Long or Short Capital

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.

-Milton Friedman

Past Quotes Entirely Relevant to Investing

From the comments of Le Nature’s Disaster.

My father worked there. He was in constant fear of losing his job, because the Podlucky brothers constantly threatened to fire anyone who did not submit to everything they wanted. Anyway, now my father is on the verge of filing bankruptcy because he cannot [pay] his bills after being furloughed earlier this week. I cannot wait to see Greg Podlucky, John Podlucky, and the rest of the corrupt board (who were all related) go down hard.

On a side note: those performing the inspection of the company are the same people that did Enron and they said that what Podlucky was doing is 10 times worse than Enron and will be in college textbooks and taught in colleges/universities for the rest of time.

Recommendation: Le Nature’s sold bottled water. How do you fake selling a physical object and not have it bite you in the ass for that long? Amazing.

Le Nature’s continues to trade at significant discount to other well known frauds such as Worldcom, Tyco and Enron on the All Time Scandal Exchange. We chalk this discount up to the fact that the company was privately owned with only bank debt and a couple hundred million of senior bonds. We maintain our position that any company which can turn $30mm of actual sales into $300mm (an unheard of 10x topline fraud multiplier) without being a blackbox or service type company deserves a first ballot entry into the Fraud Hall of Fame. We expect the Le Nature’s fraud to realize substantial fraud appreciation as sophisticated investors begin to take notice, and institutional money begins to flow in.

Favorite Milton Friedman quote

2nd Favorite: “The government solution to a problem is usually as bad as the problem.”

3rd Favorite: “Nothing is so permanent as a temporary government program.”

If you want to see how to be devastatingly clear in a debate watch this Milton Friedman video on Limited Government

The sell-side is full of hard working people and this isn’t meant to offend any of them, they usually have valuable information.  My gripe with them is that they are flippant, fickle, waffley, double-talkers.  The examples of this are countless, but today I’ll focus on two recent research report titles that have shown up in my inbox:

“Alstom: Full Steam Ahead – NEUTRAL”

Alstom’s earnings are going “Full Steam Ahead” just like the choo-choo trains they manufacture, but this analyst would prefer to wait for PROOF that margins are still going up before recommending buying it.  Good idea analyst, chances are the stock will stay at a full-steam standstill in the meantime and will only go up AFTER they prove margins are going higher.

“El Paso Corp. (EP.N): Initiation of Coverage:When Opportunity Knocks, It’s Time to Listen; Equal-weight”

Well done again analyst, after months of research and a lengthy initiation report he has determined that opportunity is knocking on his door in the form of El Paso.  Upon hearing this knock he recommends jumping out of bed, putting on your holdneutral robe, answering the door, and saying “Hi El Paso, I know you want to give me free money but these equalweight panties im wearing are all in a bunch, so you’ll have to come back later after you’ve appreciated 30%”.

Recommendation:  Short sell-side analysts, long analrapists.

If you have any good sell-side report headlines send them to us with our new submit form or by email at kaiser.edamame@gmail.com.

Domino’s (NYSE: DPZ) is widely known as a chain of delivery aligned pizza restaurants which used to use Satan as its mascot. Their new “brownie” substitute product has alternately enthralled and repelled us. According to our research, Domino’s Brownie Squares represent the first ever instance by a food company to legally market and distribute fecal matter. If you haven’t had the pictured product yet, it tastes exactly like what it resembles– glazed pooplet souffle.

This is a brilliant attempt to improve margins by selling human (animal/alien?) waste to the Drunk/Stoned market, which is known to be both price and taste insensitive. We are still trying to unravel whether Domino’s is making money coming and going, being paid to take the waste and then selling the processed waste to their customers. Either way we are attracted to what may be a delicious high margin business model for the entire food industry.

It is difficult to ascertain how successful Domino’s efforts have been at this time so if you have any experience with or knowledge of their current or future fecal delivery platforms, please share it within the comments below.

Most people have one “raise the bar” friend. He’s the one who buys everybody shots — without warning — at midnight. Or who orders filet mignon as soon as it becomes clear that the restaurant bill is going to be split evenly.

Step 1: Raising the bar can be also be used to mess with friends. An easy version of this comes at bonus time. Start early. If you have a friend who gets a bonus in December or January, start yesterday. Begin innocently by reminding your buddy just how much he has “killed it” this year. Emphasize how critical he was to his firm’s sucess. The key is to inflate your friends’ expectations so far beyond reality that no matter what their “numbie” is, they are disappointed.

