Video: David Einhorn, Greenlight Capital, William Ackman, Pershing Square Capital

Fooling_someEvery now and again, CNBC puts on a superlative show.  Friday morning’s Squawk Box was one of those times when they hit the ball out of the park.

As I was heading out the door to work, I heard David Einhorn of Greenlight Capital begin chatting about shorting stock, soft SEC enforcement, and Allied Capital (ALD). CNBC also announced that William Ackman of Pershing Square Capital was coming on in a while.

Einhorn discussed his presentation at Jim Grant’s conference Private Profits, Socialized Risk as well as his book, Fooling Some of the People All of the Time: A Long Short Story.

So before leaving the house, I TiVo’d Squawk, and then headed off to work. I watched the show Friday evening, and it was fantastic.  Watch the videos below and see if you agree.

• The Short & Short of It
Short selling can be good for the markets, with Owen Lamont, DKR
Fusion, David Einhorn, Greenlight Capital and CNBC’s Steve Liesman

click for video


• Whistle-Blowing pt. 1

Activist investors face challenges convinsing regulators to face the facts, with William Ackman, Pershing Square Capital Management and David Einhorn, Greenlight Capital Management

click for video


• Whistle-Blowing, 2

click for video


• Hedging Your Bets

Discussing fraud on Wall St., with David Einhorn, Greenlight Capital Management president

click for video




Fooling Some People site

The Speech

Book:  Fooling Some of the People All of the Time: A Long Short Story

Jim Grant’s conference presentation Private Profits, Socialized Risk

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  1. UrbanDigs commented on May 9

    this was great Barry, and I almost put it on urbandigs in the morning too. I especially like how they met on subway platform.

    The key phrase I got from this, was when Ackman stated this regarding bond insurers:


    …or such to that effect. Cant recall exact phrasing, but that was the jist of it.

  2. UrbanDigs commented on May 9

    also, watch for Ackman’s list of questions that he would ask if he was ALLOWED to attend MBIA’s conf call on Monday!

    He said he would give it to CNBC Monday to air.

  3. Charles commented on May 10

    The panelists missed some points about short selling. It is illegal to tout stocks based on false information. For the sake of equivalence, it should be illegal to tout short sales based on false information. [BR: You seem to misunderstand both the securities laws, as well as the concept of fraud. We won’t even get into first amendment issues]

    Also, the panelists blurred the distinction between urging people to sell and urging people to make short sales. [BR: Watch the video. Ackman and Einhorn did not urge people to short — but they did warn certain stocks were risky to own.] Short sales are some distance in the future, and therefore cover events that are not evident today. It is easier to spread rumors about something that might happen in the future than it is to spread rumors about the present. [BR: Again, watch the video. They were discussing the present

    I know of a case of an investor who spread false, negative rumors to try to manipulate the stock price so that he could buy cheaper. [BR: this strikes me as bullshit] It was disruptive to the business, forcing management to spend a lot of time dispelling his falsehoods. Short selling can be disruptive in the same way, and frequently involves spreading rumors to try to amplify the stock price movement. [BR: Afain, watch the video. They were discussing issues with the company’s present balance sheet, not some distant possibility].

    Finally, because short selling often involves transactions on margin, one has to ask whether there is not going to be a liquidity crisis. [BR: you’ve never traded a stock, have you?]

  4. WMJ commented on May 10

    On a side note about Target . . . Ackman needs to spend more time in stores and talking to Target suppliers. I work for a major CPG company that does a lot of busines in Target. Our business is down in same store sales by over 10%. I am in stores fairly often and the traffic is just not in the same ballpark as yesteryear. WMT, however, is comping at over 7% in our products. Additionally, our sales are up 6% overall. When I talk to Target store managers, they are very down on the current store traffic. I would expect to see more disappointment in Target for the balance of the year if not more. Ackman’s comments on NPV are plausible, but Target has been a momentum, high P/E stock for years. I don’t see that premium sticking. Regardless of future cash flow, if the multiple drops because the field no longer likes the bet, his investment is not going to produce high returns.

  5. Scott commented on May 10

    I like listening to very smart and successful fund managers discussing what they do.

    This was awesome — thanks for posting.

  6. VennData commented on May 10

    “Short-selling is good for the portfolio, [when the equity market goes down] you have cash to put into your longs]”

    This is the essence of capitalism and David Einhorn touches on it. Strong business models flourish, weak ones don’t. So our economy trends toward efficiency, then wealth grows.

    The weak regulatory philosophy of the administration for the last few years is, in fact, anti-investor, it’s anti-capitalistic. You must be able to rely on the information businesses provide so you’re able to make relative value comparisons. Valutation is all realtive. You must be able to compare information across markets. Otherwise it’s just a guessing game.

