Long or Short Capital

DreamWorks press handler: Terry Press
TomTom spokesman: Taco Titulaer

SARS is trading near all-time lows. It’s been dead money for a few years. Our analysis indicates that a resurgence is due and would lead to an absolute killing for longs, especially when you consider the potential for investor sentiment to become infected with exuberance when institutional money flows in. We think it is highly likely that SARS will really take flight in 2008; don’t be surprised if SARS stock rises so fast you don’t have time to catch your breath.

Recommendation: SARS is raised to “Unhealthy (in an awesome way) Returns”; Avian Flu is maintained at “Ready to Take Flight”. In 2001, we lowered Mad Cow from “Temporary Insanity” to “Zoloft Level Returns”, a rating we also maintain; still no reason to go crazy (yet).

Here’s an actual email from my trader Thursday:

Bernanke says 2008 outlook worsened, risks “pronounced”
Bernanke says housing demand “weakened further”
Bernanke says Fed “paying particular attention” to housing
Bernanke says Fed to monitor inflation, price expectations
Bernanke says job deterioration would raise spending risk
Bernanke says Dec job data “disappointing”
Bernake says additional policy easing may well be necessary

Market moving higher, Dow +.42%, Nasdaq +.29%, S&P +.77%

Let’s summarize. Bernanke says that the economy is utter crap. The market interprets these comments to mean the Fed will cut rates. The net result is a market rally. So what can we learn from this episode? Investors only care about one thing: the direction of interest rates.

Therefore, I propose a new Fed Model. From now on, the Fed should cut 25bps at every meeting. Forever. Once this strategy has been announced, and investors can bank on continuous interest rate cuts, the markets will absolutely rip. In fact, the Fed can simultaneously solve the US debt problem by buying S&P futures before its announcement. Last time I checked, there’s no law against the government itself inside trading.*

*Of course, I’ve never checked so who knows.

“Pro forma”. From the latin, meaning “lawyers jerking themselves off.”
-Detective McNulty from The Wire

Past Quotes Entirely Relevant to Investing

Dear Young Lawyer and/or Doctor,
I noticed in a recent NYTimes article that some of you are having self-doubts.

To the lawyers:

Many young associates, [a formerly young female lawyer] added, spent their lunch hours making lavish purchases on NeimanMarcus.com, just to remind themselves that what they did counted for something.

In case the Neiman Marcus purchases succeeded in lifting your morale and left you with the impression that what you did counted for something, please let me add some critical information: It doesn’t. This is why you are paid, on an hourly-adjusted basis, like a recent (2nd tier) college graduate.

To the doctors:

Increasing workloads and paperwork might be tolerable if the old feeling of authority were still the same, doctors said. But patients who once might have revered them for their knowledge and skill often arrive at the office armed with a sense of personal expertise, gleaned from a few hours on www.WebMD.com, doctors said, not to mention a disdain for the medical system in general.

The fact that I was able to diagnose my own illness after 15 min on WebMD speaks to the value of your knowledge. Perhaps our relationship would be more productive if you would stop making me wait 3 days for an appointment (and 90 minutes once I get to the office) to diagnose a sinus infection that I already know I have. Give me the antibiotics without the self-importance. I will come see you again when I have something you can actually be helpful with. For instance, after I break my arm trying to carry my bonus home, I will come see you and you can set the cast. Until then, please stop whining.

Sincerely,
Mr Juggles

P.s.
To the consultants:
Stop grinning. You are next.

Experienced happiness, we learned, depends mainly on personality and on the hedonic value of the activities to which people allocate their time. Life circumstances influence the allocation of time, and the hedonic outcome is often mixed: high-income women have more enjoyable activities than the poor, but they also spend more time engaged in work that they do not enjoy; married women spend less time alone, but more time doing tedious chores. Conditions that make people satisfied with their life do not necessarily make them happy.

Daniel Kahneman, 2002 Nobel Prize in Economics Recipient

Past Quotes Entirely Relevant to Investing

“Which explains why the busts and reversals we deem inevitable are also the least preventable, and why they startle us, if briefly, when they come — because they were were inevitable for so long that they should have come already. That they haven’t, we reason, can mean only one of two things. Thanks to technology or some other magic, we’ve entered a new age when the laws of cause and effect (as propounded by Isaac Newton and Adam Smith) have yielded to the principle dream-and-make-it-happen (as manifested by Steve Jobs and Oprah Winfrey). Either that, or the thing that went up and up and up and hasn’t come down, though it should have long ago, is being held aloft by our decision to forget it’s up there and to carry on as though it weren’t.”
Walter Kirn in November 2007’s The Atlantic

Past Quotes Entirely Relevant to Investing

Time and time again, people say we are running out of 2007. These cries began as early as January; by July, some were even claiming that there was less 2007 remaining than the amount of 2007 which we have already consumed. They call this condition “Peak 2007”.

Time and time again, people say we are running out of something, but science always shows that all these chicken little cries are for naught, as profit incentive combine with human ingenuity to preempt any shortage or problem. We didn’t run out of food as feared in the 60’s and 70’s since technologies to improve crop yields were disseminated to the third world. At the turn of the 20th century experts forecast a dire shortage of coal. And 2007, we are not going to run out of you.

Three reasons to think we won’t run out of 2007:

Technological Innovation: As the supply of 2007 dwindles, its price rises. Entrepreneurs, seeing the opportunity for wild profits, begin researching ways to manufacture new 2007, synthetically replicate 2007, or increase the efficiency of 2007 use by a multiple factor. These entrepreneurs are greedy, hungry for mega yachts, and one of them is bound to succeed.

Cap & Trade program: It’s likely that the UN Council on Annus 2007 will institute a cap & trade program to protect the remaining 2007. Under this scheme, rich nations like the US will be able to continue living in 2007 while paying other, poorer nations to live in less desirable years. Guatemala, for instance, has been living in 1916 for 91 straight years.

