Muzzling John Gatto

About 2.5 years ago I stumbled upon John Taylor Gatto. What a discovery that was!

In his current book, he explains why his last book got little traction:

Right from the early days of my teaching life, I began a project of research which involved reading and arguing with thousands of books, many dreadfully written and some quite obscure, travelling (by now) three million miles around the country and the world to observe, argue, and discuss schools and which resulted in a monster book, still in print, called The Underground History of American Education. A major publisher paid me an enormous amount of money to write it (enormous for a schoolteacher) and then refused to publish it after holding it off the market for over a year. "It would embarrass friends of the house," I was told. If you wonder what that might mean, consider this was one of the top three textbook publishing houses too, apart from their trade division.

Note they refused to publish the book not because it was *disputed*....

They took a loss on the book advance and censored the facts of mass compulsory schooling from public dialogue merely because it might *embarrass* crony elites.

That's from page 103 of Weapons of Mass Instruction.

Socialist Whitewashing, By Socialists!

Thankfully, Ted Kennedy is not only on his way out of the Senate, he is dying.

And, the Boston Globe is running a 7 day hagiography of this imbecilic son-of-a-bitch.

It's downright nauseating.

Today they dealt with the little issue of *Chappaquiddick*. That was when Teddy got drunk, drove his mistress (one of them anyway) into the Atlantic, saved himself, tried to cover it up, got off due to his political connections, and then continued his life as a serial liar. I've always had a vague idea what happened, but just now reading the surely whitewashed Wikipedia entry I am even more disgusted.

This weekend getaway was six married men (Ted Kennedy, Joe Gargan, U.S. Attorney Paul Markham, Charles Tretter, Raymond La Rosa, and John Crimmins) with six single chicks on a somewhat remote island. If this wasn't to be drunken, cheatin' orgy I'd be very much surprised. Excuse me while I go ask Mrs. C-Nut if I can go boozin with 5 wide-eyed single women with no witnesses in sight. Yeah, I understand that Ted never looked like me, but still....c'mon already.

Anyway, without delving too much, because I can't bear to read the Globe's apologia, the tone of the article is disgustingly all about how this poor woman's death derailed Teddy's political ambitions. Seriously.

On a humid Friday in July of 1969, as his plane took off from Boston bound for Martha's Vineyard, Senator Edward M. Kennedy seemed locked in a sure, unstoppable ascent to the White House....

The Globe, sneakily slimes Mary Jo Kopechne; they slutify her as *ambitious*:

It was, on the surface, a Camelot-style gathering, of older married men and younger, unmarried women — but in an oddly modest, remote setting, with women who were unusually skilled and ambitious.

Ambitious like Monica Lewinsky? Well that is the innuendo I infer; and what the Globe wanted to imply.

Kennedy's story has not changed in 40 years: He was confused. He thought the ferry was the other way. He turned right.

And the lying template of agitprop has changed in 40 years either.

This from a newspaper that while it forgave Teddy for driving drunk, killing a young woman, this is the same newspaper that goes apoplectic over bigger beer cups at Fenway.

You can see the video of Ted lying here.



Did he really say that during the Amnesty vote?

See also Holier Than Thou - Marginalizing Extreme Moderates.

February Trading Update

First, revisit my most recent trading update - Amassing Soon-To-Be-Worthless Dollars.

Despite my double long oil ETF - DXO - and my double-short long term Treasury ETF - TBT - getting creamed today, I still managed a nice paper gain on my positions.

Since my last update, all I had done was add to my S&P 500 short. I just about doubled up my position in SDS at 80.33 last Thursday, after the close. It sank even further but bounced today. I let out this additional buy at 83.36 in today's pre-market. You can see above where it closed. I still have my core position that I bought at 66.00.

I also dumped the SRS I bought in my retirement account. That I initiated at 54.85 and exited at 77.86.

As for the chunk of SRS in my regular brokerage account, I sold 20% of the position at 77.40. I've been buying that thing from 128 on down to 57. My break-even cost basis on this trade/disinvestment is probably pretty close to here, 78-80.00 per share.

Today I dumped my Goldman Sachs Feb 95 puts. I was in 4.35 (8 days prior) and out today at an average price of 7.60. Still down a bunch there on my short stock position - average price 72.00 or so.



I recidivated today with CDE - a stock in which I've lost a boatload of money in the past few years. I bought the silver miner at .75. I fully expect to lose 3/4ths of this *investment*. I just couldn't help myself. Silver is running and this ticker has substantial short interest - 13.9%.

I also shorted the Homebuilders ETF - XHB. My broker wouldn't let me short it so I bought Feb 11 puts for 14 cents over parity. They will expire in 3 days. We'll see if my broker lets me stay short the ticker after expiry.

Man, I sure wish I had some SKF today....

ETF Daily Compounding

First read - On The SRS.

Here's the salient point Funny Circus Bears made in the comment thread:

CN, these levered etf's are such an enormously bad proxy over time for the markets they purport to mimick that they are only good for day trading - and they ARE very good for day trades.

Just look at the SRS alone: The corresponding long opposite of the SRS is ROUGHLY represented by the IYR, which is down 40% over the last year. That would make one think the SRS would be up ROUGHLY 80% (2x's short) over the same time period. In fact the SRS is DOWN about 40% - That's some slippage!

Now I freely admit that I didn't fully grasp the full, destructive value of the daily compounding of reverse ETFs until a few months ago (when I read about it on a blog). I had been trading them (SRS, SKF, EEV, and TBT) very profitably and really never did full due diligence. What the heck, I have about 1.5 hours a day at my computer because of my two young kids and family priorities.

But it is true, the *slippage* from range bound trading will annihilate long-term holders of the ETFs I mentioned above and our foundering trade/investment in DXO. Just do the math on how much oil would have to rise for that thing to get back to 10. It ain't looking too promising. I will buy more at 1.50 - perhaps doubling my position; but then my exit targets will drop considerably.

However, there is an upside to these *double-shorts*. Compounding is your friend when a security makes a *straight* move. It's not sufficient to just look at *year-long* investments - we must examine the behavior of these ETFs during other time intervals.

The indisputable conclusion from FCB's point is that one would have been sooooo much better shorting the IYR directly - over that period - than utilizing the SRS. I'm sure the savvy Wall Street trading houses even paired the two - short IYR and short SRS as an arbitrage spread. I'm sure there has to be some whacky volatility skew in the SRS options as well.

