The Answers

by Kaiser Edamame

Do not call it a comeback. We have literally been here for years, literally.

We know you didn’t miss us. But you probably didn’t NOT miss us. You know why you did and didn’t miss us? Because you’ve been making ALL the monies. You, you savvy reader, spent 10 years just going around and asking people for their money, borrowing more money against that money (that isn’t yours remember), and then investing the people’s money and the borrowed money into things those people could have bought themselves for free, but, hey, fees. Those people want to pay fees and who are you to stop them? Gotta give the people what they want.

But now it’s that time. That time when all those pedantic people are looking at their semi-fictional account balances and suddenly…well they have questions. And YOU, well you are *supposed* to have the answers. But you don’t because you’ve been too busy talking to Stanford badminton coaches about the bribe situation and your wife about the merits of the “back door”. But it’s ok. WE HAVE THE ANSWERS. Here is a list of them.

The Answers

1. No, sorry.

2. This isn’t 2008, this is 1962, but different. Look at a stock market chart since 1962. Was that a good time to call up your worst performing fund and get mad? Exactly. That was a time to trip on LSD, listen to Bob Dylan, and start a computer company. Why don’t you try that Mr. Smarty Pants Cardiac Surgeon Man? And tell your dentist friends to lose my number like I lost their money.

3. I’d be happy to do that…except for the lockup. My hands are tied, it’s the rules. They aren’t MY rules, I mean they are rules that I wrote, and rules that I told you not to worry about. But they aren’t MINE so much as they are YOURS. But I’m sure you understand that as I see here that you are an accredited investor.

4. April 28th. That’s the bottom, unless it’s not, in which case I apologize in advance.

5. There is nothing you can do. Just relax, this is what you pay me for. If you owned index funds you would be down just as much, or maybe a little less. But you would have no one to call! Aren’t you glad you’re not in that terrible, lonely position?

6. My family is great, thanks for asking. Wife is a babe, kids get good grades, and none of them like talking to me. So things are perfect.

Recommendation: Everyone in the world is Long Questions right now. Sell Questions. Get Long Answers, quickly.

Cephalopod Long, now with Science

by Johnny Debacle

It’s happening. “Cephalopod populations are proliferating in response to a changing environment.”

Cephalopod populations are highly responsive to environmental change, with anthropogenic climate change, especially ocean warming, a plausible driver…

Cephalopods have a unique set of biological traits, including rapid growth, short lifespans and strong life-history plasticity, allowing them to adapt quickly to changing environmental conditions.

Cephalopod population dynamics are notoriously difficult to predict…

Cephalopods are voracious and adaptable predators and increased predation by cephalopods could impact many prey species [like mutual fund investors and rich outsiders who finance movie production].

We have advised many clients on the importance of the cephalopod trade and the maelstrom it represents for humankind. “Long cephalopods” was actually one of our very first recommendations. And as usual, we are seeing that science lags but ultimately catches up to the satirical, abstract, finance. Long or Short asked and answered the hard question of “Who stands to benefit from global warming and who is therefore most likely to be behind it” in our landmark piece, Cephalopod Positions: Rising from Underwater. Now we’re seeing our investment thesis play out in real time.

To wit:

  • Rising ocean temperature = increasing squid population
  • Rising oceans from rising ocean temperatures = increased habitable area for squids, decreased habitable area for humankind
  • Increasing cephalopod biomass = increasing food requirements for voracious cephalopod predators
  • I am delicious = I am future cephalopod overlords’ food source

The math speaks for itself.

Recommendation: HODL THE DOOR on CEPH. We say this as long time hodlers of The Cephalopod Index.

Long or Short Cephalopod Research:

How to Win the Lottery (You Already Did)

by Mr Juggles

ABC News shows us how to win Powerball.

About 70 percent of past winners used Quick Picks, the computer system that spits out numbers, according to the official Powerball website.

“Does this mean that you are more likely to win with a computer pick ticket? Maybe,” the site states.

If you play the lottery regularly, it is important to pick your own numbers and to stick to that same combination every time you play, lottery expert Richard Lustig said. “Never ever, ever change those numbers,” Lustig told ABC News.

