Long or Short Capital

Corporate Speak: “No one in the marketplace knew how swiftly the housing market would fall — not the Federal Reserve, not the Treasury,” said Ted Eliopoulos, head of Calpers’s real-estate portfolio, in an interview.
Translation: I have just invested tons of money at the absolute top and lost 103% of what I put into the deals due to using recourse debt. I am a moron. I could not have predicted the housing market would fall. No one could have…other than Ron Paul, John Paulson, Robert Shiller, and Long or Short Capital.

Corporate Speak: “Could our margins go up? They could absolutely go up.” -CEO of Take-Two Interactive (NASDAQ: TTWO) on 12/16/08 conf call.

Translation: Have you noticed that we have lost money for the last four, seasonally strong holiday quarters? Our margins are definitely not going up.

Corporate Speak: “Moreover, I think we’re trying to emphasize that these times are indeed very uncertain. Without trying to sugar coat the story, because it’s not our nature. We feel really good about the position we’re in.” -CEO of TTWO
Translation: We are sugar coating our story and it is, in fact, our nature.

Corporate Speak: “I am qualified to be Senator of New York.” -Caroline Kennedy
Translation: My qualifications for this position include a fancy last name, not holding a full-time job, not holding any political office, and writing books for children. I am definitely not qualified to be Senator of New York.

Jenny. I believe God made me for a purpose. But he also made me fast. And when I run, I feel His pleasure.
-Eric Liddell in Chariots of Fire

Past Quotes Entirely Relevant to Investing

[W]e do know something – at least abstractly – about the future. We know that other great crises will come. Whether they will be occasioned by foreign wars, economic collapse, or rampant terrorism, no one can predict with assurances. Yet in one form of another, great crises will surely come again… When they do, governments almost certainly will gain new powers over economic and social affairs… For those who cherish individual liberty and a free society, the prospect is deeply disheartening.
-Robert Higgs, Crisis and Leviathan

Past Quotes Entirely Relevant to Investing

The president of the United Auto Workers union said the dire financial troubles of the three U.S. auto makers is the result this year’s spike in gasoline prices and the meltdown on Wall Street, not missteps by management or high labor costs.

“This industry is in a crisis situation not of its own making,” Ron Gettelfinger said in an interview Saturday afternoon with The Wall Street Journal

Long or Short Capital has received preliminary approval to become a bank holding company as of November 13th 2008. Long or Short Capital, through absolutely no fault of management, has been hit by The Perfect Storm of Perfect Storms. This storm impaired our capital and destroyed our ability to continue paying lucrative dividends to subscriberholders. These dividends are the lifeblood for our investors/readers, many of whom derive the majority of a minority of their income from Long or Short Capital dividends. Transforming the company from a purely fictional producer of financial satire into a bank holding company will allow Long or Short Capital to access the TARP, the Fed discount window, and the slush fund to pay US auto workers*. The company plans to immediately draw down the full amount of money available and prudently pay it out immediately to our subscriberholders after first contributing heavily to the executive pension fund and rewarding management performance with large bonuses. We anticipate there will also be a meaningful amount of embezzlement, but only to a level that is market. We appreciate the continued support of all our stakeholders.

*for voting Democrat (Thank You!)

Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the consensus of scientists agrees on something or other, reach for your wallet, because you’re being had.

Let’s be clear: the work of science has nothing whatever to do with consensus. Consensus is the business of politics. Science, on the contrary, requires only one investigator who happens to be right, which means that he or she has results that are verifiable by reference to the real world. In science consensus is irrelevant. What is relevant is reproducible results. The greatest scientists in history are great precisely because they broke with the consensus.
-Michael Crichton on Global Warming

Past Quotes Entirely Relevant to Investing

Fidelity, the privately held investment management firm, wants to manage billions and trillions of dollars. In other words, it wants 7 or 8 figure of AUM according to Fidelity math. Here is an actual ad the firm was running in Yahoo Finance’s retirement section, pointed out by a reader.

