Fifteen years ago today, I launched Pensford. Well, I launched Pensford if can launch something by sitting at your kitchen table, in your pajamas, with a laptop trying to figure out what to do next. It was 10 months after a divorce, six months after Wachovia imploded, and one month after I had moved back to Charlotte from LA.
I remember getting so few emails in those first few months that I actually created client folders to keep them organized…there were two folders. I think I did three trades that first year, five the second year, and maybe a dozen the third year. What I had totally failed to appreciate as a swap salesperson was how much harder drumming up business would be than it had been at the bank.
Turns out having “Wachovia” on the business card, and lending people millions of dollars, makes them more open to your sales pitch. Now I had neither. And the one deal I had in the hopper died when the CFO called me and said, “I just don’t believe they would be making the sort of profit off me you are describing, so I locked it earlier today. Good luck with your business.” Ken B. eventually saw the light and we’ve been friends ever since.
I’m going to take a short walk down memory lane, so click here if you want to jump to the FOMC primer, inflation thoughts, and the upcoming jobs report. It’s going to be a crazy week.
My first real trade was a Charlotte developer that happened to read my inaugural newsletter.
I met with him, helped save a few hundred thousand dollars on an unwind, and my fee for that deal paid the bills for the next six months. He said, “You’re like a car mechanic I take with me to the auto shop to keep the other mechanic honest.” He only heard of me because of the very first newsletter.
There were three times that I was sure I was going under.
- Fall 2009 – I was this close to only having two trades the first year instead of three, and that would have taken me under. I was hired by a publicly traded REIT with a no strings attached commitment. We agreed upon the fee upfront but with a stipulation they didn’t have to pay if they didn’t want to – they didn’t even need a reason. They could be totally happy with the service and still not pay.
The loan fell apart in November. The borrower wanted 5bps lower spread and walked. Their theory was that the lender had already allocated the money to be deployed by 12/31 and would circle back. Three weeks went with total silence. Then I got a call that the deal was back on, closed a few days later, and locked the swap. I was standing in the backyard of a friend’s house when the call came in. “So, we don’t have to pay you if we don’t want to, right?”
“Yep.”
“No strings attached?”
“No sir, that was the deal.”
He paused for an eternity. I was thinking about which swap desks might be hiring one year after the GFC. Did my friend need his lawn mowed? I had done that as a kid to make money.
“You did great, we’ll pay it.”
That fee covered all of my expenses for the next 6-9 months. No joke. Had that call gone differently, we wouldn’t be talking today. And the fee wasn’t even that big, I just kept expenses down. Pajamas and kitchen counters are less expensive than the $50/ft Southend landlords are charging these days. - Fall 2010 – I had done four trades that year – look at that growth! The transaction slowdown had continued all year and I didn’t know if there was a light at the end of the tunnel. I was at the point where I was living month to month, trade to trade. I was probably dusting off the resume when a call came in from a guy that was in Charlotte just for the day and someone had forwarded him my newsletter. Could we meet in an hour? I suggested a lunch spot, but he said he would just come to my office. I suggested a coffee spot, but he again insisted he come to my office. Finally, I told him my office as just my house…I guess I was a WFH disciple before it was cool! Instead of agreeing to meet out, he said he would come to my house.
We met at my dining room table. Maybe I’m the only one, but this divorced guy had not exactly splurged on a proper dining room table. We met for an hour – he was contemplating suing his lender over the swap. He wanted to see if I could help analyze his swap and identify inconsistencies that his lawyers could use. I politely declined his request to be an expert witness, but I agreed to provide him a detailed review of every aspect of the swap so his legal team could use it.
I did it in one day because, you know, I didn’t have anything else going on. I gave him a five page summary, giving him a behind-the-scenes explanation for everything he was seeing. He and the bank “amicably” resolved their dispute less than a week later and he mailed the check to my house. It paid the bills for another three or four months, when business in general started to pick up. Again, he had heard about me from the newsletter…while he was in town…for one day…and met with me an hour later. There was no master plan being realized, it was just dumb luck. - Fall 2012 – by now Pensford had exploded into a three-man shop. We had even gotten a 200sq foot office (not a joke, literally 200sq feet), which made me feel all grown up but also meant I now had two other salaries to worry about. We were gaining momentum in the spring and then stalled out.
July, no deals. August, no deals. We had one really big deal hanging out there, but it wasn’t supposed to close until January and I was running out of cash quickly. I had lunch with one of my favorite people in the industry, Gregg S. I asked him if transactions were slow because people were worried about a Democrat winning? That seemed odd since Obama was already president. “Don’t let real estate guys tell you they need a Republican in the White House in order to do deals. We made money when rates were at 20%, we can handle a Democrat. But we need to know what rules to play by, and a presidential election is one of the biggest threats to those rules. I think business will pick back up once we are on the other side of the election.”
