Author: Nicholas Say

  • US Dollar Shortages Could Spur Major Equity Selling

    US Dollar Shortages Could Spur Major Equity Selling

    Big tech had a rough week. Stock market darling Amazon was hit hard on slowing growth, and the shares ended the week nearly 10% lower. Amazon shares are still trading above 90 times earnings, which could mean more potential downside for a company that still has loads of optimism surrounding it. Despite their slowing growth, the US dollar could mean trouble for Amazon and the equity markets.

    The US dollar has been on a breakneck rally. It has gained 5% against other major currencies that make up the US Dollar Index. This puts big companies, and investors, in a difficult situation.

    In addition to a rising value, there also appears to be a shortage of US dollars emerging. The London Interbank Offer Rate (LIBOR) has been shooting up, which could be signaling trouble in the debt markets.

    The 3-month US dollar LIBOR rate has risen to the highest level since the financial crisis of 2008, and if these high rates stick, it could mean much higher funding costs for borrowers everywhere.

    3m_dollar_LIBOR

    Who Wants All These Dollars?

    For those of you who are under the impression that the world is awash in dollars, you aren’t wrong. The US Fed created trillions of US dollars over the last decade. Thanks to fractional reserve banking, those dollars have been used to create debt which now has to be serviced, and there is a whole lot more debt than dollars.

    Adem Tumerkan from Palisade Research captures one of the problems that the debt markets are grappling with perfectly:

    “The soaring U.S. deficit requires an even greater amount of dollars from foreigners to fund the U.S. Treasury. But the Fed is shrinking their balance sheet… which means they’re sucking dollars out of the economy (the reverse of Quantitative Easing which was injecting dollars into the economy). This is creating a shortage of U.S. dollars – the world’s reserve currency – therefore affecting every–global economy.”

    The end result of this appears to be a rising need for US dollars, which could also be one of the reasons why the US dollars rally has been so strong. For big companies that are highly leveraged to economic growth, expensive money is terrible.

    sc

    The Big Let Down

    Equity markets in the US are still at high levels, despite the fact that funding costs are on the rise. Even if bond yields stabilize from here, if credit markets continue to contract, stock prices could be vulnerable to serious selling.

    Not only do rising funding costs create a fundamental problem for businesses like Amazon or Apple, but their customers won’t have as much to spend. Higher rates could also mean a rush to secure liquidity, which can be easily found by selling shares.

    It’s no secret that the equity markets are basically run by trading algorithms, which could mean that when selling materializes, it may be faster and more severe than many realize.

    It’s worth remembering that for every basis point that LIBOR rises, billions of dollars in interest payments are created. That money has to come from somewhere, and it could start flowing out of the equity markets before too long.

    Featured image from Shutterstock.

  • Clive Palmer’s Titanic II Is Supposed to Be Ready Soon, Again

    Clive Palmer’s Titanic II Is Supposed to Be Ready Soon, Again

    It would be impossible to accuse Clive Palmer of failing to dream big. He’s the Australian tycoon who’s behind a project that would see a replica of the Titanic built and put into service on the ocean.

    The project was first announced in 2012. Recently, Clive Palmer disclosed that his Titanic project’s European headquarters would be located in Paris, so it would be relatively unaffected by Brexit.

    No doubt a smart move, but the build-out of Titanic II has bigger problems than Brexit.

    To begin with, Titanic 2 was supposed to be sailing by 2016. Clearly, that never happened. The project like the one before it has been fraught with problems. As it stands today, the Paris office that was just announced is one of the few things that Titanic II has going for it.

    Despite the fact there’s no real construction happening at the moment, Clive Palmer said this about his project:

    “You’ll see a lot of guys my age buying, building, and sailing boats… I’m building a bigger boat because I’ve got a bigger budget.”

    Clive Palmer and His Big Boat

    When the Titanic 2 was first announced, it had the support of Deltamarin and CSC Jinling Shipyard. Deltamarin is a legitimate ship-design company, and CSC Jinling Shipyard is a real shipbuilder in China. The two companies even signed a Memorandum of Understanding (MoU) and planned to “conduct preliminary technical studies.”

    That was all way back in 2012. As time went by, things for the Titanic II project began to sink. In 2015, workers at CSC Jinling told Clive Palmer that nothing was happening, which is where the project is still today.

    In the meantime, Clive Palmer decided to create his own Australian political party, called the Unified Australia Party (UAP). In truth, the UAP moniker had been used prior to 1945, before it was absorbed by the Labor Party.

    Someone decided they didn’t like Mr. Palmer’s designs on a half-century-old political party’s abandoned name, and eventually, Clive Palmer settled on the name “Palmer United Party,” for his new life in Australian politics.

    Making Australia Great

    As the plans for his Titanic remake were further slumping into the ocean, Palmer was successfully elected to the Federal Parliament in Australia. Somewhat surprisingly, his new party was also able to attract other politicians, and three candidates from the Palmer United Party were elected to the Australian Parliament.

    clive-palmer-billboard
    Source: https://startsat60.com/news/politics/clive-palmer-billboards-australia-company-debts

    Clive Palmer made a big splash when he entered politics, but it all seemed to stop there. He was absent more than any other MP in the 44th Parliament, and according to media reports, he rarely left his Gold Coast mansion.

