Field of Schemes: David Einhorn’s latest short

Einhorn is the famous Lehman short of 2008; he got a lot of flak from Clueless Charlie Gasparino for that. I seem to remember our own Lehman bear, Yves, getting snarled at by Charlie G somewhere along the line, too. But of course, Einhorn, via his vehicle Greenlight Capital, had it right; as did Yves (something that those decrying the “Yellow Journalism” of recent NC posts on “foreclosuregate” would do well to consider).

Well here, anyway, is Einhorn’s latest short: the Florida real estate developer, St Joe. Only capitalized at $2Bn (umm, a bit less since Einhorn’s short hit the newswires yesterday), so not quite in the Lehman league of portentousness, but still a nice example of the short seller’s nose for a dubious proposition.

St Joe seems to have made a lot of money selling off the good bits of its land bank (to other speculators, one imagines) during the Florida RE Boom; and rather less money (meaning, a red P&L) doing its own developments. The net result of all that, now we’re in the bust, is a fair cash pile, a decent burn rate, half a million acres of no-so-wonderful bits of Florida, and management stasis. So it appears to be the sort of boom-time survivor that will just gently implode when the money runs out. This is how an RE developer would look in the bust so St Joe is, if you like, a sign of the times.

There’s 5 Megs of presentation here if you like looking through a very carefully worked out short thesis (with some nice pictures and maps).

It is always striking how well-organized and data rich these short theses tend to be (if you are following John Hempton and his dippy Chinese travel agent, you know another example); I suppose if you are going to dissent from the near-mandatory happy talk, you had better be at your most rigorous.

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  1. mondo

    Thanks for the link. I enjoyed their in-depth analysis of developments. I remember looking at JOE for an MBA equities analysis course exactly 2 years ago, and not liking what I saw (peaked real estate values, value extraction via land sales). My first stab at doing a DCF came up with a valuation of $20.50/share and book value of $10. I got funny looks and a poor grade. Good times.

  2. TC

    Per dissenting from “the near-mandatory happy talk,” I think you are confusing the vocalness of a decided minority whose livelihoods’ posterity now requires undying obeisance to the scam they helped promote from the vast majority who have no choice but deleverage and preserve capital. If money, indeed, talks, it is rather evident it is anything but happy…

  3. fred

    einhorn may have called the Lehman short.
    but he was a significant shareholder, director and unanabashed bull of New Century Mortgage which went BK.

    st joe has limited debt which will allow it to survive.

    eisenhorn is smart guy and bona fide poker player. if he is talking his position, he is covering his short to the new guys at the table.

  4. Equityval


    At least get his name right, it’s not “eisenhorn”. He was involved with New Century, but he’s also been very open about saying that he didn’t get the housing bubble right (at least early on) and that he should have been paying more attention to the big picture issues. Heard any mea culpas like that from Stan O’Neal or Jimmy Cayne? In addition, while they were playing golf and bridge respectivey, he spend 2007 figuring out that there were big problems in the financial system including Lehman.

    I would also highly recommend Einhorn’s book, Fooling Some of the People All of the Time. You will learn that he stuck with his convictions on that short, for years, even though he was investigated by the clueless and captured SEC at the behest of the company that was scamming its investors. Ultimately, he was vindicated.

    IMO, he is one of the premier investors of our time and is not a pump and dump trader by any means. Before you claim that he is talking his book while covering his short to a bunch of hapless rubes, you really ought to go do some homework on him. You’re way off base.

  5. don

    Nice post. I especially liked this line:

    “I suppose if you are going to dissent from the near-mandatory happy talk, you had better be at your most rigorous.”

    Probably helped clue in a few people.

    1. Yves Smith

      I suggest you pay attention to what is written here rather that operate out of prejudice. I have no problems with shorting in the well regulated equity markets. I have very big problems with shorting in the unregulated credit swaps market, where short interest is a significant multiple of the long position (6-10x) . I explained at great length in ECONNED, CDS (operating via heavily synthetic CDOs) was THE factor that turned what would have been an unpleasant end of the subprime bubble into a global financial crisis by creating synthetic exposures that were 10X the value of cash BBB rated subprime bonds.

        1. gs_runsthiscountry

          Ahhh yes, the still new WTP (wealth transfer product) on the block …. ETF’s

          Brilliant Wall Street innovation, 2X or 3X leverage that is daily rebalanced, or, based off obscure indexes crossing multiple months, or, commodity based running into steep contango, on and on.

          Looking at charts of some of these, it makes you wonder who the poor souls are that hold them more than 48-72 hours at a crack. Great tools for the initiated and financially educated, down right dangerous for the novice retailer.

          UNG, and VXX are some interesting examples.

          I suspect much will be written in future years about all the wealth destruction ETF’s have caused. They are already, but, under still the radar, as a new crop of novice investors step up to the plate to hand over their wallet.

          Like anything else, it will be allowed to persist for years before anything is done about it. But, alas, only when the new engineered product is up and running first.

      1. Richfam

        Ok, fair enough. Equity shorts okay, levered CDS not okay. It’s a cool trade though: buy up all the hard loan, buy as much protection on the asset as possible then foreclose. Pretty evil. Btw, you can create some leverage with options that will push around the market.

      1. Richfam

        Didn’t say he was, only that he was suggesting it. He’s probably using the value conference to cover his short anyway. Poker remember.

  6. fred


    forget about the selfpromoting book.
    you might want to read this

    the short side of the street is brutal. if you follow his shorts you will eventually be crowded out trying to borrow the security and squeezed at the most inappropriate time. their trick is getting in and out when the news breaks.

    lastly how is someone vindicated when the company they were on the board of goes bankrupt. oh you must mean he wasn’t indicted.

    gee was that the same SEC that looked at madoff all those years.

  7. Ray L Phenicie

    I have just returned from a short tour or the Thumb area of Michigan and found that on Sand Point near Caseville Township,,+MI&gl=us&ei=sJa4TPOGEc6EnQeOkaTlDQ&sa=X&oi=geocode_result&ct=title&resnum=1&ved=0CB8Q8gEwAA

    the infrastructure has been put in for approximately 25-50 lots; no homes have been built yet; more hookups were being tested as I drove by. It is so odd to see a McMansion situated in pine forests with the mutilated shoreline of Lake Huron as a scar to remind the viewer what could have been better left alone. Putting in pipes for water and sewer, wires for phone and cable, and more pipes for gas and electric is not cheap. Yet the cost of all that will be passed on to the current customer base, granted that could be a nickle per month but my point is that the ‘boosterism’ aka hucksterism that Einhorn outlines is an ongoing phenomena in American history. In the case of Sand Point, Michigan, we as residents of the State (our state motto is ‘If you seek a pleasant peninsula, look about you’}
    are impoverished on several fronts while the developer is left at the bank with . . . . what? Meanwhile the raw scars the developer left behind are not very much of that ‘Pleasant Peninsula’ Michigan residents are so fervently seeking.

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