He's Baaaack

Awhile back I posted about Mikkel Thorup and his "advice".  Shortly after that, his incessant emails dried up.  No loss.  Then a couple of months ago I got a promo email.  Shortly after that, I received another "newsletter" type thing.  And it looks like he and his tools have only gotten worse.

First, he's completely come out as a COVID denier who believes "woke" is destroying civilization.  Second, he's using that fear-mongering to sell his latest grift, Veritas Villages scattered throughout developing nations, where you can live independent of "government" grids because you have your own water and power and apparently (though Thorup doesn't mention this point of course) your own staff of locals to maintain all this because you sure as Hells aren't going to.  In other words, rank neocolonialism.  Not that the types who buy into this rubbish see anything wrong with that.

The other big drum he's beating is for Pavel Durov, the Russian tech bro who was arrested in France in August.  According to Thorup, Durov was arrested because he protected free speech.  According to France and its case filings, it was because Durov refused to cooperate with investigations into criminal activities on his Telegram platform.  I would note that crime is not free speech, at least not when it's fraud, drug dealing, trafficking, and political hits, so it doesn't really look like Durov was protecting free speech.  But the truth wouldn't help Thorup's sales pitch.

A New Rant

A new rant just posted at Pacemaker:

Real estate crashes are built into the plan and are not a bug but a feature.  And with every crash, assets are further concentrated at the top of the wealth scale.  Let's look at the last crash.  The end of the boom was signaled Thanksgiving 2006 when Chase and Wells simultaneously (But certainly without collusion.  It's a miracle!)  converted the lines of credit that were an essential part of their mortgage programs into 60-month amortized loans, closing off access to credit for thousands of small businesses.  Why?  Well after spending the boom dead to the world, SEC and DOJ had been politically forced into semi-comatose states and had given Chase and Wells taps on the shoulders.  They hurriedly solidified their LOC positions into conventional loans before throwing a few of their lackeys under the bus the following Spring to placate the regulators.  By then the cat was out of the bag.  But the crash didn't happen.  Because the players still had too much Quatsch on their books, and their shovels were only so big.  They had to find marks to unload it to.  Failing that, they had to find marks to hedge it.  And they had to position for post-crash opportunities.  It took a year.  There was turbulence along the way.  New Century and American Home Mortgage went Chapter 11, a bunch of funds either closed or froze withdrawals, and B of A snapped up Countrywide, ostensibly as a bailout of Countrywide, but really to shore up B of A's balance sheet.  Then the players pulled the plug, and the spring unwound.  IndyMac, Bear, and Lehman folded up; Chase pushed WaMu off a cliff so it could grab its assets and shore up its balance sheet; a bunch of players, but especially Chase and Goldman, broke AIG and the Greatest Balance Sheet on Earth by loading it with rigged CDSs and other hedge positions; the houses that had put enough lipstick on their positions to keep from folding got absorbed, so B of A got Merrill Lynch, and MUFG got Morgan Stanley; and Wells got a seat at the big-boy table by winning the Wachovia sweepstakes.  Then it spread to other industries, and to the rest of the world, and everyone got a nice Mike Tyson square in the face.

And since then?  Let's just say China is not the only bubble out there.  For example, right here in Salt Lake City we've been frantically tearing down commercial property and slapping up 5-8 story apartment and condo blocks.  And the financing makes no sense, even with tax weirdness thrown in.  Rates of return that should only acceptable on government securities, but here they are on real estate.  But with interest rates effectively at zero, I guess anything is preferable.  And with that we can see the game is once again afoot.  Build it, then flip it out in the current inflated market to marks who are desperate for any return above 0%, then sit on your cash and wait for the next crash so you can buy it all back on the cheap.  And are the regulators looking into any of this?  Don't be silly.  They'd rather be looking at every mortgage and rent payment in the country than at which financial institutions have all their money tied up in cash, waiting to throw the switch on the next collapse.  And the grift goes on.

Speaking of Shills

I just have to shake my head at this flack piece by Dana Peterson, EVP and Chief Economist for The Conference Board.  First a bit about Ms. Peterson.  She was appointed to her position a year ago after doing undergrad and grad in economics (*SNORT*), a stint at the DC Fed, and several years as an economist at Citi.  In other words she has no real-world knowledge of real estate of business and only a selective and pigeon-holed knowledge of finance.  And she's wholly owned by The Powers That Be (TPTB).  As for The Conference Board, it was founded over a century ago by leading industrialists and financiers as the National Industrial Conference Board, and its job was to block labor organization and promote open-shop laws.  In spite of the name change, nothing has really changed there.  It has been declared "a trusted source" by the usual suspects (*COUGH*Chicago Tribune*COUGH*Wall Street Journal*COUGH*) but really just cranks out "research" designed to show that everything is proceeding smoothly and to keep regulators and media from looking into what TPTB are doing at the expense of the rest of us.  Which brings us to this article.

