Long or Short Capital

The Stimulus Bill is not as easy to understand as its 15,000 page size might lead you to believe. Luckily, we are semi-literate and have semi-read the bill to help you better understand how the Stimulus will actually work.

If you think it’s like the TARP, you are wrong. But it is like A tarp. A mega-tarp, if you will, that blankets the entire United States in a cool shade. Now what happens under this mega-tarp? I’m glad you asked. Under the mega-tarp is every single congressional representative, standing in an official USA Money Tube. A master network of pipes will be pumping the $780 billion of cash into and out of each of these Money Tubes and it will be up to each representative to grab as much money as possible while the money is still being blown.

By grabbing as much money as possible, representatives will then be able to allocate these new found funds. Because this entire process of grabbing blown money and allocating blown money happens under the cover of the mega-tarp, there won’t be any troublesome transparency that could delay stimulation. This is a targeted approach to government spending that will work with surgical precision to put the money where it will have the most impact, specifically in the pockets of friends and future employers of politicians.

While other research firms and investment shops getting their collective panties in a bunch about what Geithner does or doesn’t say (mostly doesn’t, in this case), we can only imagine how hard the true masters of earth are laughing: These stupid humans still don’t fucking get it.

Pull out $5.5 trillion from money market funds. Or stop it. It’s not going to matter.
Pass a mega-TARP. Or not. It’s not going to matter.
Bail something out, and then bail it out again a few months later, and then, yes a few months laterer, bail them out again. None of it matters.

You know what can be done to save the US economy long-term? Absolutely nothing, because within a short period of time, thanks to global warming and science, all that under-water real estate is going to be actual under-water real estate and its inhabitants are going to be a family of four…squids.

Over the last few years, we have meticulously detailed the likelihood that the Age of Man will soon give way to the Age of Cephalopod. They are much larger, they are much stronger, and have unique swivelling hooks on the clubs at the ends of their tentacles. More importantly, they are much smarter than we are as evidenced by the facts that they have avoided The Great Regression entirely, they have positioned themselves to benefit from Global Warming and now this TED report:

[Human imprisoners] gave [an octopus] a floating pill bottle (neutrally buoyant). Initially [our future under-overlord] grabbed it and brought it up to [her] mouth. After a while, the octopus would squirt a jet of water to the bottle to send it to the water intake, which would make it drift back to the octopus. [She then aimed the bottle, again squirted her ink into the bottle, creating such force that the bottle shattered the tank’s glass and struck dead her imprisoner. She could have escaped, but after having asserted her dominance, she decided it would be useful just to stay in place,] picking up info, storing it for the future [conquest of the Landed kingdoms].

…

Octopuses have big brains, but not a highly developed nervous system. They are quick to learn, [and have a high emotional intelligence that allows them the short memories they need to stay focused on any task]. [In a similar vein,] sexuality is relegated to end of life span, [so] it doesn’t get in the way of their intelligence [like it does for most male humans].

Not only do they continue to get bolder in their direct assaults on humanity, but we continue to learn more about the extensive strengths and abilities of these creatures. It is only a matter of time, given their array of powers, before they are the masters and we are the shareholders of Lehman Brothers (so to speak).

Recommendation: The Terminator series is so real, and so terrifying because it touches on themes that most people deal with on every day basis, namely, the destructive consequences of time travel and the ever-present fear that refrigerators and toaster ovens will become sentient and then use their cooling and heating powers to destroy humanity. Cephalopods incorporate the physical power of a Terminator, the neural networks of humans, and the swimming ability of themselves to form the dominant force in Earth’s constant interspecial war. This is why we reiterate our rating of Long on the Cephalopod Index. In this environment, cash is not king. Squid is king.

I do laps at my gym’s pool on a regular basis. It’s tony, the facilities beautiful. The water is not too chlorinated, just enough to know that when I pee in that pool I won’t feel guilty about it. Today at my natatorium there is a difference, a difference that interrupts my epic meditation on intangibility and not-drowning. In the lane next to me there swims a man who looks exactly like Ben Bernanke. He could be his doppelganger.

