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Whitney Tilson Raises Great Question About Sell-Side GMCR Analysis

Whitney Tilson had some insightful comments on shorting and some stocks in particular. He has just sent (via Email) some more on this topic, and he raises a great point about Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) and the sell-side. Below is the text from Tilson from the inbox.

Whitney Tilson

In response to my last email, a friend wrote:


I want to respectfully disagree that now is like 2000 & 2007 for shorting.


Here’s why: back then you had lots of correlated shorts that were correlated because of massive distortions. In 2000, a huge tech valuation bubble. In 2007, financial leverage with a catalyst.


You don’t have that now. The “juicy” shorts you mention don’t have this in common.


There will be no domino effect like in 2000 & 2007 such that once one fails, they all fail.


My reply: I agree that there’s not the same obvious likely-to-work macro catalyst today that there was in the prior two instances, which makes being short harder. But there are plenty of things that could upset the current extreme complacency – off the top of my head, unexpected consequences of the very sharp rise in interest rates; Congress could fail to raise the debt ceiling; an attack on Syria could result in broader conflict in the Middle East; or things could get ugly economically in Europe, China, Japan, or emerging markets…


2) Another thought regarding HLF: Ackman’s recent letter to the company’s auditor, PricewaterhouseCoopers (attached to my email last night), reminds me of one he sent to the rating agencies on January 18, 2008 about MBIA. Of course the rating agencies, auditors, regulators, media and investors ignored Ackman’s warnings about MBIA for FIVE YEARS after he released his prescient Is MBIA Triple A? on 12/9/02 (see:, just as they are doing so today regarding HLF.


Given that I expect PWC (and investors) will ignore his recent letter about Herbalife Ltd. (NYSE:HLF), why am I short the stock? Because I think the regulatory environment has changed A LOT (though it’s possible I’m being foolishly naïve/optimistic). I think regulators are (rightly) ashamed of (and under a great deal of Congressional, public, and media scrutiny about) how they were asleep at the switch and allowed The Great Bubble to form and countless abuses to occur right under their noses. Every day I open the paper and there’s a report about how regulators have cracked down on some abuse or another (the latest being the outrageous forced placement of insurance scam that I highlighted in emails a while ago), or the media is exposing things like this (for example, see the recent NYT article about Goldman manipulating the aluminum market or the article yesterday (below) on Invasive Tactic in Foreclosures Draws Scrutiny). It’s a vastly different environment, which is bad news for companies doing bad things…


3) Lastly, another thought regarding GMCR: How can there be a major article in the New York Times yesterday raising numerous credible, highly troubling questions about very important accounting issues and, over the course of a day-long analyst day, NOT ONE analyst asked GMCR to respond to the questions raised in the article and at least give the company’s side of the story?! It boggles the mind… At least in the analyst community, nothing has changed…


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