HLF Data -&- FX Confusion

Bruce Krasting's picture


On HLF and Da Boys


How about that blow up between Ackman and Icahn?!?! Two big shots of finance making asses of themselves, is what I saw.


Icahn was making himself out to be the good guy. His investors making out fine, everything done on a handshake and all that. Carl doesn't tear things down, like the short seller Ackman. Carl builds things up, right?


Ask anyone who was connected to TWA when Carl was running the show. The pilots and the unions lost big. The banks got hit with losses. Investors in TWA bonds got whacked on the head. Widows and orphans lost money on the stock. Carl, on the other hand, did just fine.


There was one thing that Carl said that has to raise an eyebrow. He went on-and-on about a short squeeze in HLF. To me, he was either talking his book, or he was baiting Ackman, and hoping that the market would squeeze Ackman to death.


Let me put an end to the short squeeze story. To be short a stock, one must first borrow the stock. This is easy to do for most listed names. But it becomes a real problem when there is an actual short squeeze occurring.

When things get tight, and you want to borrow stock, the answer on the phone is either A) "Sorry XYZ is on the the 'No Borrow' list - call back tomorrow.", or B) "Yeah, I'll lend you the stock - but it'll cost you 3 points a month!"


This afternoon I had an offer of 300k shares of HLF ($12m) to borrow at an annual finance cost of 3.4%. If a lightweight like me can see this on offer, then big guys can borrow at will, and they can do it at even cheaper prices.


I have no idea what will happen with HLF (I have no position), but I will say for sure that there is no short-squeeze in this stock. Icahn was just blowing smoke.



- The borrow cost is a fee. It is paid daily, but is expressed as an annual rate. The borrow cost of 3.4% for HLF comes to less than 1 cent a day of carry cost. HLF fell $3.50 today, the penny cost was well spent, and certainly is no impediment to playing on the short side.

- "3 points a month" = 36%PA (AKA: Usury) = Sure sign that a short squeeze is happening.





What's Next In FX Land?


At the end of last year I included this in my list of things that would happen in 2013:


- Jack Lew will replace Geithner as Treasury Secretary. This choice will be driven by Lew’s knowledge and experience with budget matters. But Lew knows nothing of the capital markets and this will be a problem when a non-budget crisis emerges. Lew will say something about the currency markets that will cause a big flap.


A month ago this seemed like a long-shot. Today I'm thinking it's a 50-50 bet. Poor Jack doesn't even have the job as T-Sec as of yet (he has to go through those pesky congressional hearings). While Lew is worrying about those hearings, there is a big problem brewing. And of course, the problem is in FX land, and good old JL knows nothing at all about that.


The fun thing about FX is that it is not predictable. Smart people can talk about important things like fair value, and purchasing power parity, but the reality is those things have nothing to do with short term outcomes. In a three or six month period of time there are only two forces that determine the outcome. On one side of the equation is The Market, on the other side are the Central Banks.


As of today, the FX "equation" for the Yen versus all of the currency crosses is missing the Central Banks. The Bank of Japan WILL NOT intervene to stop the depreciation of the Yen at any time in the foreseeable future. Without the BOJ, the FED and the ECB can't intervene.

The only force left is the market, and the market is having a merry time shorting the Yen with reckless abandon. In the process, the market has been making a huge fortune. The short Yen trade has been a free ride to riches.


The FX markets have been very volatile of late. In my experience volatility breeds more volatility - until something blows. I wish I could accurately forecast what the next few months will bring. I'll offer up one possible scenario. Consider this chart of USDYEN and EURYEN:




The chart looks like the Yen has weakened in lockstep with both the Euro and the Dollar. But when you look at the scale, you see that the Yen has lost 22% against the Euro, while it has only given up 13% versus the dollar. From this you might conclude that the logical next step is for the USDYEN to "catch up" to to what has happened with the EURYEN. This thinking takes you in the direction of USDYEN 100.

But, the FX markets don't work like that. If USDYEN moved to 100 while the EURYEN remained "stable" around 122, then the EURUSD rate HAS to fall to 1.22 (-9%).


Sorry, that's not in the cards. There is no way that the EURUSD rate can fall like that. Therefore I have to conclude that the EURYEN is going to be dragged to a very high level. A rate of over 130 is possible in this scenario. At that point, things will be in "crisis mode".


In Japan, there is a tremendous push to get the USDYEN rate back to 100. The market is going to do everything it can to facilitate that outcome. The BOJ will do nothing to stop this from happening. The Fed and The ECB are powerless to resist. The USA doesn't even have a T-Sec that can speak to the developing problem. And even if he were confirmed, he knows nothing about the issue at hand. Taken together, this set-up has bad smell to it.


