The Nation's Financial Condition

[Farfromgeneva]

GOP Strategy Session: Pretty good jobs and overall report on the economy. So let's talk about the border, and make sure we never fix the problem.

https://www.washingtonpost.com/business ... mployment/

The U.S. economy added 353,000 jobs in January.

The unemployment rate held at 3.7 percent, under 4% for the 24th month in a row.

That is 479,000 new jobs including revisions and 4.6% year over year increase in wages, indicating a robust economy. Strong productivity growth was reported. We have an economy set up to for strong growth for at least the rest of the decade. The reality is that the Biden Administration and Powell’s Fed have done an historically great job of managing out of the pandemic and into prosperity. We are the envy of the world. But let's vote in tax cut Orange Jesus.

Blowing away estimates.

Big upward revision in December’s excellent numbers as well. And critically, wage growth best in past two years. Slight decrease in avg hours worked.

Stock markets are a little disappointed by no rate cuts imminent, but hanging in ok.

Basically crushing the world on a relative basis since end of pandemic.

Right. What we pay Presidents and their administrations to do is manage, to pull this lever or that lever to see if we can maintain consistency and growth. By that metric the current administration has done an excellent job. So the MAGA GOP -- bankrupt for any ideas and unable to govern in any proactive way -- says let's talk about the "invasion" of poor brown people.

Tribe Called Quest for President!

https://getyarn.io/yarn-clip/dbf60a3f-7 ... c2e535ad20

One of my very favorite songs, from a favorite album. Soundtrack for my middle youth in the early-mid 90's.

Scenario for when I’ve got that busta rhymes Jamaican on meth party energy, this one for when I want to “chillax”

https://youtu.be/WHRnvjCkTsw?si=8hJK1E7t_crIN9vq

[Farfromgeneva]

Oh word? Never would’ve guessed..

Venture capitalists made a big mistake on electric vehicles
Dan Primack
After venture capitalists burned mountains of cash on "cleantech" investments in the late aughts, the postmortems stressed that VC shouldn't be used as a substitute for project finance.

Why it matters: VCs forgot the lesson, pumping billions into electric vehicle makers.

Some of them never got to commercialization, or at least to delivery.
Some went public, and have since seen their shares delisted or severely devalued. Last week's example of the former was Arrival, which had raised more than $100 million in VC funding before going public in 2021 via SPAC.
Rivian still is valued at around $15 billion, but that's a far cry from the $27.6 billion valuation it got in its Series F round.
What happened: Tesla, which is proving to be the exception to the rule.

VCs, including those that passed on Tesla in its early days, looked at Elon Musk's success and assumed it could be replicated. Detroit by the Bay.
Never mind that many of these VCs had never invested in complex manufacturing, let alone vehicle manufacturing. This was as much about software and consumer marketing as it was about hardware, they thought, and automaking was a commodified task that predated the semiconductor.
Zoom out: VCs also trusted that they'd solved for the other big cleantech-era error — getting out too far ahead of the market, in terms of cost and wider infrastructure.

In this case, there seemed to be customer demand, from both consumers and transportation businesses. Particularly as new government incentives kicked in.
Moreover, there appeared to be a burgeoning network of EV chargers that would only grow (even before passage of the Inflation Reduction Act).

Explore four key areas shaping the future of manufacturing in 2024.

Learn more⟶



Energy and utilities outlook



The year ahead in health care

Both of these were true, but not nearly to the extent that VCs expected.
Even many traditional automakers have struggled with EVs. Just last week, Volvo announced that it will stop pouring money into Polestar, whose shares are trading at just 15 cents, while Renault recently canceled a planned IPO for its EV unit and Ford cut back productions plans for its F-150 Lightning.
Disclaimer: I own an electric vehicle (Ford, not Tesla), enjoy it (minus the severe range issues in winter), and do believe EVs are the auto industry's long-term future.

The bottom line: Cleantech has been rebranded to climate tech, and has become a viable venture capital category.