But let's consider the behavior of the two - IYR and SRS - over the period from 11/5/2008 to 11/21/2008. That is when the SRS defied all of its most bullish proponents' expectations and touched $295 per share. Believe me, I read all the doom and gloom blogs, and no one, NO ONE had a target that high. Most of the dour bastards said to look for $150; and a few threw out $200.



Y'all should check my numbers, but here's what I came up with:

From 11/5 close to 11/21 close, the IYR went down 30%, and SRS rose 66%.

So clearly, the SRS did at least a little better (66% vs. 60%) on a percentage basis than the prospectus advertises. It didn't do that much better, admittedly.

But if we look closer, at the full set of trading opportunities over that period:

From the 11/5 closing prices to 11/21's intraday nadir/apex, the IYR went down 40%, and the SRS rose 127%.

What that means is that when the SRS hit its magical 295.00 plateau, it was up 127% from the 11/5 close. At the same time, the IYR was only down 40% from the 11/5 close. In other words, again we have considerable *outperformance* as the SRS should have tracked only 80% higher at that moment.

So it looks like these ETFs, while flawed horribly in choppy markets, do actually provide a steroidal boost, real leverage, in the rare instances that the underlying cliff dives. In the period I just highlighted, the IYR was down (SRS up) in roughly 9 out of the 12 trading days.

But how good could this compounding really get? Let's do the math on a 9-day-straight decline in the underlying Dow Jones Real Estate Index. The first table shows the theoretical effects on daily 1% drops and the second demonstrates daily 5% drops.



With the 1% daily slides, you can see that after 9 days the SRS only *outperforms* slightly. With the IYR down a cumulative 8.65%, the SRS finished up 19.51% - only a smidge better than the 17.3% one might roughly expect.

But, in the case of a shellacking, in the case that REITs get whacked 5% everyday, for 9 days straight, the results are much more favorable. With the IYR down a cumulative 36.98%, the SRS finished up a whopping 135.79% - a whole lot better than 73.96% a non-prospectus reading, un-Captious investor might expect.

Look at it this way, SRS holders are better off getting gradual, steady declines over time than big single day drops. If the IYR dropped on day one 36.98%, the SRS would only rise from 100.00 to 173.96 - far short of the 235.79 close it would reach after the above hypothetical prolonged slump.

This is what they mean when they say that leveraged inverse ETF holders are betting on *path* as much as direction.

So what have we learned? Does the upside from potential unbroken *trends* make up for the slippage of trendless times?

Probably not.

I do want to add a few more things.

First, though I haven't vetted it completely, I think securities that move with less volatility, e.g. the long bond, I think their inverse, levered ETFs will have less slippage. This would effect TBT and my sizable position in it. Thought I really need to crunch some more numbers to test my hunch.

Secondly, it's not so easy to short the IYR or the entire basket of REITs. Many are *hard-to-borrow*. And while professional traders can easily input basket orders of 82 stocks - small traders either can't, don't know how, or will get killed on commissions. So with that in mind, we might forgive a trader for betting with imperfect proxies.

Third, let the record show that back in September 2008, when the deflecting, scapegoating thugs of Big Government changed the rules in the middle of the game, when they banned *short selling*, if it weren't for my ETF position in SKF, I might have been totally destroyed. At that time, the SKF traded at premium to its NAV because of the short ban. It hung there for quite a while, until shorting was re-permitted.

So the dude who shorted the basket of bank stocks directly took a larger bath from the ban, AND he may have even had his stock *called in* which would have been disastrous. I also had a direct short position in Wells Fargo at the time - rather large to boot. That POS printed up to $44.69 a share (today it's 14.30). I was so beside myself that I couldn't even look at my account; I was scared to death that they called away my stock. Luckily they didn't.

We'll talk some more on this vitally important issue. I regret that I haven't addressed it previously and that it may have led to some piggy-backers losing hard earned dollars.

Knife Catching In Cape Coral, Florida

There's a guy who comments, all day long, on Mish's blog by the name *Black Swan*. He's sharp as hell - on most stuff anyway. In fact, I referenced him before in - The Red, White, and GOLDman Sachs.

For a while now, he's been threatening to go down and grab some foreclosed homes in Cape Coral, Florida which is on the coast between Naples and Fort Myers. He must have finally persuaded himself to action. He posted a short summary of the town and his recent *investments*:

Florida weighed in with the nation's second highest state foreclosure rate in 2008. Last year, one out of every 22 housing units in Florida was subject to receiving at least one foreclosure filing. Lee County, Fl., home of Ft. Myers and Cape Coral, had a higher percentage of foreclosures than any other Florida county. 41,040 properties in Lee County received foreclosure related filings last year. That was up 219% from 2007. The Cape Coral-Fort Myers area, itself, had the nation's highest foreclosure rate in 2008. Additionally, Cape Coral has an almost 10% unemployment rate. That ranks the sunbelt city right up there with rustbelt Detroit. So why are so many Cape Coral residents smiling?

The senior citizen and matriarchal owner of the Italian restaurant, Wine and Roses, was smiling because business is booming in her family restaurant. The restaurant, which is just little more than a year old, is located in downtown Cape Coral, a 1960s low-rise strip center kind of downtown. She and her family love where they now live and work, and have no intentions of ever going back to live in Wisconsin.

The owner of the Sand Dollar beach paraphernalia store in Ft. Myers Beach, just minutes and two short bridges away from Cape Coral, is smiling because business his is up over last year. The former Israeli soldier said he and other Israeli beach store owners in the area are all seeing better sales. He told me that they track every dollar, every week, and they are quite pleased with what they are seeing. Ironically, the beach paraphernalia stores where I own property in North Carolina (Surf City and Carolina Beach) are also owned by Israelis. It's much like the Patels from India owning US hotels and motels, but that's another story for another time.

The owner of Foster's Grille Home Of The Charburger out on SW Pine Island Road, in the newer and even more sprawling part of the Cape, was smiling last Thursday at around 7 PM, as the line of customers was out the door of the large, three year old family style restaurant. The grills were sizzling, and the beer on tap was flowing. Judging from the packed parking lots at nearby Out Back Stakehouse and Carrabba's Italian Grill, those owners had to be smiling, too.

