Another aspect of US capitalism

[kallend 1,648]

www.nytimes.com/2014/03/10/business/staking-1-billion-that-herbalife-will-fail-then-ackman-lobbying-to-bring-it-down.html?google_editors_picks=true

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The only sure way to survive a canopy collision is not to have one.

[lawrocket 3]

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Mr. Ackman told his dinner companions that Representative Linda T. Sánchez, Democrat of California, had sent a letter to the Federal Trade Commission the previous day calling for an investigation of the company.

The commission had not yet stamped the letter as received, nor had it been made public. But Mr. Ackman, who had personally lobbied Ms. Sánchez and stood to profit if the company’s stock dropped as a result of the call for an inquiry, already knew what it said, and read from a copy of it that he had on his cellphone.

When Ms. Sánchez’s office ultimately issued a news release a month later, it was backdated as though it had been made public the day before Mr. Ackman’s dinner talk

Yes. Capitalism has always meant that government brings down private businesses. Because he can't do it via market forces, he'll convince the government to do it, with a little grease.

US Capitalism means paying the government to make you the winner.

My wife is hotter than your wife.

[weekender 0]

13:39 HLF Confirms received today a Civil Investigative Demand (CID) from the Federal Trade Commission (FTC)

Stock was held and as i type its down 10% on the news. so two ways to look at this. HLF is being investigated because their business practices merit one OR if you are the NYT or hate Bill A, he paid off the feds to push the stock down to make himself more rich. one seems more plausible to me and i'm sure im in the minority on this site with that opinion.

Carl Icahn, your move, sir.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[champu 1]

Forgive my ignorance as perhaps I just spend too much time designing things that actually perform useful functions, but...

How does shorting borrowed stock to create a situation whereby you directly benefit from future drops in the price of the security without then having to own the security at its devalued price (thus incentivizing you not to completely destroy its value) do anything but promote damage to the economy? That is to ask, how can you call this "investment" with a straight face?

[weekender 0]

champu

Forgive my ignorance as perhaps I just spend too much time designing things that actually perform useful functions, but...

How does shorting borrowed stock to create a situation whereby you directly benefit from future drops in the price of the security without then having to own the security at its devalued price (thus incentivizing you not to completely destroy its value) do anything but promote damage to the economy? That is to ask, how can you call this "investment" with a straight face?

my bank provides the capital to start and build companies. have you ever used anything from a public company? additionally we are highly involved in municipal finance. we enable people to have bridges, highways, hospitals, airports, trains etc... sometimes we even provide the capital for gov't to continue to operate, make salaries and pensions payments. i suppose none of those things provide useful functions in your eyes but most people appreciate them.

ok, so i got that off my chest. if your are sincerely asking me a question, ill answer. if you are solely insulting me, stop reading here.

you can google the mechanics of selling stock short. so ill skip the mechanics. stock fluctuate up and down. in order for a fair and orderly market you need a buyer for every seller. short sellers provide liquidity to the market and additionally the fee they pay to long holders increases their return and provides a hedge for downturns. all a positive for the financial markets.

short selling is an attempt to benefit from a downturn in a stock not destroy the value. it is illegal to attempt to affect the price of any stock, up or down. its called manipulation and very easy to detect. the NYT feels Bill A is attempting to do this. i dont agree but its up to FINRA and the SEC to decide. selling short has no more impact on stock price than selling long. also, historically stocks go up so short selling is more risky than a long. additionally, when they buy to cover they provide liquidity on that side too. liquidity is the key to a fair and orderly market, so again a good thing.

i welcome short sellers when i need to buy stock. they provide the liquidity so i do not have to take a stock higher. they provide a very usefull function and i do not see how they damage the economy or even stock price. some people believe stocks are going one way, some believe they are going the other. they meet in the middle and everyone is happy.

