Friday, August 12, 2022

The Last of Lehman Brothers; David Einhorn/Lehman Brothers: Another NYT Hatchet Job; How the Private-Equity Lobby Won – Again; The Local Tax Break Many Retirees Don't Know About – but Should; Regulators Weigh Asking Hedge Funds to Report Crypto Exposure; My daughter bought a Subaru Outback Touring XT

By Whitney Tilson

Recommended Link:

The ONLY way to play markets like these

Warren Buffett once said, "Price is what you pay... value is what you get." The best investor in the world knows the only way to prosper (especially in markets like these)... is to invest in VALUE. But this $2 stock could be the last value play in the market today. See why this $2 stock go up 25x and still be a bargain here.

1) Storied investment bank Lehman Brothers filed for bankruptcy on September 15, 2008. It's a date every investor at the time will remember because it brought the global financial system to its knees, saved only by a massive bailout by the U.S. government.

Believe it or not, today, nearly 14 years later, the bankruptcy process is still unfolding, as this recent Bloomberg Businessweek cover story describes: The Last of Lehman Brothers. Excerpt:

It turns out that when global financial institutions die, it can take a while. These deaths require caretakers. The spirit of a bank, even in life, is debt, and debts don't settle easily into a grave. Most of the assets banks own are the debts of others: the mortgages, commercial loans, and IOUs payable to the bank. On the other side, of course, banks owe – to their bond and note holders, counterparties in financial trades, and a long list of other creditors. Banks such as Lehman topple over when they suddenly can't wring enough cash from their assets to meet their liabilities.

But even after the funeral, all the debts on both sides of the ledger are still there, and professionals are needed to sort out who has to pay up and who should be paid...

This story brought back two memories for me. I wrote about the first in my August 23, 2018 e-mail:

A Bloomberg reporter sat in on one of our seminars in London last month and published an article, In This Never-Ending Lehman Short, $170,000 Is Still on the Table, about my unhappy, ongoing experience resulting from my failure to cover my Lehman short:

"My warning to everyone else doing any short selling: you must cover your short position at some point before the stock stops trading," said Tilson, who's relieved he doesn't have to pay big fees for being caught in the loophole. "Don't get too cute on trying to avoid paying taxes."

Goldman Sachs (GS) is still holding my money to this day!

The second memory is this article I published three months before Lehman went bankrupt, highlighting the prescient warnings of Greenlight Capital's David Einhorn about the bank and excoriating a terrible article in the New York Times about him: David Einhorn/Lehman Brothers: Another NYT Hatchet Job. Excerpt:

The New York Times business section has disgraced itself three times in less than three weeks with its coverage of Fairfax Financial (FFH) and the David Einhorn/Lehman Brothers dust up. Regarding the latter, I posted this response to guest blogger Prof. Steven Davidoff on the NYT DealBook blog, and below want to rebut the hatchet job written by Louise Story last week, Lehman Battles An Insurgent Investor...

The story here is not David Einhorn vs. Erin Callan or Lehman. It's whether one of the largest financial institutions in the world (with $786 billion on both sides of its balance sheet as of the end of Q1) – a firm that we now know is de facto backstopped by the U.S. government (and U.S. taxpayers) – is dangerously overlevered and underreserved, with a great deal of toxic waste on its balance sheet, about which it's deceiving investors and regulators.

The article has one of my favorite lines of all time:

11) Within Lehman, workers are calling Mr. Einhorn's strategy "short and distort."

If Ms. Story was going to write this, why didn't she also get a quote from any number of people who could have said something like: "Within the hedge fund community, Lehman's strategy is known as 'lie, cry and deny'"?

Recommended Link:

Billions Pouring into the Next Big Industry

Major investors are taking note - and the legend who bought Amazon at $48 and Apple at $0.35 is pounding the table on one $4 stock.

2) What a total disgrace! How the Private-Equity Lobby Won – Again. Excerpt:

Private-equity lobbyists call it the tax-code provision with nine lives.

The tax rate on carried-interest income survived another potential whack last week when Democrats acceded to a demand by Sen. Kyrsten Sinema (D., Ariz.) that a proposal chipping away at it be cut from the Senate Democrats' tax-and-climate bill.

