Monday, August 04, 2008

If Your Stock Goes Down, It MUST Be Short-Sellers

IF one is the chief a monoline, bank or other financial holding company with large dubious asset-backed positions, it is understandable that during the denial phase of coming to terms with one's fate, that one would like to blame the nefarious Short Sellers. We'll ignore the asymmetry of absent blame on the way up for momentum traders, and concentrated hedge and mutual fund accumulations.

But today's short-seller whinge-ing award comes from the most unlikely of sources in the most unlikely of sectors: Australia's richest man, none other than John "Twiggy" Forrest, chairman and founder of emerging iron-ore behemoth, Fortescue Metals Pty. (ticker FMG AU Equity for Bloombergers).

According to today's Sydney Morning Herald,
Iron ore miner Fortescue Metals Group Ltd, headed by Mr Forrest, has being targeted by hedge funds resulting in a more than one third fall in the company's value over the past six weeks.

The activity has also cut Mr Forrest's paper fortune in Fortescue since hedge funds began targeting the stock when it was trading at a high of $13.15 a share on June 25.

"Those people who make a living out of short selling stocks ... are bordering on criminality," Mr Forrest told delegates on Monday at the Diggers and Dealers conference in Kalgoorlie, Western Australia.
No matter that FMG (seen in chart above) vaulted more than 115% from A$6 to A$13 in the current YTD, punctuated by an unusually firm End-of-Quarter-2 close, nor that it had increased more than 900% since Jan 1, 2007.

The SMH continued:
"Those stock market players who have no interest in the company, who spread or propagate rumours that they haven't been bothered to check ... and then sell into the back of those rumours, I don't think they're doing anyone any good," Mr Forrest said.

"And of course, when we hear that we've got cracks in the bottom of our ore cars, or even a ship has sunk at the berth.

"We know those things are being put out to scare the mums and dads into selling their shares and of course the people who've shorted their shares then go and buy those shares off."

Mr Forrest also attacked investment banks who defended the practice.

"The investment banks who defend short selling are defending real personal interest," he said.
Mr Forrest, of course, is not in any way defending his personal real interest with his accusations. After all his mark-to-market wealth of Fortescue shares alone only declined a mere A$4 billion to A$8 billion. And while Mr Forrest's faux-concern for little Bruces & Sheilas across oz is heart-warming, by way of full disclosure, most of FMG stock is locked up between himself, Steinberg's Leucadia, Falcone's Harbinger, whom together control @63%. Perhaps, one of the other big-three is hedging out the enormous gains of the prior 18 months, particularly as bottom falls out from under US economic activity in general, and the commodity complex in particular.

In any case, I am not defending short sellers. Nor making any statement about whether FMG's share price is too high or too low. But I remain intrigued by the ease and rapidity that longs unsheath their asymmetrical insinuations that anything which goes down - even something that has appreciated as outrageously as Fortescue - even something with some serious logistical issues which remain to resolved - must have a nefarious connection...and is not the result of ordinary profit-taking, trend-followers reversing positions, or principled value investors using it to hedge the market risk of other, now-less-exuberantly valued miners, in currencies less susceptible to carry-unwind risk.

I wonder if Mr Forrest is buying more down here from The Short Sellers, particularly if such a fall is as unwarranted as he suggests? Last official filings, however, showed him selling a cool A$40million of stock during the prior quarter...


vlade said...

As usual. If it goes well (up), it's my personal genius. If it goes badly (down), it's those bloody enter-your-favourite-flavour-du-jour bastards.

slackful said...

bravo. I'm saving this one in my pocket so i can just read excerpts the next time the argument gets started.