Carson Block, founder of Muddy Waters Research, observes that even loss-making or struggling companies are benefiting from a rise in their shares. In his view, this is largely due to the flow of capital into index funds, which buy shares without regard to their fundamental value, creating a mismatch between market prices and company fundamentals.
Block stresses that short sellers need to be careful with companies that have a high proportion of passive ownership. He is critical of the current environment that favours narratives over actual company performance, making short sellers' task more complicated as investors seem less concerned about risk.
Block notes a reluctance on the part of investors to support short-selling strategies, which are seen as a kind of expensive 'insurance policy', especially in a bull market. He also notes growing hostility towards short sellers from regulators and the public, exacerbated by surveys and negative perceptions of their activity.
Block also discusses his own short selling initiatives, including his position against BXMT (Blackstone Mortgage Trust), anticipating a reduction in dividends due to inadequate loan risk assessments. He concludes by stressing the crucial importance of short sellers to the market, as they are able to reveal dysfunction within companies.
Bloomberg videos, provided by MT Newswires