I begin to daydream as I stroke past. Maybe next pass I should dolphin kick myself under the divider, under his manatee-like body, wrap his throat with my arms and pull him down into the deep. I’d torque his body in a twisting motion to perform a human spiral. My superior lungs ensuring my survival. I take another breath.

He is doing a leisurely sidestroke now. I switch to butterfly intervals and once again slip into fantasy. The back of his head is a perfect target, one wayward stroke and my fist would land an incapacitating donkey punch. Or maybe I find a way to take a ninety degree left turn and drop two devastating elbows on his back, leaving him unable to be bailed out.

Is this him? Could it be him? Is this a man deep in thought about interest rates, about replacing the invisible hand with his clammy visible palms, about the need for an even bigger TARP, a mega-TARP. It’s difficult to tell. He kicks awkwardly, he inspires no confidence in his own solvency, and he looks mildly retarded. But it makes no sense, he should not be in NY, he should be in Washington, doing…something. Shouldn’t he?

Regaining my focus, I pour myself into the fluidity of my own motions.

But I can’t escape it. Why do I lust to bring ruin to this man? He looks kind. He is not responsible for twenty years of reckless leverage. He did not give us these fake free markets, where the only regulation allowed was the most distorting or feckless. He did not bring us here. But that face, that singular face just staring at you, so dumbly, as everything falls down around him. I want to punch it.

That face.

I’m just glad it wasn’t Geithner.

From an MTV article headlined Robert Plant And Alison Krauss Win Grammy Album Of The Year:

“I’m bewildered,” Robert Plant said onstage as he accepted the Grammy Album of the Year award with Alison Krauss on Sunday night. “In the old days we would have called this selling out, but it’s a good way to spend a Sunday.”

And so are we, and so did we. I wouldn’t buy any stock in the Grammy’s as a guide towards good culture, but the fact that this man, won one NOW, has had us writing calls all morning on Robert Plant, on Age and on the base metal, Led Zeppelin. This is like a musical 9/11 with this having been transformed by a easy listening aural rape into this.

Recommendation: Baby boomers, please go away, lest you ruin even more of the world with your insipid gerriatric tastes, your wanton spending, your unfettered sense of entitlement and your inability to understand the difference between The Google and The Internet (hint: Sergei Brin and Larry Page invented one, Al Gore invented the other (along with Global Warming)).

After Zimbabwe had been bearing the torch of sensible solutions to incredibly complex resource allocation issues for many years, it appears that the forces of dark may be prevailing in the country. The government is abandoning their full support of the Zimbabwean dollar.

“The Government is allowing the use of multiple foreign currencies for business alongside the Zimbabwean dollar,” Patrick Chinamasa, the acting Finance Minister, announced in [an unsettling] admission that the Mugabe’s regime’s battle to prop up the national currency [was being submarined by the forces of darkness and also by impotent cowards].

This is troubling news in a troubling age. But mollifying the trouble is the fact that leadership in both Zimbabwenomics and Mugabe Efficiency Theory has migrated to America. This leadership has been affirmed almost every week since early 2008, as our economic leaders craft new and powerful ways to harness zimbabwenomics to make America into the great nation it used to be, back when we made things rather than just how it is now when we all we make is money and an incredible standard of living, back in the good old days when we killed Indians, and had black lung and union riots that stopped the economy and killed people, and much higher violent crime rates, and much shorter lives, and much less education, and less social mobility, and more racism and no pizza.

Recommendation: Long the Zimbabwean dollar — it is only a matter of time before the US adopts not just the ideology of zimbabwenomics, but the official currency as well.

Zimbabwenomic forces are following up last year’s smashing success in banning short-selling in certain financial firms with new legislation aimed at effectively scrapping the entire CDS market.

House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota circulated an updated draft bill yesterday that would ban credit-default swap trading unless investors owned the underlying bonds. The document, distributed by e-mail by the committee staff in Washington, would also force U.S. trading in the $684 trillion over-the-counter derivatives market to be processed by a clearinghouse.

