The only thing missing from the cartoon below is there is a minimum net worth requirement for “free money” eligibility.
h/t @bondskew
     |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9zlELh3XKGc/story01.htm Tyler Durden
Tag: finance
An "Angry" Bart Chilton Shares His Parting Lesson From 30 Years In Washington
While one may criticize now-ex CFTC commissioner Bart Chilton for years and years of sound and fury signifying nothing, countless promises of regulatory enforcement (all of which fell short of the target) and finally putting an end to precious metals manipulation only for the world to discover that while every other asset class is manipulated (involving such individuals as JPM’s chief currency dealer), gold and silver are exempt, one must admit the former regulator does have a way wtih words (and of course haircuts). Sure enough, Chilton’s most memorable parting gift will not be something he did, but rather what he said.
William Cohan memorializes his parting message: “As we long suspected, Wall Street continues to use every trick in its playbook to do whatever it can to eviscerate numerous post-financial-crisis rules. The arsenal includes high-powered lobbyists who outnumber lawmakers 10-to-1; $1,000-an-hour letter-writing lawyers who gain strength from negotiating over arcana; and the occasional hoodwinking of a president whose knowledge of the ways of finance are close to nil.”
Chilton’s take home message: “The lesson for me is: The financial sector is so powerful that they will roll things back over time,” Chilton says. “The Wall Street firms have tremendous influence, and they can impact policy to a greater degree than any one regulator or a small group of regulators can.”
Well, one sure can’t say that those 30 years he spent in Washington of which nearly 7 years at the CFTC were lost on the Alexander Godunov lookalike: at least he figured out who runs the show. Of course, finding a way how to prevent the financial sector from being in charge, i.e., doing his job, would have been preferable, but close enough for government work.
What are Chilton’s other laments? Why being underfunded of course. Because if the CFTC only had more money, all would have been fixed.
In fiscal 2013, for example, the CFTC requested funding of $308 million and got only $195 million ($10 million less than the previous year) despite many new responsibilities. “There are crooks who are getting away with crimes because we don’t have the resources to go after them,” Chilton says. The SEC has a similar discrepancy between its appropriation and what it needs to fulfill legal mandates.
With its regulators overwhelmed and underfunded, Wall Street firms then move to the relentless negotiation stage. “As you try to deal with the regulatory agency,” he says of Wall Street, “the first thing you do is you say, ‘Well, would you exempt us?’ And when that doesn’t work, you try to ameliorate your regulation.” If that strategy fails, the industry defaults to litigation.
Sounds like the generic justification anyone would make for failing at their job. But it could be just us.
Some more deep thoughts from Bart Chilton:
Chilton said he has noticed one additional tactic that Wall Street has been employing lately: stalling or thwarting nominees to regulatory agencies. The nomination of Timothy Massad, the U.S. Treasury Department official who managed the Troubled Asset Relief Program, to replace Gary Gensler as CFTC chairman came late in the year and a confirmation vote has now been delayed, probably to February 2014. That means further Dodd-Frank rule-writing and enforcement could be delayed, too, because only two of five commissioners will be seated and they would both have to agree to get anything done. “It’s a gift to Wall Street,” he said. “This is what they’ve been trying to do. They’ve been trying to stop Dodd-Frank.”
Chilton knows why Wall Street always seems to win. Financial-industry executives contribute more money “in every election, than any other sector, and they have made more profits in every single quarter since the fall of 2008 when many of them helped crash the economy,” he explains. “So while the rest of the nation is suffering still, and trying to get a leg up to get out of the ditch, the financial sector didn’t miss a beat.”
In case you didn’t catch Chilton’s meaning, here is the shorter version: Unless and until Wall Street’s disproportionate ability to bully Washington is curtailed, the rest of us will be held hostage to its agenda. For those interested in the fuller version, Chilton has been writing a book. Its working title: “Theft.”
