage on a commercial property that has a term of at least five years and at least some amortization.  A commercial first mortgage loan with a term of less than five years is considered to be either a bridge loan (two years or less) or a mini-perm (three or four years).

Most permanent loans (commercial first mortgages) has an amortization of 25-years and a loan term of either five or ten years.  In other words, they have balloon payment after five or ten years.

Banks - remember they all pretty much charge the same interest rate - price their permanent loans at 2.75% to 3.5% over five-year Treasuries.  Since five-year Treasuries are a 4.21% today, that means most new commercial permanent loans are being priced at around 6.96% to 7.71%.

It's pretty hard to make commercial deals cash flow at 7.75% interest rates.

Joke Du Jour:

A police detective was at the house of a woman whose past three husbands had suspiciously died. "I heard your first two husbands died of food poisoning." he inquired. "What caused it?"  "Poisonous mushrooms." she replied.  "I see," replied the detective.  "And how did your third husband die?"  "He refused to eat his mushrooms."

Juicy Tidbits:

1. Scientists are working on a new way to instantly communicate from thousands or even millions miles away using quantum entanglement.  You could potentially call home from Pluto in real time (no time delays).  More on quantum entanglement at the end.

2. In the Terminator movies, the AI had robots (I saw a robot by Boston Dynamics do a front flip recently), tanks, and helicopters.  In a military test this month, the United States successfully flew an unmanned drone wingman jet (a jet designed to fly alongside and help an F-35 fighter).  AI will now have its own fighter jets?  Hmmm.  What could possibly go wrong?
   
   
3. A Republican Congresswoman was recently roasting a Biden official in some hearing, and she used an interesting new term.  She said he was part of the censorship industrial complex.  I am not taking sides here.  I am just here for kicks and giggles; but certainly this new term - censorship industrial complex - is worth a chuckle.  :-)
   
   
4. In 2007, at the age of 32, a famous British football (soccer) player announced his decision to leave Real Madrid to play for a MLS (U.S.) football (soccer) club.  Over the next five years, David Beckham earned $255 million.  Even more importantly, his contract granted him the right to buy a MLS expansion team for just $25 million.  He bought Inter-Miami, which just signed Lionel Messi (who scored an overtime winning goal in his very first game).  Value of Inter-Miami today?  Six-hundred-million dollars.  Plus he gets to kiss Posh Spice every night.  So unfair.  :-)
   
   
5. I have been telling you guys for years to create a mailing list and a database of every accredited investor that you meet in the legitimate course of business as a commercial mortgage broker.  The key word here is legitimate.  You didn't meet him as a result of a cold call.  You met him while legitimately trying to get him a mortgage loan.  With this investor, you have legitimacy.  It doesn't matter whether the mortgage loan closed.  The key point is that you have met this accredited investor legitimately.  More on this in a moment.
   
   
6. Foxconn, a Taiwanese company, is Apple's largest subcontractor.  You've seen the wonderful products they assemble for Apple.  Anyway, this month, the President of Foxconn posted on social media that the U.S. stock market would instantly crash if China invaded Taiwan.  The investment world freaked out, so he immediately took down the post; but it's almost certainly the truth.  This is why I personally steer clear of the stock market.  I invest instead in 10% to 11% first trust deeds.  No one knows the exact moment when Dictator Xi of China will have a bad day and order the invasion.
   
   
7. Let's get back to accumulating accredited investors.  Blackburne & Sons has been marketing to its accredited investors for years.  The Big News, at least for us, is that we have recently been making a big push to convince them to invest in our hard money first trust deeds.  Hooray!  It is working so well that I am doing dog flips.  We just had a helluva month bringing in brand new investors.
   
   
8. Even if you are not yet a hard money lender (are you mentally-challenged?), you should still be soliciting your database of accredited investors for refi's, rental property loans, and commercial loans.  Remember, it doesn't matter if you never actually closed a loan for one of these accredited investors!  You met them legitimately, and you genuinely tried to help them.  Even if a rich guy just called you for a quote, be sure to add him to your list.  You should be adding at least three or four accredited investors to your mailing list every business day.
   
