Author Topic: Frauds and Bear Markets  (Read 4906 times)

Cameron

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Frauds and Bear Markets
« on: October 11, 2017, 08:36:17 PM »
Considering that bear markets have historically exposed some sort of fraud going on in the market, I figured since we are in the second longest bull market it might be fun to speculate on where the fraud might come from when the music stops.

My guess is companies involved in subscription based business models, Wall Street loves them too much.


DTEJD1997

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Re: Frauds and Bear Markets
« Reply #1 on: October 11, 2017, 11:20:32 PM »
I am going to guess that you will see fraud where you see debt...

I don't think you will too much of it at the "TBTF" banks.  They are under too much scrutiny.

You might see it with auto lending & leasing.  There have hints, rumors & whispers that WAY too many loans are being given out and underwriting standards are too low.

On a different tack, you might see a collapse of student loans, lending & "for profit" education.  There have been reports that MANY student loans are in "soft" default.  That is, the borrower will apply for hardship exemptions, they will get on "IBR" (income based repayment), or other special programs.  There are reports that almost HALF of student loans are not being paid on, OR that they are on some type of assistance and making vastly reduced payments at best.  I know for a fact that there is TONS of goofiness going on here.  What I do not know for sure is if the number is 50%...some people say it is even higher than that...others say it is bad, but not 50% bad (maybe 25% to 30%)?

There is also a problem with institutions of higher learning enticing students to take out incredible levels of debt to pay for their "education".  Word is getting out that there is a problem with this and enrollment at some schools is declining.  What happens if a trickle turns into a torrent of prospective students refusing to enroll?

OR

What about companies that are not a "scam" per se...but are running on questionable business strategies?  For example, there are some "high tech" companies that have sales...but little or no hope of profit.  These companies are multi-billion market cap companies.  What happens if they are no longer Wall Street darlings?  What happens if they actually have to start making money?  You could see their business models collapse, perhaps prompting a broader market route?

OR

What if you have the general economy start to slow down and retail further collapse?  A bad "black Friday" followed by weak Christmas sales?  That could prompt some big name retail bankruptcies...followed by smaller name collapses...followed by problems with real estate...followed by problems with lending/banks?  This then starts a negative feedback loop and the market goes down substantially.

OR

could be something totally out of the blue that few are expecting. 

I certainly hope things stay strong for a while longer...

JRM

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Re: Frauds and Bear Markets
« Reply #2 on: October 12, 2017, 03:53:14 AM »
Tesla?

stahleyp

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Re: Frauds and Bear Markets
« Reply #3 on: October 12, 2017, 04:27:18 AM »
According to Grant's newsletter...it might be Bridgewater. If that's the case then, whoa.
« Last Edit: October 12, 2017, 04:29:29 AM by stahleyp »
Paul

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Re: Frauds and Bear Markets
« Reply #4 on: October 12, 2017, 06:08:16 AM »
I completely agree with the three quoted below. I would like to add that there is absolutely insane behavior within subprime auto lending, that has been well documented for some time for those willing to look. Luckily subprime auto is small in size relative to the total economy.

I would like to add crypto currencies. If we aren't there yet, it will eventually attract fraudulent operators. Read the recent Grant's for an indication of the willingness to purchase against all reason.

Finally, I think entrepreneurship and Venture and Angel Capital jumped the shark a while ago. Eventually there are going to be some very unhappy investors. Luckily most of these frauds will not be anywhere near the dollar value of Theranos and in aggregate will not be that large relative to the real economy.

With time any of these areas of irrational behavior could grow in size enough to be of great concern although we have a long way to go.

I am going to guess that you will see fraud where you see debt...

You might see it with auto lending & leasing.  There have hints, rumors & whispers that WAY too many loans are being given out and underwriting standards are too low.

OR

What about companies that are not a "scam" per se...but are running on questionable business strategies?  For example, there are some "high tech" companies that have sales...but little or no hope of profit.  These companies are multi-billion market cap companies.  What happens if they are no longer Wall Street darlings?  What happens if they actually have to start making money?  You could see their business models collapse, perhaps prompting a broader market route?


I certainly hope things stay strong for a while longer...
« Last Edit: October 12, 2017, 07:31:37 AM by Read the Footnotes »

TwoCitiesCapital

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Re: Frauds and Bear Markets
« Reply #5 on: October 12, 2017, 06:41:55 AM »
Tesla?

This seems the most likely to me. They build great products, but haven't yet figured out how to sell them for more than it costs them to make them. They burned $1+ billion prior to the acquisition of Solar City and that was burning $1+ billion too.

All of the Musk companies seem like a giant circle jerk - they're buying one another, being the largest investor in the bonds of one another, propping up one another, etc. all while each loses money. These things are only floated at the goodwill of shareholders/debt holders who don't seem to care that the companies, in their current form, or totally unsustainable.

If the whole things works, they'll likely end up as powerhouses within their respective industries. If even a singel thing goes wrong at one, it's possible that it brings all 3 down.


