Archive for the 'Research' Category

Long YOLO Notes

They’re back, dudes, they’re back. Just like those canaries in those coal mines, PIK toggle notes are back and they are ready to party until they are dead because that is why and how canaries die in coal mines.

Scene from a coal mine:
“What’s that gassy smell, Fitz?”
“I don’t know, Mac, but that canary looks like it partied itself to death. Let’s keep hacking away down in this coal mine like everything is a-ok.”

What’s a PIK toggle note? Imagine a debt security that paid you very little each year and then your money back in 10 years if everything goes perfectly, nothing if things don’t go perfectly, and precisely zero if things go poorly. PIK toggle notes (sometimes known as “contingent cash-pay”) meet Dangerous Fund I’s suitability requirements, which are stringent, but they don’t seem to make sense for regular way money managers. Yet they’re selling like hotcakes. BlueLine Rental, Party City, Ancestry.com, Viking Cruises, Infor, BMC Software, Hot Topic and Michael Baker– these are all the PIK toggle flavors that have been available to yield-desperate fixed income shops lately.

While many market observers have scoffed at PIK toggles, we think these MOs are missing the big picture. Namely that these funds buying PIK toggles on behalf of pensions, grandmas, and HNWIs aren’t actually naïve, risk-obsessed maroons. No, these buyers are the ones who truly get PIK toggle better than anyone. These buyers fully understand that PIK toggle notes aren’t really PIK toggle notes at all — they are YOLO notes.

What happens if things go wrong? YOLO. What happens if things go ok? YOLO. Who wants returnless risk? YOLO. These savvy, returnless-risk-obsessed maroons understand the asymmetrical relationship their compensation has to their investors’ risks — in others words, they know YOLO.

Recommendation: Long YOLO notes because YOLO. Really long just about anything because YOLO.

SEC Disclosure: Dangerous Fund I, managed by Tinderbox Capital LLC, a subsidiary of Long or Short Capital LLC, has indiscriminately bought PIK toggle notes to such an extent that it is unclear how much PIK toggle Dangerous Fund I actually owns. Due to the layering of a diversification strategy similar to that deployed in Diversifying Fund I, it is also not possible for Tinderbox Capital to know what its actual positions in Dangerous Fund I are. Tinderbox Capital employs SAAP and “best guess” techniques to estimate their positions. I guess what we’re saying is we might not actually own any PIK toggle notes and if so you can just ignore this disclosure, which — if I’m being perfectly honest — why are you still reading? This is fine print, you’re supposed to tune it out, like the footnotes attached to numbers in prospectuses. This is not the adjusted EPS you’re looking for.


Open Letter to Those Who Would Write For Us

We get countless solicitations from hungry young pups who want to write for us. In the past we have replied one off, but the volume has grown so huge of late that we are posting this open letter to all those who would write for us in a post we have creatively titled “Open Letter to Those Who Would Write For Us.”

Dear Sir(s)/Madame(s)/Cephalopod,

Thanks for your correspondence. We started this site when we were young and only had 20-50 years of investment experience each. We were all at that stage in one’s career when one isn’t too jaded and still has a sense of humor. That stage when one makes a humble eight figures and hasn’t grown too full of oneself — when one can still laugh at oneself while detesting everyone richer and poorer than one. More importantly, we were at that stage when one can still generate abstract financial investments ideas that produce strong inflation-adjusted (key in this era of Quantitative Easy) fake returns.

The entire LoS staff barrels towards that dreaded 50 years of investment experience mark as we type this up. It’s only a matter of time before we read Rick Reilly unironically — we shudder at the thought. As is we still manage to write at a breakneck “almost yearly” tempo. That kind of posting cadence won’t always be possible for us, so your timing in emailing us is…timely. And your taste in sites for which to write is impeccable. Let’s take a sentence here and celebrate you. But we don’t know how funnily you can write. There are 2 ways to prove yourself:

  1. Pay us money. Nothing is funnier than money and everyone knows we have a great sense of humor. An expensively acquired sense of humor if you know what I mean. I think you do. Think of a sum. Then triple it. Then pay us that sum. If this option seems right for you, let us know and we will provide you the appropriate Dogecoin instructions. For advanced bribers, remit the appropriate sums to our Dogecoin address: DPCxKFnmJ86jCciLbnrCBmrgnsWdqcE1qe.
  2. Pass our elite examination. This costs only your soul. What we typically do is have an exercise where we give the writer (that’s you!) 3 things that they have to turn into an abstract financial recommendation. Representative example drawn from past exercise: Syrian chemical weapons, the SEC, and Comic-Con. Good luck. Don’t break 600 words! We then evaluate your submission. If it’s good enough, we refer you back to 1) because we are capitalists and desperately want more money and now that you’re hooked on this whole “getting in” exercise, we likely can soak you for a few more shekels.