Oh, we caught Chilton’s meaning all right. What we are more interested in is how long after Theft is a monetary failure will the silver-haired regulator apply for a job at Goldman, JPMorgan or Citi. Because one thing we have learned observing Washington apparatchiks, is that in addition to sharing deep thoughts on occasions (if unmatched by actions), hypocrisy also happens to be a recurring theme.
For those who yearn for one last dose of Chilton’s deep thoughts, here is his most recent speech, “The Boss“, appropriately enough before the Society of American Business Editors and Writers, New York City. After all, the man has to get in with the publishing lobby next.
| |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/arZcjnYkLRM/story01.htm Tyler Durden
An “Angry” Bart Chilton Shares His Parting Lesson From 30 Years In Washington
While one may criticize now-ex CFTC commissioner Bart Chilton for years and years of sound and fury signifying nothing, countless promises of regulatory enforcement (all of which fell short of the target) and finally putting an end to precious metals manipulation only for the world to discover that while every other asset class is manipulated (involving such individuals as JPM’s chief currency dealer), gold and silver are exempt, one must admit the former regulator does have a way wtih words (and of course haircuts). Sure enough, Chilton’s most memorable parting gift will not be something he did, but rather what he said.
William Cohan memorializes his parting message: “As we long suspected, Wall Street continues to use every trick in its playbook to do whatever it can to eviscerate numerous post-financial-crisis rules. The arsenal includes high-powered lobbyists who outnumber lawmakers 10-to-1; $1,000-an-hour letter-writing lawyers who gain strength from negotiating over arcana; and the occasional hoodwinking of a president whose knowledge of the ways of finance are close to nil.”
Chilton’s take home message: “The lesson for me is: The financial sector is so powerful that they will roll things back over time,” Chilton says. “The Wall Street firms have tremendous influence, and they can impact policy to a greater degree than any one regulator or a small group of regulators can.”
Well, one sure can’t say that those 30 years he spent in Washington of which nearly 7 years at the CFTC were lost on the Alexander Godunov lookalike: at least he figured out who runs the show. Of course, finding a way how to prevent the financial sector from being in charge, i.e., doing his job, would have been preferable, but close enough for government work.
What are Chilton’s other laments? Why being underfunded of course. Because if the CFTC only had more money, all would have been fixed.
In fiscal 2013, for example, the CFTC requested funding of $308 million and got only $195 million ($10 million less than the previous year) despite many new responsibilities. “There are crooks who are getting away with crimes because we don’t have the resources to go after them,” Chilton says. The SEC has a similar discrepancy between its appropriation and what it needs to fulfill legal mandates.
With its regulators overwhelmed and underfunded, Wall Street firms then move to the relentless negotiation stage. “As you try to deal with the regulatory agency,” he says of Wall Street, “the first thing you do is you say, ‘Well, would you exempt us?’ And when that doesn’t work, you try to ameliorate your regulation.” If that strategy fails, the industry defaults to litigation.
Sounds like the generic justification anyone would make for failing at their job. But it could be just us.
Some more deep thoughts from Bart Chilton:
Chilton said he has noticed one additional tactic that Wall Street has been employing lately: stalling or thwarting nominees to regulatory agencies. The nomination of Timothy Massad, the U.S. Treasury Department official who managed the Troubled Asset Relief Program, to replace Gary Gensler as CFTC chairman came late in the year and a confirmation vote has now been delayed, probably to February 2014. That means further Dodd-Frank rule-writing and enforcement could be delayed, too, because only two of five commissioners will be seated and they would both have to agree to get anything done. “It’s a gift to Wall Street,” he said. “This is what they’ve been trying to do. They’ve been trying to stop Dodd-Frank.”
Chilton knows why Wall Street always seems to win. Financial-industry executives contribute more money “in every election, than any other sector, and they have made more profits in every single quarter since the fall of 2008 when many of them helped crash the economy,” he explains. “So while the rest of the nation is suffering still, and trying to get a leg up to get out of the ditch, the financial sector didn’t miss a beat.”
