Why did you do this . Well, you know, we had been looking at herbalife in the industry really since 2004, since we started our firm in 2003. It was always a fascinating story. Right . There were always sleazy things going on in the background, our opinion, and always an industry we thought was harming people, yet over the years they seemed to be growing rabidly. Not just herbalife, but the whole industry, an industry we realized coopted up a critics. Coopted the internet. Type in herbalife scam, knnuski someone coopting. Never heard the story. Obviously coopted wall street. Nobody with a sell recommendation. Two analysts that cover the industry, and they had coopted the government in that so much money had gone into the system that the government just was, had been because its and paid for and finally coopted the ftc. It the government regulators role to protect consumers and nobody was doing that and didnt make for a good short at all. The industrys going through 150 billion, dominant and how could you stop it . Just it was a bee in my bonnet. Couldnt figure it out. We thought we need to get the story out in a credible way and ultimately we hired ted braun to come out and tell this story as to whats really going on. The harm to consumers and really appeal to people in an emotional way and answer the question i think everybody has of, you know when youre approached as a party by your brotherinlaw trying to get you to get into this great Business Opportunity, you wonder, is it a scam . It was a, a movie that would help people answer that question. You knew that people would suspect that bill ackman was the money behind the movie. In fact, thats what herbalife has said since the movie was released. Why did you remain silent for so long . Well, you know, i didnt want to get in the way of the story and knew i would get in the way of the story. I didnt know theyd necessarily point the finger to big ackman. An ability to build a story they have no evidence for. You had to figure likely people would suspect given where the story was at that point. If anybody was behind the money it may be ackman himself . We didnt really know what the response would be to be totally honest with you. And obviously now looking back, okay, its obvious, they say it was ackman. You know, there are a number of reasons i didnt want to go public. I wanted to remain anonymous and had concerns about the industry. Highly contiguous, an industry thats gone amp assailants i pointed out in a previous segment. So now, though, the ftc has come out and stamped their seal of approval on the movie. So i was getting in the way. Right . The company was using the lack of a financier to say this is not a credible movie. Fact of the matter is im not in herbalife stock, havent been since we started the movie in 2014. I had no interest in the movie other than i financed it and dont care where herbalife goes and it was time to come out and get this out of the way as an issue. Why did you cover before you made the movie . Because ted braun is, whos the director, is the most ethical guy you will ever come across, and he wasnt going to make a movie if i was short the stock. And i said, thats fine. You know . It makes for a terrible short anyway and thank god i wasnt shorted. Maybe a stroke of luck. Didnt want to make a movie seen on behalf of a short seller . Yeah. Heres everything i got, made him a challenge. I challenge you to make a movie thats positive about this industry, in fact, i tried to get a number of guys long the stock to participate in the movie, and interestingly, wall street, you dont take a mores argument to wall street. They own the stock, have great cash flows and grow but arent willing to stand up publicly and say we love it, other than carl. I challenged him. Maybe id be long you said the ftc put a stamp of approval, your words, on the movie. Yes, the language the ftc used in the settlement was harsh. It was scathing, and they make the company make significant business changes. They didnt shut the company down. They didnt brand it a pyramid scheme. The company is still allowed to operate. How do you sort of reconcile all of that . I think selling shakes is not illegal. And thats what the ftc allowed herbalife to do. Herbalife can go sell shakes, as many as they want. What they outlawed effectively it the peer mids nature of the Business Opportunity theyre selling. Two businesses. One is the pyramid scheme and one is selling shakes. No one weve spoken to makes money selling shakes. Its all about the pyramid scheme. If the ftc enforces the rules theyve made the entire concept of the multilevel Business Opportunity recognized as illegal back in the 80s will disappear and affect the entire industry. Not just herbalife. We asked herbalife for a comment, what their reaction to this would be. They said, who . Weve yet to hear back from the company. I gather they would have some thoughts, but they could say, you know, part the argument that i just brought forth. Look, ftc had its opportunity. Didnt shut us down. Maybe we had bad actors back in the day. Weve shut them down, made changes to our Business Model already. And this is nothing more than a short seller hit job. It may not be ackman, but another guy with an ax to grind and a point of view that paints us in bad light. And you would say i would say, a, im not sure of the stock. Not a short seller hit stock. Indeed, well find out. Right . In a year go online now and still see the herbalife reps out there lying to people about the Business Opportunity. That is indisputable. They stand up there and do their webisodes. Quick your job, make millions of dollars. Thats what the ftc is trying to stop. If theyre successful, i dont think theres a business beyond that other than slinging shakes. See if they make the changes. Well find out in a year. Now the industry is in a different place. An analogy here between mlms and forprofit. Fought that for years. No regulator on duty, then they were. Death by 1,000 cuts. I think the ftc is on duty and here to, you saw the zeke execs thrown in jail in charlotte. Back