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Carson Block: We Have Not Changed Our Thesis on Olam
Carson Block of Muddy Waters Research spoke today with Bloomberg Television's Erik Schatzker and Sara Eisen on "Market Makers" about short selling, his investment strategy, on plans to move to move to other emerging markets and his unchanging thesis on Olam International.
Block said, on Olam: "Numbers are not that good if you scratch the surface"
Block on whether Herbalife is doing a disservice to the business of short selling:
"I do not think it is doing a disservice. Whether Pershing and Ackman are right or wrong, they got up there and gave a three-hour presentation that was chock full of data. Nobody can dispute whether they have done a significant amount of research. Reasonable people, I guess, are arguing about the conclusions they have drawn from the data on, but that alone says that when you're in this business of short-selling, you really do your homework. And if you are not prepared to do so, there's no place for you in this business."
On whether he is still sticking to his thesis on Olam:
"The short answer is yes. We have not changed our thesis on Olam. When they reported, the numbers looked good but Q2 got this one time extraordinary gain, then the net income declined 6.3% year-over-year. It was not a good quarter at all from that perspective and from the cash earnings perspective, they burned a lot more cash. The numbers are not that good if you scratch the surface."
On dealing in a foreign market:
"Dealing in a foreign market itself bears a lot of uncertainties. How the regulators react or do not react makes things a lot more typical. One of the interesting facets of this with Olam is that one of the largest outside shareholders was in Singapore...ultimately, our view is that to Temasek, which is the Singapore arm, will view this from favorable purposes. When it was doing it, I was doing it for more than systemic purposes and Singapore. It is a strange mix."
On whether media attention ultimately is a good thing for companies like Herbalife and Olam?
"I believe the investment community may pay dividends for the shorts when it comes to. The FTC a few weeks ago released a list of complaints and one might postulate that the reason it did so is because Herbalife was getting so much attention in the investment community. It is reasonable to assume that all of this uproar has drawn attention to Herbalife. Whether that brings adverse affects to the company is a different question. As far as Olam goes, it is already heavily shorted stock by the time we wrote on it. I do not know that we have raised awareness among short sellers. Among long buyers and potential long buyers, certainly, the press in Singapore, you know, Temasek being portrayed on one side and us on the other, that brings attention to our original thesis."
On moving into other emerging markets:
"We have not precluded the emerging markets. Certainly, there are companies we believe should not be trading. One of the issues with India, though, is that as foreign investors, it is very difficult to short. It is a very squeegee -- a very squeeze the market. I'm not saying we will not do it, but it does require a lot of deliberation. We have looked at Japan. There are a lot of problem companies in Japan. Japan is a possibility. But the U.S., what we see here -- first, it is a market we are most familiar with. We see a lot of companies that we think are problematic. I'm defining that in a broad sense by saying that these are companies that we feel their primary purpose is to enrich management by transferring wealth from investors to management. Some of those companies are ones that we would like to expose and shows -- and show the market that this is what they're doing.