If you succeed with either 1) or 2), we can celebrate with a drink. A drink you buy for all of us.

Cheers,
Mr. Juggles
longorshortcapital.com

p.s.

How tall are you? And what’s your vertical leap? We have an intraoffice volleyball league; captains of the various teams will want to know your stats for scouting purposes.


Cypriot Experiments: Mugabe Optimality in Banking

Something is going on in Cyprus. It’s been difficult for us to figure out the details due to the tough conditions: 15 years later we still can’t figure out how to use Bloomberg for anything other than financial AIM (we bloom dudes all day long); ever since Google murdered Google Reader (future murdered, if you’re being technical or pedantic, you bastard), we’ve forsaken all of Google’s products and services — as it turns out, the internet is basically useless without Google, especially since our fallback, Lycos, doesn’t work nearly as well as when we originally designed our internal disaster recovery redundancy redundancy plan.

We’ve had to use phones to talk to people (not in person, thank god) about the situation. Our determination: it’s “not good.” Especially for people that appreciate the service that banks provide wherein they hold your money for you, write it down on a list or whatever, and then give it back to you when you ask for it. This service that banks provide is known as “banking.”

As it turns out, this romanticized version of banking service was not how it always worked out. Sometimes there were panics or runs and you couldn’t get your money out. These panics used to happen from time to time, until most of civilization adopted deposit insurance schemes wherein a national government insures all depositors in a nation’s banks up to a certain amount. Deposit insurance is one reason why North Korea’s banking industry has been so stable the last decade; the other reason is that North Korea’s banking industry doesn’t exist (known in some circles as “Too Small To Fail,” research to follow).

Ok, so now this whole banking thing is fine, right? Panics hardly ever happen now, so no worries? Yes! But also, unfortunately, no. Because markets are weird and adaptive and respond to incentives, and regulations of various kinds have made it such that banks had (and have!) an asymmetrical relationship with risk AND incentives to do things like lend gobs of money at low rates to Greece because it’s “riskless.” In an unforeseeable “Grek” tragedy, these things have led to banking instability, one that deposit insurance can’t address.

But there is an even better way to ensure banking stability, even better than deposit insurance or banks not making terrible loans with no repercussions. Banks can simply take their depositors money. This is the most exciting Zimbabweconomic development since Zimbabwe itself pioneered even freer trade. So while the situation in Cyprus is “not good,” you could also say it could lead to something “really great.” Like this:

The core problem facing the world is banking instability. But right inside their own vaults and on their own electronic ledgers, these banks have the means to enhance their own stability. In Cyprus, they wimped out and deployed half measures by taking something like 40% or 50% of depositors’ deposits. Wouldn’t the banks, and in turns the world, be a lot more stable if they took 100% of depositors’ deposits? This would maximize banking stability and minimize banking instability’s impactfulness on bondholders. We’re not scientists, we’re economists, and this looks Mugabe Optimal to us.

Recommendation: We recommend that banks seize all of their depositors’ deposits. Be sure to call the act something harmless like “lollipops” or “haircuts” or “puppies”.

“The bank bestowed 100% puppies to all its fortunate, stability-loving customers.”

“I went into get my money from the bank and got a trim! I look great! Thanks, Banco Unioni di Cyprus.”

This seizure will be Mugabe Optimal according to the paper we won’t publish featuring the proof we didn’t do about the assumption-heavy autarky we modeled using the math we mostly made up.

Given the world’s likely move to a Mugabe Optimal banking state, Long or Short investors ought exercise caution when depositing money in anything called a “bank.” Safer places for your money include Dangerous Fund I, Dangerous Fund II, any mattress, any resource, any box, any location in your house either hidden or in the open, on your person, hanging out of your pants pocket, pre-buying with your drug dealer, a stripper’s g-string, diamonds, real estate in Zimbabwe, a vanity license plate for your mega-yacht, a vanity license plate for your deep-sea submersible vehicle (the new mega yacht, research to follow), a tar pit, that thing from Star Wars that ate Boba Fett, etc.