    He may have been working on the Titanic II while away from the legislature, though there were no results to show for his efforts.

    After he was soundly defeated in the next election, perhaps due to some unrealized repression relating to the Titanic II, Palmer announced that he would retire from politics.

    That didn’t last long, though, and this year the former MP told Australia that he planned to re-enter the federal political game so that his party can “Make Australia Great.”

    Clive Palmer Is into Dinosaurs Too

    The Titanic 2 isn’t the only albatross hanging around Clive Palmer’s neck. He also attempted to create the world’s largest animatronic dinosaur park. This may have been another distraction that kept the mogul from his duties as an Australian MP.

    Much like the Titanic II, his giant dino park is currently reported to be abandoned, though he claims that he uses it like President Trump’s Mar-a-Lago resort.

    There is little evidence to corroborate his claims, and he may very well be riding around in his abandoned dinosaur park in a golf cart with the soundtrack to “Jurassic Park” playing on his smartphone.

    While the actual construction on the Titanic II has yet to commence, Clive Palmer is said to be in possession of 3,000 sets of Titanic-themed flatware and cutlery.

    The exact location of these eating utensils is another mystery, but he may be stashing them in the hollow body of a lifeless brontosaurus, as he waits for his fortunes to turn for the better once again.

    Featured image from The Australian.

  • Billionaire George Soros Targeted in Wide Reaching Bomb Plot

    Billionaire George Soros Targeted in Wide Reaching Bomb Plot

    George Soros is on a growing list of important people who have apparently been victims of a mail bombing campaign. There isn’t much information about who could be behind a plot that has targeted numerous politicians, including the Clintons, Barack Obama, and former CIA Director John Brennan at CNN.

    It’s impossible to know the purpose of this series of reprehensible acts, but the targets all seem to be opponents of the Trump administration. At first glance, this suggests a political motivation. Yet another deranged Republican extremist at large.

    All the bombs that have been found so far have been homemade explosive devices, commonly called pipe bombs. While a simple device, a pipe bomb is potentially deadly.

    George Soros’ Politics Are Certainly in Play

    Alexander Soros, who is George Soros’ son, was quick to frame the wide-reaching bomb plot in highly political terms.

    In an op-ed that was published in the New York Times, the younger Soros said that:

    “With Donald Trump’s presidential campaign, things got worse. White supremacists and antisemites like David Duke endorsed his campaign. Mr. Trump’s final TV ad famously featured my father; Janet Yellen, chairwoman of the Federal Reserve; and Lloyd Blankfein, chairman of Goldman Sachs – all of them Jewish – amid dog-whistle language about ‘special interests’ and ‘global special interests’.”

    What isn’t being covered as much in the US media is the fact that most of the people that were targeted have been part of numerous political actions across the planet over the last few decades.

    George Soros’ employees have openly admitted to intervening in global politics as early as 1991 when they helped overthrow Slobodan Milosevic in Yugoslavia.

    Velimir Curgus, who worked for the Soros network in Belgrade, said that:

    “We were here to support the civil sector–the people who were fighting against the regime of Slobodan Milosevic the past 10 years… Most of our work was undercover.”

    A Rich Man’s Game

    Soros’ enormous fortune, currently estimated to be in excess of $8 billion USD, allowed him to build an extensive network of NGO’s across the planet. The activities that these groups have undertaken aren’t publicly disclosed, but George Soros has talked about his involvement in working to supplant existing governments in formerly communist states.

    In a 2001 article George Soros explained:

    “When I got involved there was a pressing issue, which was the collapse of the Soviet empire and the transition from a closed to an open society… It was a historical opportunity, and I rushed in.”

    Another Historic Opportunity Closer to Home

    It’s no secret that George Soros is close to the Democratic party in the USA, and was openly opposed to Donald Trump’s election in 2016. Curiously, the public’s reactions to some of President Trump’s actions in early 2017 were exaggerated when compared to similar policies that were enacted by former President Obama.

    President Trump’s travel ban that limited access to the US for citizens from seven countries was met with actual riots. Most people don’t know those seven countries were initially selected by former President Obama, and used for enhanced visa security policy during his administration.

    travel ban riots
    Travel ban riots in 2017 / Shutterstock.

    Former President Obama also created a presidential hit list, which extended to US citizens.

    The reaction from the public and the media was extremely limited in both cases, especially when compared to the ‘instant riots’ that President Trump’s 90-day travel ban seemed to cause.

    There’s no direct evidence to link George Soros to politically-motivated riots in the USA, although his organizations have worked extensively along similar lines in other nations.

    For what it’s worth, President Trump has come out on the side of a civil political process and decried the pipe bombs that were sent to some of his fiercest critics as:

    “abhorrent, despicable.”

