‘The only capital I can rely on is in my head’

“My father returned from these adventures a changed man. Gone were the ambitions. He was happy to be alive. His ambition was to enjoy life. He liked to live well but he did not want to amass wealth. He considered material possessions an encumbrance which could drag you down or even on occasion cost you your life. He is the only man I know who systematically decumulated his assets. He balanced the gap between his earnings as a lawyer and our rather comfortable way of life by selling off pieces of real estate. As a result he had little left to lose in the war. ‘The only capital I can rely on is in my head,’ he used to say making a pun on the word capital which in Latin also means head.” – George Soros’ foreward to Masquerade: The Incredible True Story of How George Soros’ Father Outsmarted the Gestapo translated from the original Maskerado in Esperanto by Tivadar Soros

USA vs. Anthony Davian (a.k.a. hedgieguy) – filed February 27, 2014

A Short Seller’s Perspective on Biotech

I avoid shorting biotech stocks. I prefer buying biotech stocks, and have been long several biotech names. Here is the internal debate currently taking place inside me:

(1) Avoid Biotechs -  I have no edge, and can’t possibly develop an edge on single-name biotechs. I am the patsy on the table, in the biotech stock casino. Focus on businesses I can understand, that are in the domain of ‘know-able’.  Even hedge fund operators with relevant M.D. / P.H.D. credentials, relevant industry experience, and scientific knowledge are often humbled by Mr. Market. Also, the last leg of bubbles tend to be the most dangerous one.

(2) Short Biotech, Take No Prisoners - The more macro, “top-down” analyst within me is telling me to short biotechs, either via indices, basket-cases, or maybe even single names. What leads me to this belief? Fund flows, price action (in aggregate as well as some truly historically exceptional price movements, e.g. ICPT ITMN without loss of generality), the (lack of) quality of many recent IPOs (?), etc. A friend of mind tells me the bull case for biotech is that human genomics is a game-changer, and that this boom has more legs. Perhaps. Recall, however, that the internet, too, was a game changer … that didn’t change the fact that it was a great short.

I will likely avoid biotech names (as shorts) at this time, but may change my mind if I feel like it.

UNG (United States Natural Gas Fund, LP) as a Short

I explored the case for going long “natty gas” on January 20th, 2012. I now believe there are good reasons to sell/short the UNG vehicle for the following reasons (note that shorting anything is always and everywhere a dangerous activity):

  • UNG is, by design, not a “buy and hold” vehicle.
  • There appears to be forced and uneconomic buying among some commodity participants (e.g., I haven’t the word ‘Amaranth’ in a while). That suggests a perfect storm of opportunity, given patience (and cash).
  • This is one where, in my view, you do not ‘stop loss’ if it goes higher… you add more.
  • Volatility is one of the few quantities in markets that is inherently mean-reverting (though there is a ‘clustering’ effect as well).



Someone bought ~1 million shares of MYRA before the State of the Union. Coincidence?

President Barack Obama unveiled MYRA at the State of Union Address, a new kind of “starter” retirement accounts aimed at employees of companies that don’t offer such plans. There happens to a stock with ticker = MYRA…Myriad Entertainment & Resorts, Inc.(OTCMKTS:MYRA) = $MYRA price = $0.0001.

As @BuyersStrike mentioned, someone bought ~1 million shares of MYRA (a completely dead company) on the 17th of January (2 weeks ago). The trading volume January 17th is the largest volume MYRA has experienced in its entire history. Coincidence?

MYRA Insider Trading

On Market Timing: The Pareto Distribution Edition

There’s a certain elusive macro market participant on twitter (self described “heavy hitter”) who seems to demonstrate a repeatible, winning posture and process. I don’t know what to make of him, but I remain in awe of his apparent talent (he’s also quite entertaining). Take for example, his ‘auspicious’ return earlier this week, on January 21st, 2014 1:42 AM EST. Consider what has happened in the markets within days of his return:

  • Statistically significant currency volatility.
  • Equity volatility.
  • And more volatility.

How does he do it? Maybe his back starts to ache, and that’s all he needs to know. Maybe I’m superstitious, and I see patterns that simply aren’t there. But I’ve observed him making one too many good calls/bets (when he was on twitter more regularly), way ahead of the curve (a trend-maker, not a trend-follower):

  • Well-timed Long European Sovereign Debt.
  • Short gold posture and positions.
  • Various USD JPY trades.
  • Long natural gas.
  • Short Apple at its peak.
  • I’m told: “AUD short from 2012/13. That was the largest.”

He’s had his share of mistakes (his biggest mistake is probably fairly consistent bearish stance towards US equity indices, after 2011), but without knowing position sizing, etc. it’s unclear how material these mistakes have been on performance. Also, the mistakes reduce (but doesn’t eliminate) the likelihood he’s a fraud. Bottom-line, I remain in awe.

“Alas, the assumption is false and so the math is wrong. Financial prices certainly jump, skip, and leap—up and down. In fact, I contend the capacity for jumps, or discontinuity, is the principal conceptual difference between economics and classical physics.” - The Misbehavior of Markets, by Benoit Mandelbrot (may he rest in peace)

Question: is market timing possible? can you ‘know’? It seems that all the gifted market timers say ‘no it is not’… yet they manage to get the timing right more so than not, and (most importantly) get the timing right when it actually matters.

“My father will sit down and give you theories to explain why he does this or that.  But I remember seeing it as a kid and thinking, At least half of this is bull.  I mean, you know the reason he changes his position on the market or whatever is because his back starts killing him.  He literally goes into a spasm, and it’s this early warning sign.”

On Herbalife, Senator Markey, and Bill Ackman

Massachusetts Senator Edward Markey sent letters to the SEC and FTC calling for an investigation into the company’s practices. Senator Markey also sent a letter to Herbalife’s CEO Michael Johnson requesting more details on the company’s operations and compensation system. Herbalife (“HLF”) shares declined over 10%.

Market participants (many of whom I respect) responded with disgust, saying  things like: “looks like Ackman bought a politician”, “Markey get a nice donation from Ackman?”, “This is America – where a politician can be lobbied/paid to move markets instantly”

I respectfully disagree with these and similar statements, and believe they are intellectually dishonest and anti-democratic for the following reasons:

  • Free speech is one of America’s gifts to the world and its citizens. Free speech is inherently American.
  • Mr. Ackman (as an American) has the right, just like you and I do, to express his opinions. He has the right to express his opinions to those wielding political power.
  • While it is true that Ackman has more influence than most of us do… so do the Herbalife shareholders. And the company itself. So before you complain about “unfairness”, there are 10-100 similarly influential people on Herbalife’s side that have far more power than Ackman. Oh, and what of all the many dollars that the MLM lobbies have spent lobbying  Washington? Perspective matters. I would see a problem in Ackman’s actions if the other side, and other voices did not possess similar rights and clout.
  • Whatever relationship(s) exist (or don’t exist) between Ackman and Markey have nothing to do with the validity/invalidity of the short thesis. Rather than bring attention to any possible relationship, why not focus on the merit of the concerns?
  • Bill Ackman’s character and like-ability are irrelevant.

Quod Erat Demonstrandum.

Disclosures: I don’t count myself as a fan or foe of any of the parties discussed here, nor do I know any of them personally.

“Free speech is only free if it’s bullish” – a friend


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