Long or Short Capital

Very suddenly it came, and without forewarning of its nearness, a horror of hellish red light, swift as a wind-blown flame, that leapt from the market’s gloom and sprang upon us where we stood. We saw, in a floating redness as of ghostly blood, the black and semi-serpentine form of the Subprime Exposure. A flat and snakish head, without ears or nose, was tearing at our portfolio’s armor with sharp, serrate teeth. I heard the teeth clash and grate on the tiering credit protection of our CDO.

Swiftly I laid the ring of Greenspan on a stone I had placed in readiness, and broke the dark jewel with a blow of the Hewlett-Packard financial calculator which I carried. From the pieces of the lightly shattered gem, the disemprisoned demon rose in the form of a smoky fire, small as a candle-flame at first, and greatening to a spinning inferno. Hissing softly with the voice of fire, and brightening to a wrathful, terrible gold, Greenspan leapt forward to do battle with Subprime Exposure, as he had promised me, in return for his freedom after cycles of captivity.

Greenspan closed upon the Subprime Exposure with a vengeful flaring, and it relinquished our structured product, writhing like a stern bear struck by a cannon. The body of the Subprime Exposure convulsed loathfully , and it seemed to melt in the manner of wax, changing horribly beneath the flame as it undertook an incredible metamorphosis. Moment by moment, the thing took on the wavering similitude of man.

The unclean blackness swirled, assuming the weft of cloth amid its changes, and becoming the folds of a dark suit such as worn by a government official or conservative business executive. Then, above the cravatte, a face began to peer. The face, though shadowy and distorted, was that of Bernanke. The fire-shaped Greenspan assailed the abhorrently transfigured thing, and the face melted again into waxy blackness, and a great column of sooty smoke arose, followed by an odor of burning flesh. And out of the volumed smoke, above the hissing of Greenspan, there came a single cry in the voice of Bernanke.

Yahoo (NASDAQ: YHOO) benefited from a Carly Catapult when they announced that they had replaced Terry Semel with Jerry Yang as CEO in June. Little did they know that their incoming CEO (informer) was a poker junkie with a serious lack of focus. Jerry Yang has spent the last week plus holed up in a casino and competing in the World Series of Poker, the seminal annual poker event.

You can google this (Yahoo won’t get you the same results because it sucks) and you will see it is true. We did and it is. It is no coincidence that Yahoo stock is down ~5% today as of this updated writing and it is no wonder why Yang says he will need 100 days to do a “strategic and operational review” of the firm. How many of those days will be blown on his infamous poker benders?

Recommendation: While we commend the sheer hubris of taking a week off work as head of one of the largest internet companies to compete in the WSOP, is this really what serves shareholders of Yahoo best? Short YHOO.

Note: This recommendation was filed yesterday based on yesterday’s prices. We have predicted the future, in the past, because we are smarter than you.

Supply and demand is the bedrock of economics, the balance of which ensures cosmic order and more importantly, efficient allocation of scarce resources. But the problem with supply and demand is that sometimes the demand cannot afford the supply. This is where Mugabe Efficiency Theory comes in. Per MET, when supply is too dear, government fiat is needed to price it where demand can buy it. Problem solved, supply and demand clearly balanced and the cosmos is once again in order.

Zimbabweans are shopping like there’s no tomorrow. [In] the aisles of Harare’s electrical shops,…the widescreen TVs were the first things to go, for as little as £20. Across the country, shoes, clothes, toiletries and different kinds of food were all swept from the shelves as a nation with the world’s fastest…economy gorged itself on one last spending spree.
Car dealers said…that a car costing £15,000 could be had for £30[.]

President Robert Mugabe’s order that all shop prices be cut by at least half, and sometimes several times more, has forced stores to open to hordes of customers waving thick blocks of…money given new value by the price cuts. The police and groups of ruling party supporters could be seen leading the charge for a bargain.

…

The impact of the price cuts was felt almost immediately as fuel virtually disappeared from sale after garages were forced to sell petrol for 23p a litre, less than they paid the state-owned supplier.

The so-called “charge for a bargain” is exactly the kind of thing that will stimulate demand into consuming supply and ensure the economy is in a Mugabe Optimal state. If demand could not afford the supply, then the universe would probably implode making Mugabe Efficiency an important policy issue for all those who would prefer for existence to continue.

Economists say the price cuts will only deepen the national crisis, leaving many shops bare because they will not be able to afford to restock while official retail prices remain lower than the cost of buying wholesale or importing. Mr Mugabe has dismissed such warnings as “bookish economics”.

Recommendation: We see no downside to Mugabe Efficiency Theory. If things are made more affordable by force, then more people can and will buy them. This will in turn grow the economy and spur production of….uhm….uhhhh…hmmm

HT to the undervalued Newmark’s Door.

