THIS IS MY 145TH BLOG ON UNDERSTANDING MONEY
TOOLS
September, 2018
understandingmoneytools.blogspot.com
This is my 13th blog on America and it’s
historical buildup of debt, and most likely my last blog on the subject.
Let’s recap quickly. Everything is “cause and effect”. I took you from the Revolutionary
War debt and our borrowing of money from France up until today’s financial
situations, and very realistically our demise brought on by debt within the
next 10 years. Over and over I
expressed that wars create debt and debt kills! Bankers control the world and politicians create our
problems. Most politicians don’t
enter Congress and the Senate as millionaires, but they certainly exit that way
with very lucrative pensions and better health programs than you and I have.
I also brought forth lessons on investing, what vehicles are
available to you, what you should look for and how to hedge your bets. The concepts and understanding of
vocabulary is more important than the actual procedure as you most likely will
discuss that with your financial advisors. In reality you probably will never short a stock nor use
options, however now you know what they are and how they are used.
Now, in this blog I promised you the last part for
investments and that is gold and currencies. These are really tertiary. You might hedge a part of your portfolio in gold (perhaps
recommended 10%) however your buying
world currencies is unlikely.
GOLD: Gold is a
hedge and has been used for exchange since almost the beginning of time. Normally, if there are world wars,
troubles, significant drops in the stock or bond markets you will see gold
rise. Gold has been very stable
the last few years and traded between $1,000 and $1,200 per ounce; a very
narrow range. I see the same range
continuing over the next few years.
As our US dollar gets into trouble from our debt, possible US defaults
on bonds, no money for social security or Medicare/Medicaid, gold may up-tick. You can buy bullion and hold in a
safety depository, or buy gold stocks.
CURRENCIES: A
currency is just money. It can be
the US dollar, or any country in the world. Wealthy families and institutions trade currencies; a lot of
dollars involved here with small margins.
This is not for the average guy.
Here is a situation where you might use it from a practical sense: let’s say that you were going to take a
trip to a country like Switzerland.
You expect to spend about $20,000 overall. You also think the Swiss Franc will gain over the US dollar
so you call your bank and order $20,000 in Swiss Francs. If the Swiss Franc gains 5% between the
time you receive your francs and when you leave for Switzerland you made $1,000
on your money and good judgment.
Of course, this could work in reverse and you lose! Currencies I would pick? 1) Swiss Franc. A controlled small wealthy country
known for finance. 2) Chinese
Renminbi (Yuan). China is
incredibly wealthy and economically buying up the world. Here in the US they are constructing $6
billion in real estate downtown LA, they own $1trillion in US Bonds, they own
amongst many companies Smithfield Foods, the largest pork producer in the
world. Internationally, they are
buying up control of Lithium for batteries in Bolivia and elsewhere. Autos? They own Volvo in Sweden.
A STOCK WARNING: It doesn’t hurt to be redundant if I think
it may save you money. At some
point the stock markets are going to take a very big hit. Wall Street has historically lead
investors into dark holes and I have seen it for years now and lost money
several times. They did this with
mortgage derivatives in the late 1980’s taking down the Savings and Loan
business. Again, they repeated the process in 2003-2009 with the same mortgage
backed securities, almost taking down the world to the tune of about $60
trillion. Wall Street loves
intangibles that can’t be analyzed well, eg. Facebook, Google, Amazon and
Netflix, and many more. I went
through the 1999 dot.com debacle and lost a lot of money. I knew Tom Bailey from my Vail days who
started Janus Funds, was a friend and classmate of the guys who started Invesco
Funds also in Denver. I was
friends with Richard Hokin who started American Funds, Henry Kaufman (Kaufman
Funds), Jim Galbreath, managing director of Nuveen Investments (roommate and classmate
in college) and many more. We all
ate it in 1999, and that also sank good old-line companies like GE and
Motorola. Please remember markets
come down much faster than they go up. Why? Fear is a stronger emotion than greed! Ignore the recent
news articles on how great the economy is. Today, jobs report out 201,000 new jobs. What kind of jobs? Also, out today that the average
hourly pay for a private sector worker was $27.90/hour; that equates to
$50,000/year. They must have
included the salaries of Bill Gates and Jeff Bezos to arrive at this. Don’t tell me the part-time employees
at Target and Walmart are making $50,000/year!