If you purposely try to manipulate stock price. you can be fined, sanctioned and even charged with a crime. i support strong market regulations. i see nothing wrong with short selling and glad they are there to help make a better market.

i said all of that with a straight face, fyi.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[sfzombie13 307]

very nice explanation of stock trading, but totally irrelevant to the situation of the original post. unless you really do think they're the same thing, in which case, wow. from what i read in the article, the guy bet on the stock falling, then tried repeatedly to make the stock fall, even using government officials. now, you may think that this kind of behavior is ok, but most of the people i know would say it is not.

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Si hoc legere scis nimium eruditionis habes

[champu 1]

weekender

***Forgive my ignorance as perhaps I just spend too much time designing things that actually perform useful functions, but...

How does shorting borrowed stock to create a situation whereby you directly benefit from future drops in the price of the security without then having to own the security at its devalued price (thus incentivizing you not to completely destroy its value) do anything but promote damage to the economy? That is to ask, how can you call this "investment" with a straight face?

my bank provides the capital to start and build companies. have you ever used anything from a public company? additionally we are highly involved in municipal finance. we enable people to have bridges, highways, hospitals, airports, trains etc... sometimes we even provide the capital for gov't to continue to operate, make salaries and pensions payments. i suppose none of those things provide useful functions in your eyes but most people appreciate them.

ok, so i got that off my chest. if your are sincerely asking me a question, ill answer. if you are solely insulting me, stop reading here.

you can google the mechanics of selling stock short. so ill skip the mechanics. stock fluctuate up and down. in order for a fair and orderly market you need a buyer for every seller. short sellers provide liquidity to the market and additionally the fee they pay to long holders increases their return and provides a hedge for downturns. all a positive for the financial markets.

short selling is an attempt to benefit from a downturn in a stock not destroy the value. it is illegal to attempt to affect the price of any stock, up or down. its called manipulation and very easy to detect. the NYT feels Bill A is attempting to do this. i dont agree but its up to FINRA and the SEC to decide. selling short has no more impact on stock price than selling long. also, historically stocks go up so short selling is more risky than a long. additionally, when they buy to cover they provide liquidity on that side too. liquidity is the key to a fair and orderly market, so again a good thing.

i welcome short sellers when i need to buy stock. they provide the liquidity so i do not have to take a stock higher. they provide a very usefull function and i do not see how they damage the economy or even stock price. some people believe stocks are going one way, some believe they are going the other. they meet in the middle and everyone is happy.

If you purposely try to manipulate stock price. you can be fined, sanctioned and even charged with a crime. i support strong market regulations. i see nothing wrong with short selling and glad they are there to help make a better market.

i said all of that with a straight face, fyi.

Thank you for the reply.

I realize a lot of people you communicate with on this forum have a deep seeded hatred of all things Wall St, but that is not my position. I'm not saying investment firms don't provide useful services / functions, but I am expressing my extreme skepticism towards this one particular practice.

Short selling is an attempt to benefit from a downturn in a stock, we agree on that, but so is just buying the stock after a downturn. My problem with short selling is that it does so in such a way where a benefit is realized if the downturn occurs in the future. This both puts your interests in conflict with the short-term health of the security and leaves you indifferent as to mid and long-term health of the security. This is why I said you can't reasonably call this practice "investing."

The improvement in liquidity I can see though. Out of curiosity, do the major markets track/report trade volume broken up by short or long sales?

[billvon 2,435]

>This both puts your interests in conflict with the short-term health of the security

Right, that's almost the definition of short sales. Why is that a bad thing? You said above that it could "promote damage to the economy" - but so could an economy where no company loses value. The constant rise and fall of companies is, overall, important for a healthy economy (IMO.)

[champu 1]

billvon

>This both puts your interests in conflict with the short-term health of the security

Right, that's almost the definition of short sales. Why is that a bad thing? You said above that it could "promote damage to the economy" - but so could an economy where no company loses value. The constant rise and fall of companies is, overall, important for a healthy economy (IMO.)

