Archive for May, 2008

Markets in Something

It’s frequently said that you can’t get something for nothing. This is true. But what is the price of something? Difficult to know. This has been a market that lacked liquidity and price discovery.

Luckily, the Something Store has started making a market in somethings. You can buy as many as you like for $10 per something. I suspect they are capturing a large producer surplus here — somethings may well be worth less than $10 — but I nonetheless admire their willingness to make a market in something.

Recommendation: We’re still working on how to make a market in anything which seems to be a dangerous proposition. Something can be more valuable than anything, but in a discretionary context, anything is likely to be a lot more valuable than something. Nothing can actually be more valuable than anything or something. And then you bring everything into the equation and it’s worth either zero, infinity or negative infinity, and there is clearly a lot of science that needs to be done.


The Khaki Letter

The Khaki LetterOlden times knew how to mark someone who literally fucked up. A big scarlet letter to shame them permanently. Olden times understood that it was appropriate to properly prioritize penalization over rehabilitation. They got that. Now, when people mess up in most walks of life, you basically have to apologize to them for it.

“I’m so sorry you went to Cornell and that you couldn’t get into Harvard, where I went. When I was at Harvard, I felt so guilty knowing that I had gotten into Harvard and all these other nice people hadn’t gotten into Harvard and were forced to attend lesser schools like Cornell or Dartmouth or Brown, schools that weren’t Havard, where I went for undergrad and then later for my MBA. God, that is so horrible, I hope you are able to find someone willing to hire you.”

But it doesn’t have to be like this. It’s time to roll out The Khaki Letter. The Khaki Letter is a mark of shame that should be applied to anyone who fucks up in finance, or other industries that can make a claim to being appropriate.

Embarass yourself professionally by sending out an email about how Chung is King that gets you fired? Khaki Letter
Shoddy analysis that gets your clients screwed? Khaki Letter
Pop one too many collars? Khaki Letter
Work for Moody’s? A Veritable Yacht Club of Khaki Letters

Recommendation: Long Shame.


CIFG, Time for a New Slogan

CIFG’s slogan on their website is CIFG: The New Generation in Triple-A Financial Guaranty.

Well, about that, uhh I don’t know how to say this but I think you need a new slogan. CIFG was downgraded to Ba2:

Moody’s lowered its financial-strength ratings on CIFG Guaranty, CIFG Europe and CIFG Assurance North America to Ba2 from A1, a 7-notch downgrade, and said the future direction of the ratings is uncertain.

The credit rater said “absent material developments, the firm will fail minimum regulatory capital requirements in New York and Bermuda due to expected significant increases in modeled loss reserves on” asset-backed CDOs. Falling short on capital requirements “would put the firm in a precarious position, especially in light of the solvency provisions embedded in its” credit-default-swap exposures.”

Moody’s said as downgrades of residential mortgage-backed securities have continued this year, “Moody’s believes CIFG will experience sizable increases in reserves, and could breach regulatory capital requirements in the near future.” The company has already failed to meet some regulatory-filing deadlines in the U.S. and Bermuda, including first-quarter results for CIFG Assurance North America and the 2007 annual report for CIFG Guaranty.

Recommendation: CIFG the New Generation in Fallen Angel Financial Guaranty is quite catchy. But more accurate would be, CIFG Our Guaranty Is As Valuable As the Paper’s It’s Written On, Which Paper Is Rated By an Independent Third Party Which Says Our Paper Is Not Very Valuable Even Though It Used To Be.


How to Increase the Value of Yahoo! (YHOO)

$30? OH RLY?This report is gratis, Yahoo! (NASDAQ: YHOO).

  1. Find ways to make money. Sounds simple but like checkers, it takes an instant to learn and about an hour to master when you have a portfolio of the most trafficked sites on the internet and dominate Japan more than low-interest rates or even xenophobia.
  2. Rename the company OO-OO. Throwing a double-OO is probably YHOO’s best shot to take down the Goog (NASDAQ: GOOG). If you can find a way to get a triple-OO done, do it, but we’ll believe that’s possible when we see it.
  3. Traditionalists would say that Yahoo should stop CEO Jerry Yang from spending so much time playing poker. But, to improve value for Yahoo shareholders, we would encourage Jerry Yang to play much much more poker and much much less CEO. At least he is good at poker.
  4. Create a meta Fantasy Game on top of your Fantasy Sports Games. It should be a traditional roto league where you draft fantasy sports participants based on categories such as “Time of Firm Wasted”, “Dollar Value of Firm Wasted”, “Minutes Boring Other People Talking About Your League” and WHIP. The consensus no.1 pick would be Yahoo username “poneilyanks4eva.”
  5. Rehire Terry Semel. Just checking to see you if you were paying attention. Seriously, you’d be better off hiring the corpse from Weekend at Bernie’s. Unfortunately, he is currently busy trying to lead an activist campaign against Yahoo’s incumbent management team.
  6. Add one or two executives with some experience managing an internet company to the Board of Directors. Although it’s great to have marketing executives, VCs, and Bill Clinton’s best buddy on the Board, it doesn’t help your clueless founder/CEO or your President — who used to be CFO and before that, a Wall St newspaper analyst — to run an internet company.
  7. Lie to China. Spread horrible rumors about Google, like that searching through Google.cn makes it so that for its users, every year is the Year of the Goat, which we all know is awful. Also start a marketing campaign based around how “Lucky” Yahoo makes its users, and throw a lot of 8′s in there. They eat that stuff up. Remember, there are a billion of them, so even if you get 5% of that market, it’s going to be about 50 million people.
  8. Let the company be bought by Microsoft (NASDAQ: MSFT) at a 50% premium to YHOO’s closing price before MSFT’s February bid.