In case you didn’t catch Chilton’s meaning, here is the shorter version: Unless and until Wall Street’s disproportionate ability to bully Washington is curtailed, the rest of us will be held hostage to its agenda. For those interested in the fuller version, Chilton has been writing a book. Its working title: “Theft.”
Oh, we caught Chilton’s meaning all right. What we are more interested in is how long after Theft is a monetary failure will the silver-haired regulator apply for a job at Goldman, JPMorgan or Citi. Because one thing we have learned observing Washington apparatchiks, is that in addition to sharing deep thoughts on occasions (if unmatched by actions), hypocrisy also happens to be a recurring theme.
For those who yearn for one last dose of Chilton’s deep thoughts, here is his most recent speech, “The Boss“, appropriately enough before the Society of American Business Editors and Writers, New York City. After all, the man has to get in with the publishing lobby next.
| |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/arZcjnYkLRM/story01.htm Tyler Durden
"Day To Night" – 24 Hours Captured In A Single Frame: The Photo Gallery
“I wanted to take something that everybody had an idea of — ‘I’ve been there, I’ve seen the statue of liberty’ — but I wanted to show it to you in a way that you could never see it”
– Stephen Wilkes
With markets closed around the world (and since 2008 some would say), here is something different.
Below is a sampling of some of the most iconic Day to Night photos by Stephen Wilkes, each of which captures the passage of an entire day in a single frame and which, as Wired states, takes an “absurd amount of time and effort to produce” including up to 15 hours to shoot and weeks to edit. “Wilkes says he is “maniacal” in his attention to detail when making these his information-dense, hyper-curated and highly polished accounts of a single day in some of the world’s most iconic locations. Every inch of his photos, some as big as 10 feet wide, are meant to tell a story. He says telling that story is an all-consuming process.”
More on this distinctly unique creative process:
The amount of work that goes into these photos is insane. After intensively scouting a location and planning the shoot, Wilkes spends as long as 15 hours behind the camera, often on a crane high above the scene. He’ll shoot more than 1,000 frames between sunrise and sunset, trying to capture the shifting light and activity throughout his field of view. Through it all he remains as still as possible for fear the slightest move will shift the camera even a fraction of a degree.
He and his assistant pore over the photos for weeks, creating dozens of digital collages that typically comprise 50 images. He uses a complex grid system to arrange the most interesting parts of each shot into a strong composition while staying true to the time of day that they were taken. The attention to detail reveals itself when you’re right next to the massive prints, which when seen up close stretch well beyond natural peripheral vision. The smallest oversight, like a slightly shifted shadow, can shatter the illusion by betraying the fact the epic image is in fact a collage of smaller images shot at different times of day. But when everything comes together perfectly, the viewer can step back or get nose-deep in the image without losing the sense of cohesion.
Another important aspect of the work is how Wilkes teases visual narratives out of seemingly chaotic public spaces. A few hundred tourists snapping selfies in front of the Sacre Coeur or an arrest on the Santa Monica Pier become nodes of intrigue in a network connecting individual frames that form the final collage. Wilkes says finding ways to connect the countless moments held within the image and the sweep of time it captures is one of the most exciting parts of the process. “It’s as if I’m a writer and I’ve been given this incredible thesaurus, so I have all these new words to write with,” he says.
And the photos:
The America’s Cup 2013, San Francisco
Wrigley Field, Chicago
Millenium Park, Chicago
Union Square, NYC
Shanghai, China
Times Square on New Year’s Eve, 2012
Washington Square Park, NYC
The Flatiron building, NYC
Central Park, NYC
Coney Island, NY
Barack Obama’s 2013 Inauguration Speech, Washington D.C.
Source: Wired
| |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/awkXEPKcd9k/story01.htm Tyler Durden
“Day To Night” – 24 Hours Captured In A Single Frame: The Photo Gallery
“I wanted to take something that everybody had an idea of — ‘I’ve been there, I’ve seen the statue of liberty’ — but I wanted to show it to you in a way that you could never see it”
– Stephen Wilkes
With markets closed around the world (and since 2008 some would say), here is something different.
