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Jeffrey Sweeney is an investment banker with years of experience in direct lending and corporate finance for small- to middle-market companies. He is the chairman and CEO of US Capital Partners, an innovator in small- to middle-market business lending. US Capital Partners has been providing prompt, innovative, and reliable financing solutions across the United States and abroad for more than a decade.

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Friday
Apr072017

Bond Risk Rising with Rates

The Federal Reserve is raising interest rates.  The current Fed Funds rate is 0.88%, up from zero in December 2015.  By the end of 2018, the FOMC projection is for the Fed Funds rate to be 2.13%.  The market expectation is 1.75%.  In either case, the Fed Funds rate may more than double in the next couple of years and show at least a 1% increase.
  
The impact of a 1% rise in interest rates is negative for many bonds.  Below is a chart showing the sensitivity of various bonds to a 1% increase in rates.
U.S. treasuries (UST) all lose value.  So do inflation protected treasuries (TIPS), mortgage backed securities (MBS), U.S. aggregate bond portfolio (U.S. Aggregate), U.S. investment grade corporate bonds (IG corps), and municipal bonds (Munis).
 
The price returns on convertible, high yield (U.S. HY) and floating rate bonds are also negative.  The total return of these three bond categories is positive because of the relatively high yield overcoming the loss of face value.
 
If interest rates rise by more than 1%, the bond problem becomes worse.
 
Bonds may no longer be a way to de-risk your portfolio.  In the current market environment, bonds may be adding to the risk of loss.
 
The Active Equity Answer
 
World economies are growing.  The chart below shows manufacturing activity by region and country.  Numbers greater than 50 indicate expansion.  Green represents growth.  The time scale runs across the top from April 2015 on the left to March 2017 on the right.  For March 2017, all areas are green(ish) and greater than 50 except for Greece, Korea and Brazil. The global PMI is 53.0.  At 49.6, Brazil looks like it is gaining strength and may move into expansion territory soon.
 
In the Fed Minutes released on Wednesday, some Federal Open Market Committee participants viewed U.S. equity prices as “quite high” relative to standard valuations.  The good news is the equity market is global.  Year-to-date, equities from all major regions have outperformed bonds, REITs and commodities.  International equities have been particularly strong.
 
Using disciplined, quantitative investment methods, many of our investment strategies have increased exposure to international equities year-to-date.  Additionally, we apply quantitative risk mitigation rules to significantly reduce equity exposure when risk rises.  We seek to achieve equity returns with downside protection.  Bond problem solved.  Solution: risk mitigated global equity with proactive downside protection.
 
After an eight year recovery in U.S. equities and a more than three decade bull market in bonds, we may be entering a new investment chapter.  In the new chapter, active asset allocation outside of the U.S. and active portfolio risk mitigation may deliver materially better results with lower risk than the S&P 500 index and the traditional buy-and-hold 60%/40% stock/bond portfolio.

One of the keys to investing is sifting through all available information and sticking to a plan.  Somehow, we need to control our emotions about something that is very important to each of us. We invite you to call or email anytime if you have questions about how we can help you with your wealth management.  Please give us a call at (415) 249-6337 or email us at info@uscapitalwm.com  to learn more.



Stock Market Dashboard



US Capital Wealth Management is your investment solutions partner. 

We are eager to speak with investors and investment advisors looking for a new trusted partner.
Please give us a call at 415-249-6337 if you would like to talk.