Step 2: Laugh evily.

Fear is temporary. Greed is permanent.

-unknown

Past Quotes Entirely Relevant to Investing

Following the release of Long or Short Capital’s first quarter of fiscal year 2007 financial performance, the firm is issuing a a $0.73 dividend per a subscriberholder as of 10/31/2006. To qualify, all you need to be is a subscriber, either by XML or E-mail, as of 10/31/2006. If you were not, you will not be eligible.

For more information on how to collect your cash or cash equivalent dividend, please refer to our Dividend Policy. Given our float of 385 subscriberstakes (as of 10/31/2006), a 5% growth assumption and our trailing twelve months total of dividends of $3.17 per subscriber, our current capitalization is $42,715 using a dividend discount model. Our market cap has grown 33% sequentially.

In the movie Borat, Borat goes to a Hummer dealership and encounters a car salesman (“there is no magnet”) named Jim Sell.

The film is distributed by 20th Century Fox, and the studio spokesperson attached to the project is Greg Brilliant.

One of three teenagers charged with attempting to rob illusionist David Copperfield as he left a performance has pleaded guilty.
…
Copperfield, 50, and two female assistants were walking from the Kravis Center to their tour bus when they were approached by the teens April 23. The assistants handed over money and a cellphone, but the illusionist turned his pockets inside out to reveal nothing, although he was carrying his passport, wallet and cell phone.

“He said in depositions that he had things on him, but it wasn’t difficult to make it seem like there was nothing there,” prosecutor Sherri Collins said.

-From Copperfield Tricks Thief on CNN.com

Copperfield may be pulling down $10’s of millions per year from but he could make far more as a Chief Magic Officer at a hedge fund or as a CMO on retainer for multiple funds. What would it be worth for Amaranth to have been able to say, when presented with massive losses, “Are you sure about that?”, at which point investors would recheck and the massive losses would have disappeared.

Or take Jeffrey Epstein, of “manage private money to make billions so I can have Eastern European sex slaves and also have Palm Beach teenagers massage me for cash” fame, who is charged with felonies related to soliciting teenage girls for sex. A Chief Magic Officer could make those charges suddenly vanish. (Apparently he does have a CMO because the charges and bail were amazingly light)

Le Nature’s was a company which focused entirely on its CMO core competency. How else can you turn $30mm of revenues into $300mm of revenues and make the founder millions in the process?

Recommendation: Firms of all stripes can benefit from beefing up their executive team with a Chief Magic Officer and a couple of tastefully attractive assistants. Avoid the “For the same reason you should believe a hundred dollar bill is no more than one hundred pennies!” variety.

I have an idea with a huge market, a totally underpenetrated if not virginal market, which would control the most important component of most business models.

MySpace was bought by Fox (NYSE: NWS) last year for $580mm. Youtube was recently bought by Google (NASD: GOOG) for $1.6bn. Plenty of Fish is pulling $5-10mm per year in topline with a guy, his gf and a couple of servers in their basement. eBay (NASD: EBAY) plods along without having done anything new in half a dozen years, basically living off it, while Friendster had it, and then failed to detonate it at the right time. None of these entities offer anything that can’t be or hasn’t been replicated by dozens of pretenders and assorted Indians in Bangalore.

What is the key ingredient these successes have which the failures strewn on the road behind them lack? Critical mass.

The best way to make money in today’s world bar none would be to become a supplier of critical mass. Companies thrive on reaching the point at which they have such a base of customers that use their services that their services become an order of magnitude more valuable to every marginal customer than their competitors’ services which lack critical mass. So why not supply this input which is so crucial to success?

• Fact: Most ideas hinge upon “getting critical mass.” For most business models this is achieved in the 18th month of projections, or the Null Set month of reality. This ensures that demand would be high.
• Fact: Critical mass is cheap to manufacture, requiring only one critical mass machine based on a shifting flywheel design, no associated ongoing capex, no labor, no operating costs. This insures that the cost would be low.
• Fact: Critical mass is an intangible if not entirely asbtract concept. This ensures that achievable supply may be infinite (or non-existent).

