The Cautionary Tale of the Bankrupt Billionaire

There has to be — just has to be — a lesson in this: Two weeks ago, business wires reported that former billionaire Sean Quinn had declared bankruptcy.

How someone who was worth $6-billion in 2008 could file for bankruptcy is somewhat mind-boggling. Sure, we have all heard of lotto winners or sports stars blowing through $5-million or $6-million on cars, houses and parties. But $6-billion? Come on.

Quinn, once Ireland’s richest man, was declared bankrupt after losing more than €1-billion ($1.3-billion) investing in Anglo Irish Bank Corp. The Irish Bank Resolution Corp. estimates Quinn owes the bank €2.9-billion. A court receiver is due to take over the Quinn’s family interest in Quinn Group, a business built on materials, insurance and real estate.

The bank’s heavy exposure to property lending, with most of its loan book being to builders and property developers, meant it was badly affected by the downturn in the Irish property market in 2008. In December 2008, the Irish government announced plans to inject €1.5-billion of capital for a 75% stake in the bank, effectively nationalizing it. The shares fell 99%.

Quinn had attempted to support the bank through special derivative contracts. As the collapse intensified, his losses multiplied. In the bankruptcy proceedings, it was alleged Quinn had sold assets worth $193-million to one of his cousins, for $1,000. 

Where do we even begin here, because there are so many lessons for investors from this sad tale?

First, as many, many people worldwide found out in 2008, real estate can actually decline in price. So many Baby Boom investors saw house prices go up in value for 40 years that everyone more or less forgot they could actually also decline in value. A lot. Hopefully, the 2007-2008 real estate crash and anemic recovery is fresh enough in your mind that you won’t need a reminder of that anytime soon.

Second, debt can make you rich, if you borrow at the right time. There is nothing like paying 3% interest on an asset that has gone up 100%. Real estate moguls use debt like crack. But debt, like drugs, can also kill you. While Quinn seems to have had at least some personal restraint using debt, the bank he invested in did not. Having 5% equity (or less) and the balance in debt does not leave much room for error if asset prices move the wrong way. The slightest decline in value wipes out your entire equity. 

With the absolutely massive decline in real estate prices in Ireland during the crisis, Anglo Irish’s equity was more than wiped out, almost daily. That’s why it needed continual — and large — capital injections just to stay afloat before its eventual collapse.

Third, Quinn forgot one of the prime rules of true long-term investors — stay away from derivatives. Derivatives are a zero-sum game: Someone always loses. Sure, you can make lots of money, but someone on the other side loses the same amount.

Quinn dabbled in what’s known as “contracts for differences.” Don’t ask to me to explain what they are. Hopefully Quinn knew. Anyway, they did not work out, and as they declined in value, Quinn was on the hook for more and more money.

Finally, desperate investors do desperate things. The Quinn family says the allegations of asset transfers were “baseless and hardly deserving of comment.”

But there have been other allegations. Like a football team down 30 points with two minutes left in the game, investors in trouble might try some crazy last-minute plays.

Make your life easier: Don’t get to Sean Quinn’s point. Stay away from leverage; stay away from derivatives; don’t go all-in on a sector; and stop throwing good money after bad investments.

Peter Hodson, CFA, is CEO of 5i Research Inc., a conflict-free independent investment research network.

Alex Ovechkin Just Dropped $4.2 Million

Washington Capitals star Alex Ovechkin bought a $4.2 million house in McLean, Virginia earlier this month.

The house features 5 bedrooms, 7.5 bathrooms, and a massive 11,000 square feet of space.

http://www.marianneprendergast.com/properties/listing/672

10 Essential Economic Blogs

For independent thinkers only: These online columnists see around the curves to the global economic trends that will affect your business.

Thanks to a severe case of ADD and being one of the fastest readers you will ever meet, I read dozens of different business blogs and news feeds every day. If it wasn’t for my obsessive compulsive disorder and pathological fear of missing out on some essential scrap of information I could get by with fewer. Here’s my Top 10, which I suppose would do for business owners who don’t realize how essential it is to track the Papua, New Guinea, commodities exchange and keep up to date on the latest mining information out of Mongolia.*