  


This commentary and a sampling of previous editions are available as PDFs:

4/7/2017: Bond Risk Rising with Rates
3/31/2017:
 
Exclusive Stock Market, Higher Stock Price
3/24/2017: Indications of a Positive Stock Market Future
3/17/2017: Hallelujah, Reflation!
3/10/2017: Small Cap Stock Divergence
3/3/2017: Velocity Pivot Good for Stocks
2/24/2017: How Safe Are The Banks
2/17/2017: Climbing A Wall of Worry
2/10/2017: Value Shopper - Europe on Sale
2/3/2017: What, Me Worry
1/27/2017: Extraordinary Earnings Louder Than Trump
1/20/2017: It's Not All About Trump
12/30/2016: Predicting the Future -2017
12/2/2016: 
Trade What Is, Not What You Think It Should Be – 2017 Outlook

US Capital Partners

Pursuant to the provisions of Rule 206(4)-1 of the Investment Advisors Act of 1940, we advise all readers to recognize that they should not assume that recommendations made in the future will be profitable or will equal the performance of past recommendations. This publication is not a solicitation to buy or offer to sell any of the securities listed or reviewed herein. The contents of this letter have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Nicholas Atkeson and Andrew Houghton are also principals of US Capital Wealth Management, a registered investment advisor. Clients of US Capital Wealth Management and individuals associated with US Capital Wealth Management may have positions in and may from time to time make purchases or sales of securities mentioned herein.

THIS NEWSLETTER IS PROTECTED BY COPYRIGHT LAW. UNAUTHORIZED DISTRIBUTION AND/OR REPRODUCTION BY PHOTOCOPY OR ANY OTHER MEANS IS STRICTLY PROHIBITED AND PUNISHABLE BY A FINE OF UP TO $25,000.

Wednesday
Apr052017

Unitranche Financing for Lower Middle Market Businesses

Businesses across the US are increasingly benefiting from US Capital Partners’ unitranche financing solutions, which offer the advantages of speed, simplicity, and certainty of closing.

Throughout the past year, US Capital Partners Inc. has continued to experience rising demand for unitranche loans (also known as “senior stretch”), which blend senior and junior or mezzanine debt into a single debt facility. Rather than approach a senior lender, typically a bank, and then also one or more additional junior lenders, borrowers with a unitranche structure have a single secured loan facility, in which all the debt is subject to the same terms. US Capital Partners has increasingly been providing such loans for its clients.

Unitranche Solutions for the Small and Lower Middle Market

First created in 2005, unitranche loans were used primarily for middle market transactions, by borrowers with annual EBITDA of up to $50 million and sales of up to $500 million. A deal size of about $100 million was fairly typical. Today, however, this hybrid loan structure is being increasingly used in the small and lower middle market, in place of traditional bank financing.

Advantages of Unitranche Financing

  • Simplicity. Unitranche structures have a single creditor agreement and single interest rate, and often also a single lender. This provides a streamlined process for ongoing administration and decision-making. Covenants become simpler to report and administer.
  • Reduced risk the deal will fall apart. With unitranche financing, there is no need for the borrower to mediate inter-creditor agreement negotiations between the senior and junior lenders.
  • Higher loan amounts. Risk is better mitigated if only one lender is involved. This can result in higher loan amounts because of the comfort of not having competing interests.
  • Speed. Unitranche facilities provide a faster way to borrow, because dealing with multiple lenders takes time, especially if the borrower is negotiating separate first and second lien facilities. This makes a unitranche solution especially suitable for financing acquisitions, for instance, where speed is often of utmost importance.
  • Savings. Unitranche loans can sometimes produce a lower cost of capital, because the entire loan amortizes over time, not just the senior debt as in a typical senior and mezzanine debt deal. With no competing interests between lenders, this type of financing also eliminates expensive legal posturing and duplicate default work with the borrower by competing legal counsel.

How US Capital Partners Can Help

The lending marketplace for smaller businesses continues to be highly fragmented. Specialty lenders are generally willing to lend only against their favored asset class. Finding the most appropriate mix of financing at the best cost, and then coordinating the different specialty lenders to a successful closing, can be a challenging process. In most cases, US Capital Partners has the ability to provide a single unitranche loan to vastly simplify the situation.

Saturday
Apr012017

Exclusive Stock Market, Higher Stock Price


The total number of publicly listed U.S. stocks peaked in 1998 at 7,562.  At the end of 2015, the number was roughly half at 3,812 publicly traded U.S. stocks.
 
