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.

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

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Dealing Marijuana – OTC

I sometimes wonder out loud (here, for example) why I keep getting hit up with penny stock requests. My little Fiverr experiment (here) brought in a handful of spin doctors fishing for technical analysis and at the time those requests looked arbitrary. One of my favorites was for an underwater tree harvesting company.  Really. But several were affiliated with a recently legalized and very popular plant. (No disclosures forthcoming.)

I hadn’t considered the trend until I stumbled on a Zerohedge post (here). The good bits come from Nanex.

An explosion of OTC trading:

OTC Shares Traded

 

Trade executions per day taking into account the lower price value of penny stocks:

OTC ActivityThat alone is interesting, I didn’t realize there was so much interest in OTC stocks. But the next table is what caught my attention and fits with the types of request I’ve been receiving:

Guess where all that trading activity is going.

Top OTC ActivityGood Trading, Dude.

 

France FDI – Emerging Market?

Investment in France fell 77% last year according to the UN’s report on Global Investment Trends (here), to $5.7 Billion.

That’s the report that kicked things off,  since it’s been downhill. The Figaro picked it up with: Les investisseurs étrangers délaissent la France and try to make a disaster bad thing look normal, by saying  the data is volatile and the charts look more like peaks and valleys. Ok but… As support they refer to an outdated document from the Banque de France. Strange.

The FDI inflows for the top 20 economies are here, find France…

FDI Top 20 2013

And once Zerohedge got a hold of it (here), you could count on an interesting perspective.

Foreign Investment In France Crashes 77% In 2013 (Most On Record) To 26 Year Lows And they do a great job with charts…

 FDI France

I couldn’t help thinking that Google’s sale (and loss) of Motorola to Lenovo surpasses a full year of foreign direct investment in France.

Have a great weekend.

Hedgehogs

Roberta FlackI appreciate and respect honesty, despise blatant lies, find frauds disturbing, though a bit like reality TV- mostly because Ive never been personally impacted (unless you include commodity price fixing, Libor, etc.) But these are frauds that the collective popular imagination justify, and a story for another time.

Bronte Capital’s blog post When the hedge doesn’t work caught my attention this morning. I like to see hedge fund managers fall on their swords once in a while, not because I’m becoming more French, but because it’s a frank, honest truth about speculation. Whatever your model has defined to hedge exposure (short or long), volatility, leverage or capital, the hard truth is your model will never always respect your predictions. Adjustments are a part of the game,  maybe the most difficult part. Good Luck, time will tell, but the market might be telling us it’s time for a post-QE adjustment.

It’s a good post and my readers should have a look.

Roberta Flack:  One of the primary qualities of a good performance is honesty.