Long or Short Capital

Operator: Good morning Ladies and Gentlemen, welcome to the Piratery Corp Inc third quarter update call. Please note that today’s conference is being recorded. Following the presentation, we will conduct a question and answer session. I would now like to turn the conference over to Captain Bigdee Mofapalous.

Captain Bigdee Mofapalous: Aye, top o’ the morning to ye scallywags and ye sellside sons a whores. I’m intendin’ to bring an update to ye on this ‘ere day on this ‘ere company of ours, Piratery Corp Inc. To say we be happy with our results bein’ the way that they ave been a-beein, would be bald-faced lie suitable not even for this buncha sons a whores, you buncha sons a whores. This Queue 3 has been an unpleasant time, aye verily. I can attest, that on the flagship, me and the crew ave had our fill of rum, but the flow has been of the dour kind, not the gay kind, as we try ‘n wash away the day!!!!

Margins ‘ave been a-contractin’, verily. Business ‘as been ripe with bust, not boom. The wenches, aye we be in possesssion of the wenches still, aye it be the truth, but their wenchin has been weak too, effected by the global macroeconomy not unlike everything else. And the cuttlefish, nay, I can’t go into what ‘as been happenin with the cuttlefish.

Ye see, the problem which we been findin to be integral to our dire and gloomy outlook be the headwinds we ave been facing in all o’ our ‘ere segments. Many other firms o’ a diverse n’ motley origin have taken to making such complaints — investment whore banks, semiconductor mongrels, lest we forget the spawn o whale taint big box retailers, amonst others. Well, verily, we be facin’ headwinds, but they be o’ a legitimate kind!!! A stern northwesternly headwind wreaks havoc on our most profit-rich segments, and be makin’ our wenches cold. Our ships be left the difficult task o’ tacking back n forth just to offset a handful o’ the hundreds of bips o’ the pressures that be crushin’ our margins. A sad sight indeed, ye know it be the truth!

Our outlook needs revisin’ n I’m ‘ere for this very same purpose, so hold onto your peglegs, as I make this ere forecast that will suit your tastes and sate your appetites at the same time!!? We now be guidin our revenue to 5000 dubloons n earnings per share in range of 1.3 dubloons as the crow flies!!! Our rapin guidance remains at 3000, while we still be full of hope that our comely wench fleet will finish the year end at 2500 with an average useful life of 3 years. Now, bring on these questions you blubberin’ backwater bastard buggerers!!!

Operator: Our first question comes from the line of Morgan Crumpacker. Mr. Crumpacker, your line is now open.

Morgan Crumpacker: Hi, guys great mid-quarter, my hat is off to you and your crew.

Captain Bigdee Mofapalous: Aye, on with the question ye ball-locked barnacle.

Morgan Crumpacker: Right, can you address this graph that shows that pirates are decreasing which is also causing global warming? I guess, when I look at my model, it says that with the piratery space contracting, if you guys are, you know, just staying flat on a year over year basis, doesn’t that mean you should be grabbing share? Are you grabbing share?

Captain Bigdee Mofapalous: The only thing we be grabbin be your testicles, Peckerpacker, an pullin those very same testicles straight through your gizzard to form a comely bow-tie around your neck.

Morgan Crumpacker: Great, thanks for that guys. My next question also refers to that graph. I guess, we’ve heard from some commentators that, well, that it’s actually piratery, or rather ANTI-piratery, which is behind global warming. That science is indicating that the decreasing numbers of pirates and thus the anti-piratery movement is hurting our environment, do you think that this might be an opportunity for you guys, to maybe push back against that anti-piracy element? Maybe make some headway into the mindshare that piratery is a good thing?

Captain Bigdee Mofapalous: Aye, it be true, global warming is not “anthropomorphic” to be using the fancy term, it’s actually “anti-piraterypomorphic”, so land-lubbers ought be lookin to the foes of us ‘ere pirates and start wagin Green War on them!? That be the most efficient way to reduce a carbon footprint!! Support to piratery!

Morgan Crumpacker: Great again, thanks for that color, I can’t thank you enough, I really appreciate it, thanks. One more question and I’ll hop back in the queue. Just for my model, let me make sure I got this right, you said your raping guidance is still coming in at 3000, and your wench fleet will be 2500 with an average life of 3 yrs? Did I catch that right?