LONG CAPITALISM

A concerning trend is whether our leaders actually believe in capitalism at all anymore. Here is a recent speech from Ben Bernanke (it’s pretty boring so prepare yourself appropriately with stimulants whatever their origins):

Today most advanced industrial economies remain, to varying extents, in the grip of slow recoveries from the Great Recession. With inflation generally contained, central banks in these countries are providing accommodative monetary policies to support growth. Do these policies constitute competitive devaluations? To the contrary, because monetary policy is accommodative in the great majority of advanced industrial economies, one would not expect large and persistent changes in the configuration of exchange rates among these countries. The benefits of monetary accommodation in the advanced economies are not created in any significant way by changes in exchange rates; they come instead from the support for domestic aggregate demand in each country or region. Moreover, because stronger growth in each economy confers beneficial spillovers to trading partners, these policies are not “beggar-thy-neighbor” but rather are positive-sum, “enrich-thy-neighbor” actions.

Did you notice it? That speech was less than 1% capitalistic. Shocking, I know, but it’s not a new trend.

Here is an excerpt from President Bush’s September 2008 speech on the financial crisis:

Financial assets related to home mortgages have lost value during the house decline, and the banks holding these assets have restricted credit. As a result, our entire economy is in danger.

So I propose that the federal government reduce the risk posed by these troubled assets and supply urgently needed money so banks and other financial institutions can avoid collapse and resume lending.

This rescue effort is not aimed at preserving any individual company or industry. It is aimed at preserving America’s overall economy.

Bush does a little better but is still less than 1.5% capitalistic. It’s less capitalistic than this communist scrawl:

Никита Сергеевич Хрущёв

We can find few if any world leaders who resemble true capitalists. Most only deploy capitalism when it’s mandated by structure, like right after things have hit a full stop, or in situations wherein to not do so would be an embarrassing faux pas, like in America.

Recommendation: It’s time to return capitalism to its roots. It’s time to shuck off the tyranny of lower-case letters and embrace capitalism in its purest form. THE TIME IS NOW. IF WE CAN START BELIEVING IN CAPITALISM AGAIN, WE WILL GET THIS COUNTRY (AND THE WORLD IT CONTROLS/OWNS/EXPLOITS/”TRADES WITH”) GOING IN THE RIGHT DIRECTION. ASK YOURSELF: AM I A CAPITALIST? IF THE ANSWER IS “YES,” THE ONUS IS ON YOU TO PROVE IT BY YOUR ACTIONS AND YOUR WORDS. LONG CAPITALISM.


Diversifying Fund I

Tinderbox Capital LLC, an incendiary investment management firm and subsidiary of Long or Short Capital LLC, announces its third fund, Diversifying Fund I.

Diversifying Fund I will specialize in offering the purest form of diversification available to investors. Tinderbox Capital will allocate physical cash into a physical box that we’ve painted black. This box will be known as the Black Box of Diversification. After that, no one knows what will happen to that physical cash. Anything could happen to it. It could double. It could halve. It could triple. It could third. It could N. It could 1/N. It could become sentient, take all your money and bet it on 17 at a roulette wheel and make you crazy rich. No one knows what happens in the Black Box of Diversification. That inability to know what returns your cash will generate provides you with an investment product that has no correlation to any other investment or asset class. Tinderbox Capital’s due diligence process for Diversifying Fund I has consisted mainly of practicing typing “diversifying” really quickly (seriously, try it, not as easy as it looks).

Tinderbox Spokesman Johnny Debacle:

“Assets in the investment universe are crazy correlated. There is probably a way to quantify this, but that seems difficult. Difficult does not fit our business model. As things get especially bad or as market participants pile into the same formerly exotic and diversified assets in the endless quest for yield, cross asset correlations push ever higher. What people need is the ability to truly diversify their portfolios. They need Diversifying Fund I.

Our last two funds, Dangerous Fund I and Dangerous Fund II, filled the niches they sought to plug. Each has been panacea to investors who were overweight return and underweight risk. “Riskless risk” is the most efficient risk producing innovation that any investment management company has designed yet, despite how hard Paulson & Co have been working at their own proprietary solution(s). Now it’s time for us to do for Diversification what we did for Risk. Also, Dangerous Fund II is a smoldering pit of dollar bills from which we’ve already harvested all our fees, and we need to feed our families…really expensive platinum-plated snow leopard sushi designed by Apple.

