Long or Short Capital

Mr. Wagoner was greeted with a standing ovation, according to people at the meeting. Employees said they were proud of Mr. Wagoner for defying calls for resignation and insisting the company would not file for bankruptcy protection. Yet at the same time, his resignation Sunday in exchange for financing needed to save the auto maker was characteristic of his devotion to the company he’d joined after graduating from Harvard Business School in 1977.

I find it difficult to reconcile the above with the below.

I hate to be objective and even somewhat supportive of what I see as frightening interventionalism by the Government, but Wagoner simply did not get the job done and has created a large enough sample size of performance for this to be clear. He, like Walter Noel, may have been a great guy, a veritable Jimmy Stewart reborn or Jesus back on Earth, but at his job as CEO of GM he failed and that is the way in which he matters. Not only that, but if you were to overlay a graph of his personal net worth over that chart of GM’s stock price, I bet they would demonstrate a negative correlation. And he should have some humility given that he was ever even named CEO because of how he was named at birth — namism at its worst.

Recommendation: I like defiance, and not just as the name of a battleship. I like the principle of not giving in, of fighting until you die, of righting the unrightable wrong, of marching into Hell for a heavenly cause. But let’s save the celebration for meritorious defiance, like General Anthony McAuliffe or Winston Churchill, as opposed to pridefully clinging to your job or refusing to file a company who could benefit from it.

People mistakenly assume that Zimbabwenomics is just about Mugabe Efficiency Theory and making supply cheap enough for demand to afford it, thus creating a Mugabe Optimal state. But the field has a lot more to offer whether it be by finding ways to make everyone a millionaire or to win elections you actually lost. Now that the mantle of Zimbabwenomic leadership resides in the US, we are seeing new applications of classic theories as the recent Affaire D’AIG (NYSE: AIG) demonstrated.

When the US was busy trying to rush the passing of a $700bn “stimulus” bill along party lines while selling to the public the fact that the world would end if it wasn’t passed, many wondered how the largest piece of non-budget Government spending in history could go through in a few days with little to no scrutiny. It was unpatriotic to question it or to ask for a time-out, which is exactly what I told my wife when I left work to buy our second mega-yacht (now repossessed) a few years ago.

The solution that the US executive and legislative branches discovered was on a page straight out of Mugabe’s Zimbabwenomic Text Book — fan the flames of populist rage against a rich minority target. Even better, a rich minority target who has nothing to do with the proposed legislation and, at best, represent an infinitesimal fraction of the greater concern. Facing (erroneous) allegations that his vision for Zimbabwe wasn’t working, Mugabe adopted a program of land reform and property reform which pushed out wealthy white farmers and south Asian businessmen. Zimbabewe grew its productivity by alienating (often physically) the rich elite, while its Government continued doing what it had been doing so well, as can be seen in Exhibit A.

In the US, the Government has fanned the flames of populist rage towards $160 million given to certain AIG executives under the terms of their contracts (which we are not privy to and thus cannot ascertain the validity of). At the same time, the stimulus bill calls for the spending of $600 million every day for the next 3 years and has received much less scrutiny, despite the fact that it is historically the single most massive transfer of wealth from the future into the current. Pure genius and we only hope the result to the productivity in the US will be as great as in Zimbabwe.

Recommendation: All things in proportion.

The next target of excessive compensation focus should be congress whose members have each made millions over the last four years, while being responsible for almost taking down the whole financial system. Out of greed and a lust for power, they recklessly misregulated industries and securities of which they had no understanding; the same politicians and officials who got us into this mess continue to take down salaries and overall compensation which is greater than 99% of the country. I’d like to see their contracts, I’d like to take a look at every legal way to stop the payments that are continually made to them by taxpayers, I’d like an excise tax of 95% levied against the salaries of senators and representatives to the extent those salaries exceed the minimum wage. If they had any pride or sense of responsibility, they would refuse their compensation or give it back.

