The Year is 2006. Online poker is thriving. Partypoker has the highest traffic of any poker site but Pokerstars are gaining new players quickly with aggressive marketing strategies. Lots of poker sites are investing heavily into marketing and one key place to channel their advertising budget is TV. New innovations, improved graphics and increasing funding meant that poker TV is at an all-time peak of popularity. 40% of the the 2006 WSOP Main Event’s attendance is from online sites and poker sites are offering large amounts of cash for players on TV to wear an advertising patch. According to Dan Goldman’s blog, Pokerstars spent over $730,000 on WSOP players’ gift bags. The WSOP is seeing more TV time and this year the $50k HORSE event is added to the TV schedule alongside the WSOP main event. This year’s $50k WSOP HORSE final table saw some huge names including Chip Reese, Phil Ivey, Patrik Antonius and Doyle Brunson.
The Path of a New Player
In Finland, Mikael Paisting is watching the 2006 WSOP on TV. He enjoys watching poker broadcasts and is fascinated by the game. It’s a very common story for players to catch an interest by watching poker TV and sign up with to one of the many poker sites available. He chooses to deposit on Partypoker. Mikael is a committed learner and player. He reads several poker books from well-known authors such as Dan Harrington and David Sklansky. He also watches many training videos. Like many players starting in online poker he begins at the microstakes cash tables. Microstakes are a rite of passage for many online poker players. The limits range from 2nl to 10nl, so the standard buy in is $2-10. Some will play microstakes for weeks, months or even years improving their game and increasing their bankroll so they can move up to small stakes, 25nl and above. Some players see the microstakes as a job and play as many tables as they can to eke out a living wage. Some players have never played microstakes and skip it entirely for higher stakes. Mikael starts to play and doesn’t do well, this is normal for many beginners, even those who study. However, over the next few weeks Mikael continues to lose. Months go by and Mikael still hasn’t turned a profit. He discovers problems with tilt and often takes his frustration out in the chat box. An example of his rage:
Paisting:THAT IS NOT NORMAL OMG!! JUST UNBELIEVABLE
Mikael doesn’t play 10nl very often and spends the majority of him time playing 2nl and 5nl. He continues to multitable cash games on Partypoker but he just can’t win. He starts to lose big, thousands of dollars, mostly at 2nl which is known as the softest cash game on the internet.
Getting Noticed
Mikael continues to play long sessions over the next five years, he claims to play 5-7 days a week for 4-8 hours a day. By 2011 he had played 2 and a half million hands while playing 6 to 9 cash tables at one time. Mikael is still mostly playing 2nl and is down a colossal amount: $7000. Mikael has been suffering from major tilt problems and has a very wild and noticeable style of playing microstakes. He starts to get noticed on 2+2, a very popular poker forum. A player posts a link to his PTR graph, a site which tracks online cash games. They are shocked at his losses over so many hands:
yegor: wow such a massive fail he played 2.5m hands at 2nl and 5nl and he's losing Donkey111: I remember him from my 2NL days. often goes on some massive tilt sessions and spews like 20 BI in 500 hands by shoving any 2 cards preflop.
He even gets hate from his PTR account where he is ridiculed on his profile comments, he also replies:
VELAir26: Spend your time with family, friends or other hobbies instead Paisting: im fine with this you stupid idiot
Mikael continues to play his reckless and tilting style over the years. By 2014, he has been playing for 8 years and is down five figures at microstakes; he starts to look for excuses for how much he has lost. He posts a thread on 2+2 detailing how he feels that he wins at the start of the month and then inevitably starts to lose. He asks how he can take legal action against Partypoker. His fellow posters tease him:
5thStreethog: Did the thought ever cross your mind that it might be possible that the reason you cant beat NL2 in over a million hands might be because you arent very good at poker?
An Attempt at Redemption
2019 comes and MikaelPaisting has been playing microstakes for 13 years, and steadily losing a lot of money. He got a new computer in late 2018 and has been grinding away on it. Mikael is getting mentioned more on 2+2 and he is well known on the tables of Partypoker as he drops stack after stack. Many players on Partypoker furiously try to get on his tables to call his tilt shoves; when Mikael is present other player’s stacks can get as high as $100 at 2nl as he shoves buy in after buy in to button steals. Some were said to be using seating scripts to instantly be placed on a table with Paisting. At this point he is feeling very low. But despite years of losing money and insane tilting he is determined to improve. Mikael is aware of his losses and has a fierce desire to make back the money he has lost since he’s started tracking on his new PC. He decides get help and he looks to 2+2, the very same forum that had mocked him over the last decade. He logs in as Paisting, his last name. He starts a new thread, types out a post and chooses a title: 'Biggest loser in online poker history wants to grind $16k'. He posts this thread in the sub-forum Poker Goals & Challenges, a place where players post their goals and try to update their thread with their progress. He posts graphs of his losses from his database on his PC. He starts the thread by posting some shocking graphs of $8700 lost at 2nl, $6000 lost at 5nl and $800 lost at 10nl. At 2nl he had an incredible rate of -170BB each 100 hands. The final graph of his microstakes losses posted show $15,000 lost over 365,000 hands. An average loss of $75 a day. The 2+2 poker community are stunned by the graphs:
HorseofHell: I'm actually shocked it's possible to lose this much at 2nl Mahsjdj: This can't be real can it?
Mikael posts about the hard work he’s put into poker and mentions that has watched videos, read many instructional books and is honest with his astounding losses:
Paisting: I've lost literally all my money including all my life savings to online poker. I want to try one last time to win those money back and little bit of extra. That's why $16k. What I need is support and guiding.
The community react to his plan to grind all the money back at microstakes:
Fodersneso: This is really disturbing. Why on earth would you try to grind this all back? Losing at this rate is traumatizing. You're going to grind out 3000 BIs @nl5 now or what's the plan? Really curious how you think you can turn this pile of insanity around...
The community show disbelief and doubt that his story is real but several posters claim that what he says is true. He has been active in Finnish forums for more than 10 years and players starts to share hand histories and stories about his playstyle. He posts about his regret of picking the game up:
Paisting: Never had a winning week in 13 years. If it were possible to go back ten years I would say to myself "Do not never play single one hand!"
He then goes on to tell 2+2 posters a disturbing source of his funds for his staggering 2nl losses:
Paisting: I've taken huge amount of fast loans.
He sheds a little light into his personal life:
Paisting: My age and relationships has nothing to do with this. But not working, no kids or wife and middle aged. What I have is time to play. I get a little unemployment benefit that goes straight to the rent. My eating costs are very little because I'm only eating one meal per day. There are times when I must take more fast loans if need of clothes, unexpected bills, sickness etc. That's why getting back those $16k is so important to me. No disability, never played anything else than poker or lottery when pots are bigger, maybe 5 times in year. Playing poker does not give me any excitement or I'm not cheering won pots.
Posters try to give him strategy advice, they try to persuade him time and time again that shoving 100+ blinds to a minsteal isn’t a good idea. Some others question his sanity and tell him to quit:
FazendeiroBH: Not trolling, I´m actually serious here. You lost an absurd amount of money playing the easiest stake in the world (nl2). You keep losing doing the same faulty strategy. No book ever said you should jam 100 bb preflop rfi. It´s quite obvious there is something wrong with you and your brain, and the more you delay seeking professional care for your mental problems, the worst it´s gonna be for you.
Paitsing updates his thread with highlight hands from his cash sessions. He seems to cherry pick hands to post and will only post hands where he loses all ins as a 70-95% favourite. He delusion leads him to blame the site, his luck and the other micro grinders. He often writes about specific players and gives his opinion on how badly they play. He often quotes their HUD stats and wide calling ranges while ignoring that they are probably adjusting heavily to his own playstyle. Some time passes and he discloses that he has lost almost $500 at 2nl since starting the thread three weeks ago. He updates his followers with the first monthly graph of the thread from his 2nl play in April 2019. He plays for 90 hours in April and his average daily loss is $50, 25 buy ins each day. 2+2 players start to analyse the graph. They notice that there are several breakeven spots where he may be playing reasonable poker but also huge 150 buy in downswings, some drops in the graph are so steep that he is losing about a buy in every 5 hands for periods of hundreds of hands. He says:
Paitsing: Only trying to get my money back from guys who are playing nl2 forever and never moving up. When I started poker long time ago I tought it's exciting to read watch videos if it gives me more money. After 2 years figured out it's just sitting on computer like in work and if I'm someday +-0 never ever playing this stupid game. This is like war.
The thread goes on like this for almost a year. The thread repeats itself over and over. He will post a few selective bad beats, ignore good advice and berate his microstakes tablemates. A fellow microstakes grinder makes his first appearance in the thread: 6betpot. 6Betpot would play at Paisting's tables and often win many buy ins, 6Betpot would go on to post highly contrasting hand histories to the bad beats that Paisting posts, he would also reveal Paisting’s preflop 3 bet is around 30%. Some players would criticize 6Betpot for predatory behavior but 6Betpot would maintain that he would try to persuade Paisting to stop playing in a spewy manner. Someone asks to see the hands and 6Betpot posts some, here is one:
888 Poker - $0.02 NL (6 max) - Holdem - 6 players BTN: 250.5 BB SB (Paisting): 425.5 BB BB: 101.5 BB UTG: 100 BB MP: 106.5 BB CO: 84.5 BB Pre Flop: (pot: 1.5 BB) BTN has AdQs fold, fold, fold, BTN raises to 2 BB, Paisting raises to 425.5 BB and is all-in, fold, BTN calls 248.5 BB and is all-in Flop: (502 BB, 2 players) Kh4s4c Turn: (502 BB, 2 players) 3h River: (502 BB, 2 players) Jc BTN shows AdQs (One Pair, Fours)
Paisting wins 471 BB< Later in the thread Paisting would reveal his line of thinking during hands like these; a poster asked why he though 3 betting hands like J5 was a good idea. Paisting replies:
Paisting: If you don't want them to run over you, you must do something. Blind play is very important and you can't let them run over you. When 80+ habit stealer gets shoves straight to his face he must learn at some point that I'm not giving blinds.
Many tried to reason with him and show him clearly why this was wrong, he not only refuted their strategy but would argue against them, often citing his opponent’s HUD stats. Later on in the thread Mikael posts horrifying news. He explains that he didn’t transfer hands from his old computer to his new computer. The graphs he posted at the start of the thread only showed the tip of the iceberg. He reveals that $16k loss from the graphs was from just 7 months of play!:
Paisting: That 16k is in 209 days and in about 1 year as you can see from the first post. Big part of my losings has left to hard drive of my old crashed computer. That's past and I don't wanna think about it anymore. Main goal is this database I have here in my computer. But yes what I have been repeating many times, moving to 888 poker has sky rocketed my losses although I can play only 6 tables compared to party's 9 tables.
Posters speculate that his lifetime microstakes losses probably amount to six figures:
SpinMeRightRound: I mean if he's lost $20k in the last year, and he's been doing this for more than 10 years, he may have lost $200k or more.
In late 2019, Paisting claims that there was a ring of players were colluding against him. He goes on to say that the new site he plays on, 888, were asking for hand histories from certain players. He showed emails of his communications and posted that 8 players had had their account frozen. He also shows screenshots that his account is temporarily frozen during the investigation. Posters speculated:
CrunchyBlack: Pretty sure they think you're chip dumping lmao .isolated: They think you're chip dumping to him. Funniest. Thing. Ever. The irony here is nearly palpable.
2020: The Struggle Continues
At the end of the year Paisting posts his 2019 graphs. He says that he hasn’t had a winning week yet and he’s still committed to making back 2019’s losses. His graphs show down 12k from 320k hands of 2nl in 2019. In January 2020 he continues to post regularly and makes comments about him hunting down players worse than him:
Paisting: When you hunt really bad player (yes enzet there are plenty of worst player than me on 888 look those hand histories really carefully) hours and hours and wait good hand just to site let them to suck out it is affecting your game really badly.
