Long or Short Capital

California is the home of honey and milk, but soon to be the home of fiscal crisis. Oh but it’s so beautiful there, and progressive, and they are forward thinkers, and green too, and don’t forget multicultural and don’t forget they hate the gays! Who doesn’t love California! All things to all people. Well, it’s a good thing you people love it because the rest of the country is going to have to bail it out.

Fact: There are a million crazy reasons why California’s budget is high, including pension spiking and paying firefighters 4x the avg income of a resident. If firefighters are some of the highest paid people in your county or state, with salaries well into low-six figures, great benefits and true pensions that allow you to retire at 50 and receive salaries (in perpetuity) above what they made in the 4 yrs they actually worked…well, then your your state had better be on fire or beset by fire-breathing dragons like in Reign of Fire because that’s the only way to justify that level of compensation.

Fact: Calpers is apparently not good at investing money. Especially in Real Estate. Maybe I am being too harsh, but losing 103% of equity is sub-Madoff. When you factor in the advantageous tax-loopholes of being defrauded rather than your investments crappily managed, Calpers’ RE performance is worse than Madoff.

Fact: The state is run by a man whose most favorites words are “I’ll be back”, which, not coincidentally, is what people say most often when they deliberately plan to skip out on a bill, and never be back.

A fiscal crisis looms in California and the most likely broadly palatable fix is some sort of bailout of CA by all the non-CA states. To that, I say we should learn to change our palette and develop an acquired taste for more extreme solutions.

Solution: My solution is simple. Johnny Debacle’s Debacle Plan for California. America should make California an off-balance sheet liability. And by off-balance sheet, I mean we should sever California from the continent. You love your state? You can have it. CA seems to have a thing for earthquakes, so that is the most direct solution but I am open to any Debacle that can cut California off from the continental US.

Crust penetrating alien space lasers? Beam away, Xenu.
Subterranean magmatic discharges? Here you guys come.
Poseidon’s rage creating a water torrent that snakes around CA’s land borders? I’m sure they did something to piss you off, like calling you Neptune.

The United States should help put back California where it belongs. Floating alone in the ocean.

NBC has taken a page from the Hills and gone fully post-modern. Their plan for the network over the last several years is now fully formed — Expand the Today show, expand the Tonight show, so eventually there is nothing else, no other reality, nothing to actually talk about on Today or Tonight except Today or Tonight. In stock brokering, we call that focusing on your “core competency”. NBC knows that virtually nothing else it puts on the air is worthwhile so why not cut the wheat from the chaff, and focus on selling as much chaff as possible in one’s most valuable time slots.

When time travel is developed, they will add to their lineup new concept the Tomorrow Show, in which time travelers will enter the future (specifically the next day) to give you celebrity interviews, heart-warming human interest stories, and Jay-Walking Through Time. The Tomorrow Show will be followed by the The Yesterday Show, in which, a time traveling host or robot will go back to the day before and give you celebrity interviews, heart-warming human interest stories and authentic cooking tips from the past (yesterday). It’s likely that the Yesterday will also create an infinity loop or potentially destroy time itself, but don’t worry about that, you probably won’t even perceive either if it happens.

Recommendation: We recommend shorting the Sheinhardt Wig Company.

Thanksgiving at its core is about two things. First, killing the Indians with pox blankets and the strong anglo-saxon desire for rapine. Second, being able to give thanks for the things that you do have. As such, these things continue to be my frame.

