Long or Short Capital

Thanksgiving at its core is about two things. First, killing the Indians with pox blankets and the strong anglo-saxon desire for rapine. Second, being able to give thanks for the things that you do have. As such, these things continue to be my frame.

In the current climate, where doom and gloom lurk in the hearts of men and irrationality and obliviousness continue to lurk in the hearts of women, we think it’s time to go Long Long. And by that, it’s time to long optimism. It’s cheap right now for three specific reasons:

1. If you have seen Aliens then you know things could be worse. Much worse. I mean, as far as I know, no squidlike xenomorph has attached itself to any person or corporation’s head, fed eggs down its throat leading to the birth of a larger more aggressive homicidal xenomorph which has acid for blood. Yet that is exactly what has currently been priced into the market. We are comfortable putting a stake out there and saying no such xenomorph event is likely to actually happen.
2. People are still alive, we expect them to continue to be interested in living and will probably at some point buy things again to aid their desire to survive and procreate; things like iPhones and bottle service. This is pretty reliable cause to be optimistic about optimism as, apparently, this has been happening for 200,000 consecutive years or so. We expect people to still live, to still do things to survive and perhaps maintain a living standard above that of the dark ages. No matter what happens in the next six months, barring a xenomorph situation, this is likely to still be true even if Goldman Sachs is not long for this world.
3. We are at, or past, Peak Roubini. I found him to be interesting and a great resource for many years and he had a certain measure of prescience. Good for him. But at the end of the day, he is just another Euro Prof looking to dip his wick in coeds and suffers from a huge case of the over-exposed. Again good for him. But at this point, I would not be surprised to see NBC come back with a reality show called Dr. Doom and features Roubini flailing Trump over and over again with some sort of Italian leather-whip thing while sipping mimosas. There is a bubble in former bubble callers.

Recommendation: We are optimistic about optimism because it’s just incredibly cheap. Perspective will cause a mean reversion to “Glass-Half-Half-Full” from “Glass-Half-Empty” which would yield a “division by zero” return over a 3 year investment horizon.

This Thanksgiving is going to be a special one for those who work(ed) in finance, so I thought it would be especially helpful to put together a list of what I am thankful for in this new climate:

1. Employment! You are great, I am sorry that I ever doubted your greatness but rest assured I will never doubt your greatness again! Until my personal wealth cycle is back in bubble land and I am no longer under-overcompensated, at which point I will regain a severe disdain for the thing that prevents me from writing my screenplay/novel/landscape painting full-time.
2. Owning a gun! Before I thought it was just a way to overcompensate for what I lacked in my pants, now I realize that it belongs in any pragmatist’s “portfolio”.
3. The Government! If it weren’t for you, these is no way I would be pocketing these unemployment checks which are allowing me to maintain my high cost mistress for 1-2 dates longer than I thought would have been possible after my earning potential suffered a “correction.”
4. A return to hourly wages! Before, when I used to be on salary, I always found it stressful not knowing the discrete amount of time that I would have to spend to make say, $7.15 before tax. Based on several interviews I have been on recently, I know that for me to make $7.15 before tax, it will now take exactly 1 hour.
5. Certainty! Previously I didn’t know when the housing bubble would burst, whether there would be independent investment banks, whether any politicians would be held accountable for cramming housing on people and generally putting the short term way ahead of the long term, whether the stock market could really lose 50% of its value in the post-WWII world and who the biggest dick/fraud on the planet was. The answers were 2007, no, no, yes and Greenspan!
6. Other countries! They are still way worse off than the US and I am thankful for that. The only thing worse than losing substantial wealth and earnings potential is having your ego destroyed. But given that the US is still superior, my ego still beats like the US economy — strong relative to the rest of the world.
7. Debt! Leverage got us into this mess, so I reckon that it will be leverage that gets us out — go leverage! Buy Treasuries! Unless I know you, then I recommend shorting Treasuries.
8. The ability to play fast and loose with grammar in post titles and most everywhere else! I is totally thankful for it.
9. Most of all, our subcriberstakeholdership! Without all of your contributions, none of this would have been possible. And by “this”, I mean specifically fucking up finance, the economy and this country while living an obscene lifestyle for a twentysomething, thirtysomething or an anyagesomething.

This post is much longer than my original one which was just going to be “Nothing, absolutely nothing, you mother fucker”. I do not kiss my mom with this mouth because that would just be weird. Who invented that expression? Oedipus? I am also thankful that he carved out his own eyes. Spoiler alert.

What will an Obama Presidency look like?

