Long or Short Capital

We refused to touch credit default swaps. It would be like buying insurance on the Titanic from someone on the Titanic.
-Nassim Taleb (HT CP)

Past Quotes Entirely Relevant to Investing

Submitted by user The Paleofish

Swedish piratery firms present a compelling investment case. Consider:

• Online piratery will surely grow by leaps and bounds with a favorable verdict in the Pirate Bay trial. According to Wired, pirates win either way no matter the outcome.
• Though headquartered currently in Sweden, these pirates can quickly export their piratery services to more hospitable jurisdictions if need be, mitigating most risk of a guilty verdict.
• The Piratpartiet, a Swedish political party devoted to piratery, is building toward the critical mass it needs to earn seats in the Swedish parliament. The youth version of the party received Swedish government funding.
• “Golden Age” market operators are increasingly facing public sector competition for looting/pillaging services.
• Swedish piracy, in addition to its low-cost online model and co-option of the political process, offers wenching assets that offer extremely attractive yields.

In January 2006, we put out a research piece titled Update: Short Indian Ocean Piratery. In our recommendation, we said as follows:

Increased pillaging of dhows is a classic indicator that the local pirate market off the Somalian coast is over-saturated. We recommend a Short position on those markets as they are likely to experience an increase in pirate captures and a decrease in local booty margins. This would be a great time to jump into Latin American Pirate Bonds which are currently yielding a juicy and robust 29%.

With news that an Indian Ocean piratery firm was taken into receivership by the US Government and summarily unwound (75% of their workforce was executed, literally), we wanted to reiterate our short recommendation for Indian Ocean Piratery. Even when supplemented with RPGs and AK-47s, cutlasses and skiffs are no defense against a sniper on a navy destroyer. Competition in the region is only increasing, putting ever increasing pressure on margins, while empirically captures continue to rise. If you invest in that this piratery markets, especially directly, you risk having your portfolio get slaughtered.

In August 2006, we came out with a research report that indicated that signs pointed to the fact that the market had reached the point of Peak Piratery. At that time, we rated the entire industry “do not buy”.

More and more it looks like now might be a time to start dipping your portfolio into piratic pillaging. We think the spotlight being put on the Indian Ocean area will present an opportunity in other geographies, including the Caribbean and the Latin American regions (collectively known as the “Golden Age Markets”), as well as for diversified operators like Piratery Corp Inc. The northwesterly headwinds that the industry has been under pressure since mid-2008 have been abating, and we expect that pillaging operations will move closer to 2004 levels of efficiency. The global wench fleet’s useful life has declined and that segment will still be soft in the short term, but as the pillaging operations begin cashflowing again, piratery firms will be able to pour capex into those fleets and revitalize them, pushing that segment back to historical wenching volumes.

Recommendation: Long direct and indirect investments in non-Indian ocean piratery; shares of Piratery Corp Inc and casks of rum look especially attractive. Short Indian Ocean piratery.

Morons. They are everywhere. But brilliance, true brilliance, should eschew their limiting grasp. As we think important both the recognizing of brilliance and the eschewing of moronism, we are establishing The Andy Beal Award For Eschewing Moronism. Who is Andy Beal and why is he being so honored? He is someone who eschewed moronism, you moron. He sailed his Beal Bank through the choppy loan waters like an extraordinary seaman, navigating it to the point where it has capital to buy loan assets when everyone else is forced selling.

Beal stopped making commercial loans. “If I see another office condo in Las Vegas or Phoenix, I’m going to throw up,” he said at the time. He started selling, too. At a price of 115 cents on the dollar he unloaded a $75 million pool of loans that had been extended to Kmart, exercise chain 24 Hour Fitness and Regal Cinemas. That translated into a yield for the buyer of a mere 1.35 percentage points over Treasuries. “They were great loans at 85 cents,” says Beal, referring to the price he had paid for them years earlier. “They’re stupid at 115.”

He waited patiently for his time to come.

Beal started coming to work at 10:30 and leaving at 2:30. He challenged colleagues to backgammon games and took hour-long lunches, complaining of being “bored stiff.”

