The Retreat

Home > Other > The Retreat > Page 2
The Retreat Page 2

by Gordon Ballantyne


  “Doesn’t someone have to cut down the trees and turn it into lumber?” Devin asked.

  “Yes, but the land the trees sit on will be worth more than the cost to convert the asset and the monstrosity has to be worth something. We also get to play hard in the futures market because we can actually produce the wood on the timeline we choose; we get to ride both the highs and the lows. I am fairly confident we can double our investment inside of five years; as a matter of fact, I’m sure we can,” Mitch said with true confidence.

  “How do I explain this to our customers?” Devin asked.

  “Tell them what you usually tell them using such obfuscating words like paradigm, fat tails, market volatility and alpha trading strategies,” Mitch replied with another grin. “Look, if you don’t like the deal, I’ll put it on my personal account.”

  “You’d put your own money into this deal?” Devin asked. Mitch actually had more equity in the fund than Devin did. Mitch was always too busy working and trading to spend money and enjoy the finer things in life as Devin called them.

  “It is free money, courtesy of Uncle Sam,” Mitch replied in a matter-of-fact tone. “There is no downside risk except a forest fire but we already put a boatload of insurance on it.”

  “I tell you what Mitch, I can sell ice to Eskimos,” Devin said, “and if you can double our money on this deal then the rest is yours.”

  Mitch played the market like a virtuoso through the great real estate bubble inflation and then down the other side through the housing crash. Mitch had doubled the initial investment before half the timber on the site was even harvested and true to Devin’s word, he signed over the deed and the rest of the site was his. Mitch went up to the site quarterly and was in constant contact with his onsite manager, Duncan McFarlane. Duncan kept the log trucks rolling and the government happy with their paperwork. The local Bovill population was ecstatic to have the high paying logging and trucking jobs in the community. It was on one of these trips and meetings with Duncan that would change the trajectory of Mitch’s life.

  Chapter 3

  The Retreat had just reverted to Mitch’s ownership. The site was producing a square mile of timber a month and eighteen of the thirty-six perimeter acres had already been logged. Duncan and Mitch were sitting in one of the conference rooms of the center enjoying a beer when Duncan asked if Mitch had any plans for the center and surrounding cleared lands. They were working from the perimeter towards the center to put as large of firebreak as possible to reduce the fire risk to both their harvest and workers. Many of the loggers and truck drivers were renting some of the townhouses at the center from Mitch to reduce their commute time.

  “Do you have any plans for the land after it is cleared?” Duncan asked.

  “No clue,” Mitch replied honestly. “I don’t even have an inkling and there are three inklings in a clue. I do not know, beyond what the original appraisal said, what the property is worth. I was thinking of just selling it to a potato farmer. The value to me is as timber and lumber, not as dirt.”

  “The value of a property like this,” Duncan explained, “depends on what you do with it and who you sell or lease it to.”

  “I am not a land developer, Duncan,” Mitch said. “I would not know where to start, who to hire or what it costs. I am a trader, I deal in investments, profit and losses and return on investments. I happen to own this entire property now free and clear.”

  “I would propose a deal then,” Duncan offered candidly. “You have an appraised value for the land and the land market in Idaho is up 10% since then; let’s enter into a partnership. You put up the land and I do all the work, you receive the strike price of the appraised land value plus the 10% and we split anything above and beyond that up the middle. All the timber is still yours. No investment beyond the cleared land is required by you and your ownership will not be subordinated to any bank loan.”

  Mitch thought about it for a few minutes. “Ok, Duncan, you’re on. You pay me $3,500 per acre and we share everything else fifty-fifty. I’ll have my attorneys draw it up.”

  Duncan looked directly at Mitch and said, “Your handshake will suffice.” And with that the Retreat Trading Company LLC was born.

