Category Archives: Politics

Druck on the Coming Debt Crisis

May 17, 2023 tremendousblog 3 Comments

Stan Druckenmiller and George Soros made over $1 billion shorting the British pound. Now Druck is turning his sights to another mismanaged nation: the United States.

At a recent keynote address at USC, Druckenmiller sounded the alarm about ballooning entitlements.

“If I wasn’t so worried about the country I’d be salivating over the opportunities this could set up.”
Stanley Druckenmiller

Today, we spend 40% of our tax dollars on programs for seniors. By 2043, that will be 60%.

How do we pay for that? There are two main options: cut spending or raise taxes.

But the changes required would be huge.

Druckenmiller reckons we’d need to cut spending by 35% starting today and maintain that lower level forever. If we don’t want to do that, we could raise taxes 40% — permanently.

“Expect this trend to continue…absent radical policy changes.”
Stanley Druckenmiller

The last of the baby boomers retire soon. We’ve promised them benefits that will soon crowd out all other federal spending.

No defense, no education, no bridges, no nothing.

So how do we fix it?

Druckenmiller calls for big entitlement cuts. He supports ending payments to wealthier seniors and cutting cost of living adjustments (COLAs).

Means testing is a great place to start. People like me don’t need a government check.

And as painful as ending or reducing COLAs may be, it can happen anyway. State pensioners here in New Jersey haven’t had a COLA in 12 years, and the sky hasn’t fallen.

We must also raise eligibility ages. I see no problem with Social Security’s full benefit beginning at 75 (rather than 70) and Medicare at 70 (currently 65) for younger people like me.

I never expected to get a cent out of these programs anyway. Most young people don’t.

Reining in benefits is the one chance to salvage something for future retirees. If we don’t do something now, there will be nothing left for younger generations.

“You’re screwing seniors, you’re just screwing the future seniors. Why do they get a dollar and you get zero?”
Stanley Druckenmiller

I’m confident that we’ll muddle through to a solution. It will probably involve some combination of benefit cuts and tax increases.

“…if it can’t go on forever it will stop.”
Herbert Stein, economist

What do you think the future holds for entitlements and the US economy? Leave a comment and let us know!

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Business, Politics, Technology

Where Is Bao Fan?

February 22, 2023 tremendousblog Leave a comment

Bao Fan did everything right. Despite being one of China’s top tech investors, Bao kept a low profile and hewed to the Communist Party line. Then, he disappeared.

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From an article out this morning in The New York Times:

…on Valentine’s Day last week, rumors started circulating that Mr. Bao had gone missing. His company later confirmed his disappearance in a regulatory filing.

China’s tech world is watching closely what will happen to Mr. Bao, who knows or has worked with nearly every mover and shaker in the industry. He is not as well known outside the business world but is just as symbolic of the industry’s rising presence in China as Jack Ma, co-founder of Alibaba, who has largely vanished from public view after falling out with the government in 2020.

There’s no one quite like Bao Fan in the United States. Half investment banker, half venture capitalist, Bao was intimately involved in almost every major Chinese tech company.

He brought together warring startups to create giants like Didi and Meituan. Bao prospered, and so did the companies he helped.

His influence reached so far that people said, “If you don’t know Bao Fan, you haven’t made it.”

But new Chinese leaders took a darker view of Bao’s success.

The government began investigating one of his top lieutenants, Cong Lin. China’s government has implied that Bao is assisting in that investigation.

But no one knows where Bao is. Or if he’s even alive.

Clearly, Bao could’ve helped an investigation while retaining his post. It’s more likely he’s being abused and intimidated and as an example to others.

Indeed, China’s tech industry is watching closely:

A tech founder who had worked with Mr. Bao on deals wrote on social media that entrepreneurs were like “frightened birds.” “Confidence is slow to build but quick to dissipate,” he wrote. “Without confidence, who will build factories, start companies and invest in the future?”

Many Chinese entrepreneurs are quietly leaving the country with their millions.

More and more, you will see rich business owners leaving China, along with ambitious young people. Why spend a lifetime building a business if the government can just take it away?

Dictatorship is the ultimate single point of failure. One bad man in the wrong spot, and your country goes down in flames.

