Quote of the Day: Blaming Short Sellers
There is a fascinating article about John Paulson in this month’s Portfolio.
What is so intriguiging is not the billions Paulson made on the collapse, but this exchange between short fund manager Jim Chanos and Bear Stearns CEO Jimmy Cayne.
Chanos, for one, is tired of the blame-the-shorts litany, and he recalls a conversation with Bear Stearns’ Schwartz to make his point.
The day before the Fed’s rescue of Bear Stearns, Chanos says he was walking to the Post House restaurant in New York City, when, at 6:15 p.m., his cell phone rang. He saw the Bear Stearns exchange come up on his caller I.D. and took the call.
“Jim, hi, it’s Alan Schwartz.”
“Hi, Alan.”
“Well, Jim, we really appreciate your business and your staying with us. I’d like you to think about going on CNBC tomorrow morning, on Squawk Box, and telling everybody you still are a client, you have money on deposit, and everything’s fine.”
“Alan, how do I know everything’s fine? Is everything fine?”
“Jim, we’re going to report record earnings on Monday morning.”
“Alan, you just made me an insider. I didn’t ask for that information, and I don’t think that’s going to be relevant anyway. Based on what I understand, people are reducing their margin balances with you, and that’s resulting in a funding squeeze.”
“Well, yes, to some extent, but we should be fine.”
“This is now 6:15 on Thursday night, the night before the collapse,” Chanos says. “It was after a meeting with Molinaro”—Bear Stearns C.F.O. Sam Molinaro—“who basically told him at that meeting, ‘We’re done. We’re gone. We need money overnight we don’t have.’ So here he is, calling one of his biggest clients to go on CNBC the next morning to say everything’s fine when clearly it’s not. And he knew it wasn’t.”
Chanos refused to go on CNBC. By 6:30 the next morning, word was out that the Fed was engineering the rescue of Bear Stearns. Chanos realized that he could have been on CNBC while that was announced. “I thought, That fucker was going to throw me under the bus no matter what.”
“So here it is,” Chanos says. “Alan Schwartz takes the position ‘Short-sellers were our problem,’ and who did he try to get to vouch for him on the morning of the collapse? The largest short-seller in the world. You want to talk about ethics and who’s telling the truth on these things? It’s unbelievable.”
Schwartz, not surprisingly, has a different version of events. “I did not make the statements attributed to me by Mr. Chanos,” he says through a spokesperson
Astounding.
Between the two, I believe Chanos . . .
>
Source:
The Man Who Made Too Much
Gary Weiss
Portfolio, February 2009
http://www.portfolio.com/executives/features/2009/01/07/John-Paulson-Profits-in-Downturn
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February 3rd, 2009 at 3:06 pm
People actually go on CNBC to put out propaganda?
I’m shocked…. SHOCKED!
February 3rd, 2009 at 3:09 pm
Wow, that is disgusting.
I can’t see any benefit for Chanos for lying about this so why should I question what he is saying here?
As sick as this is, I’m not even a little bit shocked by it.
February 3rd, 2009 at 3:12 pm
GE’s days of being a penny stock are not far off.. just imagine how honest CNBC will be then!
February 3rd, 2009 at 3:14 pm
Not surprising at all but it is interesting to hear actual corroboration that this kind of crap goes on. Bottom line is believe nothing you hear on CNBC. It’s all info-tainment/mercial for the monied class. They’re all bought and paid for in some fashion.
February 3rd, 2009 at 3:29 pm
Similar story:
The Chairman of FNC Bank recently said he doubled the size of the company when they bought National City Bank in Cleveland. Wrong. They doubled the size of their problem (and maybe the size of their ultimate bailout). National City was a leader in sub-prime mortgages and was bought by PNC because they went, uh, belly-up!
Not surprisingly, PNC laid off 5,800 workers today.
February 3rd, 2009 at 3:29 pm
Are you talking about those long, boring ads between minute-long sets of the Billy Mays Show?
February 3rd, 2009 at 3:35 pm
That is some serious Douche-baggery.
SP500 March futures approaching a really key resistance zone, 841 – 850. If you see a sudden sharp move down from this zone, then red warning lights should start going off if you own length.
Again, the only thing that makes me nervous about the big bear stance right here is the soggy look of the dollar index.
February 3rd, 2009 at 3:39 pm
one call to Gasparino would have sufficed…as said above, CNBC used in this manner for propoganda, ……..whocoodathunkit.
February 3rd, 2009 at 3:44 pm
If push came to shove and lawyers got involved, I’d bet there is a recording somewhere of that phone conversation that would pop up.