He’s not taking help from the government because their programs are scams on the public, designed to only benefit those who acted most irresponsibly during the boom times.

He’s getting scant help from the government. The Troubled Asset Relief Program does not accommodate a guy like Beal because the maximum amount available is 3% of 2008 assets. Had Beal leveraged up his capital to $25 billion and made toxic loans in the last few years, he would now qualify for $750 million. As things stand he can get only $150 million, hardly worth the trouble given the strings attached.

Finally, he berates the government publicly for its duplicity.

After New York state’s highest court ruled against him in a contract dispute in 2007, Beal took out a full-page ad in The Wall Street Journal asking: “When is a contract NOT enforceable according to its clear terms? When it is in the state of New York.”

Recommendation: Although only a baby compared to its predecessor, The Patrick Byrne Award for Operational Focus and Excellence, The Andy Beal Award For Eschewing Moronism is already incrementally more prestigious.

Those who trust to chance must abide by the results of chance.
-Calvin Coolidge

Past Quotes Entirely Relevant to Investing

Everything is ok. Rest your weary selves. Nothing can go wrong here. Put away your tools of ignorance, and put a nice ash bat in your hands, because you are about to go long. Ignore everything you know. Ignore everything you think you know. Ignore learning new things and observing what actual data says. Just look to the horizon and the dawn of a new cycle as we come up from the trough of the old cycle. Put on some James Taylor. Don’t you find that soothing? Easy breezy. Just go with it, don’t fight it, let the market take you home. No there was nothing in your drink, you won’t wake up in pain tomorrow morning, it will be glorious.

Recommendation: I’m just glad everyone got crazy in the RIGHT direction this time. None of this bear BS. Real men delude themselves long, not short.

Submitted by user Bean Counter

To the Board of Directors and Shareholders
Long or Short Capital, LLC

We have audited the accompanying balance sheets of Long or Short Capital, LLC as of December 31, 2008 and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management, despite repeated claims that the responsibility lies with TARP, TALF, ALF and various other entities and bailout programs. Our responsibility is to express an opinion on these financial statements based on our audits and to enjoy the frequent perks and privileges that management provided us with by utilizing the suspended dividend payments. We conducted our audits in accordance with the lessor of SAAP or auditing standards generally accepted in Zimbabwe (GAAPIZ). Those standards require that we do absolutely no planning, and that we perform the audit to obtain reasonable assurance about whether the financial statements are printed on some form of paper. Preferably recycled paper, as to appear “green” and encourage further investment. This audit includes examining, on test basis, evidence supporting the amounts and disclosures spent by management in “getting it done.” An audit also includes assessing the lack of principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation to make sure that it “looks pretty.” We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Long or Short Capital, LLC as of December 31, 2008, and the results of its operations and its cash flows for the years then ended in conformity with the lessor of SAAP and accounting principals generally accepted in Zimbabwe (GAAPIZ).

Bean Counter & Associates

What Mr Greenspan and Mr Bernanke have achieved is historically quite unique. They have managed to create a bubble in everything, everywhere in the world: in real estate, equities, commodities, art, worthless collectibles; even bond prices continued to rise as interest rates fell due to the loose monetary policy. Since 2007 and 2008 everything has collapsed. But government bond prices continue to rise, and went ballistic between November 2008 and December 2008, when 10- and 30-year Treasury yields collapsed. So my view would be that this was the last bubble they managed to inflate. From here on, the government bond market will fall. In other words, the trend will be for interest rates to actually go up.
-Marc Faber

Past Quotes Entirely Relevant to Investing

Mr. Wagoner was greeted with a standing ovation, according to people at the meeting. Employees said they were proud of Mr. Wagoner for defying calls for resignation and insisting the company would not file for bankruptcy protection. Yet at the same time, his resignation Sunday in exchange for financing needed to save the auto maker was characteristic of his devotion to the company he’d joined after graduating from Harvard Business School in 1977.

I find it difficult to reconcile the above with the below.

