Month: May 2021

WeWork co-founder and former CEO Adam Neumann may well be remembered as the worst CEO ever. But that hasn’t stopped him from collecting billions of dollars in payouts on his way out the door at WeWork, as SoftBank’s Masayoshi Son was forced to effectively bribe Neumann to relinquish control of the flailing office rental company.

A legal fight erupted when SoftBank tried to renege on some $3 billion it owed to Neumann and other early investors, but it appears this issue was settled out of court.

But according to the latest documents released by the company, Neumann has just received even more goodies from the firm, including a final “enhanced” package worth roughly one quarter of a billion dollars that was paid out to Neumann in February after he renegotiated the details of his departure with SoftBank as part of a settlement over another payout that SoftBank tried to get out of making.

SoftBank was supposed to pay out $3 billion to various early-stage WeWork shareholders including Neumann, but it tried to get out of paying, claiming WeWork had violated the terms of the agreement.

According to the details, reported by WSJ for the first time, Neumann’s final exit package gave him $200MM in cash, while letting him refinance $432MM in debt on favorable terms and allowing an entity controlled by Neumann to sell $578 million in WeWork stock.

But while the payout to Neumann is just one more slap in the face to WeWork employees who were left with nothing when the IPO was scrapped and their shares in the company were rendered pretty much worthless, other information disclosed to the SEC included the staggering losses booked by the company when it sold off most of Neumann’s acquisitions.

After Neumann’s exit in the fall of 2019, WeWork booked big losses as it sold off a number of companies acquired during his tenure. It managed to recover just $164MM on 10 investments that were initially purchased for $759MM in cash and WeWork stock.

Experts in executive severance said the package received by Neumann was particularly generous.

Executive-severance experts said the package stands out not only for its enormous size, but also given Mr. Neumann’s record. The valuation of WeWork, which he co-founded in 2010, fell to around $8 billion when he left from $47 billion in early 2019. In all, WeWork has raised more than $11 billion to build a company worth $7.9 billion, not including debt.

“Generous would be an understatement,” said Conor Callahan, a management professor at the University of Illinois at Chicago who studies severance packages. “It’s going to be something people are going to be very upset about.”

But Callahan added that Neumann’s 10-to-1 voting rights enjoyed by his shares gave him a level of control enjoyed by few others. WeWork also signed deals to cancel leases in buildings partly owned by Neumann.

As we noted above, Neumann’s $245 million stock award was part of a renegotiated version of an early 2019 agreement initially meant to encourage Neumann to boost the company’s valuation. This type of an award, called a profits interest, is similar to a stock option and gives Neumann gains above a certain minimum share price. As of his late 2019 deal, the package gave him any gains above $19 a share.

But as part of his renegotiation, Neumann managed to change that minimum share level to $0, which means he will get the full amount so long as BowX’s shares remain above their current level. But if the share price falls below $10, Neumann will become ineligible for any reward.

Neumann isn’t the only one walking away from the talks with a massive nut: His lawyers are reportedly entitled to $50M of his profits in accordance with their fee.

Real Vision managing editor Ed Harrison welcomes Jim Bianco, president of Bianco Research, back to the Daily Briefing to update viewers on how the bond market is reacting to the re-opening of the economy and the sustained dovishness of the Federal Reserve. Bianco analyzes how the Fed’s bias towards employment within its dual mandate is impacting inflation expectations and bond yields, and he and Harrison discuss today’s jobless claims within that context as well as ballooning budget deficits and central bank balance sheet expansion.

JPMorgan CEO Jamie Dimon went scorched earth on President Biden’s tax plan, which would raise the current corporate tax rate from 21% to 28%, arguing that it would result in capital flight out of the United States.

“The tax increase is actually four times what the tax decrease was from 2017,” Dimon said during a Thursday virtual hearing before the US House Committee on Financial Services. “You all know the phrase the devil is in the details, well the details here are all that matter, not the top line of 28%.”

“If you want to have a healthy, growing, competitive America against the rest of the world, you need a global, competitive tax rate,” Dimon added. “It would be detrimental to a lot of companies, it would push a lot of capital overseas.“

Dimon cast doubt on the Biden tax plan earlier this month, calling it ‘a little crazy,‘ however today’s comments mark the strongest pushback yet from the top banker.

“We’re just throwing money. It doesn’t work,” Dimon said in a recorded interview for the JPMorgan general membership meeting on May 6, adding “I’m concerned about how the money’s going to be spent.”

“We already waste tremendous sums of money.”