Lustig knows a thing or two about successful lottery bids because he has won seven lottery game grand prizes in his lifetime. So he plays regularly and has theories about ways that people should research their numbers and determine whether their selections work.

But, for more infrequent players who are only drawn in with extreme jackpots, there is less of a science involved

Are Certain Numbers Luckier Than Others?

If you opt to pick your own numbers, you might want to include 8, 54, 14, 39 and 13. These numbers are the most frequently drawn numbers, according to an ABC News analysis of past winning Powerball tickets.

High functioning numerates scan this piece and have the same reaction: yep, this all checks out. Some numbers do naturally occur more than others; the ABC analysis neglected 19. Randomness is lies. Does this mean you are more likely to win the lottery with a random number generated by a computer? YES.

Heck, this article is probably old news to most of you since most LoS readers also make Richard Lustig’s Winning Lottery Method a daily read. Additionally, about half our readers are graduates of Richard Lustig’s NEW Lottery Winner University and the other two thirds are PhDs.

We excerpt thusly:

My name is Richard Lustig and I live in Florida [editor’s note: A Florida Man]. What I am offering is not a joke. I have created a method that I and members of my family use that has enabled us to WIN several lottery game GRAND prizes.

My method is very easy to use and my book is very easy to understand. I PURPOSELY MADE THE BOOK SHORT AND TO THE POINT. IT IS 40 PAGES OF INFORMATION – NOT SOME 200 TO 300 PAGE BOOK FILLED WITH A LOT OF USELESS WORDS. You don’t need a dictionary or a calculator to understand my method. And my method will work with any type lottery games (scratch tickets or number games) in any state or country.

Recommendation: Long you, dear reader, because articles like this should remind you that you will always have a job. Always, man. You have won the real lottery. Congrats.

Zambinomics, the new Zimbabwenomics

by Johnny Debacle

Flation be goneMight there be a higher power than the Yellen?

Zambia will hold a day of prayer and fasting on Sunday, with bars shut and football matches cancelled, to seek divine help over the country’s currency collapse and dire economic woes.

Food prices have soared and crippling power shortages have also been triggered by low water-levels in Lake Kariba, where hydropower plants supply much of the country’s electricity.

“God is a god of miracles and if we ask him, he will bless us and the kwacha shall be restored to its former strength and the prices of goods shall again go down,’ Bishop Simon Chihana…told AFP.

Paid up subscriberholders know Zimbabwenomics has been revolutionizing economics and investing alike ever since humanitarian/economimst Robert Mugabe first launched the field. Every kleptocrat and savvy investor that heeded our related recommendations has gotten richer than Croesus. You’re welcome.

Well money never sleeps, and we’re totally money, so neither do we. We’ve spent the last several years traveling around the Dark Continent (Wikipedia describes the Dark Continent as “A phrase in declining usage to describe Africa” — I can’t imagine why that usage has been in decline, seems ok to me) to uncover a new strain of disruptive economics, Zambinomics. The new field is a natural iteration of Zimbabwenomics’ cornerstone, Mugabe Efficiency Theory:

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.

A Zambinomic approach would be that if supply is too dear, you pray to God and she makes supply cheaper. Or if your currency has too much flation, you get everyone together and pray the flation away. In Zambinomics, government fiat is superseded by the highest authority there is — God (or Gods or even the Flying Spaghetti Monster for all our Pastafarian readers).

Recommendation: Long gone will be the days of everyone hanging over all the cryptic gobbledygook that comes out of the mouths of Greenspans, Bernankes, and Yellens. In again will be the days of everyone hanging all over the cryptic gobbledygook that comes out of the mouths of virgins stoned out of their minds on cave gas. That is as it should be. Long ARG (NASDAQ: ARG) and all makers of cave gas.

I’d like to dedicate this post to Sage Kelly who said we should start writing more often. Sage, we heard you loud and clear 7 months ago and as you can see, we’re on it.

Rat Races in the Sky and to the Top

by Kaiser Edamame

Fact: Pigeons are sky rats. 
Sorta Fact: This may be the Year of the Rat (editor’s note: it’s not).

