Long or Short Capital

This Lemonade Stand operates on the corner of Washington Street and Lincoln Avenue. It was founded in 2009. It’s primary business is as a leading provider of drinks and assorted packaged commercial food items to local customers. The main drink offering is “lemonade” and “cool-aid” both proprietary formulations. This Lemonade Stand charges customers 50 cents for a “small” (approx. dixie cup size) and $1 for a “large” (approx. solo cup size). The main packaged treat offerings are Kellogg’s branded rice krispie treats, priced at retail for $1. Revenue is estimated to be $30 per day. On a non-rent basis they are cash flow positive with 60-70% margins on the drinks and 40% margins on the food; if you factor in the rent attributable to their footprint within the greater property owned by the ParentCo (see org chart), it’s likely This Lemonade Stand is burning cash at a high rate, a situation that is unlikely to abate for at least 15 years.

A Reputation for Poor Quality

This Lemonade Stand was founded on a promise of fresh beverages to “keep you cool” on a hot day. Instead management oversees an operation that merely adds hose water to powdered mix drinks at incorrect ratios. For this they charge above market prices. The lemonade mix is bought in from Crystal Lite, not made from scratch like a premium lemonade ought be. The taste is awful — it has a certain unpleasant bite to it likely from the unholy combination of municipally treated hose water and random amounts of powdered mix. The “cool-aid” is an unidentifiable sugar-free red concoction. Both drinks are of such low quality that many customers pour out their drinks as soon as they are out of view from This Lemonade Stand. While management continues to lean on neighborhood sympathy to eke out what revenue they can, their high costs and reputation for poor quality are causing a flight towards substitutes such as “people’s own fridge” and “nothing”.

Illegal Work Practices

This Lemonade Stand appears to have no business license, no restaurant license, and no permits of any kind. The hygiene of the staff is notoriously bad as they are frequently seen returning from the bathroom with unwashed hands, picking their noses, and leaving their cups on the ground. They make no effort to hide the fact that they source water straight from the hose. Their claim that a portion of their revenue goes to the local animal shelter is unverifiable and possibly untrue. And the baristas who man the stand appear to be no older than 9, clearly not of legal working age. While their customers have been willing to look the other way when it comes to poor quality product, outrageous prices and unclean operations, they are unlikely to tolerate child labor in the long run.

A Study in Unsustainability

While This Lemonade Stand is not currently rated by any of the three two rating agencies(who are we kidding, seriously Fitch give it up), Melissa Moody’s Ratings Alternative Service rated it as BFFLSEBDTTWYMBTARD (Best Friends Forever Little Sister’s Edition But Don’t Trust Them With Your Money Because They Are Really Dumb), one notch above default; such a rating calls into question whether they will remain a going concern. They are burning cash at an alarming rate. To abate that, they would need to increase sales significantly, while improving on the reputation of their offerings enough to ensure repeat business. At present time their liquidity is acceptable, if only because it appears that ParentCo has the will to continue to fund the losses at OpCo. If ParentCo’s cash flows were to come under stress, OpCo would likely be forced to cease operations.

Recommendation: Short This Lemonade Stand, as they are quickly burning through their endowment of goodwill. It has been difficult to find shares to borrow. The market seems to be unanimous in the opinion that This Lemonade Stand is a bagel.

TO: All Employees
Date: February 8th, 1978
SUBJECT: Celebrations of Any Kind

Per Edward Mike Davis’ orders, there will be no birthday celebrations, birthday cakes, levity, or celebrations of any kind within the office. This is a business office.
-MICHAEL D. CARROLL for Edward Mike Davis of Tiger Oil Company

Past Quotes Entirely Relevant to Investing

Mr Juggles: “What do you think about X stock?”
JP Sales: “Oh, I am so sorry. We lost our internet analyst. He’s in bed.”

Mr Juggles: “What do you think about X stock?”
[Mr Juggles hears a bunch of typing, as in typing on a Bloomberg]
JP Sales: “It seems to be hitting the bottom now.”
Mr Juggles: “You’re just looking at the share price on your Bloomberg.”
JP Sales: “Yes, that’s true.”

Recommendation: Don’t talk to your Japanese SalesGuy(s) too often.

Long or Short Capital is a great place to work and was recently voted the number 45,861st best place to work online.* Prospective employees should know that the fringe benefits here are tremendous. Take the daycare that’s available. If you are a a single father or a working mother, you know how few firms offer daycare. For the firms that do, you know how low the quality is. For the firms that don’t, you know that even a second job wouldn’t cover the $3,000 it costs per month. But at Long or Short Capital, the quality is high and the cost is free. How do we do it?

