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Akram's Razor
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Akram is a 33 year old portfolio manager based out of Dubai.
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  • "The Unemployed Shareholder Visits Salesfarce.com"

    “The Unemployed Shareholder Visits Salesfarce.com”

     

    Unemployed Shareholder: I’d just like to say that I am really excited about my visit. This cloud stuff is just so fantastic, and I am dying to learn more about it. Like can I move all my appliances to the cloud?

     

    Salesfarce PR Rep: Yes, the cloud is truly amazing and we here at Salesfarce are leading the way. Soon all your data will be available on the cloud for all to steal.

     

    Unemployed Shareholder: Huh?

     

    SPRR: (LAUGHING) Just kidding, that’s an inside joke…………. anyway, we’d like to present you with a welcome gift for visiting our headquarters.

     

    (SPRR hands the Unemployed Shareholder an envelope with a red ribbon wrapped around it)

     

    US: What is this?

     

    SPRR: Just a gesture of our goodwill.

     

    (Unemployed opens the envelope and discovers a stock certificate)

     

    SPRR: Congratulations, you are now a shareholder in Salesfarce.

     

    US: Wow, you shouldn’t have. This is worth like $140 that’s very generous of you.

     

    SPRR: Really, it was nothing we print these all the time. Now, let’s get started with your tour.

     

    (SPRR takes Unemployed to  accounting/finance)

     

    SPRR: So, this is Bob he heads up accounting which is our most important department.

     

    US: Why is that?

     

    SPRR: Well, this is where we manufacture our earnings. Tell him how it works Bob.

     

    Bob: Sorry guys we are really busy today. Magic Bean just used all our cash to buy some domain name and hire Lady Gaga and Kim Kardashian for Dreamfarce 100. At the same time he wants to build some megaplex beanstalk and wants me to convince everyone involved to accept stock options in lieu of cash.

     

    US: You are using stock to pay your expenses?

     

    Bob: Yeah, we been doing it for years, nobody cares. We pay all our utilities in stock these days, same thing with our suppliers. Pretty much anyone who does business with us gets shares in return.

     

    US: And your shareholders don’t complain?

     

    BOB: Why would they? Our stock just keeps rising. Nobody knows why, but supposedly magic bean has it all figured out.

     

    US: And what about GAAP?

     

    Bob: That’s where I come in. I back out all the expenses and presto NON-GAAP earnings appear.

     

    US: Wow, that is impressive.

     

    SPRR: Ok, bob that is enough for the day. Time to take Unemployed to lunch.

     

    Bob: Nice meeting you, and here is a little gift from me and the boys in accounting.

     

    (Bob hands Unemployed 10 certificates of Salesfarce)

     

    US: Wow, this is really generous of you. This is worth like $1400.

     

    Bob: Really it was nothing we print these all the time…..enjoy the rest of the tour.

     

    (SPRR and US head to the cafeteria)

     

    SPRR: So, our cafeteria is really great. We have Wagyu Beef, Maine Lobsters, Caspian Caviar, and the best Black Cod and spicy toro tuna you ever tasted. We also have five star chefs on staff full time so you can order off the menu if you like. And Magic Bean has put together one hell of a wine collection so feel free to indulge.

     

    US: Wow, how do you pay for all of this?

     

    SPRR: Oh, it’s not free, every employee has to pay for their lunch or dinner. Even you will have to pay. But don’t worry the cashier takes Salesfarce certificates.

     

    US: Amazing. It’s like you have created your own currency.

     

    SPRR: (smirking) Yes, we’ve heard that before. Now finish up so we can continue the tour.

     

    (after devouring a 7lb maine lobster Unemployed resumes his tour)

     

    SPRR: Our next visit will be the Offices of our CEO Mr. Magic Bean.

     

    SPRR: Is he in?

     

    Magic Bean’s Secretary: He’s just finishing up a brainstorming session…. go on in

     

    SPRR: Mr. Bean I have the Unemployed Shareholder here today to meet you.

     

    (Magic Bean puts down his book Fiat for Dummies: How to print your way to success….by Ben Bernank)

     

    Magic Bean: It’s a pleasure to meet you. I was just hanging out with Mic Jagger and the boys …we got something real special planned for DreamChatcloudNine 2.

