Crude Observations

Three Things

Alright folks, I am back from Phoenix and seeing Elton John in concert (did I mention he says hi?) and I am ready to continue my epic run of avoiding talking about anything to do with COP27, because as you know, I find anything to so with international conferences supremely annoying. How annoy7ing? Annoying enough that I am at a loss as to what to write about I am so hot under the collar.


Actually, that’s not true at all. I’m not writing anything about COP27 because I find it boring and inconsequential and by and large meaningless. Oh sure, there will be a closing statement that will include a customary shakedown of rich countries by poor countries – which BTW is entirely within their rights and appropriate. Like why should we have all the fun and money? If rich countries are going to pollute the environment and consign the poors to decades of continued energy poverty, why shouldn’t we cut a cheque or two to assuage our guilt.


How do I know COP27 was a waste of time? Trudeau wasn’t there. That’s right, our intrepid prime minister skipped the friendly confines of Sharm-el Sheik in Egypt (complete with plastic trees) to slum it with the rest of the G20 and scuzzy old Bali, Indonesia where he was observed in costume with none other than Joe “Mid Term Marvel” Biden, in one of his last trips as the dad of a dude named Hunter who isn’t under investigation for liking hookers and blow (have I mentioned how much fun the next two years are going to be?).


One thing of note from COP27. As you recall, last week I published a quote from none other than Greta Thunberg whereby she shredded the COP27 leadership and conference as hypocritical greenwashers.


The UN and other leadership was so taken aback and mortified by these comments from the one-time darling of the green circuit that they did the only thing they could do to restore their honour – they tossed Greta overboard and found themselves a new youthful spokesperson to exploit, oops I mean spread their message to the unwashed fossil fuel addicted masses.


Allow me to introduce you to Sophia Kianni, or as I call her: Exploited Climate Hottie with a hot name.



Look, I’m sure that her concern for the environment is legit, as she spreads her message in across the world in places like COP27 (Egypt), Milan, Bermuda and others. But come on. We aren’t stupid. Well most of us aren’t. And the IPCC, UN leadership is so old man creepy that I find the pictures to be epically unsettling.


Sophia – get out of this madness while you can.


Alright. Enough of that.


It’s time for “Three Things” wherein I try to name three things that were top of mind (at least to me) this past week and try and make some sense of them. Or make fun of them.


Thing Number One – FTX


First off, what is FTX? Well, FTX is a crypto-exchange. Or a fraud. OK, it’s crypto-exchange. It’s basically a platform where customers can deposit assets (cash/crypto/whatever) and execute trades. It’s like your online brokerage account. You deposit money, you ask the internet to buy you 100 shares of CNRL (because why not) and you have an account with some change and 100 shares of CNRL in it.


Most exchanges operate on a pretty tight custodial basis, meaning that when you decide you want your assets back, you get them, others, not so much.


On the other hand, some apparently have no controls at all.


Like FTX.


FTX grew from nothing to a $32 billion exchange seemingly overnight as boy genius Sam Bankman-Fried parlayed his 2 years of actual work experience, devilish good looks (OK, I lied about that), family connections and robot brain into hundreds of millions of dollars of VC and other investment from some of the top players in the game including Sequoia, Thoma Bravo, Softbank, Lightspeed, Blackrock, Tom Brady, Steph Curry, Larry David and of course Canada’s very own Ontario Teachers’ Pension Fund.


Then he proceeded to burn it all to the ground, bankrupting himself and his customers along the way.


So, what the heck happened you might ask? Well, lots of things.


First off, that exchange I described above? Well, apparently the people in charge at FTX (Sam really) ended up using customer deposits to fund various ventures undertaken by a related company (Alameda Ventures) by “borrowing” those funds and issuing fake coins/tokens as security. And then, when the value of those coins was exposed as…  what’s the technical term… oh yeah, worthless, a whole bunch of customers asked for their money back. Some got it, but then a bunch more wanted theirs and, well you get it. We’ve all seen “It’s a Wonderful Life” – there wasn’t enough money for all the people and Sam soon found himself begging for cash from anyone who would listen, including his competitors. Everyone ultimately said no and that was it.


Too bad so sad.


Now there is a caretaker CEO in place who has to unwind this mess and he is discovering that not only did the company lend customer money between subsidiaries using fake collateral, they also had zero controls and back of the napkin record-keeping. They had no idea how much money they owed (liabilities) and no idea what they owned. Asset-Liability Management? Who needs that nonsense, right?


The whole thing was a massive chaotic mess of lack of diligence, governance and organization. The fun stuff got attention, the hard stuff was shelved and people played video games rather than working. A bunch of them lived communally in some house in the Bahamas, like a litter of kittens.


I have some experience with ADHD and I can attest that this is the most abject example of untreated ADHD run amok that I have ever seen. With real world consequences for actual people and their actual life savings. It is a jaw-dropping indictment of the easy money BS we have been living for the past 3 years. There is no way this happens so easily in a world where money isn’t free.


Aside from the management team and its issues, the lack of diligence and oversight on the part of the investor group is, to put it bluntly – shocking.