Researchers at Toshiba’s Akimu Robotic Research Institute were thrilled ten months ago when they successfully programmed Kenji, a third generation humanoid robot, to convincingly emulate certain human emotions. At the time, they even claimed that Kenji was capable of the robot equivalent of love. Now, however, they fear that his programming has taken an extreme turn for the worst.

…

Kenji was part of an experiment involving several robots loaded with custom software designed to let them react emotionally to external stimuli. After some limited environmental conditioning, Kenji first demonstrated love by bonding with a a stuffed doll in his enclosure, which he would embrace for hours at a time. He would then make simple, but insistent, inquiries about the doll if it were out of sight. Researchers attributed this behavior to his programmed qualities of devotion and empathy and called the experiment a success.

What they didn’t count on were the effects of several months of self-iteration within the complex machine-learning code which gave Kenji his initial tenderness. As of last week, Kenji’s love for the doll, and indeed anybody he sets his ‘eyes’ on, is so intense that Dr. Takahashi and his team now fear to show him to outsiders.

The trouble all started when a young female intern began to spend several hours each day with Kenji, testing his systems and loading new software routines. When it came time to leave one evening, however, Kenji refused to let her out of his lab enclosure and used his bulky mechanical body to block her exit and hug her repeatedly.

…

“Despite our initial enthusiasm, it has become clear that Kenji’s impulses and behavior are not entirely rational or genuine,” conceded Dr. Takahashi.

Ever since that incident, each time Kenji is re-activated, he instantaneously bonds with the first technician to meet his gaze and rushes to embrace them with his two 100kg hydraulic arms. It doesn’t help that Kenji uses only pre-recorded dog and cat noises to communicate and is able to vocalize his love through a 20 watt speaker in his chest.

When it comes to love, so to speak, accept no substitutes, especially robotic ones. Anyone who has ever been in a relationship knows how dangerous love can be, and unlike most assets that are dangerous when alone, love’s risks can’t be mitigated (yet, we are researching the issue) by being securitized and thrown into structures with things like coverage tests and CCC baskets. Love certainly can’t be derisked by automation, as the Tale of Kenji demonstrates with the power of “two 100kg hyrdraulic arms”.

Recommendation: Long human love, short robot love, market weight digital love. The human love asset, like piranha, is a tricky species. But human love assets serve as a great countercyclical investment — they will be there when you need it most, when skies are gray and Skynet has taken over. Rumors of a secular decline in human love assets have been overstated, which is why we continue to find human love assets so attractive.

Some caveats when building a human love asset portfolio:

1. When building a portfolio of human love assets, ensure that the human love assets are unaware of the existence of other human love assets which you own. If they do happen to find about other love assets, and they are ok with it, it is important to document this event with pictures and video, for research purposes.
2. Make sure that human love assets are unaware of the fact that they are considered to be human love assets. It is important to remember their names and refer to them accordingly.
3. Never feed a human love asset after midnight (you will thank us later).

If you don’t follow these simple rules, you run the risk of a severe diminution in the value of your human love asset portfolio.

HT to Orges

Recipe for Money (2006)

• Find an asset, any asset will do, but preferably a fresh organic fair-trade asset.
• Add 1/4 cup soy sauce.
• Add 2 slices of Government cheese.
• Season with leverage. Continue to season with additional leverage until the money tastes to your liking.
• Serves many.

Recipe for Money (2009).

• Find a leveraged asset, any asset will do, but preferably a McMansion or McInvesment Bank one, ones that are made of horse and dingo meat.
• Add mashed sweet potatoes.
• Add 14 slices of Government cheese.
• Short sell this concoction to taste. Continue short selling until the money tastes to your liking.
• Serves few.

Everyone uses the phrase killing it and the bear market version “[fill in the blank return] is the new killing it”. But I have to be honest…when I look at the market, and the S&P 500 is only down say 5 points, my mental accounting puts that in the win column. That’s tantamount to a rally, hell it’s not tantamount, it’s mount to a rally. When I hear “oh the market is up 5 points”, I think in my head “It’s only down -5 points, I barely even understand what that means” and then I freak the hell out.