He posts about his continuing struggle to win back the $16k:
Paisting: I have years dedicated for this project and anything back from that amount is winning to me. At this point it’s impossible to make any profit because of horrible suckouts.
He also posts about the high interest loans he’s taken out:
Paisting: I have huge amounts of loans that are basically all taken for poker. I don't eat much and all my other costs are very low. And because of those loans I must get back so much money that is possible and these suck outs must stop.
February 2020 arrives and he posts his January chart, the worst posted yet. He takes a gigantic loss of $1,550 at an eye-watering rate of 210bb/100 hands. Often when he posts monthly graphs he would highlight that he ran a few buy ins below EV when he would be down hundreds of buy ins for the month. The months pass and the cycle continues. Paisting posts the usual bad beats, posters berate him and try to give him advice and Paisting resists their efforts. Here is one of many similar hands posted in February:
March comes and the regular monthly graph is posted. The uploaded graph shows is he down $1900 or 950 buy ins for last month. Mikael refutes that he is a gambling addict:
Paisting: 888 has given many 10 dollar bonuses to me play slots. I have never played them and in fact my account has 20 dollars freeplay bonus to play their slots. I will not use those money now or in future. So that's gambling addict to you.
April and May roll by and the monthly graphs are posted. He played fewer hands than normal, 43,000. But is down $1,250, all at 2nl. In June he posts the usual monthly graph with -$1900 and it’s the lowest win rate he’s posted before, a colossal -335b/100hands, the graph has some alarmingly steep downswings with one section where he loses $500 in 1000 hands. That’s a loss of one buy in every 4 hands. Getting these monthly updates shows how quickly he loses money at 2nl and collaborates with earlier estimations that he is likely down more than $100k at microstakes over the past 14 years. Approximations indicate that Mikael has paid over $20k in rake to poker sites over the years.
The End, for Now
Mikael is still playing microstakes to this day. His poker story isn’t over yet but so far it is a sad one. My previous two Tales from 2+2 stories had mostly happy endings but not this one. This story is like a car falling down a cliff and it hasn’t hit the bottom yet. Let this story be a lesson that poker isn’t for everyone. Players with addiction or mental issues should reconsider if the game is best for their lives. Serious poker players should consider bankroll management and how tilt affects their winrate if they do choose to play. Seek help if you think you or others need it. Original thread (Still active)
The Year is 2006. Online poker is thriving. Partypoker has the highest traffic of any poker site but Pokerstars are gaining new players quickly with aggressive marketing strategies. Lots of poker sites are investing heavily into marketing and one key place to channel their advertising budget is TV. New innovations, improved graphics and increasing funding meant that poker TV is at an all-time peak of popularity. The World Series of Poker (WSOP) is the biggest event in the poker calendar, it features many poker tournaments culminating in the prestigious $10k Main Event tournament. The Main Event is a popular televised tournament. 40% of the the 2006 WSOP Main Event’s attendance is from online sites and poker sites are offering large amounts of cash for players on TV to wear an advertising patch. According to Dan Goldman’s blog, Pokerstars spent over $730,000 on WSOP players’ gift bags. The WSOP is seeing more TV time and this year an extra event is added to the TV schedule alongside the WSOP main event.
The Path of a New Player
In Finland, Mikael Paisting is watching the 2006 WSOP on TV. He enjoys watching poker broadcasts and is fascinated by the game. It’s a very common story for players to catch an interest by watching poker TV and sign up with to one of the many poker sites available. He chooses to deposit on Partypoker. Mikael is a committed learner and player. He reads several poker books from well-known authors. He also watches many training videos. Like many players starting in online poker he begins at the microstakes cash tables. The standard buy in for microstakes online is $2-10, if a player plays microstakes for an hour they would probably win or lose a few dollars. 2nl means the big blind is 2 cents and standard buy in is $2, the standard buy in at 5nl is $5 and 10nl is $10. Microstakes are a rite of passage for many online poker players. Some will play microstakes for weeks, months or even years improving their game and increasing their bankroll so they can move up to small stakes, 25nl and above. Some players see the microstakes as a job and play as many tables as they can to eke out a living wage. Some players have never played microstakes and skip it entirely for higher stakes. Mikael starts to play and doesn’t do well, this is normal for many beginners, even those who study. However, over the next few weeks Mikael continues to lose. Months go by and Mikael still hasn’t turned a profit. He discovers problems with tilt (when players get angry and it negatively affects their play) and often takes his frustration out in the chat box. An example of his rage:
Paisting:THAT IS NOT NORMAL OMG!! JUST UNBELIEVABLE
Mikael doesn’t play 10nl very often and spends the majority of him time playing 2nl and 5nl, buying in for $2-5 at a time. He continues to multitable cash games on Partypoker but he just can’t win. He starts to lose big, thousands of dollars, mostly at 2nl which is known as the softest cash game on the internet.
Getting Noticed
Mikael continues to play long sessions over the next five years, he claims to play 5-7 days a week for 4-8 hours a day. By 2011 he had played 2 and a half million hands while playing 6 to 9 cash tables at one time. Mikael is still mostly playing 2nl and is down a colossal amount: $7000. Remember that he is mostly playing 2nl, with a buy in of $2, even losing $1000 at 2nl is unheard of. Mikael has been suffering from major tilt problems and has a very wild and noticeable style of playing microstakes. He starts to get noticed on 2+2, a very popular poker forum. A player posts a link to his PTR graph, a site which tracks online cash games. They are shocked at his losses over so many hands:
yegor: wow such a massive fail he played 2.5m hands at 2nl and 5nl and he's losing Donkey111: I remember him from my 2NL days. often goes on some massive tilt sessions and spews like 20 BI [buy ins] in 500 hands by shoving any 2 cards preflop.
He even gets hate from his PTR account where he is ridiculed on his profile comments, he also replies:
VELAir26: Spend your time with family, friends or other hobbies instead Paisting: im fine with this you stupid idiot
Mikael continues to play his reckless and tilting style over the years. By 2014, he has been playing for 8 years and is down five figures at microstakes; he starts to look for excuses for how much he has lost. He posts a thread on 2+2 detailing how he feels that he wins at the start of the month and then inevitably starts to lose. He asks how he can take legal action against Partypoker. His fellow posters tease him:
5thStreethog: Did the thought ever cross your mind that it might be possible that the reason you cant beat NL2 in over a million hands might be because you arent very good at poker?
An Attempt at Redemption
2019 comes and MikaelPaisting has been playing microstakes for 13 years, and steadily losing a lot of money. He got a new computer in late 2018 and has been grinding away on it. Mikael is getting mentioned more on 2+2 and he is well known on the tables of Partypoker as he drops stack after stack. Many players on Partypoker furiously try to get on his tables to call his tilt shoves; when Mikael is present other player’s stacks can get as high as $100 at 2nl as he shoves buy in after buy in in bad spots. Some were said to be using seating scripts to instantly be placed on a table with Paisting. At this point he is feeling very low. But despite years of losing money and insane tilting he is determined to improve. Mikael is aware of his losses and has a fierce desire to make back the money he has lost since he’s started tracking on his new PC. He decides get help and he looks to 2+2, the very same forum that had mocked him over the last decade. He logs in as Paisting, his last name. He starts a new thread, types out a post and chooses a title: 'Biggest loser in online poker history wants to grind $16k'. He posts this thread in the sub-forum Poker Goals & Challenges, a place where players post their goals and try to update their thread with their progress. He posts graphs of his losses from his database on his PC. He starts the thread by posting some shocking graphs of $8700 lost at 2nl, $6000 lost at 5nl and $800 lost at 10nl. At 2nl he had an incredible rate of losing an average of $75 a day. The final graph of his microstakes losses posted show $15,000 lost over 365,000 hands. The 2+2 poker community are stunned by the graphs:
HorseofHell: I'm actually shocked it's possible to lose this much at 2nl Mahsjdj: This can't be real can it?
Mikael posts about the hard work he’s put into poker and mentions that has watched videos, read many instructional books and is honest with his astounding losses:
Paisting: I've lost literally all my money including all my life savings to online poker. I want to try one last time to win those money back and little bit of extra. That's why $16k. What I need is support and guiding.
The community react to his plan to grind all the money back at microstakes:
Fodersneso: This is really disturbing. Why on earth would you try to grind this all back? Losing at this rate is traumatizing. You're going to grind out 3000 BIs [buy ins] @nl5 now or what's the plan? Really curious how you think you can turn this pile of insanity around...
The community show disbelief and doubt that his story is real but several posters claim that what he says is true. He has been active in Finnish forums for more than 10 years and players starts to share hand histories and stories about his playstyle. He posts about his regret of picking the game up:
Paisting: Never had a winning week in 13 years. If it were possible to go back ten years I would say to myself "Do not never play single one hand!"
He then goes on to tell 2+2 posters a disturbing source of his funds for his staggering 2nl losses:
Paisting: I've taken huge amount of fast loans.
He sheds a little light into his personal life:
Paisting: My age and relationships has nothing to do with this. But not working, no kids or wife and middle aged. What I have is time to play. I get a little unemployment benefit that goes straight to the rent. My eating costs are very little because I'm only eating one meal per day. There are times when I must take more fast loans if need of clothes, unexpected bills, sickness etc. That's why getting back those $16k is so important to me. No disability, never played anything else than poker or lottery when pots are bigger, maybe 5 times in year. Playing poker does not give me any excitement or I'm not cheering won pots.
Posters try to give him strategy advice, they try to persuade him time and time again that his strategy isn't working. Some others question his sanity and tell him to quit:
FazendeiroBH: Not trolling, I´m actually serious here. You lost an absurd amount of money playing the easiest stake in the world (nl2). You keep losing doing the same faulty strategy. It´s quite obvious there is something wrong with you and your brain, and the more you delay seeking professional care for your mental problems, the worst it´s gonna be for you.
Paitsing updates his thread with highlight hands from his cash sessions. He seems to cherry pick hands to post and will only post hands where he loses all ins as a 70-95% favourite. He delusion leads him to blame the site, his luck and the other micro grinders. He often writes about specific players and gives his opinion on how badly they play. Some time passes and he discloses that he has lost almost $500 at 2nl since starting the thread three weeks ago. He updates his followers with the first monthly graph of the thread from his 2nl play in April 2019. He plays for 90 hours in April and his average daily loss is $50, 25 buyins each day. 2+2 players start to analyse the graph. They notice that there are several breakeven spots where he may be playing reasonable poker but also huge 150 buy in downswings, some drops in the graph are so steep that he is losing about a buy in every 5 hands for periods of hundreds of hands. He says:
Paitsing: Only trying to get my money back from guys who are playing nl2 forever and never moving up. When I started poker long time ago I tought it's exciting to read watch videos if it gives me more money. After 2 years figured out it's just sitting on computer like in work and if I'm someday +-0 never ever playing this stupid game. This is like war.
The thread goes on like this for almost a year. The thread repeats itself over and over. He will post a few selective bad beats, ignore good advice and berate his microstakes tablemates. A fellow microstakes grinder makes his first appearance in the thread: 6betpot. 6Betpot would play at Paisting's tables and often win many buy ins, 6Betpot would go on to post highly contrasting hand histories to the unlucky hands that Paisting posts which shows the hands Mikael was not posting. Some players would criticize 6Betpot for predatory behavior but 6Betpot would maintain that he would try to persuade Paisting to stop playing in a crazy manner. Many tried to reason with Mikael and show him clearly why this was wrong, he not only refuted their strategy but would argue against them. Later on in the thread Mikael posts horrifying news. He explains that he didn’t transfer hands from his old computer to his new computer. The graphs he posted at the start of the thread only showed the tip of the iceberg. He reveals that $16k loss from the graphs was from just 7 months of play!:
Paisting: That 16k is in 209 days and in about 1 year as you can see from the first post. Big part of my losings has left to hard drive of my old crashed computer. That's past and I don't wanna think about it anymore. Main goal is this database I have here in my computer. But yes what I have been repeating many times, moving to 888 poker has sky rocketed my losses although I can play only 6 tables compared to party's 9 tables.