The number of companies offering their stock publicly in the U.S. is shrinking.  In the five years 1996 through 2000, an average of 548 companies went public a year.  That equates to more than two initial public offerings (IPOs) every single stock market trading day a year.  The total number of IPOs during this time was 2,742.  That is 780 more IPOs than the number of IPOs for the next 15 years.

Companies are waiting longer before going public as they are able to raise a significant amount of money in the private market.  From 1996 through 2000, companies were about three years old before they went public.  For the past five years, companies were nearly seven years old before they went public.
Merger and acquisition activity is reaching record highs today.  The high level of mergers and acquisitions relative to the diminished number of IPOs is a major driver of the shrinking number of publicly traded companies.
The stock market today is comprised of fewer companies, but they are much larger.  The average market capitalization of companies traded on the New York Stock Exchange (NYSE) in January of this year was $20.2 billion.  In January, 2004, the NYSE average market capitalization was $12.5 billion.
The secular change to fewer companies offering publicly tradable stock has the following ramifications:
  1. On average, the stocks we buy today are shares of large, dominate companies.  In the late 1990s, many of the stocks traded were of companies that did not have a defensible market position or offer customers an important value proposition.  Those weakly positioned companies are no longer in business as independent entities or at all.  Think Google versus Ask Jeeves, Inktomi, Excite, Infoseek, AltaVista, Lycos, LookSmart, Pets.com, etc.
  2. Large, industry-dominate companies usually are a less risky investment than smaller companies who have less product/customer diversification and less market share.  Lower risk helps raise the Price Earnings (P/E) multiple of the overall stock market and reduce volatility.
  3. Large, industry-dominate companies have incredible access to capital and many have massive cash stockpiles – e.g., Apple (AAPL).  Much of this capital is being used to buy stock back, raise dividends and buy other companies (both public and private). Since 2010, Google has bought on average a company each week.  Apple, Microsoft, Cisco, Oracle, Amazon are also serial buyers.
  4. There is a rising scarcity value of publicly traded U.S. equity.  Low trading costs and instant liquidity of the publicly traded equities market are significant positives relative to asset classes like real-estate and private equity including venture capital.  Scarcity, liquidity and low fees are a positive for valuation.

 

Today’s stock market is a case of “what does not kill you only makes you stronger.”  The roughly 3,650 surviving companies with publicly traded stock are substantially larger and better positioned than the average company was ten or fifteen years ago.  While the price of the stock market is higher, the quality of the market has also risen. 

One of the keys to investing is sifting through all available information and sticking to a plan.  Somehow, we need to control our emotions about something that is very important to each of us. We invite you to call or email anytime if you have questions about how we can help you with your wealth management.  Please give us a call at (415) 249-6337 or email us at info@uscapitalwm.com  to learn more.



Stock Market Dashboard



US Capital Wealth Management is your investment solutions partner. 

We are eager to speak with investors and investment advisors looking for a new trusted partner.
Please give us a call at 415-249-6337 if you would like to talk.

  


This commentary and a sampling of previous editions are available as PDFs:

3/31/2017: Exclusive Stock Market, Higher Stock Price
3/24/2017: Indications of a Positive Stock Market Future
3/17/2017: Hallelujah, Reflation!
3/10/2017: Small Cap Stock Divergence
3/3/2017: Velocity Pivot Good for Stocks
2/24/2017: How Safe Are The Banks
2/17/2017: Climbing A Wall of Worry
2/10/2017: Value Shopper - Europe on Sale
2/3/2017: What, Me Worry
1/27/2017: Extraordinary Earnings Louder Than Trump
1/20/2017: It's Not All About Trump
12/30/2016: Predicting the Future -2017
12/2/2016: 
Trade What Is, Not What You Think It Should Be – 2017 Outlook

US Capital Partners

Pursuant to the provisions of Rule 206(4)-1 of the Investment Advisors Act of 1940, we advise all readers to recognize that they should not assume that recommendations made in the future will be profitable or will equal the performance of past recommendations. This publication is not a solicitation to buy or offer to sell any of the securities listed or reviewed herein. The contents of this letter have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Nicholas Atkeson and Andrew Houghton are also principals of US Capital Wealth Management, a registered investment advisor. Clients of US Capital Wealth Management and individuals associated with US Capital Wealth Management may have positions in and may from time to time make purchases or sales of securities mentioned herein.