The turns and spins and dives and rises of this market have been like a baptism in biasfire. I feel every single dumb bias at different points in a day. Loss aversion, mental accounting, regret minimization, anchoring, representativeness, overconfidence, everything, a veritable CFA clinic on biases. I am that clinic.

And I wonder — is this how scientologists are made? They heat up the room, assault you with information overload, starve you, break you, push all your preconceptions, tear them down, question you, make you question yourself, have Paulson or Geithner say something officially vague and stupid, make you agree with them and eventually, with Xenu. Market I agree with you! Tell me what you want! I will do it!

Certain amongst us, specifically species-traitors at the New England Acquarium, are helping octopi enrich themselves in the fields of box survival and daytime infiltration.

Truman, a 7-foot-long, 30-pound octopus at the New England Aquarium squeezed his body into a 14-inch square acrylic box today in pursuit of food, aquarium officials said. The 30-minute performance drew a crowd of staff and guests.

The caretakers for the octopi at the aquarium place food inside locked boxes as an enrichment activity.

…

And rather than undoing the latch on the larger box, he squeezed his legs and large head through a two-inch hole in the larger box.

Recommendation: While this strengthens our long recommendation for the Cephalopod Index, don’t confuse our investment recommendation with any changes of species allegiance implied or otherwise. We refuse aid, comfort, and combat skills training to the enemipods out there.

Know that any object that has a 2 inch opening and is 12 square inches or larger (like a toilet bowl while you sit on it…), is one in which an octopus could be lurking, waiting for you, its tentacles ready to wrap you in seaweed and suck you into their razor sharp beak, a process known as “reverse sushi”.

HT Adam

Whether you are a Sangalese warlord, the head of Hydra or a Bond villain, the base of your operation is your henchmen, the nameless legion who are willing to die in order to execute your bold plans for a new world order, global destruction or real ultimate power. Despite being integral as an aggregate, on an individual level, henchmen are completely fungible. They can expect to be beaten to a pulp, or thoughtlessly killed by either their boss’s heroic enemies or, as is often the case, their employer himself. Note that the latter situation is in violation of labor laws in most jurisdictions, which is only the beginning of what looks like a raw deal for henchmen. What economic rationale do these henchmen have to seek this line of work?

Based on their number, and the low income generated by most criminal enterprises for anyone but those at the top, henchmen can’t be compensated monetarily in a way that is commensurate with their shortened expected lifespan and overall reduced quality of life. Generous healthcare plans would at best allow them to offset the debilitating injuries they receive. Other fringe benefits such as company flying cars and teleportation belts sound great…until you realize that those are really just expensive high-tech tethers used to guarantee that the hench are available to their masters at all times and from all places. Maybe really great daycare and good local schools? Probably not.

And the trim is not impressive. The average arch-villain is swimming in spectacular exotic strange, but that is due to their ample riches and their alpha male status. Henchmen are a dime a dozen commodity. They are indisguishable and unexceptional to such an extent that they often sport garb which is identical to their colleagues and rarely ever even have actual names. Attraction issues aside, there is also an female asset supply shortage. Our research indicates that super-hotties list mountain lairs, sewer bases, and submarines lower than Miami, Los Angeles and London as desirable places to live.

Doing something you love only goes so far, and it’s unlike they actually love what they do that much. It’s hard work, if frequently mindless. Go here. Engage Batman in hand to hand combat (Good luck with that btw). Steal this mystical ruby crystal. Test this unstable mutagenic growth formula I’m developing. Delay Jack Bauer while I try and break into the White House’s panic room. Kidnap Sally-Sue. Invest in this pool of 2007 vintage MBS and see what happens to our investors’ money. Et cetera, et cetera.