Ms. Peterson's thesis is we're not in a real estate bubble.  First off, she gets the dates of the prior bubble wrong.  In 2005 the bubble was already late-stage, and as I noted in my prior post, it lasted until 2008 due to the machinations of the perpetrators.  Second, she says fraud isn't driving the market increases this time, basic supply and demand are.  This is true in a narrow and frankly sick sort of way.  As she states, there is a percentage of Millennials who are moving into the housing market.  She doesn't state this is a decided minority of Millennials who overwhelmingly into two groups: those who've hit the jackpot and landed stable, well-paying jobs, and those whose parents can boost them (There is of course significant overlap.).  The bulk of Millennials are either scraping by in rentals they can barely afford or are still in the folks' basements (And by the way, there are plenty of folks older than Millennials scraping by with barely affordable rentals, right up to those of us on the cusp of retirement.  But TPTB like to flog us for not having $1,000,000 saved away.  We really do live in a bottomless crock.).

So I don't agree with Ms. Peterson that there is some youth parade driving the market.  The reason is the same as it has been to some extent all the way back to the 70s: There aren't enough stable, living wage jobs to support a healthy single-family residence market.  Since so much of our economy is dependent on that market, we've invented unhealthy ways of keeping it going, such as all the mortgage fraud 15 years ago.  These methods invariably produce bubbles, and the bubbles invariably pop.

I would also note Ms. Peterson is wrong about there being a big change in the mortgage market from fifteen years ago (There is one exception I'll look at below.).  The same banks (or their successors) are at play, the same secondary market, and the same securitization model funneling into REITs.  And if you think Dodd-Frank really makes a difference, I have some oceanfront property in Yuma, Arizona to sell you.

So if the kids aren't alright and we don't have a bunch of mortgage fraud going on, what is driving the market?  The answer actually lies in Ms. Peterson's article.  Fifteen years ago there weren't enough good borrowers, so they were manufactured via fraud.  Lots of creative financing: no down payment, no documentation, high loan-to-value (even over 100%), and variable interest rates everywhere.  As Ms. Peterson notes, the mortgages this time are overwhelmingly conventional.  Now ask yourself who can get these loans?  One group is the fortunate few who have either made it or whose parents did.  The other group is the one really driving this market: corporate landlords.  And that's not good.  Corporate landlords have deep pockets for obtaining financing, and they're using it to snap up single family residences to convert to rentals and older commercial properties to tear down and redevelop into mid-rise apartments and condos.  There are entire housing subdivisions being built out there to be flipped as a package to a corporate landlord, and the entire subdivision will then be rental houses.  So the housing supply is shrinking, which in turn drives prices up, which makes TPTB and their kids the only ones who can afford to buy, causing another shift of assets from ordinary people to the top.  So everyone has to rent, and rents are sky-rocketing as a result.  Bye bye affordable housing.

So what is TPTB's game?  What happens to their investments if only the top 10% can afford to live in them?  Are they really making a sucker's bet?  I don't think so.  I think they believe we've hit End Game.  They know everyone has to live somewhere and they can always count on their pet government entities to bulldoze homeless camps as needed.  I think they believe the next crash, and it will happen, will result in neofeudalism with them as the lords and ordinary people as serfs, exchanging their freedom for some hovel to live in.

So keep putting lipstick on that pig, Ms. Peterson.  But until you have some actual evidence for what you're shoveling, I'm not buying a bit of it.

"Investment Advisors"

Among my activities as a lawyer is being an arbitrator for FINRA, the entity that regulates financial advisors and brokers.  In fact I'm rated to chair arbitration panels.  There hasn't been much activity of late, which I chalk up to two things: 1) There hasn't been a big downturn in which a bunch of people lost their shirts and want to blame (often with good reason) their financial advisor, and 2) I have blasted both investors and advisors, so counsel doesn't where my biases lie (In truth I have a reality bias, i.e. I go where the facts lead because, as John Adams said in his statement to the jury in his successful defense of the Boston Massacre soldiers, "Facts are stubborn things." [which, btw, has the opposite meaning of Reagan's misquote].).  Which is a long way of saying that, if I issue a warning about someone purporting to be offering financial advice, I know something about the topic, and I'm not acting out of some grudge.