In the current climate, where doom and gloom lurk in the hearts of men and irrationality and obliviousness continue to lurk in the hearts of women, we think it’s time to go Long Long. And by that, it’s time to long optimism. It’s cheap right now for three specific reasons:

1. If you have seen Aliens then you know things could be worse. Much worse. I mean, as far as I know, no squidlike xenomorph has attached itself to any person or corporation’s head, fed eggs down its throat leading to the birth of a larger more aggressive homicidal xenomorph which has acid for blood. Yet that is exactly what has currently been priced into the market. We are comfortable putting a stake out there and saying no such xenomorph event is likely to actually happen.
2. People are still alive, we expect them to continue to be interested in living and will probably at some point buy things again to aid their desire to survive and procreate; things like iPhones and bottle service. This is pretty reliable cause to be optimistic about optimism as, apparently, this has been happening for 200,000 consecutive years or so. We expect people to still live, to still do things to survive and perhaps maintain a living standard above that of the dark ages. No matter what happens in the next six months, barring a xenomorph situation, this is likely to still be true even if Goldman Sachs is not long for this world.
3. We are at, or past, Peak Roubini. I found him to be interesting and a great resource for many years and he had a certain measure of prescience. Good for him. But at the end of the day, he is just another Euro Prof looking to dip his wick in coeds and suffers from a huge case of the over-exposed. Again good for him. But at this point, I would not be surprised to see NBC come back with a reality show called Dr. Doom and features Roubini flailing Trump over and over again with some sort of Italian leather-whip thing while sipping mimosas. There is a bubble in former bubble callers.

Recommendation: We are optimistic about optimism because it’s just incredibly cheap. Perspective will cause a mean reversion to “Glass-Half-Half-Full” from “Glass-Half-Empty” which would yield a “division by zero” return over a 3 year investment horizon.

This Thanksgiving is going to be a special one for those who work(ed) in finance, so I thought it would be especially helpful to put together a list of what I am thankful for in this new climate:

1. Employment! You are great, I am sorry that I ever doubted your greatness but rest assured I will never doubt your greatness again! Until my personal wealth cycle is back in bubble land and I am no longer under-overcompensated, at which point I will regain a severe disdain for the thing that prevents me from writing my screenplay/novel/landscape painting full-time.
2. Owning a gun! Before I thought it was just a way to overcompensate for what I lacked in my pants, now I realize that it belongs in any pragmatist’s “portfolio”.
3. The Government! If it weren’t for you, these is no way I would be pocketing these unemployment checks which are allowing me to maintain my high cost mistress for 1-2 dates longer than I thought would have been possible after my earning potential suffered a “correction.”
4. A return to hourly wages! Before, when I used to be on salary, I always found it stressful not knowing the discrete amount of time that I would have to spend to make say, $7.15 before tax. Based on several interviews I have been on recently, I know that for me to make $7.15 before tax, it will now take exactly 1 hour.
5. Certainty! Previously I didn’t know when the housing bubble would burst, whether there would be independent investment banks, whether any politicians would be held accountable for cramming housing on people and generally putting the short term way ahead of the long term, whether the stock market could really lose 50% of its value in the post-WWII world and who the biggest dick/fraud on the planet was. The answers were 2007, no, no, yes and Greenspan!
6. Other countries! They are still way worse off than the US and I am thankful for that. The only thing worse than losing substantial wealth and earnings potential is having your ego destroyed. But given that the US is still superior, my ego still beats like the US economy — strong relative to the rest of the world.
7. Debt! Leverage got us into this mess, so I reckon that it will be leverage that gets us out — go leverage! Buy Treasuries! Unless I know you, then I recommend shorting Treasuries.
8. The ability to play fast and loose with grammar in post titles and most everywhere else! I is totally thankful for it.
9. Most of all, our subcriberstakeholdership! Without all of your contributions, none of this would have been possible. And by “this”, I mean specifically fucking up finance, the economy and this country while living an obscene lifestyle for a twentysomething, thirtysomething or an anyagesomething.

This post is much longer than my original one which was just going to be “Nothing, absolutely nothing, you mother fucker”. I do not kiss my mom with this mouth because that would just be weird. Who invented that expression? Oedipus? I am also thankful that he carved out his own eyes. Spoiler alert.

What will an Obama Presidency look like?

Black. No seriously, we elected an African American, and history suggests this has never happened before. Like most people though, history is wrong (Editor’s Note: although history is wrong slightly less often than herstory). There have in fact been many black presidents in America’s past. Our research indicates there is one who is a particularly strong comp to Barrack Hussein Obama. His name is David Palmer.