MY LIFE STORY:
In this portion of my blog I will recap a small part of my life hoping
to have meaning for you. I will
give you “the good, the bad, and the fun” so that you can learn from my
mistakes and also benefit from what my peers and I did correctly. We are going back to the late 1970’s
through the mid 1980’s. In
previous blogs I mention the company Energetics, Inc., an oil/gas exploration
and development company. We will
look at it.
Leading up to Energetics I was the designated broker/manager
for a higher-end real estate company in Denver. We were full service with
residential, commercial and management.
What was smart? At first we
were in an expansive and growing position because of inflation effecting upward
mobility by buyers. We wanted each
office to be tightly controlled so we maxed each one out with 25-30 agents who
received great administrative care.
We hired with a certain profile in mind, these being nice people, smart,
flexible, adaptable, team players who wanted to make money and were
trainable. Our company had a
full-time trainer who would spend as much time as needed to make a person
successful. When I went to
Energetics, Inc. we had the same philosophy except we weren’t selling so
eliminated the “want to make money” aspect and converted to “seeking the
highest degree of professionalism and expertise”. The real estate company recognized that inflation would
bring about significant increases in interest rates around 1978, thus
significantly hurting the real estate markets. The owner sold the company. I was lucky to come across Energetics, Inc. at the same
time.
How did this happen?
A friend introduced me to the Chairman of the Board of Energetics, a
young oil company with significant positive cash flow. What did I bring to the table? Successful management reputation,
adaptable, and Securities Licenses including one to form partnerships, the Series
22.
ENERGETICS HISTORY: In 1973, Bob Mehl, one of the three
partners discovered the Pineview field in northeastern Utah. Amoco drilled the well and it was
called the Newton #1. This made
the three original partners, Bob Mehl, Digger Smith and Pat Maher (MM&S),
an incredible positive cash flow.
They wanted to build up an oil company and take it public. (By 1983 Bob’s fine Western Art
collection was one of the 5 biggest and best in the USA. Now, it is mainly on display at the
Denver Art Museum.)
I was the first top management person they hired who was not
an “oily”, meaning geologist, geophysicist, etc. Bottom line, this was the best company I could ever imagine
working for and with. The best
team players, and no discord in any department. These three gentlemen were amongst the finest people I have
known. I started the corporate
finance department, a coordinating job, and later as needed started an investor
relations department to oversee our many limited partners.
ENERGETICS THE GOOD:
- My
initial office was in with the three partners in a separate location using the
same great administrative secretary to watch over our needs.
- Mehl,
Maher and Smith (MM&S) purchased a large refinery in Salt Lake City,
Western Refining. Still alive today.
- MM&S
were entrepreneurs. They owned a
gold mining company and real estate amongst other things.
- In
1980, I was involved with them starting Video Concepts, a national retailer for
some of the first home video/sound systems. We raised all the venture capital in one afternoon bringing
in Denver oil men we knew. To run
this endeavor we hired a gentleman, Larry Welch, as president. Larry opened
about 60 stores within 9 months and the company was sold to the Ekert Drug family
from Florida for about $60
million. Not a bad return for a 9
month period!
- At
Energetics people came first. We
hired the best and brightest and paid far above average salaries. No
skimping. To make certain
employees were happy with themselves, families, and at work we hired a full
time psychologist.
- No
hierarchy in this company; first name basis and all treated with same respect
from janitor to chairman of the board.
- As
we expanded departments, we hired accountants from Peat Marwick. Accountants are like the army. They work well together when coming
from the same firm and trained a certain way. This would equate to having an army and then tossing in a
navy man, doesn’t work as well. Our treasurer on through came from Peat
Marwick.
- The
3 principals knew I needed to have a working knowledge of the oil business so
they sent me down to Austin, Texas, with the head of geology, Ed Warner, to go
over every aspect of the oil business including working closely with the
EPA. This included on rigs to final
oil hauling, and gas pipeline transmissions.
- My
job really was a coordination job between banking, investment banking,
accounting, and legal.
