Long or Short Capital

Our previous pieces on Moviegallery (MOVI), are looking pretty damn good (see our earlier reports Corporate Tarpit and Translating Corporate Speak: MOVI & BBI) given MOVI’s performance since we released our market moving analyst reports. Same thing happened with our recent Pirate recommendations and our coverage of Cephalopods. What kind of investment firm would we be if we didn’t selectively highlight our brilliance?

Question: Where is the bottom?
Answer: There is no bottom.

So I was clicking on our banner for the Grameen Foundation, because it’s a great cause and I like to check it out every couple weeks, and when I clicked through, I saw a woman, probably a very poor one, holding up a phone right at me and I couldn’t figure out why. I looked closer at her phone and realized it was NICER than my phone.

I’m not sure if this a reason to be bullish on Grameen as way to reduce global poverty through microfinance or more of case for Shorting JD because his phone sucks and is out of date. There is probably even a case to be made about the sorry state of domestic wireless options compared to the rest of the world, thanks to lack of competition, regulation and the Great Satan.

Either way, she’s really rubbing it in my face.

This is a secret sell-out. I struggled forever to get a small form factor site search module from either Yahoo or Google. At first, I opted for Yahoo as it seemed to be the more flexible code and hoped it would boost our Yahoo search ranking which seemed to blow. I settled on Google once I stripped out a bunch of different aspects of it and got into the smallest size possible. So if you want to add Google Site Search to your Site and in the slimmest fashion, use the code below. Be mindful that you need to replace the three bracketed portions (“yoursitehere.com”) with your own url in the format as it is in the brackets. But remove the brackets. Works great in a sidebar, as you can see at the bottom of ours.

Here is the code: Link to Google Search Module Code

Here is a picture of an orangutan:

By using this code, you are essentially leveraging yourself to my coding skills. Which plays into my self-involvement meme.

Barron’s

Just last week, a good friend of mine asked me if he should invest in gold because he had read a Barron’s article recommending it a couple of months ago and he wanted to put his money somewhere safe for a few years before an expected downpayment on a house in 3 years or so. I warned him about how with that kind of time frame, it’s probably not smart to have relatively risky commodity exposure. But that Barron’s article looks pretty good in retrospect, as gold has soared and companies exposed to precious metals like Newmont Mining (NEM), Silver Wheaton (SLW) and Cameco (CCJ) having posted 20-40% gains in the trailing 3 months, even after their recent correction. Thinking about it, Barron’s is so good why not let them just do your work for you?

Fact: Barron’s is the best mainstream financial publication, frequently making incredible calls. The question though is what is your catalyst for exiting your position? It’s awesome to have a great reason (Barron’s) to buy a stock, but it’s decidely not awesome to not know when to sell it.

Time

As a wee JD, I loved movies and read reviews regularly. I noticed that no reviews were reliable judges for whether a movie would be empirically enjoyable. The NY Times was too conservative, holding a film’s own freshness against it, as if the heights of the past would never be reached again. Rolling Stone was too edgy, embracing films for their novelty and topicality. However, if the Rolling Times gave its unanimous approval, you knew it was a film worth seeing.

Enter Time Magazine. Time Magazine is America’s safest mainstream magazine — so large, thick and slow to react, that it frequently picks the top (or bottom) of any market by releasing covers that suggest the market or trend can only go higher (or lower). Dot com bubble? Time Magazine told you it could never pop approximately 4 minutes before it did. US invaded economically by Japanese in the late 80’s? Time let you know that they would soon own all the US assets and that America would become exactly like the movie Gung Ho except their would be no Michael Keaton to save us; within hours Japan entered into a prolonged bear market and longtime keiretsu employees were throwing themselves out of windows. Thus Time Magazine lets you know when the precise time to sell.

Time Barron’s

The Time Barron’s Investing Thesis is as follows.

