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Jim Chanos and Jim Grant Talk Fraud @NY Historical Society- Video And Transcript

Jim Chanos and Jim Grant talk “fraud” at the New York Historial Society Museum and Library an informal transcript and the video can be found below.

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They each talk for about 10 minutes followed by a conversation followed by about 20 minutes of Q&A

The lecture was entitled:

Sophisticated investors have been the victims of deception throughout our nation’s history. Celebrated financial experts Jim Chanos and James Grant explore historical examples of businesses that became notorious after having been accused or convicted of defrauding their shareholders.

See video and informal transcript below

Good morning we’re going to start depending on whose watch you have. We’re going to start a couple of minutes early because I’m presuming they’ll be many questions have or two really interesting speakers. So let’s close the door. You guys come up here. Well good afternoon. I’m Roger Hertog chairman emeritus of the Society’s board. And I hate to admit it. And an old Wall Street hand I underscore the word old. In fact I spent my entire career on Wall Street which is why I assume Pam and Susan asked me to introduce our two speakers at this session both of these men have three things in common. They both answered to the name Jim. They both are trustees of the historical society and they are iconoclastic interesting well-known Wall Street insiders. I’m looking at my phone if anybody has a phone please turn it off. I should have said that before and I say insiders with great respect they are people. They are names of people that almost everyone in Wall Street knows and respects. They are not simply the run of the mill pontificators but rather serious thinkers who’ve made important inroads in managing money and in helping us understand the nature of the shape of the capital markets. The first is the first Jim is chain knows he’s sitting directly to my were to my right. Raised as an immigrant’s son in Milwaukee that his family ran a chain of dry cleaning shops. He went on to receive his B.A. in Economics and Political Science and Yale and eventually founded the legendary short selling firm known as Chini Kose what is Kenny coast meet again.

Sinek that’s it highly appropriate. A short selling firm that is it is Greek in nature. You could think the name is kinescopes Cosies Greek and skeptic is actually the operative word these facts biographical facts alone would be noteworthy but Jim success has grown out of an extraordinary ability to find stocks. Sometimes industries in Vermont even markets that are grossly overvalued. As it turns out many of the companies he’s identified have had some component or maybe a very significant component of fraud is they are part of their underlying failure in the securities markets. The episode he is best known for is predicting the collapse of Enron although there are many others. The fraud little riddled energy company that went bankrupt in 2001 now for those of you guys in the audience who are not familiar with the whole concept of short selling I should note that there’s good reason why short selling is such a hazardous money management technique in the wrong hands. If you are wrong on the direction of the stock you’ve shorted added it unexpected and unexpectedly begins to rise. Your losses could theoretically be infinite because no one really knows how high stocks can go. While on the other hand selling short the maximum profit even if a stock goes to zero is 100 percent. So there is an asymmetry potentially in the outcomes from short selling versus being from short selling if you’re wrong. It can go potentially very very high and if you write completely right it can only go to zero. So if you’re not an expert like Jim the short seller he’s just a regular investor is engaging in a harrowing financial endeavor.

Our other guest is equally interesting. James Grant worldclass biographer having published the lives of Bernard Baruch John Adams and the legendary speaker of the house the turn of the last century Thomas Reed and three financial histories to boot a native New Yorker Jim Grant enlisted in the Navy during Vietnam then earned a B.A. in economics and a master’s in international affairs. His writing is elegant serious and that for many of us who have worked on Wall Street I think it’s fair to say if we had to subscribe just to one publication in the field it would be Grant’s Interest Rate Observer. I must admit to being a loyal and I would say supportive and appreciative subscriber these two independent thinkers will be talking about two sides have so to say the same coin maybe not the same coin but of an overlap. Will be talking about fraud and deception. The types of dishonesty that have been going on since biblical times and that 150 years ago a feigned philosopher German philosopher I think captured the idea of what’s been happening since biblical times. He said out of the crooked timber of humanity no straight thing has ever been made. Now the words many men are just flawed. This is just you can’t get around it. It’s part of life Jim Grant subject will be deception and fraud not on the part of corporations and securities but on the part of governments including ours and federal agencies. My question is a simple one. How can individual investors like you and me protect ourselves from the unbelievably sophisticated stock frauds and at times government deception about how we should see the future.