Xi is that man. But the Communist system is what gives him the power he has.

From an interview in The Japan Times:

“This is part of the evolution of the Communist Party,” said Drew Thompson, a visiting research scholar at the Lee Kuan Yew School of Public Policy at the National University of Singapore. “Private entrepreneurs — high-profile, wealthy people — are increasingly incompatible with ‘common prosperity’ and the direction that Xi Jinping has taken.”

What do you think the future holds for Chinese tech? Leave a comment and let me know!

More on tech:

Top VC Firms Have Great Returns…Right?

Google is Losing the AI Race

Consumer Startups: What Works and What Doesn’t

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Business, Politics, Technology

Let’s Ban Noncompetes

January 13, 2023 tremendousblog Leave a comment

Let’s say I come to you asking for a raise. “Sorry Francis, we’re tapped out for the year.” I could leave — if only I didn’t sign that noncompete.

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Noncompete agreements restrict a worker from starting or working for a competing company for a period of time. The Federal Trade Commission is considering banning them.

Here’s why this is absolutely the right policy…

Worker Leverage

If I can’t work at a competitor, that means I cannot work in the field in which I have experience. And if I move to another field I know nothing about, my wages will be much lower.

So rather than leave my employer, I’m going to stick it out, even if the pay isn’t great.

Innovation

California is the most innovative state in America, by far.

California also happens to be one of the few states in the country that doesn’t enforce noncompete agreements. Workers are free to leave a company and start a competitor.

Is California so innovative because it scoffs at noncompetes? I don’t know.

But it certainly doesn’t seem to be holding them back.

Benefits of Noncompetes are Dubious

The economist Tyler Cowen argues that banning noncompetes will lower wages. From his latest Bloomberg column:

Say you run a hedge fund. Many members of your trading team will have partial access to your firm’s trading secrets, and if they leave they can take those secrets with them. In the absence of noncompete agreements, firms would be more likely to “silo” information — becoming less efficient and less able to pay higher wages.

Cowen’s argument is purely theoretical. He offers no evidence that states or employers without noncompetes have lower wages than those with them.

Cowen also argues that without noncompetes, employers will have less incentive to train. After all, their employees could jump ship at any time.

But again, he offers no evidence that companies without noncompetes invest less in training.

My Experience with Noncompetes

I’ll admit it, I have an ax to grind here. In my first job out of college many years ago, I had to sign a noncompete.

I didn’t want to sign it. But I was fresh out of school with barely a dime and no work experience — what else could I do?

When I found out other people in the industry were making two or three times what we were, naturally I wanted out. But the noncompete stopped me from working in the field for a whole year.

Unable to work in the field I knew, I applied for jobs outside it. But with no experience, there were no takers.

So I lived off my savings for a year until the noncompete expired. And sure enough, I dramatically increased my pay just days after it ended.

Let’s Ban This Nonsense

Noncompetes offer workers a terrible choice. Would you prefer indentured servitude, or unemployment?

In the absence of powerful evidence of their benefits, noncompetes should be banned. I urge you to write your representatives and ask them to end this abusive practice.

Freedom matters.

What’s your view on noncompetes? Leave a comment at the bottom and let me know!

There will be no blog on Monday for the holiday. See you Tuesday.

Have a great weekend everyone!

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Business, Politics, Technology

Russian Engineers Are Fleeing the Country

October 21, 2022 tremendousblog 2 Comments

Russia’s best tech talent is fleeing the country. Pushed out by a draft for the war in Ukraine, nearly a quarter of the nation’s best developers have left, according to a report in The New Scientist:

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Hundreds of Russia’s top software developers appear to have left the country during its military invasion of Ukraine. The exodus of tech talent started even before Russian president Vladimir Putin announced a partial military mobilisation in September, spurring an estimated 200,000 men to flee amid the prospect of being drafted to join the war effort, and it could spell trouble for Russia’s future.

Almost 23 per cent of Russian developers who made the most contributions to coding projects on the software development platform GitHub changed their location information or deleted their profiles between February 2021 and June 2022. That figure is nearly four times as high as that of developers from neighbouring countries who aren’t directly involved in the conflict.