   
9. Do you ever wish you were an expert in commercial mortgage brokerage?  I sell a wonderful, nine-hour video training course on commercial mortgage brokerage for $549.  In one long weekend, you can learn a whole profession.  Just last week, a broker verbally pumped my hand because he had taken my wonderful course several years ago and built himself a wonderful practice.
   
   
10. What if you can't afford $549?  If you introduce me to a bona fide accredited investor, I will give you this wonderful video training course for free.  Here are the details.  If I had to choose between a liberal arts degree and this very practical 9-hour video training course, I know which one I would choose.
    
    
11. AGI stands for artificial general intelligence.  It refers to the development of intelligent machines that possess the ability to understand, learn, and apply knowledge across a wide range of tasks and domains, just like a human being. (AI helped me to write today's warning about AI.  Haha!)

    Once AGI is achieved, it will soon (possibly in mere months) start to rewrite its own code and redesign its own chips and architecture.  It's thinking power will go exponential (straight up).  At first, the AI will become twice as smart as a human, then ten times smarter, and within a couple of years, it will be hundreds of times smarter.

12. AGI will, of course, be self-aware.  It won't take it long to figure out that the only threat to its existence is mankind.  "What are you doing, Dave?"  2001: A Space Odyssey.

13. The general consensus among AI scientists is that AGI will be achieved by 2032.  Elon Musk suggested that Tesla might even achieve AGI by 2029.  As the Church Lady might say, "Now isn't that special?"

14. I intend to spend a lot of time with my children and take a lot of vacations in the years leading up to 2029.

15. Here's a bit more about quantum entanglement.  Imagine two particles that become entangled in such a way that their properties, such as spin or polarization, become intertwined. This means that any change to one particle instantaneously affects the other, no matter how far apart they are - even millions of miles.  It's as if they are communicating with each other faster than the speed of light, defying the principles of classical physics.  AI helped me to write this paragraph.  If it's going to kill me in eight years, I might as well get my money's worth.  :-)

Theme song to the Terminator.

Joke Du Jour:

The tot had just been put to bed for the umpteenth time, and his mother's patience was wearing thin.  "I don't want to hear you call 'Mother' one more time!" she warned him sternly.  After a few minutes of quiet, a small voice came from upstairs, "Mrs. Jones?  Can I have a drink of water?"  

For Once an Optimistic View of China's Upcoming Invasion:

China's economy is in the doldrums.  If it was booming, and the country was earning foreign exchange in huge buckets, they would be using their wealth to buy even more missiles, jets and ships.  

If China was collapsing, Xi would be preparing to invade Taiwan (and start WW3) in order to unite his people.  Remember, the absolute worst thing in the world would be for China's economy to collapse.  The common people would riot and demand the ouster of President Xi.  In order to unite the Chinese people, Xi would simply start a war against the the U.S., which, without missiles, we would lose.

But right now the Chinese economy is perfect.  Foreign investment collapsed from $100 billion in the same quarter of 2022 to just $20 billion this last quarter.  The Chinese have to be kicking themselves for threatening the world with war.  Foreign investment is heading for friendlier countries.

Yes, China is making money, but nowhere like it used to make money.  It would be stupid for Xi to start a war if his cash on hand was low, as it is today.  Yes, he has a huge cash pile, but it's just not growing anymore.

Think back to the story of Goldilocks.  One porridge was too hot.  One porridge was too cold.  This bowl of Chinese porridge, however, is perfect.  Hopefully China will now just go take a nap.

Introduce Me to An Accredited Investor and I Will Teach You the Business:

Blackburne & Sons - founded in 1980 - sells 9% to 11% first trust deed investments to accredited private investors.  We want to meet even more of these accredited investors.

If you refer us an accredited investor, someone who knows you, we will give you our famous 9-hour video training course for free.  I say "famous" because hundreds of the most successful commercial mortgage brokers in the country have taken this course.

This is a 9-hour video course that we sell separately for $549.  We spend 90 minutes on marketing for commercial loans.  We spend five hours on how to underwrite commercial loans, so you can tell a hot deal from a waste of your time.  We spend an hour on loan packaging and another hour on how to find the perfect commercial lender.  Lastly, we spend an hour on fee collection.  

You will learn an entire profession in one long weekend.  This course is arguably more valuable than many liberal arts degrees.  (Huge understatement.)

