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

05/01/2011
Louis Rukeyser’s Wall Street
Rady, Harry

Comments & Outlook
The economy is healing, but the market hasn’t acknowledged the pleth¬ora of risks related to uncertainty in the Middle east, Japan or even the US budget deficit. The Federal reserve’s second round of quantitative easing will likely end soon, but investors are playing the momentum game, hoping to buy high and sell higher. That’s a myopic and dangerous strategy. It’s time to be cautious.

Recommended Strategies
If investors believe it’s time to be cautious and protect their portfolio, there’s nothing better than the VIX [S&P 500 Volatility Index]. During last year’s Flash Crash and the european sovereign debt crisis, the broad market declined by 14 percent from March to May, while the VIX gained 181 per¬cent. There are many ways to play the VIX, but we focus on two exchange-traded notes, iPath S&P 500 Short
Term Futures ETN (NYSe:VXX) and VelocityShares Daily 2X VIX Short Term ETN (NYSe: TVIX).

As contrarian investors, we like drug and biotech stocks. Many of these stocks trade at single-digit price¬to-earnings ratios because of uncer¬tainty surrounding President Obama’s health care reform. Their balance sheets are clean and people will take their medication no matter what hap¬pens in the economy.

What to Buy Now
Research In Motion (NSDQ: rIMM) shares trades at 8 times earnings and 70 percent of the firm’s revenue is garnered overseas. Overseas revenue has grown by 70 percent. Investors have focused on the firm’s domestic sales, which have slumped 12 to 15 percent. The company’s Blackberry line of com-munication devices is getting its lunch eaten by Apple’s (NSDQ: APPL) iPhone on the high end.

But the real opportunity for research in Motion is in the emerging markets and the low end. We see at least 50 per¬cent upside to the stock, and it could be an acquisition target.

Flir Systems (NSDQ: FLIr) has a virtual monopoly on the thermal and infrared imaging technologies used by the US military. Although defense bud-get cuts loom, the US military won’t cut back on its ability to see at night, espe¬cially because Flir’s products aren’t very expensive.

The vast majority of the firm’s sales come from the US defense industry. But the real opportunity for Flir is in the commercial and residential security space. Two years ago, Flir’s cheapest products sold for about $25,000 to $30,000. Those same products today cost about $1,500 to $3,000. The com¬mercial and residential market could be 10 times the size of their defense busi-ness—that’s a strong secular tailwind. Flir is also a likely takeover target for one of the large defense companies.

Original Article – http://us.vocuspr.com/ViewAttachment.aspx?EID=jvsz0F%2fGPcZfUMS8rGkojcUs1eeK9ocYFu6%2bjRKL6Fs%3d

U.S. Stocks End Mixed, But Leaders Shine | Web
11/22/2010
Originally Published on Investors.com
By Mao, Vincent

Euro-zone fears and worries over the financial sector pressured stocks, but they fought back to a mixed finish Monday.

The Nasdaq rose 0.6% after having been down as much as 0.7%. It found support near the 2500 level. The NYSE composite fell 0.4%, while the Dow and S&P 500 lost 0.2% each. All three were down between 1.3% and 1.5% at session lows. Volume fell on both exchanges.

A number of leaders had a nice day. About 78 stocks in the IBD 100 ended higher.

F5 Networks (FFIV) rallied nearly 8% to an all-time high in heavy trading. The stock cleared a 128.05 buy point in a three-weeks-tight pattern. F5 provides optimization technologies for network applications. It grew earnings between 30% and 65% over the past four quarters. Sales growth ranged from 15% to 46% over the same period.

Riverbed Technology (RVBD) erased opening losses, climbing 6% to a record high. The stock found support at its 10-week moving average in October. Riverbed provides products and services that improve applications and accessibility over wide-area networks. Its earnings grew between 10% and 86% in the past four quarters. Sales grew 22% to 45% over the same period.

VanceInfo Technologies (VIT) rallied 6% as it continued to rebound from a second test of its 50-day moving average. It’s now just about 1% off its Nov. 4 record high. The stock cleared a cup-with-handle base in July. Last week, the Chinese provider of software research and development services beat views with a 24% rise in Q3 earnings. After the close, the company announced a secondary offering of 2.2 million American depositary shares.

Group mate HiSoft Technology International (HSFT) gapped up and added 4% in heavy trading. It too is rebounding from a test of its 50-day line. Before the open, the Chinese IT services provider delivered Q3 earnings of 21 cents a share, up 163% and 3 cents above views. Sales grew 53% to $38.9 million, also above views. The company also guided full-year profit at 82 cents or 83 cents a share vs. views of 77 cents.

