Do you see this? This is the Book of the Dead. All of you are going to be in this book someday, have you thought about that? You’re going to die and all that’s left is your name in this book. So what do you want to do between now and then?”
A Catholic pastor
The call was supposed to start at 3:30pm. It’s 5:28 as I type this, and the blood that has been pouring out of my ears and onto the print-out of your deck is the direct result of actions you took. I would offer that this is not a desirable event in your capital raising efforts.
I was mostly minding my own business, which generally is what I mostly do, telling the conference coordinator my name and such. When I was finished with her, I was mentally prepared to spend the next 10 minutes readying for the call so I could ask you some amazing questions about bad debt expense or perhaps about your ability to pass on increases in commodity prices to your customers, especially significant when one considers your untoward exposure to tungsten.
When I was done with the conference coordinator, I was put into the call, dropped into that nebulous space that just hangs as I just hang. It was here where it happened. Where you did IT. His plodding, mellow, secretly insidious words began butterknifing through my ear into my brain’s grey machinery.
Oh, father and mother, sister and brother
You slipped James Taylor into one of my ear drums. His words crush free will, their internal beat an urge to commit the most heinous crimes.
If it feels nice, don’t think twice
It was this moment, where I could no longer think twice.
Just shower the people you love with love
My hands took to trembling and my ears took to pleading. Mercy. Some things, JD, are so horrible, you can’t unhear them. We are are your ears, please trust us. End us. End the sounds. We can never go back to what we were JD, every sound in the future will be tainted by what has happened today at 3:31pm.
Show them the way that you feel
The cheap metal tip jutted into my right eardrum, injecting its green ink into my brain. With a conductorial flurry, I struck the the tip cross-handed into my left eardrum. The pain was replaced by a liberating silence.
Unburdened, I was ready to receive your pitch. And then there was darkness.
Maybe your investment proposition was a good one, maybe it was a bad one, but with the congealing maroon pool dancing across the top of your prospectus, and sensation making a flight (from my body) to quality, it doesn’t seem likely that that will be known.
Mugabe is only growing stronger in the world, his discorporated Zimbabwenomic-self is popping up on the very edge of dynamic economic policies. Kazakhstan has announced it will buy publicly listed Kazakh bank stocks until prices return to their normal price (in this case, “normal” should be read as “all time peak”):
Kazakhstan will respond to an “attack” by hedge funds by buying shares next week in the country’s banks that are listed on foreign exchanges to support prices, its prime minister said,
“Kazakhstan is under attack from hedge funds and we will fight back,” Karim Masimov said, after president Nursultan Nazarbayev complained the country was suffering from “unfounded” downgrades of its credit ratings.
…
The government said it would buy stock of banks until prices reach “pre-August levels” and will do the same for non-banking stocks “if warranted”. The state was also prepared to lend $4bn (£2bn) to banks to ensure liquidity, he said.
Kazakh banks have been hit by the ripples from the US sub-prime crisis. Kazkommertsbannk, Alliance and Halyk Savings Bank are all listed in London. Many banks in the country have also been hurt by an outflow of deposits and waning confidence in the national currency, the tenge. In August, banks suffered “massive withdrawals”.
Recommendation: The Borat mania caused us to be short everything Kazakh, but since then K-Stan has been flying totally under the radar. The implications of a Mugabe-style explicit government put on Kazakh stocks, leads to our valuation models predicting a price for any Kazakh bank stock of X+1, where X is the current market price. We rate Kazakh bank stocks as a “Strong Buy Indeed” because prices, per our valuation model, can only go higher.
Several weeks ago, we came out and admitted that finance is a scam. It sounded like we were coming clean, but we admit, we held back a little that we didn’t share. In fact, finance is way more a scam than we admitted.