These engineers are the key to dominating the industries of tomorrow. Without them, Russia will struggle to compete.

“Their permanent departure from the Russian labour pool or from the Russian economy can have detrimental effects,” says Samuel Bendett at the Center for New American Security, a national security think tank in Washington DC. “There aren’t that many IT workers in Russia to begin with.”

Tech workers who remain in Russia face an uncertain future, as they might be drafted to replenish the Russian military’s ranks.

This research agrees with what I’m seeing every day in the technology industry.

Just last night, a young VC from Russia told me most of his friends have already left the country. One abandoned a job and two apartments to start over from scratch abroad.

They don’t want to be killed or have to kill someone else. And with Putin rounding up young men to fight, even a visit home is out of the question.

These highly skilled workers have more options than anyone else. So it’s no surprise that they’re the first ones off a sinking ship.

The biggest beneficiaries so far seem to be nearby countries. Georgia, Armenia, and Turkey have attracted large numbers of talented young Russians since the invasion of Ukraine.

The United States should stop at nothing to attract these talented young men.

We have nowhere near the number of engineers our massive technology industry needs. Anyone who’s tried to recruit developers knows how hard it is.

These young Russians are top technical talent there for the taking. And the US can offer pay far beyond any company in Turkey or Georgia.

Attracting Russia’s best and brightest is also the ultimate PR coup. Look Mr. Putin, your most talented young people are leaving you and coming to us!

The White House is welcoming Russian asylum seekers. We should double down on this strategy, with a particular emphasis on finding top engineers.

There will be nothing sweeter than using Putin’s own people to beat him.

What do you think of Russia’s brain drain? Leave a comment at the bottom and let me know!

Have a great weekend everyone!

More on tech:

The Autonomous Weapons of the Future…and Present

How I Source Deals

Bridge Rounds: Yea or Nay?

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Business, Politics

Chinese Stop Paying Mortgages as Real Estate Crisis Spreads

July 28, 2022 tremendousblog Leave a comment

Chinese homebuyers are refusing to pay their mortgages in a boycott that’s spreading across the country. Many fear the homes they’re paying for will never be finished.

Now, suppliers to builders are also defaulting on loans.

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From ABC News Australia:

A fast-growing mortgage boycott across dozens of cities in China has prompted some property suppliers to cease their bank loan repayments, raising fears the escalating situation could trigger a further downward spiral in the sector and even threaten the country’s financial stability.

Hundreds of landscapers, sculpture-makers and construction companies have expressed their anger that they have been bled dry because some debt-saddled developers did not pay their bills while they continued to service or help build apartments, Chinese media Caixin reported.

Chinese usually buy homes and start making payments before they’re complete.

The boycott has spread to 90 cities in mere weeks.

The Chinese government is censoring reports on the boycott, per Bloomberg. So the situation inside China may be even worse than reported.

A real estate meltdown is a catastrophe for the average Chinese saver. Chinese put 70% of their wealth in real estate, compared to 35% in the US.

The property sector accounts for about 25% of GDP. China’s GDP growth has flatlined as the sector sputters.

And it gets worse. Chinese banks have lent huge sums to property developers.

As developers default, bank runs are spreading across China. Government thugs have beaten protesters desperately trying to recover their life’s savings.

Amid a bleak economy and constant COVID lockdowns, workers are struggling. Youth unemployment has spiked, hitting over 19% last month.

Consider the picture for the average Chinese person: most of your savings are tied up in an apartment that will never be completed, the rest is in a bank that’s insolvent, and your only child can’t find work.

Revolution might start to sound good.

In the US, we know that a property crisis fueled by heavy debt can spread quickly. Huge liabilities pop up at different institutions unpredictably.

This undermines confidence in the entire financial system. When that happens, you get a financial crisis.

That’s what China is facing today.

At stake is the legitimacy of the Chinese Communist Party. Officials have staked their power on offering ever-increasing living standards.

Those days may be over.

I can only hope that Chinese citizens prevail and oust a government that has brutalized them for generations.

