- We're All Going to Die, But This is Getting Silly
The panic over a virus with symptoms is so mild most carriers of the virus don't know they are carriers is getting silly. We're all going to die some day--and probably climate change will kill more human beings than anything else aside from a normal life span--but in the meantime, we "crack on," as the Brits say. For our inaugural column on the new platform we've chosen for JeffMatthewsIsNotMakingThisUp we've been waiting for something worth saying, and this seems as worthwhile as any. So stop reading, start looking, and take advantage of the panic. They don't come around very often. JM
- Who Is This Guy and What Have They Done with Jamie Dimon?
The WeWork debacle is in the red-meat stage. Now that the emperor—Adam Neumann—has been shown to have been wearing no clothes for quite some time, the press is on it. The Wall Street Journal’s latest bit of piling on goes after SoftBank and its formerly could-do-no wrong $100 billion “Vision Fund”: SoftBank Fund Dials Down Risk; Staff Struggles With Chaotic Culture. But let’s be honest. Did anyone doubt it was chaotic at that joint? The worst prospective client a money manager ever gets a call from is the lathered-up guy who says, “I want to put some money to work.” That is code for, “I missed the bull market and I want you to make money for me now, and here it is, I want results.” Softbank had $100 billion to “put to work.” It was never going to be done rationally. But our job here is not to join the scrum. Our job is to perhaps put the pack animals on a different scent—the scent of a CEO we here at NotMakingThisUp have always had enormous respect for: Jamie Dimon, CEO of JP Morgan, whom Mr. Neumann, the aforementioned clothes-less emperor evidently counts as among his “allies,” if the Wall Street Journal’s reporting is to be believed. Worse, JP Morgan, it seems, not only invested in WeWork (in the C-round, at a not-insanely-ridiculous valuation), but lent money to the visionary-cum-clothes-less emperor Mr. Neumann against his own WeWork shares at a quite-insane-enough-thank-you-very-much valuation. Naturally, Jamie was quite anxious to see the money returned, and his bankers were working on a rescue package until SoftBank agreed to throw more good money after bad and took control of an office-rental company pretending to be a magical mystery dream factory. Jamie Dimon, for you home-gamers, was one of only a literal handful of financial CEOs who kept his head screwed on straight in the years leading up to the 2008 financial crisis, and was savvy enough to see opportunities when they presented themselves during those perilous times. After the AIG bailout, for example, when all the world was freaking out and nobody seemed to think the Feds would recover their investment in AIG, Jamie Dimon said, and your editor remembers him saying it quite crisply to the skeptical analysts on one of his company’s earnings calls that dark autumn, “That’s a good deal. I’d do that deal.” Alas, such clarity of thought appears to have been clouded over by a decade-long bull market and the prospect of ginormous fees from an imaginary unicorn. No, this is not rear-view-mirror thinking on your editor’s part. The real world—including more than a few of Jamie Dimon’s quite legitimate commercial real estate customers—has been full of skepticism towards the WeWork model, and they’ve said as much. Why, my Sentieo workstation [think: much less costly than Bloomberg, but more useful] came up with a couple dozen skeptical—sometimes quite pointedly so—observations about WeWork on quarterly earnings calls as far back as November 2017. This one, from Empire State Realty Trust back in September 2018, sums it up: “I think, from our perspective, we don’t have WeWork as a tenant in our portfolio. Our view, as Tony has articulated, is we don’t like the proposition of providing a long-term lease to someone who’s, in turn, entering into short-term agreements. And then…very often, not creditworthy entities, not that the enterprise business is different. But we don’t see it as a good credit.” Thus, WeWork violates Banking 101: instead of borrowing short-term and lending long-term, it borrows long-term, sells short-term. A banker with the brains of Jamie Dimon would have seen this with his eyes closed. So, what have they done with Jamie Dimon and who is that guy masquerading in his place?