1. Seeking Alpha Market Currents: If a tree falls in the forest without making a sound but with an economic impact, you’ll find out about it here. Even I can’t read everything they put out in the course of a day. It’s not just a fire hose, though. It’s curated enough to keep the information relevant.
2. The Big Picture: You’re already reading Barry Ritholtz, right? Even if you aren’t you’ve probably seen him on the financial TV networks. There’s a reason for that. In addition to being a great talker this Wall St. money manager consistently pokes fact-based holes in received wisdom and popular opinion.  He is also a New York Knicks fan. As a Chicago Cubs fan, I understand completely.
3. Real Time Economics: One of several fine Wall Street Journal blogs. This one sifts through the numbers to find what matters.
4. DealBook: Andrew Ross Sorkin and crew are a great source for all the deals and the news that’s going to impact the deals. They cover so many different things that you don’t need to know everything they report – but there’s guaranteed to be something important here for you.
5. Financial Armageddon: Is Michael J. Panzner an alarmist or a realist? I vote for alarming realist. Panzner, a financial pro and writer, is smart and digs deep to find stories, angles and implications you won’t see in many other places. Despite the name of the blog, he’s definitely not a screamer.
6. FT Alphaville: The view from Europe. A great outsider perspective on the U.S. and one of the best insider sources for news and perspective about the entire Euro mess.
7. Zero Hedge: Don’t know much or care much about international economics? ZH will take care of both of those for you. The editors/writers all use pen names so all I can tell you about them is they’re smart and detail obsessed. These folks doubt everything—and I mean that as a compliment.
8. Naked Capitalism: Views things more from the Keynes side, but facts and not ideology are the driving force here. NC isn’t so much in favor of government intervention as it is honest, well-regulated markets. These days that’s enough to make you a heretic.
9. Calculated Risk: Bill McBride does a great job of connecting the dots as well as serving up brief, thorough and understandable synopses of key economic stats and news. He has an amazing ability to separate wheat from chaff.
10. Mish’s Global Economic Analysis: Mish Shedlock, a registered investment advisor, is as good as it gets when it comes to finding the key facts, stories or stats in far distant lands. I define key as meaning “ripple with incredibly high likelihood of becoming a tsunami.”                                                    By Constantine von Hoffman |  @CurseYouKhan 

The Joy of Quiet

ABOUT a year ago, I flew to Singapore to join the writer Malcolm Gladwell, the fashion designer Marc Ecko and the graphic designer Stefan Sagmeister in addressing a group of advertising people on “Marketing to the Child of Tomorrow.” Soon after I arrived, the chief executive of the agency that had invited us took me aside. What he was most interested in, he began — I braced myself for mention of some next-generation stealth campaign — was stillness.

A few months later, I read an interview with the perennially cutting-edge designer Philippe Starck. What allowed him to remain so consistently ahead of the curve? “I never read any magazines or watch TV,” he said, perhaps a little hyperbolically. “Nor do I go to cocktail parties, dinners or anything like that.” He lived outside conventional ideas, he implied, because “I live alone mostly, in the middle of nowhere.” 

Around the same time, I noticed that those who part with $2,285 a night to stay in a cliff-top room at the Post Ranch Inn in Big Sur pay partly for the privilege of not having a TV in their rooms; the future of travel, I’m reliably told, lies in “black-hole resorts,” which charge high prices precisely because you can’t get online in their rooms. 

Has it really come to this?

In barely one generation we’ve moved from exulting in the time-saving devices that have so expanded our lives to trying to get away from them — often in order to make more time. The more ways we have to connect, the more many of us seem desperate to unplug. Like teenagers, we appear to have gone from knowing nothing about the world to knowing too much all but overnight.

Internet rescue camps in South Korea and China try to save kids addicted to the screen. 

Writer friends of mine pay good money to get the Freedom software that enables them to disable (for up to eight hours) the very Internet connections that seemed so emancipating not long ago. Even Intel (of all companies) experimented in 2007 with conferring four uninterrupted hours of quiet time every Tuesday morning on 300 engineers and managers. (The average office worker today, researchers have found, enjoys no more than three minutes at a time at his or her desk without interruption.) During this period the workers were not allowed to use the phone or send e-mail, but simply had the chance to clear their heads and to hear themselves think. A majority of Intel’s trial group recommended that the policy be extended to others. 

THE average American spends at least eight and a half hours a day in front of a screen, Nicholas Carr notes in his eye-opening book “The Shallows,” in part because the number of hours American adults spent online doubled between 2005 and 2009 (and the number of hours spent in front of a TV screen, often simultaneously, is also steadily increasing). 