    Whether or not these acts have anything to do with the upcoming mid-term elections in the US or a much deeper motive is anyone’s guess at this point.

    Featured image by Wikipedia.

  • A Global Economic Downturn Could be Coming – Are You Ready?

    A Global Economic Downturn Could be Coming – Are You Ready?

    There’s no flashing red light or bell that goes off when the global economy tilts towards the abyss. But over the last few months, numerous data points have signaled a weakening economy, and the potential for another global economic downturn is very real. The reasons the post-2008 recovery is probably over are varied, but the end result is a trying environment for investors.

    With the US stock market near all-time highs, it might be hard to believe that a global economic downturn is imminent. Yet Investor AB is preparing for harder times.

    Investor AB is the investment arm of Sweden’s Wallenberg family. The company controls a portfolio that’s worth more than $40 billion USD and owns shares in one-fifth of the large-cap companies listed on Sweden’s benchmark exchange.

    Investor AB just sold a 12-year 500 million Euro bond to build up their cash reserves. According to CEO Johan Forssell:

    “For us, the most important part is that we’re prepared, and that’s why we issued a big bond and why we work closely with our companies to make sure we’re flexible and can adapt to different environments as good as we can.”

    The Risk of a Global Economic Downturn is Real

    Forssell went on to cite deteriorating economic data from Asia and Europe, as well as currency devaluation and a global trade war as reasons for concern. And Mr. Forssell isn’t alone in making preparations for harder times. The trade war that US President Donald Trump began is starting to bite the global economy. The US is also upping the ante in the South China Sea.

    A recent video released by The Economist brought up the risk of another global recession, but the moderate tone that was struck by Senior Editor Ryan Avent may be lagging the global economic reality.

    As it stands today, China’s Financial Stability and Development Committee has held 10 meetings over the last two months. The Committee is led by Vice-Premier Liu He, who is directly connected to Chinese President Xi Jinping.

    The previously unscheduled meetings began on August 24 of this year, but they’ve been kept out of the news. Xu Jianwei, who is the senior China economist at French bank Natixis, commented:

    “The anxiety among the top [Chinese] leadership is 100 percent”

    It isn’t hard to see why the Chinese government would be concerned. In addition to an increasingly hostile relationship with their largest trading partner, the benchmark Shanghai Composite Index has fallen to 4-year lows, and the Chinese housing market is crumbling.

    Shanghai Stock Exchange

    Real War Would be Bad News for the Global Economy

    A global economic downturn would certainly challenge central banks and governments. As Avent correctly pointed out, the regular tools that policymakers have used to fight off recession aren’t available.

    The post-2008 world order has destroyed the role of interest rates, and quantitative easing has introduced an entirely new role for major central banks.

    Compared to the potentially hot war that is emerging in the South China Sea, monetary policy and interest rates are of little concern. Over the last few days, the US Navy sent two guided-missile warships on a freedom of navigation mission. They sailed in the Taiwan Strait, between the heavily disputed island of Taiwan, and mainland China.

    This isn’t the first naval provocation by the US in disputed waters.

    While Beijing has yet to respond officially to the naval exercises, an op-ed published in the Global Times (an unofficial mouthpiece for the Chinese Communist Party) on Monday penned by Chen Xiangmiao, a researcher at the National Institute for South China Sea Studies, stated that:

    “Beijing needs to safeguard territorial sovereignty and maritime jurisdiction in the area and ensure secure corridors for energy import and freight transport… Judging by the current circumstances, China has no other choice than taking countermeasures, including increasing military deployment in the region.”

    It’s worth remembering that when Archduke Franz Ferdinand was shot dead in Sarajevo on the 28 June 1914, the financial markets didn’t react. It wasn’t until the bond markets suddenly slammed shut a month later across the European continent and the UK that people realized the gravity of the event.

    Don’t wait for a bell to ring, and pay attention to what is happening. The next global economic downturn could be much faster, sharper, and more violent than anyone can imagine. There’s no time like the present to prepare.

    Featured image from Shutterstock.

  • Mike Novogratz’s Crypto Investments May Make Him a Billionaire, Again

    Mike Novogratz’s Crypto Investments May Make Him a Billionaire, Again

    It isn’t easy to make money. When it comes to seeing your name wiped off the list of global billionaires, it has to sting. For Mike Novogratz, the rise to billionaire status has happened more than once. Unfortunately for him, it also seems to disappear just as quickly.

    Earlier this year Forbes estimated that Mike Novogratz’s crypto net worth was in excess of $700 million USD. That figure was created when cryptos were flying high. Today Mr. Novogratz is probably worth a lot less, but it hasn’t seemed to dent his enthusiasm for the crypto space.

    The crypto billions that recently disappeared are the second time that excessive optimism cost Mike Novogratz billionaire status. The first came in 2008 after Fortress Investment Group’s shares value plummeted to around $2 USD per share. They had traded as high as $35 USD in 2007 when the company had gone public and sold off a single digit percentage of their company to equity investors.

