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A Lot Has To Change Quickly For Republicans To Have A Chance in 2024 Authored by Matt Towery via RealClear Wire, To be clear, I am writing this as a pollster, not as a politician or partisan. Here’s the bottom line. As it gets closer to the summer of 2023, I would rate the Democrats as more likely to again take/keep the White House. They might even hold on to the Senate and re-take the House. This is a tough message to deliver to the Republican faithful at a time when inflation is way up, millions have crossed the border illegally, China and Russia both pose true threats to international stability, and crime has spiraled in many areas of the nation. Sure, events and issues would seemingly favor the 2024 Republican nominee for president. But consider this. On Oct. 25, 2022, immediately following a Wall Street Journal poll showing Republicans up by two points in the “Generic ballot” midterm contest, my firm, InsiderAdvantage, also showed Republicans leading Democrats by four points, well within the WSJ poll’s margin of error. Sixteen national polls followed ours in the RealClearPolitics average with only two of the polls showing Democrats leading and one showed a tie. The other 13 polls had Republicans ahead. CNN had the same four-point advantage our survey showed. ABC News/Washington Post along with CBS News had the GOP with a two-point lead. NPR had it at a three-point GOP lead. For whatever reason, only a few national pollsters chose to survey the battleground Senate contests in the last few weeks  of the 2022 midterms. Many of us who did, such as one of the most accurate over the past four cycles, Robert Cahaly of Trafalgar, showed Republican candidates in competitive states trending ahead, reflecting what the many national organizations were indicating in their generic ballot polls. But the building “Red Wave” disappeared on Election Day. Sure, as pollsters we will be examining our data and weighting for the next cycle. But it may be that for Republicans, opinion surveys, whether suggesting a win or a loss, won’t matter. A loss is more likely regardless. Why? In part because there exists a not-so-subtle Democratic machine that goes far beyond politicians and now includes significant segments of corporations, media and “nonpartisan” governmental entities. Presidential and battleground Senate races are currently won at the slimmest of margins and Republicans face a system that now requires that their nominee blow past those margins on the crest of not just a possible “Red Wave” but riding a true “Red Tidal Wave.” Only that massive “Red Tidal Wave” can carry a Republican back into the White House. Here’s a list of why such a GOP meltdown is possible again and the potential remedies for the party that, at present, seem unlikely to materialize in time to avert disaster for Republicans in 2024. If a Tree Falls… You know how this goes: If a tree falls in the woods and there is no one to hear it, does it make a sound? In the political forest, the answer is no if the tree is Republican or conservative. This is by far and away the biggest obstacle Republicans face in having a fair chance of winning in 2024. While Fox News remains the dominant cable news network, it cannot possibly serve to counterbalance the three broadcast news networks along with CNN and MSNBC. Even with Newsmax thrown into the mix, the “conservative” broadcast and online media, based on total viewership and readership, is overwhelmed day in and day out. Other than Rupert Murdoch, conservative-leaning financiers have either lacked the will or have been stymied at forming consortiums to purchase or challenge the “legacy” media. And Republican operatives seem hellbent on spending all their money in short-burst primary and general election cycles. They just assume that everyone knows their view of the news: that President Joe Biden is “cognitively challenged”; the economy is in decline; the border is flooded daily by undocumented immigrants; that crime is destroying the nation’s once great and revered cities; that the U.S. appears weak and unprepared for future aggressions by major foes. You get the point. But the average voter doesn’t. Polls asking voters about issues provide conservatives with the appearance that their issues are important to voters as well as the foibles of Democrats. But most issue-oriented polling questionnaires assume that their respondents are aware and have an opinion on the matter. And respondents rarely want to confess that they haven’t a clue. Put that same respondent in an unaided survey where they must articulate the issues of the day and one will find that those opinions on most issues dissolve into a mishmash of general concepts and less definitive answers. It seems that Republican leaders just assume that everyone else lives in the bubble they live in. But they don’t. Most voters whose vote the GOP might otherwise win don’t much know about critical race theory, the consequences of mounting federal debt, or much of anything conservatives talk about amongst themselves or to their audiences. Were it not for Twitter CEO Elon Musk, what little information conservatives manage to get out beyond their bubble would be shut down by the social media establishment. Consider the following. On the day after news reports of an IRS whistleblower’s allegations of potential wrongdoing concerning the Department of Justice’s handling of the Hunter Biden investigation and the revelation that Secretary of State Antony Blinken allegedly requested a letter from members of the intelligence community to label the younger Biden’s laptop “a Russian Hoax,” the daily White House briefing was devoid of questions on the two issues. Weeks later, when the House Oversight Committee presented financial records of members of President Biden’s family and their business associates receiving over $10 million from foreign corporations linked to China and Romania using a labyrinth of corporations, a massive tree fell. But virtually no one heard it. The three “legacy” TV networks did not cover it in their news broadcasts and mostly ignored it on their websites. But taking the old “tree falls” to a new level, The New York Times decided to ignore the tree falling and instead proclaim renewed sturdiness and growth for the tree. Their headline: “House Republican Report Finds No Evidence of Wrongdoing by President Biden.” The selective and slanted nature of news now often starts at its initial gathering point and continues in its final presentation to a busy public, most of whom grab their news from social media and news aggregations on their smartphone. Republicans and conservatives have missed the boat in educating voters in a non-controversial and balanced manner, about the true facts and news of the day. And consider that conservatives are routinely labeled by the mainstream press with the pejorative phrase “far-right wing” while even the most “out there” liberals are labeled the more upbeat moniker of “progressives.” Republicans haven’t even been able to address the simple matter of the lexicon used in political battle. No Check on the Checkers… The business of “fact checking” arose with the same foundational financial and logistical support that brings “legacy” news to us. Have you noticed how journalists, and I mean top ones, are willing to use definitive terms like “lies” and “debunked” in their description of certain people and issues rather than the more cautionary and traditional terms like “disputed” and “alleged”? That’s because the fact checkers make definitive statements that allow journalists to definitively dismiss certain matters and embrace others. While the NewsGuards and PolitiFacts of the journalistic world were being incubated and lovingly made into “institutions,” there was no formidable effort made by those who long for a more balanced media to create credible and less politicized alternatives. And that’s a fact! Add to that “fact” the amazing coincidence that AI has burst on the consumers of news and social media just in time for what might be the most critical presidential election cycle in American history. Now facts, figures, biographies, and narratives can be gathered, edited and selectively presented to consumers who have no idea who or how their AI database or algorithms were programed or written in the first place. If those wanting a more balanced media don’t fund their own legitimate and well-funded fact-checking organizations, an entire generation will become reliant on one-sided and often extremely biased groups claiming to be the ultimate arbiters of truth. ‘Existential’… This is the most overused word of the last three years. Everything, it seems, is deemed “an existential threat” to the world. The philosopher Soren Kierkegaard must be rolling over in his grave at the endless use of his central concept. So let me keep Kierkegaard spinning. The failure of the GOP to flood nursing homes, bingo halls, and mortuaries (OK, that one is a joke, of a sort) in search of voters willing to cast early ballots remains, as of today, unaddressed, And it really is an “existential threat” to the Republican leaders. They must come to understand that in our post-COVID era, the rules for who votes when and where, and under the aegis of “voter outreach,” has changed forever. Democrats know how to spend buckets of money to advance what could best be termed “selective democracy.” They know just how to bump against the line of what is allowed and what is not, should anyone with any authority and objectivity care. The GOP has only months remaining to create armies and methods to match those efforts. If the Shoe Fits… Republicans must wear it. In recent years Republicans have suffered from a tenuous relationship with white suburban women and younger voters. They are being made to feel guilty in the classrooms, carpool lines or suburban tennis matches that they were born white or were provided opportunities while growing up. It translates as “Republicans are the racist party” by default. When Roe v. Wade was overturned, some Republican leaders in various states decided to up the ante on abortion laws. It’s logical for Republicans, given their position on the matter, to advance protecting unborn lives. But to do so without a massive ad and public relations outreach campaign to those essential demographic groups to explain their legislation, creates a political shoe so tight that an elephant’s foot has no prayer of fitting. Hence, a contributing factor to the massive turnout and marginal losses for Republicans in many marginal contests in 2022. It’s the same for the issue of gun control versus gun rights. If Republicans want to continue to support a broad interpretation of the Second Amendment, they need to educate a public overwhelmed by a media that does not. How about a massive paid ad campaign exposing voters to statistics supporting the claim that in areas where everyone is “packing heat,” so to speak, gun violence drops? If that is indeed the case, don’t just say it on conservative-leaning cable news shows, prove it to the public in well-reasoned ads with real live statistics. Ditto for the value of armed security in every school. If the evidence exists to support those concepts, why is it not front and center in ads on popular TV shows and the web? Shucking and jiving through endless mass shootings isn’t working — and is costing the GOP with younger and suburban swing voters. The Tooth Fairy vs. the Dentist and Periodontist… Lord knows both parties know how to pander, but Republicans let their “fiscal responsibility” stand in the way. Democrats under Joe Biden have been described as “the Tooth Fairy,” promising outrageously massive handouts to various demographic targets with no apparent way to pay for them. Meanwhile, the Republican counter to this Democratic approach is to serve as national dentist and periodontist. Incrementally trying to fight cavities and oral decay but with nothing new to offer voters. Ask yourself “Tooth Fairy or Dentist?” Most would choose the Tooth Fairy every time! For the sake of argument, try this idea on for size, Republicans: Propose that the government eliminate all these programs you view as needless handouts, unappreciated foreign aid and government waste. Put it all into the Social Security “trust fund” as a sort of “matching contribution” and give seniors a real live retirement that they can live on. Instead of raising the age requirement for benefits, lower it over time! And jack those payments way up while cutting out the “left-wing woke funding” you claim to despise in order help pay for it. No one would ever expect that from the GOP. Yet that would consolidate (and could increase) for Republicans a senior base they began to lose during the pandemic, and which continues to be problematic. Based on exit polls of battleground Senate races, increasing the GOP share of the vote among those age 55 and over is the most likely way for Republicans to expand their vote and create a true “Red Tidal Wave.” The choice between forgiving college loans of over-educated millennials who offer little potential for significant vote gains, versus an enhancement and expansion of benefits to more senior Americans of all backgrounds, would seem to be a no-brainer. And it would put to rest the constant Democrat go-to of last-minute ads warning seniors that “Republicans want to cut your benefits.” How about a national bonus or additional tax credit program for police and firefighters across the nation? How else are we ever going to motivate the next generation to consider taking on these increasingly dangerous and thankless jobs? The GOP has become the party of the working person, including those who have worked hard all their lives. Why not seal the deal by promising to reward those voters and taking resources away from programs that encourage the opposite? That is exactly how Democrats under Biden are seemingly operating. They arguably penalize those who work to have good credit by rewarding those who don’t. The Green New Deal makes the future far more expensive and impracticable on the average worker while searching for ways to transfer resources to others in the name of “energy and climate equity.” Take from one group and give to another. Republicans better learn to do it big — and soon — or they will wither as a party. It's likely, for the GOP I know, that the shoe won’t fit their agenda either. They will deem such ideas “unworkable and fiscally irresponsible.” As if the Democrats’ “Inflation Reduction Act” was? A Better Class of Prisoner… In the 1960s, one governor, when asked about the sorry conditions of his state prisons, responded by saying that what the state needed was “a better class of prisoners.” When it comes to Republican campaigns, a better class of prisoners might be called for. Or at least a truce among inmates. For decades Republican political operatives have approached one another as rival “political gangs,” more interested in capturing all the dollars from political donors and spending them through their associates and fellow “gang members,” than winning. “Diss me and my gang and we will cut funds off from your candidate.” We saw that same mentality prevail once again in 2022, and Republican candidates once again were the casualties of it. Democrats take a different approach. They tend to work toward one common goal of winning. The spoils of victory are then rewarded after the votes are in and the political power has been gained. Of course, to be fair, Democrat “dark money” is more plentiful, and Republicans often must scrounge around for funds in order to compete. A lot has to change in a short time period to give former President Trump or any other Republican nominee a sporting chance of winning in 2024. No GOP nominee, even Trump (who tends to pull more voters to the polls than other modern-day Republican nominees could have hoped for) cannot win if these substantial changes don’t start to take place, and rapidly. If not, the elephant walk of 2024 could once again be one straight off the political cliff. But for this upcoming cycle, pollsters will likely be extra careful not to march off that cliff with them. Tyler Durden Fri, 05/26/2023 - 21:40.....»»

If you’re considering establishing a personal trust, or an advisor working with a client to establish their trust, you’ll find you have options when it comes to selecting what jurisdiction to use. In most instances, you do not need to be a resident of the state or jurisdiction you wish to utilize. There are a handful of U.S. states with favorable trust laws and you can employ the charter of a corporate trustee to take advantage of these benefits. South Dakota has become a highly favorable jurisdiction….....»»

From Dollar Woes To Debt Denial: The USA Is Screwed Authored by Matthew Piepenburg via GoldSwitzerland.com, De-Dollarization: Downplaying the Obvious De-Dollarization is a real, all too real trend, though it is both fascinating and disturbing to see what is otherwise so obvious being deliberately down-played, excused or ignored from the top down. But then again, the laundry list of ignored facts and open lies from the top down to hide hard truths in everything from inflation data to recessionary debt traps is nothing new. Instead, such propaganda replacing blunt transparency is the new normal (and classic trick) for all historical endings to debt-soaked (and failing) nations/systems and their fork-tongued (i.e., guilty) policy makers. Slow & Steady De-Dollarization, of course, is a gradual rather than over-night process. Its origins stem from 1) years of exporting USD inflation overseas (to the painful detriment of friend and foe alike) and 2) the insanely stupid decision to weaponize the world reserve currency (i.e., USD) subsequent to a border war between two local tyrants in the Ukraine. Whether or not you buy into the Western “media’s” narrative which categorizes Putin as Hitler 2.0 and Zelensky as a modern George Washington, the weaponization of the USD (and freezing of FX reserves) has made an already dollar-tired globe even more distrusting of Uncle Sam’s currency and IOUs. This trend is confirmed by the profound dumping of USTs throughout 2022 and the undeniable trend among the BRICS (and the 36 other nations) to deliberately seek bilateral trade agreements and settlements outside of the USD. Furthermore, with Saudi talking to China and Iran, and with China talking to Mexico, Russia and just about everyone else, it’s fairly clear that a move away from the once sacred petrodollar (Pakistan now seeking Russian oil in Yuan) is no longer just the fantasy of conveniently eliminated folks like Saddam Hussein or Muammar Gaddafi… As I discussed here and here, the petrodollar is under threat, which means longer-term demand for the USD is equally so. But the USD Still Has Legs—For Now… That said, there’s also no denying that the USD is still very strong, very important and very much in demand. After all, and despite welching in 1971 on its 1944 promise to be gold-backed, the USD is still the world reserve currency. With over 40% of global debt instruments denominated in Greenbacks and over 60% of the reservoir of global currencies composed of USDs, this reserve status (and hence forced demand) aint going anywhere too soon. Furthermore, and as I have written and agreed, the so-called “milk-shake theory” is not altogether wrong. That is, demand for USDs (and USTs) within the tangled and levered web of US derivative and Euro Dollar markets is baked into a system which will take years (not days) to unravel, monetize or replace, and this sure as heck won’t be orderly, global nor overnight. Then Comes Change, Pain and Open Denial But let’s get real: The days of the USD as a trusted payment system or hegemonic power broker are unwinding right before our very eyes. And the best way to see the truth of this reality is to catalogue the ever-expanding list of lies from the big boys and their complicit, media ja-sagenders (“yes-sayers”) desperately trying to deny the same. At first, for example, the centralized economists were blaming de-dollarization and CNY energy transactions on the Russian sanctions. Gee. Go figure? Thereafter, the economists said de-dollarization is just the result of Emerging Market (EM) countries momentarily running out of (in fact they’re intentionally dumping) USD reserves. Western “experts” are trying to convince themselves and the rest of the world that EM nations will implode unless they eventually acquire more USTs and USDs to buy energy. What these experts are failing to see (or say), however, is that many of those countries are already beginning to buy that energy outside of the USD… Folks, de-dollarization in global commodity markets is happening already, and will accelerate rather than fade away into some fantasy image of how the “West was Won,” for as argued elsewhere, the West is already losing. Facts Are Stubborn Things As for the list of nations, both big and small, de-dollarizing right before our watering eyes, just consider, well…China, Russia, India, Pakistan, Ghana, Bolivia… Even the world’s largest hardwood pulp producer, Suzano SA, is in talks with China to trade its commodity in CNY. This transition from a weaponized USD to an expanding CNY is not just the sensationalism of fiat-haters but the hard math of real events and data, which the following chart of the Renminbi Globalization Index (up 26% in 2022) makes all too clear… The undeniable trend and rise (which is not the same as “hegemony”) of the CNY is certainly not good news for the fiat-all-too-fiat USD, who is less and less the prettiest girl at the dance. As trust/demand in the USD falls, so too does its purchasing power, which may explain why China, at the very same time its trade power increases, is simultaneously growing its gold reserves in anticipation for what it knows is coming but what the West still refuses to see, namely: The slow-drip neutering of Uncle Sam’s fiat currency. See the trend folks? We Told You So See why picking a currency-for-energy war against Russia (the world’s biggest commodity exporter and a nuclear power in bed with China, the world’s biggest factory owner and a nuclear power) may have been a bad idea? As we warned literally from day-1 of the sanctions, this was obviously not the same as picking a sanction fight with say, Iran or Venezuela… Nope. This scale of this was far more dangerous, and the avoidable casualties still piling up in the West’s proxy war (on Ukrainian soil/rubble) are not just soldiers and civilians, but Greenbacks too. This was foreseeable. Even Obama foresaw it in 2015: Clearly, Biden’s handlers, however, didn’t see it in 2022. They wanted to play war rather than sound economics, and the end result will be a loss of both. As for the USD: Volatility Before Debasement As for the fate and price of the USD near-term and long-term, the move will be volatile rather than in a straight line north or south. The USD can still go higher, much higher, as fewer Greenbacks overseas still face large debt payments. Ultimately, however, Uncle Sam’s own twin deficits and schoolyard of children masquerading as House Members/”leaders” will deficit spend the USA into a debt spiral whose only “cure” is more mouse-clicked and debased dollars along side more unloved and over-issued USTs (IOUs). Thereafter, the up and down moves of the USD will eventually just sink, Titanic-like, in one direction as ever-more USD’s collide with a growing debt iceberg. As argued so many times, but worth repeating: The last bubble to die in a debt-soaked regime is always the currency. Even the increasingly unloved world reserve currency will be no exception to the laws of over-supply and decreasing demand. Between now and then, all we can expect are more lies from on high and more centralized controls masquerading as efficient payment systems and national emergencies blamed on Eastern bad guys and bat-made (?) virusesrather than the bathroom mirrors of our central planners (happy idiots?). All Good Until Things Break We have always warned that Powell’s rate hikes (too much, too fast, too late) would be too expensive for Uncle Sam, and would thus break things here and abroad—from repo markets, gilt markets and Treasury markets to a US fiscal implosion and dying regional banks. Next to implode are the labor markets. Six decades of data confirm that rising rates always break things. But when you place such rising rates into the context of the greatest debt crisis in US (as well as global) history, the “breaking” gets really ugly. Until the Fed supplies more inflationary liquidity (fiat-fantasy money), the dual forces of a hawkish Powell and a de-dollarizing yet milk-shake world means the USD could rise and squeeze out the dollar short traders nearer term. Anything but “Softish” Ultimately, however, and after enough smaller banks have been murdered (more will die) and after the UST market has suffered all it can suffer, too much will break at once, and it won’t be soft, or even “softish.” This is not fable but fact. The only “tool” the centralizers will have left is more synthetic, fiat (and inflationary) liquidity on demand. This trend is simple: Uncle Sam is broke and his only solution is a money printer. In short, a counterfeit answer to a real cancer. Don’t believe me? Just ask the US Treasury Dept. More Ignored Math from DC The latest TBAC (Treasury Borrowing Advisory Committee) confirms the US has already deficit spent $2.060T in fiscal 1H23, the interest expense alone of which is 101% of tax receipts. This effectively puts the USA into a red-zone of imbalance reminiscent of the COVID crisis, only this time they don’t have COVID to blame for a debt addiction that was in play long before Fauci stained our screens or Powell printed more money post-March-of-2020 than was produced in the entire compounded history of our nation. The TBAC report further indicated that projected US Federal deficits for 2023 to 2025 have risen by 30-50% in just the last 90 days… And folks, the only way to pay for this embarrassing bar tab in DC is either more open QE (mouse-clicked trillions) and/or a much, much, much weaker USD to inflate away this debt as we head simultaneously into the mother of all recessions. Such a crisis, of course, could be preceded by temporary (relative, rather than inherent) spikes in the USD until more UST supply/liquidity weakens the Greenback and sends gold higher, regardless of the USD’s relative strength and then subsequent weakness. Meanwhile the Propaganda from On-High Continues As I’ve said in interview after interview, you know things are getting really bad when comforting words and de-contextualized data increasingly replace simple (but scary) math. At $95+T in public, household and corporate debt, the US has irreversibly passed the Rubicon of any easy solutions. As Egon von Greyerz makes abundantly clear week after week, the US in general and the Fed in particular have irrevocably cornered themselves. Stated otherwise: The USA is screwed. DC has to chose between saving its “system” (of insider/TBTF banks, self-interested politicos–from the Maoist “woke” to the neocon “dark” and Wall Street Socialism) or destroying its currency. Needless to say, it’s ultimately the currency that will fall on the sword for this now openly corrupt and pathetic “system.” But again, rather than confess their own sins, the message is always “be calm and carry on.” The Latest Fantasy Chart Take, for example, the latest puff-tweet regarding Bloomberg’s “US Economic Surprise Index” which paints an oh-so rosy picture of the US economy rising at the fastest pace in over a year. [ZH: we overlaid the Citi Macro Surprise Index for context] But as far smarter folks than me (i.e., Luke Gromen) will remind, this so-called data is ignoring a few contextual elephants in the room… Context Helps First, the above “good news” ignores a US debt/GDP ratio of 125%, a deficits/GDP ratio of 8% and government spending at 25% of GDP. Secondly, US Government Outlays (i.e., deficit spending) has been growing at 30% for five of the last seven months. Spending rates like this have only occurred twice in the last four decades, namely: 1) during the height of the COVID hysteria and 2) during the height of the 2008 GFC. So, despite the “good news” in puff-charts above, the pundits are ignoring the fact that Uncle Sam (and his mis-fit children in the House of [lobbied] “Representatives”) are spending as if the USA is already in the eye of a financial storm. And yet we haven’t even seen the recession officially hit or labor and risk markets tank, YET. Imagine the spending when things get officially far worse than today—and they will; it’s now mathematical. Out of Sight, Out of (Our) Mind Sadly, however, very few investors are seeing the bigger picture and the wandering elephants. In the interim: 1) the military industrial complex will create more profits and jobs here and more casualties overseas; and 2) deficit spending will keep unemployment in check (for now) and GDP “stable” until 3) its deficits (and debts) cancerously metastasize within a nation frog-boiling in debt and fractured by manufactured identity politics over transgender beer ads and slavery reparations from the 1860’s. Such “woke” trends are ironic, given the fact that middleclass Americans of all colors, sexualities, “privileges” or political bends are already unknowing slaves/serfs in a modern feudalism of fake capitalism fighting against the bogus (yet SJW) “equity” euphemism of a woke (but hidden) re-distribution of social “shares” smacking of modern yet genuine Marxism. Slowly, Then All at Once And amidst all this distraction, division and in-fighting, the reality of rising rates colliding into historically unprecedented debt levels will just crush all stripes of Americans in the same manner Hemingway described poverty: “Slowly, then all at once.” As Egon has often told me: Be careful what you wish for or already know. Gold will inevitably go higher as the rest of the nation/world slides into its foreseeable debt trap and fiat end-game. This may be obviously good for gold; but it will be at the expense of so much else, as the disorder ahead is neither fun nor pretty.  And it’s only just beginning… Tyler Durden Mon, 05/22/2023 - 06:30.....»»

Extra Space Storage's (EXR) Q1 results are likely to reflect gains from high brand value and its solid presence in key cities, while an anticipated rise in vacating volumes is likely to lead to pricing pressure. Extra Space Storage EXR, a leading self-storage real estate investment trust (REIT) in the United States, is set to release its first-quarter 2023 earnings on May 2 after market close. The company has been steadily expanding its footprint and diversifying its operations. As the market anticipates the earnings announcement, this article provides an in-depth preview of EXR’s expected performance in the first quarter of 2023 considering overall industry trends, the company's growth strategy and recent acquisitions.In the last reported quarter, this Salt Lake City, Utah-based REIT delivered a surprise of 0.48% in terms of core funds from operations (FFO) per share. Results reflected a better-than-anticipated top line.Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on each occasion, the average beat being 3.58%. The graph below depicts this surprise history:Extra Space Storage Inc Price and EPS Surprise Extra Space Storage Inc price-eps-surprise | Extra Space Storage Inc QuoteFactors to ConsiderExtra Space Storage has been pursuing a multi-faceted growth strategy, which includes strategic acquisitions, third-party management services and joint ventures. In recent years, the company has successfully executed several acquisitions that have expanded its portfolio, increased market share and added value for shareholders.In the first quarter too, Extra Space Storage is likely to have continued to benefit from its solid presence in key cities and measures to boost its geographical footprint through accretive acquisitions and third-party management. In addition, EXR's ongoing focus on enhancing the customer experience through technology integration and improved operational efficiency is likely to strengthen its competitive advantage.High brand value and technological advantage are expected to have aided Extra Space Storage’s top and bottom lines in the quarter under consideration. Also, this REIT is likely to have maintained a healthy balance sheet position.However, with the pandemic’s impact waning, the self-storage industry is witnessing an elevation in vacating activity, resulting in falling occupancy levels. Tenants are likely to revert to more normal move-out behavior, leading to adverse pressure on rate growth in many markets. With a return of seasonality, rates and occupancy are likely to experience some pressure.However, EXR operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, there is a development boom of self-storage units in several markets. This high supply is likely to have fueled competition. Also, a hike in the interest rate is a concern for Extra Space Storage. Rising rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate.Projections for Q1The Zacks Consensus Estimate of $439.25 million for quarterly property rental revenues suggests a slight increase from the prior quarter’s $438.10 million and the year-ago period’s $379.81 million. Management and franchise fees for the quarter are projected at $21.25 million, almost flat sequentially but ahead of the year-ago quarter’s $19.96 million. The Zacks Consensus Estimate of $513.68 million for quarterly revenues suggests a 15.81% increase year over year.Extra Space Storage’s activities during the quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has moved a cent south to $2.05 in the past month. However, it calls for a 1.99% year-over-year rise.Here Is What Our Quantitative Model Predicts:Our proven model does not conclusively predict a surprise in terms of FFO per share for Extra Space Storage this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.Extra Space Storage currently carries a Zacks Rank of 3 and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.However, our model shows that Americold Realty Trust, Inc. COLD and Xenia Hotels & Resorts, Inc. XHR have the right combination of elements to report a surprise this quarter.Americold Realty Trust, scheduled to report quarterly numbers on May 4, has an Earnings ESP of +17.72% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.Xenia Hotels & Resorts is slated to report quarterly numbers on May 2. XHR has an Earnings ESP of +5.06% and carries a Zacks Rank of 3 presently.Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.ConclusionWith a strong market position, a diversified portfolio and commitment to enhancing customer experience through technological advancements, Extra Space Storage is likely to maintain its upward trajectory in the foreseeable future. As a result, the company presents an attractive investment opportunity for those seeking exposure to the thriving self-storage sector.However, investors should also consider potential risks and uncertainties, such as interest rate fluctuations and macroeconomic factors, before making any investment decisions. 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WICHITA, Kan., April 18, 2023 (GLOBE NEWSWIRE) -- Equity Bancshares, Inc. (NASDAQ:EQBK), ("Equity", "the Company", "we," "us," "our"), the Wichita-based holding company of Equity Bank, reported net income of $12.3 million and $0.77 earnings per diluted share for the quarter ended March 31, 2023. "Equity positioned itself to capture deposits to ensure balance sheet stability by adhering to previously established risk management guidelines in our loan and investment portfolios. During the quarter, Equity experienced steady deposits and have used that stability as a catalyst to grow and increase relationships with commercial customers," said Brad S. Elliott, Chairman and CEO, Equity Bancshares, Inc. "Equity is positioned to take advantage of opportunities through the potential economic downturn. We have high levels of regulatory and tangible capital, excellent credit quality, and expertise in mergers and acquisitions. We will look to be the partner of choice in our footprint." Mr. Elliott continued, "As a strong community bank, we have a conservative risk management philosophy toward managing concentrations across industries and geographies. As a result, we have a diversified, stable deposit base due to the same granularity we exhibit in our loan portfolio. Our balance sheet risk remains attractive, exhibited by our loan to deposit ratio of 77.7%. We have not taken outsized risks or over leveraged the balance sheet to artificially boost earnings in the short term. We will continue to be a stable and reliable financial expert to our customers and grow our tangible book value through prudent capital management." Notable Items: Total deposits increased $46.1 million during the quarter or 4.4% linked quarter annualized while the Loan to Deposit ratio held flat at 77.7% as compared to 78.1% as of December 31, 2022. Cash and cash equivalents increased $145.9 million during the quarter growing as a percentage of Total Assets to 4.9% in the first quarter as compared to 2.1% linked quarter. Equity repurchased $9.6 million of common stock representing 2.0% of shares outstanding as of the end of the first quarter. The Company's loan growth, excluding PPP and branch sales, was $19.1 million, or 2.4% linked quarter annualized including 6.4% annualized growth within the commercial and commercial real estate portfolios. Book Value per Common Share increased $1.29 linked quarter to $27.03, while Tangible Book Value per Common Share increased $1.29 to $22.96. The ratio of non-performing assets to total assets improved 4bps linked quarter to 0.3%, and the ratio of Classified Assets to Bank Regulatory Capital remained relatively constant at 10.1% from 10.0%. Financial Results for the Quarter Ended March 31, 2023 Net income allocable to common stockholders was $12.3 million, or $0.77 per diluted share, for the three months ended March 31, 2023, as compared to $11.6 million, or $0.72 per diluted share, for the three months ended December 31, 2022. The increase during the quarter was primarily driven by an increase in non-interest income of $760 thousand and a decrease in income tax expense of $1.1 million. Net Interest Income Net interest income was $39.1 million for the three months ended March 31, 2023, as compared to $42.0 million for the three months ended December 31, 2022, a decrease of $2.9 million, or 6.9%. The yield on interest-earning assets increased 27 basis points to 4.94%. The cost of interest-bearing deposits increased by 68 basis points during the quarter, moving from 1.05% at December 31, 2022, to 1.73% at March 31, 2023. During the quarter, the Company enhanced its overall liquidity position by adding on-balance sheet cash, resulting in a three basis point adverse impact to net interest margin due to the increase in average earning assets and negligible impact to net interest income. Average interest-bearing deposits moved up slightly during the quarter as the Company experienced a continued compositional shift from noninterest-bearing deposits into interest bearing categories. At March 31, 2023, non-interest bearing deposits declined $85.2 million from December 31, 2022 and $243.1 million from March 31, 2022. The majority of the decline over the last 12 months has been related to average balance declines primarily associated with spending excess liquidity from pandemic governmental support programs. Provision for Credit Losses During the three months ended March 31, 2023, there was a net release of $366 thousand compared to a net release of $151 thousand in the previous quarter. The release of provision for the quarter is the result of continued positive credit trends without realization of meaningful losses. The Company continues to estimate the allowance for credit loss with assumptions that anticipate slower prepayments rates and continued market disruption caused by elevated inflation, supply chain issues and the impact of monetary policy on consumers and businesses. For the three months ended March 31, 2023, we had net charge-offs of $377 thousand as compared to $501 thousand for the three months ended December 31, 2022. Non-Interest Income Total non-interest income was $9.1 million for the three months ended March 31, 2023, as compared to $8.3 million for the three months ended December 31, 2022, or an increase of 9.1%, quarter-over-quarter. The $760 thousand increase was primarily due to increases in bank owned life insurance of $825 thousand and other non-interest income of $530 thousand primarily consisting of asset quality improvements on previously acquired loan relationships, partially offset by decreases in gain on acquisition and branch sales of $422. Non-Interest Expense Total non-interest expense for the quarter ended March 31, 2023, was $33.7 million as compared to $35.2 million for the quarter ended December 31, 2022. The $1.5 million change was primarily due to decreases in advertising and business development of $744 thousand, data processing of $418 thousand and other non-interest expense of $308 thousand, partially offset by an increase in salaries and employee benefits of $579 thousand. Income Tax Expense At March 31, 2023, the effective tax rate for the quarter was 17.0% as compared to an annual rate of 17.9% in 2022. The reduction as compared to 2022 is associated with an increase in tax benefits related to the implementation of tax planning initiatives and associated reductions in state income tax expense offset by a reduction to tax credits when taken as a percentage of pre-tax income. Loans, Total Assets and Funding Loans held for investment were $3.33 billion at March 31, 2023, increasing $19.1 million or 2.3% annualized, from December 31, 2022. Included in the annual growth, is $36.3 million within the commercial and industrial and commercial real estate portfolios, or 6.4%. Total assets were $5.16 billion as of March 31, 2023 increasing $172.7 million or 3.4% from December 31, 2022. Total deposits were $4.29 billion at March 31, 2023, increasing 4.3% annualized compared to previous quarter end. Of this balance, non-interest bearing accounts comprise approximately 23.6%. Advances from the FHLB declined $27.6 million to $111.2 million during the quarter, while borrowings from the Federal Reserve's Bank Term Funding Program increased to $140.0 million at March 31, 2023. Asset Quality As of March 31, 2023, Equity's allowance for credit losses to total loans remained materially consistent at 1.4% as compared to December 31, 2022. Nonperforming assets were $17.1 million as of March 31, 2023, or 0.3% of total assets, compared to $18.2 million at December 31, 2022, or 0.4% of total assets. Non-accrual loans were $16.6 million at March 31, 2023, as compared to $17.6 million at December 31, 2022. Total classified assets, including loans rated special mention or worse, other real estate owned, excluding previous branch locations, and other repossessed assets were $59.9 million, or 10.1% of regulatory capital, up from $58.7 million, or 10.0% of regulatory capital as of December 31, 2022. Capital During the quarter, the Company realized expansion in both book and tangible capital, as well as book and tangible capital per share as dividends and costs incurred to repurchase shares were outpaced by earnings and partial recovery of the negative fair value mark on the investment portfolio. The Company's ratio of common equity tier 1 capital to risk-weighted assets was 12.2%, the total capital to risk-weighted assets was 16.0% and the total leverage ratio was 9.6% at March 31, 2023. At December 31, 2022, the Company's common equity tier 1 capital to risk-weighted assets ratio was 12.3%, the total capital to risk-weighted assets ratio was 16.1% and the total leverage ratio was 9.6%. The Company's subsidiary, Equity Bank, had a ratio of common equity tier 1 capital to risk-weighted assets of 14.4%, a ratio of total capital to risk-weighted assets of 15.7% and a total leverage ratio of 10.8% at March 31, 2023. At December 31, 2022, Equity Bank's ratio of common equity tier 1 capital to risk-weighted assets was 14.5%, the ratio of total capital to risk-weighted assets was 15.7% and the total leverage ratio was 10.8%. Non-GAAP Financial Measures In addition to evaluating the Company's results of operations in accordance with accounting principles generally accepted in the United States of America ("GAAP"), management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures that are intended to provide the reader with additional perspectives on operating results, financial condition and performance trends, while facilitating comparisons with the performance of other financial institutions. Non-GAAP financial measures are not a substitute for GAAP measures, rather, they should be read and used in conjunction with the Company's GAAP financial information. The efficiency ratio is a common comparable metric used by banks to understand the expense structure relative to total revenue. In other words, for every dollar of total revenue recognized, how much of that dollar is expended. To improve the comparability of the ratio to our peers, non-core items are excluded. To improve transparency and acknowledging that banks are not consistent in their definition of the efficiency ratio, we include our calculation of this non-GAAP measure. Return on average assets before income tax provision and provision for loan losses is a measure that the Company uses to understand fundamental operating performance before these expenses. Used as a ratio relative to average assets, we believe it demonstrates "core" performance and can be viewed as an alternative measure of how efficiently the Company services its asset base. Used as a ratio relative to average equity, it can function as an alternative measure of the Company's earnings performance in relationship to its equity. Tangible common equity and related measures are non-GAAP financial measures that exclude the impact of intangible assets, net of deferred taxes, and their related amortization. These financial measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. Return on average tangible common equity is used by management and readers of our financial statements to understand how efficiently the Company is deploying its common equity. Companies that are able to demonstrate more efficient use of common equity are more likely to be viewed favorably by current and prospective investors. The Company believes that disclosing these non-GAAP financial measures is both useful internally and is expected by our investors and analysts in order to understand the overall performance of the Company. Other companies may calculate and define their non-GAAP financial measures and supplemental data differently. A reconciliation of GAAP financial measures to non-GAAP measures and other performance ratios, as adjusted, are included in Table 6 in the following press release tables. Conference Call and Webcast Equity's Chairman and Chief Executive Officer, Brad Elliott, and Chief Financial Officer, Eric Newell, will hold a conference call and webcast to discuss first quarter results on Wednesday, April 19, 2023, at 10 a.m. eastern time or 9 a.m. central time. A live webcast of the call will be available on the Company's website at investor.equitybank.com. To access the call by phone, please go to this registration link, and you will be provided with dial in details. Investors, news media, and other participants are encouraged to dial into the conference call ten minutes ahead of the scheduled start time. A replay of the call and webcast will be available two hours following the close of the call until April 26, 2023, accessible at investor.equitybank.com. About Equity Bancshares, Inc.Equity Bancshares, Inc. is the holding company for Equity Bank, offering a full range of financial solutions, including commercial loans, consumer banking, mortgage loans, trust and wealth management services and treasury management services, while delivering the high-quality, relationship-based customer service of a community bank. Equity's common stock is traded on the NASDAQ Global Select Market under the symbol "EQBK." Learn more at www.equitybank.com. Special Note Concerning Forward-Looking Statements This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect the current views of Equity's management with respect to, among other things, future events and Equity's financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "project," "positioned," "forecast," "goal," "target," "would" and "outlook," or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about Equity's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond Equity's control. Accordingly, Equity cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although Equity believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Factors that could cause actual results to differ materially from Equity's expectations include COVID-19 related impacts; competition from other financial institutions and bank holding companies; the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; changes in the demand for loans; fluctuations in value of collateral and loan reserves; inflation, interest rate, market and monetary fluctuations; changes in consumer spending, borrowing and savings habits; and acquisitions and integration of acquired businesses; and similar variables. The foregoing list of factors is not exhaustive. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in Equity's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2023, and any updates to those risk factors set forth in Equity's subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. If one or more events related to these or other risks or uncertainties materialize, or if Equity's underlying assumptions prove to be incorrect, actual results may differ materially from what Equity anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and Equity does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties arise from time to time and it is not possible for us to predict those events or how they may affect us. In addition, Equity cannot assess the impact of each factor on Equity's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Equity or persons acting on Equity's behalf may issue. Investor Contact: Chris NavratilSVP, FinanceEquity Bancshares, Inc.(316) 612-6014cnavratil@equitybank.com         Media Contact: John J. HanleySVP, Senior Director of MarketingEquity Bancshares, Inc.(913) 583-8004jhanley@equitybank.com Unaudited Financial Tables Table 1. Quarterly Consolidated Statements of Income Table 2. Consolidated Balance Sheets Table 3. Selected Financial Highlights Table 4. Quarter-To-Date Net Interest Income Analysis Table 5. Quarter-Over-Quarter Net Interest Income Analysis Table 6. Non-GAAP Financial Measures TABLE 1. QUARTERLY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)   (Dollars in thousands, except per share data)                                   As of and for the three months ended       March 31,2023     December 31,2022     September 30,2022     June 30,2022     March 31,2022   Interest and dividend income                               Loans, including fees   $ 48,381     $ 46,149     $ 41,555     $ 36,849     $ 36,306   Securities, taxable     5,947       5,946       5,792       5,584       5,391   Securities, nontaxable     669       678       687       678       655   Federal funds sold and other     1,126       651       514       513       300   Total interest and dividend income     56,123       53,424       48,548       43,624       42,652   Interest expense                               Deposits     13,821       8,013       4,403       2,183       1,722   Federal funds purchased and retail repurchase agreements     195       82       71       46       33   Federal Home Loan Bank advances     1,018       1,500       409       176       9   Federal Reserve Bank borrowings     135       —       —       —       —   Subordinated debt     1,844       1,798       1,721       1,653       1,599   Total interest expense     17,013       11,393       6,604       4,058       3,363                                   Net interest income     39,110       42,031       41,944       39,566       39,289   Provision (reversal) for credit losses     (366 )     (151 )     (136 )     824       (412 ) Net interest income after provision (reversal) for credit losses     39,476       42,182       42,080       38,742       39,701   Non-interest income                               Service charges and fees     2,545       2,705       2,788       2,617       2,522   Debit card income     2,554       2,557       2,682       2,810       2,628   Mortgage banking     88       116       310       428       562   Increase in value of bank-owned life insurance     1,583       758       754       736       865   Net gain on acquisition and branch sales     —       422       —       540       —   Net gains (losses) from securities transactions     32       14       (17 )     (32 )     40   Other     2,287       1,757       2,452       2,538       2,405   Total non-interest income     9,089       8,329       8,969       9,637       9,022   Non-interest expense                               Salaries and employee benefits     16,692       16,113       15,442       15,383       15,068   Net occupancy and equipment     2,879       2,919       3,127       3,007       3,170   Data processing     3,916       4,334       4,138       3,642       3,769   Professional fees     1,384       1,404       1,265       1,111       1,171   Advertising and business development     1,159       1,903       1,191       972       976   Telecommunications     485       517       487       442       470   FDIC insurance     360       360       340       260       180   Courier and postage     458       533       436       489       423   Free nationwide ATM cost     525       510       551       541       501   Amortization of core deposit intangibles     918       924       957       1,111       1,050   Loan expense     117       262       174       207       185   Other real estate owned     119       388       188       14       (1 ) Merger expenses     —       68       115       88       323   Other     4,706       5,014       3,825       4,169       2,174   Total non-interest expense     33,718       35,249       32,236       31,436       29,459   Income (loss) before income tax     14,847       15,262       18,813       16,943       19,264   Provision for income taxes (benefit)     2,524       3,654       3,642       1,684       3,614   Net income (loss) and net income (loss) allocable to common stockholders   $ 12,323     $ 11,608     $ 15,171     $ 15,259     $ 15,650   Basic earnings (loss) per share   $ 0.78     $ 0.73     $ 0.94     $ 0.95     $ 0.94   Diluted earnings (loss) per share   $ 0.77     $ 0.72     $ 0.93     $ 0.94     $ 0.93   Weighted average common shares     15,858,808       15,948,360       16,056,658       16,206,978       16,652,556   Weighted average diluted common shares     16,028,051       16,204,185       16,273,231       16,413,248       16,869,152   TABLE 2. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands)     March 31,2023     December 31,2022     September 30,2022     June 30,2022     March 31,2022   ASSETS                               Cash and due from banks   $ 249,982     $ 104,013     $ 155,039     $ 103,126     $ 89,764   Federal funds sold     384       415       374       458       286   Cash and cash equivalents     250,366       104,428       155,413       103,584       90,050   Available-for-sale securities     1,183,247       1,184,390       1,198,962       1,288,180       1,352,894   Held-to-maturity securities     1,944       1,948       —       —       —   Loans held for sale     648       349       1,518       1,714       1,575   Loans, net of allowance for credit losses(1)     3,285,515       3,265,701       3,208,524       3,175,208       3,194,987   Other real estate owned, net     4,171       4,409       10,412       12,969       9,897   Premises and equipment, net     104,789       101,492       100,566       101,212       103,168   Bank-owned life insurance     122,971       123,176       122,418       121,665       120,928   Federal Reserve Bank and Federal Home Loan Bank stock     33,359       21,695       24,428       21,479       19,890   Interest receivable     20,461       20,630       18,497       16,519       16,923   Goodwill     53,101       53,101       53,101       53,101       54,465   Core deposit intangibles, net     9,678       10,596       11,598       12,554       13,830   Other     86,466       89,736       94,978       93,971       100,016   Total assets   $ 5,156,716     $ 4,981,651     $ 5,000,415     $ 5,002,156     $ 5,078,623   LIABILITIES AND STOCKHOLDERS' EQUITY                               Deposits                               Demand   $ 1,012,671     $ 1,097,899     $ 1,217,094     $ 1,194,863     $ 1,255,793   Total non-interest-bearing deposits     1,012,671       1,097,899       1,217,094       1,194,863       1,255,793   Demand, savings and money market     2,334,463       2,329,584       2,335,847       2,445,545       2,511,478   Time     939,799       814,324       673,670       651,363       612,399   Total interest-bearing deposits     3,274,262       3,143,908       3,009,517       3,096,908       3,123,877   Total deposits     4,286,933       4,241,807       4,226,611       4,291,771       4,379,670   Federal funds purchased and retail repurchase agreements     45,098       46,478       47,443       52,750       48,199   Federal Home Loan Bank advances and Federal Reserve Bank borrowings     251,222       138,864       186,001       80,000       50,000   Subordinated debt     96,522       96,392       96,263    .....»»

