NakedShorts

Ripped from the headlines

No mere Buffett, a 14-course menu

Dear Mr. Buffett

What an Investor Learns 1269 Miles from Wall Street

by Janet Tavakoli

Wiley 2009 $24.95 (list) Hardcover

Chicago derivatives consultant Janet Tavakoli is a rare jewel in the financial markets. Arguably best known for weighty textbooks with such alluring titles as ‘Structured Finance & Collateralized Debt Obligations,’ she has a nice sideline in delivering uniquely pungent commentary on credit-related conundra in venues including her own website, US Securities and Exchange Commission comment filings, and on-the-record in the allegedly grown-up media where “people familiar with the matter” usually lurk.

Most remarkably, she deserves as much acclaim as anybody, and much more than most claimants, for calling both the cliff-edge and the depth of the ravine into which global capital markets have tumbled. 

But another Buffett hagiography? Is anything left to be said about Avuncular of Omaha, the genial great white with a penchant for apparently ignoring his own epithets (especially that one about “financial weapons of mass destruction”)? Just in the last few months we’ve had ‘The Snowball,’ Alice Schroeder’s near 1000-page authorized doorstop; Roger Lowenstein’s ‘Buffett: The Making of an American Capitalist;’ and ‘Pilgrimage to Warren Buffett’s Omaha,’ Jeff Matthews’ dispatches from the Berkshire Hathaway annual meeting. Among plenty of others.  

But this book is much more than mere make-weight for Barnes & Noble’s Buffettophilia section. It is just as much the first of what will doubtless be dozens of books telling the story behind the global dodgy asset securitization scam, which Tavakoli, noting the first breathless Madoff Meltdown headlines, recently characterized as the real “largest Ponzi scheme in the history of the capital markets.” 

It’s great to have an open mind,
but don’t leave it so
open that your brains fall out

A long-time Buffett fan and Berkshire Hathaway shareholder, Tavakoli builds her plot around a fitful correspondence that turned into an afternoon in Omaha where her low expectations — “If Warren had simply avoided overt rudeness, it would have been an upgrade from most finance professionals” she had dealt with — were dashed on the rocks of mutual respect and a shared thesis, in the dog days of late summer 2005, that the world had strapped itself into a handbasket headed straight to financial hell.

Not to mention ‘Integrity’

With three banks having gone kablooey over the last 12 months, and another three in nearby Atlanta suburbs suffering a similar fate, The Wall Street Journal nominates Alpharetta, Ga, as “bank-failure central.” No argument here, but to note that two of the banks picked off by the FDIC in 2008 — one in Alpharetta, and another in deepest Minnesota — featured the word “Integrity” in their names.

And then there’s the hovel in lovely Avondale, Ariz., refinanced for $103,000 by the intensely scrupulous brokers at Integrity Funding LLC, which sold the loan to Not-So-Wells Fargo, which sold it to HSBC, “which had packaged it with thousands of other risky mortgages and sold it in pieces to scores of investors.”

NakedShorts Umpteenth Rule of Whatever: If it feels the need to put ‘Integrity’ in its name, integrity is probably not its defining feature. 

Bank-Failure Central? Try Alpharetta, Georgia

by Dan Fitzpatrick

The Wall Street Journal Jan. 2 2008

Would You Pay $103,000 for This Arizona Fixer-Upper?

by Michael M. Phillips 

The Wall Street Journal Jan. 3 2008

No, really, it is different this time

Having spent an hour or so Saturday trying to track this down, NakedShorts was relieved — if somewhat vexed — to find that Equity Private nailed it:

This firm has a history of facing adversity and delivering. We have a long track record of pulling together when times are tough and then taking advantage of global opportunities, he continued...

Not Ken Griffin. From the Famous Last Words archive of Richard S. Fooled Jr.

DealBreaker Weekend: My Kind Of Town

by Equity Private

DealBreaker Oct. 26 2008

Earlier on NakedShorts

That Citadel transcript in fool

Oct. 25 2008

Parsing The President

The Morons’ Moron Guide to Economic Salvation

SPEAKER: PRESIDENT GEORGE W. BUSH: Good evening. This is an extraordinary period for America’s economy.

