May 6

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Liquidity Hits Main Street

For the past year we have been hearing in the news regarding all of the cash that the Fed has pumped into the economy. The stock market has rallied and the banks have been making record profits. Until now we have not seen much direct results affecting our clients and the local economy. Over the past few weeks however we have started to see the cash showing up in our local economy.

Liquidity Hits Main Street: Analysis on Business Environment

I was having lunch with a friend whose company owns and manages over 10 million square feet of industrial and office real estate. He was remarking about how he had no delinquent tenants on his rent roll.

Later in the week I spoke with two different bankers. They both remarked that utilization of their clients line of credit had dropped over the past 6 months. It appears that their customers were paying down debt. This phenomena raised an interesting problem. The banks were having difficulty finding new loans. It seemed that there was little new loan demand.

Finally, all of our clients’ DSO is 45 days or less. In addition, some clients were asking for and getting deposits on new orders.

So what does this mean? Liquidity hits Main Street. It also means that the Fed’s actions over the past 12 – 18 months has worked! The question now is what does the business environment look like when they start sucking all of this liquidity out of the economy?

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