From: NSS thread basserdan 9/26/2008 12:07:51 PM
4 Recommendations of 3849
The Questions You Won’t Hear on CNBC
September 23, 2008
David Patch
This week must have been a sobering one for the news team at CNBC.
Over these past 8 years CNBC anchors and commentators have fawned over the short seller without ever making the effort to dig deeper into how these people operate. The motto of each has been to engage in a PR campaign that included “Short Sellers are always right because they do more research than anybody else”. The team later taking the cue from such short sellers and ran the battle cry of “CEO’s who go out and blame short sellers are simply diverting their attentions away from the real problems within their company”.
Never once did the CNBC crew acknowledge that predatory short selling could actually damage a good company. In fact, just the opposite, Short Sellers can not impact sound companies is what they presented to the public.
Guess what.
This week General Electric, the parent to CNBC, contacted the Securities and Exchange Commission and requested that General Electric be placed on the short sale ban list. CEO Jeff Immelt was not at all amused at how hard the GE market was hit by short sellers feeding off allegations of huge losses associated with the GE Capital Division. The GE market was driven below valuation and it was because of those nasty short sellers.
GE, and CNBC were now the target. There goes my 401K they all thought.
Did a CNBC commentator suddenly question Jeff Immelt and what he was hiding? Did a CNBC Commentator begin attacking Immelt the way they attacked Patrick Byrne of Overstock.com? No, this time it was their personal financial safety at risk and thus this team simply shut down. Suddenly the cheerleaders’ for the short seller were caught in the middle. Do they protect their financial futures with GE or do they continue beating the drum for the short seller they rely so heavily on. In the end they did nothing.
Last week it was Charlie Gasparino fawning over James Chanos in an interview held over a pricey steak lunch. Of course the discussion included short selling and Regulatory changes. The interview however never challenged the responses by Chanos despite clear opportunity to do so.
This week there is no Chanos, no Einhorn, no Ackman. This week the short sellers are off the guest list. This week GE is one of the companies under assault and suddenly it is personal.
Having opportunity to play the Monday morning quarterback I looked back on the years of glassy eyed gazing over short sellers the CNBC crew has exposed us to and I looked back at the video clip of the recent Gasparino interview. To me, Gasparino choked in his interview as he gave the soft questions and giggled over the less than sufficient answers.
Charlie clearly is no Mike Wallace. Not sure he is even a
To me, a commentator intent on bringing truth and honesty to the public would have challenged his guest to the hard questions many want answered and have wanted answered for years.
James Chanos was offered opportunity to present an op-Ed in the WSJ this week in which he put in print what he has stated many times during his interviews on CNBC. Using his words, and the records of the past, this is what I would have had to say to Mr. Chanos. It may have cost me the fancy steak and cheap wine but it would have been what I think the viewers wanted and needed to hear.
My Questions:
1. Mr. Chanos, you have said that “In the end, short sellers -- not management -- defended honesty in the pricing of shares by demanding accountability.” This is a bold statement coming from an opinion not supported by empirical data. Are you to say that 100% of a position taken up by a short seller is accurate and that only the short seller can define pricing efficiency?
2. Mr. Chanos, is it possible that the aggressive nature of a short sale into a fragile market can make your research become a self-fulfilling prophecy regardless of the underlying accuracy of that research? Certainly taking out an aggressive campaign in which negative PR’s and heavy short selling can define an appearance of a problem that does not actually exist, can it not?
3. Again Mr. Chanos you cite your successes. “Indeed, my firm was among the first to raise red flags about Enron's finances.” But what of your failures? Would you care to discuss companies where you believed wrongdoing was taking place and brought such attention to regulators only to have regulators find that you were mistaken? Can you identify for us a few targeted companies you went after where no wrongdoing existed and yet you profited on the position anyway after an SEC investigation was initiated?
