Long or Short Capital

Do not call it a comeback. We have literally been here for years, literally.

We know you didn’t miss us. But you probably didn’t NOT miss us. You know why you did and didn’t miss us? Because you’ve been making ALL the monies. You, you savvy reader, spent 10 years just going around and asking people for their money, borrowing more money against that money (that isn’t yours remember), and then investing the people’s money and the borrowed money into things those people could have bought themselves for free, but, hey, fees. Those people want to pay fees and who are you to stop them? Gotta give the people what they want.

But now it’s that time. That time when all those pedantic people are looking at their semi-fictional account balances and suddenly…well they have questions. And YOU, well you are *supposed* to have the answers. But you don’t because you’ve been too busy talking to Stanford badminton coaches about the bribe situation and your wife about the merits of the “back door”. But it’s ok. WE HAVE THE ANSWERS. Here is a list of them.

The Answers

1. No, sorry.

2. This isn’t 2008, this is 1962, but different. Look at a stock market chart since 1962. Was that a good time to call up your worst performing fund and get mad? Exactly. That was a time to trip on LSD, listen to Bob Dylan, and start a computer company. Why don’t you try that Mr. Smarty Pants Cardiac Surgeon Man? And tell your dentist friends to lose my number like I lost their money.

3. I’d be happy to do that…except for the lockup. My hands are tied, it’s the rules. They aren’t MY rules, I mean they are rules that I wrote, and rules that I told you not to worry about. But they aren’t MINE so much as they are YOURS. But I’m sure you understand that as I see here that you are an accredited investor.

4. April 28th. That’s the bottom, unless it’s not, in which case I apologize in advance.

5. There is nothing you can do. Just relax, this is what you pay me for. If you owned index funds you would be down just as much, or maybe a little less. But you would have no one to call! Aren’t you glad you’re not in that terrible, lonely position?

6. My family is great, thanks for asking. Wife is a babe, kids get good grades, and none of them like talking to me. So things are perfect.

Recommendation: Everyone in the world is Long Questions right now. Sell Questions. Get Long Answers, quickly.

Fact: Pigeons are sky rats. 
Sorta Fact: This may be the Year of the Rat (editor’s note: it’s not).

The Chinese are breeding sky rats for racing. More relevant to people who define everything in terms of money (e.g. everyone reading), the Chinese are dolling out hundreds of thousands of dollars for allegedly fast sky rats. 

Background on sky rat racing pulled from the internet after minutes of exhaustive research:

• A report commissioned by Scottish National Heritage and the Scottish Homing Union found that on average 56% of racing birds released each season do not make it home.
• PETA conducted an investigation into the practices of pigeon racing in the US (check out the video titled “The Deadliest Marathons“), finding that casualty rates came in at 60% or more among birds during races and training due to weather, predators, electrical lines, hunters, and incidents of “avian rage.” 
• At the 2011 American Racing Pigeon Union Convention, 827 out of the original 2,294 birds returned from training flights, a solid 36%.

So hypothetically, if you buy a pigeon, enter her into a high stakes race, anesthetize her, transport her a day’s drive away, wake her up and tell her: “Figure it out buddy”, at that point, 40% of the time she will figure it out and return to the start. Pretty amazing! 60% of the time she gets lost because who wouldn’t? With the help of our trial version of Microsoft Excel 1997, our analysis suggests that the standard deviation of a pigeon’s flight time in any given race is roughly 8 hours….depending on what value you use for the 60 PERCENT OF THEM WHO NEVER COME BACK! 

What we mean is that there is no f*%$ing way to know whether a pigeon is fast or not. It’s impossible. So we aim for you to exploit this impossibility by:

• Finding a newly wealthy son of a Chinese government official.
• Showing him the $300,000 receipt for a pigeon you bought in an arm’s length transaction with an entity named YouYourselfSelfCo.
• Telling him that the bird is named 888 or Crazy 8 or some crap like that — they eat up those 8’s, it’s very auspicious.
• Forging some pigeon race victories to add to the bird’s pedigree, assuming that she didn’t happen to win her last race.
• Selling the bird on to our Chinese friend for a cool $1 million.

Recommendation: Even though we just called the bottom, after reading about these pigeon prices we’re considering calling the top, just like we accurately called the top in 2007. But we’re not ACTUALLY calling the top, we’re just reminding you that we TOTALLY called the top last time, and we’ll keep reminding you of that until we call the top again at which point we’ll REALLY remind you of it. Success breeds success. The Chinese are breeding racing sky rats. Enough said.