  On Mitch’s next quarterly visit, he was amazed to see trucks loaded with lumber interspersed with the usual logging trucks on the long, paved road into the Retreat heading toward Bovill and he soon caught up to a couple of concrete trucks heading towards the Retreat. Oh no, Mitch thought, what have I done? Mitch sped up to the center and was greeted by the sounds of a lumber mill sawing away. It was a beehive of forklifts, conveyors and people feeding logs into one end and churning out lumber at the other. The concrete trucks were headed towards the outer perimeter and were soon lost from sight. Mitch walked into the center and was greeted by a plethora of people in a scrum slowly circulating around the center figure of Duncan McFarlane. Duncan was a tall man of obvious Scottish heritage due to his blond hair, red goatee and ever so slight Scottish brogue in his accent. People would work their way up to him, he would calmly listen for a few minutes, point, mumble a few words and the person would scurry off. The center was full of desks and people on phones and computers. Duncan was in the center of the maelstrom and reminded Mitch of what he must look like on the trading floor of

  his hedge fund, only these were engineers, architects, loggers and lumber people instead of stock, bond and commodity traders. Mitch came into the room and caught Duncan’s eye. Duncan stopped, stood on a nearby chair and clapped his hands loudly over his head.

  “Attention, everyone,” Duncan yelled. “I present to you all Mitch Fleming, the better half of the Retreat Trading Company LLC.” The crowd gave a brief desultory clap and quickly returned to their tasks. Duncan gave Mitch a nod and pointed toward the conference room with a smile.

  They were no sooner in the door and sat down before Mitch asked, “What in the name of God’s green earth is going on around here?”

  Duncan grinned and slowly raised his right hand and said, “Sstaaap.” He held his hand up for a few seconds. A very good-looking blond lady gently tapped on the door and Duncan waved her in. The blond lady distributed folders to each of the group and sat down in the chair next to Mitch. She cleared her throat and began, “The Retreat Trading Company LLC quarterly meeting will come to order. I, as the secretary, Melanie Halstop yield the floor to the co-chairman, Duncan McFarlane; we will note for the record that Mr. Mitch Fleming the other co-chairman is also present so we have a quorum. I will yield the floor to Mr. McFarlane to go over the company financials for the quarter.”

  Mitch was spluttering and blurted out, “What kind of goat rope are you running here, Duncan?” Mitch was so red in the face he could barely stammer out the words.

  Duncan laughed. “You are out of order, co-chairman Fleming. I do not yield the floor at this time. Now if you will please turn to page one of the financial report, we may begin.” Mitch was still flummoxed but he opened the folder anyway to hope to find some clue to what the hell was going on here. Duncan continued, “Now, as you can see…”

  Mitch held up his hand saying, “Sstaaap.” And held it there as he flipped through the rest of the financials. “Do you mean to tell me you are currently yielding a 215% return on equity based on the $3,500 per acre strike price?”

  “215.49%, Mr. Fleming,” the beautiful blond piped up next to him. “There were some upfront expenses that once we amortize them over the life of the project and based on a natural progression of price that is currently being achieved, I expect the next quarterly yield to be 266.32% without assuming any depreciation.”

  “Who exactly are you, Ms. Halstop and why should I believe this?” Mitch asked while still staring at Duncan.

  “Well, sir, Mr. Fleming, I am the bookkeeper and if you get to the last page you will find a disbursement form for both your land strike price funds, your timber funds and your LLC disbursement funds. If you would be so kind as to provide me wiring instructions, your funds will be a
vailable within minutes.” Melanie delivered all this with a smile.

  “OK, you’ve explained to me the ‘what’ Melanie, but not the ‘how,’” Mitch said.

  “That is above my paygrade, Mr. Fleming. I’m just the score keeper, you would have to speak to Mr. McFarlane about planning and operations. I am a CPA and have an MBA from Wharton and a JD from Harvard; I am as confused as you are on how the sausage gets made and it confounds any reasonable metric of data I have reviewed but I can assure you that numbers don’t lie. There are some interesting tax advantages to your business plan that I would like to explore as well as some regulatory possibilities but we can look at implementing those in the fourth quarter before tax season.” With that, Melanie excused herself from the table and exited the room. The view of her leaving was as good as the one coming in.