That’s the challenge that our Stiehm speakers will answer for us today. So finally our two gyms will teach talk about 10 or 12 minutes then transition to a gentlemanly conversation and then maybe 20 minutes before the end they should we should engage with a question and answer session with us in the audience. Please welcome our first speaker Jim Grant. Thank you Roger. May I say how disappointed I am having the introduction end. Well fraud is a most stringent topic for a beautiful spring morning. And yet as is this audible and if so is that good. It would seem to be an in Congress topic for a morning like this. And yet as spring is perpetual actual recurring so is human weakness. My favorite microeconomic observation on fraud I’m trespassing on Jim’s territory but this comes from an excerpt from Anthony Trollope’s The Way We Live Now and it’s a conversation between Liddy Cadbury and Mr. Booker and Lady Cadbury says. You think I’m honest. Don’t you and Mr. Booker smiled and hesitated. Of course I mean honest men can be in such very large transactions. I love that relatively speaking. Honest. My topic is the macro economic dimensions of fraud and fraud as it is defined as in intention to defraud its intention to deceive its its faithlessness. It is insincerity. So you have to think hard before you accuse someone of this and the government fortunately is in no position to sue.

Being extremely large an amorphous but I’m going to speak about three or four dimensions of what I take to be kind of a pious fraud a pious fraud on the part of government pious fraud is of course one put over with every good intention for the improvement of people like us associated with religion. But it’s also I think associated with religion of economics it’s economics is not a science. It is in fact an article of faith. In my opinion. So I wish to begin by reading you an excerpt from something that William McChesney Martin said in 1957 1957 was a somewhat fraught year in American finance. The CPI Consumer Price Index was tripping along at upwards of 3 percent and more 3 percent and many celebrated this because they call this call this creeping inflation was as it were the lubricant of prosperity as a Harvard professor or two who got behind this idea and cheered it oddly enough. Given our own experience the people who at least rhetorically opposed it with a Federal Reserve and one of these opponents was the chairman of the Federal Reserve Board William McChesney Martin. Here is what Martin said in 1957. To beat back the soft and welcoming arms of those who would embrace just a little inflation. All right. Here he is. Well said Martin. It would certainly be a fine world indeed if by merely opening wider the spigot of credit the Federal Reserve could increase the flow of goods and services sufficiently to treat all human wants at any time. If the Federal Reserve possessed such magic I assure you it would use it. But of course there is no such magic and all of us will be better off if we do not act as if there were. That was 60 years ago. All right.

Fast forward to the aftermath of the crisis and now I’m going to quote a successor of William Maciejewski Martin and his name is Ben Bernanke iqama Ph.D. professor of economics at Princeton I think a tenured want to show you the caliber of the man and looking into the CNBC cameras in 2011. Here is what the William McChesney Martin of our recent time had to say about magical thinking. Quote The policies as QE 2 QE is a very technical term. I’m not in a position to get into it now this being Saturday morning it has to do with the materialization of money with which to buy stocks and bonds thereby to make us feel richer etc.. QE quantitative easing or the policies QE have contributed to a strong stock market just as they did in March 2009 says the chairman. When we did the last iteration of this the S&P 500 is up 20 plus percent and the Russell 2000 which is about smallcap stocks is up 30 plus percent. How undignified for the chairman of the Fed Reserve to stoop to talk about small caps when he could have stuck to blue. But note but note that the change in approach. Note the change in mindset between William McChesney Martin 1957 denying the Fed’s power let alone its its remit to implement such policies as he characterized as magical. We have subsequently come to brace them but we have rebranded them in scientific terms as the portfolio balance channel effect very technical. My own opposition to the to the modern turn of central banking is that it has facilitated bad practice magical thinking has given us adulterated interest rates manipulated asset prices and and a great adventure in the public debt.