Long: Falcons who eat pigeons
Short: Chinese steel consumption

Unfortunately it seems that, when we recommended Quantitative Easy, even though it was super easy, it didn’t gain a lot of traction. The markets haven’t been nearly as easy as Ben had hoped. So we here at LoS went back to the blackboard for a new idea, something on which we could write a clean, articulate white paper.

(Aside: yes we have a BLACKboard. Funny story because see last election cycle we realized that voting for Obama was a sweet get out of racism card, like buying carbon offsets so you feel ok about how much “damage” you do every time you fly in a plane, and while this came in very handy as a guilt hedge, based on his performance we don’t think we can vote for him again, plus it wont be nearly as “urban cool” to vote for a candidate with the slogan “Change, Again, Seriously.” So we thought, what else could we do to show cultural diversity? And we came up with installing a blackboard as the most obvious answer.)

After furious sessions, much chalkyness and vigorous eraser banging, what did we come up with? Qualitative Easing. As mentioned in our last Easy piece math is hard, almost as hard as lifting weights (which are VERY heavy by the way, just found this out). But Ben, the Bernank, is a hard man, capable of bearing an Atlassian load without so much as a shrug.

Qualitative Easing will have no math (rejoice!), it will just be a touchy, feely, sensual qualitative description of how the Bernank is going to increase prices for things that you OWN (stocks, bonds, homes) and keep prices the same for things you BUY a lot (gas, food, chia pets, viagra, tickets to Japanese hologram concerts).

Assuming he accepts my draft of his Qualitative Easing announcement speech (practically a fait accompli), it would go something like this:

Let’s talk about all the good things and the bad things that may be. Recently, everytime I’m at Blockbuster video (NYSE: BBI) or waiting in line for a payphone or getting my chest hair lasered (ask your depillitator for “the Kaiser”, your lady will be grateful) I’ve been getting dragged into the healthcare debate. Usually I just pretend I’m on Total Request Live:

Carson! I think Obamacare {QUICK DEEP BREATH} by Barrack Obama {QUICK DEEP BREATH}) should be the number 1 video because Barrack is soooooo hotttt and everyone should have should have rad healthcare and it should cost way less and Obama rocks my world!!!! WOOOOO!!!!!

If however you actually want to waste your time arguing about healthcare we thought we’d take a few things we commonly hear and give you some IN YOUR FACE FACTS to drop on your friends and make them hate you more than if you just make outrageous claims that you can’t back-up. Mostly what’s below is true, mostly, and if that standard is good enough for science and math, it’s good enough for us.

People say: For-profit health insurance companies are the devil and the reason we spend so much more on healthcare than other countries (Note: this is a recurring theme of the hot selling book “Healing of Amercia” by T.R. Reid, now available at your local grocery store).

IN YOUR FACE FACT: Healthcare insurance companies make between 5 and 10% profit margins (p.5). So even if you usurped all these profits (assuming you could run the companies just as efficiently) the most you could save is 5-10% of the cost. And by the way many states already have not-for-profit Blue Cross Blue Shield plans. If not making profits made insurance companies give you the same care at lower costs then these BCBS plans would be blowing up like a totally sweet Jenna Haze automatic blow-up doll. But they’re not, they’re slowly deflating like blow-up dolls tend to when you make them wear a spiked choker against their will. Mostly.

Executive pay and Wall Street bonuses are the root of all evil.   You might even put them in the axis of evil.   And our fearless good-guy government leaders in the US and Europe have addressed the evil head-on, chastising anyone who makes “a lot of puddin“.  Recently, even going so far as to enforce pay freezes and caps.  This might sound suspiciously socialist, even Russian.

Unfortunately someone forgot to tell the government that they were getting half those bonuses in taxes .  Yes, The Government, you get a 50% cut of all that bonus money. To which I say “THE GOVERNMENT, HOW DARE YOU ACCEPT SUCH EXORBITANT PAY! YOU ARE RECKLESS!  AND YOU DIDNT EVEN SAVE ANY OF IT???  DISGUSTING”. And WHOOPS The Government, you just capped your own tax income.  And in places like the UK, where financial services tax income is 25% of the budget, it’s going to mean that you, The Government, will have to lever up (read: print money) to make up the short fall.

Banks won’t lever up.  They have decided that lending isn’t a good return on investment right now.  But most banks have decided that adding some leverage to pay their top performers bonuses in an awful market is a good return on investment.  The Government has decided the opposite.  Of course, the Government is the same body that thought that THEY, career politicians of varied backgrounds, could do a whole lot better allocating mortgage resources than the free market via the mandates they put in place for Fannie Mae and Freddie Mac.