    That’s why David Einhorn’s message is: the firm must mark to market. Otherwise the firm isn’t giving valid information to investors.

    While the Bush philosophy may be pro-CEO, voters need to understand it’s not pro-investor.

    It’s the same reasoning behind why we must see Cindy McCain’s tax returns. She may be a First Lady, with the President’s ear. We’ve decided that all people in this role must volunteer their returns so we can see potential conflicts as political actors. Everyone does it, she is not above the principle. We need to “mark-to-market” her finances, relative to all the other actors in the – hopefully open – environment.

  7. Karl K commented on May 10

    I found it fascinating — and pretty ironic — that Ackman is comfortable with the poorly performing TGT and pooh pooh’s its earnings reports as so much short-term noise in a “50 year” NPV calculation….but then turns around and warns us, ever so ominously, about Monday’s MBI earnings report.

    Hey, Bill, this just in: another business model that’s broken is soft-goods small box retailing. Yep, the stores are clean because nobody is going there and messin’ up the racks.

    As for MBI, well, its business model is broken too, but the stock has been so punished, it’s hard to see how much worse it can get. Even so, what’s another 20% down?

    No one will be surprised. The market will shrug.

    I remember the huge brouhaha on this particular blog about MBI and its brethren as though the bond insurance crisis was the harbinger of the financial apocalypse.

    It wasn’t, and it isn’t.

  8. MarkD commented on May 10

    first off this is what CNBC could be if they didn’t talk in sound bites and talk over their
    guests.(are you listening cramer & kudlow?)

    so thanks for posting Barry! cause i would never see the good stuff since i gave up on the network

    As to charles above what is AFAIN and i didn’t know patrick byrne was reading your blog

  9. Phil commented on May 10

    Is it a good idea for a company to have shareholders who are hoping that it’s going to do badly? The stockmarket was a vehicle to enable businesses to raise capital and grow, but alas it’s morphed into a dangerous greedy monster, detached from reality. Wouldn’t it be better for all these smart people and hedge funds to be investing their vast sums of money into helping small companies to grow, to create real jobs and real wealth (a novel idea). Honestly, I think we’ve lost the plot and we’re selling the World short!!


    BR: Shorts aren’t share holders — they are share sellers.

    Also, what you describe — investing in start ups and growing firms — is merely one aspect of the complex system of capital markets. Stock prices go up and down. There are gains to be had if one correctly anticipate that directional shift . . .

  10. DownSouth commented on May 10

    The SEC’s persecution of these guys is a perversion of justice, an infringement upon the right of free speech. Things like this happen when the practices of the status quo are sure to wilt when exposed to the light of day.

    And of course the misdeeds of the tyrants, in this case the SEC, always come cloaked in the robe of pious high-mindedness.

  11. Short Ackman commented on May 10

    “BR: Bill Ackman has had 40%+ returns over the past 2 years — I do not know what his numbers were like before that.”

    Where did you get this “40%+ returns”????

    It was a loss of 43% (not a gain) in 2007.

    Via Bloomberg: “A December drop of 36 percent led the decline in the fund set up to invest in Target, called Pershing Square IV LP, Ackman’s firm said in an e-mail to investors. In total, Pershing Square IV lost 43 percent of its value last year. The declines were reported earlier last week on CNBC.”

    Other Ackman’s picks and performance:

    BGP -54%
    SHLD -27%
    TGT -18%
    BKS -13%
    CSG -3%
    GLRE -8%
    WEN -8%

  12. Ross commented on May 10

    Thanks Barry.

    Back of the envelope on TGT. They have about a 9% return on capital. Not bad. If I use a 9% cap rate on net income I get a fair value market cap. of about $31 billion or $40/sh. Probably a good value at that price.

    Buying back 25% of the equity would cost them $10 billion. They only have a little over $2 billion on the balance sheet. If they buy back stock, where do they get the money for expansion, renovation etc? It’s like borrowing money to pay a dividend. Dumb idea except for the Investment bank.

    I’m sure I’ve missed a lot both good and bad but TGT looks like a value trap at least for a few years…

    But what do I know. I hoard sugar.

  13. BG commented on May 10


    Great Post! Wouldn’t it be nice if CNBC could produce this kind of quality programming all of the time?

    Having said that, I have recently given-up on the Saturday morning “Financial Block” on the right-handed network. For me, this (2) hours is not even decent entertainment anymore let alone anything that will improve my investing or financial condition.

    So my Saturday morning up until ~12 Noon is open while I do my financials. It would be nice to have a quality Weekly Recap of the week just past. You know now that most people have broadband connections, these video snippets of only the best programming are very nice; which eliminates the need of having to waste a lot of time listening to the BS and the stuff that pisses us off so badly.

