Here’s wishing you a great festive season full of fun, laughter and joy. It has certainly been an eventful year, especially as far as financial markets were concerned.

Thank you for your friendship and support in making Investment Postcards such a fulfilling experience, and here’s to a wonderful 2008.


And now for a good laugh. In the spirit of the festive season, click here to see what happens when an investment manager gets “elfed”. This is elfin’ funny!


Source: Elf Yourself

The last word goes to the subprime debacle. As if it has not dominated the investment world enough, it is now also playing havoc with Santa’s activities.


Hat tip: Barry Ritholtz’s Big Picture

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The following humorous sketch ended up in my inbox a few days ago:

“Following the problems in the sub-prime lending market in America and the run on Northern Rock in the UK, uncertainty has now hit Japan.

“In the last seven days, Origami Bank has folded, Sumo Bank has gone belly up and Bonsai Bank announced plans to cut some of its branches.

“Yesterday, it was announced that Karaoke Bank is up for sale and will likely go for a song, while today shares in Kamikaze Bank were suspended after they nose-dived.

“Furthermore, 500 staff at Karate Bank got the chop and analysts report that there is something fishy going on at Sushi Bank where it is feared that staff may get a raw deal … “

Source: Hat tip to the person who sent this to me, but I have been unable to ascertain the original source.

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I have never been a fan of Easy Al and firmly believe that he has caused the US economy irreparable damage. He retired only in January 2006, but is already doing his utmost to explain his way out of his blunders that are now a causing a financial nightmare for his successor.

William Greider started his recent article in The Nation as follows: “Alan Greenspan has come back from the tomb of history to correct the record. He did not make any mistakes in his eighteen-year tenure as Federal Reserve chairman. He did not endorse the regressive Bush tax cuts of 2001 that pumped up the federal deficits and aggravated inequalities. He did not cause the housing bubble that is now in collapse. He did not ignore the stock market bubble that subsequently melted away and cost investors $6 trillion. He did not say the Iraq War is ‘largely about oil’. Check the record. These are all lies.”

My precise sentiments regarding the Greenman were aired last week by Richard Russell, veteran writer of the Dow Theory Letters, when he said: “I finished the Greenspan book. I firmly believe that history will see this little egotistical pip-squeak as one of the premier disasters in US history. In my opinion, Greenspan is the ultimate ‘Mr. Inflation’. Greenspan almost single-handedly set the world on the high-liquidity, super-inflation path, all the while saying or thinking that the Fed was acting ‘as if’ the dollar was still backed by gold.

“What’s so disgusting is that Greenspan traded all his earlier ideals for power and ego. Greenspan never did anything that required real courage. Greenspan was the total political animal. His legacy will decline as the years go by.

“The saddest thing is that Greenspan leaves poor, humble, honest Fed Chief Bernanke in an untenable situation. In a US so dependent on high inflation and massive liquidity, Bernanke has no choice but to ‘inflate or die’. In a normal situation, the US could take a recession and take the correction. Not now – with the US depending so heavily on inflation and massive liquidity, any substantial contraction in the money supply would bring the US economy to its knees.”

The cartoon below by Glenn McCoy, making a strong point in his characteristically unambiguous manner, says it all.


But wait, I have kept the best for last! Enter The Bubbleman, Scotto Petterson‘s very entertaining music video about this peculiar character.

Source: YouTube; Scotto Petterson

The final word goes to the “The Maestro” himself: “The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake.”

And you probably also believe in the tooth fairy, Alan!

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Isn’t it quite amazing how, with the right spin, even the grimmest of situations usually offer some entertainment value? The credit squeeze was no exception. Hat tip to David Fuller for pointing out this delightful poem by Tim Price of UK-based PFP Wealth Management.

On the first day of Crisis the markets sold to me
a sub-prime bankruptcy.

On the second day of Crisis the markets sold to me
two structured notes
and a sub-prime bankruptcy.

On the third day of Crisis the markets sold to me
three French funds,
two structured notes
and a sub-prime bankruptcy.

And so on …

On the twelfth day of Crisis the markets sold to me
central banks succumbing,
over-hyped underwritings,
hedge fund Boards all leaving,
LBO refinancing,
eight salesmen bilking,
seven ‘bonds’ accruing,
six fleeced investors,
$500 gold calls,
foreclosure loans,
three French funds,
two structured notes
and a sub-prime bankruptcy.

Price continues: “… all of which does omit, of course, ‘hysterical overblown relief rallies by equities’; ‘a craven capitulation on the part of monetary authorities to Wall Street’s narrower interests’; ‘disconcerting weakness at the long end of bond markets’; ‘rising inflationary pressure’; ‘the dangerous vulnerability of retailers to deteriorating consumer spending’; ‘flimsy fiat currencies’; ‘a scary succession of non-American national property markets waiting to soften, including but not necessarily limited to Australia, Belgium, Britain, Denmark, France, Ireland, Italy, Spain and Sweden’; and ‘defensive investing becoming paramount’ – but then none of these coinages is particularly susceptible to rhyme.”

Source: Tim Price, Director of Investment, PFP Wealth Management

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When I started writing this blog earlier this year, I made a deliberate decision to post only investment articles of an international nature as opposed to South African (i.e. home-based) stories. And over the past five months I have slavishly abided by my self-imposed rule.

