Archive for February, 2008

Sorry Guys, Friday Didn’t Happen

Ben Bernanke’s speechwriter’s first draft for a Monday morning pre-market open speech.

Good morning. There has been quite some concern about the general economic outlook of America. There also has been quite some concern about the existence of inflation. We will ignore the latter for the time being, at least until Zimbabwenomics is better understood and appreciated by the public. Let’s focus on the general economic outlook, and by that, I mean the stock market.

The end of last week was not pretty and I am surprised you didn’t hear my speech on Wednesday where I hinted that, yeah, some rates are gonna be cut and I will be bathing America in cheap money. Those of you who disregarded my comments should know something that is really going to make you feel foolish, but hopefully still willing to revert to some of that good old fashioned exuberance that helps keep these markets afloat.

Friday, February 29th, doesn’t count. That’s right. Simply didn’t happen. It was the leap day of a leap year, an anomaly, and we have the ability at the Fed to strike an anomalous day from existing. We plan to utilize this power that we have at our discretion, and via open market actions, remove the existence of February 29th from the record books.

If we let Friday exist, it will distort comparisons with prior years and also it meant that markets went down a lot. And to that I say, not on my watch, sir, not on my watch. So expect all your portfolios and investments to be reset to their close of business Thursday values very soon. And remember, who loves you? I do. Thank you.

The Regulatory Inefficiency Theorem, Continued

One corollary to the Regulatory Inefficiency Theorem (RIT) is that as regulations increase, attempts to circumvent the rules increase. In fact, if you are the first or the only company to find a loophole, the regulations can form a competitive barrier.

For instance, this old WSJ highlights the restrictions on outdoor advertising and companies attempting to get around them.

Local laws here generally ban billboards in areas deemed residential. But that hasn’t stopped an outdoor advertising company called Van Wagner from plastering hip neighborhoods like Chelsea, Soho and the Meatpacking District with bare-chested pitchmen for Abercrombie & Fitch, dancing iPod users and other immense ads.
The catch: a loophole in the law that allows billboards in areas once zoned for manufacturing — even though the factories are long gone.

Outdoor advertising companies frequently play cat and mouse games with city officials. In California, for example, a state law allows illegally erected billboards that manage to avoid citation for five years or more to be considered legal….One Los Angeles-based company, Regency, repeatedly lands in hot water. On New Year’s Eve 2004, a deputy manager for the city of West Hollywood caught company officials, led by co-owner Brian Kennedy, installing a large unpermitted billboard on the Sunset Strip.

In response to this game, companies like Truck Ads have created new real estate for advertising by looking at non-traditional sources, mobile ubiquitous ones.

We see a new opportunity for advertising real estate: People. Think about it, people are everywhere. Moreover, they move and they enter areas previously closed off to advertising. This has started in some form with sponsorships; you can’t advertise at the Masters but Tiger can wear a Nike sweater. But we suggest taking it to the next level the way GoldenPalace has., the online casino famous for turning eBay into the ultimate advertising vehicle by acquiring several outrageous items is at it again. They have paid $18,000 to shave a woman’s head and permanently tattoo “,” the website of the popular online poker room, on her bare cranium.

Recommendation: We did some preliminary due diligence several years ago involving paying homeless people to do our advertising bidding and also on unions and causes outsourcing protesting to the homeless. We now recommend management buyouts of individual people. After permanently tattooing them with corporate advertisements, these people can be spun back out for their original value (minus a bald cranium discount). As long as corporate advertisements are trading higher than bald cranium discounts like they are right now, this is arbitrage heaven.

Wait, But You’re The One Doing the Ratings

From a Bloomberg piece on the risk of another off-balance sheet (in this case, a VIE) potential problem for financial companies:

Predictions for losses vary widely because banks aren’t required to specify the type of assets being held in the VIEs or how much they are worth, said Tanya Azarchs, managing director for financial institutions at S&P.

“The disclosure on VIEs is hopeless,” Azarchs said. “You have no idea of the structure or how that structure works. Until you know that you don’t know anything. It’s like every day you come into the office and another alphabet soup has run off the rails.”

