Long or Short Capital

It appears that our future overlords are putting feelers out on the world which they will soon own. Japanese scientists filmed and a caught a live giant squid for the first time last week (see our previous reseach reports Long Cephalopods, Updating the Cephalopod Position: Shark vs Octopus and The Cephalopod Index Is Officially Out of Control). No, the Japanese are not planning on taking over the world like they tried to in the late 80’s. The squids and their cephalopod brethren are the ones who seek to rise from the depths of the ocean. Or perhaps they would rather simply rise the depths of the ocean?

Who is really behind global warming (see releated research report Make Emissions Delicious, Stop Global Warming)? They claim that it’s carbon emissions or other man-made causes which are the problem. But whenever we want to get the heart of an issue, or find a cause for something, we always ask the question “Who has the most to gain?” In this case, man gains little and potentially loses a lot by causing global warming. Less land will be hospitable, tropical zones will spread bringing with them malaria and a bevy of diseases, less rain will fall, hurricanes will be more frequent and more violent, polar bears will drown, and more land will be underwater.

Think about that last point. Who gains from that? Surely not man, who cannot swim well and is afraid of sharks. Surely not the Grizzly Bear, who while adept in the water and capable of fishing, would need at least a small stone perch in order to defeat a Great White Shark in the wild. Surely not the Cheetah, who while swift on foot, is so inbred that there is not enough diversity in his genepool to adequately fend off disease. Surely not the Platypus, who is famously neutral in all inter-species issues. Who does this logically leave? The Cephalopods, the creatures who lurk in the depths of the ocean, who duel with whales and kill sharks. They will be the masters when the world is underwater and thus they are likely behind global warming.

Recommendation: This small giant squid was location scouting for his leaders, searching out the best landside seastates for future wealthy squids. While traditionally seaside land in warm climates has been desirable real estate, when the squids take over, landside sea will be the real estate worth owning. We do not recommend flipping your seaside real estate for landside sea as of yet (our catalyst would be a sea creature Bastille event at a major acquarium), but we do recommend hedging all your real estate with offsetting sea. This offers an important hedge against the growing likelihood of dominant species regime change. We continue to recommend a long position in the Cephalopod Index, as a hedge against the end of overwater civilization as we know it.

[The investors] said to me, ‘Well how can you continue, can you… do you have the strength, or the will, or the enthusiasm, or so…?’ And I said, ‘How can you ask me this question… it is… if I abandon this project I would be a man without dreams and I don’t want to live like that: I live my life or I end my life with this project.’

-Werner Herzog on why he finished Fitzcarraldo after harrowing setbacks

Past Quotes Entirely Relevant to Investing

Discerning children and adults alike are demanding a Nintendo Wii, the new console by Nintendo (OTC: NTDOY), for Christmas. The demand had peaked as of Wednesday when at any given time 6000 Wii’s were available on eBay and the consoles were selling for $200 premiums over their list price of $250 (compared to the Sony (NYSE: SNE) Ps3 which had fallen to $100 premiums and now sells for about the face price of $600). What do you do get when you can’t afford the premium but want to let your kid or boyfriend know that he will be getting a Wii for sure? Enter the Walmart (NYSE: WMT) Nintendo Wii Gift Card.

Whlie Walmart’s card states you can use the card for any $250 combination of Walmart goods, by having the Wii on the card, it psychologically primes the receiver of the card to not use it for anything except the Wii. The next step is to lock them in and remove the ability to use it for other things altogether.Why give someone cash when you can them a raincheck for a specific item that is impossible to find!

Gift certificates are more liquid than product specific gift cards, so are more likely to be utilized and are worth more than product specific gift cards. Yet both are priced the same with respect to their nominal purchasing power, which means that a gift card offers a worse deal for your child or loved one than simply getting a gift certificate (much less just giving them cash). Show you care by limiting their choice and reducing the liquidity of their convertible gift assets!