I see the coil spring that is the relationship between the Euro, the Yen and the Dollar getting tighter by the hour. I have every reason to believe it will get tighter still. Somewhere in this story is a hiccup. A big one.


eureka balance spring









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ptoemmes's picture

Via Mish's site comes Mr. Kyle Bass: http://www.infowars.com/senior-obama-official-we-are-going-to-kill-the-d...

"When I asked a senior member of the Obama administration last week, ‘How are we going to grow exports if we won’t allow nominal wage deflation?’

He says, ‘we’re just going to kill the dollar.’

That worried me.

So, that the only answer.

It’s a dead answer.

But, that’s where we’re headed.


I assume by kill he means devalue, and with everyone else devaluing...the race to the bottom is in the last furlong?

ssp2s's picture

Mish's story is new, but I believe that the Kyle Bass clip is an old one.  Which isn't to say that the Administration isn't attempting to do this, but just that it is not a new story.

Dan Duncan's picture

Bruce writes:  "In the process, the market has been making a huge fortune [off the short yen trade]."

Sorry for the remedial nature of what follows, but id the market is making a huge fortune off the short yen trade, then who is at the other end of that trade?

Or looked at another way, for every short, there is a long, right?  If Central Banks are not intervening, then who's at the other end of all this? Multi-nationals? Mizuho?

Does the BOJ become a defacto "purchaser of yen" since it's a "printer of yen"?  Are these losses to the BOJ, then, illusory? If so, then the gains would be illusory, unless the market participant can "lock" them in by going into gold, etc

This trip into the rabbit hole could go on for quite some time.  It's like a shell game, but instead of "three shells and a pea" we have "3 Central Banks and a steaming pile of shit".

Cosimo de Medici's picture

I'm not saying the yen is not going to continue to weaken, but if you go back and take all of last year's FX articles in the financial media, and replace 'euro' with 'yen', they read the same. Even some of the "experts" are identical.  I guess if there is a difference now it is that the Govt of Japan is in favor of a weaker yen, whereas the EU didn't want their experiment to collapse.

dunce's picture

I never heard of the TWA deal but he has raided many companies that needed raiding because managment was lousy and the stockholders were better off in the end. I know nothing about ackman but years ago there was a guy named Victor Posner that looteed company after company and there are court convictions to prove it, but i do not think he ever did jail time or was the least repentent.

ElTerco's picture

No one wants Japan to collapse.  If Japan steps out of the way, others will do what they must to fill the void.  Japan wins.

whatsinaname's picture

The GBP is not behaving too kindly to the USD either ever since Mark Carney made his comments about more easing in the UK. That makes it even more interesting does it not ?

percolator's picture

Just checked IB and there's 1M shares of HLF available to short.

chump666's picture

GBP trade is telling, usually snaps back off the 1.55 and 1.56 handles (weekly), it's now falling through it's usual supports with USDs bids.  If it can't hold on the .55 and .56, well... 

Asia, same, the rest of Asia do not want YEN complete devaluation, hence DXY bids have been steady for months since QEInfinity.  Point?  Well, the DXY should be collapsed under 0.75 with money printing overkill, so it indicates that overall liquidity is tight within FX markets, the all-in equity bull must be leveraged to hell to sustain that overbought euphoria.  But we had a small correction in Nov 2012 (stocks) and the GBP fell to it''s support ranges. Also the other risk off proxy is the AUD, which is starting to slide. 

Top for stocks?  Who knows, they have blown out every stop and marched onward, but FX markets may be indicate the market top is here. 

Also the Ackman and Icahn blow up was awesome, more please...


Orly's picture

Man, is this wild or what?

The yen at the end of last week blowing through barriers left and right, dragging the Euro ever higher and crushing the Cable.  Bizarre.

You're right, though, about the GBPUSD trade because there has been a wedge pattern made on the Weekly since the onset of the crisis that the Cable has filled to near perfection each time.  The pair traded just below the lower trendline today and bounced out.  My concern is, like yours, that the rebound is usually very springy and this one seems kind of lackluster.

If it breaks through the lower trendline, that would send the 4X market into chaos. I think a definitive break below 1.57 could send it to 1.53 almost over night.

I don't see it happening, though, at least not without some retracement.  All of this talk about the new and improved SuperEuro is insane, along with the idea that Sterling will become a third-world currency, yen to 100 tomorrow morning...

Right now, I am playing the rebound, slow or not.  I have the pair moving to at least close the opening gap at 1.58 and possibly as high as 1.595, as there is very little in the way of resistance until that level.

