Corporate Fraud in Very Hot Stocks!!! It Has Happened Before & Will Happen Again. Enron 20 Years BK

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good morning good afternoon good evening

folks michael zuber one rental at a time

back with this thursday guest friend and

expert jonathan tumley how you doing sir

i’m great michael how are you well

i don’t know

today is 20 years

20 years ago today

is a painful reminder

20 years ago today a company called

enron went bankrupt

this is particularly damaging to me

because it was the first of two

corporate frauds

that burn me and help me lose 80 of my

portfolio in a very short time so

i don’t remember that finally but i do

remember being an idiot

what i remember about enron was they

were the smartest people in the room

they couldn’t do any wrong we had

rolling blackouts in california they

were trading energy and doing all these

things and they were they can’t lose

company

this is why i have a really nasty

aversion

to companies that come out

cocky like they are the best they got

like we got the most phds or the most

rocket scientists or this that or the

other thing the people that put out that

aura

i run from because of this so i i don’t

think you were an enron investor at

least i hope you weren’t because it was

painful but i know you know that time 20

years ago today

enron uh showed that yeah you know what

you can have fraud in a

uh a company that was audited by arthur

anderson i think

um

one of the big five which is now the big

three because bad things happened it

took officer anderson down yeah

single-handedly yeah because they had

audited books and uh again i was an

investor significant portion of my net

worth in it

was winning and then not and it was a

fraud was it a fraud and there’s nothing

i could have done and again i’m freely

i’m willing to admit that i’d stop doing

the work by then but even if i had

their financials were audited they had

signed sealed and delivered and it was

complete smoke and mirrors

burn people yeah i mean i’m sure that i

was exposed to enron through mutual

funds and stuff that i

owned because they were everybody was

investing in enron you had to have a

piece they were they were doing so well

and

you know when this when the the whole

thing blew up it turned out that you

know they were they were making

themselves look good by parking all

their losses and shell companies that

were off the books off the books yes

i mean which never like i have never

actually understood how

you

like you can have anything off the books

right and have it certified i mean i get

it right exactly

like you’re a criminal you have two

books right once you got there

i get it but not a public just two sets

of books but like you know but also but

i i think if i remember the story

correctly though

that

the off-the-book stuff was not illegal

right it wasn’t like oh not at the time

it wasn’t it wasn’t like it wasn’t known

about it was just like well because it’s

this certain thing

you don’t have to have it on your books

right so what they were doing was

actually

like they created a fraud but the

accounting the way that they did the

accounting worked right the account it

was it was

it was okay to have like this is what

happened like

they it was okay to have certain things

off your books right

but the stuff that they put off the

books was stuff that they weren’t

allowed to put off the books right so

they they hid it in these otherwise

legitimate vehicles

right so that

and but the existence of the vehicles

themselves was legal right

which is which is what i don’t

understand like how that could be like

it should all like well clearly it

wasn’t because people went

got convicted uh arthur anderson went

bye-bye

yeah it was it was bad but again the

other thing i remember as this uncovered

is

it was rotten from top to bottom right

there were traders

now you got audio reports or emails or

whatever it was talking about hey we’re

going to cause a blackout in california

watch this you know they push a button

um

i want to relate this to our previous

conversation because the reason that

they got away with it as long as they

did was because the stock market was

cranking right and

nobody looks under the hood when things

are going well right but when things go

badly

like nobody looked under the hood of

what bernie madoff was doing oh exactly

things went badly right yeah and it goes

out oh look at that and

this this is and it gets really easy to

commit fraud

when in an environment where

everyone’s making money

and you know nobody has an incentive to

upset the apple cart because it’s all

good yeah right and so and nobody and

the people who get in and get out are

fine like there were a lot of people

that made a lot of money with bernie

manoff oh it was the people who came in

late or reinvested their profits with

him that lost but the people who were

got in early on the pyramid scheme

right they did really well yeah right so

and

the the thing is like when you talk

about arrogance too the arrogance of

enron the smartest guys in the room i

mean there was another going back a

little bit earlier back into the late

90s you had long-term capital amounts

same right and it was icky feeling yeah

it was the same it was the same thing it

was the we can’t lose

because we have perfectly hedged

everything we have algorithms that

we are smarter than everyone we’re

smarter than the market we we have

algorithms that are gonna

no matter what happens we’re covered and

all we can do is make money and be and

we’re like super smart mit quant guys

and trust us right and no one has ever

done this before yeah i remember until

the market

found the week you know like not the

achilles someone was looking for the

market but the right combination of

things happened where it all

everything that was supposed to be

perfectly hedged all went in the same

direction in that direction was bad yeah

and they they nearly tanked the entire

financial system yeah right they had to

be bailed out so

it that arrogance is always something

to watch out for when you’re investing

whether it’s and you’re not going to

know where it is i guarantee i can’t

guarantee anything but there we are in

that kind of market today where it

wouldn’t shock me in the next recession

or as warren buffett says tide going out

that there is another one or two

complete frauds buried in this soup

somewhere oh i’m certain of it i mean

and i

we’re gonna have accounting scandals i

mean look companies are up to their

years in debt right they’ve been they’ve

been with cheap debt they’ve been taking

on

tons and tons and tons of debt over the

last 10 years and

that’s just not a good

thing right and we’re we’re going to see

some nasty stuff when the tide does go

out i also think like

