Harry Rady Online – San Diego, CA

8/12/11
by Matt Nesto

Question: what index is up 65% so far this month at a time when stocks have shed 15%-20%?

Answer: The VIX, also known as the CBOE Volatility Index.

I don’t know about you, but anytime I see a parabolic move like that, I can’t help thinking, ”There’s no way this can last.” But to actually man-up (sorry ladies, just a figure of speech) and short it here, well, that takes actual guts. Or “conviction,” as Harry Rady of Rady Asset Management says.

“It is by far our largest position,” the self-described “deep value, tactical contrarian” says in talking about being short the VIX. “Given how wild the swings are and how significant they are, it creates real opportunity and creates real inefficiencies,” he says.

While Rady concedes that the VIX could still push higher from here, over the coming months he believes that volatility will compress, as it has “95% of the time.”

If you like that call, try this one on for size: “I am short gold.” I’ll let him explain.

“That’s more of a short-term play. Like the tech bubble of 2000, if you go to cocktail parties, all you hear people talking about is gold,” Rady says. “We think that there’s a bubble building and that in the short-term there’s going to be a little pop…that it’s overcooked.”

And he’s not done there. If you’re among the masses who have sought refuge in Treasuries lately, let’s just say that you might want to get near some water.

“I look at Treasury investors right now as investors that are hiding in a burning bush,” Rady says. “It seems like it’s the only place to hide but I wouldn’t hide there too long because you could end up on fire,” Rady says in describing his intermediate call that rates are headed higher and thus, Treasury prices lower.

In fact, Rady says in the coming months and years, rates could double as investors around the world demand a higher risk premium from a borrower whose balance sheet Rady describes as “a mess.”

Are you listening, Tim Geithner?

“We are short long-dated Treasuries in a big way,” says Rady. “It’s a very high conviction trade. We just think there is very low probability that rates go much lower and stay there for a significant period of time but the probability that they go higher is much higher.”

If you care, he calls this “an asymmetric risk-reward ratio skewed to the downside.”

I just call it smart.

But alas, all is not aflame at Rady. They are also building long positions in high quality, dividend paying, multi-nationals that are economically insensitive and can deliver consistent growth.

Vodafone (VOD) and Telefonica (TEF) get the green light for their fat dividends and slender PE ratios. He also likes specialty pharmaceutical companies like Warner-Chilcott (WCRX), Valeant (VRX) and Teva Pharmaceutical (TEVA).

“We go when others are coming and come when others are going,” he says. “That’s how we make money.”

Let the commenting begin!

As originally posted on - http://finance.yahoo.com/blogs/breakout/m-short-gold-vix-treasuries-harry-rady-123652819.html

As originally posted on Bloombert.com
By Nikolaj Gammeltoft

OpenTable Inc. short sellers are placing record wagers against the online restaurant-reservation company, betting it will slump after posting bigger gains than every other U.S. initial public offering in the past two years.

The San Francisco-based company’s shares jumped 230 percent through yesterday since the IPO almost 18 months ago. The rally convinced investors to sell short 15 percent of its shares outstanding, the most since OpenTable began trading in May 2009 and more than twice its average level, according to data compiled by Data Explorers, a New York-based research firm.

Rady Asset Management LLC and T2 Partners LLC are betting OpenTable’s prospects don’t justify a price-earnings ratio of 122, or eight times higher than the valuation for the Standard & Poor’s 500 Index. While analysts estimate the company will post 51 percent growth in per-share profit in 2011, OpenTable may run out of room to expand its business, said T2’s Whitney Tilson, who lost money when the shares jumped 11 percent on Nov. 3 following the company’s quarterly earnings report.

“It’s one of the most overvalued stocks we’ve ever seen,” said Whitney Tilson, who oversees $214 million with Glenn Tongue at T2 in New York. “It’s a well-run company, but it’s stretching for growth and the earnings report was misinterpreted as a spectacular report, when it was only OK.”

Tiffany Fox, a spokeswoman for OpenTable, declined to comment.

Fourfold Profit Gain

OpenTable, which posted a fourfold increase in third- quarter income last week, makes money from restaurants that install its system and collects monthly subscriptions and a fee for each guest seated through online bookings. Diners schedule reservations for free through OpenTable’s website or applications on devices such as Apple Inc.’s iPhone.

The stock, which has at least five analyst “buy” ratings and seven “holds,” peaked at $69.61 on Nov. 4 after the third- quarter earnings announcement. It closed at $65.95 yesterday, and fell 0.1 percent to $65.87 at 11:49 a.m. in New York.

OpenTable has one of the best management teams among small Internet companies with strong growth opportunities, according to Citigroup Inc. analyst Mark Mahaney, who increased his share- price estimate to $80 this month. The stock has risen 16 percent since he boosted his rating to “buy” from “hold” on Sept. 13.

“What OpenTable has proven is that it has created a dominant transactions platform on which in can layer in new, high-margin revenue streams,” the San Francisco-based analyst wrote in a note to investors last week. “Impressive.”

Adding to Bet

Tilson said his firm started betting against OpenTable several weeks ago and added to the wager after the quarterly report drove the shares higher. Short selling is the sale of borrowed stock in the hope of profiting by buying the securities later at a lower price and returning them to the shareholder.

