Archive for July, 2008

When are we in a The Recession?

September 2nd 2008, according to Young Jeezy according to Pitchfork.

This Is Why It’s Hot: Hip-Hop analytics is a powerful , if nascent, tool. Formerly, the medium was known as solely a form of entertainment. The trend has been for leading hip-hop performers to make a transition from “artists” to “businessmen”. 50 Cent has ventured into private equity with his stake in Vitamin Water, while Jay-Z has been involved with a leveraged buyout transaction of his clothing line, Rocawear, amongst other ventures. We think it is inevitable that Hip-Hop itself will also make a transition, from “art” to “analytical tool”. We will stay abreast of all related developments and I will not stick my manhoods in the mashed potatoes*.

*Unless it will result in better performance for our clients or it really is that kind of party, than I will stick my manhood in the mashed potatoes.

HT to Pasha

65% of You Failed Level I of the CFA

But the glass is 35% full, as that is how many passed Level I of the CFA’s Guarantee of Future Investment Performance Exam. Now I know that 65% of you are dejected and feel beaten down by life, by the capricious nature of your cruel Chartered master and by the implied future whips of the 35% of your cohort who did pass Level I and will likely be your bosses very soon. But do not look so glum! You managed to crash the CFA site server and ensure that many people who passed will have their glory delayed. If you can’t win, make life worse for those who did! Also, drink heavily.

Hungry Hungry Americans

In this troubling article, Struggling in Ohio as the Economy Tightens, the tightening of the America economy is played against a background of the tightening of the belt of many poor Americans (not us, we are very rich). This picture and caption were included.

I do not think that means what you think it means

Angelica Hernandez (left) and her mother, Gloria Nunez, struggle to make ends meet on a very limited budget.

Althought not discussed in the article above, formerly the bare minimum daily diet of an America in the USA was some combination of this (or regional or seasonal substitutes):

  • 30 shrimp
  • 1 extra-large meat lover’s pizza
  • 25 cool ranch fun-size Dorito packages
  • 1 Mountain Dew Slurpee
  • 1 Cherry Slurpee
  • Porterhouse for Two from Ruth’s Chris
  • 75 eggs
  • 1 lettuce plant
  • 1 lb of candy corn
  • Cheetos (a quantity sufficient to stain your tongue and fingers orange permanently)
  • 3lbs of lobster
  • 1 diet coke

This allowed America to be healthy, productive and as happy as the Danes. But not anymore. With the recent surge in food prices, many poor Americans are being forced to the face the nightmare of only being able to survive on a diet consisting of such things as

  • Rocks
  • Polonium
  • The Stuff from the movie The Stuff
  • Toxic Chemicals
  • Other poor Americans

Recommendation: Of these the last is looking to be the most delicious. Two birds can be killed with one stone were poor Americans to eat one another and if you do the math between the cost of food and the quantity of calories needed to sustain poor Americans, it seems inevitable. This shift in consumption would have a deflationary effect on food prices, effectively eliminating the marginal pressure that poor Americans place on demand, because these poor Americans will already have eaten or been eaten (as it should be in nature). In our analysis, this would lead to a simultaneous gap up in the prices people pay for poor Americans, especially when the market fully factors in how fatty, tender and delicious this meat is.

The play here is to start buying distressed poor American assets and forming farms, ranches or even islands dedicating to housing them and fattening them on low cost / calorie inputs like McDonald’s (NYSE: MCD) dollar menu and corn syrup IVs. Long poor Americans.