lib the same complaint with herbalife. You are still looking for a distributor for the movie . We are. Been more difficult than you expected to find one . I think a problem with the ftc hadnt ruled. So whos going to buy a movie where what if the ftc said this sbis great that guys crazy. Right . I understand that risk. Now that risk is out of the way. I think frankly the ftc ruling and the continued uncertainty in the fact we still have to have this conversation is it a pyramid scheme or not actually makes movie appropriate. Weve seen it. Change the cards in the end, put in some of the ftc footage. Given everything youve said and the point of view that the movie puts forth, which obviously has a point of view and its pretty onesided obviously to say the least. Are you surprised by the way the stock has traded . The fact were sitting here as the stock is at 66, given everything thats happened. The stock is up since the settlement . Well i think a couple of things drive that. Stocks largely decoupled from fundamentals. The fundamentals at herbalife are still fine. Right . The enforcement hasnt taken effect. Wont for ten months. Right . Herbalife beat the ftc to the punch and between them and carl icahn made it materially inaccurate statement saying that the ftc ruled this was not a pyramid scheme. The ftc said they did not endorse in their own press conference. Beat it to the punch and stock was up. Stocks with a lot of computers trading them carry momentum, its fine. Not a pyramid scheme, controlled the spin. The question what is the outcome, i think bad. Currently the guys who run the companies are denying it for all intents and purposes. Hearing you say that, gotten past the point of the movie being out therened a the revolution you financed it, would you ever consider shorting the stock again . Absolutely. I think were still restricted in the stock. Im still not short it. Right . But i think as you look forward its really not something id say you have to short this today. Uhhuh. But i think over the course of the next year could see yourself taking it like forprofit ed, this industry hit its peak. Regulators on duty, death by 1,000 cuts here on out and youll see a change in herbalife, nuskin, medifast, all of them. Youve seen the people did the same amount are work if not more concluded this is investable, at the very least, not going away. From bronti capital, his argument, show me the smoking gun. Where are the warehouses upon warehouses filled with product . And because that hasnt turned up, maybe thats been one of the Things Holding back a breakdown in the stock . What do you think about that . We could drill down in the details of where are there warehouses of product in lebanon where they shipped tons of product to and theoretically lebanon wasnt even a buyer of their product, but saying that exists in the company says it doesnt . Its online. Pull up an entire story on shipments to beirut, but you know, at the end of the day, you sit there and look at the pitch. The pitch is a dishonest pitch, which is what the ftc pointed out. They give the dishonest pitch to get people into the scheme. They cant give the dishonest pitch they wont get people into the scheme. Talked to people at a Nutrition Club. The whole story for years. Nutrition clubs. And yet the ftc endorsed that no one in a Nutrition Club makes any money running a Nutrition Club. They make money by duplicating and getting people to start more Nutrition Clubs beneath them. Its that duplication. Not the warehouse or inventory or accounting all the other things part of the story going backward. The basic Business Opportunity scam that everyone sitting around this table knows, none of you are in pyramid schemes, nobody anybody making millions doing it. That is over, in my opinion. Let me ask you this theres a difference between sort of the investment and the thesis itself. You could say i think that x, y, z company is a fraud. Its another thing to sort of make an allin bet. Would you yourself have bet on zero . I went through it a number of times. Right . I didnt put 20 of my fund into herbalife going to zero. Or any of the other ones. Frankly, our first really successful hit which gave me a taste for success in the issue was manatech p. A company that sold placebos and purified water as a moisturizer. Existing today but blew up, on front line because its a Business Opportunity. Ive had years of doing this and understand how bill could look at this and go, wow. This is a real scam that i found. But i also realized how difficult it was. I think if you take a longterm view now, theres a good shot hes going to be right. Sounds as well youre making sort of a greater point about Multilevel Marketing Companies in general. Are you short other names . Right now . In that space . Our biggest short is priamerica. Others are slow to fruition. Nuskin, others i tend to think are shorts but have different elements going on in china or frankly share buybacks driving the stock price prior. P primark kaw the ftc ruled against the business level in multilevel marketing but the department of labor ruled the thing they sell, which in this case isnt health shakes like everybody else in the industry, its overpriced Financial Products, is also illegal. Now you have a company with both its Business Model outlawed and the product it sells effect lively outluoed. Sells frontend mutual funds and overpriced life insurance. Department of labor law came in said you cant overcharge retail consumers for buying generic Financial Products anymore. That one and 80 in the u. S. Ftc has control. How long have you been short that name . Primark kaw . On and off, five, six months. A fairly new investment . By a typical standard. Yes. Havent been in this space much as all until the last five, six months when we thought the ftc was heating up and maybe a rule wog come out. You thought residual impact of what they said about herbalife would have a broader implication on the overall space . Possibly. It didnt. Youll be with us a while. Get to the markets. S p 500 and nasdaq making