Archive for February, 2009

We Are All Frogs Now

Even discounting for the impact of global recession, the most populous state’s ills are unique and self-inflicted — and avoidable. In the last three decades, California expanded the public sector and regulation to Europe-like dimensions. Schools, state employees, health care, even dog kennels, benefited from largesse in flush times. Government workers got 16 official holidays, everyone else six. The state dabbled with universal health care and adopted strict environmental standards. In short, California went where our new president and Nancy Pelosi of San Francisco want America to go.

How California Became France, WSJ

California is the canary in the US coal mine and it’s likely too late for Johnny Debacle’s Debacle Plan for California. Instead of isolating abject failure by pushing it into the ocean, the intention now seems to be to replicate many epic fails that plague California and apply them to the rest of the country. What are the differences between the state of CA and the US? First, the US is a couple years behind the west coast’s expansion into liberal fantasy. Second, the US can borrow to finance its deficits while CA is tapped out and on the staring down at a true fiscal crisis that awaits them below.

Arnold and California have a firm grip one the ways of the world

Don’t fret, Dear Taxpayer. The US will catch up with California soon enough. And then, when inflation has picked up and our growth rate is structurally slower due to the expansion of government as a % of GDP, the increase in regulations on all businesses, and higher tax rates on individuals and corporations, our foreign lenders will finally pull the plug. We will look a lot like California does now, or more aptly, a lot like like a pre-op France.

There is a argent doublure here. France is a pretty good place to live, with only a few caveats. That you are wealthy, that you have connections throughout the ruling class, and most importantly, that you are not an immigrant. Oh and make sure you are white too, just so there’s no confusion. To be clear, there is no upwards mobility but that’s great when you are already on top! Furthermore, the French have amazing cheese, put on exquisite union strikes and were responsible for Man on Wire, one of the best documentaries I have ever seen.

Recommendation: Quickly accumulate a large fortune, if you haven’t already. Punitive tax rates, prevalence of government jobs, and a stagnant business climate will prevent upward mobility so it’s critical to start on top. Second, acquire a taste for fine cheeses and wine. Third, begin practicing your strike routine; this will be critical to maintaining your benefits. Fourth, be cautious that you are not slowly being boiled without realizing it.

Working out your ABS

If you have exposure to ABS, or a portfolio full of ABS, you look terrible. But why continue to suffer when you can look better in less than 7 minutes. That’s right, 7 minutes and your ABS will go from out of shape to robust. The solution is this simple exercise:

The bicycle, an alternating elbow to knee crunch that makes it look like you are riding an invisible perpendicular bicycle, will improve the core of your ABS portfolio, and ensure that you look fantastic both to your investors and to yourself. Have your ABS portfolio do four sets of bicycle crunches to failure, every other day. In a matter of weeks you will see the difference. Why continue to suffer, when a free solution is at hand?

Recommendation: We do not yet have a prescription that strengthens your MBS, but we are working on it.

Wait wait, we got HALF???

Art is truth and should never be censored Executive pay and Wall Street bonuses are the root of all evil.   You might even put them in the axis of evil.   And our fearless good-guy government leaders in the US and Europe have addressed the evil head-on, chastising anyone who makes “a lot of puddin“.  Recently, even going so far as to enforce pay freezes and caps.  This might sound suspiciously socialist, even Russian.

Unfortunately someone forgot to tell the government that they were getting half those bonuses in taxes .  Yes, The Government, you get a 50% cut of all that bonus money. To which I say “THE GOVERNMENT, HOW DARE YOU ACCEPT SUCH EXORBITANT PAY! YOU ARE RECKLESS!  AND YOU DIDNT EVEN SAVE ANY OF IT???  DISGUSTING”. And WHOOPS The Government, you just capped your own tax income.  And in places like the UK, where financial services tax income is 25% of the budget, it’s going to mean that you, The Government, will have to lever up (read: print money) to make up the short fall.

Banks won’t lever up.  They have decided that lending isn’t a good return on investment right now.  But most banks have decided that adding some leverage to pay their top performers bonuses in an awful market is a good return on investment.  The Government has decided the opposite.  Of course, the Government is the same body that thought that THEY, career politicians of varied backgrounds, could do a whole lot better allocating mortgage resources than the free market via the mandates they put in place for Fannie Mae and Freddie Mac.

For one side when they do a bad job, their firms and their entire industry end up on the brink of non-existence. For the other side when they do a bad job or are completely wrong, whether it be 9/11, Iraq, aiding the Great Regression, printing money or messing up the recovery, they get much MORE money and much MORE power. If Dick Fuld had worked for congress, he would have been promoted to Chairman of the House Financial Services Committee.

