Latest Einhorn short attack is aimed at hapless frackers

Hiding in plain sight. When is the SEC going to look into stock manipulation via media blasts? Meanwhile, Wall Street to open flat amidst economic reports.

Fracking activity in the Bakken.
Fracking in the Bakken. Einhorn and Obama don't like it. (Image via Wikipedia)

WASHINGTON, May 4, 2015 – Tuesday stock market action looks to be flat to slightly negative as Wall Street continues to grapple with fear of the unknown. The Fed is trying to ease the U.S. into a post-QE mode; Q1 corporate earnings—with the exception of Apple (symbol: AAPL)—have generally been unimpressive as another “earnings season” winds down; and a flurry of data reports this week is keeping traders on edge as they try to game what’s seen as the Fed’s inevitable interest rate hike.

Coming up this morning, a report on March U.S. trade figures is scheduled for release at 8:30 a.m. EDT, with April’s ISM (Institute for Supply Management) service sector report due out at 10 a.m. EDT.

In other, more irritating news, money manager (via Greenlight Capital) and controversial trader David Einhorn is at it again, playing that favorite game of wealthy Wall Street gamblers called “Let’s Make Money With Our Shorts.”

We’re referring not to a general spring and summer fashion statement, but to the current fashion of shorting the dickens out of company A or B, and then denouncing it in a public forum, describing the corporate victim in terms we encounter only in the Book of the Apocalypse.

The object of the game is to scare the bejeebers out of those hapless funds and individual investors that hold shares in company A or B, inducing them into a massive seizure of panic selling, driving those shares down ruthlessly and thus lining the pockets of the perp.

We’ve seen the game played before when Einhorn pitted his short position in JC Penney (JCP) against a counter-attack from another player, Carl Icahn. Bill Ackman has been playing his hatred of Herbalife (HLF) for what seems like years now, clobbering that firm initially, while consistently losing rounds more recently but continuing to flog the short in public.

More recently, Whitney Tilson, founder and managing partner of an outfit called Kase Capital Management sicced CBS’ “60 Minutes” hit-below-the-belt attack journalists on Lumber Liquidators (LL), claiming the company was violating who knows what federal law by knowingly and cynically selling Chinese wood and bamboo flooring products to its U.S. customers that far exceeded off-gassing regs for volatile compounds, specifically formaldehyde. Or “cancer causing” formaldehyde, as hack journalists always describe it.

Tilson, of course, had shorted the living daylights out of LL before the show that he had instigated aired, pancaking the stock and slaughtering its shareholders, at least in the monetary sense. He is regularly continuing his relentless and overhyped attack on LL in regular columns that run on the otherwise generally respected online investing site Seeking Alpha.

The Alpha people should know better, BTW, than to publish propaganda like this, as it does nothing for their reputation. But on the web, we suppose, there’s always the “eyeballs” and “click-through” thing to deal with.

But now we have Einhorn back in the limelight, boldly announcing at a public conference Monday that he’s shorted certain “fracking companies” to kingdom come, namely Pioneer Natural Resources (PXD), EOG Resources (EOG), Concho Resources (CXO), Whiting Petroleum (WLL) and Continental Resources (CLR).

Naturally, it was clobbering time for this batch of hapless drillers and shale oil explorers that, among other things, have defied the Obama administration (which Democrat Einhorn supports) by bringing the U.S. back into the oil game with a surprise abundance of fossil fuel. Two birds with one stone for David: getting brownie points with Obama and the gestapo at the EPA; and, once again, persuading unsuspecting shareholders in these companies to abandon ship en masse.

According to CNBC, at something called the Sohn Investment Conference in New York (where else?), Einhorn denounced the entire shale drilling industry as “wasteful, expensive and a terrible investment.” Seriously? Aside from the Saudi “drill, baby, drill” escapade—from which oil seems to be recovering, BTW—what’s wasteful about creating a situation where the U.S. finally achieves, at least for a few decades, control of its fuel situation once again without kowtowing to the Middle East’s murderous dictatorships?

Furthermore, at least some of the large and small companies involved have already been profitable (at least until the Saudis struck) in their ventures; thousands of high-paying jobs have been created (with zero help, of course, from this job-hostile administration); and prices at the pump have plunged dramatically.

Unmentioned, of course, in Einhorn’s cheap attack is the additional fact that as fracking has continued, companies involved have created numerous small innovations in their extraction methods to help bring the price of shale-oil drilling down substantially from what it once was.

But no matter. Yesterday was undoubtedly lots of fun for Einhorn as he once again joined the jolly crew of short sellers who profit handsomely by providing the all-too-willing media with juicy stories of alleged (never proved) big company scandals and missteps. By bombarding with luridly negative news a public already shell-shocked by the last decade of financial malfeasance, these pirates panic investors to dump the victim stocks, guaranteeing big profits for their shorts.

In the best Alinsky tradition, the allegations irresponsibly fired off by the likes of Einhorn may or may not be true in the end. But no matter. Trumpet them loud enough and long enough and they become the perceived truth. The companies get smooshed, regardless of the truth of these allegations, and Einhorn and his pals profit handsomely.

This blatant use of the rumor mill to manipulate the prices of stocks is flat-out illegal. But, as usual, the SEC, those stalwart protectors of the public interest, are looking the other way as Einhorn and others boldly flout the letter and the spirit of the law in the full knowledge that they can get away with it. It’s yet another reason why the majority of the public now thinks that the markets are essentially rigged. Which, essentially, they are.

What kind of government policy is this? We leave it to you to decide. (Hint: Think crony capitalism.)

What irritated the Maven most was that the smackdown continued into stocks that had little if anything to do with Einhorn’s attack, specifically Maven fave Calumet Specialty Products Partners, L.P. (CLMT), a high-dividend downstream company primarily in the business of oil refining not only to produce fuel but also to produce useful oil-based byproducts, including asphalt.

CLMT was up sharply at the beginning of Tuesday’s trading session, buoyed by the fantastic news that the company and its partner had just opened what’s been touted as “the first greenfield fuels refinery built in the U.S. in nearly 40 years.” Strategically located in frack-happy North Dakota, the new refinery will help, at least in a small way, to relieve part of the U.S. production bottleneck, while also doing it in an area that has little refinery access.

We were enjoying this news, and the surge in price, when Einhorn’s dog-and-pony show hit the wires. CLMT’s new refinery is located in the heart of Bakken Shale country, and the company itself does have some minor involvement in the production of fracking fluids. So BAM! Down went the stock, collateral damage resulting from Einhorn’s latest adventure in market manipulation.

CLMT will undoubtedly recover soon (unless it reports subpar earnings later this week). But why the Maven and countless hard-working small investors who do their homework have to endure constant risk from Wall Street’s Jolly Rogers is a question only the SEC can answer. But they’re not talking.

No trading tips today. Too dangerous. We did sell the bulk of our position in REIT IRT yesterday after the stock took a bad hit, due to the interest rate fears that are affecting the sector. We regret doing this as REITs have generally done well for us with those massive high dividends they pay. But when the monsters start moving market sectors, it’s always best to get out of their way, even if you have to take a few lumps on the way out the door.

There’s always tomorrow.

Disclosure: This column is essentially a trading diary written by the Maven himself and is meant to be informative and educational. It expresses the author’s opinions, which are not necessarily those of CDN. The Maven does not receive any compensation from companies or organizations discussed herein, and he has no business relationship with any company whose stock is mentioned in this article. This commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17