Riley: China, Trump, and the Grey Rhino
Tuesday, July 25, 2017
The term was popularized by a former colleague Nassim Taleb, author of Fooled by Randomness (2001) and the Black Swan (2007), and is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.
The term is based on an ancient saying which presumed black swans did not exist, but the saying was rewritten after Black Swans were discovered in the wild.
Gray Rhinos or Black Swan
A New York Times article on Sunday echoed and expanded my previously stated concern about a mysterious borrowing binge and abducted or missing CEOs in China.
My concern was first aroused with the mysterious disappearance of Wu Xiaohui Chairman of Anbang Insurance. The chairman of Anbang is one of several influential chairmen rapidly expanding debt to buy American assets. Anbang Insurance Group, Fosun International, HNA Group and Dalian Wanda Group have all recently been involved in highly unusual transactions.
Fosun has suddenly begun liquidating its portfolio and unusual transactions are occurring at Dalian Wanda Group.
These leveraged companies are among the largest in China and have been often mentioned with ties to the Trump administration. Kushner with Anbang ties and HNA is in the last stages of acquiring Anthony Scaramucci owned Hedge Fund Sky Bridge Capital. Mr. Scaramucci, in a telephone interview reported in May of 2017, disputed any suggestion that HNA was trying to curry favor with the Trump administration. “I’m very glad to have sold my business to them. They’re world-class,” he said. “And if I were to serve in government, I’d sign a full recusal, so I wouldn’t be dealing with them.” and is being reviewed.
Now Mr. Scaramucci is actually in the Trump Administration and Treasury Secretary Steve Mnuchin must approve the sale of Sky Bridge to HNA as part of the Committee on Foreign Investment in the US. Pursuant to section 721 of the Defense Production Act of 1950, the Treasury must review any transactions that would result in control of a US business by a foreign person. Mnuchin will have to sign off on this deal, and it has never been clear who owns HNA. See image in article from NYT.
Whatever is going on in China, with large Company CEOs suddenly disappearing or being arrested and with those same entities having ties to the Trump administration, is scary. It appears that someone behind the scenes in China is very worried about leverage at some very aggressive companies known as Gray Rhinos. That alone is enough for me to recommend taking some money out of the market until this story clears up. Retirement money should be well protected.
Related Slideshow: Timeline - Rhode Island Pension Reform
GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform.
Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:
1. An established minimum retirment age of 59 for all state and municipal employees.
2. Elimination of cost-of-living increases.
3. Conversion of new hires into a 401(k) style plan.
See WPRI's coverage of Carcieri's proposal here.
Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.
"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo
Check out Wall Street Journal's coverage here.
Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot.
Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.
Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.
Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.
"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)
Read GoLocalProv's analysis of the report here.
Read the Truth in Numbers report here.
Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.
“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee
Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.
“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)
Read more from the firefighters' battle with Raimondo here.
Check out the New York Times' take on RI's pension crisis here.
November 17, 2011
The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.
Read more from GoLocalProv here.
November 18, 2011
Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.
Read about how Rhode Islanders react to RIRSA here.
Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms. The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.
Read about the pension workshop here.
Read Raimondo's feature in Institutional Investor here.
March - April 2012
Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.
December 5, 2012
Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package. In response, Chafee issues a statement supporting the negotiations.
Read more about Raimondo's opposition here.
Read about Chafee's statement http://www.golocalprov.com/news/new-chafee-issues-statement-supporting-pension-negotiations/">here.
Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.
Read about Raimondo's discussion of distressed municipalities here.
The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.
"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)
Read GoLocalProv's coverage of the State Pension Fund's losses here.
Read Ted Seidle's criticism of Raimondo in Forbes.
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