Even if you are wiling to assume that they do it for the love of the hench, consider that there are a lot of passionate employees out there in other professions, but none willing to risk death, imprisonment or debilitation at anywhere near the rates that the typical henchmen face. Per this 2006 survey from CNN, the mortality rates are the highest for fisherman at 118 out of 100,000, or about 0.1%. Henchmen die or are seriously wounded at a rate 500 times as high as that. It’s tenuous at best to think they love being bad enough not only to die for it but also to be dramatically undercompensated as well.

A fair amount of henchmen were at one point incarcerated, and find gainful employment at unavailable to them. But surely there are alternatives that don’t involve a 50% mortality rate??? Venture Criminalism (VC) has a lack of ethical prerequisites, similar financial upside, but lower risk to life and limb. Practically anyone can sell stuff on eBay, even those with no helpful skills; I know this because I have seen a wealthy baby boomer perform a successful eBay auction sale. And Piratery is still open to highly-motivated nautically inclined go-getters.

Recommendation: There seems to be no economic rationale for the typical henchmen volunteer, and this will correct itself over time. But markets, especially ones involving evil organizations seeking world destruction, may be able to stay irrational longer than you can stay solvent, so shorting typical henchmen assets is an untenable risk. We do see an opportunity to start nibbling at brainwashing assets, mystical loyalty curse assets, and zombie making assets. All beneft from solid fundamentals, and stand to gain long term from henchmen markets becoming more rational, as the labor supply dries up and evil firms seek to find ways to effect impressment.

But here’s my advice to the rest of you: Take dead aim on the rich boys. Get them in the crosshairs and take them down. Just remember, they can buy anything but they can’t buy backbone. Don’t let them forget it. Thank you.
–Herman Blume in Rushmore

Obama’s total budget is $3.6 trillion, which works out at $34,000 per household; median household income is about $50,000. Which basically means that for every dollar that a US household earns, the US government plans to spend 68 cents next year. And the ten-year T-bond still yields less than 3%. Extraordinary.
-Excerpt from Market Movers

So far, Obama has taken aim at the rich boys. He has taken them to task for their profligate greed. His party has introduced their corporate masters to the Frankonian Inquisition, flailing on them until they have confessed their sins and repented their evil ways. His budget punished their success, reined in their charity, all while giving each of their serfs their very own kingdom. More or less.

While this seems to indicate the rise of a new age of internecine class warfare in America, we’d argue instead that these moves will lead to a new age of productive age warfare in America. What the second quote demonstrates is that this country is not going to be Rich vs Poor. No, the war being fought is Now vs the Future, or more aptly, Baby Boomers vs Everyone Younger.

The effective tax rate for a Baby Boomer is still likely ~30-35%, so say $17,000 out of the $50,000 median income figure. But for younger tax-payers? If there is a deficit, or if what you pay directly in taxes as a national aggregate is lower than what the government plans to spend on whatever the hell they plan to spend it on, rest assured, they are taxing you further in some way. It’s just that instead of current year taxes, the other 30-35% of income that we owe is going to come in the form of debt, and currency depreciation (at some point in the future), and it won’t be a pro-rata distribution based on who benefits from the spending now…it will be based on who happens to be alive when the bill comes due. More or less. That point in the future will likely be well after the Baby Boomers have ensured that their generation has soaked up a higher quality of living — at the expense of younger generations — than any other generation in world history. All the while, they’ll continue assailing the younger generations about how much harder they worked and how kids today blah blah blah…

You know what kids today aren’t responsible for? This mess. This is all you, Baby Boomer Bob and Baby Boomer Betty. You put US here with your wanton spending on cars, houses and erections, with your hubristic manipulation of interest rates and free markets, your sense of entitlement, the way in which you transformed politics and Government into a galvanized arena of Us vs Them. Your cohort’s giant ego has consumed the future.

