Sometimes, things are so obvious that they are obsequiously hard to deny.  Case in point: a company that I own puts in, Prologis (PLD).  What is my thesis on this company?  First and foremost, this was brought to me by one of my colleagues at The Tinker Factory.  For a full view of his blog and his analysis click here.  It is really quite easy to explain.  Walk with me and talk with me.  I will run you through it quickly.  It’ll be just as if we are….at a party!

When we arrive at the party, the party and the counterparty start to party, then a party ensues.  Now the party is partying with the counterparty and all the parties join up and it is some magical financial RAVE type of event and everyone is feelin’ foot loose and fancy free and someone says every once in a while that the party should come down, but the party must go on and everyone at the party is now drunk and whoever rocks the party always rocks the party all night.  The party and counterparty aren’t around so they all decide to smoke some hookah and the next thing you know the counterparty becomes the party. Until he isn’t.  At some point that tug of war becomes so warped and out of proportion that the party just keeps countering the counterparty and when the police come everyone quiets down until the counterparty sues the party.  Uh OH!  You said that when whoever is now rockin’ the party rocks the party all night.  She will until she won’t. Until she doesn’t. But then the musical chairs became so obscenely weird that people were actually thinking this is not just any normal party.  After all how did so much partying just lead to the fact that whoever rocks the party always knows that the counterparty may not be in the mood if you counter the countering of the party.   Never sue each other over a party. The counterparty says that he doesn’t remember if the party went until the original party started.

You see what I mean.

Nothing is as it seems.

Is this really a party?

Oh know.

Or i mean NO!

Ouch.

Where is the party?

You get the point.  When nobody knows what is what and somebody perceives to know who is who, nobody can see anything.  Until they can.  That moment is called volatility.  Getting the timing of that right is the art of a volatilist.

The financial statements of this company look like a great big party.  Whoever is rockin’ the party is rockin’ the party, but the common shareholders will end up with none.  It is, after all, called common stock.

General Rule:

When something becomes common, it isn’t likely to be the most desired thing to have.

Is it?

Is it not ironic that Lehman initiated coverage with an overweight rating of Prologis (PLD) on July 24th?  As Alanis Morissette would say:

And isn’t it ironic… don’t you think
A little too ironic… and yeah I really do think…

Peace

Par-Tay

Prologis (PLD)

Here is proof that Chinese walls do not exist.  I wonder what party or counterparty ties these hedge funds (read: Investment Banks) have with the underlying entity?  Hint - Lehman (LEH) has an overweight rating.

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Peace.

Lehman Brothers (LEH) and Bear Stearns (BSC) and Long Term Capital Management (back in 1998) and Washington Mutual (WM) and Indymac and many other financials all suffer form the same thing - Gambler’s Ruin.  Gambler’s Ruin is extremely likely when you use too much leverage.

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click for a larger view

Lots of people are asking me if we are near a bottom.  I do not know the answer to this question.  I can tell you that everything I look at says we are nowhere near a bottom.  In fact, everything is in place for a large dislocation to take place.  Yes, you read that correctly.  This sell off has yet to see the brutal panic selling that we need.  It will come.  It is a matter of when, not if.  Volatility has definitely entered the room.

When will we see a bottom?

“There will come a time when you believe everything is finished.  That will be the beginning.”

-Louis L’Amour

The Oil trade I mentioned the other day has stopped out.

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