Posters speculate that his lifetime microstakes losses probably amount to six figures:
SpinMeRightRound: I mean if he's lost $20k in the last year, and he's been doing this for more than 10 years, he may have lost $200k or more.
2020: The Struggle Continues
At the end of the year Paisting posts his 2019 graphs. He says that he hasn’t had a winning week yet and he’s still committed to making back 2019’s losses. His graphs show down 12k from 320k hands of 2nl in 2019. In January 2020 he continues to post regularly and makes comments about him hunting down players worse than him:
Paisting: When you hunt really bad player (yes enzet there are plenty of worst player than me on 888 look those hand histories really carefully) hours and hours and wait good hand just to site let them to suck out it is affecting your game really badly.
He posts about his continuing struggle to win back the $16k:
Paisting: I have years dedicated for this project and anything back from that amount is winning to me. At this point it’s impossible to make any profit because of horrible suckouts.
He also posts about the high interest loans he’s taken out:
Paisting: I have huge amounts of loans that are basically all taken for poker. I don't eat much and all my other costs are very low. And because of those loans I must get back so much money that is possible and these suck outs must stop.
February 2020 arrives and he posts his January chart, the worst posted yet. He takes a gigantic loss of $1,550 at an eye-watering rate. The months pass and the cycle continues. Paisting posts the usual unlucky hands, posters berate him and try to give him advice and Paisting resists their efforts. Here is one of many similar hands posted in February, this hand shows him making an awful play and raising huge with a weak hand:
March comes and the regular monthly graph is posted. The uploaded graph shows is he down $1900 or 950 buy ins for last month. Mikael refutes that he is a gambling addict:
Paisting: 888 has given many 10 dollar bonuses to me play slots. I have never played them and in fact my account has 20 dollars freeplay bonus to play their slots. I will not use those money now or in future. So that's gambling addict to you.
April and May roll by and the monthly graphs are posted. He played fewer hands than normal, 43,000. But is down $1,250, all at 2nl. In June he posts the usual monthly graph with -$1900 and it’s the lowest win rate he’s posted before, the graph has some alarmingly steep downswings with one section where he loses $500 in 1000 hands. That’s a loss of one buy in every 4 hands. Getting these monthly updates shows how quickly he loses money at 2nl and collaborates with earlier estimations that he is likely down more than $100k at microstakes over the past 14 years.
The End, for Now
Mikael is still playing microstakes to this day. His poker story isn’t over yet but so far it is a sad one. My previous two Tales from 2+2 stories had mostly happy endings but not this one. This story is like a car falling down a cliff and it hasn’t hit the bottom yet. Let this story be a lesson that poker isn’t for everyone. Players with addiction or mental issues should reconsider if the game is best for their lives. Serious poker players should consider bankroll management and how tilt affects their winrate if they do choose to play. Seek help if you think you or others need it. Original thread (Still active)
"Some Simple tips for CD devs to make CP2077 feel more alive in upcoming DLCs (Please read) First off, this game was an aesthetic treat and compared to GTAV, it is indeed much more "dense" with the core areas so much more beautiful in that regard... But no game is perfect, nor is it realistic in this decade to expect a full "city simulator" for any dev or in any game, so that's not what I'm expecting out of Night City not even under the most ideal of circumstances... That said, there are plenty of room for improvement, bug fixes sure, but also beyond that I'd like to see more in the upcoming DLC's that make NightCity more alive, not even necessarily newer and larger maps, but just practical added-elements and additional functional components that would go a long way towards making the city appear more 'alive', and immersive and dynamic and all that was illuded to but never fully manifested... So in terms of most bang for buck and the low-hanging fruit (80/20 principle):
TRANSPORTATION
1) Bring back (or rather develope for the first time) the promised subway system... this shouldn't be that hard to do... it would add an element of connectivity of the different parts of the city... Leave fast travel as an option, for those that want to ride the train shouldn't be forced to use loading screens 2) Air taxi(s) -- in the age of Telsa self driving cars, hyperloops, drone taxis we should have plenty of automated air taxi options in the world of CP2077, basically like the taxi hailing component in GTAIV (Liberty City) except the player can hail an air taxi that lands close to where he is standing, he gets in, and then chooses any destination and it automatically flys him to the location, while allowing him to look out the windows and enjoy the night city from above / higher perspective... this is simplier than simply giving the player ability to fly hovercars/etc since an air taxi is just from point to point and its trivial to code a system that flys the player from any point in the city to any other point without crashing into any buildings... we've seen NightCity from the ground, now lets see it from the sky! 3) Rented transporation -- user pays to be able to rent jet packs, hoverboards, scooters at different locations in the city so he can use a public transportation but on a personal level... for the jet packs cap a max height so that its still basically hovering at or around slightly above ground level, giving the user the discretion of travel but not allowing him to fly or scale above buildings etc... this requires money to rent and if the equipment is damaged, lost, stolen or not returned properly the users bank account will be deducted for the amount ( see #ECONOMY)
INTERIORS
1) Skyscrapers with observation deck -- in every major city there is a theme like this, take Seattle for example you can visit the tallest building in Seattle downtown and go up on the obs deck and see the city view from high above, I would say incorporate some options like this where user can enter some of the taller buildings in NightCity, ride up the elevator to the higher decks and see the city from that view... maybe even add a floor with fine dinning where user can take a friend/date/group to the restuarant and eat while enjoying watching the scenery of the nightcity below etc... 2) All major buildings enter-able (is that a word? lol) with at least a ground lobby.... right now most of the buildings are just fake exteriors, nice to look at from the outside but completely fake and empty with no insides... Due to system restrains its not practical to simulate every room of every floor of every building in nightcity with furnished interiors and real windows and all that... but at least make the first floor /lobby area of every large and major building enter-able so that the character can walk in and out of them... for certain buildings you may want to make a working/functional lobby elevator that leads to an underground garage and/or allows the user to ride the elevator to above ground higher floors of the building... or have the elevator only allow certain floors to be accessed and furnish these floors with realistic settings/environment and this can tie in nicely with the job/work/career paths discussed in #ECONOMY section with gives you the office space to put a number of companies in which the user can find and switch jobs and work in corporate paths etc... for example allow the user to customize and decorate his own "office/desk", and if he has a window office, then that would provide another unique view/scenery of nightcity from above ground perspective, one that can only be gotten from working at that particular company/job, and gives him an incentive to work late to see the city from nighttime while burning the midnight oil 3) Multiple apartments, the user should be able to pick and choose from a vast selection and array of living arrangements and this necessities a lot of hotel/condo/apartment options which means these buildings need to have interiors and furnished and environments fully built out...
ECONOMY
1) Ability to find and work a job, with multiple career paths and with ability to move up in the corporate world... this provides the user with a stead stream of income for which he can use to buy fancier cars, to move into newer and better apartments /condos etc.. and to buy fancier items like designer cloths and the suches... not to mention to spend on fine dinning in high end restuarants which can tie in nicely with going on datings, impressing women with luxury cars and expensive meals and "date nights out" at elaborate events.... basically there has to be a purpose and meaning to making more money, and the process of making more money has to be derived from a job or work or career of some sort as the main component... Have a real economy with unemployment, inflation, commodity prices, and all of that impact and influence and affect the user in his everyday life... for example if a major terror event or pandemic causes the Nightcity to suffer an economic depression for a few months then its possible the company that the user is working at has to lay off people and he gets canned and has to downsize to a smaller apartment, loses his girlfriend/wife, and then has to find another lower paying job and stuck in the downward cycle for a few years until he is able to win the lottery (#GAMBLING/SPECUTLATION/BETTING) or his luck somehow changes... Everything should cost money, it costs money to rent an apartement and it should also cost money to eat and drink... basically he user has to spend money to eat otherwise he will starve to death... and the user has to keep paying rent every month for whatever apartment he resides otherwise he gets evicted and could even become homeless and have to live in one of those nasty tents in tenty city or under a highway bridge etc etc Grocery stores, restuarants, movie theaters, hotels, and shopping malls... There should be at least a few convinennce stores, shopping malls, restuarants and other retail places spread throughout nightcity, this is a component and element of the economy as well as a means for the user to spend all the hard earned money he worked towards... for example if you give a homeless a few bucks he should be able to use it to spend at a store on the corner to get something to eat and then that makes him happy because he is no longer so hungry... there should be a tie in for economy, money, and the ability to exchange that for goods and services (barber, tatto artists cough cough) and associate these goods and services to emotional feelings of happiness and satisfication for both the user /player and the NPCs...
SEASONS
There should be a distinction between autumn/fall, spring, summer, winter etc... This gives a big cycle sense of passage of time that cannot be simulated with the current day/night cycles along... in the winter the sun should rise and set at different times/angles than the summer... In addition, I'd like to see an accurate night sky map/ stars. NightCity takes place in SoCal, its trivial to map the nightsky for the year 2077 in the SoCal area... even in the latest Flight Simulator 2020 the stars are now accurate at night... Ability to choose LIVE weather based on current user location (see Flight Simulator) so say its raining in Dallas Texas where a user is playing, then in NightCity it will match that and we raining in the game as well... also ability to customize weather on-the-fly in real-time (see Microsoft Flight Simulator 2020) and have that instantly change in the game without reloading... Along with seasons I'd like to be able to see holiday celebrations for example Christmas time espeically... I want to hear holiday music and see buildings decorated with Christmas lights and the jolly spirits of it all... Think the ambiance and environment of say Polar Express, bring that alive to Night City for Xmas...
MINI GAMES and other Microcosm
There is a "Go" board in Chinatown... but its fake... and the players aren't even attempting to play Go... See what Google Deepmind did with AlphaGo, Facebook made an OpenGo that they open sourced... there is also LeelaZero and KataGo free AI engines that have already been trained using deeplearning/machineAI to be far better than the Go masters... the same applies to Chess by the way... but I didn't see a Chess board in Night City yet... in any case all these board games the computer AI can now master... make these games playable in NightCity, so the user can watch two NPC's play a round of Go/Chess/etc (Ai vs Ai) or can join and sit down and take a seat and play against an NPC a real game of Go/Chess, (or in the future if CP gets a multiplayer than humans can play against one another etc) basically a microcosms and games-within-a-game.... Spotify/Netflix/youTube integrations... I'd like to see the user have a portable/personal mp3 player or app on his virtual smartphone that allows him to link to his personal -reallife- spotify account to listen to music while in the game... also on the TV screens at home to be able to watch netflix movies while in this virtual apartment chilling with his date/friends... and things like YouTube integration would be nice... maybe even pornhub integration.... Other simple games like darts, bowling and even toys like RC cars or DJI drones... give the use the ability to fly drones (check out DJI Simulator) or operate rc model cars etc... basically toys that he can buy at electronic stores or corner outlets that he can then use these toys in real life for any variety of enjoyments... this also ties into #ECONOMY and why its important to have a good job /career that pays good money!
GAMBLING/SPECUTLATION/INVESTMENTS/BETTING
Have some form of virtual casinos in the game, NightCity reminds me of Vegas, yet not one slot machine and not one means to gamble or bet? How about the ability to play the stockmarket, bitcoins, and make bets and well as go gambling, cards, poker, etc this not only provides a form of entertainment but also gives the user a way to quickly win / lose a lot of money and for the risk takers they may wish to invest their money in high risk high reward speculative stocks in the stock market instead of immediately spending it on a new apartment, new car, new tech gadget etc etc... this would also tie back to #ECONOMY since the more the user earns the more income he has to spend on gambling/stocks and the better the economy does the higher his stocks return on investment...
