There are a couple interesting equity-oriented presentations at the Grant’s conference that I wanted to think through a little bit more today…
… the first one was from Mark Cohodes, a legendary short seller who is semi-retired now but still takes on a few targets from time to time. And gives a great, profanity-laced presentation. He is short Concordia (CXRX), which he describes as similar to Valeant (VRX), and also short Intertain (IT.TO), the gaming company he describes as a “web of evil”, but much of the presentation was about his short position in some Canadian banking/housing positions.
That’s very much in the news, since Canadian regulators came out on Wednesday with new mortgage rules that have helped to make everyone realize that they’re desperately trying to cool off an overheated housing market.
Cohodes said that he is short Home Capital Group (HCG in Toronto), and that they have already admitted to $1.9 billion worth of mortgage origination fraud… and worse, that the insiders sold before disclosing that fraud, so you’ve got insider trading plus fraud plus a terrible business in a market that might crash.
And he also called out Equitable Bank (EQB in Toronto), largely because they have $1.2 billion in uninsured loan exposure in Alberta (that’s well over 100% of their book value). Cohodes thinks Alberta will remain in trouble, and that Equitable will fail their “stress test”, but they have no reserves and if 1.6% of their loans become nonperforming that would wash out their earnings. He compared it to Texas in the 1980s, a similar oil bust, and noted that Texas banks had nonperforming loans of over 6% then — similar numbers would make both Equitable and Home Capital disappear.
I don’t know much about Canadian real estate, but we certainly hear a lot about bubbles in big cities and we all know that Alberta is under significant duress because of low oil and gas prices. Cohodes apparently let them post his presentation slides, so you can see those here if you like.
What I really left that presentation with was a renewed feeling of affection for short sellers — everybody gets grouchy about short sellers sometimes, as if they’re ruining a fun party… particularly if they own the stocks that shorts are selling, but if there’s a meaningful short position in a stock you’re interested in, or a vocal short ...