It took about 100 and 80 odd years for the public debt. It’s the gross public debt which is an ever so descriptive description. It took about a hundred eighty years to get to one trillion dollars that was in 1982 one trillion Well people said it’s a trillion dollar country. Why not get to 10 or so trillion give or take a carefree trillion that took until 2009. That was what twenty seven years or something to get from 10 trillion to 20 odd trillion. That happened in 2000. While I feel like it’s yesterday actually I was about 9 years so manipulated interest rates give us a kind of hall of mirrors effect. We see things that aren’t actually there we see financial values that aren’t there except they are there on the screen. On the Bloomberg screen in the pages of Barron’s the New York Times are there in print. But are they there in substance. So this to me is a species of of pious fraud. It is the willful trespass on facts in the surface of what the what the the fraudsters contend is a higher good. And lest anyone think this is apocryphal it’s not. We have been through these cycles for never exactly this but this is what makes Wall Street and investing and life in finance so interesting every time is a little bit different. What is different in our time is government sponsored fraud. In only the best of causes. Jim Trainor’s Thank you Jim and Roger. Thank you. I think it was the great W.C. Fields who said never follow a talk on pornhub and Stormy Daniels so I’m a little nonplussed this morning.

But appreciate your attendance. You know they talked about they talked about sex and we’re talking about money. And I think after lunch Robert Caro’s talk in the 60s will cover drugs and rock n roll so you guys are going to be all set for the weekend. Who knew so I want to talk a little bit. Given that we’re at the Historical Society in my belly which is to talk about private the private sector frauds and corporate frauds that appear from time to time in US history. And I teach a course on the history of financial market fraud. It’s a survey course which has some models. And one of the models that I think is applicable to today’s discussion was put forth by Charles Kindleberger and Hyman Minsky. We call it the Kindleberger Minsky model but it involves what they call the displacement and then talk about the idea that the fraud cycle if you will follows the business and financial cycle usually with a lag. And that makes sense because people’s sense of disbelief erodes as the business cycle in the financial cycle moves on and things that appeared too good to be true are suddenly embraced. And so the fraudsters frolic toward the end of the cycle. And since most frauds are basically glorified Ponzi schemes in one way shape or form or another when people pull their purse strings back or stop funding these entities they’re revealed and in over the sort of 400 plus years of North America’s discovery we’ve seen a few waves of these on the back of displacements. And what’s so interesting is that as we study the old these frauds embrace the new in a narrative.

So for example the two epic epic frauds of the 18th century were the Mississippi scheme and the South Sea bubble which almost shockingly followed each other by less than a year in the years 1719 1720 and both were based on the idea of the new world or for John Law in Paris. The nouveau world and they were really designed basically as debt for equity swaps for government debt. I don’t want to to to impinge on an Jim subject but but basically people were were encouraged by hook or by crook and by fraud to exchange their government debt securities in France or England for the stocks of either the Mississippi company or the South Sea Company the Mississippi company was it was a unique favorite of mine in my students because it was engineered by one as as a fellow trustee Neil Ferguson calls him a Scots murderer. John Law who killed a man in a duel law was having an affair with his wife. He was upset about this law killed him was sent to prison and inexplicably escaped. And while he gambled his way to prosperity and he wasn’t really gambling he knew probabilities in his head well before others did. At that time period he put forth a series of papers on the theory of money to which he’s now actually seen as somewhat of a visionary in this day of bitcoin and crypto currencies. And what is the nature of fiat currency. Well he’s he’s one of the fathers of fiat currency which again treads a little bit on Jim soldier put in 17 18.