ROMANCE/RELATIONSHIPS
Should be able to court any pretty woman on the streets, to walk up to her and say hi and have a path/chance to a dialogue that leads to setting up a first date... and following that if it goes well can progress to more dates and evetnually her moving in with the user and eventually even having a kid, getting married, and the works... each female NPC should have a male preference and a threshold of compatiblity... so that for example if on the first date the guy is cheap and takes her to low end resturant, doesn't have a nice car to pick her up with, and otherwise seems like a low life then she wouldn't process/continue with him... whereas if he is already established with a multimillion apartment, supercar, takes her to most expensive restuarant in NightCity, then I could see her going back to his place on the first date and maybe even getting pregnant right then and there that night etc..."
Some Simple tips for CD devs to make CP2077 feel more alive in upcoming DLCs (Please read)
First off, this game was an aesthetic treat and compared to GTAV, it is indeed much more "dense" with the core areas so much more beautiful in that regard... But no game is perfect, nor is it realistic in this decade to expect a full "city simulator" for any dev or in any game, so that's not what I'm expecting out of Night City not even under the most ideal of circumstances... That said, there are plenty of room for improvement, bug fixes sure, but also beyond that I'd like to see more in the upcoming DLC's that make NightCity more alive, not even necessarily newer and larger maps, but just practical added-elements and additional functional components that would go a long way towards making the city appear more 'alive', and immersive and dynamic and all that was illuded to but never fully manifested... So in terms of most bang for buck and the low-hanging fruit (80/20 principle): In real life there is a sense of interconnecitivity and permanance... NightCity doesn't have this and is just a disconnected Hodgepodge of static elements that have no effect on one another... for example I should be able to balance the transportation cost of getting to work versus the career path that I want and the amount of money I'm making and taking into account my net worth... it wouldn't make sense for me to accept an entry level position that requires hours of commute every morning when I'm living on the other end of town... and on the otherhand if I'm processed to a VP making bigly bucks I can afford to take the automated air taxi every morning to work in central business district and still live outside by the beautiful beachfront property etc... likewise a downturn in the economy will affect my company and I could get laid off or no bonus for the year, or if I'm working a gig job that is seasonal then come spring I wouldn't need to find a second side gig to make up for the loss of income... and all of that ties into what kind of loft I can afford, what kind of car I can buy/lease/rent and the food I can eat (tv dinner vs fine dining) and the cloths that I can put in my back which affects the sort of women on the street that I can radnomdly hit on and get intro interested into d going on a date with me etc etc etc... its all interconnected and has a continuation that affecst so much more than just mindless NPCs spawning and despawning right in front on my eyes... #TRANSPORTATION 1) Bring back (or rather develope for the first time) the promised subway system... this shouldn't be that hard to do... it would add an element of connectivity of the different parts of the city... Leave fast travel as an option, for those that want to ride the train shouldn't be forced to use loading screens 2) Air taxi(s) -- in the age of Telsa self driving cars, hyperloops, drone taxis we should have plenty of automated air taxi options in the world of CP2077, basically like the taxi hailing component in GTAIV (Liberty City) except the player can hail an air taxi that lands close to where he is standing, he gets in, and then chooses any destination and it automatically flys him to the location, while allowing him to look out the windows and enjoy the night city from above / higher perspective... this is simplier than simply giving the player ability to fly hovercars/etc since an air taxi is just from point to point and its trivial to code a system that flys the player from any point in the city to any other point without crashing into any buildings... we've seen NightCity from the ground, now lets see it from the sky! 3) Rented transporation -- user pays to be able to rent jet packs, hoverboards, scooters at different locations in the city so he can use a public transportation but on a personal level... for the jet packs cap a max height so that its still basically hovering at or around slightly above ground level, giving the user the discretion of travel but not allowing him to fly or scale above buildings etc... this requires money to rent and if the equipment is damaged, lost, stolen or not returned properly the users bank account will be deducted for the amount ( see #ECONOMY) #JOBS/CAREERS/WORK/EDUCATION/GIGs Ability to work a day job to earn steady money and climb a career ladder by taking courses or going to school at night... ability to go on the nightcity job boards or online to hunt and interview for other jobs... to change industries and do other jobs... to participate in the Gig economy... like drive around in some version of ubereats delivering food or packages to people... or a corporate desk job thats basically on the computer all day... for corporate day jobs the game should give the user the ability to fastforward just like he can go to bed and fast forward for eight hours etc.... #INTERIORS 1) Skyscrapers with observation deck -- in every major city there is a theme like this, take Seattle for example you can visit the tallest building in Seattle downtown and go up on the obs deck and see the city view from high above, I would say incorporate some options like this where user can enter some of the taller buildings in NightCity, ride up the elevator to the higher decks and see the city from that view... maybe even add a floor with fine dinning where user can take a friend/date/group to the restuarant and eat while enjoying watching the scenery of the nightcity below etc... 2) All major buildings enter-able (is that a word? lol) with at least a ground lobby.... right now most of the buildings are just fake exteriors, nice to look at from the outside but completely fake and empty with no insides... Due to system restrains its not practical to simulate every room of every floor of every building in nightcity with furnished interiors and real windows and all that... but at least make the first floor /lobby area of every large and major building enter-able so that the character can walk in and out of them... for certain buildings you may want to make a working/functional lobby elevator that leads to an underground garage and/or allows the user to ride the elevator to above ground higher floors of the building... or have the elevator only allow certain floors to be accessed and furnish these floors with realistic settings/environment and this can tie in nicely with the job/work/career paths discussed in #ECONOMY section with gives you the office space to put a number of companies in which the user can find and switch jobs and work in corporate paths etc... for example allow the user to customize and decorate his own "office/desk", and if he has a window office, then that would provide another unique view/scenery of nightcity from above ground perspective, one that can only be gotten from working at that particular company/job, and gives him an incentive to work late to see the city from nighttime while burning the midnight oil:) 3) Multiple apartments, the user should be able to pick and choose from a vast selection and array of living arrangements and this necessities a lot of hotel/condo/apartment options which means these buildings need to have interiors and furnished and environments fully built out... #ECONOMY 1) Ability to find and work a job, with multiple career paths and with ability to move up in the corporate world... this provides the user with a steady stream of income for which he can use to buy fancier cars, to move into newer and better apartments /condos etc.. and to buy fancier items like designer cloths and the suches... not to mention to spend on fine dinning in high end restuarants which can tie in nicely with going on datings, impressing women with luxury cars and expensive meals and "date nights out" at elaborate events.... basically there has to be a purpose and meaning to making more money, and the process of making more money has to be derived from a job or work or career of some sort as the main component... 2) Have a real economy with unemployment, inflation, commodity prices, and all of that impact and influence and affect the user in his everyday life... for example if a major terror event or pandemic causes the Nightcity to suffer an economic depression for a few months then its possible the company that the user is working at has to lay off people and he gets canned and has to downsize to a smaller apartment, loses his girlfriend/wife, and then has to find another lower paying job and stuck in the downward cycle for a few years until he is able to win the lottery (#GAMBLING/SPECUTLATION/BETTING) or his luck somehow changes... 3) Everything should cost money, it costs money to rent an apartement and it should also cost money to eat and drink... basically he user has to spend money to eat otherwise he will starve to death... and the user has to keep paying rent every month for whatever apartment he resides otherwise he gets evicted and could even become homeless and have to live in one of those nasty tents in tenty city or under a highway bridge etc etc 4) Grocery stores, restuarants, movie theaters, hotels, and shopping malls... There should be at least a few convinennce stores, shopping malls, restuarants and other retail places spread throughout nightcity, this is a component and element of the economy as well as a means for the user to spend all the hard earned money he worked towards... for example if you give a homeless a few bucks he should be able to use it to spend at a store on the corner to get something to eat and then that makes him happy because he is no longer so hungry... there should be a tie in for economy, money, and the ability to exchange that for goods and services (barber, tatto artists cough cough) and associate these goods and services to emotional feelings of happiness and satisfication for both the user /player and the NPCs... #SEASONS There should be a distinction between autumn/fall, spring, summer, winter etc... This gives a big cycle sense of passage of time that cannot be simulated with the current day/night cycles along... in the winter the sun should rise and set at different times/angles than the summer... In addition, I'd like to see an accurate night sky map/ stars. NightCity takes place in SoCal, its trivial to map the nightsky for the year 2077 in the SoCal area... even in the latest Flight Simulator 2020 the stars are now accurate at night... Ability to choose LIVE weather based on current user location (see Flight Simulator) so say its raining in Dallas Texas where a user is playing, then in NightCity it will match that and we raining in the game as well... also ability to customize weather on-the-fly in real-time (see Microsoft Flight Simulator 2020) and have that instantly change in the game without reloading... Along with seasons I'd like to be able to see holiday celebrations for example Christmas time espeically... I want to hear holiday music and see buildings decorated with Christmas lights and the jolly spirits of it all... Think the ambiance and environment of say Polar Express, bring that alive to Night City for Xmas... #MINI GAMES and other Microcosm There is a "Go" board in Chinatown... but its fake... and the players aren't even attempting to play Go... See what Google Deepmind did with AlphaGo, Facebook made an OpenGo that they open sourced... there is also LeelaZero and KataGo free AI engines that have already been trained using deeplearning/machineAI to be far better than the Go masters... the same applies to Chess by the way... but I didn't see a Chess board in Night City yet... in any case all these board games the computer AI can now master... make these games playable in NightCity, so the user can watch two NPC's play a round of Go/Chess/etc (Ai vs Ai) or can join and sit down and take a seat and play against an NPC a real game of Go/Chess, (or in the future if CP gets a multiplayer than humans can play against one another etc) basically a microcosms and games-within-a-game.... Spotify/Netflix/youTube integrations... I'd like to see the user have a portable/personal mp3 player or app on his virtual smartphone that allows him to link to his personal -reallife- spotify account to listen to music while in the game... also on the TV screens at home to be able to watch netflix movies while in this virtual apartment chilling with his date/friends... and things like YouTube integration would be nice... maybe even pornhub integration.... Other simple games like darts, bowling and even toys like RC cars or DJI drones... give the use the ability to fly drones (check out DJI Simulator) or operate rc model cars etc... basically toys that he can buy at electronic stores or corner outlets that he can then use these toys in real life for any variety of enjoyments... this also ties into #ECONOMY and why its important to have a good job /career that pays good money! #GAMBLING/SPECUTLATION/INVESTMENTS/BETTING Have some form of virtual casinos in the game, NightCity reminds me of Vegas, yet not one slot machine and not one means to gamble or bet? How about the ability to play the stockmarket, bitcoins, and make bets and well as go gambling, cards, poker, etc this not only provides a form of entertainment but also gives the user a way to quickly win / lose a lot of money and for the risk takers they may wish to invest their money in high risk high reward speculative stocks in the stock market instead of immediately spending it on a new apartment, new car, new tech gadget etc etc... this would also tie back to #ECONOMY since the more the user earns the more income he has to spend on gambling/stocks and the better the economy does the higher his stocks return on investment... #ROMANCE/RELATIONSHIPS Should be able to court any pretty woman on the streets, to walk up to her and say hi and have a path/chance to a dialogue that leads to setting up a first date... and following that if it goes well can progress to more dates and evetnually her moving in with the user and eventually even having a kid, getting married, and the works... each female NPC should have a male preference and a threshold of compatiblity... so that for example if on the first date the guy is cheap and takes her to low end resturant, doesn't have a nice car to pick her up with, and otherwise seems like a low life then she wouldn't process/continue with him... whereas if he is already established with a multimillion apartment, supercar, takes her to most expensive restuarant in NightCity, then I could see her going back to his place on the first date and maybe even getting pregnant right then and there that night etc...