February 3rd, 2009 at 4:06 pm
Mannwich,
While I agree CNBC is just a silly bunch of noisemakers, not EVERYTHING there is bad. They do bring on some very informative guests, you just need to ignore everything else that is said beside the good guest.
I really enjoyed Doug Kass this morning for example. I know you like him, did you get to see it?
@VennData,
Hilarious!
@globaleyes
Look I hate all the banks but….
PNC is one bank I wouldn’t bash so quick. Yes it’s true they cut jobs today, but how many of those were Nat. City people? Also, they did get a hell of a lot bigger when they bought Nat City. I’m almost positive they are the biggest DEPOSIT bank now in several states as a result. Deposits are key. Further, they got free TARP money so I don’t necessarily fault them for that. They did not make nearly the same mistakes as some of the giant banks and… The toxic shit they got from Nat City, they will eventually get rid of that, they know the govt is on their side.
PNC is not Bear Stearns. And no, I still wouldn’t touch the stock with someone elses 10 foot pole.
February 3rd, 2009 at 4:12 pm
@ben22: You’re right. Once in a while they do have some good guests on (e.g. Barry on Fast Money for instance). I actually really like Kass as well but missed him because I probably had the volume muted and the TV is behind me. Too bad I missed him. What did he have to say?
I just hate most of the hosts (Santelli’s OK though). They usually ruin it for me even when there are good guests on. They’re just keeping up the tradition of dumbing everything down for the masses. It’s disconcerting. I’m all for checking my brain at the door for certain things, but not when it comes to my money. The sound of most of their hosts is like nails on a chalkboard to me, which is why I mute the sound most of the time.
February 3rd, 2009 at 4:20 pm
CNBC is garbage. Their whole world view is skewed and are drunk off Kool Aid; along with their leader Jim Cramer. I wonder how much more of that drink they have as they don’t seem to run out.
It also amazes me as to how far America went to regards to corruption. It isn’t the same today as it was before. It is truly disappointing.
BlackVault CM
http://blackvaultcm.blogspot.com
February 3rd, 2009 at 4:27 pm
@Ben22: how did you know I have a 10 foot pole?
Rally on inoccuous ADP tomorrow? Followed by OMG moment for NFP on Friday morning?
No position here, just a thought, as we meander through the Wyckoff spring….
Still like reflation trades for now, TBT, GDX, TIP etc.. not doing much.
Lethargic market today. Waiting for Godot.
February 3rd, 2009 at 4:35 pm
GE stock price.
I think someday it will be revealed that GE was the biggest Ponzi scheme. They were a popular business case in the late 90′s B-Schools. How could GE earnings always be so smooth. How could any business create earnings growth that was that amazingly predictable? We always made fun of it, because it was impossible. There was a big ol’ Cookie Jar embedded in that balance sheet….The Jar is getting emptied out fast.
In terms of pure technicals…obviously the picture is not good…I wrote months ago that if $21 got taken out it would be a quick trip to $14.85, the A=C down from 2000′s highs in percent terms.
Now that $14.85 has been taken out, support is tough to find….the 85% retracement of the entire GE stock comes in around $9.50, so may be single digit midget status will cause a little bounce.
In terms of ABC analysis from 2000 highs…the 1.618A=C down (in log terms) comes in $7.79.
Hard to believe…..
February 3rd, 2009 at 4:42 pm
@I completely agree, AT. Jack Welch was the engineer of that “black box” ponzi scheme too. He was just lucky to leave other suckers holding the bag while he was canonized (and still continues to be canonized to this day) by his lackey’s at CNBC. He’s another one I mute every time he comes on. That voice and accent (and I’m a native Boston) is just too brutal to listen to…….
February 3rd, 2009 at 4:42 pm
@ Andy: C, AIG and GE, all corporate Ponzi schemes. Single digits lie ahead for one, oblivion for the others.
A nice simple article on bank nationalization, recapitalization and new bank formation by Niall Ferguson.
http://www.ft.com/cms/s/0/85106daa-f140-11dd-8790-0000779fd2ac.html?nclick_check=1
What is so impressive about Ferguson is the clarity and simplicity of the language. I don’t always agree with every concept but I do admire the style and the delivery.
February 3rd, 2009 at 4:43 pm
@Mannwich,
Agreed, the hosts on CNBC are terrible. Joe Kernan is the worst I think, that guy is a just a loudmouth, adds nothing to any of the conversations. I made a comment on here last week about how I was watching bloom and switched over to CNBC during the commercials and I went from a calm and informative conversation about CDS to Kernan screaming about asparagus. what the hell was that? I then quickly hit the last button on the remote.
