Stand Up To Hillary!!

November 6, 2016 4:24 PM


Over the years, I’ve been involved with businesses all around the world, yet America remains special for its unique “system” where multiple interlocking and counterbalancing forces, guarantee that you will be treated fairly. It doesn’t have corrupt civil servants or police extorting you. Instead, if someone does something illegal, you march yourself up the chain of command until you find someone who takes your side—if only because of the embarrassment and career penalties caused by you complaining to the media and exposing their shared crimes. For that matter, the media keeps officials in line by ensuring transparency and exposing scandals—as scandals drive their readership, ratings and revenues. The judiciary is relatively impartial and there’s a well-functioning appeals process to ensure that bad decisions are overturned—when not decided by a jury of your peers. This, in turn is all kept honest by the fact that America has transparent and legitimate elections where we get to select the officials—or at least those who will choose them. In summary, America has a “system” and it works.

During more than two centuries of evolution, we’ve successfully incorporated women and all races into this “system”, making it increasingly fair to everyone. I don’t want to make it sound like this “system” is the most efficient possible—government by its nature is inefficient. There are certainly mistakes and oversights. Occasionally, there is outright corruption and fraud, but our “system” of interlocking checks and balances roots out problems, usually, for the better.

However, there is one powerful clique that seems to think that they can circumvent more than two centuries of progress and self-empowerment for the people of America. This cloistered group of elites shares the same goals and group-think. They differ in name and party affiliation, but their ties to wealthy donors and corporations unite them in a form of political collusion intended to keep outsiders away from their game. Every election cycle, their power and influence grows—allowing them to more brazenly flout the law. Subsequently, their ability to distribute favors attracts the worst sycophants of society to do their bidding—while squeezing out the virtuous. No one symbolizes the upper echelons of this cloistered clique better than the Clinton family. The way that the Clintons have repeatedly disregarded the best traditions of our American “system” should be anathema to all Americans—regardless of your political leanings.

One of the basic tenants of American politics is that the media will expose the candidates’ flaws and air all dirty laundry so that voters can make an educated decision before the election. Trump has been repeatedly depicted as sexist. I congratulate the mainstream media for finding various tapes that show him at his worst—this is what an election is about—knowing your candidate. However, where is the unbiased reporting on the Clinton Foundation’s illegal transactions with offshore despots, pay-for-play with US businessmen, felonious cover-ups of various email scandals, abuses of campaign finance laws and blatant disregard for multiple US and international corruption laws? Almost everyone in Hillary’s inner circle—including her—is under some form of criminal investigation. She’s one of the most crooked people to ever run for President of this country, but where’s the reporting on this? Instead, the mainstream media makes vague allegations that Trump’s divisiveness is turning the FBI against Hillary. Unfortunately, as WikiLeaks has shown, the Clinton apparatus has co-opted the mainstream media, colluded with them and whitewashed the obvious.

Julian Assange is now doing the job of an American reporter—exposing the facts and letting the public decide on their meaning and merit. We’ve all grown so numb to combative political journalism that we’ve forgotten that not too long ago, the newspapers reported the news in a non-biased, factual way, in order to inform readers. Then, sometime about a week before the election, the paper would publish an op-ed telling you how they wanted you to interpret the data they’ve been reporting. You could then accept the conclusion or disagree—the facts were there for you to make an educated decision. Journalism should be fact-based—not the highly biased propaganda we are bombarded with today. What’s real news or fake anymore? It’s become difficult to tell.

Given all the discord and innuendo, I decided to educate myself before voting. I’ve never been to a political rally, but decided to attend a Trump rally this Wednesday in Miami. Based on biased media reporting, I expected a discordant crowd of uneducated, white, males—the media’s current definition of society’s dregs. Instead it was a packed crowd of 5,000 with at least half female attendees. Was it a diverse crowd?? I was one of the few who didn’t speak Spanish—this genuinely surprised me. People were friendly and rather well-informed on the issues. However, you wouldn’t know this from reading local or international coverage of the event. As the mainstream media tells it; it was a mostly empty arena with some crazies milling about, harassing people trying to walk past the event. I didn’t comprehend biased reporting until I literally saw it in action. Then again, it’s no secret that the mainstream media is rapidly losing its consumers, as it’s no longer serving them with the information they want. When you lie to people, they figure it out quickly.