- With
the help of New Court Securities, a Rothschild company, they taught me much
more about taking a company public. As we started forming limited partnerships,
I needed to design monthly reports to the limited partners understandable and
in layman’s language. Our
quarterly reports included narratives as to progress and financials for each
partnership. We did 2 limited partnerships a year up and above industry and
joint venture partners. (Combined and leading up to our going public, Digger
and I raised about $200 million a year; considerable money back then.) At the
time we went public we had 900 limited partner interests, sometimes being the
same person in different drilling partnerships. With limited partners it can be
costly and time consuming but we had reason for this. (Each hourly cost was
designated carefully to that warranted partnership.) When we went public who
would be our best voice? Yes, the
Rothschilds but also our limited partners. To be able to invest in a
partnership we had criteria to meet: 1) millionaire, no big deal 2) a notable
person (if you were an investment banker you needed to be a Senior
Vice-President or above). We had actors like Robert Duval, business people like
Fred Smith (founder of Federal Express, sports like Jo Ann Carner, (female pro
golfer), Bob Entenmann, Sr. (bakeries), Bob Gardner, President of Dean Witter,
etc.
- Our
minimum investment for our limited partners was $400,000 in today’s dollar.
- I
enjoyed my role as head of investments as many partners became close
acquaintances even if just over the phone. Some would come to the company for a
tour and visit Bob Mehl’s art collection, as it was world-renowned. Fred Smith
called me frequently and reminisced over tales of when he started Federal
Express and almost lost it. He illegally took the money out of his company one
weekend and went to gamble in Las Vegas with it. He luckily hit, put the money
back into Federal Express and saved the company from bankruptcy.
- Our
first lawyer, John Reynolds, was another great hire. None of us liked lawyers,
however John came up in the world first as a priest, then a monk in France,
then gave that up, law school, married and had children. The nicest and smartest lawyer I ever
knew, being able to speak 6 languages fluently.
- At
this time, Pat Maher held bible classes in one of Energetics conference rooms
every Tuesday afternoon with a few of the wealthiest oilmen in Denver. They were trying to make sense out of
why God gave them soooo much money, and what they should do with it. Pat tithed 10% of his income to the
Catholic Church as well as giving to other causes.
- Our
biggest stockholders were Baron Guy and Evelyn de Rothschild. Because of this we were amongst the few
selected to make it big through their investment banks finally becoming a
publicly traded company in March, 1983.
- At
the time, President Carter wanted the USA to be independent in oil and gas and
not be at the mercy of OPEC Nations. Government regulations were put in place
for controlled pricing (these being referred to as “sections”).
- As
we grew quickly, I had my own “corner of the world” with my finance department,
and then including investor relations.
- At
first, we had the same situation other oil companies, real estate companies,
and mining companies had. This
negative was the time delay between buying mineral rights to drill and the
actual drilling and production. (This could take 2 years in test/research time.
I won’t cover the reasons. With real estate it would be seeing a large project
opportunity and closing on it.) We
solved this problem by forming a new entity. We started Energetics Capital Limited Partnership (ECLP),
raising money from heavy hitters and industry partners. This partnership money
was used to purchase mineral rights after we did initial analysis of
quality. Then, this entity did the
research needed before we drilled the first test well with Energetics operating
company. ECLP got a return, plus
carried interest in drilling and production.
- Within
the 4 years I was with the company we grew to 300 people including an office in
Houston. We outgrew our first 2
story office building at Inverness, Denver, and built a new all glass
multi-story building.
- By
that time, I had 3 personal secretaries to save me on many endeavors. I hired them with the personal traits I
mentioned earlier plus great in English to tackle letter writing and reporting.
- I
had pretty much free rein in the company so I bought a home on the water in Del
Ray Beach, Florida and Digger Smith and I owned a condo for skiing and getting
away at Copper Mountain, Colorado. I took plenty of time off as long as I
watched closely over business while being away. (Much later in 1992 Pat Maher and I started National Pure
Water Company patterned after our oil partnerships, expansion and the hopes of
going public. We sold out as a
private corporation.)
- In
the end, and I mean the end, President Reagan changed all regulations that
President Carter had in place and destroyed the US independent oil producers
including Energetics. Perhaps this was good for Americans decreasing inflation,
but certainly not good for me and other independent oil producers!
ENERGETICS THE BAD: Up until about 150 employees you are considered
a Stage 1 company. Then, you need
to really listen to Wall Street, your managing investment banking firm, and
follow their advice. All companies will need to do this if you want to go
public with a good firm.