That said, the source of this entry is all the snake-oil salesmen who are purporting to offer financial advice.  I'm going to lay out some warning signs, and I'm going to use one outfit as an example, because it seems to hit the major points.

Agora Financial is a major player in this field.  I've been receiving multiple pieces of spam from them and their assorted affiliates daily for years, so I've been able to watch them over time.  I've done the research so you don't have to (Just another service I provide.).  The principal players are Porter Stansberry and Jim Rickards, with long-time hanger-on James Altucher, and new hanger-on Robert Kiyosaki.

1. The first thing you should ask before you take someone's financial advice is, "Who are these people?"

Stansberry, to put it charitably, is a publisher and commentator.  He is a gold bug, which is never a good sign (Gold is a perpetual underachiever as an investment, and anyone who promotes gold-backed currency doesn't understand how money works and is campaigning for a level of deflation that would return us to the 14th Century.).  If he has ever held a financial advisor's or broker's license, he doesn't advertise it, and real financial advisors are obligated to disclose this information.  Another thing he doesn't disclose but would have to if he were legit is that the SEC nailed him about 15 years ago for lying about his advising record in order to promote his stock tip newsletters and also lying about the risks present in the tips (The fact that Karen Martinez and her mob here in the Salt Lake SEC office pulled this off just shows how ham-fisted Stansberry was, because as I have commented before, Martinez led The Gang That Couldn't Shoot Straight.).

Rickards actually has some credentials.  He held several FINRA-regulated licenses (Series 3, 7, 24, 30, and 63) but apparently no longer does.  He has a JD, an LLM in tax, and an MA in international economics.  OK so far.  Then you start seeing things that make you shake your head.  He's another gold bug.  He was general counsel for Long-Term Capital Management, yet another "smartest guys in the room" operation that went disastrously belly-up 20 years ago.  As general counsel he must have been in on everything that mattered, and if he was as prescient as he now claims to be, he would have seen things were going extraordinarily wrong.  But all we know about his role is that he negotiated the government bail-out (i.e. created an exit strategy for the guys who created the problem at taxpayer expense).  He makes noise now about how he has testified before Congress, which he did, 10 years ago.  And it wasn't before one of the financial committees; it was before a subcommittee of the Science and Technology Committee, where he was talking about financial modeling.  I've read the transcript, and it's 14 pages of impressive-sounding blather.  Lately he's been holding himself out as "a high-ranking member of the US Intelligence Community" and "the CIA's Financial Threat and Asymmetric Warfare Advisor".  Let me tell you about folks who claim to be high up in the CIA without actually being in the Company.  They're like those guys who claim to have been Special Ops in Vietnam but it was all secret so they can't tell you about it, but trust them, they earned six Purple Hearts and three Medals of Honor at places like Muk Wah and Sin Loi, it's just that their file is all sealed up in the Pentagon.

James Altucher first blipped on my radar 10 years ago with a bit of total lunacy on Huffington Post claiming the economy had already turned around and to keep it going we needed to ignore several well-founded rules of financial and economic management.  I won't go into details here, but I savaged his position at the time as being perfect if you wanted to replace the economy with a kleptocracy, and it's been his MO ever since.  If I were writing the piece today, I'd start by channeling Luke Skywalker, "Impressive.  Everything you just said is wrong."  He used to say cryptocurrencies were a scam but now heavily promotes them, probably because the winds of hot money shifted (FWIW, I've always considered cryptocurrencies, as presented, a scam.  They aren't currencies, they're securities of a sort, they aren't terribly useful as either investments or wealth storage, and Heaven help these pyramids and the folks inside them when the regulators finally decide to descend on them, but that won't be until all the players have left the building and the only ones left are the marks who bought in because BLOCKCHAIN!).  I'll just leave the rest to someone who has actually dealt with him.

