John Hempton: Herbalife could go higher, U.S. coal will go lower


Short-oriented Bronte Capital's John Hempton sees Herbalife (HLF -0.1%) shares going still higher, possibly to $105/share, although he has reduced his stake. Of Ackman's missteps he says, "Before Ackman, we would never have been in Herbalife ... Ackman broke every rule of risk management. He came out there and said, 'We had this unbelievably strong short case against something, so we are 10%  of our fund shorted and 25% of its float shorted and we did this in the most public way that you could imagine.'" Hempton made his bet against Ackman at $25-$26/share.

On the short side, Hempton is particularly bearish on coal, and especially so on U.S. producers. He tethers his thesis on coal vs. natural gas price economics, which he believes outweigh any opportunity of demand increases from China as it transitions to cleaner seaborne coal.

Coal ETF: KOL

U.S. coal stocks: BTU, ANR, ACI, WLT, CLD, JRCC, CNX, RNO

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Comments (16)
  • Mongoose7916
    , contributor
    Comments (233) | Send Message
     
    How much lower can coal go without another bankruptcy? Doesn't make any sense to me why you would ever short something so cheap even if coal continues to be a challenging environment.
    17 Oct 2013, 05:32 PM Reply Like
  • nemonemo
    , contributor
    Comments (337) | Send Message
     
    People want to push it lower as things are improving and they want to cover soon.
    17 Oct 2013, 05:34 PM Reply Like
  • Matt Stewart
    , contributor
    Comments (1179) | Send Message
     
    What kind of investor would sell something for $65-$70 that he thinks is worth $105 intrinsic value...?

     

    the irony of the insult to Ackman just seems too obvious...
    17 Oct 2013, 06:01 PM Reply Like
  • Yteeld
    , contributor
    Comments (1145) | Send Message
     
    The same reason a person who has made numerous wrong predictions and keeps predicting. The irony of that situation is quite amusing. Maybe it's just I'll make predictions till one comes true.
    17 Oct 2013, 06:09 PM Reply Like
  • King Rat
    , contributor
    Comments (1547) | Send Message
     
    Bingo!
    However it sometimes is the case when investing other people's money where your fund is expected to pay out income as well as obtain capital appreciation. Selling shares you've made a profit on helps pay out income while shares you still hold continue to appreciate in value.

     

    I don't think that Hempton's investments work that way and he sure sounds full of himself. Pride cometh before the fall, Johnny boy, pride cometh before the fall.
    17 Oct 2013, 06:20 PM Reply Like
  • Yteeld
    , contributor
    Comments (1145) | Send Message
     
    Investing, whether it's your own or others capital, is about making money. Hempton made about 45 points on his original purchases, so is it not prudent to book some gains? Considering the volatility of this stock, he may get a re-entry point that he likes again. No one has yet to explain to me why Ackman, who some consider brilliant, would not book some profits on an initial 22-23 point drop in his short. Better yet, why not use LONG DATED PUTS from the start? They would have tied up less capital and not exposed him to the costs associated with shorting the stock. When you talk about Pride, you must also consider the arrogance of false pride. That is what Ackman suffered from in this trade.
    17 Oct 2013, 06:40 PM Reply Like
  • Mongoose7916
    , contributor
    Comments (233) | Send Message
     
    Agreed Yteeld! One reason Ackman couldn't cover right way probably has to do with his proclamations of it going to zero and how he was doing it for chairity. If he would have covered his short within a year he probably would have been hit with lawsuits while also undermining whatever credibility he has. In hindsight he still should have done it but that is the reason he didn't cover his short.
    17 Oct 2013, 07:14 PM Reply Like
  • Yteeld
    , contributor
    Comments (1145) | Send Message
     
    The next question then is, why box yourself in with these proclamations? One simple word will answer that question. Arrogance.
    17 Oct 2013, 07:27 PM Reply Like
  • fluteman
    , contributor
    Comments (44) | Send Message
     
    Don't be upset Matt because someone else has a view on HLF that is different than yours. Some people set targets for exits out of their investments or lower their exposure as their profits increase. I would think that is basic investing knowledge that you should know. I'm wondering if profits have been foreign to you in HLF so that is why you are confused.
    17 Oct 2013, 10:40 PM Reply Like
  • Yteeld
    , contributor
    Comments (1145) | Send Message
     
    Apply your theory to Ackman. Why cover a 20 point gain on a short when there is another 27 points to be had. Guess what, it did not work, so the gain was wasted. Schools out.
    17 Oct 2013, 06:13 PM Reply Like
  • Sirvasq
    , contributor
    Comments (331) | Send Message
     
    Wrong of SA to lump $WLT in with thermal coal issues. It's a met coal producer and tied to MET coal prices, iron ore usage and steel demand. None of those are affected by the price of NG.
    17 Oct 2013, 07:33 PM Reply Like
  • nemonemo
    , contributor
    Comments (337) | Send Message
     
    ANR is largest met coal producer in USA and third largest in the world.
    17 Oct 2013, 10:04 PM Reply Like
  • rambler1
    , contributor
    Comments (976) | Send Message
     
    The Wall Street Gang beating up on the wimpy Ackman kid on the block.
    17 Oct 2013, 08:37 PM Reply Like
  • WPSPIKER
    , contributor
    Comments (1149) | Send Message
     
    SIRVASQ beat me to the (WLT) is NOT a thermal coal producer, they are MET COAL used to make steel out of Iron... He will eat some losses if he shorted them anywhere under 25/share. I bought into (WLT) and (CLF) with (X) and (AKS) back in fall sold out then last week bought back into them all...

     

    Mark
    17 Oct 2013, 09:00 PM Reply Like
  • sethmcs
    , contributor
    Comments (3531) | Send Message
     
    Nat gas isn't going lower and neither is coal. Better study recent price trends and inventory levels to draw your own conclusions.
    17 Oct 2013, 10:05 PM Reply Like
  • appledeadmoney
    , contributor
    Comments (44) | Send Message
     
    I have been nibbling on the 2021 bonds for both Peabody and Arch Coal. They are offering yields of 6.5 to 9%.. Bought both under par. BTUs at 99 and the ACIs in the 80s... No need to worry about volatility as much as I worry about outright bankruptcy... I like this game much better..
    18 Oct 2013, 12:05 AM Reply Like
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