Credit Card	Bank of	American	Capital	Discover	JP Morgan	Citigroup	Wells	Credit-card
Issuer	America	Express	One		Chase		Fargo	Industry

Feb. 2007								4.51%
Feb. 2008								5.59%
Aug. 2008								6.82%
Feb. 2009		8.70%	8.06%		6.35%	9.33%		8.82%
Mar. 2009			9.33%	7.39%	7.13%	9.66%	9.68%	9.30%
Apr. 2009	10.47%	9.90%	8.56%	8.26%	8.07%	10.21%	10.03%	9.97%
May. 2009	12.50%	10.40%	9.41%	8.91%	8.36%	10.50%		10.62%
Jun. 2009	13.86%	9.90%	9.73%	8.75%	8.04%	10.50%		10.76%
Jul. 2009	13.81%	8.92%	9.83%	8.43%	7.92%	10.03%		10.52%
Aug. 2009	14.54%	8.50%	9.32%	9.16%	8.73%	12.14%		11.49%
Sep. 2009	14.25%	8.40%	9.77%	8.69%	8.12%	10.15%		10.72%
Data Source: Moody's Investment Services, Reuters Chart by Crescent Bay Financial

Guest Columnist - A Word of Caution
Article by Charlie Wright

A friend, who is an Investment Advisor, sent us an article he wrote that we thought we should pass on for those who are currently in the Stock Market. His name is Charlie Wright and while he calls himself an optimist, he warns of an '"Asset Bubble" that has formed soince March and is being further fueled by the growing weakness of the US dollar. As he points out, "Assets are too hard to create to be allowed to dissipate and evaporate." Here is his short but powerful article.

Mother of All Carry Trades Faces an Inevitable Bust

What does Nouriel Roubini see in the economy and financial markets today, and why should we care?

Nouriel Roubini is a professor of economics at the Stern School of Business, New York University and chairman of RGE Monitor, an economic consultancy firm. During the administration of President Bill Clinton, he was a senior economist for the Council of Economic Advisers, later moving to the United States Treasury Department as a senior adviser to Timothy Geithner, who is now Treasury Secretary. In 2008, Fortune magazine wrote that: "In 2005 Roubini said home prices were riding a speculative wave that would soon sink the economy. Back then the professor was called a Cassandra. Now he's a sage."[1] In September 2006, he warned to a skeptical IMF that: "The United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence, and, ultimately, a deep recession."[2] He also foresaw "homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt". The New York Times labeled him "Dr. Doom", whereas, in hindsight, IMF economist Prakash Loungani has called him "a prophet".

In an article entitled, "Mother of All Carry Trades Faces an Inevitable Bust" Mr. Roubini makes the following points:

Since March of this year, risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals;
Fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades;
Traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis in a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius;
It has become one big common trade - you short the dollar to buy any global risky assets;
So the perfectly correlated bubble across all global asset classes gets bigger by the day.

Where is this situation headed? According to Dr. Roubini,

A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a coordinated collapse of all those risky assets - equities, commodities, emerging market asset classes and credit instruments;
This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.

What does all this mean to an investor?

If you own stocks or equity mutual funds, commodities or emerging market asset classes, I hope you enjoy the short ride, and that your timing skills are impeccable. The risk you have taken on is faaaaaaaaar greater than the potential reward;
The list of those saying the similar thing is growing daily - Harry Dent ,Bob Rodriguez, Bill Gross, Richard Russell, Robert Prector, and now Nouriel Roubini are a formidable group to ignore or contradict;
Productive Absolute Return strategies and Cash Flow through Selling Calls are ideas whose time has come, and that time is here and now.

If you would like to know more about this, you can contact Charlie through the link above.

