tag:blogger.com,1999:blog-5714588874324312932024-02-07T04:24:37.396-08:00Short Selling Stocks for PredatorsHow to Sell Short for aggressive investors. Not for shy, passive investors who wait for things to happen.John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.comBlogger28125tag:blogger.com,1999:blog-571458887432431293.post-20226374515248964032016-11-21T12:41:00.001-08:002016-11-21T12:41:10.447-08:00Death by Death Spiral<div style="margin-bottom: 0in;">
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What is a Death Spiral loan?</div>
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<span style="font-family: Times New Roman, serif;">A death spiral convertible note is simply one that converts into common stock at a percent discount to the stock's market price. The conversion price varies according to the dollar market price of the stock, without a floor on the conversion price. These securities are also called “future priced securities” as their dollar conversion price is set in the future when the conversion occurs. </span>
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<span style="font-family: Times New Roman, serif;">It is called a death spiral because when the holder converts and sells, it typically depresses the price of the common stock. The more the holder converts, the lower the price of the stock. </span>
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<span style="font-family: Times New Roman, serif;">The lower the price of the stock, the more stock the holder gets to sell.</span></div>
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<span style="font-family: Times New Roman, serif;">For example, the lender buys a note convertible into common stock at 50% of the then market price.</span></div>
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<span style="font-family: Times New Roman, serif;">When the holding period for purposes of Rule 144 is up, the holder can convert. The holding period for companies registered with the SEC is six months, and for non-registered companies it is one year.</span>
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<span style="font-family: Times New Roman, serif;">Assume the price is $10 per share. The holder converts into the stock a portion of the note and sells it. The selling drives the price down to $9. </span>
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<span style="font-family: Times New Roman, serif;">The holder then converts more stock and sells, driving the price to $8. </span>
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<span style="font-family: Times New Roman, serif;">After several iterations of this, the price can fall to the cellar – zero bid. </span>
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<span style="font-family: Times New Roman, serif;">With the stock depressed, the company has trouble raising money because it has to sell more stock to get the same amount of money. At $10, it has to sell one million shares to get $10 million. At ten cents, it has to sell one hundred million shares. This further dilutes the equity of the common stock and drives the price down. This is how the massive dilution is possible. </span>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="background: #ffffff;">I recently studied the loans made by one particular Death Spiral lender, loans to 31 companies in all. It is important to note that these companies got Death Spiral loans from many lenders, not just one. These loans had also aged enough to allow the lender to use Rule 144 to convert and sell the loan. </span></span></span>
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In a two-year period or less, virtually all of these companies lost 99% or more of their stock price and a large percentage of them went to zero bid.</div>
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From the point of view of a short seller, two points are important to note here:</div>
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Shorting companies that have accepted Death Spiral loans is like shooting fish in a barrel. Almost all of them will have total or near total destruction of their stock price.</div>
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Alas, these companies tend to be small companies with limited capitalization giving the short seller a small market to sell into.</div>
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John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-2239597965139100272016-06-14T07:41:00.001-07:002016-06-14T07:41:29.635-07:00Nifty New Tool to Fight Short Sellers <div align="LEFT" style="line-height: 0.17in; margin-bottom: 0in; orphans: 1;">
<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><br /><span style="color: black;">Shareholder Intelligence Services, LLC – (ShareIntel) </span>is a service for <span style="color: black;">public companies to obtain, aggregate, track and analyze shareholder trading information. Find it at ShareIntel.com. </span></span></span>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="color: black;">They have a proprietary patent pending web-based application they call the “Data Repository Information Link” system DRIL-Down</span><span style="color: black;"><sup>TM</sup></span><span style="color: black;">.</span></span></span></div>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><br />This allows public companies to track <span style="color: black;">broker-dealer, clearing firm and shareholder position movements. With ShareIntel you can track equity flows and identify suspicious, aberrant and/or unusual trading activity in your stock. </span></span></span>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;">You can also historically aggregate repository data from reporting entities, broker-dealers, and shareholders. </span></span></span>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><br />You can effectively identify, interpret and communicate shareholder and broker-dealer movement to the market.</span></span></span>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;">Companies can see stock price manipulation, insider trading, "naked" short-selling, market timing, violations of Rule 144, and corporate governance and compliance violations. </span></span></span><br />
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;">Truly successful stock trading and investor relations depends on getting all the data you can. The system is affordable and a must for public companies seeking to see below the surface of their stock price movement. </span></span></span>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;">Email Bradley Kline <<a href="mailto:bkline@globalselectadvisors.com">bkline@globalselectadvisors.com</a>> to get a demo. Tell him John Lux sent you. No, I am not being paid anything for this. </span></span></span>
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John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-86668102096980946162016-06-09T12:35:00.002-07:002016-06-09T12:35:18.400-07:00Reg A+ Portal Opportunity for Short Sellers?<span style="font-family: Georgia, Times New Roman, serif;">As a former IPO market maker for a Wall Street investment bank and as one who found short sales for short sellers, I would like to comment on Reg A+ IPO portals. </span><br />
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<span style="font-family: Georgia, Times New Roman, serif;">As I understand the model, the portal gets companies to list on the portal. The portal then helps the company beat the drum to attract investors. So far so good.</span><br />
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<span style="font-family: Georgia, Times New Roman, serif;">Presumably, the Reg A+ offerings will be smaller and more speculative. Institutional investor interest may be limited and the deal will be placed in some part with small, speculative individual investors. </span><br />
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<span style="font-family: Georgia, Times New Roman, serif;">Next, when the deal is ready, the investors buy the stock. </span><br />
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<span style="font-family: Georgia, Times New Roman, serif;">The issues raised are (1) when all the demand is filled, who buys the stock in the aftermarket, and (2) small holders are not necessarily the most stable. </span><br />
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<span style="background-color: white; color: #222222;"><span style="font-family: Georgia, Times New Roman, serif;">Historically , there are two IPOs that show the result of these factors.</span></span><br />
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<span style="font-family: Georgia, Times New Roman, serif;">First, Facebook filled all the demand for stock that it saw. Normally, for a hot issue, you make an indication of interest beyond what you actually want so you can wind up getting what you want. So if you want 100,000 shares, you may request 200,000. Now Facebook was a hot issue so people were making indications for many times what they actually wanted, believing that they would be greatly cut back.</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Facebook increased the offering at the last minute to fill all this demand, with the result that not only was there no buying power left, people had more than they actually wanted. The stock price dropped like a stone to nearly half price in a few months. There was no one left to buy in the aftermarket. No demand = price drop. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Second, Vonage sold to many customers who were small, perhaps even new, investors. The shorts, who love to look for vulnerable IPOs anyway, loved this and drove the price down in the aftermarket to panic these small investors into selling. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Thus, a process that fills all the demand by selling to small investors, is likely to be bait for short sellers.</span></div>
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<span style="font-family: Georgia, "Times New Roman", serif;">By the way, both these deals attracted plaintiffs' attorneys when the price fell. This is automatic. If the stock goes way down, the attorneys show up. Fortunately, they were both successful companies and went on to do well. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">IPO underwriters generally have something called a Green Shoe – <a data-saferedirecturl="https://www.google.com/url?hl=en&q=https://en.wikipedia.org/wiki/Greenshoe&source=gmail&ust=1465586543263000&usg=AFQjCNHkOYp6ZRHhjlFSh566QiaHeK1EaQ" href="https://en.wikipedia.org/wiki/Greenshoe" style="color: #1155cc;" target="_blank">https://en.wikipedia.org/wiki/<wbr></wbr>Greenshoe</a> -- which allows the underwriter to buy more stock in a deal. They can go short as much stock is covered by the Green Shoe with no risk because they can always cover the short with the Green Shoe. Thus, the underwriters can afford to support the stock in the immediate aftermarket.</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">I do not believe any portals will have Green Shoes. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Time will tell if Reg A+ deals attract short sellers. The offerings may not be large enough. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">The smart company will pay attention to its aftermarket. </span></div>
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John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-53439343415947861022016-06-01T07:30:00.001-07:002016-06-01T07:30:11.813-07:00Reg A+ Trumps Reverse Merger<iframe allowfullscreen="" frameborder="0" height="344" src="https://www.youtube.com/embed/pAH94rYH_GE" width="459"></iframe>John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-41746307450581504902016-05-01T17:54:00.001-07:002016-05-01T17:54:31.319-07:00Death Spiral Loan Securities Fraud<iframe allowfullscreen="" frameborder="0" height="270" src="https://www.youtube.com/embed/2D0f--xFvps" width="480"></iframe>John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-64154448753745489742015-06-08T16:52:00.003-07:002015-06-08T16:52:51.972-07:00The Case Against Herbalife <span style="font-family: Georgia, Times New Roman, serif;">http://thehill.com/blogs/congress-blog/judicial/244288-pyramid-scheme-disguised-as-a-business-opportunity</span><br />
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<span style="color: black;"><span style="font-family: Georgia, Times New Roman, serif;">June
08, 2015, 01:00 pm</span></span></div>
<h1 class="western" style="line-height: 100%; margin-bottom: 0in; margin-top: 0in; orphans: 1;">
<span style="font-family: Georgia, Times New Roman, serif; font-size: small;"><span style="color: black;">Pyramid
scheme disguised as a business opportunity</span></span></h1>
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<span style="font-family: Georgia, Times New Roman, serif; font-size: small;"><span style="color: #003366;">By Johanna
Amaya</span>
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<span style="font-family: Georgia, Times New Roman, serif;">Washington
is more concerned with politics and fighting than protecting
hardworking people. If someone blew the whistle on a company making
billions of dollars by scamming low-income Latinos, you would expect
the government would be more focused on stopping it. When it comes to
the pyramid scheme called Herbalife, the only thing anyone in
Washington wants to talk about is the Wall Street investor who
brought the company’s predatory business practices to light. As
someone who has lost a lot of money to Herbalife, I’m standing up
and asking why does nobody seem to care about the victims of this
pyramid scheme?</span></div>
<div style="margin-bottom: 0.16in; margin-top: 0.16in;">
<span style="font-family: Georgia, Times New Roman, serif;">I
became involved in Herbalife because I was promised the American
dream. I was told I would own my own business and make a good income
by selling protein powder and vitamins and getting others to sell as
well under me. That dream turned into a nightmare and I ended up with
a mountain of credit card debt. It troubles me to hear people say
that the situation with Herbalife is a battle between Wall Street and
Washington, DC. This takes the focus off the real issue, the
individual victims of Herbalife.</span></div>
<span style="font-family: Georgia, Times New Roman, serif;">It’s
not easy to talk about being a victim of a scam, but I am speaking
out because I don’t want people to forget what is at stake here.