Delivered $145.6 Million in Net Revenue and 16th Consecutive Quarter of Positive Adjusted EBITDA Maintained #1 Cannabis Market Share Position in Canada, the Largest Federally Legal Cannabis Market in the World; With HEXO Transaction, Poised to Substantially Increase Canadian Revenue Medical Cannabis Leader in Europe Achieved Key Efficiency Milestones on Accelerated Path to Positive Cash Flow, Company Reiterates Cash Flow Guidance LEAMINGTON, Ontario and NEW YORK, April 10, 2023 (GLOBE NEWSWIRE) --  Tilray Brands, Inc. ("Tilray" or the "Company") (NASDAQ:TLRY, TSX:TLRY), a leading global cannabis-lifestyle and consumer packaged goods company inspiring and empowering the worldwide community to live their very best life, today reported financial results for the third fiscal quarter ended February 28, 2023. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated. Tilray also announces today that it entered into a definitive agreement to acquire HEXO Corp. (NASDAQ:HEXO, TSX:HEXO) for an aggregate purchase price of approximately US$56 million, to be satisfied through the issuance of 0.4352 of Tilray Common Stock for each outstanding HEXO share. The acquisition, which is structured as an arrangement under applicable Canadian laws (the "Arrangement"), builds on the successful strategic alliance between the two companies and positions Tilray for continued strong growth and market leadership in Canada, the largest federally legal cannabis market in the world. The completion of the Arrangement is subject to customary and negotiated closing conditions, including HEXO shareholder approval and court approval, and is expected to close in June 2023. Further information about the HEXO transaction is included in an investor presentation available on the investor section of Tilray.com and in our Current Report on Form 8-K filed today. Financial Highlights Net revenue increased to $145.6 million compared to $144.1 million in the prior quarter. On a constant currency basis, net revenue was $154.2 million in the third quarter of 2023, up 2% from the prior year quarter. Distribution revenue increased 5% to $65.4 million, from the prior year quarter. On a constant currency basis, distribution revenue increased 12% to $70.1 million. Gross Profit (Loss) was ($11.7) million, while adjusted gross profit was $44.3 million. Gross margin was negative 8%, while adjusted gross margin rose to 30% from 26% in the year-ago quarter. Adjusted cannabis gross profit increased to $22.2 million from $18.0 million in the prior year quarter, while adjusted gross margin percentage increased to 47% from 33%. Achieved $22 million in annualized run-rate savings (and $12 million in actual cost savings) as part of $30 million cost optimization plan announced in Q4 of 2022; total annualized cash cost-savings since the closing of the Tilray-Aphria transaction reached $122 million. Adjusted EBITDA of $14.0 million, marking 16th consecutive quarter of positive adjusted EBITDA. Currently expecting Adjusted EBITDA in the range of $60 to $66 million, a greater than 30% increase from the prior year. Strong financial position with $408.3 million in cash and marketable securities. Reiterated expectation to deliver positive free cash flow from operating segments in fiscal 2023. Recorded non-cash $1.1 billion net asset reduction resulting from higher interest rates and a decline in market capitalization. This non-cash net asset reduction has no impact on the Company's compliance with debt covenants, its cash flows or available liquidity. Irwin D. Simon, Tilray Brands' Chairman and Chief Executive Officer, stated, "During the quarter, we continued to focus on our highest priorities: sustaining and growing the top-line across core markets and geographies while optimizing the platform to achieve positive free cash flow on an accelerated timeline. We are executing on both fronts and delivered revenue growth despite challenging market dynamics across Canada, Europe, and the U.S, as well as our 16th consecutive quarter of positive adjusted EBITDA." Mr. Simon continued, "Looking ahead, we are focused on being the leading, most diversified cannabis lifestyle and CPG company in the world. Our strategy to deliver on this vision is centered on pursuing targeted growth opportunities, as reflected in our opportunistic acquisitions of both Montauk Brewing Company and HEXO, which has made significant strides in driving operating efficiency and improving profitability while continuing to invest in industry-leading brands. We are incredibly excited about our combined prospects moving forward with HEXO and expect a seamless integration of HEXO's business into our efficient, built-to-last platform. At the same time, we will continue our relentless focus on cost and operational efficiencies and strengthening our industry-leading balance sheet to deliver sustained, profitable growth and shareholder value." Mark Attanasio, Chairman of HEXO, said, "Over the past year, HEXO established and has been executing on a rigorous cost-cutting and balance sheet optimization plan.  As we began working with Tilray last year, the value that could be achieved through the combination of our businesses in order to compete and drive profitable growth in the highly fragmented Canadian market was immediately clear. With the recent headwinds in the cannabis industry, our Board determined that HEXO shareholders would benefit from being part of Tilray's diversified business and from the strong plan in place they have to reinforce their industry leadership, continue to strengthen the top and bottom lines, and to drive value creation. With Irwin and his leadership team, we are confident that our brands will continue to grow and thrive as part of Tilray Brands." Operating Highlights Leadership in Global Cannabis Operations, Brands, and Market Share: In Canada, despite ongoing challenging cannabis market conditions, quarter over quarter, Tilray maintained its #1 cannabis market share position. With the addition of HEXO's leading high-growth brands, the Company expects to significantly bolster its position supported by low-cost operations and complimentary distribution across all Canadian geographies. The combined company is expected to strengthen Tilray's existing Canadian position with 12.9% pro-forma market share and #1 market position across all major markets and a leading share across most product categories. This includes anticipated pro-forma net sales of approximately US$215M and the leading low-cost operations with distribution across all Canadian geographies. Capitalizing on the unrivaled platform provided by its cultivation and distribution operations across Portugal and Germany and the leadership team's depth of commercial and regulatory expertise, Tilray is focused on growing its leading market share in medical cannabis in the countries in which it distributes today and achieving early-mover advantage in new countries as cannabis legalization continues to proliferate across Europe. Maximizing the High-Growth Potential of U.S. CPG and Craft-Beverage Portfolio: In the third quarter, Tilray made substantial strides across its five craft-beverage brands including leaders SweetWater Brewing Company, Breckenridge Distillery, and Montauk Brewing Company, and its wellness brand Manitoba Harvest. By expanding recognition and distribution, Tilray will be well positioned to immediately leverage these brands to drive significant additional revenue in adult-use cannabis, pending federal legalization. Strategic Growth Actions April 2023 – Tilray Medical Expands Footprint in Europe and Broadens Distribution Across the Czech Republic April 2023 – SweetWater Brewing Company Expands Across 44 States with Nevada Launch April 2023 - Manitoba Harvest Expands Whole Foods Market Distribution April 2023 - Breckenridge Distillery Wins Big at Whisky Magazine's 2023 World Whiskies Awards March 2023 - Alpine Beer Opens Taproom at Petco Park Stadium in San Diego March 2023 - Breckenridge Distillery Establishes March 31st as National Après Day March 2023 - Montauk Brewing Expands Distribution Across the Northeast March 2023 - Tilray Brands Stockholders Approve Charter Amendment to Enhance Corporate Governance and Support Strategic Growth Plan March 2023 - SweetWater Brewing Company Brings Back Popular Triple Tail Tropical India Pale Ale March 2023 - SweetWater Brewing Company Introduces New West Coast Style India Pale Ale March 2023 - Potently Canadian Cannabis Brand, CANACA, Introduces New Collection of Terpene Rich Products Across Canada February 2023 - Good Supply Cannabis Brand Launches Canada's Strongest Infused Pre-Rolls February 2023 - Breckenridge Distillery Strikes Gold at 2023 World Whiskies Awards February 2023 - Good Supply Cannabis Brand Launches New Product Lineup February 2023 - SweetWater Announces 420 Fest 2023 Lineup and Venue February 2023 - Breckenridge Distillery Launches Limited-Edition Sexy Motor Oil Whiskey for Valentine's Day February 2023 - SweetWater Brewing Company Introduces New Crisp Lager to Year-Round Lineup January 2023 - Alpine Beer Launches INFINITE HAZE Hazy IPA January 2023 - Solei Cannabis Brand Introduces New Approach to Wellness with New Product Lineup and Brand Refresh January 2023 - SweetWater Brewing Company Celebrates 26 Years of Brewing with Throwback Beers, Jam Bands Live Conference Call and Audio WebcastTilray Brands will host a webcast to discuss these results today at 5:00 p.m. ET. Investors may join the live webcast available on the Investors section of the Company's website at www.tilray.com. The webcast will also be archived after the call concludes. About Tilray BrandsTilray Brands, Inc. (NASDAQ:TLRY, TSX:TLRY), is a leading global cannabis-lifestyle and consumer packaged goods company with operations in Canada, the United States, Europe, Australia, and Latin America that is changing people's lives for the better – one person at a time. Tilray Brands delivers on this mission by inspiring and empowering the worldwide community to live their very best life, enhanced by moments of connection and wellbeing. Patients and consumers trust Tilray Brands to be the most responsible, trusted and market leading cannabis consumer products company in the world with a portfolio of innovative, high-quality and beloved brands that address the needs of the consumers, customers and patients we serve. A pioneer in cannabis research, cultivation, and distribution, Tilray Brands' unprecedented production platform supports over 20 brands in over 20 countries, including comprehensive cannabis offerings, hemp-based foods, and craft beverages. For more information on Tilray Brands, visit www.Tilray.com and follow @Tilray Cautionary Statement Concerning Forward-Looking Statements Certain statements in this press release constitute forward-looking information or forward-looking statements (together, "forward-looking statements") under Canadian securities laws and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be subject to the "safe harbor" created by those sections and other applicable laws. Forward-looking statements can be identified by words such as "forecast," "future," "should," "could," "enable," "potential," "contemplate," "believe," "anticipate," "estimate," "plan," "expect," "intend," "may," "project," "will," "would" and the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. Certain material factors, estimates, goals, projections or assumptions were used in drawing the conclusions contained in the forward-looking statements throughout this communication. Forward-looking statements include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things: the Company's ability to become the world's leading cannabis-focused consumer branded company; the Company's ability to generate its targeted amount of Adjusted EBITDA for the fiscal year ending May 31, 2023; the Company's expectation to be free-cash flow positive in its operating business units; the Company's ability to achieve long term profitability; the Company's ability to achieve operational scale, market share, distribution, profitability and revenue growth in particular business lines and markets; the Company's ability to successfully complete the acquisition of HEXO; the Company's ability to successfully achieve revenue growth, production and supply chain efficiencies, synergies and cost savings, including with respect to the HEXO acquisition; expansion of medical and recreational sales legalization across the global cannabis industry, including in Europe; and the Company's anticipated investments and acquisitions, including in organic and strategic growth, partnership efforts, product offerings and other initiatives. Many factors could cause actual results, performance or achievement to be materially different from any forward-looking statements, and other risks and uncertainties not presently known to the Company or that the Company deems immaterial could also cause actual results or events to differ materially from those expressed in the forward-looking statements contained herein. For a more detailed discussion of these risks and other factors, see the most recently filed annual information form of the Company and the Annual Report on Form 10-K (and other periodic reports filed with the SEC) of the Company made with the SEC and available on EDGAR. The forward-looking statements included in this communication are made as of the date of this communication and the Company does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless required by applicable securities laws. Use of Non-U.S. GAAP Financial MeasuresThis press release and the accompanying tables include non-GAAP financial measures, including adjusted gross margin, Adjusted gross profit, Adjusted EBITDA, Adjusted net income and free cash flow. Management believes that the non-GAAP financial measures presented provide useful additional information to investors about current trends in the Company's operations and are useful for period-over-period comparisons of operations. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded. They should be read only in connection with the Company's Consolidated Statements of Operations and Cash Flows presented in accordance with GAAP. Certain forward-looking non-GAAP financial measures included in this press release are not reconciled to the comparable forward-looking GAAP financial measures. The Company is not able to reconcile these forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures without unreasonable efforts because the Company is unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP measures but would not impact the non-GAAP measures. Such items may include litigation and related expenses, transaction costs, impairments, foreign exchange movements and other items. The unavailable information could have a significant impact on the Company's GAAP financial results. The Company believes presenting net sales at constant currency provides useful information to investors because it provides transparency to underlying performance in the Company's consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on period-to-period comparability given the volatility in foreign currency exchange markets. To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year. Adjusted EBITDA is calculated as net income (loss) before income tax expense (recovery); interest expense, net; non-operating income (expense), net; amortization; stock-based compensation; change in fair value of contingent consideration; impairments; purchase price accounting step-up; facility start-up and closure costs; lease expense; litigation (recovery) costs; restructuring costs; and transaction (income) costs. A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Adjusted gross profit, is calculated as gross profit adjusted to exclude the impact of inventory valuation adjustment and purchase price accounting valuation step-up. A reconciliation of Adjusted gross profit, excluding inventory valuation adjustments and purchase price accounting valuation step-up, to gross profit, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Adjusted gross margin, excluding inventory valuation adjustments and purchase price accounting valuation step-up, is calculated as revenue less cost of sales adjusted to add back inventory valuation adjustments and amortization of inventory step-up, divided by revenue. A reconciliation of Adjusted gross margin, excluding inventory valuation adjustments and purchase price accounting valuation step-up, to gross margin, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Adjusted net income is calculated as net (loss) income plus (minus) non-operating income (expense), net, change in fair value of contingent consideration, impairments; inventory write down, litigation (recovery) costs, restructuring costs, and transaction (income) costs. A reconciliation of Adjusted net income, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Free cash flow is comprised of two GAAP measures deducted from each other which are net cash flow provided by (used in) operating activities less investments in capital and intangible assets. A reconciliation of net cash flow provided by (used in) operating activities to free cash flow, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. For further information: Media: Berrin Noorata, news@tilray.com Investors: Raphael Gross, +1-203-682-8253, Raphael.Gross@icrinc.com   Consolidated Statements of Financial Position             February 28,   May 31, (in thousands of US dollars)     2023       2022   Assets         Current assets         Cash and cash equivalents   $ 164,997     $ 415,909   Marketable Securities     243,286       -   Accounts receivable, net     78,342       95,279   Inventory     202,800       245,529   Prepaids and other current assets     69,087       46,786   Total current assets     758,512       803,503   Capital assets     425,263       587,499   Right-of-use assets     6,492       12,996   Intangible assets     994,325       1,277,875   Goodwill     2,005,701       2,641,305   Interest in equity investees     4,638       4,952   Long-term investments     7,620       10,050   Convertible notes receivable     168,356       111,200   Other assets     4,993       314   Total assets   $ 4,375,900     $ 5,449,694   Liabilities         Current liabilities         Bank indebtedness   $ 18,125     $ 18,123   Accounts payable and accrued liabilities     163,422       157,431   Contingent consideration     16,219       16,007   Warrant liability     7,414       14,255   Current portion of lease liabilities     2,528       6,703   Current portion of long-term debt     77,892       67,823   Current portion of convertible debentures payable     184,082       -   Total current liabilities     469,682       280,342   Long - term liabilities         Lease liabilities     8,598       11,329   Long-term debt     89,419       117,879   Convertible debentures payable     223,087       401,949   Deferred tax liabilities     164,412       196,638   Other liabilities     3,335       191   Total liabilities     969,129       1,008,328   Commitments and contingencies (refer to Note 17)         Stockholders' equity         Common stock ($0.0001 par value; 980,000,000 shares authorized; 617,857,031 and 532,674,887 shares issued and outstanding, respectively)     62       53   Series A Preferred Stock ($0.0001 par value; 10,000,000 shares authorized; 120,000 and nil shares issued and outstanding, respectively)     -       -   Additional paid-in capital     5,723,342       5,382,367   Accumulated other comprehensive loss     (42,948 )     (20,764 ) Accumulated Deficit     (2,276,794 )     (962,851 ) Total Tilray Brands, Inc. stockholders' equity     3,403,662       4,398,805   Non-controlling interests     3,109       42,561   Total stockholders' equity     3,406,771       4,441,366   Total liabilities and stockholders' equity   $ 4,375,900     $ 5,449,694               Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)                           For the three months           For the nine months               ended February 28,   Change   % Change   ended February 28,   Change   % Change   (in thousands of U.S. dollars, except for per share data)     2023       2022     2023 vs. 2022     2023       2022     2023 vs. 2022   Net revenue   $ 145,589     $ 151,871     $ (6,282 )   (4 )%   $ 442,936     $ 475,047     $ (32,111 )   (7 )%   Cost of goods sold     157,288       112,042       45,246     40 %     363,139       351,497       11,642     3 %   Gross profit (loss)     (11,699 )     39,829       (51,528 )   (129 )%     79,797       123,550       (43,753 )   (35 )%   Operating expenses:                                   General and administrative     38,999       38,445       554     1 %     117,385       121,401       (4,016 )   (3 )%   Selling     6,452       8,641       (2,189 )   (25 )%     25,792       25,283       509     2 %   Amortization     23,518       24,590       (1,072 )   (4 )%     71,872       84,345       (12,473 )   (15 )%   Marketing and promotion     7,354       7,578       (224 )   (3 )%     23,137       20,163       2,974     15 %   Research and development     171       164       7     4 %     502       1,464       (962 )   (66 )%   Change in fair value of contingent consideration     352       (30,747 )     31,099     (101 )%     563       (29,065 )     29,628     (102 )%   Impairments     1,115,376       —       1,115,376     NM     1,115,376       —       1,115,376     NM   Litigation (recovery) costs     (5,230 )     4,215       (9,445 )   (224 )%     (1,970 )     6,489       (8,459 )   (130 )%   Restructuring costs     2,663       —       2,663     0 %     10,727       795       9,932     1249 %   Transaction (income) costs     5,382       5,023       359     7 %     (3,882 )     35,653       (39,535 )   (111 )%   Total operating expenses     1,195,037       57,909       1,137,128     1964 %     1,359,502       266,528       1,092,974     410 %   Operating loss     (1,206,736 )     (18,080 )     (1,188,656 )   6574 %     (1,279,705 )     (142,978 )     (1,136,727 )   795 %   Interest expense, net     (1,040 )     (2,312 )     1,272     (55 )%     (8,560 )     (22,422 )     13,862     (62 )%   Non-operating income (expense), net     1,213       71,037       (69,824 )   (98 )%     (50,229 )     186,329       (236,558 )   (127 )%   (Loss) income before income taxes     (1,206,563 )     50,645       (1,257,208 )   (2,482 )%     (1,338,494 )     20,929       (1,359,423 )   (6,495 )%   Income taxes (benefit) expense     (10,811 )     (1,830 )     (8,981 )   491 %     (15,313 )     (2,739 )     (12,574 )   459 %   Net (loss) income   $ (1,195,752 )   $ 52,475     $ (1,248,227 )   (2,379 )%     (1,323,181 )     23,668       (1,346,849 )   (5,691 )%   Net loss per share - basic and diluted   $ (1.90 )   $ 0.09     $ (1.99 )   (2,214 )%   $ (2.20 )   $ 0.00     $ (2.20 )   (77,239 )%                                       Condensed Consolidated Statements of Cash Flows                       For the nine months               ended February 28,   Change   % Change   (in thousands of US dollars)     2023       2022     2023 vs. 2022   Cash used in operating activities:                   Net (loss) income   $ (1,323,181 )   $ 23,668     $ (1,346,849 )   (5691 )%   Adjustments for:                   Deferred income tax recovery     (29,537 )     (17,296 )     (12,241 )   71 %   Unrealized foreign exchange loss     13,711       1,699       12,012     707 %   Amortization     101,156       113,824       (12,668 )   (11 )%   Loss (gain) on sale of capital assets     (2 )     (631 )     629     (100 )%   Inventory valuation write down     55,000       12,000       43,000     358 %   Impairments     1,115,376       -       1,115,376     0 %   Other non-cash items     12,933       962       11,971.....»»

RH (NYSE:RH) Q4 2022 Earnings Call Transcript March 30, 2023 Operator: Thank you for holding and welcome everyone to the RH Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. I will now turn the call over to Allison Malkin with ICR. Ms. Malkin, please go ahead. Allison Malkin: Thank you. Good afternoon, everyone. Thank […] RH (NYSE:RH) Q4 2022 Earnings Call Transcript March 30, 2023 Operator: Thank you for holding and welcome everyone to the RH Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. I will now turn the call over to Allison Malkin with ICR. Ms. Malkin, please go ahead. Allison Malkin: Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter and fiscal year 2022 earnings conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinion only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today’s financial results press release. A live broadcast of this call is also available on the Investor Relations section of our website at ir.rh.com. With that, I will turn the call over to Gary. Gary Friedman: Thank you and welcome everyone. We will start with the reading of our letter to our people, partners and shareholders and then open up the call for questions to our people, partners and shareholders. Fiscal 2022 was another outstanding year for the RH brand. While revenues of $3.59 billion were below the pandemic peak of 2021, we finished the year with an adjusted operating margin of 22% and adjusted EBITDA margin of 25.9%, the most profitable business model in our industry. It’s clear that the stay-at-home restrictions of the pandemic created an exponential lift for home-related businesses and it’s also clear the lift like the pandemic was a temporal isolated event versus something structural or systemic. We believe the questions are what if anything has permanently changed? What brands and businesses are positioned to win over the next decade? And what data is important to determine who those winners will be. Those are not easy questions to answer in light of the massive backlog release and a return to discounting at most home furnishings retailers, which distort short-term results. Additionally, inflation that was thought to be transitory is now being persistent by the Federal Reserve, resulting in a record rise in interest rates triggering a dramatic decline of the housing market with luxury home sales down 45% in the most recent quarter versus a year ago. Add to that, an underperforming stock market and a banking crisis, no one saw coming and the data points to business in our sector likely getting worse before it gets better. It’s times like these that businesses tend to move and hurt, pursuing broadly adopted short-term plans that lead to mostly similar outcomes. It’s also times like these that present opportunities to pursue long-term strategies that can result in strategic separation and significant value creation for those teams willing to take road less travel and pursue their own unique path. That unique path for RH is our climate for luxury mountain and our long-term strategies of product elevation, platform expansion and cash generation. Product elevation. Our strategy to elevate the design and quality of our products is central to our strategy of positioning RH as the first fully integrated luxury home brand in the world. It is also the most difficult part of our clients as it requires attracting higher value, more discerning customers by offering higher quality, more desirable designs. While it’s a client that becomes more difficult as we reach new heights, it’s also one we have navigated successfully over the past 22 years, but don’t expect this to waiver from our vision anytime soon. This spring/summer we will be unveiling the most prolific selection of new products in our history with over 70 new furniture and upholstery collections across outdoor interiors and temporary, modern, baby and child and team. It represents a massive leapfrog for our brands. These new collections reflect a level of design and quality and accessible in our current markets and a value proposition that will be disruptive across multiple markets. We also believe the new collections will generate a level of excitement and serve as an inflection point for our business in the second half of the year. The new thesis will be gracing the pages of the new Source Book design with the objective of creating a cohesive collection of titles, reinforcing our design and quality leadership. The first of those titles, RH Outdoor, began arriving in homes last week with our trademark belief in spreads across the cover. There are pieces that furnish a home and those that define it. Platform expansion. Our plan to expand the RH brand globally, address new markets locally and transform our North American galleries, represents a multibillion-dollar opportunity. This summer, we will be introducing RH to the UK in a dramatic and unforgettable fashion with the opening of RH England, the Gallery at the Historic Aynho Park, a 73-acre 17th century estate that will be a celebration of history, design, food and wine. RH England includes 3 full service restaurants, the orangery, conservatory and the loggia, plus 3 secondary hospitality experiences, the wine lounge, the tea salon and the juicery. Guests will appreciate views of Europe’s largest herd of white deer grazing on the vast and scenic property from the 46 windows adorning the south facing main building and can enjoy a glass of wine or afternoon tea service while sitting around monolithic stone fire pit on the Grand Viewing Terrace. One of the most unique attractions at RH England is The Aynho Architecture & Design Library, featuring rare books from the foundational masters of architecture, Palladio, Scamozzi and Alberti. The centerpiece of the collection is one of the first printings of De architectura, The Ten Books on Architecture by Vitruvius, whose work from the 1st Century BC inspired Leonardo da Vinci’s drawing of the Vitruvian Man 1,500 years after Vitruvius sketched the original. Photo by Krystal Black on Unsplash The principles at the core of Vitruvius’s philosophy have also inspired the Design Ethos at RH, which is reflected in our galleries, interiors and gardens. The Gallery will also include the Sir John Soane Exhibit, honoring one of England’s greatest architects, in partnership with the Soane Museum in London. The exhibit will touch on his life story and detail some of his most famous works, including Aynho Park. We believe RH England, The Gallery at the Historic Aynho Park, also represents RH’s greatest work and will act as a symbol of our values and beliefs as we embark on our expansion across Europe. Our global expansion also includes openings in Brussels, Dusseldorf, Munich and Madrid as well as an interior design studio in London over the next 18 months, followed by Paris, London, Milan and Sydney in 2024 and 2025. Regarding our North American transformation, we will be introducing a new gallery design this year in Palo Alto and Cleveland, plus opening new galleries at the Historic Firehouse in Montecito and The Linden House, a 178-acre estate on a private lake in Indianapolis. Additionally, we have 12 North American galleries in the development pipeline scheduled to open over the next several years. We also believe there is an opportunity to address new markets locally by opening design studios in neighborhoods, towns and small cities where the wealthy and affluent live, visit and vacation. We have several existing locations that validate this strategy in East Hampton, Yountville, Los Gatos, Pasadena and our former San Francisco Gallery in the design district, where we have generated annual revenues in the range of $5 to $20 million in 2,000 to 5,000 square feet. We have identified over 40 locations that are incremental to our previous plans in North America and believe the results of these design studios will provide data that could lead to opening larger galleries in those markets. Cash generation. We have demonstrated that those with capital in difficult markets are the ones who capitalize. That’s why we raised $2.5 billion of long-term debt before the markets tightened and are now in a position to take advantage of the opportunities that may present themselves in times of uncertainty and dislocation. Times like these also require us to have the discipline to say no to the things that are nice to do in order to focus our time and resources on what is truly important. That includes making the difficult decision to graciously say goodbye to team members whose roles are no longer essential in our new view of the future, enabling us to work in a more integrated and collaborative fashion, on fewer more important priorities. Please know we have treated everyone with respect and dignity and appreciate the contributions all have made to our cause. Approximately 440 roles were eliminated as part of our organizational redesign and we expect to achieve cost savings of approximately $50 million annually, inclusive of associated benefits and other cost savings. Concurrently, we will be focused on reducing inventories and generating cash, further strengthening our balance sheet to maximize optionality. Outlook. As noted in our previous shareholder letter, we expect business conditions to remain challenging for the next several quarters and possibly longer as a result of the accelerating weakness in the housing market, the uncertainty generated by the recent banking crisis and the cycling of record COVID-driven sales and backlog reductions. Based on current trends, we expect fiscal 2023 revenues in the range of $2.9 billion to $3.1 billion and adjusted operating margin in the range of 15% to 17%, which includes an approximate 150 basis point drag due to the ramp of our global expansion. We estimate the 53rd week will result in revenues of approximately $60 million. For the first quarter of fiscal 2023, we are forecasting revenues of $720 million to $735 million and adjusted operating margin in the range of 13% to 14% RH business vision and ecosystem, the long view. We believe, there are those with taste and no scale and those with scale and no taste. And the idea of scaling taste is large and far reaching. Our goal to position RH as the arbiter of taste for the home has proven to be both disruptive and lucrative, as we continue our quest to build the most admired brand in the world. Our brand attracts the leading designers, artisans and manufacturers, scaling and rendering their work more valuable across our integrated platform, enabling RH to curate the most compelling collection of luxury home products on the planet. Our efforts to elevate and expand our collection will continue with the introductions of RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier and other new collections scheduled to launch over the next decade. Our plan to open immersive design galleries in every major market will unlock the value of our vast assortment, generating revenues of $5 billion to $6 billion in North America and $20 billion to $25 billion globally. Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces, by building an ecosystem of products, places, services and spaces that establishes the RH brand as a global thought leader, taste and place maker. Our products are elevated and rendered more valuable by our architecturally inspiring galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience. Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our galleries into RH Guesthouses, where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion North American hotel industry. Additionally, we are creating bespoke experiences like RH Yountville, an integration of food, wine, art and design in the Napa Valley, RH1 and RH2, our private jets, and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean where the wealthy and affluent visit and vacation. These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture. This leads to our long-term strategy of building the world’s first consumer-facing architecture, interior design and landscape architecture services platform inside our galleries, elevating the RH brand and amplifying our core business by adding new revenue streams while disrupting and redefining multiple industries. Our strategy comes full circle as we begin to conceptualize and sell spaces, moving beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with the launch of RH Residences, fully furnished luxury homes and condominiums and apartments with integrated services that deliver taste and time value to discerning time-starved consumers. The entirety of our strategy comes to life digitally with The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand. Our authority as an arbiter of taste will be further amplified when we introduce RH Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design. Our plan to expand the RH ecosystem globally multiplies the market opportunity to $7 trillion to $10 trillion, one of the largest and most valuable addressed by any brand in the world today. A 1% share of the global market represents a $70 billion to $100 billion opportunity. Our ecosystem of products, places, services and spaces inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world. Taste can be elusive and we believe no one is better positioned than RH to create an ecosystem that makes taste inclusive, and by doing so, elevating and rendering our way of life more valuable. Climbing the luxury mountain and building a brand with no peer, every luxury brand, from Chanel to Cartier, Louis Vuitton to Loro Piana, Harry Winston to Hermès, was born at the top of the luxury mountain. Never before has a brand attempted to make the climb to the top, nor do the other brands want you to. We are not from their neighborhood, nor invited to their parties. We have a deep understanding that our work has to be so extraordinary that it creates a forced reconsideration of who we are and what we are capable of, requiring those at the top of the mountain to tip their hat in respect. We also appreciate that this climb is not for the faint of heart. And as we continue our ascent, the air gets thin and the odds become slim. We believe the level of work we plan to introduce this year inclusive of our new product collections, new Source Book design, new gallery design and the introduction of RH to the UK in an innovative and immersive fashion, continues to demonstrate the imagination, determination, creativity and courage of this team, and the relentless pursuit of our dream. 20 years ago, we began this journey with a vision of transforming a nearly bankrupt business with a $20 million market cap and a box of Oxydol laundry detergent on the cover of the catalog into the leading luxury home brand in the world. The lessons and learnings, the passion and persistence, the courage required, and the scar tissue developed by getting knocked down 10 times and getting up 11 leads to the development of the mental and moral strength that builds character in individuals and forms cultures in organizations, lessons that can’t be learned in a classroom, or by managing a business, lessons that must be earned by building one or by reaching the top of the mountain. Onward Team RH. Carpe Diem. At this point, operator, we will open the call to questions. Operator: Certainly. Steven Forbes with Guggenheim Securities, your line is open. Steven Forbes: Good afternoon, Gary and Jack. I wanted to expand on the new product launches. You mentioned the timing of these launches as an inflection point within the business. So curious you can contextualize sort of what’s implied by the guide if you are sort of baking in a reacceleration, right, in demand trends at the back half? And then maybe more importantly, how we should think about in stock versus special order mix and the potential revenue contributions of these new collections in the back half? See also 15 Best Consumer Discretionary Dividend Stocks To Buu and 12 Best Low-Priced Technology Stocks To Invest In. Q&A Session Follow Rh (NYSE:RH) Follow Rh (NYSE:RH) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Gary Friedman: Sure. I think based on the times we are in and the uncertainty we are facing, whether it’s the continued rise of interest rates or the next bank or two that gets eased. It’s hard to be anything conservative right now. And I think it would be foolish to be not just from a perspective of disappointing investors, but disappointing ourselves and possibly making decisions in investments before we can see around the next corner. I can tell you it’s someone the unsettling feeling being a person on a Saturday afternoon who is watching the Warriors basketball game of the news cut to align formed around your local bank, while the banks were sending hourly e-mails trying to tell you that they are committed to serving you, it’s a very unsettling feeling, okay. And those of you maybe on the East Coast that didn’t experience it what happened here on the West Coast maybe aren’t as close to it, but I, as a person that was close to it, have never seen anything like it. So I don’t know how long was it between the fall of Bear Stearns and the fall of Lehman Brothers, what’s going to be the next shoe to drop or pin to fall, that’s very unknown right now. So we believe there will be an inflection point in the second half. What we don’t know is what will be the economic environment in the second half, what will be the condition of the banking industry in the second half, where will interest rates be in the second half, where will inflation be in the second half. I think Powell has been very direct and consistent about addressing persistent inflation. All one has to do is Google the history of the federal funds rate and zoom in on the 1970s to 1980s and look how many times the Federal Reserve thought they had inflation under control, lower the federal funds rate only to have to raise it twice as high all the way to, I think, 21%. If you look at those moves and you look closely, zoom into that chart, you realize that we are in uncharted waters today from an economic environment perspective. There is not many people on the planet in levels of authority and responsibility that were old enough to experience those times. And I think that having a conservative view and being prepared, having a strong balance sheet and trying to see the whole board and all the moves, we like to say inside our rates don’t move until you see it. And so, our view is just to be conservative, be prepared and try to capitalize in the €“ capitalizing the opportunities that avail themselves in times like these, times of dislocation, because this is the time of dislocation. Anybody that thinks it’s not a big deal, the three banks went down, where they don’t think it’s a big deal if the government directed 11 banks to lend $30 billion from my bank just to say that bank is living with a euphoric view of the world. I’ve been on the planet for long enough to know this is not normal and this is dangerous. So we want to make sure we navigate this period in the most thoughtful way that we can and position ourselves €“ to position ourselves to really capitalize long-term. And that’s what we have done in every past time like these, whether you look at 2001 when I joined the company, 2007 and €˜08, the 2015-16 period, where we had a slowing housing market and some issues in the oil industry as well as an internal issue with the launch of RH Modern......»»

