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As Herbalife Shorts Soar, The Squeeze Continues

Tyler Durden's picture




 

A week ago, on December 26, when Whitney Tilson announced he was piggybacking on the Einhorn-Ackman Herbalife trade, we asked if a short squeeze was imminent "as Tilson jumps on the Herbalife bandwagon." The stock was trading in the mid-$20s. This morning it will open just shy of $35, a 30% gain in one week, which more or less answers our rhetorical question. As a reminder, the Herbalife as a "ponzi scheme" thesis has been around since 2009 (check valueinvestorclub.com, not to be confused with the aforementioned Tilson's VIC) and anyone who assumes this is a valuation catalyst is very much wrong. Which is why the recent surge in the stock may just be the beginning: as was reported late last week, Short Interest in the stock has soared ever since HLF came to the forefront of newsflow to a whopping 26.22 million shares, an increase of 5 million shares short in the past week alone, and amounting to 24% short interest of the total % of shares outstanding.

Source: CapIQ

Which begs the question: with the price virtually screaming for an epic short squeeze, is management, in consultation with its recently hired financial and legal advisors, contemplating a Volkswagen like short squeeze, where it conceives a transaction whereby there are simply not enough shares in the free float to satisfy the short interest. This could be facilitated especially if the firm's institutional shareholders, chief among them Fidelity with 15% of the shares outstanding, were to pull their borrow (and one wonders just where Fidelity's fiduciary responsibility lies if it allowed Ackman to put on a 20 million share short, at least according to him, a trade that could only be enacted if Fidelity allowed him to borrow its shares to short the stock against Fidelity's long holdings), on top of a leveraged stock buyback or even MBO.

In short- could HLF, with 24% of its stock short, and where institutions control more than 76% of the shares outstanding, become the next Volkswagen squeeze play, and send the stock soaring far higher than ever before, in the process destroying Ackman (assuming he has still not covered his short), Tilson, and anyone else still short the name?

Maybe the answer to this question is just how much animosity does management harbor toward those very publicly short its stock.

We hope to find out soon enough.

 

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Wed, 01/02/2013 - 09:35 | 3114502 youngman
youngman's picture

This stock is toast...well toast and butter..and lots of jelly too...because a study just came out saying being overweight is OK....lol..

Wed, 01/02/2013 - 09:40 | 3114512 HedgeAccordingly
HedgeAccordingly's picture

HLF shorts toast.. Grandstanding Ackman - what about Spooz shorts? +5 percent in two sessions? http://hedge.ly/12XQkaR

Wed, 01/02/2013 - 10:00 | 3114560 goldfish1
goldfish1's picture

No takedown of PM's at 8 am ET. Must have forgot to program the system.

Wed, 01/02/2013 - 09:37 | 3114506 I am a Man I am...
I am a Man I am Forty's picture

I bought NUS at 33.11 for a trade.  It sold off with HLF.

Wed, 01/02/2013 - 09:39 | 3114511 Zer0head
Zer0head's picture

I'm still thinking bout BAC at 5

Wed, 01/02/2013 - 09:56 | 3114551 kridkrid
kridkrid's picture

I think you'd be dead.  At the very least, don't drive a car.

Wed, 01/02/2013 - 09:46 | 3114518 ZeroAvatar
ZeroAvatar's picture

That's the problem:  Someone, somewhere, 'knows' how much short interest there is.  Someone 'knows' how many puts were purchased for HLF. 

 

As soon as you place your order, the Algos go to work.  It's their 'job' to steal that money from you.  YOU WILL lose that money.  If you think you have an honest chance, you're delusional.

 

If there's high short interest or put-buying, the 'Infinitely Wealthy' PTB will steal you blind, with their unlimited 'resources'.

Wed, 01/02/2013 - 09:45 | 3114522 tooriskytoinvest
tooriskytoinvest's picture

Gold and Silver Gain Along with Stocks, "Chaotic and Unsatisfactory" Fiscal Deal "Could See Another US Downgrade"

http://investmentwatchblog.com/gold-and-silver-gain-along-with-stocks-ch...

Wed, 01/02/2013 - 09:54 | 3114545 Tsar Pointless
Tsar Pointless's picture

Yep. Another US downgrade. Kind of like how Barack Obama was going to institute Sharia law if he was elected in 2008.

I saw that one posted on Internet sites, too.

The "information superhighway" has become nothing but a disinformational detour.

Wed, 01/02/2013 - 10:02 | 3114562 BlueCheeseBandit
BlueCheeseBandit's picture

We're you also denying a downgrade was possible in 2011?

Wed, 01/02/2013 - 09:47 | 3114525 Dr Benway
Dr Benway's picture

So it will either soar on further manipulation short squeeze... or crash on the inevitability of fundamentals.. and the only way to know which it will do is if you're an insider.

Seems stupid to play either way, no?

But fuck, that applies to most stocks these days.

Wed, 01/02/2013 - 09:48 | 3114529 morning_glory
morning_glory's picture

Gentlemen, prepare your anuses.

Wed, 01/02/2013 - 09:57 | 3114555 LeisureSmith
LeisureSmith's picture

Indeed. Prepare your anuses or go commando, soaring shorts is the anuses sworn enemy.