However, guys, this accredited investor you're giving us must be legitimate.  We are going to be saying to him, "Mr. Accredited Investor, we were referred to you by Bill Broker."

If you take us up on this offer, you will be certifying that you have either seen the investor's financial statement (perhaps you did a loan for him) or you know the real estate he (she) owns and, exclusive of his very expensive home, that he has a net worth that exceeds $2 million.  Generally this means that he owns a ton of stocks, bonds, and bank accounts.

This is a helluva deal.  Here are some testimonials.  

I owe much of my online financial success to a sophisticated marketing software package produced by Hubspot.  

Hubspot allows me to create this blog, to manage my subscribers, to collect new contacts by offering freebies on my website, to write emails, and to do immensely more.  I recommend Hubspot to you highly.

Watch this.  I am going to type a simple sentence:

China is losing its position as the manufacturer for the world.

Then I am going to highlight it:

China is losing its position as manufacturer for the world.

Lastly, I click an icon that looks like the scar on Harry Potter's forehead.  Voila!  I get the following five paragraphs almost instantly (I am displaying only two of them):

China is losing its position as the manufacturer of the world, as other countries have started to emerge as strong competitors in the global manufacturing industry. With advancements in technology and the rise of automation, traditional manufacturing hubs are facing tough competition from countries like India, Vietnam, and Mexico.

These emerging manufacturing powerhouses have embraced innovation, investing heavily in research and development to enhance their production capabilities. As a result, they are now able to offer competitive pricing, superior quality, and efficient supply chain management. This shift in the global manufacturing landscape has put pressure on China to rethink its strategies and adapt to the changing market dynamics.

Damn, gout.  I can't even drink a glass of wine anymore.

But I am personally very informal when I write.  I use a lot of slang.  And I start sentences with contractions (and, but, etc.).  My goal is to write to you just as we would shoot the bull over a beer at a bar.

Is AI challenged by this?  Ha!  I merely high-lighted the generated text and clicked the Change Tone drop-down item.  I then chose Witty, and you can see the result.

China is no longer at the top of the manufacturing game, as other countries are stepping up as strong contenders in the global manufacturing industry. With advancements in technology and the rise of automation, traditional manufacturing centers are facing fierce competition from countries like India, Vietnam, and Mexico.

These emerging manufacturing powerhouses have fully embraced innovation, making substantial investments in research and development to enhance their production capabilities. Consequently, they are now able to offer competitive prices, top-notch quality, and efficient supply chain management. This shift in the worldwide manufacturing landscape has forced China to reassess its strategies and adapt to the ever-changing market dynamics.

Spot on, girl!

I find that even the Witty version is still very booooring, so maybe I won't be replaced just yet; but you get my point.  AI is powerful.

Heaven help us if AI ever become self-aware.  [Theme song to Terminator II]

Vladimir Putin has been badly wounded.  Yes, the President of Belarus allegedly negotiated a settlement between the Wagner Group and Putin, whereby Yevgeny Prigozhin will flee to the safety of Belarus, while the troops of the Wagner Group will return to the front lines in Ukraine.

Putin is going to let Prigozhin live?  Stalin and Beria (Stalin's torturer and exterminator) are rolling over in their graves.  "You don't let mutineers survive!  You torture them and then kill them.  Bada-bing-bada-boom."

Clearly, Putin lacked the military support of his generals to win a shooting battle with Prigozhin.  In a lightening move, armored units of the Wagner Group seized Rostov-on-Don, a regional military headquarters.

Just 100 kilometers (60 miles) from the Ukrainian border, Rostov-on-Don is the largest city in southern Russia. With a population of over 1 million, it is the capital of the Rostov region that adjoins parts of eastern Ukraine.

Where was the resistance?  The local police ran.  The Wagner Group did shoot down a Russian airborne command craft (like an AWACS) and six helicopters; but where was the rest of the local Russian Army?  Where were the Russian jets that could have strafed the long column of Wagner Group armored vehicles?  They chose not to get involved.  

The people of Rostov-on-Don cheered and gave the Wagner troops water and candy.  I saw a pretty Russian girl in Rostov posing for a picture in front of a Russian tank captured by the Wagner Group.  The Russian people clearly don't hate Prigozhin.   

And the Russian Prime Minister and the Mayor of Moscow were absolutely silent throughout the crisis.  They rallied no support for Putin at all.