Black. No seriously, we elected an African American, and history suggests this has never happened before. Like most people though, history is wrong (Editor’s Note: although history is wrong slightly less often than herstory). There have in fact been many black presidents in America’s past. Our research indicates there is one who is a particularly strong comp to Barrack Hussein Obama. His name is David Palmer.

David Palmer was President for a single term in the early 2000’s, after a charismatic and effective campaign swept him into office. While he handled crises well with his unwavering leadership, his thoughtfulness, and his even-keeled temperament, the very fact that there were so many crises should give pause in any evaluation of his presidency’s quality.

Here is a partial list of what happened during Palmer’s Presidency:

• He was ousted from his position via the 25th amendment during a nuclear bomb threat. He was subsequently reinstated.
• His Chief of Staff, Vice President and other members of his staff were known to betray him and act in ways that could be construed as treasonous.
• High-ranking advisor Lynn Kresge was pushed down a flight of stairs by the Chief of Staff.
• There was a biological threat against the US launched by a Latin narcotics syndicate.
• He divorced his wife, whom it was subsequently made clear was some sort of sophisticated criminal/political mastermind.
• His brother was implicated in the killing of his married lover’s husband, also an important Palmer supporter.

I could go on, but I think you get the drift. It should be noted that Palmer ably guided the country through these crises, but one cannot escape the fact that some of them were wholly created by Palmer’s lack of good judgement about who he surrounded himself with. As Obama selects his staff, consider this precedent. Can we state, unequivocally, that Rahm Emmanuel is not somehow aligned with a crazy hawkish intragovernment syndicate with unclear objectives? Precedent says No. Can we feel comfortable that Michelle is not some backroom political power broker and/or criminal mastermind? Precedent says No.

We don’t know a lot more about Palmer’s presidency, including the quality of the economy, or the specific years, or why he was so often in Los Angeles, but at least we have some idea of what to expect. As an aside, after Palmer retired, he later went on to become an important senior advisor to the Government, and eventually the head of the top secret military unit, the Unit.

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

Many investors have longed (no pun intended) to know which came first, the chicken or the egg. If it was definitively known whether the chicken or the egg came first, then a well-heeled speculator (rhymes with More Close) could corner the market for BOTH by buying up either chicken or eggs. Our research indicates you should make your bed out of eggs and lay in it. According to this report from Japan, a giant chicken egg laid a chicken egg, obviating the need for an ovulating avian.

A second, normal-sized egg popped out of a giant egg laid by a chicken raised at a high school in Shiga Prefecture, a school official said Saturday after breaking open the shell.

…

But school teachers decided on Friday to remove the shell by using a scalpel and tweezers after finding a crack. They later discovered another medium-sized egg inside the giant egg as the yolk and the white portion spurted out.

…

The hot topic at the high school now is whether another egg is hidden inside the second, medium-sized egg.

Recommendation: Long all eggs, especially large eggs which may contain many smaller eggs Russian doll style. Our expectation is that this market will be launched into speculative frenzy when the large pools of capital which read our site read this report. In fact, if you are still reading this report right now and not buying eggs, it may be too late.

“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.

Dear RoW,

Hey there, bro. We see that you have been having a pretty difficult time of late over there in your unspecified foreign countries. We feel your pain.

But bro, we don’t feel bad about your pain. See all these years, you have been telling US how better you are than US. How you are more fair. How you have universal medicine, or don’t believe in playing spin the bottle with the Middle East and being forced to spend 7 years in heaven with Iraq in the closet, or aren’t populated with rednecks, or graduate more science PhDs or whatever. How you are cultured and not obese. How you were smarter than US, how your way was way better. Well amigo, what is the haps now?

Yeah the US has been going down. Shit’s true, can’t deny that. We have had our financial foibles, our credit crises and real estate bubbles. Our stock market has been getting crushed and many of our leading firms no longer even exist. But you, you RoW, your stock markets have been getting even MORE crushed. Your banks are in even MORE precarious positions than ours. Your culture and economy and currency and utopian ideals are all showing cracks and are ready to break. You don’t know what to do and to be honest bro, you’re probably screwed.

And this is by design. Our forefathers claimed America by giving those Indian bros pox infested blankets. And we are claiming the RoW by doling out our MBS, our structured products, our overpriced assets and a little friend called contagion. FYI pox be in all that crap.

When the US wins, we win. When the US loses, we still win relative to the RoW, taking you down more than US. This is why we are the hegemon, bro.

Sincerely,
US

“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.