National Association of Credit Management

The finance ministers of Europe seem on the verge of giving Greece another bailout—one that will allow the country to stumble on until the end of March before the whole process starts over again. The fact is that Greece will have had an election by the time this discussion starts up again and, if one looks at the polls, the next Greek government will repudiate the current deal and likely refuse to go along with most of the demands. The Greek population is violently opposed to the austerity plan, and there are parties from the radical right and radical left that are exploiting that fury.

At the same time that there is intense debate over the current deal, there is controversy regarding the ultimate goal for the Greek economy. It has become an article of faith that Greece has to reduce its debt to the point that it is 120% of its GDP. The prevailing wisdom is that anything over that figure is wholly unsustainable, while much under is unrealistic. And the Greeks will be very hard pressed to make this goal under the best of economic conditions. It would require Greek growth at a pace that has eluded the country for years and is far higher than the average of the entire EU.

Nations that drag themselves out of this debt or nations that can sustain a high ratio are those with a strong and reactive export sector that is generally based on possession of a key commodity like oil or a strong manufacturing base. Greece has neither of these. The commodities it sells are marginal at best, and there is no industrial sector to speak of. This is a nation that relies on tourism and the activity of the Greek shipping industry.

Analysis: Greece desperately needs the bailout if it wants to keep negotiating a solution to the more fundamental issue. That said, it is not a panacea by any stretch of the imagination. Getting a permanent solution for Greece is a matter of converting Greece into a modern economy that really belongs in the European Union as something other than a permanent ward of the state. To a somewhat lesser degree that is also the issue in Italy, Spain and Portugal. These are nations that have more resources at their disposal than Greece but face much the same problem as far as consistent competitiveness. The question as to whether Greece can sustain a budget that is 120% of its GDP is one thing, but there is a bigger question than that. Can Greece develop something resembling a modern economy that justifies its presence in a European organization at all?

Source: Chris Kuehl, PhD, NACM economist

U.S. government-released statistics unveiled Wednesday showed manufacturing built off of December’s impressive gains with another uptick. And much of the credit goes to the automotive industry, which looks healthier than in years heading into the core of 2012.

Though overall industrial production was unchanged in January, manufacturing itself performed well yet again. A big part of that stems from the 6.8% gain posted by the index specifically tracking motor vehicles and parts manufacturing. That after the December result was upwardly revised to 3.8%. As loud as any time since the U.S. government bailed out two of the “Big Three” domestic automakers, the industry and those who rely on it have declared as loudly as ever in the newest statistics that the auto rebound is on.

Jim Gillette, an auto industry analyst with IHS automotive, believes parts suppliers and auto-makers are well positioned moving forward, not just because of streamlining business models during the recession, but because people who have put off car purchases can only continue that frugality for so long:

“Cars and trucks on the road are as old as they’ve ever been."

(Note: For more on this story, check out this week's NACM eNews, out later this afternoon).

Brian Shappell, NACM staff writer

Yet another alternative/renewable energy firm has sought bankruptcy protection following a period of quiet that was preceded in late 2011 by a slew of high profile Chapter 11 filings at such companies.

Michigan-based Energy Conversion Devices voluntarily filed a petition for Chapter 11 protection in the U.S. Bankruptcy Court for the Eastern District of Michigan Tuesday. Energy Conversion Devices, through its subsidiary United Solar Ovonic (USO), manufactured and sold photovoltaic products used largely in commercial rooftop solar panels. The company plans to sell USO, among other assets, as part of its plan to reorganize.

“We firmly believe there is a strong and sustainable commercial market for solar products,” said President/CEO Julian Hawkins. “However, our current capital structure and legacy costs are preventing USO from making the investments necessary for the future of the bodiless without restructuring.

It’s the latest in a series of filings by overleveraged alternative energy companies, which was predicted in NACM’s Business Credit Magazine last spring. Producers have alleged that Asian competitors have been offered subsidies by their governments and can no longer compete because they are undercutting them so drastically on pricing and costs. Others note a major factor is oversaturation in the U.S. solar energy/products manufacturing industry, which saw rapid perhaps unsustainable interest during the waning days of the last economic boom. Prior to Energy Conversion Devices, Stirling Energy Systems Inc. was the most recent to file – but it went straight to Chapter 7 (liquidations) in U.S. Bankruptcy Court in Delaware. It followed previous filings by SpectraWatt Inc., and the controversial Solyndra, a California firm with ties to the Obama Administration still being investigated federally for fraudulent business practices. Months before, BP solar operation halted its Maryland-based solar activities in favor of relocation abroad.