The Florida governor says public schools will now have to compete for students. Others say it's just the latest effort to defund public schools. Gov. Ron DeSantis of Florida at a news conference in Miami, Fla., on January 26, 2023.AP Photo/Marta Lavandier Florida Gov. Ron DeSantis is waging a war against 'woke' public schools. Universal vouchers without restrictions on families' incomes will create competition for students, he argues. The up to $4 billion program may eat into public school budgets. Florida Gov. Ron DeSantis has declared the Sunshine State is "where woke goes to die." His latest target is public schools.On Monday, the governor signed universal school vouchers into law, which both conservatives and liberals expect to hurt public schools.The new law eliminates financial eligibility restrictions to participate in the state's voucher program, which subsidizes the cost of families sending their children to private schools and other public school alternatives. All Florida K-12 students will now be eligible for vouchers projected to be $8,700 per student on average, according to the Miami Herald.This comes after Desantis' administration passed laws prohibiting discussion of critical race theory, sexual orientation, and gender identity in Florida's public schools, resulting in the removal of thousands of books not approved by the state from school classrooms and the blocking of high schools from teaching AP African American studies. Universal school choice is the governor's latest attempt to undermine Florida's public schools.Teachers and Democrats are worried the move could threaten public schools The governor framed the law as a victory for parental rights and school choice, forcing public schools to compete with private schools for students."They either offer a product that parents want or they don't," DeSantis said, according to USA Today.The president of the Florida Education Association, the largest teachers union in the state, didn't see it that way. While private schools are largely free to do what they want, public schools "must follow 1,300 pages of laws and a ton of regulations on top of that," Andrew Spar told Insider. "This is not competition. This is an attempt to create a divide, to create an advantage."Public school enrollment has only dropped a few percentage points, from 89.6% to 87.2%, since Republican Gov. Jeb Bush rolled out the state's voucher program two decades ago, which was aimed at helping more Florida families send their kids to private school.Private schools "haven't been able to profit the way they've wanted to off of these kids," Spar said.Now, however, DeSantis' move to broaden the voucher program to all Florida families could meaningfully threaten funding for public schools."Florida public schools are woefully underfunded," Spar said. According to the Education Data Initiative, Florida spends $9,983 per pupil in its public schools, spending less than 41 other states. The state receives $3.5 million each year — the third-largest amount of any state — from the federal government to help fund K-12 education.Spar fears universal vouchers "will literally siphon money away" from public schools because it's all under the same education budget. Estimated annual costs for the program range from $209 million to $4 billion. Meanwhile, the state senate appropriations committee has only proposed an additional $1.2 billion to cover the expansion of the already $1.3 billion program. If the cost exceeds that amount, "dollars are coming out of the public school budget," Spar said.Debbie Wasserman Schultz, a Democratic congresswoman representing Florida's 25th district, tweeted the universal program will "hand our tax dollars to millionaires to subsidize their kids' private school education, leaving our public schools and teachers to struggle even harder for basic funding."—Rep. Debbie Wasserman Schultz (@RepDWStweets) March 28, 2023 Republicans have been pushing to privatize public schools for 20 years, Spar said. And the culture-war fights are part of the same push."That's why we are seeing all this book banning and limiting what you can teach because they have not been successful in driving parents out of public schools," Spar said. "It's about undermining the sacred trust between parents and teachers."Not everyone thinks defunding public schools is a bad thing. Noting what he called "the craziness that happens in our K-12 schools," Florida's Republican House Speaker Paul Renner praised the new law for enabling more parents to send children to schools that suit their religious and political preferences.Conservative commentator Richard Hanania tweeted the law would "bankrupt the entire corrupt system" of public schools: "We're watching the liberation of childhood."  —Richard Hanania (@RichardHanania) March 28, 2023 Are you a Florida teacher, parent, or student who could be affected by the new voucher program? just want something a lillll more specific Tell your story to this reporter at edodd@insider.com.Read the original article on Business Insider.....»»

Switzerland "Looking More Like A Banana Republic" After CS 'Rescue' Having enraged bondholders (who saw their entire AT1 debt tranche wiped out before the equity was fully impaired, violating every conventional liquidation waterfall): Mark Dowding, chief investment officer at RBC BlueBay, which held Credit Suisse AT1 bonds, said Switzerland was “looking more like a banana republic” “If this is left to stand, how can you trust any debt security issued in Switzerland, or for that matter wider Europe, if governments can just change laws after the fact,” David Tepper, the billionaire founder of Appaloosa Management, told the Financial Times. “Contracts are made to be honored.” Swiss authorities attempted to defend their actions, claiming that all the contractual and legal obligations had been met for it to act unilaterally given the urgency of the situation. However, as Gavekal Research's Louis-Vincent Gavekal writes, as books get written about Credit Suisse’s demise, fundamental questions will have to be asked: Was the bank condemned once Switzerland gave up its bank secrecy laws five years ago? Did the negative yield curve that prevailed in Switzerland for over a decade push the bank into taking excessive risk and accepting rotten deals (Greensill, Archegos, Wirecard)? Was its management just poor compared to other banks? Are private banks and investment banks condemned to be poor bedfellows? Whatever the reasons, it is hard to see a storied institution disappear and not feel a degree of compassion. But taking a step back, Credit Suisse may not be the only thing that died today. For amid the Swiss bank’s weekend “rescue”, the notion that the Swiss can be counted on to be both punctilious and the ultimate “rule followers” has also been blown out of the water. Indeed, the episode creates two precedents: 1) A bank can merge with another bank without shareholder approval being granted. The logic runs that if a bank is systemically important, minority shareholder rights have to be overrun in the name of the “greater good”. This is an important precedent that minority shareholders in all systemically important banks will no doubt take notice of. 2) Even as the “take-under” of Credit Suisse leaves equityholders with cents on the dollar, contingent convertible bond holders (known as CoCos or AT1 bonds) are being wiped out. This is an arresting development, given that even unsecured bondholders usually rank above equityholders in the capital structure. So for equityholders to get “something” and CoCo bond holders to get “nothing” raises serious questions about the real value of CoCo bonds. This is important since CoCo bonds were widely used by European banks to bolster their balance sheets after the 2008 mortgage crisis and 2011-13 eurozone crisis. To cut a long story short, the terms of the Credit Suisse take-under is likely to kill the CoCo market. Imagine being the Saudi National Bank, which in October invested US$1.5bn for a 9.9% stake in Credit Suisse, no doubt on the premise that Switzerland is one of the safest jurisdictions for foreign investors. Yet in less than six months, the Saudi bank’s investment has been merged into UBS, crystallizing a loss of some 80%, without a vote being offered on the matter. How likely are Saudi institutions to invest more in Switzerland, or perhaps even in the wider Western world? This situation brings me to two of my longstanding themes: Firstly, that Western economies keep on undermining their main comparative advantage, namely, the rule of law and sacrosanct property rights. After all, when China was accepted into the World Trade Organization in 2001, the hope was that as trade grew, China would become more rules-based, democratic and civic rights-minded. Instead, the reverse has occurred, with Western countries following China to permit less free speech and impose more government interventions that include directed bank lending policies. The West embraced stupid Covid restrictions, imposed vaccine mandates and repressed demonstrations of dissent (see Who Is Copying Who? Part II? & What Freezing Russia’s Reserves Means). In the battle between “individual rights” and the “common good”, the West could usually be relied on to strongly favor “individual rights”. But can one believe that today? The Credit Suisse take-under shows that, given a chance, policymakers will trample all over “individual rights” in the name of promoting the “common good”. This is probably doubly true if the individuals in question are both foreign and from non-democratic countries. Since most current account surpluses accumulate in countries like China, Saudi Arabia and Qatar and most of the world’s twin deficits occur in democracies like the US, France and Britain, a difficult question arises: if Western economies no longer treat property rights as sacrosanct, why should capital keep flowing from the “greater South” into the “unified West”, as it has since the late 1990s Asian Crisis? Secondly, Western policymakers seem ready to sacrifice “individual rights” on the altar of the “common good” due to a bad brew stemming from the 2008 crisis, social media’s development and our current cultural predilection for virtue signaling (see The Guiding Principle Of Our Time & CYA As A Guiding Principle (2022)). All of this has shortened policy time horizons to the “here and now”. Hence, the more involved a population is with social media, the more the policy time frame shortens, with the “common good” tending to prevail over “individual rights”. So more individual freedoms expressed on social media seems to lead to weaker individual rights! Putting it all together, the unfolding Credit Suisse debacle and the Swiss government’s policy responses lead to the following conclusions: 1) The effect of government interference is to raise regulatory uncertainty and so again make the broader financial industry uninvestible. 2) Breaking the CoCo bond market means that in the next crisis banks will have to fund themselves in new ways, or shareholders will simply face massive dilution. 3) Emerging market savings will increasingly stay at home. I exaggerate for effect, but if I was a Saudi banker today, I might feel that, like the Russians last year, my assets had just been seized. 4) Policymaking in the Western world remains a shambles. This means that emerging market bonds will continue to outperform developed market bonds, and gold is likely to continue outperforming both. Tyler Durden Fri, 03/24/2023 - 06:55.....»»

Circus Politics Are Intended To Distract Us. Don't Be Distracted Authored by John and Nisha Whitehead via The Rutherford Institute, “There is nothing more dangerous than a government of the many controlled by the few.” - Lawrence Lessig, Harvard law professor It is easy to be distracted right now by the bread and circus politics that have dominated the news headlines lately, but don’t be distracted. Don’t be fooled, not even a little. We’re being subjected to the oldest con game in the books, the magician’s sleight of hand that keeps you focused on the shell game in front of you while your wallet is being picked clean by ruffians in your midst. This is how tyranny rises and freedom falls. What characterizes American government today is not so much dysfunctional politics as it is ruthlessly contrived governance carried out behind the entertaining, distracting and disingenuous curtain of political theater. And what political theater it is, diabolically Shakespearean at times, full of sound and fury, yet in the end, signifying nothing. We are being ruled by a government of scoundrels, spies, thugs, thieves, gangsters, ruffians, rapists, extortionists, bounty hunters, battle-ready warriors and cold-blooded killers who communicate using a language of force and oppression. The U.S. government now poses the greatest threat to our freedoms. More than terrorism, more than domestic extremism, more than gun violence and organized crime, even more than the perceived threat posed by any single politician, the U.S. government remains a greater menace to the life, liberty and property of its citizens than any of the so-called dangers from which the government claims to protect us. No matter who has occupied the White House in recent years, the Deep State has succeeded in keeping the citizenry divided and at each other’s throats. After all, as long as we’re busy fighting each other, we’ll never manage to present a unified front against tyranny in any form. Unfortunately, what we are facing is tyranny in every form. The facts speak for themselves. We’re being robbed blind by a government of thieves. Americans no longer have any real protection against government agents empowered to seize private property at will. For instance, police agencies under the guise of asset forfeiture laws are taking Americans’ personal property based on little more than a suspicion of criminal activity and keeping it for their own profit and gain. In one case, police seized more than $17,000 in cash from two sisters who were trying to start a dog breeding business. Despite finding no evidence of wrongdoing, police held onto the money for months. Homeowners are losing their homes over unpaid property taxes (as little as $2300 owed) that amount to a fraction of what they have invested in their homes. And then there’s the Drug Enforcement Agency, which has been searching train and airline passengers and pocketing their cash, without ever charging them with a crime. We’re being taken advantage of by a government of scoundrels, idiots and cowards. Journalist H.L. Mencken calculated that “Congress consists of one-third, more or less, scoundrels; two-thirds, more or less, idiots; and three-thirds, more or less, poltroons.” By and large, Americans seem to agree. When you’ve got government representatives who spend a large chunk of their work hours fundraising, being feted by lobbyists, shuffling through a lucrative revolving door between public service and lobbying, and making themselves available to anyone with enough money to secure access to a congressional office, you’re in the clutches of a corrupt oligarchy. Mind you, these same elected officials rarely read the legislation they’re enacting, nor do they seem capable of enacting much legislation that actually helps the plight of the American citizen. More often than not, the legislation lands the citizenry in worse straits. We’re being locked up by a government of greedy jailers. We have become a carceral state, spending three times more on our prisons than on our schools and imprisoning close to a quarter of the world’s prisoners, despite the fact that crime is at an all-time low and the U.S. makes up only 5% of the world’s population. The rise of overcriminalization and profit-driven private prisons provides even greater incentives for locking up American citizens for such non-violent “crimes” as having an overgrown lawn. As the Boston Review points out, “America’s contemporary system of policing, courts, imprisonment, and parole … makes money through asset forfeiture, lucrative public contracts from private service providers, and by directly extracting revenue and unpaid labor from populations of color and the poor. In states and municipalities throughout the country, the criminal justice system defrays costs by forcing prisoners and their families to pay for punishment. It also allows private service providers to charge outrageous fees for everyday needs such as telephone calls. As a result people facing even minor criminal charges can easily find themselves trapped in a self-perpetuating cycle of debt, criminalization, and incarceration.” We’re being spied on by a government of Peeping Toms. The government, along with its corporate partners, is watching everything you do, reading everything you write, listening to everything you say, and monitoring everything you spend. Omnipresent surveillance is paving the way for government programs that profile citizens, document their behavior and attempt to predict what they might do in the future, whether it’s what they might buy, what politician they might support, or what kinds of crimes they might commit. The impact of this far-reaching surveillance, according to Psychology Today, is “reduced trust, increased conformity, and even diminished civic participation.” As technology analyst Jillian C. York concludes, “Mass surveillance without due process—whether undertaken by the government of Bahrain, Russia, the US, or anywhere in between—threatens to stifle and smother that dissent, leaving in its wake a populace cowed by fear.” We’re being ravaged by a government of ruffians, rapists and killers. It’s not just the police shootings of unarmed citizens that are worrisome. It’s the SWAT team raids gone wrong—more than 80,000 annually—that are leaving innocent citizens wounded, children terrorized and family pets killed. It’s the roadside strip searches—in some cases, cavity searches of men and women alike carried out in full view of the public—in pursuit of drugs that are never found. It’s the potentially lethal—and unwarranted—use of so-called “nonlethal” weapons such as tasers on children for “mouthing off to a police officer. For trying to run from the principal’s office. For, at the age of 12, getting into a fight with another girl.” We’re being forced to surrender our freedoms—and those of our children—to a government of extortionists, money launderers and professional pirates. The American people have repeatedly been sold a bill of goods about how the government needs more money, more expansive powers, and more secrecy (secret courts, secret budgets, secret military campaigns, secret surveillance) in order to keep us safe. Under the guise of fighting its wars on terror, drugs and now domestic extremism, the government has spent billions in taxpayer dollars on endless wars that have not ended terrorism but merely sown the seeds of blowback, surveillance programs that have caught few terrorists while subjecting all Americans to a surveillance society, and militarized police that have done little to decrease crime while turning communities into warzones. Not surprisingly, the primary ones to benefit from these government exercises in legal money laundering have been the corporations, lobbyists and politicians who inflict them on a trusting public. We’re being held at gunpoint by a government of soldiers: a standing army. As if it weren’t enough that the American military empire stretches around the globe (and continues to leech much-needed resources from the American economy), the U.S. government is creating its own standing army of militarized police and teams of weaponized, federal bureaucrats. These civilian employees are being armed to the hilt with guns, ammunition and military-style equipment; authorized to make arrests; and trained in military tactics. Among the agencies being supplied with night-vision equipment, body armor, hollow-point bullets, shotguns, drones, assault rifles and LP gas cannons are the Smithsonian, U.S. Mint, Health and Human Services, IRS, FDA, Small Business Administration, Social Security Administration, National Oceanic and Atmospheric Administration, Education Department, Energy Department, Bureau of Engraving and Printing and an assortment of public universities. There are now reportedly more bureaucratic (non-military) government civilians armed with high-tech, deadly weapons than U.S. Marines. That doesn’t even begin to touch on the government’s arsenal, the transformation of local police into extensions of the military, and the speed with which the nation could be locked down under martial law depending on the circumstances. Whatever else it may be—a danger, a menace, a threat—the U.S. government is certainly no friend to freedom. To our detriment, the criminal class that Mark Twain mockingly referred to as Congress has since expanded to include every government agency that feeds off the carcass of our once-constitutional republic. The government and its cohorts have conspired to ensure that the only real recourse the American people have to hold the government accountable or express their displeasure with the government is through voting, which is no real recourse at all. Consider it: the penalties for civil disobedience, whistleblowing and rebellion are severe. If you refuse to pay taxes for government programs you believe to be immoral or illegal, you will go to jail. If you attempt to overthrow the government—or any agency thereof—because you believe it has overstepped its reach, you will go to jail. If you attempt to blow the whistle on government misconduct, you will go to jail. In some circumstances, if you even attempt to approach your elected representative to voice your discontent, you can be arrested and jailed. You cannot have a republican form of government—nor a democratic one, for that matter—when the government views itself as superior to the citizenry, when it no longer operates for the benefit of the people, when the people are no longer able to peacefully reform their government, when government officials cease to act like public servants, when elected officials no longer represent the will of the people, when the government routinely violates the rights of the people and perpetrates more violence against the citizenry than the criminal class, when government spending is unaccountable and unaccounted for, when the judiciary act as courts of order rather than justice, and when the government is no longer bound by the laws of the Constitution. We no longer have a government “of the people, by the people and for the people.” Rather, what we have is a government of wolves. For too long, the American people have obeyed the government’s dictates, no matter now unjust. We have paid its taxes, penalties and fines, no matter how outrageous. We have tolerated its indignities, insults and abuses, no matter how egregious. We have turned a blind eye to its indiscretions and incompetence, no matter how imprudent. We have held our silence in the face of its lawlessness, licentiousness and corruption, no matter how illicit. How long we will continue to suffer depends on how much we’re willing to give up for the sake of freedom. For the moment, the American people seem content to sit back and watch the reality TV programming that passes for politics today. It’s the modern-day equivalent of bread and circuses, a carefully calibrated exercise in how to manipulate, polarize, propagandize and control a population. As French philosopher Etienne de La Boétie observed half a millennium ago: “Plays, farces, spectacles, gladiators, strange beasts, medals, pictures, and other such opiates, these were for ancient peoples the bait toward slavery, the price of their liberty, the instruments of tyranny. By these practices and enticements the ancient dictators so successfully lulled their subjects under the yoke, that the stupefied peoples, fascinated by the pastimes and vain pleasures flashed before their eyes, learned subservience as naively, but not so creditably, as little children learn to read by looking at bright picture books.” The bait towards slavery. The price of liberty. The instruments of tyranny. Yes, that sounds about right. As I make clear in my book Battlefield America: The War on the American People and in its fictional counterpart The Erik Blair Diaries, “We the people” have learned only too well how to be slaves. Tyler Durden Thu, 03/23/2023 - 00:00.....»»

In today’s world of economic uncertainty, managing your finances can seem like a daunting task. Shifts in the market and inflation are making it harder to make ends meet for millions of people. Heck, even buying eggs has become financially complicated this year. Being in charge of a business during this time takes a team […] In today’s world of economic uncertainty, managing your finances can seem like a daunting task. Shifts in the market and inflation are making it harder to make ends meet for millions of people. Heck, even buying eggs has become financially complicated this year. Being in charge of a business during this time takes a team of people to be successful. Over the course of every entrepreneur’s lifetime, they hire the following: an accountant, an attorney, insurance agents (both personal and business), a banker, an investment adviser, etc. The list goes on. What’s more, finding the right people that you can trust is a job all its own. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q4 2022 hedge fund letters, conferences and more   As a result, many entrepreneurs may feel as though they’re stuck in the middle facilitating communication between parties. A family office is an interesting solution to this problem, and it’s no longer reserved for the top 1%. You can read about the different areas that can affect family wealth in a variety of finance publications. Recently, I spoke with Jim Dew, CEO of Dew Wealth Management, about the benefits of a virtual family office for entrepreneurs. I was extremely impressed by how having the right team and structure can yield great financial results. And, it makes sense; The rich get richer because they use specific strategies to grow and protect their wealth. Here’s what entrepreneurs need to understand about utilizing a family office for wealth management: What is a Family Office? Billionaires have had a century-long secret advantage when it comes to building and sustaining wealth. It’s called the family office. Before deciding if a family office is right for you, it’s necessary to fully understand what it is. This structure is what virtually everyone in the “billionaire’s club” creates when they get seriously wealthy. To build a family office, a billionaire will hire all the necessary professionals as full-time employees. Specifically, these new hires will work for that one billionaire and his or her family. Think along the lines of tax, legal, insurance, and investment experts– along with attorneys and accountants. Needless to say, a traditional family office is expensive to build and run. However, it’s worth it when you’re managing a financial empire. That’s why Bill Gates, Oprah Winfrey, Jeff Bezos, and Sarah Blakely all have a family office. For everyday entrepreneurs, this structure is still beneficial–but likely unreasonable– from a financial perspective. Despite the cost, a modified virtual structure is likely possible to attain. Connections Every Family Needs To better understand how a family office operates, we’ll review a few key things. This includes each position typically hired, how they communicate, and how they benefit each other. It’s worth noting that positions and components can be adapted to your business and lifestyle needs. For instance, you may find that you don’t need a full-time CFO, and instead could have a coordinated effort on financial analysis by using an outsourced part-time CFO in cooperation with an accountant and bookkeeper. You might also find an estate attorney who specializes in asset protection structures. Accountants As a business owner, you likely already engage with at least one trusted accountant. If not, it would be wise to consider doing so. This trusted accountant is a tax expert who keeps track of your bookkeeping–or works with your bookkeeper– to make sure you stay in the black. For example, they might audit your books, prepare payroll tax reports, or simplify all the financial rigmarole and minutia that come with running a business. When establishing a family wealth office, it’s important to have an accountant who can communicate your financial standings and work in your interest to reach financial goals. Investment Advisers Investing is a valuable way to grow your wealth. So, it’s a good idea to utilize investment advisers who will be able to work with you and your accountants and ensure that you’ll see positive returns. A family office may be responsible for investment portfolio management, private equity deals, hedge fund investments, and/or venture capital investments. If you’re interested in commercial real estate, they may also handle real estate purchases, sales, and property management. Like everyone else on your team, these professionals are available to help grow and protect your wealth. Tax Planners Many accountants are tax historians rather than tax planners. For instance, a tax historian might all the correct forms at the right time, but is looking in the rear view mirror. What you need in your family office is a tax planner. A tax planner proactively looks forward and presents you with ideas on how you can legally save the most possible money in taxes. This tax expert could potentially be your accountant–or they could be an expert that works with your accountant– that can ideate strategies to help you pay the least amount of taxes legally possible. No matter the case, they are able to help when it comes to tax matters. For example, they might even find tax savings that you can receive by amending past returns. It’s like finding that $20 bill in your pants pocket that you didn’t know you had! Above all, professional tax consultants should prioritize knowing the tricks of the trade and staying current with changing state and federal tax laws. Insurance Experts Everyone needs insurance to protect their belongings. But, as you grow your wealth, this becomes even more important. Insurance transfers risk, therefore it is the key to a defensive financial strategy. Additionally, there are tricks of the trade that insurance experts know, which can benefit you and your family in the long run. Insurance is your first line of defense when it comes to asset protection. Making sure that you have the right coverage and that trusts or entities are listed as additional insureds are some of the details that entrepreneurs often miss. Moreover, entrepreneurs need business insurance like EPLI (employee practices liability insurance) and cybersecurity (for things like ransom attacks). Having good experts for personal and business coverage are absolutely essential in a family office structure. Attorneys Another aspect of protecting your wealth is to avoid lawsuits that could take it away. Having an attorney on your side means having someone to advise and represent you or your family. Whether it be in court, before government agencies, or in private legal matters, they’re able to act on your–or your family’s– behalf. They can interpret laws, rulings, and regulations for individuals and businesses, which becomes more important as your wealth grows. It’s also crucial to have a trusted attorney who’s able to help with estate planning. Every business owner needs to have an estate plan, because death is inevitable. If you don’t have an estate plan already, it is highly recommended to prioritize having one. While many people understand that an estate plan allows you to name the people or organizations you want to receive your belongings after you die, it’s much more than that. You should also factor in things like instructions for your care and financial affairs if you become incapacitated. Essentially, this means designating a power of attorney and funding assets into a living trust. You’ll want to update beneficiary designations and name a guardian for your minor children’s care and inheritance. While it’s important to think of your family and your own well being during estate planning, a major asset that needs consideration is your business. Considerations you would need to make for your business would include deciding whether you’ll want to transfer or sell. Regardless, both of those options include paperwork. The articles of incorporation and operating agreement of your business can work collaboratively with your estate documents to help smoothen out this process. It’s important to note that estate planning is an ongoing strategy, not a one-time event. You should review and update your plan as your family, financial circumstances, and laws change throughout your lifetime. That’s just one of many reasons why having an attorney on your team will help you, your loved ones, and your business. The Benefits of a Family Office If you are the type of person who believes you can do it all — let’s be honest, most entrepreneurs are — it may be difficult to relinquish control and let someone else take the reins. It might even be hard to let other people give you advice. But, in the long run it benefits you in so many ways. You’re able to save time, which you can then reprioritize in order to work on your business or spend time with your family. A family wealth office allows you to spend time on the things that matter most to you. It’s a centralized resource that you don’t have to manage. Consequently, since you don’t need to juggle everything, nothing slips through the cracks. Experts, because of their passions and industry knowledge, are able to spot the things you don’t see.   How to Create Your Own Virtual Family Office One of the most difficult issues with having multiple advisers and consultants is navigating the collective team management. Typically, they aren’t communicating or collaborating with each other on a regular basis to achieve the best outcome for the entrepreneur. This means you’re responsible for the whole infrastructure, which takes precious time away from your other responsibilities. To make matters worse, you likely don’t speak the languages of tax, law, insurance, or investments. With a virtual family office, that responsibility is offloaded onto a wealth planning firm. The first step in building a family office is to evaluate your current team of advisers. You might have to manage this by yourself until you are in a stable and successful financial state to hand this off to the right wealth planning firm. Typically, your current advisers are not all “A” players. You’ll want to keep your top performers and replace the advisers who are not achieving the necessary results. The appropriate wealth planning firm will have the required expertise to oversee and communicate with your advisers and start managing the moving pieces. The Bottom Line As Jim Dew said, “Billionaires want a team that only works for their best interest and so should you.” When it comes to a family office, you want a team of people that can protect, manage, and grow your wealth. In the long run, family offices can save you time and help you live the life you want. By combining asset, cash, risk, and lifestyle management with financial planning, family offices help clients navigate the complex world of wealth management. As an entrepreneur, using a family wealth office is a smart strategy to prepare for the future and your legacy. Article by Deanna Ritchie, Due About the Author Deanna Ritchie is a financial editor at Due. She has a degree in English Literature. She has written 1000+ articles on getting out of debt and mastering your finances. She has edited over 40,000 articles in her life. She has a passion for helping writers inspire others through their words. Deanna has also been an editor at Entrepreneur Magazine and ReadWrite......»»