Conservation: As 2007 is supposedly running out, we find that people are finding ways to more efficiently use the 2007 they have and improving the amount of 2007 used per a unit of living. People will find that it only takes 1 unit of 2007 to get drunk rather than the previous notion that it took 2-3 units of 2007 to get drunk.

Recommendation: Long 2007, don’t stop believing in 2007.

“I’ll begin with a brief note about the stock market here. Suppose you’re considering riding a unicycle on a high-wire that by most evidence is not secure, but it’s possible that the wire might hold up for a while. If you keep riding, people will throw small bills at you until the moment the wire breaks. Once the wire breaks, you will be injured and will probably lose whatever you gained initially. Would you keep riding?”
John Hussman, Portfolio Manager of Hussman Funds in his Weekly Comment

Past Quotes Entirely Relevant to Investing

Last year, we gave you, our readers, the gift of efficiency by providing you all with a guide to things you want to own. Even though prior to reading our guide, you hadn’t known you wanted these things, you quickly realized yet again that we are a better judge of what you like than you. Those things are still things you want to own, trust us, we did the research and we’re smarter than you.

As smart as we are, we know we can never rest on our laurels and have provided a version of the guide with entirely new items that you want to own. You should proceed to click through and buy all these items for yourself so that you can enjoy Christmas and reduce deadweight loss as percentage of all Christmas gift related spending. We own or consumed all these things ourselves, so we put our consumption where our internet post is.

As an aside, someone who clicked through and bought something last year also bought these two items: Clearblue Easy- Fertility Monitor Test Sticks, 30 Sticks and Clearblue Easy-Fertility Monitor. Note to the fellas: our ideas are fertile enough to impregnate your lady, so be careful.

Things

A veritable grab bag, but all things that have improved our lives in the LTM. Let us paint the scene of what these things can do for you: A stronger grip, a firmer buttocks, a set of ripped calves (is that a good thing or a bad thing?), and a covenient notebook to record your transformation into an Adonis as you await the perfect reheating of cold pizza in your Infrawave oven. Plus a digital camera which is so small and stylish it just screams “Put me in your pocket and use me to be sketchy.”

Games

Last year we recommended the DS and the Wii, this year we recommend everything but the PS3. People used to think that gaming in your late 20’s and early 30’s meant you can’t get laid and your heart has replaced its bloodflow with Cheeto-flow. Well the last game on our list was developed by this chick and that’s enough for us to say that video games are 100% mini-baller compatible.

Movies and Shows on DVD

It’s Always Sunny in Philadelphia. Watch it. We can’t stress 30 Rock enough. The rest are a combination of the best movies released on DVD in the LTM as well as the best movies named Robocop and The Running Man made in the 80’s.

Music

The common thread is that there is no common thread, except that they are all in this post. We even included a comedy CD!

Books

Shantaram was read by two us us and loved by two of us, despite it being 800 million pages longer than the average book. 100% loved out of those who read it is hard to beat.

And if all else fails, try our Amazon Prime search engine partner.

Two from 30 Rock:

“This corporation has a strict bros before hoes policy.”

“I like a woman with ambition; it’s like seeing a dog wearing clothes.”
-Jack Donaghy

Past Quotes Entirely Relevant to Investing

Why is liquidity only ever “injected”?

Maybe this is the problem with financials today. Injections are harsh and can hurt — I know I close my eyes whenever the doctor calls for an injection.

Maybe the Fed should try “pouring” some liquidity? My servants frequently pour hot water on my hair when I take my daily bath — it feels quite relaxing. There are so many options with liquidity. What about “stirring”, “folding”, or “squirting” liquidity into the markets? Ben…if something isn’t working, don’t just repeat yourself. Try a new method!

Our crack analysis of the Classmates.com IPO The Best S-1 I Have Read Today proved prescient. Today, United Online (NASDAQ: UNTD) withdrew the Classmates.com IPO due to “market conditions.” According to our proprietary corporatespeak translator, this means “no one fell for our ludicrous ploy.”

Recommendation: When choosing between an investment in Goldman Sachs (NYSE: GS) or Long or Short Capital, remember who brought you the Classmates.com IPO and who told you to short it.

Classmates.com will go public some time this week. Somehow, they have managed to convince top-tier banks to underwrite this offering. Did the bankers read the S-1 they put together for this company?

From the S-1, here are some excerpts from the company’s description of its business:

We operate leading online social networking and loyalty marketing services under our Classmates and MyPoints brands…Using our interactive tools and features, our members have contributed to our social networking Web sites a substantial number of distinct, relevant pieces of content, such as names, school affiliations, profiles, biographies, interests and photos…On our social networking Web sites, we enable users to locate and interact with acquaintances from school, work and the military…This valuable content also brings existing members back to our Web sites, with a significant number of our members visiting our Web sites on a recurring basis over many years.

Contrast that with a few risk factors the company highlights for this offering:

A significant majority of our paying subscribers are on plans that automatically renew at the end of their subscription period and we have received complaints with respect to our renewal policies. The sales and marketing practices of Classmates Online are currently subject to an inquiry by the United States Federal Trade Commission, or FTC.

Our success is dependent upon our social networking members interacting with our Web sites. Currently, the network effect on our social networking Web sites is limited, and the vast majority of our member activity is within our high school communities. Our members do not visit our Web sites frequently and spend a limited amount of time on our Web sites when they visit. In addition, only a limited number of our social networking members post photographs and information about themselves, engage in message board discussions, view other members’ profiles or participate in the other features on our Web sites. [Ed: our emphasis]

Recommendation: Avoid companies that cite their ongoing failure to execute their business model as a risk factor.