I hate to be objective and even somewhat supportive of what I see as frightening interventionalism by the Government, but Wagoner simply did not get the job done and has created a large enough sample size of performance for this to be clear. He, like Walter Noel, may have been a great guy, a veritable Jimmy Stewart reborn or Jesus back on Earth, but at his job as CEO of GM he failed and that is the way in which he matters. Not only that, but if you were to overlay a graph of his personal net worth over that chart of GM’s stock price, I bet they would demonstrate a negative correlation. And he should have some humility given that he was ever even named CEO because of how he was named at birth — namism at its worst.

Recommendation: I like defiance, and not just as the name of a battleship. I like the principle of not giving in, of fighting until you die, of righting the unrightable wrong, of marching into Hell for a heavenly cause. But let’s save the celebration for meritorious defiance, like General Anthony McAuliffe or Winston Churchill, as opposed to pridefully clinging to your job or refusing to file a company who could benefit from it.

When Lenin was little, all the birds in the forest were singing
“Man, this is it!”
But now that he’s older, all the sailors in the heaven are singin
“Abandon Ship”

…

Daddy, Daddy, please spare the world from the government
Daddy, Daddy, please spare my soul from my own judgment
Daddy, Daddy, please send me a heart that isn’t made of cement
’cause the money’s all been spent
the money’s all been spent
the money’s all been spent
the money’s all been spent
-Arcade Fire in the song “Lenin”

Past Quotes Entirely Relevant to Investing

This is a sponsored post

Times are tough. If you walk out onto Wall Street these days, it looks worse out there than Oklahoma did during the Depression. Things have gotten so bad that Steinbeck plans to write The Rapes of Math, a sequel to his most famous novel, this time based on the experiences of those in finance. He plans to write this from his grave, after Alvarez & Marsal recapitalize him, restructure his operations and generally work him out. Some people call them vultures; I like to think of them as mad scientists who bill $600 an hour or $200,000 per month to reanimate corpses.

At Long or Short Capital, we have been proactive in our response to the Great Regression. We embezzled as much money as we could before the invisible hand hit the fan, so to speak. Then we stopped our dividend to ensure that we could build an adequate capital cushion to weather this storm. More recently, we have retained counsel to make sure we had adequate cash flowing out of our operation and to cover us from litigation from irate subscriberholders. Now, we bring you this sell-out saturday about this wonderful site called Wall Street Survivor because we really really need the money.

You may ask — how does this site work? Why does it exist? Specifically, how does it help someone survive Wall Street?

I would answer: I don’t know, I don’t know, and by not having you invest fantasy money into fake stocks, respectively. In fact, if you were to have invested your portfolio solely in a portfolio at Wall Street Survivor, you would have outperformed every single major index in 2008 and YTD. There has not been a better time to invest in a fantasy portfolio than the last 18 months and I say that despite the fact I am being paid to write this. I also say it because I am being paid to write this. But Wall Street Survivor has never lost me a dollar, which is something you can build on. Also, as indicated in the post title, I have not been poisoned by their site which is to their credit as well.

It has become apparent to us that in this period of economic catastrophe that there will be an increase in rent-seeking generally, and legal wrangling, specifically. To ensure that we are adequately protected from/by the legal mafia, we have retained our own made esquire, Pleb.

Based on his first memo, two things are clear to us:

1. He is clearly under impression that he is being paid by the word.
2. Long or Short’s executive team and its legal counsel will be in a race against one another to suck all of the cash from the firm’s coffers, while there still remains cash in the coffers to be sucked.

Recommendation: Legal counsel is a market which is clearly not Mugabe Optimal. We think the former lawyers who populate congress should do the right thing and make the supply more affordable for the demand.

Background: As retained counsel for Long or Short Capital, I am occasionally called upon to render illegal opinions regarding current developments. Yesterday my opinion was asked on the House bill which would tax at a 90% rate the bonuses received by those making over $250,000 at companies receiving over $5 billion in TARP funds, including those firms which did not opt to take TARP funds but which were forced to. Specifically, you asked whether this might retroactively abrogate your pathetic mini-baller bonus for FY’08, or at least that’s how I interpreted your questions about whether “Contracts are valid anymore, specifically contracts in situations which have involved gross negligience (e.g. we put all our money in Bear Stearns after listening to Jim Cramer or blew our investors moneys on a series of extravagant lemon parties)”. Specifically you asked (1) whether it was fair; and, (2) whether the law prohibited this.

