Europe's `Ticking Time Bombs' Set for Shorting, Block Saysby
Investors don't ask hard questions of indebted firms, he says
Muddy Waters founder bets against Sweden's TeliaSonera
Carson Block, the short-seller whose bet against Asia’s Noble Group Ltd. helped sink its shares earlier this year, is targeting the "ticking time bombs" of western Europe.
Block, who runs research firm Muddy Waters, said European companies are ripe for shorting because of their indebtedness and a lack of scrutiny by investors. In a Real Vision interview to be aired Friday, he said that investors in Europe follow a code that makes it impolite to ask hard questions.
“We think Europe has a number of companies that are really problematic, heavily financially-engineered, indebted and where investors just haven’t done the work,” he said in the Nov. 24 interview on the financial video-on-demand channel. “Given what’s happened with interest rates in Europe and this environment that’s conducive to bad companies borrowing, I think it’s really created a lot of ticking time bombs.”
Block has a record of driving down the shares of companies from his base in San Francisco. Last month Muddy Waters said it was betting against Swedish phone company TeliaSonera AB, questioning the extent of the company’s transparency about its Eurasian businesses. The carrier’s stock plummeted 5.3 percent on Oct. 15 after Muddy Waters published its report.
A lawyer and New York native, Block founded Muddy Waters in 2010 in Shanghai and focused on ferreting out fraud. He made his name with Sino-Forest Corp., which operated in China and collapsed after his fraud allegations. He has said he stopped trying to bet against Chinese companies this year after government agents hindered his analysts and harassed workers at a storage company he owns in Shanghai.
Now back in the U.S., Block said China “is to stock fraud what Silicon Valley is to technology.”
Noble Group Short
His calls in Europe haven’t all been right. In mid-February, he said the stock of French holding company Bollore SA could double. The shares are down slightly since then.
Block said his theme for 2016 is shorting “heavily financially engineered companies,” a strategy that he started this year. In early April, Muddy Waters published a report questioning Noble Group’s cash flow and management after others had criticized the finances of Asia’s largest commodities trader. Noble’s shares, which Muddy Waters said it had shorted, have plunged more than 50 percent since then.
While the short seller doesn’t shy from the spotlight, he is steering clear of Valeant Pharmaceuticals International Inc. Its shares dropped in October after short seller Citron Research accused the drugmaker of generating fake sales. Billionaire activist investor Bill Ackman is among its biggest shareholders.
“It’s unclear what Valeant is right now,” Block said. “I think it’s very difficult to get an informational advantage on either side and that’s a situation that just tells me to stay away.”
Real Vision, co-started by former hedge fund manager Raoul Pal, is a video-on-demand channel for finance professionals that interviews fund managers, economists and analysts.
Muddy Waters focuses on three types of research, according to the firm’s website: “business fraud, accounting fraud and fundamental problems.”