China’s recent aggressive crackdown on soaring commodity prices (going as far as dragging the PBOC’s monetary regime into it, with the central bank stating this morning that the surging yuan is in no way a response to explosive commodity prices, honestly), has provided the world’s deflationists with some hope that the recent huge spike in commodity prices may be coming to an end. To others, like Goldman’s extremely bullish commodities team, China’s intervention has led to a rather unpleasant hit to its thesis, and in response today’s Goldman’s head of commodities, Jeffrey Currie drafted a note saying that the pullback in commodities after China’s warnings over onshore speculation is a “clear buying opportunity,” as the “bullish commodity thesis is neither about Chinese speculators nor Chinese demand growth.”

As Currie adds, while commodity prices retraced ~3% after Chinese warnings over onshore commodity speculation, “the fundamental path in key commodities such as oil, copper and soybeans remains orientated towards incremental tightness in H2, with scant evidence of a supply response sufficient to derail this bull market.”

And just as some are worried that the Fed has lost control over inflation, with many openly mocking its repetitive pleadings that inflation is “transitory”, Goldman makes a similarly bold claim, namely that “China has lost pricing power“:

China is no longer the center of commodities. However, the most critical reason for viewing this China led dip as a buying opportunity is the mounting evidence that commodities are no longer China-centric. The velocity of the DM demand recovery means that China is no longer the marginal buyer dictating pricing, as it is crowded out by the Western consumer. The market is beginning to reflect this, as copper prices are increasingly driven by Western manufacturing data rather their Chinese counterparts (Exhibit 1).

This is a huge role reversal from the bull market of the 2000’s, with China now the incumbent consumer as the US was when emerging Chinese demand squeezed out marginal US consumers. Here is some more on this critical hypothesis which would have profound consequences on global commodity prices if it is borne out:

The Chinese consumer is crowded out. Today, a similar event is happening, but in reverse. 1) China is losing its derived demand as supply chains – exposed as fragile after two years of trade wars and a global pandemic – begin to turn local; 2) China is now focused on reducing environmental costs of production; and 3) not only are Chinese labor costs rising towards the West, labor’s share of costs is declining sharply with a global surge in automation. Moreover, after nearly two decades of high investment and now razor thin margins, as commodity prices rise, the less profitable downstream commodity consumers in China begin to complain of excessive input cost inflation. Just like in the US in the 2000’s, this raises concern among Chinese regulators that speculation is driving commodity price inflation. Rather than undermining the strength of this bull market, we see this downstream demand destruction as validating it, with strong Western demand squeezing China out of the market – just like the Americans were nearly two decades ago.

Goldman then slams the latest episode of blaming speculators, pointing to a long and distinguished history “of attributing paradigm shifts in prices to speculation” and noting that “China’s current crackdown on commodity speculation mirrors similar moves by the US in the mid-2000’s. When commentators are unable to understand what is driving such a paradigm shift in prices, they attribute it to speculators – a common pattern throughout history which has never solved fundamental tightness.“

In reality, Goldman argues that speculators merely reflect fundamentals and reduce volatility, with data showing that “net-specs track fundamentals as the specs simply translate fundamental information into price discovery.”

Furthermore, history shows that simply banning speculators leads to even more price volatility, while discouraging precautionary inventory building by consumers will leave China even more exposed to crowding out by US firms who are able to pass commodity inflation through to consumers, raising prices dollar for dollar with raw material costs:

Labor’s share of costs are declining. While Chinese labor costs have converged towards the West’s, they are still far lower. What really matters is labor’s share of costs which is declining across the world with increased automation. Not only does this make capital costs more important, which are far lower in the West than in China, but it also increases the relevancy of materials as a share of costs. Moreover, with China remaining far more cost competitive on labor, US manufacturing had to compete by increasing automation and productivity in technology intensive production sectors. This in turn is where the West’s efficiency in the use of energy and materials after the 2000s plays an important role. Combine this with the large fiscal stimulus, our US equity analysts for industrial firms point out that American manufactures are passing commodity price strength into end use consumers dollar for dollar. This higher level of pricing power by US firms enables them to more effectively weather commodity price rises. Moreover, some of the price insensitive Chinese demand in the 2000s was derived-demand from DM to begin with, which has migrated back to the US after a trade war and pandemic. As this focus on domestic production is expected to increase, given this increased focus on automation, the capex needed to replace Chinese production in the West will be even larger than the Chinese capital demand as the new western production will be a more capital-intensive, less labor intensive than what it replaces.