Kiyosaki is a special case.  He has admitted that Rich Dad, Poor Dad is made up, but people keep buying it and keep attending those seminars (Which he never attends.  He just lets his name and smiling face be plastered on them.  For a fee.  BRANDING!).  He bankrupted one of his companies to avoid paying a judgment debt.  The debt was about 1/20 the alleged annual revenue of the company.  With a revenue stream like that, obtaining financing to pay the debt would have been easy, far easier than filing bankruptcy, which means there were only two reasons for filing: Either he just plain wasn't going to pay (no guarantee of that in a Chapter 11 reorganization) or he couldn't get the financing because the revenue stream wasn't as represented.  Neither looks good for a financial advisor.

2. What are they selling?

A financial advisor provides a particular service: Set up an account with an advisor, and the advisor will manage it, the level of management depending on the specifics of your account terms.  And they're obligated to disclose to you how successful they've been.

Agora and companies like it don't sell management services.  They sell tip sheets and seminars ostensibly telling you how to manage your own investments.  And they don't disclose a thing about how successful they have been.  The SEC nailed Stansberry for misrepresenting his track record.  His crystal ball since then hasn't been any better.  Rickards's history is no better.  Altucher?  Go reread the link to Steemit above.  Kiyosaki?  It's all a pitch for "investment courses" that will cost more than any return you can possibly realize.  Run a cost-benefit analysis, and buying what they're selling makes no sense.

3. How are they selling it?

A legitimate advisor wants you to make money and will advise you accordingly.  He or she wants you to make informed decisions about your investments.  If the markets are heading down, the advisor will have you move into hedge positions to protect yourself.

Agora and the like play on fear and bias.  They constantly preach the imminent collapse of the economy.  They've been doing it for years.  They even keep recycling the same pitches, with obvious voiceovers changing the date the collapse is supposed to happen.  And they've been wrong every time (Interestingly, they reject the one thing that could actually bring about the collapse they keep predicting: climate change.).  Fear is a good way to sell snakeoil to marks, but it isn't a good basis for investing.

Neither is bias.  The most noticeable one is political.  These folks are all fans of President Trump, perhaps in part from sincere beliefs, but also in large measure because they are targeting a certain audience.  Nothing inherently wrong with that, unless it colors the advice they're selling.  Which it does.  Currently, they loudly broadcast that Trump is trying to do X, Y, and Z, that these moves are all brilliant, and that they will save everything if Trump is allowed to implement them.  But five years ago they were claiming Obama was trying to do the same things, except that if he did them, they would bring about immediate collapse.  Identical actions tend not to bring about opposite results.  Claiming they do?  I'll let you decide what to call that.

Misrepresenting the "opportunities" you're presenting is not a good advising method either.  Rickards has a doozy where he's holding Trump's budget proposal and says that on a certain page is a plan that will make you scads of money.  I got the document and looked at the page.  It's Trump's proposal for rebuilding national infrastructure (which hasn't happened but desperately needs to because about every aspect of our infrastructure is a wreck).  So if you're a construction contractor, you can bid on government contracts, perform them, and get paid.  That's their "investment" tip.  Another is an "obscure" law that will have the government paying you all sorts of money for your property.  If you look it up, what it says is that if you have a building, and the government decides to lease it, they'll pay you rent.  Another great tip.  A final example I'll give is a mysterious type of trust that will pay you piles of money.  They call it an Eisenhower Trust, undoubtedly just to invoke his name.  What they're really talking about are real estate investment trusts or REITs.  So if you invest in one, you'll get a piece of the return.  More great investment advice that is surely worth its cost.  I would note that REITs were the vehicles that held all the mortgage-backed securities and were the core of the financial crisis in 2008, so a return on your investment might not be such a guarantee.

4. Do they have "affiliates", and are they dodgy?

Legitimate advisors do not have affiliates, other businesses they have advertising and referral arrangements with.  An advisor may know lawyers or CPAs or real estate agents who can help you with certain issues, but the advisor is not in any kind of pay-for-referral relationship with any of them.  There are many good reasons for this, but probably the biggest is that they are illegal.

Agora and the like have piles of affiliates because that allows cross-platform promotion and getting your pitch in front of more people.  And are these affiliates dodgy.  Let facts be placed before a candid world.  One claims campaigning against sexual harassment is a threat to men.  Another claims it has herbal cures for cancer and diabetes.  One argues you should be able to carry firearms even if you've been found judicially incompetent.  And another one claims that Mexico is sending all those illegal immigrants across the border in a deliberate plan to undo the Treaty of Guadalupe Hidalgo and take back the southwestern US.  I'm not making any of this up.

If someone wants to be your financial advisor and flunks one of these tests, you probably ought to give them a pass.  If they flunk them all, well....