Real people have lost money, some even lost their life savings,
because they joined a pyramid scheme disguised as a business
opportunity. I joined Herbalife after I was told I would “earn what
I was worth” by starting a “micro-franchise.” But this
“home-based business,” as it was called, cost me thousands in
credit card debt and countless hours of hard work that I will never
get back. I was required to invest in packages that promised to help
me find customer leads who would then buy my Herbalife products.
These packages were extremely expensive and worthless. I ended up
with over $30,000 in credit card debt and nothing to show for it!</span><br />
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<span style="font-family: Georgia, Times New Roman, serif;">I
am hardly alone as a victim of Herbalife’s scam. There are
thousands of victims like me, people who were simply trying to make
ends meet and ended up in a scam. Most people who join Herbalife will
earn nothing and many will actually lose money. In fact, according to
the company’s own data,88 percent Herbalife’s distributors never
receive a payment from Herbalife. The business scheme forces more
than 1,000 distributors to drop out daily. How much longer will I
hear about people who can’t pay their mortgage, put food on the
table, or make ends meet before someone does something to stop this
company?</span></div>
<div style="margin-bottom: 0.16in; margin-top: 0.16in;">
<span style="font-family: Georgia, Times New Roman, serif;">I
bet few people in Washington know about the stories of Herbalife
victims. Herbalife tries to change the subject by focusing on Bill
Ackman, a hedge fund manager who could make lots of money if the
government shuts down Herbalife. For years, Herbalife has made sure
that our story didn’t get told. It took the attention of a hedge
fund before people realized that Herbalife is intentionally targeting
low-income communities like mine. If Bill Ackman makes money out of
this that’s ok by me because it will mean that Herbalife is no
longer taking advantage of people like me. </span></div>
<div style="margin-bottom: 0.16in; margin-top: 0.16in;">
<span style="font-family: Georgia, Times New Roman, serif;">At
the end of the day, I hope that by sharing my story, people in
Washington start to realize that this isn’t about a hedge fund—it’s
about real people who have suffered real loss because they were duped
into a scam. Until people start talking about the victims, how can we
stop Herbalife from continuing to harm the vulnerable communities
with their lies and deceptions?</span></div>
<div style="margin-bottom: 0.16in; margin-top: 0.16in;">
<em><span style="font-family: Georgia, Times New Roman, serif;">Amaya
is a Southern California resident and victim of Herbalife’s
business structure. She filed a consumer complaint against Herbalife
Ltd with the California Attorney General’s office in April, 2015</span></em></div>
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John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-84185588346096476762015-04-26T18:36:00.001-07:002015-04-26T18:36:48.648-07:00HLF Deflates<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg22AoqJMjt4tJK-v6ghN4AcXHg58jzEfWuVs67aNBXaxm_4bUW6VZsFrBGJZIA6lAe0ZiIBoM03S1RX65aY4cklk1wycaNmvmE5IAdumDTN6EWzR2DA4OTFerKb_xUYeH0Uw6leZl-1Q/s1600/hlf+201504226.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg22AoqJMjt4tJK-v6ghN4AcXHg58jzEfWuVs67aNBXaxm_4bUW6VZsFrBGJZIA6lAe0ZiIBoM03S1RX65aY4cklk1wycaNmvmE5IAdumDTN6EWzR2DA4OTFerKb_xUYeH0Uw6leZl-1Q/s1600/hlf+201504226.png" height="240" width="400" /></a></div>
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Chart courtesy of StockCharts.com</div>
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Herbalife shed over six points in the last two sessions, on increasing volume.</div>
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Often you will find that a stock moves without apparent reason, only to find the reason appear in the news after the move.</div>
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Speaking as a former market maker, this stock looks set up for more selling and I would expect news to later explain why.</div>
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<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-49752232655739327642015-04-07T15:35:00.001-07:002015-04-07T15:35:54.329-07:00HLF Herbalife Counter Counter Attack<div class="group" style="background-color: white; box-sizing: border-box; color: #333333; font-family: proxima_nova_rgregular, 'Helvetica Neue', Helvetica, Arial, sans-serif; font-size: 18px; line-height: 28px;">
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<span style="font-size: 1rem; line-height: 1.5rem;">Now in the news, </span><a href="http://www.nbcnews.com/business/business-news/herbalife-contacted-law-enforcement-agencies-cnbc-n336301" style="font-size: 1rem; line-height: 1.5rem;" target="_blank">CNBC reports</a><span style="font-size: 1rem; line-height: 1.5rem;"> that f</span><span style="font-size: 1rem; line-height: 1.5rem;">ederal law enforcement agencies recently contacted 10 or so mostly top Herbalife members for information about their own business practices.</span></div>
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<span style="font-size: 1rem; line-height: 1.5rem;">CNBC also says Herbalife has received inquiries about irregular trading in its stock as part of a broader investigation into possible market manipulation.</span></div>
<div style="box-sizing: border-box; font-size: 1rem; line-height: 1.5rem; margin-bottom: 1rem; margin-top: 1rem;">
<span style="font-size: 1rem; line-height: 1.5rem;">This is significant because it is a great counter to the recent report that the FBI was questioning people who were advocating for the shorts, which itself was a brilliant counter attack on the shorts. </span></div>
<div style="box-sizing: border-box; font-size: 1rem; line-height: 1.5rem; margin-bottom: 1rem; margin-top: 1rem;">
<span style="font-size: 1rem; line-height: 1.5rem;">As I understand this type of marketing, the leading distributors have spent years developing networks of distributors under them. If any of them leave, they could take a huge team of marketers with them. However, where would they go if they left? They may be tied in to </span><span style="font-size: 1rem; line-height: 1.5rem;">Herbalife with no place to go. </span></div>
<div style="box-sizing: border-box; font-size: 1rem; line-height: 1.5rem; margin-bottom: 1rem; margin-top: 1rem;">
<span style="font-size: 1rem; line-height: 1.5rem;">Now hear the brilliant counter to the counter to the counter. </span><span style="font-size: 1rem; line-height: 1.5rem;">When asked for a comment Herbalife spokesman told CNBC that t</span><span style="font-size: 1rem; line-height: 1.5rem;">here is reportedly an ongoing federal criminal investigation into the Ackman campaign against Herbalife "for stock manipulation and law enforcement and regulators have recently sought information from Herbalife and others relating to that investigation as well as trading in Herbalife shares and allegations about our business practices. We are cooperating with these requests for information, remain confident in the integrity of our business practices, and are hopeful Ackman's long-term campaign of distortion will be found to be illegal."</span></div>
<div style="box-sizing: border-box; font-size: 1rem; line-height: 1.5rem; margin-bottom: 1rem; margin-top: 1rem;">
<span style="font-size: 1rem; line-height: 1.5rem;">In other words if you believe Herbalife, and we make no judgment on the merits of one side or another, Ackman is the lawbreaker and the manipulator being investigated, not HLF. </span></div>
<div style="box-sizing: border-box; font-size: 1rem; line-height: 1.5rem; margin-bottom: 1rem; margin-top: 1rem;">
It is often very effective to accuse your enemy of what he accuses you of. If people will listen to his allegations of one type of misconduct, they will listen to your allegations of that same type of conduct. This will at least produce a stalemate. </div>
<div style="box-sizing: border-box; font-size: 1rem; line-height: 1.5rem; margin-bottom: 1rem; margin-top: 1rem;">
As one who investigates stock market misconduct, when a suspect makes bitter allegations against someone that are unfounded, we immediately look for the accuser's misconduct of the same type. The accusers accuse others of doing what they are doing. This is a wonderful investigative tool. </div>
<div style="box-sizing: border-box; font-size: 1rem; line-height: 1.5rem; margin-bottom: 1rem; margin-top: 1rem;">
Again we make no judgment here on one side or another. We are not enough familiar with the facts and we note both sides are making similar allegations. </div>
<div style="box-sizing: border-box; font-size: 1rem; line-height: 1.5rem; margin-bottom: 1rem; margin-top: 1rem;">
We simply note these things as being of interest to those shorting or fighting shorts. </div>
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Attack, HLF is illegal, counter attack is that Ackman is illegal, counter counter is HLF is being investigated by federal law enforcement authorities, and counter to the counter counter, Ackman is the one being investigated. </div>
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Great game!</div>
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John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-15932153342783815382015-03-23T03:26:00.002-07:002015-03-23T03:26:38.291-07:00Short Selling Strategy -- Starting a Panic <div style="margin-bottom: 0in;">
<span style="font-size: medium;">One goal of a predatory
short seller may be to cause a panic among the enemy. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Let us define the state we
want to create. We want a state of fear that is so intense, so
frantic, that it overwhelms and dominates thinking to create the
actions we want. We want this to be a contagious group state. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">So imagine the stampede
for the exits when someone yells “Fire!” in a crowded theater.