Companies rise and fall, investments succeed and fail, I get the necessity of that. Again, the thing I find "special" about short sales is that you make your move, the security falls in value, and then you walk away from the table counting your money. Does the security's value recover? Did the value drop in favor of growth somewhere else? Who cares, the best thing that could happen to you when shorting is complete collapse of the security.

[billvon 2,435]

>Who cares, the best thing that could happen to you when shorting is complete
>collapse of the security.

Right, and the best thing that could happen to you when you are long on a stock is a massive, unsustainable bubble. You get in when it's low, you get out just before it pops, and as it collapses you walk away counting your money. (And indeed that action might contribute to the pop.) Both are bad for the economy, but both scenarios are gamed so hard that neither is very likely for an investor to be able to cause. There are, of course, exceptions - the SEC gets very interested in such exceptions.

[RMK 3]

The vast bulk of short sales are RV (relative value) trades, not outright or unhedged short sales. Example: you think Auto Company A is the worst in its sector and will underperform it’s contemporaries such as Company B or C, however you don’t have conviction whether the whole market/sector is going up/down and you don’t want outright market risk – so you sell (short) Company A and buy and equal amount of B or C.

If these shorted stocks are available and liquidly traded they are termed GC (General Collateral) and you pay a borrow cost of about 25 basis points (a quarter of one percent). The groups usually making money out stock lending are pensions and insurance companies with large static stock holdings – it’s a money spinner for them.

Also, note that the risk to a short seller is unlimited, so it can be very risky. A stock can only go down to zero, but can go up infinitely. If the market is aware of big short positions, these guys can get taken out in what’s called a sort squeeze.

"Pain is the best instructor, but no one wants to attend his classes"

[weekender 0]

RMK

The vast bulk of short sales are RV (relative value) trades, not outright or unhedged short sales. Example: you think Auto Company A is the worst in its sector and will underperform it’s contemporaries such as Company B or C, however you don’t have conviction whether the whole market/sector is going up/down and you don’t want outright market risk – so you sell (short) Company A and buy and equal amount of B or C.

If these shorted stocks are available and liquidly traded they are termed GC (General Collateral) and you pay a borrow cost of about 25 basis points (a quarter of one percent). The groups usually making money out stock lending are pensions and insurance companies with large static stock holdings – it’s a money spinner for them.

Also, note that the risk to a short seller is unlimited, so it can be very risky. A stock can only go down to zero, but can go up infinitely. If the market is aware of big short positions, these guys can get taken out in what’s called a sort squeeze.

thanks. i was worried about being too granular but you make an excellent point and a good job of explaining it.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[weekender 0]

sfzombie13

very nice explanation of stock trading, but totally irrelevant to the situation of the original post. unless you really do think they're the same thing, in which case, wow. from what i read in the article, the guy bet on the stock falling, then tried repeatedly to make the stock fall, even using government officials. now, you may think that this kind of behavior is ok, but most of the people i know would say it is not.

i was answering another gentleman's question. so my post was relevant to his question specifically but yes. i do believe it is within the spirit of this thread also.

Bill A is an activist investor. he takes a position so he can influence management. this is common and perfectly legal and ethical. its more common on the long side for sure. he has always believed the company is taking advantage of poor people and overwhelmingly poor minorities. he is so confident the company's business practices are improper and will eventually affect the stock price that he has chosen a short position.

No, i do not think he is doing anything wrong. so far, the gov't is only investigating HLF for criminal acts and not him. so they seem to agree with me.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[weekender 0]

>"The improvement in liquidity I can see though. Out of curiosity, do the major markets track/report trade volume broken up by short or long sales?"

you can find the short interest on equities. all short trades must be marked as such and they calculate the interest based on this data. so short answer, yes.

long answer- short positions are not on the 13f filings as they do not need to be reported. so you need to do your due diligence to estimate the true short interest at any given time. this is because naked shorts, which are illegal, are NOT reported. for obvious reasons. our markets are very well regulated but some foreign exchanges have different priorities. this enables people to put on naked shorts that are not reported in the short interest data. so, you need to do some detective work to get a most accurate idea of short interest in a name.

hope that answers your question.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[weekender 0]

another aspect of the story. sorry, i had to say that.