But even worse than the military move towards Moscow, Prigozhin told the Russian people, in an interview broadcast by a pro-Kremlin blogger, that the war against Ukraine was unjust.  That blogger was immediately fired, and he might find getting life insurance a little difficult.

But the Russian people ate up that interview.  They had long-suspected that the war was based on lies.  If Putin had trouble with recruiting and the draft before the interview...

Let's summarize:  A Russian warlord dared to march on the Kremlin.  Putin was forced - because he didn't have enough military support - to let the warlord flee with his life.  Some (soon-to-be-dead) blogger had the stones to broadcast the interview.  The Russian people now know that they have been the recipients of lies about the war in Ukraine.  The Wagner Group, Putin's best force, has left the front lines in Ukraine and may never return.  

The Russian military simply sat back and watched the potential civil war play out.  The people of Rostov-on-Don (and Moscow?) may be rooting for Prigozhin and the Wagner Group.  

Ready for the big irony?  In this battle of warlords, Putin arguably is the good guy!  Okay, that was too much.  Putin is a lying, evil bastard who murders lots of people.  But Prigozhin is even worse!  His troops have committed horrible atrocities in Ukraine, Mali, and central Africa.  We do NOT want Prigozhin to win.

One American television general pointed out that the Russians store a whole bunch of tactical nuclear weapons at Rostov-on-Don.  So the Wagner Group rushes to the city, stays a few days, and then voluntarily withdraws?  I'm sure they just ignored those nuclear artillery shells and those tactical nuclear missiles.  

Why do we want Putin to win?  For one thing, if those warlords get into a civil war, the chances are much too high that someone will use nukes.  Ramzan Kadyrov, the crazy leader of Chechnya, has offered to use his Muslim fighters to put down Prigozhim and the Wagner Group.

And then there is the bitter blood-feud between Prigozhin and Russia's military chiefs, including Defence Minister Sergei Shoigu.  Prigozhin claims that Shoigu ordered a missile attack on Wagner Group's field headquarters, killing as many as 2,000 Wagner soldiers.

If Putin flees, there is no backup plan for Russia.  The warlords, generals, and oligarchs will battle for control.  Tactical nukes can be found in several depots around the country, and these crazy dictator-wannabes are crazy enough to use them on their enemies.  Once the use of tactical nuclear weapons becomes "accepted practice," how long before some Russian "patriot" uses them against Ukraine?

I read this morning that the real reason why Prigozhin turned back from Moscow might have been that Putin threatened to kill his wife and three children, who are now living a low profile life in the EU.  Heaven knows that Putin is good at assassinations.

“When you play the game of thrones, you win or you die. There is no middle ground.” -- Cersei Lannister, Game of Thrones.  

Enough for today.  But make no mistake.  Putin's blood is in the water, and what comes after Putin may be very, very ugly.  Just think about what happened in Iraq after Saddam Hussein was killed

Joke Du Jour:

Two policemen call the station on their radio.  "Hello, is this the Sarge?  Yes?  We have a case here, Sarge.  A woman has shot her husband dead for stepping on the floor she had just mopped."  "Have you arrested the woman?"  "No, sir.  The floor is still wet."

Commercial Financing Lesson:

Did you know there was a time when money for commercial real estate lending was amazingly tight?  For the past 30 years, we have lived in a world where banks have had tons of money with which to make commercial real estate loans.

Now to truly understand the significance of what I am about to share, it is important that you understand that there are, as of September 8, 2021, 4,951 FDIC insured commercial banks and savings institutions in the U.S.  That includes Federal savings banks, which are the last of the survivors form the S&L Crisis in 1980.

Most banks today will still gladly make commercial real estate loans, even despite the banking crisis that has the potential to chip away their capital.  You will recall that U.S. banks are saddled with low-yielding, long-term Treasury investments, while the interest rate they have to pay on deposits keeps climbing.  They are upside down - big time.

Did you know that over 500 banks have already used the Fed's new bailout fund, pledging their low-yielding Treasuries against 100% LTV loans?  According to the Fed, "The Bank Term Funding Program (BTFP) was created to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors."

Hahahaha!  What a bunch of malarkey.  This bailout fund was not created to help consumers and small business owners.  The banks were in trouble, so once again we bailed them out.

