herbalife the sinking titanic

The battle for Herbalife (HLF) is heating up once again. QTR Research most recently outlined its short thesis on Herbalife’s stock ahead of a documentary’s release, a movie about Pershing Square Capital manager Bill Ackman’s $1 billion short bet on Herbalife and his drive to expose the company as a pyramid scheme. It looks like the Titanic found its iceberg.

Continue reading

Bill Gross from Janus Capital – Investment Outlook

Investment Outlook from Bill Gross

 

Through the years I’ve accumulated a short list of quotes that express a personal view of what makes people happy.  You, I’m sure, have your own candidates, but most of them probably resemble some of the ones listed above:  Stay busy doing something you enjoy; be mindful of other people and the world in, around, and above you; don’t let your reach exceed your grasp; find someone to share your happiness with.  My favorite of all of these is the one above by Donovan – that somewhat kooky “love generation” folk singer of the late 1960s.  “Happiness runs in a circular motion…happiness runs, happiness runs.”  There may be more to this refrain, however, than appears at first glance, the entirety of which I’ve tried to encapsulate artistically in my open-ended smiley face that wasn’t ever-popular when Donovan crooned the tune.  For years I thought that the gist of Donovan’s phrase was the obvious – the “pay it forward” allusion that suggests what goes around, comes around – and it undoubtedly is.  But there are hidden nuances, at least to me.  The “running in a circular motion” also connotes a self-contained, inward-looking, self-satisfaction that equates happiness to being content with yourself as a person.  And the last phrase – “happiness runs, happiness runs” may speak to the Buddhist philosophy of impermanence and the priority of the moment.  Donovan might not rank up there with Kant and Spinoza, but his little song packs a powerful message.  Rock on, flower child, wherever you are.

 

And while happiness may run in a circular motion, it seems history may too – or at least it may rhyme, as Mark Twain once said.  Pictured below are two of my notes written not recently, but in 2003.  They are as relevant today as they were then.  “Financial repression” runs… in a circular motion, it seems.  In 2003, though, central bankers had rarely contemplated the monetary policy instruments that could lower and then artificially cap interest rates.  Although my notes correctly allude to “all means including ‘ceilings’ ” to keep the cost of financing low, the expansion of central bank balance sheets from perhaps $2 trillion in 2003 to a now gargantuan $12 trillion at the end of 2016  is remarkable.  Not only did central banks buy $10 trillion of bonds, but they lowered policy rates to near 0% and in some cases, negative yields. All of this took place to save our “finance-based economy” and to raise asset prices upon which that model depends.  As any investor would admit, these now ongoing policy panaceas have done just that – promoted higher asset prices and engendered a modicum of real growth.  In the process however, as I have frequently written, capitalism has been distorted:  savings/investment has been discouraged by yields/returns too low to replicate historic productivity gains; zombie corporations have been kept alive in contrast to Schumpeter’s “creative destruction”; debt has continued to rise relative to GDP; the financial system has not been cleansed and restored to a balance where risk and reward are on a level plane; disequilibrium has replaced equilibrium, although it is difficult to recognize this economic phantom as long as volatility is contained.

 

But in order to control volatility, and keep a floor under asset prices, central bankers may be trapped in a QE-forever cycle, (in order to keep the global system functioning). Withdrawal of stimulus, as has happened with the Fed in the past few years, seemingly must be replaced by an increased flow of asset purchases (bonds and stocks) from other central banks, as shown in Chart I. A client asked me recently when the Fed or other central banks would ever be able to sell their assets back into the market. My answer was “NEVER”. A $12 trillion global central bank balance sheet is PERMANENT – and growing at over $1 trillion a year, thanks to the ECB and the BOJ.

 

Investment Outlook
An investor must know that it is this money that now keeps the system functioning. Without it, even 0% policy rates are like methadone – cancelling the craving but not overcoming the addiction. The relevant point of all this for today’s financial markets? A 2.45% , 10-year U.S. Treasury rests at 2.45% because the ECB and BOJ are buying $150 billion a month of their own bonds and much of that money then flows from 10 basis points JGB’s and 45 basis point Bunds into 2.45% U.S. Treasuries. Without that financial methadone, both bond and stock markets worldwide would sink and produce a tantrum of significant proportions. I would venture a guess that without QE from the ECB and BOJ that 10-year U.S. Treasuries would rather quickly rise to 3.5% and the U.S. economy would sink into recession. So what’s wrong with financial methadone? What’s wrong with a continuing program of QE’s or even a rejuvenated U.S. QE if needed? Well conceptually at first blush, not much. The interest earned on the $12 trillion is already being flushed from central banks back to government fiscal authorities. One hand is paying the other. But the transfer in essence means that monetary and fiscal policies have joined hands and that the government, not the private sector, is financing its own spending. At an expanding margin, this allows the private sector to finance its own spending and fails to discriminate between risk and reward. $600 billion in the U.S. for instance goes into the repurchase of company stock, whereas before, investment in the real economy might have been a more lucrative choice. In addition, individual savers, pension funds, and insurance companies are now robbed of the ability to earn rates of return necessary to maintain long-term solvency. Financial Armageddon is postponed as consumption is brought forward and savings suppressed and deferred.

