Category Archives: Hedge Funds

Herbalife, how the two 1%’s, unproductively spend their money

It’s time again to renew our interest in this non-story. Herbalife (HLF) against the world.

Now that the short-squeeze is over and Bill Ackman’s equity investment has been transformed into a derivatives investment, he can manage his losses as, “the cost of doing business” against Carl Icahn. They both probably have nothing better to do. Wouldn’t there be more productive uses of capital. I know a few… Seriously!

As you’ve probably heard the FTC is launching a civil probe into Herbalife’s practices. Though the results of that probe might take a year or two, the expectations are already being communicated  (Bloomberg).

The investigation will most likely end with Herbalife intact while paying a “palatable fine” and agreeing to stricter controls on its multilevel marketing structure, said Robert Chapman, founder of hedge fund Chapman Capital LLC in Manhattan BeachCalifornia. Chapman, who has been critical of Ackman, owns Herbalife stock and bullish derivative options.

And on the other side of the isle, the obligatory lobbying…

The FTC, along with the U.S. Securities and Exchange Commission, had been asked by SenatorEdward Markey, a Massachusetts Democrat, to look into Herbalife’s business practices. An advocacy group called the League of United Latin American Citizens also has met with FTC Chairwoman Edith Ramirez to describe alleged abuses by the company. Ramirez told Markey in a letter last month that his concerns were being “carefully considered.”

The New York Times reported this week that Ackman had donated $10,000 to the advocacy group and hired a former aide to Markey as part of his anti-Herbalife campaign.

I’d bet $10,000 only scratches the surface.

This got me thinking of the irony of the argument. The League of United Latin American Citizens is challenging Herbalife because the Hispanic community is unfairly being targeted by Herbalife; a pyramid scheme praying on the local hard-working community. Shame, though you would find the same behaviour at Anheuser-Busch InBev. Hypocracy aside.

In their own words (here),

The League of United Latin American Citizens, this nation’s largest and oldest Hispanic civil rights organization, welcomed the news that the Federal Trade Commission (FTC) has opened a formal investigation of Herbalife’s business model.

LULAC has maintained that the company has been defrauding hundreds of thousands of their own distributors by promising a lucrative business opportunity when the vast majority suffer financial loss.

Now my confusion  Here’s a financial whale in a billion dollar pissing match, paying a lobbyist to convince the FTC that HLF is praying on the small guy – which is illegal – while the very act of paying this lobbyist to move the FTC, prays on ME – which is in NO WAY illegal.

HLF-FTC

 

I’m not Hispanic and I don’t buy or distribute Herbalife, but I do buy stocks, futures and derivatives. I want to believe that financial products, serve a valuable purpose, and speculating pits my capacity to measure opportunity against the traders at funds like Pershing Square or Chapman Capital.

I’m clearly holding on to a naive notion. Good Trading

Another Year (Tchin)

priorite-a-droiteAre you already tired of top 10 lists and reviews; the best, worst, top, bottom, favorite, saddest, ugliest, or even funniest? The people we lost, the music, the films, and viral videos all get pulled off a virtual shelf then pulled from a a virtual box. In truth these lists are stored in a relational database and prepped for release in November. You never know – the top 10 most viewed YouTube videos might need to be recycled for 15.

Of course predictions will be arriving any day. Here’s mine: in 2014 Google will  start adjusting the “Lists of Top” I prefer, automatically. The top 150 wing-suit videos, 45 cat jokes and the 5 most effective Federal Reserve programs. They’ll appear on my android phone without my asking. Relational databases are smart but Google is much smarter.

Lists of absurdities still catch my attention. I admit. (Thank you FTAlphaville) It’s harder to define absurd and as far as I know, you can’t measure absurd in hits, votes or dollars. Absurd appears only in hindsight.

Here are a few of my favorite dubious absurdities:

  • Buying a Tesla with Bitcoins.
  • My telephone asking me if it should record my commute and share it with my friends on Google+. (Anyone that knows my routine will appreciate this just a little bit more.)
  • Nicorette prices fluctuating with the price of cigarettes.
  • Debt, QE and its positive impact on ‘growth’ forever.
  • Herbalife pyramids

When you live, work and eat in France, absurdity often passes into the realm of the surreal.

My trading year left a lot to be desired, it was frankly absurd. Absurdities abound and they deserve attention (with or without a relational database) and a few lists of their own.

Hello?

Former SNB head, hears London calling

Any news about the ex Swiss National Bank head usually catches my attention (for example), I sincerely hope that one day we might have lunch. I even have a few good ideas for BlackRock, a man on the ground and all…

Best of luck Pilipp!

Here’s the news from Reuters. 

Spot the Dog

Good article by FT Alphaville, on Bestinvest’s quarterly newsletter, “Spot the Dog

FT: Spot the Dog let off the leash

SPY Sept. Butterfly Trade Idea

I’m keeping an eye on a 112 / 118 / 124 put butterfly spread that crossed Monday or Tuesday for 46 cents. What caught my attention was the volume. 60k/120k/60k. The trader paid $2,760,000.00 and risks the same. The potential profit is about 15 times that or 30,000,000.00. The probability  that the $SPY falls below 118 is 17%.

How did they target this particular spread? The logic on the chart is semi-clear. You have some good resistance/support at 126 (March, June 2011) again at 118 (October, November 2011) and further out (August, September 2010). This trade expects the $SPY to pull back atleast beyond the high of April 2010 by September expiration. On first glance an agressive bear trade on the $SPY. I’m most perplexed by the choice of the September timeframe.

Just looking at the charts can’t be the whole story. We’re in the mist of a pissing contest in Washington and the rating agencies are saying, ‘Hey Washington don’t forget about us… we’re gonna be here” no matter who pisses the farthest.

I’m making a wild guess that a crack team of analysts built a nice excel spreadsheet. And the conclusion was, one way or another, Washington WILL raise the debt ceiling AND the rating agencies WILL downgrade US debt. Their excel conclusion must have been 118. But maybe this is some elaborate type of hedge! I’d love to speak with whoever put this trade on!

Mr. Soros Sending My Money Back

What a name. What a brand. A legend. I’m feeling guilty for what I wrote earlier. “Capital Ratios on the Upper East Side“. I think what we can learn from his decision to close his fund is that the market’s are in for some strange times ahead.

Soros to end fund (from Bloomberg)

Airlines… This tax relief and the rising fares: deplorable. (from SF Chronicle)

Eurozone PMI info.