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  • Handicapping The Icahn Position In Herbalife [View article]
    4:34 PM J.C. Penney (JCP): Q4 EPS of -$0.24 misses by $0.06. Revenue of $3.884B misses by $200M. The firm's video earnings call is scheduled for 5:00 PM EST. JCP -8.1% AH.

    Will today's JCP miss mean anything to Ackman in the grand scheme of things?

    Will today's 3.74% up move in HLF add pressure?
    Feb 27 04:41 PM | 1 Like Like |Link to Comment
  • Handicapping The Icahn Position In Herbalife [View article]
    Well, no one really knows whether Icahn is behind this move (at least publicly), although many things seem to point in that direction. If he is, beyond the moral implications of driving JCP into involuntary bankruptcy he doesn't do it to 'screw' Ackman but to force Ackman's hand and make money in HLF.

    ...and yes, I am fully aware that it may seem it is only semantics as, if this works, Ackman is truly screwed. But my point is that the screwing is because he is on the other side of the trade and this produces money for Icahn, not for the screwing itself.

    For the rest of as, though, the important lesson as investors is that it is very important to see the various scenarios developing, try to discern the possible outcomes and profit from them.
    Feb 26 07:25 PM | 1 Like Like |Link to Comment
  • Stocks give up sizable early gains following Bernanke's dovish testimony, with the S&P and Nasdaq now in the red. Hurting is Europe sliding back to session lows after an attempted late-day bounce. Stoxx 50 -2.6%, led by Italy -4.4%. Performing best across the pond is the U.K., -1.2%. The euro is flat at $1.3065. [View news story]
    No need to apologize, we all make mistakes from time to time. I congratulate you for having the courage to recognize this and state so here. Most people wouldn't, but those who do are the ones who can then go on and profit from the marketplace unburdened by preconceived biases.
    Feb 26 07:13 PM | Likes Like |Link to Comment
  • Bernanke Semiannual Monetary Policy Report: The benefits of easing continue to outweigh the costs and risks, says Bernanke in his prepared testimony. Maybe putting to rest the kerfuffle from last week's FOMC minutes, he says QE will continue until there are substantial labor market gains. Watch live here[View news story]
    Is this how one gets to 5.000 comments? No wonder.
    Feb 26 12:07 PM | 3 Likes Like |Link to Comment
  • Stocks give up sizable early gains following Bernanke's dovish testimony, with the S&P and Nasdaq now in the red. Hurting is Europe sliding back to session lows after an attempted late-day bounce. Stoxx 50 -2.6%, led by Italy -4.4%. Performing best across the pond is the U.K., -1.2%. The euro is flat at $1.3065. [View news story]
    Naming Andrea Mitchell as "evidence" of Bernake's actions only serves to undoubtedly highlight your won personal bias, as Mitchell is not married to Bernake.

    You are entitled to your own opinions, naturally, and these could prove to be right or wrong, but one would hope that your position is the product of objective reasoning and not of a biased political view, which is useless as an investment tool.
    Feb 26 12:04 PM | 1 Like Like |Link to Comment
  • Handicapping The Icahn Position In Herbalife [View article]
    At this level the game is played on various scenarios. Most journalist, pundits, and investors will fail to see the entire game being played.

    Let me add one developing scenario that is likely to add to Ackman's current challenges. This is a scenario where Icahn adds extra pressure to Ackman by pushing JC Penny into involuntary bankruptcy.

    That's right. Remember that Ackman's hedge fund Pershing Square is the largest holder of JCP common stock with some 17.8% percent of the outstanding, or about $800 million worth of stock.

    If JC Penny goes bankrupt, Ackman risk not only losing his stake there, but also losing his backing for the HLF short. In short, Ackman would face a monumental financial crisis.

    As per Zero Hedge:

    "In what may or may not be a totally separate event, we fast forward to January 29, or the following Tuesday, when JC Penney received a Notice of Default from the law firm of Brown Rudnick, representing an ad hoc group of bondholders of JC Penney's 7.4% of Debentures due 2037 and who supposedly hold more than 50% of the issue, which according to Bloomberg amounted to some $325.6 million outstanding ($400 million at issue), or about 11% of the firm's gross debt of $2.97 billion.