Brian Shappell, NACM staff writer

Stop us if you’ve read this before – worried about “contagion” spreading from the high-debt “PIIGS Nations,” a U.S.-based credit ratings agency has lowered the boom on the credit ratings and/or outlooks of several in said grouping as well as neighboring nations. While it may seem like a repeat, NACM assures you: it isn’t.

Moody’s Investment Services Tuesday downgraded the sovereign credit ratings of six European nations – Italy, Malta, Portugal, Slovakia, Slovenia and Spain (which fell multiple steps). Additionally, Moody’s wagged the proverbial finger at France, Austria and the United Kingdom – all holders of a prestigious ‘Aaa’ rating level – by publicly moving their respective outlooks from stable to negative.

As Moody’s and its counterparts at Fitch and Standard & Poor’s have alluded to in the past, the agency pointed to “uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework” as well as “increasingly weak macroeconomic prospects, which threaten the implementation of domestic austerity programmes and the structural reforms that are needed to promote competitiveness.” Because of both – and, one could argue, because of the agency’s own increasing spotlight/scrutiny on debts levels in the EU – Moody’s fears the impact on market confidence and the negative cycle that could ensue.

Markets fell slightly on the news, though the announcement generated more of a yawn than the panic and/or debate such a move would have in years past. Economists, including NACM’s Chris Kuehl and The Conference Board’s Ken Goldstein, have made past comments to the tunes of “it didn’t tell markets anything they didn’t already know” or slights on the ratings agency’s own crisis in credibility it suffered after poor analysis and borderline conflicts of interest in business practices during the much discussed run-up to the global economic downturn a few years back. Still, even with less of a cache, the downgrades are likely to have some negative impact on the short-term credit prospects for the nations involved, even if the extent is yet to be established.

Brian Shappell, NACM staff writer.

You may not be able to save any money on flowers, gifts or that fancy dinner on Valentine's Day, but you can save on the price of the the biggest educational and networking event of the year for credit professionals...for one day only.

On Feb. 14, NACM will show a little extra love exclusively to its social media followers (on Twitter or Facebook) by extending $50 off new Credit Congress registrations! Those wishing to take part must register online using discount code CUPID, and do so today.

For those of you not yet following NACM on Twitter, find us at https://twitter.com/#!/NACM_National. For more information on events and sessions at 2012 Credit Congress, being held this year at the Gaylord Texan in Grapevine (Greater Dallas), TX, please visit http://creditcongress.nacm.org/. The Credit Congress Facebook page is at www.facebook.com/creditcongress.

See y'all in Texas.

U.S. exports of goods and services hit landmark, after landmark, after landmark in 2011. It seems appropriate then, that statistics released last week confirm last year as the biggest ever for U.S. companies selling abroad.

According to 2011 trade numbers released by the Commerce Department’s Census Bureau and Bureau of Economic Analysis, U.S. goods and services exports in 2011 were up by 14.5% or $265.5 billion from the same period of 2010, reaching a record annual total of $2.1 trillion. Most individual merchandise categories also experienced record export levels in 2011.

The Commerce Department’s most recent release also included figures for December 2011, which showed an increase of 0.7% in exports of goods and services from November’s numbers. December’s exports of services also set a single-month record of $51.7 billion.

All in all, over the last twelve months, exports have been growing at an annualized rate of 15.6% when compared to 2009, a pace greater than the 15% required to double exports by the end of 2014, a deadline set by President Barack Obama’s National Export Initiative. "U.S. exports posted a record $2.1 trillion in 2011, helping to fuel the positive momentum we have seen in the U.S. economy as a whole. Given the growth over the past two years, we remain on track to realize the president’s National Export Initiative goal of doubling U.S. exports by the end of 2014," said Commerce Secretary John Bryson. "The private sector has recorded 23 consecutive months of job growth, creating 3.7 million jobs, and U.S. manufacturers have added 404,000 American jobs in the last two years, the strongest growth since the 1990s."