Carried-interest income is the compensation private-equity and hedge-fund managers get when their investments are sold for a profit. Income on such investments held at least three years is taxed as a long-term capital gain, instead of the higher rate for ordinary income.

Senate Democrats wanted to make fund managers hold those investments for at least five years to get the better rate – the latest in a long line of attempts to revise the law, which critics characterize as a loophole that benefits some of the wealthiest Americans.

3) At the same time that the wealthiest few hundred people ever to walk the face of the earth have once again been successful in their fight to preserve an outrageous and unfair tax loophole, millions of average folks aren't aware of numerous tax breaks, as this Wall Street Journal article outlines: The Local Tax Break Many Retirees Don't Know About – but Should. Excerpt:

"There are hundreds of tax-relief programs in the U.S. for seniors, veterans, low-income families and others," says Adam Langley, an associate director at the Lincoln Institute of Land Policy, a Cambridge, Mass., foundation. "But outreach from local governments could definitely be improved. People just don't know about these programs."

Indeed, when I researched the exemptions available in the county where I live (in Georgia), I found no fewer than eight programs that can help lower one's property taxes...

So... where to find these exemptions? As I did, you can start online with your county tax office or tax assessor. The Lincoln Institute has a property-tax database – "Residential Property Tax Relief Programs" – that allows you to browse programs across the country. And AARP, the Washington, D.C.-based advocacy group for older adults, offers a service called Property Tax-Aide, in which volunteers help individuals apply for property-tax relief. This free program is available in 13 states and the District of Columbia, and there are plans to expand.

In short, every retiree should be familiar with the property-tax relief available in his or her area. If you're waiting for government officials to reach out to you, it could be a long wait.

4) This is good to see, though it's only the tiniest step toward what is needed to rein in the scam-filled world of cryptocurrencies: Regulators Weigh Asking Hedge Funds to Report Crypto Exposure. Excerpt:

The collapse in cryptocurrency prices this year has left U.S. regulators scrambling to understand the risks that digital-asset markets could pose to the broader economy.

They may soon enlist hedge funds in the effort.

The Securities and Exchange Commission issued a proposal Wednesday that would require large hedge funds to report their cryptocurrency exposure through a confidential filing known as Form PF.

5) After my oldest daughter's junior year in college in 2017, she needed a car for a summer job.

We bought her a new Subaru Outback (Touring model), which she passed down to our middle daughter for her last three years of college, and which next month is being passed down to our youngest daughter for her last three years of college.

It has been a great car, and my wife and I rest easy knowing that it's super safe (see: New Subaru Outback Just Earned Highest Safety Score of Any Vehicle Class). We could have saved a lot of money buying a cheaper and/or used car, but a half dozen serious accidents among my wife (who fell asleep at the wheel and ran off the road) as well as our friends and family (leading to multiple concussions and two tragic deaths) led us to prioritize safety. (For more on this, see my October 6, 2020 e-mail and my 2018 article, Why you should get a new car.)

It's not surprising, therefore, that when our oldest daughter started business school earlier this month, she bought (with her own money – woo hoo!) a new Subaru Outback Touring XT, which is even more safe, luxurious, and feature filled than its predecessor. Plus it looks great, as you can see in these two pictures:

Best regards,


P.S. I welcome your feedback at [email protected].

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Empire Financial Research

Whitney Tilson

Empire Financial Research founder and CEO Whitney Tilson is the editor of the Empire Investment Report, a monthly investment advisory that focuses on cheap, high-quality stock ideas.

Whitney graduated with honors from Harvard University and Harvard Business School, where he earned an MBA and was named a Baker Scholar. Whitney spent nearly 20 years on Wall Street, during which time he founded and ran Kase Capital Management, growing assets under management from $1 million at inception to a peak of $200 million.

Once dubbed "The Prophet" by CNBC, Whitney predicted the dot-com crash, the housing bust, the 2009 stock bottom, and more. Now, he's sharing his secrets and strategies with followers of his latest endeavor, Empire Financial Research.

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