Monday, July 23, 2018
Monday, May 7, 2018
I just want to throw up a single data point. Swedish Match (a tobacco company with no cigarette brands) owns the world's biggest match and lighter business. If you live in Latin America, Asia-Pacific or Europe you have almost certainly used the products. Here are the main brands:
Matches: Solstickan, Swan Vestas, Tres Estrellas, Fiat Lux, Redheads
Redheads and Cricket are totally dominant in Australia.
Here, from the last quarter, are the results for the "lights" business - just the volumes.
Yes, you are seeing 11 percent volume decline for matches, 23 percent decline for lighters.
If you are a big tobacco investor your only reaction has to be oh f--k.
Now if you are an investment banker here is a deal from heaven. This match and lighter business has distribution almost every place in the world outside North America where you want to sell cigarettes.
It is thus a perfect distribution entree to a new e-cig business - and this e-cig transition is a once-in-a-lifetime opportunity to break the big tobacco brands.
The business is only a partial fit for Swedish Match (who mostly sells Snus in Scandinavia and chewing tobacco and machine rolled cigars in North America).
There has to be a deal to be done, a billion dollars to be made.
Sunday, February 18, 2018
That said, I think there is one last shoe to drop, and it is a doozy. And it wasn't covered in Andrew Bary's excellent article. That is that GE's credit rating - and hence its business - is under threat.
POST SCRIPT: I have been asked several times how GE got into this trouble. Here is my very quick summary.
a). GE was left hyped up and overly dependent on finance income and accounting tricks under Welch (who I think is the main culprit here),
b). Immelt did not defuse all the unexploded Welch bombs anything like fast enough. GE would have gone bust on the Welch trajectory, and Immelt got it off the Welch trajectory, but not far enough off the Welch trajectory, and
c). Both Welch and Immelt behaved as if their body odour was perfume. They believed their own hype and bought back stock and stock and more stock. Total shares repurchased were over 100 billion dollars. Just 30 billion of that money now would solve the credit rating problems.
d). Power systems which was once perhaps the golden business fell on hard times. Solar is now cheaper than coal or gas. Renewables are cheap. This is a problem if you are the biggest capital equipment sellers to the old tech. This was exacerbated by spending 10 billion on Alstom just as it all fell apart. Immelt doubled down on dying technology.
The 20 year accounts are here.
Friday, February 9, 2018
I have no conclusive evidence either way as to whether Herbalife is involved behind the scenes or not. However the Bill is real and Charlie is usually a fairly thorough reporter and I have no reason to disbelieve him. And Herbalife has not denied the story.
The Bill is a threat to my physical safety.
I want to assure readers that I am not exaggerating in the slightest.
Bronte has a business model on the short side of maintaining a large database of people we regard as crooked and finding stocks associated with them and shorting those stocks. Often we do not know the full extent of the crook's business - we are just running on pattern recognition.
One such stock was China Agritech. We were short it originally because there was a minor crook associated with it. We worked out plenty including some ridiculous disclosures such as "proprietary nano-honeycomb embedding and microelement deep complexing technologies" in their organic fertiliser. Shorting a company associated with low-level scammers that literally claims to sell high-tech shit is just my style.
Unbeknownst to me at the time however the Chief Financial Officer of China Agritech - Mr Yau Sing (Gareth) Tang- had a history. Mr Tang and Mr Jimmy Hueng were the directors of a Hong Kong Company called Win's Prosperity Group which collapsed. The story is told by Professor T. Wing Lo in the British Journal of Criminology. The direct quote (about a Hong Kong stock scam) is:
This case began with the renaming of a listed construction company, OLS Group, as China Prosperity Holdings (CPH) on 29 April 1999. Coincidentally, both the Chinese and English words for ‘Prosperity’ were the same as in Jimmy’s company, Win’s Prosperity Group. Jimmy Heung and a Mr Tang were the only directors of Win’s Prosperity Group. Tang was also the Executive Director of CPH, but Jimmy, as a triad figure, is not allowed to hold directorship of any listed company.Jimmy Heung - now deceased but then Gareth Tang's regular business partner - was easy to find. His father was the founder of the Sun Yee On Triad. It was widely reported he was the Triad boss at the time China Agritech was fleecing American shareholders.