But, boy, if it breaks down...that would be something.



Stop me if I am babbling but about the Aussie.,,

That is a very interesting trading pattern, too.  It has the same, what I would call a "wedge effect" in place on the Weekly, same as the GBP- except the AUDUSD is only trading in the top half of the wedge.  (I know, but have a look and you'll see what I mean...)  Like Cable, the pair moved right to the half-wedge line and bounced out.

So, either Aussie can move below the hlaf-wedge line and end up at 0.97, or it can trade through the Fibos as yen pairs climb and end up at 1.15.  Now that's insane!  I'd hate to be my socks on it!

SAT 800's picture

I covered my Yen short at .01148; or 87.1 for those of you who do things backwards. I just picked up a pair of CAD/USD Junes @0.9911. I like the big volume and op. interest during the recent collapse; looks like "popular" enthusiasm to me. (crowded short). W e shall see. It sure was fun looking up the price of Yen every day. beats having a job that's for sure.

malikai's picture

AUDUSD/Gold correlation is hard as nails right now and telling a very vivid story. Also of note is USDCAD which appears to be about to make some folks' year this week.

SAT 800's picture

betting on the CAD to rise. the recent collapse is un-natural and there's too much open interest; I think the low price is already a "mini-bubble".

chump666's picture

The AUD has killed me so many times, I never thought it would be taken as a safe haven so I took a leveraged option contract out and got burned to hell.  But I still want revenge, it's sliding now on disasters (floods/fires) repatriation (insurance).

Remember 2008? Well, ASX200 and AUD correlated very well, trade for trade, when the markets crashed, both collapsed spectacularly.  As both trade on commodity prices and I think copper is taking hits again which could extend to iron ore spot prices sinking.

But a scary trade with central banks lurking all the time.

Orly's picture

Aussie bonds are paying interest in a relatively very stable economy, even as the world goes SuperZIRP, with Europe in the lead.  (Don't be shocked when the ECB lowers rates soon enough...)

The only safe-havens in the world are going to be the AUD and the USD.  Euro hangs on, UK debases as quickly as they can and the Japanese economy collapses, giving an organic credence to all the low yen talk.

The only place to put it is in New York or Sydney.


chump666's picture

I totally agree, look at the EUR/USD with the GBP/USD, it's like Europe is fixed and it's risk on, cept a collapse in the pound is very risk off for Europe (UK political/social/gilts being dumped).  If the UK is dumped for the rest of Europe (EUR/GBP), where you gonna put your money into Germany?  With Merkel now under pressure and elections due?  So, yeah there is a trade on the EUR/GBP, like in Nov 2012.

You'll most likely get a rebound in the USD/GBP, as Cameron is slightly more hawkish than the mad Italian's running Europe at the moment. 

Orly's picture

But it's not PM David Cameron you have to look out for now.  It's Mark Carney, the new money boss...from...

Canada.  :/

He said the other day that the UK could handle more inflation, so my in-laws prolly went nuts.  They just moved out of the council flat and into their own place, so "a little more inflation" is not what they had in mind.

Where does that end?  What is the means?  Why, it's got to be money printing, of course.  For real, this time, with banks under instructions to lend the money out to anyone with a pulse.  (Redux...)

As to where are you going to put your money...

If I had to bet my socks, I would say Aussie to 1.15 but that number is so off the charts, it's not even funny.


SAT 800's picture

You say it's off the charts; I remember clearly when I got paper chart books every two weeks in the mail and had to up date them with my hand-written notes; from my daily telephone quote line; I remember having to paste an extension to the top of a newly printed chart book just so I could plot that weeks prices on it. What you say about Australia is correct, of course; the fact that it's off the charts now? They print new charts all the time.

Orly's picture

Yes, I can imagine that was difficult to do.  Had to be dedicated, that's for sure.

The way I am seeing it is to have Cable retrace higher at the same time the yen pairs back up to reload.  The Aussie dollar follows the Pound during this time.  Then equities will ramp in a blow-off top, along with the yen pairs.  The Sterling will top and then fall through the wedge, moving to 1.52 or lower.

To counter-balance, the Aussie decouples from the Pound as the Euro stays fairly steady to rising and becomes the carry currency for the world.  That's why it is off the charts...

They never made charts like this before.