Diversifying Fund I will offer the fullest diversification available to investors. Tinderbox Capital will charge a traditional 2 and 20 fee structure for managing Diversifying Fund I. 98% of investor subscriptions will be allocated to the Black Box of Diversification and 2% to the Reserve Box. Management fees will be collected from the Reserve Box. The Reserve Box will be painted green to assure that we do not confuse the Reserve Box with the Black Box of Diversification. We make no guarantees that we will not either intentionally or unintentionally confuse the two boxes. This lack of guarantees offers another layer of diversification. Performance fees will be determined by applying 20% to arbitrary amounts taken by management from the Black Box of Diversification. Any investor who wants to redeem their investment from Diversifying Fund I is free to make such a request at any time. Upon the receipt of such a request, we will stick our hands into the Black Box of Diversification and remove some cash. Then we will likely put the cash back into the Black Box of Diversification because our management agreement gives us discretion as to whether we honor redemption requests. This discretion provides yet another layer of diversification. See the prospectus for more details.

We know that young risk-seeking investors demand places to put their money to work, places where they can allocate $10,000 and potentially lose it all. This is the niche that Dangerous Fund I filled. We also know that young risk-seeking investors demand places to put their money to work, places where they can allocate $10,000 and certainly lose it all. This is the niche that Dangerous Fund II filled. Dangerous Fund I and II are appropriate for investors whose portfolios are overweight return and underweight risk and are thus seeking proper balance. Now that these young investors have portfolios that are perfectly balanced with respect to risk/return, they need diversification. Diversifying Fund I is appropriate for investors who portfolios don’t have enough diversification

This fund may not be appropriate for everyone, but for you it’s perfect.”

Tinderbox Capital LLC is an investment firm that offers a focused set of investment products to a global institutional and high net worth client base. Tinderbox Capital LLC is currently structured to directly manage strategies in so-called “dangerous” trades, to literally light money on fire, and to allocate physical cash into a physical black box where anything could happen. Despite this structure Tinderbox Capital is uniquely unqualified to manage your money well and uniquely qualified to manage your money poorly.


Long the Wealth Effect

We admit that we doubted the zimbabweconomists who said “this will work, trust us, we’ve never been wrong theoretically,” but the wealth effect is working. We feel GREAT. More importantly, we feel rich. So much so that we are using a new word to describe our riches — wealth. And all that wealth burning a hole in our pocket? What’s a mini-baller to do? Spend spend spend spend spend. We are spending 5x more than we normally would thanks to our new permanently elevated levels of riches, our new so-called wealth. And that spending has beget job creation in the economy. Last week, feeling flush with nouveau wealth, I personally spent $40k to buy windows and $10k to hire homeless people to break those windows in a sort of informal mad-dash shopping-for-dollars-cum-breaking-windows competition. It was inspirational. This actually works — unemployment has never been lower according to current theory I think. The economy is growing at record levels (depending only on how you define these words: “economy,” “growing,” “record,” and “is”).

This wealth effect has radically changed how we evaluate investment opportunities. Never in my life would I have considered buying a CCC junk bond at 110 to yield 7% (quick ratings guide: BBB = investment grade, BB = fine company, B = either a fine or a sketchy company the ratings agencies have no clue which, CCC = this will default just give it a few years, D = this defaulted like we said when we rated it BB uhhhh we’re not good at this). Today? Shit, I’ll take it at a 6% yield. I mean my alternative is earning 0% on basically everything else. Plus I feel wealthy, isn’t this what wealth affected people do? Buy dumb shit?

The universe of potential investments has never looked larger. Anything that hasn’t had all the yield squeezed out of it is acceptable. And we do mean anything. Do you have any CLOs made out of REITs on offer (in all seriousness that doesn’t sound half bad)? Does Hollywood need any money to help make Mystery Men 2? Just send me whatever form I need to fill in, my permanent wealth is in.

Recommendation: Don’t hate the theory, hate the game. Long the Wealth Effect.


Long Mitt Romney

Things have never looked worse for Mitt Romney. We think they can only get better.

Since securing the Republican party’s mandate, Romney had hovered near a coin-flip to beat The Obama. Then Romney made the unfortunate mistake of personally insulting half the country in attempt to secure votes, an unconventional and seemingly unsuccessful strategy. Romney’s odds have subsequently cratered down to near 20% per Intrade, while FiveThirtyEight has him at less than 15%.

His performance in general suggests nothing more than a guy who wears laundry emblazoned with a big ol’ “R“, under which he has some sweet special pajamas. Romney has shown himself to be a phony suit who is bad at talking, an unfortunate status when running against a cynically empty suit who is good at talking. It’s easy to get caught up in the negatives of Romney’s candidacy and his situation.

As abstract value investors, we can’t help but look at the positives. Namely, Romney’s outstanding fundamentals: his strong chin, his fantastic hair, his above average height, and, most importantly, his maleness. The fundamental ratios are off the charts, no matter how you look at them. ChinHair:Age-35, Height:Avg Height, Trailing Acute Angles Outstanding, etc. The man seems like he should be the President. Seriously, look at him.