The Covid corporate bonus bailout costs about $18,000 per citizen. So Congress is taking $18,000 from your future, giving $16,800 to corporations and giving you back a check for $1,200.
Chancellor on brink of second bailout for banks. 2009
The coronavirus shutdown is hammering supply and demand across the globe. That has forced the real economy into a sharp recession and triggered a rolling financial crisis. Below is a primer on one key piece of this mess: the crisis in corporate debt markets. This branch of finance is vitally important because even healthy companies often need access to credit. If they do not get it, they go under. In 2008, the vector of crisis ran from mortgage-backed securities to the rest of the financial sector and then to the real economy. This time, the real economy is being hit directly, and the damage is reverberating back into financial markets. The failing markets, in feedback-loop fashion, further threaten the real economy as corporations find it harder to borrow. As the corporate debt markets sour, major companies will go bankrupt. Unemployment is skyrocketing. Some analysts expect the economy to contract by an annualized rate of 30 percent during the second quarter of 2020. Already, US financial markets are on public life support. The Federal Reserve has committed to unlimited purchases of all sorts of assets: US Treasuries, mortgage-backed securities, car loans, municipal debts, and, in a historic step, both short term and long-term corporate debt. But the crisis will require more than a financial rescue. The key political question now is: What sort of controls will come with the state intervention? Corporate greed and self-dealing need to be checked not merely in the name of fairness but also to make sure public bailout money is actually invested in the real economy rather than just gambled away, as it was after the 2008 crash and rescue.
The Rise of Corporate Debt
Since 2008, household debt levels have actually declined and are now lower than they were going into the last crash. But not corporate debt. Measured as a firm’s “net debt” compared to its EBITDA (earnings before interest, tax, depreciation, and amortization), corporate debt has doubled since the last crash. In 2009, the average American company owed $2 of debt for every $1 in earnings. Today, the average firm carries net debt to EBITDA of 3 to 1, and many firms — like Ford Motor, CarMax, Harley-Davidson, and General Motors — carry ratios ranging from 8 to 1, to as high as 15 to 1. Boeing, a special case because of its 737 MAX crisis, carries a ratio of 37 to 1. Over the last two decades, corporate America’s credit rating has collapsed. In the early ’90s, more than sixty companies held AAA credit ratings. Today, only two US firms are AAA rated: Johnson & Johnson and Microsoft. In 2001, fewer than one in five “investment-grade” firms were rated BBB. Today half of all investment-grade corporate debt belongs to firms rated “triple-B” (BBB) or lower. A third of those firms are rated triple-B minus (BBB-), one notch away from speculative or “junk” status. Already many triple-B-rated corporate bonds are trading on secondary markets at unusually low prices and high yields, often above 5 percent; that means even “investment grade” bonds are being treated as junk. Soon many triple-B-rated corporations will be formally downgraded to junk. That will drive up their borrowing costs and restrict their access to credit. Even healthy companies often need access to ready credit. If they do not get it, they go under. The rating agency Moody’s estimates the default rate for “speculative-grade” debt — companies with ratings lower than Baa from Moody’s Investors Service, or a rating lower than BBB from Standard & Poor’s — might reach 10 percent this year, up from 2.3 percent last year. The consequences of all this will reverberate throughout the wider economy, deepening and extending the recession. Total global corporate debt, including bonds and loans, is approximately $66 trillion; more than double what it was a decade ago. For comparison, the combined gross national product of all economies was estimated at $80.27 trillion in 2017. About a quarter of that is the US economy.
What They Did With the Money
After the 2008 crash, the world’s central banks, with the US Federal Reserve in the lead, spent the next decade pushing money into the financial markets by way of super-low interest rates and the direct public purchase of financial assets from the private sector via quantitative easing (QE). The cheap credit encouraged lots of corporate borrowing in the form of loans from banks and massive issuance of corporate bonds. Unlike loans, which can be routinely extended, or sometimes abruptly terminated, or have interest rates that float up and down, corporate bonds are debt instruments issued by a company committing to repay borrowed money on a specified schedule at a specified, usually fixed, rate of interest. Corporations have been borrowing for a variety of reasons that range from shrewd arbitrage to stupid and reckless asset stripping. For a struggling and unprofitable company, for example JCPenney, debt can be a lifeline. For a profitable firm, borrowing money can be a way to raise capital without diluting existing shareholders’ claim on the company’s profits, which would happen if the firm issued stock. Even some profitable firms with piles of cash borrowed rather than spend their cash, in part for the firepower effect: letting other competitors and market entrants know that the firm has enough money on hand to buy out any threatening start-ups, and showing the world the firm is ready to ride out any economic crisis. Some firms used their borrowed money to buy other firms. This helped fuel a post-2008 wave of mergers and acquisitions (M&As). Deloitte reported “more than $10 trillion in [M&A] domestic transactions since 2013.” Targeted companies borrowed to stockpile cash as a defense against such takeovers. Firms also borrowed to fund CEO compensation, distributions to investors via dividends, and stock buybacks. Companies buy back their own stock so as to boost its price. A rising stock price is useful in many ways: it can keep away hostile raiders by making a targeted company too expensive to take over, but it can also draw in friendly suitors because (with some creative accounting) a rising stock value can make a weak firm appear more profitable. Corporate executives like a rising stock price because compensation packages are both tied to stock performance and almost always include some payment in company stock, so the higher the stock price, the higher the executives’ payout. Sometimes, firms even invested their borrowed money in actual production. The capital-intensive oil and gas industry did that, but as we explain below, it still faces a crisis, perhaps more salient than other sectors.
Bad Credit as Perverse Incentive
The end result of all the borrowing was declining corporate credit-worthiness: corporate debt soon badly outpaced their earnings growth and cash balances. This led to widespread credit-rating downgrades. Perversely, lower credit ratings did not slow the borrowing binge, but rather spurred on further lending and borrowing, because as corporate credit ratings slipped, the interest rate that the downgraded firms had to pay on their loans and bonds increased. And, thus, so too did the lenders’ profits. Corporate debt and stock prices entered into a twisted dialectic, each driving the other. As the stock market continued to inflate over the last decade, it provided the confidence investors required to continue their purchases of risky corporate bonds. Keep in mind that many of the lending banks and asset funds were actually or essentially borrowing from Uncle Sam at inflation-adjusted rates close to zero, then lending to companies with triple-B and triple-B minus ratings at 5 percent interest. Profits like that meant there were always banks and asset funds eager to lend to debt-burdened corporations. Investors could directly purchase specific corporations’ bonds, or, as is more often the case, invest in mutual funds or exchange-traded funds (ETFs) that target an array of corporate bonds. High-risk loans were also sliced and diced and repackaged into bundles called “collateralized loan obligations” (CLOs), a class of securities backed by an underlying portfolio of corporate loans. According to the Federal Reserve Board of Governors, the majority of American CLOs are held by US institutional investors, including insurance companies, mutual funds, and depository institutions. This means that when the debt is unable to be serviced, the pain will be absorbed within the US economy, much of it by the unassuming customers of these financial behemoths. As was the case with the mortgage-backed securities of the 2008 crash, these funds helped “distribute risk” and thus gave an appearance of safety. The logic was that owning 1 percent of a hundred different loans would be safer, even if some loans went bad, than owning the entirety of a single debt security. The logic is not entirely wrong. And that is part of the problem: it encouraged yet more lending. As long as the economic forecast was optimistic, there was no reason for the debt spree to let up.
Zombies and Others
Corporate debt, like much of the economy, is a story of disparities. Not every corporation is burdened by debt. Some firms are actually awash in cash. Microsoft, Berkshire Hathaway, Alphabet Inc, and Apple each sit on more than $100 billion in cash. As a whole, corporate America has been sitting on record amounts of cash in recent years. But at the same time, Morgan Stanley Investment Management estimates that one in six US companies cannot cover even the interest payments on their debts. At the heart of the problem are “leveraged loans” and so-called zombie firms. Leveraged loans are a type of expensive, high-risk credit extended to already heavily indebted companies. Since the 2008 crash, the leveraged loan market has doubled to $1.2 trillion. Now, leveraged loans in the United States are being re-sold at only 84 cents on the dollar, their lowest price since August 2009. The majority of leveraged loans — more than half — are in the form of the aforementioned CLOs. In the fourth quarter of 2018, there were $617 billion of CLOs outstanding. Zombie firms are defined by the Bank for International Settlements as heavily indebted, well-established companies that have failed to be profitable over an extended period and have low expected profitability in the future. In other words, heavily indebted start-ups do not qualify as zombies. The most threatened sectors are energy, automotive, insurance, capital goods (meaning equipment and machinery), telecoms, aerospace and defense, and some parts of retail. The bull market of rising, often overvalued, stock prices allowed many uncompetitive and unprofitable companies to appear healthy based solely on their stock’s performance. Even before the markets started to crash on March 9, some analysts were prescient enough to call the market’s bluff at the beginning of the year. But in this rapidly developing crisis, firms all across the economy may soon find it impossible to meet their liabilities. With the coronavirus breaking supply chains and forcing massive constrictions in consumer demand, corporate earnings are contracting fast, which in turn will badly hurt corporate debt servicing. Like a hypertrophied organ rupturing, the putrefaction of unsustainable corporate debt now threatens to create a generalized economic sepsis that will hurt even healthy firms.
Profiles in Debt
Airlines. The top six major US airlines spent enormous sums to buy back their stock over the last decade. US airlines (as a whole) spent 96 percent of their borrowed money on buying back stock. Now, revenue from flights is plummeting. United Airlines’ bookings have fallen by 70 percent. Back in 2011, American Airlines filed for Chapter 11 bankruptcy with $29 billion in liabilities; today, they have over $34 billion in debt. Yields on some of their bonds reached a whopping 12 percent, a particularly distressing sign as interest rates have been slashed by the Fed in an effort to relieve credit markets. Energy. Even before the effects of coronavirus eviscerated demand for fossil fuels, US energy companies were suffering due to high fixed costs and low energy prices. In the last five years, 208 US energy companies have declared bankruptcy. Energy prices have been pushed down by the fracking revolution, the rise of renewable energy, and oil overproduction due to struggles between large producers like Saudi Arabia, Russia, and the United States. Now the coronavirus shock is pushing firms over the edge. Occidental Petroleum — which has $40 billion in debt, while its market value (the value of all of its stocks combined) is less than $11 billion — recently had its debt downgraded to junk. Energy mutual funds reveal the crisis in the energy sector as a whole. Vanguard Energy Fund, considered one of the top four oil mutual funds, has lost over 41 percent of its value since the beginning of the year. Of course, the biggest oil companies, the “Oil Majors” (such as BP, Exxon Mobil, and Royal Dutch Shell) have enough resources, market power, and government support to survive the crisis. But the effects on the less established firms stretch beyond the energy industry itself. Lenders. As the oil and gas firms go into crisis, the banks that extended them credit may also face defaults. Loans outstanding to the petroleum sector from regional banks in North America exceed $100 billion. Banks financing oil companies in Texas and Oklahoma saw their share prices drop nearly 30 percent. In oil-dependent states, public budgets will hurt as tax revenues decline sharply. Retail. A number of important retailers carry net debt to EBITDA ratios that are too high to be sustainable under current conditions. For example, Rite Aid owes $15.80 for every dollar it earns. For JCPenney, the ratio is $8.30 to $1; for Walgreens Boots Alliance, it is $5.80 to $1. Office Depot owes $4.60 compared to every dollar earned.