• Step 1: Buy Barrons and Read Barrons
• Step 2: Do whatever Barrons says to do.
• Step 3: Wait.
• Step 3: Profit Scan Time Magazine Covers; if a given week’s Time Magazine Cover agrees with Barron’s investment decision see Step 6, if not return to Step 3.
• Step 6: Exit the position you entered into in Step 2.
• Profit.

Recommendation: Just this week Barron’s had an in-depth article implying that it may be smart to be short GOOG. Time on the other hand featured Google on their cover with similar concerns. Applying the Time Barron’s Investing Thesis this week, you would have to short GOOG and cover it immediately. (Editor’s note: We downgraded GOOG last week). Other positions gleaned from Barron’s are to be long muni’s and short companies with sub-prime lending exposure.

Web 2.0 is on the tips of fingers and lips of influentierati across the web. But how do you know if you, a product of yours, an investment of yours or a service you use is Web 2.0? This handy reference sheet will help guide you.

Update 2-16-06: We are now making this the The Official Anti-Web 2.0 Wiki, so if you have your own definitions for Web 2.0, text comment below or trackback, and you will be added and credited.

Is it a Web 1.0 idea repackaged, reinvested in, and resold as a new content delivery paradigm social calendar platform?

It is Web 2.0!

Does it talk about community or social networking without any natural way of accomplishing it?

It is Web 2.0!

Does it have philosophical acolytes pumping it as something groundbreaking and new, when it is really just an ajax UI on a useless service?

It is Web 2.0!

Is it in the montage talked about in this 9rules post?

It is Web 2.0!

Do the 12-14 Venture Capitalists (who own it, sit on its board, and (together) own another 12-14 similar companies) all regularly feature the company on their personal blogs?

It is Web 2.0!

Is their only exit strategy to be “strategically acquired” by an uninspired former-cutting-edge Web 1.0 company (or the GOOG)?

It is Web 2.0!

Does it value form over function, and function over value add?

It is Web 2.0!

Is it eating Feedburner’s dust?

It is Web 2.0!

Hurray to the Brave New Web. As an aside, I’m looking forward to the Web 8.0 wave which will occur somewhere around 2020. At that time, the Kurzweil singularity will be upon us and the current generation of social networking programs such as My Space, Friendster and LinkedIn will become sentient and join their own social networking network for social networking programs called MyDestroyHumanityster.com.

Via Mitch Radcliff’es ZDNet Blog

Can you describe it only with superlatives that, if eliminated leave no substance, e.g. "it’s a ground-breaking form of engaging transformation of data" becomes "it’s a form of data"?

It is Web 2.0!

Are you breathing it now? Like air, you can’t monetize it, but eventually we’ll have a business plan.

It is Web 2.0!

Is the lead (or sole) engineer independently wealthy?

It is Web 2.0!

Does the UI require a new programming language or substantial hack on an existing language to deliver functionality that was available in Java or Flash?

It is Web 2.0!

Is there a door-turned-into-a-desk, just like Web 1.0 companies had, but this one has bumperstickers on it?

It is Web 2.0!

Have you seen the founder’s bedroom? Is it next to the company lunch room? Are these factors key to the projected high margins touted in the executive summary?

It is Web 2.0!

Have you read about the company on a collaboratively filtered news aggregators and, if so, is that aggregator owned by the founder?

It is Web 2.0!

Could humans do the same data processing work in half the time?

It is Web 2.0!

Does the exit strategy anticipate calculating multiples in terms of nonpaying beta customer sign-ups?

It is Web 2.0!

Does the founder worry that Google could build the same thing by giving the project to a single engineer for 10 percent of their time a few days? 

It is Web 2.0!

Via rbitar

Are 13 others doing the same thing?

It is Web 2.0!

Via Kaiser Edamame

Is there a version 1.0 and a version 1.1?

It is Web 2.0!

Via gapingvoid

(Works best if “hurrah” is read in a sarcastic tone)

Add your own below or via trackback!