Recommendation: Long Romney. Investors in Romney’s Initial Presidential Offering bought in at a price of Likely President; the sell-side threw out consensus targets of Two-term President as soon as publishing began. That’s the past — those investors’ portfolios have so much red in them, they look like the punchline of a Kermit-in-a-blender joke. And it’s ridiculous to project that Romney will ever trade up to President. But his fundamentals are so strong that there is a floor in how badly he can trade; we still think he can bounce back to Yeah, You Can Kinda Imagine Him Having Been President.


Short the Humblebrag

While making out with Kate Upton last night, it hit me. I turned to KitKate, my name for her, and stared straight into her eyes.

“Baby, I just had an idea.”

Her eyes stared back, empty just like her head.

“Baby, my idea is really true.”

It was then that I realized that I hadn’t actually been staring at her eyes but at her breasts, her perfectly shaped, amply proportioned breasts, the ones I got to play with every single night — if I cared to. I turned my gaze upwards, towards her pretty little face.

“Baby, this humblebrag shit is really just a way for the user of the term to show his or her audience that they themselves are ‘cool’ enough to be up-to-date on hipster crap and memes — the tired act of labeling something a ‘humblebrag’ is itself a ‘humblebrag’ of sorts.”

She stared back, a gaze still empty just like her head, an empty head that now nodded in dumb consent. Then she fed me a hamburger which my buddy, Bobby Flay, had been preparing in my kitchen. I removed my hands from her breasts, their usual location on Tuesday nights like this, and walked towards the window, still chewing delicious bites of my buddy Bobby’s burgers.

I surveyed Central Park through the floor to ceiling windows, taking it all in. Behind me, Kate hadn’t moved, but her eyes now devoured the burger that remained half-eaten in her hand. I pulled out my iPhone 7SG, the one Steve Jobs left me in his will along with the words “Only you can follow in my footsteps, JD, take this future phone and change the world [by selling overstretched global consumers luxury phones that have a closed ecosystem which lock them into your company forever]“, and placed a call.

“Hey Gosling, what’s up. No, I’m here with Kate and Bobby. No, Upton not Beckinsale. It’s Tuesday, dude. Yeah, just chilling. How are things with you? Cool cool. So I was thinking, don’t you think this humblebrag shit is played out? Like it’s a weird obsession, because is it really a bad thing to humblebrag? Isn’t it preferable to humblebrag then to brag? Usually it’s just a way of being factual for someone who has a much better life than you, or even someone who had a marginally better situation happen to them than you. How else can you ever share any good news? Or anything that is cool? And the person calling out humblebrags is being hypocritical and douchey. Yeah, I knew you’d agree with me 100% Gosling — that is why we’re best friends, I guess, hunh? Anyways, good talk. I have to go finish the rest of Flay’s burger before Kate does. You know how Kate can get! Also, see you at Jay-Z’s white party next week. Ok, cool, later man.”

Recommendation: Short the Humblebrag. It’s been around for a year and it’s as tired as the Kanye meme. We’d be overweight the vanilla Brag, but we’re too busy racing each other in the flying cars we bought with the bonuses we paid ourselves from successfully raising Dangerous Fund II.


Dangerous Fund II

Tinderbox Capital LLC, an incendiary investment management firm and subsidiary of Long or Short Capital LLC, announces its second fund, Dangerous Fund II.

Dangerous Fund II will specialize in lighting money on fire. Tinderbox Capital will allocate physical cash into positions in which it will ignite. These positions will include the log cabin, the teepee, the lean-to, the obscene pile, the model bonfire, and the Scrooge McDuck. Tinderbox Capital’s due diligence process has consisted of earning merit badges in the arcane arts of fire-making at Camp Cedar, where the fund managers were also prepared for life in the real world by their indoctrination into Camp Cedar’s so-called “Color Wars.”

Tinderbox Spokesman Johnny Debacle:

“The investment management universe is inefficient at providing risk. We find this to be the case because the investment management universe is structurally obsessed with return. Our last fund, Dangerous Fund I, has performed very well, we think, losing so much money and doing so in such complicated fashion that it’s been difficult for us to calculate just how much it’s lost (rest assured, investors, you lost a lot and did so very riskily), so difficult that we may have just given up and started focusing on launching our new product, Dangerous Fund II. As an aside, our lifestyles are incredibly expensive, so expect the cadence of new products to increase and the quality of our management of old products to necessarily decrease. New products are where we make money, old products are those that we neglect.