But no longer. The rule is about to be broken, albeit only momentarily. And here is the (very compelling) reason: Like most South Africans I am an ardent rugby supporter. For those unfamiliar with the sport, suffice to describe it as a more physical version of grid iron. (Ouch! No, you are not allowed to comment.) More importantly, our national team, the Springboks, is participating in the Rugby World Cup tournament in France at the moment, and stands, in my totally objective opinion, an excellent chance of capturing the crown. (Ignore the bookmakers offering 3:1 bets on us as second favorites.)

Just in case you’re wondering where my humble confidence comes from, have a look at the video clip below and see for yourself the mettle of a typical Springbok supporter. With this type of support, how can the team not be crowned as the world champions?

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While most people are gripped by anxiety at the mere thought of the downward spiral of the US housing market, pause for a moment and reflect on the cartoon below, courtesy of Rob Fraim. Your house may not necessarily be what it seems to you. Your lender, potential buyer, appraiser or tax assessor may have very different views …


Hat tip: Rob Fraim, Mid-Atlantic Securities

The following hilarious spoof is courtesy of David Fuller’s Fullermoney newsletter:

Dear investor, we’d like to take this opportunity to update you on the recent performance of our hedge fund, Short-Term Capital Mismanagement LLP.

As you know, market selection for the entire fund is guided by a proprietary investing tool we like to call “a dartboard”. Once the asset classes are decided, individual security selections are generated by digitizing our unique hexagonal cuboid models. Unfortunately, it transpires that our hexagonal cuboids are not as unique as we thought. Hundreds of other hedge funds possess identical dice. The technical term for this is a “crowded trade”. You may also see it referred to as “climbing on a bandwagon already headed for the wall”.

As our alpha generation collapses, our beta has turned negative, our delta hedging has gone toxic and, trust me, you do not want to hear about our gamma. We can’t even find our epsilons in the dark with both hands.

You will appreciate that accurate pricing is essential for evaluating our investment strategies. This has proven to be extremely challenging in recent days. Previously, we have relied on Bob, the sales guy at Hokey-Cokey Bank. Bob assured us the securities were still worth 100 percent of face value, so everything was cool. Bob sold the collateralized debt obligations to us in the first place, so he knows what he’s talking about. 

Bob, however, appears to have had a nervous breakdown, judging by the maniacal laughter that greeted our requests for price verification this week. Our efforts to implement an in- house CDO valuation framework, using a technique the ancients knew as “making things up”, proved unsatisfactory.

Where’s the Bid?

Currently, all of the portfolios we manage are undergoing a rigorous screening known as “crossing our fingers and praying that we don’t have to try and find a bid in the market”. This is supplemented by a cross-market statistical analysis originally developed by the U.S. military called “don’t ask, don’t tell”. This “unmarking-to-unmarket” procedure has been the benchmark for the hedge-fund industry for the past, ooh, 72 hours. 

We have, of course, been in touch with the rating companies to update our default-probability scenarios, particularly on the AAA rated investments we own. They recommended a forecasting method using stochastics to regress the drift-to-downgrade timescales for the past 100 years and throw them forward for the next five minutes. The technical term for this is “induction”, though those of you of a less quantitative bent may know it as “guessing”.

AAA or Toast?

We are pleased to report that, contrary to what current market prices might suggest, all of our top-rated securities remain absolutely AAA. Provided, that is, the future performance of the underlying collateral is identical to its history. Otherwise, the rating companies say our investments are likely to be reclassified as “toast”.

We have also been checking our back-up credit lines with our friends in the investment-banking world. As soon as they return our calls, we’ll be able to update you on our emergency liquidity position. We are sure they are fine. 

Some of you have written to us asking for your money back, citing clauses in the fund documentation called redemption rights. Frankly, we never expected you to actually read that prospectus, which came prepackaged when we bought the Microsoft Hedge-Fund Guy software. We certainly have no idea what all those long words mean.

We have filed your letters in a special drawer in the filing cabinet marked “trash” for now. Do you have any idea how much trouble you all would be in if we actually sold this stuff in the market today? At these crazy prices? Fuhgeddaboudit. You’ll thank us later.

Not a Rescue

Speaking of crazy prices, we know you’ll be thrilled to learn that we’ve invited a bunch of our rich pals into the fund to participate in this once-in-a-lifetime opportunity. But this is not a rescue. Do not even think the word rescue. This is an opportunity. Not a rescue. An opportunity. 

In fact, we think this is such a fantastic opportunity, we’ve agreed to forgo our usual management fee, and we’ll only take half our usual slice of the profits. Provided there are any profits to slice. You, of course, are absolutely invited to participate in this offer by sending us yet more of your money on exactly the same revised terms as our rich pals.

Finally, a word for all of you who have been kind enough to inquire about my personal financial situation. I am relieved to report that my directors and officers insurance is fully paid up. Furthermore, my Bentley Continental was paid out of the 2 percent fee we levied when you wrote your first check to us, so I will still be able to trundle into the parking lot each morning in an open-necked shirt to ignore your telephone calls and e-mails.

Yours, Hedge Fund Guy

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