Anyway I publicly ridiculed China Agritech on this blog. Obviously I did not know of Triad involvement when I did this as I am not stupid or reckless. But not knowing Triads are involved does not obviate their involvement.
I stopped talking about China Agritech when I received threats of violence by phone from China from people who made very clear that the threats were credible. I reported these threats at the time to the Federal and local police which made it apparent to me that the Australian system wasn't well equipped to handle cross-border threats from China.
And more importantly I vowed to become far more restrictive about what I would say about short positions and what I would disclose about short positions in the future.
Whatever - China Agritech was listed on the NASDAQ. It wasn't a small pink-sheet company and it had institutional shareholders.
China Agritech is dead and buried now - and so is the Triad figure who was responsible for this fraud - so I feel safe enough talking now. I do not feel safe talking about this stuff generally. Indeed I would never willingly disclose such a short. Unless forced to by this Bill.
What this Bill will do is allow Triads and other organised crime gangs to list stocks on American stock exchanges and not worry about market participants anonymously exposing the natures of their crimes. The short-sellers will have to disclose themselves, not only to the SEC, but also to the those that will do them harm.
I say - without fear of exaggeration - that this is the Organised Crime Stock Fraud Protection Bill.
I can understand why crooked companies might support this Bill. And it gives me pause that Charlie reports a company that I own supports this Bill. But I have no understanding (other than a cynical grab for listing fees) as to why the NYSE and NASDAQ are happy for Sun Yee On Triad companies to list on their exchanges and why they support a Bill to protect them.
Why should shareholders have to disclose positions anyway?
Running a funds management company you only really have one output. Positions in stock market. That is your intellectual property.
There is no other business I know where the business is forced to disclose the entirety of their intellectual property.
That said - I can think of a decent reason to force disclosure of long positions. If I own a share I own a vote. If you own a share you also own a vote. If own 30 percent of a company in most cases I can effectively control it. My votes impinge on the power of your votes.
Because my ownership of shares can change the value of your ownership of shares most countries force disclosure when ownership stakes become large enough to matter (typically, but arbitrarily at five percent). This seems a reasonable compromise between keeping the buyer's intellectual property private and allowing the rights/control issues around a company to be visible to market participants.
However when I short a share I have no rights whatsoever - just an obligation to buy back the stock sometime. My short position doesn't impinge on your long position except in as much as there are deferred buyers in the stock. The above argument for forcing disclosure simply does not apply.
Indeed other than symmetry for symmetry's sake I can't think of a single argument for forcing short disclosure and I can think of strong arguments opposing it.
I would like the NYSE and the NASDAQ to lay out a cogent argument (other than mere symmetry) why disclosure should be forced and why this does not protect organised crime.
If Herbalife is truly behind this Bill (as Charlie Gasparino reports) then I would also like an explanation of why they support the Bill.
Post script: Charlie Gasparino has since contacted me and assures me that Herbalife has confirmed the story.
Tuesday, January 16, 2018
Preface: I once wrote a blog post - a response to Mr Ackman's campaign on Herbalife - which gave notes on visiting a Herbalife club in Queens. This remains one of the top ten most visited posts ever written on this blog.
On Saturday morning I visited two Herbalife clubs in Queens neither of which I had visited before.
One was a well known one - one of the first hits when searching for them using Google. The other was just found using Google Navigation and was about half a mile away.
Both clubs were pretty marginal businesses - but both were stable and viable. One was ten years old, the other five years. The first one was - believe it or not - prosperous enough to have employees.
My purpose was to check implementation of the Federal Trade Commission (FTC) rules on the ground. The FTC rules come from a settlement the FTC had with Herbalife in July 2016.