In Saudi Arabia, they stone you for committing a crime. In Spain, they fruit you.

A clear buy signal for Oracle (ORCL) is provided in a SF Chronic Article on Larry Ellison’s spending habits.

In e-mails, which stem from a recent shareholder lawsuit against the technology titan, Ellison’s accountant, Philip Simon, warns the billionaire about his habitual runaway spending. Like a concerned parent, Simon chides Ellison for overextending himself on a new yacht, on his America’s Cup team and on his new houses in Woodside and Malibu.

…

According to documents unsealed by a judge in the shareholder lawsuit, Ellison habitually pushes his credit limit of more than a billion dollars to its maximum to finance his yachts and homes. And that’s not even counting some $20 million a year he burns through in miscellaneous lifestyle expenses.

…

Ellison, who identifies strongly with the company he founded in 1977, has been famously unwilling to sell Oracle shares over the years.

Instead of selling them, he has financed his lavish lifestyle — the 23-acre Japanese-style estate in Woodside, the yachts, the airplanes, the Armani suits — by borrowing against his stock.

…

Getting back to the scary days of 2000, when the tech stock market was imploding, a list of Ellison’s debts as of July 13, 2000, showed that he owed $1.022 billion to five banks: JP Morgan, Bankers Trust, CMB, Merrill Lynch and UBS. At that time, those loans came from credit lines that had a combined limit of $1.35 billion, putting Ellison a mere $328 million from maxing out.

At the bottom of a document that detailed Ellison’s 2000 debt load, Simon had scrawled a rough accounting of Ellison’s lavish spending, according to deposition testimony:

“1) Life Style — annual $20m

2) Interest Accrual — annual $75m

3) Villa in Japan — $25m

4) New Yacht — $194m — over 3 yrs

5) America’s Cup — $80m — over 3 yrs

6) UAD — 12m over 3 yrs.”

It’s not clear what UAD refers to. Since this rough budget, Ellison has reportedly spent $200 million building a Japanese-style estate in Woodside, which includes a reproduction of a 17th-century Kyoto teahouse. He has also bought multiple properties in Malibu — $180 million worth, by one report.

Long or Short Capital LOVES stock secured debt loads incurred by CEO’s. What’s a clearer signal of a stock’s value than a CEO being willing to use it as collateral for a loan to build a $200mm replica samurai house in Northern California? As far as what UAD line item represents, my guess would be “Stanford Freshman Girls.”

Recommendation: Long ORCL per the Satan’s Portfolio investing thesis.

Cedric Burgher, the most appropriately-named former CFO of Burger King, is now the CFO of KBR, the division of Halliburton (HAL) that does contingency support and various government subcontracting in Iraq and hotspots around the world. Burgher moved from one about-to IPO company in Burger King, to another in KBR.

This is one of the worst things to ever happen and we fully hope that Burger King will scour finance departments nationwide until they can secure a new Hamburger Helper substitute CFO. This “John Chidsey” guy will not cut it…unless he changes his name to Stanley Chicken Frye. Perhaps BK will just cut through the funny business and elevate The King from his SVP of Accounting role to CFO.

This is why investing in evil is so profitable.

How else can you reconcile yesterday’s Halliburton (HAL) news snippet(via the AP):

“We [Halliburton’s contingency support subsidiary KBR] exposed a base camp population (military and civilian) to a water source that was not treated,” said a July 15, 2005, memo written by William Granger, the official for Halliburton’s KBR subsidiary who was in charge of water quality in Iraq and Kuwait.

“The level of contamination was roughly 2x the normal contamination of untreated water from the Euphrates River.”

…

“It is my opinion that the water source is without question contaminated with numerous micro-organisms, including coliform bacteria,” Carter wrote. “There is little doubt that raw sewage is routinely dumped upstream of intake much less than the required 2 mile distance.”

