Thursday, November 07, 2019

New Bankruptcies

So Murray Energy has filed a Chapter 11.  A few points here.  First, anyone connected to the Crandall Canyon Mine Disaster knows that Robert Murray shouldn't be in bankruptcy court, he should be in prison.  That place was one, big, deliberate safety violation, and nine people died.  Second, for anyone who has a lick of sense, this ought to put the lie once and for all to Trump's promise to bring the coal industry back, which is no surprise at all to those of us who have spent the last four decades or so following how well Trump has kept his "promises".  Third, watch out for another big load dumped on taxpayers.  Perhaps the biggest reason corporations file Chapter 11 is to shed pension plans and foist them on the Pension Benefit Guarantee Corporation.  Ordinarily, PBGC can refuse to take over an underfunded pension, but that authority is overcome by a confirmed Chapter 11 plan.  So the PBGC ends up with yet another underfunded pension, and one of two things happens: 1) PBGC cuts benefits down to the funds available, leaving the pensioners impoverished and compelled to seek public assistance, or 2) PBGC gets a special bail-out from Congress.  Either way, the bankrupt company shifts its private debt onto the general public.

Also filing Chapter 11 is EP Energy, one of the biggest players in the Eagle Ford Shale (Full disclosure: I represented EP Energy in the III Exploration II, LP bankruptcy.).  I think it is apparent that everyone in the oil shale play is hurting and the hot money that has been propping it up is cooling.  So is this why gas prices just bumped up?  Doubt it.  EP filed a month ago, and it was already common knowledge then there was trouble in Oil Shale City, so all that should have been factored into prices some time ago.  No, I think it's far more likely, as I've commented before, that gas prices just jumped for no other reason than that they can.  Don't expect gas prices to be affected by anything that happens in that place called Reality.

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Monday, August 05, 2019

More Market Craziness

As I recently blogged, markets are not making sense.  One of the things I noted was gas prices, which are jumping back up a full month before Labor Day and without any change in the threat posturing in the Middle East.  Prices are going up because they just can.  I also commented about the crazy money going into multi-family housing.  This week I learned it's worse than I thought.  The cap rates on these projects are running as low as 4%.  There is much debate about what all goes into a cap rate, but for our purposes it is the annual rate of return an investor expects from an investment.  A high cap rate indicates a risky, volatile, short-term investment.  The investor needs a high rate of return to get its return and quickly flip the investment.  In contrast, a low cap rate indicates a safe, stable, long-term investment.  4% is low.  In fact to get lower, you have to go into the world of government and high-grade corporate bonds.  Serious buy-and-hold strategies with almost guaranteed returns.  Is multi-family construction that stable?  Not hardly.  Which means Mr. Market has a fire hose of money aimed at a sector that can't give adequate returns.  Just like the Dotcom Boom.  Just like mortgage-backed securities.  Just like oil shale and tar sands.  Which means we're just pumping up another bubble.  When people talk about markets, what they are really talking about is marks.  Don't be their next mark.

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Saturday, July 27, 2019

Enough Death...

...time for some simple destruction.  Last Saturday was a farewell open house at Brighton High School.  They're going to tear down Deep Space Brighton and replace it with, of course, another generic box.  In other words, they're tearing down yet another architecturally significant structure and replacing it with yet another pile of brick and glass that will slide right off your eyes and mind.  I got ripped on the local message board for this opinion, but I will hold to it: This is the sort of planning and design "thinking" that gave us the abomination that is the Abandoned Borg Cube we now have for a federal courthouse.  Keep it up, folks, and we'll end up with a structural environment that will make Soviet-era housing blocks look dynamic and exciting.


Wednesday, July 24, 2019

And Now Rutger Hauer... gone.  And all these memories will be washed away like tears in the rain.

Tuesday, July 23, 2019


...Chris Kraft has died.

Saturday, July 20, 2019

Apollo 11

And let's not overlook that today is the 50th anniversary of the first Moon landing.  I remember it well, sitting in the living room with the folks, Dad's folks, and my kid sister, staring at our black & white console TV, trying to decipher those fuzzy images (The ghostly images inspired the name of the Apollo 16 command module Casper.).  The exact time was 2156 CDT.  I'd long since given up my early dream of being an astronaut because everyone knew NASA didn't take guys with glasses (and thereby setting off on the course that eventually led to law; maybe I should have stayed with plumbing and electric) but I was still deeply interested.  We were watching Huntley and Brinkley because we always watched NBC News (Imagine short-attention-span theater news programs these days using Beethoven for their theme music.) unless I got it switched over to ABC because a I needed a Jules Bergman fix.