     

    US: Wow, that’s awesome. This company is an amazing place. How do you guys do it?

     

    MB: Well, you’ve seen all you needed to see, you should have it figured out by now.

     

    US: Umm all I’ve seen is the accounting department, your office, and the cafeteria. I have not seen the business yes.

     

    MB: Of course you have…that is the business…well that and our great Salesfarce sales people.

     

    US: What about all the technology….where is it?

     

    MB: Look up…what do you see?

     

    (US looks up through the skylight in Magic Beans office)

     

    US: I see clouds.

     

    MB: Exactly! It’s all in the cloud.

     

    US: Wow, this cloud computing is something else.

     

    MB: (smiling)I know. Now let me give you a goodbye gift so you can be on your way.

     

    (MB reaches into his drawer and pulls out a 1000 Salesfarce stock certificates)

     

    MB: Here are 1000 shares of Salesfarce. Thanks for visiting us…..please come again.

     

    US: 1000 shares…that’s like $14,000….i can’t accept this.

     

    MB: Really, it was nothing we print these all the time.

    Tags: CRM
    Nov 18 3:44 PM | Link | 6 Comments
  • The Story of Agent Clean Slate

    ( As financial policy drifts further into the realm of fiction there is very little need to take policymakers seriously anymore. Meet Agent Clean Slate the future of financial policy.)

     

    Money Honey: So I hear you have a story for me.

     

    Agent Clean Slate: Yes, my name is Agent Clean Slate. I'm here from the not so distant future in a last ditch effort to save the global economy.

     

    Money Honey: Come on, you don't expect me to believe this nonsense. How did you get this meeting?

     

    Agent Clean Slate: Believe what you will, but I spent seven long years at TIBET preparing for this mission, if I fail then all hope is lost.

     

    MH: You are from Tibet?

     

    ACS: Yes, the agency for Time Interfering Based Economic Therapy, or TIBET for short. The abbreviation throws off the Chinese.

     

    MH: Agency? Chinese?

     

    ACS: Yes, we are ETC's, economic time cops. Project TIBET is part of the Clean Slate Initiative.

     

    MH: Clean Slate Initiative?

     

    ACS: See, where I come from, or more appropriately, when I come from; the earth's economy is a mess. 2/3 of the S&P 50 trades at a negative enterprise value. Central Banks are bust. Gold has been banned by the governments.

     

    MH: S&P 50?

     

    ACS: Yes, after a wave of consolidation and bankruptcies the index is whittled down to fifty firms.

     

    MH: And what about gold, why has it been banned?

     

    ACS: Governments believed that the loss of confidence in paper money was due to gold, and they figured this could be reversed by banning the metal altogether. Anyone caught holding gold is to be charged with high treason.

     

    MH: So, what do they do with the confiscated gold?

     

    ACS: All gold on the planet is stored in Iceland.

     

    MH: Iceland?

     

    ACS: Yes, iceland is the most advanced and stable economy on earth. Having abandoned markets and banking altogether and returned to their roots, the Icelandic people experience an economic rebirth. Breakthroughs in fishing and geothermal power allow iceland to become an economic powerhouse. They then volunteer to take over global financial regulations.

     

    MH: That makes no sense. You want me to believe Iceland is an economic power. What about Japan, the U.S., China…….

     

    ACS: There is no Japan.

     

    MH: No Japan……Was it a Tsunami or an Earthquake?

     

    ACS: Worse, it was AHDS.

     

    MH: AHDS, what's that?

     

    ACS: Advanced Hyper Deflation Syndrome. It's a nasty little bug.

     

    MH: Hyper Deflation destroyed Japan. That's a bit much. No economic problem can be that bad.

     

    ACS: My friend if you have seen a hundred year bond trading at 1bp you would understand what I was talking about. And if I fail in my mission I can assure you that you will live to see that day.

     

    MH: 100 year bond? What are you talking about?

     

    ACS: In 2012 the Governments of the World Institute the 100 year protocol to end the sovgn debt crisis. All sovereign debt is rolled over to 100 year maturities. It ends up being the worst financial policy decision in history.