Recommendation: Essentially, these are free loans of indeterminate durations made by consumers to corporations. If Wii plants are the victims of sabotage, we would use this as the catalyst to enter into any stock which has forward sold their Wii stock with no delivery date. Also look for firms who find are most effective at replacing their gift certificate debt with product specific gift card debt, affecting a lower cost of financing.

By the way, if you really want a Wii, LoS can get one for you. It’s simple. Just send us $250. We will in turn give you a link to print out an official LoS Nintendo Wii gift card. We cannot say when, but we guarantee delivery at some point in the future, let’s call that date X Xth, 2XXX. At that point you can pick up the Wii from our retail locations*. In the mean time, you can use this to give as a gift in the place of the actual Nintendo Wii (which Wii you would now be unable to buy and receive in time for Christmas because you are a horrible parent who has procrastinated your gift buying) to appease your litter.

Which do not exist

I know you’ve all been wondering about the big question. Would it be possible to work the terms “skin flute” and “chief ankle grabber” into one SEC filing? Well you can stop wondering. Bob Chapman -the alleged inventor of the 13D letter– has done it. For a true Christmas treat please do read the full text of his most recent sketch comedy letter to management (last two pages of this Glenayre Technologies 13D).

A small sample:

On numerous occasions, Chapman Capital has received telephone calls from individuals claiming to be parties other than themselves (“pretexting”), with the occasional delivery of profanity as part of this impersonation. In fact, several months ago we received a call from someone apparently pretending to be “Jimmy Caparro,” who demanded that I personally “genuflect before [him] and play a song on [his] ‘skin flute’.” Though I do not have any knowledge of Mr. Caparro’s sexual preference, I was confident that Mr. Caparro was not the person making that call, even in the highly unlikely event that that this may have been his personal fantasy.

Not only can he write, but Mr. Chapman also claims to have charged wild gorillas, snapped two vertebrae while body surfing, snuggled with a cambodian jaguar in a hammock, and showed up for his first job interview bleeding from the head after a near-fatal motorcycle accident. I’m reading all this thinking, wow, this guy really understands risk and reward, I would like to give him all my money and trust him to prudently preserve and grow it.

As with any larger than life personality he has lovers…(quotes from TraderDaily.com (free reg required))

the best part of his whole persona is that any woman/girl who’s dated him knows what a sweet guy he actually is. My bet is that any detractor on this thread is simply jealous — what a life Bob has led and he’s not even 40 yet! Take it from someone who’s “been there,” the guy rocks.

…and haters

Bob Chapman’s ego is the size of kentucky. He is an over-rated piece of trash. Treats people like garbage and thinks he is a gift to the earth. He manages a small hedgefund in california because he can’t hack it in NYC. His attitude definitly is the cause from having a small penis and being a virgin. He needs a good ass kicking because he is one of the most horrible people I have ever met. I bet he got butt f*cked by one of those monkeys and liked it.

Recommendation: We think Chapman’s overexposure creates liquidity in the otherwise uninteresting hedge fund manager sector. We think there is easy arbitrage money to be made buying his sense of humor and bohemothic vocabulary while simultaneously selling his life insurance policy. This creates a synthetic long exposure to SEC-filed gay jokes but limits your downside risk in case he decides to go nude-snowboarding with the abominable snowman.

There is a consensus that global warming is a problem; not debatable.

There is consensus that the magnitude of the problem has the potential to be ginormous; not debatable (the cause, extent, and likelihood of this potential are all very debatable).

But there is no consensus on the solutions proposed, most of which have more holes than our own ozone (Kyoto), are as of yet unproven (carbon credit trading), or are downright scams (those firms like Terrapass which allow you to “offset the carbon emissions of your car” by PAYING THEM to invest in renewable energy sources or planting trees and crap. Note to the world: you and the rest of the world are likely better off just picking a random publicly listed clean tech pureplay and sticking all your ROTH IRA moneys into it rather than filtering it through these toll collecting middle men. This is the same scam as Fair Trade. And your part in global warming is only slightly played by driving cars, as the bulk of your contribution to the problem comes indirectly from actions you take.).