Tanya baby, I’m not gonna say you’re not doing your job, but uhh, you’re not doing your job! How can you rate companies and then admit you don’t know, and haven’t known, anything? And she is the HEAD for ratings of financial institutions.

From her bio at S&P

A managing director at Standard & Poor’s Financial Services Ratings Group, Tanya Azarchs is responsible for coordinating research on issues affecting financial institutions worldwide. She frequently authors research on special topics. Tanya is responsible for the ratings of large, complex banks and securities firms in the U.S. and Canada, and is involved in the analytical effort on Eastern European banks. She is also a member of the global financial institutions ratings criteria board, which develops ratings criteria and reviews ratings across the globe for consistency.

Why would someone like that think it’s ok to put out ratings when they lack knowledge?

She is a Chartered Financial Analyst.

Ahh, so knowledge IS a problem.

Recommendation: Short the balance sheet for any entity that has a lot off-balance sheet.

Chartered F****in’ Analyst: Knowledge is a Problem

Direct quote from a CFA study guide book:

The primary factor leading to overconfidence in professionals is knowledge (education or experience) which leads them to think they know more than they think they do[.]

Those italics are from the book, not from us.

Take Away for the CFA Candidate: In order to get a CFA, one must keep in mind that knowledge, specifically derived from education or experience, is bad.

Recommendation: Short me, dude, short me right in the face.

What to Get for Your First Monoline Bailout

Social protocol (you know, that thing that old people love because it reminds them of the golden years when things like disenfranchisement of the underclasses and of the other gender was reality rather than just a dream) says for the first anniversary that the appropriate gift is “Paper”. And it is “Paper” that Long or Short Capital suggests as the most appropriate fix for your first monoline bailout. Paper as in “Let us paper over this problem, our problem, together”.

Yes, yes, maybe the monoline says she wants or even needs something more flashy, like diamonds, platinum or several flatbed trucks topped up with gold bullion to firm up her capital with several trillions dollars of obligations looming. But you have to make sure your relationship with the monoline is real and you don’t want to blow too much of your money on this fix. If you give her too much up front, maybe things will still fall apart and the only thing you’re left with is a ton of exposure and a view down the ravine. If you give her too little, yeah maybe she leaves you for Mr. Muni, but you retain some of your capital and most of your pride. You know her ex is still a huge part of her life; the stable Mr. Muni is someone she sees everyday and has been part of her life forever. He will always be an attractive option which is why you is it so imperative that you keep your monoline on a short leash.

Paper is the perfect fix for this purpose. It says “I love you, and yes, I believe in you, us, WE, a little bit, but let’s not kid ourselves and think this is anything more than a veiled attempt to hide our dysfunction behind the walls of convention”.

Quotes Entirely Relevant to Investing 02-24-2008

I have a competition in me. I want no one else to succeed. I hate most people…There are times when I look at people and I see nothing worth liking. I want to earn enough money that I can get away from everyone…I see the worst in people. I don’t need to look past seeing them to get all I need. I’ve built my hatreds up over the years, little by little, Henry… to have you here gives me a second breath. I can’t keep doing this on my own with these… people.
-Daniel Plainview in There Will Be Blood

Past Quotes Entirely Relevant to Investing

Zimbabwe Sell-Out

On February 23rd, Long or Short Capital released this statement.

Good morning. Stakeholders who have read our reseach piece on Mugabe Efficieny Theory know that Zimbabwe is the most progressive country in the world economically. Already, the ideas developed by Mugabe and contained with Zimbabwenomics have been adopted in Kazakhstan and by John McCain.

Well, when a Zimbabwean-based advertising opportunity arose, Long or Short’s interest was aroused. We are pleased to announce that we have purchased real estate on The Million Zimbabwean Dollar Homepage. We think, like most things Zimbabwean, the fundamentals of the Million Zimbawean Dollar Homepage suggest unfettered growth. We expect our stakeholders will benefit from the remunerative effects of this powerful investment in our own traffic. You’re welcome.

We look forward to updating our readers on recent financial results and our calendrical reporting shift in the next few weeks. Good day, sirs.

