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Michael Nau

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  • Jim Chanos Is Wrong - Hewlett-Packard Is A Great Long Bet [View article]
    I think the issue hinges on strategy: should HPQ be 1.) a runoff company as its existing businesses with poor growth prospects but good cash flows are milked and cash returned to investors, or 2.) reinvented with current cash flows to compete in higher-growth areas.

    I'd prefer to see the first. Management is not Warren Buffet and tech is hard to get right for old, bureaucratic companies, so the second strategy seems doomed to failure. But unfortunately, being a conservative steward of company cash is not a formula for quick jumps in the stock or large bonuses for dealmakers, particularly in HPQ's industrial neighborhood. So unless I see real cash coming back to shareholders, I'd have to discount cash from operations heavily in my valuations.
    Apr 3 10:09 AM | 2 Likes Like |Link to Comment
  • Stop Shorting Volatility Right Now [View article]
    Shorting XIV and its evil twin VXX would have been the winning bet so far this year, both are down 3%-5%. Its hard to maintain a strong bias one way or the other when contango is relatively small and the VIX is choppy.

    I agree its time to step back a bit and wait for a real shakeout of the VIX shorts. It may take a while.

    Also, QTR, isn't shorting VXX riskier than long XIV or SVXY if things hit the fan? The logic of shorting means that you could lose several times your initial position, but you can only lose your initial position with XIV or SVXY.
    Apr 3 09:52 AM | 2 Likes Like |Link to Comment
  • Selling Client Order Flows To High Frequency Traders Is A Breach Of Fiduciary Duty As I See It [View article]
    Agreed, this is an unfair practice, but there needs to be a sense of proportionality. In the bad old days of fraction quotes and human market makers, spreads were wider and intermediaries often crossed over the line between legal and illegal. Remember the Nasdaq scandal? There needs to be some reform, but it is wrong to suggest that skimming and scalping are new phenomena.

    Two thoughts: for individual investors, don't trade so much. Make analysis and long-termism your advantage because you can't outrun the algos. For policymakers, do something to slow down the market to reduce flash crash risk, such as slower execution or a small transaction tax.
    Apr 3 09:28 AM | 2 Likes Like |Link to Comment
  • Chanos pitches shorts on CNBC [View news story]
    I think Chanos is right on the money will all of these calls, especially China, CAT and greek bonds.
    Apr 3 09:14 AM | 1 Like Like |Link to Comment
  • China announces mini-stimulus to keep economy on even keel [View news story]
    Those reserves are basically useless. So say they sell them to buy RMB-denominated assets, the RMB will go through the roof and the export sector will go down the toilet. If they touch them, their whole economic model will unravel.

    The reality is that China has been overpaying for dollars for years (i.e. undervalued currency) so they will have to realize a massive loss eventually when the RMB rises. There's no way around it, but they can keep trying to blow the bubble until there is absolutely no money left. Think Japan late 1980s multiplied by a factor of 2 or 3.
    Apr 3 08:53 AM | 2 Likes Like |Link to Comment
  • Michael Lewis' Flawed New Book [View article]
    I agree, the panic about HFT in terms of nickel-and-diming the little guy seems overblown. I'd like a comparison of HFT shop profits and the era before the broker cartels were broken.

    But there does seem to be a potential danger in terms of market structure: who knows when an algo will go berserk and create all sorts of damage?
    Apr 1 03:48 PM | 1 Like Like |Link to Comment
  • BIS: Dollar pre-eminence to remain but role will shrink [View news story]
    I certainly hope the dollar's importance shrinks. I'm sick of our trading partners hoarding dollars in order to get a trade advantage. They should get growth from productivity gains, not currency manipulation, because in the end nobody wins that game.
    Mar 30 12:25 PM | 1 Like Like |Link to Comment
  • Weight Watchers: Excellent Business At A Fire Sale Price [View article]
    I agree WTW is a decent business, but I'm less sanguine about outside shareholders benefiting from any upside. Partly cashing out at the peak and making other shareholders foot the bill was not a dumb move at all for the controlling shareholder.

