Wednesday, December 5, 2012

Shorting Our Future

When an investor goes long on an investment, it means that he or she is buying a stock with the belief that its trading price will rise in the future. Conversely, when an investor goes short, he or she is anticipating a decrease in share price.

Muddy Waters founder Carson Block is betting against commodities supplier Olam International Ltd (16 percent owned by Temasek Holdings) because it believes the firm is at risk of insolvency and has been too aggressive in booking future so-called biological gains.  Latter allows it to record future gains from plantations and dairy farms i.e. book earnings not yet realized. Like what Enron did with its gas futures, this accounting practice and debt exposure can turn ugly in a hurry.

Temasek is backing Olam's bid to raise US$1.25 billion to "shore up confidence". Block is saying Olam needs US$3 billion to stay afloat. By injecting equity, Temasek and participating shareholders are effectively diluting Olam's share price. The fund raising exercise will also cost Olam at least 10 percent in interest each year, putting further downward pressure on its stock. And benefiting short-sellers like Muddy Waters.

Block told The Wall Street Journal that Olam's plan to raise funds to allay fears about its balance sheet "solves nothing" and will merely delay its collapse. Once again, good money is thrown after bad. Our money.

The corollary here is that the prime minister is still insisting on diluting our national stake holding with the influx of foreigners. Reuters say expatriates make up more than 90 percent of Dubai's population, a future that's definitely not tenable for Singaporeans born here. Especially for those who have spent two years in Temasek green, risking life and limb for a losing cause.

The prime minister says, "We listen, but we have to lead". But, puh-leez, don't lead us into muddy waters. Like the jack-up rig at Jurong Shipyard, a failed braking system can tilt a whole superstructure. The little red dot is more vulnerable.

24 comments:

  1. Well, we know TummySick's investment track record of betting on the wrong horse.
    I don't have a good feeling about this.

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    Replies
    1. I too got a bad feeling about this.

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  2. For Temasek to support bond rights issue, it is probably the devil or the deep blue sea.

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  3. "The little red dot is more vulnerable.", unquote.

    The Red Dot, no matter how small, is a jewel.

    It is the Native Inhabitants in it that are vulnerable.

    Start the Countdown or get the hell out of it.

    patriot

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  4. Trust the bond prices, 11 times out of ten, bonds are correct, stocks are wrong. Bonds are now trading at distressed levels, stocks are happily supported with money raised from Temasek or maybe, by Temasek's treasury folks as we blog. I pity the old folks who bought into Olam's recent bonds issues, once again because they salivated at the near 6% yield and the Temasek "put" that fat bankers sold to them. Thank you MAS, you promoted actively all these rubbish issues, just like the rotten chinese penny stocks. Maybe we have another mini-bonds in the works, they will need the hopeful words (and nothing more) from Tan Kin Lian soon. Sunny keeps changing his story - one week ago he said no plans to raise more debt, now he raised $1.25b. And the shitty Times Goh Eng yeow recommended "shock and awe" to prevent price discovery?? But the best was still that BT girl something "Hooi" who wrote that satire piece ending with "cursed you, Mr Block go short yourself" article, I wonder if all these cheerleaders can be sued when losses are eaten. But I am jumping the gun, with $200b of your money, Temasek is well positioned to bail out Olam, even if it means eating $10b of toxic derivatives on its books. Goldman, JPM, DBS and the rest of the commodity traders taking the opposite bets from Olam, they would celebrate Christmas twice this year. Mr Block is smart, but the squids and whales have something to do with it too, watch rice prices tumbling when Ms Yingluck has to open her silos next year. When those toxic derivatives have to be settled and curtain finally falls, who can taxpayers curse, Mr Goh and Ms Hooi?

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  5. One minute the CEO insists they are not short of funds and the next minute they are raising funds through rights issues. So is this CEO's words to be trusted ?

    It is a fact that most publicly listed companies only propose rights issues when they are short of funds. Just like your father will borrow money from your relatives if his shop need some funds to tie him over some difficult periods.

    If they want to really shore up shareholders' trust & confidence, why are they not issuing any bonus shares or dividends as well ? Are they not in reality giving that short seller some credit in their accusations ?

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  6. My antenna went up the minute Olam said it was raising $1.25 billion dollars.

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  7. Really difficult to tell. Market is unconvinced by Olam and been selling both the equity and bonds. Somehow, Sunny still comes across as convicted to his business model. One of them (either Sunny or Carson) is playing for bluffs.

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  8. Talk about fools rushing in where angels...With a big sucker (white knight?) like Temasek supporting a sinking company, the smarts are scrambling out.

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    Replies
    1. Good point.
      With Temasek support, this is your chance to sell with minimal loss.

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  9. I'm afraid the $1.25 billion is just the first installment. This is sick.

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  10. Tummysick is addicted to gambling right?

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  11. olam is in deeep and i mean waaaaay deep $hit...

    this is priceless..
    http://www.bloomberg.com/news/2012-12-04/olam-s-biggest-bond-sale-only-delays-collapse-muddy-waters-says.html

    The sale of a record $750 million in bonds and as much as $500 million of warrants announced yesterday “validates our thesis that Olam is in danger of failing,” Muddy Waters said today in a response to the raising that’s backed by Temasek Holdings Pte, Singapore’s state investment company.

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  12. "Olam was founded in 1989 in Nigeria by the Kewalram Chanrai Group as an export company to secure foreign currency, according to Olam’s website. Kewalram Singapore Ltd. is Olam’s top shareholder with a 20 percent stake, according to data compiled by Bloomberg."

    The pedigree is outstanding.
    It really stands out.

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    Replies
    1. Is Vikram still looking for the Nigerian scam?

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  13. Just take a cue from sino-forest when muddy waters called them out...
    it's share price dropped 82% and fraud case written all over it.. is now filing for bankruptcy...if temasek wants to bail this out with the people's money, they better have a good reasons or the people should demand the CEO's business reasons and question her acumen...

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  14. no worries...if no one buy the bonds....Temasick will buy...cos they are not using their own money...anything goes wrong...people of singapore will pay..and continue to pay...

    While the arschloches who caused this continue to "party" and laugh away at our blood and tears...

    The day when push comes to shove...let them do the dying first instead...make them bleed...

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  15. Rob the poor to subsidize the rich.

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  16. Why anybody would vote for a political party that is incapable of bringing any joy into our lives, I will never know.

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  17. TummySick Dowager likes to gamble. But always lose in foreign hands. Much cheaper for her to do research at DSO, back to engineering. She is still losing our CHIPS! We are stuffed a head of trading who cannot trade.

    She don't know when to hold.
    Don't know when to fold.
    Don't know when to walk away.

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    Replies
    1. But when the limpeh goes,
      She'll know when to run.

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  18. Why is the jinx always stepping into muddy waters with our taxpayers money? Our CPF is already dried up and they need substantial increases in salary to keep it afloat to pay retirees.

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  19. Losing nearly US50B in the last financial crises was not a problem for TH. US1.5B is just small change. After all its not their money.
    My gut feeling is TH is again betting on the wrong horse

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  20. Follow this link http://www.baldingsworld.com/2012/12/05/olam-temasek-and-singapore/ and i'll show how deep the rabbit hole goes...
    you don't click: the story ends, and you continue to believe whatever they want you to believe...

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