Archive for July, 2007

How to Say All Their Money is Gone

Dear Valued Client:

As you may know, the investment process has a normal course. Generally accepted investing practices follows that you, the investor, give us, the manager, money. As manager we take that money and buy something with it. This something generates profits and at the end of the year, we pay ourselves some dollar percentage of those assets, as well as some percentage of the generated profits. Everyone profits which is a good thing.

Unfortunately, the money you gave us did not follow this normal course. Per usual, we “invested” your money in tranches of CDOs comprised solely of loans to people who specifically would never be able to pay down their mortgage. Their inability to pay was the very thing that made these such great loans and allowed us to demonstrate to you a profitable two year record of performance. This could have continued but your money decided to disappear.

As far as we can tell, there is no current record that points to existence of your money. It’s no longer part of our assets under management. Look, it’s up to you how you raise your money and I don’t want to get into a nature vs nurture sidebar with you, our valued client. But don’t you think that maybe you should have imbued your money with more of a sense of sticktuitiveness? I mean, it literally seems to have vanished at the worst possible time, what with the depressed prices and attractive yields which now litter our market. This is when we could be printing profits for you (if only your money hadn’t disappeared).

I guess, for us, we’re disappointed in you. Your role is to let us take your money, assume none of the risk and allow us to give you some of the return. Don’t you see how this relationship breaks down if you allow your money to disappear? We’re not angry with you, just disappointed. It’s your loss, as we still earned our management fee, it just seems like a waste for you.

I have enormous confidence in Long or Short Capital management and the ability of our talented professionals to bring you the highest quality products and services now and in the future as they have in the past. You can count on us to deliver…if you don’t let your money vanish.

Mister Juggles

Related: PDF of Bear Stearns Asset Management Letter via Dealbreaker.

My Grandma Gets It

Just got off the phone with the wisest lady I know and she had some key insights into the hot topics of our day:

On the state of the markets and her 401K allocation: “Well it seems to me there’s a lot of finagling going on, and I don’t like finagling so I sold most everything.”

On Hillary Clinton: “You know I’m a democrat but I just don’t like pushy women, no one does”

On Barrack Obama: “He seems like a great man but I don’t think he has a chinaman’s chance of winning”

Recommendation: After our discussion with this wise sage who is unaffected by consensual crowd mentality and political correctness we recommend selling the market, Hillary, and Barack Obama.

Quotes Entirely Relevant to Investing 07-29-07

[Applied economics and policy analysis] boil down to three imperatives (ten little words).
1) at what cost?
2) compared to what?
3) how do you know?
Peter Gordon (Ht: Newmark’s door.)

Past Quotes Entirely Relevant to Investing

On Two Years of Greatness

Long or Short Capital’s ascendancy began 2 years ago today, with this first recommendation. Anyone who heeded our advice squeezed tremendous hypothetical returns out of the citrus trade.

In this short period of time we have:

  • Migrated our operation from to an enterprise solution
  • Published hundreds of in-depth (or shallow) notes on the market
  • Become the #1 abstract long or short investment advisory firm on the internet and in the world

For the next two years, our primary goals include:

  • Piratery
  • Replacing Hank Paulson as Secretary of the Treasury with Dr Deep Gupta
  • Gain acceptance of SAAP such that we are finally able to IPO on the NASDAQ

You are welcome for providing two years of an incredible investment commentary and analysis.

Stocks Stocks Stocks: A Week in Review 07-27-07

The market sagged like grandma due to credit jitters, subprime worries, a lack of PE activity, a collapse in bond prices, non-double digit earnings growth, China, Russia, a superspike in the price of indium, the stupid ending of the Harry Potter book where he wakes up and it’s just a dream and Voldemort is his dad (spoiler alert), and a realization by the market that no matter how high she goes, people will still see her as a failure if she has an off week. She is the hardest working woman in stock business, give her a break.

KKR (Sorta listed in like Amsterdam or some shit): Jealously eyeing Blackstone because they were able to pull off their IPO at a peak.
Market Impact -75

Blackstone (NYSE:BX): Jealously eyeing KKR because they were unable to pull off their IPO and thus are not exposed to the judgement of the plebes.
Market Impact -100

Every other PE firm — Jealously eyeing KKR and Blackstone for being incrementally more prestigious than they.
Market Impact -300

Chevron (NYSE: CVX): Chevron continued investing in production facilities for it’s “Blind Faith” field in the Gulf of Mexico. First drilled in 2005 there is little to no evidence that oil reserves will be discovered. When asked why the company was spending so aggressively on this speculative field they responded “Go ahead, don’t believe us, that sure worked out well for Doubting Thomas didn’t it? Just because you can’t see the oil doesn’t mean there isn’t any, that’s what faith IS, duh”.
Market Impact -20

The Actual Economy: Hey guys, I’m doing great! Why y’all look so glum?
Market Impact -400

Even Anti-Market Forces Can’t Fight The Market

Anti-market forces have realized that the best way to fight low wages is to hire people at low wages. After all, protesting is boring and somewhat demeaning for a union member. So it’s much more efficient to hire homeless and transients. If only there were more Mexicans in DC…

Outsourcing the Picket Line

The picketers marching in a circle in front of a downtown Washington office building chanting about low wages do not seem fully focused on their message.