Below is a sampling of some of the most iconic Day to Night photos by Stephen Wilkes, each of which captures the passage of an entire day in a single frame and which, as Wired states, takes an “absurd amount of time and effort to produce” including up to 15 hours to shoot and weeks to edit. “Wilkes says he is “maniacal” in his attention to detail when making these his information-dense, hyper-curated and highly polished accounts of a single day in some of the world’s most iconic locations. Every inch of his photos, some as big as 10 feet wide, are meant to tell a story. He says telling that story is an all-consuming process.”
More on this distinctly unique creative process:
The amount of work that goes into these photos is insane. After intensively scouting a location and planning the shoot, Wilkes spends as long as 15 hours behind the camera, often on a crane high above the scene. He’ll shoot more than 1,000 frames between sunrise and sunset, trying to capture the shifting light and activity throughout his field of view. Through it all he remains as still as possible for fear the slightest move will shift the camera even a fraction of a degree.
He and his assistant pore over the photos for weeks, creating dozens of digital collages that typically comprise 50 images. He uses a complex grid system to arrange the most interesting parts of each shot into a strong composition while staying true to the time of day that they were taken. The attention to detail reveals itself when you’re right next to the massive prints, which when seen up close stretch well beyond natural peripheral vision. The smallest oversight, like a slightly shifted shadow, can shatter the illusion by betraying the fact the epic image is in fact a collage of smaller images shot at different times of day. But when everything comes together perfectly, the viewer can step back or get nose-deep in the image without losing the sense of cohesion.
Another important aspect of the work is how Wilkes teases visual narratives out of seemingly chaotic public spaces. A few hundred tourists snapping selfies in front of the Sacre Coeur or an arrest on the Santa Monica Pier become nodes of intrigue in a network connecting individual frames that form the final collage. Wilkes says finding ways to connect the countless moments held within the image and the sweep of time it captures is one of the most exciting parts of the process. “It’s as if I’m a writer and I’ve been given this incredible thesaurus, so I have all these new words to write with,” he says.
And the photos:
The America’s Cup 2013, San Francisco
Wrigley Field, Chicago
Millenium Park, Chicago
Union Square, NYC
Shanghai, China
Times Square on New Year’s Eve, 2012
Washington Square Park, NYC
The Flatiron building, NYC
Central Park, NYC
Coney Island, NY
Barack Obama’s 2013 Inauguration Speech, Washington D.C.
Source: Wired
| |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/awkXEPKcd9k/story01.htm Tyler Durden
Turkish Political Crisis Deepens As Three Cabinet Ministers Quit; Prime Minister Erdogan Urged To Resign
The Turkish high-profile corruption scandal, whose fallout has so far resulted in the jailing of the sons of the Turkish minister of the interior Muammar Guler, just escalated sharply following the abrupt resignation of three key ministers from PM Erdogan’s government. Earlier today, first Economy Minister Zafer Caglayan and then Interior Minister Muammer Guler submitted their resignations to Prime Minister Recep Tayyip Erdogan Wednesday morning. A few hours later, they were joined by Environment and Urban Planning Minister Erdogan Bayraktar who also tendered his resignation as a member of parliament, however instead of doing so in a complacent manner, he lashed out at the PM and called for his resignation which roiled markets following an earlier relief rally.
As a reminder, Turkey has been shaken by three sensational corruption investigations last week that led to dozens of detentions and 24 arrests of people ranging from influential business leaders to senior bureaucrats and the ministers’ sons. Caglayan’s son Salih Kaan Caglayan, Guler’s son Baris Guler and Bayraktar’s Oguz Bayraktar were among those arrested in the sweep, which Recep Tayyip Erdogan, Turkey’s prime minister, called a “dirty operation” to smear his administration and undermine the country’s progress.
