As a consequence of the need to be so sensitive to market prices, bear raiders seem to tend very much to engage in nefarious activities, whether legal or not. First, the shorts condition markets any way they can, whether by spreading rumors or issuing analyses where the consequences
for long security holders are deemed to be draconian if the buyer continues to hold. Sometimes the true intentions of the short sellers are masked. For example, William Ackman appears to be disingenuous when he writes and talks about saving MBIA’s policyholders. Why does he care about policyholders? Ackman’s objective is to drive down the market price of MBIA securities. The bear raiders have enjoyed great success. Bear Stearns lost its creditworthiness when customers and counterparties reacted to rumors and stopped doing transactions with Bear. Lehman Brothers Holdings has been hurt by the same kind of rumor mongering. TAVF no longer will invest knowingly in the common stocks of companies that need relatively continuous access to capital markets; or where customers and counterparties can flee without appreciable costs. Fund management does not believe that Ambac and MBIA, both of which are the objects of bear raiders, can ever have a Bear Stearns type of experience. The great weight of probabilities seems to be that both companies enjoy such financial strength that they can survive almost any stress. For TAVF, the activities of the short sellers have meant that securities became available for purchase at far, far lower prices than would otherwise be the case.
The most nefarious aspect of the short sellers revolves around their concerted efforts to destroy, or at least diminish, the companies’ existence as going concerns. In the cases of Ambac and MBIA, the short sellers have been bringing as much pressure as they can on rating agencies, insurance regulators and securities regulators to downgrade Ambac and MBIA, to demonstrate insolvency and to prevent either company from accessing capital markets.
Read the complete shareholder letter
for long security holders are deemed to be draconian if the buyer continues to hold. Sometimes the true intentions of the short sellers are masked. For example, William Ackman appears to be disingenuous when he writes and talks about saving MBIA’s policyholders. Why does he care about policyholders? Ackman’s objective is to drive down the market price of MBIA securities. The bear raiders have enjoyed great success. Bear Stearns lost its creditworthiness when customers and counterparties reacted to rumors and stopped doing transactions with Bear. Lehman Brothers Holdings has been hurt by the same kind of rumor mongering. TAVF no longer will invest knowingly in the common stocks of companies that need relatively continuous access to capital markets; or where customers and counterparties can flee without appreciable costs. Fund management does not believe that Ambac and MBIA, both of which are the objects of bear raiders, can ever have a Bear Stearns type of experience. The great weight of probabilities seems to be that both companies enjoy such financial strength that they can survive almost any stress. For TAVF, the activities of the short sellers have meant that securities became available for purchase at far, far lower prices than would otherwise be the case.
The most nefarious aspect of the short sellers revolves around their concerted efforts to destroy, or at least diminish, the companies’ existence as going concerns. In the cases of Ambac and MBIA, the short sellers have been bringing as much pressure as they can on rating agencies, insurance regulators and securities regulators to downgrade Ambac and MBIA, to demonstrate insolvency and to prevent either company from accessing capital markets.
Read the complete shareholder letter