We’ve learned several lessons from Dangerous Fund I, lessons we plan on incorporating into new products.

First, if your funds’ returns are improperly calculated because of complexity, sloth, or indifference, the investors are receiving another layer of risk on top of the risk they have in the underlying investment. This risk would be known in some circles as “Reporting Risk,” if those circles were dull and uninspired; since those circles aren’t square, that risk is known as “Nauditing Risk.” The creation of Nauditing Risk is something that can be marketed and sold. More on that later, probably in 2015.

Second, there is excess demand from investors for so-called “simple risk,” e.g. risk that generates no return whatsoever and does so with certainty. This is known in some circles as “The Keno Certainty Principle” or “Riskless Risk.” Dangerous Fund II is designed to mine this rich vein of risk appetite.

Dangerous Fund II will seek to disintermediate the middleman from the process of lighting money on fire by physically igniting investors’ dollars for them. It will generate the highest levels of Riskless Risk in the industry. It will charge a traditional 2 and 20 fee structure, which fees will be collected from the Five Year Fee Reserve, which reserve will be set aside whenever investors put money into Dangerous Fund II. See the prospectus for more details.

We know that young risk-seeking investors demand places to put their money to work, places where they can allocate $10,000 and potentially lose it all. This is the niche that Dangerous Fund I filled. But we also know that young risk-seeking investors demand places to put their money to work, places where they can allocated $10,000 and certainly lose it all. This is the niche that Dangerous Fund II will fill. We give you all the risk you will ever need and guarantee that we will either potentially or certainly lose it all. Dangerous Fund I and II will be appropriate for investors whose portfolios are overweight return and underweight risk and are thus seeking proper balance.

We just need your money to fuel our fires.”

Tinderbox Capital LLC is an investment firm that offers a focused set of investment products to a global institutional and high net worth client base. Tinderbox Capital LLC is currently structured to directly manage strategies in so-called “dangerous” trades and also to literally light money on fire. Despite this structure Tinderbox Capital is uniquely unqualified to manage your money well and uniquely qualified to manage your money poorly.


Short Structural, Long Cyclical

Time is tough. People struggle to understand it. We can make sense of what’s happening now, can kind of remember what happened in the recent past, and can’t fathom the long-term. All of this is probably because of Twitter or because people no longer write each other long, boring letters like they did during the Civil War or ancient Greece or whenever. For whatever reasons, our attention spans are not only short, but also narrow, able to understand history only as if looking at it through a roll of paper towels.

It is increasingly apparent that everyone — investors, politicians, businessmen, consumers, etc. — have mistaken cyclical trends to be structural in many different areas. We are now at a crescendo as the long arc of history turns and heads back down in the other direction. This is a great opportunity to take advantage of people for whom the short term (the last 1 year, the last 3 years, the last 10 years, the last 30 years, depending on context) is the only relevant term. This is most everyone. It’s a rather large opportunity.

Some facts:

  • Global interest rates are not in secular decline. They have been in a 30yr cyclical decline and the 30yr reversal is now in process.
  • China is not locked in a structural vendor financing agreement with the US & EU. They are ending a long, cyclical run with an under-priced currency.
  • Europe’s imbalances are not the result of a structurally strong, responsible Germany and spendthrift periphery. They are the result of a cyclical trade imbalance due to domestic policies that increased German exports and savings rates while the inverse was true in Span, Greece, etc. The swing is coming back the other way now.
  • Keynesian intervention was not a structural improvement in the operation of the modern fiscal and monetary apparatus. It was a cyclical increase in leverage, starting from a time of low leverage and great demographics. Prepare for the payback.

To quote myself from The Model Business Model: “What is that expression? How does it go? Shit’s way different at this point in history, dude?” Maybe, just maybe, it’s not so different. Maybe we’re just lacking the benefit of the full context.

Recommendation: Short the so-called structural trends. Get long the true, underlying cycle.


Melissa Moody Does Greece, or Rather a Greek

Greece

Previous Rating Greece: BFFAE (Best Friends Forever and Ever)
New Rating Greece: Whore

Ratings Rationale: Just when you think you found the one, you realize that the one is not…the one. He was so hot. A beautiful specimen. OMG, he was a god, a Greek God, an actual Greek God. He went by Helios. I wanted to prove my independence after I graduated college, so I drew down on my parents’ savings to finance a 6 week back-packing trip across Europe’s five star hotels in such exotic places as the Riviera, Croatia, Cinque Terre (too cute for words), and lastly, and amazingly, Mykonos.