It’s about time that someone put together a way to stop the CDS market cold in its tracks. The instrument’s ability to provide hedging for companies’ debt, improved liquidity in names, and more accurate information about the health of issuers is not only dangerous, but it’s overtly capitalistic (they might as well be called Credit Default Ronald Reagans), which we now know to be a mistake. A healthy economy doesn’t need an unfettered free market system — what it needs is a regulated command economy that ensures that houses (and everything else) are always affordable, especially for people that can’t afford them and that politicians are always in control of all economic and financial processess.

This particular zimbabwenomic reform comes from the chairman of one the most progressive committees in the house, and hopefully he and fellow zimbabwenomicist Barney Frank can push forward appropriate regulation of all markets, specifically, regulation that will prevent them from going down.

As much as 80 percent of the credit-default swap market is traded by investors who don’t own the underlying bonds, according to Eric Dinallo, superintendent of the New York Department of Insurance. Dinallo last year proposed outlawing so-called “naked” credit-default swap trading. He shelved the proposal in November because of progress by federal regulators on broader oversight of the market.

More generally, we think one of the effects of the Great Regression will be that everything naked will take a hit. Naked trading, naked shorting, naked greed, naked people and naked CDS positions were the excesses that got us into this mess. The lesson? We, as a society, need to do it with our clothes on, whatever “it” is.

Recommendation: We recommend an unhedged short on naked trading, naked shorting, and naked CDS positions, basically anything naked. Putting clothes on all such actions ensures that nothing is able to go down. Now is a perfect time to bone up on dry humping in expectation of the new regulatory paradigm.

In the last 18 months, the market has been beaten torture, waterboarded it and, in the last two and half months especially, electrocuted its testicles. Is it time to go long? I won’t draw this out and torture you: the answer is yes!

Sure, as an information gathering tactic, torture’s efficacy is reportedly low. But have you considered that perhaps the research which demonstrates torture’s weaknesses was performed under duress? Those researchers were being tortured by the anti-torture activists to ensure that they would produce the results that proved the anti-torture agenda, since the anti-torture activists know the very truth they fear — that torture works. Their cunning and humanity are forces to be reckoned with.

But not only does torture work, as I have demonstrated above, but it is also fun. I’ve seen 24, and when Jack Bauer tortures someone, he is not only getting down to business, but also letting off steam. As far as I can tell, Jack doesn’t eat, sleep or take any break while he works. So how does he maintain such a high level of performance? By abusing a powerless person, that is how. It recharges him, like a lifesize stress relief toy or a $5000/hour hooker. Have you ever waterboarded a random stranger or a close friend? If you haven’t I highly recommend it. It leaves no visible marks, probably* won’t kill him/her and will leave you flush with an invigorating feeling of power.

Recommendation: Torture has an important place in our society, and is currently well oversold in anticipation of the Obama. Buy now or you’ll be racked with guilt later when torture comes back big.

*We make no guarantee!

I couldn’t help asking him once what he meant by coming here at all. “To make money, of course. What do you think?” he said, scornfully. Then he got fever, and had to be carried in a hammock slung under a pole.
-Marlow describing a fellow European in Heart of Darkness

Past Quotes Entirely Relevant to Investing

From a WSJ article on Madoff’s fraud:

Barney Frank, chairman of the House Financial Services Committee, which will have influence over how Congress writes financial market oversight this year, offered a more sympathetic posture toward SEC staff, saying he had spoken with enforcement officials in Boston and elsewhere. “There’s no suggestion that any of them were less than diligent; there were some structural flaws here, but in my experience, it would not be appropriate to blame any of them.”

Really? You mean receiving a letter saying “The World’s Largest Hedge Fund is a Fraud” about the fact that the world’s largest hedge fund actually WAS a fraud, and not being able to figure that out, that is not less than diligent???? The hardest part about due diligence remains actually doing it.

Recommendation: There is every suggestion that Barney Frank is less than diligent. And no, I don’t think it’s just some structural flaws.

Slightly over a year ago, we debated chicken little cries of Peak 2007 and, in retrospect, the world would have been better had we been 100% correct and 2007 was as limitless as we had hoped. Well we are back in the chrono-markets, with what we think is a true free lunch. Long 2009. It’s going to be a great year.