Citigroup (NYSE: C) (among other banks including BofA (NYSE: BAC) and JP Morgan (NYSE: JPM)) is creating a “super conduit”, essentially a $100 billion backstop for structured investment vehicles (SIV) to add a bid into a bidless market, a market which is 25% comprised of Citigroup SIVs. When the short term loans issued by SIVs to fund their purchase of riskier loan assets comes due, this super conduit will buy the short term paper if the existing holder decides not to roll their existing exposure. The solution to the SIV problem is….a bigger SIV…errr we mean a “conduit” to make sure things are “orderly-like, see”! Citigroup, with the coordination of the US Treasury, will be bailing itself out from having to put these assets onto their balance sheets….and charging a fee for the privilege!
We amend our previous admission to reflect the following: “Finance is really a scam where banks and large international financial firms, all of which are incrementally better and more prestigious than your firm, get together with the collusive glue of the central government, and indemnify themselves from ever having to bring a mistake onto their balance sheets, much less be held accountable for a mistake in any meaningful way.”
In a post a few months ago, we outlined the power of Zimbabwenomics, as outlined by economic genius Robert Mugabe in his Mugabe Efficiency Theory. A gap in his theory noted by none of you, is that he does not explicitly address interest rates. Luckily, John McCain, has been working to plug this gap. Per Matthew Yglesias writing on last night’s Republican Presidential Debate:
John McCain on monetary policy: “I’m glad whenever they cut interest rates, I wish interest rates were zero.”
Recommendation: This stance dovetails well with Mugabe Efficiency Theory and extends the “if you make things more affordable, people will buy more” rationale to interest rates. If interest rates are zero, assets will only continue to increase in value because they are more affordable and thus there will be more demand for them, making them worth more. This much is obvious and there is no downside to a zero interest rate policy. But why stop at zero? Negative interest rates would make things even MORE affordable. We look to negative interest rates as the next frontier of Zimbabwenomics.
If you’ve gone into finance from any liberal arts college, you almost certainly have encountered and befriended in the past people who act like finance types are scammy. “They don’t really make anything.” “They just move numbers around and somehow get paid for it.” “They have to be leeches.”
Normally our response was something like “At age 32, I will be worth my weight in gold, literally” or the more cogent, “Finance is a coordinator of economic activity, a grand sorter of what endeavours are the best for the world.”
But with this admission by Citigroup (NYSE: C) that it is loaning money to KKR to buy hung loans off Citi’s books, we will admit it: finance is a scam. A big scam in which people who are incrementally better than you in every way, smugly take money from the plebes, launder it through assorted transactions, and then redistribute to themselves in the form of huge bonuses, bonuses incommensurate to the zero value which they add to society.
From user Ignatius:
Even as economists have derided the U.S. dollar as heading toward parity with Monopoly money, Monopoly money itself has held its value with marked consistency.
Price of Boardwalk in 1950: m$400
Price of Boardwalk in 2007: m$400
Concurrent decline in the purchasing power of the U.S. dollar: 87%
Recommendation: Not only would the switch to monopoly provide the US with a more stable currency, but it would also grant the Fed even further control over the economy by enabling them to set the “house rules.” By determining the “Free Parking Rules” and financial outcomes from such events as “rolling snake eyes” and “landing directly on Go”, the Fed could steer the economy with even greater precision. Too little liquidity? Just tell the “banker” to actually become a bank and provide loans rather than solely acting as a cash register. More research is needed, but there seem to be real and compelling reasons for the US to switch to the Monopoly currency.
Dear Wisdom of Crowds,
I need help writing my new book, “How to Get Rich in Dollars,” and I am trying to think of alternative titles so I could daisy chain them together with “or” to make my book seem more coolest. Current ideas include:
This is an imaginary book on real issues, so I expect an especially helpful amount of help from those who can help.
Thanks in advance.
Yours truly,
Johnny Debacle
Mayonnaise. That’s what’s on every one’s minds these days, the schmegmatic fatty spread du jour. We have gotten hundreds of letters from readers (but surprisingly no e-mails) asking how to play mayo, in a world of volatile changes in prices for such commodities as corn, oil and even molybdenum. Rest assured, we do not disagree with you that it is a good question to ask.