The Chinese are breeding sky rats for racing. More relevant to people who define everything in terms of money (e.g. everyone reading), the Chinese are dolling out hundreds of thousands of dollars for allegedly fast sky rats. 

Background on sky rat racing pulled from the internet after minutes of exhaustive research:

  • A report commissioned by Scottish National Heritage and the Scottish Homing Union found that on average 56% of racing birds released each season do not make it home.
  • PETA conducted an investigation into the practices of pigeon racing in the US (check out the video titled “The Deadliest Marathons“), finding that casualty rates came in at 60% or more among birds during races and training due to weather, predators, electrical lines, hunters, and incidents of “avian rage.” 
  • At the 2011 American Racing Pigeon Union Convention, 827 out of the original 2,294 birds returned from training flights, a solid 36%.

So hypothetically, if you buy a pigeon, enter her into a high stakes race, anesthetize her, transport her a day’s drive away, wake her up and tell her: “Figure it out buddy”, at that point, 40% of the time she will figure it out and return to the start. Pretty amazing! 60% of the time she gets lost because who wouldn’t? With the help of our trial version of Microsoft Excel 1997, our analysis suggests that the standard deviation of a pigeon’s flight time in any given race is roughly 8 hours….depending on what value you use for the 60 PERCENT OF THEM WHO NEVER COME BACK! 

What we mean is that there is no f*%$ing way to know whether a pigeon is fast or not. It’s impossible. So we aim for you to exploit this impossibility by:

  • Finding a newly wealthy son of a Chinese government official.
  • Showing him the $300,000 receipt for a pigeon you bought in an arm’s length transaction with an entity named YouYourselfSelfCo.
  • Telling him that the bird is named 888 or Crazy 8 or some crap like that — they eat up those 8’s, it’s very auspicious.
  • Forging some pigeon race victories to add to the bird’s pedigree, assuming that she didn’t happen to win her last race.
  • Selling the bird on to our Chinese friend for a cool $1 million.

Recommendation: Even though we just called the bottom, after reading about these pigeon prices we’re considering calling the top, just like we accurately called the top in 2007. But we’re not ACTUALLY calling the top, we’re just reminding you that we TOTALLY called the top last time, and we’ll keep reminding you of that until we call the top again at which point we’ll REALLY remind you of it. Success breeds success. The Chinese are breeding racing sky rats. Enough said.

Long: Falcons who eat pigeons
Short: Chinese steel consumption

Calling the Bottom, Guys

by Mr Juggles

The bottom is in. You have read it here first, but the S&P 500 has just bottomed at 2092.

We pride ourselves on being rich, on being successful investors, on being handsome gentlemen, and on being contrarians. As the best there are at what we do, we took stock of the current stock market and considered what would be the most contrarian position possible. Simple: the position that the S&P 500 will never go lower than it is today. Its all time high will be its prospective low.

Here is a clear chart for all you visual-learning, millennial types, who probably struggled to get through the text above:

There is your bottom

Recommendation: “It should be clear from the first element that the process has to begin with investors who are unusually perceptive. Unconventional, iconoclastic or early. That’s why successful investors are said to spend a lot of their time being lonely.” – Howard Marks

Howard, do they have to be so lonely? We say screw that noise. Let’s make this whole thing a party. That is why we are sharing our bottom with all of you.

As I have typed this post, the market has soared 2 more points to 2094. I am not saying that our call is 100% correct — I am typing it. The bottom is in, my friends, so invest with confidence. If you have access to imprudent amounts of leverage, now is the time to use all of it.

New Non-SAAP Measure: Net Tweetcome-based Valuation

by Mr Juggles

Long or Short Capital was the first firm to switch its accounting to SAAP. LoS further improved accounting when it added Earnings before Everything (EBE) to the SAAP lexicon. The results are that SAAP is ubiquitous and it’s now quite common for public companies to exclude most expenses when reporting earnings.