Today’s developments are likely the beginning of the end for the current Prime Minister, because the shakeout “signaled a deepening rift in Mr. Erdogan’s government.” As the WSJ reports, while the economy and interior ministers joined the premier in condemning the bribery investigation as a plot to weaken the ruling Justice and Development Party, or AKP, Mr. Bayraktar lashed out at Mr. Erdogan for forcing the resignations, and in doing so also called for Erdogan’s resignation.
“I don’t accept being pressured because of this investigation, which involves bribery and corruption, and being told to ‘resign and issue a comforting statement,'” Mr. Bayraktar said, according to his office. The minister, whose son was questioned in the probe, denied wrongdoing. “To soothe the nation, I believe that the prime minister should resign, too,” he said.
Earlier in the day, the other ministers who quit echoed Mr. Erdogan’s allegations that the probe was politically motivated.
“It is very clear that the operation performed as of Dec. 17 is a dirty setup against our government, our party and our country. I have resigned from my post of economy minister to help bring out the truth and spoil this ugly game, which has included my child and my close colleagues,” Mr. Caglayan said in a written statement, according to his spokesman, who declined further comment.
The local markets were whipsawed by the developments, first rallying after the first two resignations, but falling sharply when Mr. Bayraktar called on the prime minister to quit.
The benchmark BIST-100 stock index reversed gains, falling 3.5% to 66555.3 in afternoon trading. The lira declined 0.5% to 2.0876 against the dollar, creeping toward Friday’s record low. The government’s borrowing costs rose as its benchmark two-year bond yields pared gains to 9.60% from 9.42%, after closing at 9.68% Tuesday. Bond yields decline as prices rise.
“With the two ministers’ resignations in the morning, the lira gained because the market saw it as a positive step that would reduce prevailing political uncertainties. But the third minister’s resignation, and call on the prime minister to step down, deteriorated investor sentiment,” said Gokce Celik, an economist at Finansbank in Istanbul. “Turkey’s lira has been under extra pressure recently due to domestic political uncertainties… it’s going to be difficult for it to stabilize as the year draws to an end.”
What may be behind the ongoing scandals? According to Al Jazeera, the investigations are widely believed to be linked to the recent tensions between the United States-based Turkish cleric Fethullah Gulen’s movement and Erdogan’s AKP that, many analysts say, used to be allies in the past in a struggle against Turkey’s politically dominant military. The tensions, which have been festering for months, peaked after the government’s plans to abolish private prep schools. Gulen owns a large network of such schools. Erdogan recently said that those behind the investigations were trying to form a “state within a state”, an apparent reference to Gulen’s movement, whose followers are influential in Turkey’s police and judiciary.
Corruption in state tenders, money laundering, bribery, gold smuggling and distribution of prime land among favourites are among the accusations put on the suspects, sources at Istanbul chief prosecutor’s office told Turkish media. Formal criminal charges are going to be revealed after the prosecutor’s office announces the actual bills of indictment for the three simultaneous investigations it has been carrying out.
Those detained include the sons of Interior Minister Muammer Guler, Economy Minister Zafer Caglayan and Environment Minister Erdogan Bayraktar. Various well-known businessmen were also detained, including Suleyman Aslan, the chief executive of Turkish state bank Halkbank, and Ali Agaoglu, a construction tycoon, as well as Mustafa Demirand, the mayor of Istanbul district Fatih. Some of these prominent people were arrested while others were released by court order, all pending trial (much more on the tensions within the Turkish government here).
As for just how the CIA is involved, as it always tends to be in any strategic government destabilization process, we will likely find out shortly.