new alltime highs today. Guys what do you make of sort of where we are . An economic report kind of hohum. David costham of Goldman Sachs on xwt xsquawk on the street. Average stock, trading 18 times earnings. High end of the historical range. Time to be cautious . Always time to be cautious where the s p is going is a difficult thing to figure out. I can tell you looking at all evidence both on where asset pricing is right now, a lot of the Economic Indicators over the last couple weeks to me it makes zero sense for the Federal Reserve not when they go to jackson hole to telegraph to the market a 25 basis point hike is coming in september. I fully expect thats what will happen. I actually agree. I think jackson hole is a big deal. Get through the rest of earnings for sure. A big week in terms of consumer. What im watching for. Discretionary not doing well. Not at all. No good news. Coach down on earnings. Gap down on earnings. Right. Okay, well yes. Lets see what the other companies have to say. See what disney, Department Stores have to say, underlying trends. Not thinking that great but valuations are depressed. One particular area of the market thats interesting to me with the yields. We got to get through earnings first. Its interesting underare lying the market now you have the cyclical trade. Cyclical bet working, industrials, energy tech, financials, banks. To joes point, people are sniffing out the fed is going to be a little bit more forthcoming in terms of where theyre going with rates at jackson hole. I think the market keeps going higher. Reason why in my opinion, people are getting nervous were in august, getting towards the back half of the year. If theyve been cautious earlier this year, theyre probably behind the benchmark and that means they have to play catchup. Becoming a fear of missing out . Absolutely is. Absolutely is, scott. To the point stephanie made, sectors going up, value sectors. Behind the benchmarks, got to get in it but dont want the buy the highflying stocks. Be safe. Buy what will reward me. This market makes sense at these levels . People from larry fink weeks ago say that it does not. Others say, no. The markets prime to go higher before do you come down . For me its the twilight zone. Right . You know, we have a market led by utilities. Like that makes any sense. We keep having a phrase in our office. Oh, the bottom at the top. Cyclicals recovering but never corrected at least to the fullest extent and still in a down cycle. So we see concerns with the consumer that were concerned about. Yes, stocks keep going up but i see, talk about the fed raising Interest Rates moop cares if they raise rates . Interest rates are up. Threelife from 25 bips to 81 bips. That funds 150 trillion of assets that people are buying and financing short term and buying long term. A huge Interest Rate increase people dont seem to talk about. I think that is going to about tightening and why the feds on hold. I think youre going to see this Risk Retention role come in at the end of december, further reduce securitization volumes, thats going to hurt auto finance, credit card finance. There a tightening going on that people just dont see happening because the feds at zero. Not to mention, take a break after this, not to mention the de facto tightening of other Central Banks going negative, and or cutting rates in their own right as the bank of england just did. I mean, we like to say its dangerous to catch a falling knife. It one is lying on the floor maybe pick it up. Thats the way we look at government bonds. Right . You could short a lot of these zero rate bonds and were going to look back in ten years, thats the big short. Right . You cant lose much. And either threemonth libor or the fed succeeds. Hallelujah, new growth. Talk more. What else is coming up on the Halftime Report. Announcer more with short sellers and the area of the market shorting and the names buying. Plus, one auto stock is stuck in neutral for the long haul. Its our call of the day. And reading the tea leaves. What the charts are telling us where the financials are headed. All coming up on the Halftime Report with scott wapner. Theres a lot of places you never want to see 7. 95. [ beep ] but youll be glad to see it here. Fidelity where smarter investors will always be. If only the signs were as obvious when you trade. Fidelitys active trader pro can help you find smarter entry and exit points and can help protect your potential profits. Fidelity where smarter investors will always be. Back back to the Halftime Report. Talk about the other ideas from a short side you have. A note today, a negative one on ford. It was a sell call at jeffries pap hold on general motors. You have thoughts about the Auto Industry and how to play this from the negative side. What is it . Well, you know, talking about the weakening consumer. Kind of part and parcel of the same idea. Right . What youre seeing is used car sales slowing. Sales slowing in general, part of that jeffries reporter. Seeing an offlease wave of supply coming on further pressuring car prices and sitting here going, prices are headed down. What the consumer shows up with to trade in. Right . Effectively the new car or tradein is getting more expensive for this guy to a large degree, and youre looking at a wave of cars, a technological shift. The cars from six years ago, no comparison. Didnt have tvs in your car, gps totally different. Against a backdrop thats weakening, rates at zero. Car loans are at sevenyear durations. Never saw guys start a car loan two years in negative equity. Youve got all of a sudden a backdrop of prices decreasing, delinquencies creeping up, and all of it seems to be kind of the beginning of a down cycle where you pabasically pulled fo as much sales as you could and have to live through the hangover. Car max is biggest risk in the groom. Harley similarly at risk. Both have finance units. Wearing a lot of subprime paper with regards to the securitization comment i made earlier, securitization will be inif a netley tougher the back half of the year.