This is when I use facts.

Fact: There are more people everyday.
Fact: More greenhouse gases enter the atmosphere everyday.
Fact: People need to eat.
Fact: Greenhouse gases may lead to global warming.

Solution: Make greenhouse gases more delicious.

If carbon emissions were delicious, people would eat them, and they, the gases not the people, would either disappear or be processed into harmless byproducts based on science. Despite this obvious solution, there is not a single research scientist whom we’ve uncovered in our digging who is working on a way to make carbon emissions delicious. And it’s even worse than that. The millions of hungry mouths which are added to the world every week don’t demand delicious edible exhaust; they would almost certainly settle for edible exhaust, a much easier bar to clear for any potential edible exhaust innovator.

Recommendation: In the current climate, there is a real opportunity for a company bold enough to place an R&D bet on the nascent “Clean Plate Tech” industry. But more than that for anyone with capital and a conscience, this is also a way to dollar vote for a better future for your children and your children’s children. It is a financial moral imperative to get this done.

In love markets, as in all markets, everything has a price. Listed below is a composite, based on actual trading data from a large market of relationships, of the exchange rates for various relationship activities.

1 day apple picking : 0.75 nights of Poker with the boys
1 week trip with mini-baller friends : 1 asking my gf to move in with me
1 night hanging out with “her” friends : 350 days not hanging out with her friends
1 Brazilian Bikini Wax (for her) : 0.86 trips to Ikea : 0.15 Bikini Wax (for me)
1 unit of taking out the trash : 1.64 nights of her making dinner
1 visit to her family for Christmas : 78 relationship points : 3.4 years of not visiting her family for Christmas
1 affair with her two best friends at the same time : 2 testes (fixed rate)
1 day of watching football : 2.5 hours of Sex & the City : 1 hour of Maid in Manhattan
1 dinner bought by me : 0 anything (based on the rational expectations theory of relationships, you are not compensated for things that are expected)
1 thrown out favorite t-shirt : 1.4 weeks of nude sleep
1 fantasy draft at her apt: 6 months of paying for a cleaning woman to service her apt
1 shopping for bathing suits with her : 17 years of therapy for me

Since some firms already received their bonuses, it’s time to start Raising the Bar

To raise the bar in this case requires an accomplice, henceforth referred to as your confederate.

1. Put a call into your confederate and make sure that they’re within earshot of the person you want to mess with (usually enemies, sometimes friends and always douchebags). This person should be someone who does not work in finance, and who does not have a full grasp of such employment. They shall be henceforth referred to as the mark.
2. Have your confederate make it clear that they are speaking with you, and then start feeding them lines to exclaim aloud.
   Example:
   You: Ask me how my review went, then make an exclamation and ask
   Your confederate: How did your review go?
   You: It went well, they gave me [insert barely reasonable amount then multiply by the Raising the Bar multiplier of 1.2].
   YC: BY ZEUS, [1.2x the barely reasonable amount] is the most ever for a third year. I hate you. [1.2x the barely reasonable amount] is ridiculous.
3. When your confederate is out of earshot of your mark(s), find out if the mark was trying to listen or stopped their conversation. They only need to have heard one side of the above conversation to have absorbed the full effect

The above tactic will have manifold effects. Your mark will be made to:

• Think they’re getting a huge bonus if they haven’t received one yet.
• Think their “investment banker” (I don’t know what (s)he actually does, but (s)he works at XYZ Asset Management, how much do you think (s)he makes?) girlfriend/boyfriend is going to get a huge bonus.
• Hate you for getting more than they will get.
• Hate themselves for not working in finance.
• Feel the above points for no good reason, due to the fact that while those non-finance douches think you’re an investment banker, the reality is that your bonus was probably only $1000 in quarters because you’re an event planner at an investment bank.

It is not history, facts, or intelligence that guide most investors through the final phases of a bull market; it is hopes and wishes.

-Richard Russell

To know values is to understand the meaning of movements in the market.