The audience panics and clogs the exits with bodies. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Would you not like the
shareholders to panic and run for the exits by selling such that this
stampede of selling at any cost drives the stock to next to nothing?</span></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Would you not like
managers to be paralyzed and not know what to do? Wouldn't you want
them to stop their duties and start frantically circulating resumes? </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Wouldn't you want the
customers to jam the phones with requests for refunds?</span></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Note that this has to be a
sudden, overwhelming attack from which recovery is impossible. Over
time, anyone can get used to anything, change, adapt and eventually
recover. No! You want smashing direct hit destruction of all systems.
</span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Note also that if the mind
is totally taken up with panic, logical thought, productive thought
is impossible and wild action, even that which would cause the
destruction of the entity involved can happen. The people rushing to
the exits can be trampled to death, not having the presence of mind
to realize that they need to take other action. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Short sellers can attack
various groups: target shareholders, company management, company
employees, and customers. They can attack all of these at once. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">What causes the type of
panic we want? </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Real or imagined immediate
threats to survival. Not seeing any hope, being unable to move or
respond, being surrounded, all are things that can cause panic. Not
seeing any prospect for help or rescue. Having too much to handle.
Stress. Weakness. Confusion. For unethical companies, the threat of prosecution. The fear that others will sell before you can. </span></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">While a team can help
provide its members with courage, panic is a herd disease that
infects groups rapidly. Being part of a herd makes you more
susceptible. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Being in a new situation
makes one more susceptible. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Note also that you can
have buying panics. The short sellers are panicked about their losses
and want to cover at any price. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">Can you protect against
panic? At some level, no. Even the most well trained soldiers can
fall into panic. However, good training can ward off most panic. Good
leadership can stop a panic. Good leaders are immune from herd
instinct. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">It is interesting to me
that some soldiers in a threatening situation will hunker down and
fight to the death they know must come, while others panic and run
(only to be killed without killing any enemies). Recall the
determination of the Spartan 300 at Thermopylae. </span>
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<span style="font-size: medium;">In my opinion you find
short selling opportunities when you have a bubble caused by investor
herd behavior that drives prices beyond all reality, and you the find
that this herd is that much more susceptible to panic on the way
down. One a herd, always a herd. Herds can be stampeded.</span></div>
John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-60779795077633529422015-03-22T18:43:00.000-07:002015-03-22T18:43:06.745-07:00Herbalife HLF Counter Attack<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
Events are as reported as follows:</div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
Bill Ackman of Pershing Square has been shorting Herbalife (HLF). </div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
<span style="font-size: 14.9999990463257px;">He has been involved in formal investigations of HLF already opened and ongoing by the SEC and FTC.</span></div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
<span style="font-size: 14.9999990463257px;">Now the </span><span style="font-size: 14.9999990463257px;">FBI and federal prosecutors are interviewing people related to Ackman and asking for documents, looking for potential Herbalife stock manipulation, according to </span><a href="http://www.wsj.com/articles/prosecutors-interview-people-tied-to-ackman-in-probe-of-potential-herbalife-manipulation-1426196822" sl-processed="1" style="color: #00709a; font-size: 14.9999990463257px; text-decoration: none;">The Wall Street Journal</a><span style="font-size: 14.9999990463257px;">. </span></div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
<span style="font-size: 14.9999990463257px;">It appears that prosecutors in the Manhattan U.S. attorney’s office and New York field office of the FBI are looking into whether people, including some hired by Mr. Ackman, made false statements about Herbalife’s business model to regulators and others in order to spur investigations into the company and lower its stock price. </span></div>
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<span style="font-size: 14.9999990463257px;">The result of this report was immediate and dramatic:</span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMHPyZht4Am7hjs4tP0YH4CkLuE0X34QNtqinMKj8QI8q-uidYMnTLR56_KDwaylb2me30U-5776vBqQrVBbUu-djd9Axa1wN3HPNiLBSC4bC_MwmjUKhfEm-HUYVMvVY1O9gdsv_f8w/s1600/hlf++20150321.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMHPyZht4Am7hjs4tP0YH4CkLuE0X34QNtqinMKj8QI8q-uidYMnTLR56_KDwaylb2me30U-5776vBqQrVBbUu-djd9Axa1wN3HPNiLBSC4bC_MwmjUKhfEm-HUYVMvVY1O9gdsv_f8w/s1600/hlf++20150321.png" height="240" width="400" /></a></div>
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Chart courtesy of Stockcharts.com </div>
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<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
<span style="font-size: 14.9999990463257px;">G</span><span style="font-size: 14.9999990463257px;">lobal Strategy Group, the consultancy firm hired by Ackman, said they are not the target of any investigation into potential manipulation of Herbalife's stock, and </span><span style="font-size: 14.9999990463257px;">Ackman told CNBC's Scott Wapner on Friday that he was aware that Global Strategy Group, a consulting firm he hired, had been contacted by the FBI. </span><span style="font-size: 14.9999990463257px;">Ackman made very clear, however, that neither he nor his hedge fund had been contacted by the FBI or Department of Justice. H</span><span style="font-size: 14.9999990463257px;">e reiterated to Wapner his conviction Herbalife was a pyramid scheme and he explicitly said he had made no false statements about Herbalife. </span><br />
<span style="font-size: 14.9999990463257px;"><br /></span>
A lawsuit against HLF for fraud was also dismissed. While it will no doubt be re-filed, but this adds to the bad news for the shorts. The shorts are now on the defensive and find themselves having to explain things. Hence, the stock is strong. </div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
<span style="font-size: 14.9999990463257px;">My analysis:</span></div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
<span style="font-size: 14.9999990463257px;">Ackman has attacked a company with huge cash flow. HLF has had to defend itself over the years against many attacks, including a congressional investigation. HLF is therefore experienced at defense and well fortified.</span></div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
<span style="font-size: 14.9999990463257px;">If you are going to attack a well defended fortress, you do not do it with a frontal attack. </span></div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
<span style="font-size: 14.9999990463257px;">The proof of this is that even though Ackman was successful in getting investigations going he did so at great cost in terms of his lobbying bill and having to endure being squeezed in the market. </span><br />
<span style="font-size: 14.9999990463257px;"><br /></span>
<span style="font-size: 14.9999990463257px;">HLF has outspent him in their lobbying efforts. After all their survival is at stake. </span></div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
We think perhaps that now some bulls in the stock are making a counter attack on the bears and have gotten the authorities interested in investigating the bears. Who could have planted, I mean leaked this news to The Wall Street Journal?</div>
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The result of this investigation being announced were evident in the jump in price. </div>
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Here we have a case where the company actually counter-attacked. They got a noisy investigation going that has a strong element of threat to the shorts. It is not a defense of their business model, it is a direct threat to the shorts. Public investigations are always a wonderful tool. <br />
<br />
The result of this counter attack has been very beneficial for the company. <span style="font-size: 14.9999990463257px;">Where denials issued by the company have been ineffective, this public attack on the enemy has been effective. Let this be a lesson to all companies under attack by short sellers. </span><br />
<span style="font-size: 14.9999990463257px;"><br /></span>
<span style="font-size: 14.9999990463257px;">We still doubt that this will be much more another temporary back and forth battle between two well financed adversaries. </span></div>
<div style="font-family: Helvetica, Arial, sans-serif; font-size: 14.9999990463257px; line-height: 20px; margin-bottom: 10px;">
HLF is slowly bleeding out but Ackman is not getting a return on his investment. We think the smart money is on Ackman to win a very long and costly war. Ackman has enough money to keep his short position forever.<br />
<br />
The moral of the story is to win by overwhelming the enemy. One overwhelms by making a huge attack that cannot be countered or handled. Surprise is key. You have to attack by getting there "firstest with the mostest."<br />
<br />
Trench warfare stalemates are not productive of high return on investment for short sellers.<br />
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John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-16671708665336936222015-02-27T10:36:00.001-08:002015-02-27T10:36:05.837-08:00Short Selling Technique of Market Makers<div class="separator" style="clear: both; text-align: center;">
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<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-21993101342499932462015-02-27T08:21:00.003-08:002015-06-16T17:41:42.333-07:00Why the Short Sellers Attack Your Stock<div class="separator" style="clear: both; text-align: center;">
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<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-10703503452924386572014-11-15T18:08:00.002-08:002014-11-15T18:08:35.969-08:00Stopping the Company from Uplisting I believe short selling is an epidemic in the OTC markets just now.<br />
<br />
While some listed companies can escape short sellers if they have merit, a low price, and are not otherwise suitable for attack, OTC companies generally are under a cloud.<br />
<br />
First, the general opinion, not without merit, is that most OTC stocks are a short sellers dream because:<br />
<br />
These companies are not managed by persons experienced in the treachery of the stock markets. These managers do not realize that a short attack means a life and death battle. Thus, the company sits there without taking any defensive action and so bleeds to death under the continual attack of a predatory short. Even if a defense is mounted, defense is a losing game -- only attacking back will drive off a short seller. I do not recall seeing any such attack on a short seller, although counter attacks are common in hostile takeover fights over listed companies.<br />
<br />
These small companies often are not managed by experienced executives. Successful management of a growing company is a art and a very difficult one at that. One wrong turn and the company falls prey to the vultures.<br />
<br />
The entire OTC market is under a cloud with investors and regulators because of frequent abuses by promoters.<br />
<br />
Many institutions and other sophisticated investors will not consider low priced or unlisted securities.<br />
<br />
The resources of the shorts often exceed the resources of the company.<br />
<br />
OTC companies are often long on dreams and short on substance.<br />
<br />
OTC companies often lack positive cash flow.<br />
<br />