We’re (word that rhymes with) plucked. 

We’re in the midst of a serious financial crisis, and the federal government is responding with decisive action.

We’re clueless, but that won’t let that stop us taking decisive action.

Most importantly, my administration is working with Congress to address the root cause behind much of the instability in our markets.

We, the unknowing, are throwing you, the unwilling, under the bus, to save the unconscionable. We have messed up so much, for so long, at such great cost, we are now qualified to do nothing with everything. (© Mother Teresa.)

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

I repeat, this crisis is strictly contained to housing. OK, a teensy bit leaked through but only to commercial real estate, the automobile industry, retail, credit cards, gas guzzlers, and the job export industry. Other than that, tightly contained.

First, how did our economy reach this point? Well, most economists agree that the problems we’re witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad because our country is an attractive and secure place to do business. This large influx of money to US banks and financial institutions, along with low interest rates, made it easier for Americans to get credit.

The war on drugs is working out as well as the war on terrorism. Damn furrn’uhs. 

Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions.

Greenie, you did a heckuva job.

See, in today’s mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world. Many investors assumed these securities were trustworthy and asked few questions about their actual value.

Moody’s sprayed  gold paint on wet newspapers, so we could meet margin calls on the the cocaine bill. 

Free Aaron Krowne!

Mortgage Implode-O-Meter hit with SLAPP suit

Some two-bit Californian mortgage lender has sued Aaron Krowne, whose Mortgage Implode-O-Meter was featured on NakedShorts in Feb. 2007—when the number of busted major US mortgage lenders stood at 23, compared with yesterday’s 93—with what amounts to a SLAPP—Strategic Litigation Against Public Participation—suit.

Krowne is appealing for donations to help with his legal fees. NakedShorts would consider it a personal favor, and a practical show of support for these pixels, if his readers—and especially the regulars—would contribute to Krowne’s appeal. NakedShorts doesn’t know Krowne, doesn’t follow Mortgage Implode-O-Meter closely or have any other dog in this fight other than strongly endorsing his statement that:

Such suits are a hazard to public discourse, despite this country’s First Amendment, because the legal proceedings per se can be ruinous to small defendants, whether or not [the small defendants] are at fault or ultimately prevail.

Enjoy NakedShorts? Give to Aaron Krowne. Please.

Loan Center of California Sues Mortgage Lender Implode-O-Meter
by Aaron Krowne
Mortgage Implode-O-Meter Jul. 4 2007

Nice try didn’t fly

Hedge Fund Alert is unquestionably among the consistently best reads in the hedge fund business, and hardly more so than this week with its coverage of an unsuccessful attempt by a hedge fund manager to stuff operating expenses—in this case, for an aircraft—down its investors’ unwilling necks.

Credit where it’s due, Shumway Capital Partners, based in Green&Rich, Conn., did ask. Even more credit, it endured just three days of objections before issuing a ‘never mind.’ Props (execrable pun intended) to ’em.

HFA’s stuff resides behind a subscription firewall so the story can’t be linked; the clip is, however, reprinted with permission after the jump.

I wish I’d said that

...in today’s global economy, very settled financial market conditions - narrow risk spreads and low expected market volatility - coexist with unprecedented current account imbalances among nations and interest rates that are low by historical standards. In such a world, it would be imprudent to rule out sharp movements in asset prices and a deterioration in market liquidity that would test the resiliency of market infrastructure and financial institutions...
Financial Stability: Preventing and Managing Crises
Donald L. Kohn, Vice Chairman
Federal Reserve Board Feb. 21 2007

While it might not have been on the top of Kohn’s rosary, the resiliency of market infrastructure got a workout in the midst of last Tuesday’s (Feb. 27) smackage when a combination of “delays” and “glitches” struck Dow Jones and the New York Stock Exchange.