I remember going to Zimbabwe a few years ago. They had elections and lawyers. The judges even wore white wigs and robes. They essentially kept the British traditions alive, but everything was rotten to the core. It was described to me as “a house with all the plumbing intact, but only sewage could go in or out.” The lynchpin of the Zimbabwean system is its blatant election manipulation, designed to keep Mugabe in power. There is no freedom of the press. Opposition candidates are beaten or arrested and the voting itself is deliberately rigged. Given the contempt that the Clinton’s have shown for America’s “system,” should it be any surprise that she’s co-opted Black Lives Matter (BLM) from a grass-roots advocacy for changes in policing policies, into an army of Brown Shirts to attack her opponents. Do you see many Trump bumper stickers and banners in front of houses? Of course not. Trump supporters have been attacked at rallies by hooligans paid for by the Clinton campaign. Vehicles with bumper stickers have been destroyed. Houses with placards have been vandalized. A Trump campaign office was fire-bombed in North Carolina. Police are literally getting assassinated by Hillary’s BLM friends. Who wants to publicly acknowledge support for Trump and risk the consequences? This is institutionalized intimidation at its worst.

Nearly every day, there’s widespread reporting on election tampering with dead people voting and forged early voting ballots. For the first time in American history, surveys repeatedly show that the majority of voters believe that the actual vote counting will be rigged. With voting machine contracts given out to loyal Hillary contributors, why should anyone trust the process? What’s happened to our elections? This isn’t America. This isn’t our “system”—it is becoming Zimbabwe. The one thing that we always counted on in America was that the actual voting process was fair, honest and free from intimidation—now that certainty is under attack.

Fortunately, the American “system” still stumbles forward in its traditional form, despite the attacks upon it. Julian Assange has to hide in the Ecuadorian embassy for his own safety, but he can still publish the truth. Despite obvious obstruction from the DOJ, the FBI is now actively investigating Hillary’s crimes. Voting fraud is being exposed and people are becoming less scared to speak the truth about intimidation. As my friends speak amongst themselves about the election, they realize that they share a common goal and dream for America. It’s no longer awkward to support Trump, since we are no longer immediately branded as; racist, sexist, divisive, poor or uneducated—that straw man has finally been quashed by brave men like Peter Thiel who have faced down the accusers and declared the obvious. More and more are now joining from the shadows. Fortunately, there’s strength in numbers. It isn’t racist to want strong borders. It isn’t “deplorable” to oppose high taxes and crippling bureaucracy.

I am not a Republican or a Democrat—I have voted for candidates from each party, yet, I genuinely despise both parties. Trump clearly has rather numerous and serious character flaws. However, I fear that a Clinton victory could firmly tip America in a direction that will be impossible to reverse. No country has ever gotten wealthy by raising taxes, while allowing a chosen group of paid-up oligarchs to loot the middle class. We have more than two centuries of successful and evolving traditions. Americans do not put up with those who undermine the “system” for personal gain—we root them out as the “system” is more important than any individual. A subverted media along with election violence have no place in America—rigged elections are even worse. Repeated and blatant disregard for the law cannot be countenanced for a Presidential candidate. I truly fear for America’s “system,” as Hillary has flagrantly tried to discard it. Never before in my voting life has a choice been this obvious or serious.

As I learned Wednesday at the Trump rally, Americans of all ages, races, religions, genders and parties support Trump. They support America. They know that we must stand up to Hillary—or we will forever lose our country. This isn’t a Republican or Democrat thing. This is an American thing. I have never used this website for political purposes, but November 8th is simply too important to all of us. If America makes the wrong choice, we will not be able to take our freedom back. Join me in standing up to the corrupt class and the queen corruptor. Join me in standing up to Hillary!!

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Chris Squared

October 19, 2016 12:39 AM


Recently, my good friends Chris Mayer and Chris MacIntosh "Chris Squared" had a chat on a number of topics that I feel strongly about. In particular, they chatted about how passive investing has created opportunities (more about this in the future) along with much more...

Click here for the conversation

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Crook vs. Jerk

September 4, 2016 12:51 AM


“For a country with over 300 million people, why do you choose such bad politicians?”

Yup, I’ve been doing business overseas for a while now and I keep getting the same question from foreigners who simply cannot decipher the American political system. Heck, I often ask myself the same questions.

