Muddy Waters is short

[Gregmal]

This really highlights why this guy and so many short sellers are total scumbags. He clearly has no interest in factual discovery or in seeing “the truth”. He’s hellbent on bolstering “his narrative” and furthering his own agenda; publicity and all. He ll seek witty soundbites and edgy snippets, and if involved in asking questions, do so looking for “gotchas” and stuff that attempts to make the company look bad. No real good faith effort in any aspect, purely adversarial, dispute clearly not having a great understanding of what he’s talking about.

[Gregmal]

This is why it’s a hard bridge to cross when people try to defend short sellers by and large. Of course there’s exceptions, but they are rare. There’s just such an obvious and inherent undertone of dishonesty driving the whole charade, facts be damned. Zero interest in the truth, just getting the desired outcome.

Edited February 15 by Gregmal

[Saluki]

19 hours ago, nwoodman said:

 

I read this as "I didn't cover my shorts in the 24 hours that my hit and run was in the money and I'll try to sling some mud in the conference call to let me walk home with some money for all my work." 

 

 

[Xerxes]

Maybe (just maybe) MuddyWater folks are actually geniuses. They are actually long the stock, but they know just putting a bullish call doesn’t do the trick on a dormant volcano. 

[giulio]

41 minutes ago, Xerxes said:

Maybe (just maybe) MuddyWater folks are actually geniuses. They are actually long the stock, but they know just putting a bullish call doesn’t do the trick on a dormant volcano. 

"Congratulations Prem on a very strong quarter"  would be a dream intro! 

[Cigarbutt]

3 hours ago, Castanza said:

 

Since finding this board I have always wanted to hear the full story on this. 

As usual, the full story is more complex and opaque than often suggested,

Here's a letter to the SEC which is short with an emphasis on one side of the story but may be enough for the purpose of what you are looking for.

s73108-39.pdf (sec.gov)

If looking for some retrospective insights into the 'story', the following has a section on Fairfax then:

SEC Enforcement Actions and Issuer Litigation in the Context of a "Short Attack" | Scholars Portal Journals

For short, here's the conclusion:

For short, this is another trading opportunity, just a more straightforward one and a shorter-duration one.

[Castanza]

31 minutes ago, Cigarbutt said:

As usual, the full story is more complex and opaque than often suggested,

Here's a letter to the SEC which is short with an emphasis on one side of the story but may be enough for the purpose of what you are looking for.

s73108-39.pdf (sec.gov)

If looking for some retrospective insights into the 'story', the following has a section on Fairfax then:

SEC Enforcement Actions and Issuer Litigation in the Context of a "Short Attack" | Scholars Portal Journals

For short, here's the conclusion:

For short, this is another trading opportunity, just a more straightforward one and a shorter-duration one.

Thanks Cigarbutt 

[Thrifty3000]

If you want to see what legit short cases look like I recommend getting on the Hindenburg email list. Here is their short du jour (for a company called Temenos):

 

https://hindenburgresearch.com/temenos/

 

And here’s the 25%+ beat down on the Temenos market cap.

 

Notice after extensive research - including dozens of insider interviews - Hindenburg lists over 20 specific questions for management that it is confident management can’t answer favorably. These guys do a lot of quality work. I’ve never taken a short position, but I find the Hindenburg reports interesting.

 

Key takeaway: MW’s work on Fairfax is amateur-hour in comparison to Hindenburg.

Edited February 15 by Thrifty3000

[Parsad]

6 hours ago, Castanza said:

 

I was just a kid when the last round of this happened to Fairfax. Was this really some of what happened?! Since finding this board I have always wanted to hear the full story on this. 

 

How frickin' old are you?  And exactly how old do you think we are?!  

 

I can't even begin to explain how bad it was in 2003.  Nothing like this...this is a nothing burger other than a firm trying to make a quick buck.

 

2003 and the attack back then was just devastating and extremely well coordinated.  The stock fell from $260 all the way down to $57 USD on the NYSE.  We were getting people joining the message board and trolling the members daily with information about FFH...then a few days later, journalists (three primaries...one who started running a church, another worked for the Globe & Mail, and another one who also no longer writes) would put out articles using the exact same information the trolls were spreading on here. 

 

Every month, John Gwynn an analyst from Morgan Keegan would write a really negative report, but was sending it out to large hedge funds including Kynikos, Exis Capital, Third Point, SAC, etc before the report was actually released by Morgan Keegan.  There was another analyst who worked for a large Australian hedge fund that was the primary culprit behind all of this...in my opinion, he was the guy who started it all...he now writes a blog.  If I ever see him, I'm going to put him on his ass!  John Gwynn died before testifying in Fairfax's lawsuit, and we still don't know the cause of death. 