     

    MH: Why?

     

    ACS: It completely destroys the time value of money. Money tomorrow becomes worth the same and in many instances more than money today. Finance collapses, and Governments follow. That is why Japan is now the home of the Apple community. A post apocalyptic UI driven society started by its predecessor the Apple corporation.

     

    MH: Apple owns Japan?

     

    ACS: No, Apple is Japan. Once the Yen collapsed Apple bought the island on the cheap and stopped selling its products to the rest of the world. If you want to use Apple products you have to move to the Apple island and convert to Jobsism. Basically, Apple concluded that they had reached the limits of the classical UI experience. To preserve Jobs' vision Apple needed control over all expects of daily life. Call it technological evolution. Their new slogan is "An Apple a Day for the Rest of your Days".

     

    MH: Wow, and what about Europe?

     

     

    ACS: After flirting with the idea of a fourth reich, Germany chooses an isolationist path. It is now the Wonka state. Plenty of goods come out of there, but nobody is ever allowed in. The rest of Europe is a mess.

     

    MH: And China?

     

    ACS: The Chinese are doing ok. Around 2020 we discovered that they were behind the housing bubble and the collapse of the US economy, and that Greenspan was a Chinese agent. But by that point the US military, after a decade of austerity inspired budget cuts, is in such a state of disrepair that there is nothing they can do about it. Outside of Germany and Iceland the rest of the world is at the mercy of China and their economic and military power. That's where I come in. The goal of CSI was to develop time travel technology so that we could travel back in time and fix the great economic policy mistakes of our ancestors. Hindsight replaces stimulus. The project is top secret and funded by the few remaining members of the S&P 50 and the investment bank Goldman Farmorgan.

     

    MH: Goldman Farmorgan?

     

    ACS: Yes, Morgan Stanley, Jp Morgan, Wells Fargo, and Goldman are merged into one bank.

     

    MH: Wow.

    ACS:So, Goldman Farmorgan provided a bridge loan for the project with GooGamaZon ventures putting up most of the equity.

     

    We code named it TIBET to confuse the Chinese who we knew would do anything in their power to stop this project from succeeding. And we located the primary research facility underneath the abandoned World Cup mega complex in Qatar because that's the last place we figured anyone would look for anything.

     

    MH:What is your mandate?

     

    ACS: To develop the ability to successfully send someone back in time to stop the collapse of Lehman

     

    MH: So Lehman was a mistake?

     

    ACS: Not exactly, the stimulus that followed Lehman was the mistake. Lehman was just the excuse. By stopping it we aim to temporarily slow the chinese down and buy ourselves time to fix the real problems.

     

    MH: Why not just go back and replace Greenspan?

     

    ACS: It's not that easy. Time travel is complicated. We are using an Einstein-Scholes bridge to enter and exit through funding holes in the time based capital structure. We never know when we will arrive, and we lack the power to remove principal actors. We can simply seek to influence, but as Greenspan is an agent for the Chinese that wont work.

     

    MH: So how does it work then?

     

    ACS: Well, the Googamazon search engine locates funding gaps in the time structure and then send agents in to fill those gaps.

     

    MH: How do you fill the gaps?

     

    ACS: With Gold from iceland of course. It still has financial value in your time. We structure a swap between two parallel universes, and presto the bad debt is gone.

     

    MH: But how do you hedge your parallel exposure?

     

    ACS: We don't. If we do our job right our universe will cease to exist, thus we are inherently delta neutral.

     

    MH: Is that all?

     

    ACS: No there is one more thing.

     

    MH: What's that?

     

    ACS: We fix the bankers.

     

    MH: What do you mean you fix the bankers?

     

    ACS:Well, every TIBET agent must deal with your investment bankers. Why do you think we wear these suits?

     

    MH: Yes, you are kind of like those guys from the film MIB.

     

    ACS: We are MIB's. Men in Brioni, and there is a good reason for that. We need bankers to trust us before we give them them their BONUS back.

     

    MH: What? You are going to give them a bonus?

     

    ACS: Yes, a bonus. A banker's onus.

     

    MH: A banker's onus?