Sunday night, there were a couple of hundred smiling, aging baby boomers, along with those even older pre-boomers, drinking and dancing the night away in the funky, open air Paradise Tiki Hut http://www.paradisetikihut.net/index.html, located back in the old Cape downtown. It was as if they were reliving their younger days, movin 'n groovin to the do-wop music of The Dupees. There were plenty of Harley's parked out in front, left over from the huge, city sponsored, drunken biker festival that had taken place the night before in a blocked-off section on that same old part of town. It had been a drunk but orderly time for all.

The employees of the Quality Hotel Nautilus were also smiling after finding out that their five-story, 1960s downtown hotel would become a Holiday Inn Express in March, and that they would all be keeping their jobs. Conversely, there are probably few smiles on the faces of the Cape Coral Community Redevelopment Agency (CRA), which has spent years working on getting investors and developers interested in investing in downtown. Their efforts have been seriously hurt by the downturn.

Just in back of the soon to be Holiday Inn Express and Wine and Roses restaurant, sit 8 prime, contiguous, vacant downtown lots, for which the aggregate price has been dropped all the way down to $250,000. I can't recall the last time I saw prices that cheap in a thriving downtown before. Developers, to say the least, are still plenty gun-shy in Cape Coral. Home buyers, however, are not.

The vacation home rental agents were all smiles, as seasonal vacancy dates had been solidly reserved by vacation renters. But the biggest smiles came from Cape Coral realtors and title company workers, who were working overtime to accommodate the 295% year over year increase in real estate sales. A good look at the Cape Coral MLS reveals that over the last six months, there are far more homes listed as sold, pending or under short sale contract, than there are remaining in the active category. Cape Coral is a buyers' market, and the buyers are buying. Many houses are receiving multiple offers, and are selling at over the asking price. This is because the banks are are hitting the market with sub-basement pricing. It's scorched earth as many banks try to clear their balance sheets. A market that ranks number one in foreclosures, inspires fear in the hearts of bankers.

Cape Coral is actually a pretty interesting place. It is full of commercial strip mall centers, ranch houses, networks of intersecting canals, palm trees and people who have not missed many meals. It's a boaters' paradise for the many lemmings who have escaped the northern states only to come to the sea to end their protracted death march in a warmer climate. Actually, the median age in the Cape has dropped to about 40, but there are still many buffet eating, cigarette smoking, 25 mph white knuckle driving, pale faced Anaisazis. The population of the Cape has surged almost 50% since 2000. Sadly, I realize that it may not be many years until I, too, join the ranks of the "oldies but goodies" lovers in search of a warmer, more senior friendly climate.

With all it's chain stores and restaurants, if it weren't for the water and the palms, it could be indistinguishable from much of the rest of the United States of Generica. However, that water, and that lush tropical foliage, make a huge difference. An abundance of fresh fruit grown in the area. A good deal of that fruits is sold in many retail locations around the City. The living is cheap and easy, and the quality of life is high. I've never visited a city like this, before, in which so many residents seem so happy. Of course, I was there in high season. Also, where else can one now own a waterfront, gulf access single family home for as little as $150,000?

Cape Coral is all about the water, but not all water is equal. There are homes on fresh water canals, but those canals are landlocked and will not get you out to the Gulf of Mexico. There are inexpensive homes on salt water canals, but many of them, which lie in the interior of the Cape's canal network, can force boaters to spend hours going through watery mazes, and under bridges, in order to get out to the gulf. Obviously, sailboats won't be parked in back of these homes. The primo homes and lots are on direct gulf access canals (no bridges). They are found in the southeast "Yacht Club" area, and in and around the high-end, far newer southwest Cape Harbor area. Aside from a handful of Cape Harbor, multi-million dollar McMansions, the most highly prized and most expensive homes are found directly on the river in the Yacht Club. In 2005 there were some buyers who paid over $600,000 for lots with "knock-down" houses, where new homes, some exceeding $5 million in present market value, now stand in their places. I ended up concentrating my buying efforts in that area.

I had also looked in Ft. Myers, but the prices of homes on canals or on the river, south of the desirable Edison Historic District, are approaching those stratospheric Naples, Fl. prices. Here is an example of one of those communities that I visited: http://www.greaterftmyers.com/palmetto-point.php. It's should be obvious why I concentrated on the Cape, instead. Cape Coral is only a few minutes away, but house prices there can be a million dollars less.

Although there seem to be real estate offices and title companies on every commercial block in the Cape, not everyone is sharing in the bounty. It appears that there are a handful of realtors that have a monopoly on the best bank listings. A bank listing is considered good when the bank knocks 60% or more off its mortgage liability amount in order to get the home sold. By the way, if house prices are cheap, condo prices are even cheaper.

A manager from Cape Coral Title told me that the banks consider Lee County a distressed area, and are starting to keep owner-occupying homeowners in their homes by cramming down mortgage balances, rates and terms, in order to revalue those mortgages to reflect true, current market prices. She hears about these transactions all the time, but since there is no title work necessary for these loan modifications, she hasn't seen any copies of agreements. I can only speculate that there is some sort of equity sharing agreement in which the bank gets a piece of any future profit, if there is a future profit, from any future sale of the home.

It is the short sales that make up the bulk of the MLS listings in Cape Coral. Unlike many other areas of the country, these short sales are actually closing. Most banks are willing to work things out. Deutch Bank, now with a 20% currency advantage, has been the best to work with. Indymac and Countrywide have been, notoriously, the worst.

Before I made my Lee County trip, I had put a contract on a bank owned property in Ft. Myers.. It was a 1,500 house and guest cottage. I thought I was the world's greatest negotiator when I got the price down to a little over $60,000. To cement this deal, I had to sign the bank's addendum. It basically stated that I had no recourse against the bank and/or the listing realtor, but that once I signed, the bank owned me. My only way out of this contract was death. My heirs, however, would still be on the hook. The listing agent told me that any good attorney would advise me not to sign it. I signed, of course, because the beautiful tropical yellow house in the picture was the deal of a lifetime (and I do mean lifetime), and, of course, because I was such a great negotiator.

