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Private Placement Risk Commentary

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Punch Bowls, Parties, and Perdition (November 2021)

"While few think about it, the prices we pay for goods and services are a reflection of the overall currency levels. When those currency levels are inflated, a natural outcome is that the prices of goods and services similarly increase. The key from a risk perspective, is not only accurately assessing the current situation and the underlying drivers, but also analyzing the likely persistence, and developing a cogent response..."

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Housing Prices, Tulip Mania, and Taming the Mortgage Monster (November 2021)

"Housing occupies a unique place on the financial spectrum; on the one hand, it is a massive store of wealth for most families, and on the other hand, it has been at the heart of the two recent major financial crises (i.e., the late 1980s and early 1990s Savings and Loan Crisis and the 2008 Credit Crisis) and a supporting role in most other financial crises. This installment attempts to shed some light on the symptoms for identifying crises hopefully well before most of the market does..."

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The Conestoga Conundrum and the New Killer (October 2021)

"With the successful launch of Bitcoin ETFs comes an underappreciated threat to the current financial system. As of 200 years ago, THE premier way for transporting people and goods from the East coast to the Midwest was via the Conestoga wagon, a well-built, well-regarded, tested staple for the arduous trip. The wagon was considered to be the only choice for those attempting the journey and as a result, many thousands were built..."

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A Rapidly Developing Crisis (October 2021)

"The Markets can provide a cruel retort to the best intentions and best laid plans, again reminding us of the limits of our power. With a focus on the ills of global warming, there was general consensus that we should move away from fossil fuels in favor of more sustainable sources of power. Respond we did, with major institutions jettisoning their energy holdings, banks refusing to lend, and governments restricting permits for the development of additional carbon-based resources..."

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China: A Significant Sea Change (October 2021)

"Deteriorating conditions in China are likely to have broad implications. Problems: We have been watching events unfold in China and have become increasingly concerned. The most recent installments have been failure by another developer, Fantasia Holdings Group Co., to repay a $205.7 million bond which has reignited fears of widespread defaults among Chinese developers..."

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Tyranny of TINA and China: A Sea Change (September 2021)

"TINA is an abbreviation of “There is No Alternative”, meaning that despite the distortions caused by the Quantitative Easing (QE) of central banks, institutional investors are basically forced to bend their investment guidelines in an attempt to achieve reasonable returns..."

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Elephants in the Room, Rabbits in the Hat, & Thinking the Unthinkable (September 2021)

"With the rise in inflation, the natural course is to expect a rise in overall interest rates. However, with an increase in sovereign debt over the past decade, an increase in rates in some cases is not just painful, but unbearable..."

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Broken Dreams (August 2021)

"Western countries pride themselves as having a superior way of life and believe over time, others will understand and accept that it is in their interest to join the developed world to share in the prosperity. There have been many manifestations of this notion (hubris is probably more fitting) and most of them have not ended well..."

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Culture Wars and The New Asia (August 2021)

"For those individuals who grew up during the Great Depression (i.e., many of our parents or grandparents), the underlying assumption in many actions was one of self-sufficiency. If one could not afford something, one did not buy it. Debt other than a manageable mortgage on one’s home was to be avoided and living within one’s means was imperative..."

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Human Hubris & the Wall of Worry (August 2021)

"Despite the apparent success of the economic recovery since the emergence of COVID19, some skepticism is probably in order. Courtesy of the 2008 credit crisis, the developed countries’ central banks have been granted immense power to intervene in the markets and intervene they have..."

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Massive Disconnect (July 2021)

"All around us are indications of rising inflation: labor shortages, material price increases, and delayed product deliveries. A tangible indication is the housing market, which has seen steady price increases across the board. Regarding overall inflationary expectations, the Federal Reserve Bank of St. Louis via its FRED service provides a summary of inflation expectations..."

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Structural Changes (June 2021)

"The maxim regarding a frog’s not recognizing the danger from the slow heating of water (until the frog is cooked) has broader applicability. Conditions are changing but it is difficult to recognize that change and probably even more difficult to react and benefit from the changes. For better or worse, the markets are driven now by forces not experienced other than to a far lesser extent, during global wars..."