David Palmer was President for a single term in the early 2000’s, after a charismatic and effective campaign swept him into office. While he handled crises well with his unwavering leadership, his thoughtfulness, and his even-keeled temperament, the very fact that there were so many crises should give pause in any evaluation of his presidency’s quality.

Here is a partial list of what happened during Palmer’s Presidency:

• He was ousted from his position via the 25th amendment during a nuclear bomb threat. He was subsequently reinstated.
• His Chief of Staff, Vice President and other members of his staff were known to betray him and act in ways that could be construed as treasonous.
• High-ranking advisor Lynn Kresge was pushed down a flight of stairs by the Chief of Staff.
• There was a biological threat against the US launched by a Latin narcotics syndicate.
• He divorced his wife, whom it was subsequently made clear was some sort of sophisticated criminal/political mastermind.
• His brother was implicated in the killing of his married lover’s husband, also an important Palmer supporter.

I could go on, but I think you get the drift. It should be noted that Palmer ably guided the country through these crises, but one cannot escape the fact that some of them were wholly created by Palmer’s lack of good judgement about who he surrounded himself with. As Obama selects his staff, consider this precedent. Can we state, unequivocally, that Rahm Emmanuel is not somehow aligned with a crazy hawkish intragovernment syndicate with unclear objectives? Precedent says No. Can we feel comfortable that Michelle is not some backroom political power broker and/or criminal mastermind? Precedent says No.

We don’t know a lot more about Palmer’s presidency, including the quality of the economy, or the specific years, or why he was so often in Los Angeles, but at least we have some idea of what to expect. As an aside, after Palmer retired, he later went on to become an important senior advisor to the Government, and eventually the head of the top secret military unit, the Unit.

Many investors have longed (no pun intended) to know which came first, the chicken or the egg. If it was definitively known whether the chicken or the egg came first, then a well-heeled speculator (rhymes with More Close) could corner the market for BOTH by buying up either chicken or eggs. Our research indicates you should make your bed out of eggs and lay in it. According to this report from Japan, a giant chicken egg laid a chicken egg, obviating the need for an ovulating avian.

A second, normal-sized egg popped out of a giant egg laid by a chicken raised at a high school in Shiga Prefecture, a school official said Saturday after breaking open the shell.

…

But school teachers decided on Friday to remove the shell by using a scalpel and tweezers after finding a crack. They later discovered another medium-sized egg inside the giant egg as the yolk and the white portion spurted out.

…

The hot topic at the high school now is whether another egg is hidden inside the second, medium-sized egg.

Recommendation: Long all eggs, especially large eggs which may contain many smaller eggs Russian doll style. Our expectation is that this market will be launched into speculative frenzy when the large pools of capital which read our site read this report. In fact, if you are still reading this report right now and not buying eggs, it may be too late.

Dear RoW,

Hey there, bro. We see that you have been having a pretty difficult time of late over there in your unspecified foreign countries. We feel your pain.

But bro, we don’t feel bad about your pain. See all these years, you have been telling US how better you are than US. How you are more fair. How you have universal medicine, or don’t believe in playing spin the bottle with the Middle East and being forced to spend 7 years in heaven with Iraq in the closet, or aren’t populated with rednecks, or graduate more science PhDs or whatever. How you are cultured and not obese. How you were smarter than US, how your way was way better. Well amigo, what is the haps now?

Yeah the US has been going down. Shit’s true, can’t deny that. We have had our financial foibles, our credit crises and real estate bubbles. Our stock market has been getting crushed and many of our leading firms no longer even exist. But you, you RoW, your stock markets have been getting even MORE crushed. Your banks are in even MORE precarious positions than ours. Your culture and economy and currency and utopian ideals are all showing cracks and are ready to break. You don’t know what to do and to be honest bro, you’re probably screwed.