The average American teenager sends or receives 75 text messages a day, though one girl in Sacramento managed to handle an average of 10,000 every 24 hours for a month. Since luxury, as any economist will tell you, is a function of scarcity, the children of tomorrow, I heard myself tell the marketers in Singapore, will crave nothing more than freedom, if only for a short while, from all the blinking machines, streaming videos and scrolling headlines that leave them feeling empty and too full all at once.

The urgency of slowing down — to find the time and space to think — is nothing new, of course, and wiser souls have always reminded us that the more attention we pay to the moment, the less time and energy we have to place it in some larger context. “Distraction is the only thing that consoles us for our miseries,” the French philosopher Blaise Pascal wrote in the 17th century, “and yet it is itself the greatest of our miseries.” He also famously remarked that all of man’s problems come from his inability to sit quietly in a room alone. 

When telegraphs and trains brought in the idea that convenience was more important than content — and speedier means could make up for unimproved ends — Henry David Thoreau reminded us that “the man whose horse trots a mile in a minute does not carry the most important messages.” Even half a century ago, Marshall McLuhan, who came closer than most to seeing what was coming, warned, “When things come at you very fast, naturally you lose touch with yourself.” Thomas Merton struck a chord with millions, by not just noting that “Man was made for the highest activity, which is, in fact, his rest,” but by also acting on it, and stepping out of the rat race and into a Cistercian cloister. 

Yet few of those voices can be heard these days, precisely because “breaking news” is coming through (perpetually) on CNN and Debbie is just posting images of her summer vacation and the phone is ringing. We barely have enough time to see how little time we have (most Web pages, researchers find, are visited for 10 seconds or less). And the more that floods in on us (the Kardashians, Obamacare, “Dancing with the Stars”), the less of ourselves we have to give to every snippet. All we notice is that the distinctions that used to guide and steady us — between Sunday and Monday, public and private, here and there — are gone. 

We have more and more ways to communicate, as Thoreau noted, but less and less to say. Partly because we’re so busy communicating. And — as he might also have said — we’re rushing to meet so many deadlines that we hardly register that what we need most are lifelines. 

 

So what to do? The central paradox of the machines that have made our lives so much brighter, quicker, longer and healthier is that they cannot teach us how to make the best use of them; the information revolution came without an instruction manual. All the data in the world cannot teach us how to sift through data; images don’t show us how to process images. The only way to do justice to our onscreen lives is by summoning exactly the emotional and moral clarity that can’t be found on any screen.

MAYBE that’s why more and more people I know, even if they have no religious commitment, seem to be turning to yoga, or meditation, or tai chi; these aren’t New Age fads so much as ways to connect with what could be called the wisdom of old age. Two journalist friends of mine observe an “Internet sabbath” every week, turning off their online connections from Friday night to Monday morning, so as to try to revive those ancient customs known as family meals and conversation. Finding myself at breakfast with a group of lawyers in Oxford four months ago, I noticed that all their talk was of sailing — or riding or bridge: anything that would allow them to get out of radio contact for a few hours. 

Other friends try to go on long walks every Sunday, or to “forget” their cellphones at home. A series of tests in recent years has shown, Mr. Carr points out, that after spending time in quiet rural settings, subjects “exhibit greater attentiveness, stronger memory and generally improved cognition. Their brains become both calmer and sharper.” More than that, empathy, as well as deep thought, depends (as neuroscientists like Antonio Damasio have found) on neural processes that are “inherently slow.” The very ones our high-speed lives have little time for. 

In my own case, I turn to eccentric and often extreme measures to try to keep my sanity and ensure that I have time to do nothing at all (which is the only time when I can see what I should be doing the rest of the time). I’ve yet to use a cellphone and I’ve never Tweeted or entered Facebook. I try not to go online till my day’s writing is finished, and I moved from Manhattan to rural Japan in part so I could more easily survive for long stretches entirely on foot, and every trip to the movies would be an event. 

None of this is a matter of principle or asceticism; it’s just pure selfishness. Nothing makes me feel better — calmer, clearer and happier — than being in one place, absorbed in a book, a conversation, a piece of music. It’s actually something deeper than mere happiness: it’s joy, which the monk David Steindl-Rast describes as “that kind of happiness that doesn’t depend on what happens.”

It’s vital, of course, to stay in touch with the world, and to know what’s going on; I took pains this past year to make separate trips to Jerusalem and Hyderabad and Oman and St. Petersburg, to rural Arkansas and Thailand and the stricken nuclear plant in Fukushima and Dubai. But it’s only by having some distance from the world that you can see it whole, and understand what you should be doing with it. 