 

I know fund managers who were Fairfax shareholders were getting calls by other fund managers and journalists involved in the short telling them to sell the stock to drive the price down further.  Prem's executive assistant was being followed from the office.  The pastor at Prem's church received letters saying that Prem was stealing money and would bankrupt the church coffers.  I was told by a well-known manager (no, not Mohnish) to be careful because the people I was dealing with were connected.  The shorts hired a notorious private investigator to plant and attack Prem's character, who subsequently went to prison.

 

While Fairfax's lawsuit was somewhat unsuccessful other than against a couple of the hedge funds, the information gained in discovery was used later by Preet Brahara when the SEC went after all of the same people.  Other than a couple of them, the SEC was able to shut down, sanction or fine almost all of them including sanctions against Morgan Keegan and SAC Capital.  Exis was essentially shut down.  Kynikos and Third Point escaped without anything happening to them. 

 

This was one of the biggest such lawsuits in SEC history with such big players.  Nothing like what we are seeing with the Muddy Waters report.  This is like I said, a nothing burger!  Cheers!

[Parsad]

Hi MMM20, no names.  Keep it general unless they were actually fined or prosecuted.  Cheers!

[MMM20]

28 minutes ago, Parsad said:

Hi MMM20, no names.  Keep it general unless they were actually fined or prosecuted.  Cheers!

 

[Castanza]

57 minutes ago, Parsad said:

 

How frickin' old are you?  And exactly how old do you think we are?!  

 

I can't even begin to explain how bad it was in 2003.  Nothing like this...this is a nothing burger other than a firm trying to make a quick buck.

 

2003 and the attack back then was just devastating and extremely well coordinated.  The stock fell from $260 all the way down to $57 USD on the NYSE.  We were getting people joining the message board and trolling the members daily with information about FFH...then a few days later, journalists (three primaries...one who started running a church, another worked for the Globe & Mail, and another one who also no longer writes) would put out articles using the exact same information the trolls were spreading on here. 

 

Every month, John Gwynn an analyst from Morgan Keegan would write a really negative report, but was sending it out to large hedge funds including Kynikos, Exis Capital, Third Point, SAC, etc before the report was actually released by Morgan Keegan.  There was another analyst who worked for a large Australian hedge fund that was the primary culprit behind all of this...in my opinion, he was the guy who started it all...he now writes a blog.  If I ever see him, I'm going to put him on his ass!  John Gwynn died before testifying in Fairfax's lawsuit, and we still don't know the cause of death. 

 

I know fund managers who were Fairfax shareholders were getting calls by other fund managers and journalists telling them to sell the stock.  Prem's executive assistant was being followed from the office.  The pastor at Prem's church received letters saying that Prem was stealing money and would bankrupt the church coffers.  I was told by a well-known manager (no, not Mohnish) to be careful because the people I was dealing with were connected. 

 

While Fairfax's lawsuit was somewhat unsuccessful other than against a couple of the hedge funds, the information gained in discovery was used later by Preet Brahara when the SEC went after all of the same people.  Other than a couple of them, the SEC was able to shut down, sanction or fine almost all of them including sanctions against Morgan Keegan and SAC Capital.  Exis was essentially shut down.  Kynikos and Third Point escaped without anything happening to them. 

 

This was one of the biggest such lawsuits in SEC history with such big players.  Nothing like what we are seeing with the Muddy Waters report.  This is like I said, a nothing burger!  Cheers!

 

Wow wild story for sure! What caused them to go after Fairfax to begin with? Pretty cool to see this board or at least the members on here play a role in all of it. 

 

btw - I'm in my early 30's 

[Saluki]

8 minutes ago, Castanza said:

 

Wow wild story for sure! What caused them to go after Fairfax to begin with? Pretty cool to see this board or at least the members on here play a role in all of it. 

 

btw - I'm in my early 30's 

 

I wasn't a shareholder back then, but 

 

short shrift - The Globe and Mail

 

 

[Castanza]

14 minutes ago, Saluki said:

 

I wasn't a shareholder back then, but 

 

short shrift - The Globe and Mail

 

 

 

Good read thanks Saluki 

[gary17]

@StubbleJumper OK i deleted my comment if you want to delete your quote of my onw deleted comment !  it was a question, i have no idea who it was. just a random guess.

