Long or Short Capital

They’re here.

A mysterious sea creature up to 7 feet long, with 10 arms, a sharp beak and a ravenous appetite, has invaded ocean waters off Northern California. Packs of fierce Humboldt Squid attack nearly everything they see, from fish to scuba divers. Marine biologists are working to discover why they’ve headed north from their traditional homes off South America.

It’s pretty clear why they are moving north — world domination. Marine Biologists should pull their heads out of their scuba asses and start looking at the underwater financial markets to find out what really is going on.

Recommendation: A mere scouting party, and yet look at the havoc it wreaks. The humboldt squid can get up to 2 meters long. Now consider the fact that the collossal squid can get up to 10 times that size and you start to understand what humankind is facing. As man is on the way out, you might as well continue to profit from it — we maintain our long stance on the entire Cephalopod Index. Also our research indicates that the underlying squid and octopus firms will likely be able to pass on any cost inflation they experience in legs or razor beaks by effecting price increases in their world domination product.

HT to E-roc

Science: How Octopuses get some Octopussy

Lots of potential investors have been inquiring about our take on the Zimbabwean elections which occurred over the weekend and indicate that Mugabe and his party, ZANU-PF, have lost the election to control the breadbasket of Africa, Zimbabwe. Some people seem to think that this means that it is al over for Mugabe and his reign of economic progressiveness with his policy of Zimbabwenomics. Some people seem like they need to get more familiar with Zimbabwenomics and its underlying principles.

• Fact: On a nominal vote basis ZANU-PF lost the parliamentary elections.
  Reality: When you adjust the votes to account for the real rate of tyranny, you see that ZANU-PF won by a significant majority, a veritable tyrannical mandate
• Fact: The elections are over.
  Reality: When you again account for the real rate of tyranny, you’ll see that the elections not only are not over, but they may not have actually taken place to begin with. Reality exists, but only so long as Mugabe permits it.

Recommendation: If Mugabe is living, he is ruling, and since Mugabe recently decided to enact legislation that legally ensures that Mugabe will live forever, Mugabe will in fact live forever. Zimbabwenomics forever.

Facts admitted to in the last 24 hours:

• UBS (NYSE: UBS) needs to raise $15 billion in capital
• UBS wrote down $19 billion
• UBS chairman is leaving
• Deutsche Bank (NYSE: DB) admits they are lying bastards by only writing down $4 billion
• Lehman (NYSE: LEH) is trying to raise $3 to 4 billion in capital

Market reaction pre-opening from the WSJ.com:

Stock futures extended gains as investors opened the books on a new quarter by betting that the latest write-downs from UBS and Deutsche Bank have put most of the worst damage to banks and brokers from the credit crisis out in the open. 9:10 a.m.

Recommendation: Hey everybody, April Fool’s!

Postscript: The Dow Rallied 391 points on the day, no joke

Bear Stearns (NYSE: BSC) shareholders have raised the ante to the ceiling in terms of shareholder activism. Previously, an activist was limited to only inflicting pain on management or the board to eke out concessions and improve the company. But BSC holders have the gun right to the head of the entire US financial industry and it went something like this.

Weekend 0: Listen rest of the world, we stock holders may have negative value and the bondholders should lose money, but that’s just your reality, not ours. It’s pretty simple and it goes like this. If you don’t pay us more, we will bring the whole thing down — we will do it so pay us the money. Pay us $2 and we will go away quietly, and the bond holders would be pleased. You have 24 hours or we blow it all up.

Week 1: JP, we’ve been thinking. No, not about that hooker with the dysentery. Yeah. Haha. No, we never heard that variation. That’s a good one. No really it was good JP, the delivery needs some work but you’ll get it there. Just practice in front of a mirror or your mistress. Anyways, yeah, we have thought about it and that $2 per share for our stock is not enough. What about $10? JP, you got that cash lying around, right? Even if you don’t, here’s what you do, ok? Call the Fed, and ask for Bernanke. Get him to give us at least $29bn in capital, not a penny less. Tell them if he doesn’t do it, we will vote down the deal and blow it all up. Illegal schmegal, he’ll do it. Tell him he has 24 hours.