For more than 20 years, therefore, I’ve been going several times a year — often for no longer than three days — to a Benedictine hermitage, 40 minutes down the road, as it happens, from the Post Ranch Inn. I don’t attend services when I’m there, and I’ve never meditated, there or anywhere; I just take walks and read and lose myself in the stillness, recalling that it’s only by stepping briefly away from my wife and bosses and friends that I’ll have anything useful to bring to them. The last time I was in the hermitage, three months ago, I happened to pass, on the monastery road, a youngish-looking man with a 3-year-old around his shoulders. 

“You’re Pico, aren’t you?” the man said, and introduced himself as Larry; we’d met, I gathered, 19 years before, when he’d been living in the cloister as an assistant to one of the monks.

“What are you doing now?” I asked.

“I work for MTV. Down in L.A.”

We smiled. No words were necessary.

“I try to bring my kids here as often as I can,” he went on, as he looked out at the great blue expanse of the Pacific on one side of us, the high, brown hills of the Central Coast on the other. “My oldest son” — he pointed at a 7-year-old running along the deserted, radiant mountain road in front of his mother — “this is his third time.”

The child of tomorrow, I realized, may actually be ahead of us, in terms of sensing not what’s new, but what’s essential.

Pico Iyer is the author, most recently of “The Man Within My Head.” 

By PICO IYER Published: December 29, 2011-NY TIMES

Wheat Belly

Quick: Name a common food, consumed every day by most people, that:

• Increases overall calorie consumption by 400 calories per day
• Affects the human brain in much the same way as morphine
• Has a greater impact on blood sugar levels than a candy bar
• Is consumed at the rate of 133 pounds per person per year
• Has been associated with increased Type 1 Diabetes
• Increases both insulin resistance and leptin resistance, conditions that lead to obesity
• Is the only common food with its own mortality rate

If you guessed sugar or high-fructose corn syrup, you're on the right track, but, no, that's not the correct answer.
The true culprit: Triticum aestivum, or modern wheat.
Note that I said "modern" wheat, because I would argue that what we are being sold today in the form of whole grain bread, raisin bagels, blueberry muffins, pizza, ciabatta, bruschetta, and so on is not the same grain our grandparents grew up on. It's not even close.

Modern wheat is the altered offspring of thousands of genetic manipulations, crude and sometimes bizarre techniques that pre-date the age of genetic modification. The result: a high-yield, 2-foot tall "semi-dwarf" plant that no more resembles the wheat consumed by our ancestors than a chimpanzee (which shares 99% of the same genes that we do) resembles a human. I trust that you can tell the difference that 1% makes.

The obvious outward differences are accompanied by biochemical differences. The gluten proteins in modern wheat, for instance, differ from the gluten proteins found in wheat as recently as 1960. This likely explains why the incidence of celiac disease, the devastating intestinal condition caused by gluten, has quadrupled in the past 40 years. Furthermore, a whole range of inflammatory diseases, from rheumatoid arthritis to inflammatory bowel disease, are also on the rise. Humans haven't changed -- but the wheat we consume has changed considerably.
Wheat Bellies

You've heard of "beer bellies," the protuberant, sagging abdomen of someone who drinks beer to excess. That distinctive look is often attributed to alcohol consumption when in fact it's just as likely to be caused by the pretzels -- not just the beer -- you're downing after work. A wheat belly is a protuberant, sagging abdomen that develops when you overindulge in wheat products like crackers, breads, waffles, pancakes, breakfast cereals and pasta. Dimpled or smooth, hairy or hairless, tense or flaccid, wheat bellies come in as many shapes, colors, and sizes as there are humans. But millions of Americans have a wheat belly, and the underlying metabolic reasons for having one are all the same. Wheat contains a type of sugar called amylopectin A that raises blood sugar in an extravagant fashion. Eating just two slices of whole wheat bread, can raise blood sugar more than two tablespoons of pure sugar. This leads to the accumulation of visceral fat on the body, the deep fat encircling organs that is a hotbed of inflammatory activity. Inflammation, in turn, leads to hypertension, heart disease, cancer, and other conditions.