Export-Import Bank (Ex-Im Bank) Chairman Fred Hochberg also cheered the news, and again pledged the bank’s resources to the continued success of international trade. "U.S. exports play an essential role in our economic recovery, and it's vital that we provide American business owners with the resources they need to compete in a 21st century global economy," he said. "Ex-Im Bank remains committed to reaching new customers and to helping level the playing field for our nation's exporters."

The major export markets with the largest annualized increase in U.S. goods purchases were Turkey (43.6%), Panama (38.6%), Honduras (35.0%), Argentina (33.2%), Hong Kong (31.7%), Chile (30.3%), Peru (30.0%), Brazil (28.3%), South Africa (28.0%) and Guatemala (26.6%).

To learn more about best practices in exporting and how to grow your company through international trade, visit FCIB’s website at www.fcibglobal.com.

Jacob Barron, CICP, NACM staff writer

The markets and mainstream media thought that a new bailout deal had been made with Greece at last, and the investors reacted with some glee. That proved to be short-lived enthusiasm as the reality of the situation set in. The “troika” made up of the European Union, European Central Bank and the International Monetary Fund has not indicated pleasure with the plans put forward by the Greeks. They want to see more cuts and more commitment to an austerity plan that will extend past the April elections, and the Greeks have been very reluctant to make that kind of promise amid already weak growth prospects and widespread rioting from the populous over any more austerity.

The deal that the current government made has already caused some splits in the ruling coalition as the small, far-right LAOS party has refused to support the plan and have threatened to pull out of the coalition altogether. They do not have the ability to collapse the government, but they illustrate the threat that worries the “troika”. The government now may be supportive of the plan, but there will be plenty of opportunities to reject the plan in the near future future. If so, the rescuers will be right back where they started.

The fact is that Greece is not in a position to make the radical changes demanded thus far. It may make perfect fiscal sense, and the reforms may be long overdue, but that doesn’t change the situation in the streets. The demands will mean radical cuts in pay and benefit for the millions of state employees and they are represented by some of the most radical unions in Europe. They will not accept these changes without extreme protest as has become the case.

Though markets rallied on the news that a deal seemed imminent and, now, the enthusiasm has faded just as quickly. The fact is that one of these positions will have to be abandoned, and it is not at all clear which country has the most leverage. It would appear that Germany holds the cards as they are the only ones that can make the financial commitment. However, if Greece refuses to go along with the deal and allows the chips to fall where they may, the repercussions (a bank-crippling uncontrolled default) could be as bad for the Germans as for the Greece.

Source: Chris Kuehl, PhD, NACM economist

For those of you not in the know, NACM has launched its official Facebook page for 2012 Credit Congress, where attendees can find out information, communicate with one another and be part of contests/special offers. To wit, NACM would like to congratulate our first Credit Congress Facebook contest winner: Valerie Camacho. Valerie has won a free registration to this year’s Credit Congress, to be held at the Gaylord Texan in Grapevine (Greater Dallas/Ft. Worth), TX this June.

For more information and to ‘friend’ or ‘like’ the Credit Congress page, visit www.facebook.com/creditcongress.

Providence has become the latest city to get press for flirting with the brink of insolvency and, thus, is starting to generate increasing debate over whether it will file for Chapter 9, municipal bankruptcy, protection. To wit, it's mayor, Angel Taveres, noted the city could essential go broke by June without concessions from retired employees as well as, to a lesser extent some nonprofit entities.

The statement could be a strategy to bust some collective bargaining agreements after the smaller Central Falls, RI municipal bankrutpcy that caused retirees to eventually agree to an out-of-court settlement to save millions on entitlements.

Meanwhile, the bombshell of the week in bankruptcy came out of Harrisburg. State-appointed receiver David Unkovic said publicly that despite the state and the mayor’s vitriolic fight to prevent the council’s Chapter 9 filing last fall, bankruptcy may in the end be the only choice for the city by July if stakeholders don’t make concessions and warring city government factions don’t agree to work together.

Unkovic recently unveiled a plan to keep the city out of bankruptcy that included selling the incinerator operation that has caused a lion's share of its debt as well as seets such as parking structures.

(Note: More on Chapter 9/municipal bankruptcy in the lead story of this week's NACM eNews, available later today at www.nacm.org).

Brian Shappell, NACM staff writer

Federal Reserve Chairman Ben Bernanke has been back in the usual hotseat before Congressional lawmakers itching to garner some T.V. coverage in an election year. And though news is mostly positive about the U.S. economy, the Fed appears ready to continue on its path, no matter how popular or unpopular it may be with members of the U.S. House and Senate.