     

    ACS: It's a sense of responsibility. We give them their b-onus by taking away their bonus.

     

    MH: Ok, i'm confused.

     

    ACS: Well,every agent has neuralizer which can be used to wipe memories. Much like the movie MIB except that we use our neuralizer to simply readjust the memory of investment bankers. We don't wipe, we plant powerful suggestions.

     

    MH: And how does that work?

     

    ACS: We make them believe they don't deserve their bonus.

     

    MH: So what?

     

    ACS: It's actually a very powerful tool. Once a banker believes he or she never deserved their bonus they become overwhelmed with guilt. They then feel that they have a debt to society that they must repay.

     

    MH:How can you be so sure?

     

    ACS: Easy, I was the first person this was tested on.

     

    MH: You are a banker?

     

    ACS: I was an investment banker. That is why I am here today.

     

    MH: What do you mean?

     

    ACS: I told you I was here to stop Lehman.

     

    MH: Yes.

     

    ACS: And i told you that when it comes to principal actors in time we can only seek to influence and that we cannot remove them.

     

    MH: Correct.

     

    ACS: Well then, how do you think i am going to stop Lehman?

     

    MH: Convince the government to bail them out I guess.

     

    ACS: There is no way for me to change the events of that weekend. There are too many actors involved and too many opposing forces at work.

     

    MH: Then, you need to go back in time and convince Dick Fuld to sell Lehman before it is too late. But how are you going to convince Dick Fuld of anything?

     

    ACS: (Smiles) Thanks for your time.

     

    MH: That's it?

     

    ACS: Oh, I almost forgot, one more thing.

     

    MH: What?

     

    (Agent Clean Slate flashes MH with his neuralizer)

     

    ACS: You will remember nothing about the conversation we just had other than the fact that you really enjoyed talking to me.

     

    MH: Wow i really enjoyed this conversation….Mr……..

     

    ACS: Fuld…..but you can call me Dick.

     

    MH: Dick Fuld? You know that's the same name as the former Ceo of Lehman. And you kind of look like him….that must be a tough combo.

     

    ACS: Yeah, i know. I get it all the time. They tell me if i was just 25 years younger i'd be a dead ringer for him.

     

    MH: Yep. (MH's phone rings) Just give me a sec Dick I need to take this. (MH steps away to take the call)

     

    Agent Clean Slate: Ok.

     

    (MH returns)

     

    ACS: Sorry, Dick that was……. that's strange where did he go?

     

    (Agent Clean Slate has vanished)

     

    To Be Continued



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Sep 20 3:49 PM | Link | Comment!
  • "Netflix; Ignore the Girl in the Red Dress"
    “The Matrix is a system, Neo. That system is our enemy. But when you're inside, you look around, what do you see? Businessmen, teachers, lawyers, carpenters. The very minds of the people we are trying to save. But until we do, these people are still a part of that system and that makes them our enemy. You have to understand, most of these people are not ready to be unplugged. And many of them are so inured, so hopelessly dependent on the system, that they will fight to protect it.�- Matrix, 1999
     
     
     
    I really am a glutton for punishment. I did everything I could to avoid Netflix in this earning season. I think there might be some 25 companies reporting this week that I know extremely well and could find some way to trade, but for some strange yet compelling reason I feel it’s time for me to revisit this trade and potentially hit it hard. The last time I traded Netflix it was 140$.  It closed on Friday at $182.  Did anything happen over that time period that warranted another 50% rise in the stock? Great earnings, a major industry shift in their favor, a brilliant acquisition? NOPE, none of that for good old Netflix. The stock rose on what is commonly referred to as good old fashioned momentum. Up, up, and away became popular, and Netflix, a short favorite, was a good place to be to make fast money.
     
    So, why do I think now is the time to call an end to this momo party?
     
    The way I see it there are five reasons to be short Netflix this earnings announcement.
     