Firm X sees daycare as a cost center, something to be minimized. Long or Short Capital’s daycare segment, called the The Kid Napping Service, sees daycare as a profit center and we do what we can to push volume through it. Our kids are fully engaged, learning and working at levels well beyond their years, while also receiving much needed “naps” of at least 4 hours per day. Our parents benefit from knowing that their kids will be out of their hair for the entire work day and frequently longer.** Now, we can’t get into the complicated details of how our service works as we take protecting our trade secrets seriously, but suffice to say it involves shackles, sheiks, and boats.

All our employees, from our counsel to our cleaning staff, have benefited from increased productivity due to The Kid Napping service we offer. So, if you have kids and want the pride of being a parent without the burdensome time of actually raising your kid, consider working for Long or Short Capital. We don’t even have to pay you and you don’t even have to actually work here. Just sign our employment contract*** and give us your kid, we’ll handle the rest. Thank you.

* Subcategory of fictional online business/accounting/investment advisory firms.
** Result may vary; absences range from 12 hours to forever.
*** Our standard employment contract contains several disclaimers and releases. Don’t worry and certainly don’t waste your time reading them as they are customary for this type of contract.

The next sentence will discuss what the memo will discuss. This memo discusses the risk of criminal liability for those who work at Long or Short Capital. Nothing gives me any reason to suspect that our staff are involved in criminal activity, but the Government’s recent waiver of certain optional social conventions and niceties (i.e. “the law”) means those who work at this firm may be subject to just about any treatment, except for waterboarding in Gitmo (waterboarding via rendition to Saudi Arabia remains above board).

The Government has discarded our traditional notions of due process and fair play and replaced them with a shower of golden benefits from a much older, yet somehow much more progressive rule, Force Majeure.

Force Majeure, from the french La Force Majeure is a legal term of art meaning “because we say so.” In the past, it described the principle that some forces of nature (such as wars, hurricanes, and leaders of unparalleled charisma and photogenic qualities) cannot be resisted, and all normal legal obligations and rights are therefore waived in its face. The doctrine was used as a defense against some poor sucker trying to enforce a contract. The new meaning, however, encompasses the power to re-write contracts. As the eminent commentators on Force Majeure Thomas Jefferson and Mao Tse Tung observed, “power comes from the barrel of a gun.”

Although some may disagree with Force Majeure as a guiding principle for the regulation of life and business generally, surely it is cause for celebration that the tiresome old Hegelian dialectic (Editor’s note: don’t worry if you don’t know what this means, not even lawyers do) has matured and reached its terminus. There’s no more back and forth and no more evolution of belief systems. Instead, the dialectic is looking down the barrel of an AK-47, trying not to crap its Frankfurt School underpants in its Nietzschean Lederhosen, and is being told to “shut the [bleep] up and eat your [bleep]ing vegetables, if you know what’s good for you.”

Recent examples of the exercise of Force Majeure abound. Just the other morning, a law was passed (aka “a press conference talking point”) outlawing the Federal bankruptcy code. Hedge fund managers dissented, noting that when seniority of debt was outlawed, only outlaws would hold senior debt, to which the White House Press Secretary replied, “that’s *so* true.” In another instance, somebody slipped a handful of Roofies into Chrysler’s drink at the Detroit Auto Show, after which it was forced to have sex in a very uncomfortable place (the back of a Pontiac) by some guys from the local Consolidated Union and their swarthy Italian buddy, Fiat, who settled for Daimler’s sloppy seconds.

You’ll do fine once you get used to the new rules. Things aren’t as bad as you think, we should revel in the fact that we have such an effective government under such a charismatic leader, President Ben Bernanke and his amiable bearded smugness. The idea of the Government rewriting your contracts in an ex parte and ex post facto manner seems unprecedented, but I’m sure you’ll adapt to that once you’re used to dealing with a Government that, as Judge Dredd would put it, is Judge Jury and Executor.

Now will you send up somebody to get the severed horse’s head out of my office? The process server brought this thing in attached to an summons cordially inviting you to testify before Senate Banking, and it is beginning to stink. He mentioned something about excessive management compensation and embezzlement, also creative accounting, but I’m not an lawyer accountant. It was difficult to hear him over the whir of my money counting machine.

As some of you may know, there is currently a financial crisis and the world is in the midst of what some heady shops are calling “The Great Regression.” Stalwart banks have been pushed to the brink of solvency and have been coerced by the Treasury into accepting money from TARP. Long or Short Capital, despite record profits and record operating cash flow, is suffering similarly. Last year, we were able to secure a Fed backstop for all our humor liquidity needs from “The Window” Window. However, we never got the same backstop for our “liquidity” liquidity due to the fact that our preliminary TARP approval was subsequently rescinded, unbeknownst to our highly compensated counsel. Recently, due to the macroeconomic headwinds, capital market disruption and (mostly) embezzlement of firm moneys by an unnamed employee (Johnny Debacle), Long or Short Capital was facing a severe liquidity crunch which made it impossible for us to engage in our side business of online reckless real estate speculation.