And this is by design. Our forefathers claimed America by giving those Indian bros pox infested blankets. And we are claiming the RoW by doling out our MBS, our structured products, our overpriced assets and a little friend called contagion. FYI pox be in all that crap.

When the US wins, we win. When the US loses, we still win relative to the RoW, taking you down more than US. This is why we are the hegemon, bro.

Sincerely,
US

We have embarked on a new type of analysis which we call “Analytiquation Sans L’Informatione”, which might be french for something but probably is not. Today we tackle Iceland, where our only source is Iceland: When Too Big To Fail Becomes Too Big To Rescue, a link on our favorite Salmon’s blog. We will take the words and comments from that one link and come to investable conclusions without using a single other source of third party data, so that our analysis remains pure and untainted.

Analytiquication Sans L’Informatione: Iceland
Source: Iceland: When Too Big To Fail Becomes Too Big To Rescue

Comment: [Iceland is] fighting powers that they are powerless to fight. It’s like tackling a storm raging in the sea with a teaspoon. The main supermarket can’t get imported goods because they have no currency. The shops are half empty. One of the store managers has advised people to start hoarding. We’re running out of oil. And winter came last night – about a month early.

Analysis: This sounds like panic, and one of the keys to getting out of trouble, even of you find yourself stuck in a fjord, caught below a dyke or being strangled by a pack of bjorks (warning those things may not actually be Icelandic), is not to panic. So do not panic before reading the rest of this comment. Contrarian analysis indicates that if someone says “we’re running out of oil”, it probably means they are not actually running out of oil because they must be aware of how much oil they need so are now appropriately prioritizing it. Like when I used to put pillows on top of my brother’s head, and he used to complain “I can’t breathe JD, stop please!”. Save the words for the birds bro, I know you’re breathing if you’re talking. It was tough growing up an only child.

Comment: This is not right “The shops are half empty” there stores are full Everything is just more expensive and we are not running out of oil, the government will not lat that happen, the government is running thundered of cars, run ships, helicopters,airplanes so they need oil them self so they will not let the country run out of oil. Most of the news we are hearing now in Iceland…well lets say they are not all true.

Analysis: We knew we were right before and that that panicky email was wrong. We were able to use this latest comment in conjunction with our razor-sharp confirmation bias to refute all those who doubted our previous paragraph. This is why analysts need more and more data and deserve to be paid huge sums of money. If we don’t have the former, how can we inundate you with how correct we are, like how I am doing now? If we don’t have the latter, how do we maintain our model girlfriends’ cocaine habits?

Comment: Iceland produce 5% of all aluminium in the world and our mutual fund is bigger than Norways oil fund per person. People forget the fact that we have highest standard of lifing in the world and we will be on the top again next year. There is nothing to fear in Iceland.

Analysis: This does not pass the smell test. Olfactory analysis is key in understanding smaller, niche markets like Iceland. It’s impossible to visit there by plane and very few people have ever even seen an Icelander, so analysts must sniff in the general direction of Reykjavik and glean what they can from the scents. And my Moody’s rated nose indicated that there is no whiff of aluminium. Moody’s rates my nose as a Baa2, which means the implied default rate is only 87%, so you know you can trust it.

Comment: We will see more and more nations literally disappear. Iceland will shortly be returned to wilderness.

Analysis: When the Age of the Cephalopod is upon us, and the Age of Man is at an end, Iceland will be one of the first nations to go, due to its isolated oceanic location and vast volcanic power sources. This comment is right in suggesting that the fall of Iceland may be a catalyst for positioning one’s portfolio for full exposure to cephalopodic plays.

Comment: They’re vikings… Canadians and Americans better watch out, soon there will be a fleet of angry Icelanders landing on your coasts to loot and rape.

Analysis: To paraphrase Robert the Bruce, “you’ve been raped by worse! Now be raped with me!” There are some attractive broads over there, so there really are worse fates. But the truth is, Iceland, it’s too bad you could never rape us…because we would consent.

