Herbalife Ackman & Hempton – Watching the 1% Squirm

Bill AckmanWatching Bill Ackman trying to take-down Herbalife (HLF) yesterday was a bit like watching an early episode of Breaking Bad – seeping desperation. Over the course of his presentation, he reacted to John Hempton, repeatedly (almost childishly). Hempton, who takes the opposite position of Mr. Ackman, is probably profiting handsomely from the relentless short-squeeze in HLF. I enjoyed John’s response, it deserves to be republished in it’s entirety. I hope you don’t mind John, this is good stuff!

Herbalife clubs – another experience

Bill Ackman has made something of my visit to a Herbalife club in his presentation. I have visited several. And I have a radically different interpretation.

But for the moment I just want to tell Bill Ackman a story.

—-

In my lifetime in Australia it was commonplace to take children of mostly of mixed aboriginal racial heritage from their mothers and adopt them into white society or even to leave them in welfare homes.

This was done for the children’s welfare, usually but not always close to birth. But there are stories of children aged four being hidden from the welfare because the kids would be stolen.

Stealing children had widespread social acceptance in Australia. The condition in which the aboriginal people lived was very poor – often rural, often quite lowly educated. And you hear stories of children aged 12 in middle class rural towns saying they have never met an aborigine and being told to look in the mirror (because they were aboriginal).

This wasn’t a genocidal society. Indeed at the same time Australia had a massive multiethnic immigration program running. It just became the view of the liberal intelligentsia in the city (people who were utterly disconnected I might add) that this was welfare improving.

Like you Mr Ackman I am instinctively more than a touch paternalistic liberal. This was done by and supported by people like me. And dare I say it people like you.

The liberal intelligentsia came to this view however without ever talking to an aboriginal mother, without listening to their stories, without actually seeing what their policy looked like on the ground.

The literature of the time clearly made this out to be an interventionist welfare program. It was done for the victims own good. And the victims own good was widely believed by people who did no research. Strangely the welfare agencies – who should have had an idea that what they were doing was evil – were strong supporters. But their salaries were paid for by an evil program and their view of morality lined up with their pocket book. [Even then it would have been hard to describe them as evil people when they were doing it. They were concerned left-of-center but interventionist liberals. Like me. Like you.]

With our modern eye on this the church groups, rotary clubs, welfare agencies and the government were all deeply racist. They separated children from their mothers against their mothers wishes and did not listen to value their stories because they were different from them, had different colour skin and sometimes spoke in a different language or broken English.

I have – when all the historic inquiries into this practice – took place read the literature and wondered whether – reading it then – whether I would have seen the program for what it was. Pure evil. I have come to the conclusion I wouldn’t have. There is an underlying misunderstanding of what is different in all of us.

I too would have been an evil person by my implicit support for evil.

But I resolved then to always listen to the stories that people told me even when it offended my sense of decency.

Let me tell you about a Herbalife club in the Bronx. This had real customers – about fifty per day which is fairly standard – who came along and purchased their shakes and sat around and chatted. It was like many other Herbalife clubs that I have visited. There was a grid on the wall with the names of the regular attendees, and gold stars against their names for when they lost the requisite amount of weight.

You could do the calculation and work out that husband and wife who ran this club were earning marginally less than minimum wage for the time that they were there. They didn’t have much of a downline. A few of their customers purchased shakes at home for personal use – and they got some income from them. But for people who were modestly entrepreneurial it was almost sad – it certainly offended my sense of what is the right distribution of income to see them working so hard for so little. At first for me it was a little like poverty-tourism – the sort of poverty tourism you see when you visit small towns east of Battambang (Cambodia) or for that matter Arakun (a somewhat dysfunctional aboriginal town in Northern Australia.

But just as I would have been deceived by a welfare program in that aboriginal town I made a point of listening to the woman who ran the shop. And what I heard surprised me.

A husband and wife had been running this club for about fourteen months – and yes – they worked out that per-hour they made slightly less than minimum wage. They opened the club as a couple in the morning and he took the children to school and went to his minimum wage job. She ran the club, her friends came by. Most importantly after school her friends dropped her children off along with their own and went to their minimum wage jobs.