Unfortunately, that yellow paint had been applied over asbestos siding. An asbestos tile ceiling was also there to greet me in the interior of the house. The agent had disclosed none of this. The next-door neighbors were clones of "Hi, I'm Larry and this is my brother Darryl", but not from the old Bob Newheart Show, but rather from the hills of Kentucky. Larry and Darryl had given up their phone a few years back, because nobody called them, so Larry began to follow me around as if he were a seagull, and as if I were made of fish. By the time he got done describing the neighborhood, I know I would have been better off buying next door to a toxic waste dump (unless, of course, I had been interested in taking banjo lessons).

Before I could confront the real estate agent, he sent me an email stating that I had made the earnest money check out to the wrong party, and that I needed to bring him a new check. As far as I was concerned, that was check, and checkmate. So, quoting the terminator, I said, "astalavista baby", and terminated the contract. No earnest money, no foul.

The other mail order bride house I had put under contract , was the reverse of the asbestos house situation. It turned out to be beautiful on the outside, and the neighborhood was so good, that if I ever move into this stucco home with a tile roof, the neighbors will probably be putting bars on their windows. I'd estimate that some of the houses there were worth well over $5 million. There were, however, two problems with this pool home that I have under contract for $100,000. The interior looks like it was done by Martha Stewart, after she had gone through her Fred Sanford design transformation period, and, the defaulting owners owe an additional $200,000 over and above our contract price. If the bank signs off on this, it will be one heck of a short sale.

A male friend and I met a realtor at another house that appeared to be the worst pool home in the one of the best Yacht Club neighborhoods. The houses across the street had selling prices of over a million each, but I planned to be less generous with my offer (understatement). The realtor turned out to be a tall, beautiful German lady, and, after watching her smile as I described how I would redecorate the house, I had to say, "my friend and I are not gay". She replied, "Vell, I juss assumed.............not zat dare's anyting wrong wit zat". Consequently, I asked her to call the defaulting owner to see if he'd sign a contract for $60,000. He agreed, but told the agent that she was wasting her time, because the bank would never take that price. Nothing ventured, nothing gained.

I wasn't done, because I put a contract on a FISBO owned by a 90 year old man who had left the state. I convinced his daughter to take a $100,000 cash offer. The house has three bedrooms, three baths and a beautiful caged pool. The interior is great, but the exterior is so mundane, that I'm not sending out pictures until I've transformed it somewhat (if the old man signs). It is in that same great, million dollar neighborhood as is the house I wrote the $60,000 offer on. Unlike the other two houses I have under seller executed contracts, this house is not a short sale. As well as realtors are moving houses through short sales in the Cape, the process can still take six months to get to the closing table, if the buyer ever gets there at all.

And he posted another comment:

As for what I found in the Cape and Ft. Myers, I have no doubt that the traffic is seasonal, but the good news is that retail sales are up and home sales are way up year over year, and not just quarter to quarter. That is not a seasonal thing. I sent in a post the other day that showed the quarterly sales numbers for all the major Florida metro areas. Most of them were still dropping dramatically. Only Lee county and one other county were up. Lee County sales were up 43%. Sales in the Cape are up 295%. Real estate sales and prices, even in the same state, are still local.

Has it bottomed? It's hard to tell. I believe that there are many more foreclosures to come, but I have Listing Book and it shows that the sales are happening a lot faster than the foreclosures. Please understand all the research I put into buying a house. No realtor will know as much as I do about his/her own market. It's very similar to what a stock broker knows about the stock market. Most brokers only care to know enough to make a commission. Brokers do not do research, they generate commission.

Lee county is one of the few areas in the country that has Listing Book. Listing Book is a tool that enables me to map an area, find every listed property within that area, and get a good look at the property's listing history, and, more importantly, get a full sales history of the property. It also gives me the property tax info that is so important in determining cost as well as price.

No place in the country was hit as hard by foreclosures as the Cape Coral/Ft. Myers area. The Cape was hit a lot harder the Ft. Myers. Even in the Cape, real estate prices differ greatly by location. The location I am trying to buy into is called the Yacht Club. During the boom, people would pay as much as $600,000 for a knockdown house, and build something in it's place for millions. Although all house prices have dropped at least 50%, in the Yacht Club area it is still not uncommon to find homes at $300 per foot (they were once far more expensive that that). I'm paying a little over or under $50 a foot. I don't expect to lose money, and, if I do, I don't expect it will be much.

Again, this guy is really, really bright. But I think he's nibbling early - a vice I am well versed in!

Yes, fortunes have been made, in fact, most fortunes have been made in real estate, BUT, I'll bet no one ever made any money in real estate buying when mortgage rates were low. I wouldn't buy anything until:

1) RE has crashed nationwide.

and

2) Mortgage rates are above 8%.

However *cheap* stuff looks today....it'll only get cheaper as NYC, Boston, San Francisco, etc. dump and borrowing rates levitate. Why shoot your wad (of money) now?

Buying *extra* homes today is like buying Cisco Systems at $30 per share after the stock market darling fell from $72. Sure it looked cheap; AND you had been itching for years for an entry point....BUT, it still fell to $10, and 8 years hence it's still merely $16 per share!

And note that Black Swan almost got really burned on the asbestos house. In fact he was quite lucky to get out of it. This is why I am watching homes very closely in my neighborhood. I research them on Zillow.com and try to assess the possibility of a *distressed* sale down the road. When a house is listed, you can pretty easily get access and spend $300 on a basic home inspection. That's money well spent, well invested when faced the with prospect of an *as-is* foreclosure sale.

I posted this because this guy is pretty bright and because I thought some may find it interesting to take-in the rationale of a speculator risking their capital.

I asked my Naples real estate agent buddy what he thought about Cape Coral to which he shook he head, "It's landlocked....there are no jobs there....little commercial."

I'll bet it's a good place to scoop up one's own retirement pad - that is if (s)he doesn't need restaurants and craves relative peace and quiet. But I seriously doubt the area is where one should be *investing*.

I believe Florida has a real hidden over-supply issue in terms of housing and condos. Most units are owned by 'old coots' who haven't the slightest idea how to rent them out via Craigslist.com. As time goes on, more and more of them will figure it out, most likely by the prod of some younger relative.

Furthermore, as you go inland in Florida, there is still essentially *unlimited land*.

Remember, it took over 20 years for the Empire State Building to even get fully occupied. Expect the same for Florida housing and its oversupply problem.

Here's A Tax Raise!

Link here.

I think I read where Californias were also going to get their income tax rebates in an *untimely manner*.