HT to Amanda

Quotes Entirely Relevant to Investing 07-27-2008

I, Ryunosuke Tsukue, trust only my sword in this world.
-Ryunosuke Tsukue in Sword of Doom

Past Quotes Entirely Relevant to Investing

Upside to Zimbabwenomics

Zimbabwe is introducing a Z$100bn bill to circulation. This does not cover one days worth of expenses (Z$500bn) for a person living in Zimbabwe (an unlucky sperm club member). Normally, this would be a terrible thing. However, rampant inflation is a fact of life in Zimbabwe and taken for granted. What the citizens don’t realize is the great lengths their government is going to in order to encourage math skills. For instance, calculating the cost of lunch (Z$100bn) for a week (multiply by 7) including inflation (estimated at 4,500% to 11,000%) requires seriously carrying some digits; the cost for a week is well into the trillions!
Recommendation: Invest in human capital: smuggle waiters, cashiers, and other frequent handlers of cash out of Zimbabwe. These people will be able to mentally manipulate numbers of 13 or 14 digits quickly and accurately. Long or Short estimates that at current inflationary rates, these humans will be able to replace most semiconductors’ calculation power by the end of 2008.

Quotes Entirely Relevant to Investing 07-20-2008

Mankind is divided into rich and poor, into property owners and exploited and to abstract oneself from this fundamental division and from the antagonism between poor and rich means abstracting oneself from fundamental facts.
-Joseph Stalin

Past Quotes Entirely Relevant to Investing


Submitted by reader Matthias

Given the “consolidation” in the banking space that has started with IndyMac, the person that looks to become the heir of the U.S. retail banking industry, is FDIC Chairman and future Chief Holder of the Bag (CHB (disambiguation, this is not a reference to Dan Shaughnessy)), Sheila Bair. But who is Sheila Bair?

Per the FDIC web site, her background is in authoring children’s books, which undoubtedly will come in handy, as she explains to the depositing public the finer points of what exactly is NOT covered by FDIC insurance. The trouble is, the original story of “Rock, Brock and the Savings Shock” is just leading the Nation’s children down an ill-conceived path to risky savings, rather than opening their eyes to the prudent possibilities of borrowing.

From the book description on Amazon:

Rock and Brock may be twins, but they are as different as two twins can be. One day, their grandpa offers them a plan-for ten straight weeks on Saturday he will give them each one dollar for doing their chores. But there is a catch! Each dollar they save, he will match.

Rock is excited-there are all sorts of things he can buy for one dollar. So each week he spends his money on something different-a toy moose head, green hair goo, white peppermint wax fangs. But while Rock is spending his money, Brock is saving his. And each week when Rock gets just one dollar, Brock’s savings get matched. By summer’s end, Brock has five hundred and twelve dollars, while Rock has none. When Rock sees what his brother has saved, he realizes he has made a mistake. But Brock shows him that it is never too late to start saving.

Contrast this with the more recent thinking coming from CHB Bair:

The FDIC’s seizure of IndyMac has given Ms. Bair the ability to put her strong views into action. She has complained that lenders weren’t moving fast enough to help borrowers with troubled loans move into more affordable mortgages and avoid foreclosure.

Last October, she shocked mortgage servicers, investors and many in Washington when she pushed lenders to freeze introductory interest rates on certain high-cost loans to protect borrowers from unaffordable mortgage payments. As foreclosures snowballed, her plan attracted more attention. In December an industry coalition agreed to freeze interest rates for five years for certain borrowers who qualified.

Ms. Bair was pleased, but kept pushing. She argued for more, bigger government action. This spring, she proposed a $50 billion government-loan program that qualified borrowers could use to pay down a portion of their mortgages.

Recommendation: I think it is time to tell the real story of Rock and Brock. The one, where Brock puts his money into an FDIC insured savings account, while Rock asks his friend Kerimov to hook him up with some later-untraceable source of leverage, investing the proceeds in Russian oil assets. At the end of 10 weeks, Brock’s savings bank is kaput, wiping out most of his savings. Over the same period, Rock’s oil assets have doubled, which leaves him with enough cash to purchase the operating assets of Rock’s S&L, after negotiating a free put from the Fed. And a Ferrari Enzo.

The Patrick Byrne Award for Fighting Market Manipulation: Christopher Cox

Topher Cox, head of the SEC and also a Jedi knight, has issued an order aimed at crushing the short-sellers and SITH lords who are trying to destroy the GSEs and some of the major investment banks. That order is the requirement that a trader must pre-borrow shares before shorting certain stocks.