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Changing Assumptions (May 2021)

"There is little that has not changed over the past 90 days such that many market participants are only beginning to grasp the breadth and depth of the changes. On an optimistic note, it appears the brunt of the recent COVID19 infections are behind us (at least domestically) and that most of the economy is beginning to open-up... "

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Inflection Point (April 2021)

"The market is on the verge of a major inflection point; the uncertainty is which way is it heading. Over the past few weeks, the equity market has been fairly volatile despite no real change in the macro fundamental outlook. The U.S. Fed has remained dovish, and the US stimulus was released as planned..."

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War Stories Series: “All about Timing” (March 2021)

"The markets have been and remain volatile such that opportunities arose for locking in a competitive funding rate. HBS-trained Denise Peters (name changed to protect the innocent), CFO, Treasurer, and manager of the firm’s bottom line, had wanted to raise a slug of capital to replace some high-priced, covenant heavy debt which was a constant headache for her over-worked (and under-paid) treasury department...."

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ESG Highlights

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Climate Change/ ESG Scores

"Corporations exist in the broader context of a society and like other citizens of a society are expected to act in a responsible manner to hopefully benefit both the corporate entity and society. Unfortunately, sometimes this relationship breaks down such that the corporation appears to benefit while society losses..."

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A Solution to Investing in an ESG-Centric World

"Environmental, Social and Governance, or ESG, used to be a niche investment strategy – but no more. Investor demand for ESG-related products has proliferated and forced all financial firms, whether investors or issuers, to focus on how they can address the changing requirements imposed on them..."

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Methodology and Proxy Voting Requirements for ESG Investors

"For institutional investors with an ESG focus, it is increasingly obvious that (i) a cogent approach to ESG is needed (with a documented methodology and supporting materials) along with (ii) proxy voting supporting that approach (See “SEC Announces Enforcement Task Force Focused on Climate and ESG Issues”)..."

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Proxy Commentary

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Proxy Voting - A New Direction

"BlackRock’s giving index fund holders the ability to vote shares as they see fit is a massive change – for the better. Larry Fink did not become the CEO of the world’s largest asset manager without exercising some intelligence. His recent move to allow holders of Index funds to votes shares represents a significant shift in the traditional way of conducting business, and one which was inevitable given the prevalence of indexation, and the high concentration within the index industry. Per the Wall Street Journal..."

Proxy Voting - A New Direction Proxy Voting - A New Direction
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Regulators Begin to Tip their Hand with New Concerns for Registered Investment Advisers

"As administrations have changed, so has their outlook on proxy voting and the associated rules and regulations. Many of the proposed rules from last year are now suspended and may never be implemented – at least in their current form. On the other hand, issues like ESG and the actual voting of proxies have become much more of a front-burner issue..."

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Why So Many Institutional Investors Outsource Proxy Voting

"If you are an institutional investor, you have probably thought about it, indeed there is a very good chance you are already outsourcing proxy voting. Either way it’s worth looking at the cost and benefits of why outsourcing makes so much sense for this key compliance issue as well as how much you should expect to pay and how much time you can save by doing it..."

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Why Paid Proxy Firm Consulting with Issuers is a Very Bad Thing

"You have heard it for years, certain proxy firms, except for Egan-Jones, have an unforgivable conflict of interest: they get paid to consult with the very firms they rate and recommend votes on. Sometimes called “pay for pay” instead of “pay to play,” many have assumed that this issue is well controlled—why else would it be allowed to persist if it were really a problem? Let us explain, in our expert opinion why we believe it to be a very big problem..."

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CEO Compensation was a Joke Before Covid-19, Now It is Just Obnoxious

"In an era of sacrifice, risk, and despair for many employees, one group of employees has yet again defied the norm, often with significant increases in actual compensation and wealth during the COVID-19 pandemic and resulting economic and societal turmoil. Who are these lucky ducks— top executives and most especially CEOs at America’s big public companies..."

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Tesla's Elon Musk - Yet another Example of why to Play Nice with Investors

"With the price of oil on the rise, major auto companies like Ford essentially dropping out of the auto market you would think that the world would be Tesla’s [TSLA] oyster. Despite all these opportunities to begin the hard work of making the short sellers pay and pay dearly Elon Musk apparently decided to do the opposite and give them more ammunition by refusing to answer some analyst questions..."

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