Brief Answer: Ha ha ha ha ha. You *kill* me. I’m waiting for you to recommend the prime rib, Shecky. Ever since the New Deal-era Supreme Court translated the Commerce Clause into English as “we can do what we want and you can’t stop us,” Congress has been able to take as much of your money as they want, at any time and for any reason. It’s a testament to their monumental stupidity that it took them nearly 80 years to figure this out. Unfortunately for you, they did.

Analysis: First, the law doesn’t recognize the concept of “fairness.” It only recognizes people with highly paid attorneys, who went to the right law school and who are licensed members of an court-sanction conspiracy to restrain trade, aka a “state bar.” Even then it only recognizes us grudgingly, one at a time, and it helps if we frequently lose a lot of money to the law playing match golf. The law “recognizes” fairness in the same way you “recognize” that girl from Ops that you hooked up with in a utility room after the Christmas Party last year – if it sees fairness coming, it will duck into the men’s room until after fairness has gone back to whatever dingy little office (cage?) the managing partner normally keeps it in.

Second, although the Constitution nominally prohibits Congress from singling out a class of people and taking all their money and holding them up to ridicule, you are not classed as “people” under the constitution. Ironically enough, under both the Marxian Critical Legal Theory and the Chicago School Theory of Law and Economics, those who make money rather than just standing there waving around a tin cup are considered “economic production units.” So you don’t really count as people in the traditional sense, except when it is time to figure out how many place settings will be needed at political fundraising dinners. Unlike former slaves (freed by the 13th Amendment), women (enfranchised by the 19th Amendment), drunks (allowed to drink by the 21st Amendment), and the predominantly white male property owners who were formerly protected by the rest of the Constitution, you my dear friend have been liberated from the duties of citizenship, and it seemed only fair to liberate you from the privileges too. Thus, to the extent you “enjoy” Constitutional protection, it involves lying back and enjoying it while Congress has its way with you. Don’t sweat it; my friend Sabina tells me that this is how Rome was born, so whatever transitory pain you may bear is probably justified by the greater good.

The problem here is not the punitive tax policy that concerns you, but the fact that you do not appreciate the religious and miraculous tenor of our times. Just recently, a law that would have protected your bonus was birthed within the stimulus bill without anybody in Congress having written, read, or voted for it. It was signed by the President without his knowing about it, and enforced by Treasury without their awareness. Indeed, it was the Miraculous Conception. Then it disappeared Friday, we are told, ascended into Heaven there to sit at the right hand of Adam Smith, raised [Ed: sic. razed] by the hand of the mighty archangel, “Will of the People.” Not much is known about Archangel Will, except that he does not like you very much.

I warned you about all of this this in a memorandum prior to the last election. A crack legal team working at my firm determined that the current president is the direct descendent of Lion-O, Jesus, Karl Marx and a unicorn of some reknown. The Members of Congress, on the other hand, were found to have descended from the unholy mating of a Know-Nothing anti-Irish lynch mob, William Jennings Bryan and the ghoulies from the movie The Ghoulies. I recommended at the time that you “go long” shotguns and dehydrated food, and “go short” reservations for the Hamptons. I also advised that you should put a stop check on the payment for your listings in The Social Register and Who’s Who Among Financial Advisors. But did you listen? No. The way you ignore my advice makes me feel like your mother, except for the fact that I get nearly three times as much per hour as she does.

Regardless of your fiscal incontinence, a local teleprompter with whom I have good relations tells me that it is important for you to remit payment for my advice immediately. It would be a shame if anything were to happen to your bank account. Specifically, it would be a shame if the IRS were to find out you have one, and that there is money in it.

Your most humble servant,
Pleb, Esq.