On Writing

When it comes, it comes, so you have to seize it, tame or trick it, beat it into submission, break its neck, take it, hang it upside down, gut it, remove its hide, tan its hide, carve out the post from the tanned hide, submit the carved-out post to the WordPress, hope people like it, and then, if they don’t, well fuck’em.

Me in correspondence with the Epicurean Dealmaker.

The Nerd Taint Is Even Stronger Than Imagined

Last year, we highlighted the deleterious effect on shareholders’ value of having a nerd as CEO of a publicly traded company. The case we presented was Sharper Image (NYSE: SHRP) and we recommended a buy based on the fact that the company should rise to its nerd-free valuation of $20 per share.

In light of the fact that the company’s stock has now fallen a further 95% from its former levels and the company today filed for bankruptcy, we are updating our models to appropriately reflect the lingering effects that the taint of a nerd leaves on a company. Previously, we believed that this taint would not present a hairy problem and that it was a problem that would easily be excised. In this we were mistaken — the taint of a nerd CEO runs deeper and darker than even we could have anticipated.

Recommendation: We maintain our position that there is an activist shareholder opportunity in finding companies whose CEOs are avid LARPers or who live in an exact replica of the Borg’s ship. We effectively tweaked our model such that the previous implied taint lag is 40% longer and we have great confidence in using it to invest your money.

The Sell Side: Joe Herrick, Gutterman Research

Over the weekend, the WSJ had this article on earnings calls being crashed by faux-analyst Joe Herrick.

At least seven times just the past three weeks, a mystery caller has cleverly insinuated himself into the normally well-manicured ritual of the quarterly calls. As top executives of publicly traded companies respond to securities analysts’ questions about their balance sheets, he impersonates a well-known analyst to get called upon. Then, usually declaring himself to be “Joe Herrick of Gutterman Research,” he launches into his own version of analyst-speak.

“Congratulations on the solid numbers — you always seem to come through in challenging times,” he said to Leo Kiely, president and chief executive officer of Molson Coors Brewing Co., on Feb. 12, convincingly parroting the obsequious banter common to the calls. “Can you provide some more color as to what you are doing for your supply chain initiatives to reduce manufacturing costs per hectoliter, as you originally promised $150 million in synergy or savings to decrease working capital?”

Analysts say the caller’s questions, though credibly phrased, are too off-target for a real analyst. It’s more like “consultant-speak,” says a disdainful Bryan Spillane, a Banc of America Securities analyst, a victim of one of Mr. Herrick’s impersonations. Analysts deal with often-wonky financial details, but “savings per hectoliter” rarely comes up.

Mr. Schmitz[, a sell-side analyst,] speculates that Mr. Herrick is “some minion” at a consulting firm trying to do clandestine research on companies’ use of Six Sigma techniques.

Coke’s caution was evident when Banc of America’s Mr. Spillane, the earlier impersonation victim, posed a detailed question about how much of the company’s currency-neutral operating profit growth was organic rather than coming from acquisitions or cost savings. “We hesitated on you for a minute because as we take these questions we are just trying to make sure that in fact you are who you say you are,” Coke’s chief financial officer, Gary Fayard, said before launching into an answer. “I am the real deal,” Mr. Spillane replied.

Recommendation: Beside multiple digs at consultants by sell-side analysts (Spanish Editor’s Note: che absurdo¿!), the best part is that Joe Herrick asked questions that many companies tried to answer because, well, they were the same kind of inane crap questions that they EXPECT from your typical sell-side analyst. Short the sell-side. Additionally, we are initiating coverage on Gutterman Research at a solid “Do Not Buy“.

HT to Terry

Quotes Entirely Relevant to Investing 02-17-2008

Everything in the universe relates to the number 5, one way or another, given enough ingenuity on the part of the interpreter.
-Principia Discordia (ht: Chris)

Past Quotes Entirely Relevant to Investing

Bloomberg News Writers are Boobs, The Bad Kind

Notice to Bloomberg headline writers — contorting your headlines and story to changes in stock price of a company makes you look like a gaggle of maroons. My example from last week:

2:15am – (BN) Electrolux stock futures drop
2:17am – (BN) Elextrolux profit falls, steel costs squeeze margins
2:36am – (BN) Electrolux’s latest profit proves future is dimming
3:00am – ELUXB.SS opens up 6% – whoops we had the wrong angle I guess
4:00am – (BN) Electrolux advances after fourth-quarter profit rises 22%, beats estimates (our emphasis)

Apparently between 2:15am and 4:00am Electrolux’s reported 4Q profit went from “falls” to “rises”.