    Mike Novogratz Knows How to Bounce Back

    When the Lehman Brothers-fueled collapse came, Mike Novogratz saw his first fortune get obliterated. In late December of 2008, Fortress Investment Group had to suspend withdrawals from their Drawbridge Global Macro fund, which was hemorrhaging money.

    Mike Novogratz was influential in founding and managing the Drawbridge Global Macro fund, and was at its helm when it suspended withdrawals at the nadir of the last crisis. He had been with Goldman Sachs since 1992, and his experience in emerging markets like Latin America and Asia helped him find a place at Fortress Investment Group.

    The overall value of Fortress Investment Group was artificially low during the crisis. The underlying investments that Fortress had made were basically sound, and the falling share prices exaggerated the real market conditions in the extreme. After the orgy of selling passed, Fortress’s portfolio value improved substantially.

    Leaving Fortress and Going Crypto

    fortress

    Despite the relative improvement in the Fortresses Macro fund, the company decided to shut it down in 2015. Mike Novogratz walked away from Fortress with a pay package that was worth more than $200 million dollars. Not enough to get him back on the billionaire’s list, but not too shabby either.

    In 2013, two years before he left Fortress, Mike Novogratz decided to get into cryptos. Back then there weren’t many options, and Mr. Novogratz ended up buying some bitcoin when it was still selling for well under $1,000 USD (contrary to popular belief, 2013 was another breakout year for bitcoin, with prices ranging from $100 at its lowest to $1,00 at its highest).

    He famously told Bloomberg in 2013:

    “Put a little money in bitcoin…Come back in a few years and it’s going to be worth a lot.”

    Mike Novogratz expanded on his confidence in the sector to Bloomberg TV in 2014:

    “So there’s this open source community where there’s huge brain power, let alone all the VC money that’s going in. And so from Marc Andreessen and his company to Benchmark… there’s lots of smart money going in. I’ve never seen a small project with more human capital going into it, and so I kind of want to bet just on that alone.”

    He was talking about the Bitcoin development space, where there were more than 30,000 programmers working on the platform according to his estimates. It isn’t hard to see that he was 100% right on the money, and got into cryptos at the perfect time.

    Not a Popular Move

    However, there has been a lot of criticism hurled at the crypto space. From their beginnings, cryptos haven’t been well received by many people in the investment community. Mike Novogratz was clearly cutting against the grain when he was publicly bullish on an asset class that is controversial even today.

    “Tyler Durden” of Zerohedge fame, decided to make the following comment on Mike Novogratz’s crypto position back in 2013, saying:

    “Given that Bitcoin may ultimately make firms like Fortress – that rely on fiat specie – redundant, then doesn’t the endorsement of Bitcoin by one of the world’s largest Private Equity firms reek of the ultimate failure of BTC as a monetary construct, and seem much more to be merely an attempt by the firm to herd even more momentum chasers into a trade [ostensibly one for Novogratz P.A.] that will be then unwound with Bitcoins ultimately converted into the same dollar they are supposed to replace?”

    Looking back, it’s ironic to see such skepticism surrounding Bitcoin, and clearly, Mike Novogratz was getting in at a great time. Like many doubters, Tyler Durden places cryptos at odds with the established financial system. Mike Novogratz was looking at cryptos as a technology, and his view of cryptos was clearly a profitable one.

    The “Goldman Sachs” of Cryptos

    While Mr. Novogratz’s calls on the crypto market haven’t always been correct, he has been on the right side of the market enough to build up an extremely valuable position. He recently launched a crypto merchant bank that he hopes will grow into “The Goldman Sachs of Cryptos.” Called Galaxy Digital Holdings (GLXY.CVE), the company went public in Canada via a reverse merger earlier this year.

    A number of prominent crypto-focused companies have used this method to list their equity on a public exchange. Instead of using an Initial Public Offering (IPO), a company buys all the outstanding shares of an existing company and uses it as a vehicle to list their assets on a public stock exchange.

    It’s much easier to use a Canadian reverse merger than a US IPO. Other notable companies that used this method are HIVE Blockchain Technology and Hut 8 Mining.

    Unlike Hut 8 and Hive, Galaxy Digital isn’t focused on crypto mining. Mike Novogratz is using the company to invest in crypto companies that he sees as promising investments. Initially, the shares of GXLY saw some major selling, and the company posted some ugly quarterly results. Their holdings were hit hard by the drop in crypto prices, and that seems to have translated into selling pressure for their shares.

    galaxy chart

    A New Market is Growing for Mike Novogratz

    Crypto prices are still under pressure, but it seems like investors are waking up to the idea that Galaxy Digital is about more than holding on to cryptocurrencies. Galaxy Digital recently joined Goldman Sachs in investing at least $15 million USD in BitGo Holdings Inc, which is working on creating a $1 trillion USD crypto wallet.

    Mike Novogratz commented on the investment after the details were made public:

    “We have been impressed with BitGo’s world-class team, their deep technical understanding of digital assets as well as their ability to deliver institutional-quality products to investors. Our team is excited to support BitGo as it enters into this next phase of growth.”