Nothing he (Kass) hasn’t really said in the free stuff @thestreet over the last 2-3 months. He was his usual calm self, stating facts and not interrupting constantly. I did unfortunately miss him talking about any new short ideas, that’s what I like him most for, he’s almost always very early but in the fullness of time he’s almost always very right.
I guess if I just summed it up, like a lot of other people I follow (Faber for example) he’s a little bullish short term but still doesn’t think the bottom is in.
He did bring up several times that he was encouraged by the strength in the Nasdaq yesterday and asked a few of the floor traders they bring on to comment on that, I didn’t really get much insight from it though. He also brought up MSFT a few times.
I have to say myself, as someone with time, MSFT is looking very interesting to me. Like Faber said in Barron’s, you could buy them here and see the stock double or triple…. before it goes to $0. LOL.
@ leftback,
All the big boys (and Karen) come to TBP!
I’m kicking myself some as I sold my whole boat of TBT early last week in prep for Bernanke’s comments. I’ll take the profit I made but I could have stayed longer and just set up a real tight stop. Just another lesson learned.
I still think I’ll have another chance to get back in there in the low 40′s. It’s a 28 year bubble so there should be plenty of room there.
Still wanting to buy SRS but just can’t do it.
February 3rd, 2009 at 4:44 pm
sorry for such a long post above.
February 3rd, 2009 at 4:45 pm
I would believe neither. Both slim.
GE.. ah yes the great and venerable Jack Welsh with his six sigma non sense; another great scheme built on the backs of the American public. Gotta beat those Wall Street estimates.
February 3rd, 2009 at 4:49 pm
AT,
Just call GE what it is, a toxic bank. It’s a sad state because some of the divisions there would be fantastic long term businesses but I agree, they are going to go down to single digits. I”m not as good as picking those price points as you but the 7.79 you give seems like it’s in the cards.
February 3rd, 2009 at 4:51 pm
ben22: on TBT.
10 Year Notes are right at an A=C down on the march futures and very close to a 38.2% retrace of the last large advance. I’m expecting a bounce on the Ten year futures, lower rates, right about here.
February 3rd, 2009 at 4:54 pm
“So here it is,” Chanos says. “Alan Schwartz takes the position ‘Short-sellers were our problem,’ and who did he try to get to vouch for him on the morning of the collapse? The largest short-seller in the world. You want to talk about ethics and who’s telling the truth on these things? It’s unbelievable.”
UNBELIEVABLE? No, fraud, conspracy, conspiracy tp commit fraud is really quite believable. It’s the reptilian machiavelli playbook; Use the enemy’s strength as a weapon against him. Our recent Rove MBA presidency used this over and over as the rest of us were screaming about it and being called tin foil hats. It’s all of a piece. The crooks, liars and killers need to be put away or we are finished as a viable society.YES IT IS THAT BAD. However, I’m just another tin foil hat, right?
February 3rd, 2009 at 4:55 pm
@ben22: I do a lot of “trading around” a core position. For example I always have GDX and TBT and a few core stocks like COP and VLO, then I pick up pieces from time to time to trade in and out of. I guess this is where investing meets trading. I have started doing the same with UNG and UCO. Has anyone played with DBA at all?
As time goes on I am becoming more and more inclined towards holding hard assets of various kinds. I just can’t find good arguments against Rogers and Faber, they seem to be correct that inflation is already brewing and that the Treasury market is a time bomb ready to go off. There is no guarantee that paper assets will recover for anything more than the short term.
February 3rd, 2009 at 4:58 pm
@ AGG: I believe that justice will prevail, however slowly its wheels may grind.
@ AT: Agreed on Tsys, closed a TBT trade today.
February 3rd, 2009 at 5:00 pm
As long as no one holds his breath waiting for me to find out how big he is, you’ll all be fine.
February 3rd, 2009 at 5:13 pm
ok – so we had Andy Taboo on Saturday and mlomker last evening both targeting S&P 843 as a short-term high preceding a probable big move down. And what was the S&P high today? 842.6.
I’m in awe….
February 3rd, 2009 at 5:13 pm
@ AT,
I know you have said you have clients so I hate to ask for free advice but I had set myself up after I sold TBT to buy again at $40.25? Any thoughts?, if you don’t want to get so specific no big deal. That is about a 20% move down from today’s close.
@leftback,
I don’t follow Rogers much but Faber I do follow and I have come to the same conclusion about holding hard assets. I thought the CPI piece BR put up about a week or two ago was very interesting, is inflation actually higher right now than we think it is?