Automatic tax withholding, by employers, coerced by Big Government, is a Constitutional abomination that would spin the Founders in their graves. The notion that pols take their cut FIRST implies we are their SLAVES.

Think about it. The government claiming a share of all of our property (via property taxes) and of all our income....is a de facto institution of slavery!

I'm not being hyperbolic here. Compose your own definition of *slavery* and get back to me.



This reminds me. It's time I started doing my taxes. It'll probably take 30 hours for me to get my capital gains correct, again.

Mark Cuban - Reminding Us He's Not A Total Dummy

A week ago, Mark Cuban asked his blog readers to post business plans that he would consider investing in. So far there are a whopping 1,418 comments - many of which take his bait and post their *best* business plan ideas.

Of course he listed 13 stipulations, and this clincher:

You must post your business plan here on my blog where I expect other people can and will comment on it. I also expect that other people will steal the idea and use it elsewhere. That is the idea. Call this an open source funding environment.

Now, what Moron, if they had a really good idea, why the heck would they advertise it to the entire world? Wouldn't an email be more appropriate?

So Mark is taking advantage of $$$$-dreaming kids. That post cost him nothing but a few minutes of time and now hundreds of ambitious Morons are sending him business ideas. Who's to say that if a really good one gets posted, that Mark himself won't steal it? Forget *other people* co-opting it!

Again, would you really want to invest in someone who's stupid enough to publish their plan? There's a bit of a conundrum for Mark.



But here's the best part that'll might blow y'all away.

Last year Mark Cuban wrote a decent post titled - The Best Equity is Sweat Equity:

The Rules of Success

As MicroSolutions became more and more successful, and as I paid attention to the common traits of businesses that I saw succeed and those I saw fail, I came to realize that there are “Rules of Success” that I saw in companies that excelled. Where companies failed to follow those rules, inevitably, they failed. I found myself checking with “My Rules” before I made decisions. When I traded stocks or considered investments in companies, I applied The Rules to their business before I made a decision.

The best businesses in recent entrepreneurial history are those that have been started with little or no money. Dell Computer, MicroSoft, Apple, HP and tens of thousands of others started in dorm rooms, tiny offices or garages. There weren’t 100 page long business plans. In all of my businesses, I started by putting together spreadsheets of my expenses, which allowed me to calculate how much revenue I needed to break even and keep the lights on in my office and my apartment. I wrote overviews of what I was selling, why I thought the business made sense, an overview of my competition and why my product and/or service would be important to my customers, and why they should buy or use it. All of it on a piece of yellow paper or in a word processing file, and none of it cost me more than the diet soda I was drinking while I was writing it up.

These investors, including myself, know what you don’t, and they are not telling you. The minute you ask for money, you are playing in their game, they aren’t playing in yours. You are at a huge disadvantage, and it’s only going to get worse if you take their money. The minute you take money, the leverage completely flips to the investor. They control the destiny of your dreams, not you.

Investors don’t care about your dreams and goals. They love that you have them. They love that they motivate you. Investors care about how they are going to get their money back and then some. Family cares about your dreams. Investors care about money. There is a reason why venture capitalists are often referred to as Vulture Capitalists.

There are only two reasonable sources of capital for startup entrepreneurs, your own pocket and your customers pockets. I personally would never even take money from a family member. Could you imagine the eternal grief and guilt from your mom, dad, uncle or aunt because you blew your nephews college money or the money for grandmas last vacation...I can't.

You shouldn’t have to take money from anyone. Businesses don’t have to start big. The best ones start small enough to suit the circumstances of their founders.

As much as you want to think that all things would change if you only had more cash available, they probably won’t.

The reality is that for most businesses, they don’t need more cash, they need more brains.

Now, the date on the post is incorrect. It says it was posted in June 2004; it was actually posted in October 23, 2008. I have a pretty good memory, BUT NOT THAT GOOD.

If you read my post too fast you'll miss its point.

On one hand, Mark says never to take an investor's money; that investors will give you false confidence and could potentially *steal your dreams*.

Then, on the other hand, or, six months later, Mark tells you to send him your best business ideas; that he'll be that very *vulture* to steal your dreams; that he'll be that guy to give your business plan unnecessary and dilutive capital.

As I've said before, Mark Cuban is intellectually incontinent, a hypocrite, and an incorrigible wealth-chaser - though at least he's great blog material!

See also I Don't Blame Mark Cuban, Mark Cuban, Trader, Marginalizing Mark Cuban, Again, and Marginalizing Mark Cuban.

Greg Mankiw - Problems With His Staff Size

Greg Mankiw on our bankrupt banks and the specter of *nationalization*:

I don't pretend to be enough of an expert, or to be close enough to the facts, or to have a large enough staff, to know what should be done with the banking system, which is at the center of our current economic turmoil.

If the government is to intervene in a big way to fix the banking system, "nationalization" is the wrong word because it suggests the wrong endgame. If banks are as insolvent as some analysts claim, then the goal should be a massive reorganization of these financial institutions. Some might call it nationalization, but more accurately it would be a type of bankruptcy procedure.

Bankruptcy could become, in effect, a massive bank recapitalization. Essentially, the equity holders are told, "Go away, you have been zeroed out." The debt holders are told, "Congratulations, you are the new equity holders." Suddenly, these financial organizations have a lot more equity capital and not a shred of debt! And all done without a penny of taxpayer money!

Did you catch that?

According to this Harvard genius, this intellectual powerhouse, all it takes is a stroke of the pen, a canceling of equity to recapitalize the banks!

First of all, debt holders ALREADY own the banks. They have first crack at the assets in a liquidation - or at least precedence over stock holders.

Second of all, no debt holder WANTS to become a mere equity holder. They want their promised interest and an eventual return of their principal. Furthermore, you can't just wipe out the debt holders without serious negative wealth-effect ramifications; there'd be CDS (credit default swap) consequences to boot.

Thirdly, the idea that *debt* is what ails the banks is a ridiculous mis-diagnosis. Banks are ravaged by EXCESS LEVERAGE and POOPY COLLATERAL.

A *larger staff* would most certainly not mitigate the ignorance of this quack. He's incorrigible!

Note that it wasn't enough for Greg Mankiw to first attempt to regulate comments and shortly thereafter wipe his blog clean of all comments, all *negative feedback*. See Greg Mankiw - Total Loser.

It looks like he's now removed all *Links To This Post* from his blog. It's not just that he doesn't want Captious retorts alongside his tripe.