Generally, longs do not rise to the defense of an OTC company when it is attacked. It is their opinion that being sold short is a sign of something wrong and they do not want to take any unnecessary risk. Why swim upstream?<br />
<br />
Thus, it is natural for a growing company to want to uplist, to go to a higher exchange or trading venue.<br />
<br />
However, such markets require for listing a minimum stock price. Often the company's stock is well below this price. Management orders a reverse split to get the price over the required threshold.<br />
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The shorts, as with anything that would benefit the company, immediately try to kill the uplisting effort by blasting the stock back down below the threshold. This will prevent the uplisting. Hopefully, it will demoralize the longs and management as well and cause them to realize that the stock is caught in quicksand -- the more you struggle in quicksand, the more you sink in.<br />
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This post is written with one recent example in mind. I will not embarrass management by naming it or showing you the chart.<br />
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This was a Pink Sheet company, a product of a reverse merger. The operating company has millions in revenue and even paid a dividend. The idea was to get the stock over $1.00 and make the company fully reporting, a worthwhile goal for a worthwhile company.<br />
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A one for 50 reverse split was done and the stock traded over $2.50 per share. At that point the company must have figured they were all set to meet with $1.00 target.<br />
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Yet their joy was short lived. Seven months later the stock hit $0.25 -- dropping 90% and putting it below the $1.00 target.<br />
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And this company had a stock repurchase program!<br />
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<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-27978235605555589282014-11-14T13:16:00.002-08:002014-11-14T13:16:29.260-08:00Short Selling -- Stopping the Company from Raising MoneyOne of the great techniques of predatory short sellers is to keep the price of the company stock down.<br />
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Now you might think that a short seller would want to increase the price so he could increase his line at a high price.<br />
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However, for a company that has negative cash flow, or a company that needs to raise money, a los stock price will cause the company to raise money at lower prices causing more dilution and thus decreasing the value of the stock.<br />
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If the price is low enough, it may stop financing altogether. Some institutions have rules about avoiding low priced stock and if you push the price down below their lower limit, finance dries up.<br />
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A declining stock price can also cause morale problems among shareholders, employees, and even customers. A declining stock price or a low stock price is taken as evidence of some defect. Key employees with stock options are sensitive to the stock price.<br />
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Thus, aggressive predatory short sellers want the price to go down, to continue to do down and to stay down.<br />
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As the short seller only recognizes taxable gain when he closes out his position, he may not want the company to fail entirely, just to stay comfortably and surely in the land of the living dead with a price in the cellar and no chance of jumping back to life.<br />
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This was a wonderful technique in the days of naked short selling as you could short more than the outstanding stock and by using the laws of supply and demand push the stock into oblivion by destroying all attempts to get new money.<br />
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Personally, I find it too predatory to destroy companies with potential just by pushing the price down. We are here to benefit people, not hurt them. We only want to hurt scammers and bums.<br />
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This is why it is so wonderful to find some real crooks out there working a manipulation and crush them. You can attack without reservation. Where else do you have this license?<br />
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<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-16685377860262781082014-08-24T07:11:00.001-07:002014-08-24T07:22:38.356-07:00Short Selling -- The One Thing that Crushes the EnemyWhat most people, in fact all the people I know of, do not realize is that there is always one thing that causes your enemies to collapse.<br />
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So if you are a short seller wanting to crush a stock price or a company, you can find, even if you think not, one thing that causes them to collapse instantly.<br />
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Short selling should not be a battle of years, a war of attrition.<br />
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Remember you are going for a fast return on your investment as that maximizes return on investment -- ROI is measured as a percentage per year, not a percentage per millenia.<br />
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50% ROI in one year is great, 50% ROI in ten year sucks -- think of all the risks you took to get there.<br />
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You will know when you find the one thing because the stock price dives and terminates in a total win.<br />
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The one thing causes the enemy to flee the battlefield, causes them to retreat in a panic.<br />
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The one thing cause the stock to drop like a burst balloon.<br />
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The one thing takes a hardened enemy with all guns blazing and makes them collapse into a fast and unconditional surrender. From machine gun blasts to white flag as fast as the flag can be shown.<br />
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Unless your attack causes these results you have not found the one thing.<br />
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The same is true of companies fighting off short sellers -- the one thing causes the shorts to cover and go away fast.<br />
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A careful study of stock market and military battles shows that the one thing, when found, works magic.<br />
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What causes soldiers to panic and flee and what causes boards of directors to head to Brazil? There is your answer.<br />
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Now if you don't know there is always one thing, you are going to be trying all sorts of moderately useful solutions, but you will not get the result you want.<br />
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Find the one thing from experience, from thought, from testing. Find it any way you can, but find it.<br />
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You do not need huge resources to win, only the one thing.<br />
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<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-30107893611061252992014-05-30T15:04:00.001-07:002014-05-30T15:04:03.703-07:00FOIA Request for SEC's Naked Short Fileshttp://www.marketwatch.com/story/journalist-sues-sec-to-get-naked-short-selling-files-2014-05-29<br />
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Mark Mitchell, who writes on www.deepcapture.com, has filed a <span style="font-family: 'Open Sans';">Freedom of Information Act lawsuit against the Securities and Exchange Commission (SEC) to obtain the agency’s investigative files relating to more than a dozen aborted investigations and cases involving naked short selling.</span><br />
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This will be interesting. First, the SEC never released results of the investigation into the Bear Stearns case. Second, there have not been many naked shorting cases brought, yet it seems like there were more than a few cases of this abuse.<br />
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Stay tuned for further developments. . . .<br />
<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-2324083824143639962014-04-13T06:20:00.001-07:002014-04-13T06:20:39.777-07:00Short Selling -- Research and DestroyIf you had not noticed, or if you have not participated, there is a technique I call "research and destroy."<br />
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A stock researcher finds a short sale candidate. This stock may have some hidden fraud, or weak holders, or some other vulnerability. He does his homework and if he does not have his own short fund, he tells those who do.<br />
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They all short the stock and once they have a good position, with great fanfare they publish the hit piece on the stock with huge publicity.<br />
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The stock craters and the shorts have one of the best trades in the world -- a sure thing and a short term sure thing at that.<br />
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Never mind the merits of the company or that the research of the shorts is questionnable, the important thing is scaring the weak shareholders into dumping the stock.<br />
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With a fast hit like this, a drive by shooting, no one has a chance to dig into the real facts.<br />
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The media, hungry for news, and loving stories that invalidate things and people, give the researcher's claims a wide distribution.<br />
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This starts the stampede of the longs to the exits and with the resulting short term imbalance in supply and demand the price goes into free fall.<br />
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Only after a month or two can the stock recover if the selling is unwarranted.<br />
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But who cares, the shorts have their fast profits and time to cover at leisure.<br />
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Risk to the shorts = almost zero. The only question is how far the stock will go before it is time to close out the trade.<br />
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Now it helps if the stock is that of a Chinese company traded in the United States as these companies are under a cloud and they do not know how to defend themselves from short sellers.<br />
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The big shorts have someone else act as the front man in the media. The big boys like privacy and why put yourself out there to be sued when you can pay someone else to be the public mouthpiece and take the heat.<br />
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Where else are you going to find a short term sure thing like this? You put up 50% of the price to go short. If the stock drops about 50%, so you have a 100% profit in a few months. What is the worst that can happen? The stock does not drop on the hit? So you cover even and lose nothing.<br />
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Research and destroy.<br />
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<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-71507994181787900502014-03-16T13:40:00.000-07:002014-03-16T13:50:31.603-07:00Herbalife - HLF - conflict wastes time Much news this week on Herbalife (HLF).<br />
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The <i>New York Times</i> put up a well written piece covertly criticizing Ackmann for lobbying and revealing the million of bucks spent by HLF on counter-lobbying : <a href="http://www.nytimes.com/interactive/2014/03/10/business/10ackman-herbalife-documents.html" target="_blank">The Herbalife War</a><br />
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Both sides are hiring people who are connected in an attempt to influence the regulators.<br />
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Ackmann scored a big win when the <a href="http://dealbook.nytimes.com/2014/03/12/herbalife-discloses-f-t-c-inquiry/">FTC opened an investigation</a>, yet <a href="http://finance.fortune.cnn.com/2014/03/13/herbalife-ftc/">HLF's allies say the result of this FTC action will not be very expensive to HLF. </a><br />