Three hundred years ago he sent a group of Alsatians settlers decked out with gold picks axes and shovels. We marched through the streets of Paris before they went to board their boats on the coast to a to a wonderland in Louisiana that was rivers of gold fields of diamonds. Friendly Indians fertile soil and they set up a community named after his benefactor the Duke of Orleans and it was the beginning of New Orleans almost all those settlers died of malaria. But their story became part of this epic fraud. The law committed upon the people of France and in a way of trying to get the government out from its crushing debts. And I had a chance to talk to to New Orleans Mayor Mitch Landrieu about a year ago and was kind of going through a pretty interesting rocky time was the time of the Confederate statues general statues. And I said Well Mitch you know I know you Jackson Square and I know you’ve got you’re dealing with the statues but why don’t you just erect a big statue to one of the greatest con men of all time who founded your city. And he said that might not be a bad idea. And so John Law starts us off in the nouveaux world of the United States with an epic fraud on the back of a scheme that is just outright outright outright lies and exaggerations.

We then become a country and in fits and starts but we get to the 19th century where we begin to see the next major wave of corporate malfeasance but again back sort of tacitly by that good ole US government and I’m talking about the new frontier this time of the West and the next wave of corporate frauds we see culminates or maybe even I should say peaks with the Enron of its day the credit Mobil scandal in 1872 1873 where a former vice president and numerous senators and sitting representatives are caught with their hand in the till getting paid off by the sham company the executives of the Union Pacific. Set up the credit mobile yea named after a French institution because it sounded fancy and and exposed in the pages of The New York Sun. When an engineer comes forward and points out that since they were being paid by the mile to construct the railroad the credit mobile yea which was basically a general contractor that was secretly owned by the executives of the Union Pacific and the politicians would from Council Bluffs Iowa to Omaha which is about as straight a piece of right away as you could have actually did a series of ribbons for the railroad because they were being paid by the mile and even the public could understand that it brought forth the first congressional hearings that were public. The first congressional hearings for which there was a report. Outrage gripped the country it brought forth a contraction of credit and as Jim knows I believe the Panic of 1873 and absolutely nothing happened. There was a couple of centuries for the people who were caught the politicians by the way said that they were they received gifts not bribes. And Congress took that. There were no prosecutions no indictments and there was no really regulatory backlash to this.

And this is sort of something we’re going to see over and over again there are waves in US political economic history of when the public really gets upset and we see a backlash and times when we don’t. Now let’s go into the 20th century or we’re going to see the former we get into the roaring 20s. But for purposes of this talk I’ll call it the new global power the United States and the Roaring 20s is the ultimate displacement decade. We have the advent of consumer credit. We have radio we have the airplane driver we have the movies the talkies. And we have Europe flying prostate after World War. And this new power America which is a creditor nation and onto the scene strides people like Ivor Kruger the match King who has this wonderful idea of recycling US savings into war into moribund European economies except that by about the mid 20s his scheme turns into a Ponzi scheme as the the countries are not able to pay their debts even batch backed by monopoly on kitchen matches. And the whole empire collapses. But this time it’s not the 1970s this time the new global power Eker echo fraud Ekers in to the New Deal and the New Deal and pakora bring forth regulations. The birth of the Securities Act of 33 and 34 which some scholars actually think had more to do with the frauds of the period than the crash itself. Finally we get to the new millennium and for those who remember the dotcom the episode the new era of the late 90s early 2000s and who can forget that madcap era topped off by the ultimate virtual companies. The Enron Corporation. Ask why was the was there. Was their corporate slogan. But not enough people dead and Enron.

My colleague the late great Doug Mallette called a hedge fund sitting on top of a pipeline was the ultimate virtual company. It was so virtual that they actually created a trading floor that was phony to have analysts go through once a year in Houston. This brought forth the kinds of changes and we now find ourselves on the back end of that era of epic large monstrous 100 billion dollar corporate frauds. Jim before we get to the epic monsters let’s try to engage in this conversation because we we have to we’re going to close up shop and 11 05. We’d like to give hear you guys talk about it a little bit and then we want to give these guys a chance to ask their questions which I’m sure they have many. I’m sorry. Got it. No problem though. I was just about over anyway Roger so well. Jim I think you’ll agree with us certainly. I’ll never forget the thought of about two in parks or one of my books had to do with the evolution or evolution in reverse of the institutions of American credit that contention was that that the banking system had become less safe with deposit insurance here. Before that the stockholders of a bank were responsible for the solvency of the institution in which they held a fraction of interest. They contended also that the alleged improvements and the creation of money one had previously had to produce it out of the ground it was a hard thing. It was a scary thing.