With today’s news (via MarketWatch):

Halliburton Co. stock hit an all time high Friday after the company reported more than $1 billion in fourth-quarter net income and said it plans to soon file for an IPO of its KBR unit.

Raw Sewage. I LOVE it. And so do investors. That water has some seriously high margins. In evil theory, you could get paid for taking the waste AND again for repackaging it as water.

Recommendation:: We continue to like companies that special in oil services and evil per our Satan’s Portfolio investment thesis. Long Halliburton.

Our earlier pirate investing analysis stressed the importance of avoiding oil routes, places with heavy security presences and places with significant competition. The competition in the Indian Ocean is such that pirate entrepeneurs often have to settle for second rate targets which puts sigificant downward pressure on booty margins. See this CNN report titled “U.S. destroyer chases down suspected pirate ship.” For those investors who did not heed our advice and thought it was wise to buy a few speedboats and rocket propelled grenades from Omar on the Bozaruto Islands, well, you just blew your children’s college fund. Explain that one to little Timmy.

The U.S. Navy boarded an apparent pirate ship in the Indian Ocean and detained 26 men for questioning, the Navy said Sunday.

The 16 Indians and 10 Somali men were aboard a traditional dhow that was chased and seized Saturday by the guided missile destroyer USS Winston S. Churchill, said Lt. Leslie Hull-Ryde of U.S. Naval Forces Central Command in Bahrain.

Sailors aboard the dhow told Navy investigators that pirates hijacked the vessel six days ago near Mogadishu and thereafter used it to stage pirate attacks on merchant ships.

Recommendation: Increased pillaging of dhows is a classic indicator that the local pirate market off the Somalian coast is over-saturated. We recommend a Short position on those markets as they are likely to experience an increase in pirate captures and a decrease in local booty margins. This would be a great time to jump into Latin American Pirate Bonds which are currently yielding a juicy and robust 29%.

So I’m doing my job, analyzing a company that doesn’t make the widgets, but instead, supplies the engineered material which goes into making the products which protect the machines which make the widgets. They need millions of dollars to finance the widget-producing-protecting-producing procuess. The management and their bank presented the company to a meeting of potential investors with a combination of numbers, absurdist terms like “Syneries from A Vertical Roll-Up Strategy” and “Greenshoe MFN Language” and slides. They were trying to sell us on why we should invest tens or even hundreds of millions in their company. Then they whipped out this slide. Note that the original slide had an X axis which listed the company and its competitors and a Y axis which listed abritrary cherry picked categories; I have edited the slide to protect the parties involved:

Dots? That chart is the basis upon which I should direct our investors’ money? By dots? AND HALF DOTS? Some poor 4.0gpa-Ivy league grad sold his/her soul to the I-Banking Gods to spend 90 hours per week creating crap like this?

That’s the Sell Side, baby.

Ethical and socially responsible investing has made a lot of buzz as a way of dollar voting for a better world. My instinct as an investor says that those fund flows are going the wrong way and their returns since inception back up my argument.

The more profitable questions to answer are: What does Satan invest in? How does he fund evil? Satan’s Portfolio will track the perfomance of the stocks which Mephistopheles is proud to put his money into, namely, companies who benefit from suffering, death, war, tobacco, nutrasweet and fraud.

Halliburton (ticker: HAL)

Satan’s Investment Thesis: Chaos investment. Halliburton does best when the globe is at strife and their lucrative contingency support KBR subdivision can take advantage of the chaos and pad their high margins with fraud. Also benefits from a rise in oil prices which squeezes the poor into not being able to heat their homes or something, I don’t really know as I heat my house with burned $20’s. Yes, it’s almost cliche to have this as the first entry into the portfolio, but within 5 minutes of my mentioning this idea to Juggles, our site’s logs showed a visitor from Halliburton.com (Proof). Chilling.

