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Is Muddy Waters Becoming A Fade?

Tyler Durden's picture





 

Nobody can doubt that (in)famous short seller Muddy Waters, whose initial research pieces received broad distribution on the virtual pages of Zero Hedge, does sufficient due diligence on the companies they designate as targets of their ire. And just for humiliating John Paulson with the utter debacle that was Sino Forest they will forever live in the pantheon of "out of the blue", ad hoc bearish research analysts with a chip on their shoulder. Furthermore, right or wrong, Muddy Waters and their fraudcap peers do a great benefit to the investing society by testing, often repeatedly, the weakest links in the "story" of any one company (especially those out of the increasingly more criminal orient) - if right, it merely precipitates the bankruptcy of what will be a dead end corporate story and thus the misallocation of capital by lazier investors; if wrong, they allow management to generate higher IRRs by buying back their stock in the open market (a far better use of funds for honest management teams than suing independent third party research analysts who may or may not have a short stake). Yet sooner or later, everyone peaks. Has Muddy Waters? This is perhaps a relevant question now that the shorters have taken up another campaign, this time against Singapore agri-processor Olam. The raw data, compiled by Bloomberg is below: decide for yourselves.

Presented in chronological order:

  • Orient Paper down 77% (ONP - June 28, 2010)
  • RINO International down more than 99% (RINO - Nov. 10, 2010)
  • China MediaExpress delisted after losing more than 99% (CCME - Feb. 3, 2011)
  • Duoyuan Global Water down 96% (DGWIY - April 4, 2011)
  • Sino-Forest delisted after falling 74% (TRE CN - June 2, 2011)
  • Focus Media down 3.8% (FMCN - Nov. 21, 2011); FMCN then gained 59% since plunging 39% on day Muddy Waters issued report
  • New Oriental up 32% (EDU - Muddy Waters report dated July 18, 2012);  EDU has more than doubled since falling 35% on day Muddy Waters issued report; that followed 34% drop the previous day, when co. said it was subject of SEC investigation

To not beat around the bush, was the June 2011 Sino Forest thesis MW's last magnum opus, and has all the low hanging fruit been picked already?

We have every confidence that Carson Block and company have only the purest of intentions (facilitated by a variety of incentives of course, monetary and otherwise), but perhaps it is time to reevaluate the business model. Because the last thing Muddy wants is to become the "fade" itself. One or two more flops, and the work product of the company, that may or may not be trying to raise capital to become a hedge fund, could easily become counterproductive.

And just a thought: China has more than enough fraud but how about targeting some US-based fraudcaps and criminal management teams for a change. There are plenty. And with cash flows imploding, and the bulk of US companies relying on GAAP tinkering and balance sheet shenanigans to carry them over until free cash flow "returns" (which in the New Normal won't happen), we are confident they will only increase, and that shifting MW's focus to the US may yield far greater results, both monetary and in terms of visibility, than persisting with the status quo.

 


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Thu, 11/29/2012 - 15:36 | Link to Comment vinayjha
vinayjha's picture

China counterfiet product and now counterfiet stock. God bless china

http://www.freefdawatchlist.com/2012/11/stocks-for-nov-29th-tivo-blox-lz...

Thu, 11/29/2012 - 15:38 | Link to Comment dlmaniac
dlmaniac's picture

MW's attack on SilverCorp was all made-up bullsh*t. It's a scam website. If I were Tyler I'd distant myself from them.

Thu, 11/29/2012 - 15:43 | Link to Comment Temporalist
Temporalist's picture

OT Speaking about attacks

Syria conflict: 'Fierce clashes' around Damascus airport

"The road to the airport of the Syrian capital Damascus has been closed and all flights cancelled amid reports of fierce clashes with rebels in the area.

The government appears to be mounting an unprecedented offensive against rebel-held districts in the east of the city, BBC correspondents report.

The clashes came as internet and phone systems in the country went down.

The Syrian government has previously cut off access to the internet during major operations.

However, correspondents say a nationwide switch-off is unprecedented.

But Syria's information minister said "terrorists" had cut off the internet and that engineers were working to repair the fault.

'Passengers trapped'

There have been no flights from or to Damascus airport since early Wednesday morning."

http://www.bbc.co.uk/news/world-middle-east-20547799#sa-ns_mchannel=rss&...