Bernanke presented the semi-annual Economic Outlook and the Federal Budget Situation over two days on Capitol Hill, with his most recent appearance coming Tuesday. The report indicated the economy continued to growth, albeit at not an exceedingly robust pace, on strength in sectors such as manufacturing. Additionally, the gains were more than offsetting ongoing construction/real estate woes and concerns from economic problems abroad, primarily in the European Union. Of keen interest to U.S. businesses is predictions of spending on capital improvements and hope for continued improvement in credit conditions.

“More recently, the pace of growth in business investment has slowed, likely reflecting concerns about both the domestic outlook and developments in Europe -- However, there are signs that these concerns are abating somewhat,” Bernanke said. “If business confidence continues to improve, U.S. firms should be well positioned to increase both capital spending and hiring...and surveys indicate that credit conditions have begun to improve modestly for those firms as well.”

Another key topic of conversation was the positive January unemployment numbers that shocked market-watchers by falling to 8.3%. Still, the chairman reaffirmed the Fed would keep the target for the federal funds rate near zero. He also warned that unemployment numbers for one month do not paint a complete, reliable picture about a U.S. labor market that still faces some problems or the fact that unemployment numbers do track the many who have simply given up looking for a job as certain industry sectors and regions have seen an anemic rebound to date.

Brian Shappell, NACM staff writer

While bankruptcies are declining nationwide, they don’t seem to be falling anywhere faster  than in the commercial world.

Total business filings for January 2012 fell by 20% when compared to January 2011, from 6,203 to 4,967, according to the American Bankruptcy Institute (ABI). Overall, filings in the U.S. decreased by 14%, totaling 87,946 last month, as compared to 102,175 the year prior.

“The continued decline in bankruptcies reflects the effort of consumers and businesses to shore up their debt loads in order to navigate through an uncertain economy,” said ABI Executive Director Samuel J. Gerdano. “We expect overall bankruptcy levels in 2012 to continue to trend downward until consumers increase household spending.”

Month to month, the January 2012 overall readings represented a 9% decrease from the 96,264 filings in December 2011, and a 10% drop from the 5,496 commercial filings in December 2011. ABI cautioned, however, that Chapter 11 filings in the busiest bankruptcy jurisdictions have been up significantly over the last year, increasing by 40% in the District of Delaware and by 25% in the Southern District of New York. Two major Chapter 11 cases—Eastman Kodak and Ener1, Inc.—were filed in New York last month, while three major cases—Evergreen Energy, Inc., Buffets Restaurants Holdings and Trident Microsystems, Inc.—were filed in Delaware.

Jacob Barron, CICP, NACM staff writer

The day of default is nearing, and it looks increasingly likely that the Greeks will not be able to pull out of this. A disorderly default in Greece would throw the entire euro-wide bailout system into chaos, and it is evident that this game of financial chicken is going to be played down to the very last second.

The Greeks are refusing to accept the demands that have been made by German and French leaders, who appear as dug-in as ever in their proposed conditions, as they assert the requirements are too draconian. Greek leaders, already unpopular with the masses for previous austerity cuts, have predicted that the German and French demands will condemn the nation to years of destitution and no growth.

Regardless, those with the bailout cash want an even more aggressive austerity plan and labor reforms, and they believe the Greeks will give in. The Greeks think the threat of euro zone collapse will be enough to make the austerity proponents back off.
 
Either way, the fear is that both sides will wait too long, and nothing will be able to stop and uncertainty-fueled financial meltdown in the EU.

Source: Chris Kuehl, PhD, NACM economist

The U.S. economy added 243,000 jobs in January, an unexpectedly high number that dropped the nation’s unemployment rate to a three-year low.

“Today’s employment report provides further evidence that the economy is continuing to heal from the worst economic downturn since the Great Depression. It is critical that we continue the economic policies that are helping us to dig our way out of the deep hole that was caused by the recession that began at the end of 2007,” said Alan Krueger, chairman of the White House Council of Economic Advisers. “Most importantly, we need to extend the payroll tax cut and continue to provide emergency unemployment benefits through the end of this year, and take the additional steps that President Obama proposed in his State of the Union address to create an economy built to last.”