Quotes Entirely Relevant to Investing 05-18-2008

Freedom in capitalist society always remains about the same as it was in ancient Greek republics: Freedom for slave owners.
-Vladimir Lenin

Past Quotes Entirely Relevant to Investing


What’s Good for GM…

“General Motors Corp., the biggest U.S. automaker, said it still has enough liquidity through 2008.” And then what?
If you say you have enough liquidity through the end of the year, you don’t have enough liquidity.

Recommendation: What’s good for GM (subprime loans, CLOs, etc.), is not good for the country.


Quotes Entirely Relevant to Investing 05-11-2008

You know, the usual: supreme power, undue influence over others, world domination.
-David Harding of Winton Capital Management when asked about what drives him in Traderdaily

Past Quotes Entirely Relevant to Investing


How Inefficient Are Seals?

Where the walrus puts the sealThis report on seals has us further concerned about the prospects of the entire species.

After 45 minutes the seal gave up, swam into the water and then completely ignored the bird it had just assaulted, the scientists report.

Walruses are models of efficiency. Can you see a walrus ignoring a bird it assaulted? Or do you think he’d make sure the assault was properly finished and the bird either consumed or appropriately stored for later consumption at his Balrus pad?

But the scientists who photographed the event speculate that it was the behaviour of a frustrated, sexually inexperienced young male seal.

Again, a walrus is a model of efficiency. Can you see a walrus doing this, or more apt, a walrus not getting his balrussing on regardless of his experience level? When your species specializes in getting it done, there is never any frustration. There are also no excuses. This is the code they live by.

Recommendation: There is a reason that the movie Andre sucked, and it wasn’t due to the all-star human cast, or the incredible cinematography or the director who shares the same name of the director of Mad Max, but is not actually the director of Mad Max. Hell, you can’t even blame Maine (in this case). No, the problem with that movie was that it wasn’t called Rufus, and wasn’t centered around a walrus with the same name. That movie would have won critical acclaim and probably been so good that just having seen it would get you laid. Additionally, we can’t see seals being a credible species in the context of Global Squidding. Short the seal.

HT to girl


Translating Corporate Speak: Wynn [Unforeseen Upside Edition #2]

In February, we pointed out Steve Wynn’s colorful and frank commentary on his company’s quarterly call. Today, we follow up with more from the CEO of Wynn (Nadaq: WYNN).

First, if you recall, Wynn issued $660mm of shares at $154 at the end of September after his stock had doubled in 6 months. Explaining his reasoning, he said at the time:
“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.”

Smart. Now, one quarter later Wynn has repurchased 2.4 million shares. As he said on this quarter’s call:

“Look, we issued 4.4 million shares for 660 million and promptly distributed it, which was really nice for us shareholders. And a return of capital. We have now bought back at 50 or $60 a share [cheaper] those shares that we issued.”

Translation: You were idiots to buy my shares at $154. But I appreciate you selling them back to me at $95. Thank you.

Additionally, while most companies talk up their own business and exaggerate the prospects and profitability of the business, Wynn opts for honesty.

We report and talk about these EBITDA numbers with our chest puffed out as far as we can get it as an industry. I suppose it tells you how much money you can afford to pay in interest. But the public needs to understand that the profitability, the real profitability of these businesses are much, much less than these puffy EBITDA numbers. Interest expense is very large. And depreciation, I know office building guys and shopping center guys and apartment guys, they get to spend part of the depreciation. But, believe me, in my 40-year history and in the history of every other gaming company here, Kerkorian would agree with me. We spend depreciation. It is a real expense. And when you take the profitability of a hotel like the Venetian or Wynn or Bellagio or any of us it’s a much smaller number when you subtract depreciation and interest. And amortization. We have to pay back the people who lend us the money eventually. It’s a much smaller number. But I know the Wall Street folks, you all like to talk about EBITDA.

Translation: I don’t understand why you think my capital intensive company should be valued on metrics that exclude any measurement of capital intensity. I would use a different approach than you muppets, but then again, your approach is lining my pocket and I will restrict letting you know this explicitly such that no one will pick up on it except those who can parse my words with some kind of proprietary translation algorithm for corporate speak.


Quotes Entirely Relevant to Investing 05-04-2008

I think that a man should not live beyond the age when he begins to deteriorate, when the flame that lighted the brightest moment of his life has weakened.
-Fidel Castro

Past Quotes Entirely Relevant to Investing


Improve the Real Estate Market, Make Mortgages Out of Corn

Adjustable Rate Corngages with Butter teasersWhen America had the desire to prop up corn prices a need for cheap sugar what did it do? Make sugar out of corn.

When America had the desire to prop up corn prices a need for an alternative source for cheap liquid gasoline? Make gasoline (ethanol) out of corn (and out of pigs via piganol).

Now America has a floundering real estate market and the need for cheap domestic financing to prop it up. What should she do? Make mortgages out of corn. Turn what is plentiful into what is scarce. Simple.

Corngages can be produced by converting corn into cheap financing by a special process invented by Orville Redenbanker. The best part is that it is a green friendly and renewable source of mortgages, an important point in a world where sustainability is stepping to the forefront. While there are some side effects (including but not limited to: a large amount of emissions which melt the ozone and an increased price of corn, which means an increased price of everything for which corn is an input or a substitute), they can be “offset” by employing other corn products such as cornbon-offset and corn price deflators.

Recommendation: We recommend being long corn, long real estate and long any problem which can be solved by corn, which as far as we can determine is EVERY problem.