| |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/jc_zVQF7oQs/story01.htm Tyler Durden
Edward Snowden's Alternative Christmas Message To The World
Edward Snowden’s Christmas message, conveyed to the world courtesy of the UK’s Channel 4, from his Russian exile is simple: “end mass surveillance.” Alas, in a world in which social media exhibitionism is the norm, is his message increasingly falling on deaf ears? After all, there is a Duck Dynasty scandal, or Justin Bieber’s retirement at any given moment both of which are far more important than the loss of all personal privacy…
| |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ofzEKLKCJlg/story01.htm Tyler Durden
Edward Snowden’s Alternative Christmas Message To The World
Edward Snowden’s Christmas message, conveyed to the world courtesy of the UK’s Channel 4, from his Russian exile is simple: “end mass surveillance.” Alas, in a world in which social media exhibitionism is the norm, is his message increasingly falling on deaf ears? After all, there is a Duck Dynasty scandal, or Justin Bieber’s retirement at any given moment both of which are far more important than the loss of all personal privacy…
| |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ofzEKLKCJlg/story01.htm Tyler Durden
Target Hack Included PIN Numbers
When the first response taken by major banks such as JPMorgan, in the aftermath of the massive 40 million credit and debit card hack of the third largest US retailer Target, was to lower ATM withdrawal and purchase limits, it became clear that there was more here than simply a well-organized credit card number scrape. And indeed, as Reuters reports, the hackers who compromised up to 40 million credit cards and debit cards also managed to steal encrypted personal identification numbers (PINs) according to a senior payments executive familiar with the situation. And since from there to emptying bank accounts and saved deposits is only a keystroke away, with no credit card processor intermediate to offload liability to, banks had no choice but to immediately limit debit card access to as much 10% of their clients, in JPM’s case, in an unprecedented first, which just may have shown the way of how to limit a cash withdrawal panic if and when the need to do so arises.
Target has not said how its systems were compromised, though it described the operation as “sophisticated.” The U.S. Secret Service and the Justice Department are investigating. Officials with both agencies have declined comment on the investigations.
The attack could end up costing hundreds of millions of dollars, but it is unclear so far who will bear the expense.
…
Daniel Clemens, CEO of Packet Ninjas, a cyber security consulting firm, said banks were prudent to lower debit card limits because they will not know for sure if Target’s PIN encryption was infallible until the investigation is completed.
As an example of potential vulnerabilities in PIN encryption, Clemens said he once worked for a retailer who hired his firm to hack into its network to find security vulnerabilities. He was able to access the closely guarded digital “key” used to unscramble encrypted PINs, which he said surprised his client, who thought the data was secure.
In other cases, hackers can get PINs by using a tool known as a “RAM scraper,” which captures the PINs while they are temporarily stored in memory, Clemens said.
The attack on Target began on November 27, the day before the Thanksgiving holiday and continued until December 15. Banks that issue debit and credit cards learned about the breach on December 18, and Target publicly disclosed the loss of personal account data on December 19.
And since in black hat hacker circles what is known by one is known by all, it is only a matter of time before America’s other largest retailers, are hit by the same PIN scraping technique, which in turn “forces” the banks to once again lower ATM withdrawal limits on a few million other debit card users. Ironically, perhaps instead of focusing on where the poor and middle classes shop, it may be time for the black hat hacker community to take a look at companies like Netjets and Ferrari where the PIN “scraping” wouldn’t drain the fund of the median income American but focus on those who have directly benefited from Bernanke’s ongoing asset inflation monetary experiment.
| |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Nmb62rR7kpE/story01.htm Tyler Durden
Herbalife: The Greater Fools Theory
By EconMatters
Short Squeezes – Easier Said, Than Done
On December 5 Herbalife Ltd. (HLF) got as high as $76.43 and some investors might be thinking that they could get in on a short squeeze of Bill Ackman and Pershing Square Capital Management`s public and noteworthy short position on the company.
Well since then the stock has dropped to $68.36 in 6 trading days and longs shouldn`t look for any help in front of the all-important FOMC Meeting and Tapering decision on Wednesday of this upcoming week in the markets. The mood has been Risk-Off with investors taking considerable profits in many stocks the last 5 trading days.
Retail Investors shouldn`t Invest on Short-Squeeze Thesis
This just goes to show that even when the big players of the investing world are seemingly teaming up to cause Bill Ackman to cover his position and reap the benefits of a massive short squeeze, this should never influence an investor`s decision to invest in companies. An investor should first and foremost pick strong companies which are well run and have products in the marketplace that have a definitive strategic or competitive advantage.
