Long or Short Capital

When something is empty, fill it. When something is full, empty it. When you have an itch, scratch it.
Dieter Dengler in Rescue Dawn

Past Quotes Entirely Relevant to Investing

Very suddenly it came, and without forewarning of its nearness, a horror of hellish red light, swift as a wind-blown flame, that leapt from the market’s gloom and sprang upon us where we stood. We saw, in a floating redness as of ghostly blood, the black and semi-serpentine form of the Subprime Exposure. A flat and snakish head, without ears or nose, was tearing at our portfolio’s armor with sharp, serrate teeth. I heard the teeth clash and grate on the tiering credit protection of our CDO.

Swiftly I laid the ring of Greenspan on a stone I had placed in readiness, and broke the dark jewel with a blow of the Hewlett-Packard financial calculator which I carried. From the pieces of the lightly shattered gem, the disemprisoned demon rose in the form of a smoky fire, small as a candle-flame at first, and greatening to a spinning inferno. Hissing softly with the voice of fire, and brightening to a wrathful, terrible gold, Greenspan leapt forward to do battle with Subprime Exposure, as he had promised me, in return for his freedom after cycles of captivity.

Greenspan closed upon the Subprime Exposure with a vengeful flaring, and it relinquished our structured product, writhing like a stern bear struck by a cannon. The body of the Subprime Exposure convulsed loathfully , and it seemed to melt in the manner of wax, changing horribly beneath the flame as it undertook an incredible metamorphosis. Moment by moment, the thing took on the wavering similitude of man.

The unclean blackness swirled, assuming the weft of cloth amid its changes, and becoming the folds of a dark suit such as worn by a government official or conservative business executive. Then, above the cravatte, a face began to peer. The face, though shadowy and distorted, was that of Bernanke. The fire-shaped Greenspan assailed the abhorrently transfigured thing, and the face melted again into waxy blackness, and a great column of sooty smoke arose, followed by an odor of burning flesh. And out of the volumed smoke, above the hissing of Greenspan, there came a single cry in the voice of Bernanke.

Yahoo (NASDAQ: YHOO) benefited from a Carly Catapult when they announced that they had replaced Terry Semel with Jerry Yang as CEO in June. Little did they know that their incoming CEO (informer) was a poker junkie with a serious lack of focus. Jerry Yang has spent the last week plus holed up in a casino and competing in the World Series of Poker, the seminal annual poker event.

You can google this (Yahoo won’t get you the same results because it sucks) and you will see it is true. We did and it is. It is no coincidence that Yahoo stock is down ~5% today as of this updated writing and it is no wonder why Yang says he will need 100 days to do a “strategic and operational review” of the firm. How many of those days will be blown on his infamous poker benders?

Recommendation: While we commend the sheer hubris of taking a week off work as head of one of the largest internet companies to compete in the WSOP, is this really what serves shareholders of Yahoo best? Short YHOO.

Note: This recommendation was filed yesterday based on yesterday’s prices. We have predicted the future, in the past, because we are smarter than you.

Supply and demand is the bedrock of economics, the balance of which ensures cosmic order and more importantly, efficient allocation of scarce resources. But the problem with supply and demand is that sometimes the demand cannot afford the supply. This is where Mugabe Efficiency Theory comes in. Per MET, when supply is too dear, government fiat is needed to price it where demand can buy it. Problem solved, supply and demand clearly balanced and the cosmos is once again in order.

Zimbabweans are shopping like there’s no tomorrow. [In] the aisles of Harare’s electrical shops,…the widescreen TVs were the first things to go, for as little as £20. Across the country, shoes, clothes, toiletries and different kinds of food were all swept from the shelves as a nation with the world’s fastest…economy gorged itself on one last spending spree.
Car dealers said…that a car costing £15,000 could be had for £30[.]

President Robert Mugabe’s order that all shop prices be cut by at least half, and sometimes several times more, has forced stores to open to hordes of customers waving thick blocks of…money given new value by the price cuts. The police and groups of ruling party supporters could be seen leading the charge for a bargain.

…

The impact of the price cuts was felt almost immediately as fuel virtually disappeared from sale after garages were forced to sell petrol for 23p a litre, less than they paid the state-owned supplier.

The so-called “charge for a bargain” is exactly the kind of thing that will stimulate demand into consuming supply and ensure the economy is in a Mugabe Optimal state. If demand could not afford the supply, then the universe would probably implode making Mugabe Efficiency an important policy issue for all those who would prefer for existence to continue.

Economists say the price cuts will only deepen the national crisis, leaving many shops bare because they will not be able to afford to restock while official retail prices remain lower than the cost of buying wholesale or importing. Mr Mugabe has dismissed such warnings as “bookish economics”.

