New York: A six-foot stuffed grizzly bear guards the entrance to the offices of Fleckenstein Capital Inc., located on a quiet, leafy street in the Capitol Hill neighbourhood of Seattle, US. The bear sends a clear message: The man inside, Bill Fleckenstein, founder and president of the firm, is a short-seller, and proud of it.
Just cautious: William Fleckenstein, president of Fleckenstein Capital, poses next to a stuffed grizzly bear at the firm’s offices in Seattle, US. Brian Smale / Bloomberg
Fleckenstein, 55, has emerged as an outspoken defender of what has been depicted by everyone from the chief executive of Morgan Stanley to the Archbishop of Canterbury as a renegade class of investors.
Since world markets began their most serious plunge in decades in July, 17 countries have banned or restricted short-selling, including the US, Canada, the UK, Germany, France, Switzerland, Australia, Japan and Taiwan. Commentators around the world have labelled short-sellers hyenas, jackals, vermin or vultures.
Fleckenstein says investors who bet that stocks will decline, as short-sellers do, are simply bears. And, he says, they are not to blame for the market meltdown. “Short-sellers didn’t lower the Fed funds rate or tell people to take out mortgages when they shouldn’t have,” he says. “Now we are the bad guys, the ones wearing black hats.”
Fleckenstein’s offices are a monument to his trading strategy, in which investors borrow stock from institutional investors and then sell it in the hope of buying the shares back at a lower price before returning them to the lender. The grizzly bear was wearing a “Dow 10,000” baseball cap when the index was still at 11,000.
SEC investigation
Fleckenstein is one of a corps of pessimistic investors who have been blamed for market manipulation since the 17th century.
The recent attacks began after a rapid deterioration in the share price of Bear Stearns Companies Inc. in March. When Bear Stearns’ stock fell 47% on Friday, 14 March, the US Federal Reserve stepped in and that weekend brokered the sale of the investment bank to JPMorgan Chase and Co. Later, Bear Stearns chief executive Alan Schwartz told US Congress that the firm was toppled by rumour mongering and abusive trading—often euphemisms for short-selling. The Securities and Exchange Commission (SEC) launched an investigation that was still in progress in mid-October.