Rich and poor have more in common than young and old, because in 40 years, rich and poor will still be on this Earth, in this country, having to work together to fix everything the Baby Boomers did. This could mean the inability of the US to get financing because the debt burden has become too onerous, a crashing dollar, entitlement spending that requires more than taxes generate, a change in climate change change (sometimes known as Second Derivative Climate Change Panic Syndrome, or SDCCPC) or any number of structural disasters that lurk in the future and have been put off so that we, the young, are stuck with the buck.

Recommendation: Here’s my advice for the rest of my cohort. Take dead aim on the boomers. Get them in the crosshairs and take them down. Just remember, they may be buying everything with your money, but they can’t buy backbone. The sooner we, rich, poor and everyone in-between, come together and shake the Baby Boom death grip off both power and purse, the better.

If you have exposure to ABS, or a portfolio full of ABS, you look terrible. But why continue to suffer when you can look better in less than 7 minutes. That’s right, 7 minutes and your ABS will go from out of shape to robust. The solution is this simple exercise:

The bicycle, an alternating elbow to knee crunch that makes it look like you are riding an invisible perpendicular bicycle, will improve the core of your ABS portfolio, and ensure that you look fantastic both to your investors and to yourself. Have your ABS portfolio do four sets of bicycle crunches to failure, every other day. In a matter of weeks you will see the difference. Why continue to suffer, when a free solution is at hand?

Recommendation: We do not yet have a prescription that strengthens your MBS, but we are working on it.

The recessionary environment effects all facets of life, from investment decisions to “investment decisions.”  When society as a whole is economically well-off, the hotness is skinny women, peak fertility is less important, the demand is for Paris Hilton’s but with pretty faces and less syphilis.  When times are tough, biological gears shift to value fertility higher up on the scale.  “Curvy” stops being a euphemism for “my fat friend” and instead becomes, itself, the hotness. And based on the current outlook for the economy, we are going to be needing a whole lot of child-bearing hips to weather this perfect storm.

In this light, it was a huge miss by the analyst community to not spot this recession/depression.  They were handed an obvious indicator on a silver plate, or in this case, a digital video tape.  In 2007, Kim Kardashian emerged on the scene in a big, big way.  While not truly chunky, there was a lot more cushion in her portfolio, and it cannot be said that she didn’t butt her way past the skinnified starlet assets and pseudo-celebrity assets who had been feted for years.  She was something different, a new trend, a hybrid, a transitional sex symbol that foreshadowed who would come in the future.  She was the herald of the reemergence of chunky, the countercyclical asset class.

We expect chunky chick assets to also benefit not only from increased general attractiveness, but to be additionally enhanced on a relative basis when clothed. Per our Cleavage Hypothesis, we expecte cleavage line and shirt lengths to creep back up to historical norms. In this situation, the natural endownments of the chunky chick asset class should serve to mitigate those retracements.

Recommendation: We’re upgrading chunky chick assets to Strong Hit; our catalyst for a ratings upgrade to Sir-Mix-A-Lot would be evidence that the Great Regression will be sustained through the end of 2010. Skinny chick assets, runner chick assets and flat-ass chick assets have all been downgraded from Market Hit to Tipsy Hit; a catalyst for an upgrade would be either a sooner than expected turn-around in the economy, or an increase in the capital cushion within their respective portfolios.

The entire country was in debt so they could buy shiny shit, the lenders began to realize how screwed they were, one bank gets rescued, one gets failed, one gets forced to be acquired by Wells, one merged with BofA, Schumer mentions Indymac might fail, Indymac fails, Paulson’s TARP is supposed to buy one type of asset, ok now you can’t short, ok now you can short, now Paulson’s TARP will buy peferred stock in banks and whatever, bad stuff, lots of pain, exit old President, entrance new President, same as the old President but cooler, ok now Geithner has a NEW plan, but it is X, solve for it, now Obama has a house plan and it is “Banks eat the loss, homeowners win, and no third party would want to buy any of these mortgages ever because of the terms”, now Dodd says that BofA and C might be nationalized for a short time, everything tanks, but is ok now, your bank may or may not exist by the time of publication.