you know in unregulated markets like

crypto and stuff like that there i mean

we already know that there are there are

frauds there they just don’t get much

attention but there have been several

coins coins i can’t see they weren’t

even coins they just people invested

ideas

this thing that they were told is the

next bitcoin and it was a fraud from the

get-go like it wasn’t even it wasn’t

even like like madoff started out good

and it went bad right you know enron

probably started out fine it went bad

along the way some of these things were

just like from the very start they just

some of these these coins and the thing

that made that amazes me is i literally

see crypto guys going like oh yeah that

one was a fraud but i only had a little

bit invested in so it really doesn’t

matter like that’s that’s just part of

you you’re talking yourself yeah it’s

part part of the game that this was a

fraud and and like because my other

coins are doing well

look some of those coins may be fraud

they just are working it they’re still

working yeah they’re on the up they’re

on the upside right like and then and

you know and some of them are just just

gonna tank right so it’s just

beware again you know we’re sort of

repeating the theme but just be do the

work

do the work be aware of arrogance don’t

follow the crowd don’t just take

people’s word for it right you got to

look under the hood

and

you got to work with people that you

trust and you shouldn’t trust them

because they sound so confident you

should trust them because

because

they’ve done the work they’re willing to

answer tough questions from you

right they’ve thought about the bad the

downside yeah you know they don’t have a

glib answer

to what happens in this scenario oh it’s

not going to happen right like like that

and i’ve seen people answer questions

that way oh it’s just it’s not going to

happen yeah it would happen to us we’re

different yeah um

you know don’t worry about it right

because of x y and z oh there’s a

housing shortage therefore the price of

housing could never go down

right i mean it’s it’s

those should be red flags for you when

you’re dealing with people the humility

the

being able to admit that maybe they’re

wrong maybe they’re not going to get it

right but they’re they’ve tried to

protect against

the downside uh you know those are the

kinds of people that you need to be

working with not the ones who are not

the ones who are just going to pump you

up with rah-rah it’s great and

you know jonathan do you think it’s fair

to say that sometime in the next decade

or so we’ll have another recession

yes yeah absolutely yeah the business

the business cycle is real folks there

is going to be the tide comes in and

right now the tsunami is very big so in

my experience when it gets this nutty

the retreat is going to be something to

see

i mean i do think that we had you know

we lived through this very interesting

time over the last couple of years where

there’s there’s some evidence that a

recession was starting in 19 yeah just

before covert hit right and

like early january 2020 right and so

and then kovid just sort of overwhelmed

the whole thing of course we had the

massive covert recession but like it

didn’t it was a recession but it didn’t

feel like a recession because it was

just the government shutting everything

down and like what does that mean we

haven’t dealt with this before and then

all the money flooded into the system

and then the markets went wild again and

so all

coveted in the government responses to

kobe just masked everything right and i

think the bill is coming due yeah i do

too and i and it’s you know we never

got to have like

the air let out of the balloon a little

bit so that it doesn’t pop we just blew

up the balloon even more and you could

even say going back to the great

recession too we kind of did the same

thing like we the great recession was

supposed to like fix all the problems

watch the system right and it didn’t it

just all we did was pump it back up

again without without addressing the

fundamental issues so now we’ve got kind

of like a bubble

blown on top of a bubble that was blown

on top of a bubble and it’s just

it’s

it’s a frightening situation you got to

be thinking about the downside i mean

i’m always i’m

i mean i’ve always been that kind of

person like when things are too good it

just makes me anxious it makes me

anxious yeah people think i’m an idiot

they’re like you’re missing out on an

opportunity and like that’s fine i sleep

at night i was gonna say yeah there’s a

lot of people today especially the last

week where their investments are

suddenly keeping them awake

folks that isn’t that is your internal

clock telling you that you might be too

too leveraged and i know the last year

you stop like a baby because everybody

wins when it goes up

last week’s been a reminder and i think

today’s an update so you know today this

will come out people will be like ah you

guys you guys are old you’re crazy you

didn’t buy the dip you shut up

it’s okay it’s all right i’ll i’ll i’ll

i’ll wait and buy things for pennies on

the dollar yeah i mean i think you know

the dips by the dip right so

the dip the i’ve seen the meme right

yeah yeah which dip are you so jonathan

this has been a great conversation thank

you for letting me relive a painful but

memorable part of my life i still carry

the baggage today it’s why i run from

ceos that are cocky i just

run from that i just hate that it just

grades on me so jonathan how can people

find you and be part of your world

because you’re doing some amazing stuff

well uh come join our free facebook

group uh called the multi-family

investment community we’ve got about 12

000 people in there

and uh just you know answering questions

just

helping folks out helping each other out

uh that just like i said search for it

on facebook multi-family investment

community and the other way is just

google my company two bridges asset

management and uh join my investor list

if you’re so inclined

folks again if you’re an accredited

investor do yourself a favor right now

go to two bridges asset management and

uh register just to see what a a good

proposal looks like for some of the

nonsense i see come across my emails so

again go fill it out if you’re

interested go for it if not just see

what just see what a good proposal looks

like yeah and i’ll just be clear we’re

not actively not working

i mean we just did we just did a capital

raise which is now done uh so we don’t

have anything right now so you won’t see

anything but join the list and when it

comes it comes on the next deal you’ll

see what you mean you’re not doing deals

just to get the fees jonathan

stop it

why are you doing that

take care of yourself man thanks thanks

 

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