Tuesday, June 18, 2013

How I Inadvertently Launched the Career of Billionaire Hillary Supporter Ronald Perelman

Politico is reporting that Hillary Clinton was recently caught having coffee with longtime friend, supporter, donor and billionaire Ron Perelman. It's “old friends having coffee,” said Perelman spokeswoman Christine Taylor.

Don't believe it for a minute. It is early stage plotting for Hillary's presidential run and, I confess, it's my damn  fault. I started Perelman on his way to billions.

When I first landed on Wall Street many years back, I discovered a company called Video Corporation of America. At the time, only 10% of the population owned video recorders, but I could see their potential. The only problem was that there were two competing formats, the VHS format and the Betamax format, and it wasn't clear who was going to be the survivor. Then I came across Video Corp.  The firm made both VHS and Betamax cassettes and had clients such as MGM, Walt Disney from the film industry. They had corporate clients such as Sears and IBM.

VICA was a winner. I was convinced VCRs were going to take off and VICA was going to be rolling in business. After accumulating a position around $4.00 a share for myself, and the clients of the money management firm I worked for, I then  attempted to speed things up and tried to get the company taken over.

I managed to get a meeting with Bunker Hunt. This was after he had loss billions in silver. After the meeting, I could understand how he had lost the billions.  After learning that I was mostly of Polish descent, he told me that his roommate in college was Polish and that he was a good guy. In any case, I pitched him VICA as a company of the future and he just looked at me and said that he was going to stick with what he knew: oil. I think oil dropped in price for 10 years after that. I hopped on a plane back to NYC.

I also was introduced to another gentlemen. I was told he was looking for acquisitions. I gave him the VICA pitch and he called me back a few times to ask follow up questions. He was clearly interested in the company and wanted my view on specifics. A couple of months later, McAndrews Forbes announced it was making a takeover bid for the company at $12.00 per share. That is Ronald Perelman's holding company. Perlelman was just entering the takeover game and as best as I can tell, that was his first takeover.  As the video recorder business took off, he probably made hundreds of millions. It was only years later that I learned that the man I pitched VICA to, who was looking for acquisitions, was Perleman's lieutenant. So, it appears, Perleman got his first stock tip, indirectly from me. He has, of course, made many acquisitions since then and has  maneuvered himself to become the billionaire owner of Revlon and a plotter with Hillary Clinton.

But things have been going well in my direction, most of the funds that I received from Perelman's acquisition of VICA, I plowed into a second rate department store chain  called Alexander's. The company owned the block across the street from Bloomigdale's in Manhattan on 59th Street. I considered it the most valuable block in NYC. When I obtained the company's annual report and other filings, I learned that they also had property on the books in Queens and the Bronx at 1930s prices. The company was a real estate gold mine. I bought in at $6.00 per share, the book value of the stock was $12.00. But for sure it was worth much more than even that. Donald Trump at some point started buying in ( I think around $60.00). The stock now trades around $300.00.

A few years back I talked to the son of one of my early clients. The client had recently passed away. it didn't appear that the son understood that the father was in a managed account. He said to me, "I didn't realize what an incredible stock picker my father was." I replied, "Yeah, he was really good."

For the first time ever, I consider the market dangerous for almost all individual stock picks. It is all about huge macro swings because of Federal Reserve manipulations. Oh yeah, in the past I got the October 1987 stock market crash right and most recently the housing bubble and then the 2008 crash, but at those times there were still individual plays. Those times are now gone, it is now almost all about macro moves. The Fed is such a huge player that any move it makes will impact nearly every crevice in the economy. If the Fed prints aggressively, price inflation will soar. If the money supply growth continues to slow, as it is now, we are headed for a major crash dive for the bond market and stock market. It will not be pretty for most.

During a recent interview at Goldman Sachs, Stan Druckenmiller, the Chairman and Chief Executive Officer of Duquesne Family Office and founder of Duquesne Capital Management in 1981, which he ran until he closed the firm in 2010 and who previously was a Managing Director at Soros Fund Management, where he served as Lead Portfolio Manager of the Quantum Fund and Chief Investment Officer of Soros, said:
It has become harder for me, because the importance of my skills is receding. Part of my advantage, is that my strength is economic forecasting, but that only works in free markets, when markets are smarter than people. That’s how I started. I watched the stock market, how equities reacted to change in levels of economic activity and I could understand how price signals worked and how to forecast them. Today, all these price signals are compromised and I’m seriously questioning whether I have any competitive advantage left.
Ten years ago, if the stock market had done what it has just done now, I could practically guarantee you that growth was going to accelerate. Now, it's a possibility, but I would rather say that the market is rigged and people are chasing these assets, without growth necessarily backing confidence. It's not predicting anything the way it used to and that really makes me reconsider my ability to generate superior returns. If the most important price in the most important economy in the world is being rigged, and everything else is priced off it, what am I supposed to read into other price movements?

This is very true. I think traders who understand Austrian economics have an edge. We understand the Cantillon Effect, also the importance of changes in the desire to hold cash balances and overall business cycle theory. But, we still need to know what direction the Fed is going to move in. Though , we will understand better than most what the move will mean, once it is clear.

I expect the confusion in markets and volatility to be quite remarkable, very soon. Volatility always means huge profit opportunity, but it will require great trading skills and correct economic knowledge. Very few have this combined skill set. Foremost, sadly, the Fed manipulations will mean huge losses and the destruction of much wealth. There are really very few places to hide, given the Fed's schizophrenic moves almost anything could be a very good investment or a bad investment (though I see bonds as a bad investment under almost all scenarios). Good luck.

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