Shorting the Government, cont.

by Mr Juggles

Situation: The City of New York wants to upgrade its police radio system so that officers can maintain radio contact in New York’s extensive subway system.

Homework: Calculate the City of New York’s ROI subway infrastructure investment based on the following facts.

  • Original project budget was for $115mm and completion in 2003.
  • $140mm has been spent so far.
  • The system does not work. The police currently refuse to use it.
  • Making the system work will probably require at least one more year and a total cost of $210mm.
  • Even if the system does work at that point, the fire department still won’t be able to use it due to compatibility issues between the two department’s radio systems.

Enjoy your tax dollars at work.

Recommendation: Long or Short Capital recommends a simple, strict rule of investing in governments. Only go long a government (or government-related entity) if clear catalysts are in sight; at all other times, short governments…in size. For example, if you happen to know that Hugo Chavez is about to nationalize all the productive private assets in Venezuela, you may take a very short-term long position as long as you remember to realize your gains immediately. However, in general and at all other times, you should be actively shorting all governments.

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  1. MCE
    January 30th, 2007 | 8:57 am

    Sad, true, and painfully not funny.

  2. January 30th, 2007 | 9:04 am

    Hey congratulations on the great comment MCE. I just have a quick question for my model…how should I think about “painfully not funny” versus “not funny”? What’s an appropriate adjustment to account for that? 50bps?

  3. MCE
    January 30th, 2007 | 11:03 am

    Yeah it’s a pretty marginal difference, whereas the difference between laughable and not funny is a large (4.5pts) drop.

    I’d attribute the 50bps difference to the undertones that remind me of pure political griping.

  4. January 30th, 2007 | 11:11 am

    Thanks, again, congratulations on the great comment. Good luck next comment.