  “OK, you Scottish hillbilly,” Mitch asked while still watching Melanie walk away, “why do I get the feeling I’ve been had?”

  “Sometimes it is it better to beg for forgiveness than ask for permission,” Duncan said with a chortle. “I had a dream and thought I could pull it off but I didn’t know it could be done until I started actually pulling it off.”

  “How on earth have you made real estate in literally the middle of nowhere worth more than real estate that is actually somewhere?” Mitch asked with a perplexed look on his face.

  “Have you ever heard of preppers, Mitch?” Duncan asked.

  “Aren’t they those whackadoodles who live in the hills of Idaho and Appalachia who are trying to overthrow the government and not pay their taxes? Oh my god! You’ve turned my property into some kind of domestic terrorist training camp!” Mitch said loudly in disgust.

  “No, Mitch, this property has six or seven very unique attributes that makes it extremely attractive to a small but growing proportion of the US population. First, it is secluded and surrounded by thousands of hectares of Federal Land. This is some of the best hunting grounds in the world. Second, you have a clean water source with enough volume to supply both homes with potable water and electricity. Third, you have the ability to be 100% off the grid. Fourth, there is only one road in and one road out and it is twenty miles away from any other road and therefore twenty miles away from any population center. Fifth, it is very defensible. Sixth, due to its size it has the ability to be its own city, free of jurisdictional oversight; it can have its own bylaws and government and seventh, under all your precious trees lies volcanic arable soils that happen to be extremely fertile. If you put all those things together then you have the makings for an entire self-sustaining off-grid society. Oh yeah, you also have government designed and built hardened infrastructure already close to the middle of the entire thing,” Duncan explained.

  “No whackadoodles?” Mitch asked.

  “Ask Melanie, she is a prepper,” Duncan laughed.

  “You do realize that if your projections are true then,” Mitch looked into the air, “you are creating more value than the trees.”

  “Yes,” Duncan laughed, “the thought occurred to me but you have to see it to believe it.”

  “This isn’t some kind of pump and dump where the first numbers look great to get some buyer to show up and take a bath because in the stock market there are innovators, imitators and idiots.” Mitch asked, “Which one am I?”

  “None of the above,” Duncan replied coyly. “I will not take a nickel out of this partnership and am leaving all the equity in the LLC. You are welcome to take whatever distributions you want, whenever you want but I am in it until the job is done.”

  “Show me,” said Mitch.

  “You sound like Jerry McGuire, Mitch,” laughed Duncan. “Come with me and I’ll open both your eyes and your mind.”

  Duncan tossed Mitch a hardhat and an orange vest and told Mitch to ditch the wing tips and put on a pair of work boots. Fortunately this was not Mitch’s first rodeo and he already had a pair in the trunk of the rental SUV he had grabbed from the private air strip. Duncan walked over to the lumberyard to see the huge volume of dimensional lumber coming down the conveyor belts where it was graded, sorted and stacked in the appropriate piles by the laboring crew.

  “Did we buy this?” Mitch asked.

  “Nope,” Duncan answered. “We lease the land to the operator and sell him the logs for what we sell them to the sawmill in Orofino for. Orofino is another thirty miles from Bovill so the trucks were doing a two hour round trip. It reduces our trucking time to almost zero, we still send the logs we can’t process through the mill here to Orofino and it helps with our operational security if we don’t change our patterns too much.”

  “Operational security?” Mitch asked with curiosity.

  “What happens at fight club stays at fight club,” Duncan explained. “The great thing about this site is nobody even knows about it except for the people who work here and the locals in Bovill. The people of Bovill live there for a reason and a big part of that is, other than a few hippy Californians communing with nature every season coming through, it is a self-sufficient logging town. Its inhabitants have been there for generations and it’s not the kind of place that one just picks up and moves to. People keep to themselves down there, while up here we are just one more logging operation that came to town. They love us up here because we are bringing a lot of money into their community. The town financed the sawmill in order to put even more of its people to work and we already had the infrastructure and power thanks to Uncle Sam’s engineers so it was just machinery. This is a small mill and they are selling green lumber instead of kiln dried lumber but the operator is still making good money, the town is recouping its investment with interest and the townspeople are not moving to Orofino to find work. These are proud people but the Federal logging regulations and environmentalists have been grinding them down. I bet you did not know that your property came with a certified environmental determination letter and environmental impact statement already in place when you bought it,” Duncan chided.