If their advice on how to retire a millionaire is to become a thousandaire…well that is the exact way in which they have managed much of their clients’ retirement portfolios over the past 3 years, so we give them points for consistency.

Recommendation: Take Fidelity public for the sole purpose of shorting it.

HT: AB

“Whatever regulatory changes are made, they will pale in comparison to the change already evident in today’s markets. Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime.”
-Alan Greenspan

[Ed note: As frequent critics of Greenspan over the years, we feel comfortable saying that this time he’s right.]

We are currently in the Perfect Storm of Perfect Storms. This has caused great loss in our imaginary investment portfolio on the gains we had generated by shorting mortgage-backed securities. The only way to counter a Perfect Storm of Perfect Storms is with the Perfect Storm of Investment Theses. Luckily, we have found it: The Four S

We have identified four trends that all start with S. They are also all compelling investment opportunities. Combined, they form the Perfect Storm Investment Thesis.

• Solar power
• Smartphones
• Software…
• …as a Service

Many people correctly believe that:

• In the future, solar power will be the primary source of energy for the world economy. This power will be free, plentiful, and have no environmental impact. Except the unknown impact that results from taking massive amounts of energy that normally would have hit the Earth and shunting it into our cars and smartphones, and the related waste from producing solar paneling on an industrial scale, but other than that, we can assure there will be no environmental impact. As a side benefit, Al Gore will finally shut his piehole, since he will have made his billions from his green portfolio, you know, the book he talks everytime he opens his mouth.
• Smartphones will achieve 207% penetration as most consumers choose to carry more than one smartphone in order to make themselves smarter. Smart people know that it is important to have a persistent buffer from the place you are actually in. That is to say, if I’m driving, I’d be better off talking to Sarah. If I’m on a date with Sarah, I’d probably be better off talking on the phone with Sonya. And if I’m at Sonya’s apartment watching Mad Men in the nude, I’d be better off playing the newest cool iPhone game. Smart people know this is the whole point of smartphones. Apple will have 35% share, RIMM will have 30% share, Palm will have 25% share, and Nokia will continue to be the market share leader with 40% (See, they’re all winners!)
• No one will use antiquated sales programs like Siebel. Everyone will use online, automated sales programs like Salesforce.com and Google Adwords. All sales will take place online. Brick & Mortar stores will be converted en masse into sales kiosk repositories and/or expensive condominiums communities where everyone feels like they know everyone else but in reality are too busy doing something with their smartphone to know anything about the people who breathe the same air as they do.

However, using our superior intellects, we realize all of this will converge. In the future, software as a service tools will be the exclusive sales channel for solar-powered smartphones. We expect they will be able to run all the most important applications including Call of Duty 8, Microsoft Excel, and YouTube. Additionally, by 2012 they will achieve grid parity pricing and begin contributing energy back to the grid. We calculate the total market size for this trend at $8 trillion.

Recommendation: Software as a Service Solar Smartphones will stave off the Perfect Storm of Perfect Storms.

“You must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
-James Collins outlining the “Stockdale Paradox”

Past Quotes Entirely Relevant to Investing

“A bank is…a manufacturer of credit. The cornerstone of credit is confidence — confidence of men in men. A panic is a collapse of credit. It is an intensely human affair, and many of the determining influences are of a personal and confidential character, and very inadequately reflected in the cold figures of the bank statement.”
-E.W. Kemmerer (1911)

Past Quotes Entirely Relevant to Investing

Actually, the title has it backwards. Short the States.

The latest institution asking for a federal loan to help bridge a massive shortfall caused by a bad bet on housing is The Bank Government of California. Their revenue forecast has fallen by $3bn in the two weeks since the budget bill was signed. The budget originally called for a deficit of $15bn on a budget of $100bn. Ooops!

Consider the Fed speaking in Fedspeak below:

The evidence suggests that property tax revenues are quite responsive to changes in house prices. Although it takes several years for house price appreciation to feed through to property tax revenues, the long-run elasticity is on the order of 0.4.

Let me translate: California is just the beginning. Most states will face massive budget deficits in the next two years.

