Recently, in a video interview which I can’t exactly identify, Jim Rickards mentioned that, in the video releases that he gave prior to Brexit, advising his subscribers and clients to ‘short sterling and buy gold’, he was doing everything short of ‘screaming into the camera’ in order to get his message across.
I was reminded of this phrase, and of an earlier, significant warning, when I saw this recently-released clip of Jim talking to Egon von Greyerz in a gold vault in Switzerland. While the whole video is important and worth watching, note the statement about refiners’ access to gold dore from about 2 mins 47 seconds.
If this isn’t ‘screaming into the camera’, I don’t know what is.
The Debt Bitch is relaying the narrative of yet another filthy evening of hedonistic pleasures of the flesh. That is, she’s describing discussions with “that cute blond guy” from a smaller hedge fund that has been selling us debt. I’m in my New York office getting ready for a trip to Chicago to negotiate price on a ~$750 million acquisition, “Project Facade.” It is my first full project since the accident, which is both a nice and an annoying thing. Mostly annoying because I am reminded just how much I dislike London.
“We are sitting on that little platform bar-lounge or whatever the hell it is at the Peninsula. That was his idea. I hate that place. There’s this one call girl that haunts the bar doing crossword puzzles. She looks like she’s a graduate student or something and I guess her little story is that she’s in town and really bored and doesn’t know anyone and these suckers twice her age drift over and next thing you know…. But seriously, who does crossword puzzles in a hotel bar but a hooker?” I usually don’t interrupt Laura when she’s on a roll like this, but I can’t help myself.
“You mean to tell me that you aren’t a debt whore? I mean, certainly you don’t put out for anything less than 25 basis points, but still.”
“Duh, of course I am. Didn’t I just say I hate the Peninsula? I guess I should be doing Sudoku instead of crosswords, like a good little finance whore, right? Anyhow, that’s not the point.” I don’t understand this, because, at least to me, the point of any discussion with Laura relates to sex and money (not necessarily in that order). It is only short steps from that, dear readers, to discussions of prostitution (or quasi-prostitution).
“So we are going back and forth with witty finance banter, you know?” When the Debt Bitch says “witty” she means “laden with sexual innuendo.”
“Like where I say that my model is thirsting for his inputs, and he says that he would be happy to have his massive interest rate figure entered into the appropriate box, and I point out that I’d actually prefer a smaller figure, as the model might not be able to take a large one- and by the way that’s the reason I’m talking to him and not the guys from Golden Tree, and he says that the Golden Tree people are likely to slip the figure into the wrong cell… you know, really witty finance banter.” Laura has a high opinion of a few of the Golden Tree guys, but it is not clear to me if it is related to their financial prowess or some other measure.
“Anyhow, then I point out that I have a date later and we have to wrap things up and he gets all pissy with me. He tells me that really they aren’t doing any new deals at all. That they pretty much have put the breaks on everything. Of course, I’m pissed off because what the hell am I meeting with him for if it is not to broker a deal?” For a split second I think maybe I should point out that her quarry was highly unlikely to expect to broker a deal at the Peninsula at 9:30 pm and refer back to our prostitution discussion but, thankfully, it occurs to me that Laura doesn’t distinguish between debt and sex.
“So that’s become the story everywhere. I mean it’s not that we can get debt so long as we pay more, almost no one is actually issuing any. I mean any. Lots of firms have standstills. Total standstills.” Suddenly, what was an amusing tale of non-sex becomes an alarming warning.
“Well, I can see how the larger debt issuances might be an issue, but how much were you trying to score?” I ask.
“I wasn’t trying to score. He’s cute, but not that cute.”
“Bad choice of words. How much debt?”
“Oh, that was for Project Yonkers, so $450 million?” Now I am more alarmed. “You can’t get anyone to pick up $450 million?”
“Well, I haven’t tried everyone yet, but I’ve never gone 48 hours without even getting a term sheet before.” I am stunned. Laura is bored.
“You know, I think maybe it’s time I let that guy from CIT cop a feel again. I think the issue is that these small hedge funds can’t lay off the risk to CLOs anymore. The CLO market is thin and I suspect that a lot of these smaller hedge funds that had gotten into the buyout debt business did so in a very haphazard and ‘me-too’ sort of way and they had become just pass-through entities for debt, dumping it as quickly as they could into some CLO or another. It is a measure, I think, of the spinal deficiency of these little hedge funds. They were only interested in buyout risk so long as they could dump it quickly. They weren’t really in the business. But, hey, that was fine with me so long as we were dealing with a small asset recovery team. Those guys were never going to want to take the keys from us. And we got tons of concessions from them in exchange for waiving the restrictions on debt transferability. It didn’t take me long to figure out that holding that transferability hostage was a huge chip we held since they were shoving stuff at CLOs as fast as they could.” I am barely listening, still trying to absorb what it means for Sub Rosa that we can’t get anyone to write debt for us.
“Anyhow, this will go on for a few days. The smaller funds will probably not be able to keep doing lead deals, but they will jump into some secondary stuff. And what’s the worst that can happen? We go back to the banks that we used to deal with before these pussy little hedge dilettantes showed up. Rates will go up, but they will write the business eventually. Then, with more expensive debt, all these little body shop brass-plate LBO firms that keep fucking up the auctions can die on the vine, and maybe we can finally stop buying this overpriced crap and do deals that make real financial sense.”
“What about the two open deals we have floating right now?” I ask, trying to hide the panic in my voice. I can just about hear the grin on Laura’s face.
“Silly, silly girl, I’ve been writing in 5% and 6% reverse break-up fees plus legal costs into these debt deals for the last 9 months.”
‘Suddenly, what was an amusing tale of non-sex becomes an alarming warning.’
An alarming warning of the pending armageddon in financial markets, which crystallised over a year later in September 2008. And which Equity Private, whoever she may be, appears to have had the foresight, the commonsense and the guts to turn to her benefit:
What are the lessons for the Going Private reader? The combination of unaligned incentives (both on the intra-institutional and inter-institutional level), overheated first order liquidity (cheap cash), fickle second order liquidity (as distinguished from true liquidity), and a time lag between liquidity supply and performance feedback for that liquidity, should present strong, structural arguments that, when carefully examined, result in legions of smug looking Going Private readers sunning themselves while floating on liquid(ity) in their new yachts.
Again, I don’t make the case here that I am some genius investor. Merely that even a young girl with a newly minted MBA, a student of the Chicago School writing a private equity blog in her spare time could see what was happening.
Now, back to Jim talking to Egon, speaking just a few days ago:
When you talk to the refiners, what they’re telling is us they’re seeing shortages of gold. They have demand, they have a waiting list for people who want to buy gold – countries and institutions – but they can’t source the gold. They have to bring it in the front door before they can send it out the back door. One of the major refiners, we can’t disclose their name, said they actually cannot get dore. Dore is what comes from the miners, it’s about 80 per cent pure, they turn it into 99.99 per cent pure. They haven’t shut down but they can’t get the dore, they’re still processing scrap. But this gives you some idea of the shortages. So just on supply and demand fundamentals, the price of gold should be going up substantially, and it is.
Screaming. Into. The. Camera.
More screaming here.