       The transcript from this week’s, MiB: Jennifer Grancio, Engine No. 1, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is… Read More The post Transcript: Jennifer Grancio, Engine No. 1 appeared first on The Big Picture.        The transcript from this week’s, MiB: Jennifer Grancio, Engine No. 1, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, Jennifer Grancio was there at Barclays when the beginning of ETFs and passive indexing really took off on an institutional basis. She was one of the founding members when BlackRock bought iShares from Barclays and really helped drive broad adoption of passive and ETFs in the financial community. Today, she is the CEO of Engine No. 1, which focuses on the fascinating transitions that are taking place in broad strokes across the economy. There are numerous opportunities in energy, in climate, in robotics, in automation, and her firm helps invest in those spaces. Not quite an activist investor, but she has worked with a number of companies like Exxon and General Motors and Occidental, where the input of Engine No. 1 drove significant changes at those companies. They’re a longtime investor than a black hat activist where they’re looking to buy stock Forza, an exit of the CEO and sell once the stock pops, really fascinating story. I found it quite fascinating and I think you will as well. So with no further ado, my interview with Engine No. 1’s Jennifer Grancio. Let’s start out talking about the early part of your career. I’m really curious how you ended up in BlackRock. But before that, you’re working as a consultant. JENNIFER GRANCIO, CHIEF EXECUTIVE OFFICER, ENGINE NO. 1: Yes. I think like a lot of people in undergrad, I went to Stanford thinking I was going to do genetics and science — RITHOLTZ: Right. GRANCIO: — did an internship, pivoted, ended up doing international relations. Then as you head towards the end of college, you figured you’re going to save the world, then I’m going to go work for the World Bank. The World Bank wants you to take out more student debt and get a master’s degree. So like so many other bright-eyed graduates, I trooped off to, you know, one of the traditional professional services professions. But what’s kind of interesting for me about consulting was this idea that you almost apprentice with somebody that’s senior, and you run around and try to help companies and problems. So it seems like a good idea at that time. RITHOLTZ: At that time. GRANCIO: And that’s what I went off to do. RITHOLTZ: So how do you go from that? How do you end up at a place like BlackRock? iShares seems to have been almost an accidental business line from them. Am I remembering correctly, that was a post financial crisis Barclays’ purchase, something along those lines? GRANCIO: Yes, exactly. Yeah. So if you go back, so management consulting, moved back to California and decided I was going to be a California person, not a New Yorker, no offense to New York, spent a lot of time here, all those things, right? RITHOLTZ: Better weather. The geography is beautiful. Sure. GRANCIO: And so I went looking for what I thought would be the best asset management business, I focused on asset management within the consulting space. Like, this idea that somehow if you got portfolio construction and savings right, you help people over time. And so I joined what was Barclays at that time. The asset management business of Barclays Bank was this little firm called Barclays Global Investors based in San Francisco. RITHOLTZ: And that was not such a little firm at that time, was it? GRANCIO: No. It was growing very quickly. And that business was an institutional business. So as an institutional business, we did indexing. We thought indexing was cool. And the iShares and the ETF idea came from, we just had a fundamental belief it was a better mousetrap. So there’s something about an ETF and we could go into that another time. There’s something about an ETF that’s a better mousetrap than a mutual fund. And so for Barclays Bank, we pitched here’s a great idea. Let’s build this ETF business in the U.S. And it’s a way for Barclays to build in the United States. And so we launched the business in 2000. So we launched it right into the dot-com crisis. RITHOLTZ: So from the dot-com crisis to the global financial crisis, what were the circumstances surrounding BlackRock saying to Barclays, yeah, we’ll take that little worthless business off your hands for a couple of hours? GRANCIO: Yeah. And the interesting thing about an ETF business is that it takes a long time to build. And so to your question, around that time, you’re going into 2008, Barclays needed cash. And the index business was starting to take off in the form of ETFs, or at least we thought that, but it was still a relatively small business. And so who were the other people that probably looked at that acquisition included other big indexers, big asset managers who weren’t sure, was indexing going to be a thing or not? Because remember, at the time, ETFs and index were synonymous, but Larry, you know, was more forward-looking. RITHOLTZ: Larry being? GRANCIO: Larry Fink of BlackRock. RITHOLTZ: Who arguably, and I know who Larry is, I just want the audience to know, arguably the purchase of iShares by BlackRock from Barclays could be one of the great opportunistic distressed purchases in the middle of a crisis ever in financials. What is iShares up to now? Like $4 trillion, something insanely? GRANCIO: Enormous. RITHOLTZ: Yeah. And they picked it up for a teeny tiny fraction of that. So what was your experience like when BlackRock took over iShares? GRANCIO: Yeah. So we built the iShares business first within Barclays. And we were a, you know, small but mighty team doing ETFs. And the whole idea I remember of ETFs is to go and to challenge mutual funds and challenge active management. So that’s a big thing to take on. And so as BlackRock work through the acquisition of all of the BGI business, including iShares, we spent a couple of years then getting to know BlackRock, as a little iShares team, and talking about ETFs and fee-based advice and portfolio construction, and all these things that we thought were trends we could take advantage of and use to build the business. But then the business really just got from strength to strength after that acquisition. We came out of the financial crisis, few rocky years in the ETF industry overall. Vanguard decided to get into ETFs in a serious way. BlackRock and iShares launched that core series as a competitive business. So kind of responding to what was going on in the market, and the business continued to grow and grow. And then I think from an ETF industry perspective, we did some important work on trying to protect the category of ETFs. So we did a lot of work with the U.S. regulators, European regulators and run the business in Europe for a while as well, talking about the differences between like a passive index fund, for example, an ETF that’s got commodity exposure and ETF that’s leveraged or inverse, in terms of trying to protect the vehicle and protect the category. And really since then, there’s just been continued explosive growth. RITHOLTZ: In your wildest dreams, did you ever imagine back from the sleepy early days of passive and ETF at Barclays that would grow up to be just the dominant intellectual force in investing, and reach the size it’s reached? What is even after this year, BlackRock has something like $8 trillion? $9 trillion? GRANCIO: Yeah. I mean, the numbers are huge. I think we did, but maybe we were naïve. But our view was, it was a trend that was going to happen. And if you could own the trend, and if you could accelerate the trend, this was a better way to invest. A better way to invest is to have a low cost solution at the core of the portfolio, and then hire people that are deeply capable to deliver alpha. So I would say we thought it could be big. But you know, it’s pretty amazing. RITHOLTZ: So you talk about accelerating the trend. What exactly do you do to help accelerate that trend? How do you drive acceptance of both ETFs as a wrapper as opposed to traditional ‘40 Act mutual funds, and passive versus more traditional stock picking market timing, active investment? GRANCIO: Yeah. I think when the industry first started, so going back, you know, 20 years now, the two things were synonymous. But, you know, let’s take those one at a time. So from a passive perspective, the argument we made as an industry selling passive ETFs was you really had to take a look at what the portfolio is doing over time, total cost, total risk exposure. And when you did that, you often found that there was a way to get better long-term performance and cheaper, by having some index in a portfolio. So that was the story on indexing. And then we kind of kept driving that into this idea of models. So now, you know, there’s a model, a huge amount of money, you know, trillions of dollars sit in models in U.S. wealth. What does that mean? It means a big wire house. Your brokerage puts a model together, this much of Europe, this much U.S., this much small cap. And then you can use index products to fill all those allocations. And so that was the kind of the 20-year build of how did passive get so big. And then ETF as a wrapper, it’s just a great way to get the price at the moment if you’re buying into the public markets, number one. And number two, it’s a great way to manage tax, where if you buy something now and you sell it in 20 years, and the markets gone up, guess what, we have to pay tax on that. But the kind of annual capital gains gift you get from a lot of mutual funds, it can be managed very astutely in the ETF wrapper. And that’s great. Like, that’s great for all investors. RITHOLTZ: Meaning if you’re a mutual fund owner who’s not selling, but somebody else sells and generates a capital gain, that gets spread around to the other older (ph) — GRANCIO: Exactly. So even if you’re — RITHOLTZ: — which doesn’t make sense at all. GRANCIO: I mean, as somebody that’s been doing ETFs for a long time, I say it doesn’t make any sense, whatsoever, because there’s another way to do it. And we’re finally seeing that now. We’re finally seeing a lot of the big mutual fund companies start converting into ETFs. RITHOLTZ: The flows even in a down year like 2022, the flows have all been towards passive, towards ETFs, towards low cost. It seems like a much better mousetrap. GRANCIO: I think it is. RITHOLTZ: But I’m not going to get much of an argument from you on that. So you mentioned Vanguard, we’re talking about Black Rock. Let’s talk a little bit about the role of brand on in the industry. How important is that when you’re putting out either a low cost passive ETF at 3 or 4 BPS, or something more active or thematic on the ETF side? GRANCIO: Yeah. I mean, the role of brand is pretty critical. And if you think about in the index business, if you’re managing it well, there’s not a lot of performance. It’s are you tracking the index? Yes or no. And so that power of the brand is massive. And my observation in this space is that the average investor, the average retail person that’s going out and investing or talking to an advisor, they don’t necessarily know one product provider or investor versus another. But they definitely know who they do business with or who they buy from. So that retail brokerage brand, their advisory brand has a huge impact on them. So to your question on Vanguard, like Vanguard is a brokerage firm, so you kind of know Vanguard. Vanguard does your 401(k), you’ve heard of Vanguard. And so for other people that enter the industry, and this is certainly what we did in the iShares business or what we do now at Engine No. 1, is you really have to be clear on who are you and what is your story because that brand matters a lot. RITHOLTZ: So you mentioned brokerage firms, and Vanguard does 401(k) brokerage. They do all sorts of obviously mutual funds and ETFs. How do you see some of the bigger custodians and actual brokers like Schwab and Fidelity in terms of ETF developments? We know it’s BlackRock, Vanguard and State Street at the top. These guys are no slouches either, are they? GRANCIO: No. I mean, I would say if we go back and we look at the history of ETFs and how they’ve developed, we see State Street, Vanguard and BlackRock. BlackRock iShares is very dominant, and they’re going to continue to be dominant in passive, period. They’re there. They’re big. They’re so big now. And we’ll come back to this later. I personally think there’s some problems with how big they are. But from an ease of buying decision-making perspective, they’re big. They’re dominant. The brokerages were late to get in the game. So Fidelity and Schwab got in much later. They don’t charge fees for those products. And so it makes it harder for them as a kind of a corporate organism to, you know, have that be a big part of their business. And then what we’re very excited about it Engine No. 1, and what you’re seeing with the mutual fund conversions, the big ones at DFA, at Franklin Templeton, and the list goes on, there are many, is that we’re now ready to move active funds into the ETF structure. And that I think is very exciting. But that’s new, that’s very new development. RITHOLTZ: So let’s talk a little bit about Engine No. 1. First, how did you get there from Black Rock? What led that transition? GRANCIO: Yeah. So I left BlackRock very large. I wanted to do a little bit more innovation. And I think sometimes the biggest firms are great, but they can’t always lead from an innovation or change perspective. RITHOLTZ: Right. GRANCIO: So I spent a couple of years, I built an advisory firm, and took a couple years to decide on, you know, what was the next move? And I did some great work with a number of large wealth and IRA firms that were going through an M&A or selling themselves process, did some work on impact investing, actually led me to Ethic and joined the MannKind board, but decided I was definitely going to be a builder, that there was this opportunity to do something different than traditional mutual fund and passive ETF. And so I started looking for what would be the thing I wanted to build with partners, and then I met Chris James. RITHOLTZ: And did you launch Engine No. 1, or did you join him when it was already existing? GRANCIO: We launched it together. Going back, you know, before we started the firm, so Chris James is our founder at Engine No. 1. And Chris’ background is hedge fund and private fund investments. And what he’s really known for, he’s known for taking an extremely long view on something and doing the work to let’s say, where is the opportunity as you go through a huge transformation or transition? So Chris was hard at work on this and wanted to reach into the wealth space. So rather than just doing products that were private and you could help institutions invest, what could we do that was broad and into the wealth space? So I joined him to collaborate, given my background on that side of the business. And the idea of Engine No. 1 is just to help people benefit from these huge transitions and transformations that are very much not the backwards-looking. Look, Google and Amazon got great. You know, our portfolios have a lot of growth in tech, great. There’s a lot of money to be made in the energy transition, transportation, agriculture. And so really, the idea of the firm is to be able to look forward, find mispricing, and make money as we go through these huge changes. RITHOLTZ: The firm’s name is intriguing. Where does Engine No. 1 come from? GRANCIO: The first firehouse in San Francisco is actually a couple of blocks from our office. And in talking about what we were trying to do, which is maybe it’s grandiose, but if you think about it like capitalism works. And what we were agitated about is we saw the market, you have ESG over here, very small. We think old school ESG does not work. We have a strong view on that. We’ll come back to that. Indexing, too many shares are locked up in indexes. Index don’t vote their shares. And then maybe most important of all, we’re going to need a General Motors and Ford to actually be able to do this huge transition from internal combustion to battery electric vehicles. And so, you know, actually, the firehouse is the center of the community, right. And if you think about how a community survives, the firehouse is the center of the community. It takes care of itself. A well-run business really should be as simple as sort of taking care of the environment, it’s in being aware of it. And in public markets, that means you also have to be able to adapt and manage their change. RITHOLTZ: So tell us a little bit about the strategies you guys employ. What are your key focuses? How do you deploy capital? GRANCIO: Yeah. As a business, we run an alts business, and then we run the ETF platform. So if you think about it very simply, these huge ideas about transition and transformation and how to make money are very common across what we do. But we have two businesses. And the big ideas are these transitions and transformations, and how do you take advantage. And so when we look at public companies, we look at every single company, and we look at what their path is through time. So I think this is one of the problems with a lot of investment strategies right now is they’re looking to short term. And then we build the impact or externality data, we just build it into the financial model, right? Because the data is out there particularly on governance, particularly on environmental issues. And when we do that, in the sectors that are in transition, let’s take energy, for example. If you’re an oil and gas company, and you don’t account for the emissions that you’re dealing with and you don’t decrease them over time, you’re going to have a problem. And we saw this when we started building the business that a lot of these companies were heading towards zero terminal value. So let’s take Exxon, for example — RITHOLTZ: Okay. GRANCIO: — where if you take Exxon, and Exxon keeps doing long-dated fossil fuel projects, and has no plan to reduce emissions at any point in time, and has no plans to develop a green business. Well, that’s not very good for Exxon stock when we get to 7 or 10 years out. And so we see a lot of these opportunities where like it’s just math. The capitalist system is supposed to have the company govern itself, so that it’s making money through time. It has a longer duration of business, and it has a higher value. And that’s the kind of the way that we work in everything that we do. RITHOLTZ: So you mentioned environmental issues and impact. You mentioned governance. This sounds a lot like two-thirds of ESG. GRANCIO: Yeah. We think the way people use that label is a little bit problematic. So people often use that label looking backwards. RITHOLTZ: Flash that out a little more — GRANCIO: Yeah, yeah. RITHOLTZ: — because when I hear someone mentions ESG, I typically think of an investor and for the most part, as we go through this generational wealth transfer, you do surveys of investors, husband passed away, the wife tends to be much more empathetic with issues of equality and environmental concerns. And the next generation is much more concerned. So it seems like there is a desire to express those beliefs in their portfolios. Why does that not work with ESG? GRANCIO: Yeah. I mean, I guess our view on that would be, you can always express values in a portfolio. But if you’re going to express values in a portfolio, say that I am expressing my values in the portfolio, which is different than the core concept of managing money over time generally, for the person that’s doing the managing is to be a fiduciary — RITHOLTZ: Right. GRANCIO: — and drive good outcomes and strong returns. And in general, for the investor, is to drive returns over time. And so the way we think about it is, really, you can do that. And any business that is going to survive over time has to be sustainable, has to address or basically cover their impacts, right, after the cost of capital so that they can be profitable over time. So instead of thinking ESG means it’s values based, I don’t like the company, they’re bad, I’m going to screen them out of my portfolio. We don’t think that’s a great way to manage your core portfolio over time. We think the better way is you simply have to engage with the companies to make sure that their most material impacts that’s financial data, right? That’s risk data if you don’t manage your emissions as an oil and gas company. And so let’s build that into just investing to make returns as opposed to this special class, which, you know, it devalues base and ESG tends to kind of infer value over performance, right, or divesting from companies that you don’t like. And we don’t think that’s a great way to invest. RITHOLTZ: So let me push back a little bit on the low carbon strategy. It seems like it’s half of the economic equation because people seem to be approaching entities like ExxonMobil and others, the suppliers of the carbon-based fuel. What is that doing if you’re ignoring the other half, the consumers? So every other company that is not a carbon energy producer is likely to be a carbon energy consumer. They’re running factories. They’re shipping goods. They’re having offices. Why focus on one half of the equation and not the other? GRANCIO: Yeah. I mean, I think that’s the right question. And we focus on both. And so let’s take for a minute the energy industry, and then the transportation or auto industry. That’s an example of that kind of handshake or handlock, right? So in the case of the car companies, that’s consumption. So if we’re consumers and we’re driving cars, which we still do and people are planning to do in the future, the car company can switch from encouraging the behavior of driving internal combustion engines, which have very high emissions, or the car company can know that the consumer demand is shifting a little bit and they can build a car that is an awesome battery electric, reasonably priced vehicle. And then they can capture that shift in demand. And that’s really good for the car company. So actually, we a hundred percent believe that this has to primarily be driven on the consumer demand side and on my first piece of that. So if I’m a consumer, I buy a car, you’ve got to start with the car company. However, if you look at global emissions, you know, 34 percent of that today comes from the energy companies. So at the same time in parallel, there’s still an opportunity to work with those companies on, as battery electric comes up, as fossil fuel comes down, how do those companies make a lot of money 9 or 10 years from now as we go through that transition? RITHOLTZ: Explain that 34 percent. Because, again, it’s that someone is a buyer, someone is a seller. They’re not burning 34 percent of the fossil fuels, they’re selling it to consumers — GRANCIO: That’s right. RITHOLTZ: — who were burning it. Like, there are some low carbon ETFs. I just don’t understand. It’s why the war on drugs failed, if you’re only going to interdict the supply but ignore the demands, you’re not going to be successful. GRANCIO: Yeah, that’s right. I mean, and we think from an investment perspective, if you want to solve this problem on how do you take emissions down, we think that problem can be solved and you can make money by owning the people that are going to win. So you asked before, like, what do we do? What strategies do we run in the ETF business? Our active team, it’s effectively hedge fund investors. So they’re very concentrated portfolios. We believe we’re right. There’s a handful of names, like under 30 names today in the portfolio. Ticker is NETZ, Transform Climate (NETZ), and what that portfolio holds is it holds companies that have emissions. But we believe that the companies in the portfolio are the companies that have the right strategy to, if I’m an energy company, I’m producing energy. There’s demand for energy, that’s what I do. But I’ll tell you my emissions, I’ll do methane third-party monitoring. I’ll do all the right things. So that from a social license to operate perspective, I’m at the top of my peer group. And in all cases, they have a strategy whereas fossil fuel demand declines, not today, but in 7, 10 years, they have a strategy to actually make money and still have value. So we’re picking the top best performing energy companies. We’re not saying energy is bad. Energy is essential, and we need that energy in the transition. And the portfolio then also holds the car companies that we think win. RITHOLTZ: So let’s talk about a couple of names. So a couple of energy names from NETZ and a couple of core companies from NETZ. GRANCIO: Yeah. And so one of the names we had in the portfolio, which is actually so highly valued, it goes in and out, depending on if it’s overvalued — RITHOLTZ: Right. GRANCIO: — it’s an active fund, is Occidental (OXY). And that’s an example, they were really the leader in the space. So they had started to develop greener businesses so that as fossil use comes down, they have another business and they’re competitive. That’s great for long-term value of the company. And — RITHOLTZ: What are their green businesses? Things like solar and wind or — GRANCIO: They have a range of things that they do in that space, but think of it as committing early to find ways to make money, having these people on staff, on the board that know how to run green businesses. And then from an emissions perspective, also, they were very early on telling us, being very transparent on Scope 1 and 2, and agreeing to oil, gas, methane partnership emissions with third-party monitoring of emissions, which we think is critical because again, methane emissions leaking, that’s probably the biggest thing. RITHOLTZ: Especially with natural gas. But with pretty any form of car being — GRANCIO: That’s right. RITHOLTZ: — capture, your carbon removal from the ground, that’s a big risk. Methane is even worse than CO2 in the atmosphere, right? GRANCIO: That’s right. And that’s right, and that’s some of the active ownership work we did on that portfolio, where Conoco and Devon are companies that we worked with, to join the methane third-party verification partnership this past summer. And that’s when we talk about Engine No. 1 as active owners, it’s not always, you know, the black hat activist. We actually haven’t done that other than Exxon. But the ability to really understand their business and go in and work with them. And actually, having them methane verified is a big deal, because then people understand what you’re doing in that part of the business. And it gives you license to operate because we need that energy source. RITHOLTZ: What are the car companies that are in NETZ? GRANCIO: General Motors is in NETZ. Ford has been, it goes in and out of the portfolio, based on how they’re doing, managing some of their supply chain constraint issues. And then Tesla is in the portfolio. But GM is at a much larger weight than Tesla. And then Tesla went out of the portfolio for governance reasons. RITHOLTZ: Because? Give me more specific. GRANCIO: Twitter. Because of Twitter. So the way that we manage that portfolio, basically what NETZ is, is you’re holding some of the biggest emitters, and you’re holding this 1.8 metric tons of emissions a year, so not low carbon, high carbon. And then what we expect is that those companies are going to take that number down to less than half within a decade. And so if you care about impact or sustainability, yeah, that’s great. That’s a huge win. You’re holding the companies, watching them. They’re taking emissions down. But if you want to make money, you’re holding the companies that are providing energy, but doing it in a way that they have a social license to operate. And then sort of come back to your Tesla example, all of this starts with governance. And so if a public company is going to make money over years and years, it’s all about governance. And do you understand your markets? Do you understand how things change? And so if you’re running Tesla and you have a huge job to do in terms of scaling that business, but you’re also doing other things at the same time — RITHOLTZ: Assess. GRANCIO: — and saying you don’t have time to run Tesla, well, that’s kind of a governance issue. RITHOLTZ: So when I looked at the acquisition of Twitter which started out as a lark, $44 billion, the market drops, wild overpayment. The bigger issue is if you think about who’s Tesla buyers, they seem to not be the people who Elon is playing to on Twitter. And in fact, as much as there are a lot of fanboys and I think you have to give Elon full credit for moving the entire auto industry to EVs, I think all the legacy-makers looked at him and said, we can’t let Elon do to us what Bezos did to the book industry and the booksellers and a dozen other industries. But it seems like he’s alienating that core middle left, all those liberals we’re going to own on Twitter. He seems to be chasing away a lot of his future buyers of Tesla’s. GRANCIO: He may be. That’s good news for GM NASA. We’re okay. We’re covered on that one. RITHOLTZ: And to say nothing about valuation issues and other assorted things — GRANCIO: Right. RITHOLTZ: — I’m assuming this is in strictly an ESG checklist. You looked at the usual — GRANCIO: Not at all. Yeah, we looked at the usual things and that’s maybe our main point, which is the people get in our industry in particular. They get stuck in old frameworks, right? An ETF is an index fund. An activist is somebody that comes in short term and fires the CEO. So I think we need to be careful of those sort of short ways and shorthand ways of thinking in investments. Our point of view is that there’s a lot of data available now. We have a huge amount of data. Take the climate and environmental-related issues. We have a lot of data on carbon, and we can estimate carbon prices. And so in a basic fundamental financial model, you can start with your old traditional financial model. But you can add in, we do this, we can add in the monetization of those emissions. And then as you build out your financial model, you can look at how the company reduces them over time. And we see those as purely financial metrics, right? That large externality for a company is a risk or financial measure. It’s not some separate ESG dot bubble rating system. It’s just their numbers, it’s math. It should go into the long-term valuation of the business. RITHOLTZ: Let’s talk about the Exxon situation. You accumulated a relatively small number of shares, and then reached out to management. Tell us about the process and how they reacted to your overtures. GRANCIO: Yeah. So from a team perspective, we started by making an economic case. So we did the work on here’s what we would do differently, here’s how we think the value of the business wouldn’t be higher if we did this. And the suggestions on what we would do differently included disclosure of emissions. It included better capital allocation decisions between this sort of short-term energy transition period. And we don’t know when it’s going to be, thanks to, you know, Putin and the Ukraine, longer than we thought a year ago. RITHOLTZ: Right. Right. GRANCIO: But at some point, we’re going to start to really pivot into an energy transition. And so what’s your best thinking, Exxon as a company, on what your business looks like, and your capability at a board level to extend the duration of the business, do things that may be renewable, or whatever they may be. What is it that you can do that’s in that area? And so those were the things that we requested. RITHOLTZ: They were receptive to that? GRANCIO: They were not receptive to that. But those are the things that we requested, which is usually how these things start. RITHOLTZ: So .02 percent of outstanding shares doesn’t exactly put the fear of God into them. Why a toe in the water and not a more substantial stake? GRANCIO: Exxon, going back to when we started the proxy campaign — RITHOLTZ: They were giant, right? GRANCIO: They were giant, but also they were a giant in terms of the big asset managers had not been able to get them to pivot from a governance perspective. So there were known concerns about governance. A lot of the big investors take a slower approach to work with management, not cause too much change, request changes. And there just hadn’t been any progress in this case. So we were able to have conversations. And the team did a huge amount of work with investors and passive investors, and active investors, walking through our economic case. If these things happen, better governance, better economic performance, and that, we think, is what allowed us to rally support. And as we were rallying support, as you see in this situation, I’m sure Exxon was talking to some of those investors as well. And so as we went through the campaign process, we saw some of these changes, changes in capital allocation decisions, and intention to launch a green business. So some of these changes started even before the proxy vote where new directors were elected onto the board. RITHOLTZ: So we talk a lot about specific companies. How do you look at the macro environment and geopolitics? You mentioned Putin’s invasion or the Russian invasion of Ukraine. Arguably, that’s going to accelerate the greening of Europe in particular, and the move to alternative energy sources, not dependent on Russia, which is all carbon. GRANCIO: Yeah. And I think to some extent, you can’t control what is the moment in time where the energy transition happens, right? However — RITHOLTZ: Right now. Right. Aren’t we more or less in the midst of this today? GRANCIO: We are in the transition. Absolutely. But we think that if you wanted to not use fossil or carbon intensive now, it wouldn’t possibly work. RITHOLTZ: Right. GRANCIO: We’re not ready to be transitioned. We are in the transition. And so the way we think about it is we have to be very savvy about where do you have a brown business? Where can that brown business be gray? Where does it start to use green techniques? Natural gas is a great example. We need natural gas. So how do you move natural gas in a way where you’re looking at methane. You don’t have methane leaks. You’re using green energy and electric sources to process the natural gas. There are a lot of things we can do even while we’re using fossil to be cleaner, nd to put the people that are cleaner and doing fossil in a better position to sell versus their competitor, because we are seeing these changes. And we do have a lot of people looking at carbon footprint as they’re buying or investing in companies. RITHOLTZ: So my colleague, Matt Levine mentioned your win. And now says, when they see you coming, you are no longer presenting as a scrappy, small startup. You’re bringing some receipts to the table. Hey, Exxon knuckled down. Now, you and I have a conversation. How has that changed since that win? GRANCIO: Yeah. We started with Exxon effectively. And so I wouldn’t say the next day, it was a sea change in a positive way. I would say it’s complicated, because after you’ve done that, the board and the CEO are a little bit worried about what our intentions are and it takes time to build those relationships. And Chris does a lot of this work directly with the CEOs and the companies that are in the portfolios. And it takes time to build trust. But our relationship with them is basically having modeled their business ourselves and modeled all their competitor businesses, and have gone to kind of up and down the supply chains. And once we get to know each other, we’re giving them what they find is actually some very helpful point of view on if I like your business, I think this, you know, consumer demand is going to flip sooner, you’re going to miss it, or how organized are you on supply chain? What are your bottlenecks? And so it’s become really very constructive with a lot of the companies that we work with. RITHOLTZ: It sounds like your early training in the consultant world wasn’t for naught. This is almost a hybrid between activist investing and consultants. GRANCIO: And just investing, right, high quality investing means you really have to understand what a company strategy is and what are the bottlenecks, what are the places where they may miss. If you understand those, you can make those faster, shorter, better, less risk. Then that’s really positive for being more sure that the company increases in value. RITHOLTZ: So let’s talk a little bit about your toolbox. You mentioned proxy voting, you mentioned modeling. What else does Engine No. 1 bring to the table as ways to get management to see the world from your perspective? GRANCIO: Yeah. And part of it is the data science work that we do around the sizing of emissions, comparative emissions, monetization of emissions, so call that our total value approach to looking at the externalities of these companies. So we bring that. We’ve done the modeling all the fundamental work that we do. And then it’s very active engagement, where we want to stay engaged. That’s part of where the alts business came from. If there’s something in the private markets that could work differently to help a big public company move, can we make connections? Can we help that move along? And then proxy voting is important. So most of what we do is this kind of very intense active engagement. And we’re active owners of the company, not always an activist in a traditional meaning. We also launched an index product. So you know, our view is that you really have to hold these companies if you want to own the winners over time. And if you want to drive change, you also have to hold the companies, you can’t divest. A problem in the dominance of the current index providers is that they’re big and it’s complicated to vote shares, because you have people on different sides of every issue. So while we’re at it, put a new index product out on the market, that ticker is VOTE, which is pretty simple. It’s literally an index. We vote the shares in line with our economic outcomes, and we post them as soon as we vote. So a little option for people that still want to use index instead of active. RITHOLTZ: That’s really interesting. We’ve talked about Exxon so far, and Tesla and Ford. Tell us about your involvement in General Motors, what attracted you to the company, and what sort of positioning do you have with it. GRANCIO: Yeah. And General Motors, it’s going to take some time, right? So General Motors has been in the portfolio since we launched NETZ and still is, and has stayed there. And when we work with General Motors, a lot of our work has been about how do we accelerate the transition to battery electric vehicles for them as a manufacturer, and not for an ideological reason, purely because we think the consumer demand is shifting more quickly. RITHOLTZ: That’s where the market is going. GRANCIO: Right. That’s where the market is going. RITHOLTZ: That’s where the consumer demand is moving. GRANCIO: Again, this is an economic argument for us in working with General Motors, that the faster you get to all battery electric, which means you need to build the battery plants, you need to build them bigger, you need to build them faster, you need supply agreements locked up for the rare metals, and then you need to work on bringing the cost of batteries down. Because as all of that happens, GM makes 8 to 9 million cars a year. And so if those cars are all battery electric vehicles and the battery cost comes down, you know, what’s Tesla’s multiple, right? They have the opportunity to go from where the GM multiple is today, which is very low, very depressed value stock, all the way up to what producing BEVs at scale is going to look like. And that’s a huge value creation opportunity. RITHOLTZ: Let’s talk about what’s going on in the world of ESG and greenwashing and wokeism. There’s so many things happening here and I think people don’t really use these buzzwords appropriately. Let’s start out with greenwashing. Tell us your view of it and why it’s problematic. GRANCIO: Well, I think if you could do everything from scratch, I get this a lot from people that run large asset management companies, they’re like, gosh, I wish I could just start everything from scratch again in this environment. So I think the reality is, if you’re running a strategy and you don’t care, or you don’t have risk metrics on, let’s say, the environment and your strategy, it’s very hard to fit them on top. And I think a lot of people get caught in that from a greenwashing perspective. What we do is we start from scratch. We think about these material impact things as financial data, and it’s just part of our process. And so there’s no greenwashing there. But for people that were investing in something and now want to take advantage of a moment in time, or people that are investing and actually don’t really understand how environmental risk factor into the portfolio, I do think you just have to take a timeout and go back to basics and better articulate what the strategy is and what you’re actually doing to the market. And if it’s not a green strategy, you kind of have to say that. RITHOLTZ: It seems like a lot of this has just been on the hot buzzword of the day. GRANCIO: Well, a lot of our society right now has been on the buzzword of the day. So I think we need to be very careful about that when it comes to investing. RITHOLTZ: So let’s talk about wokeism. You’re describing ESG as sort of a risk management tool to filter out certain potential problems down the road. But if I pick up the Wall Street Journal or the New York Post and flip it to the editorial section, all I hear is woke capitalism and this is what Disney is doing, and this is what Apple is doing, and this is what Nike is doing. Is this really woke capitalism? Tell us what’s happening in that space. GRANCIO: Yeah, I think we have to remember what capitalism is. And then I’m not sure what we mean by woke, which is part of the problem. So your capitalism is meant to be you in public markets kind of, you know, put that in the private markets as well. It’s meant to be you have a set of financial shareholders, you have other stakeholders. You’re making money for the shareholders over time. That’s the definition of capitalism. It’s really hard to make money for shareholders, the financial shareholders over time if you don’t treat your workers well or you destroy the community in which you live. That’s just kind of good business or doing business the right way. I think we sometimes get confused when we talk about values or practices, and you can’t link it directly back to financial returns. So, listen, when it comes to climate, we feel like we can do a pretty good job with the data out there, to link how a company handles climate and environment with how they perform as a stock over time. You know, there’s not enough data on the social side. The research is spotty. I really hope there’s better data. I hope the research gets better. I hope we have causality there. But I think as investors, we have to be careful what we’re talking about. If the company has less emissions, they get credit for trying to do the right thing and the stock price goes up. That’s capitalism. Where from a values-based perspective, we want to ask a company to do something, that’s a little bit different. So I think that distinction is really important. RITHOLTZ: And it’s pretty robust then on governance, if you — GRANCIO: Yes, it did. RITHOLTZ: — elevate women to senior members, if you have people on your board that are diverse. Those companies historically have outperformed the companies that have not. GRANCIO: Yeah. And the board, for a minute, is another one that’s very hard to reduce into one stat. So if you think about all the research that’s been done on boards, in Engine No. 1, we do a lot of work with academics. So we’re always trying to look for these places where we’ve got data and causality, and we can link it to economic outcomes. And when it comes to boards, what a lot of the research would tell us is if a board is deeply non-diverse, that first, if you add one diverse person or thinker, they may actually have worse performance. But if a board starts to have multiple varieties of diversity, and the board listens to the diverse points of view, those are the boards where we get the real outperformance. And then remember, it’s a board. So it’s not just diversity of thought, it has to be diversity of capability. Because as these companies go through change, you know, you need other CEOs that have been successful through change. You know, if you’re an old school media company, you need people on the board that are successful with where the puck is going. So I think we have to look for both of those kinds of diversity. And boards that listen to each other, have diversity and have that important diversity of capability, absolutely, those are going to be the highest performing ones. RITHOLTZ: So we talked about Exxon. We talked about GM, and Ford, and Tesla. What other companies are you looking at as being on the cutting edge of change to take advantage of this transitional moment? GRANCIO: Yeah. I mean, one of the things we’re excited about, I can’t talk about the product because we’re not through the SEC with it yet — RITHOLTZ: Right. GRANCIO: — although it’s in filing. But from a theme perspective, we’re super excited for the U.S., from a U.S. competitiveness perspective. What happened during COVID is supply chains were too global, too fragile, and they broke. RITHOLTZ: Right. GRANCIO: And so what we’re already seeing, and we’re going to see a lot more of this in the next few years, is we’re seeing a huge resurgence of manufacturing jobs in the U.S. and it’s going to be great for a lot of these communities. So we see semiconductor plants. We see battery plants, Michigan, Tennessee, Kentucky. RITHOLTZ: Arizona is starting a big chip — GRANCIO: — Texas. Exactly. So it’s happening already. There’s a huge increase in manufacturing. And then as that happens, if you build a manufacturing plant, there’s a huge job multiplier. You have people come in to build the plant, and people work in the plant, and people work to move goods in and out of a plant. And we’re going to see a huge growth, we believe, in railroads. So if you’re going to increase manufacturing in the North America, guess what, you don’t need to ship things overseas. You need better, more effective railroad, continuing to strengthen the lines and the movement of goods around the U.S. And then automation, so good and bad is, you know, we have less birthrate and less people coming to the U.S. And we’re going to have a huge number of quality jobs. And so companies like Rockwell Automation, that high quality jobs and brand new factories, with automation to assist in the manufacturing. It’s going to be pretty awesome from an investment team perspective. RITHOLTZ: So Rockwell just isn’t terrifying us with YouTube videos of robots that are coming to kill jobs (ph)? GRANCIO: No. The high quality blue collar, if you will, workers and all these new plants, they’re not going to be enough of them. And they’re going to be happy that robots are there to help them RITHOLTZ: Really quite interesting. So let’s talk a little bit about some of the political pushback to the sort of investing you do. Maybe Florida is the best example, passing laws to punish a specific company, Disney, who objected to Florida’s anti-LGBTQ sort of legislation. Is the environment changing for this sort of proxy voting and criticism and working with companies? Or is Florida just Florida and you know, it’s kind of a one-off? GRANCIO: Listen, I think companies have consumers. And so if I’m a company, if I’m Disney and I have consumers, and I feel like my company needs to stand for something because it allows me to serve my consumers to say my brand has value, that’s something that Disney is going to have to push for. So I think, first of all, when it comes to public companies, some of them have one audience, some of them have another audience, and they may need to behave in ways to make their audience feel good so they can be in business and sell their product. And I think, separately, if we talk about proxy voting, successful proxy votes should be economic. So back to the kind of fiduciary concept we were talking about earlier. So if a proxy vote says, you know, can you please disclose more information about your workforce? That’s helpful to investors. Great. That often makes sense to us. If the proxy vote says, I don’t like this thing you do, please don’t do it. But there’s no economic causality. RITHOLTZ: Right. GRANCIO: I think it’s hard for that to be a proxy voting issue versus a values-based conversation with the company. So our belief is proxy votes matter. We should all use our vote. But proxy voting is a tool to drive kind of long-term economic performance with companies. Sometimes there are just value-based issues that shouldn’t be tackled through proxy votes. RITHOLTZ: I know I only have you for a limited amount of time. So let’s jump to our favorite questions that we ask all of our guests starting with, tell us about your early mentors who helped to shape your career. GRANCIO: Yeah. It’s funny, I don’t have a lot of mentors where it was that one guiding light. I found that I picked up little bits and pieces from different people. So Condi Rice was a provost when I was at Stanford. RITHOLTZ: Really? GRANCIO: And so it was that inspiration that sort of sent me off down the international relations path. There was just a level of smarts and confidence that I really appreciated, that I picked up from her. And then a professor in business school who said women can definitely have it all. But you’re kidding yourself if you think you can have it all at the same time. So, like, pace yourself, Like, go after it, but pace yourself. You can’t literally do it all at the same time, which is good advice. And then I think there are a lot of people for me, where I learned one or two lessons from different people. And now, I do a lot of mentoring of other people. And that is my overarching suggestion on this is you got to ask a lot of questions. And you don’t always have to have a lifetime relationship with everyone, but get any nugget you can get and run with it. RITHOLTZ: I like it. Let’s talk about books. What are some of your favorites and what are you reading currently? GRANCIO: So Maya Angelou is actually a favorite of mine. I find it relaxing and it’s so different than what I do every day, and kind of American and lyrical. Harry Potter, one of our kids is younger, so working our way through Harry Potter. And then the Daniel Kahneman Thinking Fast and Acting Slow, I read that last year. I like that a lot because you got to remember sometimes how our brains work. And the fact that we rush to things and we shortcut, and we group things. And so I find that helpful sometimes and just being calm about how else can we solve a problem, or why is somebody reacting the way that they do. RITHOLTZ: What sort of advice would you give to a recent college graduate who is interested in a career in either impact ESG activist, whatever you want to call it, type investing, or ETF and passive investing? GRANCIO: Well, first, I’d say those are great areas to go into. You should go into it. And definitely learn how to invest, learn how to be an investor. Don’t stick to one fad or one mousetrap. If you can learn how to be an investor, or how investors think, that will serve you so well in our business. And I guess to new graduates, I would say don’t give up hope. It’s going to be a bad job market. So take those internships, be a little bit scrappy, and just learn from whatever that first job is, two years in, because you’ll pick up a phenomenal amount of information. And if it’s not what you love, great, then go do something else after it. But it’s a great place to build a career. RITHOLTZ: Really interesting. And our final question, what do you know about the world of investing today that you wish you knew 30 or so years ago? GRANCIO: I think it’s that the overall portfolio construction matters, right? So as an investor, thinking about when you build, like when we build Engine No. 1, we built products or we put strategies out into the market, the more you can make them balanced and with some duration. So if somebody puts something in the portfolio, they sort of understand what it’s going to do, and what the return stream looks like and what the risk looks like, as we’re investing and then selling to other people. I think that ability to build products that are durable, and it’s clear what they do is really, really important. It lets you build your brand. It lets you build trust with the investors. RITHOLTZ: Really interesting. Thank you, Jennifer, for being so generous with your time. We have been speaking with Jennifer Grancio. She is the CEO of Engine No. 1. If you enjoy this conversation, well, check out any of our previous 450 interviews. You can find those at iTunes, Spotify, YouTube, wherever you get your favorite podcasts. Sign up from my daily reads at ritholtz.com. You can follow me on Twitter @ritholtz. Check out all of the Bloomberg podcast @podcast. I would be remiss if I did not thank our crack team who helps put these conversations together each week. Sarah Livesey is my audio engineer. Atika Valbrun is my project manager. Sean Russo is my head of Research. Paris Wald is my producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio. END ~~~   The post Transcript: Jennifer Grancio, Engine No. 1 appeared first on The Big Picture......»»