But not giant equity funding rounds for EV manufacturing, which was and remains better suited to project finance.

[a fan]

From where I'm sitting, consumers and businesses were propped up with pandemic money....so instead of having natural personal and business failures/bankruptcies, they were put off. And now the Federal money is gone.

So things will look worse than they are...pent up "demand" for failure for lack of a better term. Just an opinion.


https://www.cnn.com/2024/02/06/economy/ ... index.html

[NattyBohChamps04]

From where I'm sitting, consumers and businesses were propped up with pandemic money....so instead of having natural personal and business failures/bankruptcies, they were put off. And now the Federal money is gone.

So things will look worse than they are...pent up "demand" for failure for lack of a better term. Just an opinion.


https://www.cnn.com/2024/02/06/economy/ ... index.html

I used to get weekly to monthly inquiries from VC aggregators to buy one of my Amazon storefronts. Stopped about a year ago.

Pandemic money helped a little, but the low interest financing was a major player in a lot of these VC "ideas".

[Farfromgeneva]

From where I'm sitting, consumers and businesses were propped up with pandemic money....so instead of having natural personal and business failures/bankruptcies, they were put off. And now the Federal money is gone.

So things will look worse than they are...pent up "demand" for failure for lack of a better term. Just an opinion.


https://www.cnn.com/2024/02/06/economy/ ... index.html

Leverage amplifies gains AND losses. We borrowed every penny of stimulus obviously. Against what equity gains have we accrued nationally in the last decade or so? Tangible or intangible? I can’t cite any. Maybe on a relative basis to the world we have more “value” but every dollar distributed was us using more “leverage” so we saw massive increase in economic rents and wealth and price levels far outpacing the long term curve. So to “normalize” what needs to happen? Add in we haven’t had an economic cycle in a bit of a while now, 16yrs. Oh and we’ve bottlenecked legit immigration and our demographics make Japan look like amateur hour. So I’m not saying apocalypse but just asking if you are at least positioned neutrally for when it gets real.

Because the best advice I can give anyone doesn’t pertain to when things are good and when the wind is at your back but citing the poet B-Real:

https://youtu.be/I826gxc8TvI?si=NO0u10nRT6clzaoR

[NattyBohChamps04]

Trump hires the only best people. But hates Jthat erome Powell is trying to keep the economy in a good place. Says he wouldn't re-appoint Powell for "helping" Biden.

We're in the bad place.

[Farfromgeneva]

From where I'm sitting, consumers and businesses were propped up with pandemic money....so instead of having natural personal and business failures/bankruptcies, they were put off. And now the Federal money is gone.

So things will look worse than they are...pent up "demand" for failure for lack of a better term. Just an opinion.


https://www.cnn.com/2024/02/06/economy/ ... index.html

I used to get weekly to monthly inquiries from VC aggregators to buy one of my Amazon storefronts. Stopped about a year ago.

Pandemic money helped a little, but the low interest financing was a major player in a lot of these VC "ideas".

When you’re buying public equities at a going in earnings yield that’s sub 5% yeah VC is incentivize to throw yo’s because it’s easier to beat that with one big win amongst a pile of rubble that looks like the Roman forum today.

And that was the point with what was deemed extraordinary monetary policy of zirp along with balance sheet expansion and all else. “Push people out the risk curve”. Not just equity/stock but VC and deeply illiquid private stuff. Not apartments but brownfield redevelopments. Etc.

It wasn’t supposed to last 5-6yes let alone 10-12. Frustrates me so much we went from temporary to “hey it’s not illegitimate to have negative nominal rates because we gotta make sure the S&P 500 doesn’t hit most folks stop limits in their play accounts desire the fact that the street laughs and just said “buy the fng dip” for a decade on the taxpayers backs”. And I saw it coming a mile away and of course wasn’t shy on my opinion but it happened. Which is why I don’t need to hear anyone say it’s not legitimate to be concerned about slippery slopes and inertia.

[Farfromgeneva]

Trump hires the only best people. But hates Jthat erome Powell is trying to keep the economy in a good place. Says he wouldn't re-appoint Powell for "helping" Biden.