Cameron

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Re: Frauds and Bear Markets
« Reply #6 on: October 12, 2017, 07:04:00 AM »
I completely agree with the three quoted below. I would like to add that there is absolutely insane behavior within subprime auto lending, that has been well documented for some time for those willing to look. Luckily subprime auto is small in size relative to the total economy.

I would like to add crypto currencies. If we aren't there yet, it will eventually attract fraudulent operators. Read the recent Grant's for an indication of the willingness to purchase against all reason.

Finally, I think entrepreneurship and venture and angle capital jumped the shark a while ago. Eventually there are going to be some very unhappy investors. Luckily most of these frauds will not be anywhere near the dollar value of Theranos and in aggregate will not be that large relative to the real economy.

With time any of these areas of irrational behavior could grow in size enough to be of great concern although we have a long way to go.

I am going to guess that you will see fraud where you see debt...

You might see it with auto lending & leasing.  There have hints, rumors & whispers that WAY too many loans are being given out and underwriting standards are too low.

OR

What about companies that are not a "scam" per se...but are running on questionable business strategies?  For example, there are some "high tech" companies that have sales...but little or no hope of profit.  These companies are multi-billion market cap companies.  What happens if they are no longer Wall Street darlings?  What happens if they actually have to start making money?  You could see their business models collapse, perhaps prompting a broader market route?


I certainly hope things stay strong for a while longer...

Speaking of Venture Capital jumping ship, they got out just in time with IPO'ing J.Jill, down 50% today. Also the retail decline isn't all Amazon or E-commerce the US overbuilt retail locations for years and we are finally seeing the impact.

Cameron

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Re: Frauds and Bear Markets
« Reply #7 on: October 12, 2017, 07:06:12 AM »
Tesla?

This seems the most likely to me. They build great products, but haven't yet figured out how to sell them for more than it costs them to make them. They burned $1+ billion prior to the acquisition of Solar City and that was burning $1+ billion too.

All of the Musk companies seem like a giant circle jerk - they're buying one another, being the largest investor in the bonds of one another, propping up one another, etc. all while each loses money. These things are only floated at the goodwill of shareholders/debt holders who don't seem to care that the companies, in their current form, or totally unsustainable.

If the whole things works, they'll likely end up as powerhouses within their respective industries. If even a singel thing goes wrong at one, it's possible that it brings all 3 down.

Yeah, Whose lending Tesla $2 billion during a recession? If credit creation slightly slips its a dead man walking.
« Last Edit: October 12, 2017, 07:09:56 AM by Cameron »

maybe4less

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Re: Frauds and Bear Markets
« Reply #8 on: October 12, 2017, 10:43:33 AM »
Tesla?

This seems the most likely to me. They build great products, but haven't yet figured out how to sell them for more than it costs them to make them. They burned $1+ billion prior to the acquisition of Solar City and that was burning $1+ billion too.

All of the Musk companies seem like a giant circle jerk - they're buying one another, being the largest investor in the bonds of one another, propping up one another, etc. all while each loses money. These things are only floated at the goodwill of shareholders/debt holders who don't seem to care that the companies, in their current form, or totally unsustainable.

If the whole things works, they'll likely end up as powerhouses within their respective industries. If even a singel thing goes wrong at one, it's possible that it brings all 3 down.

Yeah, Whose lending Tesla $2 billion during a recession? If credit creation slightly slips its a dead man walking.

I think the question is probably, who is buying Tesla in a recession? Could easily see one of the big tech firms buying Tesla if Elon gets desperate and can no longer fund operations.

TwoCitiesCapital

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Re: Frauds and Bear Markets
« Reply #9 on: October 12, 2017, 11:19:57 AM »
Tesla?

This seems the most likely to me. They build great products, but haven't yet figured out how to sell them for more than it costs them to make them. They burned $1+ billion prior to the acquisition of Solar City and that was burning $1+ billion too.

All of the Musk companies seem like a giant circle jerk - they're buying one another, being the largest investor in the bonds of one another, propping up one another, etc. all while each loses money. These things are only floated at the goodwill of shareholders/debt holders who don't seem to care that the companies, in their current form, or totally unsustainable.

If the whole things works, they'll likely end up as powerhouses within their respective industries. If even a singel thing goes wrong at one, it's possible that it brings all 3 down.

Yeah, Whose lending Tesla $2 billion during a recession? If credit creation slightly slips its a dead man walking.

I think the question is probably, who is buying Tesla in a recession? Could easily see one of the big tech firms buying Tesla if Elon gets desperate and can no longer fund operations.

I dunno - maybe?  But then Elon would have to go. Not a frequent success story when founders/CEOs stay on as something other than founder/CEO - especially a personality as strong as Elon.

Tesla was saved once by a investment from Mercedes. I think it's more likely one of the big auto companies would save Tesla at that point - but at what price? Tesla's valuation would likely have to drop precipitously to where it was more closely aligned with current multiples of other major manufacturers before they'd make a bid.