This is where I met him, my Helios, the perfect man. He had long dark hair, Helios did, and so much charisma. He showed me around town, me with arms wrapped around his waist as he steered his scooter along sea roads. He lavished me with drinks, booked us in a lovely little hotel where our room had a balcony that looked out on the water. And in bed, let’s just say my world was his oyster. Or maybe his oyster was my world? I’m really bad at metaphors like he was really good in bed. No austerity anywhere to be seen.

But one morning I woke up and he was gone. He had retired to some location unknown, maybe to put in some face time at the “job” which he’d mentioned once in passing but which he never seemed to have to go to — not unlike how the married men I’ve slept act towards their families. In his place on the bed was one thing: the bill. He was asking me to finance his romancing of…me! He’d LITERALLY left me with the bill! I felt used, betrayed, like our entire relationship — his trade of money and time and hotness for my trade of young, female and American attentions — was for naught. So frustrating!

When he came back, after spending two hours at his “job,” a glass of ouzo in one hand, I confronted him, waving the bill in his face. He said some stuff in Greek to me. I stared back blanky. It was actual Greek. 10 years of boarding school and I only knew classical Greek. Then, in his bedeviling broken English, he said: “Look, toots, we both got something out of this, so let’s drop the naive kitten act and start calling a spade a spade. What we had was swell, baby, while it lasted. But I’m no Croesus, baby. You’re American, so you’re probably not cultured enough to know who he is, but Croesus had real money, mega bucks, baby. But me, I don’t have a pot to piss in or a window to throw it out. I just have an unfinished (for tax purposes) condo in Athens, a vacation home in Mykonos, an investment property in Turkish Cyprus, and an 8 hour per week job that pays peanuts, only €150,000 per year under the table. So, see, I can’t handle the bills for our little fling, these threads, or even these digs.”

I had never noticed that his bedeviling broken English took all its euphemisms and structure from 1940′s B movies. I looked him in those rich chestnut eyes. “This has to stop now, Helios. I can’t afford to continue to subsidize us. Either you leave this union, or pay me back.”

“Ok, it’s going to be ok, baby. We’ll work something out, you can bank on it. Just give it a little time, a few more days, or months, or years, or decades. I’ll put up some of my assets. Maybe my yacht or this little island I own. The whole kit and caboodle. But before I do that, why don’t you and me and a bottle of ouzo go for a weekend in Athens. We’ll take in the sights, we’ll see the people, I’ll take you for a spin, a real wild time, kitten.”

2 years of daily back and forth and amazing moments — moments even better than my JYA — later I came to my senses. Melissa Moody realized Helios wasn’t going to pay her back. He was my Greek God and he was great. But he was an irresponsible debtor, with no interest in austerity and less interest in repaying debt. He could, maybe, but he wouldn’t. And my parents are super rich relative to what money of mine he spent, so it didn’t really represent any systemic Moody family threat; we just wrote it off. But it was the principle of the thing, and I’d say it set a really bad precedent for my other more expensive long-term flings with Joao, Donal, and Sergio.

Ratings Methodology:
Hey everyone! It’s me, Melissa Moody…not that other Moody, Moody’s, you have been reading about. Actually that’s why I’m here I’m just so sick and tired of that other Moody! Their ratings stink, and they don’t know nearly as much as I do about debt, it’s true, I’m maxed out on 4 out of 7 credit cards I know I have a problem but I just can’t stop,ha ha. I can do a better job than Moody’s and that is what I’m gonna do! And let’s face it, their old ratings were too complicated. I mean Aa3, Baa1, Caa2, B1 who knows what that means? My ratings will be simple:

  • BFFAE (Best Friends Forever and Ever)
  • BFF
  • BFFLAF (Best Friends For Like Almost Forever)
  • BFFBAS (Best Friends Forever But Also a Slut)
  • BFFBIHH (Best Friends Forever But I Hate Her)
  • Whore


The Model Business Model

Notwithstanding its conservative investment portfolio, the central bank remains highly profitable because of its unique business model. Rather than paying for funding, it simply creates the money that it needs at no cost. The return on its investments, as a result, almost all flows directly to the bottom line.
-NY Times

So simple and so beautiful. What kind of genius entrepreneur would invent such a perfect business model? “Economist” John Law of the 17th and 18th centuries. Not only did he invent the perfect business model, but he also made significant advances in the business of Bubbles. How did his business model innovation turn out? Like most incredibly brilliant men who come up with bold ideas too early, John Law “ultimately fled the country disguised as a woman for his own safety.” 10 years later, Law “contracted pneumonia and died a poor man.” This is all according to Wikipedia, which, according to Wikipedia, is the source for the unvarnished and unbiased truth.

