Wednesday, March 30, 2011

Reminiscences of a Retired Kindergartner

A few times a week the neighbor casts open his garage doors for twilight beer and darts.  He's Old School all the way.  We keep a beer fridge there which stays full through the honor code.  That took a while to get used to, the successful function of the Beer Code, but then last night it occurred to me that our little drunken Nirvana is founded on principles keen to any decently reared kindergartner.  So then I start trying to think of all the most basic societal ideologies taught to 5 & 6 year olds.
  • Be nice.
  • Don't tattle.
  • Take turns.
  • Help someone.
  • Mind your own business.
  • Don't take what isn't yours.
  • Ask to borrow first.
  • Share your things.
  • Everyone is equal.
  • Follow the rules.
  • Try your best.
  • Save some for the whales.

Kindergarten Libertarianism observed in the wild.

Are kids inspiring because they haven't been burned?  Because they buy into the lies their parents and teachers tell them?  Or because they rightly believe and adhere to the most basic societal codes, creating idealized microsocieties for themselves?  When do these fundamental tenets of human interaction get cast aside by the asymmetric whims of extra-personal asshats?  Haven't figured it all out quite yet, but I'm working on it, one cold beer at a time.

Saturday, March 19, 2011

Why I think people should own homes, not stocks.

James Altucher wrote Why I Am Never Going to Own a Home Again citing a list of downsides to homeownership.  While we normally agree, especially on topics such as why kids shouldn't need to go to college, I have to disagree with the self-motivated reasons he gave in his post if trying to win-over Middle America.

I think:
  • Homes should not be considered financial investments.
  • Homes should be considered safety nets.  If citizens are buying prudently (ie - not over-spending, not over-leveraging, purchasing quality, etc.), and paying aggressively (in lieu of putting extra cash into the stock market), a few weeks or months of unemployment shouldn't drastically affect their living condition.
  • Mortgages are cheap, fixed-rate leverage, against an asset that will protect them for life provided they spend prudently, and maintain their property.
  • Most Americans are not as financially savvy, or as change-compulsive as Mr. Altucher.
  • The complete vertical integration of the markets into daily life equate renters to "putting all their eggs in one basket" if they are not savers.  Most Americans are not savers.  Purchasers lock-in their stead at one point in time.  Homeownership and aggressive principal reduction is a put option on the Economy.
  • We agree that the "tax incentive" citation to homeownership is misguided, and so is the notion that one should contribute to RSA's for the taxable benefits.  RSA's are also illiquid and saddled with penalty expenses, two other negative points Altucher makes.
  • We agree that closing costs are inane, but they are also a one time time expense, and his argument that tax deductions for mortgage interest are nominal don't square with his argument against closing costs.
  • If you do want to move, you're not trapped, you can rent to one of the swelling ranks of Altuchers out there, let the property management company mind your place and your people, and then rent in the new place.  If anything happens, you've got a place to go on short-notice.
  • "Stress."  What people went through during the Dot Com Bust and in 2008 didn't result from homeownership, but from living beyond their means.
Ultimately, both sides of this argument resemble a discussion about leasing vs. buying automobiles.  There are merits to each, but the deciding factors should be the length of assumed usage, as well as the amount of care one has toward their things.  In my opinion, James's discussion highlights the downsides to homeownership over a short time frame, and for someone that likes to rag their shit out.  It should also be noted that I deduce from his piece that he is a saver, so we may be making opposite sides of the same point.  If this is the case, the real point is that Americans need to revert to saving, by whatever means they choose to do so, and by reducing their mortgage principal they do not have the potential to "lose money" but to guarantee a certain way of life.  I believe that Americans should view homeownership as a long term investment in themselves, not in their wallets.  Doing so inherently reduces "beta."

