Volkswagen

While Carl Icahn admits 'modest' defeat on the Dell deal, he remains neck deep in Herbalife, and as we illustrated back in February, and warned earlier in January, it seems someone is betting right alongside him on a massive short-squeeze - a la Volkswagen. It would appear, someone decided that today was the day to buy 1000 lots (100,000 shares) of Jan 2014 $105 calls (implying an expectation of a 65% surge in price from here) and funded that by selling 1000 lots of the Jan 2014 $95 calls. Whether this is a hedge for Ackman (fearing the worst) or someone betting on an 'event' across the one-year anniversary of Ackman's big bet is unclear. One thing is for sure, if this pays off, we will see more tweets from the man himself...

The chart below, which we are quite speechless to comment on, shows the market cap of TSLA, which will sell 35,000 cars in 2013 and must sell between 500,000 and 3,000,000 cars by 2022 to grow into its valuation (as explained before), compared to some other car companies such as Fiat, Porsche, GM, Ford and Volkswagen. So yes: Tesla may be double the market cap of Fiat, but it is less than 20% the size of Volkswagen, so there is obviously much upside still.

It just keeps going form bad to worse for William Ackman. The so-called retail expert tried to diffuse the situation today by announcing a massive $2 billion position in Airgas, only for Herbalife to go right back front and center, following news moments ago from CNBC that none other than George Soros has taken a long stake in Herbalife, and not just any stake but a "top 3" position. We haven't done the math but the float out there must be getting dangerously low for Ackman: low enough to where the Volkswagen scenario we predicted in early January (just as we predicted the imminent epic short squeeze) may finally come in play as there is not enough float to cover Ackman's short, and certainly not when the longs decide to pull all the borrow. If and when the Ackman margin calls hit, we hope that Soros will accept shares of Airgas as deliverable. In the meantime, the stock is up 173% since December, or when we said to go long following Whitney Tilson's "short."

When the S&P, always so conveniently ahead of the curve, yesterday revised its forecast for Europe from growth in the second half of 2013 to 2014 one couldn't help but golf clap, as well as wonder if they finally started looking at the fundamental depressionary reality on the ground instead of the rating agency's infamous "models." A depressionary reality confirmed by the latest car sales number for May which just hit a fresh 20 year low.

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?

It was exactly two months since Icahn last issued a 13D in Herbalife, at which time he reported that he owned 15.5% of the company, following yet another stock buying spree. Moments ago, the billionaire, set on a mission to crucify Bill Ackman, updated his latest holdings in HLF stock with another 13D filing, which shows that on March 8 and May 3, his various funds added another 934 thousand shares, bringing his total ownership of Herbalife to 16.48%, or 16,966,485 shares and rising. Obviously the recent earnings report, which hiked the company's year end outlook, has hardly dented Icahn's enthusiasm for inciting either a short covering spree, or for eventually going ahead and tendering (or going hostile, using zero cost debt of course courtesy of a Jefferies highly confident letter) for whatever shares he doesn't already own.

The seemingly endless MBIA saga, in which the mortgage insurer sued Bank of America and where a settlement has been overdue for some two years (see here), is finally coming to an end. Moments ago Dow Jones reported what the final settlement may look like: $1.6 billion in cash as well as a $500 million line of credit. Just as notable, BAC will buy a 5% equity stake in the name. MBIA was briefly halted as a circuit breaker was triggered, and has continued to surge following the unhalt. As a reminder, a settlement in this case may push the company into the $20 handle realm. Finally, our report from September 2011 on MBIA's potential to be the next Volkswagen courtesy of its massive short interest as a percent of float can be found here.

• Euro-Area Unemployment Increases to Record 12.1% Amid Recession (BBG)
• Fed faces calls for radical reform (FT) - Has Jamie Dimon approved of this message? No? Carry on then
• CEO Pay 1,795-to-1 Multiple of Wages Skirts U.S. Law (BBG)
• Ex-UBS Executive Convicted of Paid Sex With Underage Girl (BBG)
• Six months after Sandy, New York fuel supply chain still vulnerable (Reuters)
• Older, richer shoppers lead Japan’s surge in consumer spending (FT)
• Sharp euro zone inflation fall, joblessness point to ECB rate cut (G&M)
• Gold Rush From Dubai to Turkey Saps Supply as Premiums Jump (BBG)
• Japan Industrial Output, Retail Sales Disappoint (MW)
• Gunmen surround Libyan justice ministry (Reuters)
• Insider-Trading Probe Trains Lens on Boards (WSJ)
• Best Buy exits Europe (WSJ)
• Banker Roommates Follow Zuckerberg Not Blankfein With IvyConnect (BBG)