Free Capitalist No Longer Free

OMG, they finally nailed Rick Koerber to the wall.  It ought to be amazing it took so long, but given Utah's track record in such cases, I guess the miracle is that the case was prosecuted at all (Note that it required bringing in an outside judge to finally make this fly.).  Now I hope the Tenth Circuit doesn't bollocks the inevitable appeal.

Former Client

I see that a former client has pleaded guilty to a pair of felonies for an "only in Utah" scam.  I represented him a number of years ago in a business dispute.  He was also trying to get some kind of mining company off the ground.  Our politics were quite different, which thoroughly upset him, so he ended up getting a different attorney.  Over the next few years, I saw his mining company being praised in the local media.  I reached out a couple of times to congratulate him and see what he was up to, but he never responded.  I guess now I know what he was up to.  It's a rare attorney whose clients tell him everything, and probably a miserable one too.  And by the way, just because someone is being praised in what passes for the news media around here, it doesn't mean he isn't a total fraud.

If it Sounds too Good to be True...

...it is.  I've been hearing a lot about crowdfunding and have been asked about it be clients.  To put it mildly, I've been leery.  Basically just going out and asking people for money?  First, how do you honestly distinguish it from panhandling?  Sure, the solicitation says it will give you a return if it succeeds, but given the rate of success with start-ups, what are the odds?  Second, how can you even remotely provide adequate disclosure?  The whole thing sounds like a securities fraud charge waiting to happen, and that's what I've told clients.

Over the summer I had a chance to attend a lecture by Joseph Nowoslawski, who is an angel investor who has really dug into crowdfunding issues and the new SEC regs on the process.  His results?  Crowdfunding can work if you have the right circumstances, but compliance is expensive with a capital E, and as he and I discussed afterward, a good old Reg D offering under 506 still makes more sense for the overwhelming number of start-ups.

After the lecture, I overheard a discussion among a few of the other attendees, all of whom were involved in alternative medical treatments.  One was swearing up and down that his liver cancer was gone.  He had quit chemo, gone on some special diet (palm grass and who knows what all else) and was feeling great.  Of course everyone else in the discussion was affirming him all the way.  Folks, there is a very large difference between relieving symptoms and removing a cause.  He had reduced the load on his liver and so was no longer presenting the symptoms the weakened liver had caused, but that in no way means the tumor is gone or will remain gone.  Another issue I have with Orrin Hatch and his efforts to protect all the local alt-med outfits.

Quick fundraising and quick cancer cures.  They both sound too good to be true.  And they both are.

Latest Financial Industry Comments

Over on Credit Slips, we're discussing the CDS mess in the Greek default.  No one over there thinks we've seen the end or even the beginning of the end.  More like the end of the beginning.  I'm sticking to my position that anyone who was relying on a CDS to cover his position was willfully ignorant and deserves the haircut he'll be getting.  I've added that anyone who really wanted insurance for his investment should have been able to buy something from somewhere, and that if no such insurance were available, that a CDS was the only option, we now know as an absolute fact that the markets are nothing but a crooked casino.

On London Banker's blog, we're discussing how to fix regulation methods.  Following up on another comment, I've said that the touchstone should be whether the financial industry can explain an investment to the regulators.  If it can't, the investment doesn't fly.  After all, if the regulators can't understand it, how can the investors?

It Wasn't Illegal?

On 11 December, President Obama was interviewed on 60 Minutes.  The transcript is here.  The interview is pretty much what you'd expect.  Then, about three-fourths of the way through, comes this:

I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn't illegal.

Excuse me?


First, it must be nice to deal with US news media, which consist almost entirely of ignorant tyros who do what they're told.  Steve Kroft swallowed that comment and just kept pitching softballs.  A BBC interviewer would have gone straight at that comment and pointedly asked the President just what in Hell he was talking about.


Second, loan fraud is illegal, and we've had well over 31 flavors of it in this mess, with new ones cooked up by B of A, Chase, and RBS every day.  Securities fraud is illegal, including stuffing investment instruments with cherry-picked, bogus "assets" and then betting against them (I'm looking at you, GoldSacks.).


Mr. President, as a former prosecutor I can tell you that, just because your boys aren't pressing charges, all this garbage has suddenly been washed clean.  And yes, Mr. President, the DOJ folks are your boys, however much you may want to hide behind prosecutorial independence.  You picked Holder, you picked the US Attorneys.  Their decisions are your decisions.  Own them.