     The transcript from this week’s, MiB: John Mack, Morgan Stanley CEO, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters… Read More The post Transcript: John Mack appeared first on The Big Picture.      The transcript from this week’s, MiB: John Mack, Morgan Stanley CEO, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, boy, do I have an extra special guest, John Mack, legendary CEO of Morgan Stanley. Man, this is just a masterclass on leadership, on team building, on understanding a business and understanding what to do for your clients. So not only that they give you business, but they give you their loyalty and their ongoing respect. I don’t know what else to say other than my conversation with Morgan Stanley’s John Mack. I’ve been looking forward to this conversation for quite a while. As soon as I saw the book came out, I have to really get the inside dope from John. And so let’s start with the beginning. You start at Smith Barney in 1968. What was so compelling about a North Carolina kid from Duke going to Wall Street? JOHN MACK, FORMER CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD, MORGAN STANLEY: Well, it’s pretty simple. So I was on scholarship at Duke, an athletic scholarship and cracked C5 in my neck. So my scholarship was only valid for four years, and I needed one class to graduate. I had very little money, and my father had passed away when I was in college. So I needed a job. And I went down and knocked on the door at a company called First Securities of North Carolina. A guy named Bill Bonner said, look, you know, nothing about the business, I’ll put you in the back office. And you can go to your one class every day ahead, and then go on your lunch hour and come back and go to work. So it was me and nine women in the back office, and they had the old IBM computer punch cards. That’s how long ago it was. So I got a sense and a feel for the business. And I got to know a lady named Fannie Mitchell, who ran job placement for Duke University. So when people would come down and say, you know, Procter & Gamble or IBM, whoever it may be, she would say, you got to talk to this John Mack. And I think, you know, I would see her in the cafeteria and most students would ignore. I’d sit down, have a cup of coffee with her or have lunch with her. So that’s how I got involved with the securities business. And then the Smith Barney was in town and they were going to open an office in Atlanta, and they ended up hiring me to go to their Atlanta office. So I come up to New York in ’68 and I’m working at Smith Barney, and they decided because of the explosion of volume, the New York Stock Exchange stopped all new branches from opening. So I got a chance to go in the municipal bond department. That’s what I did. I was a trader-salesman, and I learned a lot about risk. And I also learned a lot about drinking at lunch, and you got to be very careful. RITHOLTZ: Going out with clients, having a couple of drinks. Hey, you come back to the desk, a little buzzed, what happens? Can you make a trading mistake that way? MACK: Well, not only you can, I did. We went down to Chez Yvonne, if you remember that years ago, down on Wall Street. U.S. Trust was my client, a guy named Jimmy Degnan. And U.S Trust was the advisor for the state employees of New York, which is a huge pension fund. RITHOLTZ: Giant. MACK: So we sat there and we drank for at least three hours. RITHOLTZ: Now, wait, are you normally a drinker during lunch, or if the client is drinking, you got to keep up? MACK: I’m a client guy. No one wants to drink alone. So if he’s drinking or she’s drinking, I’m drinking. I came back and I made a mistake. And thank God, they didn’t fire me. And over time, we eradicated that and fixed it. And then I learned be very careful when you go out to lunch on Wall Street. RITHOLTZ: So tell us a little bit about the culture on the street in the late ‘60s and early ‘70s. What was it like? MACK: It was a crazy time. The thing of politically correct didn’t exist. RITHOLTZ: To say the very least. MACK: All right. So I’m 21, 22 years old. I’m at Smith Barney. I’m a municipal trader. Then I go into the corporate bond market. And I hear about these crazy parties that Wall Street was throwing and I only went to one and left. I mean, it was basically strippers and people getting drunk. And you know, I came from a town of about 12,000 people in North Carolina, a Baptist religion, mainly. It was a new world for me, but it taught me a lot. You got to pay attention and you got to make sure that you don’t get drunk at lunch and you got to make sure you tell the truth. RITHOLTZ: Telling the truth is certainly a key part, and that’s a theme that comes up again and again in your book. We’ll get to that in a little bit. You mentioned the New York Stock Exchange didn’t allow any new branches to be open. I have a vague recollection of Wall Street being closed on Wednesdays to catch up on the paperwork. Tell us a little bit about that. MACK: That’s correct. They closed on Wednesday to catch up on the paperwork, and all the firms, whether it was, first of all, Morgan Stanley, Goldman Sachs, and Morgan Stanley at that time didn’t have a big secondary business, we had to clear up the back office. So you’d shut at noon and try to figure out the securities go to Y and these securities go to Z. RITHOLTZ: Literally paper certificates, runners up and down the street — MACK: Absolutely. Absolutely. RITHOLTZ: — and delivering. MACK: Absolutely. RITHOLTZ: Talk about, you know, ancient technology. One of the things you mentioned was that by the 1980s, there were two key forces driving changes on Wall Street; deregulation and technology. MACK: Right. Correct. RITHOLTZ: Tell us about that. MACK: Well, the markets were changing, they were global. And as they became global, and you were competing around the world, it was clear that you needed to free up our securities business to be more active on a global basis. So we got rid of a lot of regulation. We got more oversight, but not regulatory control. I mean, clearly reported to the SEC, York Stock Exchange, et cetera. But it wasn’t smothering. I mean, you know, we were not used to it. But it was the right thing for the New York Stock Exchange to do. There had to be more regulation. And you know, as I said earlier, it’s a global market, and you want to make sure that we represent in New York Stock Exchange and really America the proper way, and it worked. And the U.K. was much stricter than we were; and in Germany, they restricted than we were. And clearly, the Japanese were stricter than we were. And over time, all these different regulatory areas from around the world, came up with a conclusion that we need kind of an overall management system for risk and regulatory oversight. So if you took a big risk in China, in Japan or in Europe, you needed to roll that up, so the U.S. regulator or the U.K. regulator could see what your overall risk was. I think that was a huge and a very important move. RITHOLTZ: You spent the first part of your career primarily in fixed income. First, you mentioned municipals — MACK: Right. RITHOLTZ: — then corporate. What was the appeal of the bond side of the business? MACK: Well, originally, when I joined Smith Barney, I was going to go to Atlanta in the retail office and cover Florida and other southern states. And then I got to know a guy named George Wilder who had been in the municipal bond business, and a guy named John McDougall who was a municipal bond trader. And they convinced me, you know, I want you to stay in New York, you’re a great salesman, and you can sell and trade munis with us. And I like New York and I like the business, and I like the investment world of large pension funds, money managers and things like that. So we did a combination of things, we covered clients, and then we satisfied the desire of retail salesmen who wanted to buy munis in New York state or in California or Florida. So that’s how I got into the bond business. RITHOLTZ: What was it like trying to build a team on a bond desk that described in the book, could get a little frenetic? MACK: Yeah, it was. But you know, we built it over a long period of time, and we all grew up over that period of time. And you’ve learned that, number one, you had to be upfront. You had to focus on your clients. You couldn’t get drunk at lunch, which occasionally, we all got drunk at lunch and sometimes made a mistake. And you learn to focus on your client and you know, it became a very personal business. And you got to know who they were, you got to know their families. And I remember when I was at Smith Barney and then at F.S. Smithers, I was given the worst accounts because I went from trading to sale, so we’ll dump all these accounts on John Mack. RITHOLTZ: Give it to the kid. MACK: You got it. And there was a gentleman named Dick Vanskoy at the Mellon Bank, who managed and advised the state employees of Pennsylvania teachers and retirement funds. Huge — RITHOLTZ: That’s a big account in Pennsylvania. MACK: It was huge. RITHOLTZ: Yeah. MACK: But he was tough as nails. And you learned very quickly, that you better be on your toes when you deal with Dick. And I got to know him, he was a great mentor, taught me a lot about the business. And I spent a lot of time in Pittsburgh, even to the point that my wife and I would go out. I mean, I remember going out to Pittsburgh with these huge funds, it was probably the largest account in the country, at Mellon Bank at that time. RITHOLTZ: Really? MACK: And a guy named Jackie Kugler at Salomon Brothers, and Salomon was the dominant player in the bond market. They were the number one broker-banker for the pension funds for the state of Pennsylvania, both the teachers and the employees. And I just kept digging away, working hard at it. And over time, I became the number one dealer they dealt with. And George Polachek (ph), who came over from Ukraine after the Russians back then took over in World War II, was running it. He had been at Sun Life in Canada. And I got along with him well, and I did a lot of business with the Mellon bank, to the point I became their number one broker-dealer. And Polachek (ph) who loved martinis, walked onto the Salomon floor and screamed out to Kugler, how does it feel to be number two? That’s the environment we’re in. And I’ll tell you, I mean, I think business is personal. And we got to know the people at Mellon bank, whether it was, you know, Sally Yeh’s daughter who was in med school, or George Polachek (ph) who was going back over to Europe for a while. We really worked at getting to know people and building trust. And at the end of the day, it’s all about trust and it’s all about delivering what you say you’re going to do. And with the help of a lot of people, that’s what we did. And of course, my partner in all this was Christy Mack. And as I said earlier, my clients say, look, John, we really don’t care about you. It’s on Christy, yeah. RITHOLTZ: Your wife? MACK: Yeah. No. She was awesome, and is awesome. RITHOLTZ: So you eventually become head of the Fixed Income Department. MACK: Right. RITHOLTZ: And what was it like to go from sales and trading to managing a whole team of salespeople and traders? MACK: Well, it was very different and I learned very quickly, thank God for Dick Fisher, that you have to be more balanced and not as, I don’t know what the word is, aggressive, ruthless, uncouth, all of those words. We used to sit in clusters of four salespeople together, and we probably had five clusters. And one of my rules were that the desk can never be empty, you always need one person there. Because, you know, if no one is there and the phone rings, no one is picking it up. RITHOLTZ: Right. MACK: Occasionally, you know, no one was there. And I’d walk in and be really pissed off about it, and reach over and I would just clean the desk off on the floor. RITHOLTZ: Like, wipe everything — MACK: Everything. RITHOLTZ: — onto the floor? MACK: Right. And thank God for Dick Fisher and he said, look, John, you got the biggest gun in the firm, in that division. Your job is never use your gun. So I learned a lot from him and I calm things down. I wasn’t as aggressive, wasn’t as pushy, but I was still demanding. And look, it’s a great business with great opportunities, but you got to pay attention. You got to pay attention to the people around you. You got to pay attention to your clients. And this idea of especially at Morgan Stanley, the surest way to be fired at Morgan Stanley is the word got back, you got a client laid somewhere, you’re gone. There’s no debate, no discussion. So we really focused on trying to get close to our clients, give them what they needed, introduce them to other clients that also had similar asset management responsibilities. And Morgan Stanley at that time was really growing from a pure investment bank that covered, you know, AT&T, IBM, Southern Cal, you name it, they had it, the Government of Japan. And we really worked at imbuing that culture of first class business in a first class way into the Morgan Stanley sales and trading business. RITHOLTZ: So let’s talk a little bit about some of the things you discussed in the book. You described how different Wall Street is today from when you began. Tell us a little bit about the process of finance being institutionalized, and how the culture has changed. MACK: Well, I think the biggest change is the markets became so big and global, that Wall Street had to change. So if you go back to when I started the business, basically, your client base was here in the United States. But over time, as globalization took place, your clients would be all over the world. And people were more and more focused on what are the maximum returns we can make in investing. And it got to be a 24 hours a day trading, whether you’re in China or Japan or Europe or U.S. So you had to be on your game, and you also had to be available to do business at night. And our traders oftentimes will stay up all night to satisfy inquiries coming in from China or be there early in the morning for London. So globalization was the big change, and then technology added to it. Technology allowed people to see markets and here we are at Bloomberg, they were looking at machines. They could tell you what was going on in Hong Kong or what was going on in Europe. So the markets became 24/7. And as a result, you had the staff and in my case, the fixed income division, you needed people around the world to be able to satisfy clients who are investors, and at the same time, satisfy clients who are raising money through Morgan Stanley. So if AT&T was doing a big bond deal, we want to make sure that, you know, the Japanese, the Chinese and just go around the world, the Middle East, London and back to New York, that all of our clients got a chance to see and talk to a salesman who had information about the transaction we were doing for AT&T. So globalization was the big change. Then add to that, and here we are at Bloomberg, technology. You know, when I got in the business, there was no technology. You had a little machine that would do interest rates for you. You know, you’d put in a price and it would give you what the yield is. But now, you go into Morgan Stanley, you go into JPMorgan or Goldman, it makes no difference. Every desk has a box with data and information. And if you go back when I got in the business in early, early ‘70s, matter of fact, in the late ‘60s, that didn’t exist. I mean, people would go out for lunch, and you know, take a couple hours. You didn’t miss anything. But today, you don’t leave your desk. RITHOLTZ: Right. And I’d say the very least. So you helped to build a very special culture at Morgan Stanley. What goes into building a competitive investment bank? How do you create and sustain that culture? MACK: Well, I think by and large, people who come into the business are competitive. They want to achieve and they want to do well. What I was trying to do was to take all this, I guess courage is the wrong word, this aggressiveness, this ability to build business, and how do you make it into a one firm versus the guys in San Francisco, they get an order, don’t share it with New York. If we do it, you know, we’ll get more of a commission. So what I was trying to do when I took over the fixed income division is to create a one firm entity. I call it the one-firm firm. And I brought in a guy named Tom DeLong, who I’ve met on an airplane. So Christy and I were out in Utah, we were looking at buying a house because we started picking up skiing. And by the way, I’m a terrible skier. So I’m talking to this guy on the plane and I said to him, what do you do? And he said, I’m a professor at BYU, and I’m coming back to talk to AT&T, their management group about, you know, managing people and evaluations, et cetera. And I said, well, look, I’d like you to come in and see me when you have time. I’d like to talk to you. So Tom comes in. And by the way, now, Tom is a professor at Harvard University. So Tom comes in and he interviews my senior group. And he comes in, he said, well, here’s what people think, to get ahead at this division, they have to be your friends. RITHOLTZ: FOJ. MACK: Exactly. That’s right. And if they’re not your friend, they don’t make it. And he said, that may not be reality, but that’s what they all believe. RITHOLTZ: That’s the perception. MACK: So he said, what you should do is set up an independent group of people. Let them make a presentation to you of the talent that should be promoted. And you know, if you have a strong objection, you can say that, but by and large, you should accept what they put in front of you. So that’s exactly what they did. They took me picking who’s going to be promoted. And there was a promotion committee, and also a compensation committee. And then they would come to me and make recommendations. And so you didn’t favor one person, you had somewhere between four and eight people on these committees. And when they brought it to me, unless I had something very specific that I’d say, well, let me tell you why I disagree, I accepted the recommendation. And that move really changed the culture of the division, and it came into, you know, you don’t have to be Max’s friend (ph) or anyone else. It’s about being professional, direct and honest. And your peers would do the evaluation on how you’re doing, what you’re doing and what you should be doing. RITHOLTZ: This is the full 360 review. MACK: Exactly. RITHOLTZ: And the peers would also anonymously review their managers. MACK: Absolutely. RITHOLTZ: And what was the results from those sorts of things? MACK: Well, in some cases, we found that managers were not setting the right tone as far as being energetic and working with them. They were reluctant, oftentimes, to go out with salesmen and help them entertain with clients or spend time with clients. So it really put more pressure on managers to be involved and not just sit in an office or on a trading desk at the far end, and just, you know, take advantage of people working hard, but they’re not involved. So we got more involved. And it also got us to eliminate some of the managers. When you saw these 360 reviews and some of the data, and then you would dive into it and find out they’re right, we’re not going to have people like that at this firm. So not a lot of reduction at headcounts, but a few people we asked to leave. RITHOLTZ: And you talked about the willingness of senior management to assist with clients. You seemed to be ready to jump on a plane to go anywhere in the world, China, to Tokyo. It didn’t matter if you could help close a deal. You were there. MACK: That’s true. I mean, number one, I love the business. I mean, to go to China and build the relationships we built in China, or go to Europe, it didn’t make any difference where I went. I love the business. And you know, China was just opening up. And one of the guys who used to be at the World Bank said, you know, John, what China really needs, I think it was Ed Lim, it needs an investment bank. So we formed a small investment bank owned mainly by the Chinese, but Morgan Stanley on 30% of it. And we built a securities business with the Chinese in China. And Wang Qishan, who was the Vice Premier, he was the gentleman I worked with. And it took a lot of time, but the Chinese wanted create their own capital markets. They wanted to be independent, and they wanted the ability to go around the world and raise money, because we do in any American investment bank. And I’ll tell you one of the things that really touched me. We’re talking about China, but let’s say China Communist. We’re talking about diehard communists. Wang Qishan who was running the central bank at that time, and then he was given the responsibility by Zhu Rongji to build a securities business. And I’m working with him to do this joint venture and he flies over to New York, and we’re sitting in my office on whatever floor at Morgan Stanley. And we’re there for about an hour and a half, we’re making zero progress. We’re not getting anywhere. And I’ve been in Europe with him and talked to him over there. We were making progress there. And now here he is in New York and there’s like a big heavy stone on him. I looked at him and I finally figured out he’s a chain smoker. I said Qishan, light him up. He said, I can’t do that. I said, what do you mean you can’t do that? He said, in New York, you can’t smoke inside. I said, in my office, you can do anything you want. Light him up. And he smoked Luckys. Can you imagine smoking Luckys? He smoked Luckys, he lit up, we got the deal done. RITHOLTZ: No filter, right? MACK: No filter. We got the deal done. And I keep reflecting back, you got to pay attention to the person who’s in the room with you. RITHOLTZ: But I’m impressed that he knows the local rules and customs in New York. MACK: Yeah. Very respectful. RITHOLTZ: That’s really impressive. So you open this joint venture in China. Is Morgan Stanley the first U.S. Bank to open a joint venture in China? MACK: It was. I know the U.K. banks, Hong Kong bank out of a U.K. ownership. But we were the first bank. But you know, I’m sure JPMorgan had some kind of outlet there, but more for banking and taking deposits and doing traditional banking business. But from a trading point of view, securities business, thanks to Ed Lim, who as I said, worked at the UN said, you know, China really needs capital markets and this investment banking business. And with his help, we started a small investment bank there which continued to grow. RITHOLTZ: So not just the division in China grew, but all of Morgan Stanley grew. And eventually, you came to realize, hey, we have all this investment banking and trading experience, but we don’t have a retail force, the way somebody like Merrill Lynch does. And lo and behold, along comes Dean Witter — MACK: Right. RITHOLTZ: — potentially a great merger candidate. Tell us a little bit about why that seemed like a good idea at that time. MACK: Sure. Well, what we saw in Merrill Lynch, which traditionally had been a pure retail firm, because of their huge network, number one, they had better information not only from what’s going on in the retail market, but also from institutions. You know, if you were in Des Moines in Iowa, and you knew the local president of the First Bank of Iowa, you got better information. And if they were going to buy Treasury securities, or municipals, you got that order. So we saw that we were getting limited information. And then Sears, who had bought Dean Witter. I think it was Ed Brennan and Phil Purcell had been a management consultant I think from McKinsey, but not sure of that. And he convinced Brennan that, you know, if you really are going to be in retail, you have Sears stores everywhere. Every city of 100,000 people, there was a Sears store. And he said, you know, we ought to open up Dean Witter offices in all these Sears stores, and that’s what they did. And it grew and grew. And then they came to the point that Purcell convinced Sears, let’s spin it out and take this company public. So Morgan Stanley was chosen to be the lead underwriter on the spin-out of Dean Witter from Sears. So Dick Fisher calls me and I meet Purcell, who I liked, and I looked at their business and the information they were getting from clients versus what we were getting. And they were in every, well, how many Sears stores are there? They were everywhere. RITHOLTZ: At their peak, I think there were like 3,000 something. MACK: Yeah. So they had better information. RITHOLTZ: Yeah. MACK: So, you know, we talked and talked. And finally, we came to the conclusion on a handshake to do the deal. Sears and Dean Witter was much larger in market cap than Morgan Stanley. So it was agreed upon, and he wouldn’t do it without being the CEO. And we had a couple of dinners in New York with Dick Fisher and him, Ed Brennan. And to get the deal done, he had to be the CEO. So Fisher says to me in a private meeting in his office, I’m not going to let you do this trip or do this management training. I said, well, Dick, at that point, it’s not our firm, it’s shareholders’ firm. And for me to say that to Dick Fisher was kind of ridiculous because he was always teaching me about the business. And he was a wonderful man and a smart man. So I said, look, this is what makes sense for shareholders. I’ll take the number two job. Phil is a good guy. I’ll get along with him. And let’s do this merger. And we did. And what we also inherited when we did that merger was Discover card. RITHOLTZ: Which was also a money machine. MACK: It was a money machine. But you know, we clashed, and we clashed in the sense, like I said I think earlier, if I were out in Sacramento, seeing the state funds of California, and I had an extra hour, I would drop by, you know, the local office, the Morgan Stanley Dean Witter office, and go and talk to a salesman. And clearly, you know, salesmen who are on commission, by and large, do a good job, but always have complaints. And I heard the complaints and I came back and I talked to the manager of all retail, and I talked to Purcell. And then Purcell said to me, you know, John, you can’t do that. I said, what do you mean I can’t do that? You can’t just drop into office and talk to them. I said, well, last time I checked, you know, you’re the CEO, but I’m president of the firm. I’m in Sacramento, seeing Safeway stores, and you’re telling me I can’t go into the office and talk to them? He said, well, you know, Ed Brennan would never do that at Sears. And I said, you know, this is not serious. And so right then, we knew we had an issue. RITHOLTZ: Right. He was very risk averse and you were very hands-on. MACK: Right. RITHOLTZ: It seems like from day one, a clash of the Titans was teeing up. MACK: Yeah. But not from day one. I mean, look, they had built a great business in retail, Dean Witter. They had brokers all over the country doing business. They didn’t have an international business. I think they thought international was going to Canada. It was just two different cultures. And no one challenged or spoke up either to a guy named Jimmy who ran the retail business or, clearly, Purcell who ran both retail institution and the credit card business. And my view at Morgan Stanley and I did this with Dick Jake Fisher, and people did it with me. In my office, I don’t care what you say to me. I want to hear it and it didn’t matter whether you didn’t do that. And that was the big cultural change. RITHOLTZ: So given the sort of head to head in terms of culture, Purcell’s team, at least for a while, seem to have won. You eventually came to realize he was reducing your authority — MACK: Right. RITHOLTZ: — step by step. And at a certain point, you’re like, I don’t want to just be a figurehead. MACK: Right. RITHOLTZ: And so you resigned. MACK: Right. RITHOLTZ: Tell us what that was like too, you’d been at Morgan Stanley for quite a while. MACK: Yeah. Well, it was difficult, but I couldn’t stay there under a philosophy or a management style where you’re not allowed to go to your boss and tell them, you know, I think you’re a jerk. And I had a number of people say that to me and I didn’t get even with them. I just changed some of the things. Sometimes they were right. I wasn’t sure. It’s just two different cultures. I mean, Morgan Stanley built its business on telling clients exactly what they thought. They didn’t sugarcoat it. They didn’t try to say, you know, maybe a little this, a little that. They told the client, these are the issues. And that’s the way I grew up, and that’s the way Dick Fisher was. So as much as I tried to change, I was miserable. I couldn’t do it. And he put me in charge of the retail system, but everything was bounced through him before I could make any decisions. Look, it’s their style, it had been successful. The retail business was important to the firm. And by putting retail and institution together, we had tremendous clout. But from a managerial point of view, it’s not the culture I wanted to be in. RITHOLTZ: Let’s talk a little bit about a period where you were just bored golfing. You leave Morgan Stanley. You’re really not sure what the next chapter in your life is going to be. And then you get a phone call about the mess that was Credit Suisse. MACK: Right. RITHOLTZ: What made you attracted to coming in and trying to clean up Credit Suisse First Boston? MACK: Well, I got a call from Lionel Pincus and I assume — RITHOLTZ: From Warburg Pincus? MACK: Right. They had a big investment with the Swiss and they were not happy with what was going on. So I met with him, and I met other people in the management of Credit Suisse. And I said to Christy, I would rather do this job and regret it than not do this job and regret it. So that’s how I made the decision. RITHOLTZ: Regret minimization framework. MACK: Exactly. RITHOLTZ: A good way to think about it. We should talk more about your wife because it seems like she regularly gives you good advice and send you off to apologize for something you said. MACK: That’s true. RITHOLTZ: And you talk about that in the book. We’ll circle back to that later. So I’m amused by the headline, Wall Street Fears Big Mack Attack. What was the expectation post Morgan Stanley? What did the street think you’re going to come in and do with Credit Suisse? MACK: Well, in Morgan Stanley when I thought, especially in the fixed income division and at that time, it’s the only thing I ran, that we were too fat. You know, we need to do a reduction. So I did and — RITHOLTZ: And this isn’t just headcount. You described some pretty egregious spending — MACK: Oh, yeah. RITHOLTZ: — going on at Credit Suisse. MACK: Yeah. Well, it was totally out of control. And you know, the Swiss were kind of absentee landlords. And they were used to getting all this money in a Swiss bank account and a lot of money coming in, I assume, from other parts of the world. So it was pretty easy when I got there, that we had to do some headcount reduction. When I got there, through my bankers who had worked for me at Morgan Stanley, who were big in technology, Frank Quattrone — RITHOLTZ: Sure. Giant. MACK: — and his team. And when I saw what kind of money they were making, it was mind-boggling. So I flew out to see them and I said, look, guys, I’ll pay you a lot of money. There’s no question about that. But what you’re doing, and the amount of money you’re making now versus the rest of the firm, and using the balance sheet in the firm is unacceptable. So we’re going to have to figure out a way. I want you to make a lot of money. I think it’s a great motivator. But this is totally out of control. And I wish I could remember exactly some of the numbers, but they were numbers like I’d never seen before. RITHOLTZ: It was order of magnitudes larger than the rest of the street? MACK: It’s big. They got a piece of every deal. They did. RITHOLTZ: Personally? MACK: Personally. So you know, one of them says, you know, John, this is in our contract. But I think this compensation is way out of kilter. And just to add a little color to this, when I said to them I want to come out and I want you to come to New York, and we got to talk about these contracts. And this is after 9/11. And they say, well, we’re afraid to do that. I said, well, tell me why. Well, after 9/11, we don’t go to New York. I said, okay, pick a city, I’ll meet you in the city. So I met them in Denver. When I think about that, how absurd that is. So I flew out to Denver, and I took Steve Volk who had been at Shearman & Sterling as the lead lawyer, lead partner. He had joined me to help clean up Credit Suisse. So I sit with George Boutros, Quattrone and I think a guy named Brady, and I said, look, I want you to make a lot of money. I don’t have any issue with that. But this is craziness and I can’t do that. And they said, well, look, it may be craziness, but that’s our contract. I said, it may be your contract and I’ll see you in court and we’ll fight it out. And I gave up the contracts, but I still paid them a lot of money. But you can’t create a culture when you have one-offs doing whatever they want to do. RITHOLTZ: You described it as anyone with a personal fiefdom is a terrible idea for a firm. MACK: Absolutely. And they’re good. They were smart. You would like a room full of Frank Quattrones. But you got to be managed and you got to be a team player. RITHOLTZ: So someone said to you around this time, hey, we’ve given up a lot of money. What about you, John, what have you given up? MACK: Yeah. RITHOLTZ: And what was your response? MACK: I gave up the contract. RITHOLTZ: So you gave up about a third of your salary? MACK: Yeah, I did. RITHOLTZ: That’s a big chunk of cash. MACK: But if you’re going to ask people to give up their contract, you can’t be different than them. This term that I run from Tom DeLong, it’s a one-firm firm, we all have to be in it together. So for me to keep the contract, it’s just not the right thing to do. And also, I learned so much from Dick Fisher. I’m looking way down the road. I’m not looking about what’s going to happen next week or two weeks from now. RITHOLTZ: Well, that’s a good strategy in investing to say the very least. You wrote in the book, the Swiss and Swiss bankers were unlike any other bankers you work with in the U.K., in China, in Japan. What made the Swiss so much of a one-off? MACK: Well, they were very independent. They had a lock on certain clients, whether it was leaders out of the Middle East or oligarchs in Russia, they got a lot of money coming in because they were Swiss. They had a great franchise, and they really lived off their private banking business. And in their investment banking business, they had a guy who was very talented, very smart named Allen Wheat and they had other people that come in. But everyone was running it for their own return into their own pocket. And so when I got there, I cut commissions. I got Frank and his guys to give up some of their money. And someone said, you know, we’re cutting commissions and getting less. Will you give up your contract? And I did. So it just wasn’t being managed. And the Swiss, you know, they make a lot of money because they get money from all the places that maybe JPMorgan and others wouldn’t take. They did a lot of investing with that money. They got to carry on some of it. It’s a great system for running a very profitable business. But the world was changing, and disclosure was becoming more and more open. People want to know, you know, who has the money, where’s it going, how’s money being transferred. And we finally got that to start moving and changing in Switzerland. And I was pretty tough on them. And of course, they thought I was the most arrogant person they ever met, and I thought they were the dumbest people I’ve ever met so — RITHOLTZ: In the book, you described actually saying that to their face. MACK: I did. RITHOLTZ: Given how secretive they are and how less than team focus they were, you knew this match wasn’t going to last forever. How long did you last at Credit Suisse? MACK: I think I lasted at least two years, maybe three. RITHOLTZ: Long enough to start showing a profit in the firm. MACK: Oh, yeah. We started making money. It was great. I mean, I remember the Olayan Group out of the Middle East said to me, and they were a huge investor in Credit Suisse, John, you’ve done a great job. We’re finally making money again. But I can’t take people telling me, you know, you don’t have access for this, you don’t have access for that. My view, which drove him crazy, was to open up their vault and let the European Jews come in and say how much money Credit Suisse took when World War II started. RITHOLTZ: Right. MACK: You know, how about the paintings they had? What’s a bank doing with a Renoir in a safe? RITHOLTZ: What was the response to that? MACK: They didn’t like it. RITHOLTZ: Yeah. I can imagine. MACK: Yeah. RITHOLTZ: So you ended up leaving Credit Suisse not long after. MACK: Well, they wouldn’t renew my contract. RITHOLTZ: Right. So it wasn’t like you were out and then fired. It was after your contract ended. MACK: No, I was fired. RITHOLTZ: So non-renewal and what was the firing like? Tell us a little bit about that. Was it relatively polite and pleasant? The Swiss, they’re not quite German, they’re not quite French, their customs are a little bit different than the rest of Europe. MACK: Well, when I went to Credit Suisse, they said that I could pick someone that I liked and trusted, a friend to go on the board. And I asked a guy named Tom Bell, who’s a close friend of mine, he used to run Y&R advertising agency, and then he ran Cousins Properties in Atlanta, to go on the board. Then he called me after their meeting and said, John, be prepared, they’re going to fire you tomorrow. I said, well, thanks for heads-up. So I went in, they fired me. And I sat and I said, you know, Walter, what do you think of this? Trying to get them to talk, but they didn’t want any part of talking. And look, you know, I don’t have any issue with the firm. I guess you could say I was aggressive or obnoxious, one or the other. But we turned the place around. RITHOLTZ: Right. MACK: We started making money. But, look, I don’t think in general, we have to ask my friends and people who know me. I don’t think I’m arrogant. But clearly, I came across as arrogant know-it-all. And they shot me so, you know — RITHOLTZ: But you had done a good job there. Let’s talk a bit about Mack the Knife, right? MACK: Right. RITHOLTZ: So there’s Chainsaw Al, there’s Neutron Jack. I don’t get the sense that you were as blase about having to reduce headcounts as some other CEOs were. MACK: Yeah. RITHOLTZ: It struck me that Mack the Knife sort of rankled you a little bit, at least that’s how it comes across in the book. MACK: Yeah. I didn’t mind it. I mean, being known as Mack the Knife, it kind of built a reputation for me. I’d go to a bar somewhere, I’d go to Christmas party with a lot of Wall Street guys, and invariably, someone would be pointing and says Mack the Knife. RITHOLTZ: Right. MACK: I have an ego. I like that. I am Mack the Knife. RITHOLTZ: That’s pretty good. So now, you get fired at Credit Suisse. MACK: Yeah. RITHOLTZ: And meanwhile, Morgan Stanley run by the somewhat risk averse, Phil Purcell, starts falling behind all their competitors. MACK: Right. RITHOLTZ: And lo and behold, there is an agitation to have some change — MACK: Right. RITHOLTZ: — at Morgan Stanley Dean Witter. Tell us what happens next. MACK: Well, I’m at Pequot which is a hedge fund with — RITHOLTZ: Art Samberg. MACK: — Art Samberg and having a good time. And Morgan Stanley is falling on. And then Parker Gilbert, who had been the chairman of the firm, and I think going all the way back, his stepfather was one of the original partners. And JPMorgan spun out and started Morgans — RITHOLTZ: Wasn’t he related to Henry Morgan also? I mean — MACK: That I don’t know. I don’t think so, but I don’t know that. Charles Morgan was related to Henry Morgan, who was not on the Management Committee, but there was a relationship going all the way back to the Morgans. So Parker got together with a number of retired partners who own a tremendous amount of Morgan Stanley/Dean Witter stock now. And they went on a campaign to force personnel out, and at the end of the day, they were successful. RITHOLTZ: And you get the phone call? MACK: Yeah. RITHOLTZ: You, again, briefly thought about it. What did your wife say to you? MACK: Well, she said I had to do it. She said, John, that firm is part of you and you’ve done so much. You got to go back and do this. RITHOLTZ: So that you return. MACK: Right. RITHOLTZ: Your first day of work, you walked into the trading room to deliver just, hey, I’m back. What is that experience like? MACK: Well, I think Christy, who’s my wife, would say, other than having our kids, it was the happiest moment of her life. She would say that, John, we grew up at Morgan Stanley. We knew the culture. And to come back, and to have people just running to get to the door to welcome us in, it was emotional. I guess a lot of it is just the circumstances. They hadn’t been managed the way I think they should have been managed. They didn’t have a connection with the leadership of the firm. They had become risk averse. And it was no longer, you know, the sense of you do well, you get rewarded. So the meritocracy thing had just dissipated away. So to walk in and have people scrambling to, you know, get to see me or — RITHOLTZ: Had it felt good? MACK: Yeah, it did. It did good. And I’ll never forget when I got up into the auditorium to talk to people and I said, you know, I always wanted to see all of you again, but I never thought I would see you by coming back in here, back to Morgan Stanley and doing it. But it was a thrill. I mean, you know, you don’t get many chances to redo, or recorrect, or change what had happened and go back the way it was. And we were able to do that, and it was a high. And you know, I get Christy and hear me. To her, as I said, other than the kids, that was the highlight of our marriage. So I got to work on it and do some other things. RITHOLTZ: And I mentioned when you first came in, and I’m sure you don’t remember this, the day you were brought in, you were doing a media tour. And I have a vivid recollection of sitting in a makeup chair in the greenroom at CNBC. MACK: CNBC. RITHOLTZ: And you and some other people blow in, hi, I’m John Mack. MACK: Right. RITHOLTZ: Hi. Nice to meet you. What was that about? I asked and someone said, oh, that’s John Mack. He just came back to run Morgan Stanley. I’m like, oh, isn’t that great? And that was, I don’t know, was it ’05? It’s like 15, 17 years ago? MACK: Yeah, something like that. Yes. RITHOLTZ: Yeah. Really, really fascinating. And you very quickly rebuilt the firm’s culture. Tell us what you did to bring back the one-firm firm — MACK: Sure. RITHOLTZ: — and the meritocracy. How did you get Morgan Stanley back on the straight and narrow again? MACK: Well, number one, you had to return it to meritocracy. And we had a lot of meetings either in big groups, small groups. Christy and I, one of the things we did early on, if there was a golf outing at Morgan Stanley with clients, if you went out, it’d be all men. And occasionally, there’d be one woman who played golf. So Christy and I said, well, let’s do things. I want women to be in charge of entertaining them than doing their own golf outings. So we got David Ledbetter and his guys come in, and we did golf lessons up in Purchase, New York for our women professionals. And then we took them down to North Carolina six or seven months later, at a club we belonged to called Landfall and we had, you know, the golf teachers come up and work with them. And the beauty of it is now the women have their own golf outing women-only, which I think is terrific. So what we tried to do is pull people together and talk about how do you make this a great firm again, because the roots are there, the bones are there. And it was about reaching out and bringing people together, and working for our clients and making sure that we treated people fairly. RITHOLTZ: So there’s a quote of yours in the book that I found fascinating. You wrote, certain risk-taking behavior multiplied exponentially when investment banks were converted from partnerships to publicly traded companies. I couldn’t agree more. MACK: Right. RITHOLTZ: Tell us your thoughts. MACK: Well, the thought was when it was a partner’s money, they were much more conservative. RITHOLTZ: They were literally joint in several liabilities, literally on the hook — MACK: Absolutely. RITHOLTZ: — if the firm lost money. That’s got to focus your attention. MACK: Oh, it does. And depending on where you were, which firm, but the culture, Morgan Stanley had been a pure investment bank, and they really didn’t have sales and trading either in equities or in fixed income. But what became apparent that firms like Salomon Brothers, were making huge inroads because Jackie Kugler at Salomon could call the CFO at IBM or AT&T and say, hear what pension funds are thinking and doing with your stock. We think there’s an opportunity you could float $100 million equity deal or bond deal. They had better information. And Morgan Stanley didn’t have that sales and trading business. We were not talking to portfolio managers as traders. We were talking to them as we’re pricing AT&T at 7-1As (ph). How many do you want? That’s the way it worked. But other firms, including Goldman Sachs, they were a two-way shop. They were buying and selling debt and equities with pension funds, and get a lot of information. What were they looking for? And what were they doing? And then you take that back and you show it to New Jersey Bell Telephone or you show it to, you know, AT&T or IBM. You’re bringing that CFO or that treasurer more information, so he can figure out what’s the next move for AT&T or Southern Bell? RITHOLTZ: So was it inevitable that these firms had to go public just so they had access to those pools of capital to expand into trading and underwriting and everything else? MACK: Yeah, because at the end of the day, the risk component went up dramatically. And you know, if you go through the crisis, probably if you were not a public company, you’d have wiped out the partnership. So you needed to have a strong base of capital and selling equity, and being in the public market gave you that. It also gave you the liquidity to go in the market to raise more equity if you need it, or do a bond do. RITHOLTZ: I used to think, hey, big mistake going from partnership to public — MACK: Right. RITHOLTZ: — because of the change in risk profile. But it sort of sounds like it was inevitable that all these partnerships would eventually go public. MACK: Yeah. Well, you know, what’s interesting, if you look at Lazard, they still do business. It was truncated. It’s not what it used to be. If you’re a CFO or a CEO, you want to know what are the hedge funds doing? State of California, State of New York, big pools of money in their pension funds, what are they thinking? What do they need? You want that kind of data. You want to know what are investors looking for? And I think, you know, if you look back, and it was difficult, we went through a hard time. The Dean Witter merger really changed the firm. Now, you had unbelievable banking, with the retail. And the amount of information that you could bring to a CEO or CFO about markets and then the distribution network you now had was a huge advantage. And I think that’s one of the reasons Morgan Stanley has done so well. RITHOLTZ: Really interesting. We’ll talk about books in a little while, but you seem to throughout your book, quote Ron Chernow’s House of Morgan a lot. MACK: Right. RITHOLTZ: How helpful was that in doing your research to write this? MACK: Well, I had read the book years ago, so I didn’t do a lot of work to dig down. So I would say very little. RITHOLTZ: Oh, really? MACK: Yeah. RITHOLTZ: Because he just goes berserk on the research side. MACK: That’s right. RITHOLTZ: Everything he does is so deeply and richly researched. MACK: He was never a bond salesman like me. RITHOLTZ: Well, you were actually on the inside, so it’s a little different. One of the other things you wrote was everybody got the financial crisis wrong. And in the run-up to it, people just didn’t expect the bottom draw (ph) out that much. Tell us a little bit about what took place with Morgan Stanley, leading up to the financial crisis? MACK: Well, number one, we had too much risk. There was no question about that. But we were not alone. And we did not have a fortress balance sheet like a JPMorgan would have or even a Citibank. You know, no one knows when the bullets come in, but the bullet came and shot a lot of us. And a lot of these companies either merged or went out of business. And all I can say is thank God for the Japanese and what they did. I mean, that was the lifesaver. They got us through. RITHOLTZ: Thank you, Mitsubishi with Morgan Stanley. MACK: Yeah. And as I said to you earlier, they remembered our culture because we would always have Japanese trainees. And they stood up, and that’s what saved us. RITHOLTZ: So you tell a story in the book, you have Hank Paulson, Ben Bernanke, and Tim Geithner coming to you to say, hey, you guys have to find a merger partner. MACK: Right. RITHOLTZ: And the response is we have $180 billion in capital. This is going to be a painful period, but we’ll survive. MACK: Right. RITHOLTZ: What was their response? MACK: They didn’t care. RITHOLTZ: Didn’t care? MACK: No. RITHOLTZ: Get more capital. MACK: Absolutely. RITHOLTZ: So you reach out to Bank of Mitsubishi. MACK: Right. RITHOLTZ: And you’re waiting for the term sheet to come in. MACK: Right. RITHOLTZ: And it’s midnight, and it’s 2:00, and it’s 4:00 a.m. It’s 6:00 a.m. And then Tim Geithner calls, and then Hank Paulson calls, and then a third time, Tim Geithner calls. What happens next? MACK: Well, what happens, the check flew in to Boston, and we had to send one of our bankers up to pick up the check and fly back. So he was at home. It’s over the weekend. And he went up in his dungarees and running shoes, and picked up a check for, I don’t know, a billion some, and brought it down. I got a copy of it framed in my office back at the townhouse. The Japanese saved us. They saved us because they remember our culture. And we used to train tons of Japanese bankers at Morgan Stanley. RITHOLTZ: So you’re waiting for the final word from Bank of Mitsubishi. MACK: Right. RITHOLTZ: I think you know where I’m going. MACK: Yeah. RITHOLTZ: And now, Geithner calls for the umpteenth time and your secretary pokes her head and then says, it was the head of New York Fed — MACK: Of New York Fed. Right. RITHOLTZ: — Tim Geithner and he’s insistent. MACK: Right. RITHOLTZ: And you basically said, we’re going to figure this out ourselves. MACK: Yeah. RITHOLTZ: And you did. MACK: And we did. Yeah. RITHOLTZ: And what’s your relationship with Tim now? MACK: I liked him. RITHOLTZ: Yeah. MACK: I mean, listen, to me, I hope it’s not personal to him. And the point was I’m trying to save the firm. I can’t take all these calls when I’m talking to the Japanese. So you know, we’re under the gun. He’s a decent guy. But he had his job to do and I had my job to do. And at the end of the day, it worked. RITHOLTZ: And in fact, the Treasury Department taps Morgan Stanley to help with the AIG bailout. MACK: Yeah, they did. RITHOLTZ: So that was a good working relationship. You actually had a good relationship with Hank Paulson — MACK: Yeah. RITHOLTZ: — from when he was CEO of Goldman. MACK: Yeah, he’s the best. Well, look, he’s honest. He’s smart. He’s straightforward. He gets things done. I have a lot of respect for Hank Paulson. RITHOLTZ: Before we get to our favorite questions, there were a couple of little curveballs I wanted to throw you. There’s a story in the book, you talked about somebody who you go to, who you know is a giant Duke basketball fan. And you asked him to give up part of his bonus, as you were doing. MACK: Right. RITHOLTZ: And very begrudgingly, he did it for the team. MACK: Right. RITHOLTZ: And then you get Coach K involved. Tell us that story. It’s charming. MACK: Well, he was a huge fan of Duke and I needed him onboard with what I was trying to do. And he gave up some power and money to accommodate me. And Mike Krzyzewski is a good friend of mine, a close friend of mine. So I called Coach K and I said, Mike, do me a favor. Will you call this gentleman and just tell him how much I appreciate what he’s done and that you are happy that you helped my friend John Mack out? So Mike calls the guy and he said, look, I want to tell you what you did is really something. John Mack is, he didn’t call me an a-hole, he said John Mack is a selfish tough guy, and what you did just warmed his heart. And I want to thank you because he’s my friend. The salesman was on cloud nine. RITHOLTZ: I can imagine. And then another curveball I got to ask you — MACK: Sure. RITHOLTZ: — you once stole Barton Biggs’ car. MACK: We hid it. His car was a dump. RITHOLTZ: Right. It was a clunker. He had a broken rear window. MACK: Yeah. RITHOLTZ: He just taped it off. He didn’t even replace the window. MACK: Yeah, we hid the car and he was like — RITHOLTZ: And then you had a make-believe sheriff from North Carolina call him? MACK: Right. Yeah. RITHOLTZ: And what was his reaction? MACK: Well, he laughed at the end, but he had no idea what was going on. And Bart is a wonderful man, but he is a good guy to pull pranks on. So what I’ve learned in pulling pranks — RITHOLTZ: Of which there are numerous examples in the book. MACK: But here’s what I’ve learned, though. When the prank is on you, laugh. Because everyone is trying to get me in one way or another. RITHOLTZ: Very, very funny. So we only have a few minutes left. MACK: Sure. RITHOLTZ: Let me jump to some of my favorite questions that we ask all of our guests. Tell us about your early mentors who helped to shape your career. MACK: Number one, Dick Fisher, just hands down. He would call me and say, look, John, you got to do this. I know you’re aggressive. You’re a great salesman. You can’t manage people and try to threaten them and scare them. You got to ease up. So he did that. Also, I could go to him if I had a problem, a question. So he was without question, my best mentor. And the other person is not that she mentored me, she’s my wife. She’ll say, John, you know, you want to reach out to that person and you know their kid is sick. You got him into Children’s Hospital, the Morgan Stanley Children’s Hospital. So she’s been a wonderful partner in telling me, you know, you’re being a little too aggressive, back down. And I think she’s right, I have softened up. Yeah, I think I have softened up. And that’s another thing. Morgan Stanley got behind us and we built this Children’s Hospital, which the employees love. They go up there on the weekends, and they read stories to kids. RITHOLTZ: Wow. MACK: That’s how you build a culture, that you do things like that. And I’m trying to thank Frank Bennack who’s at Hearst Corporation. He said to me he thought that was the best sign of corporate philanthropy he’s ever seen. So if some time you’re up near New York Presbyterian Uptown, if you go into the Children’s Hospital, Morgan Stanley Children’s, you’ll see on the wall that Morgan Stanley gave a lot of money. And then you’ll see names of hedge funds and other clients, when they heard what we’re doing, they gave money. And you know, New York is huge. You got, you know, the Philadelphia Children’s Hospital. You got them in Boston. New York City didn’t have a standalone children’s hospital. And our employees will go up there now and read books to the kids on the weekend sometimes. RITHOLTZ: Wow. MACK: It is a wonderful thing we did. We’re really, really happy with it. RITHOLTZ: You should be very proud of that. You mentioned books. Let’s talk about some of your favorites and what are you reading currently. MACK: Well, actually, I just read my book again. My favorite book all-time is Gone with the Wind. Can you believe that? RITHOLTZ: That’s a big book, right? MACK: It is a big book. So I’m taking history of the south at Duke University. And one of the things you had to do, you had to read 50 pages every other day about a history or something with a sound. So I picked up Gone with the Wind. I didn’t put it down until I finished it. RITHOLTZ: Really? Wow. MACK: If you haven’t read it, you got to read it. RITHOLTZ: Seen the movie, never read the book. MACK: The book is awesome. RITHOLTZ: Really? MACK: It’s just awesome. So — RITHOLTZ: What sort of advice would you give to a recent college graduate who is interested in a career in finance or investing? MACK: Well, number one, you have to pursue it. You got to get in the door. Hopefully, you have a background that will help you. If your education, let’s say you’re a history major, I was a history major. If your education doesn’t put you naturally into that glide path, then take courses and get into that glide path. Go to school at night, get your MBA, that helps. But more importantly, figure out how do you get to know people within that company. Make sure your job you have now, you’ve performed well in it. And get to know people in the company and get introduced by them to the head of a division or department. But you can get in it. I mean, there’s a lot of ways to get in this business. And one way of doing it, go work for JPMorgan, their asset management business. Go work for a hedge fund. Go work for a lot of people who are in the business and learn kind of the day-to-day sales and training business. And if you want to be an M&A specialist, my advice is you need to have a degree in accounting or an MBA where you can really zero in and have the training that you need to do and do that. You can do that business. If you didn’t have any experience, if they give you a chance, my point is you got to give them enough information that they want to give you a chance. And the way you do that is do extra work, or work for a hedge fund, or work for, you know, whoever it may be and you’ll get that shot. RITHOLTZ: And our last question, what do you know about the world of investing today that you wish you knew 50 years or so ago, when you were first getting started? MACK: That great companies that you invest in, you should hold. And I always was looking for the profit and I made money on it. But some of these companies, well, take Apple Computer. RITHOLTZ: Perfect example. MACK: I’ll give you a great example. My son, 11 years old, Morgan Stanley takes Apple public. I buy him a computer. He says, dad, this is a great company, I want to buy stock in it. And he’s like 11 or 12 years old, and he buys shares on it. I think that small purchase is well worth over a couple million dollars when he did. RITHOLTZ: Wow. MACK: So he understood great companies and his father did. You hold them. He’s never sold a share. RITHOLTZ: Wow. MACK: And it’s just been a home run. So I believe — RITHOLTZ: Well, dad is a trader. The son is an investor. MACK: An investor. That’s right. A smart investor. So I believe you buy great companies and hold them, and that’s what we do now. We have a family office that helps me, we work with them. And we still meet and talk to a lot of investors. RITHOLTZ: Quite fascinating. John, thank you for being so generous with your time. We have been speaking with John Mack, former CEO of Morgan Stanley, and author of the fascinating book Up Close and All In: Life and Leadership Lessons really from a Wall Street Warrior. If you enjoy this conversation, well, be sure and check out any of our previous 500 we’ve done over the past eight or nine years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Sign up for my daily reading list at ritholtz.com. Follow me on Twitter @ritholtz. Check out all of the Bloomberg podcasts on Twitter at podcasts. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Justin Milner is my audio engineer. Atika Valbrun is my project manager. Sean Russo is my head of Research. Paris Wald is my producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio. END   ~~~     The post Transcript: John Mack appeared first on The Big Picture......»»

