John Bogle; Avon; Herbalife; Chico's; Tilray; Signet Jewelers; Goldman Sachs

Friday, January 18, 2019
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1. The investing world lost a giant – a true warrior for average investors. Here are some articles that pay tribute to John Bogle:

2. A few follow-ups from my email on the ICR conference earlier this week: I was stunned to see that the shares of Avon, the granddaddy of the multi-level marketing scam, oops, I mean industry, have declined by nearly 95% over the past decade, closing today at $2.01! Here's the 10-year chart:

Will Herbalife follow the same path?

3. There were some fireworks at the Chico's breakout session. As background, the stock has been cut in half over the last 3+ years since Shelley Broader took over as CEO. My friend David Berman, a retail expert who gave a great presentation at our shorting conference on Dec. 3, asked her, in response to her acknowledgment that margins were weak in the most recent quarter, why she keeps saying inventories are not a problem when they've risen faster than sales in 11 of the last 12 quarters, and if she was aware of the relationship between margins and inventories.

It was a tough but totally legitimate question.

At first, CFO Todd Vogensen said David's numbers were wrong, but as this chart David provided me shows, they're not:

Then Broader, clearly rattled, came out into the audience to where David was sitting and aggressively stood over him as she almost shouted her answer. Here's a picture of it:

One friend who observed it said she was like Trump in the debate vs. Hillary. Another said if a male CEO had done this to a female analyst, he would have been fired immediately. These are the tells you look for on the short side...

4. I really enjoyed this long profile in Fortune of the CEO of Tilray, Brendan Kennedy: The Marijuana Billionaire Who Doesn't Smoke Weed. It's a great entrepreneurial story and Kennedy is clearly a very savvy CEO – but it doesn't change the view I expressed on Yahoo Finance TV the hour it peaked at $300 last Sept. 19 that the stock was in an enormous bubble/short squeeze and would decline by 90% in the next year. Down another 7.5% today to $77.20, it's already down 74% in only four months... Excerpt:

The doubts that dogged Kennedy the longest stemmed from his own ambivalence about the product. He began personally experimenting with pot after decades of abstinence, but he doesn't remember any catharsis and didn't like the unpredictability of the experience. His wife, Maria Chapman, says she's never seen him high. Kennedy struggled to reconcile the enthusiasm he was hearing for therapeutic use from military vets and cancer patients with his own antidrug upbringing. "That was the hardest part from a D.A.R.E., cracking the egg on the frying pan, 'This is your brain on drugs' perspective," Kennedy says. "How could this thing that Nancy Reagan said was so bad be a medicine that people use?"

At the same time, Kennedy was troubled by the law's failure to distinguish marijuana from other narcotics like heroin, even as cannabis seemed to truly help people without putting them at risk of an overdose. "You probably will never see it, but he's a real softie for those types of things, and it really affects his heart," says Chapman. "It's not all business." Kennedy and several of his backers felt they were doing more than starting a company or going public. In some ways, they were building a field of dreams within cannabis—give people a bona fide market, and investors and politicians will come. "Our IPO—I've always said this is really an important form of political activism, against prohibition," says Kennedy. His own non-pothead image makes him an ideal spokesperson to win over minds, says Solomon, the Cowen CEO, who has "a 'no joke' rule around cannabis" at his own firm. "If we can distance ourselves from the perception of Cheech and Chong, or two guys and a bong hanging out in the back of a van, then we have made huge strides in establishing this as a legitimate industry," Solomon says.

5. Hat tip to Matt Kliber of Gracian Capital, who pitched Signet Jewelers at our shorting conference on Dec. 3 – it's been cut in half in only six weeks since then, as you can see in this chart:

6. It's not at all surprising that Goldman's senior executives are trying to make the case that they were duped by a rogue partner, but it's total BS. Of course they knew something shady was going on when they were making many multiples of their usual fee selling bonds for Jho Low and his fraudulent scheme at 1MDB – but as long as the money was pouring in, nobody wanted the gravy train to end. For the details, I recommend reading this highly entertaining book, Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World. Here's the article in today's NYT: Goldman Sachs's Tactic in Malaysian Fraud Case: Smear an Ex-Partner. Excerpt:

In part, Goldman is using the presentation to argue that, given Mr. Leissner's supposed slipperiness, the bank's compliance system should not be faulted for failing to detect his scheme. The bank also is hoping to dissuade authorities from relying on any testimony or cooperation that Mr. Leissner might provide and that could put Goldman in a bad light.

As part of his guilty plea last year, Mr. Leissner admitted to misappropriating at least $50 million from 1MDB's bond offerings and to deceiving Goldman about Mr. Low's role in those deals. But Mr. Leissner also told a federal judge that hiding his actions from Goldman's compliance department was "very much in line" with a wider culture at the firm, especially in Asia.

... In Malaysia, where Goldman itself has been criminally charged, prosecutors and senior government officials are unlikely to be receptive to the bank's claim that Mr. Leissner was a lone wolf.

"The whole world knows that their senior executives were involved with wrongdoing and don't feel that guilty, so I think there needs to be some accountability," said Malaysia's finance minister, Lim Guan Eng, in an interview on Monday. "You have to show genuine remorse for what has happened. You must pay the penalty."

Whitney Tilson

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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor's degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

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