There were a pile of toys in the back and the place looked a little like a creche. The kids played well – and yes – one of her customers – in full knowledge of the financial circumstances was going to start a similar business a few miles away.

When I asked her about whether this was a pyramid and should be closed by the government she was hostile. She knew about you Mr Ackman but her attitude was that you wanted to take her children away from her.

I could not help but be struck by the parallels.

This is not a pyramid. There are plenty of real sales to real people. That is visible. Its a lousy business but it is a business in which people have integrated their lives and their families.

If it were Australia I would not hesitate to call the unwillingness to listen to the stories of the poor people of different race what I called it then: racism. In the US it is probably not that. US attitudes to Hispanics are far less racist than Australian attitudes to our aboriginal population.

In the US it is just money/class and the separation of the 1 percent from the masses. It is entirely possible to be from Manhattan and the Hamptons and completely lacking in empathy for people whose income is near minimum wage.

When I listened to people at Herbalife clubs I heard a story completely different from the story you tell in your presentations. It is a story about people who have integrated this business into their life. About people who have found community. And about people who have controlled their diabetes.

Its a story you don’t present.

And not hearing it or presenting it reflects badly on you.

John

Uber vs the Taxi Monopoly in Europe

croissantI’ve rambled about this before, but today was especially fun. Thanks to the medallion buying taxi drivers stopping for their croissants on French highways, Paris and it’s suburbs saw 300 kilometers of traffic jams. This is what’s known in French as a vrai bordel. In classic French fashion, strikers brought Paris to a standstill, and the evening news brought images of caffeinated taxi drivers trying to block even the scooters and motorcycles from passing their automotive barricades. (Cue la marseillaise…)

According to The Independent, Uber in the UK saw an 850% increase in demand today. Can you chuckle on a blog? I would love to know what the increase was in Paris, but that little fact is unlikely to be reported here. So I wanted to write a little note to all the taxi drivers that read my blog.

Dear Taxi Driver,

I feel your pain. Driving in Paris sucks.

Competition is unfair, you’re job is left unprotected, and it’s obvious that uncontrolled mayhem will break out if exagerated fares aren’t kept solidly above market levels. But dear sir, I humbly wonder whether Uber riders simply can’t afford your services? They’d be taking the train if Uber wasn’t there for them, not your taxi, so maybe it’s the SNCF that should be striking. (Oh sorry, yes, they were, but for other reasons.)

I love paying 60 Euros to get to Charles de Gaulle by car, and then only 35  to get to Gatwick by plane. I’m happy to do my part… And it’s a pleasure to pass 2 hours in the back of your polished Prius, admittedly I have more leg-room than on EZJet, but I’m also paying more.

Good luck with your show of force, but I for one, believe that if Uber (and it’s technology) can offer better service, at a lower fare, while at the same time reducing the smog in Paris, your days are numbered.

Veuillez agréer, Madame, Monsieur, l’assurance de mes sentiments respectueux.

Apple WWDC – The Mystery

Apple NewtonApple does a lot of things right, especially since Mr. Jobs righted the ship. Yet it still boggles my mind that each and every year the announcements from Apple’s WWDC make front page news around the world. The New York Times, CNN, and every major media outlet fall over themselves regurgitating the key-note ‘announcements’. Does this surprise only me? Hello? It’s a campaign rally…

Possibly, it touches a nerve, I participated in the early conferences, when Newton was released, for example, or NEXT was all the saving rage. I remember clearly the circus-like atmosphere Apple produced for its developers, we were chomping at the bit (16 at the time) for a multi-threaded operating system. Maybe the NEXT OS was finally something that would play well with Windows, and we could finally sell something. Windows was eating Apple’s lunch, everywhere, and as an Apple faithful, the future always seemed just out-of-reach. At the time our sect was a self-contained band of developers, and a small group of passionate users. The faithful have since taken on Tea-Party or Green Bay Packer type proportions, thanks to the iPhonePadGadgetMac. Crafty, very crafty.