Recommendation: Supplying critical mass is an extremely attractive business due to the high demand (no substitutes, mission critical input), low fixed costs, and marginal costs of zero. The key to becoming an effective supplier of critical mass is getting large enough that everyone will go to you as a supplier of critical mass. We expect that after building your own critical mass machine or using the design we depict above, this would happen roughly 18 months into the life of your startup firm.

You want to know how to commit corporate fraud? Gregory Podlucky, founder of Le Nature’s / evangelist / genius, shows how to get it done. A little background, Le Nature’s is a bottled water company, based in Pennsylania that was about to be sold for $1.2bn until all this came out. This story is not getting any coverage despite being a huge fraud and an even huger source of absurdity.

WTAE Channel 4’s news exchange partners at the Tribune Review reported Podlucky was escorted out of the building last week, and the locks were changed.

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Mr. Podlucky was evicted Oct. 27 after the company’s minority shareholders presented evidence of widespread accounting fraud and document destruction implicating Mr. Podlucky.

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Le-Nature’s “reported revenue of $275 million to the outside world when it had [revenue of] $32 million,” Mr. Basta said.

…

the custodian found the situation at the company “far worse than imagined” when it took control. He cited “widespread document destruction” at a company that kept two sets of books and has less than $1 million in cash on hand. Le-Nature’s has nearly $750 million in bank and bond debt, lease obligations and other liabilities.

…

two safes were found at the company that contained watches, jewelry and a considerable amount of cash

…

“We’re in a bit of a corporate governance mess,” Mr. Basta [incoming custodian CEO] said.

…

LeNature’s was sued earlier this year by two investment groups, George K. Baum Capital Partners and S.W. Pelham Fund, which had invested $13 million in the company as part of LeNature’s expansion plans, which included construction of a plant in Arizona and plans for a third in Florida.

…

LeNature’s also is accused of “fraudulently inducing” a lending company to loan it $25 million for the purchase of equipment for its proposed Florida plant, according to Strine. The money, according to the judge’s order, was placed with an equipment manufacturer.

Then using forged documents, LeNature’s got the equipment company to transfer more than $20 million of the loan to LeNature accounts, Strine said.

Strine also found evidence that LeNature “intentionally doctored” minutes of a board meeting.

…

In its lawsuit, Baum and Pelham demanded an accounting of whether any corporate funds were used in the purchase of land for Podlucky’s proposed Grace Community Church of the Valley in Ligonier.

The land was purchased through Missy’s Place Foundation, named after Podlucky’s late daughter, Melissa. Tax records indicate that the company contributed $440,000 to the foundation.

and my favorite part

The firm, founded in 1989, was up for sale last November, but Podlucky rejected a $1.2 billion offer and refused to allow potential buyers to inspect the company’s records before making an offer.

You know how I know you are gay committing widespread corporate fraud? You don’t let me see your books when I am a bidding on your assets. Also, having your VP and your legal counsel threaten random bloggers who write negatively about your product is never a good sign either. It sounds like there is a lot more bizarre stuff going on with this case than what has been released in the wire reports, so if you know anything else of amusement value please post it in the comments or email it to johnnydebacle@gmail.com.

Snippets compiled from ThePittsburghChannel.com, PittsburghLive.com, Post-Gazette.com and the WSJ. Also the WSJ has a Le Nature’s entry on its Law blog.

Watching Sunday night football, I saw an ad which exhorted Pfizer’s (NYSE: PFE)) BENGAY’s deep, penetrating heat. I don’t use the product, I’ve never bought it and I couldn’t believe that this unfortunately named product could be so consciously compounding its problem. This is akin to Richard Army’s decision to be referred to as Dick, with no irony. Actual Marketing for Ben Gay:

BENGAY® patches and creams target deep, penetrating heat right at the source of your pain so you can get the relief you need.

I can only imagine that the heavy suggestive nature of the subtext is intentional. What market are they going for? And what copy did they turn down in favor of the above?

BENGAY® bends over backpain, until your body reaches a climax of relief.

BENGAY® fills every crevice of your body with hot creamy soothing power.

You will enjoy BENGAY® patches and creams spread all over your old achey body. Not that there is anything wrong with that.

Do you know the saying, ‘man’s reach exceeds his grasp’? This is not true – rather, it is that man’s grasp exceeds his nerve.

-Nikolas Tesla in The Prestige

Past Quotes Entirely Relevant to Investing