The industry as a whole is difficult to forecast, but an investor can take advantage of specific trends vis a vis one another, vice versa, etc. The two we would focus on would be Russian Mayo vs Japanese Mayo.
Russians consume 7lbs of mayo per year; Japanese only 3.5lbs. While this may indicate that there it’s more likely for Japanese mayo demand to increase relative to Russian mayo several data-points point otherwise.
While Japanese mayo is tastier, the Russian mayo machine is built for industrial production and its advertising geared around mass consumption. To wit, an Exile.ru piece on Russian love for mayo had this to say:
It shows a fresh salad of beautiful, bright tomatoes, cucumbers and herbs, all glistening after a rinse, and then: the mayonnaise comes cascading down in sensual slow motion. And we’re not talking a dollop of mayo here, folks. Aesthetically, the ad borrowed from a typical American breakfast cereal commercial, only instead of milk splashing down onto Honey Smacks, about a gallon of mayo gets squeezed onto the doomed veggies. And that’s when the announcer proudly tells us how Moscow is famous for its mayonnaise.
…
We went in search of the answer to why everything from nachos and pizza to borsch and pelmeni (often acting as a substitute for smetana) comes with the emulsified treat. You may have noticed at your local Perekrostik supermarket that most mayo here doesn’t come in re-sealable containers. That’s not an oversight or the result of Soviet central planning – it’s because mayo, like vodka, isn’t meant to be put away after opening. They sell it in 250g plastic bags, which just so happens to be the recommended dose of mayo for most Russian salads on popular cooking websites like gotovim.ru.
Recommendation: Long Russian mayo, short Japanese mayo. Also due to our age, we cannot 100% rule out that mayonnaise is actually the basis for the movie The Stuff, and as such, poses the possibility that it is an “insidious white glop that [was] discovered by miners[,] has a highly addictive taste [, is] sold to general public in pint containers like ice cream [and] is actually alive and gradually takes over the brain, mutating those who eat it into bizarre zombie-like creatures.” Consider yourself warned.
To: The Fed
From: Long or Short Capital
Re: You suck
Dear the Fed,
You suck. You don’t have a backbone and as a result you are slowly and very surely making our country and our currency irrelevant. Usually the masses rebel and bring down great empires but luckily for us democracy fixed that problem. Unfortunately, democracy can’t fix how lame and fickle you are and so you will be our ruin.
A few things to tell you:
1) Inflation isn’t 2% like your pathetic CPI ex-Food & Energy says it is.
First of all, as far as I can tell food and energy are the only two items you should NEVER exclude from an inflation index. Tell your wife and kids they can have everything in the consumer basket except food and energy and you will quickly see that they are actually the two MOST important and indispensable factors in the CPI. You can find substitutes for, or go without, everything in the basket EXCEPT those two.
Secondly, stop using “Seasonally Adjusted Intervention Analysis” it’s as sketchy as the Seldom-Accepted-Accounting-Principles (SAAP) we use to cook the books here at LoS. I mean writing a computer program to automatically remove any items in the basket which deviate meaningfully from the previous year? Isn’t the point of the data to SHOW the change versus the previous year not hide it? Oh, I found the list of items that you’ve adjusted for and it’s embarrassing.
The majority of adjustments remove price increases with much less frequent adjustments for price declines. You’ve basically left dairy products out of the index for the last 5 years citing outrageous one-offs like “a generally tight cheese market” as justification for this. And as if reporting a separate ex-energy index wasn’t enough you’ve statistically intervened to remove the effect of higher energy prices even in the index that’s supposed to INCLUDE energy. In one outrageous case you removed the effect of fuel oil for three months in March 03 and the reason you cited for the “abnormal” move was the “end of winter,” yeah I was surprised as sh-t when winter ended in Spring 03, it was wild! For a real measure go back to the old method, you’ll see inflation is at least double what you’re reporting.