Broadcom (NASDAQ: BRCM) ex-CEO Henry Nicholas is being sued by former Kato, Kato, who is alleging that Henry Nicholas used drugs, spiked rival CEOs drinks with ecstasy, offered whores to clients, and forced Kato the Kato to partake in the drugs. You mean the guy in the middle of picture above is a drug user? I thought he was just one of Satan’s lieutenants on Earth.

The defense by Henry Nicholas’s lawyer is that his client is being exploited by a poed former employee, but that Nicholas was “[an] admittedly high-living technology executive.” Our defense would be “And? Aren’t all these things kinda awesome or at least a notch above playing golf? The defense rests, your honor.”

Recommendation: This makes all the backdated options, sketchy contracts and shenanigans he pulled off while CEO of Generically Named Technology Company, all the more impressive — he did it while intermittedly taking heroin. From my experience with heroin, it’s difficult to comport yourself without shitting your pants, so I can only see this as reason to praise Henry Nicholas for being able to get it done (note: my experience with heroin consist of watching Trainspotting).

Insanity in individuals is something rare – but in groups, parties, nations and epochs, it is the rule.
Friedrich Nietzsche

Past Quotes Entirely Relevant to Investing

(NASDAQ: WFMI) has been pursuing its acquisition of Wild Oats (NASDAQ: OATS) as the FTC has tried to block it. A move we would describe as bold. Bold.

Unfortunately, CEO of Whole Foods, “Rahodeb” has been a little too bold in his efforts to effect the deal.

First, he offered this commentary on the deal to his board via e-mail, basically begging to be pounced by antitrust attack dogs:

“OATS remains a relevant competitor. By buying them we will greatly enhance our comps over the next few years and will avoid nasty price wars in Portland (both Oregon and Maine), Boulder, Nashville, and several other cities which will harm our gross margins and profitability. OATS may not be able to defeat us but they can still hurt us. Furthermore we eliminate forever the possibility of Kroger, SuperValu, or Safeway using their brand equity to launch a competing national natural/organic food chain to rival us.”

Second, he decided to have an “in real life” name that is far too similar to that of CEO of Morgan Stanley (NYSE: MS) with just an “e” sound separating the two. All you CEO names sound alike to me, give me a break here.

Third, following in the big clown shoes of Patrick Byrne of Overstock.com (NASDAQ: OSTK), he thought it would be a good idea to post to an anonymous stock message board about Whole Foods. The company for which he is the CEO. Protected only by the anonymity of an anagram of his wife’s name. I’m undecided if it’s a better or worse call than being a bat-crazy Quixote in public like Byrne. This is less ethical but more competent as as opposed to more ethical and less competent. But this is decidedley worse than not wearing a condom in Haiti, which is our standard threshold for management competence.

For this focused non-dedication to competent and sensible management, we award John “Rahodeb” Mackey with The Patrick Byrne Award for Operational Focus and Excellence. May all your current and future stockholders be warned

Sweet Pickles are a series of 26 books each about an anthropomorphic animal who is alliteratively named for a letter of the alphabet (eg. Bashful Bear, Clever Camel, Doubtful Dog). The characters are hyperbole’s of their stereotypes and predictably teach kids a life lesson along the way. We highly recommend them if you have kids; if you don’t have kids get them anyway – they’re great if you are stoned and giggly and tired of watching Family Guy re-runs.

What we want to do is brand oft-discussed investors, CEOs, and other finance personalities with a Sweet Pickles name that is so fitting it becomes permanently attached to their persona. For example Dan Loeb, we love Dan Loeb but we think he is a bit of an “Accusing Alligator“. Just like the character, if someone stole Dan Loeb’s shoe he would probably blame anyone he could find, even Loving Lion. If our plan works by next week you’ll be at a conference and overhear something like “. . . yeah the short was working great and then Dan Loeb wrote a letter that I needed a thesaurus to read and all it really said is that he thinks the CEO is a homo and now the stock’s up 20%, I mean what an Accusing Alligator that guy is”.

We’ll try to intersperse these whenever we’re recommending long or short positions in our favorite Wall Street divas. If you have an idea put it in the comments or send us a short post and we’ll help label that whiny CEO a ” Temper Tantrum Turtle”.

Accusing Alligator – Dan Loeb
Bashful Bear
Clever Camel
Doubtful Dog
Enormous Elephant
Fearless Fish
Goof-off Goose
Healthy Hippo
Imitating Iguana
Jealous Jackal
Kidding Kangaroo
Loving Lion
Moody Moose
Nasty Nightingale
Outraged Octopus
Positive Pig
Questioning Quail
Responsible Rabbit
Smarty Stork
Temper Tantrum Turtle
Unique Unicorn
Vain Vulture
Worried Walrus
X-Rating Xerus
Yakety Yak
Zany Zebra

Blood diamonds don’t actually contain any blood. Total bait and switch played by the liberal media on the romantic blood enthusiasts out there. The truth is that the current diamond oligopoly doesn’t want to provide consumers with blood diamonds and goes out of their way to ensure not only that the diamonds are not actual blood diamonds, but also that the diamonds are not even so-called blood diamonds. Ridiculous.