There is no way that they could not have known what was happening if they had bothered to look.


Amongst others, Ontario Teachers lost $95 million. They won’t see it again. Neither will retired teachers. And what does Teachers have to say for themselves? Nothing. The only indication we have that they know what happened is that FTX is scrubbed from their website as an investment. Just a blip. A small loss that their models account for in VC so no big deal. No culture change required here. I am gobsmacked, to quote Joe Biden.


So, was FTX a fraud? It has the markings of it. Loans to employees and key management, stripping of cash, lack of records, an arrested founder, lurid tales of creepy sex parties and tapes.


But I will reserve judgement until the dust settles. This could also be the result of massive incompetence, lack of investor oversight and a basic lack of understanding on how to run an actual business. A total cockup by everyone involved.


Sometimes even the best ideas need a grownup in the room. Or at least a senior executive or independent board of directors whose parents may have taken the time to teach them how to balance a chequebook. It can actually be that simple.


It is a very entertaining story to be sure, but us battle-hardened Alberta types just shrug and say “Yeah whatever, it’s not like anyone got tossed out of a helicopter or anything (yet). Have you never heard of Bre-X?”


What does it Mean:


It means that coming down the road is all the regulation that the crypto sector was hoping to avoid. Lots of money lost. Criminal charges. Nobody at the VCs will lose their jobs though, you win some, you lose some. Lather Rinse Repeat. And if you are into actual crypto-currency, seriously consider self-custody.


Thing Two – Wherewith Twitter?


There has been a lot of ink spilled, tears shed and opinions shared ever since Elon Musk took over Twitter last year. What? It’s only been three weeks? I could swear it was longer.


OK, three weeks.


And in that short time, Elon has completely discombobulated the entire twitter universe.


Some of his actions:


He started off firing half the staff, then rehired a bunch. Then he sent the infamous “hard-core; f or fight” email and subsequently lost close to half of the half that’s left, leaving him with, at current estimates, 25-30% of the staff he started with.


He sent a tweet mocking the attack on Nancy Pelosi’s husband, losing a bunch of advertisers.


He abandoned the blue check verification, then tried to monetize it by charging $8 a month for an unverified version, then introduced a grey check which signifies “official” media outlets (not sure what that costs). An upshot of this is a host of users tweeting under fake accounts that were previously verified including, famously, the Eli Lilly post that cost the company $20 billion in market cap and Twitter ALL of the Eli Lilly’s advertising. Well at least Elon got $8.


In addition to all of this, Elon continues to be remarkably thin-skinned and unpredictable. He locked all the Twitter buildings and deactivated key cards – locking himself out in the process funnily enough.


It’s chaos and pandemonium. People think Twitter is going to imminently shut down.


Calm down I say. Twitter isn’t going anywhere. But it is going to change.


To figure this out, rewind the tape.


Elon bought this beast for $44 billion, probably about $22 billion more than it was worth.


He financed the F out of his purchase with a grab bag of secured and unsecured floating and fixed interest rate loans and a shwack of personal equity as well as some wheelbarrows of other people’s money.


Since arranging his financing, interest rates have risen significantly such that it can be estimated (someone else did this work, I trust his math) that his annual interest costs exceed $1.5 billion, never mind any principal payments. $1.5 billion is perilously close to Twitter’s gross margin, never mind it’s EBIT which, in F2021, was a measly $270 million.


Put another way, they don’t generate enough cash to pay the deal’s interest costs and their operating expenses. Twitter, and Elon, are up shit’s creek unless they fix the business model to generate more cash flow. And fast.


That is 100% what this is all about.


Elon’s not trying to destroy Twitter for spite and vapourize $44 billion. He’s not dumb, he’s greedy as F and … IT’S NOT ALL HIS MONEY! Imagine for a second you are Elon and you lose $2 billion of Saudi money for shits and giggles. That isn’t going to end well. He also has other investors. None of them want to be “FTX’d”.


And they ain’t gonna do it through advertising. They are going to do it through addicted users. Twitter has some 200 million monetizable users. At $8 a month, Elon needs 15 million of these to sign up to cover his interest costs. My money is on Elon and not the gullible user group.


A common tongue in cheek comment on Twitter is “I can’t believe this site is free”. Those days are over.


At the end of the day, Elon needs to make Twitter into a subscription model business in order to afford to pay his loans and he is using all this pandemonium to condition us to accept it. And we will.


What does it mean?


We are ultimately going to have to pay for Twitter to finance Elon’s reckless valuation.


In the meantime, watch the clip below, it’s from one of my favourite comedians, originally about Trump, but it surely applies here.


Epically funny skit.


Thing Three – My Life as a Mule


It finally happened, just like you all thought it would. I am officially a drug mule and it happened so easily it makes me wonder why I never did it before.


Like all good mules, I started small. No need to go to the hard stuff – no condoms full of heroin shoved up my …. You know what. No statues filled with cocaine in my carry-on and no Oxy-contin or fentanyl pills stashed in a secret compartment in my suitcase. Nope, I discretely picked up my product from a local dealer and casually loaded it into my and my kids’ backpacks. Bringing those contraband products across the US border was as easy as buying beer as a 12 year old growing up in Montreal.