If the Government does follow through all the way and take away or freeze bonuses for Wall Street executives, we think it’s only fair that they should also give something back to those very same Wall Street executives. I have some suggestions.

  • A cut of every lobbying dollar that politicians get after leaving public office
  • A cut of every speaking fee politicians receive after leaving public office
  • The ability to travel on a whim at the expense of taxpayers, specifically in support of potential new employment
  • A new requirement that poor performance is rewarded with promotions and tenure, whereas in finance in the past those things were rewarded with being fired or a dramatic reduction in bonuses
  • The ability, once in an executive position, to “redistrict” your supervisors in a way that ensures that you have supervisors who are most likely to favor you with continued employment
  • And last, but not least, coupons for Washington DC’s high end brothels which are rumored to be the nicest on the East Coast

Long Chunky Chick Assets

A Cornucopia of Countercyclical AssetsThe recessionary environment effects all facets of life, from investment decisions to “investment decisions.”  When society as a whole is economically well-off, the hotness is skinny women, peak fertility is less important, the demand is for Paris Hilton’s but with pretty faces and less syphilis.  When times are tough, biological gears shift to value fertility higher up on the scale.  “Curvy” stops being a euphemism for “my fat friend” and instead becomes, itself, the hotness. And based on the current outlook for the economy, we are going to be needing a whole lot of child-bearing hips to weather this perfect storm.

In this light, it was a huge miss by the analyst community to not spot this recession/depression.  They were handed an obvious indicator on a silver plate, or in this case, a digital video tape.  In 2007, Kim Kardashian emerged on the scene in a big, big way.  While not truly chunky, there was a lot more cushion in her portfolio, and it cannot be said that she didn’t butt her way past the skinnified starlet assets and pseudo-celebrity assets who had been feted for years.  She was something different, a new trend, a hybrid, a transitional sex symbol that foreshadowed who would come in the future.  She was the herald of the reemergence of chunky, the countercyclical asset class.

We expect chunky chick assets to also benefit not only from increased general attractiveness, but to be additionally enhanced on a relative basis when clothed. Per our Cleavage Hypothesis, we expecte cleavage line and shirt lengths to creep back up to historical norms. In this situation, the natural endownments of the chunky chick asset class should serve to mitigate those retracements.

Recommendation: We’re upgrading chunky chick assets to Strong Hit; our catalyst for a ratings upgrade to Sir-Mix-A-Lot would be evidence that the Great Regression will be sustained through the end of 2010. Skinny chick assets, runner chick assets and flat-ass chick assets have all been downgraded from Market Hit to Tipsy Hit; a catalyst for an upgrade would be either a sooner than expected turn-around in the economy, or an increase in the capital cushion within their respective portfolios.

Previously On “The Markets”

The entire country was in debt so they could buy shiny shit, the lenders began to realize how screwed they were, one bank gets rescued, one gets failed, one gets forced to be acquired by Wells, one merged with BofA, Schumer mentions Indymac might fail, Indymac fails, Paulson’s TARP is supposed to buy one type of asset, ok now you can’t short, ok now you can short, now Paulson’s TARP will buy peferred stock in banks and whatever, bad stuff, lots of pain, exit old President, entrance new President, same as the old President but cooler, ok now Geithner has a NEW plan, but it is X, solve for it, now Obama has a house plan and it is “Banks eat the loss, homeowners win, and no third party would want to buy any of these mortgages ever because of the terms”, now Dodd says that BofA and C might be nationalized for a short time, everything tanks, but is ok now, your bank may or may not exist by the time of publication.

Quotes Entirely Relevant to Investing 02-22-2009

Jack Donaghy: Those are your new interns.
Liz Lemon: Aren’t they a little old and over-dressed?
Jack Donaghy: They’re all former investment bankers who were laid off in the economic crash that Nancy Pelosi caused. They’ve got zero real-world skills, but, God, they work hard.
-30 Rock

Past Quotes Entirely Relevant to Investing

Will Citi Beat the Clock?

Citi (NYSE: C) is going down about 1 cent per minute. It’s at 1.65 as I type this with 160 minutes left until the market closes. Will C beat the clock?

Update: It looks like that Meredith Whitney contrarian indicator must have finally kicked in. XLF is now up on the day despite the fact that there has been talk of nationalizing the two largest banks. I don’t make the rules of crazyland, I just live here.

Update II: They beated the clock! They survived to fight another day! Maybe.

Preposterous Pork from the Stimulus Bill II

We are being paid $700 million to create satirical content about social justice

The deal provides $8 billion for high-speed rail projects, for example, including money that could benefit a controversial proposal for a magnetic-levitation rail line between Disneyland, in California, and Las Vegas, a project favored by Senate Majority Leader Harry M. Reid (D-Nev.). The 311-mph train could make the trip from Sin City to Tomorrowland in less than two hours, according to backers.