Captain Bigdee Mofapalous: Catch it right you did indeed, Peckerpacker. Me and the first mate will stick to these numbers — unless the men be gettin’ a wee bit liberal with the wenches, then we’d be reducin the estimate of average useful life down to 2.5 years, maybe even 2!!! But we be plannin on bein measured in our rum rations to prevent such liberalities.

Operator: Your next question comes from Captain Mopling Downstarable. Your line is open, please proceed.

Captain Mopling Downstarable: Bigdee Mofapalous, enjoy the last days o’ both ye and your Piratery Corp Inc!!! I’ve been cahorting and cajoling and carousing with the Spanish, and they plan on unleashing their galleons in search of you, and they came around to how’s I’ve been thinkin, that ye be a problem worth smiting. The bounty on your head is fixed at 5000 dubloons, a fair multiple of 1x Piracy Corp Inc’s revised revenue guidance, if I be sayin’ so my selfs! And I be sayin’ so!!! HAR HAR HAR HAR. Verily, your day is come, see you in hell you swindlin’ swine o’ a swamp-slug’s cyst!!!

Captain Bigdee Mofapalous: ARGHHHH!!!!! Operator, why ye be lettin on such foolhardy fools on this ‘ere Piratery Corp Inc Third Quarter Update Call???? Aye, the call be over as for I’m concerned, Operator make it so!!!

Operator: With that, we conclude today’s teleconference. Thank you for joining us today.

From Austin via a Paleolithic fish via Juggles came this question:

we are growth investors, and waste is certainly a growing market. appears they are making good share gains, but perhaps it’s more a product of a rising tide lifting all cephalopods?

Not to get our cephalopods and crustaceans crossed up, but it is exactly a case where a rising tides lifts all (underwater) boats (subs?). But is also a case of share gains against incumbent land-based competitors. So it’s two cases, both supporting our case that crustaceous waste management is poised to clamp down on the market. So three cases in all. Case closed.

Recommendation: Eat as many of them as you can before they eat your lunch.

Yes.

Previously we have covered the impending secular shift away from the age of Man towards the age of Cephalopod, as well as exploring related investment strategies. One aspect left unexplored waste management, an important industry on land due to increasing “green” pressure in the context of population growth. For an underwater kingdom, waste management is even more important due to the ways in which toxins can spread out if left uncontained.

There are two species who are most likely to benefit from the surgence of cephalopodic reign — crabs and lobsters. Both are naturally suited towards grabbing share in waste management. Their defensive position (both in the form of arms and claws) has allowed them to maintain a vice-like grip on underwater waste management. As the tides turn against man, crabs and lobsters will likely be able to literally grab share in the waste space.

Recommendation: While Waste Management (NYSE: WMI) dickers around contemplating mergers, the crustaceous players are doing the sensible thing and explicitly seizing waster receptacles and routes. We see crabs and lobsters as likely to continue to take share in advance of dawn of the Cephalod Era; short incumbent land-based waste-managed companies.

HT to Brandon

And they have an idea on how to do it — a flash animation on their site that is certainly not suitable for epileptics. If you watch the flash animation you can see just how amazing IDEA will be, given that the intro takes more than 15 seconds to finish, features circa 1999 compression artifacts in the images and is an indecipherable stream of random images and numbers. This is going to be so much better than EDGAR!!!!!

Recommendation: We recommend more substance and less Flash.

This is an actual link in the first half dozen stories on WSJ.com right now. Wachovia Unloads Troubled Loans. You might think, gentle reader, that this will give you some insight into Wachovia and be worth reading. You would be wrong, as the teaser informs us

A venture headed by LandCap is buying $40 million in troubled land and construction loans from Wachovia. 5:01 a.m.

$40 million in loan assets? Really???? Wachovia (NYSE: WB) is a company with hundreds of billions of loan assets. This is de minimis with respect to de minimis. What’s next a piece on a $30,000 legal bill pertaining to whether HR was allowed to use copyrighted clipart in company wide emails about Sexual Harassment training??