SEC Chairman Christopher Cox said the SEC would institute an emergency order requiring any traders to pre-borrow stock before shorting Fannie Mae and Freddie Mac, the embattled government-sponsored entities that own more than half the nation’s mortgages. It would also apply to the stocks of Lehman Brothers, Goldman Sachs, Merrill Lynch and Morgan Stanley. The order is a near-term fix and will expire in 30 days.

Wall Street has been calling for the SEC to address short-selling, which some believe is contributing to market volatility and could be used to manipulate shares of financial stocks.

Under current rules, a short-seller must locate shares to borrow, which are later replaced with stock bought at a lower price. Some market watchers have been concerned that traders were borrowing the same shares from the same lender over and over, and driving down stock prices.

Recommendation: We’re sure that this regulation is very important and will fix all the underlying problems. The root of everything isn’t awful management, poorly calculated risk assumptions, no-no, just like with Overstock (NASDAQ: OSTK), the real problem is that the stock price is low and that’s due to market manipulation and that large Death Star that the market manipulators have been using to target certain financial stocks. Christopher Cox, you are the winner of the esteemed Patrick Byrne Award for Fighting Market Manipulation.

Be sure to pre-borrow Christopher Cox shares before you short him.

Mummies are Tax Efficient

My great great great great great.......great grand Inca pappyIn my family, it has been a masculine tradition to keep logs of economic thought and financial analysis since the days of Ancient Rome. I will from time to time share with you relevant passages from these Legacy records.

From my forefather, Tupac Huayna Madacagalu (relayed through our familial oral tradition):

Dealing with Inheritance

Death is a very tax inefficient occurrence. You die then your estate gets devoured by Quirsatec, The Great God of the Levy. This has been THE great financial planning quandary of my time as Emperor of the Inca Empire. And I think I solved it.

Bundled up on a crisp June night, a pan flute filling the air with its melodies, I drank chicha and pondered tax efficient solutions to the death problem — what can we do to best minimize estate taxes? And it hit me, like a great bolt from Apocatequil:

I will never die and thus never bequeath my estate and also never pay the taxman any goods.

This will likely require some alterations to our belief system, but as ruler, that is all in the game.

As I thought later, I realized the genius of my own genius. Not only would I minimize taxes and not die, but I would ensure that my offspring were properly incentivized to go out and conquer for themselves, for otherwise they would have nothing and they would likely be thrown off the cliffs into the depths below with nary a single coca chew to soften the blow when the state falls apart around them! Oral Note to self: This is also a great opportunity to create a post-mortem fashion and maintenance start-up and produce crazy profits.

Mac Attack

Mac’s are dominating the news, whether it be Freddie, Indy or Apple. But investors are understandably confused as to how to look at each Mac, and whether being a Mac is a good thing or a bad thing for a potential investment. Here is what our research indicates.

  • IndyMac (NYSE: IMB) — Bad, too artsy sounding and unloved by the masses. Short
  • Freddie Mac (NYSE: FRE) — Good and bad. Good that it has the full force of the Govt behind it; bad that it has the full force of the Govt behind it. Other things that have the full force of the Govt behind it include Iraqi Peace, Afghani 20th centurydom, the US Dollar and the USPS. You want to own the equity in that entity? Short you
  • Fannie Mae (NYSE: FNM) — An honory Mac, see Freddie Mac but add in transsexual identity issues. Short the LGBTAMac as well.
  • Big Mac — Delicious as always and digestion proof which allows it to conveniently be reused; this quality makes the Big Mac recession proof. Long
  • The Daddy Mac — Totally dated…NOT. Just kidding, it’s very dated…NOT. No I mean it, it’s dated. Seriously. Short the Daddy Mac and NOT
  • PennyMac — A startup financial entity created by BlackRock and Highfields to make distressed plays in the mortgage space. The penny let’s you know that this is a Mac that gets it done and at a good price. Long
  • Mac computer — A PC that has been marketed well enough by Apple (NASDAQ: AAPL) to command a 20-30% premium for being pretty and having spent time in Steve Jobs magical fallopian tubes. Long
  • Mac zealot — like a Mac computer minus the PC and plus a defective person who loves a company more than any person in their own life. Wish they spent time in Steve Jobs womb. Love to wait in lines and buy consumer products as they “Think Different” together. Short
  • GMAC — Four parts Freddie Mac, Three parts depreciating collateral, Two parts auto, Five parts GM (NYSE: GM) equals Short.