He's determined to insulate himself from all criticism. He's Marginalizing himself!



Here's John Gatto:

I once heard someone in my own family, who I once loved very much, say,"I don't take criticism well," as if it were a boast, and I knew at that instant there was no way at all for her to grow in mind or character with that self-destructive attitude.

That's from page 62 of his new book - Weapons Of Mass Instruction. Y'all can blame that book for my *light* posting this weekend.

Fear not, I should be done with the book very quickly. By the way, it's his best book yet, by far.

On the SRS

The SRS is the Ultrashort Real Estate ETF. It's currently my largest position on the equity side and although I'm underwater on it (started buying at $128 or so) I'm pretty comfortable holding, and perhaps adding to it.

The SRS provides a leveraged short of the Dow Jones Real Estate Index - a composite of 82 REITS. Here are its 20 largest components and their current percentage weighting:

SPG      6.51%
NLY      6.18%
PSA      5.66%
VNO      4.72%
EQR      4.37%
PCL      3.93%
HCP      3.88%
BXP      3.76%
VTR      2.61%
AVB      2.61%
HCN      2.56%
FRT      2.08%
KIM      1.84%
RYN      1.76%
HST      1.75%
NHP      1.74%
JOE      1.65%
DLR      1.60%
REG      1.55%
PLD      1.54%

Adding them up, in my head, they total 62.3% of the entire index value. Let's look at the biggies:

SPG is Simon Malls. I made $$$ shorting that turd in 2008 so many of you should remember that ticker. It stands at $38 a share today; can you believe it was $100 in September? They just decided to reduce their dividend. Technically, they decided to change a *cash* dividend to a mix of *90% stock* plus *10% cash*. This is highly dilutive and, worse, it might be suggesting that the company has decided to wipe out its equity holders, IMO. It seems Simon has chosen to hoard cash (like me!) and perhaps use it to buy bargains and whatnot. Bondholders are in good shape - AND may even be advising the company to reduce the dividend, conserve cash, and wipe out shareholders. I'll bet the big boys on Wall Street scooped up a ton of SPG debt, shorted the stock, and then started to exert pressure on Simon.

Then, after they fleece shareholders to enrich bondholders, expect another IPO a few years down the road!

Next up is NLY, Annaly Capital. I just spent a good hour reading up on the company via Yahoo's message board. Essentially, the company borrows short and lends long - BUT only on Agency debt. In other words, Annaly buys up Fannie and Freddie Mac mortgages with 1% or so short term loans that they have to keep rolling over. Everyone assumes that short term rates can't rise and that Big Government will never default on Agency debt. Ergo the stock is a dividend machine, yielding about $2 per share on a $15 number. That's a pretty nice 13.3% return - especially with the current 15% tax rate on dividends. NLY has negligible short interest which testifies to investor confidence. I believe they are levered something like 7-1. If the government ever said - as they most certainly should - *Fannie and Freddie bondholders need to take a 10% haircut*....this company would probably be wiped out.

This stock appears to be a problem for SRS holders, who should ideally sell put premium in NLY as a hedge.

Next up is PSA - Public Storage. They own self-storage facilities across the country. Depending on whom you ask, they are either in good shape or bad shape. Here's a primer on how they are supposedly doing now. They don't have near the debt load as Simon ($646 million vs. $18 billion) so it's more unlikely that their equity would be wiped out.



VNO - Vornado Realty is another interesting story. They own office and retail space in the big cities: Washington DC, New York City, Boston(?), and San Francisco. They also just decided to change its cash dividend to a mixture of cash and stock.- 60 percent is going to be stock now.

While Mrs. C-Nut and I were enjoying a drink at Tommy Bahamas in Naples last month, some jabroni leaned over us to pick up his take-out order. We got to talking and were informed that he worked for Vornado. Of course I picked his brain, and provoked him by telling him I was (at least by proxy) short his company. He laughed. And said they had *$3 billion in cash* and only made investments in the big cities....and that big cities, particularly DC, were immune to economic downdrafts because everyone worked for *expanding* government.

Of course I laughed. (By the way, VNO only has $1.5 billion in cash)

In the four weeks since then, his stock is down from 53.49 to 42.79 - a full 20%!

Do y'all know how many times in the past year I have heard someone tell me that the company they work for is in good shape....and I told them I was short their employer, explained why, and each time I was proven correct???

Without mentioning any specific tickers, there has to have been at least 5 different instances that I can think of off the top of my head.

If you work at a company, if your livelihood already depends on its health, a non-Moron really ought to lean skeptical of its finances, of its future.

Okay that's enough. Taylor is going to do the next 16 tickers for y'all.

The major story for REITs today is the slashing of dividends. In fact, in the last nine months, 41 REITS have cut and/or diluted payouts. Some are doing it because they need to, others because they want to protect against *debt rollovers*, and still others so they can perhaps go on a distressed acquisition spree.

It doesn't really matter.

Now it'd be bad enough if the REITs simply lowered payouts but what they've done, this Ponzi dilution with stock dividends, could spell disaster for shareholders.

Today, institutional bondholders are asserting control and reminding all investors the forgotten truth about the hierarchy of corporate ownership.

AND, they had help from their cronies in Big Government:

The IRS is helping commercial real estate owners out with a new rule that allows REITs [real estate investment trusts] to pay up to 90% of their dividends in stock. After what we assume was much lobbying, the IRS changed the rule to help REITs conserve cash in a liquidity constrained environment.

Why did they change the rule? Because Goldman Sachs, Bill Gross, and the other plutocrats own a whole lot of CRE debt.

Basically, the pols changed the law, and the big investors took money from the little ones, yet again.

Interesting Video

Thanks to Mrs. TallDude for the link. I think I had seen it before but it got lost in the fog of my browsing.

It's a good thing TallDude has a wife and a father to send me material - otherwise his contribution to this blog is practically nil!

Managing The Banks' Properties

My landlord is descending upon *the end*. The reality of his four underwater properties and now revenue-less subprime business can no longer be ignored.

As I mentioned previously, we had a spat five months ago and I stared his broke-ass down. So I haven't seen or heard much of him.

But when I was in Florida Mrs. C-Nut had to deal with the clown over some heat/plumbing issues. To her he confessed that he was tired, that he felt like all he was doing now was *managing the banks' properties*.

