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"Oil's Bernie Madoff" Trumps Platinum Partners' Ponzi Scheme PDF Print E-mail

As the Fed-induced stock market bubble comes to an end we are starting to see which company's are overvalued and whose assets are in disrepair. Last month the SEC accused Platinum Partners and two of its hedge fund advisory firms of running a $1 billion Ponzi scheme ( https://www.sec.gov/litigation/complaints/2016/comp-pr2016-267.pdf ), which involved inflating asset values and illicitly moving "to cover losses and liquidity problems." The claims dominated the financial news cycle. However, Weatherford International's -- "Oil's Bernie Madoff" -- $14 billion Ponzi Scheme puts Platinum Partners' scheme to shame. I explain below.

 

 
Valeant: Will Buyers Cut Sales Price For $2 Billion Legal Exposure? PDF Print E-mail
Many moons ago I was handed an M&A assignment to help a client analyze a $10 million acquisition of another company's subsidiary. In other words -- I drew the short straw. I advised the client to structure the transaction as an asset sale because the risk attached to the stock would be multiples of the $10 million purchase price. Of course the target company didn't want this; it wanted a stock sale. My counter was that the indemnifications would have to be number so big that we couldn't lose money. I recommended a $75 million indemnification for any trailing risks. The seller and my client had a conniption. I was clear that I wasn't going to risk my career or our parent company's capital for a $10 million deal ... pick one. That is the conundrum potential buyers of Valeant's asset sales now face. 
 
Brexit, Trump ... Now Italy? PDF Print E-mail

Monday Italy voted "No" to prime minister Matteo Renzi's structural reforms, and it was not even close; the "No" vote won by 60% to 40%:

Official figures showed the rejectionist front winning by 60% to 40% in metropolitan Italy (and by 59% to 41% counting ballots cast by Italians abroad). And that was with a high turnout, which Mr Renzi's advisers had believed would favour his cause. The humiliation came at the end of a 66-day campaign into which Mr Renzi threw himself with frenetic energy. He had little choice but to resign in the face of such an unexpectedly decisive outcome.

Mr. Renzi had promised to resign if the "No" vote won; he followed through on his promise. Some thought if the vote was close that Renzi's suggested reforms could still move forward. The wide margin of victory dashed those hopes. The implications on the vote are as follows:

 
Did Paul Krugman Predict Global Recession Or Engage In Cultural Appropriation? PDF Print E-mail
Image Stealing from black folks is a "custom of slavery." During slavery and decades afterwards white Americans felt "blacks had no rights that a white man needed to observe." Today they call the term "cultural appropriation." Everyone from the Kim Kardashian to Igg Azaelia have profited from it. Now add famed economist, Paul Krugman, to the list. Krugman claims to have predicted a global recession ( https://twitter.com/paulkrugman/status/796345564808019968 ), years after it had already materialized. However, Ralph Baker's Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead, warned about the Great Recession of 2008, and the next one that no one saw coming -- including Krugman. Below is the tete-a-tete between Mr. Krugman and Mr. Baker:
 
Duroc-Danner Leaves Before Weatherford's $14B Ponzi Scheme Collapses PDF Print E-mail
In a move that surprised the financial markets ( http://seekingalpha.com/article/4021959-weatherford-surges-32-percent-duroc-danners-departure  ) Weatherford (NYSE:WFT) announced the departure of CEO Bernard Duroc-Danner effective immediately. The news was announced in late trading Wednesday. WFT skyrocketed 32% to close over $5. The downturn in the oil patch has punished Weatherford. Its revenue and EBITDA have free-fallen, yet its $7.5 billion debt load still needs to be serviced. In the first half of 2016, the company raised over $3.3 billion in capital to shore up its balance sheet and push near-term principal payments out into the future. Despite the capital raise, Weatherford has hemorrhaged cash; through Q3 2016, the company has burned through $540 million. Its EBITDA is well shy of its $129 million quarterly interest expense, so the bleeding will likely continue for the foreseeable future.
 
GE: Is The Baker Hughes Merger A Magic Trick? PDF Print E-mail
In a deal that shocked the financial markets, General Electric (NYSE:GE) announced it was merging its oil & gas operations ( http://seekingalpha.com/article/4022587-ge-baker-hughes-merger-magic-trick ) with Baker Hughes (NYSE:BHI). The transaction left me speechless for both its brazenness and creativity, and harkens back to the days of former CEO Jack Welch. [i] GE is contributing its oil & gas operations and Baker Hughes is contributing its company. [ii] GE will own 62.5% of Newco and Baker Hughes 37.5%; [iii] GE will transfer $7.4 billion of cash to the venture that Baker Hughes will use to fund a $17.50 special dividend to its shareholders; [iv] the transaction assumed the contributed value of BHI at $23.4 billion, GE at $28.5 billion and the present value of cost synergies at $13.7 billion. [v] Newco is projected to have a combined value of $51.9 billion; [vi] BHI's 37.5% stake would be valued at $24.6 billion. Including the $7.4 billion dividend, BHI would receive value of $32 billion or a 37% premium to its market capitalization prior to the deal.
 
Weatherford: Wipe Out Current Shareholders Or Go Belly-Up? PDF Print E-mail

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Weatherford International set off fireworks last week. The stock fell nearly 28% to $3.83 since earnings were released on October 25th. On Tuesday November 1st the stock was halted after certain analysts suggested the company sell assets or raise equity to shore up its balance sheet. Later that day the company confirmed its ability to meet covenants due to improving EBITDA and declining letters of credit balances. That said, it is difficult to take management at its word given its track record of not meeting expectations.

 
Shock Exchange At Brooklyn Commons 10/28 At 6PM PDF Print E-mail

Image Ralph Baker, author of Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead, will be at Brooklyn Commons (388 Atlantic Avenue) to discuss the book and the journey of the kids to becoming investment ballers. The event will be in conjunction with WBAI and Aftrobeats Radio. Mr. Baker will also discuss the next recession he predicted and the "pain ahead" for the U.S. economy. Shock Exchange has been plagiarized by President Obama, the Senate Finance and House Ways & Means Committees and the Bank of International Settlements. Come see what the fuss is all about.

 
Ralph Baker, Darryl Johnson Speak At H-SC 10/26 At 7:30PM PDF Print E-mail

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As the economy begins to show signs of another recession I thought it would be great time to revisit Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead. I plan to discuss predictions from Shock Exchange and what actually happened since 3-4 years after the book came out. Also, Prince Edward County has been in the news lately as the state of Virginia and the country took notice. My boy Darryl Johnson and I will discuss some of the funny stories from the book, how we survived PECHS and that "education speech" our parents browbeat us with.

 

 
Houston Chronicle Calls For Weatherford's CEO To Step Down PDF Print E-mail
Image Last week Weatherford International was fined $140 million for accounting fraud for overstating profits by $900 million from 2007 to 2012. Weatherford grew aggressively through acquisitions, and pitched its "entrepreneurial culture" and tax avoidance strategy. From FY2007 to FY2010 the company engaged in fraudulent practices relating to income tax accounting that made its financial statements false and misleading. James Hudgins and Darryl Kitay -- former tax employees were fined and fired. However, CEO Bernard Duroc-Danner remains at the helm. Now the Houston Chronicle is calling for his head:
 
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