The two Republicans differ in their upbringings, how approach to the media, and the way they present themselves to the public. Former President Donald Trump and Florida Gov. Ron DeSantis.Alon Skuy/AFP via Getty Images and Scott Olson/Getty Images DeSantis could end up running for president in 2024, and he's widely viewed as similar to Trump.  But the two men have a lot of differences, and they'll need to sharpen them in the months ahead, operatives said. They include upbringing, policy positions, and how they handle the press and opponents.  Plenty of pundits, donors, Democrats, and even other Republicans see similarities between former President Donald Trump and Florida Gov. Ron DeSantis. At first glance, the parallels are easy to spot: DeSantis and Trump are both combative, have a flair for showmanship, and eagerly stoke the culture wars.In lengthy news profiles, DeSantis often gets defined in relation to Trump. He's "Trump without the baggage," "Trump with a brain," Trump "without the drama," and "Trump's Mini Me." The Trumpy nicknames are popping up in focus groups, too. Gunner Ramer, political director for the anti-Trump Republican Accountability Project, told Insider that a participant recently described DeSantis as "Trump not on steroids." The Democratic National Committee is playing up DeSantis as a Trump twin, with a recent email to reporters slamming DeSantis' "Extreme MAGA Agenda." The pile on is a problem for both men should DeSantis join Trump in the ring for the 2024 nomination contest.After all, why vote for "Trump's Mini Me" when you can have the real thing? Why vote for Trump himself when you can have someone younger who could be in the White House for eight years instead of four? Why vote for either if you hated Trump's term in office? In a 2024 contest, it'll be crucial for both men to highlight their differences. One of the most well-known, important rules for winning in politics is that candidates have to define themselves early. They can't let anyone else — particularly opponents — do it for them. "If we go down this path, DeSantis is going to spend a whole primary showing how he's different," Sean Spicer, who was White House press secretary for Trump, told Insider. As it turns out, taking a closer look at both men shows there are plenty of ways they differ. They have radically different backgrounds, they diverge in how they handle criticism, and have distinct ways of working and making decisions. "DeSantis is his own man," Saul Anuzis, managing partner of Coast to Coast Strategies, LLC, a political consulting firm, told Insider. "It is an oversimplification to somehow imply that they're in the same lane."So how, exactly, are the Republican men not interchangeable? Insider asked GOP strategists and people close to both men for their insight. Here's what they had to say: Born to wealth v. working class familyOne of the most immediately recognizable differences between Trump and DeSantis is their backgrounds.There's Trump: The rich 76-year-old real estate tycoon who took over his father's business, rolled through several bankruptcies, and became a reality TV star. He used to donate to political campaigns. A few days after his 69th birthday, he announced his own. Trump won the presidency once before going on to lose the next one without conceding, and was impeached twice including over incitement of the violent riot on January 6, 2021.  Then there's DeSantis: A 44-year-old who grew up in the small town of Dunedin, Florida, raised by a mom who was a nurse and a dad who installed Nielsen TV rating boxes. Baseball and good grades got him into Yale and then Harvard Law.After serving in Navy, he went into politics where he was a US congressman that didn't gain much fanfare. Then the spotlight of the Florida governor's office turned him into a conservative darling. His 2021 financial disclosures showed he had almost $319,000 in the bank and more than $21,000 student loans. (A not-yet-disclosed book advance in 2022 is expected to have vastly increased his personal wealth.)—Insider News (@InsiderNews) November 9, 2022 "The contrast is clear — an athlete, veteran, conservative that knows how to govern versus a non-ideological, transactional former president that lost to Joe Biden," Scott Reed, a veteran Republican strategist and former advisor to the US Chamber of Commerce, told Insider. "The GOP is sick of losing and is searching for a forward looking-conservative."But Trump supporters see DeSantis' early entrée into politics as a potential area of vulnerability. Lately, right-wing media and major donors have been siding with DeSantis, which could help elevate Trump's "outsider" status and pin DeSantis as a member of the establishment.  "He's a career politician," Alex Bruesewitz, a Trump supporter and CEO of X Strategies political consulting firm, told Insider of DeSantis. "And the America First movement hates career politicians, and people don't know that about Ron." He predicted DeSantis, a favorite of megadonors such as Citadel investment firm CEO Ken Griffin, would be "beholden" to them. A poor legislative performance by congressional Republicans could also affect DeSantis' chances while being out of his control, Jennifer Carroll, who was lieutenant governor under DeSantis predecessor GOP Gov. Rick Scott, told Insider. "Folks are gonna wonder: 'Should we trust the establishment anymore? Because we gave them a chance and they did nothing,'" she said. Former President Donald Trump endorsed then-candidate Ron DeSantis when he ran for governor in 2018. The backing helped DeSantis seize the GOP nomination.Joe Raedle/Getty ImagesCompulsion v. control Trump is famous for being impulsive, saying what he thinks in the moment when asked, and firing off big decisions over Twitter that sent his aides scrambling.  Meanwhile, DeSantis is a careful planner who turns off the combativeness at times. For instance, he welcomed President Joe Biden's help after Hurricane Ian, and sat alongside first lady Jill Biden during the one-year anniversary of the Surfside building collapse. DeSantis has the "ability to understand moments that transcend politics," Brian Ballard, president and founder of the powerhouse lobbying firm Ballard Partners and a longtime fundraiser for DeSantis, told Insider. "There's plenty of time to have the typical political debates, arguments, and infighting," he said. "But in times of national emergency and crisis he has governed exceptionally and in a bipartisan fashion."DeSantis also reads studies and gets into the minutiae of legislation, whereas Trump tends to be focused more on the big picture. Still, DeSantis, like Trump, explains complicated policies in a simple way when he's in public. "He's measured where Trump is not," Carroll said. "And he does understand that you don't need to respond to everything, particularly at the time that people want you to respond. I believe he has a very good communications crew that he listens to, that affords him the luxury of doing that."Direct v. subliminal Trump began attacking DeSantis publicly just before Election Day. He nicknamed him "Ron DeSantimonious" then lashed out at the governor for being disloyal after DeSantis left open the question over whether he'd run for president.For Trump's base, his directness is a good thing. "What's so great about Trump is he's transparent," Bruesewitz said. "He's a real person. He doesn't have these people that say, 'Sir, you have to say this at this time.'"DeSantis hasn't directly hit back at Trump. He instead blamed the press for stirring up division. Yet he was also viewed as taunting Trump indirectly when he said Republicans should "check out the scoreboard" on Election Day — when he did well and Republicans flopped nationally. On December 13, DeSantis announced several anti-COVID vaccine measures, taking aim at one of Trump's top presidential accomplishments but one his base despises due to the Biden administration's shot mandates. While he never mentioned the ex-president, he made the announcement geographically close to Mar-a-Lago, the oceanfront private club and estate where Trump lives in Palm Beach. "He knows how to not only get things done, what the people want, but to shove it in his opponents faces specifically when its their weaknesses," said Sam Nunberg, who advised Trump's 2016 campaign. DeSantis often holds major announcements at locations that carry subliminal messages. On the January 6 anniversary, he held a press conference again in West Palm Beach on an unrelated matter, but when Insider asked him about the Capitol riot he was prepared to answer, saying the press was working to "milk the attack." His comments made national headlines. "So much of what we do in politics has to do with tone and image and how you present yourself, versus what you say," Anuzis said. Former U.S. President Donald Trump speaks during a campaign event at Sioux Gateway Airport on November 3, 2022 in Sioux City, Iowa. TStephen Maturen/Getty ImagesHumor v. policy Trump knows how to make his audience laugh, which made him relatable to the middle class, Carroll said. When he talked about his vision for the US, it was simple and easy to understand. "Trump's comms skills are some of the best comms skills you'll ever see a major politician ever have because he knows how to speak to America," Nunberg said. "He's not interested in being lawyerly or political." While there's a major swath of voters who despise Trump, he retains a loyal base that feels personally invested in him, in part because of who he is as a person. In contrast, DeSantis is more policy-oriented, Nunberg said. As DeSantis has gotten more attention, several news outlets have reported comments from sources who say he's a social misfit. That's something Trump supporters are quick to point out. "He's not likable," Bruesewitz said. "And it's going to be difficult when you go to these grassroots meetings and you're trying to get people to like you."Anuzis, however, said that humor can sometimes backfire because it may "belittle the office and the seriousness of the situation." Voters may be in a place in 2024 in which they're looking for "sanity, calmness, and strength of leadership," he said. DeSantis doesn't crack many jokes when he's at a podium. He starts on time, takes a victory lap over his accomplishments, and comes with prepared remarks. When hard questions come, he's ready for them. "They are very different candidates in terms of charisma," Nunberg said. "You're not going to have your socks knocked off with Ron DeSantis, you're just not. And you have to accept that." But DeSantis can still shape how voters see his personality. Spicer described DeSantis as a "fun guy," recounting a game of catch, darts, and a golf cart race with the governor after a Newsmax town hall. "We know what we get with President Trump," he said. "You have to have been living under a rock to not know what you're going to get. DeSantis is still new." On the media: Personal v. explainingTrump and DeSantis both know how to effectively use and criticize the media. But that's where the comparisons on their press strategies end."They might have the same 50,000-foot approach, but when you get down to 1,000 feet you realize there are big differences," Spicer said. Trump got significant free air time in 2016, when cable news outlets would air his rallies in full. He criticized major news outlets as "fake news," and when he got to the White House he insulted reporters viciously and personally. Despite all this, Trump sat down with mainstream outlets and even with authors who wrote books about him — no matter how scathing they turned out to be. And he keeps doing it. "He's very direct in saying whatever he wanted to say about the media, which at times really turned people off and then also made the media mad at him because they didn't feel like he was respectful," Carroll said. "But they had access." In contrast, DeSantis' sit-down interviews are more limited to conservative press, though after Hurricane Ian he interviewed with CNN and local outlets. He appears often on Fox News, which receives exclusives of major announcements.This year, his team barred numerous reporters from a fundraiser, and his team has explained on Twitter that they won't cooperate with press they view as biased. Yet there is one way DeSantis is accessible: When he holds press conferences he answers questions even if they are off topic. And his team also livestreams the exchanges and posts them to social media. That means even national outlets that don't have correspondents in Florida can tune in. During these events, DeSantis can sometimes have tense exchanges with reporters — but they're on the substance of their question rather than who they are as a person. One CBS "60 Minutes" response debunking a story about his COVID vaccine rollout went viral."When he takes on the media he's calling them out, but he does it in a way in which rather than personalize he says, 'That's not true. Here are the facts,' and puts them in their place," Anuzis said. Carroll said she noticed that DeSantis' communications team will also attack the media for him, including by posting screen shots of press inquiries on Twitter or mocking stories."His communications people tend to do it more so than he directly," Carroll said. "So it gives him more of a cushion in his pushback on the media, having an intermediary."According to Ramer, DeSantis' approach is working to get his name ID out. People in focus groups even in other states such as West Virginia bring up his name as favorite for the 2024 nomination. But Bruesewitz saw a weakness in DeSantis' strategy, which he called "calculated" and "theater." "It's all scripted," he said. "You can't be scripted in a debate against Donald Trump."Then-President Donald Trump campaigns with Ron DeSantis at a rally in Pensacola, Florida, on November 3, 2018.AP Photo/Butch Dill, FileVoting rigidity v. voting malleabilityThe way Trump and DeSantis encourage voters to cast their ballots could be crucial to how they perform in a primary. Trump has trashed mail-in, absentee, and early voting, even during the 2020 presidential election, when the COVID-19 pandemic made it harder for voters to leave their homes. Republican political arms, however, are beginning to concede that they're at a disadvantage if Democratic voters have more time and can more easily cast their votes. While DeSantis tightened Florida voting laws as governor, including setting up a police unit dedicated to investigating voter fraud, he has benefited from certain rules that make voting easier. For instance, at campaign stops during his 2022 reelection, DeSantis urged people to vote early in Florida, even to do so on their way home from that very rally. At the Republican Jewish Coalition's annual leadership meeting in November, DeSantis even pushed Republicans to engage in "ballot harvesting." The governor was referring to state voting laws that allow third parties to collect and deliver completed ballots on behalf of people who can't get to polling stations. In Florida, DeSantis pushed the legislature to limit ballot collection by non-family members. But he said at the Las Vegas-based RJC meeting that Republicans should try to benefit from election laws in other states. "Whatever the rules are, take advantage of it," he said. Tested v. untestedDeSantis won a historic, 19-point victory in Florida on Election Day, all without Trump's help. It was the one "red wave" Republicans got out of the 2022 midterms.But whether DeSantis can replicate that success nationally is still an open question, political insiders say. Carroll said that DeSantis' Democratic challenger, Charlie Crist, wasn't particularly standout during his time in Congress. He also had been "all over the map" and "was not well trusted" because he used to be a Republican governor, and then an Independent, before settling on the left, she said. "If DeSantis had run against a candidate that was likable, recognizable, or was more credible, it may have been a different turnout — it could have been the same, but we really have to put it in context in terms of who was running against whom," she said. Crist, the Florida Democratic Party, and national Democratic political arms also didn't put up much of a fight, Bruesewitz said.  "Ron has never been tested," he said. Should DeSantis enter the 2024 contest, other GOP candidates are more likely to pile onto him as the runner up so they can try to get head-to-head with first-place Trump. What will it look like when millions of opposition research and ads go into attacking the Florida governor? As for Trump, it's widely accepted that his MAGA base isn't going anywhere. Trump invokes a "deep-rooted personal connection," Nunberg said. "It's something you rarely see." They've followed him through numerous personal, legal, and political scandals, and perhaps even a pending indictment. "He has a base that's unquestioned, that has stuck with him through thick and thin for the past six years," Ballard said. While a few news outlets have described Trump as "diminished," Ramer from the Republican Accountability Project said it was still possible for the former president to get stronger ahead of the 2024 election. He noticed in focus groups that Republicans were souring a bit on Trump during the Select Committee's hearings about January 6, because it reminded them of all the baggage that came with his presidency. But after the FBI raided Mar-a-Lago, there was a "rally-around-Trump" effect. Whether it be DeSantis or anyone else, the ex-president is unmatched in getting away with scandals that would torpedo most people's political careers. "He was a one-of-a-kind politician in our generation," Anuzis said.  Read the original article on Business Insider.....»»

Victor Davis Hanson: 10 Steps To Save America Authored by Victor Davis Hanson via AmGreatness.com, Yes, there is a way. But is there the will? Most Americans know something has gone terribly wrong—and very abruptly—with the United States. They are certain that our wounds are almost all self-inflicted. The current pathologies are not a result of a natural disaster, an exhaustion of natural resources, plagues, or an existential war.  Crushing national debt and annual deficits, spiraling food and fuel costs amid “normal” seven-percent-plus annual inflation, bread-and-circuses entitlements, a nonexistent border, a resurgence of racial tribalism, pandemic violent criminality, and humiliation abroad—all these pathologies are easily cited as symptoms of a sick patient. Our crises are not as the Left maintains—a nine-person Supreme Court, the Electoral College, or the filibuster—all distractions from existential problems the Left largely created.  So, what are the therapies and prognoses for America? In the spirit of constructive rather than blanket criticism, here is a partial, 10-point plan of national recovery. 1. Cut the Debt  Americans’ national debt is now $31 trillion. That is about 123 percent of current GDP. The liabilities are unsustainable. We run annual deficits of $1.6 trillion. These financial obligations will eventually ensure that rising interest rates to service the debt crowd out essential spending for national defense and the general welfare.  Or in extremis, in the not too distant future, the government will be forced to default on what it owes the “rich” bondholders and foreign debt holders. Or the government will be forced to confiscate private wealth, as for example occasional crazy suggestions to nationalize and absorb 401(k)k retirement plans into the soon-to-be-insolvent Social Security system. Or the state will simply print millions of dollars to pay off obligations, Weimar-style. In addict style, the more we come to realize that our binging habit cannot go on, the less we can practice self-restraint. And the more it is the case that those who receive government redistributions outnumber those who pay the majority of federal income taxes, the less hope there remains to avoid insolvency. In 2010 then-President Barack Obama appointed a bipartisan “National Commission on Fiscal Responsibility and Reform.” More commonly  remembered as the Simpson-Bowles commission, after chairmen Senators Alan Simpson (R-Wyo.) and Erskine Bowles (D-N.C.), it included private citizens and elected officials.  The commission recommended radical tax simplifications and some cuts—along with reductions in tax deductions and credits, an increase in the gas tax, restraints on entitlement spending, and various spending caps.  Obama and Congress ultimately rejected the recommendations and the commission’s blueprint died. But had it succeeded, the current debt would have long been frozen at the 2014 level of $17 trillion—with annual reductions ensuring that this coming year 2023 the debt would have plunged to $10 trillion and then disappeared in another decade.  Something like Simpson-Bowles could still stop the madness and avoid the natural corrective on the horizon of financial collapse. Note that federal tax revenue has increased almost every year since 2010. Sometimes it grows by nearly a half-trillion dollars per annum, even as we sink deeper in debt. Our crisis, then, is one of spending what we do not have rather than one of declining revenue. 2. Secure the Border  We no longer have a southern border. There have been 5 million illegal border crossings just since Joe Biden took office. He intentionally destroyed immigration law for cheap political advantage. Nearly 50 million current American residents were not born in the United States. Well over 20 million—and perhaps 30 million—are illegal aliens. Old melting-pot efforts at assimilation and integration eroded into the salad-bowl metaphor that has just become tribalism—even as intermarriage is at an all-time high.  The Left brags that “demography is destiny” as it cheers the changes in the electorate aimed at ensuring its political dominance. And simultaneously, it smears conservatives who agree with its triumphalism as “great replacement theory” conspiracists.  Yet we finally found a solution in 2019-2020. Had we continued replacing rickety border fencing with an effective wall and then completed it along the entire border, had we stopped catch-and-release, had we continued demanding that refugee status be obtained before entry, had we forced Mexico and Central American governments to stop exporting human capital and subjected them to taxes on more than $60 billion in annual remittances (along with trade penalties) for their complicity with the situation at the border, had we continued to deport those who entered illegally, had we returned to assimilation and integration on the theory any who entered America did so because they wanted to become Americans, then a desired legal, meritocratic, and diverse immigration policy might easily have assimilated and absorbed perhaps 200,000 skilled and legal immigrants per year.  Again, we had the outlines of a solution and then simply destroyed it for liberal political agendas and cheap corporate labor.  3. Tap Natural Resources  Similarly, by 2020, the United States enjoyed inexpensive fuel. It was all but independent in gas and oil. It had become the world largest combined gas and oil producer. That status radically curtailed the need for optional military engagements in the Middle East. It gave America enormous clout against hostile oil exporters like Russia, Iran, and Venezuela. And such independence helped reduce vast trade deficits.  Again, the Biden Administration simply exploded the idea of fossil-fuel independence as a gradual transition to sustainable energy. So simply doing the opposite of its policies would correct the pathology almost immediately: Issue more federal gas and oil leases, approve the Keystone and Constitution pipelines, reopen the Arctic National Wildlife Reserve, and build nuclear power plants. The present course of high-priced and scarce gasoline and oil is eroding the middle class, spiking inflation, widening class divisions, and reducing American autonomy abroad.  4. Oppose Discrimination Never has the United States seen more evidence of progress in racial relations, and never has such progress given way to more tribalism. If we do not return to a Martin Luther King, Jr. “content of our character” policy—one that views race as incidental rather than essential to who we are—then our future is a sectarian one with echoes of the former Yugoslavia, Rwanda, and Iraq.  Affirmative action was never envisioned as permanent quotas and race-based reverse-discrimination. Yet after over a half-century it has ballooned under the idea of “diversity” to invent a victim class of nearly a third of the nation, absurdly and loosely defined—in an age of commonplace intermarriage—as “non-white.”  Help for the underprivileged should be race-neutral and entirely based on class and income, given numerous ethnicities exceed the so-called white medium income. The labyrinth of racial categories grows unfathomable. The identity politics mess logically results, on the one hand, with rank iconic frauds like Elizabeth Warren, Ward Churchill, and Rachel Dolezal, and, the other hand, with well-off poseur victims in the manner of a Meghan Markle, Colin Kaepernick, or Jussie Smollett.  Substitution of racial criteria for merit, rather than aiding the poor of all races, is creating a commissar-like drag on the economy, spiking racial and ethnic tensions, and ensuring that every group will eventually, for its survival, go tribal on the basis of the same logic that applies to nuclear proliferation. Again, the remedy? Just enforce civil rights statutes that prohibit racial discrimination and consider the Pavlovian shriek of “racism!” as the revealing projection of racists. 5. Disrupt and Reform Higher Education  Our universities are failing to produce competent graduates essential to a meritocratic nation engaged in fierce global competition. Increasingly, students are politicized, largely ignorant, indebted, bitter, and unable to ensure American preeminence in basic science, technology, engineering, and math.  Yet the solutions are again simple: get the government out of the student-loan business that ensures escalating tuition hikes greater than the rate of inflation. Eliminate faculty tenure and replace it with five-year contracts that require demonstrable achievement. Subject large endowments to taxation on their interest income to curb their wasted spending. Allow public schools to hire either those with school of education credentials or one-year master’s degrees that focused solely on academic study. Require standardized exit tests, in the fashion of erstwhile SAT and ACT entry tests, for the certification of the bachelor’s degree. Force universities to follow the Bill of Rights on campus, regarding due process and freedom of expression.  These are not radical suggestions. Yet the likely fierce faculty opposition to them is proof that the Left envisions higher education as it views Silicon Valley—another private monopoly that helps to maintain political power in lieu of popular support. 6. Revive the Armed Forces  Our military is in dire straits. It is overcommitted, under-resourced, and without any geo-political strategy other than ad hoc responses without defined objectives. It has become politically weaponized and, inevitably, unable to meet recruitment goals. The Pentagon remains obsessed with exorbitantly priced weapons that cannot be produced in sufficient numbers in an age of hostile swarms of cheap, mass-produced drones and thousands of batteries of ground-to-air and shore-to-ship missiles.  Constant profiling, racial, and gender quotas and obsessions over proportional representation and disparate impact increasingly apply to training, education, and promotion—to everything except worries over the disproportionate profile of those killed in battle. The Pentagon has become adept in publishing racial data on every aspect of military service to emphasize disparity and bias—except concerning the combat dead.  To address the changes, retiring high-ranking officers should refrain from board memberships on contracting corporations for at least five years upon leaving the military. The uniform code of military justice must be strictly enforced, including article 88 which prohibits retired officers from attacking in personal terms high-ranking elected officials, and in particular their commander-in-chief.  Woke training is destroying morale and battlefield efficacy. The military must return to a race and gender neutral stance that does not erode meritocratic standards to fit political agendas. We should never again witness a chairman of the Joint Chiefs of Staff virtue signaling to Congress and the nation his intention to understand “white rage” in the ranks, without supplying any confirmatory evidence or data for his apparent allegation of systemic racism in the ranks—particularly not while the greatest U.S. defeat and humiliation in a half-century was unfolding on the horizon in Kabul. Any high-ranking military officer who informs his Chinese counterpart of his own psychiatric diagnosis that his commander-in-chief is unhinged and thus U.S. strategic intentions will first be relayed to Beijing should be summarily dismissed. 7. Fix Voting  Elections are a mess. The greatest political revolution in our election history has been the change—accelerated under the cover of COVID and the George Floyd riots—in many key estates from a 20-30 percent “absentee ballot” vote to 70-80 percent early/mail-in balloting. In a mere four years we have all but destroyed Election Day voting and Election Night final tabulations as we had known them for decades.  All discussions of voter IDs, fraud, and charges and countercharges of election denialism are irrelevant if there is no real mechanism to validate the authenticity of mail-in ballots that have incomplete or false addresses, names, and signatures, or do not match registration rolls. Third-party ballot harvesting and ballot curing should be outlawed at the federal level, and we should return to the requirement of requesting absentee ballots rather than automatically sending them out. Otherwise, no future election will again win the confidence of a majority of Americans. And without trust in balloting, consensual government becomes nonexistent. 8. Drain the Swamp  Americans distrust the “swamp,” administrative state, or deep state. Call what you will, the Washington nexus of bureaucracies, media, and lobbyists has created a huge, unelected permanent army of auditors, regulators, investigators, and punishers, all mostly exempt from audit and accountability and without fear of their elected overseers.  The easiest solution is to break up concentrations of power. Transfer out of Washington, in this age of zoom and telecommunications, major cabinet departments like Health and Human Services, Energy, or Agriculture into the hinterland. Restore the idea that lying to Congress, feigning amnesia, or pleading ignorance under oath to Congress or federal investigators or in depositions is a prosecutable felony with jail time.  Had we restored equality under the law, then an Andrew McCabe, James Clapper, and John Brennan would not have dared lie under oath. And a Robert Mueller, James Comey, Anthony Fauci, or Jack Dorsey might have not so easily believed they simply could plead memory loss or mislead in a fashion that no American would dare to do with the IRS.  Being forced to tell the truth would be a powerful deterrent against bureaucratic overreach.  Finally, ossified centralized agencies like the FBI need to be broken up and their bureaus redistributed through the cabinet-level departments to avoid past pathologies resulting from a concentration of power. 9. Upend the Welfare State  The number of those receiving federal and state subsidies is beginning to match the number of those who subsidize them. “No one wants to work anymore” is now a common public lament. Inflation and recession may come and go, but workers are now scarce whether we are in boom or bust times. Labor non-participation remains at an all-time high. Soon only 60 percent of the available labor force will be working. Trillion-dollar COVID subsidies have accelerated the idea that Americans need not work full-time to maintain a living.  We can easily return to the “workfare” championed by a triangulating Bill Clinton in the 1990s that demanded healthy and able recipients to be gainfully employed upon receipt of state and federal cash. In the context of the homeless, we need to return to pre-Reagan norms of institutionalizing the mentally ill and creating hospitals and safe spaces away from American downtowns to house those who either cannot or will not take care of themselves. Defecating, urinating, injecting, and fornicating on city-streets are not victimless crimes, but assaults on civilized life as we once knew it. 10. Restore Norms  Fact is, few public norms are left. Rather than the current therapeutic obsessions that seek to divide Americans into binaries of oppressors and the oppressed, we are in desperate need of civic education in K-12 that acquaints all children and teens with American institutions, key events like Gettysburg or D-Day, and familiarity with the Constitution and the duties of the citizen. We will get nowhere basing our understanding of the world on psychodramas and therapeutics.  Neither journalists nor elites understand, much less appreciate, the First Amendment, and in ignorance despises the Second. Like it or not, the nuclear family remains the bulwark of the American nation, which will not survive if current fertility rates of below 1.7 children per woman continue to diminish and age the population. The government must incentivize childbearing and child raising.  Without clear punishment for violent crimes, deterrence is lost, and the innocent become victims of the exempt criminal class. Critical race theory, critical legal theory, and critical criminology theory are euphemisms for unleashing lawbreakers upon the vulnerable. We are in a strange cycle in which we deliberately do not enforce gun laws in our cities and then when murder reaches near historic proportions we blame unenforced guns laws rather than the criminals who are exempt in using deadly weapons as the cause.  These are just a few of the many ways that the United States could stop the present madness—which, after all, was entirely self-created. Tyler Durden Mon, 12/19/2022 - 16:20.....»»

The Goldilocks War Authored by Dmitry Orlov, Are you happy with the way the war in the former Ukraine is going? Most people aren’t - for one reason or another. Some people hate the fact that there is a war there at all, while others love it but hate the fact that it hasn’t been won yet, by one side or the other. Bounteous quantities of both of these kinds of haters are found on both sides of the new Iron Curtain that is hastily being built across Eurasia between the collective West and the collective East. This seems reasonable; after all, hating war is standard procedure for most people (war is hell, don’t you know!) and by extension a small war is better than a big one and a short war is better than a long one. And also such reasoning is banal, trite, platitudinous, vapid, predictable, unimaginative and… bromidic (according to the English Thesaurus). Seldom is to be found a war-watcher who is happy with the progress and the duration of the war. Luckily, Russian state television shows a very significant one these almost daily. It is Russia’s president, Vladimir Vladimirovich Putin. Having paid attention to him for over twenty years now, I can confidently state that never has he been so imbued with calm, self-assured serenity leavened with droll humor. This is not the demeanor of someone who feels at any risk of losing a war. The brass at the Ministry of Defense appear dour and glum on camera—a demeanor befitting men who send other men to fight and possibly to be wounded or to die; but off-camera they flash each other quick Mona Lisa smiles. (Russian men don’t give stupid American-style fish-eyed toothy grins, rarely show their teeth when smiling, and never in the presence of wolves or bears). Given that Putin’s approval rating stands firm at around 80% (a number beyond reach of any Western politician), it is reasonable to assume that he is just the visible tip of a gigantic, 100-million-strong iceberg of Russians who calmly await the successful conclusion of the special military operation to demilitarize and denazify the former Ukrainian Soviet Socialist Republic (so please don’t even call it a war). These 100 million Russians are seldom heard from, and when they do make noise, it is to protest against bureaucratic dawdling and foot-dragging or to raise private funds with which to remedy a shortage of some specialty equipment requested by the troops: night vision goggles, quadrocopters, optical sights, and all sorts of fancy tactical gear. A great deal more noise is being made by the one or two percent whose entire business plan has been wrecked by the sudden appearance of the New Iron Curtain. The silliest of these thought that fleeing west, or south (to Turkey, Kazakhstan or Georgia) would somehow magically fix their problem; it hasn’t, and it won’t. The people we would expect to scream the loudest are the LGBTQ+ activists, who thought that they were going to use Western grant money to build East Sodom and East Gomorrah. They’ve been hobbled and muzzled by new Russian laws that label them as foreign agents and prohibit their sort of propaganda. In fact, the very term LGBTQ+ is now illegal, and so, I suppose, they will have to use PPPPP+ instead (“P” is for “pídor”, which is the generic Russian term for any sort of sexual pervert, degenerate or deviant). But I digress. It can be observed rather readily that those who are the least happy with the course of the Russian campaign are also the least likely to be Russian. Least happy of all are the good folks at the Center for Informational and Political Operations of the Ukrainian Security Service who are charged with creating and maintaining the Phantom of Ukrainian Victory. These are followed by people in and around Washington, who are quite infuriated by Russian dawdling and foot-dragging. They have also been hard-pressed to show that the Ukrainians are winning while the Russians are losing; to this end, they have portrayed every Russian tactical repositioning or tactical withdrawal as a huge, humiliating defeat personally for Putin and every relentless, suicidal Ukrainian attack on Russian positions as a great heroic victory. But this PR tactic has lost effectiveness over time and now the Ukraine has become a toxic topic in the US that most American politicians would prefer to forget about, or at least keep out of the news. To be fair, the Russian tactical cat-and-mouse games in this conflict has been nothing short of infuriating. The Russians spent some time rolling around Kiev to draw Ukrainian troops away from the Donbass and prevent a Ukrainian attack on it; once that was done, they withdrew. Great Ukrainian victory! They also spent some time tooling around the Black Sea coastline near Odessa, threatening a sea invasion, to draw off Ukrainian forces in that direction, but never invaded. Another Ukrainian victory! The Russians occupied a large chunk of Kharkov region that the Ukrainians left largely undefended, then, when the Ukrainians finally paid attention to it, partially withdrew behind a river to conserve resources. Yet another Ukrainian victory! The Russians occupied/liberated the regional capital of Kherson, evacuated all the people who wanted to be evacuated, then withdrew to a defensible position behind a river. Victory again! With all these Ukrainian victories, it is truly a wonder that the Russians have managed to gain around 100km2 of the former Ukraine’s most valuable real estate, over 6 million in population, secured a land route to Crimea and opened up a vital canal that supplies irrigation water to it and which the Ukrainians had blocked some years ago. That doesn’t seem like s defeat at all; that looks like an excellent result from a single, limited summer campaign. Russia has achieved several of its strategic objectives already; the rest can wait. How long should they wait? To answer this question, we need to look outside the limited scope of Russia’s special operation in the Ukraine. Russia has bigger fish to fry, and frying fish takes time because eating undercooked fish can give you nasty parasites such as tapeworm and liver fluke. And so, I would like to invite you to Mother Russia’s secret kitchen, to see what’s on the cutting board and to estimate how much thermal processing will be required to turn it all into a safe and nutritious meal. Mixing our food metaphors, allow me to introduce Goldilocks with her three bears and her porridge not to hot and not too cold. What Russia seems to be doing is keeping their special military operation moving along at a steady pace - not to fast and not too slow. Going too fast would not allow enough time to cook the various fish; going too fast would also increase the cost of the campaign in casualties and resources. Going too slow would give the Ukrainians and NATO time to regroup and rearm and prevent the proper thermal processing of the various fish. In an effort to find the optimal pace for the conflict, Russia initially committed only a tenth of its professional active-duty soldiers, then worked hard to minimize the casualty rate. It opted to start turning off the lights all over the former Ukraine only after the Kiev regime tried to blow up the Kerch Strait bridge that linked Crimea with the Russian mainland. Finally, it called up just 1% of reservists to relieve the pressure from the frontline troops and potentially prepare for the next stage, which is a winter campaign—for which the Russians are famous. With this background information laid out, we can now enumerate and describe the various ancillary objectives which Russia plans to achieve over the course of this Goldilocks War. The first and perhaps most important set of problems that Russia has to solve in the course of the Goldilocks War is internal. The goal is to rearrange Russian society, economy and financial system so as to prepare it for a de-Westernized future. Since the collapse of the USSR, various Western agents, such as the National Endowment for Democracy, the US State Department, various Soros-owned foundations and a wide assortment of Western grants and exchange programs have made serious inroads into Russia. The overall goal was to weaken and eventually dismember and destroy Russia, turning it into a compliant servant of Western governments and transnational corporations that would supply them with cheap labor and raw materials. To help this process along, these Western organizations did whatever they could to drive the Russian people toward eventual biological extinction and replace them with a more docile and less adventurous race. Starting well over 30 years ago, Western NGOs set to corrupting the minds of Russia’s young. No effort was spared to denigrate the value of Russian culture, to falsify Russian history and to replace them both with Western pop culture and propaganda narratives. These initiatives achieved limited success, and the USSR, and Soviet-era culture, has remained ever-popular even among those who were too young to have experienced life in the USSR firsthand. Where the damage has been most severe is in education. Excellent Soviet-era textbooks that taught students how to think independently were destroyed and replaced with imports. These were at best useful for training experts in narrowly defined fields who can follow previously defined procedures and recipes but can’t explain how these procedures and recipes were arrived at or to create new ones. Russian teachers, who saw their job not just in educating but in bringing up their students to be good Russians who love and cherish their country, were replaced by Western-trained educationalists who saw their mission as providing a competitive, market-based service in bringing up qualified, competent… consumers! Who are these people? Well, luckily, the Internet remembers everything, and there are plenty of other jobs for these people such as shoveling snow and stoking furnaces. But identifying and replacing them takes time, as does finding, updating and reproducing the older, excellent textbooks. But what of the young people left behind by this wave of destruction? Luckily, not all is lost. The special military operation is providing them with some very valuable lessons that their ignorant educationalists left out: that Russia—a unique, miraculous agglomeration of many different nations, languages and religions—has been preserved and expanded over the centuries through the efforts of heroes whose names are not just remembered but venerated. What’s more, some of them are alive today, fighting and working in the Donbass. It is one thing to visit museums, read old books and hear stories about the great deeds of one’s grandfathers and great-grandfathers during the Great Patriotic War; it is quite another to watch history unfold through the eyes of your own father or brother. Give it another year or two, and Russia’s young people will learn to look with disdain on the products of Russia’s Western-oriented culture-mongers. Their elders do already: opinion polls show that a large majority of Russians see Western cultural influence as a negative. And what of these Russian culture-mongers who have been worshiping all things Western for as long as they can remember? Here, a most curious thing happened. When the special military operation was first announced, they spoke out against it and in favor of the Ukrainian Nazis—a stupid thing to do, but they thought it good and proper to keep their political opinions harmonized with those of their Western patrons and idols so as to stay in their good graces. Some of them protested against the war (ignoring the fact that it had been going on for eight long years already). And then quite a few of them fled the country in unseemly haste. Keep in mind that these are neither brain surgeons nor rocket scientists: these are people who prance around on stage while making noises with their hands and mouths; or they are people who sit there while makeup artists do things to their faces and hair, then endlessly repeat lines written for them by someone else. These are not people who have the capacity to analyze a tricky political situation and make the right choice. In an earlier, saner age their opinions would be steadfastly ignored, but such is the effect of the Internet, social media and all the rest, that any hysterical nincompoop can shoot a little video and millions of people, having nothing better to do with their time, will watch it on their phones and make comments. The fact that these people are voluntarily cleansing the Russian media space of their presence is a positive development, but it takes time. If the special military operation were to end tomorrow, there is no doubt that they would attempt to come back and pretend that none of this ever happened. And then Russian popular culture would remain a Western-styled cesspool full of vacuous personae who seek to glorify every single deadly sin for the sake of personal notoriety and gain. Russia has plenty of talented people eager to take their place—if only they would keep out long enough for everyone to forget about them! Particularly damaging to Russia’s future has been the emergence and preeminence of pro-Western economic and financial elites. Ever since the haphazard and in many cases criminal privatization of state resources in the 1990s, there was brought up an entire cohort of powerful economic agents who does not have Russia’s interests in mind. Instead, these are purely selfish economic actors who until quite recently thought that their ill-gotten gains would allow them to enter into posh Western society. These people usually have more than one passport, they try to keep their families in some wealthy enclave outside of Russia, they send their children to schools and universities in the West, and their only use for Russia is as a territory they can exploit in creating their wealth extraction schemes. When in response to the start of Russia’s special military operation the West mounted a speculative attack on the ruble, forcing Russia’s central bank to impose strict currency controls, these members of the Russian elite were forced to start thinking about making a momentous choice. They could stay in Russia, but then they would have to cut their ties to the West; or they could move to the West and live off their savings, but then they would be cut off from the source of their wealth. Their choice was made easier by Western governments which worked hard to confiscate the property of rich Russian nationals, freeze their bank accounts and subject them to various other indignities and inconveniences. Still, it’s a hard choice for them to make—realizing that, in spite of their sometimes fabulous wealth, for the collective West they are just some Russians that can be robbed. Many of them are mentally unprepared to throw in their lot with their own people, whom they have been taught to despise and to exploit for personal gain. A quick victory in Russia’s special military operation would allow them to think that their troubles were temporary in nature. Given enough time some of them will run away for good while others will decide to stay and work for the common good in Russia. Next in line are various members of the Russian government who, having been schooled in Western economics, are incapable of understanding the economic transformation that is occurring in Russia, never mind helping it along. Most of what passes for economic thought in the West is just an elaborate smokescreen over this fundamental dictum: “The rich must be allowed to get richer, the poor must be kept poor and the government shouldn’t try to help them (much).” This worked while the West had colonies to exploit, be it through good old-fashioned imperial conquest, plunder and rapine, or through financial neocolonialism of Perkins’s “economic hit men,” or, as has recently been grudgingly admitted by several top EU officials, by taking advantage of cheap Russian energy. That doesn’t work any more—not in the West, not in Russia or any place else, and mindsets have to adjust. There is a great deal of inertia in appointments to government positions, where there are many vested interests vying for power and influence. It takes time for such basic ideas to percolate through the system as the fact that the US Federal Reserve no longer has a planet-wide monopoly on printing money. Therefore, it is no longer necessary for Russia’s central bank to have dollars in reserve to cover their ruble emissions to defend it against speculative attack since it is no longer necessary for Russia’s central bank to allow foreign currency speculators to run rampant and stage speculative attacks. But some results have already been achieved, and they are nothing short of spectacular: over the past few months, just a few well-chosen departures from Western economic orthodoxy have made the ruble the world’s strongest currency, have allowed Russia to earn more export revenue by exporting less oil, gas and coal, and have allowed it to drive inflation down to almost zero. Since the start of the special military operation, Russia has been able to reduce its national debt by a large amount and increase government revenues. A swift end to Russia’s special military operation may spell the end of such miracles and a most unwelcome return to the untenable status quo ante. Beyond the intangible world of finance, equally significant changes have been occurring throughout the physical Russian economy. Previously, many economic sectors, including car sales, construction and home improvement, software development and many others, were foreign-owned and the profits from these activities left the country. And then a decision was made to block the expatriation of dividends. In response, foreign companies sold off their Russian assets, taking a huge loss and depriving themselves of access to the Russian market. The change has been quite stunning. For example, at the beginning of 2022, Western car companies owned a large share of the Russian auto market. Many of the cars that were sold had been assembled within Russia at foreign-owned plants and the profits from these sales were expatriated. Now, less than a year later, European and American automakers are pretty much gone from Russia, replaced by a swiftly reborn domestic auto industry. Chinese automakers have immediately grabbed a large market share for themselves, while South Korea continued to trade with Russia and has held on to its market share. Equally stunning have been changes in the aircraft industry. Previously, Russian airlines were flying Airbuses and Boeings, most of them leased. After the start of the special operation Western politicians demanded that these leases be rescinded and the aircraft returned to their owners, neglecting to take into account the fact that this would be ruinous financially (glutting the market for used aircraft for years to come and destroying demand for new aircraft) and, furthermore, physically impossible, given that there was no way to effect the transfer of the aircraft. In response, the Russian airlines nationalized the aircraft registry, stopped flying to hostile destinations where their aircraft might be arrested, and started making lease payments in rubles to special accounts at the Russian central bank. Then came the news that Aeroflot is panning to buy over 300 new passenger jets, all Russian МС-21s, SSJ-100s and Tu-214s, all before 2030, with the first deliveries slated for 2023. There has been a scramble to replace almost all Western-sourced components, such as composites for the carbon fiber wing of the MC-21 and jet engines, avionics and much else for all of the above. Over this period many of the previously leased Boeings and Airbuses will be phased out, but these companies’ market share in the largest country on Earth will be gone forever. Damage to Western aircraft manufacturers will be matched by the damage to Western airlines. At the outset of hostilities, the collective West closed its airspace to Russia, and Russia reciprocated. The problem is that Europe is small and easy to fly around while Russia is huge and flying around it takes a whole day. European airlines suddenly found that theу can’t compete on routes to Japan, China or Korea. Following the closing of the airspace came other sanctions, from both the European Union and from the United States, all of them illegal, since the UN Security Council is the only body empowered to impose sanctions. Right now the European Union is working on the ninth packet of sanctions, all of which have been dubbed “sanctions from hell”. Speaking of hell, Dante Alighieri’s “Inferno” there are nine circles of hell, so perhaps the sanctions juggernaut is about to run its course. These sanctions were supposed to have swiftly destroyed the Russian economy and have caused so much social upheaval and suffering that the people would gather on Red Square and overthrow the dread dictator Putin (or so thought Western foreign policy experts). Clearly, nothing of the sort has happened and Putin’s approval rating is as high as ever. On the other hand, the good people of the European Union are indeed starting to suffer. They can no longer afford to heat their homes or to take regular hot showers, food has become outrageously expensive for them, and so much else is going wrong that huge crowds of protestors have been gathering all across Europe and demanding, among other things, an end to anti-Russian sanctions, normalization of relations with Russia and a return to business as usual. Their demands are unlikely to be met, since this would mean a major loss of face for the European leaders. But there is a more important reason why the sanctions will stay: a return to business as usual would mean that Russia would once again provide energy and raw materials to Europe cheaply while allowing European companies to profit from the labor of Russians. This is quite unappealing and is therefore unlikely to happen. Russia is using the sanctions as an opportunity to rebuild its domestic industry and reorient its trade away from hostile nations and toward friendly nations that are fair and sympathetic in their dealings with Russia. It is also working hard to phase out the use of currencies that Dmitry Medvedev called “toxic”; namely, the US dollar and the euro. Add to this list a wonderful new Russian innovation called “parallel import.” If some company, in complying with anti-Russian sanctions, refuses to sell its products to Russia or to service or upgrade its products in Russia, then Russia will buy these products and upgrades from a third or fourth or fifth party without permission from the US, the EU or the manufacturer. If a certain brand-name product becomes unavailable, the Russians simply rename the brand and make the same product themselves, or have the Chinese or another trade partner do it for them. And if the West refuses to license its intellectual property to Russia, then that intellectual property becomes free in Russia. This works particularly well with software: free copies of brand-name software are just as good as the paid-for copies, and if tech support, training or other associated services become unavailable from the West, the Russians simply organize their own. Intellectual property of various sorts makes up a large portion Western notional wealth, and Western sanctions are having the effect of letting Russia make use of it free of charge. Thanks to modern digital technology, it works rather well with hardware too. Instead of painstakingly reverse-engineering products, now the same effect can be achieved by buying the 3D models on a thumb drive and 3D-printing them or automatically generating the mill and drill paths to create them on an NC mill. Putin likes to use the expression “tsap-tsarap” to describe this process. It is hard to translate directly but pertains to the act of a cat snatching its prey with its claws. The short of it is, what Russia previously had to pay for is now, thanks to sanctions, free to it. Since the Goldilocks War is, after all, a sort of war, we need to briefly discuss its military aspects. Here, too, a steady-as-she-goes approach seems to be the most copacetic. The stated goal is to demilitarize and denazify the former Ukraine, and to some extent this has already been achieved: most of the armor and artillery that the Ukraine had inherited from the USSR has already been destroyed; most of the diehard Nazi battalions are either dead or a shadow of their former selves. Gone too are most of the volunteers that once fought on the Ukrainian side. After over 100000 Ukrainian soldiers “have been killed” since February 2022 (as forthrightly stated, then sheepishly denied, by European Commission President Ursula von der Leyen), and after perhaps as many as half a million casualties, scores of service-age men bribing their way out of the country and several rounds of the draft, it is slim pickings. With well over a hundred Ukrainian casualties a day the pickings are bound to get even slimmer over time. Foreign mercenaries have been used to fill the gap—Anglos, Poles, Romanians—but there is a major problem with them: as Julius Caesar pointed out, lots of people are willing to kill for money but nobody wants to die for money—except an idiot, I would add. And on NATO’s Russian front an idiot and his life are soon parted. Up-to-date information on Russian casualties is a state secret and the only number divulged by Defense Minister Sergei Shoigu in late September 2022 was 5937 killed since the start of the campaign. Casualty rates are said to have been significantly lower since then. At present, there is still no shortage of idiots on the Ukrainian side—yet—and neither is there a shortage of donated Western weaponry. First came used Soviet-era tanks and other weapons systems donated from all over Eastern Europe; then came actual Western weapons systems. And now throughout NATO one hears plaintive cries that they have nothing left that they can give to the Ukrainians: the cupboard is empty. Nor can they manufacture more weapons in a hurry. To start churning out weapons at the same rate as Russia is doing, these NATO members would first need to reindustrialize, and there are neither the human resources, nor the money to do so. And so the Russian army grinds away, demilitarizing the Ukraine, and the rest of NATO with it. In the process, it is perfecting the art of fighting a land war against NATO—not that a single NATO country would even entertain such an idea. Perhaps this is mission creep, or perhaps this has been the plan all along, but what Russia is doing at this point is destroying NATO. You may recall that a year ago Russia demanded that the US honor certain security guarantees it made as a condition for allowing the peaceful reunification of Germany; namely, that NATO would not expand eastward. “Not an inch to the east” was how the official record of the meeting reads. Gorbachev and Shevardnadze failed to get this deal on paper and signed, but a verbal deal is a deal. A year ago Russia’s offer was quite moderate: that NATO withdraw to its pre-1997 borders, when it expanded to Eastern Europe. But, as usually happens when negotiating with the Russians, their initial offer is usually the best. For all we know, based on how things are going in the Ukraine, Russia’s best and final offer may require NATO to disband altogether. After all, the Warsaw Pact disbanded 31 years ago but NATO is still around and bigger than ever; what for? To fight Russia? Well, then, what are they waiting for? Come and get it! This may not even take the form of a negotiation. For example, Russia could say, take a quick whack at Latvia (it richly deserves a whack or two for abusing its large native Russian population Nazi-style) and then stand back and say, “Come on, NATO, come and die heroically on our doorstep for poor little Latvia!” At this, NATO officials will stand united but very quiet, thoughtfully examining their own and each others’ shoes. Once it becomes clear that there will be no offers to launch World War III to avenge Latvia, NATO will quietly dry up and blow away. Finally, we come to what is perhaps the least important reason for the Goldilocks War: the former Ukraine itself. In view of Russia’s other strategic goals, it seems more of the nature of a sacrificial piece in a chess gambit. Given what Russia has already achieved over the past nine months—four new Russian regions, six million new Russian citizens, a land bridge to Crimea, irrigation water supply to Crimea—there isn’t much left for Russia to achieve militarily before its military campaign reaches the stage of diminishing returns. The addition of Nikolaev and Odessa regions and full control of the Black Sea coastline would, of course, be most valuable; control of Kharkov and Kiev somewhat less so. Control of the entire Dniepr hydroelectric cascade is a definite nice-to-have. As for the rest, it could be left to languish for ages as a deindustrialized, depopulated wasteland, labeled “Mostly harmless.” Let me divulge a personal detail or two. Two of my grandparents were from Zhitomir, my father was born in Kiev, my first romantic interest was a girl from Odessa, and over the years I’ve had as many friends from Odessa, Kharkov, Lvov, Kiev, Donetsk, Vinnitsa and elsewhere as anywhere else in Russia. Russia? You read that right: there is no way to convince me that so-called “Ukrainian territory” somehow isn’t Russia or that the people who live there somehow aren’t Russian—regardless of what some of them have been recently brainwashed to think. What’s more, none of these people I have known over the years ever thought of themselves as the least bit Ukrainian and they would probably view the very idea of a Ukrainian nationalist identity as symptomatic of a mental condition. The label “Ukrainian” was to them some Bolshevik nonse; since then, Ukrainianness has been turned into a Western method for exploiting minor ethnic variations in order to make one group of Russians fight another group of Russians. In case you are doubtful, let’s apply the good old duck test: Do the people there walk, quack and look like Russians? All of that territory, with one minor exception in the far west, was part of Russia for anywhere between ten and three centuries; most of the people there, and virtually the entire urban population, speaks Russian as their native language; their religion is predominantly Russian Orthodox; they are genetically indistinguishable from the rest of the Russian population. So, what happened to them? Unfortunately, a small piece of this Russian land spent three centuries in captivity to the Austro-Hungarian Empire or as part of Greater Poland, and this poisoned their minds with foreign ideas such as Catholicism and ethnic nationalism. Unlike Russia, which is a multinational, multi-ethnic, religiously diverse monolith, the West is a mosaic of ethnic nationalisms, and where there are nationalists there may be Nazis, ethnic cleansing and genocide. As one drop of poison infects the whole tun of wine, these Western Ukrainians, with lots of help and funds from the German Nazis, then the Americans and the Canadians, managed to infect a large part of the formerly Ukrainian territory with a fake nationalism based on a forged history and a haphazardly concocted culture. Official bans on the teaching and, eventually, the use of Russian have brought up a generation of young people who are essentially illiterate in their native Russian. They are taught in Ukrainian, but Ukrainian literacy is close to an oxymoron, since nothing of any great consequence has ever been written or published in that language and the vast majority of Ukrainian literary works are, you guessed it, in Russian. The Russian special military operation that’s been ongoing since February 2022 has polarized the entire population. Those who had decided to be with Russia back in 2014 were, obviously, overjoyed to finally get some help from Russia. The now Russian regions of Donetsk, Lugansk, Zaporozhye and Kherson gladly voted to join Russia. But as far as the rest of the former Ukrainian territory, the polarization is mostly in the opposite direction. Those who wanted to be with Russia mostly voted with their feet and are now living somewhere in Russia. This is something that time alone can fix. Eventually the population of the former Ukraine will be forced to make a choice: they can be Russian, or they can be refugees somewhere in Europe, or they can die fighting Russians at the front. Note that even Donetsk and Lugansk didn’t make this choice right away, the way Crimea did. At that time, only some 70% of their population was in favor of leaving the Ukraine and rejoining Russia. It took eight years of relentless Ukrainian bombing to convince them to make this choice. Over these intervening years, the diehard “Ukrainians” filtered out, leaving behind a population that was close to 100% pro-Russian. It was only then that the Kremlin granted them official recognition, sent in troops to defend them from imminent invasion and, soon after, accepted them into the Russian Federation. And now the same sort of sorting operation has to take place throughout the rest of the former Ukraine. How long will it take? Only time will tell, but it is already clear that, as far as Russia is concerned, there is no compelling reason to rush. Tyler Durden Wed, 12/07/2022 - 02:00.....»»