- Buffett Wrong Already
The mark of an original thinker may be that you never know how they’re going to answer a question you’ve never heard them get asked. That’s how NotMakingThisUp started a recap of the private equity discussion at this year’s Berkshire-Hathaway annual meeting, which came about when a shareholder asked Warren Buffett—The Oracle of Omaha—this simple question about the private equity mania then raging across the land: “What could cause it to bust?” The shareholder’s question seemed entirely reasonable and timely, given the fact that we had as recently as February seen the classic “cover story” top-of-the-market headline from Fortune Magazine, about the Blackstone Group and its top Alpha Male, Steve Schwarzman: Wall Street’s Man of the Moment In the 1980s, Wall Street Power brokers wore red suspenders, dined at Le Cirque, and made their money in junk bonds and arbitrage. A decade later they wore polo shirts and played Foosball at the venture capital firms that line Silicon Valley’s Sand Hill Road, reaping billions from tech. Today Wall Street’s newest titans can be found every Monday morning gathered around a long, slightly scuffed conference table in a windowless boardroom high above Park Avenue, the home of the Blackstone Group. Wearing white shirts and pinstriped suits that underscore their Harvard Business School credentials, Blackstone’s top dealmakers have learned well the techniques pioneered by previous masters. What makes them different is that they also happen to dominate the iconic business of this decade – private equity. The rest of the article was highly predictable, having appeared in various forms regarding various Masters of the Universe overseeing various Thousand Year Reichs including, but not limited to, Drexel Burnham, Enron and Tyco..Indeed, anybody with more than ten minute’s experience on Wall Street, upon reading that article, should have experienced shivers of precognition that the end of the private equity mania was in sight, if not immediately overhead. But not Warren Buffett. Here’s how we reported it: As it turns out…Buffett doesn’t think the private equity mania is a bubble, despite, in my view, all the evidence to the contrary, what with everything from deeply cyclical semiconductor companies to fashion-dependent retailers being leveraged up with the kind of debt loads that would make Donald Trump nervous. In fact, Buffett said the whole private equity thing “isn’t really a bubble.” While he did bemoan the high prices the private equity wizards were willing to pay—making it harder for him to put Berkshire-Hathaway’s ample cash to work—he did not seem to think the mania was unsustainable, citing the fact that private equity investors lock in their investors for years as being a bulwark against some kind of dramatic end to the feeding frenzy. “It takes many years for people to take their money out” of private equity funds. Thus Buffett makes the subtle distinction between a mania that might well end in disappointment for all concerned, and one likely to end in a crash..Perhaps back then (this was early May) Buffett did not contemplate the hysterical buildup to the June 22 IPO of Blackstone Group—poster child of private equity’s self-proclaimed “golden era”—in which a private partnership whose income consists largely of one-time gains on asset sales would go public at a valuation approaching that of the highly diversified, recurring-revenue generating Lehman Brothers. Or perhaps Buffett did not look more deeply into his argument that the bubble couldn’t “burst” simply because the buyers wouldn’t get margin calls, and ponder whether the bubble could burst because the buyers’ financiers would indeed get margin calls. Or perhaps he was just being nice about it. But he was wrong. For now that the music has stopped, the investors who have committed their funds for “many years” are stuck; the banks who committed many billions of dollars for short-term bridge financing are stuck; and the poor shlubs who bought Blackstone Group on the IPO are probably wishing they’d never read Warren Buffett’s “all-clear” on private equity. The private equity bubble has burst, and nobody knows how it will end. But one thing we can take to the bank: trust Warren Buffett to pick through the debris and find the values. Jeff Matthews I Am Not Making This Up © 2007 NotMakingThisUp, LLC The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.
- Jeff Matthews is Not Making This Up
NEW RELEASE We're All Going to Die, But This is Getting Silly The panic over a virus with symptoms is so mild most carriers of the virus don't know they are carriers is getting silly. We're all goin... READ FULL ARTICLE → GREATEST HITS Who Is This Guy and What Have They Done with Jamie Dimon? The WeWork debacle is in the red-meat stage. Now that the emperor—Adam Neumann—has been shown to have been wearing no clothes for quite ... READ FULL ARTICLE → The Gig Short A friend of mine did something recently that he’d never done before: he used Lyft instead of Uber on a business trip. He did this becau... READ FULL ARTICLE → Activist Targets IBM: “Bring Out the Belgian Waffle!” (reprint from 2014) Editor’s Note: In light of the recent KHC disclosure that the geniuses at 3G have been underinvesting in brands, over-stating earnings, a... READ FULL ARTICLE → Stay up to date with an insider's look into The World of Wall Street. SIGN UP Great! You're all signed up. BACK CATALOG VIEW ALL ARTICLES TUNE IN FOR UPDATES Sign up for the Not Making This Up newsletter, and get an insider's look into The World of Wall Street–direct to your inbox. SIGN UP Great! You're all signed up.
- CONTACT | Notmakingthisup
GET IN TOUCH I want to subscribe to the newsletter. SEND A MESSAGE Message sent. Thank you! About Jeff Matthews Jeff Matthews spent 15 years working on Wall ––well, not physically on Wall Street, but at Wall Street firms––and 23 years running his own hedge fund, Ram Partners, while also writing several books on Warren Buffett and Berkshire Hathaway, not to mention the highly influential blog, JeffMatthewsIsNotMakingThisUp, which is now this web site! Stay up to date with an insider's look into The World of Wall Street. SIGN UP Great! You're all signed up.