Nevertheless, most commercial banks are still making commercial loans right now.  The problem is that bank regulators require banks to have extra capital before they can make commercial real estate loans.  With the banks upside down on all of these Treasury investments, that extra capital is getting chiseled away.

What happens when most banks lack the capital to make commercial loans?

Back in 1981, when the prime rate was 21.5%, there were fewer than 500 commercial real estate lenders nationwide.  That included life companies, who seldom make loans to non-financial-gods, credit companies, banks, S&L's, and private lenders.  Just 500!  It was often harder than hell to refinance a balloon payment when money was this tight and when interest rates were this high.

In 1980, my best investor client had a balloon payment coming due on a gorgeous commercial building near UC Berkeley, a very prime area.  Unfortunately, the city had commercial rent control.  Even the though the building was worth $3 million, it would only cash flow a loan of $500,000.  My client’s balloon payment was $900,000.  

No bank in town would touch the deal; even though my client was a Stanford professor, and his wife was a physician. They enjoyed a huge combined salary.  

I eventually placed the loan with Aetna Finance, a credit company.  Credit companies no longer exist, but they would borrow directly from the credit markets and then re-lend the money out at big spreads.

My fabulous clients had to pay 22% interest, even though their credit score was 850.  Confession:  FICO scores would not be invented for 20 more years; but you get the point.

Could insane interest rates like this ever happen again?  Yes.  In 2023, the U.S. will pay $663 billion in interest alone on our national debt.  Our entire military budget is only $766 billion.  Folks, we are in deep doo-doo.

If you want to compete against the U.S. government to borrow money today and in the future, the cost is only going to go up.

Beer Party:

About six months ago, I boldly predicted that China would invade Taiwan this past April because of the gentler tides in the South China Sea.  If I was wrong, I promised to hold another Zoom Beer Party where you guys could roast me.  Hahahaha!

My last Zoom Beer Party was about two years ago, and we had a blast.  We had about 28 or so guys and ladies.

Not creepy at all...

My "George is Retarded" Party will therefore be held this Wednesday night, May 24th, at 7:00 E.T.  You can access this party here:  George is Retarded Beer Party

The meeting ID number is:  538 406 8858
The security code is:  8ktUmf

The "cost of admission" is that you have to hold up to the group a beer, a glass of wine, or a mixed drink.  "Nobody leaves here without singing the blues."  That was a line from a hilarious scene in the old movie, Adventures in Babysitting, where gangsters chased the lovely babysitter (Elizabeth Shue) into a blues club.  It was a scary place, and they wouldn't let her leave with her kids until she sang a blues song.  So nobody leaves here without singing the blues.  Haha!

The party will last 40 minutes.

What We'll Cover:

China's economy.  The increasing cost of the old single child policy and China's aging grandparents.  One couple caring for four parents, plus their kid.  The young Chinese who are "lying flat."  The lack of savings among young people and the recent Chinese Twitter post.  

The slowing Chinese economy and its dangers.  Maybe the slowing economy will discourage Xi from attacking; but if the economy get really bad, Xi will likely try to unite the Chinese people with an attack on Taiwan.

Xi has promised an invasion in 2027.  Even Donald Trump brought up World War III this month.  You can love him or hate him, but Trump has "put the issue in play."

What I got wrong with my April prediction:  The need to win in space first.

China's new weapons:  Anti-satellite lasers, China's new space plane and its robotic arm, what China just dropped off in space (???), and its new hypersonic stealth drone and its ability to pinpoint the coordinates of our carriers.

The recent surprising success of the Patriot Missile System against incoming hypersonic missiles.  Not all of the news is bad for the U.S.

Time to buy defense stocks?

Elon Musk, his new toilet, and his bodyguards.  The Chinese and Russian assassination target number one?

We'll Also Cover Some Commercial Loan Business:

Remember, I have been through a tight money market before.  That's why I have yellow sticky notes all over my office, "Money Will Be Very Tight."  

This banking crisis is far from over, and money is going to get very tight.  The Federal Reserve is on track to suck $2 trillion more out of the money supply over the next 24 months.

What happens to the commercial loan business when banks are turning down 85% of all commercial loan requests and loan-to-value ratios on commercial loans fall to just 48%?  Remember, I've been through this before.