THIS NEWSLETTER IS PROTECTED BY COPYRIGHT LAW. UNAUTHORIZED DISTRIBUTION AND/OR REPRODUCTION BY PHOTOCOPY OR ANY OTHER MEANS IS STRICTLY PROHIBITED AND PUNISHABLE BY A FINE OF UP TO $25,000.

Wednesday
Mar292017

US Capital Engaged on Growth Equity Investment for IronYun, Inc.

US Capital Engaged on Growth Equity Investment for IronYun, Inc.

IronYun Inc.

SAN FRANCISCO, MARCH 2017 – US Capital Partners Inc. has been engaged by IronYun, Inc. (“IronYun”) as its exclusive strategic advisor in capital formation needs. IronYun is transforming video search and analytics through a cloud-based and AI-enabled video surveillance system to identify any objects, characteristics, and actions through an easy to use search or real-time alert and prioritization functions. IronYun’s CityEyes product offers an “all-in-one” solution of hardware and software components for a secure private surveillance infrastructure.

“IronYun engaged US Capital to attract new investors to our growing business. We trust US Capital Partners’ hands-on approach to growth-stage capital raises,” said Paul Sun, CEO at IronYun.

“IronYun has brought to market a leading video analysis software at the right time to capture the growing security demand. We are excited to be assisting IronYun as it increases its global sales effort and continues to gain sales traction,” said Jeffrey Sweeney, Chairman and CEO at US Capital. “The opportunity to participate in IronYun’s $2 million convertible note raise is now open to eligible investors through our digital investment platform, available at www.uscgs.com, which offers a curated selection of private placement opportunities.”

About IronYun, Inc.

IronYun is a video analytics and security company headquartered in the Cayman Islands with principal offices in Taipei, St. Petersburg, FL, and Singapore. CEO Paul Sun Paul is a seasoned executive and was President/CEO of Avidia Systems, a telecom and Datacom system company acquired by PairGain Technologies in 1997, and Founder and Chairman of DSL.net (Nasdaq: DSLN), which he led successfully through its startup stage to IPO. Paul also founded and served as President/CEO of Motio Inc.

About US Capital Partners Inc.

Since 1998, US Capital Partners has provided and structured, custom financing solutions to private and public companies in the United States and abroad. Headquartered in San Francisco, US Capital Partners, operating with its subsidiary US Capital Global Securities, LLC, is a full-service private investment bank with a wide distribution for debt and equity private placements. The group makes debt investments between $500,000 and $50 million, participates in debt facilities, and offers asset management, financial advisory services for buy-side and sell-side engagements, and capital formation, including early-stage financings of equity and debt.

To learn more about this recent engagement or about how your business can secure the investment banking services it needs, email Jeffrey Sweeney, Chairman and CEO, at jsweeney@uscapitalpartners.net or call +1 (415) 889-1010.

Private placements on US Capital Partners' next-generation digital investment platform are offered by the firm's registered broker dealer subsidiary, US Capital Global Securities, LLC, member FINRA/SIPC.

Friday
Mar242017

Indications of a Positive Stock Market Future

The stock market is forward looking.  While the past can shape how we discount the future, stock valuations are theoretically the present values of future cash flows discounted back to today.
 
There are relationships between economic activity today and probable economic activity in the future.  Rather than guess what is likely to happen in the future, disciplined investors use statistically relevant relationships between today’s events and probable future outcomes to make educated forecasts of what might happen next.
 
We have found the Leading Economic Index (LEI) and Treasury Yield Curve to be robust, reliable forward looking indicators of recessions.  History tells us that extreme bear markets occur during recessionary times.  Being able to forecast recessions is useful for avoiding major bear stock markets.  This week, the LEI and Yield Curve are indicating a very low probability of recession anytime during the next six months.  The LEI was updated late last week and has had three consecutive positive month-over-month gains of 0.6%.  This is bullish for stocks.
 