Recommendation: To summarize, and in summary, do not panic in Iceland or about Iceland, Iceland and the world is not running out of oil, everything is ok, except the fact that Iceland is about to be reclaimed by the sea and subject to, along with the rest of Earth, the rule of giant squid masters, also Iceland can’t rape the US because we have it coming and would likely enjoy it. Invest on that.

Paulson says “[the bailout bill] is much too important to simply let fail. We need to work as quickly as possible. We need to get something done.”

He can’t get IT done, but he thinks we need to get SOMETHING done. That is decidedly NOT getting IT done.

Recommendation: If you are planning to build a CDO where the underlying assets are Hank Paulson Paper, good luck with that. And no, we have no interest in the equity tranche, the AAA tranche or any other part of the structure, thanks.

Dear Hammer Paulson,

I’m sorry Hank, it’s not you it, it’s me. I have been violently ill all morning after playing “donkey races” on Sunday. Tequila, speed and tenacity are at once a great combination and a miserable spectacle. Exclusively the latter the next day. And my puking all over your bailout plan has nothing to do with its merits. It looks great, a good win for you and you should be proud. Seriously, good stuff. Like I said dude, donkeys races. Blame the donkey races. I’m sure I’ll be fine by like tomorrow. Or 2014.

Regards,
T. Market

A dark stage, with a single spotlight on Henry Paulson

Henry Paulson: Good morning, ladies and gentleman. My name is Henry Paulson and I run the Treasury. And I don’t mean to make you panic, but if you do not give me a balance sheet that can hold $700 billion on it, and unlimited funding, than the economy will die. That’s right it will die. I don’t mean to cause fear and panic, but those are the only two legitimate reactions you should be feeling right now and you should let those guide you. Let them flow over you, sucking you into my myopic morass which now shrouds my former optimistic obfuscations.

Ben Bernanke: Every other economist disagrees with this proposed bailout but I believe in fear and panic and am drunk on the wine of my new powers. I too must insist that you, the fine people of this country, please give into your fear and panic. It worked in dealing with 9/11, it worked in getting us into Iraq, it worked in re-electing George Bush and now it will work in bailing out this economy. You don’t want it to DIE, do you?

Barney Frank: (Looking disheveled with a bad teen moustache) Blahrm-bram blrankrtrtyc encncmmphphphgh nbmmanana. Bragblahma ththtlthabzzzgh ndragh plghtythmrhm phjalth.

George Bush: I know nothing, if not fear and panic. Trust me, we need this.

Violin solo in the background playing the Vivaldi classic “Short Term Political Cycles Are Mismatched With Jobs Charged With Making Decisions That Have Effect Decades Later”

Congress: FEAR. PANIC.

The Economists: NO!

Congress: FEAR. PANIC.

Wall Street: FEAR. PANIC.

All players dancing on the stage surrounding The Economists who disappear into the floor

A Rational Man: Do we need this?

Henry Paulson: Yes, I need this.

A Rational Man: I said “we”.

Henry Paulson: And I said “I”.

A Rational Man: What will this do? Honestly, I’m a Rational man, thus I have no vote.

Henry Paulson: Maybe, maybe might unfreeze the interbank market.

A Rational Man: But will this save us from recession?

Henry Paulson: No.

A Rational Man: But will this lead to massive inflation?

Henry Paulson: Almost certainly.

A Rational Man: And what about the unknowable second order effects, or third order effects, or x order effects?

Henry Paulson: I ignore them.

A Rational Man: So this bailout is a longshot to do anything positive and it increases the downside risk if it doesn’t work?

Henry Paulson: That is what our math tells us.

A Rational Man: Is this socialism?

Henry Paulson: No, this is necessary.

AIG (NYSE: AIG) is now a subsidiary of Paulson Inc, because despite being in the insurance business, AIG had a common failing of man — the inability to look within and accurately assess one’s self. But what I don’t get is why AIG didn’t just insure itself. If I were in the insurance racket, the second thing I would do would be to make sure to write an insurance policy for myself. The first thing I would do would be to leverage my expense account into a huge birthday party featuring hookers, blow, ice sculptures and midgets in Sardegna. But the second thing would definitely be the whole insure myself against ever losing money. Actually that would be the third thing. First would be the hookers and blows, second would be insuring my privates, third would be insuring myself against ever losing money.