Beyond Bailout
Bailing out distressed companies, even taking them under public ownership for a while, may staunch the bleeding. And the bubble can eventually be reinflated with enough effort. But a replay of the 2008 bailout, which involved lots of public money but very little public regulation and planning, will only mean a long slump followed by a bubble for the rich. The American economy is a sick beast. It needs not only government handouts and ownership — which it is getting — it also needs planning. Oil, airlines, and cruise ships — these are high-emission industries that, in the face of climate crisis, must be radically transformed or cease to exist. With government ownership and planning, these industries could be unwound and their resources redeployed. Although COVID-19 set off our current recession, it was the indulgence of the 1 percent built into the 2008 rescue that is responsible for the depth and severity of our current economic crisis. Without guidance, money was poured into the financial system. Not surprisingly, it blossomed alongside the mutually reinforcing dynamic of artificially inflated stock prices and ballooning corporate debt. Capitulation to the gluttony of financiers is deeply unjust. But it is also unworkable in purely technical terms. Without constraints on greed, there will be another bubble and crash and a longer slump, more suffering, greater inequality, and more social instability. We have to force government to use its legal and financial power to steer the American economy toward more egalitarian, socially rational, and environmentally sustainable purposes. We have to make this bailout work for the majority of us.
Corporate Socialism: The Government is Bailing Out Investors & Managers Not You
The U.S. government is enacting measures to save the airlines, Boeing, and similarly affected corporations. While we clearly insist that these companies must be saved, there may be ethical, economic, and structural problems associated with the details of the execution. As a matter of fact, if you study the history of bailouts, there will be. The bailouts of 2008–9 saved the banks (but mostly the bankers), thanks to the execution by then-treasury secretary Timothy Geithner who fought for bank executives against both Congress and some other members of the Obama administration. Bankers who lost more money than ever earned in the history of banking, received the largest bonus pool in the history of banking less than two years later, in 2010. And, suspiciously, only a few years later, Geithner received a highly paid position in the finance industry. That was a blatant case of corporate socialism and a reward to an industry whose managers are stopped out by the taxpayer. The asymmetry (moral hazard) and what we call optionality for the bankers can be expressed as follows: heads and the bankers win, tails and the taxpayer loses. Furthermore, this does not count the policy of quantitative easing that went to inflate asset values and increased inequality by benefiting the super rich. Remember that bailouts come with printed money, which effectively deflate the wages of the middle class in relation to asset values such as ultra-luxury apartments in New York City. The Generalized Bob Rubin Trade: Keep the profits, transfer losses to taxpayers. Named after Bob Rubin who pocketed 120 million dollars from Citi but claimed uncertainty and kept past bonuses. This encourages anyone to never be insured for such eventualities since the government will pick up the tab.
If It’s Bailed Out, It’s a Utility
First, we must not conflate airlines as a physical company with the financial structure involved. Nor should we conflate the fate of the employees of the airlines with the unemployment of our fellow citizens, which can be directly compensated rather than indirectly via leftovers of corporate subsidies. We should learn from the Geithner episode that bailing out individuals based on their needs is not the same as bailing out corporations based on our need for them. Saving an airline, therefore, should not equate to subsidizing their shareholders and highly compensated managers and promote additional moral hazard in society. For the very fact that we are saving airlines indicates their role as utility. And if as such they are necessary for society, then why do their managers have optionality? Are civil servants on a bonus scheme? The same argument must also be made, by extension, against indirectly bailing out the pools of capital, like hedge funds and endless investment strategies, that are so exposed to these assets; they have no honest risk mitigation strategy, other than a trained naïve reliance on bailouts or what’s called in the industry the “government put”. Second, these corporations are lobbying for bailouts, which they will eventually get thanks to the pressure they can exert on the government via lobby units. But how about the small corner restaurant ? The independent tour guide ? The personal trainer? The massage professional? The barber? The hotdog vendor living from tourists near the Met Museum ? These groups cannot afford lobbyists and will be ignored.
Buffers Not Debt
Third, as we have been warning since 2006, companies need buffers to face uncertainty –not debt (an inverse buffer), but buffers. Mother nature gave us two kidneys when we only need about a portion of a single one. Why? Because of contingency. We do not need to predict specific adverse events to know that a buffer is a must. Which brings us to the buyback problem. Why should we spend taxpayer money to bailout companies who spent their cash (and often even borrowed to generate that cash) to buy their own stock (so the CEO gets optionality), instead of building a rainy day buffer? Such bailouts punish those who acted conservatively and harms them in the long run, favoring the fool and the rent-seeker.
Not a Black Swan
Furthermore, some people claim that the pandemic is a “Black Swan”, hence something unexpected so not planning for it is excusable. The book they commonly cite is The Black Swan. Had they read that book, they would have known that such a global pandemic is explicitly presented there as a white swan: something that would eventually take place with great certainty. Such acute pandemic is unavoidable, the result of the structure of the modern world; and its economic consequences would be compounded because of the increased connectivity and overoptimization. As a matter of fact, the government of Singapore, whom we advised in the past, was prepared for such an eventuality with a precise plan since as early as 2010.
The absurd, unreal. Impremeditación, recklessness, incosciencia, a mental detachment from reality that generates Utopian and absurd situations. Impulsive abandoned in an orderly situation to pursue a religious idea, philosophical or bohemian. Indiscipline. constantly move to do anything but useful.
Mind "confused-muddled." Who does not conform to any standards, irrational irresponsible, wrong decisions, lack of analysis leads to disaster. Primary, impulsive, uncontrolled it, madness, absurdity.
1 - The Magician
Intelligence and will. Situations that require a specific decision and ability to solve them. Physically, it represents good health. Skill. Diplomacy. Skill, Initiative.
Mistakes and blunders. It is, above all, the deceiver, the modernizer of impossible illusions, the charlatan. opportunistic, the operator, the intriguing. Dispersion of ideas, thoughtlessness, indecisiveness as a result of lack of self-confidence.
2 - High Priestess
Intuition and wisdom. Committed and mysterious situations to be solved intuitively and with discretion. A personal levels is a friendly woman, but not affective. It relates to the temple, lodge, goddesses virgins, esotericism and mystery.
Passivity and delays. Delayed things for not taking any initiative. hidden agendas, lack of faith, believing in nothing, have no hope.
3 - The Empress
Materialization of desires. Abundance and material welfare. , Creative, smart person improves and maintains negative situations favorable. It also relates to harmony at home and ideas germination, fecundity, hatching.
Infidelities and coquetry. Vanity and superficiality. Frivolity. Voluptuousness. Laziness, delayed things planned, sterility, apathy.
4 - The Emperor
Activity and strength. The established order. A person who acts as a protector, a patron. economic goods to be portege. The authority granting the experience. Stability, right, sure.
Insecurity and immaturity. Weakness and fear, and also the opposite case, despotism, abuse of power, tyranny.
5 - Hierophant
social agencies. Excessive orthodoxy. Search by analyzing an inner response, recognized as "valid" able to resolve the situation. The help of an expert in the matter that concerns us (lawyer, doctor, etc.) to avail ourselves of their expertise and advice. Inspiration, intuition.
Desire to change the physical environment. Narrowness, adherence to traditions and dogmas repressive, rigid and intolerant.
6 - Lovers
Love and attraction, profound friendship between two people, love, marriage, job, study, etc. dual activities. Family, lovers, art, happy solution to a dilemma.
Breakup. Difficulty choosing, whims, going through an ordeal, seduction, the possibility of falling into temptation. Rupture of couples, separation, infidelity.
7 - Chariot
total triumph. Progress, win, progress, skill to master situations. Travel, unexpected news, activity and speed. Will in order to solve a problem.
Failures and frustrations. wrong address leading to fatality. Problems in the sexual aspect (repressions, inhibitions, frustrations). Step loves not consolidated, accidents.
8 - Strength
Domain on the environment. physical and mental strength, health, vitality, joie de vivre. Quiet and effortless mastery situations, the power of the smile, bright personality. inner strength, moral beauty.
Anger and tantrums. The man who is not controlled himself, and whom the passions dominate you. Hardness and brutality towards the weak. Violence that can devastate. Also its opposite, weakness, fear, terror against the force of nature and the unknown.
9 - Hermit
Peace of mind. Must prudently consider the state of things before jumping into action. austere person, lonely, sober, meditative who knows secrets that will reveal just the right person. The meeting with a counselor or spiritual master will bring its light upon us. Circumspection. People researchers whose life is reduced to its laboratory, library, etc. The brain gray hidden behind straw men.
Loneliness and sadness. Imprudence, conspiracy, lack of sociability, greed, selfishness, obsessive thoughts that cause fear in dealing with people.
10 - Wheel of Fortune
Favorable changes, good fortune (very lucky). Successful trips are pleasant and positive. favorable developments in all matters. unexpected positive changes. Marriage very favorable. Luck in gambling or financial speculation. Trips abroad. Reassignments.
negative changes. unstable situation, afraid of the future, interruption of something favorable than had been occurring. Bankruptcy and ruin. The player seeking the good run, even ruining his life. Risk of accidents on the road. Not fight to change or improve the situation, "that is what God wants."
11 - Justice
Equity, fairness and balance. The institutions conducting the order of a country, the law, bureaucracy, lawsuits, legal issues, legal machine. Situations where it is necessary to litigate.
unjust situations. Injustice, loss of lawsuits, broken links or associations affective. Justice moves to one pole, it becomes rigorous and even cruel, or is too soft.
12 - Hanged Man
Tests and sacrifices. Task dependency or self-imposed sacrifices. difficult situations to break. Fidelity to alleged principles that prevent freedom of action or casting a shadow existence. Sacrifices "beyond duty."
Dissatisfactions. Stagnation in emotional situations. Dissatisfaction in the religious field in which the routine is established. Denied the right to happiness for fear of hurting. personal sacrifice useless that no benefits and is destroying the sacrificed himself. Work for lost causes and Utopian. Failure economic and material.
13 - Death
Radical changes. Renovations and changed circumstances. solid establishment of a new situation, making the above irreversible. Understanding of vanity and transience of things. Deep Thoughts and rejection of all superfluous.
Fatality pain. failures, situations that end up painfully and losses. Disappointments, sadness, ruin, thoughts attached to past situations. Stagnation and lack of flexibility in new situations, which produces left behind. painful news. physical death. Decrepitude of a system, an order, a philosophy.
14 - Temperance
Optimism, positive transformations. Sociability, tolerant person, flexible and adaptable. Harmonious agreements. stability over time, A stop along the way. Deep and loyal friendship.
Lack of initiative. Love without passion. Lack of personality. Apathy, apathy. Accept the opinions of others and be carried away by them.
self-destructive situation. Evil, madness, suicide, mental and moral self-destruction.
16 - Tower
Accident catastrophe. Cataclysms, breaking beliefs. Human ambition that ends in disaster as in Babel. very conflictive situation in which, without the support of the spirit, personality is totally dejected. Great confusion.
Break schemes. Losses of all kinds: economic, emotional, etc.
17 - Star
favorable projects. Letter of hopes and projects. Fertilization, fertility. It favors related to art and sensitivity. Good luck. People born with "good fortune." Purity in the way of being and behaving.
Projects that are not performed. Bad luck, states pessimism. Failed hopes and frustration.
18 - Moon
hidden enigmas. Darkness spells. chimerical ideas, extravagance. imaginative people, with great magnetism, which can "trap", creating absurd illusions in their "victims". moonstruck people. Anxiety. People who take refuge in fantasy and megalomania to escape reality.
Health & Wellness. Money, happiness, success, progress. Building positive intelligence happy situations. Physical beauty and excellent health. Happiness at home. Recognition of a job well done. Fame, glory and honor.
Vanity and selfishness. Pride, and delays expected in situations given for granted. Frustrations couple. Bright expectations that are delayed and can generate need. People who always want to "get away with it." Nobles ruined.
20 - Judgement
Popularity, fame. Changing situation. Judgments and opinions about yourself that others expressed as positive. Examination of society and applause. Popularity, development, proselytizing, communicating ideas, group formation under a philosophy. Advertising as a transforming force. Curing a disease. favorable legal judgment.