Wheat-consuming people are fatter than those who don't eat wheat. Why? Among the changes introduced into this plant is a re-engineered form of the gliadin protein unique to wheat. Gliadin has been increased in quantity and changed in structure, such that it serves as a powerful appetite stimulant. When you eat wheat, you want more wheat and in fact want more of everything else -- to the tune of 400 more calories per day. That's the equivalent of 41.7 pounds per year, an overwhelming potential weight gain that accumulates inexorably despite people's efforts to exercise longer and curtail other foods -- all the while blaming themselves for their lack of discipline and watching the scale climb higher and higher, and their bellies growing bigger and bigger.

All of which leads me to conclude that over-enthusiastic wheat consumption is not only one cause of obesity in this country, it is the leading cause of the obesity and diabetes crisis in the United States. It's a big part of the reason that reality shows like the Biggest Loser are never at a loss for contestants. It explains why modern athletes, like baseball players and golfers, are fatter than ever. Blame wheat when you are being crushed in your 2 x 2 airline seat by the 280-pound man occupying the seat next to yours.

Sure, sugary soft drinks and sedentary lifestyles add to the problem. But for the great majority of health conscious people who don't indulge in these obvious poor choices, the principal trigger for weight gain is wheat.

And wheat consumption is about more than just weight. There are also components of modern wheat that lead to diabetes, heart disease, neurologic impairment -- including dementia and incontinence -- and myriad skin conditions that range from acne to gangrene -- all buried in that innocent-looking bagel you had for breakfast.
Despite the potential downside of a diet so laden with wheat products, we continually bombarded with messages to eat more of this grain. The Department of Health and Human Services and the USDA, for instance, through their Dietary Guidelines for Americans, advocate a diet dominated by grains (the widest part of the Food Pyramid, the largest portion of the Food Plate).

The American Dietetic Association, American Diabetes Association, American Heart Association, along with the Grain Foods Foundation, the Whole Grains Council, and assorted other agriculture and food industry trade groups all agree: Everyone should eat more healthy whole grains. This includes our children, who are being told to do such things as replace fast food with grains. These agencies were originally sidetracked by the "cut your fat and cholesterol" movement, which led to a wholesale embrace of all things carbohydrate, but especially "healthy whole grains." Unwittingly, they were advising increased consumption of this two-foot tall creation of the geneticists, high-yield semi-dwarf wheat.

This message to eat more "healthy whole grains" has, I believe, crippled Americans, triggering a helpless cycle of satiety and hunger, stimulating appetite by 400 calories per day and substantially contributing to the epidemic of obesity and diabetes. And, oh yes, adding to the double-digit-per-year revenue growth of the diabetes drug industry, not to mention increased revenues for drugs for hypertension, cholesterol, and arthritis.

It is therefore my contention that eliminating all wheat from the diet is a good idea not just for people with gluten sensitivity; it's a smart decision for everybody. I have experience in my heart disease prevention practice, as well as my online program for heart disease prevention and reversal, with several thousand people who have done just that and the results are nothing short of astounding. Weight loss of 30, 50, even 70 pounds or more within the first six months; reversal of diabetes and pre-diabetic conditions; relief from edema, sinus congestion, and asthma; disappearance of acid reflux, irritable bowel syndrome symptoms; increased energy, happier mood, better sleep. People feel better, look better, eat fewer calories, feel less hungry, are able to discontinue use of many medications -- just by eliminating one food from their diet -- ironically a food that they've been told to eat more of.

It is imperative that we break our reliance on wheat. It will require nothing less than an overthrow of conventional nutritional dogma. There will be battles fought to preserve the status quo; the wheat industry and its supporters will scream, yell, and claw to maintain their position, much as the tobacco industry and its lobbyists fought to maintain their hold on consumers.
If the health benefits of a wheat-free diet sound hard to believe, why not conduct your own little experiment and see for yourself: simply eliminate all things made of wheat for four weeks -- no bread, bagels, pizza, pretzels, rolls, donuts, breakfast cereals, pancakes, waffles, pasta, noodles, or processed foods containing wheat (and do be careful to read labels, as food manufacturers love to slip a little wheat gliadin into your food every chance they get to stimulate your appetite).

That's a lot to cut out, true, but there's still plenty of real, nutrient-dense foods like vegetables, fruit, nuts, cheese and dairy products, meat, fish, soy foods, legumes, oils like olive oil, avocados, even dark chocolate that you can eat in their place. If after that 4-week period you discover new mental clarity, better sleep, relief from joint pain, happier intestines, and a looser waistband, you will have your answer.
By William Davis. Buy Wheat Belly on Amazon.com