BALTIMORE – We are looking ahead. And coming together is not only a clearer picture of how Trump’s reflation might turn out… but also a better understanding of what has gone wrong with the whole economy.
Over the next three days, we’ll look at a few of Trump’s money men. Then, we’ll conclude the series with a guess about what will happen when these fellows get to Washington.
When we were growing up, we shopped for nearly everything at Sears stores. If it wasn’t in the stores, we ordered it from Sears’ big catalog. The latter was a marvel, where we saw all the things America’s Main Street had on offer at the time. That’s where we did our Christmas shopping.
But looking at a chart of Sears’ stock over the last eight years is like looking at a photo from Aleppo. From nearly $200 a share, it now trades for just over 10 bucks.
How could such a great company – owner of Kmart as well as its own Sears’ stores – anchoring malls all over the country with title to some of the choicest commercial space in the nation and owner of the brands we grew up with – including Kenmore appliances and Craftsman tools… How could such a company suddenly put itself into what looks like a death spiral?
Business Insider reports:
According to a recent report by The Wall Street Journal, toy maker Jakks Pacific Inc. recently suspended sales of its products to Kmart, which is owned by Sears Holdings, due to worries about the company’s financial health…
Fitch Ratings in October identified Sears as one of seven major retailers at risk of going bankrupt in the next 12 to 24 months and eventually liquidating.
In September, Moody’s analysts downgraded Sears’ liquidity rating, saying Sears and Kmart don’t have enough money – or access to money – to stay in business.
The Moody’s analysts said Sears is bleeding cash and will have to continue to rely on outside funding or the sale of assets, such as real estate, to sustain operations. Kmart in particular is at risk of shutting down, the analysts said.
The company is running out of time and money. It had $1.8 billion in the till a year ago. Now it has only $238 million. And $3 billion in debt.
How does a company do that? How does it destroy itself… wiping out 130 years of accumulated wealth and knowledge?
The answer is to be found in fake money and the financial insiders who use it to strip out value from Main Street and move it to Wall Street.
First, as described here many times, fake money weakened the middle class, which shopped at Sears. The rich went to more upmarket retailers such as Neiman Marcus and Nordstrom. The poor went down to dollar stores and Walmart. Sears was left in the middle.
But the more interesting story concerns a Mr. Steven Mnuchin…
Mr. Mnuchin was on the board of Sears for the past 11 years, throughout its devastating decline. He is resigning now, letting the ship go down without him. Besides, he has already stolen the silver.
How do you destroy a business?
It’s not that hard. Rather than invest in new people and new methods, you take the money for yourself.
It is even more attractive if you can borrow a lot of fake money at ultra-low rates against the company’s credit… pay it out to yourself and other financiers… and then jump ship, leaving the company, its employees, and its creditors to drown in your debt.
That is what Mnuchin did. Here’s David Stockman:
…during the last 11 years [Sears] spent $7 billion on stock buybacks or nearly double the amounts it reinvested in maintaining and renewing its store base, which at one time numbered more than 4,000 Sears, Kmart, and other specialty store units.
In terms of sales, Sears spent less than a third as much as rival Walmart on capital improvements. Instead, insiders pumped the money into their own pockets, mainly with buybacks.
Then, either seeing the handwriting on the wall… or putting it there themselves… they pulled a fast one, evidently with Mr. Mnuchin’s cooperation.
Two hedge funds swooped in with a plan: They would use cheap financing to transform valuable Main Street real estate into a Wall Street asset. They set up a real estate investment trust (REIT), took the property out of the company, and put it in the REIT.[Note: A REIT is similar to a mutual fund, except that it is composed of property instead of stock.]
Sears can go broke; they will still have the company’s most valuable assets. And now they can sell the REIT to investors.
And by the way, one of the two funds involved is run by a former college classmate and Goldman Sachs crony of Mnuchin’s, Eddie Lampert.
…the whole deal was a backdoor financing to get assets out of SHLD [Sears] prior to its impending bankruptcy. The hedge fund insiders will now have a secured senior claim through the newly created REIT, which they substantially own, rather than worthless SHLD common stock.
At least Steve Mnuchin can do Sears no more harm. Donald Trump picked him as his Treasury secretary.
By David Stockman, Editor, Bubble Finance Trader
We have been rooting all along for "The Donald" and his fulminations against the Wall Street/Washington ruling elites. But we have also insisted that he has no clue about how to actually "drain the swamp," and his recent actions proved that beyond a shadow of a doubt.
He appointed two billionaire speculators (Steve Mnuchin and Wilbur Ross) to the key economic positions in his nascent administration who stand for exactly the opposite of what he said during the campaign.