Analysts had originally expected a gain of only 150,000 jobs. Instead, last month employers created the most jobs since April, dropping the unemployment rate to 8.3%, down from 8.5% the month prior. Since August, the joblessness rate has fallen by 0.8%.

Although, according to NACM Economist Chris Kuehl, PhD, job growth is a very difficult figure to track, other figures from the private sector mirror the optimism of the government’s latest report. “Here is the good news according to the latest survey from ADP,” said Kuehl, referring to ADP, Inc.’s most recent National Employment Report. “They are seeing gains in the private sector as far as hiring is concerned, and the majority of these new hires are with smaller companies. This is critical as small and medium-sized companies with employee numbers between 50 and 500 are the primary employers in the U.S.”

Kuehl noted that if this sector isn’t hiring, then the chances for a solid recovery in employment are slim. Luckily, this doesn’t seem to be the case. “It is even more interesting that ADP reports that many of those companies that are hiring are in the manufacturing sector,” he added. “That bolsters the assessment of manufacturing as a robust sector of the economy.”

“This is not the definitive signal that all is well and that real gains will soon be showing in the overall levels of joblessness, but this is a step in the right direction,” said Kuehl.

Jacob Barron, CICP, NACM staff writer

Last month, one of the “Big Three” U.S.-based ratings agencies noted deep concern with what appeared to be civil unrest with the government, more specifically Prime Minister/soon-to-be second-time President Vladimir Putin. Little has happened in the interim to paint the Fitch decision to downgrade its long-term prospects as outside the line, as so many ratings agency downgrades have been criticized.

Though Putin's likelihood to regain his post as president after elections in March is all but guaranteed, there is widespread evidence of unrest in the form of in-country blogging and public demonstrations stemming from alleged deep corruption in Russian politics. The growing, and surprisingly brazen unrest has not been so public since the fall of the Soviet Union. To wit, this week there was what amounted to an organized, 500-car protest parade around Moscow’s “Garden Ring,” a stretch of road in the city that passes by the Kremlin. It was described in some ways as an opening act to bigger protests planned in February and it garnered worldwide attention.

 It can best be described as "unprecedented,” said various credit professionals familiar with Russian political and business happenings.

The questions yet to be answered are how big and unified will the populous protests become, what type of measures Putin, typically quick to dismiss decent, will take and what impact this could have on business. The worst-case scenario is Russia’s own version of “Arab Spring,” though even those calling for reform say remains highly unlikely. Still the developments are worth note to anyone doing business in Russia.

FCIB will present a "Doing Business in Russia" webinar in March. For more information or to register, visit the events section of their website at www.fcibglobal.com.

Brian Shappell, NACM staff writer
 

The January Credit Manager’s Index (CMI), to be unveiled Tuesday afternoon, is expected to illustrate a small positive increase from the holiday-assisted December index. It’s much like the positive out of the gates found by the CMI in January 2011 – but, this time, some key statistics within seem to predict a better follow-up to the strong start than one year ago.

Chris Kuehl, PhD, National Association of Credit Management (NACM) economist, noted the parallels between this and last year, but also spelled out the potential “staying power” behind this year’s January finish that was absent by Spring 2011. New sales in January will see a bump in the not-yet-public CMI results. In fact, January’s sales numbers will show themselves to be the best in many months. That said, nothing is a guarantee going forward in this up-and-down economic recovery

 “The next few months will bear watching to see if this sales trend is repeated and sustained longer than it was in 2011,” said Kuehl. One area Kuehl seems to believe will be a harbinger of a better late winter/early spring in 2012 is a bump in new credit applications:

 “The jump from December [to January] was nothing short of spectacular,” Kuehl foreshadowed. “The trend toward more credit applications suggests a lot of new activity; it is equally encouraging that there was a gain in the number of credit applications accepted.”

(Note: The online CMI report for January 2012 contains the full commentary, complete with tables and graphs and will be available Tuesday. CMI archives may also be viewed online).

Brian Shappell, NACM staff writer

The following are passages released by Fitch Ratings regarding its six-nation credit downgrade timed with the end of the U.S. business day Friday:

"Fitch Ratings has today concluded its review of the six eurozone sovereigns it placed on Rating Watch Negative (RWN) on 16 December 2011.