Week 1.5 to Present: Ok we have $10 but now based on how stable things look, we should be getting at least $15. It’s pretty clear that we’re worth a lot, especially now that the Fed has given us $29bn of the taxpayers money. Btw thanks Taxpayers, we were worried for a sec back there that we might lose some money because we invested in a company that took on way too much risk, never deleveraged enough and that got caught in a squeeze. God forbid, that the equity holders, much less the unsecured bond owners be forced to take a zero or a hit in such a situation. Back to the matter at hand. We want $15 per share in the next 24 hours, or we will blow it all up. All it up. All it. Everything. It. Blown up.

Recommendation:

1. Pick a company that is too big too fail (basically anything publicly traded and kinda banky) that has traded down to sub-small cap levels
2. Purchase the stock
3. Begin hostage negotiation
4. Profit

Pattern recognition and memorization is key…If you do not know the next pattern coming up in a Tron Light Cycle Event…You will lose your life.
-Robert Mruczek in King of Kong

Past Quotes Entirely Relevant to Investing

The movie 21. Normally I don’t care when they do true-story things and take a little poetic license and what have you. Fine, whatever, add a spice of glamor, a touch of Hollywood and tighten reality to make it snappy. But in the case of 21, they made a needless racist edit to the story. The real life MIT blackjack team was mostly asian and middle eastern, and the main guy, Jeff Ma, was asian (he later started PROTRADE). In the movie version, the lead is some banal young white “star” and Kate Bosworth. If an asian dude can’t be the star of a movie about going to MIT by day and counting cards by night…what exactly can he be in except for a kung fu movie? Not to go Stossel, but GIVE ME A BREAK.

Recommendation: Additionally, after almost 20 years of Real World and Road Rules, and several hundred cast members, not one has been an asian guy. Not a single one. Look it up. Surely there are other cool acceptable asian dudes out there in the vain of Bruce Lee and Paul Kariya’s dad!

Upon watching Wile E Coyote and his efforts to catch, kill, skin and eat the Road Runner you may have noticed a recurring theme — Wile was always very very close but never quite caught the Road Runner. While we admire his sticktuitiveness (not a word), we scorn his lack of ever trying the same thing twice. We notice the same flaw in Cobra Commander (CEO of Cobra Inc) and also in Megatron (Chairman of the Board for the Decepticon Group). They all shared the flaw of spending a lot on R&D only to give up upon the first failure of their generally well thought out plans and technology. We always wonder what would have happened if only Wile E Coyote had tried one of these traps/plans more than once — surely the Road Runner couldn’t make the same improbable miraculous elusion TWICE. It’s just not statistically likely that a once in a millennium type of event would happen again. So you should always try a failed genius plan at least one more time per the Wile E Coyote Theory of Management. Well, now we know (and knowing is half the battle).

Now, Mr. Meriwether’s biggest fund, a bond portfolio, has plunged 28% this year….

…

Mr. Meriwether’s recent troubles partly stem from borrowing. His bond fund had $14.90 in borrowed money for every $1 in equity at the end of February, according to the March 18 letter.

…

Mr. Meriwether marketed his bond fund as a lower-risk version of LTCM’s core strategy, of identifying the next financial crisis and profiting from it by buying securities its managers consider underpriced. Investors were told that the firm would aim to keep borrowings below 15-to-1 even during less-volatile times.

…

JWM’s Relative Value bond fund, launched in December 1999, has lost 28% this year through last week after notching a 5.6% return in 2007, according to people familiar with the fund. The recent losses further weigh on the fund’s average annualized return since inception of about 7% through February 2008. The Lehman Brothers U.S. Aggregate Index, a measure of investment-grade bond performance, has returned an annualized 6.5% during that period.

Recommendation: Leverage kills. Short funds that are dependent largely on leverage to generate even sub-adequate returns, especially ones that were amazingly collecting 2 and 20 for it and ones run by people associated with the worst hedge fund blow-up ever, having had their hubris chronicled in a popular book. We recommend that Meriwether be permanently elevated to the role of Chief Investment Coyote and only be allowed to manage the Acme Family of Funds.

