The Herbalife drama - perhaps the biggest billionaire pissing contest of 2013 - just got excting again, following FT news that a criminal probe has been launched into Herbalife. "The US Department of Justice and the Federal Bureau of Investigation are investigating Herbalife, the multi-level marketing company that hedge fund manager Bill Ackman has alleged is a pyramid scheme, according to people familiar with the matter. The criminal investigation by the FBI and US attorney’s office in Manhattan raises the stakes for Herbalife, which is already facing civil inquiries from multiple government agencies that are looking into the Los Angeles-based company and its associated network of independent distributors."
The stock market really was rigged... “It’s 2009,” Katsuyama says. “This had been happening to me for almost two years. There’s no way I’m the first guy to have figured this out. So what happened to everyone else?” The question seemed to answer itself: Anyone who understood the problem was making money off it...
- China worries chill markets, copper slumps (Reuters)
- Peak dot com dot two idiocy: Candy Crush Saga maker King seeks $7.56 bln valuation from IPO (BBG)
- Obama Meeting With Yatsenyuk Raises Stakes in Ukraine (BBG)
- Federal prosecutors open criminal probe of GM recall (Reuters)
- Pimco Cuts Government Debt on Outlook for Fed Buying (BBG)
- Missing Malaysian Jetliner Confuses World That’s Online 24/7 (BBG)
- Mortgage Giants Face Endgame (WSJ)
- Russia Calls U.S. Aid to Ukraine Illegal Amid Standoff (BBG)
- U.S. judge freezes assets of Mt. Gox bitcoin exchange boss (Reuters)
- Ousted Libyan PM flees country after tanker escapes rebel-held port (Reuters)
- Senate-CIA Dispute Erupts Into a Public Brawl (WSJ)
David Stockman blasted the GSE-profiteers just last week but the manic run-up in the stocks of Fannie Mae and Freddie Mac has abruptly come to an end as the FT reports, the US Senate banking committee on Tuesday released a highly anticipated plan that would maintain government backing of mortgages but wind down the GSEs. Not a great day for Mr. Ackman - who owned 10% at last filing.
The Fed’s serial bubble machine has not only bestowed massive speculative windfalls on the 1%, but it has also fostered a noxious culture of plunder and entitlement in the gambling casinos of Wall Street. After each thundering sell-off during the bust phase, crony capitalist gamblers have been gifted with ill-gotten windfalls during the Fed’s subsequent maniacal money printing spree. In this context comes Bruce Berkowitz “scolding” and firing “salvos” at Washington from the front page of the Wall Street Journal.
Bill Ackman helped rescue General Growth Properties (GGP) - the US 2nd largest shopping mall operator - from bankruptcy in 2009/10 as the company collapsed in the financial crisis. Ackman "turned $60 million into $1.6 billion" in the process but, according to Bloomberg, has now exited his entire position, dumping his final 28 million share back to the company via a buyback. The spin, of course, is that it's right to take profits and that GGP is now 'a much different company than it was then." However, given Ackman's knowledge of JCP (and perhaps RSH), we can't help but wonder, given all the exuberance about Fed tapering must mean the recovery is here and sustainable - just why Ackman would unload it all at such a pivotal time in the US economy...?
2013 is in the history books, and with it so are all those strategies that worked last year. As much can be seen in the performance of the marquee hedge fund names, whose performance so far in 2014, undoubtedly taking a cue from the market which in January was turmoiling over tapering and EM fears, is decidedly mixed, with about half generating negative returns, and the other just barely beating the flatline. Some notable exceptions: the woefully named Tulip Trend Fund which is already down -8.5% YTD, as well as the Keynes Leveraged Quantitative Strategies fund, down 2.9%, while on the other side Pershing Square is no longer Perishing up 4.1% through the end of the month, undoubtedly driven by the plunge of HLF in January, a move which may or may not last and likely depends on whether in the aftermath of AAPL, iCahn decides he has had enough of his game with Ackman as well.
- Only time will define Bernanke's crisis-era legacy at Fed (Reuters)
- Record Cash Leaves Emerging Market ETFs (BBG)
- Investors Look Toward Safer Options as Ground Shifts (WSJ)
- Fed Policy Makers Rally Behind Tapering QE as Yellen Era Begins (BBG)
- Rating agencies criticise China’s bailout of failed $500m trust (FT)
- Russia to await new Ukraine government before fully implementing rescue (Reuters)
- U.S. readies financial sanctions against Ukraine: congressional aides (Reuters)
- Companies resist president’s call for minimum wage rise (FT)
- Secret Swiss Funds at Risk as Italy’s Saccomanni Visits Bern (BBG)
- Top Democrat puts Obama trade deals in doubt (FT)
- Erdogan to Give Rate Increase Time Before Trying Other Plans (BBG)
After the epic fail of Pershing Square's Herbalife short, aka the stock we predicted, correctly, in January 2013 has Volkwagen-like short squeeze potential, it was only a matter of time before the analyst responsible for the trade got the boot, politely of course.