• Cyprus works on Plan B to stave off bankruptcy (AP)
• Cyprus seeks Russian bailout aid, EU threatens cutoff (Reuters)
• Freddie Mac Sues Multiple Banks Over Libor Manipulation (BBG)
• Bernanke Seen Keeping Up Pace of QE Until Fourth Quarter (Bloomberg)
• Italian president seeks way out of political stalemate (Reuters)
• Chinese factories struggle to keep staff (FT)
• South Korean banks, media report network crash (CBC)
• BlackBerry Inventor Starts Fund to Make Star Trek Device Reality (Bloomberg)
• Osborne Should Be Fired, Voters Say in Pre-Budget Poll (Bloomberg)
• Obama Begins First Visit to Israel as President (WSJ)
• Anadarko finds ‘potentially giant’ oilfield (FT)
• Britain's Osborne boxed in by austerity on budget day (Reuters)
• MF Global reaches agreement with JPMorgan (FT)

• Cypriot Bank Levy Is ‘Ominous’ for Bondholders, Barclays Says (BBG)
• Euro, Stocks Drops; Gold, German Bonds Rally on Cyprus (BBG)
• Total chaos:Cyprus tries to rework divisive bank tax (Reuters)
• More total chaos: Cyprus Prepares New Deposit-Tax Proposal (WSJ)
• Euro Slides Most in 14 Months on Cyprus Turmoil; Yen Strengthens (BBG)
• Osborne to admit fresh blow to debt target (FT)
• Even the Finns are giving up: Finnish Government May Relinquish Deficit Target to Boost Growth (BBG)
• Moody’s Sees Defaults as PBOC Warns on Local Risks (BBG)
• Australia Faces ‘Massive Hit’ to Government Revenue, Swan Says (BBG)
• Inside a Warier Fed, Watch the New Guy (Hilsenrath)
• Obama to Tap Perez for Labor Secretary (WSJ) - and with that the "minorities" quota is full
• Finally, this should be good: BuzzFeed to Launch Business Section (WSJ)

• More black smoke over Vatican: No decision on pope in second day (NBC)
• PBOC Chief Says China Should Be on ‘High Alert’ on Inflation (BBG) - just as predicted last fall
• California Seizes Guns as Owners Lose Right to Keep Arms (BBG)
• U.S. Tax Cheats Picked Off After Adviser Mails It In (BBG)
• In 2012, Samsung spent $401 million advertising its phones in the U.S. to Apple's $333 million (WSJ)
• Coca-Cola probed over mapping in China (FT) - accused of ‘illegally collecting classified information’
• Italy's Bond Sale Meets Tepid Demand (WSJ)
• U.S. Steps Up Alarm Over Cyberattacks (WSJ)
• Mugabe takes on Zimbabwe's Generation X (Reuters)
• Mars Rover Finds Conditions Once May Have Supported Life (BBG)
• Oil demand hit by China refinery outages (FT)
• Big Sugar Is Set for a Sweet Bailout (WSJ) DOA to buy 400,000 tons of sugar to stave off a wave of defaults by sugar processors
• Spectre of stagflation haunts UK (FT)
• As Republicans seek identity, conclave highlights divisions (Reuters)

A record number of Americans may be collecting food stamps, but things for the 1% have rarely been better, as confirmed not only by the now daily tradition of record-er Dow Jones highs, but this time by Lamborghini sales, which according to AP soared by 50% in the US and up by 34% in the recession-riddled Europe.

The financial world, at the moment, is a scary place. The signs of this are all about us and yet the consensus view is to worry about nothing. This has been caused by one singular action which is the orchestrated input of cash into the financial system by every major central bank on Earth. Money will go somewhere as it is created and so it has which is exactly why the markets are at or close to all-time highs while economic conditions have crumbled precipitously. It is not this market or that market which is in a bubble but all of them and it is systemic by its very creation. Politics, economics and the debauchery of the truth. There are consequences; there are always consequences. The world has subsisted on fantasies for four years but I think this spring will bring on the vengeance of the Fates for the demagoguery that has transpired.

Remember when Bill Ackman told Icahn on CNBC he should tender for the company (to a less than favorable reply)? Well, Icahn may have done just that: moments ago the belligerent billionaire just reported a 12.98% stake in Herbalife, adding that he intends "to have discussions with management of the Issuer regarding the business and strategic alternatives to enhance shareholder value, such as a recapitalization or a going-private transaction." Needless to say, the stock soars, and it remains to be seen if the epic short squeeze that we predicted, and that Icahn confirmed on TV could happen if there is not enough float to satisfy all the shorts, will be next. Volkswagen anyone?

The fight over plant closures, layoffs, and bailouts in the collapsing auto sector