In 2008, investment banks ceased to exist, the real estate market was the worst ever, the stock market plunged more than it has since the world was depressed, The Hills continued, unemployment soared and every measure of economic health broke. So on a relative basis, 2009 looks like it is has a full year of easy comps thanks to the way in which God has cooked the books with some kitchen sink accounting.

Our current forecast for 2009:

1. The stock market’s annual performance will be better than a 35% decline
2. Consumer sentiment will improve
3. The first black President ever will be in office
4. The Hills, and all involved, will try to comically reenact the Jonestown massacre, but their white night will go tragically wrong when their illiteracy causes them to mistakenly add actual cyandide to their flavor aid rather than faux cyanide.
5. The US will keep kicking the rest of the world’s ass, especially China’s.

Recommendation: Long those who killed it in 2008 (down less than 35%) and plan to kill it in 2009 (down incrementally less than 35%).

Science is the quest to know, to evolve the communal intelligence of mankind. When we dislike the dark, we invent a light bulb to see. When we dislike too much light from light bulbs (or the sun), we develop sunglasses. When our sunglasses don’t make us look trendy enough, we invent ironic trucker hats. When trucker hats do not fully express the extent to which we are devoid of class and taste, we invent frufru dogs. And so on. That is science.

So it should come as no surprise how the energy crisis has played out. Need –> Invention. Southeast Asia needs a renewable fuel source? Power bikes with piganol. Mortgages are too scarce? Make mortgages out of corn. Corn too expensive in the US? Make ethanol out of pigs. Americans have an excess of calories stored on their bodies and gasoline prices are too high? Turn people into gasoline.

For a time, Beverly Hills doctor Craig Alan Bittner turned the fat he removed from patients into biodiesel that fueled his Ford SUV and his girlfriend’s Lincoln Navigator.

As with all amazing breakthroughs, there are some minor technical details that are still being hashed out for this revolutionary renewable energy technology:

Using fat to fuel cars might be environmentally friendly, but it’s definitely illegal in California to use human medical waste to power vehicles, and Bittner is being investigated by the state’s public health department.

Although it’s unclear when Bittner started and stopped making fat fuel or how he made it, his activities came to light after recent lawsuits filed by patients that allege he allowed his assistant and his girlfriend to perform surgeries without a medical license.

Recommendation: Long fatties. We also reiterate our earlier position recommendation:

The play here is to start buying distressed poor American assets and forming farms, ranches or even islands dedicating to housing them and fattening them on low cost / calorie inputs like McDonald’s (NYSE: MCD) dollar menu and corn syrup IVs. Long poor Americans.

HT to Straight Cash Homie

I’ve found the worst investor ever. I mean this has to be him right? His name is Jerome Fisher, the name may be slightly familiar as the founder of shoe-company Nine West. But he has done so much more than that. He lost a significant chunk of change in not one, but two of the biggest hedge fund scams in history, KL Group and Bernie Madoff Investment Securities.

He was an investor with the KL Group, a hedge fund run by Korean-American scam artists who defrauded investors of nearly $200 million. Maybe he should get a pass for this one as it was tough to imagine this being a fraud. I mean, according to the linked article, there were no telltale signs of anything but trustworthy, diligent investment management.

The aura of success and exclusivity around the firm was so strong that investors often begged to be let into its funds, some of which were said to have astounding annualized returns of 125 percent for several years.

…

And there was never a formal independent audit to verify whether the remarkable returns reported by the funds were real.

…

NOT that it was all that difficult for KL to persuade investors to jump into the funds with both feet. Its main fund reported strong returns of 70 percent in 2003 and 40 percent in 2004, according to statements given to investors. The lifestyle of the funds’ original three principals also supported the picture of a business doing well. The young men drove flashy cars: Maseratis, Porsche 911’s and Mercedes SL 500’s. (The firm’s personal masseuse drove a Jaguar X-Type that was provided by KL.) End-of-year holiday parties were held in Las Vegas, where Mr. Kim and Mr. Lee were high-rolling VIP’s at several casinos.

The crown jewel was KL’s luxurious offices in the new Esperante building in downtown West Palm Beach. The large sunlit offices were filled with gorgeous desks designed by Dakota Jackson and a conference table that had to be hoisted 17 floors through the building’s elevator shaft. Some walls were covered in a gray suede fabric, and in the corner of Mr. Kim’s office was a $6,000 massage chair. The trading floor had large flat-panel televisions scattered throughout.