Line Item: $8bn for a maglev train to connect Disneyland to Las Vegas
Source: Washington Post —-> Despite Pledges, Package Has Some Pork [there’s a shocker]
Rationale: Undoubtedly some wealthy donor to Reid’s campaigns stands to obtain the construction contract and/or has purchased lots of land on the corridor that will need to be purchased for the right of way.
Preposterous?!: Los Angeles to Las Vegas is already a very easy 4hr drive. This is why LA residents are already the top visitors to LV. Furthermore, it is a cheap, easy flight served by numerous airlines; there are round trip flights available every day of this month for less than $150. Which means $8bn could pay for approximately 53mm Los Angeles residents to fly to Las Vegas and back instead of building a maglev train that will be inevitably be way late and over budget (see Big Dig) and likely won’t run at promised speeds (see Amtrak’s Acela).

Bonus item that didn’t actually make it in: “Republicans also killed or reduced a number of projects they considered objectionable, such as $200 million to re-sod the Mall in Washington.
Preposterous?!: What the hell type of sod costs $200mm?! That works out to $650k per acre or $15 per sq ft. You could cover the mall in gold leaf for that much money. Literally.

Without a Doubt a Sign of the Reverse Top

You're either Whitney or against meOr, as some folk like to say, the bottom. Meredith Whitney is leaving Oppenheimer to start her own firm, Meredith Whitney Advisor Group LLC, that will be an advisory shop, providing equity research for institutional clients. I feel pretty bad for Oppenheimer (NYSE: OPY), but I feel pretty great for the stock market, especially financial stocks. Is there a sliver of hope that the worst is already incorporated into their share prices?

Recommendation: Her calls were fantastic, and we are not ones of those who would seek to take away even an ounce of the awesomness which she has demonstrated over the last 18 months. I’m not trying to get too contrarian here, but COME ON. This is too obvious, it must be a bottom. We will have definitive confirmation of a bottom when Nouriel Roubini rebrands RGE with a name like Dr. Doom’s Latverian Party Palace Associates.

The Human Balrus

Baller Walrus = BalrusIs this mistress-laden man from the Qingdao incorporating the efficiency of the walrus and the manhood of a man, to become a human balrus? Yes.

A married Chinese businessman who could no longer afford five mistresses held a competition to decide which one to keep.

The women knew of one another, but none elected to break up with the man and give up their rent-free apartment and a 5,000 yuan ($730) monthly allowance, the reports said.

When the economy soured, the businessman apparently decided to let go of all but one mistress.

He staged a private talent show in May, without telling the women his intentions. An instructor from a local modeling agency judged the women on the way they looked, how they sang and how much alcohol they could hold, the Shanghai Daily said.

Our prior research into whether walruses are efficient provides insight into what led us to determine that the walrus is a balrus. Of note from that piece:

Males show off in the water for the females who view them from pack ice. Males compete with each other aggressively for this display-space; the winners in these fights breed with large numbers of females.

Each herd of estrous females is attended by one or more large adult males. According to one study, the ratio of males to females averaged 1 to 23

Recommendation: This man “Fan” has adapted many walrus traits, enough that he ought be properly classified as a human balrus. The appearance of this human balrus indicates that the human male population is reacting to the efficiency challenge that has been put forth by the walrus bull population. While the human balrus ratio achieved here was only 6:1 (wife + mistresses), Fan was able to show a more variable mistress structure that could provide the flexibility he needed to weather his sexual economic cycle, arguably an improvement to the walrus’s traditional binge/purge (or orgy/manfest, to be more apt) cycle.

HT to a million emailers and to Steve. Steve.

Preposterous Pork from the Stimulus Bill I

One of the silver linings in living in crazy times, with crazy governments proposing crazy ineffective solutions to crazy problems is that it does the writing for you. In fact, satirically speaking, Long or Short is being crowded out by the government in the entire satirical abstract financial space. So we plan to roll with it. We will post each bit of preposterous pork that falls out of this stimulus bill. This feature will probably not end until 2017, given how money from the bill is being blown through money tubes to states and their representatives as we speak. We will keep track of the amounts so we can release tallies from time to time. We encourage readers to submit anything they come across that would be appropriate.

The Government will spend $400mm creating origami pigs to beautify a prison in Moscow Nebraska

Preposterous Pork From the Stimulus Bill I

Line Item: $198 million for Filipino veterans of WWII
Source: NY Times –> Filipino Veterans Benefit in Stimulus Bill
Rationale: These veterans fought under US command in WWII and it was implied they would be compensated, yet haven’t been.
Preposterous?!: “Supporters of the provision, originally inserted by Senator Daniel K. Inouye, Democrat of Hawaii, said that they did not expect the payments to do much to stimulate the economy, but that it was a way to bypass opponents who had blocked payments in the past.”