IMO, a more in depth description of the story. Bill A looks less like a monster when the story is accurately reported.

http://online.wsj.com/news/articles/SB10001424052702303730804579435303342418222?KEYWORDS=hlf&mg=reno64-wsj

"The point is, I'm weird, but I never felt weird."
John Frusciante

[Amazon 7]

weekender

another aspect of the story. sorry, i had to say that.

IMO, a more in depth description of the story. Bill A looks less like a monster when the story is accurately reported.

http://online.wsj.com/news/articles/SB10001424052702303730804579435303342418222?KEYWORDS=hlf&mg=reno64-wsj

It is still a very interesting melding of influence peddling for fun and profit. I would support government agencies going after ALL the shady business dealing in this country, apply the laws as written equally across the board and leave the playing favorites by virtue of buying any politician as just what it is.. bribery and corruption and fill up the jails with all the crooks.

[sfzombie13 307]

i reread the post and stand corrected.

no matter how legal it is, it is nowhere near ethical. it is nothing more than a symptom of the problems this country is facing. when politics are allowed to be influenced by money to this degree and unabashedly, then we all lose. unless you are in the top 5%, then of course you want it to continue. i am not naive enough to think that politics are ever going to be free from some type of influence from people with power. all i am saying is we need to throttle it in and take care of what is needed. and it matters not one bit where his money goes, it is simply the one time it helped anything.

that's like that rumor i heard about people short selling airline stock in early sep 2001. haven't heard anything on that recently, may have been just a rumor. but anything involving economics is nothing more than a myth anyway. proof is in that financial thing they found out last year where a mistake in a spreadsheet had been found, and policies had been based on it for years, even though nobody could reproduce the results. i can't remember the details, but if you know investing, you should know what i am talking about.

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Si hoc legere scis nimium eruditionis habes

[weekender 0]

sfzombie13

i reread the post and stand corrected.

no matter how legal it is, it is nowhere near ethical. it is nothing more than a symptom of the problems this country is facing. when politics are allowed to be influenced by money to this degree and unabashedly, then we all lose. unless you are in the top 5%, then of course you want it to continue. i am not naive enough to think that politics are ever going to be free from some type of influence from people with power. all i am saying is we need to throttle it in and take care of what is needed. and it matters not one bit where his money goes, it is simply the one time it helped anything.

that's like that rumor i heard about people short selling airline stock in early sep 2001. haven't heard anything on that recently, may have been just a rumor. but anything involving economics is nothing more than a myth anyway. proof is in that financial thing they found out last year where a mistake in a spreadsheet had been found, and policies had been based on it for years, even though nobody could reproduce the results. i can't remember the details, but if you know investing, you should know what i am talking about.

9/11 thing is an urban legend. feel free to prove me wrong. i have no idea about the thing they found out last year.... not saying it isnt true, just no idea what your talking about.

If Bill A is right and HLF is a pyramid scheme that hurts poor minorities its good he using his influence to get them investigated. the fact he might benefit from it upsets the NYT. i would believe they are sincere in their outrage if they showed the same outrage to Al Gore getting rich saving the planet. if it is ok because he is saving the planet then shouldnt it be ok if Bill A gets rich helping poor minorities?

politics are a bore. both sides dont want the other to spend money on their causes. also, the NYT hates hedge fund managers and loves Al Gore. again, boring.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[champu 1]

Thanks you guys, re-reading it now I've been a bit of a grump in this thread.

The mechanics I understood but the legitimate reasons I understand a little better now. My concerns really do come down to the gaming aspect of it all. Yes the SEC is there, yes risk is generally higher when shorting, and yes there are upward analogs that are also quite bad. For some reason, despite all that, my mind sees the short-term downward gaming to be simpler/easier and qualitatively worse than other forms of manipulation and I've been taking it out on the instrument.