Herbalife isn’t exactly GE Quality
I have done enough research on Herbalife to say definitively that this is not GE that you are investing in when it comes to a real genuine quality company. Herbalife is like the infomercial of stocks that comes on late at night to sell consumers products with all kinds of gimmicks and marketing sleight of hand.
Beware of Buying Credibility
Whenever a company spends so much money trying to make themselves seem credible it is because they aren`t in the first place. BMW doesn`t need to buy credibility, the quality of their products speak for themselves, and have for decades. GE doesn`t have to pay credible people to associate themselves with their products so as to gain credibility in the marketplace.
Just read the weekly press releases by Herbalife they are usually about trying to buy credibility. You see this with a lot of companies that are listed on the Pink Sheets, and many of these companies are borderline scam companies, or another way to put it would be un-investable.
Semantical Debate Meaningless
Whether one wants to label Herbalife a Ponzi scheme, a multilevel marketing firm, or some other derivation this is purely a semantical question an unimportant for investing purposes; the big picture is that this company doesn`t make for a good long-term investment because it doesn`t have a legitimate business model.
Herbalife`s Revenue Stream: Products versus Recruitment
I work out and like many people these days I buy fitness and health supplement products, but I and most people in the world do not buy overpriced commodity products from a multi-level marketer.
This is the age of the internet and many wholesale suppliers offer all the branded products that the consumer could possibly want in the health and fitness supplement industry online at much cheaper prices than the retail market.
Less price savvy consumers may buy some health products at their local gym or GNC outlet. Shoot Walmart even sells nutritional supplements these days and usually at very competitive retail prices. However, it is abundantly clear to all but the uninitiated that there is not a booming market for buying overpriced nutritional supplements from a multilevel marketing organization.
Greater Fools Theory
Consequently Herbalife isn`t making a fortune off of selling their products, they are making money off of predatory recruitment of greater fools, plain and simple Herbalife is a “Recruiting Company.” It is unfortunate that there happens to be an abundance of greater fools in the world to support this type of business model.
However, this is not an unusual phenomenon in the world, and it usually ends very badly when governments have to step in to protect the citizens from themselves. Alternatively, the marketing scheme ends when the economics crash on themselves because people will only participate in a scheme if there are legitimate financial incentives for the bulk of the recruitments, and/or the market runs out of foolish people to recruit.
Pink Sheets Methodology & Business Model
The business model that exemplifies Herbalife where they need so fanatically to purchase credibility with large sums of money is one of recruiting. The greater fool theory of recruitment where a few people at the top who managed to get many levels of recruited fools to buy into the scheme below them make some decent money off the backs of all the recruited fools under them, and each level down in the scheme represents larger proportions of members who make virtually nothing at all.
Call it what you want but it is a very unsavory business model. It is highly predatory and probably should not be allowed to be listed on a major exchange. This is the type of company that investors need to be wary of on the Pink Sheets that releases all these monthly and weekly press releases trying to make them seem legitimate because they have no credibility that stands on its own, so they need to affiliate with credible and respected people to attract investors.
It is a whole different aspect as well, but shame on the credible people for selling out their integrity for a quick buck, but that`s where the size of the payments comes in, and Herbalife has spent quite a large sum of money to try and buy some marketplace credibility. Accordingly at high enough remuneration levels the temptation becomes too great for those who need the money – so they sell out the one quality that the multilevel marketing company needs to sell new recruits on this unique business opportunity – Market Credibility.
If you Don`t Know Anybody Who Buys Herbalife Products, then avoid Investing in Company
So needless to say Herbalife doesn`t offer any products that cannot be acquired through much cheaper means by consumers. They don`t offer any unique product offerings, they don`t own a whole bunch of patents, they don`t have one single revolutionary product. So you shouldn`t be investing in this company on its own merits.