Recommendation: State income taxes will skyrocket in order to cover for a massive shortfall in property tax revenues. Balance a short position in 41 states by going long the 9 states without income taxes.

Dear Subscriberholders,

You may be aware that something is “going on” in the markets. That something is that we squandered all your potential dividends due to what can only be described as The Perfect Storm of Perfect Storms. We’re sorry. We thank you for having faith in us, and our models indicate that if it were not for The Perfect Storm of Perfect Storms, then we would have returned to you 30% per annum, so you should feel confident that you made the right decision according to invest with us according to our models and also to our models.

Now, many of you may be saying “Aren’t you savvy investment professionals, shouldn’t you have, y’know, know better.”

To that we say, “Yes, but also no.” In “The Perfect Storm”, George Clooney captains a ship that catches tuna or red snapper or whatever, and he can make lots of money in a short time doing it. But if George Clooney, George Clooney’s brooding good looks, and George Clooney’s amazing hair, are unable to return a single Gloucesterman to shore in the face of just a single The Perfect Storm (spoiler alert they all die), what hope is there for Long or Short Capital Management in not destroying all subscriberholder value in the face of The Perfect Storm of Perfect Storms?

What hope indeed,
Long or Short Capital Managment

A journalist female asset asked us our opinion on “who, in the current financial climate, do you think is in the best position: the high-end wife, the high-end girlfriend or the high-end hooker?” as well as “their relative vulnerability is in relation to the vulnerability of the Wall Street honcho who might be their husband, boyfriend and/or client?” The following was the research report we created:

Just to clarify, our definition of “High-end” means “extremely firm buttocks and/or thighs that do not touch while standing”.

High-end Wife: Her position is weak because, frankly, she is a status driven nag. As Man’s ego falls commensurate with his portfolio’s value, Man will tire of her act and reallocate his assets towards strange to try and offset his ego loss. The High-end Wife is likely to adopt a simultaneous “flight to quality” strategy or, in layman’s terms, “pull a Jackie O”. But she lacks the understanding of markets to know that this is a GLOBAL financial and, soon-to-be, economic crisis, so her Aristole will really be a Raffaello. The availability of cheap, made-to-order Eastern European High-end Wives, further puts pricing pressure on a transitioning High-end Wife, whose assets are more aged and more likely to be in need of a refresh.

High-end GF: Below the high-growth exterior, High-end GFs are mainly naive and prone to huge strategic gaffes despite tactical genius and impressive, but depreciating, endowments of natural resources. Her short term position is strong, because as Man is transitioned from High-end Wife, High-end GF will get a small short-term boost. Considering that Man is likely rich, this will be a very small and very short boost. Given that this boost is purely short-term in nature, this is a classic buy on the rumor, sell on the news situation for anyone looking to invest in a portfolio of High-end GFs. Over the long term, her fundamentals will become identical to that of the High-end Wife, with the exception being that her former role as a mistress weakens her bargaining power with respect to Man in terms of Man seeking out new strange.

High-end Hooker: Her position is strongest and her assets are acyclical. In good times, men are flush with cash and looking for strange but are also less dysfunctional; this leads to an allocation towards a basket mainly consisting of High-End Wives, with maybe a 15% position in High-end GFs and a 2-5% position in High-end Hookers. As markets worsen and/or crisises take hold, Man is increasingly dysfunctional and looking for ego offsets. It also in this time when Man typically contemplates or engages in life restructuring which can entail simple cost saves, like headcount reduction, or even full-on recapitalization, flushing out the junior capital. A successful market-timing Man will typically have a portfolio composed of 60% High-end Hookers, 30% High-end GFs and 10% value High-end Wives when the market is bottoming. As the cycle comes around, the High-end Hooker position is reduced opportunistically, some of the High-end GF portion transitions organically to High-end Wives and the value High-end Wife position is added to with more growth High-end Wives.

As to relative vulnerability, obviously Man will be ok and everyone else will (still) be fucked in a recession. This is what historically has been true according to the data we have. Additionally, the cross-cyclical trend we see is that everyone else will still be fucked.