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Here is the chart showing the surprise hit, the eventual comeback to higher prices that caused Ackmann to take a huge loss, and the recent hit when the FTC investigation is announced.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZX2wkEQODXb1f1yqFXZ0AcBtn_RmR0nP3Qv1pnodeXVlKtxSAbN0rd2Arr5YH3m_-3r3TD2zdc76qbFYg6bQHyCSDRBLJoi67FyMPKYnTwsBzEomZu33ZxbS7fUZksrZRKDoYil7HEQ/s1600/HLF+20140314.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZX2wkEQODXb1f1yqFXZ0AcBtn_RmR0nP3Qv1pnodeXVlKtxSAbN0rd2Arr5YH3m_-3r3TD2zdc76qbFYg6bQHyCSDRBLJoi67FyMPKYnTwsBzEomZu33ZxbS7fUZksrZRKDoYil7HEQ/s1600/HLF+20140314.png" height="240" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">HLF -- Chart courtesy of Stockcharts.com</td></tr>
</tbody></table>
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<b>Missing the Point </b><br />
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I maintain that both sides are missing the point.<br />
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The idea is not to expend massive resources for huge battles. These resources are expensive. Expensive advisers, even though they may be people of great reputation and integrity, have a built in interest in keeping the battle going, do they not?<br />
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Huge battles between two well financed adversaries are seldom conclusive; they just wound both sides.<br />
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Continuing the battle is expensive for the company as it continues to be under a cloud, stifling its survival.<br />
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Continuing the battle is expensive for the short as he has to pay interest on the money to carry his position,, has to pay to borrow stock, and still has to make a return for its investors. This all adds up.<br />
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The trick is to find that one point that causes the enemy to lose power and collapse like a balloon stuck with a pin.<br />
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This is why you look for air bubble stocks to short, they are easy prey. Chinese companies have been fun shorts as they do not know how to defend themselves and there has been a number of scams that inflict the reputation of the whole sector. One wonders if anyone is enthusiastic about protecting Chinese companies trading in the U.S. given these past scandals.<br />
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This is why you do not short stocks that have many millions in cash flow. While you may get a fast win that feels good, like the attack on Pearl Harbor, the enemy becomes enraged and comes after you with all their resources, like bombing two cities with nukes. See the chart above. Notice that Ackmann had his fast drop from his surprise attack, and then HLF came back and caused him huge losses.<br />
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Now if you are locked in one of these battles, you still need to find that one point that will deflate the enemy instantly.<br />
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You will know you have found it when the enemy runs away so fast you cannot folllow him.<br />
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Then it is not a war any more than stepping on a cockroach in your kitchen is a war.<br />
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Yet you had better find this attack point fast or you will be slowly losing energy while you expend big bucks holding your position while the enemy gains strength.<br />
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I am not going to tell you any more valuable trade secrets in public. If there are those expending many millions to fight these battles, hiring the smartest and most powerful people out there, and they still have not found it, it must be rare and valuable information, yes?<br />
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This may give you food for thought -- what type of thing could this be, how do I find it, how do I exploit it?<br />
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<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-65300254852175015722014-01-24T08:41:00.001-08:002014-01-24T08:41:51.365-08:00Herbalife and the Short Sellers<span style="font-family: Georgia, Times New Roman, serif;">Herbalife (HLF) has been under attack for months by short sellers but the stock has performed well, urged on by long traders like Carl Icahn. </span><br />
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<span style="font-family: Georgia, Times New Roman, serif;">It is now announced that <a href="http://dealbook.nytimes.com/2014/01/23/senator-calls-for-inquiry-into-herbalife/?_php=true&_type=blogs&_r=0">Senator Mackey of Massachusetts has written to the SEC and the FTC </a>asking them to investigate HLF.</span><br />
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<span style="font-family: Georgia, Times New Roman, serif;"><a href="http://www.latimes.com/business/money/la-fi-mo-california-attorney-general-to-meet-with-herbalife-critics-group-says-20140123,0,3491882.story#axzz2rJrw1vEe"><span style="background-color: white;">California Atty. Gen. </span>Kamala D. Harris</a><span style="background-color: white;"><a href="http://www.latimes.com/business/money/la-fi-mo-california-attorney-general-to-meet-with-herbalife-critics-group-says-20140123,0,3491882.story#axzz2rJrw1vEe">' staff has agreed to meet today Friday i</a>n Los Angeles with a coalition of critics who believe that </span><a class="taxInlineTagLink" href="http://www.latimes.com/topic/economy-business-finance/herbalife-limited-ORCRP007233.topic" id="ORCRP007233" style="color: black; text-decoration: none;" title="Herbalife Limited">Herbalife Ltd.</a><span style="background-color: white;"> preys on poverty-stricken immigrants with false hopes of easy money.</span></span><br />
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;">When you have predatory or activist short sellers, you can expect a public relations battle to begin.</span></span><br />
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;">Just as the lion kills its prey by grabbing the prey's throat in its mouth and squeezing off blood to the brain, a predatory short seller will gradually cut all supp0rt for its victim. </span></span><br />
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;">We have in HLF an interesting situation because the company's case is flawed at best -- 88% of its distributors do not make a dime, because the company has almost $800 million in EBITDA, and because we have an investor with relatively unlimited resources, Carl Icahn, buying up the stock with the intention of squeezing the lead short seller, Bill Ackman, with whom he has a grudge. Carl is an expert at using the media to publicize his investments. </span></span><br />
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<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;">We see the resources each side has, we can expect an excellent public relations contest.</span></span><br />
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;">The shorts, with almost 20 million shares short as of the end of the year, are probably pushing these latest two announcements. </span></span><br />
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<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;">In retaliation, HLF has said it is "eager" to address the Senator's concerns at his earliest convenience. This is a good reply by a competent staff that is used to defending the company and its business.</span></span><br />
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<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;">The shorts seem intent on recruiting powerful allies in the government, both in California and with two federal agencies. </span></span><br />
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;">As a short you want the attack vectors focused on the target. You want force multipliers from entities that are more powerful than your target. </span></span><br />
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: Georgia, Times New Roman, serif;">These attacks come at a good time for the shorts as the stock seems to have been high priced even if its business model is a valid one.</span></span><br />
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<span style="font-family: Georgia, Times New Roman, serif;">Chart courtesy of Stockcharts.com</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Thus we see a lovely move from over $80 to almost $60. I am sure the shorts are hoping this will start some momentum on the downside. No doubt they would like to panic and institutional holders into seeking a safer stock and one that is not accused of preying on the public. In fact I doubt that the stock will ever see $80 again. I believe the shorts will eventually bring it down but the battle will take years and be very costly. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">What seems unusual to me is that the shorts would attack a company with billions in revenues and almost $900 million in cash to protect itself. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">After all, lions, crocodiles and other predators all go after the weakest member of the herd, not the strongest. In war, you attack where the enemy is weak. You do not make a frontal assault on a heavily defended position. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">As a short seller, you want stocks that tank fast after a big hit, not a long, drawn out expensive war. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">There are many tools left for both sides to use. I believe it is a mistake not to use them all at once. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">The power of Herbalife is that it can recruit new distributors. All this publicity cannot be helping. While it is good to try to recruit the government, to rely on that as your only attack is a big mistake as you cannot control it. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">On the other side, the longs just seem intent on talking up their position. I do not see them directly attacking the shorts, other than making the price go up. As we saw this week, it is a mistake to rely only on this. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">In a life or death battle, shorts only stop attacking when you are almost dead. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">We look forward to being a spectator on this one. </span></div>
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<span style="font-family: Georgia, Times New Roman, Times, serif;"><span style="background-color: white; font-size: 14px;"><br /></span></span>John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-72451220730257670322013-12-01T05:48:00.000-08:002013-12-01T06:10:01.365-08:00Shorting Pump and Dump Stocks One of the wonderful things about shorting stock promotions, or pumps and dumps, is the chance that the regulators might come in and nail them while you are short.<br />
<br />
This makes for instant profits.<br />
<br />
Let's take the example of Life Stem Genetics, Inc. LIFS.<br />
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I received in the mail a promotional brochure telling me that buying LIFS is like owning stock in the fountain of youth.<br />
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Checking the chart, I found that the stock was making a steady climb, indicating a successful promotion.<br />
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However, things seemed to have gone astray:<br />
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<div style="background-color: white; border: 0px; font-size: 13px; line-height: 19px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Courier New, Courier, monospace;">SECURITIES EXCHANGE ACT OF 1934</span></div>
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<span style="font-family: Courier New, Courier, monospace;">Release No. 70933 / November 25, 2013</span></div>
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<span style="font-family: Courier New, Courier, monospace;">The Securities and Exchange Commission ("Commission") announced the temporary</span></div>
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<span style="font-family: Courier New, Courier, monospace;">suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the "Exchange </span><span style="font-family: 'Courier New', Courier, monospace; font-size: 13px; line-height: 19px;">Act"), of trading in the securities of Life Stem Genetics Inc. ("Life Stem"), of Beverly Hills, </span><span style="font-family: 'Courier New', Courier, monospace; font-size: 13px; line-height: 19px;">California, commencing at 9:30 a.m. EST on November 25, 2013, and terminating at 11:59 p.m. </span><span style="font-family: 'Courier New', Courier, monospace; font-size: 13px; line-height: 19px;">EST on December 9, 2013.</span></div>