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Photo: Unfinished Chinese apartment buildings being demolished in Kunming, China

Business, Politics

Former Congressman Arrested for Insider Trading

July 25, 2022 tremendousblog 2 Comments

Former Congressman Stephen Buyer was arrested today for insider trading. From Politico:

Federal authorities filed criminal and civil insider trading charges against former Rep. Stephen Buyer in U.S. court in Manhattan on Monday, alleging that the Indiana Republican used information gleaned from a golf outing with a T-Mobile executive to purchase securities before the company’s planned acquisition of Sprint.
Buyer was arrested on Monday, said U.S. Attorney for the Southern District of New York Damian Williams at a press conference.

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Buyer also made suspect trades in at least one other company. His trades made him over $300,000.

He may have even used his mistress to hide the trades:

The SEC’s complaint claims that Buyer netted roughly $330,000 from the transactions, which he spread across multiple accounts belonging to associates and family members, as well as an unidentified friend with whom he had allegedly engaged in a romantic relationship.

I was put in mind of a great scene from The Wolf of Wall Street. Leonardo DiCaprio realizes his elegant Swiss banker is telling him to hide his money under someone else’s name:

Politicians trading on inside information is nothing new. Congressional representatives beat the market on average, despite many having no background in investing.

House Speaker Nancy Pelosi has been particularly successful. Her performance is 6th best out of 435 members of Congress.

I guess power has its perks.

The public will not trust markets like this. If the powerful use inside information to get ahead, the average person will conclude the game is rigged and walk away.

This means companies won’t get the capital they need. And savers won’t be able to build wealth.

These crooked politicians also undermine trust in government. If you’re profiting from your office, you’re not doing the people’s business.

High government officials and their families should keep their assets in a blind trust. That way, they have no way of using inside information for profit.

I hope these prosecutions start hitting a much higher level. There’s plenty of opportunity here for an ambitious prosecutor to make his career by taking one of these major pols down.

What do you think of politicians self-dealing? Leave a comment at the bottom and let me know!

More on markets:

Wall Street Banks Turn on Each Other as Federal Probe Looms

AMC Fails to Deliver Hit 9.7 Million

Shorts Having Their Worst Month Since January 2021

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Photo: Former Congressman Stephen Buyer

Business, Politics

Mass Protests in China as Bank Runs Continue

July 12, 2022 tremendousblog 2 Comments

Major news out of China as over 1,000 protestors in Zhengzhou demanded their savings back:

This is huge. Don't know how this will end. Henan bank is NOT the only one that is having problems with liquidity. All four Chinese banks are having the same issue. Some depositors found they can save and can NOT withdraw money with their bank cards. #bankrun #China #CCP pic.twitter.com/5WYYgpmIWP
— Jennifer Zeng 曾錚 (@jenniferatntd) July 10, 2022

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There are runs on several Chinese banks. The depositors, desperate not to lose their life’s savings, are taking great risk to speak out.

From the Indian Express:

In a rare large protest in China, over one thousand angry bank depositors, who have been protesting for access to their frozen funds, faced off with the police in Henan province leading to a violent clampdown Sunday.
Depositors of four rural banks in this central province have not been able to withdraw their funds since April. Sporadic protests have been going on since May.

Many smaller Chinese banks promised high interest rates to attract deposits. They advertised those rates on platforms run by Chinese tech giants like Baidu and JD.

Now, these small banks are finding themselves unable to pay those high rates. Worse yet, some banks have been infiltrated by criminals who are siphoning money out:

In the present case it is being alleged that these banks attracted deposits by offering attractive terms and high interest rates. A report in the South China Morning Post in May said that while Bank of China offers 2.75% a year interest on five-year deposits, the found banks in question were giving around 4.5% a year on their deposit products through third-party platforms.
Also, a statement by the Henan police on July 10 said that a criminal group had gradually taken control of several rural banks and was moving out funds.

Behind the peril facing Chinese banks is a weak economy. Intense COVID lockdowns this year have hammered economic activity.

An overheated property market is also crumbling. This has triggered defaults at major property developers, including Evergrande.

Something interesting happens when people see depositors struggling to get their money out. They start wondering about their own bank.

This is how a contagion could spread through the Chinese banking system. Cue It’s a Wonderful Life, without the happy ending.

