Monday, January 27, 2014

Wall Street Runs on Greed... And Conspiracies (so Don't Trust Them)

English: Wall Street sign on Wall Street
English: Wall Street sign
on Wall Street
(Photo credit: Wikipedia)
Previously, MLM Skeptic had pointed out the futility of using stock price as a measure of the company's "legitimacy". Wall Street will drive the stock prices higher as long as the company remains profitable, no matter how many people it screwed over.

However, Wall Street also runs on fear. Merely mention of Senator Markey's letter to SEC and FTC asking for an investigation into Herbalife dropped its stock price down more than 10% in a day.

And this fear had turned some stock analysts into conspiracy theorists, looking for someone to blame, and who better than the ultimate stock market boogeyman, and Herbalife "nemesis" Bill Ackman?

Brian Bolan published an essay on Zachs that claimed not only is Herbalife a good bet, he outright accused Senator Markey of colluding (perhaps unwittingly) with Bill Ackman to drive down Herbalife stock price to help with Ackman's epic short that started back at the end of 2012!

What evidence did he have?

  • One nebulous anonymous "put" started 2 weeks ago: 45000 shares of put. 
  • Bill Ackman met with Markey's staff some time in fall 2013.
  • The questions posed by the Senator is a lot like Ackman's questions 
Oh, really, that's it? That's not even circumstantial evidence. Consider these following FACTS
  • FACT: There is no telling who started those puts, as they're traded all over the place
  • FACT: Bill Ackman met with a lot of people in 2013. Thousands, maybe more. 
  • FACT: All questions regarding whether a company's a pyramid scheme will focus on the same issues, such as Koscot test, Omnitrition case, amount of actual retail, and so on. 
In other words, Bill Bolan's got a handful of nothing. 

Bolan conceded that Ackman can lobby anyone in the government. 

Did he note that Herbalife spent 1.34 MILLION on lobbying in 2013? Which is more than pharmaceutical company 4 times Herbalife's size? (Amway only spent 330K in 2013 on lobbying)

Did he note that Herbalife has no less than FOUR lobbying firms? And may be outspending Ackman on lobbying by margin of 10 to 1? 

So either Herbalife hired a bunch of idiots and wasted their money... or Ackman's argument is far more persuasive. 

And his "proof" that Herbalife stocks is bullish? "Consensus estimates" rose for 29 quarters. That's just bandwagon effect. And due to the price drop, bandwagon had clearly reversed directions, and he's betting it'll reverse yet again. 

Is this what passes for stock analysis nowadays? 

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