Recommendation: We see no downside to Mugabe Efficiency Theory. If things are made more affordable by force, then more people can and will buy them. This will in turn grow the economy and spur production of….uhm….uhhhh…hmmm

HT to the undervalued Newmark’s Door.

Broadcom (NASDAQ: BRCM) ex-CEO Henry Nicholas is being sued by former Kato, Kato, who is alleging that Henry Nicholas used drugs, spiked rival CEOs drinks with ecstasy, offered whores to clients, and forced Kato the Kato to partake in the drugs. You mean the guy in the middle of picture above is a drug user? I thought he was just one of Satan’s lieutenants on Earth.

The defense by Henry Nicholas’s lawyer is that his client is being exploited by a poed former employee, but that Nicholas was “[an] admittedly high-living technology executive.” Our defense would be “And? Aren’t all these things kinda awesome or at least a notch above playing golf? The defense rests, your honor.”

Recommendation: This makes all the backdated options, sketchy contracts and shenanigans he pulled off while CEO of Generically Named Technology Company, all the more impressive — he did it while intermittedly taking heroin. From my experience with heroin, it’s difficult to comport yourself without shitting your pants, so I can only see this as reason to praise Henry Nicholas for being able to get it done (note: my experience with heroin consist of watching Trainspotting).

(NASDAQ: WFMI) has been pursuing its acquisition of Wild Oats (NASDAQ: OATS) as the FTC has tried to block it. A move we would describe as bold. Bold.

Unfortunately, CEO of Whole Foods, “Rahodeb” has been a little too bold in his efforts to effect the deal.

First, he offered this commentary on the deal to his board via e-mail, basically begging to be pounced by antitrust attack dogs:

“OATS remains a relevant competitor. By buying them we will greatly enhance our comps over the next few years and will avoid nasty price wars in Portland (both Oregon and Maine), Boulder, Nashville, and several other cities which will harm our gross margins and profitability. OATS may not be able to defeat us but they can still hurt us. Furthermore we eliminate forever the possibility of Kroger, SuperValu, or Safeway using their brand equity to launch a competing national natural/organic food chain to rival us.”

Second, he decided to have an “in real life” name that is far too similar to that of CEO of Morgan Stanley (NYSE: MS) with just an “e” sound separating the two. All you CEO names sound alike to me, give me a break here.

Third, following in the big clown shoes of Patrick Byrne of Overstock.com (NASDAQ: OSTK), he thought it would be a good idea to post to an anonymous stock message board about Whole Foods. The company for which he is the CEO. Protected only by the anonymity of an anagram of his wife’s name. I’m undecided if it’s a better or worse call than being a bat-crazy Quixote in public like Byrne. This is less ethical but more competent as as opposed to more ethical and less competent. But this is decidedley worse than not wearing a condom in Haiti, which is our standard threshold for management competence.

For this focused non-dedication to competent and sensible management, we award John “Rahodeb” Mackey with The Patrick Byrne Award for Operational Focus and Excellence. May all your current and future stockholders be warned

What separates China from the rest of the world? Accountability.

China’s former top food and drug regulator was executed Tuesday after his conviction on corruption charges, state-run news media said.

Zheng Xiaoyu, 62 years old, was given the death penalty on May 29 after being found guilty by a Beijing court on charges of taking bribes and dereliction of duty. Mr. Zheng, the former director of China’s State Food and Drug Administration, appealed the verdict last month, but a higher court upheld it and the execution was approved by China’s Supreme People’s Court, according to Xinhua News Agency, which reported the news.

…

Mr. Zheng and other past SFDA officials were accused of accepting bribes in return for approving the sale and distribution of drugs. This past weekend, the SFDA said it had suspended the sale of a drug widely used to treat leukemia and other cancers after a number of patients suffered adverse reactions.

In the US, Secretary of Homeland Secretary Michael Chertoff still has his post despite overseeing FEMA during the disastrous handling of the Katrina aftermath. Iraq has been a debacle but Rummy resigned without being fired, and — as far as we know — is still standing. Former CEO of Home Depot (NYSE: HD), Robert Nardelli, oversaw a half dozen years of stock price stagnation and walked away alive with hundreds of millions in cash money.

Does the US really get it any more? I mean besides our high standards of living, long life expectancy and unparalleled freedom –things which only matter to theorists, liberals and puppy dogs. Does the US get it?

In China, the state would have culled the bottom 10% and sprinkled their remnants into Meow Mix so that Western cats would feast on soy-meal based bits of their under-performing souls. That is accountability.

If there was a chance that your performance review would end with your execution, you (even Canadians) would be motivated to effect the kind of growth the Chinese have been able to wring out of their rice paddies and toy factories the last 23 quarters or years or whatever.

And just to demonstrate that you can’t be too cruel:

Another former SFDA official convicted on corruption charges was given a suspended death sentence Friday.