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<span style="font-family: Courier New, Courier, monospace;">The Commission temporarily suspended trading in Life Stem because of questions regarding the </span><span style="font-family: 'Courier New', Courier, monospace; font-size: 13px; line-height: 19px;">adequacy and accuracy of information about Life Stem, including, among other things, its </span><span style="font-family: 'Courier New', Courier, monospace; font-size: 13px; line-height: 19px;">business operations.</span></div>
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<span style="font-family: 'Courier New', Courier, monospace; font-size: 13px; line-height: 19px;">_____ </span></div>
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<span style="font-size: 13px; line-height: 19px;"><span style="font-family: Times, Times New Roman, serif;">Oops!</span></span></div>
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<span style="font-size: 13px; line-height: 19px;"><span style="font-family: Times, Times New Roman, serif;">Here is the chart, courtesy of those nice folks at Stockcharts.com:</span></span></div>
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<a href="http://1.bp.blogspot.com/-84rZPMbhYUA/Ups8t-4idsI/AAAAAAAAT1I/2AapOI-HSYA/s1600/LIFS+20131129.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Times, Times New Roman, serif;"><img border="0" height="240" src="http://1.bp.blogspot.com/-84rZPMbhYUA/Ups8t-4idsI/AAAAAAAAT1I/2AapOI-HSYA/s400/LIFS+20131129.png" width="400" /></span></a></div>
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<span style="font-family: Times, Times New Roman, serif;">Naturally, an aggressive, professional short seller will be happy to inform the regulators of the fruits of its research. </span></div>
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<span style="font-family: Times, Times New Roman, serif;">However, this does not always work. In fact, it may be more often that it does not work. Regulators are overloaded and may not feel motivated to attack your particular stock. Companies fight back and will be ready to counter any presentation you may make. You may even be sued by the company for slander. </span></div>
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<span style="font-family: Times, Times New Roman, serif;">Nonetheless, informing the regulators of a documented fraud is a good thing to do. It serves the public good and your pocketbook. There is little downside risk and the profit potential is enormous. </span></div>
John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com1tag:blogger.com,1999:blog-571458887432431293.post-52085049759074242402013-11-20T06:56:00.000-08:002013-11-20T06:56:06.471-08:00Economic Shorts There are two basic unannounced theories of short selling, or indeed long investing.<br />
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The first you might call cheap investing. The investor buys something that is under-priced. He is looking for a value, a cheap stock.<br />
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In this method, you run the risk of having false information from the company.<br />
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The second depends on predictions of the future, usually based on some economic analysis.<br />
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Now there is nothing wrong with economic analysis. I have nothing against those who struggle with inaccurate government reports, sudden surprises, unforeseen developments, and all the twists and turns of fate. However, somehow economists have developed a reputation for being mostly wrong, like long term weather forecasts.<br />
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The effects of losing your capital are so crippling that exposing it to the risks of economic forecasts is a very brave act that is well known to many hedge fund managers who have large losses.<br />
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There are just too many imponderables in the future to be betting your money on it.<br />
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Even when you buy $1 for fifty cents, you may find nasty surprises. There are investors who have purchased stock in a company at a price below the cash per share that is in the company, only to find that they still lose money.<br />
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However, these losses are very rare compared to the losses to those who predict the stock market or the economy.<br />
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We are often told that market timing is a losing game. In fact, it may be.<br />
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Now when you go short, you want to be shooting fish in a barrel, not stabbing blindly into the ocean.<br />
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The truly aggressive short seller is not content to take position and wait for the future to happen, he makes it happen.<br />
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At the least the short makes a big public announcement of his discovery so that the long holders will be stampeded out and new shorts may come in to assist.<br />
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He may go further than that and try to start government or media investigations, inform customers, employees, suppliers, sources of finance and those who assist the victim.<br />
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In doing so, he risks suits for slander, interference with business relations, and securities law claims.<br />
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A wise victim investigates the accusers and any dirt found may be used against the short.<br />
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So some shorts have developed the strategy of using fronts or attacking from a hidden position.<br />
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The allegation has been made that the people who were short mortgage securities for large profits financed various seemingly independent entities to expose mortgage problems.<br />
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So these are the three positions in the game, bet on the future, buy cheap, or make it happen.John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-91620663536345179132013-11-13T16:51:00.001-08:002013-11-13T16:51:24.769-08:00Short Selling Bubble Stocks - Looking for weak holdersIn the old pre-1929 days, the bears would find an overpriced stock and slam the bid hard, driving the stock down and causing the bulls to panic and sell out cheap.<br />
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In modern times, the bears would follow a stock up and when they felt it was vulnerable they would go gunning for the stops. The bulls would follow the trend up and put sell orders, stop loss orders, below the market to get out fast if the stock declined. Suspecting the presence of a large grouping of stop orders below the market, the bears would know the stock down through the price of the stop loss orders and then mop up cheap stock when that stock hit the market.<br />
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Many of the bulls used stock price charts and by drawing the same lines as the bulls, the bears knew where the bulls were likely to have their stops and went hunting accordingly.<br />
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In last few decades, one of the methods used was to find a bubble stock, usually a small cap manipulation, dig up and document the dirt using a private investigator, and give the dirt documents to financial columnists who released it while you blast the bid.<br />
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Then came the naked short sellers, shorting more than the outstanding stock and driving the company to oblivion.<br />
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Now we have blogs that release the results of their investigations.<br />
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Here is stock that just suffered from a negative research report, OMEX. See the drop from $3 down to almost $2. The company has tried to invalidate all the alleged negatives, but so far without much result.<br />
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<a href="http://2.bp.blogspot.com/-Rn-t62fJLXY/UoQd0wBILlI/AAAAAAAAFVM/3fNRFPkLLOA/s1600/omex+short+selling.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-Rn-t62fJLXY/UoQd0wBILlI/AAAAAAAAFVM/3fNRFPkLLOA/s1600/omex+short+selling.png" /></a></div>
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Chart courtesy of Stockcharts.com</div>
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The bears, good predators as they are, look for signs of weakness.<br />
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If they see small public investors jumping in on an overpriced bubble, they know the stock can be driven down.<br />
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Recently, the Facebook IPO was done at a high price, the company put a ton of stock on the market at the last minute, and the small investor, aka "the public" was hot to get in on the deal. Great opportunity for the shorts.<br />
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<a href="http://2.bp.blogspot.com/-DpytASzitUI/UoQYgGdIQfI/AAAAAAAAFU8/duJyFTPbNm8/s1600/fb+two+years.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="284" src="http://2.bp.blogspot.com/-DpytASzitUI/UoQYgGdIQfI/AAAAAAAAFU8/duJyFTPbNm8/s640/fb+two+years.png" width="640" /></a></div>
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Chart courtesy of Stockcharts.com</div>
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When a stock drops that fast from the opening, it is hard to get anyone brave enough to fight the trend.<br />
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No doubt driving the stock down into the 20s caused a lot of small holders to sell. <br />
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That, is what the predatory shorts are looking for. A large discrepancy between price and value, a bubble, caused by small, timid public investors paying too much.<br />
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Institutional investors can be more brave, but they also can fear having a loser on their books when they have to report for the period and sell beforehand to avoid being embarrassed.<br />
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In fact, having a huge percentage of institutional investors in the stock in very often a sign of impending doom. if you see 85% of the stock owned by institutions, you have to suspect that they may be overdoing it and can be stampeded by bad news.<br />
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Look for weakness, but the basic pattern is to prey on the small investor who has been carried away with enthusiasm.<br />
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<br />John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-78461331178888747112013-05-06T19:55:00.001-07:002013-05-06T19:55:37.809-07:00Shooting Fish in a Barrel - Shorting Penny Stock PromotionsThe worst nightmare of
the short seller is to take a position in an obviously overpriced
stock only to find that the darn thing is actually a real company and
it keeps growing, with the stock price going up continually.<br />
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They say that you can
boil a frog if you raise the temperature in the pot slow enough. </div>
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<a href="http://3.bp.blogspot.com/-tR_FBSnkZj4/UYhrxbwloiI/AAAAAAAAEw4/hjPc0CTm1X0/s1600/bubbling_witches_culdron_300_clr_158.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="200" src="http://3.bp.blogspot.com/-tR_FBSnkZj4/UYhrxbwloiI/AAAAAAAAEw4/hjPc0CTm1X0/s200/bubbling_witches_culdron_300_clr_158.gif" width="150" /></a></div>
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<br />Well, the sensation you have as a short seller who has shorted a
real high growth company is the sensation that the frog must have –
you know that you are more and more uncomfortable, but the distress
is not strong enough to get out until you suddenly realize that you have been boiled alive.</div>
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To avoid this distress,
we look for stocks that can never make it, that have huge hidden issues like undisclosed criminal convictions of the principals or worse.
