Monday, June 24, 2019

June 24th Links

  • Beal plays his cards patiently. For three long years, from 2004 to 2007, he virtually stopped making or buying loans. While the credit markets were roaring and lenders were raking in billions, Beal shrank his bank's assets because he thought the loans were going to blow up. He cut his staff in half and killed time playing backgammon or racing cars. He took long lunches with friends, carping to them about "stupid loans." His odd behavior puzzled regulators, credit agencies and even his own board. They wondered why he was seemingly shutting the bank down, resisting the huge profits the nation's big banks were making. One director asked him: "Are we a dinosaur?" Now, while many of those banks struggle to dig out from under a mountain of bad debt, Beal is acquiring assets. [Forbes]
  • Meanwhile, the Debtors continue to deplete the remaining assets that could otherwise be used to satisfy Second Lien Debt. This is, in fact, the scenario that 507(b) of the Bankruptcy Code is designed to prevent. Without it, the Second Lien Creditors would soon find themselves in the position of the Jarndyce family in Charles Dickens' Bleak House: "Mr. Kenge," said Allan, appearing enlightened all in a moment. "Excuse me, our time presses. Do I understand that the whole estate is found to have been absorbed in costs?" "Hem! I believe so," returned Mr. Kenge. "Mr. Vholes, what do you say?" "I believe so," said Mr. Vholes. "And that thus the suit lapses and melts away?" "Probably," returned Mr. Kenge. "Mr. Vholes?" "Probably," said Mr. Vholes. [SHLDQ]
  • Here he tells how the gift of a beautiful scarlet dressing gown leads to unexpected results, eventually plunging him into debt. Initially pleased with the gift, Diderot came to rue his new garment. Compared to his elegant new dressing gown, the rest of his possessions began to seem tawdry and he became dissatisfied that they did not live up to the elegance and style of his new possession. He replaced his old straw chair, for example, with an armchair covered in Moroccan leather; his old desk was replaced with an expensive new writing table; his formerly beloved prints were replaced with more costly prints, and so on. "I was absolute master of my old dressing gown", Diderot writes, "but I have become a slave to my new one... Beware of the contamination of sudden wealth. The poor man may take his ease without thinking of appearances, but the rich man is always under a strain". [Wiki]
  • This is why the media activists are pumping air in the tries of the Warren campaign. She is the fall back candidate for when the party has to take the keys away from the Biden Buggy and put Uncle Joe in a home. She is no spring chicken herself, but her handlers are not wiping oat meal off her chin either. Her new economic pitch is aimed at the same old white people Biden is attracting with his lunch pail Joe act. That and she can appeal to angry single women and the snotty cosmopolitans. It speaks to the age that both parties in the 2020 presidential election will be running explicitly nostalgic campaigns. Trump is a crude reboot of the Reagan years. [Z Man]
  • For a variety of reasons I have shifted away from Taleb and towards Falkenstein (with his devastating critiques of Taleb's bloviation). Falky's book is a 5/5 and nothing by Taleb comes close to that. Most readers have probably seen Taleb's freak-out about IQ (where he's utterly wrong) in early 2019, but if not see some summaries [1,2,3,4]. Taleb's level of humility relative to accomplishment and actual novel ideas discovered is an unfortunate outlier. The reason we took a look at TBS and FBR within the past year is that they go from the review desk into the trash can. Now we are left with zero Taleb works on the premises. [CBS]
  • Roll ups of HVAC have been tried a number of times and nobody has cracked the code. The problem is that they are largely mom and pops who's success is tied to an owner/manager who lives the business. The customer relationships and employee loyalties are tied largely to that owner. Once they sell out and move on, those relationships slowly dissipate and die - especially when employees are now reporting to an Area Manager and have to focus on budgeting and targets and other "corporate" metrics. There are very few synergies with the exception of some systems and purchasing but those tend to take more effort to integrate than they achieve in savings. Historically the play has been to buy the mom-and-pops at 3x EBITDA with a parent that trades at 5x EBITDA and get the value pop there. But over time that EBITDA shrinks instead of growing and the whole thing dies slowly. [CoBF]

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