(click on chart to grant its creator praise)
When Bill Ackman announced his short position in HLF, I was shocked that he revealed so much about his position size. It’s as if he believed he was infallible, above the market, and immune to ruin. Those who remember the great squeezes of the dot com era, or even obscure, but legendary, squeezes like Resorts International, know that to reveal your position size is equal to challenging your competitors to break you.
During more traditional times, hedge fund managers would do everything they could to keep their short positions secret. However, thanks to the manipulative successes of internet newsletters and media whoring sociopath fund managers, it’s become common practice for short sellers to disclose their positions and reasons why their targeted companies are going to zero. It has become a carnivale, fitting for the clowns on CNBC to perpetuate into a soap opera genre, marketed to fools wishing to depart from their money.
Bill “Mars Attacks” Ackman has about $11 billion under management and is short 26 million shares of HLF, making it a billion dollar position and a very public spectacle. The stock did drop when his report was issued; but has since rebounded following the rapid capitulation of the suckers, late comers– like Whitney Tilson–who piled in late. Shortly thereafter, Daniel Loeb from Third Point announced a large stake in HLF, pushing the stock up further. Since then, the stock has taken on the characteristics of undergoing an epic short squeeze, one that is hell-bent on ruining Bill Ackman–punishing him for exhibiting the most extreme display of hubris, stupidity and greed, since the fictional movie Wall Street–starring Gordon Gekko.
If HLF manages to smash earnings expectations this quarter, I suspect Mr. Ackman is going to find his existence to be a very lonely one, as all of his sheep flee the herd.
For every point up, Pershing Square is losing an astonishing $26 million dollars (that’s about $500 million since the lows of last month!). Herbalife might be a crappy company; but they’ve been ripping off suckers for a long, long time. I don’t think they’re anywhere close to going to zero, like Ackman predicts. He is in a lose-lose position here, only because he went public with an absurd and utterly ridiculous 300 page hit piece on HLF, hosted live in NYC, and launched a website–which is dedicated to the sole purpose of seeing the destruction of HLF. For reasons unbeknownst to me, he has tethered his reputation with the outcome of a shoddy multi-level marketing company, one that has managed to lure in suckers for over 30 years. Perhaps he got bored.
If he covers HLF before it goes to zero, his credibility will be badly tarnished and will be viewed as “the boy who cried wolf” from now on. If it goes to zero, he will be lauded and praised as the best investor of all-time. CNBC will make a bronze statue out of his likeness and place it on top of the iconic Wall Street bull. The only question is: How long can Mr. Ackman afford to lose $26 million per point before he succumbs to market forces? After all, it’s 10% of his holdings, not exactly a small stake.
What if the CEO of HLF starts issuing special divvies just to squeeze Ackman?
What if a consortium of hedge funds collude to make a run on Pershing Square by bidding up HLF to obscene levels ($150+), while shorting his weak longs–like FDO and JCP?
It can happen because it has happened before.
Mr. Ackman now finds himself in the untenable position of having his franks and beans placed firmly inside of a quickly moving Herbalife zipper.