How’s that for El Chapo of the North?


I guess we should rewind a bit. Because there is a story as to how we got into this mess.


A couple of weeks ago, my oldest had a cold so I went to the friendly pharmacy to pick up some cold medicine and noticed that, as has been the case since the beginning of the pandemic the shelves where you would normally see liquid cold medicine were surprisingly bare. Unfussed, I grabbed some Nyquil (no one ever buys that in bulk apparently) and some Tylenol Cold pills (lots of those) and left.


A short time later, I started reading all the articles bemoaning the acute shortage of Tylenol and other cold and flu medicine for children, specifically babies and infants, and how that was believed to have contributed to rising hospital and ER visits by children exacerbating the current flu/RSV/COVID crisis. Shocking I know that one of the richest countries in the world should find itself on the short end of the medicine stick, but I assumed that this, like EVERYTHING ELSE, was the result of supply chain disruptions. But then I read that in the United States (and other countries) this was in fact not the case and that shelves were literally over-flowing with product.


Then I started hearing about friends with sick kids and no fever medication so I decided to take matters into my own hands, so off to the States I went (alright, I was going anyway, but I’m still like Robin Hood).


Once I arrived in the US, I set about trying to source myself a dealer who would be able to meet the needs of the various and sundry “clients” I had in the North country.


The local Safeway seemed a good stop, but they were restocking shelves when I got there, so I ended up stalking the back aisles at a suspiciously named place called “Walgreens” and secured for myself a mix of child and infant fever medication, branded and non-branded, cherry, grape and dye-free. This I figured would net me a pretty penny when I retailed them to all and sundry.


While I was paying the dealer, I joked that he had probably never seen anyone buy this much product and he simply replied: “I don’t ask questions, I barely notice anymore.”


Undeterred by his lack of interest in my skullduggery, I said to him that there is a shortage of this type pf product in Canada.


“I don’t believe any of that stuff. It’s just Joe Biden manipulating the media and making excuses for inflation.” He answered (did I mention I was in Arizona).


After this interaction, prudence dictated that I make a quick exit so I went back to my waiting family and distributed my bounty amongst the backpacks.


The next few hours would prove to be most nerve-wracking of my entire experience – airport security, customs, drug-sniffing dogs… I was beginning to sweat.


First stop was the airport. As we confidently strode through the short TSA pre-check line, bypassing the masses, I quietly prayed that my kids wouldn’t spend too much time in the slammer when their contraband was discovered.


Sure enough, as our bags passed through the X-Ray, one of them was flagged. Crap. Oh no, double crap, it was mine – the one with the name brand stuff…


As I watched the TSA agent open my bag, I admit I panicked a little. He pulled the ziplock bag containing my liquid gold out of my pack, looked me suspiciously in the eye, verified that the packages were unopened and then… put the bottles back in my pack, zipped it up, handed it to me and said “have a nice flight to Canada”. I could swear he winked.


Breathing a huge sigh of relief I left my co-conspirator behind and joined my impatiently waiting family.


“Dude.” Said my oldest.


After a mostly uneventful flight, we landed back in Calgary close to midnight. Time for the last test – the jack-booted thugs of Canada Customs. This was going to be the key moment in the whole journey.


After skipping yet another line and fruitlessly wrestling with a malfunctioning Nexus machine, we were flagged to go to the dreaded “booth 12”.


“Passports” said the imposing man behind the glass.


Shaking, I handed them over.


“Anything to declare?”


What to say? Do I admit that I am carrying all this hard-core medication and face the consequences? Do I keep quiet and hope I don’t get caught? Do I run? Aack!


“A Christmas ornament and about $100 worth of Tylenol fever medication” says my wife.


Oh. My. God.


That’s it.


We’re done for. I hope Roger Baker is awake this late, I’m gonna need a lawyer.


“Hmm, we’ve been seeing lots of that. Most people are bringing back about 6 months worth. Have a nice night.”


Shocked, we wandered away. Six months worth? Who buys that much? I felt like such a rookie.


Oh well, at least I can sell my stash at a big markup, right? Nope says my wife. We are giving it away.


What it Means


It means we continue to fail as a country. We are addicted to mediocrity. In what universe does anyone in government think it’s OK to not have access to medication FOR BABIES and not do anything about it to such an extent that bringing back months of supply while on trips to the United States is so normalized that the border guards just shrug and say have a nice night.


I hear part of the problem is that supply isn’t being let in because the labels aren’t bilingual. Look, I’m bilingual, I grew up in Quebec, I love French and the distinct society and all that. But F off. Really.


Stop being mediocre. Aspire. And if your government can’t get the little things right, what makes you think they will get the big things even remotely close. And if they can’t get it right, ad don’t seem to actually care, they need to go. Even if the alternative is that weird and nerdy guy who had a brief case in high school. It’s that simple.


It also means I have some fever medication if anyone needs it.


And with FTX and Twitter, chances are lots of us do.

Crude Observations
Sign up for the Stormont take on the latest industry news »

Recent Posts