The Chinese government’s violent repression of small savers in Zhengzhou may be just the beginning.

China is in a sensitive period. The 20th Party Congress, enormously important to the Communist elite, happens in November.

At that meeting, Xi hopes to secure a third term in office and effectively become leader for life. He and his underlings are likely to repress any “disturbance” during this time.

Already, China’s massive surveillance apparatus is being turned on these small savers.

Zhengzhou protesters have had their “health codes” turned off. Without the green QR code on their phones, they can go nowhere and do nothing.

The health code system was created to stem COVID. Predictably, it’s now being turned against dissidents.

I’m not a particularly religious man, but this Orwellian act reminded me of a passage from the Bible:

It forced all the people, small and great, rich and poor, free and slave, to be given a stamped image on their right hands or their foreheads,
so that no one could buy or sell except one who had the stamped image of the beast’s name or the number that stood for its name.
Revelation 13:16-17

I hope these decent, hardworking people will get their life’s savings back. I also hope we always resist this type of tyranny here at home.

What do you think is next in China? Leave a comment at the bottom and let me know.

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Business, Politics

Retirees Face $1.3 Billion Loss in Wall Street Fraud

June 24, 2022 tremendousblog Leave a comment

It was supposed to be a safe investment.

In small offices across the country, brokers sold a security called L Bonds. The bonds were backed by life insurance policies and were supposed to provide a steady stream of income.

Many buyers were elderly. Now they’re facing catastrophic losses of up to $1.3 billion.

From a report that broke this morning in The Wall Street Journal:

What many of these retail investors didn’t know was that [bond issuer] GWG’s founders and a board director would each use the money to fund and launch their own startup ventures, then move them out of the investors’ reach, according to people familiar with the matter. The roughly 27,000 individuals who bought GWG’s unique debt securities, known as L Bonds, are now facing huge potential losses – for many, their retirement nest eggs.

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The original business buying life insurance policies quickly ran into trouble. So, bond issuer GWG Holdings cast about for another strategy.

It settled on backing speculative startups run by the company’s founders.

That would be reckless enough a thing to do with small savers’ money. But worse yet, the miscreants running GWG quickly moved those assets out of reach of the L Bond buyers.

Once the top executives had taken the assets, they drove GWG into bankruptcy.

The judge overseeing the court proceedings in Houston said he had never before seen a company give up control of everything it owns before seeking chapter 11 protection.

GWG appears to have operated like a Ponzi scheme. Of the $1.26 billion in L Bonds the company sold, nearly two-thirds went to paying off prior bonds.

Meanwhile, the top executives siphoned off tens of millions of dollars in dividends for themselves.

The SEC began investigating GWG as early as 2020. GWG didn’t disclose the investigation to its investors for a year.

In the mean time, it sold another $200 million in toxic L Bonds.

The law generally prohibits the SEC from disclosing investigations. I think it’s high time to change those laws.

Many elderly put their life’s savings into these bonds.

They should’ve known the company was under federal investigation. The government they pay taxes to should never have kept that a secret from them.

It doesn’t help for the SEC to blow the whistle once the money is already gone.

What do you think of this case and how the SEC handled it? Leave a comment at the bottom and let me know.

See you on Monday!

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Business, Politics, Technology

The Autonomous Weapons of the Future…and Present

May 24, 2022 tremendousblog 3 Comments

A man walks in a remote field. From a place he cannot even see, a quiet drone takes off.

It’s headed his way.

This drone was made by Anduril Industries and this time, it just watched. But it can do a lot more.

These powerful craft can fly at 80 to 100 mph. By comparison, a typical DJI drone can reach about 40 miles per hour.

The Anduril drone is so fast and durable it can knock other drones out of the sky. The five year old defense startup bills itself as different from the big boys like General Dynamics or Northrop Grumman:

“Unlike most defence companies, we don’t wait for our customers to tell us what they need. We identify problems, privately fund R&D and sell finished products off the shelf.
David Goodrich, CEO Anduril Australia & Asia Pacific

Anduril is taking robot warfare beyond aerial drones. It recently bought a company called Dive Technologies, which makes autonomous submarines.