We're in the bad place.

He’d probably stick art laffer in the seat…

[NattyBohChamps04]

From where I'm sitting, consumers and businesses were propped up with pandemic money....so instead of having natural personal and business failures/bankruptcies, they were put off. And now the Federal money is gone.

So things will look worse than they are...pent up "demand" for failure for lack of a better term. Just an opinion.


https://www.cnn.com/2024/02/06/economy/ ... index.html

I used to get weekly to monthly inquiries from VC aggregators to buy one of my Amazon storefronts. Stopped about a year ago.

Pandemic money helped a little, but the low interest financing was a major player in a lot of these VC "ideas".

When you’re buying public equities at a going in earnings yield that’s sub 5% yeah VC is incentivize to throw yo’s because it’s easier to beat that with one big win amongst a pile of rubble that looks like the Roman forum today.

And that was the point with what was deemed extraordinary monetary policy of zirp along with balance sheet expansion and all else. “Push people out the risk curve”. Not just equity/stock but VC and deeply illiquid private stuff. Not apartments but brownfield redevelopments. Etc.

It wasn’t supposed to last 5-6yes let alone 10-12. Frustrates me so much we went from temporary to “hey it’s not illegitimate to have negative nominal rates because we gotta make sure the S&P 500 doesn’t hit most folks stop limits in their play accounts desire the fact that the street laughs and just said “buy the fng dip” for a decade on the taxpayers backs”. And I saw it coming a mile away and of course wasn’t shy on my opinion but it happened. Which is why I don’t need to hear anyone say it’s not legitimate to be concerned about slippery slopes and inertia.

So when's the BNPL bubble gonna burst? I know we're in higher interest rate territory, and the pay gap is enormous between the haves and have-nots.

We're small beanns and have a low AOV so BNPL doesn't matter to us much. But a number of my bigger money friends in our study group (similar to Crocs & Backcountry) still utilize various programs for BNPL options on their e-commerce ventures. When's the music gonna stop as Jeremy Irons likes to say?

[a fan]

When's the music gonna stop as Jeremy Irons likes to say?

I have watched the boardroom scene 100 times. Masterclass in acting from all in attendance.

[Farfromgeneva]

From where I'm sitting, consumers and businesses were propped up with pandemic money....so instead of having natural personal and business failures/bankruptcies, they were put off. And now the Federal money is gone.

So things will look worse than they are...pent up "demand" for failure for lack of a better term. Just an opinion.


https://www.cnn.com/2024/02/06/economy/ ... index.html

I used to get weekly to monthly inquiries from VC aggregators to buy one of my Amazon storefronts. Stopped about a year ago.

Pandemic money helped a little, but the low interest financing was a major player in a lot of these VC "ideas".

When you’re buying public equities at a going in earnings yield that’s sub 5% yeah VC is incentivize to throw yo’s because it’s easier to beat that with one big win amongst a pile of rubble that looks like the Roman forum today.

And that was the point with what was deemed extraordinary monetary policy of zirp along with balance sheet expansion and all else. “Push people out the risk curve”. Not just equity/stock but VC and deeply illiquid private stuff. Not apartments but brownfield redevelopments. Etc.

It wasn’t supposed to last 5-6yes let alone 10-12. Frustrates me so much we went from temporary to “hey it’s not illegitimate to have negative nominal rates because we gotta make sure the S&P 500 doesn’t hit most folks stop limits in their play accounts desire the fact that the street laughs and just said “buy the fng dip” for a decade on the taxpayers backs”. And I saw it coming a mile away and of course wasn’t shy on my opinion but it happened. Which is why I don’t need to hear anyone say it’s not legitimate to be concerned about slippery slopes and inertia.

So when's the BNPL bubble gonna burst? I know we're in higher interest rate territory, and the pay gap is enormous between the haves and have-nots.