Then came the materialization of money through the tapping on a computer keypad so that that was the thesis of the book and the critic I think was the National Review said reading Mr. Grant’s book is like reading the history of the interstate highway system from the point of view of the crashes. Yeah which is I think. No the point survived the exaggeration. So I think both of us perhaps would agree that we are richer live longer and certainly by so many indices are an improved lot notwithstanding the institutions of credit and their troubles and the cyclical reappearance of fraud. But is it. My question to you doctor. I call him doctor because yeah we just go back 100 years. But Jim my question to you is have the frauds become any different from John Law to the present. Has anything changed under the sun. The answer is yes yes and of course no. The the human nature doesn’t change. And one of the things that in my course is how applicable modern day models are of examining past cases and just how similar they all are now the techniques and the financial engineering is a little different. But I mean Ivor Kruger was using off balance sheet entities separate classes of shareholders. You know back in the 1920s law was engaged in all kinds of things we would admire today including PR.

At one point to to get the public’s interest in his new bank he told the press to appear at 10 a.m. on a Friday morning at his bank at the front door and at the appointed time the press was there and they saw the royal carriages roll up and footmen took out treasure boxes of King’s treasure and marched into the bank ostensibly to deposit it with laws new bank and what they didn’t see is that the footman walked straight out the back door into some unmarked coaches and stayed right back to to the tweenies on more coaches. Is that any different than Enron doing the fake trading. No. In about 90 seconds we’re going to take some questions from the audience. I want you to ram into the discussion one more observation on the this is this idea of a pious fraud. You know this is a seemingly wholesome suspension factual discussion in the interest something greater. So my complaint with the Federal Reserve in its works has to do among other things with an underlying fraud which is I say which is the the dark magic of macro economics which is you know the proposition that one can forecast the future and improve that future before it comes to pass. And so the Federal Reserve and its counterparts the world over have done something never before seen they have materialized over the course of 10 years trillions upon trillions of money with the greatest of ease. And now they propose that they will stop doing that and there will be none the worse for it. Although we were greatly the better for it when they were materializing this money. So to close this thought I’m going to quote from a fellow named Stephen Potter an esteemed senior vice president of Federal Reserve Bank he’s in charge of the markets group Athen New York Federal Reserve. And here is what he says. The message I’d like to leave you today with is confidence one of confidence. He’s talking about the Fed’s withdrawal of the stimulus confidence.

I am confident that the Fed’s plan will reduce the size of the portfolio with a gradual and predictable no surprises matter. That is fraudulent to the extent that the confidence projected is unsupported by experience by theory and by fact this has never before been done. And yet the Fed is reposed prepared to tell you that there is nothing to worry about. There were no adverse consequences certainly no unforeseen consequences because the Fed has its models. So I think between a doctor between human nature and the conceits of the non science of macroeconomics we have an interest initially world so questions. I think that what we want to do here. I was briefed earlier about the protocol of course and apparently they are again speeches masquerading as question whether that’s about. So if you have a speech Jim and I will hear it later. And remember to wait for the microphone and and brevity is the soul of interrogation says right here. All right. Question on your left is that bitcoin and related crypto currencies could go down as one of the great frauds or contrary. Bitcoin Well no. Rick rece we’ll know more in five years to be sure bitcoin to me is Silicon Valley’s cry for help it was instituted during that period of distrust of the central banks which lasted about six weeks. But the progenitor of bitcoin thought that by creating a digital alternative to fiat currency meaning the currency that we all have our wallets by creating something that could not be manipulated something that would have a finite number of units in circulation at a date certain that this would be an improvement on the world and this went hand in hand with this thing they call the block chain.