    So I think it is incorrect to say it was a "poor decision", it just wasn't good for outside shareholders. My rule for controlled companies is that as soon as you see evidence that insiders ignore the interest of outsiders, walk away. It is too hard to get into the minds of such managers, and outsiders can never be totally sure that their stock is worth more than $0. After all, what's stopping managers from sandbagging for a few years and taking the company private for a song? We've seen that happen before.
    Mar 29 11:48 AM | 4 Likes Like |Link to Comment
  • Contango Takes A Breather [View article]
    Excellent article, its interesting to see how the mid-term roll cost was highest in 2012. Was that when people started getting wise about the ridiculous short-term roll costs and started piling into "relative value" net long positions across the term structure?

    Mid-term roll costs still seem pretty high by historical standards. If I were an active trader, I might consider shorting the longer term futures and partially hedging that with the short-term ones....
    Mar 28 07:21 AM | Likes Like |Link to Comment
  • What Seeking Alpha Is Doing To Prevent Paid Stock Promotion [View article]
    Good points, I agree that there should be some sort of accountability for inaccurate articles. Comment sections often do the job.

    But here's the problem: many "facts" are a matter of interpretation and emphasis, and many contributors, such as myself, are amateurs prone to mistakes. Being on a company's dole and not disclosing that information is crossing a red line, but what about people who stake out a controversial position on a company that is difficult to "prove"?

    I'm thinking of the Herbalife wars and how intellectual disagreements sometimes devolve into accusations of criminality.
    Mar 27 02:38 PM | 10 Likes Like |Link to Comment
  • What Seeking Alpha Is Doing To Prevent Paid Stock Promotion [View article]
    Well done SA, I am impressed.

    I do wonder, however, if your email hotline will be swarming with touts. The only times commenters have challenged my integrity is when I write negative articles, not positive articles (I almost never short myself and I write for fun). I've found a similar degree of contempt in the comment sections of other many critical articles.

    Shorts and those with critical perspectives are a rare commodity in the capital markets. It would be a shame if they were bullied into silence for fear of being accused of manipulation.
    Mar 27 02:11 PM | 13 Likes Like |Link to Comment
  • On National Western Life [View article]
    Good call, I wish I had been a bit more patient with this one.
    Mar 26 12:31 PM | Likes Like |Link to Comment
  • Is Herbalife A Pyramid Scheme? A Simple Question Of Law [View article]
    So if all the distributers at the bottom level of the chain are end users, then no problem, right?

    I guess this is an empirical question, and I don't think Hempton's ebay/participant observation test is sufficient. I'd like to get a large, random, longitudinal sample of new recruits, ask then why they joined, and then track their progress (expenses, income, weight, "customer" satisfaction) over time. I suspect that the story will not be that HLF new recruits are like Costco members, given the ridiculously high churn rates. But hey, maybe they all lose weight within a year and no longer need the stuff. Its possible.

    The resources are out there to answer this question, HLF management probably already knows the answer and could make a large database of distributors available to the public (scrubbed to preserve anonymity, of course). But they don't.
    Mar 26 12:28 PM | 6 Likes Like |Link to Comment
  • Letter To John Hempton From A 'Clueless Short Seller' [View article]
    What if Chevy handed out dealership licenses like HLF (to anyone with money and a willingness to buy them), and used a similar pricing structure with "upline" dealers getting cars at half the cost of their "downline" dealer recruits?

    Take a few steps down this hypothetical Chevy pyram...ahem... distribution system, and guess how many of those dealerships paying double for their merchandise make any money.
    Mar 25 01:43 PM | 4 Likes Like |Link to Comment
  • Letter To John Hempton From A 'Clueless Short Seller' [View article]
    Also, anther article a while back pointed out that shipping and handling fees are a huge profit center for HLF. So they win even with a "100% back guarantee". Its quite a racket.
    Mar 25 01:38 PM | 5 Likes Like |Link to Comment
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