He would ultimately turn out to be right, but it wouldn’t matter if we couldn’t survive to the election.
Completely out of the blue, that big trade called up and wanted to forward lock their January loan closing. The T10 was around 1.60% and they wanted to take election risk off the table. We locked it a day later and that fee, like the first one, paid the bills for the three of us for the next six months until business was off and running.
To this day, I schedule a reminder for springtime ahead of a presidential election saying, “Don’t make any major decisions!”
Guess how I met that client?
Someone had forwarded him this newsletter.
Detecting a pattern?
There are weekends when I don’t want to write. It probably sounds glamorous to wake up at 3am to work from a hotel lobby. Or to tap away from the parking lot between kids games. Or on a redeye back from the west coast. But it isn’t.
But I know what it’s like to be one trade away from being back out on the street. I don’t ever want to go back there, so I hustle like there’s no safety net. When I don’t feel like writing, I just remember the times when the newsletter saved Pensford from going under and I flip open the laptop.
Our Offices
Obviously, the kitchen counter was first. Then a 200sq foot spot for three of us. After that, we rented a U-Haul and moved our desks and computers ourselves into a palatial 775sq foot spot. I kept us there even when we had grown to 13 people. That’s not a misprint – 13 people in 775sq feet with an $1,800 a month lease. I loved it. They did not.
We finally signed a much bigger, 10 year lease with nearly 9 months of lead time to do upfits and a move in date of April 1, 2020. That’s right, a few weeks after covid hit.
The governor of North Carolina issued a stay at home order on March 30th.
I can’t make this up.
It ended up working out perfectly, but for those first few months I couldn’t believe I had held off on signing a lease right up until a global pandemic may have made offices obsolete.
Our Team
My first employee was a UNC wrestler. He was terrible at verbal and written communication, but he was smart and hardworking. I figured a wrestler would be self-disciplined enough to work hard while I traveled. He turned out to be better than I could have ever imagined. He left to join one of the big banks about five years later, but we are still good friends and much of the foundation he laid is still used today.
My second and third employees were former bank colleagues. They struggled with the transition of being able to piggyback off the back of the relationship managers. I can’t stress to you how cocky we had been on the swap desk, totally oblivious to the fact that our partners spoon-fed us business. They didn’t last long and to this day I won’t hire swap salespeople. They are smart and hardworking, but don’t appreciate how much of their success is really tied to the success of their partners.
Even the teammates that didn’t pan out played a role in this journey. On January 2, 2013, one of those ex-bank colleagues said, “You need to sign up for a dating site today. Women make New Year’s resolutions to put in effort to go on dates. January is like shooting fish in a barrel.” I very reluctantly signed up for eHarmony, went on one date, and found the real boss here at Pensford. Some would say I settled after just one date…I wouldn’t…but some might…
There have been many more since then and we’ve grown to quite the team. What I love about the people I work with is they care deeply about the clients they help. We haven’t lost our obsession with customer service and we still live by our “respond to all communication within two hours” rule.
This team is truly the Dream Team and I am grateful that they each care as much about the business as I do.
Our Competitors
I respect some competitors more than others. Some like to “borrow” our website ideas, or our graphs, or even our analytical tools…heck, one based in LA just takes our online cap pricer and uses it to quote caps for their clients. That would be one of the shops I don’t respect. Don’t worry – I’ve told them to their face.
Alternatively, the number of visits our website gets from an IP address in Kennett Square, PA is pretty surprising. This would be the competitor I respect the most. I tell prospective clients if they don’t choose us, choose them - at least I know they’ll be taken care of. It’s a little weird competing against the same company every day for more than 20 years. The fact that I have a healthy respect for them means they are doing something right. We just do it better.
People switch to us, but they don’t leave us.
If you’ve been lurking on our website, using our resources, reading this newsletter, attending our webinars, or listening to the podcast but haven’t yet tried us out, just remember…
It’s not cheating if it’s an upgrade.
And that saying also came from the colleague that told me to sign up for a dating site. I told you he played a role!
Would I Ever Sell?
I’ve been approached over the years about a potential sale, always declining. Pensford’s like one of my kids…but revenue generating. Can I interest you in a kid, instead?
The most memorable discussion I had on a sale was October 2015. I visited with the CEO of one of the big brokerages. I loved the people we worked with from his team, so I understood the upside. But selling to him would mean an end to all the other broker relationships, so I declined. He then went out and found a competitor that didn’t cover real estate since they wouldn’t be giving anything up to sell to him. Well played sir - there’s a reason he’s an industry legend.
Interestingly enough, one of the concerns I raised to him was that if I sold, they might sell to someone else. I would be selling to one company that might become a different company. He said he couldn’t envision a world where they would sell.
They sold four years later.
