Archive for October, 2008

The Perfect Storm of Investment Theses

We are currently in the Perfect Storm of Perfect Storms. This has caused great loss in our imaginary investment portfolio on the gains we had generated by shorting mortgage-backed securities. The only way to counter a Perfect Storm of Perfect Storms is with the Perfect Storm of Investment Theses. Luckily, we have found it: The Four S

We have identified four trends that all start with S. They are also all compelling investment opportunities. Combined, they form the Perfect Storm Investment Thesis.

  • Solar power
  • Smartphones
  • Software…
  • …as a Service

Many people correctly believe that:

  • In the future, solar power will be the primary source of energy for the world economy. This power will be free, plentiful, and have no environmental impact. Except the unknown impact that results from taking massive amounts of energy that normally would have hit the Earth and shunting it into our cars and smartphones, and the related waste from producing solar paneling on an industrial scale, but other than that, we can assure there will be no environmental impact. As a side benefit, Al Gore will finally shut his piehole, since he will have made his billions from his green portfolio, you know, the book he talks everytime he opens his mouth.
  • Smartphones will achieve 207% penetration as most consumers choose to carry more than one smartphone in order to make themselves smarter. Smart people know that it is important to have a persistent buffer from the place you are actually in. That is to say, if I’m driving, I’d be better off talking to Sarah. If I’m on a date with Sarah, I’d probably be better off talking on the phone with Sonya. And if I’m at Sonya’s apartment watching Mad Men in the nude, I’d be better off playing the newest cool iPhone game. Smart people know this is the whole point of smartphones. Apple will have 35% share, RIMM will have 30% share, Palm will have 25% share, and Nokia will continue to be the market share leader with 40% (See, they’re all winners!)
  • No one will use antiquated sales programs like Siebel. Everyone will use online, automated sales programs like and Google Adwords. All sales will take place online. Brick & Mortar stores will be converted en masse into sales kiosk repositories and/or expensive condominiums communities where everyone feels like they know everyone else but in reality are too busy doing something with their smartphone to know anything about the people who breathe the same air as they do.

However, using our superior intellects, we realize all of this will converge. In the future, software as a service tools will be the exclusive sales channel for solar-powered smartphones. We expect they will be able to run all the most important applications including Call of Duty 8, Microsoft Excel, and YouTube. Additionally, by 2012 they will achieve grid parity pricing and begin contributing energy back to the grid. We calculate the total market size for this trend at $8 trillion.

Recommendation: Software as a Service Solar Smartphones will stave off the Perfect Storm of Perfect Storms.

All Your Crash is Belong to US

Dear RoW,

Hey there, bro. We see that you have been having a pretty difficult time of late over there in your unspecified foreign countries. We feel your pain.

But bro, we don’t feel bad about your pain. See all these years, you have been telling US how better you are than US. How you are more fair. How you have universal medicine, or don’t believe in playing spin the bottle with the Middle East and being forced to spend 7 years in heaven with Iraq in the closet, or aren’t populated with rednecks, or graduate more science PhDs or whatever. How you are cultured and not obese. How you were smarter than US, how your way was way better. Well amigo, what is the haps now?

Yeah the US has been going down. Shit’s true, can’t deny that. We have had our financial foibles, our credit crises and real estate bubbles. Our stock market has been getting crushed and many of our leading firms no longer even exist. But you, you RoW, your stock markets have been getting even MORE crushed. Your banks are in even MORE precarious positions than ours. Your culture and economy and currency and utopian ideals are all showing cracks and are ready to break. You don’t know what to do and to be honest bro, you’re probably screwed.

And this is by design. Our forefathers claimed America by giving those Indian bros pox infested blankets. And we are claiming the RoW by doling out our MBS, our structured products, our overpriced assets and a little friend called contagion. FYI pox be in all that crap.

When the US wins, we win. When the US loses, we still win relative to the RoW, taking you down more than US. This is why we are the hegemon, bro.


Quotes Entirely Relevant to Investing 10-19-2008

“You must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
-James Collins outlining the “Stockdale Paradox”

Past Quotes Entirely Relevant to Investing

Quotes Entirely Relevant to Investing 10-12-2008

“A bank is…a manufacturer of credit. The cornerstone of credit is confidence — confidence of men in men. A panic is a collapse of credit. It is an intensely human affair, and many of the determining influences are of a personal and confidential character, and very inadequately reflected in the cold figures of the bank statement.”
-E.W. Kemmerer (1911)

Past Quotes Entirely Relevant to Investing

The State of Shorts

Actually, the title has it backwards. Short the States.