Wednesday, March 16, 2011

Dear Internets

Since 2007 I have toiled in the cellars of the capital markets, breaking off enough winnings to devote full attention to this gig.  One of my very earliest plays was a stock called Goldspring, which is now Comstock Mining (LODE).  By winter of 2007 I had become convinced that the gold bulls had it right, the case for hard assets was clear, and to a new trader, the requirements put upon resource producers in the wake of the Bre-X scandal make doing the due forthright, scientific.  Interest had been gathering in Goldspring for some time as they were early in a drilling program in the historic Comstock district of Nevada, and were consolidating properties with reckless abandon.  The choice was clear, I had to get my money in the game.  150%, unfulfilled financing activity, and broad market turmoil later, the exit hatch.  GSPG will always be close to my heart because it's the cornerstone of my career.

GSPG, entry and exit areas

Following that, I started trying to trade a little, hiding in "diversification" in the oil business, banks like FITB, and finally, GNW. In fact, James Altucher did a video in the snow during the spring of 2009 calling Genworth one of the best bets in the market.  I had 46,955 shares averaged in the 1.30's or 1.40's (even bought some for 0.78, I remember because that's my lucky number) about the time that he made that prediction, and sweet damn, traded them out in the high 1's.  Probably one of the worst trades of my life, but how the fuck should I have known better under the circumstances?  Thereafter, owned XTEX in the low 2's and sold covered calls against it for 20% profit on it's way to the 10's that same year.  Then KFN in the low 1's, and again sold in the high 1's because the financing situation looked terrible.  But about this time I found a company called Nanoviricides.  It also had the indications of a stock on its way up.  Gathering interest, an interesting story, and in one of those gray areas that markets seldom choose to penetrate, the bulletin boards.  150%, awful financing arrangements, and unfulfilled promises later, the exit hatch.

NNVC, entry and exit areas

For better or worse, my losses were forgettable, if memorable.  I had some ETFC, and covered calls against them, that frankly, I got bored with and sold.  By the spring of 2010 I had produced 10x my initial investment from the fall of 2007.

So in the spring of 2010 I decided to make a career of the stock market.  Read the twitter feed and this blog for how that story goes.  It's been work, tough work, and with varying degrees of success, but my accountant and wife seem to think it's working out ok.  When reviewing my first 6 months performance early last fall, I discovered that picking winners comes naturally, and trading doesn't.  Philosophically, dude has decent market timing, but not the chops to execute said ideas, yet.  And so, when an opportunity presented itself, I knew what had to be done.

The following is taken from Soros:  The World's Most Influential Investor by Robert Slater:
To Stanley Druckenmiller, Schlesinger's "clarion call" made betting against the pound crystal clear.  "The real decision was not whether to take the position we took but how deep to go.  At first, I was thinking in the range of 3 or 4 billion.  But that's where George's instinct, his sixth sense or whatever, the thing that made him such a great investor, came in.  For him, it's not whether you're right or wrong, but when you know you're right, making sure you have the maximum in play.  Actually, he - we - would have bet more, but we just ran out of time."
Druckenmiller deserved no little credit for initiating the play on the pound, but Soros, as usual, provided the extreme self-confidence that encouraged Druckenmiller to bet so much.  "I told him to go for the jugular," Soros said.  "It's like shooting fish in a barrel.  As long as the barrel holds up, you keep on shoorting the fish."
As such, I have made the following proposal to a list of angel investors, VC's, and high net worths (Mark Cuban, for example):
I would like to raise $1MM to form a Special Purpose Vehicle for the purpose of owning only one stock.  It is NYSE listed, and trades over $6.  In my view, there is a serious price dislocation on this security, and I have been and continue to be willing to stake my worth on it.
In consideration for this proposed investment, I would back the first 10% of any losses incurred, and will post cash collateral up front, and in return would like to halve the profits after one year's time.  The SPV would contain only two conditions:  1)  The SPV has an explicit 1 year term, unless the stock doubles, at which time we would liquidate and split after tax profits;  2)  There is no trading, hedging, or any other simple or esoteric activity to be conducted in the account.
To be sure, I have no investment credentials aside from experience.  I am not tested, trained, certified, or otherwise.  I have been trading since late 2007, and will provide 3 full years of trading logs on my broker's header, upon request.
No takers.  So, dear internet, if there's anyone out there that wants to at least hear the pitch send me an email,  I'd rather lick the underside of a toilet seat than go to my deathbed asking myself "what if?"

