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Ackman under investigation, Citigroup & Friday the 13th: 3 things to watch

Michael Santoli
Michael Santoli

Happy Friday. Here are three things to watch while trading today.

Number 1:

Thanks to your government and an attention-loving billionaire, we’re all going to be treated to a public legal debate over the difference between persuasion and manipulation.

Hedge fund star Bill Ackman of Pershing Square Capital is being investigated by the feds over whether Ackman improperly manipulated the shares of Herbalife Ltd. (HLF) – the dietary-supplement company that he’s assailed as a fraud, and whose stock he has been short for more than two years.

Recall that Ackman - that friendly boyish assassin with the piercing blue eyes – gave a long public presentation in December 2012, based on his own gumshoe work, claiming Herbalife’s sales practices made it a pyramid scheme. The company has fought back hard, and a separate clutch of hedge fund managers have bought the stock and bet against Ackman.

It’s all been a lot of noise and drama over a $3 billion company that was otherwise quite easy to ignore for years.

The newly disclosed investigation seems to focus on whether Ackman improperly enlisted people to offer false statements to regulators about Herbalife to trigger a scrutiny on the company. Publicly presenting evidence or an opinion that a stock is worthless is not itself illegal manipulation. That requires proof of a highly intentional and deliberate scheme to deceive.

In any case, Herbalife shares are poised to pop this morning as the market sees its nemesis on his heels. The stock has essentially round-tripped since Ackman’s attack in December 2012 - from $37, up to $80, and now back to $33 at last night’s close.

Meantime, Ackman has made billions since then on other, often similarly aggressive, bets from the long side. Maybe the Herbalife episode will teach him the hazard of getting caught up in moralistic short sales.

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Number 2:

Citigroup Inc. (C) matters again. After passing the open-book test that is the Fed’s bank stress test, the company has clearance to ramp its dividends dramatically. The stock spurted higher by more than 3% yesterday above $54 on a generally strong day for the banks.

This has been the main consensus investment thesis for big bank stocks: They’re healthier, and even if they’ll never be interesting or highly profitable again, they’ll be able to distribute lots of cash once allowed.

That’s why today begins another test for Citi: Can the stock prove it’s capable of gaining momentum beyond this relief trade. For this entire six-year bull market, Citi stock has gone sideways in a broad range and spent virtually no time above $52. Every time it’s been here, the market was due for a setback.

Citi will now trade, along with all banks, on the prospect for higher interest rates, which should help their bottom line. If the stock shows good follow-through to the upside, maybe it means the once-crucial financial stocks have a shot of assuming a leadership position again.

Number 3:

This is the second Friday the 13th in four weeks. The last time the 13th fell this way in consecutive months was February and March 2009. Between those two Fridays in ’09, the stock market took what became its final sickening plunge – losing almost 20% at one point in that period – before the ultimate bear-market low was set.

That’s all dramatic and fun for the superstitious – or, really, those who pretend to be superstitious, because who honestly fears the 13th.

Just to make sure Friday the 13th has done nothing to earn any anxiety from investors, we ran the numbers on how the S&P 500 (^GSPC) has acted on this date over the decades.

Since 1928, there have been 148 Friday the 13ths. On those days, the S&P has been up 58% of the time, for an average gain of 0.03%. On all Fridays over the past 87 years, stocks have been up 54% of the time for a similar average gain.

Looking at the most recent 10 Friday the 13ths, there’s no trend. Only two saw the market move more than 1%, both in 2012, and one was up 1.65%, the other down 1.25%.

Bottom line: Go find something else to be afraid of. If the market has a rough day, it isn’t because of the calendar.