A few years ago, I had this conversation;

Him: Will George W. Bush invade my country?

Me: Don’t worry, he can’t find it on the map...

Fast forward 8 years;

Him: Why is your Nobel Prize winning President starting wars with everyone, including a race war in America?

Me: Hell if I know. It’s embarrassing to all of us in America.

In all these exchanges, I can chuckle, drink my beer and proudly say that I didn’t vote for them. However, as I go through my daily rounds, this year’s election is just too dysfunctional to laugh at.

On one hand, we have the most corrupt person to ever run for President of the United States. From the Clinton Initiative slush fund financed with illegal dealings with corrupt overseas oligarchs and villains to the stonewalling of numerous federal investigators she continues to operate like some post-Soviet apparatchik. In order to deflect criticism of her past, she has incited a race war that is both disturbing and repulsive to all that America stands for. Her utter subjugation of the media is both shameful and astonishing. Google has changed its search ranking system, Twitter routinely censors her opponent’s supporters, and The New York Times has become a ministry of propaganda. Joseph Goebbels could only dream of the sort of power that she wields. Her methods are anathema to the American system of transparency, honesty and an independent press. With that said, I have to give her credit. Through 30 years of scandal, illicit dealings, and outright felonious behavior; she has remained remarkably untouchable, whereas a lesser politician would have been incarcerated long ago. Cold, shrewd, ruthless and calculated—lord knows, she wants the Presidency worse than anyone else alive. Her determination really is impressive.

Offsetting this criminality is quite possibly the biggest jerk on earth. As a guy growing up in New York, I remember that every society paper was filled with his endless feuds. Every business paper was full of his lawsuits and those who were counter-suing him. Abrasive, inconsiderate and offensive have been hallmarks of his self-promotion. Nothing is more humiliating than being fired before millions of viewers on television—yet, he reveled in that power. Now, on the national stage, he has taken this offensiveness to new levels by insulting whole countries. Does he have a filter? No, he actually enjoys the fight. Is he the image that America wants to project globally? Of course not.

And, as I sit on a patio and drink my beer, I have to explain this all to my foreign friends. I’ve tried to illuminate the nuances and dive into the details but in the end, this election is about two words—Crook vs. Jerk. America’s most notorious Crook is up against America’s most notorious Jerk. Who do you want running your country? Crook or Jerk?

Explained in those terms, most foreigners take a deep breath and come up with some version of the following, “We all look up to America and your desire for transparent and honest politicians. What separates my country, with its chaos, from yours is the fact that your politicians are honest.” To that, I laugh a bit because America has done a great job of brainwashing the world with its propaganda. Our career politicians are as corrupt as any banana republic’s, except ours usually steal in the name of the large corporations that finance them—as opposed to their own families. Only true outsiders from the political mainstream, those who’ve never been part of the system, can say that they’re not beholden to any special interest or corporation.

So, does Jerk beat Crook? Or does the Crook steal the election? Thankfully, I do most of my business overseas—I’ll survive no matter what the outcome is. As an American, I sure wish we had better choices, but I still have to explain this election to everyone I meet. Crook vs. Jerk sums it up. To most of my friends, mired in corrupt and dysfunctional systems, America is a beacon of hope. Too bad it seems as though Crook is leading in the polls.

election 2

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Chris Calls Kuppy

July 30, 2016 5:28 AM


Two weeks ago, I had a call (linked below) with my good friend Chris MacIntosh from Capitalist Exploits. We spoke about Brexit, Bitcoin and why my investing strategy has evolved from buying small growing companies to buying the shake-outs from macro events. I recommend subscribing to Capitalist Exploits in order to get notified when new content is posted.

Trading Chaos

Trading The Chaos

https://capitalistexploits.at/2016/07/conversations-with-harris-kupperman/

 

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A Crisis In Ponzi-Land (The "Drop-Down")

February 25, 2016 1:21 AM


As I dig through the toxic debris of collapsed Ponzi-Land MLP vehicles, I keep having this recurring question; why do all these MLPs continue to have sponsors that are so aggressive in supporting the LP distributions? I’ve seen everything from; purchases of preferreds at below market interest rates, to sponsors agreeing to forgo subordinated distributions, to support agreements where they are literally gifting the MLP cash to offset its SG&A expense and maintain enough cash flow to cover its 1.0 Distributable Cash Flow (DCF) to LPs. I’m all for charity, but since when do PE funds gift public shareholders cash that they can then receive in distributions? This doesn’t seem like finance as I know it—the stock market exists to screw suckers, not enrich them. Finally, it all came together for me—these bastards have been greedy twice and they’re still screwing the LPs while trying to look generous.