Seasons Greetings

May your God go with you
(Dave Allen 1936-2005)

While not entirely discounting the possibility of an occasional cameo during the interim, NakedShorts will return Jan. 2 with the first enthralling episode of 2007 In Review.

Sam Zell's Christmas Card

You MUST (emphasis and shouting) watch this. Please be patient while it loads, I promise that it is worth the wait. (Forelock-tug to Minyanville).

Welcome, Hank!

Treasury secretary Henry Paulson’s widely-reported remarks yesterday on the diminished competitiveness of US capital markets indicates that he’s been picking up some ideas from these very pixels:

• As predicted here last week, he made no mention of the significant role of Global MegaBank NA’s extortionate cartelized investment banking fees – Goldman Sachs, major beneficiary - in driving business overseas.
• More surprisingly, he asked whether the accounting profession was sufficiently competitive. As long-standing readers know, NakedShorts has bloviated on the need to break up the Tragic Flaw for the last 15 months or so.

More to come on this. Suffice to say that with General Motors having become irrelevant, the new paradigm is clear: What’s good for Goldman Sachs is good for…Goldman Sachs™*.

* That was so easy, I can't possibly be the first person to say it. If anyone can forward earlier citations, I'll happily withdraw the ™.

Don’t make me beg

Fund named for ‘life force’ jumps in casket

The response to the latest edition to NakedShorts’ blog lineup – Investor Letters – has been totally underwhelming…and a good start to reversing that situation would be a copy of the letter sent recently to investors in New York-based Archeus Capital Management LLC, announcing that it would be folding its tent by the end of the year. So get on it, please...the email address at left would be fine.

Archeus’ demise brings to mind the problem we had a few years back with things called ‘Long-Term,’  specifically a hedge fund, and a Japanese bank. Now a similar pattern is emerging with funds beginning with A and named for classical themes of immortality: the undying Amaranth did, while Archeus, according to Wikipedia, “is a term used generally to refer to the vital force which presides over the growth and continuation of all living beings.”

While Archeus’ demise lacked Amaranth’s operatic story line, and came in a lot cheaper, NakedShorts would just point out that the Market Gods just picked off another one with a name that challenged fate. That middle name thing – Moore, Tudor, Graham, to name a few – still seems to be working out quite well, so I’d stay on those lines, unless your middle name’s Eternal. That would definitely be pushing it.

Tombstones on the other side.

Got the VP coming to stay?

This list will be obeyed.  Ask Harry Whittington what happens if it’s not.
From The Smoking Gun.

I’m taking off early

My new meds just kicked in.

Thanks to my source.

Identify your target

I guess that would make it, what, twice in the last few years that Dick Cheney has broken the cardinal rule of hunting. Although, if it has to be, a “millionaire lawyer from Austin” is not the worst of all possible outcomes. Unlike the other one.

Merry happy

It’s that time of the year, so now Bill O’Reilly – living proof of just how seriously flawed are both the evolution and intelligent design theories – has approved the phrase: Happy Holidays, to one and all. Or, in the gentle words of Irish comedian Dave Allen, who died earlier this year:

Thank you, and may your God go with you.

Typepad sucks

This blog is published on Typepad, a service – that would be sarcasm – of something called Sixapart, but which would be more appropriately named Fallapart. If you’re wondering why a week’s worth of posts disappeared today, here’s the excuse.

While the reader experience is generally satisfactory, Typepad is, from the blogger’s end, a mess. It is often sluggish, at best, while today’s chaos is its second major collapse in a month. And I’m not the only one with complaints: Barry Ritholtz mentioned another slowdown yesterday - long before the actual shambles - and Paul Kedrosky recently kicked the carp out of Movable Type, Typepad’s big-brother-for-people-who-know-what-they’re-doing. [By the way, if these links show up as The page cannot be found...well, that’s because Typepad hasn’t got round to republishing their blogs, which are much more widely read than this one].

If you’re thinking of joining the bloggerati, and god knows the compensation is beyond comparison, start somewhere else.