SAT 800's picture

You say it's off the charts; I remember clearly when I got paper chart books every two weeks in the mail and had to up date them with my hand-written notes; from my daily telephone quote line; I remember having to paste an extension to the top of a newly printed chart book just so I could plot that weeks prices on it. What you say about Australia is correct, of course; the fact that it's off the charts now? They print new charts all the time.

chump666's picture

I kinda like Cameron, he will have a headache on his hands when Carney a covert money printer i.e Canada (goverment bought up vast amounts of MBS and RMBS off banks) is a super bubble starts claiming the UK is good for inflation, lets roll...

I was there a few years back, expensive, London is a pricey city, pump prices, food etc etc etc.

Everything is topped, loved Faber's '1973 style we could drift lower into a bear market since everything is now priced in' recent interview...I listen to the old dudes, despite the HFTs, the market sill has its rhyme.

malikai's picture

I think this whole yen business is madness. The austrian in me says this is suicide. They shut down their nukes. They have to buy natgas in dollars. They don't even have enough gas burners to keep the lights on, yet they somehow think higher prices are going to save theit failing export industry. Meanwhile they play "let's piss off the chinese" who was in some way helping them stay afloat. Is this national seppuku?

I don't even wanna..

Anyway, the models tell me the market is getting used to this configuration, meaning it is almost time for a nice big shit->fan session for all those who expect this to go on forever. So maybe you'll get what you're looking for sooner rather than later.

OpenThePodBayDoorHAL's picture

it wouldn't be the first time the nation had committed seppuku, in blind allegiance to an ideology

SAT 800's picture

Good point; and there's a lot of craziness going around these days; and not much common sense.

Rob Jones's picture

Suppose that I own HLF in an ordinary brokerage account. (I don't and would never think of doing so.) But just suppose that I did.

Does that mean that my brokerage can loan out my stock and collect the fees? It would be really maddening if my broker was collecting money by helping people to short stock that I own.

NIETSNEREM's picture

In order for your brokerage firm to lend out your stock, you need to sign an agreement allowing them to do so. They are NOT permitted to lend unless you first sign the agreement.

H E D G E H O G's picture

fine print, fine print, fine print...............................

Bruce Krasting's picture

Called a hypothication agreement. Every account that also has a margin account (or the possibility of using margin, even if never used) has a hypo agreement. All accounts that allow futures trading have hypo language. Other types of accounts, may or may not have hypo agreements with customers.

I would bet that most retail investors permit their brokerage firms to hypo stocks. (not many of them know this, or understand it)

But retail is not where borrowed stock usually comes from. The providers are the long term holders. Funds primarily - buy and hold money that is looking to sweeten the yield a bit.


Hypo is not a bad thing. It is the grist of the market. Re-Hypo, well that is a horse of a different color. Re-Hypo is what brought MF Global and J Corzine down.


Confused? How could you not be? WTF is Re-Hypo? Who makes this stuff up?....Lawyers....




Freebird's picture

& those mofos can also hypo the contents of your safe deposit box with them...for real

Freebird's picture

says the terms & conditions of a standard pledge agreement

LongSoupLine's picture

best fucking laymans re-hypo I've ever read Bruce.  I've tried to explain it to friends (smart ones too), and all I get is deer in the headlights response.


I will now just print out your terminology and glue it to their fucking foreheads.

Tyler Durden's picture

Precisely, and they absolutely can and do, unless you explicitly instruct them not to lend it out. Keep in mind: the securities lending business, i.e., repo, is perhaps the single most important foundation of the shadow banking industry holding Bernanke's entire house of cards together.

SAT 800's picture

boy, I'm sure glad I'm not ill-informed enough to have a stock brokerage account. Futures is where the money is.

Orly's picture

I can see the EURJPY playing out that way.  It may be a small point for the yen and the Sterling to catch their breath before moving on, though.

There is a large Fibonacci resistance level on EJ @~1.237, which would be a double-top formation from late March of 2011.  A pull-back to half-a-Fib or full Fib level wouldn't be surprising, which would put the pair at between 117 and 113 before rocketing higher.

"At that point, things will be in "crisis mode."

Crisis mode for whom, if I may ask?  It would seem the Japanese because their borrowing costs would start to go through the roof?

Pray tell...


SAT 800's picture

Orly; there aren't any Fibonacci resistance levels; and there aren't any Elliot waves, either. If it's stupid cheap for stupid reasons, buy it; if it's sutpid high for stupid reasons, short it; if it's run by a Phd. there's no hope so ignore it. that my summation of the situation.

Orly's picture

Of course there are Fibonacci levels.  You may say that something is smart or dumb but the combination of those two things meet at certain places, over and over again.

Elliott Waves, not so much.  Everyone has their interpretations and that can be very confusing.  Gartley Harmonics, on the other hand, is very informative.


