Financial Humor – May 2009

Posted on May 16, 2009 in Blog, Finance

Young Chuck moved to Texas and bought a donkey from a farmer for $100.00.
The farmer agreed to deliver the donkey the next day.

The next day he drove up and said, ‘Sorry son, but I have some bad news, the donkey died.’
Chuck replied, ‘Well, then just give me my money back.’

The farmer said, ‘Can’t do that. I went and spent it already.’
Chuck said, ‘OK, then, just bring me the dead donkey.’

The farmer asked, ‘What ya gonna do with him?
Chuck said, ‘I’m going to raffle him off.’

The farmer said ‘You can’t raffle off a dead donkey!’
Chuck said, ‘Sure I can Watch me. I just won’t tell anybody he’s dead.’

A month later, the farmer met up with Chuck and asked, ‘What happened with that dead donkey?’
Chuck said, ‘I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $898.00.’

The farmer said, ‘Didn’t anyone complain?’
Chuck said, ‘Just the guy who won. So I gave him his two dollars back.’

Chuck now works for a major bank holding company.

 

When a fireman sees a house on fire, he sounds an alarm, dons his turnout gear, bravely rescues the occupants and puts out the fire.

When an investment banker sees a house on fire, he quietly sells the burning house short, uses the proceeds to buy a larger house for himself and, when someone suggests that his taxes be raised to help the homeless, he rails against the dangers of socialism.

 

Last night left off with our eager broker-salesperson (BS) promising to structure the ideal trade for the “Warren Buffett of Mars” (MB)

BS: Thanks for taking my call again. I’m eager to learn what your ideal security looks like so we can set about creating for you.
MB: First, I would like the highest quality credit available, one that assures my investors will be paid back. Your Federal Reserve has a printing press, right? It ensures all obligations of the U.S. government are paid in full, right?
BS: Yes; our government won’t ever technically default because the Fed can always print as many dollars as are necessary to pay off U.S. debt in full. So you want Treasurys?
MB: No, the yields are far too skimpy and inflation is a risk down the road
BS: Uh, you want us to buy you some TIPS, then?
MB: No, thanks, at least not at these levels. I would need to see real yields above 3% before I sense a margin of safety in those securities. Your government has always displayed an unfortunate tendency to underestimate the inflation calculation which help determine the total return on TIPS.
BS: Then I’m confused; what kind of U.S. government security do you want? Or are you after some sort of equity hybrid?
MB: No, your equity market has overshot where fundamentals tell me they should be priced. Since I know you prefer pictures, take a look at these charts of some markets that have struggled to delever after a period of over-investment: http://dshort.com/charts/mega-bear-comparisons.html?mega-bear-quartet
BS: Wow; I see what you mean. Let’s get back to creating a bond for you.
MB: Reading some history, I’ve seen that your Treasury has previously issued obligations denominated in foreign currencies, right?
BS: Yes, but I don’t think they’ve issued those so-called “Carter bonds” in more than 30 years
MB: Good — we won’t be breaking new ground, then. But I don’t want to be paid off in Swiss Francs and the German Mark has gone to currency heaven. I have an undervalued currency in mind.
BS: Whatever; what coupon rate are you expecting to be receive?
MB: Are you familiar with some old Freeport McMorRan bonds that had their coupon payments tied to the price of gold?
BS: No, but I’m sure our research department knows about them, and we have a great structuring department that can customize a note for you that’s tied to the price of gold.
MB: Good — then here’s what I want: A 10 year note, issued by the U.S. government, denominated in Chinese Yuan, and with a semi-annual coupon set at 3% that is tied to the price of gold. If gold averages less than $900/oz. during the coupon period, then the bond pays 3%. For every $1 rise in the average gold price above $900 during each coupon period, however, the coupon steps up 1 basis point (i.e. $950/oz. pays 3.5%, $1000/oz. pays 4%, etc.).
BS: Excuse me? A Yuan denominated Treasury note with a coupon tied to gold?
MB: If there’s a problem issuing in Yuan, I’ll settle for Canadian dollars. Ottawa seems like a good steward of its currency.
BS: No…it’s just that…how will you pay for this note?
MB: In gold, up to half a trillion dollars worth at current prices. But your government has to keep the yellow metal in escrow at the World Bank and agree not to sell any until the note is paid off. No tricks.
BS: Let me guess — Mars is on the gold standard?
MB: Don’t be silly; our currency is based on energy consumption units, much like your BTUs. A currency denominated in energy units gave us the incentive to innovate. We are now energy independent. The gold is a relic from an earlier monetary standard and this investment idea gives us a chance to monetize what would otherwise remain inert.
BS: We can’t structure this! We’re not the U.S. government, and I very much doubt the Fed and Treasury will agree to these terms.
MB: Why not? Half a trillion will finance your budget deficit for at least a few months, and the initial coupon is 1/8 below the 10 year note your government auctioned off just this afternoon. Besides, I’m willing to be a good guy about it and agree to a maximum cap on the coupon of 20%.
BS: Uh, we can’t…I mean, why don’t you just let us issue you the same note on the same terms? At least then we’ll get paid for this trade.
MB: I don’t want the credit risk, but if you can’t handle the negotiations with your government, then don’t worry. I’ll just call Goldman Sachs. A nice gentleman there tells me the direct lines installed by Bob Rubin and Hank Paulson still work. In fact, I think I’ll give Goldman a ring. THEY can structure anything!
BS: No, wait!
MB: Goodnight…


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