What if you had hundreds of even thousands of these autonomous subs patrolling your coast…or even attacking your enemy’s navy right in its own harbors? These relatively cheap and quick to produce vessels could change naval warfare forever.

Anduril’s drones rely on computer vision and AI to spot threats.

I’ve actually seen similar technology used by startups that sell security cameras to individuals. In those cases, the system flags a potential intruder for a human to review in real time.

This type of tech isn’t just being used abroad. It’s in our neighborhoods and also on our southern border, where it’s used to track immigration.

We’ve had numerous issues with policing of poor communities in America. It concerns me how a new generation of AI and robotics could be trained on those who already have the least.

As explosive as certain policing incidents have been, what will happen when the unarmed man is confronting a robot?

But like any new technology, Anduril’s capabilities can also be used for good. The startup is working with NATO forces in Poland, perhaps to prepare them for a Russian threat to Poland stemming from the Ukraine conflict.

I doubt we can put this genie back in the bottle. But I hope governments and citizens will work together to ensure these powerful technologies are used for good.

What do you think of Anduril’s tech and how it may be used? Leave a comment at the bottom and let me know.

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Business, Politics

Citadel Loans Supported Chinese Surveillance

April 7, 2022 tremendousblog Leave a comment

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Citadel made a major loan to a Chinese surveillance company in 2006. This shadowy company, which doesn’t even appear to have a website, has sold surveillance equipment to China’s Communist government.

From a new report from Crain’s Chicago Business:

…in 2006, Citadel loaned $110 million to China Security & Surveillance Technology. The company used the funds to acquire “10 of the 50 biggest surveillance companies in China.” That has opened it to charges that it “provid(ed) much of the surveillance infrastructure for the ruling Chinese Communist Party, including technology used to alert police of possible unsanctioned protests and internet cafes to track down democracy advocates and dissidents.”

Citadel CEO Ken Griffin doesn’t seem to find the loan problematic, according to a statement he released:

“In 2006, China Security & Surveillance Technology—a company listed on the New York Stock Exchange—was raising further capital to pursue growth opportunities. CS&ST was hoping to be selected as a key partner in providing security capabilities for the 2008 Beijing Summer Olympics and the 2010 Shanghai World’s Fair to ensure those events would be safe for everyone.

So what does this company do? It appears to have gone private since Citadel’s loan, but here’s how the company described itself in an SEC annual report it filed while a public company:

We are primarily engaged, through our indirect Chinese subsidiaries, in the manufacturing, distributing, installing and servicing of surveillance and safety products, systems and services, and developing surveillance and safety related software primarily for governmental entities and their affiliates, non-profit organizations, and commercial entities in China.

In other words, the company sells surveillance gear to the Chinese government, among others. Citadel’s involvement with this business is concerning, given China’s oppressive surveillance of its population.

Ethnic and religious minorities such as Uyghur Muslims are particularly hard hit. From The Guardian:

The US has accused China of committing genocide and crimes against humanity for running a mass detention, repression and sterilization campaign against Uyghurs and other mostly Muslim ethnic minorities. Countless reports have detailed detainees enduring torture, coerced abortions as well as re-education in what former secretary of state Mike Pompeo described as the “forced assimilation and eventual erasure” of Uyghurs by the Chinese government.

The surveillance system propped up by these often global companies serves to facilitate that genocide, argues Dolkun Isaa, president of the World Uyghur Congress advocacy group.

“The goal of these surveillance tactics is not only to instill fear in Uyghurs’ minds that every aspect of their behavior is monitored, but most importantly to single out Uyghurs for detention in the internment camp system,” Isaa said.

Griffin may be right that China Security & Surveillance Technology bid on an Olympic contract. But it appears that he and his company didn’t ask any questions about what else the company does.

Citadel’s “make money now, ask questions later” attitude has also made it a target of a federal investigation here in the US.

I only hope someone holds this company accountable.

More on markets:

Citadel Under Federal Investigation

Mass Firings at Citadel Right Before Federal Probe

NYSE Investigating Shopify Stock Plunge; Citadel Involved

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An angel investor's take on life and business