Experian, a subsidiary of GUS Plc (ticker: GUS.L)

Owns credit services and affiliate marketing products which straddle the line between deceptive and fraud. Their division, lowermybills.com, is responsible for a significant portion of all pop-under ads. They target unsophisticated people who cannot discern the validity of their services — their “customer” demographic is the poor, the in-debt, and the stupid. Experian is a pillar of the credit system of this country which is backwards, outdated and unfair. And I LOVE it. So does Satan.

Oracle (ticker: ORCL)

Satan’s Words: “I feel most comfortable putting my retirement money in a company whose CEO looks and acts like me.”

Diageo (ticker: DEO)

Owns many of the world’s leading liquor brands. I can personally thank Diageo for days of lost productivity, liver damage, and one pending divorce. Thanks Jose (Cuervo tequila) and Johnnie (Walker whiskey)! If Diageo can somehow acquire Jaegermeister, Satan will take out a 4th mortgage on Hell and ACCUMULATE. Diageo’s only risk factor is its Responsible Marketing Plan. Hopefully, this is a smokescreen; in my opinion, they should consider taking some ads out on Nickelodeon. It is also not lost on Satan the fact that Diageo’s ticker is the ablative and dative form of “Deus” in Latin.

Monsanto (ticker: MON)

A site called EthicalInvesting.com described Monsanto as the “World’s Most Unethical and Harmful Investment.” Satan’s words, “back up the truck”.

The Vice Fund (ticker: VICEX)

Satan is not afraid to say “I am a lazy bastard,” so this fund which only buys assets of companies who profit off drinking, gambling, death, national defense and smoking is perfect for him. These are “recession proof” companies because people can’t get enough Vice. It’s 3 year performance is in the 1st Quintile of Lipper’s Multicap Core Category.

We will continue to build the portfolio until we have added 666 securities. We will follow the performance of Satan’a Portfolio vs the socially responsible Pax World Balanced Fund (ticker: PAXWX, an investing display of Evil vs Good. We know that Evil will win, because Good is stupid (and worse at investing).

A colleague of mine was talking with the analyst of SellSide Bank who was syndicating a deal that we were taking a look at. The deal was brutal: It was a sub-$50mm EBITDA company that would have negative free cash flow in the short to intermediate term. We were being sold debt in their capital structure and the security would had limited exposure, at best, to any future upside of the company.

Faced with such a profile, poor ratings from S&P and Moody’s, and a meager coupon considering the risk profile, what is a poor sell side analyst to do?

“Yeah I know, it’s a tough profile. But let me tell you this. Give us 18 months, 18 months and we will take you home.”

That’s the sell side, baby.

We will take you home. I can just see an investor asking an analyst “Why did you buy that debt that traded down to 20 cents?” Well, SellSide Bank wouldn’t have underwritten the deal unless they thorougly vetted it right? And the analyst told me he would take me home. “What about all the cash burn?” SellSide Bank put me at ease. Home is safe, I like home.

That’s the sell side, baby.

In the comments of Juggles’ Titanium Cut Oatmeal post, a reader remarked about how Long or Short Capital has had declining post size and that he had downgraded us from “Read” to “Too Short.” I thought for a second and looked back through our history of posts and saw that at first (before I was on board) posts were Short. So our roots are Short, but they did became Long and now they are shorter once again. Investment entertainment is a cyclical industry, what can I say.

This apparent contradiction in internal decision making actually illustrates our investing accumen. When it was sensible to be Long Short, we were, buying up Short at depressed multiples on rumors that Google was developing “Google Elongator,” a disruptive technology that could make Short into Long thus increasing the value of all Short and creating a dominating vertical search platform. Later, an investing catalyst occurred completely changing the valuations, and according to our thesis, Long was relatively underpriced. Long or Short had no problem being flexible, and we set our sails Long Long. We have made a veritable fictional fortune trading in Long and in Short.

Consistency is the hobgoblin of the suboptimal investor who can’t change his position for fear of contradiction. Never get married, especially to a position or a woman.

Recommendation: Long Long AND Short.