Paying these Filipinos is likely just, but the timing is inappropriate and will have negligible stimulative impact. This is an example of the mega-tarp effect in action — every and any pet project can be thrown under this bill. It will be adverse selection, wherein every earmark that shouldn’t, and couldn’t, have passed in normal times will get pushed through under the guise of how critical this entire bill is to the country. This sucks.

HT to an anonymous Dealbreaker commenter

Quotes Entirely Relevant to Investing 02-15-2009

The stock market responded badly to Geithner because it is crying out for someone in authority who can make bold moves and justify them, someone non-mealy-mouthed, someone who has an equal mix of brains, principles and confidence. The market wants Churchill and they keep tossing it Chamberlains.
Emanuel Derman

Past Quotes Entirely Relevant to Investing

Analagous Analysis of the Stimulus Bill

The Stimulus Bill is not as easy to understand as its 15,000 page size might lead you to believe. Luckily, we are semi-literate and have semi-read the bill to help you better understand how the Stimulus will actually work.

If you think it’s like the TARP, you are wrong. But it is like A tarp. A mega-tarp, if you will, that blankets the entire United States in a cool shade. Now what happens under this mega-tarp? I’m glad you asked. Under the mega-tarp is every single congressional representative, standing in an official USA Money Tube. A master network of pipes will be pumping the $780 billion of cash into and out of each of these Money Tubes and it will be up to each representative to grab as much money as possible while the money is still being blown.

By grabbing as much money as possible, representatives will then be able to allocate these new found funds. Because this entire process of grabbing blown money and allocating blown money happens under the cover of the mega-tarp, there won’t be any troublesome transparency that could delay stimulation. This is a targeted approach to government spending that will work with surgical precision to put the money where it will have the most impact, specifically in the pockets of friends and future employers of politicians.

The Real Systemic Risk: Cephalopods

While other research firms and investment shops getting their collective panties in a bunch about what Geithner does or doesn’t say (mostly doesn’t, in this case), we can only imagine how hard the true masters of earth are laughing: These stupid humans still don’t fucking get it.

Pull out $5.5 trillion from money market funds. Or stop it. It’s not going to matter.
Pass a mega-TARP. Or not. It’s not going to matter.
Bail something out, and then bail it out again a few months later, and then, yes a few months laterer, bail them out again. None of it matters.

You know what can be done to save the US economy long-term? Absolutely nothing, because within a short period of time, thanks to global warming and science, all that under-water real estate is going to be actual under-water real estate and its inhabitants are going to be a family of four…squids.

Over the last few years, we have meticulously detailed the likelihood that the Age of Man will soon give way to the Age of Cephalopod. They are much larger, they are much stronger, and have unique swivelling hooks on the clubs at the ends of their tentacles. More importantly, they are much smarter than we are as evidenced by the facts that they have avoided The Great Regression entirely, they have positioned themselves to benefit from Global Warming and now this TED report:

[Human imprisoners] gave [an octopus] a floating pill bottle (neutrally buoyant). Initially [our future under-overlord] grabbed it and brought it up to [her] mouth. After a while, the octopus would squirt a jet of water to the bottle to send it to the water intake, which would make it drift back to the octopus. [She then aimed the bottle, again squirted her ink into the bottle, creating such force that the bottle shattered the tank’s glass and struck dead her imprisoner. She could have escaped, but after having asserted her dominance, she decided it would be useful just to stay in place,] picking up info, storing it for the future [conquest of the Landed kingdoms].

Octopuses have big brains, but not a highly developed nervous system. They are quick to learn, [and have a high emotional intelligence that allows them the short memories they need to stay focused on any task]. [In a similar vein,] sexuality is relegated to end of life span, [so] it doesn’t get in the way of their intelligence [like it does for most male humans].

Not only do they continue to get bolder in their direct assaults on humanity, but we continue to learn more about the extensive strengths and abilities of these creatures. It is only a matter of time, given their array of powers, before they are the masters and we are the shareholders of Lehman Brothers (so to speak).

Recommendation: The Terminator series is so real, and so terrifying because it touches on themes that most people deal with on every day basis, namely, the destructive consequences of time travel and the ever-present fear that refrigerators and toaster ovens will become sentient and then use their cooling and heating powers to destroy humanity. Cephalopods incorporate the physical power of a Terminator, the neural networks of humans, and the swimming ability of themselves to form the dominant force in Earth’s constant interspecial war. This is why we reiterate our rating of Long on the Cephalopod Index. In this environment, cash is not king. Squid is king.

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