  “I did too,” Mitch whined. “I asked an expert when I could begin logging it and he said right away.” Mitch shrugged meekly.

  “You had no clue how much work would have been involved and how many years it would have taken to get that permission had this property not come with those things?” Duncan asked.

  “Nope, a few months?” Mitch asked.

  “Try decades,” Duncan answered with disdain.

  “What do those kiln things cost and what is the delta on green versus kiln dried wood?” Mitch asked.

  Duncan reached into his jacket pocket and produced a piece of paper detailing the financial analysis for the kilns as well as jobs added. Mitch looked up into the sky, nodding his head every few seconds. “That is a two-year payoff and a 32% IRR on a million dollar push,” Mitch finally spouted out.

  “Melanie says 32.39% IRR,” Duncan replied after consulting his notepad.

  “Yeah, but she had a computer,” Mitch retorted.

  “Nope, she did exactly what you did but she puts her chin down instead of up and mumbles to herself while doing it,” Duncan chided. “It is really disconcerting how you two do that.”

  “Are you telling me Melanie can do a two part algorithm to four decimal places in her head?” Mitch said in disbelief.

  “No clue,” Duncan laughed. “I don’t even know what an IRR is but it sure is funny watching you two trying to figure out if something makes good old fashioned common sense or not.”

  “Get the machines, kilns or whatever they are and stop sending logs to Orofino. Do we have the juice, gas or boilers to power the kilns?” Mitch asked.

  “Uncle Sam left us with the capacity to energize half the State of Idaho and it is a direct high tension shielded feed. The whole western grid would have to go down before we lost power out here. We have straight lined three phase power with an extra inverter to get us four phases if we need it. We are literally our own power company and it is all unmetered free juice courtesy of Uncle Sam,” Duncan said in slight awe.
r />   “What’s a phase?” Mitch asked. “Oh, don’t bother, I’ll stick to math. What else do we have?”

  “If you will follow me, young Padawan, I will show you the Beverly Hills of the Retreat,” Duncan said as they hopped in his ancient rust covered Jeep.

  “I don’t need a tetanus shot to get in this thing, do I?” Mitch asked as he opened the passenger side door. He was blown away that the interior of the Jeep was in mint condition and the engine literally purred when Duncan started it up. “Let me guess, Op Sec there, Obi Wan?”

  “If you let people see what they want to see and what they perceive to be true in their minds, then why dissuade them from their own internal prejudices?” Duncan asked. “I am just a hillbilly Scot with a couple of aces in the hole.”

  “This sounds like a Sun Tzu lecture there, Duncan,” Mitch laughed.

  “Sun Tzu won exactly one battle and his country lost the war, yet a bunch of military geniuses keep quoting him, same for some Kraut named Von Clausewitz and Georgie Patton. Today we fight a different kind of war and I prefer dead Presidents like Jefferson who said “Those who desire to give up freedom in order to gain security will not have, nor do they deserve, either one,”” Duncan said quietly but continued. “Don’t get me wrong, all politicians are full of crap, it is just the volume of crap has increased exponentially since the country’s founding. The US government spends around $6 trillion dollars a year or 31% of the annual GDP of the entire country. The government represents 31% of the entire economy. It is a monopoly with no competition. It spends 10% in costs more than it “earns” in tax revenue and has done so in almost every year since the First World War. No business on earth could survive a 10% loss for more than a couple of years. Beyond moral bankruptcy, our government is truly bankrupt, they just haven’t told anyone yet.”

 

‹ Prev