Lately, we’ve witnessed a trend towards an increasing an amount of things being hailed as Contrary Indicators. Recent examples include the cover of the Economist (cover says “Wall Street: A Ten-Page Report on the Crisis), the Bearishness of analysts, our own Time Barrons Investing Thesis and the list goes on. Here’s a news flash — almost nothing is actually a contrarian indicator. That’s right. Easy to assume, difficult to prove. Most things are just noise. Just preemptively, here is a list of things that are not contrarian indicators.

• Everyone saying it’s a bottom
• Everyone saying it’s a top
• Everyone saying they’re a top
• The fact that the Democratic party has been labeled a shoe-in to win the Presidency
• A comet hitting the earth (“time to go long solar energy!”…idiot)
• The US winning a Gold in Karate Chops at the Olympic Games this summer
• Everyone agreeing that dragons really do/did exist
• And lastly, everyone thinking that we are not at risk from squids (we invest in squids on their fundamental merit, not because they are a contrarian play)

8. That’s it. 8. They are all worth 8.

All financials stocks are worth 8. (Fast forward to minute 6 or so, it all will become clear by minute 7)

Recommendation: If a financial stock is above 8, short it until it is 8. If it is below 8, maintain a buy until it is at 8.

And you know it hurts my feelings, if nothing else, that the Swiss franc is worth more than the dollar.
-Paul Volcker in an intereview this week with Charlie Rose

Past Quotes Entirely Relevant to Investing

For those of you who are worried about our humor liquidity, let me put it to rest. We will be able to continue to make our articles the best ever because the Fed has agreed to backstop all humor liquidity from their newly opened “The Window” Window. We can use as much as we want. Additionally, the restrictions have been lowered on the quality of the underlying jokes required to be used as collateral; pathetic wordplay jokes pertaining to regression such as “I’m regressing” now qualify along with the more traditional nuanced satirical jokes. “The Window” Window will be open to us for the period of one month from today. Also, “Today” resets every day. As a result of the fact that it is always “Today” we will have infinity months of federally guaranteed humor and we hope to remain humor solvent until this crisis abates. Thank you for sticking with Long or Short in this harrowing time.

The market today was, in technical terms, acting like a drunk. The most common explanation — found on the front page of the WSJ, top headlines on Bloomberg, etc. — concerns the complete destruction of a storied investment banking franchise and the Fed’s move to both lower rates and offer to loan money to anyone who hasn’t blown up yet.

There’s an alternate explanation though and applying Occam’s Razor (but not implying that anyone actually bothered to use it to shave) we believe this alternative explanation to be the more likely driver of today’s madness. Both the Fed and the Market got up early today, hung-over after a rowdy weekend of carousing wherein they had a few too many Guinness and a few too little corned beef and cabbage. The Fed told the Market that what she needed was an eye-opener. Then, not feeling much better, the Market was convinced that what it really needed was TWO eye-openers. 47 pints of guinesses, several 100+ intraday swings of the DOW, a bloodbath in commodities, and a literally immorable blackout later, the Market passed out on her couch with only the after taste of roofies and the burning sensation across her cheeks and lips of having made out with someone with a scruffy, likely peppered, beard.

Things you can buy for $2:

• 2 limes
• 1 organic avacado
• 15% of a drink at a bar
• A pound (sterling)
• A day’s worth of labor from a farmer in the Indian countryside
• Nothing at a strip club
• A payoff of that persistent newspaper boy who wants his $2
• 2.3 cheeseburgers from McDonald’s
• Medicine for an African child for a whole month
• Oh yeah and these guys….

Amazing Bear Stearns (NYSE: BSC) Fact: Their building is worth 3x more than what their equity was sold for.

Well, I vote not to approve the sale.
-Random Bear Stearns (NYSE: BSC) shareholder during the conference call to discuss the acquisition by JPM (NYSE: JPM)

Past Quotes Entirely Relevant to Investing