Recommendation: Terrible reporters, please stop looking at the stock price and then writing a story to fit it. Also, please stop being so terrible, at least until I establish a large short position in you.

Melissa Moody’s Ratings Alternative

Hey everyone! It’s me, Melissa Moody…not that other Moody’s you have been reading about. Actually that’s why I’m here I’m just so sick and tired of that other Moody! Their ratings stink, and they don’t know nearly as much as I do about debt, it’s true, I’m maxed out on 4 out of 7 credit cards I know I have a problem but I just can’t stop,ha ha. I can do a better job than Moody’s and that is what I’m gonna do! And let’s face it, their old ratings were too complicated. I mean Aa3, Baa1, Caa2, B1 who knows what that means? My ratings will be simple:

  • BFFAE (Best Friends Forever and Ever)
  • BFF
  • BFFLAF (Best Friends For Like Almost Forever)
  • BFFBAS (Best Friends Forever But Also a Slut)
  • BFFBIHH (Best Friends Forever But I Hate Her)
  • Whore

You must be blown away but I am ready to blow you even more than that — let’s get on with it already!


Previous Rating: BFFAE
New Rating: BFFBAS

Ratings Rationale: MBIA used to have a good little thing going. Yeah, like not everyone thought she was totally hot, but everyone was like “Wow she has a good little thing going”, she was funny and nice, and who doesn’t like funny and nice? Not Melissa, I’ll tell you that. And she was a go-to girl anytime a friend was jammed up with boy problems and needed ice cream.

But then she changed, and we all saw it happening. She wanted to be totally hot and started hanging out with guys out of her league. Yeah she looked great, but the diet and the clothes and the whole lifestyle changed her. Rumors started about what she was doing behind the scenes at muni parties and at CDS keggers. She wasn’t nice and funny anymore.

She used to be totally dependable, but now you knew just by looking at her that she wasn’t going to be there when you needed her most. She was all image and the bonds that had been so strong, were now worth so little. That’s why MBIA, I’m so sorry but I had to downgrade you three full notches from Best Friends Forever and Ever to Best Friend Forever But Also a Slut.

Translating Corporate Speak: Wynn [Unforeseen Upside Edition]

Long or Short frequently critiques management teams who lie, obfuscate, and otherwise fail to tell investors the full story. So it’s only right that we point out management teams who have tickets on the Straight Talk Express. During yesterday’s earnings call, Steve Wynn of Wynn Resorts told it like it is.

[Responding to a question as to why Wynn issued equity at $154 at the end of September and then paid a dividend of $6/share on December 10th. Note that Wynn shares had traded in the $80s in June of last year and at $120 yesterday.]

It is the job, and you can take this as a final statement on the subject going forward. It is the job of board of directors and especially of the CEO to take advantage of the market when that market movement is extreme. When a company increases its value by 100% in 60 days, that’s an unnatural movement of value and the market also goes the other way sometimes. These unnatural movements in value, no company gets to be worth twice as much in 60 days as it was before to any intelligent person, so when that happens, we take advantage of it. If everybody is so hungry for shares, we let them have some. If the shares go down, we buy them. And that, that is a statement of policy in this company, period.

Translation: Y’all are fools and so we took advantage of you.

[It] would be nice…we always seem to get questions every quarter from the same five or six people, and you mention there were 200 people on the call, and I was hopeful that somebody new might have a more– a question that attacked our business from a different angle, for example, and if that’s not the case, we’ll say thank you and good-bye to everybody, but we’re always anxious to hear from new people if they are on the call…besides our competitors.

Translation: Why do I keep getting the same 5 stupid questions from the same 5 stupid people every quarter. Someone save me! (But not you, Sheldon.)

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