The rating actions on the long-term Issuer Default Ratings (IDRs) are as follows:

• Belgium downgraded to 'AA' from 'AA+'; Negative Outlook;
• Cyprus downgraded to 'BBB-' from 'BBB'; Negative Outlook;
• Ireland LT IDR affirmed at 'BBB+'; Negative Outlook;
• Italy LT IDR downgraded to 'A-' from 'A+'; Negative Outlook;
• Slovenia LT IDR downgraded to 'A' from 'AA-'; Negative Outlook;
• Spain LT IDR downgraded 'A' from 'AA-'; Negative Outlook;

"Today's rating actions balance the marked deterioration in the economic outlook with both the substantive policy initiatives at the national level to address macro-financial and fiscal imbalances, and the initial success of the ECB's three-year Long-Term Refinancing Operation in easing near-term sovereign and bank funding pressures. Nonetheless, the intensification of the euro zone crisis in the latter half of last year undermined the effectiveness of ECB monetary policy and highlighted the financing risks faced by eurozone sovereign governments in the absence of a credible financial firewall against contagion and self-fulfilling liquidity crises."

Source: Fitch Ratings

In his fourth State of the Union speech last night, President Barack Obama laid out his blueprint for the nation’s economy, starting with manufacturing.

“We will not go back to an economy weakened by outsourcing, bad debt and phony financial profits,” he said. “Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that’s built to last—an economy built on American manufacturing, American energy, skills for American workers and a renewal of American values.”

The president also tipped his cap to a recent trend among businesses bringing jobs back from other countries historically thought of as sources of cheap labor. As previously reported, “insourcing” is now frequently taking the place of “outsourcing.” “We can’t bring every job back that’s left our shore. But right now, it’s getting more expensive to do business in places like China. Meanwhile, America is more productive,” said Obama. “A few weeks ago, the CEO of Master Lock told me that it now makes business sense for him to bring jobs back home. Today, for the first time in 15 years, Master Lock’s unionized plant in Milwaukee is running at full capacity.”

“So we have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed,” he added.

Obama went on to suggest tax reforms that would incentivize companies to bring jobs back to the U.S. and relocate to recession-hit communities. Exporting, which figured heavily into last year’s speech, also received a small amount of attention, mostly as the president burnished his credentials and highlighted the success of the past year’s free trade agreements (FTAs).

In essence, the speech focused on the idea of economic fairness. “The debate now will be over what constitutes fair,” said NACM Economist Chris Kuehl, PhD. “The speech had very little to do with the current condition of the U.S. and its economy, but that was expected in an election year. The overarching message is that the wealthy should be taxed more.”

“The fundamental issue driving the two sides remains how to deal with the debt at the same time the nation has to expand economic growth,” he added. “Without more revenue, the government can’t sustain current spending. Some would have that spending curtailed further while others assert that austerity is already compromising growth. The reality is that taxation and differing concepts of fairness will be at the heart of the election for the duration.”

Jacob Barron, CICP, NACM staff writer

Trite as the “There’s an app for that” saying has become in the growing cultural and business dominance of smart phones and devices, a new application apparently does exist to quickly help professionals determine the likelihood of a corporate bankruptcy. And it’s coming from a source familiar to veterans of monitoring trends in bankruptcy.

New York University professor Edward Altman, known as the father of the 1968 bankruptcy predicting model known as the “Z-Score,” is up to his old tricks, but in a whole new, high-tech world. Altman has unveiled a new application (or “App” as the tech-friendlies refer to them) for iPhone/iPad, Android and BlackBerry products called the “Altman Z-Score Plus.

The app relies on the Z-score model to determine the likelihood of publicly-traded U.S. company bankruptcies, like the original model from four-plus decades ago, as well as new wrinkles including many private firms, notably in the manufacturing field, and some internationally based outfits, particularly some key ones based in China.

(Note: More on this story in this week’s NACM eNews, available Thursday afternoon).

Brian Shappell, NACM staff writer

When President Barack Obama makes his fourth State of the Union address tonight, the domestic economy will clearly be the speech’s centerpiece. In an election year when little else but the nation’s 8.5% unemployment rate seems to matter, talking about anything else would only seem like a diversion.

Specifically, however, the address may focus directly on the future of the nation’s energy sector. Following last week’s rejection of the Keystone XL Pipeline, energy independence is a newly hot topic, and the White House is keen on using the president’s annual address as a way to both deflect criticism of the rejection and change the conversation on energy altogether.