-Charles Dow

Hattip to Hussman.

Past Quotes Entirely Relevant to Investing

Economists can go on at length about how inefficient Christmas gift giving is and how much deadweight loss is born from the rituals of Saint Nick. The solution is simple and two fold.

1. Replace all gifts with money
2. Buy stuff for yourself and give it to yourself according to our schedule below.

We have provided to you, our reader, a sampling of things which our sophisticated proprietary algorithm indicate that you may like. We recommend you buy them all to improve global Christmas efficiency and buy this stuff for yourself to have right after Christmas.

Money Art

It’s pop art created by a Anthony White, who is both a former Australian stock broker (for real, an actual stock broker) and a genius. The pieces are affordable as far as art goes, and they will only get more expensive on a nominal basis due to the structure of the product, and paintings on the secondary market have been selling for mulitple hundreds at a minimum. It comes in four flavors: USS, Sterling, Euros and AUD’s. It makes a great gift for oneselves and it looks great on the walls of your office. “What is up with that painting?” “It’s money.” You’re damn right it is.

The majority of the LoS staff own multiple paintings and we are satisfied investors (see our earlier report on Anthony White’s Money Art).

Things and Gaming

If you can get a Nintendo Wii, get it. Now. There is no reason anyone who travels and enjoys video games should not have a DS Lite — you can play Mario Kart on it, you can rock a new version of 2D Super Mario Brothers on and it lends itself to picking up/putting down playing. Playing a DS up in first class says: “I’m am so good at my job that I can play video games while you slave away on Powerpoint.”
Meanwhile, the Bunn MyCafe creates delicious caffeinated morning fuel that obviates a Starbucks detour. And the Sonicare will change your life, even if it is only a toothbrush.

Movies

The list below consist of awesome movies that you may have missed. We figure that is more value add than just purely the best movies. Grizzly Man is a must watch, and Murderball teaches you not to feel bad for guys in wheelchair because they probably pull more tail than you do.

Music

These are the prettiest album covers. That is how we pick our music. You will like all this music, that is what our gut tells us from looking at the album covers.

Books

“You Can be a Stock Market Genius” is the best investment book we have read, period. “A Heartbreaking Work of Staggering Genius” is just that, and is by the man behind LoS fav McSweeney’s. “Fooled by Randomness” addresses how most people are stupid about probabilities. “Peace Like a River” is awesome fiction.

Amazon’s Proprietary Stuff You Should Buy Algorithm

Below is what Amazon says you will like based on the content of our site. Which one is better? We will leave that one to your discretion.

LoS’ Amazon Prime Search Engine Partnership

Lastly, LoS is partners with ShipHopShop which provides a site which searches Amazon.com but only returns items which meet the search criteria AND are elibible for Amazon Prime. This saves you the hassle of searching Amazon only to find that your stuff doesn’t qualify for Prime.

Disclosure: LoS gets a % of all revenue created through all the above Amazon purchases. We take that % and distribute it back to our readership via our dividend policy or use it to advertise for the site. We may also, from time to time, embezzle that money to buy more staff yachts.

Rocky is going to win his fight against Mason Dixon. Do not bet against him. I made this mistake when he fought Clubber Lang; I thought wow Clubber looks much tougher and bigger and meaner and faster than Rocky, there is no way that Rocky can win. Don’t fall for it — this fight is fixed.

Rocky Balboa may be 5’8″, 60 years old, speech impeded and not really a boxer, and his opponent may be Mason “The Line” Dixon, a guy who was recently the light heavyweight champion of the world and who kicked Roy Jones’ ass, but Rocky will win this fight. Or he will at least not die. To be safe, I am rating Rocky a “Do not buy” in this fight.

11/11/06: It was recently announced that Sir Equity Go (Me) will be switching form a LIFO to FIFO refrigerator accounting system. This news comes quickly on the heels of a $10 write-off of inventory for “Raw chicken cutlets in a ziplock” that had been sitting in inventory for two months, hidden under the bacon. The chicken’s market value was reassessed at market value which is substantially lower due to salmonella allegations. The benefits of this change will clearly outweigh the negative tax implications.