We're small beanns and have a low AOV so BNPL doesn't matter to us much. But a number of my bigger money friends in our study group (similar to Crocs & Backcountry) still utilize various programs for BNPL options on their e-commerce ventures. When's the music gonna stop as Jeremy Irons likes to say?

According to Fed research which I’ll trust here, excess savings in the us will be completely depleted mid 2024. So my guess is Q4 Or late Q3 with signals and sign coming as soon as April or May. But it could take a bit longer, normally does but your asking about short term console credit so I don’t think there’s as much of a slow bleed as other areas to credit. Faster signal/response in that area if you will.

There’s also the availability of credit but absent a major seizure in one of liek 5 players that won’t be the thing that takes it down. And I will say while customer acq and marketing costs are high, BNPL has a lot of “excess spread” between the yield on their assets (loan receivables) and cost of funding (their own debt cost/price) so not all profitable but a lot more stable and healthy than the vast majority of the lending side of fintech. They aren’t really going away most likely absorbed by larger financials who all struggle in smaller balance credit efficiently.

The challenge (or one of) for you, Id imagine, is for longer term forecasting and planning how do you tell which buyers had to utilize BNPL vs how many chose to as an option for when that’s a less robust payment channel for you.

[Farfromgeneva]

When's the music gonna stop as Jeremy Irons likes to say?

I have watched the boardroom scene 100 times. Masterclass in acting from all in attendance.

That’s nothing didn’t you tell me you’ve watched the romance scenes in M Butterfly thousands of times?

[a fan]

When's the music gonna stop as Jeremy Irons likes to say?

I have watched the boardroom scene 100 times. Masterclass in acting from all in attendance.

That’s nothing didn’t you tell me you’ve watched the romance scenes in M Butterfly thousands of times?

Bummed that I'm so unfamiliar with Butterfly, that I'm missing your joke.

Haven't seen Les Mis, Cats, or Phantom either. Serious holes in my cultural literacy.

[Farfromgeneva]

When's the music gonna stop as Jeremy Irons likes to say?

I have watched the boardroom scene 100 times. Masterclass in acting from all in attendance.

That’s nothing didn’t you tell me you’ve watched the romance scenes in M Butterfly thousands of times?

Bummed that I'm so unfamiliar with Butterfly, that I'm missing your joke.

Haven't seen Les Mis, Cats, or Phantom either. Serious holes in my cultural literacy.

Well first let me make sure you know it’s my brutal humor deployed here.

Are you familiar with crying game?

I referenced because Jeremy Irons stars in the film version. Must be 35-40yrs ago.

https://youtu.be/fgANS15AN4I?si=KXLf2H8VgVZ2UD8A

[old salt]

When's the music gonna stop as Jeremy Irons likes to say?

I have watched the boardroom scene 100 times. Masterclass in acting from all in attendance.

Not to worry, the money changers have everything under control, ...this time.

[jhu72]

For those who are excited by Quantum Computing and plan on making a bundle, you might want to slow your roll.

[Farfromgeneva]

Wasn’t ever seriously going to take it but once had an offer out of grad school from FBR a reasonably well known DC area finance firm (Arlington). Well connected with DC money, they hire people whose parents are LPs like local major CRE players and politicians. FBR was acquired a few years back by this B Riley guy had many issues with crossing lines such that The F in FBR was barred from managing a BD for a few years but now runs a bank equity fund called FJ Capital (for now they got hammered like so many in 23 and stuck in banks only basically).

Some of you Atlantic cats know of FBR and I’m sure MD does so sharing this piece about the surviving/acquiring firm as it looks like the cuture is the same.

https://www.thestreet.com/investing/sto ... d-10329068

How an Unremarkable Deal Became a Big Threat to a Small Investment Bank
B. Riley is under fire for funding a buyout linked to a firm that prosecutors call a fraud

Jonathan Weil

B. Riley’s bet was on an unremarkable buyout of a company with an uninspiring name, Franchise Group. What made it toxic was the involvement of a hedge-fund manager who has links to a failed investment firm that prosecutors called a fraud.