It is funny how convenient it is for the short seller to be allowed to be so secretive in their trading that they only have to disclose that for which they want to be recognized. In this case Enron is nearing a decade old, is that all you have to offer us Mr. Chanos? Short Sellers for example most recently targeted TASER, Overstock.com, Cal-Maine, Travelzoo, Netflix, etc… and SEC investigations into each failed to support the accusations of the short seller. Yet, the markets in each of these stocks collapsed under extreme settlement failures and collapsed to levels supportive of a short sale profit. Could those be possible examples of self-fulfilling prophecy we spoke of earlier?
4. “The vast majority of equity short sales are market neutral; the short seller has no fundamental view of a company's outlook”. What does that mean? I thought short sellers were thorough in analyzing companies because of the unlimited risk of a short sale. Doesn’t a companies fundamentals factor into this at all? How can a short seller bring pricing efficiency to a market when the short seller has no fundamental outlook of the company they intend to short? Do the markets not trade off future outlook more than present value?
5. You say, “Short selling also improves market quality and efficiency by narrowing spreads, improving the speed of price adjustments based on new information, and pumping liquidity into the market.” At the present time there is more than $8.5 Billion worth of unsettled trades on the books of the DTCC. By definition, an unsettled trade is market inefficiency, how do you rationalize this as being efficient? Do you believe that in some cases liquidity can be harmful to a market as it may cause market distortions either to the upside (pump and dump) or to the downside (predatory short sales)? If you believe one can exist, don’t you have to believe the other can exist?
6. “I believe the SEC has every right to obtain and review information about short positions for market surveillance purposes, but forcing public disclosure will have serious consequences for the market.” How is Jim Chanos any different than the large funds and institutions that must disclose their long positions to the public? With short selling in targeted companies reaching 100% or more of a public float it is abundantly clear that the short sellers are invested in the market as the long shareholder, why should the long strategist disclose to the public their sentiment but not the short seller? When making an investment decision, does Jim Chanos look at who it is that is long the stock before executing into a trade strategy? If so, wouldn’t that distort pricing efficiency by your standards?
7. These questions all refer to a recent op-ed piece in the WSJ. In reading the Op-Ed you never come out and identify that there are short sellers in this market that do trade illegally and that do trade in a predatory manner with intent to inflict harm on to public issuers and their investors. Do you believe such individuals and firms exist and if so, as one of the largest and most respected short sellers in this industry why do you not engage in rooting out those that are giving the short sellers the bad name instead of protecting them under this false pretense that all short sellers are intent on making efficiency in the markets?
8. Finally, what is your solution? We have read your comment memo’s where you do not believe in a mandatory pre-borrow and yet, the mandatory pre-borrow is the safest way to insure that those who engage in the short sale will do so with the intent to settle. Why are you so opposed to the safest bet available to these markets, instead opting out for a practice that requires regulatory audits and intervention to identify abuse? If you firmly believe that it is the short seller’s responsibility to settle the trades on-time, why fight the guarantee?
I believe I read that you put the blame on broker-dealers for not settling the trades after a failure but wouldn’t such settlement involve buying you in at whatever cost possibly forcing you to incur a loss? Is this what you want and would you retaliate against a firm who repeatedly bought in trades executed on your behalf that later failed due to multiple locates or other reasons? By retaliate I mean move your business elsewhere.
If no retaliation would take place, will you contact your broker-dealers and request that all of the trades executed on your behalf be settled immediately. Would you step up to the plate here and make the first step in being accountable for your failed trades and accountable for a safer more efficient market.
So there you have it, short and sweet.
Short sellers who take on public companies should be held to the same standards of accountability and transparency as the CEO’s of these public companies they attack. Short sellers can create a market disruption that can impact the business or the investors who have invested in that business to levels not dissimilar to that of a CEO which is why rules and regulations must contain them from engaging in malicious and predatory activities.
I just wonder, does CNBC now get it or do they remain standing with heads buried in the sand?
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