If You Really Wanted To Destroy The United States, Then... Authored by Victor Davis Hanson, First, you would surrender our prior energy independence. Reduce new gas and oil leases on federal lands to the lowest levels of any president in history. Cut back production at precisely the time the world is emerging from a two-year lockdown with pent-up consumer demand. Make war on coal and nuclear power. Drain the strategic petroleum reserve to make the pain for consumers more bearable for midterm election advantage. Cancel the Arctic National Wildlife Refuge oil and gas field. Block pipelines like the Keystone oil pipeline and the Constitution natural gas line. Overregulate and demonize frackers and horizontal drillers. Ensure there is less investment for their exploration and production. Make use of internal combustible engines or fossil fuel power generation prohibitively expensive. Achieve a green oil-dependency along the lines of contemporary Europe. Second, print trillions of dollars in new currency as the lockdowns end, demand rises, and consumers are already saturated with COVID-19 subsidies. Keep interest rates low, well below the rate of inflation, as you print more money. Ensure that passbook holders earn no interest at the very time prices skyrocket to the highest per annum level in 40 years. “Spread the wealth” by sending money to those who already have enough, while making it less valuable for those deemed to have too much. Ensure runaway high prices to wean the middle class off its consumerism and supposedly to inspire them to buy less junk they don’t need. Damn the rich in the open and in the abstract, court them in the concrete and secret of darkness. Third, end America’s physical boundaries. Render it an amorphous people and anywhere space. End any vestigial difference between a citizen and resident. Up the current nearly 50 million who were not born in the United States —27 percent of California’s population—to 100 million and more by allowing 3 million illegal aliens to enter per year. Fourth, destroy the public trust in its elections. Render Election Day irrelevant. Make proper auditing of 110 million mail-in/early ballots impossible. Normalize ballot harvesting and curing. Urge leftist billionaires to infuse their riches to “absorb” the work of state registrars in key precincts to ensure the correct “turn-out.” Blast as “election denialists,” “insurrectionists,” and “democracy destroyers” anyone who objects to these radical ballot changes, neither passed by the U.S. Congress nor by state legislators. Weaponize the FBI, CIA, and Department of Justice. Fifth, redefine crime as one rich man’s crime, another poor man’s necessity. Let those who need “things” exercise their entitlement to them. Rewrite or ignore laws to exempt the oppressed who take, or do, what they want as atonement for past systemic racism and oppression. Six, junk the ossified idea of a melting pot and multiracial society united by common American values and ideals. Instead, identify individuals by their superficial appearance. Seek to be a victim and monetize your claims against perceived victimizers. Call anyone a “racist” who resists. Encourage each tribe, defined by common race, ethnic, gender, or sexual orientation affinities, to band together to oppose the monolithic “white privilege” majority. Encourage social and tribal tensions. Racially discriminate to end discrimination. Greenlight statue toppling, name changing, boycotting, cancel culturing, ostracizing, and Trotskyizing. Erase the past, control the present, and create a new American person for the future. Seven, render the United States just one of many nations abroad. Abandon Afghanistan in shame. Leave behind thousands of loyal Afghan allies, billions of dollars in equipment, a billion-dollar embassy, and the largest air base in central Asia. Appease the theocracy to reenter the Iran nuclear deal. Beg enemies like Venezuela, Russia, and Iran to pump more oil when it is politically expedient for us to have abundant supplies—oil that we have in abundance but won’t produce. Discourage friends like Guinea from producing more energy and cancel allies’ energy projects like the EastMed pipeline. Trash but then beg Saudi Arabia to pump more oil right before the midterms for domestic political advantage. Eight, neuter the First Amendment. Enlist Silicon Valley monopolies to silence unwanted free speech while using Big Tech’s mega profits to warp elections. Declare free expression “hate speech.” Criminalize contrarian social media. Nine, demonize half the country as semi-fascists, un-Americans, insurrectionists, and even potential domestic terrorists. Try to change inconvenient ancient rules: seek to pack the court, end the filibuster, junk the Electoral College, and bring in two more states. Twice impeach a president who tried to stand in your way. Try him when he is an emeritus president and private citizen. Raid his home. Seek to indict a future rival to the current president. Ten, never mention the origins of the COVID virus. Never blame China for the release of SARS-CoV-2 virus. Exempt investigations of U.S. health officials who subsidized Chinese gain-of-function research. Ignore the Bill of Rights to mandate vaccinations, mask wearing, and quarantines. We have done all of the above. It would be hard to imagine any planned agenda to destroy America that would have been as injurious as what we already suffered the last two years. Tyler Durden Mon, 12/05/2022 - 17:00.....»»

Gold's Climb Amidst Wisdom's Decline Authored by Matthew Piepenburg via GoldSwitzerland.com, As the latest headlines from the FTX implosion remind us yet again of a politicized and rigged market riddled with deception, gold’s climb becomes easier to foresee. But first, a little philosophical musing… Modern Policy: High Office, Low Wisdom I have often referred to La Rochefoucauld’s maxim asserting the highest offices are rarely, if ever, held by the highest minds. Nowhere has this been more apparent than among the halls of the physically impressive yet intellectually vacant Eccles Building on Constitution Ave in Washington DC, where a long string of Fed Chairs have been un-constitutionally distorting free market price discovery for over a century. The media-ignored levels of open fraud and inflationary currency debasement which passes daily for monetary policy (namely monetizing trillions of sovereign debt with trillions of mouse-clicked Dollars) within the FOMC would be comical if not otherwise so tragic in its crippling ripple effect to the Main Street citizen. From Greenspan to Powell, we have witnessed example after example of error after error and gaffe after gaffeon everything from mis-defining inflation narratives as “transitory” to re-defining a “recession” as non-recessionary. And all this while the Fed (and its creative writing team at the BLS) simultaneously and deliberately fudges the math on everything from misreported CPI data to artificial U6 employment statistics. Pondering the Philosophically Nobel Amidst the Administratively Dishonest To any who have pondered the philosophical pathways (as well as elusive definition) of wisdom (from the ancient Greeks to the pre- and post-modern Europeans, romantic Emersonians, tortured Russians or enlightened Confucians), one common trait of wisdom through time, culture and language is the ability to admit, and then learn from, error–as any man’s journey is one riddled with countless opportunities for teachable error. Yet when it comes to public mea-culpas and the grand teaching moments of “I was wrong,” it seems our central and commercial bankers have failed miserably. Infallible Bankers or Exceptional Finger Pointers? Not only have bank leaders taken little to no responsibility for (or contrition of) their many financial, political and moral sins (think billion-dollar bailouts, a 0 in 10 record for recession forecasting or the creation of the greatest and levered asset bubble and wealth transfer in history), they have a remarkable talent for blaming anyone (Putin et al) or anything (COVID or coal) but themselves or the derivative toxins and unpayable debt piles they alone created… In summary, it seems we are living in era of great change, great turmoil and great risk, yet also one of very little accountability, transparency and hence: wisdom. Sustained Levels of Mediocrity Instead, from DC to Wall Street, Tokyo to Brussels, Canada to Australia, and Brainard to Draghi, the world is increasingly led by figures (left, right and center) who are capable, at best, of little more than a sustained level of mediocrity and an over-paid repertoire of canned phrases and prompt-read platitudes rather than actual, economic savvy, candor or personal wisdom. Such high-office mediocrity and lack of wisdom, of course, spills well beyond the centers of political power and office; in fact, it thrives with equal force in the private sector and public markets, as any who have tracked and pre and post Enron world will and do know… Modern Dystopia: High Tech, Low Wisdom As to more recent scandals and headlines related to the staggering blowout at FTX, enough has already been written/said of its impressive mix of fraud, leverage and corrupt (paid-for) politics for me to add more mathematical detail here. Unfortunately, FTX’s scandalous scheming with investor money (ala Madoff) and bank leverage (ala Bear Sterns) is nothing new. The broader sins of fractional reserve banking, historical debt levels and trillions in mouse-click monetary policies have effectively murdered honest capitalism within a rigged-to-fail financial system whose destructive consequences far outpace the FTX headlines of late. I am thinking of 1) the leverage-poisoned MERK, compliments of Leo Melamed and Alan Greenspan in the 80’s, 2) a completely fixed paper gold pricing exchange, 3) the post Glass-Steagall (nod to Larry Summers) banking era which turned depositor accounts into levered ammunition for banks speculating like hedge-funds or 4) the open fraud (legalized counterfeiting) which daily passes for monetary policy at a central bank near you. As Henry Ford warned, if more folks actually understood banking practices and the false idols hiding behind expert masks, the net result would be chaos. Patterns of Fake Genuis As for the recent chaos in the C-suites of our tech leadership, an equally clear, and all too familiar pattern of under-30 millionaire/billionaires (from WeWork’s Adam Newman to Facebook’s Mark Zuckerberg or FTX’s Sam Bankman-Fried) is the now obvious as well as inverse correlation between so-called “technological genius” and basic human wisdom. In short, we would be right to ask if our modern technological progress and high-office prestige has far outpaced our human wisdom. All Piano, No Music As Antoine de St. Exupery warned (as far back as 1944), the world is capable of producing 1000 pianos per hour but unable to produce enough worthy pianists to play them. In short, the speed of our so-called “progress” (from computer chips, social media, Fauci-science and digital money to de-regulated margin accounts) seems to have tragically outpaced the philosophical measure of our wisdom. Despite some wonderful exceptions from Wall St to Pal Aalto, many of our best and brightest are driven by the timeless and “human all too human” impulses of greed, FOMO, and telegraphed/photographed virtue-signaling rather anonymous good work or honest commerce. Sam Bankman-Fried (SBF), for example, was a master at appearing like a Robin Hood despite having the instincts of a robber baron. Self-Service Masquerading as Virtue Signaling The end result is a literal “selfie culture” which, fractured by identity politics, victim narratives and resentment on the fly, has morphed into a priority of the “I” over the good of (or genuine concern for) the many. This trend is equally true of our public and private markets. Moral, legal and economic laws have become more and more, shall we say… “elastic” as the sins and consequences (from currency debasement to anti-trust/monopolies and cancerous debt levels) of one generation are happily billed to the next. Such patterns of ignored decencies/rules in which a Madoff sits comically on the NASDAQ board or an SBF ironically teaches a paid-for Congress about crypto safety, are common. Equally disconcerting is a celebrity-mad population who trusts its mandate science to Spike Lee or its crypto advice from Matt Damon. If one is financially “successful” it is assumed he is wise; that is a dangerous assumption… Meanwhile, headline spin and financial lobbying has replaced the ideal of genuine capitalism with a kind of neo feudalism in which figures like Bezos (with easier access to capital after years of violating anti-trust principles and CEO-to-employee salary ratios) have become part of a new aristocracy rather than exemplars of democratic meritocracy or fair-priced capitalism. Back to the Markets: What FTX Portends Given the foregoing cynicism/realism emanating from our modern markets, there is still much we can glean about the direction of, and risks to, our current markets. For example, it will come as no surprise that the FTX fiasco has already been spun into a positive rather than negative narrative for the BTC camp. As to cryptos in general and BTC in particular, I have already written and spoken at length of my views. Toward this end, and to the understandable chagrin of the crypto camp, I (rightly or wrongly) view BTC more as a speculative growth/tech stock than as a viable alternative currency or long-term store of value. Nothing about the recent FTX blowup has altered this view. Again (and I could very easily be wrong), I don’t see BTC as money, a view which seems to be shared by a large number of emerging markets and central banks who are loading up on record amounts of physical gold rather than invisible cryptos. Just saying… And to re-heat a tired yet accurate quote by JP Morgan, I (we) still fully embrace the “barbarous” notion that gold is money, the rest is credit/debt. BTC As Market Indicator Regardless, however, of one’s views, biases or take on cryptos, Bitcoin’s pricing still has immense relevance to modern markets, including gold markets. In terms of US stocks, for example, BTC has been an exceptional leading liquidity metric outside of the derivatives markets or Fed-manipulated bond markets. In other words, stock, bond and even property markets tend to behave and move a lot like BTC behaved just a short period before. In short, and regardless of one’s pro or con take on BTC, as an asset class and market indicator, this “coin” still clearly matters. BTC: Local to Systemic Sickness? And perhaps more to the point: As a tanking asset class with trillions in losses, BTC, like any bleeding asset in a grotesquely over-levered system, really matters. Why? Because BTC’s local sickness can easily become systemic. The risk of this systemic spread, for example, will increase if there are less and less “dip buyers” for BTC, especially when inflation factors should otherwise favor the asset. The potential for such a low-bid trend for BTC (based on FTX-like fears of broken exchanges and hence broken TRUST) could easily and accurately portend a low-bid contagion effect in the broader equity markets in general and the already bleeding tech sector in particular. That said, an increasingly cynical as well inflation-ravaged generation of jaded outsiders are feeling increasingly cornered, which means they have less and less to lose. This desperation may lead to more distrust in the system and hence more buying of BTC as a modern 9and fully understandable) middle-finger to that system. For now, let’s wait and see what the post-FTX trend will be for BTC; I personally foresee an eventual (though not immediate) rip in its price. The Bond Market Matters Equally, if not more importantly, the current and declining liquidity canary in the BTC coalmine, as stated above, has been a leading indicator for equal liquidity risks (and hence declining behavior) in the bond and property sectors as well. With US debt to GDP levels above the precarious 120% level and US deficits spiking, Uncle Sam is going to need to need to find liquidity somewhere to cover its bond obligations. One can not emphasize enough how much this bond market matters. Hawk to Dove—A Brewing & Golden Tailwind And as I’ve been arguing ever since Powell went Hawkish, it is my conviction that such liquidity will ultimately (and only) be found when that hawk becomes a doveand the Fed reverts to the desperate mean of relying (tragically/addictively) on the only consistent income source it has, namely: A mouse clicker at the Eccles Building. Such mouse-clicked “magical money,” of course, has immediate as well as immense inflationary and currency (USD) ramifications, which means the pivot will have immediate as well as immense ramifications on the price of gold in USD.   Expanding Deficits: More Tailwinds for Gold Equally bullish for gold yet equally tragic for the US are the recent (and doubling) deficit forecasts coming out of DC. That is, the US Treasury has already announced its borrowing amounts for the next 6 months ($1.3T), which is an indirect way of revealing a federal deficit doubling (on an annualized basis) for the same period. For me, the implications of such added debt levels are mathematicalrather than just cynical or political. That is, Uncle Sam simply can’t afford to pay ever-increasing debt piles of this embarrassing magnitude unless interest rates are decidedly negative rather than painfully positive. Stated even more plainly, all debtors love (and hence eventually engineer) inflation rates to be higher than interest rates. And since Uncle Sam (and the Fed) are not only powerfully distorted, but powerfully in control, one can easily predict what any all-powerful but debt-cornered policy hack would and will do as we stumble into 2023, namely: Seek more inflation and lower rates while simultaneously under-reporting inflation by at least 50%. How’s that for trust building, wisdom and central bank accountability? In the end, as wisdom dies from above, and hence trust rots from within as inflation rises and real rates go increasingly negative, Gold will do what it always does in such man-made settings—namely surge north as the USD, now artificially supported by rising rates, sinks dramatically south once those rates go dovishly in the same direction. Defaulting Bonds, Tanking Treasuries, Rising Gold Of course, as soon as the market collectively realizes that negative yielding bonds (the historical instrument of all debt-soaked and hence failing regimes) are effectively defaulting bonds, investor interest in US Treasuries will fall while interest in gold will rise, as is already the case: Cynics, of course, might say that $260B in gold is a trifle amount compared to other asset classes. Fair point. Gold: Repressed Today, Fairly Priced Tomorrow But here’s the rub: The central banks are (and have been) intentionally suppressing paper gold in order to take more physical delivery today before they inevitably reprice gold higher tomorrow to recapitalize their horrific balance sheets. This trend is easy to see simply because the rigged game played by the broken actors described above is as easy to predict as their lack of wisdom is easy to measure. As Egon and I have often remarked, the central banks are unwittingly gold’s best friend, for the bankers’ lack of wisdom and abundance of self-interest in otherwise desperate times makes them easy to track. Or stated more simply: As the system gets more corrupt (as it always does when backed against a debt wall and a moral vacuum), gold gets more loyal. Tyler Durden Fri, 11/25/2022 - 06:30.....»»