    Once again, it seems like Mike Novogratz is focusing on technology over crypto assets as such, which may be a good strategy in a sector that is attracting loads of capital. He also called a bottom in crypto prices last month, saying that:

    “This is the BGCI (Bloomberg Galaxy Crypto Index) chart… I think we put in a low yesterday, retouched the highs of late last year and the point of acceleration that led to the massive rally/bubble… markets like to retrace to the breakout… we retraced the whole of the bubble.”

    Still a Wild Market

    Bitcoin prices have been more or less flat since Mr. Novogratz called the bottom of an epic plunge in crypto prices. The jury is still very much out when it comes to the future of these assets. He also weighed in on the Tether controversy and encouraged the people behind the controversial stablecoin to increase the amount of transparency in their operations.

    Despite the fact that crypto exchange Bitfinex may be insolvent (they are a sister company of Tether), Mike Novogratz used cautious words when he clarified his position toward one of the world’s largest stablecoins:

    “I’d like to put context to these quotes as the last thing I want to do is spread FUD. I said I thought tether has a dollar for every tether and that we actively traded it. The fact that almost $700mm has been redeemed in an orderly fashion is important.”

    Decades in the financial markets have given Mike Novogratz a perspective that few in the crypto world have. There’s nothing like experience to guide decision making, and that bodes well for Mike Novogratz’s ventures in the world of cryptocurrencies and blockchain as the market evolves.

    Featured image from Everipedia.org.

  • Atlassian’s Mike Cannon-Brookes Buys Australia’s Most Expensive Home

    Atlassian’s Mike Cannon-Brookes Buys Australia’s Most Expensive Home

    Despite all the worry over Australian home prices, it didn’t take Mike Cannon-Brookes long to spend a pile on the Fairwater estate in Sydney’s Point Piper. The home was recently vacated by Mary Fairfax, who died a little over a year ago. The home has been in the Fairfax family for more than 100 years, and now it looks like Mike Cannon-Brookes will be raising his family in the 11,000+ square-meter property.

    The actual sales price for Fairwater hasn’t been disclosed, but it is thought to have sold for more than $100 million USD. That would make it the highest price paid for a home in Australia by a wide margin.

    The previous record was set when the house next door to Fairwater sold to the other Atlassian co-founder, Scott Farquhar, last year. Mr. Farquhar paid $71 million USD for the property, called “Elaine,” which had also been the property of the Fairfax family.

    Unlike Elaine, Fairwater has sat unoccupied for the last 25 years or so and was seldom used by Lady Fairfax. Despite the remodeling that is sure to begin soon, Mike Cannon-Brookes is happy to have made the purchase. In a statement, he said that:

    “We are delighted with the purchase of Fairwater for our young family and look forward to continuing the legacy of this beautiful Sydney home… We love the idea of raising our four young children in this historic property.”

    Fairwater
    Fairwater, image by Wikipedia

    Big Money in Sydney

    Atlassian has been a massive success for Mike Cannon-Brookes and Scott Farquhar. The pair met while attending the University of New South Wales. In 2002 they used $10,000 in credit card debt to found Atlassian. The company has grown into a global presence, and in 2017 Atlassian created revenues in excess of $600 million USD.

    Their most popular product is Jira, which was introduced in 2002. Jira started life as a bug tracking software that is still used by software developers all over the world. According to Atlassian, more than 75,000 companies in 122 countries use Jira. It has evolved into a project management tool that has expanded beyond software development.

    Given the taste in real estate the founders have, Atlassian will have to keep doing well. The property taxes on a $100 million dollar property have to be eye-watering. The two co-founders have made off like bandits in the wake of Atlassian’s IPO in late 2015.

    Like many companies in the tech space, equity investors can’t seem to get enough of Atlassian shares. Even after the shares fell sharply earlier this week on a revenue disappointment, they are still up by more than 100% over the last 12 months at the time of writing. They saw their adjusted quarterly earnings rise by more than 50% YOY, which may help to justify their current valuation.

    Investors Love Atlassian

    Last year Atlassian lost around 50 cents a share, which makes paying nearly 20 billion dollars for their platform a little rough. Despite the increasing competition from other project management platforms, most notably Slack, there are many in the investment world that see Mike Cannon-Brookes’ company as a herald of things to come.

    Atlassian stock 6 months
    Atlassian stock 6 month period

    Tim Garratt is a partner at Bailie Gifford, a Scottish fund that owns hundreds of millions of dollars worth of Atlassian’s equity. He told the Sydney Morning Herald that:

    “Mike Cannon-Brookes has a focus on the next coming decades rather than the next quarter or two. He’s prepared to invest for the long term and we are strongly supportive of that approach… We see the long-term potential for Atlassian to service a hundred million users across the world […]So it is still early days for this exciting business and we’re looking forward to seeing how it develops over the next decade and beyond.”

