(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.
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Herbalife actually held some sort of conference about a block away from me over the weekend (Back Bay, Boston). There were a surprising amount of Range Rovers, clad in Herbalife stickers, scattered around the neighborhood. Unsurprisingly, there were a fair amount of questionable characters in attendance.
Having worked/consulted within the dietary supplement industry for a short period during college, Ackman’s short position has been of great interest to me. For one, the fact that Herbalife is publicly traded always baffled me to begin with; supplement companies are among the least professional, and most disgusting entities in business. I worked around the area of sports nutritional products. All of the big players in the arena were ex-criminals/thugs, literally. The big names – BSN, ALRI, Gaspari, Thermolife, Scivation, Ergopharm/Giant (now defunct), Driven Sports, VPX – were all started by men with criminal backgrounds. The contaminants that we found in mainstream products were stunning; steroids, designer weight loss drugs, viagra analogues, and glass in one instance… just to name a few (designer steroids being, by far, the most popular).
That said, I was amazed at the publics willingness to shell out significant sums of money on a regular basis for a product that promised increased well being, with no true science/proof behind it. Literally, no evidence that what they were buying was worth a damn. It’s an industry that thrives off placebo effects and arbitrary claims.
I guess my bottom line, given my experience(s), is that, yes, Bill’s probably spot on with his analysis. But I’d never short a company that promises health/well being to a customer base that doesn’t know any better.
Those are wise words in your last paragraph. Noted in my trading journal.
Excellent posting (raising my glass to you, which is filled with an unhealthy concoction of tequila, orange liquor and brandy and lime juice).
Gulp! ahhhh
wise words indeud.
love Back Bay Boston.
awesome clip.
“We got a bleeder.”
Excellent post. Old school orange blog Flyseph. Minus the cursing.
Reliable sources have indicted that Pres. Obama will first announce numerous gun controls intraday tomorrow and at midnight act to criminalize all guns and thus confiscate them in short order.
Most epic short squeeze was Volkswagen in 2008 $VLKAY. Completely ridiculous.
Is CPST gonna get cheaper.
Almost jumped in recently. Would be sad for this technology ‘stifled by the powers that be’. Would it not.
It’s going all the way
A better short than HLF?
Epic blowups are fantastic. IBC needs a visual for the event in realtime. Some interesting and child friendly graphic would kick butt. Hangman or whatever.
He could hedge his position by recruiting a few distributors to sell Herbalife under him, and then those people recruit several more each to work under them and then that level recruits just 3 or 4 each and those people get 2 or 3 people to be distributors under them and then if those people would just get one person each….. the whole damn country could be working for Ackman.
I have a better idea. How about Le Fly makes a little suggestion box in the bottom right corner of the page and you degenerates can slip in your retarded suggestions there. In the meantime, I need all of you to help pump up SYNA
one love
Fantastic post.
Perhaps the reason for this strange behaviour from Ackerman is that he considers this a philantropic act
“One thing is certain. Even if he is right, it will not add to Mr Ackman’s vast fortune. He describes his campaign against Herbalife as a philanthropic act, and has promised to give his personal share in any profits from shorting its shares to charity.”
http://www.economist.com/news/business/21569051-herbalife-shorted-bottom-line
who knows, maybe ackman took out disaster insurance in the form of hlf otm calls
“…extreme display of hubris, stupidity and greed…”, says it all.
As a followup, it’s interesting that portfolio/fund managers used to keep everything well hidden, and strive to invest based on some “reasonable basis” thesis. Then we got activist investors, quickly followed by spam managers. Seems like everyone is desperate to talk their book, what happened to the basic “promise” not to manipulate markets (fine, markets have always been manipulated, but managers have always tried to distance themselves, if, for no other reason, to maintain a patina of “honour” and integrity)?
http://brontecapital.blogspot.com.au/2013/01/notes-on-visiting-herbalife-nutrition.html?m=1
Do your homework before you get set in size.
I tip my hat to Bronte on this call
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