A suspended death sentence is a signal to the People to let them know that while Big Boss expects a lot, he is willing to show some mercy.

Recommendation: China gets how to set a tone and stick to it. This is why when the squids take over, China will be their no.2.

The market got in the DeLorean, punched it to 88 and went four weeks into the future. Based on the future knowledge that in the coming month, Fred the “Time to Make the Donuts” guy would come back from the dead and start a rival ubiquitous coffee chain called “Zombie Brains”, the market decided to move 51 points in a direction.

Nuveen (NYSE: JNC): Mr. Dearborn had his eye on Nuveen from afar, watching the curves of her body dancing, accruing attention from onlookers. Should I court her? Shalst I acquire her hand for a dance, for a night, for 9 months before I flip her back onto the public markets for a tidy sum? “Yes” his inner voice uttered, and he set out to sate his lustful needs.
Market Impact 6

Blackstone (NYSE: BX): Stephen Schwarzman will use his cash proceeds from the IPO to buyback shares of his own soul.
Market Impact 666

Yahoo (NASDAQ: YHOO): Would be much more confident if their CEO was named Wang or “Tripod.” Or better yet, “Google.”
Market Impact 11

Research in Motion (NASDAQ: RIMM): I had a 4 minute long conversation with my Blackberry this weekend. It was shockingly eloquent and put forth a viable and effective healthcare plan that could cover everyone in the US for a fraction of today’s cost. Then it stood up, grabbed its crotch and did a perfect moonwalk out of the room.
Market Impact 30

Yesterday, Yahoo (NASDAQ: YHOO) parted ways with their non-email using CEO, Terry Semel. And the stock shot up 8%. A textbook example of the Carly Catapult.

The Carly Catapult is so named for the erstwhile Hewlett-Packard (NASDAQ: HPQ) CEO Carly Fiorina, whose tenure as CEO was so successful and inspired so much confidence that the stock went up 7% on news she had been fired. Now she sells books written in crazy.

Recommendation: If you are ever in a situation where you cause a Carly Catapult effect, you should probably look to short any of your future attempts at value creation. The problem is that because you suck so hard, it’s likely that if you were to short your own value creation, you would probably destroy the implied destruction of value you hoped to create by trying to create actual value, thus killing your short. So really you should just kill yourself.

The market dashed 87 points on news that Al Gore would or would not run, the new Chinese taxes on exporting molybdenum and Chamique Holdsclaw’s retirement. This picture of a nuclear reactor imploding probably didn’t help anything either.

Dow Jones Industrial Average Index (DJIA):
1st Half of the Week: Boo bond yields. Hurray bear (market)!
2nd Half of the Week: Boo bears, Hurray Good Economy!
Market Impact 48

Boeing (NYSE: BA): Continues to dominate Airbus in orders of “giant expensive flying things that will lose their owners tons of money and destroy the environment at a greater rate than anything other than cows”.
Market Impact 5

Blockbuster (NYSE: BBI): High fixed cost structure + retarded management = decision to enter into a price war with Netflix (NASDAQ: NFLX).
Market Impact 20

Limelight (NASDAQ: LLNW): IPOed in the limelight but subsequently has fallen out of the limelight. Our favorite stock both run by nerds and also in the same business as Akamai (NASDAQ: AKAM), but which is not Akamai.
Market Impact 14

Kellogg’s (NYSE: K): If Apple Jacks goes away will you at least tell me wtf an apple jack is (other than delicious)? I already know that a honey smack is what you do to your frog wife, when she misbehaves or tries to assert her “rights.”
Market Impact 4

Everything you need to know about what happened in the stock market this week. The market moved 43 points on news of oil supply increasing or decreasing, important economic reports indicating things about the economy and housewives all flushing their toilet at the same time and causing a run on plumbing during the commercial breaks of the season finale of the Bachelor. That may all have happened two weeks ago, but if it did, the impact was felt on this week’s market.

Avaya (NYSE: AV): If a spin-off from a spin-off of Ma Bell goes private but no one knows what they did, does anyone really care except a bunch of deal measuring PE firms? Avaya is like that guy you know from state colleges (play along with me and pretend) who was a “communications major”. What the fuck is that? I don’t know man, I just don’t know. I think it’s the study of “Future Mortgage Broking.”
Market Impact 17

Krispy Kreme (NYSE: KKD): Donuts are delicious. But dough nuts are frightening. Consider yourself warned.
Market Impact -2

Chinese Stocks (SSE: SSE): All look the same to me.
Market impact 12

DynCorp (NYSE: DCP): Up 15% on news that they captured Saddam Hussein and/or Jason Mewes and fed them to Knut the cute polar bear cub, increasing their Q4 earnings a lot, approximately.
Market Impact 3