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The problem of shorting a
real company that looks like a promotion will rarely if ever occur if
you stick to shorting penny stocks.
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Most penny stocks are
unvarnished promotions with no merit. <a href="http://www.webwire.com/ViewPressRel.asp?aId=162206">Pump and dump penny stock promotions.</a></div>
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If there is any problems
with these stocks, it is (1) you can never tell when the promoters
will pull the plug so it is hard to pick the peak and (2) you might
not be able to short enough.
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<br />As to not predicting
the peak, that will limit your profit but not give you a loss. Most
of these promotions will go to oblivion, so no matter where you
shorted them, you will inevitably profit. The question is only how
much.
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The way penny stock
promotions work is that the promoter gets control of a shell company
or one with very little business. This can be a <a href="http://www.reverse-merger-shell.com/2010/11/form-10-shells.html">Form 10 shell,</a> or a
<a href="http://www.reverse-merger-shell.com/2010/12/what-is-shell-company.html">Footnote 32 shell</a>, or just a nearly defunct company.
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The promoter and his
associates may buy <a href="http://www.reverse-merger-shell.com/2013/03/otc-shells-reverse-merger-trap-for.html">aged debt – convertible debt that is old enoughto qualify under the Rule 144 holding period. </a></div>
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After that, cheap stock
is issued to the promoter and his friends.
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To set up the trading, a
reverse split may dilute out the prior existing shareholders.
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Then a sexy company is
merged in the promoter starts developing the market in the stock.
More and more promotion is introduced. This stage is called the
“pump. When the promoter has had a chance to “dump” his stock,
he will pull the plug and stop spending on promotion.
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<a href="http://4.bp.blogspot.com/-U3CXKAHbRNM/UYhsSMNLqeI/AAAAAAAAExA/kpfQbLkGeHc/s1600/red_arrow_down_crash_1600_clr_2751.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="137" src="http://4.bp.blogspot.com/-U3CXKAHbRNM/UYhsSMNLqeI/AAAAAAAAExA/kpfQbLkGeHc/s200/red_arrow_down_crash_1600_clr_2751.png" width="200" /></a></div>
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The stock will then crash
for lack of new demand.</div>
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In your short position,
you will find that you are helped by the market makers. </div>
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<br />They know
which way the wind blows and will be shorting the stock on the way up
and bear raiding the stock as it collapses. A well capitalized market
maker will be licking his chops when he sees a rich penny stock
promotion. He can just keep shorting all the way up, knowing that his
whole position will be profitable eventually, whatever the price.
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Usually, these penny
stock promotions are wildly under-capitalized. Why spend money on
developing your business when you can spend it on stock promotion?
Selling stock is a lot more profitable than selling products.
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I have seen $4 million
spent on stock promotion (on which the promoters made $12 million
reportedly) and less than $1 million was raised for the company. The
company was lucky to get that. The stock, a former Form 10 company,
started trading for real below 60 cents, hit over $2.20 and now, a
year or so later is at three cents.
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<br />
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The company is not
always to blame. In this case, it was the reverse merger promoters
who took advantage of a legitimate start up effort.
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<br /></div>
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Now consider, there was enough volume out there on this one to sell $12 million in stock from 60 cents up to $2.20 and now you can buy it back at three cents -- about a one year round trip. </div>
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<br /></div>
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Does that roughly 97% profit in a year with little risk that the stock will go higher sound like it might be of interest? </div>
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John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-24156727445952414592012-12-05T08:26:00.000-08:002012-12-05T08:26:13.497-08:00Naked short sellers seek protection from short squeeze<br />
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<a href="http://4.bp.blogspot.com/-T0YSGEGN8fE/UL91Lpj7sQI/AAAAAAAAENw/bRCA6nBzqYw/s1600/buy_a_lemon_pc_400_clr_2887.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="272" src="http://4.bp.blogspot.com/-T0YSGEGN8fE/UL91Lpj7sQI/AAAAAAAAENw/bRCA6nBzqYw/s320/buy_a_lemon_pc_400_clr_2887.png" width="320" /></a></div>
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<span style="font-family: 'Times New Roman', serif; font-size: medium;">This
year, the SEC brought a civil action against Harbinger fund manager
Philip Falcone for creating a short squeeze. T</span><span style="font-family: 'Times New Roman', serif; font-size: medium;">he
SEC alleges that Falcone and two Harbinger investment management
entities he managed manipulated the market in distressed high-yield
bonds issued by MAAX Holdings Inc.</span></div>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">The
SEC alleges that Falcone and the Harbinger entities orchestrated an
illegal “short squeeze” – a market manipulation scheme in which
an investor constricts the supply of a security, through large
purchases or other means, with the intent of forcing settlement from
short sellers at arbitrary and inflated prices.</span></span></span></span></div>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">The
SEC’s complaint alleges that at Falcone’s direction, Harbinger
purchased a large position in the MAAX bonds during April and June of
2006. After hearing rumors that a Wall Street financial services firm
was shorting the MAAX bonds and also encouraging its customers to do
the same, Falcone decided to seek revenge. In September 2006, Falcone
directed the Harbinger-managed funds to buy every available bond in
the market, often purchasing the bonds from short sellers.
Ultimately, Falcone owned 13% percent more than the supply of the
bonds.</span></span></span></span></div>
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<a href="http://1.bp.blogspot.com/-TPPVCtU9DPI/UL91WNeBbsI/AAAAAAAAEN4/CyTBQBGuogk/s1600/money_squeeze_pc_400_clr_3097.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="320" src="http://1.bp.blogspot.com/-TPPVCtU9DPI/UL91WNeBbsI/AAAAAAAAEN4/CyTBQBGuogk/s320/money_squeeze_pc_400_clr_3097.png" width="161" /></a></div>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">At
the time of these purchases, Falcone locked up the MAAX bonds the
Harbinger funds had purchased in a custodial account at a bank to
prevent his brokers from lending out the bonds to short sellers.</span></span></span></span></div>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">When
he had control of the supply of the MAAX bonds, Falcone then demanded
that shorts settle their outstanding short sales, but did not
disclose that it would be virtually impossible to find bonds for
delivery. The Wall Street firm bid daily for the bonds, which quickly
doubled in price. </span></span></span></span>
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<span style="color: black;"><span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">Falcone
then engaged in a series of transactions with certain short sellers
at arbitrary, inflated prices, while at the same time valuing the
funds’ holdings on his books at a small fraction of the prices he
charged the covering short sellers.</span></span></span></span></div>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">To
re-state the pattern here, the SEC found it unlawful to (1) buy up
more than the outstanding issue, (2) put the bonds out of reach of
the short sellers so they could not borrow the securities, (3)
execute a buy in, and (4) demand much higher prices than the value of
the securities. </span></span></span>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">We
do not defend Falcone or this pattern of actions. However, this case
raises several interesting issues, mostly issues of how to determine
what conduct is prohibited. These are questions of degree – how far
can you go? </span></span></span>
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<a href="http://4.bp.blogspot.com/-7YhWfxb2MEw/UL91iXm1OCI/AAAAAAAAEOA/yw-kzT5HE_A/s1600/wallstreet_bear_bull_400_clr_8769.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="180" src="http://4.bp.blogspot.com/-7YhWfxb2MEw/UL91iXm1OCI/AAAAAAAAEOA/yw-kzT5HE_A/s320/wallstreet_bear_bull_400_clr_8769.png" width="320" /></a></div>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">First,
do not see any mention by the SEC of a case against the short sellers
in this case who were obviously knowingly executing illegal naked
short sales. Do these illegal shorts have the right to sue Falcone
for manipulation and get damages? Are not Falcone's actions a form of
poetic justice on the shorts?</span></span></span></div>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">Second,
Falcone clearly had the right to buy securities – is it the SEC's
viewpoint that buying more than the outstanding issue is improper?