I’ve already gone over the twisted incentives of IDRs—now let’s talk about the “drop-down.” The premise of a "drop-down" is that a stabilized asset is sold by the sponsor to the MLP and due to differences in yield expectations, the sponsor is willing to cash out at a higher yield than the current cost of debt  at the MLP, leading to accretion to LPs. It’s simple cap-rate arbitrage and since public vehicles often carry higher leverage ratios, it lets more leverage be employed to increase returns.

Previously, the “drop-down” always seemed like it was the true scam, designed to feed the IDR math and de-risk the return for the sponsor as the increased financial leverage was now at the LP instead of GP level. Then I realized; the gain on sale might actually be leading the whole process at MLPs. It’s easy to look at some of the drilling sponsors, see what they paid for the rig, what they dropped it down for and have a good chuckle—crafty Norwegians—they understand financial engineering with the best of them. Most transactions don’t leave such an obvious paper trail, yet as I’ve discovered, the stated ROA is the give-away that something is indeed fishy.

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Take a midstream gathering asset. It costs $50 million to build and produces $15 million in annual DCF or a 30% return—not bad. At a 10% disposition yield, it is worth $150 million. Sell it to the MLP for $150 million and voila, you have a $100 million gain on sale. The MLP borrows $150 million on the revolver at 5% and then has $7.5 million in incremental DCF with no dilution. Talk about successful financial engineering. At the LP level, it looks like the sponsor has done the LPs a favor by creating extra DCF and the press release can brag that there has been NO DILUTION, only an increase in the distribution—which makes shareholders happy—even if a good chunk of that goes back to the sponsor through the IDR.

Now look beneath the numbers a bit, the sponsor has taken all the real gains and the MLP has taken all the risk. The sponsor got a $100 million gain on sale along with an increase in the IDR. The MLP got an incremental $7.5 million of DCF with leakage through the IDR and now has $150 million of additional debt. That’s a very un-equal bargain. Meanwhile, in the 20 years that it takes to pay off the debt through DCF, the energy field has probably been depleted to the point that the midstream asset is stranded and practically worthless. It’s Ponzi-finance at its apex.  

As I search through dozens of these companies, I’m amazed at just how many of their assets seem to be earning better than 20% ROA with a massive offsetting dose of goodwill—effectively equaling the profits to the sponsors. In addition, depending on how the purchase accounting was resolved, this may also explain the huge mismatch between depreciation and DCF. In the end, the MLP is often the dumping ground for overpriced assets which are increasingly becoming stranded uncompetitive assets as volumes trail off and competing infrastructure is built. At 20% un-leveraged returns, you would expect a lot of competition and rapid margin compression—it just takes a few years to show up. It would seem that the sponsors keep the MLP lights on because there is no other way to extract huge gain on sale profits on rapidly depreciating assets—except to dump them on sucker MLP investors. They can’t even sell them to other MLPs because those MLPs have their own backlog of sponsor assets to “drop down.”

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In the 2014 vintage of MLP presentations, I repeatedly see this slide presenting future distribution growth in the form of an inventory of “future drop-downs from the sponsor.” The basic premise was that the distribution can grow forever because the sponsor has more assets that they’ll sell you. Back in 2014, that slide got the MLPs a growth multiple—today it is all quite hilarious. They were making so much money looting the LPs that they even had the gumption to brag about all the crap they were going to plug them with.

In 1998-2001 an epic glut of fiber optics was laid that bankrupted everyone who funded it. Over the past few years, the same thing has been repeated with midstream gathering assets. Much like fiber optics, the assets have value, just nowhere near what people were tricked into thinking they did. The big difference is that since the tech bubble, the promoters have matured and developed new and creative ways to screw investors.

Despite dropping 90%, many of these MLPs are not cheap. Rather, they're going to zero—in the meantime, sponsors are going to do everything possible to keep the game alive—it isn’t altruism that is supporting these companies.

Be VERY skeptical.

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