Now Rick you have asked a very sassing question for which there is no succinct answer but I will say that I am of the view that Tippett coin is the invention of a wheel we didn’t need something on that periodic table of the elements has a 3000 year warranty that it will never go to zero. That’s gold. That’s the legacy monetary asset supply of gold grows at 2 percent a year has over the course of millennia. It doesn’t need instruction manual to plug it into the wall. It has nothing to do with the block chain. Whatever that might be and so I think that Bitcoin is a candidate more for zero than for hundred thousand dollars per unit. That’s my personal opinion. The question here I do want to comment on the legal Ponzi schemes of the Social Security system and many union pension funds well there is one set of laws for those of us in the private world. And there was another set for those doing the public’s business and the Ponzi scheme. I think Paul Samuelson the guy who wrote the textbook that everyone had to have for about a generation or two termed social security a great Ponzi scheme that was that was the ultimate pious fraud. You paid in the expectations others will keep on paying. Now there’s no one for you. So the central banks have manipulated say aye. They say they have merely followed interest rates lower. I say they have adulterated interest rates and pressed them to zero over the course of these many years. So they did what they did and they are without fault in the eyes of the law.

The commercial bankers in London manipulated the London Interbank Offered Rate. That is the benchmark short term interest rate in the world. And they got caught out doing it and they have got themselves a peck of trouble and billions of dollars in fines. So once I asked a federal reserve governor at that meeting open meeting I said Could you help us distinguish between on the one hand the central bank’s manipulation of markets and of interest rates for the good of the world. And on the other the IST the illegal manipulation of interest rates by the commercial bankers not not the legal difference between that but the substantive economic difference and he said no idea what you’re talking about. I’m just going to add to that the problem with the pension plans directly also is an example of the accounting tail wagging the economic dog. For both the private and public sectors there’s a union negotiator told me a number of years ago that because until 2005 or 6 pension fund obligations on an annual basis were not put on corporate financial statements they were in the footnotes that the UAW and others knew this and routinely would agree to lower than expected CPI increases for wages by taking it in terms of gold plating platinum plating pension benefits and employee medical benefits on the back end because the companies didn’t have to reflect that in their profit loss statements and they knew this. And it’s one of the things that ultimately bankrupted the auto industry when the stuff came onto the books in 05 06. Everyone was kind of shocked. Same thing with public pensions.

Wasn’t till Gatsby started to make noises about this about 70 years ago about putting this stuff off budgets back onto budgets that we found out about Illinois and New Jersey and others question at the center. It seems to me that there are a lot less frauds in the market than they used to be. We live the period of the savings and loans and you know some other real estate frauds and some individual names. Ziebell is to collect all those. Why are there less froze now public frauds. Is it because of increased regulation among other things. What’s your thinking. Just wait. So one of the things mentioned is that the fraud cycle follows the financial cycle. And so as you know for the last eight or nine years I’ve certainly noticed that we’ve been in a pretty epic bull market. But but usually these things come they begin to appear toward the end. I would witness the company that put Jim and I know pretty well called value in pharmaceuticals which eviscerated about 100 billion dollars in market cap and was the largest single stock loss in hedge fund history. A couple of years ago there’s a company called Thero knows this in the private sector that just fooled the best and the brightest in the venture capital field and yet happened in slow motion during a bull market in a bull market. So I suspect that and particularly in the world of Silicon Valley and the unicorns the private companies that are burning billions of dollars with lots of claims of future profitability. I think the jury’s still out. I remember getting a call after Sarbanes-Oxley was passed after Enron.

Sarbanes-Oxley was passed very quickly by an outraged Congress but basically codifying things that were already illegal and I got a call from a journalist that one of the Augusta dailies saying well what are you going to do. Is that what you mean. Well there’s not going to be any more fraught questions. You’re right. Would you talk to us about the private and public frauds in China. Well China is the most extraordinary living laboratory in credit formation and credit abuse the world has ever seen. And that is a long history of credit formation and credit abuse with China I think takes the cake. Oh I should preface this by saying that concerning China nobody knows nothing. Is it true that right. OK. But insofar as there are data it insofar as they are credible you know China to put it very succinctly has been creating credit at twice the rate of its economic growth sometimes more than that. And now what China is trying to do is to pull that back but imagine a state of affairs and Chinese bank credit is far greater as a percentage of its GDP than is anyone else’s. It’s bank credit is far greater than ours with an economy much smaller as measured. So if there are no consequences of this the world has truly been remade. Imagine all this credit financing all of the state supported projects and some privately supported. And Jim can talk to those in a society in which information is manipulated and suppressed. So we had grants have been following this for for for a long time and to date our warnings were running out of adjectives to express our dire concern.