After delivering those innovations and after switching to the “royal we”, we looked at potential disruption in the accounting space and started yAccountingStars, an accounting accelerator. We hired hordes of hungry hipsters, who were willing to work for almost nothing so long as we promised them beanbag chairs, organic coffee, and a good work/work balance. We also lied and told them they’d all get equity. (Please don’t txt or tweet this to them, they don’t actually read anything that isn’t a txt or a tweet, so this is safely between you and us here.)

We then asked ourselves: what investor pain-points can we help solve? what kind of onerous constraints does accounting impose? Investors already get SAAP, given that 80% of companies employ SAAP according to a study we might have done. Investors also firmly grasp the value of companies with no reported net income but ample EBE. But what about companies that have huge opportunities but negligible revenue but also have a vigorous twitter account? Why should these companies be left behind?

Following years of R&D and inappropriate workplace behavior at yAccountingStars, LoS is ready to throw such companies a lifeline and introduce Net Tweetcome and Price to Net Tweetcome (P/NT). Net Tweetcome is calculated by taking a CEO’s tweets and then deducting all expenses associated with those tweets. Mathematically (for all the nerds* out there who care about the actual calculations behind made up numbers) this is represented as:

Tweets - 0 = Net Tweetcome
P/NT = Price / Net Tweetcome

Example: Suppose you are an investor trying to find value in the consumer internet space. There are some companies that have been public for ages like Priceline (PCLN). Then there are newer, Up-and-Comers like Grubhub (GRUB), Zillow (Z), and Yelp (YELP). Which should you buy? A traditional analysis might be based on P/E:

Even though we are using pro forma, EBE-style EPS estimates that exclude all kinds of normal expenses (for instance, the large portion of employee compensation that happens to be paid in stock), the Up-and-Comers carry ridiculous valuations; only Priceline appears to be reasonable. But investors need to own these hot Up-and-Comers…in size. P/E valuations fail us here.

What’s the solution? (spoiler alert: it’s Net Tweetcome):
P 2 NT
Note that we have chosen to display this comparison on a logarithmic scale in order to convey a false sense of precision and general maths capability.

P/NT shows that Priceline actually sports the loftiest and most dangerous valuation. While many of the Up-and-Comers sport quite attractive valuations. Zillow is positively cheap on a P/NT basis. Thanks to CEO Rascoff’s unprecedented 5.8 tweets per day, Z looks like a value buy for a progressive analyst capable of spotting their strong fundamental Net Tweetcome. To underscore how cheap it is, if Zillow traded at the same P/NT multiple as Priceline, it would be worth $3.4 trillion dollars and a prospective investor would be served a delicious 65,327% return from today’s trading level. And just think if Rascoff starts live-tweeting all his favorite TV shows: Z could go straight to Perf.

Recommendation: Long Twitter. The gap between reality and Net Tweetcome is highest at Twitter itself. On traditional metrics, is confusing. For instance, in 2013 Twitter managed GAAP net loss of $645mm on revenue of $665mm for a net income margin of negative 97% while, on an EBE basis, they lost $35mm. These are impressive results in their own right; it’s not easy to lose that much money 140 characters at a time. But look…Twitter sent over 200 billion tweets in 2013! That means Net Tweetcome = 200bn tweets – 1.3bn opex** = 198.7bn. That is the highest Net Tweetcome in the world! Twitter is trading at 1/10th of annual Net Tweetcome…we have literally never seen this type of opportunity before and are up to our necks in fictional Twitter stock!

If we can rein in their Tindr activity, we are confident yAccountingStars will have their next report “How to Calculate the Tweetcome TAM for Any Company in 14 Easy Steps” ready shortly.

*Only nerds read footnotes, you nerd.
**Yes, we previously defined Net Tweetcome as “Tweets – 0” but Twitter is the exception that proves the rule. Given that they actually bear the costs to send all tweets, we must dock their Net Tweetcome with operating expenses.

Long YOLO Notes

by Johnny Debacle

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,, 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

by Mr Juggles

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.

Mr. Juggles


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

by Johnny Debacle

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.


by Johnny Debacle

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.


Diversifying Fund I

by Johnny Debacle

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

by Johnny Debacle

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

by Johnny Debacle

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.

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