Quotes Entirely Relevant to Investing 07-13-2008

In Three Days of the Condor, when professional killer G. Joubert is asked “Why” he kills people for a living:

I don’t interest myself in “why”. I think more often in terms of “when”, sometimes “where”; always “how much”.

Past Quotes Entirely Relevant to Investing

That Time I Hired The Restructuring Consultant to Restructure Me

For the reasonable price of $2000 per hour you took can be restructuredDo you ever have one of those days? When you feel like you might just default at any second? It could be spurred on by a liquidity crisis, like Ford took away your factoring, or has contractual price downs that are killing your margins and is ordering less volume to boot, and your revolver is maxed out, and good luck raising any more money in this market. Suffice to say, you’re regretting your decision to be a consolidator in the auto supplier space. Or it could be a liquidity crisis where you had one too many jaeger bombs and the smell of your toilet indicates you may have also had too much tequila, but you have no memory of having ANY tequila. Either way, you could default at any second and you don’t like where things are headed.

That is when you need to restructure and find yourself a personal CRO. What can he strip out? What can he improve? Well, well, you’re in store for it. You spend your weeknights doing what? Why don’t you use lean manufacturing while performing your job? You should consolidate your suppliers. And lose that contract with that girl, you know the one, she negotiated terms at the top of the market and you find yourself spending significant capex to maintain your supply of her goods, goods which are worse and worse and of which she is putting out less and less.

I found myself at this point, on the veritable verge, and I needed outside help. Luckily, Long or Short Capital has a very generous and unique health package that allows its employees to be extremely healthy and notably more efficient. You think the firm with the SAAP based financial results doesn’t have generous fringe benefits? Come on!

I have just brought my CRO in (pictured above) so he is busy getting getting dug in and up to speed on me. I will update as he begins producing actionable recommendations.

Translating Corporate Speak: Hang Fung Gold Technology

Lam Sai-wing is the head of Hang Fung Gold Technology, a retail jewelry company based out of Hong Kong, famous for its Swisshorn Gold Palace. The WSJ caught up with him to talk about his golden romper room.

Corporate speak:

Building a gold toilet, I realized…would be like an investment, plus we could let people see it for an admission fee, and we could use it to launch our brand. [Besides gold prices were so low they could only go up; buying gold at $200 an ounce would hedge against inflation]

-Lam Sai-wing


This was the perfect way for me to stoke my ego plus it was a sizable risky speculation in a commodity which, as a retail jewelry business, is not what we should be doing — another reason it was a great idea! I knew that if gold went up, I would look like a genius and likely get a nod from the Wall Street Journal who eats up these zany stories; if gold went down or stayed the same, I would look like the guy with the crazy big ego but I’d still be rocking a gilded room. A classic win-win situation for me, win-lose for the shareholders. It’s all in the game.

Corporate speak:

The toilet and the Guan Yin statue are the most valuable pieces[.] As for the toilet, that’s the cornerstone of our company[.] It’s an icon. It will never be taken apart.

-Lam Sai-wing


As for the toilet, that’s my throne. It will be taken apart if the price is right.

Quotes Entirely Relevant to Investing 07-06-2008

Freedom is the last, best hope on earth.
-Abraham Lincoln

Past Quotes Entirely Relevant to Investing

Next Page »