The latest institution asking for a federal loan to help bridge a massive shortfall caused by a bad bet on housing is The Bank Government of California. Their revenue forecast has fallen by $3bn in the two weeks since the budget bill was signed. The budget originally called for a deficit of $15bn on a budget of $100bn. Ooops!

Consider the Fed speaking in Fedspeak below:

The evidence suggests that property tax revenues are quite responsive to changes in house prices. Although it takes several years for house price appreciation to feed through to property tax revenues, the long-run elasticity is on the order of 0.4.

Let me translate: California is just the beginning. Most states will face massive budget deficits in the next two years.

Recommendation: State income taxes will skyrocket in order to cover for a massive shortfall in property tax revenues. Balance a short position in 41 states by going long the 9 states without income taxes.

The Perfect Storm of Perfect Storms

Dear Subscriberholders,

You may be aware that something is “going on” in the markets. That something is that we squandered all your potential dividends due to what can only be described as The Perfect Storm of Perfect Storms. We’re sorry. We thank you for having faith in us, and our models indicate that if it were not for The Perfect Storm of Perfect Storms, then we would have returned to you 30% per annum, so you should feel confident that you made the right decision according to invest with us according to our models and also to our models.

Now, many of you may be saying “Aren’t you savvy investment professionals, shouldn’t you have, y’know, know better.”

To that we say, “Yes, but also no.” In “The Perfect Storm”, George Clooney captains a ship that catches tuna or red snapper or whatever, and he can make lots of money in a short time doing it. But if George Clooney, George Clooney’s brooding good looks, and George Clooney’s amazing hair, are unable to return a single Gloucesterman to shore in the face of just a single The Perfect Storm (spoiler alert they all die), what hope is there for Long or Short Capital Management in not destroying all subscriberholder value in the face of The Perfect Storm of Perfect Storms?

What hope indeed,
Long or Short Capital Managment

High-End Female Asset Analysis

A journalist female asset asked us our opinion on “who, in the current financial climate, do you think is in the best position: the high-end wife, the high-end girlfriend or the high-end hooker?” as well as “their relative vulnerability is in relation to the vulnerability of the Wall Street honcho who might be their husband, boyfriend and/or client?” The following was the research report we created:

Just to clarify, our definition of “High-end” means “extremely firm buttocks and/or thighs that do not touch while standing”.

High-end Wife: Her position is weak because, frankly, she is a status driven nag. As Man’s ego falls commensurate with his portfolio’s value, Man will tire of her act and reallocate his assets towards strange to try and offset his ego loss. The High-end Wife is likely to adopt a simultaneous “flight to quality” strategy or, in layman’s terms, “pull a Jackie O”. But she lacks the understanding of markets to know that this is a GLOBAL financial and, soon-to-be, economic crisis, so her Aristole will really be a Raffaello. The availability of cheap, made-to-order Eastern European High-end Wives, further puts pricing pressure on a transitioning High-end Wife, whose assets are more aged and more likely to be in need of a refresh.

High-end GF: Below the high-growth exterior, High-end GFs are mainly naive and prone to huge strategic gaffes despite tactical genius and impressive, but depreciating, endowments of natural resources. Her short term position is strong, because as Man is transitioned from High-end Wife, High-end GF will get a small short-term boost. Considering that Man is likely rich, this will be a very small and very short boost. Given that this boost is purely short-term in nature, this is a classic buy on the rumor, sell on the news situation for anyone looking to invest in a portfolio of High-end GFs. Over the long term, her fundamentals will become identical to that of the High-end Wife, with the exception being that her former role as a mistress weakens her bargaining power with respect to Man in terms of Man seeking out new strange.

High-end Hooker: Her position is strongest and her assets are acyclical. In good times, men are flush with cash and looking for strange but are also less dysfunctional; this leads to an allocation towards a basket mainly consisting of High-End Wives, with maybe a 15% position in High-end GFs and a 2-5% position in High-end Hookers. As markets worsen and/or crisises take hold, Man is increasingly dysfunctional and looking for ego offsets. It also in this time when Man typically contemplates or engages in life restructuring which can entail simple cost saves, like headcount reduction, or even full-on recapitalization, flushing out the junior capital. A successful market-timing Man will typically have a portfolio composed of 60% High-end Hookers, 30% High-end GFs and 10% value High-end Wives when the market is bottoming. As the cycle comes around, the High-end Hooker position is reduced opportunistically, some of the High-end GF portion transitions organically to High-end Wives and the value High-end Wife position is added to with more growth High-end Wives.