- In
about 1980, we were told by Rothschild that we needed to bring in a well-known
president for the company, Tom.
Actually, he was more of a figure- head who would fall asleep during
meetings.
- With
the new president, he brought in the caste system. Lower-level employees were to call management by their last
name preceded by Mr./Mrs./Miss…(it was B.S.)
- We
needed to bring a few lawyers in-house from a big legal firm replacing our good
John Reynolds. These guys were ego maniacs that didn’t sit well.
- We
needed to bring in a Chief Financial Officer (CFO), Tom, from Price
Waterhouse….good guy.
- We
needed to start a human resource department; there went the growing salaries,
and new starts had to comply with industry average wages lower than what we
paid in the past.
- The
personality of the company changes with growth, expect it.
- I
told Digger I would stay through taking the company public, get my stock and
start my own company someday. He respected this, and said Energetics and he
would be my first support. We
structured the stock giving the first 100 employees 1/4 of all the issued
stock. This is done in advance
with stock options at certain dates.
The employee has to pay something toward the purchase so that was ten
cents per share. (We went public
at $15/share.)
THE FUN: Some of this you could never get away with in
today’s corporate standards.
- I
had 3 personal secretaries. My first was, Lynn, who was a genius. She was also married, about 5’-10” with
a body out of sight, very well over-endowed above the Mason Dixon Line! Lynn never wore a bra and always a
tight knit top. Digger asked
me once if I could ask her to at least wear a bra. I told him she was good for
business as a born “schmoozer” and she became a “show and tell” piece when the
Wall Street investment bankers came through. No sex involved in the office, but
we had fun. Over the phone Lynn
had investor, Bob Entenmann Sr., wrapped around her finger so he had Fed Ex or
UPS deliver fresh Danish pastry to us most mornings, paid by him. I had a large, all glass office. Periodically, if Lynn put through an
important call to me, she would come by my glass wall, door closed, lift up her
knit top and press her bare breasts against the glass to watch me blush and get
flustered. After a few minutes she
would walk past with Windex and a paper towel to clean off the marks. It was
really quite funny!
- We
had such a positive cash flow that we started a short-term cash management
department run by Gary Watkins out of United Banks of Denver. Gary was a character so our departments
decided we needed to start each morning with a contest, “dirty joke of the day”
as a conference call; my departments against his department. It created a lot
of fun and camaraderie.
SIDE NOTES: I
know this blog is long already, but I won’t be returning to my days at Energetics
and thought these side events would be of interest.
- I
needed to be in NYC on business around Thanksgiving 1980 with Rothschild. One evening a friend, George Davison
Ackley, invited me over to his condo at the Dakota. The Dakota is known for quiet wealth. George was an heir of
big oil money, and always had a butler and cook since he graduated from
Yale. We were the same age. I mentioned to George that night that
the entry was very dark, almost scary and then a person passes through a dark
courtyard to reach the elevators to the condos. On December 8th about 2 weeks later John Lennon,
an owner in the Dakota, was gunned down outside the entry. I will always remember.
- I
really like tennis and was a good player.
With my NYC business I made it a habit each year to mix in the US Open
at Forest Hills. My good friend,
John, was a top international chair umpire on the Hunt’s payroll. Everyone knew
John. Tickets for the events were
quite expensive so this is how I got around that, and to the best seats each
day. As everyone knew John, I
would go in with him wearing his official umpire shirt and he would wear my
shirt, no need to check tickets. Once in, we would hit the men’s room, exchange
shirts. Next step was for me to follow John to desirable box seat sections.
Again there, all officials knew John and he would ask who wasn’t going to use
their box seats for the day. Over
and over again, it happened to be Mike Wallace of 60 Minutes, so I had
wonderful seats all day benefit of Mike!
- One
last one for you. Another good friend, Carl Meyer, was both a good snow skier
and sailor. When I wanted a
“catch-up” and good dinner I would call Carl and have dinner on him at the New
York Yacht Club. You would think
the Yacht Club to be on the water but it is in Midtown Manhattan. Great sailing memorabilia.
That’s it! I
hope this isn’t as boring as reading Mein Kampf. Hitler had 2 years in prison in 1924 to write his blog!
