1-2 Knockout

Guest Post: The Year 2058

From The Man Upstairs:

This morning, as I watched banks around the world cut interest rates and market participants recognize the move as if it were a handjob proffered at the prom (in the immortal words of Turtle, "Who the f*** wants a handjob?"), it struck me that even if the global economy isn't f'd, a lot of people think that it is.  But like I've said previously, the world's been a pretty stuck-up place over the last decade; maybe a good f'ing is exactly what it needs (I would like to see the Journal describe the global correction as such).

 

Anyway, despite considering myself an optimist, it's pretty hard not to let this sort of thing bring you down when all you do is read about it, talk about it, and literally watch it happen all day, five days a week.  So this morning I did what any good analyst does when he's faced with a set of facts that he doesn't enjoy - I buckled down, and let my mind steadily wander away from reality.  At one point, I had the thought, If the me of 50 years from now could say something to me today, what would he say?

Happy Belated Weekend!

I spend a fair amount (much too much) of my time at work solving problems (i.e. fixing other peoples' F-ups), and recently there's been A LOT of them, many of which are caused - or at least further complicated - by incompetence and an institutionalized lack of accountability. Despite my repeated attempts to present solutions to many recurring problems, management has yet to take much, if any action to ameliorate them.  (On a side note, I imagine that these problems are neither unique to my firm, or to my job, so this one is also for all of our readers who are similarly getting shafted by the man).

Of course, calling out your boss probably isn't exactly the best course of action career-wise, especially so in this difficult (slash non-existent) market for Finance jobs, but, like most impulsive decisions, it seemed like a really good idea at the time. 

Thankfully (luckily?), reader Calgary Schmooze was able to bring me back to my senses with this positively inspirational tribute to the daily grind.   

(btw, if anyone's looking to hire a hard-working Anal_yst, shoot me an email  [email protected], as my current gig severely underutilized my skills/knowledge/uncanny mastery of sarcasm/etc.)


From this Craigslist post:

Upon stepping into the office this morning, I had two different people remind me what day it is. “It’s Friday” they spouted, as if they had just unveiled some hidden truth about life……no shit it’s Friday, believe it or not I have a vague understanding of the passing of time, and keep myself moderately aware of what day in the week it is. But thanks anyway, lest I forgot and had the horrible misfortune of thinking it was Thursday. Could you imagine? The horror.

Bankers with "No Regard for Human Life"

Guest post by The Man Upstairs (aka, "Kenneth" in this write-up)

In Game Four of the Celtics-Cavs series, toward the end of the game, you may remember the gargantuan dunk LeBron had over Garnett.  It was a monstrous, traumatizing, titillating display of talent and human athleticism.  I've said this before, but the reality of the matter is that both LeBron and I are human beings, yet he can do that, and I have trouble making a left-handed lay-up.  The spectrum of humanity boggles the mind.  But I digress.

Immediately after the dunk, you can hear Kevin Harlan narrate, "OOOOoooHHH!! LeBron James, with no regard for human life!"  The way he delivers it, it's probably my favorite sound byte of this year's playoffs.  I think it's the preposterousness of it, as if a LeBron James dunk could kill someone.  But Harlan makes it a great line.  It made me want a sportscaster and/or color person to narrate my daily life.  Think about it.

"Kenneth, finishing the last tab of his twenty tab Excel model ... presses F9 to run ... everything works, it's time to save it and print it out ... OOOOOoooHHHH!!  Tom Kenneth, with with no regard for human life!!  Did you see that?!  Wwwwooow ... Let's go down to Michelle Tafoya, standing by Tom's favorite printer." 

"Thanks, Kevin.  What you saw there has become part and parcel of the total package that Kenneth has really developed over the years.  He's really worked on his mid-range collating skills, as well as his ability to post up smaller notes.  We've seen him save files with his mouse or by pressing CTRL + S, right or left-handed ... he's really ambidextrous at this point.  I had a chance to sit down with Tom's father, John Kenneth, this past week, and here's what he hand to say."