Our Name
When I was at Wachovia, I was working on the business plan in the loosest sense of the word. But I had ideas and files and saved them on my computer. I needed a name for it but couldn’t come up with anything creative. I decided to use a placeholder and would commit more energy to a proper name if I ever got around to starting my own business. I even struggled to come up with a placeholder name, so I just decided to use the name of the street we were living on.
Pensford Lane.
Our Clients
What I love most about real estate is that it is relationship based. I’ve been to weddings, graduations, and unfortunately some funerals. Almost all my friends are from work.
Real estate pros are hard working and demanding, but fair. Once you’re in, you’re in. And that’s because they own their own risk. My old trader buddies had very stressful jobs, but it was still the bank’s balance sheet – not theirs.
The success a real estate firm enjoys typically comes at the risk of losing money for themselves and investors they are close to. This creates a different mentality than what you find on the trading floor. Our clients take that responsibility seriously and they want to work with people that take that responsibility seriously. That’s why we stress over your deals as much as you do.
My first trade ever was with a Charlotte-based firm that read the newsletter, but a few weeks prior to that another Charlotte-based firm signed the first contract ever. I still have it hanging up in the office.
You might recognize the name of one of their principles…JMo.
Thank you for a great 15 year run. If AI doesn’t make me obsolete, I’ll be in my 60s in another 15 years.
Time flies when you’re having fun.
This Week·
- 10 T: 4.67%
- German Bund: 2.58%·
- 2T: 4.99%·
- SOFR 5.31%·
- Term SOFR 5.32%·
- GDP Annualized Q/Q 1.6% vs 2.5% expected·
- GDP Price Index 3.1% vs 3.0% expected·
- Core PCE Price Index Q/Q 3.7% vs 3.4% expected·
- Personal Spending 0.8% vs 0.6% expected·
- Core PCE m/m printed as expected at 0.3%·
- Core PCE y/y 2.7% vs 2.6% expected·
- Do I owe Howie an apology?
FOMC Primer
The Fed rate decision is a known quantity, but it’s more a matter of what Powell says after the meeting that matters because we will not be getting updated projections.
I will be interested to see how Powell massages the wild oscillations his recent comments have caused. I think the market overreacted to his statement last week but I’m not sure he has any incentive to walk that back.
Plus, he’s got jobs coming out Friday. Good luck threading that needle.
Inflation
What’s so weird about Higher for Longer 2.0 is that Core PCE is still moving lower largely as expected. It’s like we’ve all forgotten that the Fed was projecting 3 cuts even though they only expected Core PCE to drop to 2.6% by year end. That was just six weeks ago.
Keep in mind that the data we got last week was for March, not April. It feels like the year is slipping away from us and progress isn’t where it should be, but with Q1 under our belt, Core PCE is averaging 2.83%. If we’re at 2.7% by June, only 0.1% from the Fed’s year end target, then what?
Apollo put out a piece last week saying that inflation was likely to remain above the Fed’s 2% target for all of this year…ummm, yeah, we all know that. The Fed doesn’t have Core PCE hitting 2% until 2026. It’s not like cuts were contingent on 2% this year. Great hot take.
Stop thinking that Core PCE needs to be 2% before the Fed cuts.
JMo Core PCE Wager Tracker
January 2.9%
February 2.8%
March 2.8%
I’m winning, but I thought my lead would be slightly bigger at this stage.
Jobs
It’s just whatever at this point.
From last year’s peak, we lost 2mm full-time positions.
Some argue that’s a sign of strength, but I don’t buy it. Here’s the same graph, but going back 60 years. See if you can detect a pattern when full time positions decline.
We even created our own Pensford Part Time Momentum Index. We decided to call it that so when a thieving competitor tries to rip it off, we can call them out and inject some branding at the same time.
Fortunately, there’s absolutely no conflict between different data sources tracking labor…
Indeed’s got a job market index that I consider more real time than the JOLTS survey. Job postings are way down, particularly for white collar jobs.
Vanguard recently highlighted that hiring is most favorable for those making less than $55k per year.
Excess savings is below pre-pandemic levels for everyone but the top 20%. That coupled with surging credit card debt, feels like a warning sign we are all ignoring.
Takeaways
- If you are lower income earner, you’ve gone through your excess savings but feel ok because the labor market is doing well for you.
- If you’re in the top end, your labor market isn’t nearly as hot but you feel ok because your net worth and excess savings are still up dramatically from the pandemic stimmy.
Everyone feels good right now, but for different reasons.
If one domino starts to fall, how quickly will the others?
Rates
The T10’s resistance level is 4.75%. After that, it goes straight to 5%. If Powell says something crazy, the T10 could be at 5%. I don’t think he will, but if he does.
The Week Ahead
A Fed meeting and a jobs report, what could go wrong?