SAT 800's picture

Always remember J.P.Morgans comment about why he wasn't upset about the stock market crash in 1929; "I got out too early". very droll. You can see anything playing out anyway; but it's just conversation; what counts is the price chart and the volume and open interest; and make sure you get out and then forget about it; about the time it becomes a topic of discussion; because that;s when it's usually a bad time to enter. You can short the Euro/USD now ! I'm not, cause I just lost a bunch on a false top in the last couple of weeks; but today is today; and it's at an even stupidier price with even more retail suckers bidding it up.

Bruce Krasting's picture

I see EURYEN 130+ as a crisis for the EU. Germany in particular.

You are talking of a 35% cost advantage in car production IN JUST SIX MONTHS!

That would be a massive change in competitiveness. The EU would be screaming like crazy.


Keep in mind that the EU is already in recession. Japan is going to turn the lights out the rest of the way??? That's not going to go down so easy.

Orly's picture

And to top it off, Toyota gained the top spot in global auto sales over GM today and Honda Motor's sales are up big, too.

Guess that costly, high-maintenance BMW is going to look really expensive next to that Lexus.  But Lexus isn't such a status symbol, so...  It could really hurt Volkswagen and Audi more.

I thought it was funny the other day when the US Automakers were complaining again that the lower yen makes American cars so much more expensive over there.  As though the Japanese ever bought an American "junk-box" anyway.  They were complaining when the yen was 121, too.


falak pema's picture

In this race to bottom what helps the financial world as an aggregate is to see Japan get more competitive, but that hurts Germany in its motor car segment, and transfers the problem to Eurozone; where the current financial action is. 

ITs all a zero sum game without real growth and that means the aggregate debt of first world keeps piling up. The CBs who look at aggregates can't keep orchestrating money printing in a lo grow hi debt leverage environment. Just for debt to stay at current levels we need 2% real growth in first world...We are not there in the big four banking constructs. 

That asymptote now looms like the shadow of the iceberg getting closer.

Clowns on Acid's picture

Yeh the Japanese want inflation ...so..ultimately they willl get it...thru stagflation. Then of course the inflation spreads throughout the "stable" Asian economies...and then bang.

cowdiddly's picture

I dunno but I noticed today that the EUR/JPY trade was smoking up 7% in Jan. leading all others YTD. I can hear that spring steel starting to make singing noises.

Tyler Durden's picture

Actually Bruce, HLF has been HTB for several days for many brokerages and quite a few repo desks (unless one wants to pay some serious term borrow). And yes, if Fidelity, or any of the big institutional holders pull the borrow, such as after a lawsuit by the company demanding an explanation why they have lent out their own stock to "evil" short sellers whose public goal in life is to destroy the company, and thus be in breach of fiduciary duty to their own shareholders (again think Fidelity) there very well could be short squeeze.

This effect would be massively magnified if someone did a partial tender for the stock, leaving less in float than there is in short bets (which at last check is about 30% of the float). If you were not around, that is precisely what happened with Volkswagen, and why that stock briefly was the most expensive public company in the world on a short squeeze that most around here remember very vividly.

We explained all this in "As Herbalife Shorts Soar, The Squeeze Continues", a week after we said a short squeeze in the stock was a distinct possibility when it was trading at $25.

Bruce Krasting's picture

A month ago the stock was in the shitter, trading at 25. You write
there is a short squeeze in the making as the stock has gone HTB.

So the natural thing happens, the stock goes up 80% in 3 weeks, and every short gets blown to bits.


the shorts get blown, they cover the borrowed postion. As the dust
clears, the borrow cost goes down, the availability of stock to borrow
goes up. As of today, there was no problem putting on a short, the cost
was not prohibative.


Maybe the folks at FiDo have it
on the no borrow list. Not sure that means much other than Fido owns the
stock for customers, and doesn't like the short play, and trash talk.

pemdas's picture

I have had people at Fidelity tell me they do not loan stocks to short.  Is that believable, or smoke?  My understanding is that stock in a margin account can be lent out to shorts, but not stock in a cash account. Is that correct?  Thanks anyone.

Bruce Krasting's picture

See my comments above on this. To your specific question, no, that is not necessarily correct.

You have to sign a hypo agreement with a margin account. But you may have a cash account that also could have a hypo agreement. To know, you have to look at your account documents, or call the broker (if you can get one on the phone).


My guess is that Fido is a monster player in the repo biz. Repo is the same as lending stock. They lend 10B of Tbonds to Goldman Sachs (who is going short against the next auction). They do this every day. All repo activity facilitates the short trade. I say Fido is BS.