Wed, 01/02/2013 - 09:49 | 3114530 monopoly
monopoly's picture

Excellent post and right on. BAC at 5. Ha, it is the new go go stock. Just had an upgrade. Buy banks. I think I am going to be sick.

At least I am in the one asset with true value. 

No, I did not buy AMZN. LOL

Wed, 01/02/2013 - 09:49 | 3114532 Dr. No
Dr. No's picture

Simple case of Ganja mania. "Herbalife" is being confused with Mary Jane and investors want to get in on the early stages, much like the vending machine tycoons.  Trouble is, once you get in, you forget to get out.

Wed, 01/02/2013 - 09:54 | 3114546 GMadScientist
GMadScientist's picture

CHMWGN +4.20

Wed, 01/02/2013 - 09:54 | 3114543 Hobbleknee
Hobbleknee's picture

I remember my mom used Herbalife back in the 80s.

Wed, 01/02/2013 - 09:55 | 3114548 GMadScientist
GMadScientist's picture

Explains alot.

Wed, 01/02/2013 - 10:00 | 3114559 Dr. No
Dr. No's picture

Most use it in college but then move one...

Wed, 01/02/2013 - 09:54 | 3114544 Mercury
Mercury's picture

It doesn't look like the FTC is helping much with the HLF-to-zero thesis so Ackman/Einhorn were likely covering the second that 300 slide presentation was released. So, maybe not a home run but a nice enough trade.

Wed, 01/02/2013 - 09:58 | 3114554 GMadScientist
GMadScientist's picture

Not sure...Einhorn likes the "I'm going to fuck you and here's how I'm going to fuck you" approach; part of his "mystique".

I'm ashamed to admit that I actually like the showmanship.

Wed, 01/02/2013 - 10:09 | 3114580 ZeroAvatar
ZeroAvatar's picture

GMadScientist said: "I'm going to fuck you and here's how I'm going to fuck you"

 

I'm having a micro-cam installed in my anyus this week...there's been so much activity back there lately I need to start filming this shit!

Wed, 01/02/2013 - 10:09 | 3114581 Mercury
Mercury's picture

Well, they're probably right about the pyramid scheme but I'm not so sure that is as flat-out illegal as they try and make it sound.

Also, we're talking about a business model that is based on A) fat people and B) underemployed people.  Probably not the worst place to be right now even with the smoke and mirrors.

Wed, 01/02/2013 - 10:26 | 3114640 Dr Benway
Dr Benway's picture

Illegality and immorality are both irrelevant in the absence of enforcement.

 

Is Herbalife some 'network marketing' shit? If so, all those are basically pyramid schemes with some lame product attached to disguise the pyramid. The suckers are told they will make money by recruiting others, whereby they burn family and friends.

 

The ones at the top make money and everyone else loses their money and friends.

Wed, 01/02/2013 - 10:37 | 3114661 GMadScientist
GMadScientist's picture

I call it Amway for Hippies.

Wed, 01/02/2013 - 09:56 | 3114549 TooBearish
TooBearish's picture

hows HH doing on his long gold /short SPX ?...every one of these guys that go public with an opinion getting ass handed....

Wed, 01/02/2013 - 10:21 | 3114627 Seasmoke
Seasmoke's picture

They are on the LA Galaxy soccer jersey = SCAM

Wed, 01/02/2013 - 10:38 | 3114662 GMadScientist
GMadScientist's picture

Soccer's not that bad.

Wed, 01/02/2013 - 10:29 | 3114648 Frastric
Frastric's picture

Tilson can't be wrong... Buy the motherfucking stock if you want to make a profit then use the proceeds to buy some more gold.

Wed, 01/02/2013 - 10:52 | 3114708 adr
adr's picture

Herbalife's real product has nothing to do with supplements and health foods. There is no way the company has the headquarters and self reported revenue it has based on selling that garbage. He real product is money laundering. There is no other way.

Herbalife is a front company for something illegal, either human trafficing or drugs through the port of LA, or shipped up the coastal highway from Mexico. Complete with US government involvement.

The company started out as a scam. The founder created a health drink in the 80s that turned out to be nothing more than a placebo, and even at some point poisonous. The product today is complete bullshit sold through a MLM apparatus with "distributors" who take all risk of inventory. It even sounds like the illegal drug trade.

When the illegal traffickers look for a shell corporation, they try fo find dishonest people who would probably be in jail otherwise. If you steal a few million dollars, you'll probably be in jail for a long time. You create a multi billion dollar tock fraud, making yourself a billionaire in the process, you'll get a slap on the wrist. Invest accordingly.

If you think this is a crazy conspiracy theory, you don't know business today.

Fri, 01/04/2013 - 12:37 | 3122361 fajensen
fajensen's picture

When the illegal traffickers look for a shell corporation, they try fo find dishonest people who would probably be in jail otherwise.

Why would they: CityBank, Wachovia, e.t.c. can launder way more money than Herbalife ever coul and, being banks, nobody will ever go to jail!

Wed, 01/02/2013 - 10:53 | 3114716 Damage360
Damage360's picture

LOL at these headlines. The only sure thing on wall st is fading Zerohedge equity calls

Wed, 01/02/2013 - 12:42 | 3115017 Jugdish
Jugdish's picture

If I diarrhea into a bottle and screw a dropper on top of it and put a sticker that says " Naturale " on it an sell it, does that make it organic? Does that make my company a good company?

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