Vertiv Holdings Co (NYSE:VRT) Rating UNDERPERFORM Price (14-November-22): $14.93 Target price: $3.55 52-week price range: $7.76 – $27.97 Market capitalization: $5.6B Enterprise value: $8.8B Summary: Vertiv designs, manufacturers and services critical digital infrastructure for corporate customers, data centers, and hyperscale customers like Google, Microsoft and Twitter. VRT has booked almost $3B of unprofitable business in […] Vertiv Holdings Co (NYSE:VRT) Rating UNDERPERFORM Price (14-November-22): $14.93 Target price: $3.55 52-week price range: $7.76 – $27.97 Market capitalization: $5.6B Enterprise value: $8.8B Summary: Vertiv designs, manufacturers and services critical digital infrastructure for corporate customers, data centers, and hyperscale customers like Google, Microsoft and Twitter. VRT has booked almost $3B of unprofitable business in the last two years to project the optics of growth. .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Ray Dalio Series in PDF Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2022 hedge fund letters, conferences and more   Leverage has been increased aggressively to the point of financial distress due to lack of cashflow. There is documented evidence that management deliberately misled investors in order to help the PE owner reduce its stake in the company. VRT missed 4Q21 earnings on February 23, 2022 by an unprecedented amount for an industrial company. The stock was down 37% on the day. Management increased guidance repeatedly prior to the event. It has since announced “corrective” measures, lowered guidance several times for 2022, but provided a very optimistic outlook for 2023. The CEO resigned on October 3, 2022. Nothing has fundamentally changed. VRT’s structurally weak business model is caught on the wrong side of inflation with limited pricing power to customers while facing escalating input costs. VRT will likely have to announce a capital raise in the near-term, and should discuss the allegations detailed in the amended class action lawsuit filed on September 16, 2022, which have yet to be addressed publicly. A depleted product mix, excess leverage and management problems make us skeptical of the long-term viability of the business. There are three key issues with the company: 1) Lack of cashflow and overleverage, 2) Credible allegations of fraud and 3) Structural problems with the business model. Legal Disclaimer After extensive research, we have taken a short position in shares of Vertiv Holdings Co. (NYSE:VRT). This report represents the summation of our opinions. In no way should this report be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions. Investors seeking investment guidance on VRT should consult resources with professionals licensed to provide investment advice. The investment banks Cowen & Co., Goldman Sachs, Deutsche Bank and JP Morgan are all listed as having securities analysts that cover VRT. These institutions have significantly greater resources than Dalrymple Finance and the banks’ opinions may differ greatly from ours. We strongly encourage investors to consult these professionals for advice. This is not a solicitation to transact in any of the securities mentioned. The data herein has been obtained from public sources we believe to be reliable. However, the information is presented on an ‘as is’ basis and we make no warranty of any kind as to the accuracy, timeliness and/or completeness of any material contained in this opinion piece. Employee Reviews Meltdown Oct 10, 2022 - Supply Chain Manager in Columbus, OH Pros I would say the people, but many of the good ones have left or are in the process of trying to leave Cons Seems like senior leadership was forced to bring all employees back to the office by the board chair. This strategy is slowly backfiring on them, however they continue to double down. I've never worked in a place where trust is so low towards senior leadership. I knew it was time to go when part of my job required me to track badge swipes. No thank you. - Underlying data integrity and overall integration of past acquisitions is SO messy. Very difficult to run a business on multiple ERPs when nobody can agree on what the source of truth is. Leadership strategy was quite confusing during my time there. Hopefully a new CEO in 2023 can turn the ship around ... or stop it from sinking entirely and becoming a business case study of what not to do. Absolute Dumpster Fire Aug 22, 2022 - Anonymous Employee Pros Some of the people that work there, but honestly not much. Cons Complete mismanagement by the executive chairman and CEO, terrible insurance, poor PTO policy, Johnson family in positions they’re not qualified for. Ethics Are Laughable Aug 3, 2022 - Senior Engineer Cons Unfortunately, those leaders will most likely never recognize their potential at Vertiv. Decisions are made in the company in a complete knee-jerk vacuum. They have an ethics policy that only applies to the pee-ons since family members in senior leadership positions report to each other. I wonder how they square that up with the things they wrote in the "company handbook". The company has a philosophy of just buying stuff and not investing in people. They have millions of dollars in software licenses and hardware devices sitting on shelves for years, but you can't get a backfill for someone who leaves because they are working 75 hours a week because they took over the duties of the last person that left. Advice to Management Get rid of the CEO, CFO, and their family members and start making decisions in the organization's best interest instead of a tiny nepotic circle. Vertiv: The Trifecta of Trouble: Cash-strapped, Low-margin and Fraud Prone Vertiv (VRT) sells power, cooling and racking hardware to data centers. It was taken public via a SPAC in early 2020 as a turn-around play in a growing sector where a legendary industrials manager, David Cote of Honeywell, would increase depressed margins driving profits and cash flows. The reality is quite different. VRT is a cash strapped, low margin business operated by a conflicted management team currently working under the dark cloud of credible claims of fraud. In 2021, management repeatedly provided detailed assurances to investors it was mitigating inflationary pressures with price increases that would create margin and drive cash flow later in the year. Instead, the company reported a catastrophic earnings miss in 4Q21. Lawsuit allegations that management mislead investors to artificially inflate the stock price are corroborated by management’s own subsequent comments together with testimony from high-ranking former executives. We believe nothing has changed in 2022. After lowering guidance several times, the stock is being held up by the prospect of a financial turnaround in 4Q22 and 60% operating profit growth in 2023. The company is unlikely to meet either, in our view. Prior to reality hitting the stock, we expect management to conduct an equity offering to avoid a cash crisis. The offering, and a 4Q miss will kill faith in the 2023 narrative and catalyze stock’s ~70% decline to fair value of ~$3.50. Key issues include: Management problems, credible allegations of fraud The conflicted management team is heavily weighted with appointees from Platinum Equity, the PE sponsor, and the CEO’s family members. Numerous former executives have provided convincing testimony supporting allegations that management misled investors and omitted material facts. The damning evidence is an ‘elephant in the room’ that needs to be publicly addressed. Financial distress and cash shortages A $408M cash burn thus far in 2022, low cash balances, little credit availability and a distressed debt/EBITDA multiple of 8.3x make the company vulnerable to a cash crisis. Distress is evident in VRT being put on “credit hold” - vendors refusing to fill orders - for non-payment of outstanding balances. We believe management will front-run the expected 4Q miss and avert a cash crisis with an equity offering. Post LBO structural issues Asset sales to fund dividends and product discontinuances have left the company’s mix dominated with good quality, but lower margin products. This combined with large hyperscale buyers flexing their market power by pressuring prices lower and payment terms longer, create a structurally sub-par business. We are skeptical of VRT’s long-term viability. A combined primary and secondary share offering Platinum still owns 38M shares and the lock-up recently expired on 23M of insider shares from the acquired E&I Engineering. We expect an imminent offering of ~20M primary and ~40M secondary shares for a total of 60M, increasing the float ~20%. Investment Thesis and Valuation VRT is a broken business. It was a low margin division of its former corporate parent, Emerson Electric (EMR), and profitability eroded further after it was purchased in late 2016 in a $4B LBO by Platinum Equity. Platinum sold VRT’s most profitable division and discontinued two well-regarded software lines to fund a $1B cash-out dividend in 2017. The LBO and subsequent mismanagement of the company left VRT with a depleted product mix of good, but low margin lines, and excessive levels of debt and weak cash flow. The diminished and levered company was taken public in recapitalization transaction in early 2020 via a SPAC at a $5B valuation after failing to get support for a traditional IPO. VRT was sold to investors as a turnaround story. Legendary industrials manager David Cote, credited with turning around Honeywell, was behind the SPAC. It was said, he would turn his skills to VRT, increasing margins to drive profitability and cash flow. Platinum exited the transaction with 118M shares of VRT and an allowance of two registrations per year. The de-SPAC’ed stock did well through 3Q21 even though the margin growth promised did not materialize. Between August 2020 and November 2021, the strong stock allowed Platinum to sell 80M shares at prices ranging from $15 to $25 for total proceeds of $1.55B. Including the earlier dividend and a cash payment received on the IPO, Platinum had collected approximately $2.4B in cash proceeds from its original $1.2B investment, and still has 38M shares remaining. The handicapped business is made worse by a conflicted and ethically compromised management team. Senior management is dominated by Platinum appointees and family members of the CEO, who recently announced his retirement for health reasons. The board of directors contains two Platinum appointees. Although the stock held well in in 2021, margins and profits did not materialize as promised. The stock was driven largely by management’s continued assurances to investors on conference calls, at industry conferences and in media that the company had taken pricing action and was making progress on improving margins. Increasing profits and cash flow would follow late in the year. The stock fell apart on reporting a significant earnings miss in 4Q21, declining -37%, an unprecedented amount for typically staid reports of industrial companies. On the call, management admitted to being “behind the inflation curve all year” seeming to accept responsibility, while simultaneously pinning the failure on sales people for giving discounts. The truth about the gap between management set expectations and actual results was revealed in an amended class action lawsuit filed in September 2022. The testimony presents credible evidence of fraud committed by management, detailing how they wove a public narrative of taking pricing actions and reducing discounts to improve margins while touting a large and growing backlog. In reality management took no pricing actions, directly approved discounts, and the backlog was “off the charts unprofitable” and would stay that way contrary to management statements, because, the company was contractually prohibited from raising prices on large orders. The lawsuit alleges that management mislead investors and omitted material facts to artificially inflate the stock price. The testimony convincingly corroborates the allegations. We do not think anything has changed in 2022. Management continues to over-promise and under-deliver. The two key metrics are adjusted operating profit (AOP), which is operating income plus intangibles, and free cashflow. Near-term AOP guidance has been lowered significantly, while full-year expectations have come down less. Free cash flow guidance started at $150M and was lowered to $0 in August. In early October as part of the announcement of CEO Robert Johnson’s retirement, the company lowered full-year AOP guidance to approximately $460M from $480M. Free cash flow expectations were not addressed, but management proffered an exceptionally optimistic long-range guidance of 60% AOP growth to $740M for 2023. The strong forward guidance softened the blow of another near-term disappointment. Just 3-weeks later on the 3Q22 call, free cash flow guidance was cut from $0 to ($125M). Management offered an explanation for the weak cash flow on the 3Q call. In our estimation, a management team keenly focused on driving free cash flow would have been aware of the problem earlier. Changes in the contour of 2022 guidance mean 50% of annual AOP is now expected in 4Q22, and the large negative YTD free cash flow of ($408M) is to be mitigated by $283M of free cash flow generation in the quarter. It is an unprecedented turnaround in financial fortunes we believe the company is unlikely to achieve. We think it’s questionable whether VRT can meet either 4Q22 or 2023 forecasts. Management guidance making 2022 results entirely dependent on an unprecedented 4Q turnaround paving the way to 60% profit growth in 2023 carries a sense déjà vu. In our view, it is not credible. The resurgent stock price is likely the result of investor focus on 2023 guidance, which creates the illusion of a cheap stock, and the recently announced 7% stake taken by an activist investor. We don’t expect the enthusiasm for the stock to remain. VRT is still an excessively levered, cash-strapped, low margin business. The high cash burn and inadequate liquidity make the company vulnerable to a cash crisis if 4Q22 free cash flow forecasts are not met or exceeded. We think it is highly likely that the company misses 4Q free cash flow guidance. We don’t believe management will risk a cash crisis in this environment. More likely, in our view, is that they take advantage of the current stock price by conducting an equity offering while investors await strong 4Q22 results and anticipate a robust 2023. We expect a combination primary and secondary offering and another 4Q profit miss to catalyze a steep decline in the stock. Valuation Platinum purchased Vertiv from Emerson Electric (EMR) in November 2016 at an enterprise value of $4B when the company generated $572M in EBITDA. In 2021, after 5-years of Platinum ownership, VRT produced $497M in EBITDA. Despite the poor performance during the Great Data Center Boom, VRT currently trades at an EV of over $8B, twice the debt-free valuation at which it was purchased. VRT’s stock got a boost recently when activist fund Starboard Value announced it took a 7% position in the company. The fund appears to be buying into the same margin expansion story management has been selling since the original SPAC presentation in 2019. Starboard also maintains that VRT is undervalued relative to peers. That might be the case if using management’s forward guidance. Using actual financial performance shows the company to be the most highly valued among peers by most metrics. Starboard was the SPAC sponsor of another discredited data center story – Cyxtera Technologies (CYXT), which we wrote about. A version is available on ValueWalk. In the table below we show VRT’s comparative valuation with peers based on trailing 12-month performance. VRT trades at an EV/EBITDA multiple of 24x compared to an average of 15x for the group. VRT is the only company in the group that has negative CFO for the period. The long history of sub-par financial performance, the inability to generate cash, management’s high forecasting error, and financial distress lead us to conclude that the stock should trade at a discount to the group. Using a multiple range of 10-14x TTM EBITDA, we arrive at an average target price range of $3.55, ~76% below current prices. TABLE OF CONTENTS Low Margins, Cash Shortages and Leverage 2022: 9-months of disappointing results and more to come Profit margin compression A long history of cash shortages The evolution of debt A Broken Business Goes Public Platinum Equity’s monetization: A failed IPO and successful SPAC The 2021 Catastrophe Management Problems and Legal Consequences: Allegations of Fraud The legal fallout: testimony implicating management 2022 and 2023: Continued (Mis)Guidance Appendix Timeline of events including the stock price Platinum Equity’s Vertiv investment Long-term financial statements Low Margins, Cash Shortages and Leverage Vertiv was sold to investors in 2019 as a turnaround story. It was a company with strong sales, but weak margins. Large competitors such as Schneider Electric (SU: Paris) and Legrand (LR: Paris) have average gross margins of 40% and 50%, respectively; and operating margins of 17% and 20%, respectively. This compares to 27-33% gross margins and 1.5-5.2% operating margins for VRT. Problems with margins have been persistent since the company came public in 2020. We believe VRT has not been able to improve margins to industry levels partly due to the mismanagement detailed in the lawsuit as well as structural issues with the business. Below we detail the current state of finances followed by a summary of VRT’s long history of sub-par performance. Our exhibits show summary results. Detailed models can be found in the Appendix 2022: 9-Months of Disappointing Results and More to Come 2022 has been a financial disappointment thus far. Guidance for adjusted operating profit (AOP), defined as operating income plus amortization of intangibles, was reduced to ~$460M from $525M. The 3Q22 financial report revised free cash flow guidance to ($125M) from $0 in august and an original $150M. AOP and FCF expectations for 2022 are both below the disastrous 2021 results. The table below shows summary financial performance on a year-to-date basis along with estimates of results required to meet management’s latest guidance. Key indicators including gross margins and free cash flow have been very weak thus far. Management guidance assumes material improvements in both in 4Q. VRT has burned ($334M) in CFO and ($408M) FCF thus far in 2022. Working capital accounts absorbed $448M in cash with inventory and accounts receivable accounting for roughly 50% each. On the 3Q22 conference call, management explained poor cash flow citing elevated levels of inventory necessary for high 4Q sales and delayed cash collections, including advanced payments on large orders. We find it inconceivable that management was unaware of the impact of inventory and collections on cash flows until the 3Q call, begging the question as to why they did not cut FCF guidance on the October 3rd business update? Additionally, management’s explanation of the weak cash flow indicates VRT is being forced to finance customer purchases. It is yet another instance of the hyperscale data center operators flexing their buying power muscle at the expense of supplier margins. In discussing pricing changes, management said it has clauses built into “some” contracts. These are pricing bands that can go up and down with changes in underlying materials pricing. This means that some price gain can be clawed back under certain circumstances. In our view, the terms suggest a continued long-term lack of pricing power. Part of VRT’s profitability issues stem from the underperformance of E&I Engineering, which was acquired in 3Q21 for $1.8B and a hefty estimated 4.4x EV/revenue. Discussion on the 3Q conference call indicate E&I’s current profit contribution is only ~ 20% of original expectations. In our view, E&I’s underperformance raises the possibility of a year-end impairment charge. VRT’s total debt rose $273M to $3.3B since 4Q21. VRT negotiated an increase in the ABL facility by $115M on September 20, 2022, but the term of March 2025 was NOT extended, signaling an unwillingness of lenders to commit to longer-term funding even on the most secure level. ABL debt rose from $0 in 4Q21 to $280 in 3Q22. The cash balance as of 3Q22 was $258M; the remaining $270M in ABL credit brings total liquidity to $528M. However, fully drawing all credit would represent a clear sign of distress, so practical liquidity is likely only ~$400M. That is not adequate cash and total liquidity for a company with nearly $6B in sales and $4B in annual cost of goods. The company had more than twice the cash balance in 2020 when sales and COGS were 23% and 29% below expected 2022 levels, respectively. An equity offering is necessary. 20M primary shares at current prices would raise almost $300M for the company. Additionally, Platinum still has 38M shares to sell and the lock-up on E&I insiders for 23M shares ended on November 1, 2022. We think there is a high probability that the company does a combination of primary and secondary shares for a total of 50-80M shares. Assuming 20M primary and 40M secondary, total shares outstanding and the float would increase ~5% and 20%, respectively. Profit margin compression As part of Emerson, VRT had ~$4.3B in sales with EBITDA margins of 10-13%. The financial profile deteriorated under Platinum Equity’s stewardship with declining sales, profits, and increasing leverage ratios, as shown below. The trajectory of the P&L after 2016 reflects declining profitability associated with Platinum’s monetization through the sale of ASCO, the most profitable line in VRT’s portfolio, and focus on top-line growth rather than profitability. The 8.3x EV/TTM EBITDA ratio signals distress. It declined briefly when debt was paid down with the recapitalization, but has reverted quickly due to the lack of profitability. Gross margins for the 9-months of 2022 of 27.4% are 1000 bps below the average margin generated when the business was owned by EMR. Part of the margin issue stems from the $3B unprofitable backlog the company built during 2021. In public forums, management asserted they were taking corrective pricing actions to improve margins in the face of raw materials inflation, but in actuality nothing was done. Lawsuit testimony revealed that the company was contractually prohibited from raising prices on large orders. Financial distress compounded margin issues. Lawsuit testimony notes VRT gave 2-3% discounts in exchange for up-front payment at least up to the “big miss” reported in February 2022. Supply chain issues were a significant problem in 2021 and linger today. Management frequently cited supply chain issues as the reason for making “spot” or “grey market” purchases of materials and higher prices. This was only partially true. Lawsuit testimony states that vendors were ‘decommitting’ to orders and putting the company on “credit hold” because VRT was not current on its payments. Thus, the company’s problems were to some extent the result of financial distress and mismanagement. VRT’s low profitability, inability to develop margin, and high leverage are particularly poor relative to peers. Legrand and Schneider navigated 2021 without losing margin and although Hubbell lost 200 basis points of margin in 2021, it built it back in 2022. In contrast, in the 9-months of 2022, VRT’s gross margins 630 basis points below 2020 levels. A long history of cash shortages Overall profitability problems evident on the P&L are shown in VRT’s long-term inability to generate cash flow, as shown below. In the almost 5-year period shown, VRT has generated a aggregate of ($78M) in cash flow from operations and ($523M) in negative free cash flow. The company has raised a total of $1.8B largely from the SPAC recapitalization to fund the deficits. 2021 FCF of $158M looks merely lackluster in the financial context of the disappointing ($408M) thus far in 2022 and $163M for 2020. However, in the context of both the industry and management’s guidance, 2021 was a disaster. VRT’s 2021 cash flow margin of 4% is significantly below industry averages. Companies such as Schneider Electric (SU:PA), Legrand (LR:PA), and Hubbell Inc. (HUBB: NYSE) had depressed CFO margins averaging 13.7% in 2021, down from an average of 17.7% in 2020. Management’s original FCF guidance of $300M, which was valid through the 9/8/21 reduction, roughly $353M of CFO for the year. The actual result was 30% below at $211M. The magnitude of the cash flow miss in 4Q21 from recent guidance is highly unusual in the typically staid reporting conventions of industrial companies. It shocked investors. The Evolution of Debt Platinum put $3B of debt on VRT’s balance sheet when the LBO transaction took place, increasing to $3.5B, declining to $2.2B with the SPAC recapitalization transaction. In 2021, the company increased debt by approximately $1B largely to cover the cost of the E&I Engineering acquisition. In 3Q22, the company increased the ABL facility by $115M to $550M and drew a total of $280M. The interest rate on the ABL facility increases with utilization. At the current utilization rate of 49%, we estimate VRT pays 4% annually. If borrowing increases ~$88M to $368M, the interest rate will increase to 4.5%. Interest expense is increasing along with debt levels and overall rates. In 3Q22, interest expense increased $5.4M or 16% sequentially to $38.8M; it increased 75% or $16.6M y/y from $22.4M. We interpret the companies minor increase and rapid utilization of the ABL as another sign of distress. The lack of operational cash has forced the company to fund working capital needs with debt, leaving only $270M of available credit. A Broken Business Goes Public When Emerson put its Network Power division up for sale in 2016, the company first tried to find a strategic buyer at a $4B price tag and steep 18x EV/EBIT valuation. It was not an easy sale. Revenues at the business had declined 28% from 2011 to 2014, and was one of Emerson’s least profitable lines. Dave Farr, EMR’s CEO at the time and responsible for building Network Power, noted that “he would not want that put on his tombstone”. When interested strategics balked at the price and walked away, EMR filed a form 10-12B with the SEC for a spin-off to shareholders. The spin-off never took place. Private equity intervened. Platinum Equity purchased Network Power, now Vertiv, in a $4B LBO financed with $1.2B of debt and $3B of company level debt. The company had numerous good product lines including ASCO, the Automatic Transfer Switch (ATS) company, Liebert’s power and colling products, and two well-regarded software line. However, following the LPO, key products have been sold and neglected. In November 2017, one year after purchasing the company, Platinum sold the ASCO Power division to Schneider Electric. ATS switches automatically transfer between base and back-up power sources. In the case of data centers, it is between the utilities and UPSs. It is a core power technology that ensures facilities remain online. ASCO was critical part of VRT’s product portfolio. According to VRT’s original presentation, the whole company generated $3.865B in revenue in 2016 with $472M of EBITDA and a margin of 12%. According to this article, in 2016, ASCO generated $468M of revenue with $107M of EBITDA and a margin of 23%. ASCO was VRT’s most profitable business, generating 12% of the revenue but 23% of EBITDA. The ASCO technology and strong market share in the U.S. catapulted Schneider to leadership position in key data center power chain. The division was sold for $1.25B or 11.7x EBITDA. While Platinum presented the sale as a “step forward in their evolution as the premier provider of digital critical infrastructure solutions”, we believe it was a known strategic error, a sacrifice made to private equity IRRs. According to VRT filings, the company paid Platinum a $1.024B dividend in 2017, leaving the business burdened with the same debt, little equity and short the most profitable product line. Platinum followed the ASCO sale with several small acquisitions. In December 2017, VRT acquired the private thermal management company Energy Labs for $149.5M. Two weeks later in January 2018, the company acquired data center equipment provider Geist. Geist provided Power Distribution Units (PDUs), which control and distribute electrical power in data centers. As noted in this article, the acquisitions appeared to signal VRT’s new direction. The purchases gave VRT access to reams of data that could be incorporated into the company’s data center infrastructure management product (DCIM), Trellis, which was an industry leader. That was not to be. Vertiv’s leadership in software completely eroded when Platinum took over. The company’s popular Aperture Asset Management software was discontinued in 2017, and Trellis became an unwieldy behemoth of an application. It, too, was discontinued. DCIM software has been a challenge and is in the process of evolving. That said, VRT management willingly gave up its market leadership position in the segment. The absence of a solution means customers will go elsewhere, and perhaps they will bring their hardware orders along with them. Key competitor Schneider Electric has advanced where VRT has retreated. Schneider has continued to invest despite challenges in the data center software space. In June 2022, the company announced DCIM 3.0, a complete overhaul of their system. Networks are becoming larger and more distributed, making them more complex and difficult to manage. This combined with the trend to automate data centers means that VRT abandoned key software products (and related R&D spending) at a time when automation will drive the toward increased reliance on software. Customers operating large, distributed networks will need monitoring tools for asset tracking and predictive maintenance. As this article notes, management’s decision to discontinue its product lines leaves the company “under-invested in software”. We think the company’s current product portfolio is wanting. Power products focused on Liebert’s uninterruptable power supplies (UPS) has been augmented with the recently acquired higher-margin E&I Engineering’s switchgear, but ASCO’s ATS line was a key pillar of the segment. Liebert and Geist’s thermal lines are competitive as well. However, despite being well regarded in services, we believe the discontinued software products diminish the effectiveness of the portfolio as a whole. Under Platinum’s stewardship, VRT’s most profitable, industry-leading division was sold to fund a dividend; important software products were discontinued, likely to cut costs in effort to cover the cost of leverage. The long-term cost of product portfolio neglect, is the erosion of competitive positioning, margins and earnings power. We believe this is evident in the continued lack of pricing power. As noted in the lawsuit “no one would pay list price”. In the table below we show VRT’s performance under EMR and the pre-IPO performance following Platinum’s acquisition. As is evident in the numbers, VRT did not recover from the sale of ASCO, and despite the discontinuance of the software lines, and associated R&D, VRT’s financial performance never recovered to the modestly profitable levels when managed by EMR. Platinum’s Monetization: A Failed IPO and Successful SPAC Just two years after purchasing VRT in 2H18, Platinum approached Goldman Sachs looking for strategic alternatives for Vertiv, including a potential IPO or sale. Moody’s rated the company’s debt Caa1 and Caa2, one notch above ‘default imminent’. During the period, the company acquired the maintenance business of MEMS Power for an undisclosed sum. We assume that Goldman could not offer Platinum an attractive alternative, as according to the proxy associated with VRT’s IPO, the discussions were soon ended. Goldman soon found a suitable opportunity for Platinum’s exit. In March 2019, introduced Vertiv/Platinum to GS Acquisition Holdings Corp. (GSAH) a Goldman Sachs affiliated SPAC with David Cote, former CEO of Honeywell. On December 9, 2019, GSAH’s board had approved the acquisition of VRT. The initial investor presentation noted that “renowned diversified industrial executive” David Cote, would take the role of Executive Chairman. At the helm of CEO would be Rob Johnson, an industry veteran brought in by Platinum in 2016 from venture capital firm Kleiner Perkins. The investment thesis on Vertiv was the management would improve margins and drive profitability and cash flow to industry levels. The proposed transaction was for total SPAC and PIPE equity of $1.93B. The public SPAC holders were to hold 20% of the equity, the sponsors 5%, PIPE investors 37% and Platinum 38%. Including net debt of $1.94B the total enterprise value of VRT was expected to be $5.3B. Upon consummation of the merger, Platinum received $342M in cash consideration allowing with the 118M shares. At the time of the IPO Platinum had already extracted $1.34B in cash and held a stock position with $1.54B. Platinum had the right to register shares twice a year. The firm began selling immediately following the expiration of the 180-day lockup. In August 2020, Platinum sold 23M shares for $350M in proceeds; in November 2020, it sold 18M shares for $301M in proceeds. 2020 was a forgiving year. Overall, sales were down modestly, but EBITDA margins registered a slight increase. Most importantly, the stock price increased from the IPO merger price of $10 to $18 despite the lackluster results. 2021 would be quite different. The 2021 Catastrophe The first three months of 2021 was business as usual. The company reported 4Q20 and full-year results in February, characterizing them as ‘strong” despite widely missing the mark on adjusted operating profit and free cash flow projections shown in the initial SPAC presentation. Management boasted of the growing backlog and Executive Chairman David Cote noted that there were “sales growth and margin rate expansion opportunities abound”. Further, guidance was promising with mid-single-digit sales growth, but 68% y/y growth in AOP. The company expected $575M in AOP and $285M of free cash flow in 2021. Three business days following the call, Platinum sold a large block of stock - 17.4M shares at new highs of $20.14, netting the PE firm $350M in cash. Things began to change with the 1Q21 call in April. The company beat AOP guidance for the quarter, but there was a great deal of uncertainty in the industry. Inflation and supply chain problems were challenging margins of the industry as a whole. This was particularly concerning for VRT, the investment thesis for which was centered on margin expansion. Despite the uncertainties, the company raised guidance for the year. When an analyst questioned the company’s ability to raise prices, CEO Rob Johnson said we have “a good process to drive prices through with our customers on a global scale”. Regarding the $2B backlog, Chief Business Officer Gary Niederpruem stated that “we’re not saying there is nothing we can do there.” “We are taking action there as well.” VRT beat AOP guidance once again in 2Q21 reported on July 28th. The company also raised guidance for the second time. AOP guidance was raised to $595M and free cash flow to $300M for the year. Despite the positive results and increased guidance, on the 2Q conference call, analysts continued to question management on pricing power. On the call, management assured investors that pricing actions would positively impact full-year results contributing $65M to profits. The lawsuit notes that management claimed they were raising full-year AOP guidance to $600M because of “additional pricing action” and “pricing programs” that were “already underway”. The narrative defined by rising profitability and cash flows began to fray only 5 weeks later. On September 9th, VRT announced the acquisition of E&I Engineering for $1.8B, including $1.2B of cash and $600M of stock. Management reduced 2H21 expectations in an update on business conditions as part of the release. Guidance for 3Q21 AOP was lowered -19% to a mid-point of $130, while annual AOP was lowered -10% to $540 from $600M. FCF guidance for the full-year was lowered -31% to $205M from $300M. The stock wavered and declined from the upper $20s to the lower $20s, but swiftly recovered as the 3Q21 reporting date of October 27th approached. The company met lowered guidance for 3Q21. On the conference call, management reiterated that they were making good progress on mitigation inflationary pressures. Analysts noted that the tone of the call was much better than that only 3-weeks earlier. Management stated that 3Q would represent the inflationary peak and re-raised AOP guidance modestly from $540M to $553M. Annual free cash flow guidance which was lowered to $220M from $300M in September was maintained. The stock held well and three days after the call, Platinum sold 21.9M shares at $24.83 for total proceeds of $544M. Management’s narrative completely unwound on February 23, 2022 when the company announced a massive earnings miss, which we show below. The company missed quarterly AOP guidance by 47% and free cash flow by 89%. The conference call was a combination of a seeming mea culpa and acceptance of responsibility for being behind the inflationary curve the entire year, and blame game, pinning the lack of margin in discounts given by sales people. The stock closed at $13.20, down from $20.47 the previous day. Nigel Coe of Wolfe Research, who had queried management on pricing issues frequently and in detail stated “management’s credibility is completely shot” and “in our 17 years of covering industrials we can’t recall a drawdown of this magnitude.” Management Problems and Legal Consequences: Allegations of Fraud CEO Robert Johnson, CFO David Fallon and Chief Marketing Officer Rainer Stiller are all Platinum approved appointments having joined VRT in 2016 and 2017. Additionally, Platinum currently has two board members. The firm’s right to appointments will cease when ownership declines below 10%. Platinum currently owns just over 10%. The Platinum selected management team has been augmented with Mr. Johnson’s family members. Problems associated with the CEO’s family members as managers are a recurrent theme in Glassdoor reviews, as evidenced here and here. The company’s proxy indicates that Mr. Johnson’s brother, Patrick, was hired in 2017 and currently serves as an Executive Vice President of Integrated Rack Solutions. Patrick’s total compensation was ~$1M in 2021 including stock grants, down from $3M in the prior year. Another brother to Rob Johnson, Richard Johnson, was hired in 2018 and currently serves as Director of Global Strategic Clients. Richard’s total compensation was ~$500,00 including grants in 2021, up from $413,000 in 2020. Two of Rob Johnson’s sons work at VRT. Alexander Johnson joined the company as Manager of Channel Accounts CDW in 2018. Alexander received total compensation in 2021 of $320,000 including stock grants, up from $232,000 the prior year. Michael Johnson serves as National Account Manager and received total compensation of $140,000 in 2021. In our view, the concentration of allegiances to insider factions lends itself to the ethical lapses alleged and evidenced in the lawsuit testimony. On October 3, 2022, VRT announced the that Robert Johnson was stepping down from his role as CEO for health reasons. Giordano Albertazzi, President of Americas was appointed CEO. Mr. Albertazzi was formerly President of EMEA. He was likely behind the acquisition of the Irish firm E&I Engineering in 3Q21, which has been a material disappointment, adding $0.02 per share in profit when $0.10 was expected. The Legal Fallout: Testimony Implicating Management In the wake of disastrous 2021, VRT suffered two class action lawsuits, the first of which was voluntarily dismissed in May 2022. It was likely settled. The 2Q22 10-Q cites a legal settlement payment of $8.7M, which we assume to be for the lawsuit. We suspect settlement of the second lawsuit will not be so easy. The complaint alleges that management committed fraud and “made false and materially misleading statements in a scheme to deceive investors” and “artificially inflate the stock price”. The plaintiffs amended the complaint on September 16, 2022. The allegations and testimony details severe mis-governance and grave lapses of ethical behavior. Here is a link to the case. VRT’s 3Q22 10-Q addresses the lawsuit, noting that the plaintiff’s filed an amended suit claiming the company made materially false and/or misleading statements. It states that “while the company believes it has meritorious defenses against the plaintiff’s claims, the company is unable to predict the outcome of this dispute or the amount of any cost associated with the resolution”. We consider this a material disclosure. Most times, companies note that they consider the case ”without merit”. The Public Company Accounting Oversight Board (PCAOB) notes that “without merit” and “meritorious defenses” have specific meanings in the context of accounting documents. “Without merit” means that the likelihood of an unfavorable outcome is remote. The ability to provide “meritorious defenses” merely indicates that counsel believes that the company’s defense will not be summarily dismissed by the court. It does not necessarily indicate counsel’s opinion that the company will prevail. It also implies that the possibility of a negative outcome is not remote. Testimony focuses on several key points that management emphasized throughout the year: Emphasis of the large and growing backlog Continually assuring investors that price actions had been taken and would soon be evident on the P&L Frequent raising of guidance Supply chain issues, while persistent, had been effectively reworked Raw materials inflation, supply chain problems and product pricing were key issues across the industry in 2021. All competitors discussed the problems on quarterly conference calls. VRT management comments were no different in topic, but very different in substance and outcome. The narrative management wove throughout 2021 was that inflationary and supply chain issues were being dealt with effectively through both planning – sophisticated AI-driven order management software – and retroactively by working with customers to pass through price increases. Management clung to the narrative throughout the year, even, as testimony indicates, they knew it was not going to happen. It was an elaborately constructed and well maintained narrative that had little if any basis in reality. Mr. Johnson exemplified the position when he appeared on a DataCenterKnowledge podcast on July 21 and an associated article, a week before the company’s 2Q21 earnings release. In the interview, Johnson touted the company’s “sophistication” on pricing tools. The system could tell sales people “at that price you will lose the order, at this price you are too cheap” The article quoted Johnson as saying “we’re just trying to recover what our costs are – that are going up – so we can take care of our share owners”, continuing, “our customers and partners are pretty good at understanding what’s happening on the market”. The lawsuit shows a different reality. The CPQ or order system was a “disaster” and it was so bad there were “all hands meetings to calm the crowd”. One former sales person noted “CPQ stopped commerce.” Testimony shows that Mr. Johnson’s on-the-record comments, in company conference calls and media appearances were categorically false. The AI, algorithms, sophisticated pricing models – were all non-existent from a practical business standpoint. The large and growing backlog was cited in press releases and on conference calls as evidence of the company’s selling success. It was, in fact, a large backlog of unprofitable business. Sales people were encouraged to target the large orders of hyperscale data center operators, such as Google, Amazon and Microsoft. “It was all slash and burn to get the stock price up as high as you can. That is why they targeted the large customers.” It appears as if the point was to build a large backlog and reap the benefit of the optics, not book profitable business. An employee testified that orders were very competitive with “very strict RFPs with the prices they are paying”. In other words, the hyperscale data centers dictate pricing. In addition to pursuing unprofitable contracts, in order to make the sale VRT gave customers significant discounts despite the inflationary environment. Management is on the record in numerous forums discussing how they were taking “pricing actions around list prices, multipliers and discounts” and “controlling discounts that our own sales people are able to have”. Mr. Johnson said changes were being made to ensure “not just discounting to build backlog”. Yet that is exactly what they did. Numerous former employees testified that management knew and approved of discounts. “the pressure to sell was so great that we had an inability to transfer those price costs to our clients”. With respect to discounting, “Rob Johnson agreed to these deals without price increases. These exceptions were being approved and their recent quarterly miss was all self-inflicted” The result of pursing unprofitable contracts and excessive discounting was a large unprofitable backlog. One former employee testified that the company was saddled with “an off the charts unprofitable” backlog. Management touted the backlog to investors as a point of strength when they knew it was packed with contract terms that “were not good for Vertiv”. Management also claimed that they were increasing pricing on booked orders to account for inflationary pressures. Chief Business Officer, Gary Niederpruem stated “we have other mechanisms…clauses in large contracts”. This was patently false according to testimony. VRT’s contracts had no mechanism to increase pricing. The contracts locked in the discounted prices. One former employee testified “there was no mechanism to increase prices in those contracts, you had to eat it.” All throughout 2021, management talked of the pricing actions they had taken, which would result in margin expansion in future quarters. Management even quantified the pricing actions, providing a slide in quarterly presentations with margin evolution. Former employees testified that management never took any pricing actions: “Vertiv was not raising their prices like everyone else was”. According to another employee: “they were not issuing price increases in 2021.” 2022 and 2023: Continued (Mis)Guidance VRT’s 3Q22 results reported on 10/26 were sub-par despite lowering guidance in earlier in the month. Adjusted operating profit of $134.2M for the quarter was barely above the bottom of the $130M-$150M range. 2022 is the year management was supposed to rebuild the financial and ethical lapses that were exposed in 2021. It what appears to have been an attempt to rebuild trust and credibility on the conference call, numerous members of management noted that the results and discussion were “consistent” with what they have been telling investors from the beginning of the year. The problem is that it has not been consistent and clear lapses associated with guidance, a key issue in 2021, remain. In the table below, we show management’s AOP guidance for 3Q22 throughout the year and the final reported figure. The 4Q22 figures in 2/23 and 4/27 are estimates. Source: Company filings and estimates. As is clear from the chart, guidance for the quarter was steadily reduced throughout the year, converging on the actual reported number of $134M, 33% below managements estimates from earlier in the year. In contrast, reductions in 4Q22 guidance have been much smaller, declining only 10%. 50% of guided AOP for the year is expected in 4Q22. 2023 guidance is not credible Management’s inability to explain how and why the company will increase AOP from ~$460M in 2022 to $740M in 2023 leads us to conclude it is not credible and should be discounted. Management provides quarter to quarter bridges showing the contribution of various factors to explain the changes in profitability. On the 3Q22 conference call, VRT CFO Dave Fallon reconfirmed the 2023 $730-750M AOP guidance up from $450-470M in 2021. However, when an analyst queried as to how that significant gap from $460M to $740M would be bridged, Mr. Fallon said “as it relates to kind of filling in the details, it’s probably too soon. And we’ll provide a more robust bridge from ’22 to ’23 in February”. Let’s put this in context. On October 3, 2022 with the year nearly over, management allegedly did not know that FCF guidance for 2022 needed be cut from $0 to ($125M), though they confidently put out guidance for 60% AOP growth to $740M for 2023. On October 27th, with 1/3rd of the quarter behind, they cut FCF guidance. However, the high-growth 2023 AOP guidance is reaffirmed, but management cannot explain how it will be achieved. We find the incongruity in behavior deeply problematic. Were TS Eliot an equity analyst, he might say it takes a willing suspension of disbelief to take management’s guidance seriously. APPENDIX Vertiv Timeline of Events with Stock Prices Date Action Comment Guidance Stock Price Oct 31, 2022 Files form 10-Qs Implies a negative outcome from the amended lawsuit is not remote; states that the company has ample liquidity for 12-months   $14.31 Oct 27, 2022 Reports 3Q22 financial results Free cash flow forecasts are slashed only 3-weeks after lowering the 2022 outlook, 2023 AOP guidance reaffirmed Slashes annual free cash flow guidance to ($125M) from $0, but reaffirms 2023 Adj. Operating Profit $730-$750 $14.79 Oct 20, 2022 Starboard Value Fund takes a 7.4% position in VRT In a public presentation Starboard said mgmt “lacked a sense of urgency” and “operational focus” in 2021.   $12.37 Oct 3, 2022 CEO Robert Johnson announces his retirement for health reasons Lawsuit not mentioned Mr. Giordano Albertazzi now CEO Lowers guidance end of Q3 and Q4 Much higher 2023 Adj. Operating Profit $730-$750 $11.25 September 20, 2022 Increased but NOT extended ABL facility by $115M to $570M, FILO, Swingline Severe cash problems due to the WC accounts; only $175M left before extension   $12.20 September 16, 2022 Amended class action lawsuit filed alleging fraud Multiple high level employee depositions detailing management’s knowledge of pushing unprofitable business while touting pricing realizations to investors Quite a read $12.33 August 5, 2022 Jason Forcier, COO & EVP Infrastructure and Solutions quits       August 3, 2022 Q2 Report inline Have to burn through low pricing on backlog; we’ll pull the pricing lever Lowers guidance $11.99 June 15, 2022 Pays Platinum $12.5M under Tax receivable agreement Amends schedule to pay them the rest $82.5M by Nov 30, 2022   $9.69 May 5, 2022 Second Lawsuit Filed Class action for violation of securities laws   $12.75 May 2, 2022 / April 27 Q1 Report beats First lawsuit disclosed but not settled till May 13, 4 days before pretrial conference Maintains guidance, despite beat $12.61 March 24, 2022 First Lawsuit filed Class action for violation of security laws   $12.78 March 14, 2022 John Hewitt president Americas Mr. John departing the Company effective immediately to pursue other interests Mr. Giordano Albertazzi as the Company’s President, Americas,   $11.13 March 1, 2022 10K filed     $12.59 February 23, 2022 Q4 2021 Report 85% MISS 0.04 vs 0.28 estimate, AOI -38% $72M vs lower guidance $166M Stock sells off 37% Pricing and supply chain management are problems Analysts “we don’t recall a drawdown of this magnitude in 17 years covering industrials” $19.57 to $12.38 -37% January 28, 2022 Prospectus 23M Shares resale relating to the E&I acquisition     $20.05 November 4, 2021 Secondary sale underwriting agreement for 20M Shares @ 24.83 Sold by Platinum Equity, the PE sponsor to mostly pension funds $544M proceeds $26.95 November 1, 2021 E& I deal closes $1.8B EV including $630M in shares, 90 day lock up   $26.05 October 27, 2021 Q3 Report beats inflation actions will provide a tailwind for full year 2022 Increases guidance on M&A and price AOI from $540 to $553 $24.69 October 22, 2021 $850M Notes @ 4.125%, 2028 To fund the E&I acquisition   $24.07 September 8, 2021 Announced E & I acquisition Updates business conditions; blames supply chain conditions Lowers guidance 10% AOI from $600M to $ 540M $25.99 July 28, 2021 Q2 Report beats Record backlog Increases guidance AOI $590 - $610 $27.61 April 28, 2021 Q1 Report beats Record backlog Increases guidance AOI from $585 to $605 $22.99 March 1, 2021 10K, 144, 424B3 sale of 17.38M shares Platinum Equity Sells 17.4M @ $20.14 for $344M $20.14 February 24, 2021 Q4 Report beats Very strong results, CFO “getting sophisticated with price, using AI” Increases guidance 68% to $565-$585M adj operating profit $20.80 November 13, 2020 Secondary, 18M shares Platinum Equity   $17.99 November 5, 2020 Q3 Report beats   Increases guidance $17.28 October 1, 2020 Scott Cripps, New Chief Accounting Officer EBITDA guidance is replaced with Adj. operating profit   $17.90 August 11, 2020 Secondary, 20M shares Platinum Equity   $16.77 August 5, 2020 Q2 report     $16.90 May 7, 2020 Q1 report beats   Maintains guidance $10.87 March 13, 2020 10K beats   Maintains guidance $8.90 March 3, 2020 Term Loan Negotiated $2.2B Liboer +3% (ABL facility retired) Moody’s upgrades 3 levels to B1 from Caa1, S&P from 1 level to B+   $11.14 February 19, 2020 Andre Klaus resigns as Chief Accounting Officer 3 years with the company   $13.46 February 7, 2020 SPAC transaction closes $1.8B total PIPEs are $1.24M $342M paid to Platinum upon closing; owns 38% $12.88 January 31, 2020 Vertiv announces plans to refinance the ABL term facility       Platinum Equity’s Vertiv Investment Platinum purchased Vertiv for just over $4B in a transaction that included $1.2B of equity and $2.958B of debt. Thus far, Platinum has made an estimated $1.7B from its Vertiv investment and an estimated IRR of 41%, excluding the value of the 37M shares it retains. Financial Models.....»»

NOPEC Bill Would Mean The End Of Aramco And OPEC As We Know Them By Simon Watkins of OilPrice.com Saudi Arabia stopped being an ally of Washington the moment it began the 2014-2016 Oil Price War with the specific intention of destroying the then-nascent U.S. shale oil industry, as highlighted in all three of my books since 2015 on the global oil sector. Riyadh’s alignment with Russia definitively started during that War and was irrevocably strengthened when Moscow agreed to support then-beleaguered Saudi Arabia and OPEC in their first post-Oil Price War production announcement at the end of 2016, forming ‘OPEC+’ (‘plus’ Russia) in the process. And Saudi Arabia’s move towards the autocracies of the East, with which its own autocracy is naturally aligned, was definitively concluded with China when Beijing allowed Saudi Crown Prince Mohammed bin Salman (MbS) to save face, and probably his eventual succession to the kingship as well, by offering to privately buy in 2017 all five percent of his disastrously conceived initial public offering of Saudi Aramco. Last week’s Saudi-led shock two million barrels per day (bpd) collective crude oil production cuts shows that MbS personally has nothing but contempt for the U.S., so it is little wonder that key figures in the West Wing of the White House are taking it so personally. In the post-2014/16 Oil Price War world, the White House, then of former President Donald Trump, found two methods particularly effective in reminding the Saudis that China and Russia had not taken yet collectively taken over the mantle of top superpower from the U.S. The first of these was the threat of the complete removal of all U.S. military assets that had protected Saudi Arabia since the core 1945 agreement struck between then-U.S. President, Franklin D. Roosevelt, and the Saudi King at the time, Abdulaziz, on board the U.S. Navy cruiser Quincy in the Suez Canal. This core agreement ran as follows: the U.S. would receive all the oil supplies it needed for as long as Saudi had oil in place, in return for which the U.S. would guarantee the security of Saudi Arabia. By the end of the 2014/2016 Oil Price War, the agreement had been changed slightly to: the U.S. will safeguard the security both of Saudi Arabia for as long as Saudi guarantees that the U.S. will receive all the oil supplies it needs for as long as Saudi has oil in place, and that Saudi Arabia does not attempt to interfere with the growth and prosperity of the U.S. shale oil sector or the U.S. economy as a whole.  Whatever else might or might not be said about former President Trump, he knew a deal was a deal, and the first thing he did when it was evident just after the 2014/2016 Oil Price War that the new-found OPEC+ was intent on driving up oil prices to levels that were damaging to the U.S. economy and to Trump’s own re-election chances, was to send a message to King Salman of Saudi Arabia, effectively that is the King was going to undermine the deal then the U.S. would not honour its side of the bargain either. At a rally in Southaven, Mississippi, in October 2018, Trump laid it out: “And I love the king, King Salman, but I said, ‘King, we’re protecting you. You might not be there for two weeks without us. You have to pay for your military, you have to pay’.” This came shortly after a similar comment from Trump in a speech before the United Nations General Assembly: “OPEC and OPEC nations are, as usual, ripping off the rest of the world, and I don’t like it. Nobody should like it,’ he said. ‘We defend many of these nations for nothing, and then they take advantage of us by giving us high oil prices. Not good. We want them to stop raising prices. We want them to start lowering prices and they must contribute substantially to military protection from now on.” This threat of removal of all U.S. military support for Saudi Arabia was made by Trump once more, this time when OPEC+ was looking to push down oil prices to dangerous levels for the U.S. shale oil sector by launching the 2020 Oil Price War, when he personally telephoned MbS on 2 April and specifically told MbS that unless OPEC+ started cutting oil production immediately then he would be powerless to stop lawmakers from passing legislation to withdraw U.S. troops from Saudi Arabia. In addition, it was made very clear by Trump that from that point onwards he expected that the next time the Saudis tried to destroy the U.S. shale sector it would be the end of the 1945 Agreement, with no further warning, and that U.S. military would be withdrawn straight away. MbS certainly deigned to take that telephone call, it should be noted. By using this threat of withdrawing all the U.S.’s military support for Saudi Arabia, former President Trump was able to establish the ‘Trump Oil Price Range’ of US$40-75 per barrel of Brent for the vast majority of the time he was in office. The second highly effective method that Trump’s West Wing was able to use to stop Saudi Arabia from damaging the economic and political interests of the U.S. and its allies, was to threaten implementation of the ‘No Oil Producing or Exporting Cartels’ (NOPEC) bill. This ‘Damoclean Sword’ of legislation has a broad mandate, making it illegal to artificially cap oil (and gas) production or to set prices. Clearly, fixing oil pricing is the very reason why OPEC was established in 1960, and it is part of its written mandate. Saudi Arabia has been OPEC’s de facto leader from its creation that year, and Saudi Aramco is the prime vehicle through which Saudi Arabia’s production and pricing strategies (and those of OPEC) are implemented. Nobody from the Saudi side when the Aramco IPO was first announced seemed to have understood that there was a major legal issue in this context from both the U.S. and U.K. perspective – given stringent and rigorously enforced anti-trust (or anti-monopoly) regulations on both sides – and this was one of the key reasons why no serious investor in these countries wanted to invest in it. With Aramco being the key instrument used to manage the oil market by the Saudis, even though it is not directly involved in making the policy, the anti-trust legislation of the U.S. and U.K. can point to Aramco as being collusive in price-fixing through adjusting output to manage oil prices.  If and when the Bill is enacted, then Saudi Aramco would either have to be broken up into much smaller constituent companies that are not capable of influencing the oil price, thus reducing the company’s net worth to zero overnight, or face the full force of the U.S.’s antitrust laws, and similar laws from all of the U.S.’s allies. In effect, Saudi Aramco’s products and services would face exactly the same net effect as Russian oil and gas companies are facing now. To wit: all U.S. dollar trading in all Aramco products and services would be liable for immediate suspension pending review of anti-trust regulations in the U.S. and all its allies, after which all such U.S. dollar-centric activities could be banned. In addition to all of this, the NOPEC Bill immediately removes all sovereign immunity that presently exists in U.S. courts for OPEC as a group and for its individual member states – including, Saudi Arabia. According to legal sources in Washington familiar with the legislation and spoken to by OilPrice.com last week, this would open up Saudi’s US$1 trillion or so of assets in the U.S. to be seized in lawsuits relating to a range of allegations, including Riyadh’s role in the ‘9/11’ terrorist attacks on the U.S.  Following the Saudi-led OPEC cut in oil production last week, White House National Security Advisor, Jake Sullivan, and National Economic Council Director, Brian Deese, stated that the administration of President Joe Biden would consult with Congress on potential measures that would strike at OPEC’s control over oil prices, and this would include a resuscitation of the (NOPEC) bill. The NOPEC bill already passed the Senate Judiciary Committee in May, having passed a House committee last year. Senate Majority Leader, and Democrat, Chuck Schumer stated just after the latest crude oil production cut announcement that: “We are looking at all the legislative tools to best deal with this appalling and deeply cynical action, including the NOPEC bill.” Following this - and indicating cross-party support for a new aggressive approach to Saudi Arabia - Republican Senator Chuck Grassley, an original sponsor of the NOPEC bill, said that he will attach the measure as an amendment to the forthcoming National Defense Authorization Act. Tyler Durden Tue, 10/18/2022 - 11:00.....»»