And now Neil Armstrong is seven years dead, Buzz Aldrin is 89, and Michael Collins will turn 89 later this year.  I went back through the astronaut lists, and most are gone.  John Glenn was the last of the Mercury astronauts when he died in 2016.  Gemini has survivors: In addition to Collins and Aldrin there are Jim McDivitt (90), Frank Borman (91), Jim Lovell (91), Tom Stafford (89 in September), and David Scott (87).  For Apollo: In addition to the Gemini survivors, there are Walt Cunningham (87), William Anders (86 later this year), Rusty Schweickart (84 later this year), Fred Haise (86 later this year), Alfred Worden (87), Ken Mattingly (83), Charles Duke (84 later this year), and Harrison Schmitt (84).  Keep on keeping on, guys.

This is a Market?

I commented recently about how the real estate market seems to be perpetually warped.  Investment money is supposed to pursue a return, preferably the best one available, but what we in fact have is money being frantically thrown at one bubble after another, twisting supply and demand into unrecognizable states and consequently twisting the market into something that isn't really a market, at least not one of any use, unless by "use" you mean "running serial con games."

Real estate is not unique in this.  Look at gas prices.  Historically, gas prices come down after Memorial Day.  This year, they've come down a ton.  And they've done so in the face of a major piece of news: tensions between the US and Iran that could shut down the Strait of Hormuz.  If markets were actually functioning, oil speculators would take this news and jump into the spot and futures markets with both feet, driving prices up Memorial Day be hanged.  But that isn't happening.  And even stranger, no one is commenting on this.  I'm left singing Led Zeppelin, "And it makes me wonder."

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Bankruptcy Attorneys

If you watch late-night infomercials and rely on other such sources, you might believe filing bankruptcy is a simple thing.  As with most things presented as simple on such programs, such as real estate investing, the only simple thing is the mind of anyone who buys the sales pitch.  It simply isn't that simple.

First, the Bankruptcy Code is complex.  It isn't just convoluted; at points it's internally contradictory because, well, Congress.  I think the BAPCPA, the big revision in 2005, was actually written by chimps pounding on typewriters with mislabeled keys.  Then there are the Bankruptcy Rules, which ostensibly implement the Code but frequently leave you going, ""Wait, what?"  Then there are the local rules, which change frequently and are notorious for the messes they leave behind.  And on top of it all, there is "local practice", the aggregated quirks of the judges, clerks, and trustees in each court.  Many of these were first crafted to deal with a particular problem and have since been conflated into a "one-size-fits-all" approach.  And in many of these situations, I'm left quoting Eleanor of Aquitaine in The Lion in Winter, "You're clever, but I wonder if you're right."

If you find yourself up against a financial wall, don't try digging through the wall yourself; it's likely to collapse on you.  Go to the professionals and get real advice.  It's worth it.

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Monday, April 08, 2019

More Vacancies

And once again I am left scratching my head over local real estate management practices.  First, though, a moment of silence for the downtown Baskin-Robbins.  It's closed, and it sports a fatuous sign inviting you to the Sugarhouse location, a wholly useless alternative for anyone downtown.  All that's left for ice cream downtown is chi-chi shops with such high fat content your arteries clog just walking by and inhaling.

Anyway.  Also closed now are all but one of the Firestone service centers in the valley.  Apparently, they couldn't agree on a new master lease.  I imagine Bridgestone (Firestone's parent) was driving a pretty hard bargain, and I imagine the landlord did not want taken advantage of, but now the landlord is stuck with a bunch of vacant properties and no revenue stream to cover the expenses.  Not a good business model.  Apparently Burt Bros. is expanding into a few of them, but don't expect me to darken their door any time soon, given that they borked two of my cars on three separate occasions.

At least the landlord doesn't have to worry about a pile of similar buildings being slapped up in competition.  The hot money is now in multi-family residential.  Man, I would like to be able to follow the tax and accounting tricks that make chronic overbuilding make sense.  There must be something there.  All I know is that we have medium-rise condos and apartments popping up like mushrooms on the Olympic Peninsula.  And don't think they're taking advantage of affordable housing programs.  A $400,000 condo or $2,000/month apartment isn't affordable housing.  Makes you wonder if there are enough people who can afford all this new space.  Probably aren't.  In which case, here comes the next bubble, everyone get ready for a big POP!

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"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....

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