A few years back, many of you will remember making a rational and sane choice when you decided to skip the ELFA Annual Convention in Boca Raton. Other idiots, like me, chose to attend and came away with an array of colorful stories to tell and exaggerate to those whose sanity prevailed. During Monday morning’s opening session and through midday the few hundred attendees who believed the “…come on down, the weather is great…” e-mails received from the association on Saturday afternoon, had the pleasure of witnessing a visit from Wilma, a Category 5 hurricane yielding top winds of 175 mph.
The experience was one of those check the box — been there done that life events. However, for those who have never had a close encounter with a large and powerful hurricane let me enlighten you — it is a storm, followed by incredible calmness, followed by another storm.
When the front of the hurricane hit, the intensity was devastating. Windows broke, trees fell and the power went out. As the front passed and the eye approached, the quietness was eerie. Leasing people emerged from their hiding places and congregated in the hotel’s lobby and bar. Hotel staff were sweeping glass and instructing folks to stay away from the windows. But it wasn’t over. Soon the winds were again aroused — though this time in the opposite direction. As the back of the storm hit, the damage was worse. Trees that had strained against the southerly gales now gave way to the force of the northerly winds and toppled. Palm trees, massive branches, even a large willow tree — were hurled by the force of the winds of the backside of Wilma.
The brief respite afforded by the serenity of being in the eye of the storm was somewhat of an illusion. We had a false sense of hope that we were through the worst part of the disturbance — only to be surprised by the ferocity of the second wave. Moreover, the shifting of the wind direction on the back side of the swirl caused tremendous damage because of the strain and tension already absorbed by trees, power lines, tethered boats and rooftops.
A pessimist might suggest that today we are in the midst of an economic eye of the storm. Perhaps we have only seen the front and still must weather the backside of this tenuous event.
Let’s not forget that only a fraction of the $787.2 billion allocated as stimulus in the American Recovery and Reinvestment Act of 2009 has actually been spent. The severity of our economic turmoil required serious attention and immediate action. Congress responded — but almost none of those stimulus dollars have hit our economy. Could the “green shoots” cited by President Obama and others be a false sense of hope? Could we be experiencing the brief respite of the eye of the storm? Could the damaging backside of the storm be looming and should we be bracing for impact?
Federal Reserve Chairman Ben Bernanke thinks the worst has past and the recession is over. With consumers flooding auto dealerships to take advantage of the Cash-for-Clunkers program, total retail sales rose 2.7% in August over the previous month, the Commerce Department said. Bernanke confirmed that the economy bottomed out this summer and is now expanding, at least as measured by gross domestic product. According to some analysts, the U.S. output of goods and services is now rising at an annual rate of 3% or higher. But the Fed chairman also described continued weakness in the job market.
“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time, as many people will still find that their job security and their employment status is not what they wish it was,” Bernanke told listeners following a speech at the Brookings Institution on September 15.
I’m a “glass is half full” kind of guy. I prefer to take the optimistic approach when given the option and tend to look for the green shoots and similar evidence of improvement and growth as an indication that we are coming out of the malaise. Burying one’s head in the sand while bellowing: “The worst is yet to come,” doesn’t fit my MO.
But let’s not be Pollyannaish. We still have a way to go before we are clear of danger. However, the path to recovery can be seen in the commitments made through the stimulus package that will have direct and positive impact on the equipment leasing and finance industry.
According to Congressional Budget Office estimates, the American Recovery and Reinvestment Act of 2009 will increase outlays by $308.3 billion on appropriations, and by $267 billion in direct spending over the 2009-2019 period. That spending includes outlays from discretionary appropriations in Division A of the bill and direct spending resulting from Division B. In addition, CBO and the Joint Committee on Taxation (JCT) estimate that enacting the provisions in Division A & B would reduce revenues by $211.9 billion over the 2009-2019 period.
Let’s sum it up. There will be $575.3 billion in spending along with $211.9 billion in reduced tax revenues, costing taxpayers a total of $787.2 billion. Ignoring the impact on the already high deficit — these numbers are imposing. Considering this, do you see it as doom and gloom? Or can you see the silver lining?
Over $20 billion of the stimulus package was aimed at improving healthcare by building a robust IT infrastructure and to assist physicians and hospitals in adopting and using healthcare IT, including electronic medical records. Another $2.5 billion was tagged for the Department of Agriculture’s Distance Learning, Telemedicine and Broadband Program. And $1.5 billion was appropriated for construction, renovation and equipment for centers. Healthcare is one of the largest, strongest and fastest growing segments of equipment leasing. Stimulus dollars targeting healthcare is good news for the equipment leasing business.
As much as $150 billion of the stimulus dollars is designated for our nation’s infrastructure, the largest investment since the build out of the interstate highway system during the Eisenhower administration. This includes public transit, high-speed rail, upgrades to the nation’s electricity grid and new initiatives to expand broadband coverage throughout the nation. This is tremendous news for construction equipment manufacturers and dealers. It positively impacts railcar manufacturers, steelmakers, IT, networking and telecommunications companies. Again, this is great news for the equipment leasing business.
Investments in renewable energy — including tax credits and rebates, will aid the growth of markets for solar and wind products. The stimulus bill provides $5.5 billion to construct, repair and make alterations on federal buildings to increase energy efficiency, including installing solar energy equipment. The growth rate for photovoltaic cells is expected to reach 60% annually for the next 4-5 years. Financing will be required for both wind and solar equipment installations in order to match the cash-flow requirements of the financial solutions with the savings generated from moving off the electrical grid. There is a lot of activity in these markets and further maturity will be required. Ultimately, this will be good for the equipment leasing business.
Ancillary impact will be felt throughout American business. Transportation (truck, rail, marine) will benefit from the need to move the equipment, parts and materials that will be required to build out the national infrastructure. Infrastructure build out will create jobs.
Are we in the eye of the storm? No one knows and only time will tell. Yet one thing is for certain — change is imminent. It is unlikely that the prolonged period of low interest rates will last much longer. Low growth or no growth is also unlikely as pent up demand for capital spending should result in an investment “pop” late this year or early in 2010.
Our industry has been hit hard. Unemployment is rampant. Consolidation has taken its toll and continues to reduce overall industry headcount. Those who have jobs should feel fortunate. The turmoil caused by the upheaval of credit markets caused disruption among many lender-borrower relationships. New business opportunities with top quality customers have never been more abundant. You can choose how to react to the current market conditions. You can prepare for the worst — believing we’re about to feel the impact of round two; or you can “make hay while the sun shines,” and take advantage of the opportunities that exist because of the recent chaos.
I know what path I will be taking … and hope to see you along the way.
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