    Despite the optimism that Mike Cannon-Brookes has generated from investors who are already riding high on triple digits yearly gains, his company has something of a spotty record when it comes to gender issues.

    A few years ago, one of Atlassian’s employees decided to compare a new piece of software to a complaining girlfriend, which did nothing to sure up the image of an industry that is constantly being accused of a latent gender bias. While Mike Cannon-Brookes scolded the employee after the presentation went viral, he actually gave the offending presentation himself at a conference!

    The gaffe clearly hasn’t dented investor confidence in the company, and Atlassian remains one of the biggest software development tools out there today. If Mike Cannon-Brookes’ luck holds up, he may be able to hold on to his brand new house on the water in Sydney.

    Featured image by TEDx Sydney. 

  • Billionaire Eddie Lampert’s Bizarre Ideas Behind Sears’ Grand Closing

    Billionaire Eddie Lampert’s Bizarre Ideas Behind Sears’ Grand Closing

    Eddie Lampert was in a position to revolutionize the US retail sector. A little over a decade ago, he was worth a touch more than Amazon’s Jeff Bezos, at nearly $4 billion. Now he’s still at the helm of Sears, which filed for bankruptcy protection on Monday of this week.

    Some market commentators have speculated that an eroding middle class is to blame for Sears’ troubles, but Eddie Lampert is a far more probable culprit.

    The modern Sears was created in 2005 when Eddie Lampert merged it with another American retail icon, Kmart. His move to sell off a bunch of real estate assets that Kmart controlled helped Mr. Lampert to gain billionaire status a few times over–and attracted a lot of attention from major players on Wall St.

    In the wake of his inspired Kmart deal, Eddie Lampert was actually able to take over Sears. Kmart’s shares were riding high in 2005, and Eddie made his move.

    It would be the beginning of a long slow grind downward, which Eddie Lampert’s ideas were almost wholly responsible for. The big problem is that he had no clue how to actually run a retail business, or sink money into staying competitive.

    Dear Eddie Lampert, There’s a New Technology Called “the Internet”

    At their cores, the business model that a company like Amazon and a company like Sears use aren’t wildly different. Both companies sell a whole bunch of consumer stuff to the public. The big divergence between how the two companies operate is how people buy from the retailer.

    Amazon allows shoppers to use a website to make their purchases, while Sears used big stores that were expensive to operate, and required much higher levels of staffing. It should be clear by now that Mr. Lampert’s decision to shun spending on developing a web presence was probably one of the worst ideas in US retail, ever.

    Instead of using Sears’ deep pockets and extensive network of stores to create a hybrid business model that embraced online shopping, Eddie Lampert decided to cut spending on keeping up the appearance of Sears’ stores. He also subdivided Sears Holdings into 30 different “silos,” and then made the leaders compete for dwindling resources within the company.

    The ideas that Eddie brought to the table were certainly innovative, much in the same way that a massage given with chainsaws would be. The end result is also the same. Now the corporate entity that Eddie Lampert has been slowly bleeding for more than a decade is a total wreck.

    People Don’t Want to Shop in Ruins

    While Eddie was turning his back on online retail, his strategy to cut costs via removing remodeling budgets from Sears’ annual spending ensured that his company couldn’t compete with other big-box retailers like Walmart and Target. The idea that one can just abandon a store’s aesthetic upkeep, and leave its employees to attract clients based on their efforts is totally absurd.

    Sears bankruptcy
    Image from Shutterstock

    Apparently, Eddie Lampert was known for running Sears from one of his two multi-million dollar mansions, which would explain why he was almost totally disconnected from what Sears’ locations were turning into. Not that Target or Walmart are exactly a treat for the senses, but they aren’t slowing degrading from a decade ago either.

    Perhaps the most difficult thing to understand in all of this is how Eddie Lampert is still in charge of anything. He clearly has no idea how to keep a business competitive. In fact, he doesn’t seem to understand that retail stores need to be kept up to attract customers. Now Sears is a mockery, and if they emerge from bankruptcy one wonders what kind of market they could hope to serve.

    As for Eddie Lampert, he still has some nice houses and a massive yacht that’s named after an Ayn Rand novel. The bumbling (barely) billionaire is still trying to make deals to sell off Sears’ assets, some of which were blocked due to the fact that he was behind the company trying to buy the assets from Sears.

    With so much money gone, and so many terrible ideas, Mr. Lampert may be getting out of his mansions a bit more, and spending his days in litigation. It should be a nice change for him.

    Featured image from Reuters.

  • Spiderman Creator Stan Lee Sees Calm in the Midst of Media Storm

    Spiderman Creator Stan Lee Sees Calm in the Midst of Media Storm

    Stan Lee is one of the greatest living commercial artists that the USA has ever produced. At 95 years old, he saw pop media evolve from printed pulp comics to major motion pictures captured on digital cameras.

    Lee is responsible for launching the infamous superhero team the Fantastic Four back in 1961. Among his long list of creations are massively popular characters like Spiderman, the Hulk, the X-Men, and Thor.