Thu, 11/29/2012 - 16:02 | Link to Comment percolator
percolator's picture

Sorry dlmaniac you're wrong. It was Alfred Little that reported on SilverCorp being a fraud not Muddy Waters though MW did short SVM.

http://www.zerohedge.com/news/alfred-little-takes-down-silvercorp-again-...

SVM is still trading below where it was after Alfred Little's report.

Alfred Little raised some very good questions, some of which were never explained satisfactory IMHO.

MW has made some very good calls as documented above, so it's not as scam site as you incorrectly alleged.

 

 

 

 

Thu, 11/29/2012 - 21:14 | Link to Comment dlmaniac
dlmaniac's picture

The entire silver mining sector is traded below last year's level so you are making a moot point. Alfred's accusation was typically spin & stretch meant to mislead that only fools believe in. For example their claim of SVM using fraudulent accounting was completely disapproved by an auditory check later last year.

Thu, 11/29/2012 - 15:42 | Link to Comment Sylvia Plath
Sylvia Plath's picture

You are also forgetting about FSIN Fushin Copper....

Thu, 11/29/2012 - 15:42 | Link to Comment JoeSexPack
JoeSexPack's picture

Muddy Waters will never fade, Mannish Boy still rocks:

 

https://www.youtube.com/watch?v=w5IOou6qN1o

 

 

Thu, 11/29/2012 - 15:48 | Link to Comment Dr. Engali
Dr. Engali's picture

I am sure there are other parties out there who have a vested interest in them failing. I would not be surprised if they rushed out to support the targeted companies stock just to muddy up Muddy Waters track record.

Thu, 11/29/2012 - 15:43 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Maybe, but I love his music.

Wait...............nevermind. :>)

Thu, 11/29/2012 - 16:24 | Link to Comment falak pema
falak pema's picture

y be your worst enemy...wait...never mind...say it out loud n clear! 

For those who hit the little white ball; if its not a fade its a draaaaw! 

I feel like I'm in Dodge! 

Fri, 11/30/2012 - 11:26 | Link to Comment Silver Bully
Silver Bully's picture

'I feel like I'm in Dodge!'

You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run.
You never count your money when you're sittin' at the table.
There'll be time enough for countin' when the dealin's done.

Thu, 11/29/2012 - 22:53 | Link to Comment tbone654
tbone654's picture

Now we just need to know what Chester Burnett thinks...

(aka - Howlin Wolf)

Thu, 11/29/2012 - 15:44 | Link to Comment Silvertrader
Silvertrader's picture

Big down moves in these stocks. It would be nice to trade it using CFD's.

Thu, 11/29/2012 - 15:45 | Link to Comment Yen Cross
Yen Cross's picture

Long Trojan Man §  !

Thu, 11/29/2012 - 16:16 | Link to Comment falak pema
falak pema's picture

u got moral pangs from the slit eyed Andromachs of this world?

Wow...civilization is not just betting on the 4X! 

Thu, 11/29/2012 - 15:48 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 Do they cover into the reports is my question.

Thu, 11/29/2012 - 15:50 | Link to Comment gjp
gjp's picture

Anybody trying to short anything is a fade these days.

For example, consider AMZN, a somewhat popular short.  Nine straight up days for gains of 15%.  Within spitting distance of alltime highs in the face of three quarters in a row of disappointing earnings and revenue, raising debt (no tech cash cow this), the need to collect taxes from customers, increasing competition, worries about consumer spending, and of course sky-high multiples, with price-sales above just about any other mass retailer, even ones that actually make money on their sales.  I swear this is instrument #1 for Bennie's Boys.

Thu, 11/29/2012 - 15:51 | Link to Comment Translational Lift
Translational Lift's picture

but how about targeting some US-based fraudcaps and criminal management teams for a change. There are plenty. And with cash flows imploding, and the bulk of US companies relying on GAAP tinkering and balance sheet shenanigans to carry them over until free cash flow "returns" (which in the New Normal won't happen)

You mean like the money ctr and reg banks!!??............

Thu, 11/29/2012 - 15:59 | Link to Comment Bay of Pigs
Bay of Pigs's picture

And then move on to FarceBerg?

Up close to 30% since diluting their shares by 1.3B (49%) two weeks ago.

LOL. What bullshit this is. And no, not short FB. 

Thu, 11/29/2012 - 15:53 | Link to Comment NoDebt
NoDebt's picture

No shortage of fraud and malfeasance in the world to report on.