Feeling of being locked. Obfuscation of mind and intelligence. Riots and discussions that lead nowhere, hesitations. Fanaticism. Excessive craving for popularity and fame. Punishment. Oppressive environments "like coffins" false judgments about oneself.
21 - World
Physical and mental powers. Charter every success, mastery of situations, goals achieved, prizes, rewards, noble altruistic feelings. I desire for perfection and the "job well done". Long and happy life. Feel protected by divine power.
Limitations. Obstacles and difficulties, tasks that are not performed or that once made, are useless. Failures. negative environment that produces insecurity and fear.
Catch the full episode: https://www.wealthformula.com/podcast/227-ask-buck-part-3/ Buck: Welcome back to the show everyone. So without further ado let's get to our first question. You know and these are you know these are from a while back here because we have quite a few questions so they might be a few weeks old. We have a couple questions here recorded from Srinivas one of our very active investors. Srinivas: Hi Buck this is Srinivas. I wanted to thank you so very much for your podcast, the guests that you have and all the work that you put into it. I also wanted to thank you for the Wealth Formula Network and the excellent investment opportunities that you've presented to myself and others like me. My question is really more of a comment obviously. The Covid pandemic has really opened my and a lot of other people's eyes to the risks associated with real estate syndication investing one of the risks that was apparent to me only now is that the limited partner to me really seems at sort of the end of the line so when the Covid pandemic started and it really affected real estate starting in March. It seemed that most sponsors were really doing everything that they could to not only preserve the wealth and equity of the asset but also to preserve the income stream for everyone else except for the limited partners. So obviously they were making sure to still be able to pay taxes to be able to pay the mortgage but also they were still making sure to still be able to pay the workers on the property to pay the operation fees and to pay the asset management fees but it seems to me that the the one fee or cash flow that was disrupted and is being held is the distributions to the limited partners. A lot of syndicators are sort of holding those distributions to be paid at a later time and I just sort of wondering if this is what we can expect sort of going forward that is the limited partner investors seem to be the ones putting up the vast majority of the capital but when any problems arise they seem to be the ones who are suffering first from a lack of cash flow as opposed to all of the other players in the deal just wanted to see what your thoughts were on this. Again, thanks so much for all of your help. I really appreciate it. Buck: It's a good question. It's a probing question so let's put it into context okay. So let's start with this idea any investment relies on the ability to make a profit after expense and so in this sense you are absolutely right, you're going to pay the mortgage, you're going to pay the taxes, these are very large assets, there are a large number of employees that need to get paid and managers that need to manage those employees and so remember the employees and all the other things are not making money as investors but rather again as employees of a business because every one of these assets is really fundamentally a small business you know in our opportunities in specific you know the general partners are on the same level as the limited partner in the sense that if distributions are not being made to the limited partners distributions of cash flow are not being made to the GP either. Now that brings up another issue that is important to understand and I've said it before and I'll say it again, just because you are not getting distributions right now, as I know you're not, that doesn't mean that you're not making a profit. You are making a profit, specifically, especially in the opportunities I know that you're involved with. Think about it this way, if you yourself owned a building by yourself okay let's not put it into a syndication context you'd still be paying a mortgage with principal interest you'd still be paying property taxes you'd still be paying your property manager and maintenance employees and then in that case again when do you make a profit well you only make a profit after all those expenses get paid right but you know given the financial uncertainty that we're in with the pandemic and an upcoming election which is typically very, very disruptive to any economic scenario, even in the scenario where you had your own building and you were still making some profit right now and you were getting these checks from the manager into your bank account, your operating bank account, you might be a little bit reluctant to spend that money right away, right? I mean after all what if we had a bad month? What if all of a sudden everything went into lockdown again? So wouldn't it be nice to be capitalized and feel like your capital is secure and I'm guessing the answer is yes because no one wants to go crazy with you know spending money that they don't know for sure that they're going to get to keep. So if the money though is in the bank you've already been paid by the property manager you own the building, is that your money? Yes it is your money, you're just not spending it. So basically that is no different with what's happening in the syndication scenario that you're in right now. In most cases as you know our offerings are exceeding pro forma and we're doing quite well. You and other investors certainly in our group are making money, are making a profit and you will see that on K1s. Furthermore, your basis of value in the sense of you know creating equity continues to go up meaning that your equity is growing, your money is still your money right, the profit is still your profit it's just in the bank right now and it's in the bank to you know to help keep your principal as safe as possible. Now think of it as an insurance policy basically right when this covid thing is clearly under control you know you're very likely just going to get a great big check representing multiple quarters as I know you know your equity is growing too at the same time. Now let me give you an example. One of our first group investments was a property in Mesa Arizona that we had planned to do our first refi you know around 24 months which would have been right about now for about 70 percent return of equity but right now refi well they're very difficult to do first of all because of banks are requiring significant principal and interest in escrow because they're kind of bracing for the potential worse too but if in doing so you would also end up taking away you know capital reserves of the of the asset which in this situation is really not that smart. Listen these are all small businesses and small businesses the most common reason for them to go out of business is to be under capitalized. So bottom line is again you the investor are making money it's just either sitting in a reserve account right now or growing you know with the appreciation of the asset or both. By the way you know I know again you're invested a number of these things through Western Wealth Capital stuff, I would highly encourage you to look at the basis of value numbers on your reports. Some of these returns are already looking I mean absolutely huge after 12 to 18 months and I don't know how closely you look at that but I would encourage you to do that it's a lot more you know I think the mistake that people are making right now is thinking that if their syndicator is not making distribution somehow the property is struggling and that's just not generally the case. In fact you know I don't know about other syndicators but I will say in general there is not a lot of distress in the system right now. So apartment apartment investors are generally doing pretty well so hopefully that answers your question and let's go to your next one Srinivas because I know you had a couple here. Srinivas: Hi Buck. This is Srinivas. I want to thank you so much for all of your advice on the podcast and for the great opportunities to invest through the Wealth Formula Network. My question is a little bit of a technical question that pertains to preferred returns on the waterfall that many syndicators offer my question is this: do syndicators often also return a portion of the capital that's invested by limiting partners as a way to decrease the amount of distributions that they have to give to limited partners based upon this distribution waterfall? So for example keeping the numbers easy let's say that the syndicators raise an investment and a limited partner contributes a hundred thousand dollars and then let's say after year one the syndicator returns ten thousand dollars of that initial investment that is at the start they raised more than what was actually needed and then let's also say that there was a 10 preferred return as a part of the distribution waterfall so after the first year based on a initial hundred thousand dollar investment the investor would expect to get ten thousand dollars in that year but then in the second year based upon a 10 distribution waterfall because 10 percent of the cap of the initial 100000 capital was returned in addition to the percent return the investor investment is only ninety thousand dollars so in the second year by a ten percent preferred return the investor would only get nine thousand dollars. Sorry for this long explanation but I've heard that this is a way that some syndicators can kind of dupe investors into thinking that their preferred return is based on their initial investment as opposed to their investment throughout the deal. Again thanks so much for your insights as always and I was wondering what you thought of this technical question. Thanks again. Bye-bye. Buck: Another probing question there Srinivas, you know without getting too much into the weeds, you are right. There's a lot of complicated various waterfall structures that can be used by general partners to make more money and as you've said it to make it seem a little bit deceptive. Here's what I would say my primary advice here and as you know in general this is kind of what we do in our group is stick to really simple structures where you're getting access to the upside and or aligned with the GP. I think the challenge is when you get into these you know waterfalls these constant shifts I think you know a lot of those kinds of things that you're talking about are possible, it becomes very convoluted. That's why, for me at least, you know the way that I have generally tried to look at things and certainly present things sometimes is in terms of annualized returns because for me that's kind of the easiest thing to understand. Sometimes you can really be fooled into thinking that you know you're getting something better than you are by the way somebody says it, I mean somebody says I'll give you 25 you know cash on cash on your investment, you're like wow that sounds great 25 cash on cash, but then all of this then you realize that the investment only lasted for four years so you know the next thing you know you've made just your capital back and you've made no money on top of that, that's obviously not you know necessarily something that you're you're seeing but you're going to see variations of what I'm talking about people in this space like in any space they are good at trying to push the buttons on what what less sophisticated investors might be looking at. My advice again is really to focus on annualized returns because annualized returns typically are going to give you a little bit better of an idea in terms of you know what the true return on and on a yearly basis is expected to be. People get caught up in this preferred return things which is in my view the concept of preferred returns is totally overrated. People get excited about preferred cash flow returns because they think it they they think that it somehow suggests some kind of guaranteed return which which as you know it really is not it's funny you know with one of the models that I know you're you are familiar with there is no preferred return and I get this question from new investors all the time well why is there no pref and I said well there's no pref because there is no money that's you know no cash flow or capital gains that are going to the operator until you have 100 of your capital back and so in that regard it's not a preferred return or you can say it's a preferred return that is you know infinite until you get your money back but these whole preferred returns are you know in my in my mind a little bit misleading too because in most cases the preferred return is also incumbent on the you know the asset itself actually producing that much cash flow so at the end of the day I don't think you know that much about preferred returns. I like to focus on what is the split what is the alignment between the limited partner and the general partner and ultimately looking at pro formas you know once once you realize you know if the performers are realistic trying to get a sense of what an annualized return projection is anyway that's pretty simplified answer but I think the moral of the story is for me is simply just to keep it simple. Okay next question from Tuan. This is a written question. Hi Buck. I am a high W-2 healthcare provider. I wanted to start investing in buy and hold rental to generate passive income and benefit from tax breaks but I just found out that I can't use any of the tax benefits to offset my active income. Is it worth it for a busy health care provider to start a portfolio of small multi-family or would I be better off investing passively into syndications? Well let's start with the issue of you not being able to use your losses well unfortunately you are right there, you cannot write off these wonderful real estate losses against your W-2 income and that's why people do things like have their you know spouse quit their job and become a real estate professional so that you know the real estate then when you're filing jointly some of those losses can actually offset your W-2 income. If you're not going to do that, if you're not going to find a new spouse to do that or whatever it takes to get the real estate professional status, the goal ultimately at that point is to create a robust flow of passive income where you can use those paper losses right, I mean that's the name of the game. So sometimes the reality is that people have lots of passive income but they don't even know it and let me give you an example okay, a number of our investors physicians and such have ancillary income in the form of surgical centers, hospitals, maybe they have dialysis centers whatever, and I'm not talking about a few bucks, I'm talking about hundreds of thousands of dollars that their CPAs are not considering passive income for some reason. If you are one of those people who can identify or even create these kinds of robust flows of passive income then you can use those big losses from real estate you know like bonus depreciation et cetera to offset that income. I'm not a CPA but I'll tell you that's what I know. Okay now as for this question of direct verse direct investment versus syndication, it's a slightly different question it's a very different question of course and for most people in our high income cohort the only reason really to invest directly into real estate in my opinion is because A you like being a landlord, and most people realize they don't like being a landlord they like real estate but they really like what real estate does for them rather than you know being a landlord or you want to get the real estate professional designation which we've talked about before and you know for one of the spouses in a marriage for example and then you can potentially use those passive losses get applied to your W-2 income. I mean that is you know that's sort of the holy grail, if you can do that now if that's not possible if that's not the goal my opinion and again it's my opinion is that you're much better off spending your time finding you know the right operators to invest with passively okay making material money in real estate you know and doing it consistently doing it well it takes time, it takes effort and that's just a fact there's no denying that people sometimes think that they're gonna make more money if they buy properties themselves instead of going through syndications and in my experience that generally ends up not being the case you know for a number of reasons I mean not excluding the fact that people don't often have the expertise or time to do it but if you look at like you know my personal investments