Long or Short Capital

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.

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

Do 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.

Highly controversial for racial and cultural reasons, and that’s likely the only reason why it’s unpublished in academia, the Mexican Woman Theory of Women suggests that once a woman locks a man down, things change dramatically, namely into a pear (Spanish Editor’s Note: pera en español, muchachos!). Women in such situations turn into pears, or at least change their shape to be more pearlike than before. My body of research canvassed all the women I have seen in my life who are Mexican, or whom my naivete and racial insensitivity suggested were Mexican, so they might not all technically be Mexican, but for all intents and purposes, I will consider them to be daughters of Mexico.

The evidence suggest that there is a startlingly high number of attractive Mexican women between the ages of 18 and 24 (seriously, they are really hot and seem awesome in every way and I have no way of accessing that market legally domestically). But there is also a huge amount of pear shaped not attractive Mexican women aged 27+.

Why the discrepancy? What happens? Simply put, women require manipulation (and incentives) too.

Recommendation: Keep them on their toes. Literally, it’s great exercise.

This headline teaser caught my eye this morning on WSJ.com:

“Russian Investor Backs Fortis

Fortis is tapping a Russian billionaire for a $630 million capital injection, a sign that banks are looking beyond Asian and Middle Eastern investors for help shoring up their shaky finances.”

1. It seems more apt to say that the Russian billionaire is the one doing the tapping, right before he injects $630 million in liquidity.
2. A Russian billionaire is really looking far beyond Asian and Middle Eastern investors. Totally different beast. Instead of being an extremely wealthy oligarch in a corrupt totalitarian state whose wealth is 100% dependent on commodities, the Russian billionaire is a wealthy oligarch in a corrupt tsarist state whose wealth is 100% dependent on commodities.
3. A Reuters report has attributes these comments to Fortis (Brussels: FORB) chairman Maurice Lippens on the overall transaction: “Fortis expects no more capital raising.” According to our proprietary translation algorithm, that statement indicates that investors should expect the raising of significant additional capital.

Recommendation: Read the linked Wikipedia article on the Russian investor, Suleyman Kerimov, it’s mindblowing. His nickname is “Russia’s Richest Civil Servant”, the source of his significant wealth cannot actually be determined and he has a yacht named “Ice.” Oh and he is also tapping the oligarchbait above (with his liquidity).

We have a great idea that will make you (and us) lots of money. I mean boatloads. You know that scene in the beginning of Ducktales, after they talk about how “Life is a Like a Duck Blur” when Scrooge McDuck is swimming in his vault of gold? That will be you, but that vault will contains gold coins and Russian models, liquid swimmable Russian models. Think about it. Awesome right? Ok well let me get to this way for you to make millions. But first, look at this picture.

Now my plan is simple. You and I, we, WE get together and we send out letters to everyone we know, asking them to give us $100 each but also instructing them to send the letter on to other people, who will send $100 to them and $50 to us, and so on. If we pool our resources and our contacts, I’m sure we can make a lot of money. What do you think? After you consider that, I have another can’t lose moneymaking idea that just involves you flying between Colombia and Miami carrying flour for my Colombian grandmother who loves to bake with fresh Colombian flour.

Recommendation: The time is ripe for investment banks to start putting in gratuitous pictures of scantily clad women into prospectuses. We smell opportunity to finally get deals like Classmates.com done.

Relationships as a whole would be improved if this was made clear that the relevant trade-off to not putting out or meeting your significant other’s needs is that the relationship has to be dissolved. Inertia and fear of change are powerful forces, so incentives should be contractually outlined to minimize their deleterious effects on your life. Most people dawdle or settle or both

To rectify these inefficiencies in the love market, we recommend contractually allowed cheating contingent upon putting out not happening enough. A requirement of some sort of formal notification and a cure period (30 days or so) would resolve fair warning obligations. Additionally, the contract would also provide (but not make mandatory the exercise of) the option for the counterparty to terminate the relationship upon the commencement of cheating. This ensures that there will be an adequate level of putting out or a faster resolution to the relationship — a veritable “win-win” situation for each side of the contract and also for society which would benefit from improved relationship velocity.

Problem Scenario Example: Bob loves to get it on. Bobette, Bob’s right hand, gets tired after only a few rounds and sometimes “she” just doesn’t “feel like it.” Normally, Bob and Bobette would stay together in a sexless and loveless relationship for months on end, until one or the other was “fed up.” This could take months, possibly even years if kids were to enter the picture. With a well drafted love contract, Bob could put Bobette on notice and the cure period would begin, allowing for Bobette to fulfill Bob’s needs. Were that not to take place in the given 30 days, Bob would be free to start seeing Bobetta, Bob’s left hand (Bob describes “her” as “like hooking up with someone else”), and/or Bobette would have the legal right to immediately terminate the relationship.