[fade to awkward interview spliced with home video footage]

"When Tom was a boy, we used to tape his right hand to his side and force him to press CTRL + S with his left hand.  From a very young age, it was clear to us that Tom had many special talents ... but absolutely none of these would allow him to become a professional athlete.  Once we knew that Tom was bound for the white collar world, we put him through a gamut of 'real world' exercises on a daily basis.  His mother used to mix vodka into the water bottle he took to swim practice on Thursday nights, so that he'd be hungover for school on Friday's."

"There you have it ... back to you Kevin."

"Thank you, Michelle.  Well, Reggie, what do you think about that?"

"You know, I think it's a great message to the youngsters out there.  Kids look at the performances put in by guys like Tom and how far he's come, and they assume that it's God-given talent.  And it is that, it is the talent, but it's also the endless nights of pointless assignments, practicing DCF calculations in Polish notation under a single light in the driveway, writing an ungodly number of emails over the years.  Look at the way Tom's hands rest on the home keys - that's not born, that's built.  Someone - probably some overweight, middle-aged woman with eighteen cats and an inferiority complex - beat it into him at an early age that that is how you type.  So it's the talent, and it's the work.  It's all that.  You don't get to where a player like Tom Kenneth is without a lot of hard work.  ... Or some really solid familial connections."

Blazing Saddles

Guest Post by Stupid Equity Guy

Blazing Saddles: or How the US is handling the future of its own Superpower Status

[the Johnsons load their guns and point them at Bart. Bart then points his own pistol at his head]

Bart: Hold it! Next man makes a move, the nigger gets it!
Olson Johnson: Hold it, men. He's not bluffing.
Dr. Sam Johnson: Listen to him, men, he's just crazy enough to do it!
Bart: [lower register] Drop it! Or I swear I'll blow this nigger's head all over this town!
[higher register]
Bart: Oh, lo'dy, lo'd, he's despit! Do what he sayyyy, do what he sayyyy...
[the Johnsons drop their guns. Bart jams the gun into his neck and drags himself through the crowd and towards the station]
Harriett Van Johnson: Isn't anybody going to help that poor man?
Dr. Sam Johnson: Hush, Harriet, that's a sure way to get him killed!
Bart: [higher register] Oooh! He'p me, he'p me! Somebody he'p me! He'p me! He'p me! He'p me!
[lower register]
Bart: Shut up!
[Bart places his hand over his own mouth, drags himself through the door into his office]
Bart: Ooh, baby, you are so talented! And they are so DUMB!

The US Government is using the above type of logic to push for the end game in the world energy/food complex. While a Putin ran Russia has decided to gain control of its energy exports and reinvestment strategy’s, along with control of export supply. The US has also started its own approach to controlling its greatest export values. Its simplicity is staggering. Its impact will cause nations to fall, and civil unrest to expand in the coming months and years.

If the US is faced with an energy supply disruption, then the US will convert its supply of food into bio fuel. The nations that supply us with computer chips or energy can eat their own products if they force the issue of world domination.

The US has built the ability to hold the world hostage for food. Much like our gluttony based usage of raw energy & our food consumption habits being what they are, the US has the ability to tighten its belt on demand, while others have already had to tighten their own belts based on lack of supply.

The US is one of, if not the world’s biggest exporter of food. Currently, the US is the 5^th largest exporter of rice for example, a staple food of 3 Billion people around the planet. The price of Rice has increased in the US by 77% since October 2007.

From Bloomberg:

“…The price of rice has climbed lately. The World Bank estimates 33 countries face potential social unrest because of increasing food and energy prices, Robert Zoellick, the bank president, said on its Web site April 2.

``Everything is going up at the moment,'' said John Clemmow, executive director of risk-management products with UBS AG in London. There are shortages ``across the whole spectrum,'' he said. ``It's very concerning.''

The US is the third largest producer of Petroleum products. The US imports the majority of its energy refining complex needs, while exporting finished products to the third world nations which do not have enough refining capacity of their own.

As the world capacity to produce more energy is constrained by physical operational limits of production with on going yearly decline rates in fields growing, the supply demand pricing curve is being pushed farther out on the line. Export nations have started to build new state of the art refinery, to recapture the crack spread for their own nations GDP numbers.