Investors are anxious because B. Riley was a key funder of the deal and has extensive ties to the hedge-fund manager. New details of loans by B. Riley to the hedge-fund manager show a longer and closer relationship than previously known. They also raise questions about whether Franchise Group should have disclosed more details about some of the loans years ago, when its board included two B. Riley executives.

B. Riley’s shares are down around 60% since August, the month the buyout closed, and it has been forced to defend its involvement. In January, the hedge-fund manager, Brian Kahn, resigned as chief executive officer of Franchise Group after a wave of news stories and social-media posts linking him to the failed investment firm.


The nutritional-supplement retailer Vitamin Shoppe was included in the buyout of Franchise Group. Photo: John Nacion/NurPhoto/Zuma Press
B. Riley took a $281 million equity stake in Franchise Group, which owns Vitamin Shoppe and Sylvan Learning tutoring centers, as part of the deal. It later disclosed that it lent $201 million to Kahn’s investment firm, which pledged its Franchise Group shares as collateral. Combined, the stated value of the loan and the equity stake exceeds B. Riley’s shareholder equity.

B. Riley’s loans to Kahn date back longer than previously known. It made at least 10 different loans to Kahn and entities he controlled from 2018 through 2023, according to financing statements filed with state agencies in Nevada, Delaware and Florida, known as Uniform Commercial Code filings. The UCC filings don’t show the amounts borrowed.

Some of B. Riley’s loans to Kahn were made or in place while two B. Riley senior executives were on Franchise Group’s board, where they served from 2018 to 2020. Franchise Group didn’t disclose them as related-party transactions in its proxy statements. A possible explanation for the lack of disclosure is it may not have been required, because Franchise Group itself wasn’t a participant in the transactions.

A July 2023 slide presentation by the investment bank
Nomura
, which provided financing to B. Riley as part of the Franchise Group buyout, included information about B. Riley’s loans over the years to Kahn. The earliest one it listed was a $37 million loan in July 2019, and by mid-2023 the principal balance on Kahn’s loans was $154 million.

The current drama has its roots in the collapse of Prophecy Asset Management, which claimed it was overseeing almost $400 million of assets when it failed in March 2020. Prosecutors have called Prophecy a fraud that hid its trading losses. Kahn, as an outside adviser hired by Prophecy, managed most of its money and appears to have generated most of its losses.

Prophecy’s former president and chief compliance officer, John Hughes, pleaded guilty in November to conspiracy to commit securities fraud and is cooperating with prosecutors. Hughes’s attorney declined to comment. Kahn, 50, is one of two people referred to as unnamed co-conspirators in the case, according to people familiar with the matter.


Brian Kahn resigned as chief executive of Franchise Group in January.
Prophecy clients in a now-resolved lawsuit alleged that Kahn secretly diverted Prophecy money to help build his controlling stake in Franchise Group. He used his stake to help take Franchise Group private in the B. Riley-financed deal last year, which valued the company at $1 billion.

Kahn declined to comment. He hasn’t been charged, and he has denied wrongdoing. In a statement last month to Bloomberg, Kahn’s lawyer, Douglas Brooks, said, “Mr. Kahn categorically denies any knowledge of wrongdoing perpetrated by the managers of Prophecy.” He said that Prophecy defrauded Kahn out of tens of millions of dollars and that neither B. Riley nor Franchise Group had any dealings with Prophecy.

Referring to the Franchise Group investment, a B. Riley spokeswoman, Jo Anne McCusker, said, “We remain confident in the investment proposition and believe this will turn out to be a value-enhancing transaction for our investors.” She said B. Riley has secured its rights to the shares backing its loan to Kahn and has first priority over other creditors.

Whether B. Riley does have first priority is crucial. Kahn at one point pledged his Franchise Group stock to Prophecy, according to a Securities and Exchange Commission lawsuit that referred to him as “Individual 2.” The SEC said Prophecy counted the amount—then worth almost $200 million—in its net asset value shortly before it failed. It is unclear whether Kahn pledged the same shares twice—to both Prophecy and B. Riley.