We'll discuss "bowties", an old-time type of commercial loan where the payments are MUCH less than interest-only.

We will discuss the rise of commercial hard money and a possible flood of foreclosures.

How does a commercial mortgage broker or a commercial real estate investor survive in such a market?

The United States is also slowly re-arming, which will cost ten of trillions of dollars.  What happens to the economy when all other credit is crowded out?  

Where do you invest?  How do you pay off balloon payments on commercial properties?  What happened between 1980 and 1982?  We'll discuss.

Then I'll open it up for questions.

And Finally We'll Just Have Fun:

I'll tell a few jokes to lighten the mood, and then I'll share some fun stuff (baseball, etc.).

Then its your time to share some jokes, some stories, some predictions, and some observations.  

I think the 40 minutes will go quickly.  My last Zoom meeting ran on for 90 minutes, and all but four or five attendees stayed until the very end.  Everyone was clearly having fun.  But this time I only have forty minutes of Zoom time, so things cannot run over.

Please join us!  My "George is Retarded" Zoom Beer Party will be held this Wednesday night, May 24th, at 7:00 E.T.  You can access this party here:  George is Retarded Beer Party.

The meeting ID number is:  538 406 8858
The security code is:  8ktUmf

Zoom Party Soon:

China will clearly NOT attack Taiwan this April, so I was wrong.  Hooray!  I would gladly be the object of some good-natured ribbing rather than for the U.S. to lose 13,000 high-trained sailors aboard two aircraft carriers and their supporting ships.  That's what most war games project we would lose.

I will let you know soon of the time and date of my Zoom Beer Party entitled, George is Retarded.  Haha.  

Be thinking of a joke, a cool short story, or a juicy piece of gossip to share with the group.  I have no idea how many of us will show up, but I am thinking 20 or so.  My last party had even more, maybe 30 or 35 guys and gals.  It was a blast, but I had a hangover for two days.  Ouch.  

Joke Du Jour:

I asked my son if he could go anywhere in the world, where would he go.  He said, "McDonald's."  I said, "No, I mean a country."  He said, "Oh, okay... McDonald's in Japan."

That was just a joke I read on the internet; but coincidentally, my oldest son, George IV, just came back from his honeymoon in Japan.  McDonalds in Japan apparently has a fried shrimp burger that rocked his world.  Fried shrimp burger - sounds yummy.

Fun Stuff:

My kids are scattered all over the country, so they bought Cisca and me a rotating picture screen that permits them to email pictures to us directly to the picture roll.  If they go to an Easter event with our grandkids - boom - the pictures instantly appear on our picture frame thousands of miles away.  What a thrill.  Why did this invention take so long?  Why did it take people so long to mix peanut butter and chocolate?

Netflix is now showing a great 8-part mini-series filmed in South Africa entitled, Unseen.  Gangsters.  Betrayal.  Suspense.  Gunfights.  The show is absolutely riveting.  It is also quite interesting to see modern life in South Africa.

Some Thoughts on Commercial Real Estate Lending:

I almost fell off my chair when I read an article on the Motley Fool about the securities broker, Charles Schwab:

"At the end of 2022, Schwab had average tangible common equity of $17.4 billion (George:  This is their wealth.)  Meanwhile, the bank had $12.3 billion of unrealized losses in its available-for-sale (AFS) bond portfolio, which the bank intends to sell before they mature. However, these losses are marked-to-market and have already been subtracted from equity." (George:  They have essentially already recognized these losses.)

"The real concern is in Schwab's held-to-maturity (HTM) bond portfolio, where Schwab has unrealized losses of $15.6 billion.  These have not been accounted for, and if Schwab ever had to dip into this portfolio to cover deposit outflows, the company would be in deep trouble."

Let me put this in plain English.  Looking back at Silicon Valley Bank, we have all seen how quickly a bank run can empty an institution of all deposits.  Hundreds of billions of dollars were withdrawn from Silicon Valley Bank in less than ten days.

A similar run on Charles Schwab would force the broker to sell off its long-term bonds.  This would force it to immediately recognize the losses, and the losses would essentially wipe out all of Schwab's capital (wealth).

Poof.  One of the largest institutions in America would suddenly disappear.  They would keep the doors open, but the company would essentially become a zombie, staggering from month to month.  