Facing a funding shortfall, Long or Short Capital re-applied for TARP funds to meet our short term liquidity needs. We were summarily rejected by one Timothy Geithner for being “Either way too insolvent or way too solvent, it’s impossible for us to know, don’t tell anyone, thanks dude.”

We were able to find an alternate funding program, the little used CARP, and we subsequently applied for relief under it. We were accepted into the program, but there was a catch. Instead of giving us cash, they gave us fish, specifically carp. Apparently, and this was unbeknownst to us at the time despite extensive due diligence and despite the retention of our aforementioned highly compensated counsel, CARP stands for “Crappy Asset Relief Poissons“. Paraphrasing something my corporate father told me when I was a corporate small child: “When the world gives you carp, it’s incumbent upon you to make carp juice and then to sell that carp juice to people who are incrementally less sophisticated and who have a track record of paying too much for carp juice.” And that is precisely what Long or Short Capital intends to do.

We are diligently working to renegotiate all our contracts over to a carp basis rather than their current USD basis. Upon the successful renegotiation of these contracts, and with continued support from CARP, we think our liquidity will be sufficient and our solvency situation will correct itself. Provided no one marks that shit to market. We appreciate the patient support of all our stakeholders in these challenging times.

When otherwise smart people start agreeing with the current administration that abrogating the rule of law and long-standing investor protections is a worth-while activity, we are in trouble and the type of trouble starts in “Z” and ends in “BABWE”. Specifically, we have reached the point where it is more attractive to invest in Canada or France. Wow. Never thought I would say that, but I will now say it again — it is more attractive to invest in Canada or France.

Vistaprint (NASD: VPRT) is the “new economy.” They got their start as a company printing business cards and flyers for small and medium-sized businesses. Now they also offer many other products that SMEs like and just launched a email marketing service to let SMEs reach their customers cost-effectively. This is a company that, like Amazon (NASD: AMZN), grows rapidly through innovation and automation. This is a modern business. And because Vistaprint is an online business, it could be run from just about anywhere. In fact, it will be soon due to a move that should serve as a wake-up call to America: Vistaprint is moving its domicile to the Netherlands and its headquarters and CEO are moving to France (?!?!). Why? They think it’s a better place to do business. France!

Here are the reasons Vistaprint thinks Paris is a better place to do business (taken directly from their quarterly report):

• Time zone centrality and flight connections
• Significant and growing Vistaprint operations in Europe
• Corporate history: founded in Paris; first manufacturing in the Netherlends
• Highly stable economic, political, and regulatory environment
• Commercial relationships and tax treaties with countries around the world

Recommendation: When US politicians start protecting the unions in dying industries, punishing investors who provide capital, and making life difficult for innovative young businesses to the extent that they start favoring France for its stable economic, political, and regulatory environment…then the US is officially on the road to the TaxApocalypse. Buy non-US assets and currencies in countries with stable economies and political systems.*

*if you find one of these, please alert us immediately, TIA.

All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake in the day to find that it was vanity: but the dreamers of the day are dangerous men, for they may act their dreams with open eyes, to make it possible.
-T.E. Lawrence

Past Quotes Entirely Relevant to Investing

I am sick to death of swine flu. It has been putting much more important issues on the backburner, like Bea Arthur’s death, all for a flu that has a well known cure.

Real simple here. Are you infected with swine flu? Drink a shot of Sauza Hornitos. If you don’t think you are cured after one shot, administer successive shots until you are cured. Are you not yet infected with swine flu? Drink a shot of Sauza Hornitos. Not to bog you down with too much science, but it’s important to keep your bacteria condominiums and germ houses as toxic so that any travelling swine flu people don’t want to move into them. Are your hands possibility contaminated with swine flu? Rinse your hands in a light 1800 bath while scrubbing with an exfoliating brillo pad. Are your friends possibly infected? Offer them successive shots of Patron until they are softened up, then light them on fire (only way to sure). You desire to have unprotected relations with a swine? Jose Cuervo combines a swine prophylactic with a forget-me not dose that will ensure that you prevents unwanted memories of undesirable hook-ups. While Jose Cuervo does not strictly endorse this on the bottle and it is not FDA approved for this use (yet), this is well accepted in the greater medical community.

Recommendation: Long tequila, especially as American supplies for flu drugs are drawn down and substitutes are sought. While tequila is a time honored cure for swine flu, we recommend staying far away from Tila Tequila as it may in fact be the SORUCE of swine flu, as well as various other infections.

Life is tough ….. It’s even tougher if you’re stupid.
– John Wayne (HT SCH)

Past Quotes Entirely Relevant to Investing

As retained illegal counsel for LoSC, I sometimes perform consulting work for other clients. The terms of our engagement require me to disclose the nature of such work to you where it could create a conflict of interest within the firm. Naturally, I really only perceive such conflicts where the nature of the conflict is such that, it would not endanger our attorney-client relationship, or more importantly my ability to pay for my sweet M5 Beemer or to keep my equally sweet mistress in blow and cheap expensive champagne, the only two things she apparently requires for sustenance.