Dow Jones (NYSE: DJ) and News Corp (NYSE: NWS): When it comes to strippers A-Rod likes the she-male, muscular type. In this, instance, it’s unclear whether Rupert Murdoch is the petite stripper who spun around once for Bancroft-Rod and got rejected, or the she-male muscular type with whom Bancroft-Rod wants to text dirty.
Market Impact 8

NYSE (NYSE: NYX): The Stock Exchange sounds much more with it than the cumbersome and unmemorable The New York Stock Exchange. Why not go further, drop all vowels, throw in some umlauted e’s and become the mistress to a swanky London Banker. European pandering financial slut.
Market Impact -6

Gazprom (NYSE: OGZPF.PK): At the G8 summit Vladimir Putin said “Gazprom is Gas plus Prom, like high school dance but more gassy. I am DJ and I play songs that tell everyone that I control Gas so begin making dance, comrade.” George Bush responded with the comment “I don’t dance,” but he was later seen dancing. Stock rose 3% on this news.
Martet Impact 30

To all those who have been released from the bonds of merit badge exam taking, most of you only temporarily, I salute you. Know that the knowledge which you learned, from Durbin-Watson test statistics to swaptions to neoclassical growth theory, will never in your life ever again be useful to you nor advance you on your quest to spread your seed (or eggs) as wide and far as you can. Welcome, to the day after yesterday, which is one day closer to the day when you can declare “I can and will guarantee superior future returns because I, am a CFA Charterholder.”

CKE (NYSE: CKR), franchiser and operator of Carl’s JR and Hardee’s, gets it. CEO Andy Puzder of CKE wants to give people delicious food, health concerns be damned. In doing so, he demonstrates the crucial tenant of “don’t listen to what your customer says, listen to what your customer does.”

My opinion is that the media is the main supporter of healthy eating. We’re certainly not hearing it from our customers,” said Andrew Puzder, who is the CEO of CKE Restaurants, the parent company of Carl’s Jr. and Hardee’s.”And [surveys] show that while consumers say they want to eat healthier, what they actually want is a big juicy burger,” Puzder said during an interview Tuesday with CNNMoney.com.

Puzder said he will continue to use edgy advertising, such as the infamous Paris Hilton ad for Carl’s Jr ., to make the brand stand out in consumers’ minds.
Indeed, while bigger competitors like McDonald’s, Burger King and Wendy’s are rushing to introduce salads, fresh fruits, low-fat yogurt and chicken wraps in an effort to appease an anti-obesity lobby that blames fast-food menu for the nation’s battle with the bulge, Puzder makes no apology for selling what he called “decadent” food.

Consider the “Original Six Dollar Burger” on the Carl’s Jr. menu. It consists of a charbroiled, 100-percent Angus beef patty with two slices of melted American cheese, lettuce, tomato, onions, pickle, mustard, mayonnaise and ketchup on a toasted sesame seed bun. Total calories:1,010. That’s almost half of the recommended daily calorie intake for an adult.

Recommendation: Giving the people what they want, ignoring the hysteria of the media, sexually provocative advertising, thickburgers. How can we not be long CKE? Additionally, it’s strong satanic fundamentals make it a candidate for inclusion in the LoS Satan’s Portfolio Index, which would further stimulate demand from all those institutions who would be forced to stick CKE in their portfolios.

Hat tip to reader Dan

The WSJ yesterday reported how pig farmers are using fatty non-corn based substitutes to feed their pork assets as a response to surging corn prices. Corn prices are surging because the US Government thinks what the people want more than anything is to give money to large agribusinesses, like future Satan’s Portfolio member Archer-Daniels-Midland (NYSE: ADM). The domestic production of corn is directly subsidized. Corn based ethanol production is further subsidized. Sugar faces import tariffs but sugar cane is a far cheaper and more efficient feedstock for ethanol production. Lastly, the US gov straps a tariff on imports of sugar cane based ethanol from Brazil. What does this add up to? 4 sentences and a recipe for lucre for corn producers…and pig farmers.

The staid thinking would be that pigs must be turned into delicious bacon and pulled pork products and thus the pig farmers should switch from the more expensive corn to the cheaper substitute feeds to continue to supply these vital end markets. But there is a huge opportunity for pig farmers who think out of the box, which will in turn benefit the supply and demand situation for the entire pork industry.

If people want ethanol, then give the people ethanol….made from pigs: Piganol. The technology is still under development and we are under a myriad of NDAs so we can’t speak to the science behind it but it’s a fact that piganol is on it’s way. The picture we provided in our previous article was from an actual field test and the bike not only gets great mileage, but the only thing it pollutes is bacon. The firm developing the product has achieved some important milestones indicating enhanced viability of a piganol based consumer energy source.

Recommendation: We maintain our “Delicious” position on Bacon and increase our rating on piganol from “Suspicious” to “Delicious”.