Recommendation: Convince the world to be long microreporting like this; then, while everyone’s analysis is suffuse with microdetails, focus on the big picture.

Even though you probably should. I commend you for trying, and we all know that an A for effort is worth $0, so don’t spend that all in one place.

For the rest of you, congratulations, I hope you know that passing a CFA Level II or III exam might possibly have been a good call. It also might possibly turn out to have been an awful call. Consider this: I wonder how much the 40 year old version of you will pay to be able to spend 150 hours in your mid-twenties again. You can buy that with all the extra money you make from being a CFA right? But it was all worth it, definitely worth it. Keep telling yourself that.

From a contest to write the worst possible opening to a non-existent short story:

Carey, unnerved by an affair that had suffered through weeks of volatility, walked unsteadily, her dress etching complex runes in the fine patina of dust along the antiquated floor, to a rose-scented box of love letters in a vain attempt to find solace, like a security fund struggling to find liquidity in the US sub-prime mortgage market.

HT TQ

With the Olympic background, the Georgia-Russia-South Ossetia squaredance has been getting a lot less attention than it should. Most people don’t even know that Georgia isn’t even in the United States, much less how important South Ossetia is to ensuring that enriched uranium remains affordable for blue-collar Americans. Just as the demand for gas picks up when the so-called “driving season” officially opens, so to does the demand for enriched uranium pickup in the so-called “atomic bomb hobbyist season”. It starts in just one week, with it’s tradititional commencement on the third Monday of August.

Unlike with gasoline, we are confident that there will be no actions in Government designed to help affected consumers, already laden with credit card debt, mortgage debt, second mortgage debt, third mortgage debt, car payments, tv payments, home theater payments, debt surrounding the bowling alley they had installed in their ranch house, inflation, a weak labor market, and Exxon-Mobil’s extortative pricing practices. Expect to see some atomic bomb hobbyists forced to switch to less expensive substitutes, like trinitrotoluene, napalm, or even baking soda.

Recommendation: There will be demand destruction for all enriched uranium stations, in addition to a squeeze on their margins. Short them, but maintain a nimble predisposition. Long-term, it’s harder to get a feel for the direction enriched uranium prices will take. The war situation is bumping up prices now, but if South Ossetia links up with North Ossetia and becomes one with Russia, the market price will likely decrease. But if the land remains in a state of anarchy without actually being at war, still a pseudo-province in Georgia, enriched uranium prices will likely come in back to recent levels.

Sexual Harassment Arbitrage allows attractive women to gain direct and indirect compensation from their Attractive assets, as follows:

Attractive people have a unique arbitrage opportunity. All thing being equal, they are more likely to be hired for a given position than a less attractive peer. But all things remaining equal, they are also more likely to be sexually harassed by their superiors than a less attractive comparable employee. This gives attractive people the opportunity to “double dip,” so to speak. They can gain employment and the ensuing compensation by virtue of their looks; then they can compound their returns by getting sexually harassed and filing multi-million dollar suits[.]

While we stand by this analysis, it comes with a caveat that, like most things requiring logic or fairness or human rights, it does not apply in Russia. There have been only 2 successful sexual harassment cases in Russia since it was the Soviet Union, and a recent suit was dismissed thusly by the ruling judge:

The judge said he threw out the case not through lack of evidence but because the employer had acted gallantly rather than criminally.

“If we had no sexual harassment we would have no children,” the judge ruled.

And then some amazing facts which support my contention that Russia is a place to fear:

According to a recent survey, 100 per cent of female professionals said they had been subjected to sexual harassment by their bosses, 32 per cent said they had had intercourse with them at least once and another seven per cent claimed to have been raped.

Eighty per cent of those who participated in the survey said they did not believe it possible to win promotion without engaging in sexual relations with their male superiors.

Women also report that it is common to be browbeaten into sex during job interviews, while female students regularly complain that university professors trade high marks for sexual favours.

Recommendation: Russian firms can arbitrage sexual harassment arbitrage by hiring exclusively “office hottie” caliber employees. They get full benefit for the 20% bump in productivity without being subject to the increase in sexual harassment related legal costs. The play for women and non-whites and people with ethics is to remain away from Russia.

Dred Scotch: It Seemed Like a Good Idea at the Time.