    Lastly, nobody knows what’s coming; but, almost everyone will agree that whatever it turns out to be is not that far off. Things are so out of kilter socially, politically & financially all teetering on a heavily leveraged financial system that obviously something big is about to happen.

    Good honest reporting of the facts and dissemination of information will be invaluable in getting thru the period directly in front of us.

  14. Groty commented on May 10

    Short Ackman has it right. Ask the former Gotham Partners investors how savvy Ackman is.

  15. lurker commented on May 10

    Long or short they are talking their book folks. CEOs cheerlead. and it is all BS. Learn to read charts and set stops and believe NOTHING you hear or read. Most shorts like to keep it secret so they don’t get squeezed. The ones that chat about their positions are painting targets on their backs. IMHO of course. Caveat emptor and short seller be doubly careful!

  16. Be careful what you wish for commented on May 10

    Isn’t it an ironic poetic justice for a self-proclaimed “guru” of short selling, Bill Ackman? Ackman’s chickens are coming home to roost. His fund lost 43% of its value secondary to Ackman’s chickens shorting and pounding his fund without an uptick rule.


    BR: Ackman is not a self-proclaimed “guru” of short selling — and as he said, the fund makes more money long than short in some years.

  17. blin commented on May 10

    I agree with Karl.

    Looking 50 years out (or longterm) could wipe you out if you get caught in a nasty bear market. TGT looks like a short to me. 10% upside… 25% downside.

  18. blin commented on May 10

    Listen to lurker, he knows what he is talking about.

    Ackman seems like one of those ‘smart talkers’.

    Learning how to read charts is absolutely crucial if you want to protect your equity. Then apply risk management.

  19. Jack commented on May 10

    I do not find this appearance to be interesting in any way, shape, or form. On the contrarily, it was a complete waste of my time. They did not talk about anything interesting, educational or useful other than selfish promotion of the book and of the crappy stock (TGT).

    I guess Betty likes gossip and finds it interesting that they had met like two gay-man on NYC subway platform. Personally, I do not care how they met or if they are gay.

    P.S. I agree that short-TGT-long-WMT is a good hedged trade.

  20. RW commented on May 10

    Einhorn focuses on Allied Capital but after some serious price damage the past few quarters I notice that ALD and other PE funds (ACAS, PCAP, TICC, HTGC, MVC, FIG, GLAD, MCGC, etc.) seem to be finding a bit of stability, even forming a bottom. However, despite the very tempting yields, I can’t convince myself their portfolios are going to improve and, perhaps more to the point, that most of them will be able to maintain sufficient access to credit; e.g., some are priced well below NAV and dividends are likely to be cut w/ a few likely to go belly up entirely.

    Anyone have some insight into this group or a place to find more information? From a technical standpoint some are oversold and might make a short-term play but I’m a bit more interested in the longer term here.

  21. Charles commented on May 10

    BR says “You seem to misunderstand both the securities laws, as well as the concept of fraud.”

    Funny thing, Barry. I spent quite some time reading SEC judicial rulings before making the post. I don’t think I misunderstand the law– about which the SEC is still in the proceess of formulating regulations, as one might have noted from the CNBC interchange– and I think the point about equivalence of short sales and stock sales stands.

    BR says “Watch the video. Ackman and Einhorn did not urge people to short — but they did warn certain stocks were risky to own.”

    I am not accusing Ackman and Einhorn with anything except vagueness in debating an issue. My only point is that urging people to sell a stock is not the same as urging people to short a stock because of immediacy. In the case at hand they may have been focused on black-and-white balance sheet issues. But in another case, it might be about the probable outcome of a clinical trial or lawsuit or some other issue that’s not so obvious.

    BR says “this [a case of an investor spreading false rumors to lower a stock price] strikes me as bullshit.”

    Then your detector needs re-calibration, Barry.

    You really could be polite about this. For all you know, I could be a client, either in the present or in the future (well, probably not), after all.

    BR: “you’ve never traded a stock, have you?”

    Um, well, yes, just a few over 33 years. Including some on margin. But the volume in options is very large, the potential of a black swan event is significant, and there’s enough done on margin to make me nervous.


  22. ajw commented on May 10

    Short Ackman – the fund you cite is a special-purpose vehicle set up to hold the TGT investment ONLY, and is in no way reflective of his entire portfolio. I don’t know what Ackman’s overall returns were last year, but I’d be willing to bet Barry has a better idea than a Bloomberg journalist.

    btw, these “side pocket” deals are completely normal for hedge funds, so there’s nothing nefarious to see there, either.

