In which: Muddy Waters is still mudding the waters, the US says China isn’t a currency manipulator, and HP gets sued for Autonomy but it sounds like they’re missing the point…

Good morning

The headlines:

1. The Muddy Waters saga ramps up!

   Link: what he said, what she said.

   So when this came up on Monday, I thought that it was just a nice opportunity to defend the IASB*, admit to a hidden passion for financial accounting standards, and make an observation about the irony of a short-selling firm called “Muddy Waters”. Which isn’t actually that subtle**.

   To recap: Muddy Waters is accusing farmer/commodity-trader Olam International of aggressively recognising profits under the accounting standard that deals with agricultural assets. Muddy Waters has also shorted Olam shares (so they stand to benefit if the share price goes down). Let’s look at the share price:

   

   The obvious conclusion here is that Muddy Waters is winning. But apparently, not enough. Since then, Muddy Waters has accused Olam of being “like Enron”. Which is a bit like accusing a politician of being like Lindsay Lohan. That is: the only clear similarity between them is that they both appear in public…

   Olam has now sued Muddy Waters:

   “We believe that the report’s assertions are motivated to distract and create panic amongst our continuing shareholders, bondholders and creditors, to enable Carson Block and his associates to benefit from their short positions in Olam securities”.

   The other MW argument is that Olam has spent a lot of cash on capital projects recently, so there could be a liquidity crisis. Or that strategy could be really clever. Another quote: “Olam saw an opportunity post the global financial crisis of acting counter-cyclically and acquiring assets and businesses at a deep discount to their fair value”.

   I haven’t read the financials. I don’t know what Olam is doing. But I can observe that Muddy Waters, and its founder Carson Block, have a deeply vested interest in pushing the share price down.

   Also their main criticism seems to be that, in the time since it listed, all Olam has done is make capital acquisitions. And I would ask – what is the point of listing if not to raise money to make capital acquisitions? The alternative is that they should have raised the money to pay for operational expenses: that’s not, frankly, the better alternative.

   *International Accounting Standards Board.

   **I’d accuse it of being an underhanded marketing ploy. Mainly because a firm called Muddy Waters would catch my attention with the potential for lame jokes and the heavily-implied familiarity with a variety of tropical tax havens. 

2. The US treasury refuses to call China a “currency manipulator”.

   Link: it’s step 1 in avoiding an international incident – why is there such outrage?

   So China isn’t a “currency manipulator…under US law”.

   Well firstly, the Treasury is hardly about to accuse its largest trading partner and a significant creditor of doing something dishonourable.

   And secondly, as I suggested here (news item 3), China’s currency manipulation could be inadvertently assisting the US in staying afloat. The more convertible the yuan, the more likely that the dollar could lose its status as the global currency of reserve. And if that happened, farewell inflation-less quantitative easing. And a host of other “exorbitant privilege(s)”.

   Let sleeping dragons lie.

   In all senses of the verb.

3. In more accounting-related news…

   Link: HP gets sued over autonomy.

   The investors are suing anyone and everyone involved in the HP-Autonomy acquisition. The auditors, the banks, the CEOs, etc.

   I think it will be interesting to see what happens here. Because there is only talk of $200 million worth of aggressively-recognised revenue. Which somehow led to $5 billion worth of write-down. And the whole write-down was $8.8 billion.

   It’s not outside the realm of possibility (as I discussed/calculated here), but still. “You recognised $0.2 billion inappropriately over two years before we bought you” doesn’t translate well to “so we wrote you down by $8.8 billion, but $5 billion was because of that!”

   

   It just sounds like there’s something else going on.

That’s all for now.

Have a good day.