I was recently retained to perform some consulting work by a shadowy figure who identified himself as Dim Teithner. I do not perceive a conflict of interest here but am disclosing it to just in case, if by some remote and far-fetched chance, Mr. Teithner is in some type of adversarial relationship to you.

Mr. Teithner asked for assistance in crafting a marketing campaign to sell a new regulatory initiative. The thrust of the initiative was that Mr. Teithner’s crew would force a business to take a loan, then
refuse to allow payback, instead taking a novel no-stock-controlling-interest in the business that, to my knowledge, has only been tried in Italy-related businesses.

He needed legal review of the following marketing catchphrases designed by his brightest young staffers, aimed at selling the initiative to a marketplace he indicated was unduly (and shockingly) skeptical of his products. The phrases included:

This is the bottom line, because Stone Cold Larry Summers said so.

Show me the puppies!

Timothy 3:16

Can you smell what Barack is cookin’? and,

Suck it!

When I pointed out first that those lines were clearly based on classic professional wrestling catchphrases, Mr. Teithner threatened to “bend [me] over and stress test your o-ring, mother-[expletive]!” Still, I persisted, and reminded him that in light of the contemplated commercial use, the user would be subject to treble damages under federal law for intentional copyright infringement.

Despite Mr. Teithner’s protests that “I AM the law, bitch,” I persisted and suggested other catchphrases that might be more suitable and legally-compliant themes for Mr. Teithner’s campaign, or at any rate belonging to entities less likely to file lawsuit than Vince McMahon, including:

Resistance is futile!

I am the master of your domain.

I drink your milkshake! I drink it up!

Tell me how my ass tastes!

Arbeit macht frei, aber Wir befreien Ihr Geld! and,

All your basis points are belong to us!

It is not clear to me what course Mr. Teithner will choose to take, but I am sure it will be a wise one. As he explained, “alls he’s tryin’ to do, is run a business heah.”

While remunerative powers of OO are still evident, and if you doubt that fact, google it, confirm it and then realize how wrong you had been. But are there risks or rewards associated with other letter combinations? We don’t want to produce a knock-off of our original analysis, but the answer is a definitive yes.

In December, Bernie Madoff turned himself in for building the largest pyramid scheme in history. In April, Phil Markoff is alleged to have used Craigslist to sell an old couch (pickup only), as well as killing and robbing sensual masseuses. And yesterday, it came out that one Madlyn Primoff made her kids get out of the car and drove off to “teach them a lesson.” What could have tipped off their respective victims? Maybe that these people literally spell out in their very names that they harbor intentions to OFF something.

Going back in history, you see that Nicholas II, last of the Romanov Dynasty (pronounced Roman-OFF), was responsible for destroying Tsarist Russia and his own family. Was it the success of communism, Nicholas’s weak ineffectual ruling hand over an oppressive state full of impoverished peasants, or merely his name that led to all this ruin? While his difficulties offing Rasputin (but note, Rasputin ultimately was killed, a point to OFF’s favor) suggest the former two options, everything else suggests that his fatalism emerged from his name and into fruition.

In Star Trek, Pavel Chekov (pronounced Chek-OFF) is mostly considered a benign incidental person. Like Earth, he is mostly harmless. But in Star Trek II: The Wrath of Khan, his surname’s ending worms its way into the picture:

By the events of Star Trek II: The Wrath of Khan, Chekov has been promoted to commander and executive officer aboard the USS Reliant. In that film, Khan Noonien Singh uses a creature that wraps itself around Chekov’s cerebral cortex to control him and his captain. Chekov overcomes the creature’s mind control and serves as Enterprise tactical officer in the film’s climactic battle against Khan.

Chekov almost gets Kirk and the Enterprise killed as the worm creature reveals his inner “OFF.” Ultimately, Chekov’s switching sides back to the good guys results in the demise of Khan. A lesson that the power OFF is fickle and uncontrollable, not unlike a 2nd year Med Student at a 3rd rate school.

The bug spray OFF is feared by mosquitoes and ticks alike and it’s not because of the chemical formulation that leads them to paralysis and death. I speak gnat, I’ve heard them tell tales of the terror that lurks inside their thoraxes. Aficionados and hobbyists all know how jerking off leads to diminution in vision. Your office is where all your dreams have gone to die. And while putting is perfectly fine, offputting is quite awful.

Recommendation: This analysis has far reaching implications, but you would not be far off in noting how hard it is to invest by. Suffice to say, be wary of any offer. Short Office Depot (NYSE: ODP) and W&T Offshore (NYSE: WTI).