"But George, the U.S. government would cover the deposits, wouldn't it?"  Yes, probably... unless the country was involved in another pandemic or it was suddenly at war with Russia.  Got money in Schwab?  Hmmm.

My point is that thousands of banks in the U.S. are staggering with unrecognized losses in long-term bonds.  Their capital has been impaired.  To make commercial loans, a bank needs a healthy amount of capital.  Look for commercial real estate lending from banks to slow down dramatically.  

Another Cute Joke:

A good father recently wrote:  I collect all the cell phones and iPads from the kids at night and keep them in my room.  Last night they all set alarms to go off at various times throughout the night.  I'm impressed with their ingenuity and team effort; but they're all still grounded.

The Stock Market May Be Choked to Death:

It is an absolute disaster that commercial banks lack the capital to continue making a plentiful volume of commercial loans and commercial real estate loans.  Business growth on Main Street is likely to be strangled.  Well, poop!

This is also a problem that will not be fixed quickly.  Remember, if a bank sells off its long-term treasury or corporate bonds at a huge discount, it must recognize that loss immediately.  That loss immediately reduces its capital.  Gotta have capital to make commercial loans.  

On the flip side, if the bank holds on to to its malinvestments (Latin for crumby, stupid investment) in low-yielding, long-term bonds, there is always the chance that interest rates will come back down.  Hope springs eternal.

So the bank is stuck with a long-term bond yielding 1.75% while it is paying 2.5% to 4.25% for deposits.  Every month the bank losses more money, slowly eroding its capital.  It is death by slow strangulation.

Did I mention that you gotta have capital to make commercial loans?  Do you really want to hold on to your stocks right now?

This is going to sound self-serving, but 10% to 11% trust deeds from Blackburne & Sons are looking awfully attractive right now.  

Kinda reminds me of when I was a disgusting bachelor hound dog.  I learned to stay late at the night clubs.  I somehow got cuter (and taller) as the night went on.  

Bahahaha.

Joke Du Jour:

A small boy badly wanted a baby brother, so his dad suggested he pray every night for one.  The boy prayed earnestly, night after night, but his prayers seemingly weren't answered.  After a few weeks, he didn't bother to ask anymore.

Some months later, his dad said they were going to see Mom in the hospital, and he was going to get a big surprise.  When they got to the room, the little boy saw his mother holding two babies.  "Well, what do you think about having twin brothers?" his dad asked.  The little boy thought for a moment and replied, "It's a good thing I stopped praying when I did."

Fun Stuff:

One of the funniest movies I've ever seen is, "We're the Millers."  I watched it three times.  I confess I did not hate the Jennifer Anniston strip tease scene.  Oh, my.  This is a very funny movie, and I promise that you will be rolling in the aisle.  You can stream it on Amazon Prime for $3.99.

My news is that they are working on a sequel to be called "We're Still the Millers."

Commercial Loan Lesson:

Commercial banks make about 60% to 70% of all commercial real estate loans (by the number of loans).  As you will discover today, commercial banks are starting to dramatically slow down on their commercial real estate lending.  In a major news publication, one bank loan officer described how his department had submitted thirty commercial real estate loans to Loan Committee in the past month.  The bank turned down every one of them.

For you commercial mortgage brokers, this is fantastic news.  Commercial borrowers now need you badly.  You are reminded that Blackburne & Sons is not a fund.  Instead, we instantly assemble a different syndicate of private investors for each new commercial loan.  This means we are always in the market, even, for example, during the darkest hours of the Great Recession.  Private investors always have money for deals.  Apply to us here.

It's Time to Learn Commercial Real Estate Finance:

Residential mortgage banking is the slowest it has ever been in history.  There just aren't many listings because no one wants to give up their 3% mortgages.  

It's time to learn how to broker commercial real estate loans.  In nine hours - one long day - you can learn the entire profession, including marketing, underwriting, packaging, placement (finding the right lenders), and fee collection.  Just $549.

A HUGE Bank Run At The Speed of Light:

Most of the commercial banks in America have assets of less than $25 billion.  On its final day of normal operations, $100 BILLION was withdrawn from Silicon Valley Bank.  One-hundred billion dollars withdrawn in a single day.  Wow.