In the twenty-teens, our central bankers are much more advanced, more ethical, and more American. Importantly, they also look way less good in drag and wouldn’t “pass”. There should be no way this ends as badly as all the other times this has been done. What is that expression? How does it go? Shit’s way different at this point in history, dude.

Recommendation: Long the best business model, short all inferior business models, as the former will compete away the latter.

HT to the Paleofish


Solutions to Problems: Healthcare

Healthcare continues to get ever more expensive. Healthcare is crucial to quality of life in America. How best to reconcile the former with the latter is an issue that has divided, and will continue to divide, people along many lines: have & have-not, 1% & 99%, Republican & Democratican. Healthcare is an issue, I agree. But it is an issue that, despite whinging by just about everyone (especially meek cries your ears can pick out from hospital beds in the distance), is eminently solvable. Simply, kill the sick.

Most people are small-minded and only consider what is lost, which, in this case, is sick people. But think of all the savings! It’s a difficult pill to swallow that things get expensive when there isn’t enough of them, so it’s difficult to swallow that there isn’t enough healthcare for the amount of sick people. Historically, society has dealt with expensive healthcare by increasing the amount of it; classic 20th century thinking and demonstrably too expensive. The right way to cure this ill, to make healthcare cheaper, is to decrease demand by ridding ourselves of the (almost) dead weight that the sick represent. The absence of the needy sick will make hospitals, doctors, pill-makers, breast implanters, and the whole healthcare system compete for customers, healthy customers who have practically no ailments whatsoever. Prices will plummet, affordability will skyrocket.

It’s time to live in the future, the future that is now, the now in which a modern healthy consumer can no longer afford the continued living of the unhealthy consumer. How else can a healthy modern consumer afford $15k per year to tutor each kid on top of the $50k he spends to send each to private nursery schools starting in pre-pre-pre-K? How else can he belong to three golf clubs (each with $1500 minimum monthly spends at the snack bar or clubhouse, mind you), have season tickets to the Knicks, and have a reasonable summer home in a 2nd tier vacation spot like Martha’s Vineyard? How else can he always pay a homeless person $50 in cough syrup to wait in line to get him the new iPad (which is actually called the new iPad) on the first day it comes out? The modern healthy consumer shouldn’t be asked to forgo the bare necessities of life to subsidize the sick. We can dick around with these please everyone solutions or we can get serious about healthcare and simply kill the sick.

Machem Raiser heads a consultancy shop, MLR Associates, which is “renowned” for providing “bold, clear-thinking” white papers to industry leading businesses. His ideas have had “a devil of a time” getting traction, but, per MLR Associates, “not one person has disputed that [MLR's] solutions make sense.” The firm’s motto is: “The world can be better. Let’s make it so. Simply.” LoS has negotiated a pretty sweet deal for all MLR research, research which we are providing to our clients gratis, which means “free” in some old language, probably Babylonian or whatever they spoke in Ur (was it Babylonian?).


A Rebuke, Literally in Public

From Georgetown’s own, “Elizabeth,” in the comment thread for Pomegranate Capital Thinks Women Can Run Money Better, Is Wrong:

This is quite literally the most ridiculous article and comment thread I have ever read. Are you men really so afraid of a little competition that you have to kill it before it becomes a serious threat? I suggest that you spend less time bashing women and more time getting an education and getting out of your tiny elitist and anti-female bubbles. I am so embarrassed for your gender reading these comments…

My reply:

You are LITERALLY the most ridiculous poster in that entire thread, Eliza. Literally! As successful men, we are always “killing it.” So your implied suggestion — let’s call it what it is, Beth, a rebuke — that we NOT “kill it” is offensive. Literally offensive. But the embarrassment you, Lizzie, feel for our gender (I usually fill out all Government forms that ask for my “Sex” as “Yes,” just to make it harder for the Government to know what my gender is. But I digress, I LITERALLY digress) is nothing compared to the embarrassment that we feel for not only your gender, but for your Common App safety school, and for your parents, and for that time you read A Modest Proposal and thought “Gee this Dr. Swift guy is practically the antichrist, how does he think can solve poverty and the ills of the underclass by eating their babies, I am so embarrassed for his gender, profession, language, countrymen, yadda yadda, et alia and cetera.”

LITERALLY,
Mr. Juggles

PS Chin up, the world needs coffee-makers, too. Human ones. With skirts.

PPS But it wouldn’t hurt to learn to type.


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