Recommendation: Long love contracts. There is nothing that a properly designed contract cannot improve, or at least make less worse. Not even love.

Zimbabwenomics is mainly a field of economic study, but that doesn’t meant its guiding principles can’t be pragmatically applied to create solutions for any problem (note: if there is no problem, Zimbabwenomics can utilized in creating one). Robert Mugabe was facing a difficult re-election as president of Zimbabwe in the elections earlier this year, one that had seen tension, vitriol and internecine tribal conflict on a scale almost matching that of the US Democratic Primaries. But Mugabe understood a fundamental concept that his opposition and international haters failed to grasp, namely the inherent advantageous position that a Zimbabwenomic analysis of his candidacy revealed.

Under normal political analysis, there are two result paths from an election, only one of which is victory:

1. Win the election
2. Lose the election

From a Zimbabwenomic perspective, there are also two result paths from an election, the difference being that BOTH lead to victory:

1. Win the election
2. Lose the election, but actually win the election, because your opponent pulls out

Recommendation: Readers familiar with Zimbabwenomics knew from the outset of the elections that Mugabe retaining his position was a fait d’accompli. Long the Pullout Method of Dictatorship Retention.

Baidu (NASDAQ: BIDU) trades at 122x on a trailing PE basis. LTM earning per share are $2.88 and the stock trades at $329. Think about it. There are 1 billion people in China, I know, yes I know. Also I am familiar with the well know equation that Google + China = 122x. But let’s be serious here. 122x!

They can have all the market share, be in the best most profitable industry in the history of mankind and have all the people in their market they want, but if they aren’t actually making much money off of it despite trying for several years now, doesn’t that tell people something? Maybe, a small clue?

But reason isn’t enough in analyzing investments. Consider that the stock trades at a conservative 6x expected 2020 earnings. You need to make these kind of adjustments in your analysis if you ever want to be able to participate in a herd.

Recommendation: Sometimes the herd goes right off the cliff. But sometimes the herd kills the bad cowboy when the good cowboy lets the herd lose to distract or incapacitate the bad cowboy. Other times the herd stops and eats grass and enjoys a beautiful sunny day in the plains, soaking in life without a care in the world. Long all that.

When loan assets go down, you typically have to mark-to-market which leads to unseemly things like Important Banks having to announce write-downs. This is patently unfair and not just because Important Banks should not be subject to rules that apply to others or to reality. If they have to write down loan assets, they should be able to write down (where down is up for them) loan liabilities on a mark-to-market basis. Now, thanks to Statement 159 and the FASB, they finally can.

Here’s how it works, according to Richard Bove, an analyst at New York-based Ladenburg Thalmann & Co. A company decides to designate $100 million of its subordinated bonds as subject to mark-to-market accounting. The price of the bonds drops to 80 cents on the dollar from 100 cents. So the firm books $20 million on the “presumed savings that you have on your liabilities,” Bove said.

“In the real world you didn’t save a dime,” he said. “You still owe the $100 million. It’s another one of these accounting rules that basically takes you further and further away from reality.”

Rule in this context is really a perjorative. The preferred nomenclature is accounting innovation. Recent financial innovations include The Off-Off Balance Sheet, Earnings Before Everything and Citi’s Reality Distortion Field. The crucial part of this innovation is that banks have the discretion to determine what liabilities should be marked-to-market and which ones should just be ignored.

“As in all things, except the iPod, oh and Google too, more choice and control is always better. For example, say you were a farmer and you had a bunch of hens. Wouldn’t you want to empower the wolf to have discretionary control, e.g. choice, on how to account for the number of hens left? Of course, you would, it’s just common sense. This would smooth uneconomic hen earnings volatility, which is good for everyone. And that’s why we lobbied the FASB so hard on this matter,” said an anonymous and probably made-up senior Important Banker.

Isn’t this just a continuation of most Important Banks’ core business, namely shell gaming money away from other people?

So far, most banks’ writedowns are “unrealized,” meaning they’ve been unwilling or unable to liquidate distressed assets. If prices reversed, the banks would record mark-to-market profits.

The same is true for the liabilities. Companies can’t “realize” the mark-to-market gains on their debt unless they buy it back at the discounted price. They’re unlikely to do so, because the deterioration in creditworthiness means they’d have to replace the debt with higher-cost borrowings, Willens said.

“No one’s going out in the market and actually retiring this debt,” Willens said. “It’s a shell game.”

Like I said, it’s a shell game, the staple business of Important Banks. Why say it like it’s a bad thing?

Recommendation: Given no forseeable disruption in the supply of shells, Long Important Banks.

Stretching his hand up to reach the stars, too often man forgets the flowers at his feet.
-Jeremy Bentham

Past Quotes Entirely Relevant to Investing

Olden 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’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.

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.