There are still some things that are inflating after all. I think the Fed is going to eventually be successfull in blowing another bubble, that is my prediction for end result, where that occurs I don’t know but I think if you have hard assets when the inflation comes that will be the place to be. If anyone read Granthams last GMO letter this was solution 4 and I think this is where the Fed, being the Fed, will eventually lead us. If that does happen then the next time we crash it’s going to make this time look like a vacation. Faber mentioned some miners I had never looked at in his most recent letter so I’ll be checking those out this weekend.
I have a fairly wide range of what I consider to be hard assets so it would help explain, for example, my big long position in MON. I was thinking about taking a look at AA but that balance sheet is shit. A of these metals companies have really ulgy books so it’s hard there right now. Own lots of gold and have started to buy up some oil etf’s in small increments that I will add to heavily if we do indeed get down at the $20bbl range.
February 3rd, 2009 at 5:13 pm
This isn’t the quote of the day. This is really old. It was in the Michael Lewis story from like a month ago
February 3rd, 2009 at 5:23 pm
@ben22 said: “All of these metals companies have really ulgy books so it’s hard there right now. ”
that’s why they are cheap dude.. LOL.. i keep looking at AA, X, AKS, RTP, BHP and FCX, have tried to get in a few times, small bites, but too early and got stopped out,
actually i have some penny mining stocks here, GMO and UEC among the rare metals – sky’s the limit.
also been trying to catch a E&P stock like WFT.
hey – once they stop going down, they will start going up.
and then when you get there, that’s where you are.
February 3rd, 2009 at 5:40 pm
Chanos is a pimp… of course they tried to throw him under the bus, they were out played.
@ Left: Hard Assets all the Way!!!
I’m rockin the DGP… dipped a toe in the YCS… which doesnt hardly trade, but we’ll see… it was a micro position.
I took a stab at UNG this morning on the pullback, was quickly stopped out and watched the low end up being right at my stop… love that. (smirk) Thats my problem with technical stops… I always seem to over them by a few cents.
I got stopped out of UCO on that weird hyper sell at the end of pit trading during yesterdays session… at the time I thought to myself, this is a head fake, this is a head fake… but whatever. USO looks like its bound to test that old low… but you always have the “Ahmadinejad Put” in place there.
I wonder on yall’s TBT trade… funny, when I hear the brokers around here talking about something as a good long, I know its soon to be an awesome short… but Ben22 is right, that is going to be a long move that needs to play out… kinda like my short yen… I am expecting to see that break, but not really break, more of a countertrend play.
AT… you watching the yen futes at all?
February 3rd, 2009 at 5:51 pm
@leftback,
I might agree that is part of the reason they are cheap, but that’s a fundamental reason and there is more at work with those shops than fundamentals right now. As a matter of fact, is anything trading on fundamentals right now? Besides the banks of course, those prices seem to reflect the fundamentals.
Anyway, another thing I guess we could do is lever this up even more and when the inflation does finally start get into UDN heavy.
As with anything though, the timing on this will mean the world.
February 3rd, 2009 at 7:01 pm
I-Man.
Yen futures: Tough one. the move up from 1.10 recent does not look impulsive to me, but yen has fooled me many times. I thought the yen double topped, but it sure isn’t acting like a double top.
If you look at the 180 min futures chart, you can see another possible H&S shaping up with the right shoulder getting formed, but as I’ve said before, I’ve seen plenty of “almost head and shoulders” that never a materialize.
I don’t have a good feel for Yen right now. Also, I’m a little perplexed with the action in the other currencies…euro/loonie/pound all look ok to me…so can the Dollar Fall and the Stock market fall at the same time?
In terms of the S&P500…my most bearish model is that we are completing a minor degree Wave 2 here. One of the rules of Elliot Wave is that a lesser degree Wave 2 cannot be more severe than the larger degree Wave 2 that preceded. In this case, the larger degree wave 2 that completed at 876 was a 50% retrace. Therefore, “IF” this is the bearish model, then the market SHOULD NOT be able to decisively break 841. I’ll give it the benefit of the doubt up to 849 (61.8%), but if we take out 849, then I’ll have to change my shorter term models around. I’ll still be medium/longer term bearish, but my short term bias will change. What I’m talking about here is VERY, VERY short term trading tactics for the people who trade very, very short term charts….
February 3rd, 2009 at 8:01 pm
oh boy obama going to announce new wall street compensation rules tom.
something interesting or politics as usual?
February 3rd, 2009 at 8:39 pm
Far, far, far be it from me to defend Jimmy Cayne in any way, but I think there’s some truth that short-sellers accelerated the Bear Stearns collapse (that’s not the same as causing it). And I find it delightfully ironic that a company that had every intention of profiting from the removal of the uptick rule wound up being destroyed by it.