As to relative vulnerability, obviously Man will be ok and everyone else will (still) be fucked in a recession. This is what historically has been true according to the data we have. Additionally, the cross-cyclical trend we see is that everyone else will still be fucked.

Analytiquication Sans L’Informatione: Iceland

Even the horses are rocking the Euro mulletWe have embarked on a new type of analysis which we call “Analytiquation Sans L’Informatione”, which might be french for something but probably is not. Today we tackle Iceland, where our only source is Iceland: When Too Big To Fail Becomes Too Big To Rescue, a link on our favorite Salmon’s blog. We will take the words and comments from that one link and come to investable conclusions without using a single other source of third party data, so that our analysis remains pure and untainted.

Analytiquication Sans L’Informatione: Iceland
Source: Iceland: When Too Big To Fail Becomes Too Big To Rescue

Comment: [Iceland is] fighting powers that they are powerless to fight. It’s like tackling a storm raging in the sea with a teaspoon. The main supermarket can’t get imported goods because they have no currency. The shops are half empty. One of the store managers has advised people to start hoarding. We’re running out of oil. And winter came last night – about a month early.

Analysis: This sounds like panic, and one of the keys to getting out of trouble, even of you find yourself stuck in a fjord, caught below a dyke or being strangled by a pack of bjorks (warning those things may not actually be Icelandic), is not to panic. So do not panic before reading the rest of this comment. Contrarian analysis indicates that if someone says “we’re running out of oil”, it probably means they are not actually running out of oil because they must be aware of how much oil they need so are now appropriately prioritizing it. Like when I used to put pillows on top of my brother’s head, and he used to complain “I can’t breathe JD, stop please!”. Save the words for the birds bro, I know you’re breathing if you’re talking. It was tough growing up an only child.

Comment: This is not right “The shops are half empty” there stores are full Everything is just more expensive and we are not running out of oil, the government will not lat that happen, the government is running thundered of cars, run ships, helicopters,airplanes so they need oil them self so they will not let the country run out of oil. Most of the news we are hearing now in Iceland…well lets say they are not all true.

Analysis: We knew we were right before and that that panicky email was wrong. We were able to use this latest comment in conjunction with our razor-sharp confirmation bias to refute all those who doubted our previous paragraph. This is why analysts need more and more data and deserve to be paid huge sums of money. If we don’t have the former, how can we inundate you with how correct we are, like how I am doing now? If we don’t have the latter, how do we maintain our model girlfriends’ cocaine habits?

Comment: Iceland produce 5% of all aluminium in the world and our mutual fund is bigger than Norways oil fund per person. People forget the fact that we have highest standard of lifing in the world and we will be on the top again next year. There is nothing to fear in Iceland.

Analysis: This does not pass the smell test. Olfactory analysis is key in understanding smaller, niche markets like Iceland. It’s impossible to visit there by plane and very few people have ever even seen an Icelander, so analysts must sniff in the general direction of Reykjavik and glean what they can from the scents. And my Moody’s rated nose indicated that there is no whiff of aluminium. Moody’s rates my nose as a Baa2, which means the implied default rate is only 87%, so you know you can trust it.

Comment: We will see more and more nations literally disappear. Iceland will shortly be returned to wilderness.

Analysis: When the Age of the Cephalopod is upon us, and the Age of Man is at an end, Iceland will be one of the first nations to go, due to its isolated oceanic location and vast volcanic power sources. This comment is right in suggesting that the fall of Iceland may be a catalyst for positioning one’s portfolio for full exposure to cephalopodic plays.

Comment: They’re vikings… Canadians and Americans better watch out, soon there will be a fleet of angry Icelanders landing on your coasts to loot and rape.

Analysis: To paraphrase Robert the Bruce, “you’ve been raped by worse! Now be raped with me!” There are some attractive broads over there, so there really are worse fates. But the truth is, Iceland, it’s too bad you could never rape us…because we would consent.

Recommendation: To summarize, and in summary, do not panic in Iceland or about Iceland, Iceland and the world is not running out of oil, everything is ok, except the fact that Iceland is about to be reclaimed by the sea and subject to, along with the rest of Earth, the rule of giant squid masters, also Iceland can’t rape the US because we have it coming and would likely enjoy it. Invest on that.

Diversify into Mackerel

I have been stuffing my pillowcases with Krugerrands in anticipation of the bailout bill and the inflation that is surely to follow. I recommend you invest in gold, silver, and guns. Further diversification into mackerel is also desirable. This currency has the benefits of being more liquid(oriented) and tastier than the dollar. Additionally, you can already use it to purchase haircuts, food, and other items and services throughout the US*.

*prison system