Investing Options for Retail Strategy
Consequently is there any way to play this stock for the investor. The short answer is no, and here are the reasons why. The stock could by all accounts be a worthy short candidate, but with the big players who have publicly lined up against Bill Ackman, and once this has become an ego driven trade for some of these players, this for all practical purposes eliminates an investor taking a reasonable short position. Further exacerbated by the fact that if a short squeeze ever occurred, the stock could gap up so high that no effective stop loss could protect the investor.
Options Market: Hefty Premiums
I looked up the options prices even 16 months out, and there are no bargains to be found. The market makers are willing to sell the investor an option on the stock, but with a hefty insurance premium, in a liquidity fueled bull market that can keep poor company`s stocks afloat long after these options expire.
The investor would have to buy a strike for the option way out of the money, and hope that regulators step in, but this is a strategy that relies upon a lot of outside intervention – and I try to avoid those plays.
There are safer places to put your money as an investor than needing to have government or outside intervention for your position to work as an investor. This is a sign of a poor investment calculation, and more of a pure gambling play.
Game versus Investing
What about piggy backing upon the big players and try and force Ackman to cover his positions? Leave this to the big players as many of these players can hedge risk a lot cheaper than the average investor, and for some of these players it is more of a game than an investment.
Carl Icahn has more money than he will ever need in his remaining lifetime, he wants to win, but if he loses it is no big deal to his personal wealth as one of the wealthiest investors on Wall Street. This is a personal revenge issue between the two, and Icahn has the personal wealth to spare to play this game – regardless of the outcome; the Retail Investor doesn`t fit into this category.
Stock Gaps are Account Killers
Plus these guys are big, and they talk to each other discreetly, so they know when they are getting out of the stock, you as an average investor will be the last to know when the short squeeze party is over, or has failed altogether. The only sign you will receive is if the stock gaps down below your stop level, and forcing you to cover in a potentially account devastating manner on a crashing, free-falling stock that was at all-time highs.
Final Thoughts
In summation, the retail investor cannot go long the stock on its own merits, this is not an investable company with a great long-term future in product or market differentiation – this is not BMW or General Electric Company.
The retail investor cannot adequately control risk to play the short squeeze from a long standpoint on a short-term basis. In addition, the retail investor cannot take a short position in the stock because of the potential for the stock to gap above a reasonable stop on a short squeeze.
The options market is not a viable strategy either for the retail investor because the market makers are charg
ing too much premium for the possibility that some future volatility comes into play for this stock in either direction. So the risk reward equation makes no sense for the retail investor on this company.
There is no rational, sound investment theme for the retail investor in Herbalife. This is nothing to be sad about, this is part of investing, and there are plenty of legitimate investment opportunities in this market available that make sound investment sense for the retail investor.
Remember, it is just as important the money the investor doesn`t lose, than the money they could potentially make – always evaluate both sides of the equation when investing.
Article Update
We wrote this article before PricewaterhouseCoopers had finished re-auditing three years of Herbalife’s financial statements, and the stock soared to $81.75 on Friday December 20th. However, since then Herbalife has sold off contrary to the overall market, and now stands at $78.55 on December 24, 2013.
Again we think the audit news spurred some shorts to cover, and propelled some traders to take advantage of the news for a nice trade to the upside, but this will be short-lived in our opinion, as it seems to have presented a nice entry price for new shorts to put on a position to the downside. But experience has taught us that shorting in any market, let alone a bull market is not for the weak of heart, and we advise retail investors to just stay clear of this stock. However, in the end this is not going to end well for investors who are long the stock, Herbalife is just not a good company with a sustainable business model for the long term, and eventually this company and their lofty stock price comes crashing back to the level representative of a sham, multi-level marketing company with a finite supply of dimwitted recruits in the world.
Many Ponzi schemes work for a while, even create the illusion of great returns and earnings in the short-term, but as the legacy of such enterprises teaches investors, it is only a matter of time before the tide goes rolling out to Sea, and the newest investors are left shivering on the beach with no clothes on begging for justice.
| |
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/RH-0utwPQWE/story01.htm EconMatters