Ultimately, Currie sees weak Chinese demand as validating the bullish thesis:

The immediate reason for the greater US pricing power is the large US fiscal stimulus that is absent in China; however, we believe there are also structural factors that makes this a paradigm shift. China no longer benefits as much from its comparative advantage in low-cost labour, global trade and its previous apparent indifference to the environmental impact of GhG emissions. This ultimately creates a weaker margin setting onshore. With scarcity starting to generate shortages and higher prices, the Chinese are the first consumers to be priced out.

One final point, and one which ties “everything” together – from soaring commodity prices, to Chinese monetary and fiscal policy – is Goldman’s argument that CNY strength can provide a tactical tailwind. Although the bank’s commodity team sees the Chinese consumer being crowded out of commodities, their ability to retain some pricing power rests on an appreciating CNY: as the FX strength undoes some CNY-denominated commodity price inflation, the Chinese consumer can sustain a greater volume of demand. It is this additional volume that ultimately destocks inventories and drives up commodity prices – exactly as happened in oil in the 2000s.

While Goldman economists see yuan appreciation on the horizon (12m forecast is 6.2), upside is capped by the need for China to retain export competitiveness – a key driver of the Chinese mercantlist economy. Moreover, as the CNY accounts for c.15% of the US Dollars Trade Weighted basket, any appreciation reignites the dollar-commodities reflation cycle.

Authored by Patrick Andriesen via IllinoisPolicy.org,

Grocery and liquor stores would be barred from selling beer, wine and liquor after 10 p.m. if Chicago Mayor Lori Lightfoot gets her way. She said the move would curb crime by stopping gatherings outside liquor stores and help recovering bars and restaurants.

Mayor Lightfoot introduced an amendment Wednesday that would permanently ban Chicago stores from selling beer, wine and other alcoholic drinks after 10 p.m.

In April 2020, Lightfoot instituted the controversial 9 p.m. liquor curfew in Chicago to prevent residents from gathering outside during the coronavirus pandemic. Stores had been allowed to stay open until 2 a.m. most days and 3 a.m. Saturdays before the pandemic. The city revived the early curfew in October to combat a second wave of COVID-19 cases.

Now, as Chicago enters the final phase of the COVID-19 reopening plan, Lightfoot wants to make the 10 p.m. curfew permanent. She said it would curb crimes and disturbances outside stores, as well as boost the pandemic-decimated hospitality industry by potentially driving more people into bars and restaurants if they want a drink after 10 p.m.

The Chicago municipal code amendment proposed by Lightfoot during Wednesday’s City Council meeting would limit any person with a package goods license from selling or giving away packaged goods 10 p.m. to 7 a.m. daily.

“This initiative will address public safety and nuisance issues by limiting the nighttime sale of packaged goods …,” Lightfoot’s office announced in a news release.

While Lightfoot originally defended the 2020 alcohol curfew as a “protective” measure against COVID-19 infections, she introduced the permanent curfew on Chicago liquor vendors as part of a package to help businesses recovering from the pandemic. She also proposed a 15% cap on fees charged by food delivery services and permanently allowing cocktails to-go.

The City Council must approve Lightfoot’s plan for the curfew to go into effect.

Never one for understatement, Palantir co-founder Joe Lonsdale appeared on CNBC this week to discuss cryptocurrencies and the world’s central banks efforts to re-centralize control of what the establishment is clearly losing control over.

As Henry Kissinger reportedly once said, “Who controls money control the world” echoing the infamous quote from Mayer Amschel Rothschild: “Permit me to issue and control the money of a nation, and I care not who makes its laws!”

So, is it any surprise that the loss of faith in those “who control the money” has sparked a decentralized “control” of the money – cryptocurrencies – that are, for all intent and purpose above both political and legal interference.

And that is where we hear from Mr.Lonsdale as he reflects on the disruptive success of various DeFi platforms and calls from establishmentarian types like JPMorgan CEO Jamie Dimon demanding more regulation (of these upstarts):

“Well, Jamie Dimon is terrified of the fact that he can’t keep his best people… the most talented people don’t want to be in banks because aren’t allowed to be creative… because regulators have made their lives really hard.”

So, for the brightest people looking to do all the fun and cool stuff “are leaving Goldman Sachs to join startups.”

“This means the old financial legacy of capitalism is being sucked dry and destroyed by this centralized government regulatory system as all the smartest people are fleeing to do creative things.”

And that’s why Jamie Dimon wants regulatory crackdowns, “to make it more difficult for [the startups] to innovate… and stopping those people from doing what they want is not good for our country.”

The Silicon Valley billionaire discusses various areas of the economy – such as healthcare and finance – where disruption is ripe for better use of data:

“The whole economy is shifting right now to take advantage of the cloud, take advantage of big data, and we’re still in the early stages in all these industries.”