Franchise Group itself had been struggling. It reported combined net losses of $228 million during its last six quarters as a public company, mainly owing to soaring interest expenses.


Bryant Riley stepped down from the board of Franchise Group in 2020. Photo: Ringo Chiu/Zuma Press
The fallout from the deal has shaken confidence in B. Riley, which manages about $24 billion for clients and provides investment-banking services mostly for small companies.

The two B. Riley executives who served on Franchise Group’s board were Bryant Riley, the financial company’s co-founder and co-CEO, and Kenneth Young, its president. They stepped down from Franchise Group’s board in March 2020, the same month Prophecy collapsed. The B. Riley spokeswoman said their departures had been previously planned and that “B. Riley had no role in Prophecy in any capacity.”

Franchise Group reported other transactions with B. Riley as related-party dealings while the two executives were board members, but not B. Riley loans to Kahn. Bryant Riley and Young declined to answer questions about the disclosures, according to the B. Riley spokeswoman. Kahn joined Franchise Group’s board in September 2018 and became its CEO in October 2019.

SHARE YOUR THOUGHTS

What lies ahead for B. Riley Financial? Join the conversation below.

Prophecy investors grew anxious about its situation in early 2020. LyonRoss Capital Management, a New York investment firm, sent an analyst to figure out what Prophecy owned. He “dramatically discovered Prophecy’s secret $160 million side account with Kahn and another $36 million in hidden soft loans to Kahn,” LyonRoss said in a lawsuit against Prophecy, Kahn and others.

LyonRoss in its complaint said Kahn had used more than $100 million of the side-account funds to buy Franchise Group shares. The lawsuit was dismissed in 2022, and the parties went to arbitration, the outcome of which wasn’t disclosed.

The death blow to Prophecy came in March 2020 when its funds’ accounting firm, Deloitte & Touche, withdrew its audit reports for 2018 and resigned. Prosecutors said Deloitte resigned after uncovering the fraud. Deloitte representatives didn’t respond to requests for comment. Deloitte also was Franchise Group’s auditor and remained so after resigning from Prophecy.

Write to Jonathan Weil at [email protected]

[OuttaNowhereWregget]

I'm not sure where to pose this question so I'll plunk it here:

Would someone explain to me why we started having so many of our goods shipped in from other countries, and when?

I'm (barely) high school educated so brevity and layman's terms are a bonus should anyone care to explain things to me. I know precious little about the economy and tariffs and trade wars, etc. I have an idea that the US government got greedy and began imposing all kinds of taxes and such which inspired US companies to begin manufacturing their goods in other countries, or importing goods from other companies, but I don't know that for certain sure. Thanks in advance.

[cradleandshoot]

I'm not sure where to pose this question so I'll plunk it here:

Would someone explain to me why we started having so many of our goods shipped in from other countries, and when?

I'm (barely) high school educated so brevity and layman's terms are a bonus should anyone care to explain things to me. I know precious little about the economy and tariffs and trade wars, etc. I have an idea that the US government got greedy and began imposing all kinds of taxes and such which inspired US companies to begin manufacturing their goods in other countries, or importing goods from other companies, but I don't know that for certain sure. Thanks in advance.

Buckle up your chinstrap. Your sure to get Fanlax education very shortly.

[OuttaNowhereWregget]

I'm not sure where to pose this question so I'll plunk it here:

Would someone explain to me why we started having so many of our goods shipped in from other countries, and when?

I'm (barely) high school educated so brevity and layman's terms are a bonus should anyone care to explain things to me. I know precious little about the economy and tariffs and trade wars, etc. I have an idea that the US government got greedy and began imposing all kinds of taxes and such which inspired US companies to begin manufacturing their goods in other countries, or importing goods from other companies, but I don't know that for certain sure. Thanks in advance.

Buckle up your chinstrap. Your sure to get Fanlax education very shortly.

I have faith. Someone will give me the straight dope before (or during) the party line point/counter-point arguments begin.