Thu, 11/29/2012 - 15:55 | Link to Comment Catullus
Catullus's picture

Just call out AMZN. $100m in EBITDA justifies a $112bn martlet cap? I don't care how much they're growing. They're a grocery store. They make retail margins. Someone grow a pair and short them.

Thu, 11/29/2012 - 16:04 | Link to Comment gjp
gjp's picture

And they just borrowed $3 billion!  Last decade analysts celebrated the cash generation when they paid off their debt.  Now they are celebrating selling Kindles at undisclosed negative margins?

No $100 billion in cash like AAPL, but AAPL gets a near-single digit PE for its innovation and value added and AMZN gets 1,000x EBITDA for what - the cloud?  Incredible.

Thu, 11/29/2012 - 16:14 | Link to Comment Catullus
Catullus's picture

The cloud is garbage. You send a lot of money building out a server farm that eats energy only to have someone in 3 years at 1/3rd cost be able to build out the same capacity. Feels like fiber optics first movers all over again.

Thu, 11/29/2012 - 16:16 | Link to Comment slaughterer
slaughterer's picture

AMZN can be shorted, but seasonally it is not the right time to do that.  

Thu, 11/29/2012 - 15:56 | Link to Comment chrisd
chrisd's picture

Why doesn't ZH take up the handle of short-seller extraordinaire of US based companies? Publishing more in-depth research showing GAAP tinkering would benefit not just the research firm, but most of your readers. You (plural) seem very adept at understanding finance and accounting.

 

As to your main point. I don't think they are a fade just yet, but they have attacked companies that seem to have overstated financials lately (Focus, Education) whereas their first targets were frauds. Focus has been telling everyone they are selling for past 6 months, it could be a while before that one plays out.

Thu, 11/29/2012 - 16:14 | Link to Comment Joebloinvestor
Joebloinvestor's picture

Way to go Carson.

They packed up their bags and took the SCAMS back home.

Thu, 11/29/2012 - 16:40 | Link to Comment Jack Kreuz
Jack Kreuz's picture

This is not over by any means. Fraud in Chinese stocks is rampant. Hopefully, more people will join Alfred Little and Muddy Waters in their quest to unveil more of such frauds.

Thu, 11/29/2012 - 16:49 | Link to Comment swissaustrian
swissaustrian's picture

MW's last target Olam Intnl. isn't a scam either imho.

Thu, 11/29/2012 - 19:02 | Link to Comment Urban Redneck
Urban Redneck's picture

Let's be fair, their commodities trading and accounting groups could be running a ton of accounting scams to avoid the armies of tax men in all the jurisdictions they operate in.

Thu, 11/29/2012 - 21:17 | Link to Comment Wolf in the Wilds
Wolf in the Wilds's picture

Olam is not a scam, it is a time bomb.  MW just pointed out the obvious that most analysts and investors choose to ignore, on the hope that another sucker will buy the bonds from them at a higher price.  Mind you, they are not the first to point this out.  The only thing they did was dig deeper to discover more interesting facts, esp regarding the amount of investment put into their acquisitions even though they were not supposed to be "green field".  Look through the balance sheet and the cashflows. Maybe then you will understand why they are shorting Olam.  I know I have.  

Olam is not a scam. It is just very very badly run, and over levered.  That is enough for me.

 

Thu, 11/29/2012 - 17:18 | Link to Comment Venerability
Venerability's picture

The thing I am most proud of this past year is helping to disgrace Little Carson and his entourage.

I only wish Beijing would put him before a firing squad as an example to others, including his Eminence Grise Manuel Asensio.

Thu, 11/29/2012 - 17:36 | Link to Comment apocalypse_meow
apocalypse_meow's picture

I wish that chopshop global hunter would issue some more bullish reports to fade right about meow

Thu, 11/29/2012 - 18:44 | Link to Comment Nnthnt1
Nnthnt1's picture

has zerohedge peaked? No investigative journalism left.. all unargumented pessimism

Fri, 11/30/2012 - 01:16 | Link to Comment billsykes
billsykes's picture

If carson has the cash all he has to do is turn activist shareholder look at that old codger Icahn, take his business model.

 

 

Fri, 11/30/2012 - 02:05 | Link to Comment nastaking
nastaking's picture

That V808 Cell Phone -T, is showing an interest in deep packet inspection suggests some governments hope for a world where even encrypted communications may not be safe from prying eyes, according to the CDT.

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