    His work throughout the 20th century influenced generations of young people, and when Marvel Comics finally caught the attention of Hollywood, Stan Lee made out pretty well.

    Creatives don’t make the kind of money that investment bankers take home. Stan Lee never went to university. Instead, he chose to begin work in publishing at the age of 17, back in 1939. By the age of 19, he became an editor and worked in that position until the early 1970s. The pay wasn’t amazing, but he got to do what he loved.

    Now living legend Stan Lee is thought to be worth around $50 million dollars. His first big payday came in 2014 when Disney bought Marvel Comics outright. He’s thought to have received somewhere in the neighborhood of $10 million for his contribution to the company. Marvel now pays him a million dollars a year, which has been enough to cause major media drama in his personal life.

    Stan Lee Doesn’t See Any Problems

    Living in the media capital of the United States may be part of why there’s so much madness surrounding Stan Lee’s life. His health is also strained, which is normal for anyone who has made it through 95 years on earth. But over the last year, there have been some ugly stories hovering around Stan Lee and his family.

    Oh, and TMZ reported that a business associate of Stan Lee swiped his blood, and signed a bunch of Black Panther comics with it to drive up their price.

    Seriously, who would buy something like that?

    Some of the most heart-wrenching allegations have been directed at his daughter, J.C. Lee. Stan Lee recently sat down with The Daily Beast to help clear the air. According to Stan Lee, his daughter is top notch. He told Daily Beast reporter Mark Ebner:

    “She [J.C. Lee] is a wonderful daughter…. I love her very much. I suspect that she loves me. We get along beautifully.”

    The Marvel of His Narratives

    Avengers
    Image from Wikipedia

    In a world of movie franchises that drone on for the sake of profit (***cough*** Fast & Furious producers, I’m looking your way), Stan Lee’s narratives created an entirely new generation of fans for his creations.

    The box office results that Marvel Comic’s adaptations see are a testament to Stan Lee’s vision. Ideas that he helped develop decades ago are able to penetrate the modern psyche on a global scale.

    The top twenty Marvel movies have grossed more than $6 billion worldwide. Each release grosses around a third of a billion dollars on average, which is more than the GDP of the Federated States of Micronesia. Black Panther grossed around $700 million, which puts it at the GDP level of island nations like Comoros or Dominica.

    Stan Lee has done a lot for media over the years. It would be wonderful to see him be able to enjoy the rest of his life, without being harassed by literal bloodsuckers that are only after money. If you bought a copy of Black Panther that was signed in his stolen blood, burn it immediately, and seek help.

    You need it.

     

    Featured image from Wikipedia.

  • Beyond Data Breaches Facebook’s Problems Run Deep

    Beyond Data Breaches Facebook’s Problems Run Deep

    Facebook (FB.NASDAQ) was a great idea. So was MySpace for that matter. Apparently, people love to catalog their lives online, and Facebook has given them the perfect platform to do just that. Mark Zuckerberg’s dorm room project made him one of the richest people in the world. But the juggernaut that has been Facebook stock may be on the edge of collapse.

    For everything that Facebook is, it isn’t a vital technology. They don’t produce anything tangible and rely heavily on advertising revenue to power their burgeoning infrastructure. Herein lies one of their biggest problems. In order to continue to demand big payouts from advertisers, Facebook has to maintain a loyal stable of global users.

    Facebook Is Losing Face

    The last year has been rough for Facebook’s public image. Cambridge Analytica was a wake-up call for anyone who understands how powerful social media can be in the political sphere, and a recent data breach cost 29 million Facebook users extensive amounts of highly sensitive personal information.

    Let’s call all that Facebook’s ‘real’ problem. Betrayal, manipulation and being careless with important information isn’t going to win anyone any friends. But for Facebook, their issues only start with a questionable business model.

    Mark Zuckerberg
    Mark Zuckerberg by Anthony Quintano

    The other problem that could seriously affect Facebook from a financial point of view is their slowing revenue growth, potentially overvalued equity, and increasing reliance on niche platforms to drive growth. Right now FB is trading at around 23 times earnings, which has led many to speculate that it’s the buy of the century.

    Picking up shares in other major tech companies could cost you a lot more. Twitter is trading at almost 100 times earnings, and Amazon stock is hovering just below 140 times earning at the time of writing. With other high-growth tech names trading at such high valuations, why is Facebook selling at such relatively low levels?

    A Scary Scenario

    The narrative that’s banging around the financial markets is that while FB isn’t the incredible growth story it once was, it’s still worth buying on a long-term basis. Numerous articles have been run over the last few weeks suggesting that FB makes sense to buy at current levels. But this is a seriously dangerous position.

    Changes in the tech world are fast, and FB has entered a period of slowing revenue growth. Some estimates suggest that over the next few years Instagram will drive revenue higher, while FB’s core earnings stagnate. That may be the case, however, FB is facing bigger problems.