SOCIAL SECURITY IN 1935

When FDR introduced the Social Security Program he promised that:

1.) That participation in the Program would be completely voluntary,
2.) That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program,
3.) That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,
4.) That the money the participants put into the independent "Trust Fund" rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other

Government program, and,
5.) That the annuity payments to the retirees would never be taxed as income

Avoiding "Debt Capitalization" Financing
by Jill Benshoof

In earlier issues we discussed the difficulty of securing Bank financing for the Debt Buying business. After contacting over 130 Banks with our "A-1" Loan Proposal and being turned down 130 times, it was impossible not to notice a pattern. You would think we would have noticed after the first 25 or 50, but, Gary is not one to give up that easily. The 4 main reasons why banks wouldn't consider our impressive proposal were:

The business is "new" (9 out of 10 new businesses fail)
The assets purchased are "unsecured"
The business is "risky" (we were told by a high level SBA consultant it is considered similar to farming or even wildcatting???)
And, they would not support an industry that profits from their own losses

Not to be deterred, we also had another version of our Loan Proposal geared towards the Investor, along with a most impressive Financial Model, as only Gary can produce (160 pages Excel spreadsheet, modeling 100 packages with 180,000 data entries). The beautifully bound stack of those now sits along side the Bank editions in our office. What an education!!! When innocently advertising for investors on Craigslist prompted some inconvenient feedback (What SEC regulations???), we knew it was time to do a little homework.

So began our enlightening introduction into the world of "Investorship". Do you know the difference between the Angel Investor and the Venture Capitalist? And, what about the Private Investor? Ken Hollowell, provides a great summary of these methods of raising capital in his article "Are You Talking to the Right Investor?", News and Views, vol 2. A new twist to this form of financing is "Crowd Sourcing", or pitching the public in an on-line forum to drum up multiple independent investors. This methods is becoming especially popular with the arts and entertainment industries, as film-makers, Bands, artists and designers reach out to market their projects.

Well, 5-6 months have passed, and as direction of our business and the challenge of raising money, have both come into focus, it is clear that "Debt Capitalization" (bank loans, lines of credit and credit cards) is not the right approach for those of us starting up a Debt Buying business, given the state of the economy. We are currently thanking our lucky stars that 130 Banks had the foresight not to lend to us. Recent collection data indicates that returns are nowhere near the 3:1 speedy recovery projections that we had modeled based on reported historical industry averages. While borrowing from the banks on bad loans wouldn't have been a problem in the years from 1996-1999 that saw 4:1 returns on average according to our data, or in the years from 2000-2007 that saw 3:1 returns, in this economic climate the low recovery rates would have produced a rather painful outcome. After the 30%-40% collection fee and bank interest, the current 100% returns in 12-24 months would no doubt have left some profit, but the killer, would have been the monthly principal and interest payments, which would have been due whether anything was coming in or not from collectors. (Rule #1 of borrowing money -"Debt Capital" is most appropriate for companies that can demonstrate stable cash flow. Link)

If capital is the machinery that runs this business, then how do we launch a business like this in this crazy economy? The easiest way, of course, is either with your own money, or through the family/friend network. Retirement funds are the perfect resource. (No, it's not illegal to use your 401k or IRA for this business, if it is done correctly! See how...)

If personal resources are not an option, the best path that we have found is still through the Private Investor. Unlike "debt capitalization" through a Bank Loan, investment capital is equity linked, so there is no loan to pay off. The investor shares in the risk and the reward, which is ideal for this business. Raising sizeable private capital requires a Private Placement Memorandum filed with the SEC. From an investment standpoint, if we can achieve 100% net returns in 12 or in 24 months, this is by any investment standard an excellent return and even after collection commissions, there is ample reward to share with an investor. With the raising private capital legally through a PPM, and the purchase of multiple large portfolios over time, by offering a substantial incentive to the investor in the form of the bigger split, and then taking a smaller cut for yourself, there is still a very lucrative up side.

Crescent Bay Financial LLC has started the process in developing a Private Placement Memorandum with Ken Hollowell. The company is pursuing a 504D Placement and will use the funds raised from private investors through this offering to participate with the Loan Buyers Group in acquiring charged off assets at a discount. The Loan Buyers Group coordinates with Debt Buyers of all sizes to purchase National portfolios from issuers and large Debt Buyers. We will keep you posted on the progress of raising funds through this offering and share with you our experiences.