Chanos or Block?

I'd rather be short JOY for all the reasons Chanos is short CAT except for the fact that JOY hasn't written down yet. Also, JOY seems to be more levered to his idea.

While Carson Block's work is great, I get a sense that this one is not as great of a short. His idea and work seems spot on in the case of identifying fraud, but that doesn't necessarily make the stock a good short. Maybe it's just not my cup of tea since you basically need regulation to come in for only a relatively small double digit gain... the risk/reward is not like a Sino Forest where he argued that it would be a near 100% gain. Not saying something like 20% - 30% would be bad (I think he's looking for 40% downside) but I don't like that reward for the level of risk / uncertainty / timing involved.

I personally wouldn't join either since I can't say I have the same amount of conviction on the shorts as they seem to have. I'm not trying to say that they're wrong in any way, but there's a few things that bother me when considering shorting either.

Like floppity I don't think the short on American Tower is all that great of a call. On top of a limited reward if you are in fact right I don't know that I'd short any REIT with an at least seemingly sustainable dividend yield in this environment. Even if the business doesn't operate as well in other locations, I don't see how the destruction of shareholder value is going to be realized in the stock price in a timely fashion. As long as they keep paying out dividends I don't think many investors will think twice about the state of the firm, since REITs seem to be traded off of nothing but yield currently.

CAT I think is much more interesting, although I'm once again not sure about the time horizon here. Even if the commodities boom is ending and managements should in turn lower their capital expenditures, I don't think it'll happen all at once. Rationally it makes perfect sense to be reigning them in harshly right now, but from what I've seen most mining management teams aren't particularly concerned with rational capital allocation. Given the low interest rates that we'll be seeing in the foreseeable future and the resulting easy access to capital that the miners will have I don't think that the capital expenditures will pop as quickly as he hopes.

That's just my .02 based off of pretty limited research into either company. Can't really respond to the accounting charges since I haven't spent much time on them. They might both turn out to be great calls (especially if the borrow is de minimis, I haven't checked), but I think you can find higher conviction and return ones.

I think Chanos is a bit late on CAT. It's true that capex is shrinking for their mining biz and it fits the theme of his China short, but the company does throw off a lot of cash. I could see it really ripping upward if the economy turns around. Also China is so hated, it's hard to say that some of these things aren't priced in. The AMT thesis is FAR more compelling. It is only at a 1% yield, so you really have to ask yourself how much higher this stock can go. The risk reward looks better on this short. Unlike CAT, these guys have fixed revenue escalation, so it's not like your going to see some banner year or upward revision that blows you out of the water. The implied vol is not so bad for October puts, and if EM currencies continue to weaken, I could see them missing earnings in the next couple of quarters...

AMT thesis is ok, doesn't seem as good as some of the other ones they released, there are more promising shorts in us telco land

Hmm...didnt Carson short thesis on Olam flopped out? What happened there?

JasonLoh

Hmm...didnt Carson short thesis on Olam flopped out? What happened there?

When did he come out with a short OLAM SP thesis? From the chart I'm looking at, OLAM hasn't been a good stock - I'm not sure how much is accounting/fraud related and how much is due to palm oil oversupply and resulting price weakness.

sonibubu JasonLoh:

Hmm...didnt Carson short thesis on Olam flopped out? What happened there?

When did he come out with a short OLAM SP thesis? From the chart I'm looking at, OLAM hasn't been a good stock - I'm not sure how much is accounting/fraud related and how much is due to palm oil oversupply and resulting price weakness.

Succinctly put, he asserts Olam is engaging in "at least" accounting fraud. They purchase assets and tell investors there is a gestation period and the assets will have high ROIs eventually. Once they purchase the assets, they book the projected revenues immediately. However, in the next quarter, there will be inconsistencies with revenues in the current quarter vis-a-vis the quarter they booked the revenues.

So, what will they do? "Buy another asset, for the sake of buying another asset."