    When more than 29 million Facebook users recently lost their data to hackers, the level of data collection that Facebook engages in was a surprise to many. Mark Zuckerberg has built up a data collection platform that would have been a wet dream for the East German secret police. For more than a decade, people from all over the world fell over each other to offer up their most personal data.

    Today people are waking up to the reality that Mark Zuckerberg isn’t some cool young guy who wants to connect people. Instead, he is sucking up any information he can get his hands on, and selling it to the highest bidder.

    People have only had a few months to digest the fact that their location, communications, and basically anything else Facebook can get in its servers is being stored for future use.

    The realization of Facebook’s business model by the public could be a big negative for a company that relies on user trust to generate revenue.

    The Technicals Look Tempting, Like the Sirens of Circe

    Facebook stock had an interesting summer. Their Q2 revenue miss caused a major sell-off (probably bot-driven), and then the stock seemed to snap higher. Now it has fallen back to the lows that it saw in March, and it is probably going to drop like a brick from here.

    Facebook Daily Chart
    Facebook Daily Chart

    The charts actually make FB stock look like a buy, which could sucker people into a major spanking. Both the daily and weekly RSI and MACD indicators are at oversold levels, which could mean that FB is on the edge of a major collapse.

    FB monthly
    Facebook monthly chart

    Pay attention to that massive gap lower in July, and look at the volume that drove FB lower. That kind of selling is normal during a top, which is probably in for Facebook shares.

    Stay Away From Zuk’s Mess

    The existential crisis described above is just one of many problems that Facebook has to deal with. The tech company is also facing a massive fine within the EU  and this dynamic could also punish a company that could be operating in violation of a multitude of foreign laws.

    To what degree Facebook will be able to muddle through all of these issues is anyone’s guess. The company may fold, or see its operations severely curtailed over the next few years. From an investment standpoint, FB shares should be considered off-limits and could make a good short position for risk lovers.

    Featured image from Shutterstock.

  • Gustav Magnar Witzøe is World’s Youngest Male Billionaire

    Gustav Magnar Witzøe is World’s Youngest Male Billionaire

    Gustav Magnar Witzøe (GMW) has an estimated $3 billion USD to his name. And a mountain of salmon. He’s the third-youngest billionaire on earth. The youngest billionaires in the world are also Norwegian, like GMW.

    Salmon is one of the yummiest fishes out there, and SalMar is one of the world’s largest suppliers of it. Gustav Magnar Witzøe’s father started the company, and a few years ago, he was lucky enough to inherit the fishing empire. He is also heavily tattooed, models professionally, and has a dog that will ride a jet-ski with him.

    Seems like something out of a Wes Anderson movie, no?

    Gustav Magnar Witzøe is originally from the island of Frøya, which is located outside of Trondheim, in Norway. SalMar’s headquarters is located on the same island. They are responsible for the production of more than 130,000 tons of salmon annually (as of 2016), and may be how GMW is able to convince his dog to stay on the jet-ski.

    Dogs love salmon!

    SalMar Seems Like a Sweet Deal

    Gustav Magnar Witzøe first rose into the public eye at the age of 19, when he was given a massive chunk of SalMar equity. Apparently, he realizes that taking over a specialty food company isn’t easy, and he was quoted by the newspaper Dagbladet as saying:

    “You can’t just demand to be the boss of such a big organization… You have to be suited to it. If there are alternatives, the best man or woman must get the job. There is so much at stake: values, jobs, crucial factors.”

    Letting other people run a billion-dollar company is an easy way to free up time for other interests. The young billionaire has a loyal following of 64,000 people on Instagram. He also sells himself as a model via Norway’s Team Models.

    The money that he makes as an inked-out twenty-something pales in comparison with what he was given by his enterprising father. But his followers could help him become an even greater Norwegian personality.

    SalMar is a major force in the global salmon market. The company that Gustav Magnar Witzøe’s father built holds 100 licenses to farm salmon in Norwegian waters and also operates fish farms in Scotland.

    SalMar’s market cap is currently hovering around $6 billion dollars. Their stock has been on a break-neck rally for the past year, with a year-over-year return of more than 80% at the time of writing.

    Gustav Magnar Witzøe Is Casting a Wider Net

    Gustav-Magnar-Witzøe2-304x380

    According to Business Insider, GMW is branching out from the fish farming game. Given the billionaire’s presence on social media, it’s unsurprising that he decided to invest in Gobi last year.

    Gobi is a Norwegian social media startup gunning for Snapchat’s market. He also decided to sink some money into Key Butler, which is more or less a property management service for absentee Airbnb hosts.

    Norway seems to have a knack for creating young billionaires. The only billionaires that are younger than Gustav Magnar Witzøe are Katharina and Alexandra Andresen, who are 23 and 22, respectively.

    They also made the billionaires list from an inheritance. The Andresen sisters received big chunks of their family’s investment company, called Ferd.

    Sadly, there was no salmon included for the Andresen sisters. If they don’t want to dip into their billions though, it may be possible to strike a deal with GMW, and trade portfolio management for salmon.