I went without someone fluent in Spanish (a skill very few Australians have) and that was a problem because neither of the proprietors (or their staff!) spoke English. Very few customers spoke English either - but we sat in the clubs for some time and a steady (although small) flow of customers came through. My colleague spoke broken Spanish which was enough for a basic - but not a detailed conversation. Sometimes customers translated.
In both clubs our names were taken when we ordered and records were kept of who the customers were. This is to ensure compliance with the rules in the Amway Case (reinforced in the FTC settlement) that require a multi-level marketing scheme to demonstrate that 70 percent of sales were to bona-fide customers and not to distributors. We asked whether this was a response to the FTC rules but were told that they had done this "always" - which meant at least for five years. In other words they had been complying with the core FTC requirement in advance.
In the second club the reason the clubs were marginal businesses however was made clear. We asked how many clubs there were around here - and the proprietor said in Spanish and with a wry look - too many. This is consistent with the first time I visited Herbalife clubs in Queens.
One of the clubs organised exercise groups in a park but not in the winter. The other club did not organise such groups.
At the end we found two fluent English speaking customers - a mum probably in her 40s and her daughter in the latter years of school. Their preferred language was Spanish but their English was excellent.
The mum had been coming for about a year and exercised three times a week (the exercise not organised by the club) and had lost about 45 pounds. She was a true believer - and credited Herbalife with her change.
Her daughter was there as much as anything to keep her mum company - but was also a Herbalife customer. She had successfully sold some of the product too - presumably to her mums friends who were (rightfully) impressed by the mum's loss of body mass and improved health.
But she did not sell it any more - because she did not get paid.
Now it turns out the reason that she did not get paid was that she was signed up as a "preferred customer" and not as a "distributor". The distinction between "preferred customer" and "distributor" did not exist prior to the FTC Settlement described above. It was part of the way that Herbalife was forced to demonstrate that it complied with the guidelines in the Amway case.
To be blunt - the direct result of FTC decision is that a young Hispanic woman did not get paid.
And that was the only direct result of the FTC decision I saw.
And so in summary I conclude that the FTC has been ripping off young Hispanic women since July 2016.
I am not sure that is the intended effect.
Saturday, December 30, 2017
Pershing Square and Valeant have agreed to split the $290 million total settlement such that Pershing Square will pay $193.75 million and Valeant will pay $96.25 million.
But Mr Ackman seems to think that a settlement of approximately $200 million does not say anything at all about the legitimacy of the case. Again to quote:
“We continue to believe the case had absolutely no merit,” said Pershing Square CEO Bill Ackman. “We decided, however, that it was in the best interest of our investors to settle the case now instead of continuing to spend substantial time and resources pursuing the litigation.”Herbalife - who previously settled a case for a roughly $200 million payment - is of course in full agreement.
I think it is the first time Mr Ackman and Herbalife have agreed on anything.
So let us savour it.
Monday, December 25, 2017
Wednesday, December 20, 2017
Wednesday, November 15, 2017
Wednesday, October 25, 2017
It was two hours for an appointment - and that was fine - so they texted me and I came back in two hours. So I came back in five minutes.
The staff member cleaned most the keys but broke one off. Ugh.
So they want me to check the machine in so they can replace the top-plate to which the keyboard is irrevocably stuck. Fair, unpleasant.
But now they want it for three to five days AFTER the top plate has come into the shop. They won't accept me dropping it in the morning they are fixing it. Instead it needs to wait in queue whilst they let the time elapse. (I can and do use the machine with a remote keyboard.)
I never thought I would say this - but this was the sort of behaviour exhibited by Dell before Dell blew up. Intransigent, arrogant, and actually not caring about the needs of customers.
I am genuinely surprised. I thought this company charged premium prices and gave premium products and premium service.
At least on the service I was wrong.
PS. Apple Bondi Junction. Customer service officer Morin.
PPS. Many have pointed out consistent problems with this keyboard. Try this... https://theoutline.com/post/2402/the-new-macbook-keyboard-is-ruining-my-life
I am getting close to just asking for a refund of the machine (faulty design) and going back to a Dell.
The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.