If TV and movies have taught me one thing, it’s when you create a monster don’t be surprised when it tries to kill you.
February 3rd, 2009 at 8:57 pm
On the yen, as of today’s print, i can (finally) see some weakness at least thru this week. i’m looking at fxy as well as $xjy. the index is headed south and the etf just put in 4 days of higher openings and a lower close. I’m finally seeing more negative than positive in the indicators. Also, a must to follow is $xeu:$xjy and/or fxe:xjy. Overlay the $spx on that and, oh my, a near crystal ball : ) Maybe the dbl top is in; besides the chinese have a fit when the yen rises… Currently, i’m on board for a euro rise and a yen and usd fall.
February 3rd, 2009 at 9:04 pm
If you folks don’t like CNBC, why do you watch it? Does it really add any value to what you think or do?
Or is it just noise? Turn it off and listen to some music.
The quote of the day today is the best.
February 3rd, 2009 at 9:06 pm
correction: should read “and/or fxe:fxy.”
also, look at the monthly chart of the yen long term! january could be the tippy top. february will be the decider.
lastly, so sorry i was offensive in an earlier post. i’m really a sweet girl when i’m not being bad.
February 3rd, 2009 at 9:15 pm
mudpuppy, i can’t believe you liked that Jones quote. i hated it. no offense intended… i just found it shocking all the way around. recently, tbp posted a quote from Roger Babson and i went bonkers reading some of his others:
http://thinkexist.com/quotes/roger_babson/
February 3rd, 2009 at 9:29 pm
karen @ 5:00
That remark is subject to multiple interpretations.
February 3rd, 2009 at 9:40 pm
DL, thank you. i never knew my time stamp was so clean : ) Love to know the other interpretations as I only had one in mind. LOL.
February 4th, 2009 at 4:41 am
mark mchug
This a very common thought. Short sellers didn’t cause the collapse but they accelerated it. Bear Sterns, Lehmans, HBOS etc etc
What this actually means is that short sellers helped accelerate the move in the market price of the equity of these companies towards the true economic value of the equity of these companies, probably zero.
This is what capital markets are for, pricing and the short sellers make them more efficient.
The fact that so many professional investors, regulators and politicians were completely deluded about real economic values is the problem not short sellers.
I do realise I’ve gone a bit over the top and I apologise but I hear the “but they help accelerate it…” so many times it drives me nuts.
February 4th, 2009 at 9:33 am
euro under pressure this AM due to poor retail sales report : (
February 4th, 2009 at 9:45 am
Maybe we should bring back the mafia, they’d be lending in this market, I don’t think they’d be any worse then what we have today. Maybe we do need a Bad Bank
February 4th, 2009 at 10:08 am
Andy, time to change your shorter term models around? A run thru 853 would suit me fine… the euro is attempting to get back on it’s feet and the yen is down, at least. Today will be interesting, but aren’t they all? : )
February 4th, 2009 at 10:29 am
@ Karen:
Can I pick you brain on this yen thang some more???
If the YCS is designed to:
ProShares UltraShort Yen seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the U.S. Dollar price of the Yen.
Am I being dumb by getting long this because I cant find the shares to borrow to short FXY… which is what I really wanted to do? I know YCS doesnt trade much, but given what its designed to do, will it mirror the inverse of FXY.
Although I am slightly bearish on the USD, am I getting confused here… I-Man is quite the rookie when it comes to currency ETF’s and structuring trades… but I can trade without knowing what the market is, and I know that FXY is what I consider a good short.
February 4th, 2009 at 10:38 am
That YCS does look interesting to me and i’ll put it on my screen for an opportunity… there are probably a lot easier/better trades than fooling with the currencies, tho. If you’ve already bot it, stay with it. Wish I’d known about it earlier…
February 4th, 2009 at 10:46 am
So if the dollar is down and the yen is down, YCS should in theory go up? Am I interpreting this correctly from a fundamental standpoint?
February 4th, 2009 at 10:57 am
sorry, now i see your point. it’s the inverse of the jpy/usd… so basically, i think you’d want to see the yen fall and dollar rise to get the best out of ycs.
February 4th, 2009 at 10:58 am
i-man… remember the rule of KISS… it works for me : )
February 4th, 2009 at 11:05 am
SPECTACULAR take down of the SEC here! how i love this Markopolos
http://news.ino.com/headlines/?newsid=6896482781791
February 4th, 2009 at 11:13 am
Thanks Karen! I get it. And I’ll try to keep it simple… :)
Best quote from your article:
“roars like a lion and bites like a flea,” Markopolos said.