    What happened is that one or more bondholders accumulated a sufficiently large stake in one of JCP's bonds to where they could throw the company into involuntary bankruptcy which would then accelerate payment on all bonds if a court found the bondholder claim to be valid, and which would destroy the firm's equity due to cross-default provisions between the various bond classes, if only bondholders had a sufficiently real pretext. Which they did. (...)

    But what should make JCP stakeholders most nervous is that the man behind the ad hoc group may well be none other than the abovementioned corporate raider (and legendary Involuntary Bankruptcy mastermind) Carl Icahn, who is now hell-bent on making Ackman's life a living hell. (...)"

    .
    Feb 23 06:10 PM | Likes Like |Link to Comment
  • Handicapping The Icahn Position In Herbalife [View article]
    At this level the game is played on various scenarios. Most journalist, pundits, and investors will fail to see the entire game being played.

    Let me add one developing scenario that is likely to add to Ackman's current challenges. This is a scenario where Icahn adds extra pressure to Ackman by pushing JC Penny into involuntary bankruptcy.

    That's right. Remember that Ackman's hedge fund Pershing Square is the largest holder of JCP common stock with some 17.8% percent of the outstanding, or about $800 million worth of stock.

    If JC Penny goes bankrupt, Ackman risk not only losing his stake there, but also losing his backing for the HLF short. In short, Ackman would face a monumental financial crisis.

    As per Zero Hedge:

    "In what may or may not be a totally separate event, we fast forward to January 29, or the following Tuesday, when JC Penney received a Notice of Default from the law firm of Brown Rudnick, representing an ad hoc group of bondholders of JC Penney's 7.4% of Debentures due 2037 and who supposedly hold more than 50% of the issue, which according to Bloomberg amounted to some $325.6 million outstanding ($400 million at issue), or about 11% of the firm's gross debt of $2.97 billion.

    What happened is that one or more bondholders accumulated a sufficiently large stake in one of JCP's bonds to where they could throw the company into involuntary bankruptcy which would then accelerate payment on all bonds if a court found the bondholder claim to be valid, and which would destroy the firm's equity due to cross-default provisions between the various bond classes, if only bondholders had a sufficiently real pretext. Which they did. (...)

    But what should make JCP stakeholders most nervous is that the man behind the ad hoc group may well be none other than the abovementioned corporate raider (and legendary Involuntary Bankruptcy mastermind) Carl Icahn, who is now hell-bent on making Ackman's life a living hell. (...)"
    Feb 23 06:08 PM | 1 Like Like |Link to Comment
  • Handicapping The Icahn Position In Herbalife [View article]
    "The Icahn squeeze already happened. And it failed."

    Not at all, that wasn't a short squeeze. The only thing that happened then was a rumor that Icahn was substantially long HLF. If that alone was enough to trigger a 14% overnight up move on the stock, one only wonders what will happen when the stock lenders recall some of their stock and/or the actual physical squeeze happens from Icahn buying the stock directly.

    BTW, you still have time to short the stock. Will you?
    Feb 23 05:40 PM | Likes Like |Link to Comment
  • Handicapping The Icahn Position In Herbalife [View article]
    Nice post.

    The beauty of Icahn's play is that he purposely increased the float of stock available for borrowing (that's the hook for the short sellers to increase their position) while, at the same time, changing the future control of that stock from the stock lenders to himself.

    Since most of the short sellers need to borrow the stock to then be able to short it, they are vulnerable and would be forced to close their short position if the stock lenders recall the stock from them. As pointed out, this is bound to happen when Icahn exercises his options and the stock lenders have to deliver the stock to him. Most short sellers will have to close their short positions by buying back the stock in the open market which, naturally, will drive the stock price up without the need of any natural buyers.

    That is a classic short squeeze with a twist that makes it very painful for the short sellers: It is short sellers self-causing short squeeze, as they will move the stock up by themselves and squeeze each other out of their positions.