Although their placards identify the picketers as being with the Mid-Atlantic Regional Council of Carpenters, they are not union members.

They’re hired feet, or, as the union calls them, temporary workers, paid $8 an hour to picket. Many were recruited from homeless shelters or transitional houses. Several have recently been released from prison. Others are between jobs.

“It’s about the cash,” said Tina Shaw, 44, who lives in a House of Ruth women’s shelter and has walked the line at various sites. “We’re against low wages, but I’m here for the cash.”

Ht: marginalrevolution

The Regulatory Inefficiency Theorem

When the Justice Dept won its antitrust case against AT&T, the company was split into multiple local operating companies. AT&T focused on the long distance market. Now, those companies have recombined to the point where only three remain: Verizon, AT&T, and Qwest. Essentially, the old AT&T has been reformed in three geographic regions. Why is this? Because of the Regulatory Inefficiency Theorem.

The Regulatory Inefficiency Theorem states that any move by a regulator will thereafter be reversed by the market. The time to reversal will vary inversely with the amount of regulatory oversight implemented whereas the lobbying dollars spent will vary directly.

In the case of telecom — an industry with large returns to scale — there is more regulatory oversight than almost any other industry. And, as our RIT model predicts, we observe a near complete reversal of the regulator’s actions over time combined with immense lobbying efforts. In fact, according the Post, the telecom industry spends more on lobbying “than the tobacco, aerospace and gambling lobbies combined.”

Click through for whole chartAT&T


Quotes Entirely Relevant to Investing 07-22-07

When something is empty, fill it. When something is full, empty it. When you have an itch, scratch it.
Dieter Dengler in Rescue Dawn

Past Quotes Entirely Relevant to Investing

The Ring of Greenspan

Very suddenly it came, and without forewarning of its nearness, a horror of hellish red light, swift as a wind-blown flame, that leapt from the market’s gloom and sprang upon us where we stood. We saw, in a floating redness as of ghostly blood, the black and semi-serpentine form of the Subprime Exposure. A flat and snakish head, without ears or nose, was tearing at our portfolio’s armor with sharp, serrate teeth. I heard the teeth clash and grate on the tiering credit protection of our CDO.

Swiftly I laid the ring of Greenspan on a stone I had placed in readiness, and broke the dark jewel with a blow of the Hewlett-Packard financial calculator which I carried. From the pieces of the lightly shattered gem, the disemprisoned demon rose in the form of a smoky fire, small as a candle-flame at first, and greatening to a spinning inferno. Hissing softly with the voice of fire, and brightening to a wrathful, terrible gold, Greenspan leapt forward to do battle with Subprime Exposure, as he had promised me, in return for his freedom after cycles of captivity.

Greenspan closed upon the Subprime Exposure with a vengeful flaring, and it relinquished our structured product, writhing like a stern bear struck by a cannon. The body of the Subprime Exposure convulsed loathfully , and it seemed to melt in the manner of wax, changing horribly beneath the flame as it undertook an incredible metamorphosis. Moment by moment, the thing took on the wavering similitude of man.

The unclean blackness swirled, assuming the weft of cloth amid its changes, and becoming the folds of a dark suit such as worn by a government official or conservative business executive. Then, above the cravatte, a face began to peer. The face, though shadowy and distorted, was that of Bernanke. The fire-shaped Greenspan assailed the abhorrently transfigured thing, and the face melted again into waxy blackness, and a great column of sooty smoke arose, followed by an odor of burning flesh. And out of the volumed smoke, above the hissing of Greenspan, there came a single cry in the voice of Bernanke.

Yahoo’s CEO is Addicted to Gambling, Stock Down

Yahoo (NASDAQ: YHOO) benefited from a Carly Catapult when they announced that they had replaced Terry Semel with Jerry Yang as CEO in June. Little did they know that their incoming CEO (informer) was a poker junkie with a serious lack of focus. Jerry Yang has spent the last week plus holed up in a casino and competing in the World Series of Poker, the seminal annual poker event.

Screw the board meeting, I got pocket cowboys in my pants

You can google this (Yahoo won’t get you the same results because it sucks) and you will see it is true. We did and it is. It is no coincidence that Yahoo stock is down ~5% today as of this updated writing and it is no wonder why Yang says he will need 100 days to do a “strategic and operational review” of the firm. How many of those days will be blown on his infamous poker benders?

Recommendation: While we commend the sheer hubris of taking a week off work as head of one of the largest internet companies to compete in the WSOP, is this really what serves shareholders of Yahoo best? Short YHOO.

Note: This recommendation was filed yesterday based on yesterday’s prices. We have predicted the future, in the past, because we are smarter than you.