It all was a great way to impress clients, who were ushered in to watch the main attraction: Mr. Kim. From his captain’s chair, he traded frenetically, surrounded by 20 computer screens.

I think we should give him a pass. Nothing in the quoted passage screams to me “I should be hesitant about entrusting my money with these people”. (Full Disclosure: LoS’s personal masseuse is provided a company car, it’s an Escalade Hybrid so it gets good gas mileage).

But we can’t give Fisher a pass for having $150 million dollars with Madoff. Sure lots of smart people were fooled by Madoff, lots of smart people invested with him, but how many of those smart people, who dumbly ignored all the warning signs and were proven to not actually be smart people, had had their fraud-sense heightened by recently having suffered a separate large hedge fund fraud? Wouldn’t that be a signal to review your investment portfolio to ensure that, for example, all your money is managed by people who have been audited by legitimate auditors? Or that your firm had adequate compliance procedures (or ANY compliance procedures)?

Recommendation: Fool you once, shame on you. Fool you twice, you suck at investing AND don’t deserve your money, and we’re just glad that the invisible hand is helping the world sort that out.

Addendum on KL Group: This is just too awesome to neglect sharing.

Tein said the trio lost about $20 million to $30 million of investors’ money through bad investments and then stole the rest, shipping the money overseas and gambling it away during frequent trips to Las Vegas.

As a follow-on to my previous post, I wanted to give investors an idea of what quality due diligence looks like in a handy to read chart. This is exactly the kind of process that would ensure that investors are the victims of neither investment mismanagement nor fraud. Hat tip for the picture to a firm called Fairfield Greenwich Group.

The Affair de Madoff offers many lessons to potential investors, lessons that should have already been widely known and obvious, but apparently are not. As masters of the obvious, we have provided a handy check list to aid in doing diligence on whom you trust your money with.

1. If your investment manager has almost no volatility in his returns, either he is an annuity (and you are a moron) or he is lying (and you are a moron). An example of what to look for is if the monthly returns over 17 years looks like they were drawn with a compass (and likely were).
2. If your investment manager is not charging fees, and is “making it up on volume” (more or less), step back and think about that for a second. If you were in Brazil and a whore said she wanted to give you a free sex because she was making it up on volume, what she really means is that you will wake up down a kidney or two. No different with an investment manager.
3. If your investment manager goes to 100% cash for quarter and year end accounting purposes, red flags should be raised. Those specific red flags ought be “Is he doing this because it’s a Ponzi scheme and this allows him to better obscure his shenanigans?” and the answer to those flags should be “Yes.”
4. If the auditor of your investment manager is a firm you have never heard of, or operates in a 15′ by 18′ foot shack in upstate NY or NJ, or is the brother in law of the principal of your investment manager, it is worth questioning the validity of the audit. Especially if your investment manager is the largest hedge fund in the world.
5. If the compliance officer of the investment manager is the niece or brother of the principal, it is worth questioning the hardiness of the firm’s compliance policies. Here is a quick refresher. Things you want in a compliance officer — an independent agent assessing a company’s compliance. Things you don’t want in a compliance officer — a relative.
6. If you cannot understand the return statements your investment manager provides, and no one else can either, it is worth questioning whether the returns are legitimate. It is sort of like buying a novel from a bookstore. If you receive said book, and not only is it not written in English but, as far as you call tell, it is written in no language known to man, you should ask for your money back.
7. If your excuse for getting defrauded out of all your money by not observing any of these rules is that a lot of other smart people fell for the same thing, consider the fact that these other smart people are actually not that smart. If your excuse is that you knew something fishy was going on and hoped to benefit from it, you probably shouldn’t be allowed around money ever again.
8. Never, under any circumstance, trust the SEC. It is not a coincidence that the SEC was also the acronym for Charles Ponzi’s Securities Exchange Corporation.
9. Lastly, it’s important to actually, y’know, do diligence, so do it. It’s not called due diligence for nothing.