ps - As a bonus, I offer up the email sent to NNVC's CEO (dated 5.12.2010) upon closing of the shitty financing deal that destroyed value for his "faithful shareholders":

Tuesday, March 8, 2011

Macro Speculations

The cloud computing model of carrying an interface device without installed software should be a nice boon for software developers like MSFT because on-line licensing is more difficult to pirate and easier to track than traditional methods (CD's).

Uncommon times call for uncommon solutions.  I still like high speed rail and other infrastructure spend, and you know I want a modern WPA, therefore huge contractors like Granite and Sterling should get another look.

I also like natural gas.  Modern methods and large local resources point to a plentiful supply.  I think that the inflationary pressures in commodities cannot be assuaged because in addition to the monetary policy and unemployment bed we now find ourselves in, the developing world is beginning to fully embrace Western Financialism, and that exogenous demand affects input costs.  All these batteries and biofuels are wonderful, but they aren't scalable yet.  Natural gas is the bridge, and I think it's about time to pick a new secular bottom.

Wednesday, March 2, 2011

What it means to be a Libertarian.

I watched the following video on  If the Tea Party understood that they agree, without resorting to militant action by harmonizing and communicating their views more succinctly, we might actually achieve some important changes in this country.  The Mind Your Own Business Party would be a more fitting name.

Tuesday, March 1, 2011

Notes to El Presidente (3)

It's tough not to tee off in a medium like email, but by the time one gets to letter writing there's an inherent frustration level.  Exact transcript as sent through contact page as follows:
President Obama -
It's that time of year again, to pay someone almost a 1% of my personal, pre-tax take home salary in order to negotiate the stupidly complicated and opaque tax code.  Thanks in advance for making that a priority among your many tasks including browbeating China on their own monetary policy decisions, and pussyfooting around with oppressive jerks like Quadaffi, Somali pirates, and Mexican drug cartels.
Look, as a libertarian I just want to be left alone, also, I think other people should be left alone.  But if you're going to get elbow deep in other people's problems, at least have the sense to deal with real issues that would engender goodwill.  That means declaring war on pirates, and then doing something about it.  Set up live training exercises for our maritime special forces on a proactive basis.  The world doesn't need to know that the problem got fixed, or how, it'll just fall off the screen into the annals of time.
Also, put the pedal to the metal on these projects.  We are past the point of needing a modern equivalent of the WPA.  Incentivize work.  I am deeply concerned that large portions of those hitting Food Stamps rolls will never leave them.
As for drug cartels, and Qudaffi:  first, legalize marijuana.  You've smoked it, you understand.  Why not declare a war on allergies?  Swap marijuana for ragweed, now that's a plant that sucks the fun out of a fine spring day.  And secondly, get on TV and flat out say that it is wrong to impinge another's basic human rights.  Our Bill of Rights applies to all people, and it is not wrong to express a strong belief in a well-worded, deeply logical document that has withstood almost 350 years in the modern era.  It is the cornerstone of our way of life.  If you want other people to lay down arms, tell them directly how you believe in what we have done here.
Back to the issue at hand:  the idiocy of our tax code.  My guy says that our IRA money that was withdrawn for reasons including:  underperformance by managers, logical allocation of capital into a pay-down of the mortgage to guarantee a high savings rate, and because I want to control my own finances, will still be subject to penalties even though we used it to pay down the mortgage.  So tell me, we've got a problem with foreclosures, underwater mortgages, and a rash of unsavory market practices, does charging that penalty make any sense to you?  Over time the partisanship has gotten so out of hand that there is no "spirit of the law" anymore.  It's a codification of daily life that wrongly incentivizes and disincentivizes activity without notion for the repercussions of those codes.  Shrink government back to it's original purpose, to protect our rights and our country.
Good day, sir.