This is why we are bullish on LifeGem,to our knowledge the only company out there creating diamonds made out of people. These are actual blood diamonds:

LifeGem is a company offering to synthesize diamonds from the carbonized remains of people or pets. According to Dean VandenBiesen, speaking on the Stan and Terry show May 7, 2007, the company recently became able to create a diamond from a lock of hair.

…

These synthetic diamonds—precisely duplicate natural diamonds in both optical and physical properties—are touted as “memorial diamonds” and range in price from USD $2,500 for 0.20–0.29 carat (40 to 59 mg) stones to $14,000 for stones weighing 0.90–0.99 carats (180–199 mg). The company can extract enough purified carbon from one human body to synthesize up to 50 gems weighing one carat (0.2 g) each. As little as 227 g of remains are needed to make one diamond. Diamonds made from the cremains of pets are priced the same as those made from human remains, but the size of the animal may be a limiting factor. As of March 2005, LifeGem says it has served 1,000 families since the company’s founding.

Recommendation: Long LifeGem; just imagine how blown away your wife/GF/mistress will be when you give her a diamond not only from your heart, but of your heart.

What separates China from the rest of the world? Accountability.

China’s former top food and drug regulator was executed Tuesday after his conviction on corruption charges, state-run news media said.

Zheng Xiaoyu, 62 years old, was given the death penalty on May 29 after being found guilty by a Beijing court on charges of taking bribes and dereliction of duty. Mr. Zheng, the former director of China’s State Food and Drug Administration, appealed the verdict last month, but a higher court upheld it and the execution was approved by China’s Supreme People’s Court, according to Xinhua News Agency, which reported the news.

…

Mr. Zheng and other past SFDA officials were accused of accepting bribes in return for approving the sale and distribution of drugs. This past weekend, the SFDA said it had suspended the sale of a drug widely used to treat leukemia and other cancers after a number of patients suffered adverse reactions.

In the US, Secretary of Homeland Secretary Michael Chertoff still has his post despite overseeing FEMA during the disastrous handling of the Katrina aftermath. Iraq has been a debacle but Rummy resigned without being fired, and — as far as we know — is still standing. Former CEO of Home Depot (NYSE: HD), Robert Nardelli, oversaw a half dozen years of stock price stagnation and walked away alive with hundreds of millions in cash money.

Does the US really get it any more? I mean besides our high standards of living, long life expectancy and unparalleled freedom –things which only matter to theorists, liberals and puppy dogs. Does the US get it?

In China, the state would have culled the bottom 10% and sprinkled their remnants into Meow Mix so that Western cats would feast on soy-meal based bits of their under-performing souls. That is accountability.

If there was a chance that your performance review would end with your execution, you (even Canadians) would be motivated to effect the kind of growth the Chinese have been able to wring out of their rice paddies and toy factories the last 23 quarters or years or whatever.

And just to demonstrate that you can’t be too cruel:

Another former SFDA official convicted on corruption charges was given a suspended death sentence Friday.

A suspended death sentence is a signal to the People to let them know that while Big Boss expects a lot, he is willing to show some mercy.

Recommendation: China gets how to set a tone and stick to it. This is why when the squids take over, China will be their no.2.

In terms of understanding corporate finance, economists have it all wrong when they say “there is no free lunch”. Rather, the more appropriate comment ought to be “somebody has to pay for lunch – and it isn’t going to be me.”
Martin Whitman, Portfolio Manager of Third Avenue Value Fund

Past Quotes Entirely Relevant to Investing

Being that today is the celebration of US Independence from the tyranny of bad teeth, we thought we would similarily set our reader survey data free from the tyranny of us not setting it free.

Long or Short Capital Blog Reader Survey Results

The digest profile of you, our reader:

• Very white
• Very male
• Urban
• 27
• On your way to a post graduate degree or making $100k+ as an “Analyst” in the finance/banking industry
• Republican
• Watch the Colbert Report
• Have not shopped at Wal*Mart in the last month
• And never consume Tequila

We’ll be seeing you there.

When the Journal gets its Page 3 girls, we’ll make sure they have MBAs.
Rupert Murdoch

Past Quotes Entirely Relevant to Investing

Engage.com is looking for a “smart person who gets things done “. That’s how you get done getting other people to get it done. You ask for it.

Hat tip to reader Reg.