Memo to Fallapart: Cut the Californian pseudo customer-friendly “We’re so sorry” and just buy some bandwidth and another server. Clueless schmucks.

Calling No 4 GG

That highly-annoying god-botherer all over the flakier end of the cable networks the last few days saying that Katrina was recompense for New Orleans’ sinful ways will doubtless be cheered by today’s news that Re-Creation of 1918-19 Virus Suggests Bigger Bird-Flu Threat [subscription required, but it’ll be all over the place by tomorrow].

With three horsies already accounted for – White, ridden by the AntiChrist (keep your nominations, I have my own list); Red, ridden by War (take your pick); Black, ridden by Famine (again, take your pick but word is that a pair of aging Irish rockstars could be getting a Nobel Peace prize for trying to knock this one over) – we’re only waiting on the pale horse of Death. If he’s got a duck on his saddle, I’ll add the Book of Revelations to my reading list.

Kind of brings a whole new meaning to that thing about chickens coming home to roost. Sounds like duct tape-and-plastic sheeting time again...except now, it goes around your head, instead of around the windows.

Positions: Long life (so far, but given that I regularly ride a bicycle in New York city traffic, I'm pushing my luck). Short proselytizers of all kinds, especially the hypocritical self-righteous ones, just to mention a couple of mostly redundant modifiers.

Intelligently designed

But probably long incense, short gays

A. Friend reports that the nearly $4 billion Christian Brothers Investment Services has opened its CUIT Market Neutral Fund to Catholic institutions, with a minimum investment of $25,000. Its first act, however, may be seeking absolution for its press release which – among the anticipated blather about socially-responsible investing policies, low volatility, transparency etc – announces “the goal of producing a return of 3-4 percent above Treasury bill rates.”

Denizens of the alternative investment field will be aware that NASD has something of a fetish about the marketing of target returns without the disclosure of the basis on which such returns are anticipated, along with the risk factors. The fund will be managed by Analytic Investors and Freeman Associates, with a third manager to be added when assets reach $50 million.

In a totally unrelated development, The Interfaith Center on Corporate Responsibility today launched EthVest, a new online database containing news, data and intelligence on ethical investing activities.

I feel somehow redeemed, merely reporting this palaver.

Let’s keep it seemly, gentlemen

We’ve all been entertained over the years by Daniel Loeb’s “Dear CEO” letters turning fire on incompetent corporate executives and jobseekers with an inflated idea of their own relative self-importance. But in going public with threats of war in the event that Citadel boss Ken Griffin should “approach employees of his Third Point fund or of any of his ‘friends in the event-driven space’,” [subscription required], Loeb, in my humble opinion, goes over the top.

While Ken reportedly has some current issues, I’m sure he’d have taken the call if you’d just picked up the phone and delivered the message mano a mano. Public brawling – however entertaining – merely confirms the collective wisdom of the great unwashed that hedge funds are a bunch of irresponsible cowboys, and, if nothing else, will make you, Dan, look pretty silly in the event that Citadel does hire any of your people, and you lose the war; anyway, I'm sure you have the situation well-tied with non-competes and similar contractual arrangements.

Ken, if you're looking for players in the event-driven space, you could perhaps try here. Or not.

Conspiracy theories: A perspective

It's not for nothing that the term Greganoia was coined back in the days when I had a job, and with all respect to Andy Grove's Only The Paranoid Survive, the securities industry is - somewhat justifiably - a seething mass of paranoia. However a little perspective, excerpted from Jeff Matthews in the comment thread at the end of his most recent post on the Overstock.com (OSTK)...err...paranoid outburst controversy, could equally apply to gold bugs, silver sleuths, and more than a few others.

Annotations are mine.

The link goes from the hedge funds* right past the grassy knoll in Dallas, through Area 51, down the corridors of the SEC and the Trilateral Commission straight to the White House**.

Have you seen who the new chef is at the White House? Do you know who she used to worked for? His initials were "MM."

* Merely by way of example; this Google search produced 74,300 results.

** whitehouse.org is so much more fun! than the official whitehouse.gov.