[sfzombie13 307]

no it is not right. it doesn't matter the reason behind what he is doing, if it is wrong, then it's wrong. it is wrong that al gore is getting rich off of saving the planet, all money received should go straight back to the cause, not his pocket. the ends do not justify the means.

that was just something i had heard in one of those conspiracy theories, i didn't put enough stock in it to research it. we all know the government knew about it and should have put together all the evidence to at least have an idea what was going on. but that's hindsight.

i can't find a link to that theory or whatever it was from last year, if i find it, i will post it. i thought i remembered some discussion in here about it, but without having any idea when, it would be very hard to find.

if only it were that easy to categorize politics. i was very uninterested in it until recent events provoked me into a response. if not me, then who? i have made it my cause to rid the wv legislation of corruption. it may take a while, but it can be done.

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Si hoc legere scis nimium eruditionis habes

[weekender 0]

champu

Thanks you guys, re-reading it now I've been a bit of a grump in this thread.

The mechanics I understood but the legitimate reasons I understand a little better now. My concerns really do come down to the gaming aspect of it all. Yes the SEC is there, yes risk is generally higher when shorting, and yes there are upward analogs that are also quite bad. For some reason, despite all that, my mind sees the short-term downward gaming to be simpler/easier and qualitatively worse than other forms of manipulation and I've been taking it out on the instrument.

your not alone feeling that way. many people do not like active short sellers. if you are known to be shorting a stock it is nearly impossible to get a management meeting. if your buying the stock, much easier. people who run a company take it very personal, as they should. i understand their position even though i might seem like i do not.

I am not emotional about math. it helps me make hard decisions quickly. i am aware that many times that can make me and my peers seem cold and indifferent to the company's we are trading but that is the point. i am paid to provide liquidity. for me they are letters and numbers. i let management run the company and analyst make predictions. once someone makes a decision to buy, sell or short, i provide them the liquidity with no bias. figure, id explain a little why sometimes i seem to be rather indifferent to these things. i get the sense alot of people here think im a monster, hah.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[Andy9o8 0]

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if not me, then who?

And if not now, when?

[sfzombie13 307]

i don't consider anyone a monster for using legal means to make money, hell i wish i could do it. what i do take offense to is someone betting a company will fail or devalue then use money and/or influence to make that happen. this is wrong on at least three different levels. and even if the other company was not doing anything illegal, how hard would it be to use about a million of that billion invested to plant enough evidence to make it appear illegal?

and to andy: exactly. at least i am back in school now pursuing my doctorate. may take about five years, but it will be worth it.

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Si hoc legere scis nimium eruditionis habes

[weekender 0]

sfzombie13

i don't consider anyone a monster for using legal means to make money, hell i wish i could do it. what i do take offense to is someone betting a company will fail or devalue then use money and/or influence to make that happen. this is wrong on at least three different levels. and even if the other company was not doing anything illegal, how hard would it be to use about a million of that billion invested to plant enough evidence to make it appear illegal?

and to andy: exactly. at least i am back in school now pursuing my doctorate. may take about five years, but it will be worth it.

WSJ has a nice piece out agreeing with you. removing if he is right or wrong on if HLF being a pyramid scheme, its improper to use your influence to get a politician to spark an investigation. sure, its very common for one business to try to get the gov't to investigate a competitor for unfair trade practices. in this case, he is an activist investor. not apples to apples.

Originally, i was solely on Bill A's side. as more data comes in i'm leaning more towards its looking fishy. i have confidence in the SEC and FINRA to sort this out. I dont know him personally but its a small business and ive always admired his ability and tended to ignore his critics as jealous. I'm starting to agree with you, the NYT and now the WSJ.

"The point is, I'm weird, but I never felt weird."
John Frusciante