Then the conversation shifted to cryptocurrencies and The Fed, and the Palantir co-founder left CNBC’s anchors speechless with his truth bombs…

“We have this fetishism in this country of experts and their centralized status…

…what’s really scary about The Fed right now is that usually when I talk to my smartest friends in New York, they say, ‘you know what, I might disagree with The Fed, but they are really smart’.

People on both sides of the political divide that I talk to right now are saying ‘wow, there’s really idiots running The Fed’… this is really scary… and China knows this right now as well.”

Lonsdale goes to note that China is pushing for financial institutions to stick with the Yuan, warning that:

“The Fed has gone crazy, they’re going to destroy the dollar… and we promise not to destroy the renminbi… We’re gonna keep our yields higher, keep your money in China, it’s safer.”

Personally, Lonsdale says he doesn’t like that idea at all but notes that:

“a lot of smart people are betting against the dollar, betting against The Fed, and betting against the centralized system of finance in America because we have crazy people in charge”

He goes on to warn that “it would be terrible” if The Fed tried to do its own ‘centralized’ digital currency, warning that’s:

a “very status quo top-down thing to do, you want to be decentralized… you don’t want them in control of the system… that’s the big fight that’s going on right now.”

He ends even more ominously – if that’s possible – warning that:

China is “making an active play, warning that you know and I know the people at The Fed have lost their minds…

They’re printing dollars like crazy and going along with whatever Janet Yellen needs, printing way more than they should…

This Fed has lost its mind… and China’s taking advantage of that and they want to make a play to hurt the dollar’s reserve status.“

Watch the full interview here:

Authored by Cal Thomas, op-ed via The Epoch Times,

Secretary of Homeland Security Alejandro Mayorkas is reportedly considering the development of tools that would help America’s children discern truth from lies and know when they are being fed “disinformation.”

The Washington Times, which first reported the story, says a department spokesperson declined to give details, but that more information would be revealed “in the coming weeks.”

Mayorkas might want to start by fact-checking his recent claim that the U.S. southern border is “closed.” He made the statement when news pictures showed waves of people crossing the border. Should kids believe him, or their “lying eyes”?

Should anyone, regardless of political party or persuasion, be comfortable with government telling especially children what they can believe and whom they can trust? This is what totalitarian states do. It’s called propaganda.

We are already inundated with political correctness, cancel culture, and woke-ism. TV networks spend more time delivering opinion and slanting stories to particular points of view than what once resembled—if not objective journalism—then at least fairness.

The list of government officials who have lied is long and dates back to the founders of the nation. Some lies could be defended on national security grounds. Others were used to cover up wrongdoing or enhance the image of the one who lied.

In recent years, we recall President Clinton’s denial of having sex with Monica Lewinsky, President Obama’s claim about his health care program: “If you like your doctor, you can keep your doctor,” President George H.W. Bush’s “Read my lips, no new taxes,” assertions by the George W. Bush administration that Saddam Hussein had weapons of mass destruction, Richard Nixon’s lies about Watergate, the lies told by Lyndon Johnson, members of his administration and generals about how we were winning the war in Vietnam (Johnson had pledged during the 1964 campaign not to send Americans to fight in Vietnam, another lie), and the CEO of R.J. Reynolds telling a congressional committee in 1994 that “cigarette smoking is no more ‘addictive’ than coffee, tea, or Twinkies.” The Washington Post reported in January that by the end of his term, former President Trump “had accumulated 30,573 untruths during his presidency—averaging about 21 erroneous claims a day.”

I could go on, but you get the point.

George Orwell was prescient when he wrote in “1984” about Newspeak and the Ministry of Truth. We have already achieved the former in what we are allowed to say, or not say, lest we be smeared with nasty rhetorical stains. Let’s revisit the Ministry of Truth for those who haven’t read the book or need a reminder.

The Ministry of Truth was related to Newspeak in that it had nothing to do with truth, but propaganda by another name. Its job was to falsify historical records in ways that aligned with government policies and its version of those events. It was also tasked with defining truth, which sometimes resulted in “doublespeak,” or contradictions, that served the purposes of the state.

Truth has become subjective and relative in modern times and is now personal. You have your “truth” and I have my “truth.” Even when they contradict each other, it doesn’t matter as long as we both feel good about it.

This flawed notion has contributed to our cultural decline.

Try this experiment if you want to see how far we have moved from objective truth. Go to any popular definition website and type in “truth.” They assume truth exists and can be discovered.

The truth is supposed to set us free, but if we can’t recognize or define it, we will be in bondage. Secretary Mayorkas should reread Orwell’s novel and then abandon any plans to indoctrinate schoolchildren.