 

For now, investors must go with, indeed embrace this financial methadone QE fix. Quantitative easing will continue even though the dose may be reduced in future years. But while a methadone habit is far better than a heroin fix, it has created and will continue to create an unhealthy capitalistic equilibrium that one day must be reckoned with. Yields will likely gradually rise (watch 2.60% on the 10-year Treasury), yet they will stay artificially low due to the kindness of foreign central bank quantitative easing policies. But that is not a good thing. Happiness runs…Happiness runs, and so one day, will asset markets, artificially supported by quantitative easing.

Securities Class Action Filings February

Securities Class Action Filings

Filing Name
Filing Date
District Court
Exchange
Ticker
Under Armour, Inc. 02/10/2017 D.Maryland NYSE UA
FXCM Inc. 02/07/2017 S.D. New York NASDAQ FXCM
Kitov Pharmaceuticals Holdings Ltd.:ADR 02/07/2017 S.D. New York NASDAQ KTOV
Psychemedics Corporation 02/03/2017 D. Massachusetts NASDAQ PMD
Stemline Therapeutics, Inc. 02/03/2017 S.D. New York NASDAQ STML
DaVita Inc. 02/01/2017 D. Colorado NYSE DVA
Neustar Inc. 02/01/2017 D. Delaware NYSE NSR
Roadrunner Transportation Systems Inc. 02/01/2017 E.D. Wisconsin NYSE RRTS

Case Status: ONGOING
On or around 02/10/2017 (Ongoing date of last review)

Filing Date: February 10, 2017

According to the law firm press release, the lawsuit alleges that, during the Class Period, Under Armour and certain of its officers made false and misleading statements and failed to disclose that Under Armour’s revenue and profit margins would not be able to withstand the heavy promotions, high inventory levels and ripple effects of numerous department store closures and the bankruptcy of one of its large retailers. Instead, Under Armour promoted itself as a growth company that would continue to develop and market game-changing products. Defendants’ false statements and/or omissions caused Under Armour common stock to trade at artificially inflated prices during the Class Period.

The fraud was revealed on January 31, 2017 when Under Armour released weaker-than-expected earnings for the fourth quarter of 2016, and the poor results were in fact tied to market factors, such as department store closings.

Case Status:    ONGOING
On or around 02/08/2017 (Ongoing date of last review)

Filing Date: February 07, 2017

According to the law firm press release, the lawsuit alleges throughout the Class Period Defendants made false and/or misleading statements and/or failed to disclose that: (1) between September 4, 2009 through at least 2014, FXCM’s U.S. subsidiary engaged in false and misleading solicitations of its retail foreign exchange customers by concealing its relationship with its most important market maker and by misrepresenting that its “No Dealing Desk” platform had no conflicts of interest with its customers; (2) FXCM’s U.S. subsidiary made false statements to the National Futures Association about its relationship with the market maker; and (3) as a result, Defendants’ statements about FXCM’s business, operations and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times. When the true details entered the market, the lawsuit claims that investors suffered damages.

Case Status:    ONGOING
On or around 02/08/2017 (Ongoing date of last review)

Filing Date: February 07, 2017

According to the law firm press release, Kitov is a clinical development stage biopharmaceutical company that develops combination drugs for the simultaneous treatment of pain caused by osteoarthritis and hypertension. The Company’s lead drug candidate is KIT-302, a fixed dosage combination product based on the generic drugs celecoxib and amlodipine besylate, that has completed its Phase III clinical study.

The Complaint alleges that throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operational and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company and its Chief Executive Officer (“CEO”) Isaac Israel published misleading information concerning the conduct of the Company’s clinical trials for its lead drug candidate KIT-302; and (ii) as a result of the foregoing, Kitov’s public statements were materially false and misleading at all relevant times.

Case Status:    ONGOING
On or around 02/03/2017 (Ongoing date of last review)

Filing Date: February 03, 2017

According to the law firm press release, Psychemedics Corporation provides patented, FDA-cleared services for the detection of drug abuse through the analysis of hair samples. The Company’s tests provide quantitative information that can indicate the approximate amount of drug ingested, as well as historical data, which can show a pattern of individual drug use over a longer period of time.