But we have not been as it were journalistically paid for our our work but we have every expectation that we will be it is exactly. And nobody knows enough and it is a good way to put it. There’s a great new documentary out called The China hustle that goes into some of the the sort of more more more micro frauds but the recurring event and that is that non Chinese investors have no recourse in the Chinese legal system as it were. And so when people are even caught red handed stealing from investors or defrauding them nothing happens. I’ll give you one wonderful example that happened in plain sight. There’s a company that’s about to be taken public the payments firm and to financial or Ali pay which is an affiliate of the large Ali Baba. And the latest round seemed to indicate this firm will be worth 150 billion dollars. Now in 2011 the Western investors seed investors and Ali Baba Yahoo and SoftBank woke up one morning and in Ali pay which was a division of Alibaba was removed from the company and it was removed for basically no recompense and it was removed because the insiders said well the government is going to tell us that Western investors can’t own any financial payments firm. So we have to put it in our personal holding company. Thank you very much. Now that company is now worth 150 billion dollars. Seven years later and this is China. Welcome to China crushed on your left thank you both. Are there any cyclical factors you guys are looking at right now.

Whether it’s jobs at IPO or China capital flight into countries like Canada or Australia or structural factors reverse mergers you mentioned things like that that you find to be constantly fertile ground for this sort of behaviour. You know one something that’s happening that’s that is a little bit unscripted is the rise and the aforementioned London Interbank Offered Rate LIBOR or the famous LIBOR. This is an interest rate that is a little bit like an autonomous vehicle. It’s going up without central bank propulsion. It’s a semi market determined semi negotiated rate but it is of great consequence literally trillions of dollars worth of contracts depend on it. And so one of the consequences of upwards of 10 years of near-zero interest rates is that companies have not mysterious. They’ve been borrowing more and if you look at the percentage of the companies both in the S&P 500 and in the end Ben Bernanke whose favorite index the Russell 2000. If you look at those companies and and calculate how many can pay their interest expense out of earnings before interest and taxes the all time cash flow meant that not so many many most can. But the ones that can’t are rapidly rising as a percentage of those indices less so than blue chips. But remarkably notably in the small caps. So there is kind of a kicking interest rate bottom out there. And it’s it’s it’s ticking audibly but so far not attracting much attention for your personal portfolios. So we use a lot of tools in my my day job to to identify problem areas or more specifically problem companies.

But the one slam bam always leads to problem indicator is when we see massive massive executive departures at a company what we’re not just a few people but but 20 30 leave a year which is very very unusual. The two companies that come immediately to mind that exhibited that was a company called Enron in Houston in 2001 where scores of executives left between 99 and before the collapse and then back to a company I mentioned before a company called Valley and pharmaceuticals which saw this enormous exodus of the drug company executives that it hired or acquired who got there. So what was going on and left. So if you see a company like that and I can think of one right now that makes electric vehicles out in California where the the executive departure list we keep is now three pages single spaced for the last 18 months. That’s inside a walking’s supposed insider selling insider walking exactly. Be careful we don’t have that include the White House the White House include the White House. One quick historical note on that. Donald Trump’s company D.J beat down the holding company he set up in the late 90s for some of his debt ridden empire was the first company cited by the FCC for abusing pro forma earnings per share regulations in 1999. Fritchey signaling I think it’s that we’re out of time and it’s time to close we have another round of applause for Jim Graham Jim thank you very much. The next session begins at 11 15. If you need help finding your session just feel free to ask me or any of our staff. Thank you very much.