     
    1)      Material Industry Landscape shifting news in the past couple of weeks that doesn’t bode well for Netflix
     
    Amazon.com consolidates Lovefilms- Amazon, a minority equity holder, in the ‘Netflix of Europe’, had always been rumored potential acquirer. So, this is not exactly surprising news to most of the people following this space, but it is now official. This means that Netflix will need to contend with an entrenched and very deep pocketed Amazon if it decides to venture into Europe, and I only expect this combination to get better as Amazon leverages its imdb.com asset to enhance the  Lovefilms user experience. Expansion to Europe was often listed as the next big catalyst for the stock by most momo traders. This deal becoming Official/Headline stuff just hammered that thesis.
     
    FCC signs off on Comcast-NBCU Merger- This has been an ongoing and closely watched regulatory situation as the FCC’s conditions to this merger have potential far reaching industry implications. The review process took one year and involved extensive lobbying on both ends. What came out of it was surprise surprise good news for Comcast-NBCU. The ‘conditions’ were for most of us a lot softer than expected, particularly in the on-line video space, were they left a lot of room for Comcast to slow, or depending on how you view things, kill the OVD disruption. (I will say I never really viewed online video streaming as a true disruptive tech because in my eyes the technology infrastructure in the form of vod has been there….it’s really been more of UI phenomena and media conglomerate lack of strategic direction pricing/loophole exploiter than the genuine disruptor it was to rental chains) Comcast is now sitting on a large equity stake in a competing OVD service (Hulu) and controls a huge content empire. The cord cutting hype that was behind Netflix shares in 2010 is now being replaced by a much harsher reality. The companies best possible outcome now remains what I thought it was before,  a very fragmented distribution/content market. The Comcast deal allows  more investors to recognize that the Netflix story of getting content for next to nothing and access to distribution infrastructure for next to nothing was in fact TOO GOOD TO BE TRUE. It’s like exploiting a loophole or a glitch in the matrix, it works right up until the point that it doesn’t. What determines that is largely beyond your control. If OVD’s have to deal with likes of Comcast and Time Warner going forward, the cord free universe dream fades away. Dream stocks without a dream attached often lead to disastrous returns.
     
    FCC Net Neutrality- At this juncture I’d say the rules are a Net Neutral for Netflix, though ultimately I am leaning in the direction that they are bad news as the cost of internet streaming relative to traditional bundled consumption is likely to go up which ultimately is an issue for disruptor/switch based model and as we get more details on managed service rules. At the end of the day, OVD’s will have to accept the fact that the only way to get completely around the potential discrimination issues is to build or acquire their own networks.  Anyway, as far as nflx shares go,  this was another regulatory issue that doesn’t exactly favor their long-term model that was resolved over the past few weeks.
     
     
    2)      If the first week of Earnings are an indication, Netflix type stocks are not exactly the place you want to be this earnings season
     
    Netflix shares are up 257% over 12 months. The stock is currently the best performer in the SP500 over a 1yr period. Those are not under the radar numbers, and going into earnings this could be a serious advantage for short-sellers. Citigroup, Goldman Sachs, and F5 networks were all high expectation stocks that got hammered last week. The latter two on what were respectable reports. A similar but less extreme pattern of stock behavior was observed in the energy, fertilizer, or mineral names that reported last week. Good news was just not good enough for most of these stocks. And remember we are talking about names with fundamental stories that are INTACT and ROCK SOLID. Nobody is questioning the fact that F5 is dominating one of the hottest segments in the networking space or that energy, food, and metals are good places to be. So, if these stocks can get cracked, you need to respect the tape. And what I saw in the tape last week was value/underperforming names drawing interest/ rotation.(ms/ge) If I am shorting a momo, I like to see signs of this type of action in the broader market. The fact that this momo has its own issues is icing on the cake.
     
    3)      Analyst sentiment on the name now favors the shorts
     
    I don’t usually rely on sell-side analysts for anything more than a temperature check when I am putting on a trade, but I will have to say I have been impressed by the number of analysts who have stuck to their guns and continued to highlight the disconnect between the business model challenges and stock price. The recent industry wide developments have led more than a few analysts to get cautious on NFLX shares which is in sharp contrast to the tape I was shorting into last year. I counted 8 analysts with price targets that are 10%+ below the current share price when I think there were only 2 names in this category last august. This tells me that no matter what nflx reports, the bearish analysts are likely to be growing even more confident in their case and will continue to spin news flow in favor of their longer term bear case on the shares despite the near term business model momentum. Basically, every nflx announcement will now be viewed through an Amazon in Europe and Comcast in US competitive prism along with the typical content cost margins issues. If you’ve been buying based on headlines and the fact that you felt momentum was on your side, this is a cause for major concern.
     