[Parsad]

5 hours ago, Castanza said:

 

Wow wild story for sure! What caused them to go after Fairfax to begin with? Pretty cool to see this board or at least the members on here play a role in all of it. 

 

btw - I'm in my early 30's 

 

Oh, you're still a young one...lots of compounding left to do!

 

It was after insurers suffered huge catastrophe losses from 9/11 and two major hurricanes.  Fairfax had bought Crum & Forster and TIG at the time...two very large consecutive insurance deals.  At that time, Fairfax was known to buy lesser quality insurers and turn them around...not like the last few years where they pay up for good insurance companies.  But after 9/11 and those catastrophe losses, the hits at C&F and TIG were far more than the discount to book Fairfax paid and the reinsurance policies they bought to cover any future losses.  So part of this was self-inflicted.

 

What wasn't self-inflicted was the organized way analysts, hedge funds and journalists coordinated their attack to drive the stock price down...using some fact and a hell of a lot of fiction! 

 

At that time, a stigma formed around the use of finite reinsurance by insurers, especially AIG and several European insurers.  Fairfax like most reinsurers used some finite insurance...basically finite reinsurance is used by insurers to transfer ceded amounts of risk to other insurers.  So that way, one insurer isn't on the hook for all of the risk of a huge insurance contract.  What some insurers were doing was using finite reinsurance in a way to leverage their book of business, combined with derivatives exposure (AIG), they were creating not only excessive corporate risk, but in some cases like AIG...systemic risk!

 

Fairfax was not using finite reinsurance recklessly.  But they had gotten themselves into a pickle with the losses developing at C&F and TIG.  The shorts used this to artificially drive the stock down by taking out more and more short positions, much of which should not have existed because there just weren't enough available shares.  What they were doing was using the DTC's failure to deliver shares within T+3 days from broker to broker, and artificially creating downward pressure on the stock with artificial shares that did not exist.  Rather than delivering shares within 3 days, many trades for Fairfax stock weren't being delivered for months.  

 

Anyway, by driving the price down, it prevented Fairfax from issuing more shares to increase liquidity.  Because of the stigma around the analyst reports, journalist articles, etc, it became difficult to raise debt at reasonable rates.  So they essentially created an artificial squeeze as Fairfax was hampered for liquidity.  Now you probably understand my cries for a large amount of cash in the holding company like Berkshire.

 

Fortunately, Peter Cundill, Southeastern Management and Markel invested $300M right during the worst time of the crisis.  With that money, plus by delisting from the NYSE where the FTD's were occurring, they were able to slowly right the ship, reduce losses, reduce the huge reinsurance recoverable balance from runoffs and improve the company's position.  Then Brian Bradstreet killed it with the CDS during the GFC, and Fairfax was now in a totally different position financially.  That was the end of any shorting! 

 

The Fairfax lawsuit combined with the SEC prosecutions took out or hampered many of the players.  It was an extremely difficult time for Fairfax, its shareholders and even family of the people who worked there...yet not one single employee left the company over those years!  A testament to the loyalty Prem garners with the people he works with.  Cheers!

[Xerxes]

There is 3-4 page Fortune article on the topic:

 

https://money.cnn.com/magazines/fortune/fortune_archive/2007/03/19/8402326/index.htm

 

[nwoodman]

4 hours ago, Parsad said:

Fortunately, Peter Cundill, Southeastern Management and Markel invested $300M right during the worst time of the crisis.  With that money, plus by delisting from the NYSE where the FTD's were occurring, they were able to slowly right the ship, reduce losses, reduce the huge reinsurance recoverable balance from runoffs and improve the company's position.  Then Brian Bradstreet killed it with the CDS during the GFC, and Fairfax was now in a totally different position financially.  That was the end of any shorting!

 

Good account.  NYSE delisting was 2009 around the same time that they stole ORH from some of us

 

https://www.theglobeandmail.com/amp/globe-investor/fairfax-financial-delisting-shares-from-nyse/article4215526/

[Hoodlum]

Jeffrey Stacey from Stacey Muirhead Capital Management discussed the Muddy Waters report on Fairfax and commented on a few of the transactions in particular . 
 

https://www.bnnbloomberg.ca/video/muddy-waters-short-report-on-fairfax-is-highly-misleading-fairfax-shareholder~2865584

[Thrifty3000]

47 minutes ago, Hoodlum said:

Jeffrey Stacey from Stacey Muirhead Capital Management discussed the Muddy Waters report on Fairfax and commented on a few of the transactions in particular . 
 

https://www.bnnbloomberg.ca/video/muddy-waters-short-report-on-fairfax-is-highly-misleading-fairfax-shareholder~2865584

Excellent. Thank you.