For one side when they do a bad job, their firms and their entire industry end up on the brink of non-existence. For the other side when they do a bad job or are completely wrong, whether it be 9/11, Iraq, aiding the Great Regression, printing money or messing up the recovery, they get much MORE money and much MORE power. If Dick Fuld had worked for congress, he would have been promoted to Chairman of the House Financial Services Committee.

If the Government does follow through all the way and take away or freeze bonuses for Wall Street executives, we think it’s only fair that they should also give something back to those very same Wall Street executives. I have some suggestions.

• A cut of every lobbying dollar that politicians get after leaving public office
• A cut of every speaking fee politicians receive after leaving public office
• The ability to travel on a whim at the expense of taxpayers, specifically in support of potential new employment
• A new requirement that poor performance is rewarded with promotions and tenure, whereas in finance in the past those things were rewarded with being fired or a dramatic reduction in bonuses
• The ability, once in an executive position, to “redistrict” your supervisors in a way that ensures that you have supervisors who are most likely to favor you with continued employment
• And last, but not least, coupons for Washington DC’s high end brothels which are rumored to be the nicest on the East Coast

As you may have heard, Palm has launched a new phone.  The launch has Wall Street in a frenzied state of excitation, a state of such frenzy that Palm (NASDAQ: PALM) has “doubled in size” in the last two days.  I think we’ve all been excited by “new palms” before.  But this one is special, it’s the first phone to actually be named after the baby-making fluid which biologically signifies you are really sloppily excited about something.

Recommendation: In our experience the presence of ‘pre’ usually means you are too excited/optimistic about whatever you think is going to happen. In layman’s terms, it means you messed up, usually literally, before you even got down to your business. We stick to our long term fundamental thesis of Sell the foreplay (which usually disappoints), and Buy the afterglow. Here is a video of the pre in action.

Today the US treasury announced they are bailing out the federal reserve bank. They are concerned that the federal reserve bank – after taking over the debt of Bear Stearns, Fannie, Freddie, AIG et al. is “over-leveraged”.  The obvious question is, who will bail out the Treasury?  The answer is paper.  More specifically the “Bureau of Engraving and Printing”.  We are so long the Bureau of Engraving and Printing as we see it as the only financial institution in the country that will always “find” enough liquidity to fund itself.  If you’d like to get long them we recommend you check out www.moneyfactory.gov.  Yes that’s the real name of their government website.  Money doesn’t grow on trees, but you can cut the trees down send them to a money factory and presto pronto prego DINERO!

Recommendation: In any mania, don’t invest in the company that mines the “gold”, buy the company that supplies the “shovels” and “picks”.

Inspired by this incredible expose about oil prices hurting kids via increasing operating costs of school buses all over the country, we decided to survey other demographic representatives to see how higher oil is affecting them.

Middle-aged white woman in the midwest: “Gas prices are so crazy I had to buy a second car, one for when gas is cheap and one for when gas is expensive. But sometimes I drive the wrong one just to be bad, I’m a naughty girl on the inside, I go wild!”

A London debutante: “12 months ago it was so posh to be shagging a banker, but now I can’t be bothered if he doesn’t come from oil money. Russians, Iranians, MAYBE a Norwegian – but only if he has that Viking look. Also unrefined crude oil makes for great lube – it’s so hot when they put it on you, and the fact that it’s getting more expensive and they still just keep using a lot of it- that only makes it hotter and shows they care about you.”

A common dragon on the street: *FIRE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*

A baby: “You would be alarmed at the rate of inflation I’m seeing in breast milk. Most people wouldn’t believe it but the persistently rising crude oil price has a direct impact on mommy juice. I estimate 2% of the input costs for breast milk are oil and oil related products. How do you think mommy makes milk? She gets in her car, goes to Olive Garden and eats pasta, you can’t walk to Olive Garden, you can’t crawl either — I know, because I tried. Shit’s like an ultramarathon of crawling, and with my job, my kids and the commute, I don’t have the baby-time to be in that kind of baby-shape.”

That oil-eating bacteria (which may or may not exist): “I don’t think you understand how hungry I am and what it takes to feed a family of four oil-eating bacteria. I’ve lost thousands of micrograms and my entire asexual family, also known as me and those who are indentical to me on a cellular level, we are all doing horribly. But boy does Gail (who is also me (this is getting meta-creepy)) look fabulous in her skimpy bacteria-lingerie! The government always says it will stand up for the little guy, but apparently this little guy is too little. Vote Obamoeba!”