OpenTable reported third-quarter earnings excluding some items of 23 cents a share, beating the average analyst estimate by 54 percent, Bloomberg data show. The number of restaurants using its software rose to 15,246 as of Sept. 30, up 31 percent from a year earlier. The company is expanding its web-based Connect service, a lower-cost alternative for restaurants that take fewer reservations.

“They are cutting their prices to customers in order to maintain the growth in restaurants that investors want to see,” said Tilson, whose Tilson Focus Fund has outperformed 93 percent of peers in the past five years, according to data compiled by Bloomberg. “You can cut prices to help growth, but that will eventually hurt your profit.”

Short Interest

The proportion of OpenTable shares that were sold short climbed to 15 percent on Nov. 3, according to Data Explorers. That compares with a low of 1.5 percent in December.

Short-selling in OpenTable is increasing as shares of S&P 500 companies borrowed and sold short fell 2.1 percent to 7.76 billion between Oct. 15 and Oct. 29, the lowest level since June 30, according to exchange data compiled by Bloomberg. Short interest for the benchmark gauge for U.S. equities slumped to 4.4 percent of shares available for trading, also known as “float.” It’s down from 4.6 percent in September.

OpenTable’s 230 percent rally since it sold shares in May 2009 is the most among companies that conducted initial public offerings since Jan. 1, 2009, according to data compiled by Bloomberg.

50 Percent Lower

“We would argue that the stock price could be 50 percent lower,” said Harry Rady, chief executive officer of Rady Asset Management in La Jolla, California, which runs a long-short fund that is betting against OpenTable. “The stock is ahead of itself and is priced for perfection.”

OpenTable has created a service called Spotlight that offers coupons to restaurants. It competes with Groupon Inc., the owner of a coupon website with 20 million subscribers that’s seeking venture funding in a deal that may value the company at about $3 billion, according to people familiar with the matter. OpenTable has a stock-market value of $1.52 billion.

“OpenTable is a pure valuation trade for us,” said Rady, who manages $270 million. “The stock is too expensive, even using the most optimistic assumptions, which therefore makes it vulnerable.”

Source: http://www.bloomberg.com/news/2010-11-11/opentable-s-230-surge-lures-short-sales-after-best-u-s-ipo.html

In light of the Obama administration’s apparent backing down from the sweeping reforms it originally proposed to a more moderate health care reform package Maria Bartiromo of CNBC asked Harry Rady of Rady Asset Management and Barbara Ryan of Deutsche Bank Securities to respond. Listen to the video below for the full discussion.

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In mid June the stock market seems to be choosing a direction as the three month gain of 39.9 percent in the S&P index falters. After reaching a 12 year low on March 9, 2009, the stock market has been making an Olympian recovery which, according to many analysts, should have taken years to achieve instead of the gold medal-winning three months.

As the blitzkrieg rise began to slow investors and traders continued to (unsuccessfully) look for new signs of other economic strengthening.

After several comments made by the Russian finance minister, the dollar began to rise in comparison with other currencies. The stronger dollar forced prices for oil and other materials down, bringing to a halt the increase in prices recently of these energy and materials stocks.

Harry Rady is not surprised.

“The market just seems to keep driving the car into the wall and then wonders why it can’t keep driving,” Rady said.

As the dollar strengthens the prices of commodities, oil and other materials are heading downward. According to Harry Rady of Rady Asset Management, the recent surge in stocks has been too fast compared to the poor state of the economy.

“The market just seems to keep driving the car into the wall and then wonders why it can’t keep driving,” Rady said.

After deep drops in prices of stocks in Europe and Asia in response to the strengthening dollar, prices of commodities and other materials declined.

An additional blow came when the index of manufacturing in New York showed that demand was also faltered in the months of May and June.

Commenting on the market’s latest showing Harry Rady of Rady Asset Management said,

“Everything is overpriced. A very long, protracted recession is still very much alive.”

This remark was reported in an article in Lubbock On-Line in response to a week of see-saw movement of the major markets including the Dow Jones industrial average. The Dow along with all the other major market indicators, finished the five days ending on May 23rd just barely in the black. The Dow, S&P and Nasdaq rose 0.10, 0.47 and 0.71 percent, respectively.

Despite a good showing on Monday, stocks sunk downward the rest of the week in response to some bad economic news. Re-running a pattern that is now only too familiar, early gains on Friday were neutralized by sustained losses in the last hour of trading.

The choppy trading waters were caused by announcements that unemployment could reach as high as 9.6 percent and that the British government could lose the Standard and Poor’s Triple-A credit rating.

Coming at the end of next week are several economic indicators that will help determine whether the markets will be sustaining their rally of early spring, or rather if they are instead a disappointing indication of more bad times to come. These barometers include reports of home sales, orders for manufactured products and consumer confidence.

Speculation that the Obama administration is considering converting some of the preferred stock which it has obtained as a result of recent bank bailouts into common stock has added to investors already overburdened accumulation of worries.

The conversion of preferred shares to common stocks will give the administration more freedom to further aid the stressed banking sector without stressing the government’s financial situation, i.e., there would be no need to allocate additional funds. However this move would simultaneously dilute the value of already existing shareholder’s common stock, thus adding to the market downturn.

Read more on this issue in the full article: “U.S. Stocks Lower As Banking Concerns Lead to Broad Sell-Off.”