that I have as a passive I mean I'm consistently yielding well over 20 annualized I'm not talking about anything that I'm doing I'm talking about my limited partnership investments that I have in my portfolio so I'm consistently yielding 20 annualized or better now most people can't do that well on their own because they again they don't have the expertise to optimize the profitability of the asset and even if they do pretty well they often find themselves putting a lot of time and effort into these properties which you may or may not like doing. Now with regard to time and effort remember your time is actually worth something as well especially if you're a high paid professional and if you're spending 10 hours per month even on real estate the cost of your time has to be factored into that ROI so you know bottom line is you know if you are one of those individuals who whose hourly is like 400 an hour well if you're spending 10 hours a week on real estate you better you know you have to make 4 000 a month more from your active activity compared to what you would make as a passive to make it actually make make sense right so bottom line is for most people choosing the right the group or operator might be a better option you know especially if you're a busy person and that's of course you know I'll put a shameless plug in again there for our Investor Club which you can sign up for at wealthformula.com if you're accredited. Next question is from Cindy. Hi Buck I have a simple question. I've often heard that rich people don't gamble their money in stock markets since they have other investment tools that offer higher returns at less risk, however, I also heard in the news that all this stock rally this year only benefits the rich since the poor do not own stocks these two sentences sound contradictory so are we talking about two different groups of rich people here? Well thanks I love listening your podcast as always and learn from them. Well thank you Cindy. Listen I think the quote about rich people not investing in the stock market is first of all it's not true and who are rich people anyway? Are we talking about you know people who make a million dollars a year is that rich people? That's not what the people who are making 10 or you know 20 million a year or worth 100 million they don't think of the 500000 to a million dollar people as rich people but you know listen I think the point is that you know when you're talking about wealthy people in general I think the idea is not that they don't own stocks I think the point is that their entire portfolio is not sitting in a bunch of mutual funds with huge fees inside of an IRA you know the wealthier people generally you know they obviously do have significant stock portfolios but also remember that they are usually people with a lot of direct investments as well so a number of real asset investments or you know you see a lot in wealthy people you see these products these life insurance products like Wealth Formula Banking or Velocity Plus type things which you can check out at wealthformulabanking.com. You know listen while most everyone I know who is wealthy owns a substantial amount of real estate I would not say that they do not own stocks as well so I think that's the bottom line. Personally you know I like the idea of owning equities if there are guard rails similar to the ones you see in something like Velocity Plus which again is that you can see a webinar on that at wealth wealthformulabanking.com and something that actually allows you to take the upside and leverage it but allows you to skip you know a year that actually goes negative. I mean those kinds of products are used by the wealthy all of the time and they're called generally speaking they're called you know premium finance IUL's or you know LIRPs which are Life Insurance Retirement Plans those are things that you know the ultra wealthy are really into. Bottom line is you know these statements I think they're too generalized and you know it's just that the wealthier you are generally speaking the better you are at you know taking or your advisors or whatever it is or at you know making sure that you maximize your profits and mitigating your losses. Well that's quite a few questions here so I am going to take a quick break and we'll finish up when we come back. Okay welcome back everyone the next question here is from Aneesh. Aneesh says, high Buck. I'm a soon to be PGY2 resident physician in other words that means he's almost in the second year. In recent months I've been getting into personal finance and ideas for financial independence. I came across your podcast. I've enjoyed listening to it. Just wanted to get your take as a resident with nominal income and time at hand, are there things you think I could or should be doing aside from maybe a Roth IRA over the next few years to lay the foundation for building this wealth and getting to that next step? Okay well listen Aneesh that’s a good question and I will just say something that goes against the grain of all of these probably all these other you know physician bloggers and stuff like that honestly as a second year resident I personally don't think it makes any difference what you do right now. Residency is weird. You get paid pretty much nothing for a few years then suddenly you had a huge raise and if I were you I'd spend all of your resources right now on education, financial education and trying to understand how you can position yourself when you do have the money when it starts coming in. I think the idea of you know you know trying to do too much with as little as you have in terms of time and money it might just be a waste of time you know I'll that's my honest opinion on that but again it's just my opinion. One thing though I will say that that I would consider if I could go back and doing it, and it sort of depends on where you live and stuff, if you really want to get started on something in real estate and the market seems like you know that it's possible for you do you could look at one of these FHA loans where they have you put down three percent and specifically to buy a multi-family you know like a four unit or three unit building it's up to four units residential. So what's cool about that is that's actually something where you don't need a lot of cash to put down and it's something that you might be able to do with your limited income and then build equity while letting the other tenants pay for your rent. So that's like the one thing I think if I was going back I would be thinking about you know retirement accounts etc I think that's fine I mean you know what money are you gonna put in a Roth right now five grand a year how far is that gonna go? Is it gonna be meaningful? I mean I guess it would, I just don't think it's something I would spend too much time thinking about. Anyway okay so next question what are your operators of course talking about the different partnerships we have in Investor Club he says what are your plans or strategies if no more Covid payments are made from the government to tenants so we're talking about apartments obviously well first I think it's extremely unlikely that the government stops paying tenants because you know essentially that would mean they're like eliminating unemployment which isn't going to happen. Also remember we are in working class apartments so you know generally speaking we're in areas that the cost of living index is not very high so their rent is not that high for how much money they make even if they're on unemployment and then the next major issue there is that the majority of our tenants currently are not unemployed so and I don't see unemployment getting worse at this point either. However to answer your question about well what are your strategies, I mean what are you going to do to make sure or to mitigate the risks? The biggest thing we're doing is being well capitalized so that again that goes back to Srinivas's questions about well why are we not getting paid or you know we're whatever listen we're just staying capitalized so that we can weather the storm. There's just money sitting in the bank account it doesn't guarantee that we're going to be fine. Nothing's guaranteed in life. Your stocks aren't guaranteed that's for sure. However there are thousands of owners of these kinds of apartment buildings who I can pretty much guarantee you would lose their properties before our partnerships and our in our operators and the reason for that is capitalization we are very very well capitalized and you know as for this idea of you know all of these buildings getting foreclosed on etc and taken back I just don't see Fannie Mae or Freddie Mac letting that happen. They're not in the business of taking back apartments that would be an absolute disaster for them and for the economy and so if a scenario like that happened I'd truly believe we'd see a huge bailout of some kind for our industry but listen, the best we can do is what we're doing right now and you'll be happy to know that we're actually doing really really well, our portfolio right now is performing at you know Covid levels or better so you know listen we just need to keep staying ahead of the curve and as long as we do that I truly believe we're going to be just fine. The next question is from Christian Schultz. Okay so Christian asks Buck, perhaps this is one that can be raised on webinar but Western Wealth Capital relies heavily on upfront depreciation, raising the cap rate through improvements and then refinancing of the resale. What are the implications to this model if Biden wins the White House and democrats take the senate as well? Is there any indication that they would do away with depreciation allowances or change the tax loss surrounding multi-family real estate if the ability to take maximal depreciation up front were done away with the market for multi-family real estate could dry up. Thoughts? No I don't think so, actually at all, for one thing remember that idea of you know the market you know the ability to take that maximal depreciation upfront is only like two years old I mean so I don't see any indication of that drying up at all you know listen, so the only real change that sounds like from from my understanding of the Biden laws in terms of us really relate to people who own real estate there's challenges to potentially to 1031s etc. I don't think it would affect us because it sounds like what it would affect is mostly the elimination of bonus depreciation with cost segregation analysis which is set to sunset anyway in 2022. So let's just review that real quick because a lot of people may not even know what a cost segregation analysis is but a cost segregation analysis is basically an engineering study done by you know an investor to segregate the property into what is considered real property which is like you know the land and this the big old building that you got there versus chattel or personal property which is like stuff you can pull out of it cabinets or you know whatever washer dryers et cetera real property is depreciated over 27 and a half years so that's mostly if you do nothing if you do know you don't do a cost segregation analysis in apartments it's going to be a straight line but if you do a cost segregation analysis the personal property part can be depreciated over five years and that is the exciting thing because in apartments it ends up being sometimes that about 30 percent. I've noticed on average of apartment buildings end up being considered the acquisition price considered chattel or personal property so you could depreciate that over five years and that has been the rule of the land for years and years and years it's been a great tax advantage to real estate investors for a very very long time and to be clear there is nothing in the Biden plan that suggest any challenge to these elements of the tax code. Now bonus depreciation use with cost segregation analysis was, as I mentioned this was new, I mean this started with Trump with the tax code that allowed you to take that five years that I just mentioned of accelerated depreciation and hyper accelerate it into all into the first year so if you were either a real estate professional or have a lot of passive income like we talked about maybe of a surgery center or whatever that was a huge huge advantage and it is a huge huge advantage and it will be until it's not anymore so take advantage of it if you can. But you know the reality is for most people investing passively it's not going to make much of a difference either though you know so bottom line is I don't think limited partner investors have much to worry about frankly, but I will say if you're benefiting from bonus depreciation ride that baby as long as you can. All right, last question here and it's from Cindy. She says we are all familiar with Robert Kiyosaki's famous saying “your house is not an asset” and from financial perspective I totally agree especially since I live in a state where housing is expensive, however renting has its own limitations, for example we can't design the house we want, tiles, paint, etc. We also can't dictate how long we want to stay in the house. If the landlord decides to sell a home while renting. May be easy for young folks with no kids. Those of us with kids might find the potential instability quite a bit of downside. So what's your view on taking out as much HELOC, home equity line of credit on the primary residence as we can to invest in opportunities that generate a higher return than the interest that we need to pay the bank. It's not perfect since most banks would only allow a certain percentage of the loan to value but would that be a good compromise to this question? So there's no real perfect answer here, right, there's two ways I would look at this question and then I'll leave it to yourself to determine what you think, but first there's the question if you look at it purely from the math and the math answer is quite simple right? If you can get returns higher than the interest you're paying on your HELOC then the math is easy and you should maximize that home equity line of credit to the hilt right and invest it. You should do that if it's purely a mathematical question. Also in benefit of that argument of doing that remember equity in your home is really just dead money. It's not doing anything and it's also a big target for creditors and you know mortgages and HELOCs are if you think of it that way are potentially the best asset protection you can have on your house. And the final thing in favor of doing the HELOC maximizing leveraging is that the truth of the matter is that the banks are far less likely to foreclose on a home with no equity. So they might be willing to work with you more if you stripped out all the equity from your home, got yourself in trouble, again that's the math side of this but at the end of the day when it's your personal residence, there is a psychological element to this as well which I understand and appreciate. You know there is something to me well and to a lot of people that is psychological about not having to worry about paying a lot of money to stay in your home. So bottom line is I don't think there is a black and white answer here and as long as you know the specific issues you need to do what you need to do to feel feel like you can sleep that night. Now one last compromise that I've heard particularly in Wealth Formula Network which I think is really really smart is okay maybe you don't keep a lot of equity in your home but you're keeping you know you're keeping an equivalent amount of equity in some other you know in some other place where you can access it. So for example maybe you've taken a hundred thousand dollars of equity out of your home but you have a hundred thousand dollars accessible to you in a Wealth Formula Banking policy that's thrown off five and a half percent compounding. Now the advantage in a situation like that is well when can you not access your home equity line of credit? Well unfortunately usually it's when you really really need it right so if your credit is gone or all of a sudden you lose your job that's when you're not going to be able to you know get a home equity line of credit. So some people that I've talked to have said well what I'm going to do is I'm going to strip out the equity put that equity into something like a Wealth Formula Banking policy where it's better for me to keep it and I know the banks won't lock me out of their system when times get tough. Anyway that's something to consider. We're gonna wrap it up here we've been going for a while and that actually wraps up three sessions of Ask Buck and I hope you enjoyed it. Again if you like this kind of stuff, join us in Wealth Formula Network go to wealthformularoadmap.com. This is Buck joffrey with Wealth Formula Podcast signing off.
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