Would buying more than the outstanding issue be improper by itself or
are more actions needed to create an actionable case? Can you buy the
100% and then quit? Wouldn't buying a large amount of the
outstanding, for example 80% create a squeeze? If it did create a
squeeze, would that be illegal?<i> </i></span></span></span>
</div>
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<div align="JUSTIFY" style="margin-bottom: 0in;">
<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">Third,
investors clearly have the right to buy in those who do not deliver
securities they have sold. Is it actionable to buy in the securities
in pursuit of a short squeeze and if so at what point does this
become a short squeeze? Do you have to own more than the outstanding
issue of securities or is owning some vast majority enough to be a
“short squeezer” and be denied the right to buy in?</span></span></span></div>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">Fourth,
property owners generally have the right to sell their property at
whatever price they choose. At what point is it improper for Falcone
to charge high prices to short sellers? Could he sell at at 5%
premium to the market? At a 25% premium? Did he have to sell at all –
can he be forced to sell his own property? What if he had simply sold
in the market instead of making private deals with the shorts?</span></span></span></div>
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</div>
<div align="JUSTIFY" style="margin-bottom: 0in;">
<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">Fifth,
the squeeze hurt those firms that made improper naked short sales.
Presumably, any bond holders other than Falcone profited by his
purchases and squeeze. Are his actions a fraud on the market or just
on the shorts? Didn't the shorts know that they ran the risk of being
squeezed?</span></span></span></div>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">Sixth,
Falcone did not announce that he owned more than the outstanding
issue, did not announce he was making the securities unavailable to
borrow, or otherwise make public information on his actions. To what
degree and under what rules is he bound to make such information
public? If he had said, “I plan to buy up more than the
outstanding, refuse to lend such securities, buy in the bonds and
only sell at higher than market prices to punish illegal short
sellers,” would he then be permitted to do so? Under what rules is
such disclosure required and if generally required, what disclosure
is sufficient? What if he bought up the bonds without thought of a
short squeeze and then later decided to buy them in?</span></span></span></div>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">In
summary, we are left without clear guidance as to what actually
constitutes “manipulation.” This lack of guidance is deliberate
and beneficial. If a bright line test is created, manipulators will
find it easy to game the rules. Leaving it vague gives the regulators
discretion to act in new cases. </span></span></span>
</div>
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<span style="font-family: Times New Roman, serif;"><span style="font-size: medium;"><span style="background: #ffffff;">In
this case, Falcone's actions put the price of the bonds at
unconscionable levels. That would seem to me to be manipulative. </span></span></span>
</div>
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John Luxhttp://www.blogger.com/profile/13131634791179479267noreply@blogger.com0tag:blogger.com,1999:blog-571458887432431293.post-78273019542498242522012-11-22T05:17:00.001-08:002012-11-22T05:17:40.182-08:00Olam sues Muddy Waters over 'collapse' claim<br />
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Olam sues Muddy Waters over 'collapse' claim</h1>
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SINGAPORE (AFP) <span class="">Wed Nov 21 2012 09:03:25 GMT-0800 (Pacific Standard Time)</span></div>
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<a .="." a="" href="http://www.repost.us/article-preview/#!hash=af76299a4fc7c35b6d9ad6681ac15ece" style="color: #0066ff;" target="_blank"><img alt="The sun rises over the high-rise financial district of Raffles place in Singapore. Global farm commodities supplier Olam International on Wednesday sued a US-based research firm and its founder for saying the company was in danger of collapse." class="_repost_marked" data-height="341" data-width="512" height="230.10839843750006" src="http://media.rp-api.com/photo_1353474148565-1-0.jpg" title="Roslan Rahman/AFP/File" width="345.50000000000006" /></a><div class="_repost_caption">
Roslan Rahman/AFP/File<br />
The sun rises over the high-rise financial district of Raffles place in Singapore. Global farm commodities supplier Olam International on Wednesday sued a US-based research firm and its founder for saying the company was in danger of collapse.</div>
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<span class="_repost_marker"></span>Global farm commodities supplier <a class="autolink" href="http://www.repost.us/article-preview/#!hash=64f8d03dffbe91b4764ac320ed68d6d9" style="color: #0066ff;" target="_blank" title="Commodities giant Olam shares fall after criticism (AutoLink by Repost.Us)">Olam</a> International on Wednesday sued a US-based research firm and its founder for saying the company was in danger of collapse.</div>
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In a filing with the Singapore Exchange after trading closed for the day, Olam said it "today initiated legal action in the High Court of Singapore against both <a class="autolink" href="http://www.repost.us/article-preview/#!hash=64f8d03dffbe91b4764ac320ed68d6d9" style="color: #0066ff;" target="_blank" title="Commodities giant Olam shares fall after criticism (AutoLink by Repost.Us)">Muddy Waters</a> LLC and Carson Block".</div>
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"The grounds are basically slander, libel and/or malicious falsehood," Aditya Renjen, Olam's general manager for investor relations, told AFP. He declined to respond when asked if Olam was seeking damages.</div>
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In an emailed reply to <a class="autolink" href="http://www.repost.us/article-preview/#!hash=e0145759023bd9ef0bd3859b8377a486" style="color: #0066ff;" target="_blank" title="Temasek to reduce stake in SingTel (AutoLink by Repost.Us)">AFP</a> about the lawsuit, a Muddy Waters spokesman said: "Should we have to defend ourselves, we will do so vigorously."</div>
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Block, the founder of Muddy Waters and an influential short-seller, told an <a class="autolink" href="http://www.repost.us/article-preview/#!hash=64f8d03dffbe91b4764ac320ed68d6d9" style="color: #0066ff;" target="_blank" title="Commodities giant Olam shares fall after criticism (AutoLink by Repost.Us)">investment</a> conference in London on Monday that Singapore-based Olam could collapse due to its debt load and other factors.</div>
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This sparked a 7.5 percent plunge in the value of the firm's shares on Tuesday but the <a class="autolink" href="http://www.repost.us/article-preview/#!hash=64f8d03dffbe91b4764ac320ed68d6d9" style="color: #0066ff;" target="_blank" title="Commodities giant Olam shares fall after criticism (AutoLink by Repost.Us)">stock</a> recovered on Wednesday, rising more than five percent to close at Sg$1.6950 in heavy trading.</div>
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As the shares recovered, Muddy Waters issued an open letter to Olam chief executive Sunny Verghese and his board, after they threatened legal action and accused the <a class="autolink" href="http://www.repost.us/article-preview/#!hash=e456d49f2e5753727ec192f9ce030fa4" style="color: #0066ff;" target="_blank" title="Temasek 'seeks to sell' Standard Chartered stake (AutoLink by Repost.Us)">US</a> firm of deliberately sowing panic among investors.</div>
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"Olam's disproportionate reaction is extraordinary in our experience," Muddy Waters said, adding that "you and your investors should note that attempting to silence critics is not a plan of corrective action".</div>
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Eugene Ng, an <a class="autolink" href="http://www.repost.us/article-preview/#!hash=e456d49f2e5753727ec192f9ce030fa4" style="color: #0066ff;" target="_blank" title="Temasek 'seeks to sell' Standard Chartered stake (AutoLink by Repost.Us)">investment</a> analyst at UOB Kay Hian Research, said the absence of a full report from Muddy Waters allayed investor panic nand allowed the stock to recover.</div>
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"Currently they only issued a letter to Olam and I guess after people have read the letter, they don't think it's anything substantial," he told AFP.</div>
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"So now, some of the panic and fear that was experienced by the market yesterday, I guess that has reversed and that's why probably (Olam stock) came back today," he told AFP.</div>
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Olam sources 44 products from 65 countries and supplies them to more than 11,600 customers. Key products include cocoa, coffee, cashew, sesame, rice, and cotton and wood products.</div>
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Singapore's state investment <a class="autolink" href="http://www.repost.us/article-preview/#!hash=e456d49f2e5753727ec192f9ce030fa4" style="color: #0066ff;" target="_blank" title="Temasek 'seeks to sell' Standard Chartered stake (AutoLink by Repost.Us)">firm Temasek Holdings</a> is one of Olam's biggest shareholders, owning 16 percent as of March 31.</div>
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Block's assessments of companies have been closely monitored, especially after Chinese timber supplier Sino-Forest Corp filed for bankruptcy protection after a 2011 Muddy Waters report questioned the value of its assets.</div>
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Olam listed in Singapore in 2005 and is one of the 40 largest companies on the city-state's index in terms of market capitalisation.</div>
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Olam was originally established in 1989 in Nigeria and began with the export of raw cashew nuts from Nigeria to India, the company website says.</div>
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" 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<div class="attribution">
This article, <a class="title" href="http://www.repost.us/article-preview/#!hash=af76299a4fc7c35b6d9ad6681ac15ece" style="color: #0066ff;" target="_blank">Olam sues Muddy Waters over 'collapse' claim</a>, is syndicated from <a href="http://www.repost.us/article-preview/#!hash=af76299a4fc7c35b6d9ad6681ac15ece" style="color: #0066ff;" target="_blank">AFP</a> and is reposted here with permission. Copyright 2012 AFP. All Rights Reserved</div>
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