I’ve come to realise that what the press should be watching (or listening to), isn’t what Apple has to say, but how Apple chooses to say it. Like any good politician,  their basic strategy has worked for decades, they’ve mastered generating buzz. It may seem relatively ‘recent’, but they’ve been perfecting buzz-craft since the inception of the first Mac. Apple has been setting the WWDC as a target each year, not just for the press and the developers, but for each and every employee at Apple. On one hand, I can’t think of a more manipulative use of smoke and mirrors, yet on the other, imagine how this must focus attention from the inside of Apple. Everyone is ALWAYS working for THIS conference, every single employee works to contribute to the success of this conference.

Can you think of another company that has such focus? I can’t.

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Airbnb in Lille, France – No Starbucks?

I just had my first Airbnb experience, I was a virgin Airbnb’er. No longer. I’m a fan. Their technology is excellent, their coverage in a skeptical Europe surprised me.

Uber impresses me, Airbnb impresses me. These companies aren’t just technology darlings, and they don’t seem to be just ‘fads’. They’re pushing aside decade old monopolies around the world. And profiting handsomely, how can you not like that?!

The growth here in Europe seems overnight. But where’s my Starbucks which after 10 (maybe 15) years in France, still isn’t in Lille – the 4th largest city. I was surprised not to stumble on a few, and so were these fans petitioning on Facebook… The old continent takes their sweet time, but I’m happy to see success of private companies like these. Airbnb is private and valued at around $10 billion. (They were founded in 2008…)

Lille has more restaurants than inhabitants, the best beer in France, no dog excrement on the sidewalk (Parisians leave shooshoo a la maison), an endless supply of impressive architecture, and rental bikes available for about $2 a day.

This was the view from our Airbnb, a property owned by a young couple, probably inherited.

Airbnb-View-LilleStumbled on this:

Porte-LilleThis gave me a chuckle:

Funny Garbage CanGood Trading.

Herbalife & Trading Psychology – Media Darlings

The Brandnet Cycle for Trading Hedge Fund Pissing Matches

Most of you are familiar with this chart describing the psychology of trading, it speaks for itself, and speaks a universal truth for every new trader.

Trading Psychology

Media darlings follow different cycles: The Herbalife trading psychology, for example…

Herbalife Trading PsychologyI guarantee that both of these famous hedgies are going to make a killing!

Bags in Bags and Bags in Bags

ikea bagWith spring comes spring cleaning. I approached my garage yesterday thinking it’s time to make space for the bicycles and garden tools that have been hidden away all winter. The garage is the place where time hides out, too–ours is filled boxes of clothes that the kids have outgrown, half empty paint cans, projects forever on hold, plus all the other stuff that accumulates over a winter spent indoors. Part of the problem is that now, at least here in France, when you go into a grocery store you bring your own bag or buy one of theirs – to bring back the next time. That’s not really a problem of course, it’s good for the environment apparently, but if half the time you forget to return with a bag, you accumulate dozens and in my case, millions of bags. What most people do, including me, is stuff one bag in the other (again and again) and toss it in the garage – so you have one when you need one. I have millions, and not just grocery store bags, I have bags-of-bags from Ikea, and plasticized bags from every shop in Paris. You never know when I might need one… My garage was starting to look like the Pacific Ocean garbage patch.

bags of bags

It was a personal challenge to throw out a very solid colorful Disney store bag with light blue fabric cords, I’ve been holding it unconsciously since my daughter was 5, she’s 16 now. We bought an ‘Ariel’ figurine. I remember her euphoria and how crowded the Disney Store was on the Champs Elysees. We had developed the habit of taking a walk along the Champs on Saturday mornings when the weather was nice. Ariel was irresistible.

Bags have a history and despite the fact that they’re just bags, try desperately to maintain value. They don’t want to be discarded. If I mention to my daughter that I threw out an Abercrombie and Fitch bag, now containing the Disney Store bag (which contains others), I risk the wrath of an adolescent girl. So I hid them – at the bottom of the garbage can. Au revoir, bags. You held a lot even empty, it turns out.

This is a finance blog, right? Sorry… There are a few possibilities; I’ve never seen an analysis of bag quality vs. market price, there’s likely a correlation. The other is that cleaning out a garage clears out the head, and I recommend that to anyone trying to trade on a daily basis.

Good Trading.