Or, as some folk like to say, the bottom. Meredith Whitney is leaving Oppenheimer to start her own firm, Meredith Whitney Advisor Group LLC, that will be an advisory shop, providing equity research for institutional clients. I feel pretty bad for Oppenheimer (NYSE: OPY), but I feel pretty great for the stock market, especially financial stocks. Is there a sliver of hope that the worst is already incorporated into their share prices?

Recommendation: Her calls were fantastic, and we are not ones of those who would seek to take away even an ounce of the awesomness which she has demonstrated over the last 18 months. I’m not trying to get too contrarian here, but COME ON. This is too obvious, it must be a bottom. We will have definitive confirmation of a bottom when Nouriel Roubini rebrands RGE with a name like Dr. Doom’s Latverian Party Palace Associates.

Is this mistress-laden man from the Qingdao incorporating the efficiency of the walrus and the manhood of a man, to become a human balrus? Yes.

A married Chinese businessman who could no longer afford five mistresses held a competition to decide which one to keep.

…

The women knew of one another, but none elected to break up with the man and give up their rent-free apartment and a 5,000 yuan ($730) monthly allowance, the reports said.

When the economy soured, the businessman apparently decided to let go of all but one mistress.

He staged a private talent show in May, without telling the women his intentions. An instructor from a local modeling agency judged the women on the way they looked, how they sang and how much alcohol they could hold, the Shanghai Daily said.

Our prior research into whether walruses are efficient provides insight into what led us to determine that the walrus is a balrus. Of note from that piece:

Males show off in the water for the females who view them from pack ice. Males compete with each other aggressively for this display-space; the winners in these fights breed with large numbers of females.

…

Each herd of estrous females is attended by one or more large adult males. According to one study, the ratio of males to females averaged 1 to 23

Recommendation: This man “Fan” has adapted many walrus traits, enough that he ought be properly classified as a human balrus. The appearance of this human balrus indicates that the human male population is reacting to the efficiency challenge that has been put forth by the walrus bull population. While the human balrus ratio achieved here was only 6:1 (wife + mistresses), Fan was able to show a more variable mistress structure that could provide the flexibility he needed to weather his sexual economic cycle, arguably an improvement to the walrus’s traditional binge/purge (or orgy/manfest, to be more apt) cycle.

HT to a million emailers and to Steve. Steve.

One of the silver linings in living in crazy times, with crazy governments proposing crazy ineffective solutions to crazy problems is that it does the writing for you. In fact, satirically speaking, Long or Short is being crowded out by the government in the entire satirical abstract financial space. So we plan to roll with it. We will post each bit of preposterous pork that falls out of this stimulus bill. This feature will probably not end until 2017, given how money from the bill is being blown through money tubes to states and their representatives as we speak. We will keep track of the amounts so we can release tallies from time to time. We encourage readers to submit anything they come across that would be appropriate.

Preposterous Pork From the Stimulus Bill I

Line Item: $198 million for Filipino veterans of WWII
Source: NY Times –> Filipino Veterans Benefit in Stimulus Bill
Rationale: These veterans fought under US command in WWII and it was implied they would be compensated, yet haven’t been.
Preposterous?!: “Supporters of the provision, originally inserted by Senator Daniel K. Inouye, Democrat of Hawaii, said that they did not expect the payments to do much to stimulate the economy, but that it was a way to bypass opponents who had blocked payments in the past.”

Paying these Filipinos is likely just, but the timing is inappropriate and will have negligible stimulative impact. This is an example of the mega-tarp effect in action — every and any pet project can be thrown under this bill. It will be adverse selection, wherein every earmark that shouldn’t, and couldn’t, have passed in normal times will get pushed through under the guise of how critical this entire bill is to the country. This sucks.

HT to an anonymous Dealbreaker commenter