     
    4)      This is the perfect time for some shareholder unfriendly Corporate Action
     
    Netflix’s cash situation has been going in the wrong direction for the past four quarters. With recent developments in the space, one does wonder what Reed Hastings is thinking. He should be shoring up his balance sheet here and raising some cash for the likely expensive content/network access road ahead. It’s the smart thing to do. I think a secondary to the tune of $500-$750mm for general corporate purposes including acquisitions, content licensing deals, etc should not be ruled out. In fact, I’d be pushing for this if I was advising them.
     
     5) First look at a business model in transition
     
    This earnings will be the first time mgmt really has to offer guidance for the transitioning model. Up until now nflx mgmt has had the luxury of cheap content driving streaming while they continued to run their core mail in model. Now, things get a bit more complicated. Nflx is going to be paying big bucks for content in 2011 and at the same time still supporting the mail in dvd model infrastructure. This usually doesn't bode well for margins and might have something to do with the recent dvd que elimination. Mgmt isnt one to do anything to mess with their sub base, so this move really stood out to me as a sign hastings and co want to accelerate the shift to pure digital. Basically, if you are going to spend 500-1bil a year on content you might as well ditch make sure you are completely ditching the mail in model. Mgmt obviously has some accounting room to operate as far as amortizing these costs, but i think it is fair to say it is going to be hard not to give the street a clear picture of what the 2011 nflx will look like tooday, and that their is potential for a very negative surprise as mgmt has chosen to kick this can down the road over the past few quarters. Well, that is no longer an option. 2011 is here, you still have mail in, you will be paying a lot more for steaming content, and one of your biggest sources of content output is up for negotiation. This is what i am looking at and not the q4 numbers. I think everyone on the street will concede q4 will beat expectations on subs and top line.
     
     
    Conclusion- Putting these five factors together I have decided to put my hand back in the nflx fire. I also would point out that stock price action, at least from the perspective of a trader who has seen similar behavior in momentum names in the past, favors the bears. The shares are a good 24% above where they were going into the last report, and less than 12% off its all time closing high. I would characterize the trading pattern as almost just waiting for an excuse to fall. By that I mean I expect the market not to assign much weight to the financial metrics that will be reported after the close on Wednesday. This would be consistent with past nflx share price behavior as you could convincingly argue their last two earnings reports were disappointing and yet they were disregarded by the market in favor of  ‘story’ based buying. Well, with the ‘story’ element now a much harder sell overall, and especially at this price point, you do have to wonder what type of earnings report nflx needs to prevent a share decline/crash.
     
    Anyway, I would caution anyone that decides to get involved that this is a risky trade, and that my recent history(I was on the other side of the trade in dvd rental days…but that now seems like ages ago) with nflx has been abysmal. The first time I shorted the shares they were 45% below where they are today, though I will say that my instincts told me the price action in the weeks after the july report said to cover and join the herd on their stampede; I have consistently been surprised by the willingness of investors to pile into the ‘story’ without any regard for what one would think are almost plain vanilla gargantuan business model challenges ahead.
     
    I will note that I expect the stock to shift into consistent weakness mode after this report. So a low risk way to play this trade would be simply to sell calls if you can or to just wait for earnings and then short. Basically, you hope it doesn’t crash immediately, and you hop on for a longer term correction once you confirm that the shares are incapable of rallying. Normally, if I was approaching a story like this as an outsider who was not familiar with the name that is how I would play it, but in this case I will say I have just a bit more confidence that the nonsense of the past six months will be corrected.
     
    Ignore the girl in the red dress, she is a distraction. It’s time to unplug. At least that’s how I am playing this.
      
    Jan 26 11:16 AM | Link | Comment!
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china, commodities, DEBT, dont-tag-as-pro, economy, gold, JAPAN, long-ideas, macro, market-outlook, short-ideas, YEN
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