Please tell us how oil is changing your life.

8. That’s it. 8. They are all worth 8.

All financials stocks are worth 8. (Fast forward to minute 6 or so, it all will become clear by minute 7)

Recommendation: If a financial stock is above 8, short it until it is 8. If it is below 8, maintain a buy until it is at 8.

Notice to Bloomberg headline writers — contorting your headlines and story to changes in stock price of a company makes you look like a gaggle of maroons. My example from last week:

2:15am – (BN) Electrolux stock futures drop
2:17am – (BN) Elextrolux profit falls, steel costs squeeze margins
2:36am – (BN) Electrolux’s latest profit proves future is dimming
3:00am – ELUXB.SS opens up 6% – whoops we had the wrong angle I guess
4:00am – (BN) Electrolux advances after fourth-quarter profit rises 22%, beats estimates (our emphasis)

Apparently between 2:15am and 4:00am Electrolux’s reported 4Q profit went from “falls” to “rises”.

Recommendation: Terrible reporters, please stop looking at the stock price and then writing a story to fit it. Also, please stop being so terrible, at least until I establish a large short position in you.

In case you’ve been on the moon, South Africa is out of power. One government-run monopoly produces 95% of the country’s power and they ran out. In 1998, the power company told everyone in the government that they would run out of power in 2007. The government apparently thought they were just kidding and didn’t do a damn thing. So now they’re out. In light (swish!) of this, let’s examine the key points in the investment case for going long South Africa.

1) They have a 25% unemployment rate; sounds bad but the biggest driver of the economy — the mining industry — is booming and will create jobs

2) Oh wait, you need a lot of electricity to mine and smelt metal, no one will spend the billions needed to build a new mine if they can’t get secure power to run the facility. At least there’s some positive political news….

3) The soon-to-be president, who goes by “JZ”, clearly gets it and will fix everything:

“He [Zuma] was acquitted last year of raping an AIDS activist. He testified in his trial that he had consensual sex with the activist, who is HIV-positive, without a condom, but he showered afterward to minimize his chance of contracting AIDS.”

This guy was Chairman of the National AIDS Council in the country with the biggest AIDS problem in the world and he thinks “washing it off” stops AIDS? Really? Don’t you at least have to put some ‘tussin on it?

Recommendation: Don’t analyze South Africa, it’s depressing.

“The currency is the share price of a country.”
-George Glynos, Econometric Treasury Management

Is this a company that missed earnings or the index of the largest country in Europe?

So your fund is down double-digits, the first number is a 1 if you’re lucky, and you are one more -3% day away from getting a margin call from your friendly brokerage house which has it’s own balance sheet disaster because of its in-house, levered long ‘hedge’ fund. You’re starting to think it’s just not worth it anymore and that the easiest, quickest way out is just to end it.  Put yourself out of this misery and give your wife/kids/fellow mini-ballers the insurance check they deserve. But you have to ask yourself: Do you really want to go out the easy, painless way? You’ve lived your whole life as a flashy, jet-set, new money rock star and you should go out with similar flair. Our top ideas for how to end it with a flourish that says “I was here and I got IT done”:

1. Tie a Bloomberg screen to your chest and fight a bull ’til the death. If the markets get worse it’ll see red and you’re toast; if we bounce then you’re saved and you could say you fought a bull with nothing but a Bloomberg terminal and won. HUZZAH! Plus there’s symbolism if you die by bull, I’m not sure what it symbolizes but it’s highly symbolic.
2. Chain yourself and a woodpecker to your desk. Train the woodpecker to peck the sh-t out of you every time he hears the words “we’re selling off” from your trader. This is advantageous because woodpeckers can’t be prosecuted for murder in most states (IANAL).
3. Put a gun in the ear piece of your phone. Then do an update call with a highly cyclical company that has consumer exposure and oil as a big cost (like I don’t know, an airline) and every time the retard IR guy tells you “we haven’t seen any weakening in demand yet” shoot yourself in the head. Extra points if you figure out how to get the gun connected to your wireless earpiece via Bluetooth.
4. Make a list of all the shorts you pitched in the last year. For every one that is down more than 20% from where you pitched it pull out one hair (if you are bald – go pubic). When you run out of hair scream and jump out your window.
5. Tell your mom if she calls you one more time and says “every time I read about the markets going down I think of you, are you doing ok?” that you are going to put an ice pick through your eye. Then buy an ice pick and wait for her to call you.
6. Apply online for an associate job at an investment bank. Believe it or not this will kill you, guaranteed.