Zimbambwenomics and Mugabe Efficiency Theory

A market brimming with shoppersSupply and demand is the bedrock of economics, the balance of which ensures cosmic order and more importantly, efficient allocation of scarce resources. But the problem with supply and demand is that sometimes the demand cannot afford the supply. This is where Mugabe Efficiency Theory comes in. Per MET, when supply is too dear, government fiat is needed to price it where demand can buy it. Problem solved, supply and demand clearly balanced and the cosmos is once again in order.

Zimbabweans are shopping like there’s no tomorrow. [In] the aisles of Harare’s electrical shops,…the widescreen TVs were the first things to go, for as little as £20. Across the country, shoes, clothes, toiletries and different kinds of food were all swept from the shelves as a nation with the world’s fastest…economy gorged itself on one last spending spree.
Car dealers said…that a car costing £15,000 could be had for £30[.]

President Robert Mugabe’s order that all shop prices be cut by at least half, and sometimes several times more, has forced stores to open to hordes of customers waving thick blocks of…money given new value by the price cuts. The police and groups of ruling party supporters could be seen leading the charge for a bargain.

The impact of the price cuts was felt almost immediately as fuel virtually disappeared from sale after garages were forced to sell petrol for 23p a litre, less than they paid the state-owned supplier.

The so-called “charge for a bargain” is exactly the kind of thing that will stimulate demand into consuming supply and ensure the economy is in a Mugabe Optimal state. If demand could not afford the supply, then the universe would probably implode making Mugabe Efficiency an important policy issue for all those who would prefer for existence to continue.

Economists say the price cuts will only deepen the national crisis, leaving many shops bare because they will not be able to afford to restock while official retail prices remain lower than the cost of buying wholesale or importing. Mr Mugabe has dismissed such warnings as “bookish economics”.

Recommendation: We see no downside to Mugabe Efficiency Theory. If things are made more affordable by force, then more people can and will buy them. This will in turn grow the economy and spur production of….uhm….uhhhh…hmmm

HT to the undervalued Newmark’s Door.

Henry Nicholas On Drugs? WATFO?

Henry Nichholas allegedly loves drugs

Broadcom (NASDAQ: BRCM) ex-CEO Henry Nicholas is being sued by former Kato, Kato, who is alleging that Henry Nicholas used drugs, spiked rival CEOs drinks with ecstasy, offered whores to clients, and forced Kato the Kato to partake in the drugs. You mean the guy in the middle of picture above is a drug user? I thought he was just one of Satan’s lieutenants on Earth.

KatoThe defense by Henry Nicholas’s lawyer is that his client is being exploited by a poed former employee, but that Nicholas was “[an] admittedly high-living technology executive.” Our defense would be “And? Aren’t all these things kinda awesome or at least a notch above playing golf? The defense rests, your honor.”

Recommendation: This makes all the backdated options, sketchy contracts and shenanigans he pulled off while CEO of Generically Named Technology Company, all the more impressive — he did it while intermittedly taking heroin. From my experience with heroin, it’s difficult to comport yourself without shitting your pants, so I can only see this as reason to praise Henry Nicholas for being able to get it done (note: my experience with heroin consist of watching Trainspotting).

Quotes Entirely Relevant to Investing 07-15-07

Insanity in individuals is something rare – but in groups, parties, nations and epochs, it is the rule.
Friedrich Nietzsche

Past Quotes Entirely Relevant to Investing

The Patrick Byrne Award for Operational Focus and Excellence: Whole Foods CEO Rahodeb

WFMI PWNZ(NASDAQ: WFMI) has been pursuing its acquisition of Wild Oats (NASDAQ: OATS) as the FTC has tried to block it. A move we would describe as bold. Bold.

Unfortunately, CEO of Whole Foods, “Rahodeb” has been a little too bold in his efforts to effect the deal.

First, he offered this commentary on the deal to his board via e-mail, basically begging to be pounced by antitrust attack dogs:

“OATS remains a relevant competitor. By buying them we will greatly enhance our comps over the next few years and will avoid nasty price wars in Portland (both Oregon and Maine), Boulder, Nashville, and several other cities which will harm our gross margins and profitability. OATS may not be able to defeat us but they can still hurt us. Furthermore we eliminate forever the possibility of Kroger, SuperValu, or Safeway using their brand equity to launch a competing national natural/organic food chain to rival us.”

Second, he decided to have an “in real life” name that is far too similar to that of CEO of Morgan Stanley (NYSE: MS) with just an “e” sound separating the two. All you CEO names sound alike to me, give me a break here.

Third, following in the big clown shoes of Patrick Byrne of (NASDAQ: OSTK), he thought it would be a good idea to post to an anonymous stock message board about Whole Foods. The company for which he is the CEO. Protected only by the anonymity of an anagram of his wife’s name. I’m undecided if it’s a better or worse call than being a bat-crazy Quixote in public like Byrne. This is less ethical but more competent as as opposed to more ethical and less competent. But this is decidedley worse than not wearing a condom in Haiti, which is our standard threshold for management competence.

For this focused non-dedication to competent and sensible management, we award John “Rahodeb” Mackey with The Patrick Byrne Award for Operational Focus and Excellence. May all your current and future stockholders be warned

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