[Castanza]

12 hours ago, Parsad said:

 

Oh, you're still a young one...lots of compounding left to do!

 

It was after insurers suffered huge catastrophe losses from 9/11 and two major hurricanes.  Fairfax had bought Crum & Forster and TIG at the time...two very large consecutive insurance deals.  At that time, Fairfax was known to buy lesser quality insurers and turn them around...not like the last few years where they pay up for good insurance companies.  But after 9/11 and those catastrophe losses, the hits at C&F and TIG were far more than the discount to book Fairfax paid and the reinsurance policies they bought to cover any future losses.  So part of this was self-inflicted.

 

What wasn't self-inflicted was the organized way analysts, hedge funds and journalists coordinated their attack to drive the stock price down...using some fact and a hell of a lot of fiction! 

 

At that time, a stigma formed around the use of finite reinsurance by insurers, especially AIG and several European insurers.  Fairfax like most reinsurers used some finite insurance...basically finite reinsurance is used by insurers to transfer ceded amounts of risk to other insurers.  So that way, one insurer isn't on the hook for all of the risk of a huge insurance contract.  What some insurers were doing was using finite reinsurance in a way to leverage their book of business, combined with derivatives exposure (AIG), they were creating not only excessive corporate risk, but in some cases like AIG...systemic risk!

 

Fairfax was not using finite reinsurance recklessly.  But they had gotten themselves into a pickle with the losses developing at C&F and TIG.  The shorts used this to artificially drive the stock down by taking out more and more short positions, much of which should not have existed because there just weren't enough available shares.  What they were doing was using the DTC's failure to deliver shares within T+3 days from broker to broker, and artificially creating downward pressure on the stock with artificial shares that did not exist.  Rather than delivering shares within 3 days, many trades for Fairfax stock weren't being delivered for months.  

 

Anyway, by driving the price down, it prevented Fairfax from issuing more shares to increase liquidity.  Because of the stigma around the analyst reports, journalist articles, etc, it became difficult to raise debt at reasonable rates.  So they essentially created an artificial squeeze as Fairfax was hampered for liquidity.  Now you probably understand my cries for a large amount of cash in the holding company like Berkshire.

 

Fortunately, Peter Cundill, Southeastern Management and Markel invested $300M right during the worst time of the crisis.  With that money, plus by delisting from the NYSE where the FTD's were occurring, they were able to slowly right the ship, reduce losses, reduce the huge reinsurance recoverable balance from runoffs and improve the company's position.  Then Brian Bradstreet killed it with the CDS during the GFC, and Fairfax was now in a totally different position financially.  That was the end of any shorting! 

 

The Fairfax lawsuit combined with the SEC prosecutions took out or hampered many of the players.  It was an extremely difficult time for Fairfax, its shareholders and even family of the people who worked there...yet not one single employee left the company over those years!  A testament to the loyalty Prem garners with the people he works with.  Cheers!

 

Thanks for sharing that Parsad! Definitely understand your point on wishing they held far more cash.

 

What are you thoughts on reasoning for such low volume in Fairfax equities? It seems like everyone both knows of and doesn't know of Fairfax at the same time...But being young as I am, I welcome the low coverage/volume as it gives me more time to accumulate for cheap!

[Xerxes]

Henceforward MuddyWater shall be renamed as DummyWater

 

[Parsad]

5 hours ago, Castanza said:

 

Thanks for sharing that Parsad! Definitely understand your point on wishing they held far more cash.

 

What are you thoughts on reasoning for such low volume in Fairfax equities? It seems like everyone both knows of and doesn't know of Fairfax at the same time...But being young as I am, I welcome the low coverage/volume as it gives me more time to accumulate for cheap!

 

Fairfax is tightly held, not unlike Berkshire...from management, loyal shareholders, employees, long-term hedge funds, etc.  They've also done a good job reducing the number of shares in the last 7 years.  Lastly, the high stock price also puts off smaller retail clients...whereas Berkshire issued B shares which attracted smaller shareholders.  Also being listed primarily on the TSX rather than a large U.S. listing reduces visibility and interest.  Although I would imagine many loyal shareholders are ok with that last one!  Cheers!

[Luca]

This is the recording of MWs question and watsas reply for the ones who didnt listen to the call  

[Luca]

A piece of history for fairfax right there