  23. rayg commented on May 11

    anybody read the deep capture blog posted above? both of these guys are mentioned in the blog as possibly shorting phantom shares/naked short selling, and benefiting from Cramer and his cronies bashing stocks after they have established short positions.
    I hope Gasparino/Byrne/Mitchell have more to say about this issue as nobody wants to talk about if for some reason, with the exception of the recent Bloomberg documentary and the SEC addressing it…even after firing Aguire two years ago.
    This issue has not been covered by the major financial media, and I am starting to wonder why.
    Would love to hear Barry’s comments on this issue, as I respect his analysis and blog greatly.

  24. Barry Ritholtz commented on May 11


    FRAUD is fraud, regardless of your position long or short.

    Your statement “It is illegal to tout stocks based on false information. For the sake of equivalence, it should be illegal to tout short sales based on false information” misunderstands this simple legal truism.

    Watch the video, and then reread your post.


    BTW, we fire clients on a regular basis. If a money management client believed as you did and posted what you wrote, I doubt the fit would be healthy for either of us.

  25. bjk commented on May 11

    They had an opportunity to ask Einhorn interesting questions, and instead all they talked about was Allied and “is short selling good for the market?” They should have asked him why he was caught in New Century as it was going to zero.

  26. Charles commented on May 11

    Barry, I can assure you that I will get my investment advice elsewhere. In my experience, an absence of basic respect– or at least, manners– equates to the kind of arrogance that gets one burned in the markets.

  27. Scot commented on May 12


    Keep that weakass crap off site.

    I read Charles’ post the same way you did — no real financial experience, doesn’t understand SEC law, or shorting, or asset management. It was crap, and you were right to call him on it.

    As soon as I read his claim of an “investor who spread false, negative rumors to try to manipulate the stock price so that he could buy cheaper” — I knew he was full of crap. A trader can tell a nontrader everytime.

  28. Jesse Eisinger commented on May 12

    Diary of a Short-Seller

    Fund manager David Einhorn thought he was doing the right thing by speaking out against a shady finance company. The system fought back.


    In May 2002, the financial markets were mired in a grinding downturn, which is to say it was a great time to be a hedge fund manager. After the insanity of the dotcom era, company profits and balance sheets finally mattered again. Skeptics felt confident in taking their cases public. It was in this environment that David Einhorn, a lanky and boyish 39-year-old who heads the
    $6 billion firm Greenlight Capital, spoke to a charity investing conference.

    His topic that day was the Washington, D.C., finance company Allied Capital, a lender to and investor in midsize companies. Einhorn methodically went after Allied, claiming that it had inflated its assets and overstated its worth and profitability. While Einhorn has developed a reputation for witty and incisive speeches, they tend to read better than they sound. After the speech, he received a smattering of compliments and went home. He figured that reality would eventually catch up with the stock, and he would move on to other investments.

    He was wrong. The next day, Allied stock tumbled nearly 20 percent as word of Einhorn’s critique spread, setting in motion one of the nastiest Wall Street wars in recent memory. Over the next several years, Einhorn would learn firsthand what happens to people who question the accepted rules of engagement on Wall Street. His saga is part detective story, part cautionary tale, part master class in investing, and a case study in what’s wrong with regulators, Wall Street, and the financial media (including me, as I play a small role). “The steep decline was nothing compared to the plunge I was about to take, spending years uncovering what I view as a fathomless fraud,”
    Einhorn writes in his new book about the battle, Fooling Some of the People All of the Time.

    More important, Einhorn’s experience illuminates our current crisis.
    Throughout the subprime mess, critics who questioned runaway credit or the way Wall Street marketed credit derivatives were dismissed as overly pessimistic. Regulators who could have headed off the problem took too long to act. Six years on, some of Einhorn’s allegations against Allied have been proved right. Yet Allied’s managers have stayed in their jobs, reaping millions of dollars in compensation. And Einhorn has had to spend time and money deflecting accusations that he was a dirty short-seller with an ax to grind, smearing Allied for profit.

    Einhorn’s initial claim in the speech will sound familiar to anyone who has watched Wall Street’s swoon during the past year. He argued that the company kept hard-to-price illiquid investments at inflated values on its books. He would subsequently discover that a major Allied portfolio company, a small-business lender called Business Loan Express, had made all sorts of bad loans to dodgy customers—to the tune of tens of millions of dollars in losses.

    Einhorn and others brought Allied’s issues to the attention of regulators and law enforcement agencies, who either weren’t up to the task of taking on the company or whose sanctions came too late. So when Bear Stearns collapsed because of its own foolish risk-taking, blaming shadowy rumors for its demise, and the Securities and Exchange Commission started a witch hunt to investigate those “rumormongers,” who could have been surprised?


    read the rest here:

  29. Karl K commented on May 12

    Well, MBI reported earnings — or should I say enormous accounting entry markdowns — and, despite the ominous warnings of the aforementioned Mr. Ackman, the market…


    Oh, well, I’m off to Target to buys some red colored stuff.

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