11/12/06: Sir Equity Go (Me), in a bold reorganization of his food production and consumption process, has announced plans to initiate a Just-in-Time inventory system. The practical application of this shift will require Sir Equity to eat only take-out Chinese food for every meal. While this will streamline his inventory system, it will also likely increase his W/H ratio (Weight/Height) substantially.

Hedge Funds have become ubiquitous in today’s pop culture according to the NY Times. They use this snippet from the long running soap opera “All My Children” as proof:

Soft light gently illuminates two former lovers, eyes only for each other, as they stand on a balcony on a warm, starry night.”Love isn’t like a hedge fund, you know?” Ryan tells Kendall. “You can’t have all your money in one investment, and if it looks a little shaky, you can’t just buy into something that looks a little bit safer.”

Obviously, the writers have no idea what a hedge fund is; they probably assume that it’s where all the stock brokers work. What they should say is that love isn’t like a non-diversified traditional long-only fund.

In reality, love is exactly like a hedge fund. Love is a limited partnership structure (LP), it takes a large initial investment, and is largely unregulated. Frequently, it uses an aggressive strategy, relying on large directional bets and substantial amounts of leverage. The plan is to generate significant alpha (using the Lipper Love Average as a benchmark) but it is not uncommon to see a hedge fund or a love relationship with an unsuitably low Sortino ratio, indicating that it has strayed from it’s raison d’etre. This is a hedge fund (marriage) destined for fund outflows (divorce).

Love is relatively illiquid, such that if it takes on large speculative investments, and develops into something like a live-in relationship or marriage, there will be a lock-up period. This is where derivatives and hedging come into play. According to our possibly fabricated research, the married put was developed specifically for use in reducing the downside risk in instititional marriage markets.

It floors your downside, and there is unlimited upside; if the love falters or a better substitute arrives, you can walk away with no marginal pain. The best hedge funds just as the best marriages understand risk management and create an environment where downside protection is a given.

The ads shown beside my communications in GMail seem wildly off-base far more often than they are relevant. Recently, the ad displayed was a link to MyMonthlyCycles™, offering “free personalized tools to track, monitor, and manage your monthly menstrual cycles!” That’s funny, I thought to myself, I don’t menstruate and — if I were to start — I can’t imagine why I would need to manage my cycles online.

Not two days later, while thumbing through The Atlantic, I saw an interesting short piece describing evidence that menstrual cycles (and the resulting sick days) can explain a portion of the male-female earnings gap.

[Two economists] found that women were more likely than men to miss work in twenty-eight-day cycles. When women turned forty-five, however, the male-female difference vanished…Overall, the study attributes 11.8 percent of the earnings gap between men and women, and 13.5 percent of the promotion gap, to menstruation-related absences.”
-Eve’s Curse, The Atlantic December 2006

Not two days later, I encountered an ad for Seasonique, one of a number of new birth control drugs that prevent women from having their period more than 4 times a year.

Personally, modifying a fundamental body function so drastically seems somewhat dangerous. However, it’s clear that with women managing their menstrual cycles online (always more efficient!) and having less periods (now, with less bleeding!), the gender wage gap will converge by up to 11.8%.

Recommendation: Go Long a basket of females with high PMS spreads (defined as [((PMS Attitude – Base Attitude) divided by Base Attitude) mulitplied by 100]). This will allow the most leverage to the theory of wage gap convergence; if you have concerns about the inherent volatility in any basket of female assets, you can hedge out your female exposure by simultaneously shorting a basket of females with low PMS spreads. This would be a pure bet on convergence without any exposure to the inherent insanity and latent irrationality of the asset class.

There are many ways in which speculation may be unintelligent. Of these the foremost are: (1) speculating when you think you are investing; (2) speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and (3) risking more money in speculation than you can afford to lose.

-Benjamin Graham

Past Quotes Entirely Relevant to Investing