The Complaint alleges that throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) through its affiliate Psychemedics Brasil Exames Toxicológicos Ltda. (“Psychemedics Brasil”), the Company engaged in anti-competitive conduct to maintain a monopoly over the Brazilian market in violation of the law; (ii) in turn, Psychemedics lacked effective internal controls over financial reporting; and (iii) as a result of the foregoing, Psychemedics’ public statements were materially false and misleading at all relevant times.

Case Status:    ONGOING
On or around 02/06/2017 (Ongoing date of last review)

Filing Date: February 03, 2017

According to the law firm press release, according to the lawsuit, throughout the Class Period Defendants made false and/or misleading statements and/or failed to disclose that: (1) a cancer patient in a Stemline clinical trial tied to SL-401 died from a severe side effect on January 18, 2017; and (2) as a result, Defendants’ statements about its business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis at all relevant times. When the true details entered the market, the lawsuit claims that investors suffered damages.

Case Status:    ONGOING
On or around 02/01/2017 (Ongoing date of last review)

Filing Date: February 01, 2017

According to the law firm press release, DaVita provides kidney dialysis services for patients suffering from chronic kidney failure or end-stage renal disease. The Company operates kidney dialysis centers and provides related lab services in outpatient dialysis centers, and provides acute inpatient dialysis services in approximately 900 hospitals and related laboratory services in the United States. DaVita made contributions to a purported charitable foundation called the American Kidney Fund (“AKF”), a group that provides financial assistance toward patients’ health insurance premiums.

The Complaint brings forth claims for violations of the Securities Exchange Act of 1934. The Complaint alleges that, throughout the Class Period, Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects.

Specifically, the Complaint alleges that, throughout the Class Period, Defendants made false and/or misleading statements and/or failed to disclose that: (1) the Company and its senior executives purposefully steered patients into unnecessary insurance plans in order to maximize profits; (2) the Company was using AKF as a vehicle to facilitate these improper practices; (3) as a result, DaVita’s revenues and profits were illegally obtained; (4) in turn, DaVita lacked effective internal controls over financial reporting; and (5) as a result of the foregoing, Defendants’ statements about DaVita’s business, operations, and prospects were false and misleading and/or lacked a reasonable basis.

Case Status:    ONGOING
On or around 02/01/2017 (Ongoing date of last review)

Filing Date: February 01, 2017

According to the Complaint, On December 14, 2016, Neustar issued a press release announcing that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) to sell Neustar to Golden Gate. Under the terms of the Merger Agreement, Golden Gate will acquire all outstanding shares of Neustar for $33.50 in cash (the “Merger Consideration”).

On January 17, 2017, Neustar filed a Preliminary Proxy Statement on Schedule 14A (the “Proxy”) with the U.S. Securities and Exchange Commission (“SEC”). The Complaint alleges the Proxy, which recommends that Neustar stockholders vote in favor of the Proposed Transaction, omits or misrepresents material information concerning, among other things: (i) Neustar management’s projections, utilized by the Company’s financial advisor, J.P. Morgan Securities, LLC (“J.P. Morgan”), in its financial analyses; (ii) the valuation analyses performed by J.P. Morgan in connection with the rendering of its fairness opinion; and (iii) the background of the Proposed Transaction. The failure to adequately disclose such material information constitutes a violation of the above-referenced sections of the Exchange Act as stockholders need such information in order to cast a fully-informed vote in connection with the Proposed Transaction.

Case Status:    ONGOING
On or around 02/02/2017 (Ongoing date of last review)

Filing Date: February 01, 2017

According to the law firm press release, Roadrunner provides asset-light transportation and logistics services provider that purports to offer a comprehensive suite of global supply chain solutions, including truckload logistics, customized and expedited less-than-truckload, intermodal solutions, freight consolidation, inventory management, expedited services, air freight, international freight forwarding, customs brokerage, and transportation management solutions. Roadrunner utilizes a broad third-party network of transportation providers, comprised of independent contractors and purchased power providers, with a focus on mid-size shippers. At all relevant times Morgan Southern, Inc. (“Morgan Southern”) and Bruenger Trucking (“Bruenger”) were among the Company’s subsidiaries.

The Complaint alleges that throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company’s Morgan Southern and Bruenger subsidiaries had engaged in improper accounting practices; (ii) Roadrunner lacked effective internal controls; (iii) as a result, Roadrunner overstated its earnings throughout the Class Period by tens of millions of dollars; and (iv) as a result of the foregoing, Roadrunner’s financial statements were materially false and misleading at all relevant times.