Opposition to the Keystone XL project, which would’ve constructed a pipeline from Alberta, Canada all the way to the Gulf of Mexico, wasn’t limited to the nation’s most environmentally-minded. Local economies opposed the plan on the basis that it would cost jobs in the natural gas sector, which is only just now becoming economically viable. “The shipment of Canadian oil into the U.S. is hardly conducive to the further development of gas as an energy alternative,” said NACM Economist Chris Kuehl, PhD. "Right now, natural gas is on the edge of an economic breakthrough, and issues like access to cheap oil will matter. The price of natural gas has tumbled, which is a good thing for the utilities that use it to produce power, but the price has not fallen low enough to convince power plants to abandon coal-fired operations.”

“If natural gas reaches a level that makes it competitive with gasoline as a source of energy for mass vehicle use, the sector begins to make sense economically and it now seems more apparent than ever that the White House has this in mind,” he added.

While the development of natural gas could appeal to both heartland economies and environmentalists, a comprehensive energy plan by the Administration will, in all likelihood, seek to exhaust all possibilities in the pursuit of energy independence, meaning oil production would increase along with natural gas production. “There is a very aggressive plan when it comes to natural gas development. It may even go so far as to set a goal for natural gas production that is more aggressive than anything seen thus far,” said Kuehl. “The speech will also emphasize the development of offshore oil reserves and various oil shale deposits in the U.S.”

“These are not the kind of remarks that will gladden the hearts of the environmental community, and they put the rejection of the Keystone project in a different light,” he added.

Right now, however, all of this is speculative. “The ultimate plan from the White House may not look at all like this,” Kuehl cautioned. “And the U.S. will have missed an opportunity to reduce reliance on the volatile nations of the Middle East, but if the rumors are true, this evening’s speech may do a lot for the confidence of domestic oil producers and leave the environmental community with a pyrrhic victory in Nebraska.”

Jacob Barron, CICP, NACM staff writer

Budget shortfalls remain widespread in the wake of the financial crisis. One notable, and oft-overlooked, casualty of the worst recession in a generation is lax administration of escheatment and unclaimed property rules by state authorities. Where once companies could often pay little mind to local laws governing unclaimed property, now, as recent studies have shown, enforcement is ramping up as local governments look high and low for ways to fill in budget gaps.

With this in mind, Val Jundt, managing director of Keane consulting and advisory services, recently offered her best recommendations to trade credit professionals beset by this new environment, where stringent enforcement of unclaimed property liabilities is the norm, rather than the exception. “Though accounts receivable credit balances are clearly within the definition of an unclaimed property liability, it has only been within the past 5-7 years that this category of property has become a primary focus for the auditor,” said Jundt. “The responsibility of the credit manager to ensure that the identification, tracking and posting of all customer credit balances is done accurately, and completely, is critical.”

Certain obligations can be very easily overlooked by creditors and their companies, Jundt noted, and being aware of these common mistakes can prevent a great deal of troublesome penalties down the road. “For example, there are often contracts with vendors that allow for certain discounts if paid early, or legitimate offsets due to damaged goods, which could appear to be obligations from an accounting perspective,” said Jundt. “If these items are not documented carefully, the auditors often operate under an ‘assumption’ that a liability exists; often creating an estimated liability that can exceed several thousand, or even million, dollars.”

“Whether the credit is still on the books or has been reduced to a check, the auditor will carefully review this area to identify a potential liability,” she added.

For companies looking to increase compliance and protect themselves from newly-zealous auditors, Jundt offered these helpful hints to get started:

•    Confirm that your department is properly identifying and tracking customer credit balances.
•    Make sure that unclaimed credit balances are being reported as unclaimed property.
•    Follow up on customer credits early and often to resolve them where possible.
•    Document your policies and procedures—and test them to make sure they are being followed.

To learn more about trends in unclaimed property and best practices in compliance, check out Jundt’s upcoming presentation, “The ABCs of Unclaimed Property Compliance,” at this year’s upcoming Credit Congress, scheduled for June 10-13 at the Gaylord Texan in Dallas. Click here to find out more, or to register today.

Jundt will also lead a special “Added Advantage” NACM teleconference on unclaimed property in April. Click here to find out how to register.

Jacob Barron, CICP, NACM staff writer