I mean isn’t that the whole point of insurance? To make someone pay too much so they don’t have to worry about something. Well I figure being AIG, I’d be an insider and be able to cut myself a deal and not make myself pay anything at all for being insured from ever not making money.

Recommendation: If you can’t insure yourself, who can you insure?

Cast:
Kenneth Lewis is the CEO of Bank of America (NYSE: BAC).
John Thain is the CEO of Merrill Lynch (NYSE: MER).
A Fruit Vendor sells fruit. For a living.
A Supercuts cashier works the register at Supercuts. For a living.
A Drexel, is a white pimp/drug dealer who thinks he is black and is played by Gary Oldman.

John Thain: Kenny, I know you’ve had enough fun in investment banking, but we are in a lot of trouble here, and I’d be willing the firm to be sold at our Friday close just to give us some stability. $17 per share is fair and you guys can have a couple weeks to check out our books which you must be curious about.

Kenny Lewis: And $29 per share is a higher prime number — Let’s do that!!! Also, we must not wait, we must do this RIGHT NOW, no time to look at those books — who cares what’s on them anyways, not like we have the people to be able to get behind that junk. We bought Countrywide for chrissakes!!!! But we do know that by paying more for a falling knife, you get a sharp increase in prestige and it makes it seem like you weren’t some idiot going in alone and bidding against ourselves. It worked with Countrywide it will work with you guys!

John Thain: You, sir, have a deal.

Kenny Lewis: One thing I would ask Johnny boy is that you get a blindingly orange tan — it helps distract people. When you got the salon, ask for “The Mozilo”.

Fruit Vendor: This is my last orange, as you can see it’s bruised and damaged and, between you and me buddy, I am probably going to throw it away at the end of my shift. I’ll sell it to you for a quarter.

Kenny Lewis: I WILL PAY $1 FOR YOUR ORANGE BUT YOU MUST ACT NOW!!! That orange is the perfect strategic fit for my oranginization and I must have it. It’s even more perfect than the fit of that kumquatwide I bought last year!! Delicious!

Fruit Vendor: You, sir, have a deal.

Supercuts Cashier: Sir that will be $13 for your haircut.

Kenny Lewis: You think the guy in the $5000 pants is gonna pay $13 for a haircut? Come on!!! *As he flings a $100 bill at the cashier*

Supercuts Cashier: You, sir, have a deal.

Drexel: What we have ere, Kenny-boy, is what I like to call a CONundrum. Here is me, having access to this fine fine female over ere and there’s you, dumb-ass white-boy in a suit ain’t even paying no mind to the world of trouble you about to be in if you start up like Charlie Bronson. So looky ere, Kenny, I ain’t go not beef wit you, I just wan’t to make sure my employee gets paid what she worth. $1000, up front.

Kenny Lewis: Drexel, I didn’t come here to haggle, I’ll pay two grand in cash plus another grand in BAC shares for an “around the world” with Trixie over there.

Drexel: You, sir, have a deal.

While your portfolio (and less importantly, existence itself) has survived the first test as the Large Hardron Collider was flipped from “Suck” to “Blow” this morning, who is to say that a small mini-blackhole here or there is NOT sucking the earth into its dense core as we speak? Not us. We continue to reiterate the importance of LHC End of the Universe Puts.

“The LHC is a discovery machine,” said CERN Director General Robert Aymar

If this is true and you extrapolate it out, it is only a matter of time until they discover the end of the Earth and existence as we know it. Who is to say they won’t do that tomorrow? Again, not us.

Recommendation: These securities do NOT benefit from the implicit guarantee of the US government, God or your locally relevant deity. Wink wink nudge nudge, but between you and me, they DO.