to short or not to short

To short or not to short? Discoverer of Truthiness.The anti-hero’s anti-hero. Maker and taker of unpopular positions.There is something very post-modern about this form of sleuthing through cooked books and juiced figures, fraudulent figures, flawed figures, which at a basic level means management is lying through their teeth. It’s the art of pessimism. Albeit its not necessarily negative. In fact, society needs these sort of outsider figures, somewhat marginal within a mainstream sense, to inject a dose of sanity in the market, to take a sobering view of Greenspan’s “irrational exuberance.” The premise is very simple, and has been valid for at least twenty years:The values of companies and the health of the market is only very tenuously related to the health of the overall economy. In other words, markets have a life of their own, and those strange entities are almost Frankenstein’s or other horrors cooked up in a corporate boardroom…

(see link at end)…Olam International Ltd is under attack from short sellers but the company looks to be holding on OK, I do not think Olam is the new Enron, and if we were to extend the theory of pre booked profits that is being spouted by the short sellers then every insurance company in the world is in bankruptcy and so are most of the banks.

—On his allegations against Olam
‘Olam has morphed its business from just being a standard ag commodity trader into investing upstream and production assets as well as midstream and downstream, so that’s processing and distribution. The problem is, it has been burning cash the entire time it has been public almost. It has not been free cash flow positive since fiscal 2006. What the company tells investors is that these investments that it’s making in these upstream, midstream, downstream assets, there is a gestation period and that these will have high ROIs. We looked very closely at a number of capital projects that the company has embarked on and we found that many of them are performing very poorly. —Read More: image:

Olam will survive this, and considering how much short selling would have been generated, and the net short position the company may bounce back over $2.00SGD and give the short sellers a nasty, but well deserved shock.

“There is no substance in their broad allegations,” Olam said today in a statement, promising a fuller response in due course. “We will clear our name and hold Muddy Waters accountable for their damaging actions.”…

—On why he advocates short selling
‘There are several important reasons why short selling is good. We are really one of the most important checks in the marketplace on bad companies, especially those that are misleading investors or outright committing fraud. We have economic incentive to investigate what it is that they are doing, especially when you have companies that are perpetually raising capital from the market and doing so in ways where investors don’t understand the true state of these companies, you need short sellers to point these out. You can look at Enron.—Read More: image:

But instead of fighting the short sellers CEO Sunny Verghese needs to reach in to his pockets, rally his friends and burn the short sellers, it is not our opinion that the short sellers are well heeled enough to withstand much of an attack, there are plenty of rumors about the financial state of the short seller and Muddy Waters may be looking for a big winner here to salvage themselves. Read More:

Its not exactly Vincent Price’s Make Friends and Influence People approach, and Block does tip his hand that he is rubbing against powerful forces, backed by state power and their is a risk of triggering sell-offs on non-localized and significant level. As an aesthetic, its an appealing, engaging and contemporary dynamic of the rugged individualism, the quasi loner pursuing his objectives in this netherworld of charlatans and snake oil salesmen permeated with the odor of the highest bourgeois sophistication….

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From Muddy Waters Research:The Chinese have an old proverb, “浑水摸鱼” (muddy waters make it easy to catch fish). In other words, opacity creates opportunities to make money. This way of thinking has been part of Chinese culture for centuries, and it is institutionalized in the modern PRC.

Western investors and their regulatory systems are inherently unprepared for muddy waters environments. Moreover, Harvard-educated Chinese analysts based in New York usually have little more in common with Chinese company managers than you do. As a result, many sub-par Chinese companies find ways to game the system and trade at inflated values. At the same time, a number of well-run and well-positioned companies are underappreciated because their managements, often abandoned by RTO or IPO sponsors, are awkward to foreign investors.

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