In the 1970’s under both a Republican (73 crisis) and Democratic (79 crisis) presidency’s, the US found its access to imported energy needs constrained. At this time, the US has both a SPR plus also a secondary source of emergency fuel.

Its own excess food production capacity is now able to be put to use producing bio based fuels in sizes large enough to make an impact. In the state of Iowa, There are 24 dry mills in production and a further 27 additional ethanol plans under construction. The build out of bio refineries is continuing across the nation as a whole due to congressional mandated required supply numbers.

In the March 11^th 2008 edition of the World Agriculture Supply and Demand Estimates Ending stocks of grains are projected to be dropping to 10%, the lowest since 1946/1947. The price per bushel has been estimated to be $6.50 while it is estimated that the world will have the lowest reserves in 30 years.

These locations will allow the US to reverse flow its own food exports into consumable fuel domestically, pretty much on demand.  That is, we can export food to feed the world, or we can dilute our own hydrocarbon production refining products with an increasing level of bio based alternative fuel mix.

The change over from a gasoline blended supply point of view, to a mandated 5% or 10% ethanol mix, has quietly increased the US supply of gasoline blending products, while lowering the crack spread on gasoline profits lately.

In the end game of who has what others absolutely need, Food is a higher demand necessary item then energy is. The US is blessed with a supply of water, farm land and domestic energy production such that it can decide which balance is in its national best interest. The rest of the world is not as well prepared as the US is for an energy / food crisis.

In the coming years, the US will continue to control the world’s attention via the use of its extra supply of food. While the US has exported its manufacturing and energy supply needs, it has done so in a way that is just now becoming noticeable to the rest of the world.

Disclosure: Stupid Equity Guy is long commodities and expects that in the coming years they will continue to be a supply constrained resource do to the globalization of 3^rd world nations. Life on this mortal coil is predicated on access to air, water and then food. The rest of life nothing more then a desire to increase the pleasure of ones own life. The value assigned to pleasure products when basic staple supplies are in doubt will be what makes the markets even more interesting then they are today.

 

 

Bears, suits, and shitibanks

Guest Post Submitted by Stupid Equity Guy

Citi Upgrades Lehman to Buy on Friday… claims “Reality Will Trump Fear”

Lehman, who obviously did not get the memo to play nice with its sisters, on downgraded almost every bank they cover Thursday –even some that may already be bankrupt just for the fun of it.  This shocking attack at its fellow financial sisters went unnoticed at first.

The Lehman Brothers “Suits” cut C’s price target to $34 dollars from $37 dollars. This act of kindness (keeping C’s relative overweight exposure) was instantly rewarded by the Analysts @ C, who somehow found it in themselves to upgrade the Leisure Suits over at Lehman’s to an outright Buy after years of ignoring them.

The Shiti report had the following nuggets of brilliance in it.

… and Lehman’s management team’s excellent track record of creating value and managing risk all serve as excellent downside protection…

Am I the only adult that remembers the events of 1998 and LTCM and the proverbial Lehman Lie of that time? There were 2 of the Big Sisters who did not fully play with the rest of the family during that event:  the Bears and the Brothers in their Leisure suits… 

The Shiti Report continued with…

We see 70% upside in Lehman shares. LEH’s valuation is compelling based on virtually any historical metric, leading to an excellent risk/reward opportunity. Using our DCF based valuation model, LEH shares are discounting less than a 10% over-the-cycle ROE and our 15% ROE forecast results in a $65 stock or almost 70% upside. Furthermore, on an absolute P/B, tangible P/B and relative P/B basis, Lehman is trading at some of its lowest levels in more than a decade.

Now that the Bear has been punished, the market bottom callers have blown their bugle and the 5^th straight month of negative declines is almost over, the next round of Bank Bumper Cars is about to break out in our opinion.  We expect that Shiti will be punished for upgrading Lehman at some karma based moment in the future. 

…Stupid Equity Guy agrees on the surface with Citi and doubled his short position on Citi for being really stupid instead of just Shiti Stupid… He cut his double short position on Lehman to just a short position to free up the love to increase his Shiti Short.

Disclosure: Stupid Equity Guy is short C, LEH, UBS, MS, WM specifically besides a holder of SKF and other stupid positions to hold in this market.