2) Grow a spine you slimy invertebrate
The market has a memory. Over the past 15 years you trained us to believe that no matter how much risk we take, and how much we lever that risk, if anything really scary comes down the pike then you will bail us out. Now we all run around like reckless, spoiled 16 year olds bidding up the price of anything we can get our hands on and not worrying about consequences because daddy (Greenspan) and mommy (Bernanke – that’s right you’re spineless AND a girl) will get us out of any trouble we get in. Well you’re only making the problem worse and we aren’t learning anything so we’ll continue taking stupid leveraged bets creating bubble after bubble so you can tip-toe around trying not to pop any of them.
3) You’re lying to yourself if you think we still have real GDP growth in this country.
I challenge you to find one measure of wealth OTHER THAN THE DOLLAR which shows the US economy as worth more now than in 2001. If I wanted to buy our country it would cost me 30% fewer euros today than it did in 2001, it would cost me less bars of gold, less barrels of oil, less ounces of copper, less btu’s of natural gas, less cubic feet of lumber, less of almost anything that has intrinsic value. Yet you keep reporting GDP growth, why? Because your quick fix is to effectively print more money so that in dollar units everything is getting more “valuable”. But guess what, to the 95% of the world that doesn’t use dollars the true value of the US economy has been shrinking, rapidly.
It’s like a company doing a 5 for 4 reverse stock split every year and claiming to have 20% eps growth, you haven’t changed the earnings just the units those earnings are measured in. The rest of the world is telling you our country is worth less by massively selling our currency and you still naively think we’re growing value – I feel like I’m at a gathering of the flat earth society or in Zimbabwenomics 101.
This will come back to bite you but not nearly as much as it bites us. The cheaper the dollar gets the more expensive all our imports get, inflation will rise faster than you can statistically manipulate it and when that happens expected inflation goes through the roof (which as you yourself have pointed out many times is by far the most serious threat to economic existence). Then the only way out will be interest rate increases as swift and severe as all the cuts have been. All the bubbles will pop at once and then we’re really in for it. Maybe it’s 10 years away but there’s a toll collector at the end of every free ride.
When will you learn that recession is ok? It’s actually healthy, it’s the cycle, it’s how things have worked for a thousand years. Trying to prevent every small recession is going to end in one huge recession (ie. depression) and no one will trust you anymore which is a much bigger problem. No economy in history has ever been able to successfully inflate its way to health, this won’t be any different.
Benny, I know you had to trade in your hypothalamus and spine to be fed chairman and now you biologically over-react to everything and are incapable of standing up straight when confronted by bully-morons like Kramer. But I’m hoping you at least still have your brain. Before you had this job all your published research showed that central banks should strictly target inflation and should be ignorant of asset prices. You had good reasons for this conclusion, don’t forget them.
Subprimely,
Long or Short Capital Management
Actual picture outside of a Northern Rock (LSE: NRK) location somewhere in Britain yesterday:
Recommendation: Long British panic, Long runs (especially on banks).
Read JD’s Lending No-No’s #1a and #1b and JD’s Lending No-No’s #3 through #4. The focus today is on what can be gleaned from people who have financed Norman Hsu.
Lending No-No #4: Do not lend for a tenor of less than 6 months, getting a 40% return over that time frame, unless you fully expect that one of three outcomes will or has occurred: 1) you lose all your money 2) you are killed or 3) you are a killer.
Example:
Normas Hsu suckered people into providing him short term “bridge loans” that would return 40% in less than 6 months. The mostly nonsensical rationale for the bridge loans, was that they were needed for “for seasonal high-ticket, high-quality retail goods made in China for exclusive brand names.” These firms couldn’t get better financing than an 80%+ annualized rate? I’m sure the Triads would have gone lower. Amazingly, real people with real money poured millions into financing these bridge loans, apparently doing no due diligence and trusting a man with a warrant for grand theft outstanding on his head.