While we have high confidence in the LEI and Yield Curve as standalone indicators, it is confidence boosting when other indicators point in the same direction.  This week, we highlight the Chemical Activity Barometer (CAB) and the Pickup Truck Sales (PTS) Indicator.  Chemicals and pickup trucks are closely associated with a significant amount of economic activity in the U.S.
 
The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), posted its strongest year-over-year gain in nearly seven years. The 5.5 percent increase over this time last year reflects elevated consumer and business confidence and an overall rising optimism in the U.S. economy.

 

Pickup trucks are often sold to small, independent business people.  Many pickup trucks are used in the construction industry.  In the past week, we saw the highest home builder sentiment in twelve years.  The chart below shows pickup truck sales from 1980 through 2016.

 

On the chart above, recessions are marked with vertical dark grey bars.  Before all recessions during this time period, pick-up truck sales either leveled off or declined.  Today, pickup truck sales are showing a steady, positive upward trajectory.  No sign of impending recession and stock market stress.
 
Positive indicators do not alleviate investors from day-to-day volatility caused by an uncertain world.  This week, concerns about the probability of Trump’s lower taxes, scaled back Affordable Care Act and reduction of regulation agenda would become a reality caused the banking and healthcare sectors to pull-back especially hard relative to the broader indexes.
 
Reliable, time-tested indicators help keep emotions out of the investment decision process.  Short-term volatility can cause investors to make emotional, sub-optimal investment decisions.   Although the S&P 500 incurred its first greater than 1% daily decline this week since October 11, 2016 (roughly six months ago), our indicators remain bullish.

One of the keys to investing is sifting through all available information and sticking to a plan.  Somehow, we need to control our emotions about something that is very important to each of us. We invite you to call or email anytime if you have questions about how we can help you with your wealth management.  Please give us a call at (415) 249-6337 or email us at info@uscapitalwm.com  to learn more.



Stock Market Dashboard



US Capital Wealth Management is your investment solutions partner. 

Listed below are some of the investment strategies we offer. 
We are eager to speak with investors and investment advisors looking for a new trusted partner.
Please give us a call at 415-249-6337 if you would like to talk.

  

  



 


This commentary and a sampling of previous editions are available as PDFs:

3/24/2017: Indications of a Positive Stock Market Future
3/17/2017: Hallelujah, Reflation!
3/10/2017: Small Cap Stock Divergence
3/3/2017: Velocity Pivot Good for Stocks
2/24/2017: How Safe Are The Banks
2/17/2017: Climbing A Wall of Worry
2/10/2017: Value Shopper - Europe on Sale
2/3/2017: What, Me Worry
1/27/2017: Extraordinary Earnings Louder Than Trump
1/20/2017: It's Not All About Trump
12/30/2016: Predicting the Future -2017
12/2/2016: 
Trade What Is, Not What You Think It Should Be – 2017 Outlook

US Capital Partners

Pursuant to the provisions of Rule 206(4)-1 of the Investment Advisors Act of 1940, we advise all readers to recognize that they should not assume that recommendations made in the future will be profitable or will equal the performance of past recommendations. This publication is not a solicitation to buy or offer to sell any of the securities listed or reviewed herein. The contents of this letter have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Nicholas Atkeson and Andrew Houghton are also principals of US Capital Wealth Management, a registered investment advisor. Clients of US Capital Wealth Management and individuals associated with US Capital Wealth Management may have positions in and may from time to time make purchases or sales of securities mentioned herein.

THIS NEWSLETTER IS PROTECTED BY COPYRIGHT LAW. UNAUTHORIZED DISTRIBUTION AND/OR REPRODUCTION BY PHOTOCOPY OR ANY OTHER MEANS IS STRICTLY PROHIBITED AND PUNISHABLE BY A FINE OF UP TO $25,000.