Recommendation: A classic case of Maybe Not Marketing. With its dark humor, it plays on the learned sophistication of the Scotch drinking demographic with a call to a pivotal moment in American history. But sometimes humor can be too dark.

HT to Kit

But the glass is 35% full, as that is how many passed Level I of the CFA’s Guarantee of Future Investment Performance Exam. Now I know that 65% of you are dejected and feel beaten down by life, by the capricious nature of your cruel Chartered master and by the implied future whips of the 35% of your cohort who did pass Level I and will likely be your bosses very soon. But do not look so glum! You managed to crash the CFA site server and ensure that many people who passed will have their glory delayed. If you can’t win, make life worse for those who did! Also, drink heavily.

In this troubling article, Struggling in Ohio as the Economy Tightens, the tightening of the America economy is played against a background of the tightening of the belt of many poor Americans (not us, we are very rich). This picture and caption were included.

Angelica Hernandez (left) and her mother, Gloria Nunez, struggle to make ends meet on a very limited budget.

Althought not discussed in the article above, formerly the bare minimum daily diet of an America in the USA was some combination of this (or regional or seasonal substitutes):

• 30 shrimp
• 1 extra-large meat lover’s pizza
• 25 cool ranch fun-size Dorito packages
• 1 Mountain Dew Slurpee
• 1 Cherry Slurpee
• Porterhouse for Two from Ruth’s Chris
• 75 eggs
• 1 lettuce plant
• 1 lb of candy corn
• Cheetos (a quantity sufficient to stain your tongue and fingers orange permanently)
• 3lbs of lobster
• 1 diet coke

This allowed America to be healthy, productive and as happy as the Danes. But not anymore. With the recent surge in food prices, many poor Americans are being forced to the face the nightmare of only being able to survive on a diet consisting of such things as

• Rocks
• Polonium
• The Stuff from the movie The Stuff
• Toxic Chemicals
• Other poor Americans

Recommendation: Of these the last is looking to be the most delicious. Two birds can be killed with one stone were poor Americans to eat one another and if you do the math between the cost of food and the quantity of calories needed to sustain poor Americans, it seems inevitable. This shift in consumption would have a deflationary effect on food prices, effectively eliminating the marginal pressure that poor Americans place on demand, because these poor Americans will already have eaten or been eaten (as it should be in nature). In our analysis, this would lead to a simultaneous gap up in the prices people pay for poor Americans, especially when the market fully factors in how fatty, tender and delicious this meat is.

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 Amanda

I, Ryunosuke Tsukue, trust only my sword in this world.
-Ryunosuke Tsukue in Sword of Doom

Past Quotes Entirely Relevant to Investing

Topher Cox, head of the SEC and also a Jedi knight, has issued an order aimed at crushing the short-sellers and SITH lords who are trying to destroy the GSEs and some of the major investment banks. That order is the requirement that a trader must pre-borrow shares before shorting certain stocks.

SEC Chairman Christopher Cox said the SEC would institute an emergency order requiring any traders to pre-borrow stock before shorting Fannie Mae and Freddie Mac, the embattled government-sponsored entities that own more than half the nation’s mortgages. It would also apply to the stocks of Lehman Brothers, Goldman Sachs, Merrill Lynch and Morgan Stanley. The order is a near-term fix and will expire in 30 days.

…

Wall Street has been calling for the SEC to address short-selling, which some believe is contributing to market volatility and could be used to manipulate shares of financial stocks.

…

Under current rules, a short-seller must locate shares to borrow, which are later replaced with stock bought at a lower price. Some market watchers have been concerned that traders were borrowing the same shares from the same lender over and over, and driving down stock prices.

Recommendation: We’re sure that this regulation is very important and will fix all the underlying problems. The root of everything isn’t awful management, poorly calculated risk assumptions, no-no, just like with Overstock (NASDAQ: OSTK), the real problem is that the stock price is low and that’s due to market manipulation and that large Death Star that the market manipulators have been using to target certain financial stocks. Christopher Cox, you are the winner of the esteemed Patrick Byrne Award for Fighting Market Manipulation.

Be sure to pre-borrow Christopher Cox shares before you short him.