Archive for April, 2012

Quotes Entirely Relevant to Investing 04/29/2012: May Day

My own country is hopeless. It was almost better under the czars. At least the czar didn’t have to strain his empty head over a lot of theory. Lenin took whatever he could understand of Marx’s theory and used it to his own advantage, and Stalin took whatever he could understand of Lenin’s theory (which wasn’t much) and used it to his own advantage. The narrower a man’s intellectual grasp, the more power he is able to grab in this country.
-Boris from The Wind-Up Bird Chronicle

Past Quotes Entirely Relevant to Investing


Dangerous Fund II

Tinderbox Capital LLC, an incendiary investment management firm and subsidiary of Long or Short Capital LLC, announces its second fund, Dangerous Fund II.

Dangerous Fund II will specialize in lighting money on fire. Tinderbox Capital will allocate physical cash into positions in which it will ignite. These positions will include the log cabin, the teepee, the lean-to, the obscene pile, the model bonfire, and the Scrooge McDuck. Tinderbox Capital’s due diligence process has consisted of earning merit badges in the arcane arts of fire-making at Camp Cedar, where the fund managers were also prepared for life in the real world by their indoctrination into Camp Cedar’s so-called “Color Wars.”

Tinderbox Spokesman Johnny Debacle:

“The investment management universe is inefficient at providing risk. We find this to be the case because the investment management universe is structurally obsessed with return. Our last fund, Dangerous Fund I, has performed very well, we think, losing so much money and doing so in such complicated fashion that it’s been difficult for us to calculate just how much it’s lost (rest assured, investors, you lost a lot and did so very riskily), so difficult that we may have just given up and started focusing on launching our new product, Dangerous Fund II. As an aside, our lifestyles are incredibly expensive, so expect the cadence of new products to increase and the quality of our management of old products to necessarily decrease. New products are where we make money, old products are those that we neglect.

We’ve learned several lessons from Dangerous Fund I, lessons we plan on incorporating into new products.

First, if your funds’ returns are improperly calculated because of complexity, sloth, or indifference, the investors are receiving another layer of risk on top of the risk they have in the underlying investment. This risk would be known in some circles as “Reporting Risk,” if those circles were dull and uninspired; since those circles aren’t square, that risk is known as “Nauditing Risk.” The creation of Nauditing Risk is something that can be marketed and sold. More on that later, probably in 2015.

Second, there is excess demand from investors for so-called “simple risk,” e.g. risk that generates no return whatsoever and does so with certainty. This is known in some circles as “The Keno Certainty Principle” or “Riskless Risk.” Dangerous Fund II is designed to mine this rich vein of risk appetite.

Dangerous Fund II will seek to disintermediate the middleman from the process of lighting money on fire by physically igniting investors’ dollars for them. It will generate the highest levels of Riskless Risk in the industry. It will charge a traditional 2 and 20 fee structure, which fees will be collected from the Five Year Fee Reserve, which reserve will be set aside whenever investors put money into Dangerous Fund II. See the prospectus for more details.

We know that young risk-seeking investors demand places to put their money to work, places where they can allocate $10,000 and potentially lose it all. This is the niche that Dangerous Fund I filled. But we also know that young risk-seeking investors demand places to put their money to work, places where they can allocated $10,000 and certainly lose it all. This is the niche that Dangerous Fund II will fill. We give you all the risk you will ever need and guarantee that we will either potentially or certainly lose it all. Dangerous Fund I and II will be appropriate for investors whose portfolios are overweight return and underweight risk and are thus seeking proper balance.

We just need your money to fuel our fires.”

Tinderbox Capital LLC is an investment firm that offers a focused set of investment products to a global institutional and high net worth client base. Tinderbox Capital LLC is currently structured to directly manage strategies in so-called “dangerous” trades and also to literally light money on fire. Despite this structure Tinderbox Capital is uniquely unqualified to manage your money well and uniquely qualified to manage your money poorly.


Short Structural, Long Cyclical

Time is tough. People struggle to understand it. We can make sense of what’s happening now, can kind of remember what happened in the recent past, and can’t fathom the long-term. All of this is probably because of Twitter or because people no longer write each other long, boring letters like they did during the Civil War or ancient Greece or whenever. For whatever reasons, our attention spans are not only short, but also narrow, able to understand history only as if looking at it through a roll of paper towels.

It is increasingly apparent that everyone — investors, politicians, businessmen, consumers, etc. — have mistaken cyclical trends to be structural in many different areas. We are now at a crescendo as the long arc of history turns and heads back down in the other direction. This is a great opportunity to take advantage of people for whom the short term (the last 1 year, the last 3 years, the last 10 years, the last 30 years, depending on context) is the only relevant term. This is most everyone. It’s a rather large opportunity.