But that's all the Moron was ever doing!

And that's what most people, most so-called *homeowners* are doing when they put next to nothing down and take out a 30 YEAR MORTGAGE.

Actually, I want to modify that last statement. If they live in the mortgaged house, they are more like *renters* because they are renting money.

Now I swear, since our mailman comes like clockwork at 4pm daily, that my landlord has been swinging by to intercept his mail so I wouldn't see *foreclosure notices* and whatnot. (We share a mailbox.) For a Moron who's otherwise all over the place, he sure has promptly been there to retrieve his mail.

But today, he wasn't - as the mail came early. Sure enough there was a *first notice* from Greenpoint Mortgage in the box this afternoon.

That particular default could be on my house or any of the others. He's probably got at least two different liens on each property. It's surely going to be an interesting next few months here with my living situation. I'll keep y'all informed - because more than a few of you need vicarious excitment.

Balls Were Made To Be Broken

The fact is, if a dude sucks his gut in like a broad....

Then he well deserves to get PWNED. His brother constructed the above as his *Christmas card* on one of those photo websites and mailed it out to the entire extended family.

It reads:

Hope in these difficult economic times you're sucking it in like Kevin.

I found it pretty darn funny.

This comic relative of mine takes this tack every year. Once he even tried to victimize moi on his pagan holiday card.

It's money well spent and a whole lot better than sending everyone a pic of you and your dog!

Valentines Day - Another Pagan Holiday

So what in heaven's name are we to make of Taylor's personalized valentines?

What a ridiculous holiday Valentines Day is!

I submit that spinsters shouldn't have a *special day*. They're entitled to nothin' until they're married.

One of the funnier sights I ever saw was at least ten years ago at the CVS on 20th and Chestnut in Philadelphia. It had to be 8am on V-Day morning and the card section was mobbed. There were at least 20 slacker dudes (no chicks!) there mining for the perfect card to sub-in for a presumable lack of gifts. I'll bet half of them wrote-in a *coupon* for a massage on the $3 cardboard expression of passionate love!

In fact, I recognized one of the romantics there as the boyfriend of a young lady I once very much fancied.

The next time I saw her, I promptly ratted his tardy butt out!

Full Disclosure - I wasn't at CVS that early buying a card....I was buying personal lubricant.

I'll bet Mrs. C-Nut buys me nothing this year, yet again.

The Art Of Theft

There's a pecking order among Thugs and the Morons they exploit.

At the low end are pawn shops, *pay-day* check cashers, and corner bookies who separate the bottom tier of fools from their money.

Then, as you climb the intelligence ladder, the exploiters become auto mechanics, real estate agents, credit card companies, state lotteries, SAT preppers, etc.

Now, at the very top of the ladder, the effete Thugs use more sophisticated means to separate the wealthy and less Moronic from their hard earned/inherited wealth.

For example, consider the slickly-named hedge fund. After all, an investor will almost never know what a fund manager is trading or investing in. The name, the packaging, is VITAL.

Wall Street must have discovered, empirically, that all hedge funds need to have one or more of these words in their name: quantitative, absolute, arbitrage, and/or *market neutral*. (Remember Mish with his *Hedged Growth* and *Absolute Return*?)

Now consider the last one - *market neutral*. The genius of this adjective, this catch-phrase, is that most wealthy and institutional investors already have plenty of exposure to the stock market - to long term equity investments. What they need is diversification. And, voilà, where there's a demand for a high margin product, Wall Street will provide.

So two jabronis quit Lehman Bros. or Goldman. They set up shop as a hedge fund, slick their hair back, brag about their *experience* and connections with the *really important* crooks on Wall Street, and they have no problem at all convincing dipsh*ts that run state pension funds or other large pools of OPM that they have a *proprietary* system of gaming the market. For good measure they are personable, take the money allocators to Winged Foot, Garden City CC, and Westchester CC and to swanky restaurants....they may even have to make explicit kickbacks. It's not robbing Peter to pay Paul. It's robbing Peter who robs Paul, who robs Simon....who may even be robbing Joe 6-Pack's union dues at the bottom of this financial food chain.

Now take a look at how so-called *market neutral* hedge funds fared last year:



Down a whopping 39.44%!!!

Note the S&P 500 index finished the year down a very similar 38.5%. What are the odds?

So much for *market neutrality*; so much for diversification.

Here's something I posted in a Forbes blog last year on the much-ballyhood *quantitative* packaging of hedge funds:

As for hedgefunds and the quantitative bent - there are more than a few that trade algorithmically, but the *quantitative* label, for more than one would think, is really just slick marketing. They can tell their investors that they have Phds writing code because they know the backers have no avenue to discover that much of the decision-making is still done by seat-of-the-pants-thinking human beings. In my experience, the guys that run hedge funds consider their number crunchers essentially as part of *operations*; in other words, they are to keep quiet and do only as they are told by their numerically illiterate superiors. In fact I have seen hedgefunds that ONLY hire Ivy League graduates - tell me that's not a pure marketing ruse on their part. What state pension fund wouldn't invest money in the "Ivy League Quantitative Arbitrage Fund"? I first learned about this *quantitative* scam when I was 20 and interning for a tenured, reputable UPenn economist. He was a (highly) paid adviser to some big fund based in Manhattan. We would run stupid multivariate regression models on the averages, currencies, etc. and present them in front of the directors who oohed and ahhed our every usage of "r-squared" or "auto-regressivity". Even though I was still sopping wet behind the ears, I know right there that it was all BS. The honchos had "a priori" (Jerry Bowyer-ish) opinions and just wanted some statistical propaganda to buffet their preconceived notions.

BC Converts To Catholicism

The Boston Globe today has an article on Boston College - how BC is adding religious icons to the campus to remind everyone, including itself, that it's a Catholic institution.

So, is a Catholic school adding crucifixes really a big deal? It is to the secular Morons running the Globe. They titled the article - Catholic Symbols Stir Diverse Feelings At BC.

On the plaza in front of Higgins Hall at Boston College, there is a new oversized statue of St. Ignatius of Loyola, robes flowing and his hand over his heart. For the university's nearby Newton campus, a large statue of St. Thomas More is being designed.

On each side of the foyer in Lyons Hall is a new mosaic, one depicting Dorothy Day, the founder of the Catholic worker movement, and the other Pedro Arrupe, a former superior general of the Jesuit order.