Outside of technology, Chipotle Mexican Grill (CMG) climbed 5% to an all-time high. That puts shares 57% past a buy point from a cup-with-handle base cleared Sept. 1.

On the downside, financials were some of the session’s worst performers. The Financial Select Sector SPDR dropped 1.4%. Big banks such as Goldman Sachs (GS) fell 3% and Morgan Stanley (MS) lost 2%. Both are laggards with Relative Price Strength Ratings of 49 and 14, respectively. “Several factors weighed negatively on financial stocks today,” noted Harry Rady, CEO and portfolio manager at Rady Asset Management.

First, Barclays Research reported that the top U.S. banks may have a shortfall of $100 billion to $150 billion in capital as per Basel III standards. Second, the effort to bail out Ireland continues to put pressure on Financials. And last, the FBI conducted raids on a few hedge funds related to a new alleged insider-trading probe.

Elsewhere, Hewlett-Packard (HPQ) reported October fiscal Q4 earnings after the closing bell. The company earned $1.33 a share, up 17% and 6 cents over views. Sales grew 8%, also beating views. HP also guided fiscal Q1 profit and sales above analysts’ estimates. Shares rose 1% in extended trading.

The second estimate of the Q3 GDP, existing home sales and the minutes from the Nov. 3 Fed minutes will be out Tuesday.

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

Originally published on InvestmentNews.com
by Jeff Benjamin
11/2/10

Legalizing joints could lead to fewer inmates in the joint, says Rady; jail operator’s share price at 52-week high

Today’s vote on legalizing marijuana use in California has triggered the aggressive short sale of the operator of a private correctional facility where up to 30% of the prisoners are incarcerated on marijuana-related crimes.

By shorting Corrections Corporation of America (

The stock, at more than $26 per share, is trading at a 52-week high and has gained 44% since falling to around $19 in March.

Technical analysis also shows resistance to a bearish turn for the stock.

Last month, the stock’s 50-day moving-average price crossed above its 200-day moving average in a “golden cross” move that is considered to be a bullish indicator.

Mr. Rady, who manages $270 million as chief executive of Rady Asset Management LLC, is betting on the passage of Proposition 19, which would legalize marijuana cultivation and possession for personal use, and allow for taxation by local governments.

The impact of legalized marijuana on a company such as CCA could be immediate, he said.

“The prisons are so overcrowded that it would be a very compelling reason to let those prisoners out of jail for marijuana-related crimes,” Mr. Rady said. “If I’m wrong, the stock is already trading at its 52-week high and probably doesn’t go up on the news, but if I’m right, look out below.”

Polls leading up to today’s vote had opposition to legalized pot in California outweighing support, 51% to 39%.

But Mr. Rady’s case for shorting the stock is also bolstered by a hunch that the company’s earnings report Wednesday could come in below analysts’ estimates of 37 cents per share, which is up from 33 cents a year ago.

- Source: http://www.investmentnews.com/article/20101102/FREE/101109986

As originally published on AdvisorOne.com

One of the biggest frustrations I’ve had over the past few years is hedge fund managers “gating” their investors. High-net-worth (HNW) investors commit substantial personal capital to these hedge funds with the expectation that the manager will limit the downside and generate greater returns than your typical index-chasing portfolio.

Unfortunately, during the downturn, not only did they suffer losses, but they went so far as to lock-up the investors’ assets within the funds. Investors were unable to access their money for an indefinite period of time regardless of circumstances.

To me this is inexcusable; while I understand investments in private equity and other illiquid strategies have longer-term commitments, it is unconscionable to think a long-short domestic manager should and/or would tie up their investors’ assets. For this reason, I encourage investors to avoid limited partnerships with gating provisions in place.

Some good has actually come out of the publicity on gating. The industry has seen the expansion of publicly-traded alternative (hedge fund) mutual funds. As a portfolio manager of an alternative mutual fund, I am far from impartial, but recently a number of well-respected hedge fund managers have decided to offer their strategies in this liquid, transparent format with daily pricing.

I would encourage all HNW investors to consider adding exposure to alternatives—but first look at the alternatives offered in a mutual fund format. Typically, adding a hedged strategy would decrease a portfolio’s overall correlation to the markets and would therefore lower the portfolio’s risk profile and corresponding volatility.

I would strongly encourage investors to focus on risk-adjusted returns. A tactically-managed hedged strategy may offer the added benefit of providing an asymmetric risk/reward profile. If the hedged strategy is available in a mutual fund format then the risk-adjusted return profile gets even more attractive given the importance of liquidity in calculating risk-adjusted returns.