Short Interest

Herbalife Spikes To Record High On Bass Bullishness And Icahn's "No Sale"

Following Kyle Bass' earlier comments on Herbalife's ability to tap the capital markets for a major buyback: HERBALIFE WILL BE ABLE TO BORROW AS MUCH AS $2B, BASS SAYS;  An HLF spokesperson has noted that Carl Icahn will not be selling (following the stock's close above a key level that enables him to sell). This has sent the stock to $77.39 - an all-time high. HERBALIFE SAYS ICAHN HAS NO PRESENT INTENTION TO SELL SHARES. We can only imagine how Ackman feels as day after day of theta is sucked out of his puts...

Average Hedge Fund Returns A Tiny 6% Through October: Underperforms S&P And Mutual Funds By 75%

Tthrough October 31, the average hedge fund has returned a paltry 6%, 75% below the return of the S&P 500 and the average mutual fund. And while the traditional retort: "hedge funds aren't supposed to outperform the market but to hedge downside risk" is always at the ready, the retort to that retort is that as long as Mr. Yellen is Chief Risk Officer for the S&P, and the Federal Reserve is engaged in QE and otherwise generating a "wealth effect", which according to many will be in perpetuity or until the Fed finally and mercifully is abolished, the purpose behind the existence of hedge funds is simply no longer there as the Fed will never again voluntarily allow the kind of market drop that would make the existence of hedge funds meaningful.

Shorts Crucified As Most Shorted Russell 2000 Stock Gets Takeover Proposal

As we pointed out a month ago (and initially over a year ago) in this completely broken, levered-beta, mad dash for yield market, the only alpha-generating strategy that even remotely works, is to be long the most shorted stocks. This was confirmed based on the return of the S&P vs the "most shorted sotcks" - a trade we first suggested in September 2012 - demonstrated by the chart below. Amusingly, as part of the trading basket of only stocks worth owning, i.e., the most shorted ones on the Russell 2000, where the beta is by far the highest, the top stock listed, the one with the highest short interest as a percentage of the total float, was none other than Blyth, Inc., as per the chart from one month ago.  According to the latest Bloomberg data, since then the short interest only rose even more, hitting an unprecedented 82.79% of all shares in the float held short. Well, overnight a lot of shorts suddenly screamed out in terror and were suddenly silenced, not to mention carted out feet first, when none other than the most shorted Rusell 2000 stock received an unsolicited takeover proposal valuing the stock at $16.75/share.

Ackman Books Herbalife Losses, Forced To Cover 40% Of Short To Avoid Being "Forced To Cover" Short

It just keeps getting worse and worse for Bill Ackman. A few weeks after the epic humiliation, not to mention even more epic losses, he suffered on his now defunct JCP long position (despite ample warnings by the likes of Zero Hedge who said long ago JCP is merely a melting icecube and fast-track Chapter 11/7 candidate) all those who predicted (such as Zero Hedge back in January) that an epic HLF short squeeze would result in the aftermath of Ackman's Herbalife short announcement leading to Ackman's ultimate capitulation, have been proven correct. Moments ago, in a letter to investors, Bill Ackman just announced that he has covered over 40% of his Herbalife short position, with his forced buy-in explaining the endless move higher in Herbalife stock in recent weeks. 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.

 

Coming Soon To A Theater Near You: MBIA's $1 Billion World War Z

Frequent readers will recall that in the past, on several occasions, we expected that MBIA would rise due to two key catalysts: a massive short interest and the expectation that a BAC settlement would provide the company with much needed liquidity. That thesis played out earlier this year resulting in a stock price surge that also happened to be the company's 52 week high. However, now that we have moved away from the technicals and litigation catalysts, and looking purely at the fundamentals, it appears that MBIA has a new problem. One involving Zombies. These freshly-surfacing problems stem from a particular pair of Zombie CLO’s – Zombie-I and Zombie-II (along with Zombie-III, illiquid/black box middle-market CLO’s).  While information is  difficult to gather, we have heard that MBIA would be lucky to recover much more than $400 million from the underlying insured Zombie assets over the next three years, which would leave them with a nearly $600 million loss on their $1 billion of exposure which would materially and adversely impact the company's liquidity.  And as it may take them a while to liquidate assets in a sure-to-be contentious intercreditor fight – their very own World War Z – MBIA may well have to part with the vast majority of the $1 billion in cash, before gathering some of the potential recovery.

BlackBerRIP: BBRY Plummets Over 20% On Friday Afternoon Early Earnings Debacle

UPDATE: BBRY opens and trades down to $8.06 - all-time lows -21%

Having risen phoenix-like off the lows in July, it seems Blackberry is echoing the Eastman Kodaks of the world. Releasing its earnings early, the results are dramatically worse than expected:

BLACKBERRY 2Q PRELIM. REV. $1.6B, EST. $3.03B
BLACKBERRY CUTTING 4,500 JOBS
BLACKBERRY TO CUT OPER EXPENDITURES BY ABOUT 50% BY END 1Q '15

The last bullet point is great news: think of all the cash that will go toward dividends and stock buybacks...

Where The Pain Is Today

Whether or not the Nokia-Microsoft deal makes any economic sense is up for analysts to argue but judging by the market's reaction to MSFT this morning, we'd say 'not' as the stocks is down almost 5% (devouring the entire Ballmer-bounce). However, Nokia is up a stunning 41% as investors seem not just relieved at the firm's dumping of the loss-making mobile business (always a greater fool?) for $7.2 billion; but concerned at the massive short-interest in the name. While the absolute number of shares short has dropped in recent weeks, it remains high at 11.9% of float (according to Markit); but in terms of days-to-cover it has never been higher and in fact will take around 15 days at average volume to unwind fund's massive short positions.