Lending No-No #5: Never neglect to perform due diligence, if you plan on writing a big check for too good to be true returns.
Example:
Following on the above situation, maybe if you are an investment firm, providing sketchy bridge loans to Chinese intermediaries, maybe, just maybe it makes sense to do a background check on that man. You know, see if he has, I don’t, a criminal record of scamming people>
Long or Short has been polling some industry contacts on the impending decision facing Ben Bernanke and the Fed as to whether they will make their move, or will make their announcement to back up their stealth move which they have already done, or will do whatever it is they do next week. We share with you the results.
Robert Sinche, currency strategist at Bank of America: “[The job report] sets the backdrop for the Fed to ease. The markets have really been torn in recent days by some signs that some of the data in August was holding up reasonably well. This data certainly sets a different tone — particularly things like manufacturing, where the export sector had been holding up pretty well.” (Source: WSJ)
Ajay Rajadhyaksha, fixed income strategist at Barclays: “I think the market’s going to be disappointed with what Fed does in September.” (Expects 25bps)
Neptune (the planet not the god): (Note: it takes a satellite about 10 years to reach Neptune, luckily we knew all this would happen almost 10 years ago and sent the USS LoS to do the interview at that time, it just got back) “Well, fall-out from the sub-prime crisis has reached the outer limits of the solar system too. I myself am deeply underwater on 4 condos in Phoenix and I don’t even want to talk about Io. Given that I’m a desolate and empty planet you would have thought it would be hard to get a loan for these speculative properties but I found it quite easy. Anyway I think it’s important for the credibility of the fed that all these foolish dummy bankers and investors learn their lesson, if the fed bails them out, all of them will just go back to buying risky assets assuming that if something goes wrong the fed will fix it. Unfortunately for earth I don’t think Bernanke will stick to his guns. Ok, have to go back to being freezing cold and lonely now, bye.”
A common dragon on the street: *FIRE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*
Poseidon (the god not the movie): “If, as I have, you, mortal, had seen the ways in which the sub-oceanic mortgage crisis has ravaged the coral reefs as if Ares himself had taken his great axe to them, or the extent of the layoffs that have taken place at the shell exchanges, then you too, mortal, would see the economic imperative of reducing the above-sea-level Fed Funds rate by at least 75 points of basis.”
John Cusack: “I think they will do something. Ok, well, I’m hoping they do something. Note to the kids, never buy 75 spec houses in Las Vegas and Florida, even if you are a ‘movie star.'”
Sauron: “My prediction is that [Bernanke] will look towards making one [cut], one [cut] to rule them all. This [rate cut] would cover all of Middle Earth in [a low interest rate]. This [rate cut] would allow the orcs to move across the land, and Mordor to dominate the realm of men.”
Postmodernism: “The rate cut will be 50bps, on the nose.”
Hugo Chavez, a student of Zimbabwenomics, believes in fairness and the sun is no exception. He has found the sun to be inequitably delivering its sun beams and has decided to do something about it. Chavez plans to Venezuela’s time zone back 30 minutes.
Now the leftist reformer, highly popular for redistributing oil income, is seeking to move the country’s time zone to offer a more equitable distribution of sunlight.
Venezuela in September will turn clocks back by 30 minutes as it switches time zones to boost the amount of natural light to residents, a government official said on Thursday.
Next month Venezuelan clocks will be set at Greenwich Mean Time (GMT) minus 4-1/2 hours, compared to the previous GMT minus four hours, Science and Technology Minister Hector Navarro told reporters at a news conference.
He said the measure sought “a more fair distribution of the sunrise,” which would particularly help poor children who wake up before dawn to go to school.
…
Navarro said the government is planning to announce additional measures to “make more effective use of time.”
Recommendation: Long the sun, long time. Short Venezuela.