    In the end, for most short sellers it won't matter if they are 'right or wrong' about the company or the stock. They will, most probably not have time to prove they are right because Icahn will have given them a painful lesson on the most simple of economic concepts: supply and demand.
    Feb 22 04:20 PM | 7 Likes Like |Link to Comment
  • Gravity Still Works, After All [View article]
    Perhaps the main reason commodities have fallen is hiding in plain view but not inside the Chicago pits: A restless and volatile Chinese market, as shown by a 9% down move in less than a month.
    Feb 21 06:18 PM | 1 Like Like |Link to Comment
  • Apple Is Not Worth $460 [View article]
    Nice post and interesting perspective. Good job.
    Feb 20 06:43 AM | 5 Likes Like |Link to Comment
  • The judge presiding over Greenlight Capital's suit against Apple (AAPL) over the bundling of proposals within its proxy says Greenlight has shown a "likelihood of success," suggesting a ruling in Greenlight's favor is on the way. Apple's shareholder meeting arrives on Feb. 27. (previous) Update (5:19PM ET): Full quote from Reuters. "Candidly I do think the likelihood of success is in favor for Greenlight," says district judge Richard Sullivan. Should the case go forward, he'll focus on whether Greenlight would be irreparably harmed by a bundled vote. [View news story]
    "...Apple bears' rumor mongering."

    Why would that be? If Einhorn wins, even if Apple itself doesn't like it, the stock and the investors benefit.
    Feb 19 05:25 PM | 1 Like Like |Link to Comment
  • Herbalife (HLF) up 23% premarket following in Carl Icahn's Valentine's Day Massacre of Bill Ackman. Kid Dynamite notes Icahn has an economic interest in 13% of HLF, but does not own all that stock. Instead he has a combination of long stock, long calls and short puts. His exit strategy for the position is in question, but it's clear Icahn's goal is to create a short squeeze. Grab the popcorn. [View news story]
    I believe that Ackerman has signed a contract with the stock lenders to guarantee that they will not ask for the stock back and force him to buy the shares in the open market to cover his short position. He would have to pay more for this, and if the stock went up hard, he would have to pay dearly, but the contract would, indeed, afford him some protection from being squeezed. The contract would offer a guarantee of the stock he needs to maintain his short position. Perhaps that's what you mean.

    In reality, contract or not, the owners can always ask for their stock back, and if the stock moves up hard, in all likelihood they would.
    Feb 19 05:17 PM | Likes Like |Link to Comment
  • Herbalife (HLF) up 23% premarket following in Carl Icahn's Valentine's Day Massacre of Bill Ackman. Kid Dynamite notes Icahn has an economic interest in 13% of HLF, but does not own all that stock. Instead he has a combination of long stock, long calls and short puts. His exit strategy for the position is in question, but it's clear Icahn's goal is to create a short squeeze. Grab the popcorn. [View news story]
    "...that he is protected from a lack of supply of the stock."

    Frankly, I don't know what to make of this, as if this were to be the case, it would benefit the long positions not the short ones. Usually, people refer to a stock not being sufficiently available only in relation to not being available to borrow and hence, not being available for someone who wants to short the stock directly (not through options). I other words, the stock is hard to borrow, so it is difficult to short. The company and the long holders are, therefore, protected from others trying to build a large short position.

    By definition, though, the stock is always available for whomever wants to buy it, what changes is its price. So, if one puts a huge market order and there aren't many sellers, the stock's will go up and up picking off all available offers to sell. Either the order is fulfilled or the stock will continue to go up. By the way, if this happened, chances are that even the institutions who have lent the stock to others so they can short it, would ask for the stock back (so they can sell it and profit), forcing the shorts to unwind their position. That is the classic short squeeze.

    So, "a lack of supply with a strong demand" would send the stock price higher, not lower, which would be harmful to the short position. The bottom line is that the scenario you have described would probably be the worst possible outcome for someone who is short.

    Maybe you mean something else, but I can't see what.
    Feb 19 05:07 PM | Likes Like |Link to Comment
  • On the hour: Dow -0.31%. 10-yr +0.02%. Euro -0.71% vs. dollar. Crude +0.22% to $96.83. Gold -0.63% to $1668.25. [View news story]
    How is that short position working out for you nowadays?
    Feb 19 01:22 PM | Likes Like |Link to Comment
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