While Hedge Funds Underperformed The S&P By 80% In 2013, They Piled Into These Three Stocks

That hedge funds as a whole have been underperforming the S&P500 not only in 2013 but in the past five years is well-known to most. This trend continued into the second half when, as Goldman calculates, the average hedge fund has returned only 4.1%, or an 80% underperformance compared to the S&P500's 20% through August 9. This is a marked deterioration compared to the 65% underperformance the last time we made this comparative observation in May. Some of the other more surprising observations: YTD, 25% of hedge funds have generated absolute losses and fewer than 5% of hedge funds has outperformed the S&P 500 or the average large-cap core mutual fund. 2 and 20 anyone?

Deutsche Bank Hopes "Not All Margin Calls Come At Once In Case Of A Sell-Off"

A recent survey of asset managers globally, managing USD 27.4 trillion between them, found that 78% of defined-benefit plans would need annual returns of at least 5% per year to meet their commitments, while 19% required more than 8%, "a target of 5% per year can be reached but only by using leverage, shorting, and derivavtives." And sure enough, as Deutsche Bank (DB) reports, in short, investors have rarely been more levered than today! According to DB, a MoM change in NYSE margin debt >10% has to be taken as a critical warning signal as there are astonishing similarities in the sequence of events among all crises. As the S&P 500 just hit a new all-time high, investors might want to ask themselves when it is a good time to become more cautious – yesterday, in our view. Simply put, the higher margin debt levels rise, the more fragile the underlying basis on which prices trade; with even a less severe sell-off in equities capable of triggering a collapse.

Herbalife Smashes Expectations, Guides Higher, Announces $0.30 Dividend: Stock Surges

Today's most eagerly anticipated earnings release, that of Herbalife, also known as the focus of the most entertaining feud of 2013 between Bill Ackman and Carl Icahn, were just released, and they are a blowout.

  • HERBALIFE LTD. 2Q ADJ. EPS $1.41, EST. $1.18
  • HERBALIFE 2Q REV. $1.22B, EST. $1.16B
  • HERBALIFE OPERATING CASH FLOW $214 MILLION
  • HERBALIFE SEES YR ADJ. EPS $4.83-$4.95, EST. $4.78
  • the always amusing: HERBALIFE 2Q HAS EXPENSES 7C-SHR ON 'ATTACKS OF CO BUSINESS'

The biggest news as always was not reported: it was the most recent short interest in the name. At 36% it means much more pain in store for shorts. But the punchline is that Herbalife just announced a $0.30 dividend per share: a dividend which will to a big extent come straight out of Bill Ackman's pocket.

Eric Sprott Asks "Do Western Central Banks Have Any Gold Left?"

Recent dramatic declines in gold prices and strong redemptions from physical ETFs (such as the GLD) have been interpreted by the financial press as indicating the end of the gold bull market. Conversely, our analysis of the supply and demand dynamics underlying the gold market does not support this interpretation. As we have shown in previous articles, the past decade has seen a large discrepancy between the available gold supply and sales. Many recent events suggest that the Central Banks are getting close to the end of their supplies and that the physical market for gold is becoming increasingly tight. The recent sell-off was all orchestrated to increase supply and tame demand. We believe that central planners are now running out of options to suppress the gold price. After taking a pause, the secular gold bull market is set to continue.

Are Bond Yields Set To Soar? Not So Fast

US Treasury yields have risen sharply in the last four weeks with 10yr yields higher by about 50bps. Direct causation is hard to find. While the economic data has improved in places, the prices have moved much more than the facts. For just about every good piece of data, there was an equal piece of bad news. Then of course, there is Ben Bernanke who made the slightest hint to the possibility that a tapering of purchases could begin "in the next few meetings" if the economics warranted. But trying to position a trade based on the impact of the Fed quickly becomes a reflexive exercise going no place because the Treasury market finds a way to reflect macroeconomics despite them. The history of the Fed shows that economics always trumps their effects. This isn't to say that at any given moment, the Fed may have interest rates at a different level than they otherwise would be, but it isn't useful to use this as a reason to buy or sell because a change in their buying could just as easily mean that the economy will be weaker and thus rates would fall as that they would cause rates to rise. What this recent yield back-up boils down to is that the market is expecting that there is self-sustaining, above trend, GDP growth coming. It isn't often that prices become this divorced from fundamentals. Expecting self-sustaining above trend growth is hoping, not the result of a careful analysis. We continue to think that no matter how forceful this back-up has been, or where it ultimately peaks, we will see new low yields in the Treasury market before this cycle is over. Here are 7 short-term and 3 long-term reasons why we think they won't stay up here for long...

Ben Bernanke Crushes Hedge Funds: Average Hedgie Underperforming S&P by 65% In 2013

For all those curious why all real money managers (and not those who spend 18 hours a day on the modern day Yahoo Finance known as Twitter, "trading" with monopoly money while selling $29.95 newsletters) are furious at what Bernanke and company are doing as shown in the most recent Ira Sohn conference, we present the chart below from Goldman which confirms what most have already known: the Federal Reserve has made hedge funds a thing of the past, whose investors are sure to keep underperforming the S&P until the moment when it all goes tumbling down.

The Volkstesla Squeeze

Back in 2008, Volkswagen briefly became the most expensive stock in the world on what would become the case study of an epic short squeeze when following some (malicious) capital structure drama, the short interest became greater than the total outstanding float, sending the stock up 500% in a few short weeks. German billionaire Adolf Merckle committed suicide as a result. We may be in for a redux, courtesy of yet another car company: Tesla, whose most recent short interest as of 41.5%, has led to a surge in the stock price of nearly 300% in the past few weeks, and which covering rampage shows no signs of abating. Will Volkstesla be the new Volkswagen?