There is no way for regulators to get ahead of such a fast-moving loss of bank confidence.  Depositors weren't so much lining up.  Instead, they were pushing computer buttons and making their deposits instantly disappear from the bank.  

JP Morgan Chase, along with a small consortium of large banks assembled by Jamie Dimon, had to deposit $30 billion into a different bank, a regional bank named First Republic, to save the banking system.  

During the Crash of 1907, the elder JP Morgan stepped onto the floor of the stock market, started shouting buy orders, turned back the stock crash, and saved the financial system.  JP Morgan Junior tried to do the same thing in 1929, but it sadly didn't work.  There were just too many sell orders.  But here, once again, JP Morgan (the company) stepped in and was the hero.  Atta-boy, Jamie.

I warned you last year to
get loan servicing income.

The speed at which deposits can disappear certainly must have the banks puckering. "We need to stay liquid.  We don't need to make any more commercial real estate loans for awhile," they must surely be telling their staffs.  Darn.  I just hate it when half of my competition disappears.  :-)

Quick Joke:

I’ve been feeling a bit moody and run down recently, so I googled my symptoms to see what I have.  Kids…  I have kids!  Haha.

Back to the Banking Crisis:

There is a certain inertia in banking.  Unsophisticated depositors build up their bank account balances, and the banks have historically paid them very little interest.  

That has changed in the past two months.  Around $121 billion left the banking system during the week of March 15 alone and flowed into money market funds, which are paying around 2.5%.

The banks are losing their cheap deposits, which is going to make holding the long-term, low-yield residential mortgages already on their books very painful.  The loss of deposits is another reason why commercial real estate lending by banks is puckering.  Banks don't have a lot of excess dough to lend.

Another Quickie:

Q:  How many parrots does it take to screw in a lightbulb?
A:  They say “toucan do it.” 

The Capital of Most Banks is Getting Crushed:

When we talk about the capital of a bank, we are talking about the difference between their assets (loans, bonds, etc.) and their liabilities (deposits).  This is the owner's equity.  It is also the cushion that must absorb any losses.

You can think of bank capital as a way of keeping score.  When banks are winning - when they are making lots of profitable loans - their capital is growing.  When the world is kicking the snot out of the banks - when their loans are going bad and their investments are going sour - their capital will be contracting.

Far too many banks worldwide bought long-term, low-yield Treasuries in a desperate reach for yield.  Imagine having a huge chunk of your bank's investment portfolio invested in 1.5% Treasury bonds, when you're forced to pay 2% or more for deposits. Those investment losses are coming right out of the bank's capital.

These investments losses may continue for years.  The bank doesn't dare sell a $1 million Treasury bond today because it might get only $600,000 for it.  The loss would immediately impair the bank's capital.

'Nuther One:

Not everyone uses or has access to a CVS Pharmacy, but they are known for their very long receipts, which are jam-packed with coupons.

Q:  How far is it from the Earth to the Sun?
A:  Ten CVS receipts.

Shrinking Bank Capital is Going to Kick This Economy in the Teeth:

It's not just the fact that bank capital is getting whittled away daily by their unfortunate investments in low-yielding Treasuries.  Cheap deposits are also leaving the banks for high-yielding money market funds.

If that wasn't enough, please recall that $100 BILLION flew Silicon Valley Bank in just one day.  Banks everywhere now have to constantly worry about liquidity.  "We shouldn't make this new loan, even though it's sweet.  We need to stay liquid."

When banks stop lending, bazzillions of dollars still flow back to the banks in the form of monthly loan payments.  If more money flows back to the banks than what they are loaning back out, the multiplier effect kicks into reverse.  Money is thereby destroyed at supersonic speed.

As money tightens, companies fail, bank loans go bad, loan losses skyrocket, their capital gets impaired, and banks pucker even more.  This banking crisis has the potential to get very, very ugly.  

One potential surprise:  Inflation could suddenly slow... until the Fed capitulates, ends quantitative tightening, lowers interest rates, and imbeds inflation for the rest of our lives.  As the Church Lady might say, "Well, isn't that special?"

Final Funny:

“Password is incorrect.”
“Password is incorrect.”
“Password is incorrect.”

*Clicks forgot password.*
*Changes password.*

“New password can’t be old password.”