Wondering why Herbalife is down over 12% in the past few minutes? Wonder no more: moments ago Massachusetts Senator Edward Markey, who apparently has a morbid interest in protein shakes - more so than the FTC - asked for more information about the business practices of nutrition company Herbalife. Markey sent letters to the Securities and Exchange Commission, the Federal Trade Commission and to Herbalife itself to try an obtain more information, his office said in a news release on Thursday. The take home from all of this? Senator Edward Markey has an advance invite to the Pershing Square holiday ball.
Either the Volcker Rule is making Wall Street's menu of investment choices so unbearably limited, or traditional assets are so overpriced Wall Street won't even touch them with other people's money, but when it comes to allocating capital the smartest conmen in the room are coming up with some truly unorthodox products. Such as investing in ex-convicts in the form of 2000 newly released prisoners.
Many Ponzi schemes work for a while, but it is only a matter of time before the tide goes rolling out to Sea.
It was nearly three months ago when we warned that Ackman's latest strategy of converting 40% of his Herbalife short exposure into puts would massively backfire, first because he still have major short squeeze potential left on his books, and second because now he is subject to theta or a time horizon, for his thesis to play out. Ackman's (il)logic was summarized as follows: "The explanation of being forced out of nearly half of his position is amusing: "we minimize the risk of so-called short squeezes or other technical attempts by market manipulators to force us to cover our position." So Ackman is forced out by his Prime Brokers so as not to be forced out by market manipulators? That's an interesting explanation for what is a far simple situation: booking your paper losses." Just under three months later HLF hit its all time highs, and Ackman's puts (not to mention his stock short) have generated material losses. Back then we concluded that "with trades like this, which has now become an ideological obsession and moved beyond and semblance of rational investing (any normal person would have pulled the plug on the nearly half a billion dollar losing trade long ago) and is rapidly morphing into a replica of Pershing Square IV, said career may not be too long." Today, the embattled so-called retail expert pours more fuel in the futre, and provides a 7-page update on what his plans for Herbalife are. In short: it really does seem that Ackman is prepared to take his HLF short until the end of the world... or its LBO. Whichever comes first.
Ackman's Year Of Living Dangerously Get Worse - The Herbalife Timeline (Audit Complete With No Material Changes)Submitted by Tyler Durden on 12/16/2013 16:21 -0400
UPDATE: Herbalife is halted for the following news:
- HERBALIFE COMPLETES RE-AUDIT FOR FISCAL '10 '11, '12
- HERBALIFE NO MATERIAL CHANGES TO 2010, 2011 OR 2012 FINL
Which opens the doors for the substantial buyback they have planned. We suspect one can hear a pin drop in Pershing Square's headquarters.
Herbalife has re-opened up 9% over $75 on very heavy volume - It seems Ackman's "end of the earth" bet may take a little longer...
This week marks the one-year anniversary of Bill Ackman’s 342-page slide presentation at the Ira Sohn Conference in NYC. At that time he publicly disclosed his $1 billion short bet against Herbalife (HLF), accusing the company of being a pyramid scheme and claiming its stock was destined to fall to zero once regulators stepped in. As everyone knows, HLF shares plummeted, losing nearly half their value in the three days after the presentation. The market’s initial response did not last, and HLF is up about 160% since its 12/21/12 low of $26.06 (vs S&P 500 +24%). Pershing Square’s public campaign has taken many forms, as Barclays outlines below...
It would be tragic if it wasn't so hilarious. Nearly a year after we first suggested that Herbalife is the long of 2013, as a result of the epic short squeeze potential resulting from the Ackman announcement of his mega short,(promptly followed by the traditional Whitney Tilson piggyback) which it has been, rising from $25 to an all time high of $77.39 days ago, Herbalife has had enough of the so-called retail expert's (coughJCPcough) repeated allegations of fraud, and after taking a well-deserved victory lap costing Ackman hundreds of millions, has decided to hit him where it truly hurts - his clients. Bloomberg reports that Herbalife is approaching investors in Ackman’s hedge fund, suggesting they pull their money from the $12 billion firm.