“The hedge fund guys didn’t build this country,” Trump said on Face the Nation recently. “These are guys that shift paper around and they get lucky.”
Don’t get us wrong. We are all for real capitalist billionaires—–the more the better. Most of the great ones like Henry Ford and Andrew Carnegie are long dead, but despite his leftish political views, we’ll take Bill Gates as another living example.
But we won’t put either Mnuchin or Ross in that category for a moment. They are crony capitalist speculators who have made billions owing to the falsification of financial markets by the Fed and the utterly corrupt stupidity of Washington in gifting Wall Street grifters with huge windfalls to bail out failing financial institutions that should have been left to die.
Of course, they posture as "vulture investors" doing God’s work down in the bowels of capitalism where failed companies need to be restructured and rehabilitated and given a new lease on life. The implication is that there is nothing wrong with making a handsome profit on these "turnarounds" since it’s all part of capitalism’s process of "creative destruction" and redeployment of assets and other economic resources to more productive uses.
But don’t be fooled. That is not what they actually do. They don’t create new value or output on Main Street; they just extract financial rents on Wall Street.
This has been going on for 30 years–since the S&L bust and subsequent windfall gains reaped by speculators who feasted on the flotsam and jetsam of Uncle Sam’s $200 billion loss.
Mnuchin and his ilk have made fortunes from a mutant financial regime that actually retards economic growth in Flyover America by fostering economic waste and malinvestment. And now he has been put in charge of reviving 3–4% GDP growth in a context in which the staggering amounts of debt and leveraged malinvestment that have been created by this very regime make it wholly impossible.
Editor’s Note: Mnuchin and Ross are part of the “big, fat, ugly bubble” that Donald Trump warned about during the campaign. And that is a big reason why he won’t be able to stop it from popping. But you don’t have to be caught off guard… In a special online event tonight at 7 p.m. ET, the former Washington and Wall Street insider will show you how to avoid being wiped out when the “big, fat, ugly bubble” finally blows up.
It’s not too late to register for this free broadcast. Just click here and enter your email address to reserve your spot now
Real Money and Why You Need It Now
Unlike paper currencies, gold cannot be created or destroyed by the government. Gold has tangible value. And in these volatile times, gold is more important than ever.
Sears Was Set Up to Fail
Our friends at Stansberry Research laid out Lampert’s (and Mnuchin’s) most likely plan with Sears. These details show that Lampert planned to gut Sears from the beginning.
11 Largest Corporate Bankruptcies
Sears could go down as one of the largest corporate bankruptcies in history. Here are 11 other multibillion-dollar companies that went under because of financial engineering and too much debt.
A bit of a mixed bag for today’s reader emails…
We begin with some interesting insights from a Dairy reader north of the border…
Regarding [Tuesday’s] piece on D. Trump. As a Canadian who has been following American politics since the election of Barack Obama, I find it amazing and alarming that D. Trump was able to bamboozle so many of the electorate to win the election. Why anyone would want such a vile and despicable person to be their head of state confounds me.
Perhaps it is an indication that America has gone mad. Perhaps we need a wall along the 49th parallel to keep this irrationality from entering Canada. Unfortunately, it is already too late, as we have had people at a political rally in Alberta rant “Put her in jail!” referring to Premier Rachel Notley. Trump’s decisions to date offer no hope for better.
I despair for the next four years, not only for America, but for the world.
– Allyne K.
"We wanted a messiah who would lead a real change… taking on the Deep State, the Parasitocrats, or the real Establishment elite." Yes, and if such a messiah really did rise up and crush the "moneychangers" (i.e., Fed money scam), he would be dead by the morning.
Interesting contrast and illustrations today vis-à-vis Isaiah’s prophecies juxtaposed with the Sadducees and Pharisees. I have yet to discern whether you attended one of Baltimore’s "triumvir," viz: St. Charles, Paca St., or Roland Park…
Anyway, anywho, your writing and commentary continue [to be] engaging, intriguing, enlightening… and amusing.
– Larry H.
Finally, we hear from a Diary reader who can relate to the bit of family history Bill shared in Wednesday’s issue.
My father-in-law, Charles H. from Sharon, PA, was also stationed at the Schofield Barracks at the time of the Pearl Harbor attack. He lied about his age to get into the Army.
– Robert D.
Will Bonner just released the details behind his family’s six-figure gold investment. And you’ll have a chance to invest in the same gold picks as the Bonners. They’ll be released tomorrow morning. So don’t wait too long. With gold prices down 10% in just the last month, the timing couldn’t be better.