And suddenly, in all 151 classrooms, there is a Catholic icon, in most cases, a crucifix above the lintel.

I had thought the Globe was generally pro-diversity (of feelings)....hmmm.

Student reaction has been generally supportive, but among faculty, there is division over the appropriateness of the step. A meeting last month of arts and sciences department chairs turned into a heated argument over the classroom icons; a handful of faculty have written to the administration to protest, and some unsuccessfully circulated a petition asking to have crucifixes removed.

"I believe that the display of religious signs and symbols, such as the crucifix, in the classroom is contrary to the letter and spirit of open intellectual discourse that makes education worthwhile and distinguishes first-rate universities from mediocre and provincial ones," Maxim D. Shrayer, chairman of the department of Slavic and Eastern languages and literatures, said in an interview.

Can you imagine the stones of a Boston College professor telling the administration, telling his employers to remove religious symbols?

AND, the fact that they are Moronic enough think a crucifix *limits intellectual discourse* ought to disqualify them *intellectually* from teaching anyone - particularly in a college that costs over 50k per year now.

This article reminded me of a blog I wrote waaaay back - on a BC professor who was an admitted invert and communist. Read Self-Marginalizers.

A lot of real Catholics fulminate against the faux Catholicism of Boston College. And these same critics are likely to inveigh against the school's founders, those liberal Jesuits.

But the 465 year history of the Jesuits ought not to be judged by a present-day snapshot. Members of the Society of Jesus, as missionaries and educators, have done yeoman's work for Catholicism over the years. They forged new ground and sacrificed much while venturing into the scary frontiers of civilization Ad Maiorem Dei Gloriam - "For the greater glory of God".

So the Jesuits were far afield, in Japan, China, and the Amazon jungle where they took some license with the dictates from the Rome. They weren't *liberal* or *heterodox* so much as they were practical. Can they be forgiven?

They've probably gone too far - and are now circling back.

Disclosures - I went to a Jesuit high school that may as well have been a *feeder school* for BC. My wife went to BC; so did my sister. AND, just about every 3rd person I meet on the South Shore (of Boston) also went to BC.

I DO NOT consider it a good school - though everyone who went there or paid a tuition certainly does!

It's Not Funny....It's Regional Bigotry

Someone sent me one of those forwards that mocks people with scarlet necks. There were a couple of pics that I hadn't seen.



"If I throw a stick will you leave?" for an engagement picture?



I actually didn't laugh one bit. Y'all who do are parochial bigots!

Y'all don't think a Northeastern dweeb who can't change a tire without a cell phone, wears Teva sandals, worries breathlessly about carbon emissions, and can't get married until they are near 40 ain't a complete, mockable alien to Southerners?

Amassing Soon-To-Be-Worthless Dollars

My last trading update - Arctic Trading - was this past Thursday.

On Friday, as I mentioned in the comments of that post, I started buying the Ultrashort Real Estate ETF, again. I bought the SKF at 134.94 and 128.46.

I also whacked the NASDAQ-100 again on Friday - shorting the QQQQ at 31.46.

On Monday, as Goldman Sachs continued to squeeze me I bought even more *expensive* puts on it. I added some Feb 95 puts at 4.35 apiece.

Today, with the market dumping, I sold the GS Feb 90 puts for a loss. I was in at 5.20 (Thursday) and out at an average price of 4.35. Decay got the better of me as the stock was lower but so were my puts upon exit. This is the risk of buying *fat* front-month options.

[More - *days to expiration* dropped from 16 to 11 - so you can minimally, ceteris paribus, wipe out 27.7% of the OTM option's premium.]

And today I also dumped all of my SKF at 138.75, obviously a little too soon.

But I'm still plenty short as it stands.

I've still got EEV, SRS, SDS, and that short QQQQ position.

[And I've still got TBT, OIH, DXO, a smidge of DELL, and a smidge of GOOG.]

Oink, Oink

Actually, I think he's wrong.

The American people do care about *pork*....

....Even though they shouldn't. They should care about *entitlement* spending.

Of course, Chuck Schumer cares about neither!

I wouldn't be surprised if C-SPAN's lawyers get that damning clip pulled now that Drudge has it. This is what socialist thugs do everyday, all day long. So I'm going to add the transcript below:

Charles Schumer (S, NY) - And let me say this, to alllllll of the chattering class....that so much focuses on those little tiny, yes, porky amendments....The American people really don't care.

Hybrid Taxis - A Case Study In Government Failure

"Did you know that in the cab line at the airport (Boston) you can request a HYBRID taxi???"

That was Mrs. C-Nut provoking me late last night.

Nationwide, cabs are a disaster. They are over-regulated, too expensive, and too scarce all at once.

I used to live a mere 10 miles from Boston's Logan Airport and yet cabs to there cost a ridiculous $50. Since then, rates have gone up some more (ostensibly on account of gasoline).

And since then, Boston, like New York City, has been pushing to make cabs rolling idols for the eco-pagans; they've been trying to mandate hybrid taxis. In fact NYC, had their green ambitions temporarily thwarted by a judge. Read here.

Hybrids aren't built for the wear-and-tear of passengers, they are a cost burden on taxi companies - being far more expensive to buy and insure than Crown Victorias and the like, AND hybrids will endanger the safety of riders. These toys fold up like sardines in accidents.

I don't know about y'all, but I am already scared-to-death riding a cab on FDR Drive in Manhattan. I'm right sure I don't to ride that roller-coaster in a Prius lawnmower - at a steeper price to boot!

Cabs, like almost everything else on this planet, need less regulation - not more.

See also - Pluming Prius Putzes.

Morons Bidding Against Themselves

The above house has been for sale near me for some time now. It was most recently listed at $849,000.

I just found out it is *going to contract* at $825,000.

Big deal, right?

Well look where it sold 1.5 years ago:



It sold even cheaper - at $800,000!

Who the heck would bid higher than its June 2007 sale price?

[Answer - some fool from out-of-town, a Georgian whose company is helping with his relocation costs.]

Can y'all see why I am so frustrated?

Morons keep bidding against themselves, not only dragging out the inevitable collapse, they are in fact making sure it's more painful. Because, the slower the drop, the more fools who'll have gotten sucked in at high, unsustainable prices.

Real estate, as an asset class, still has such a long way to go before it's washed out.