Some facts:

  • Global interest rates are not in secular decline. They have been in a 30yr cyclical decline and the 30yr reversal is now in process.
  • China is not locked in a structural vendor financing agreement with the US & EU. They are ending a long, cyclical run with an under-priced currency.
  • Europe’s imbalances are not the result of a structurally strong, responsible Germany and spendthrift periphery. They are the result of a cyclical trade imbalance due to domestic policies that increased German exports and savings rates while the inverse was true in Span, Greece, etc. The swing is coming back the other way now.
  • Keynesian intervention was not a structural improvement in the operation of the modern fiscal and monetary apparatus. It was a cyclical increase in leverage, starting from a time of low leverage and great demographics. Prepare for the payback.

To quote myself from The Model Business Model: “What is that expression? How does it go? Shit’s way different at this point in history, dude?” Maybe, just maybe, it’s not so different. Maybe we’re just lacking the benefit of the full context.

Recommendation: Short the so-called structural trends. Get long the true, underlying cycle.


Melissa Moody Does Greece, or Rather a Greek

Greece

Previous Rating Greece: BFFAE (Best Friends Forever and Ever)
New Rating Greece: Whore

Ratings Rationale: Just when you think you found the one, you realize that the one is not…the one. He was so hot. A beautiful specimen. OMG, he was a god, a Greek God, an actual Greek God. He went by Helios. I wanted to prove my independence after I graduated college, so I drew down on my parents’ savings to finance a 6 week back-packing trip across Europe’s five star hotels in such exotic places as the Riviera, Croatia, Cinque Terre (too cute for words), and lastly, and amazingly, Mykonos.

This is where I met him, my Helios, the perfect man. He had long dark hair, Helios did, and so much charisma. He showed me around town, me with arms wrapped around his waist as he steered his scooter along sea roads. He lavished me with drinks, booked us in a lovely little hotel where our room had a balcony that looked out on the water. And in bed, let’s just say my world was his oyster. Or maybe his oyster was my world? I’m really bad at metaphors like he was really good in bed. No austerity anywhere to be seen.

But one morning I woke up and he was gone. He had retired to some location unknown, maybe to put in some face time at the “job” which he’d mentioned once in passing but which he never seemed to have to go to — not unlike how the married men I’ve slept act towards their families. In his place on the bed was one thing: the bill. He was asking me to finance his romancing of…me! He’d LITERALLY left me with the bill! I felt used, betrayed, like our entire relationship — his trade of money and time and hotness for my trade of young, female and American attentions — was for naught. So frustrating!

When he came back, after spending two hours at his “job,” a glass of ouzo in one hand, I confronted him, waving the bill in his face. He said some stuff in Greek to me. I stared back blanky. It was actual Greek. 10 years of boarding school and I only knew classical Greek. Then, in his bedeviling broken English, he said: “Look, toots, we both got something out of this, so let’s drop the naive kitten act and start calling a spade a spade. What we had was swell, baby, while it lasted. But I’m no Croesus, baby. You’re American, so you’re probably not cultured enough to know who he is, but Croesus had real money, mega bucks, baby. But me, I don’t have a pot to piss in or a window to throw it out. I just have an unfinished (for tax purposes) condo in Athens, a vacation home in Mykonos, an investment property in Turkish Cyprus, and an 8 hour per week job that pays peanuts, only €150,000 per year under the table. So, see, I can’t handle the bills for our little fling, these threads, or even these digs.”

I had never noticed that his bedeviling broken English took all its euphemisms and structure from 1940’s B movies. I looked him in those rich chestnut eyes. “This has to stop now, Helios. I can’t afford to continue to subsidize us. Either you leave this union, or pay me back.”

“Ok, it’s going to be ok, baby. We’ll work something out, you can bank on it. Just give it a little time, a few more days, or months, or years, or decades. I’ll put up some of my assets. Maybe my yacht or this little island I own. The whole kit and caboodle. But before I do that, why don’t you and me and a bottle of ouzo go for a weekend in Athens. We’ll take in the sights, we’ll see the people, I’ll take you for a spin, a real wild time, kitten.”

2 years of daily back and forth and amazing moments — moments even better than my JYA — later I came to my senses. Melissa Moody realized Helios wasn’t going to pay her back. He was my Greek God and he was great. But he was an irresponsible debtor, with no interest in austerity and less interest in repaying debt. He could, maybe, but he wouldn’t. And my parents are super rich relative to what money of mine he spent, so it didn’t really represent any systemic Moody family threat; we just wrote it off. But it was the principle of the thing, and I’d say it set a really bad precedent for my other more expensive long-term flings with Joao, Donal, and Sergio.

Ratings Methodology:
Hey everyone! It’s me, Melissa Moody…not that other Moody, 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