Kass: Blame Game Is Dishonest

This blog post originally appeared on RealMoney Silver on Aug. 25 at 9:11 a.m. EDT.

"The most nefarious aspect of the short sellers revolves around their concerted efforts to destroy, or at least diminish, the companies' existence as going concerns."

-- Marty Whitman, Third Avenue Funds' third-quarter 2008 letter

I am struck by the fact that such a large number of respected money managers have purchased huge positions in many of the financial stocks that have dropped so dramatically over the past two years. (Many of these have been analyzed and discussed critically on these pages as attractive short sales.)

I am also struck by the fact that so many of these money managers blame their ailing positions and poor overall investment performance on short sellers rather than on the inadequacy of their own research and analysis.

David Dreman (Dreman Value Management), Richard Pzena (Pzena Investment Management), Bill Miller (Legg Mason) and Marty Whitman (Third Avenue Management) have doubled and tripled down their ownership of Fannie Mae (FNM Quote), Freddie Mac (FRE Quote), Ambac (ABK Quote) and MBIA (MBI Quote) -- among other impaired financial intermediaries.

The confidence expressed by the above-mentioned managers in their ownership of shares of companies like Freddie Mac are especially stunning -- or frightening, depending on one's book. For example, Bill Miller reported holding about 50 million shares of Freddie Mac at the end of first quarter 2008 -- worth about $1.3 billion, or slightly more than $25 per share, at that time but purchased at a much higher prices. Last week, Miller announced that he raised his holdings in Freddie Mac during the second quarter by over 60% by adding 30 million more shares, bringing his total holdings to 80 million shares. Freddie Mac closed trading on Friday at $2.81 per share.

Under the circumstances, blaming the poor share price performance for a stock such as Freddie Mac on the purported iniquitous scheming and market influence of short sellers seems outside the realm of reality. It is for that reason (and others) that I penned my op-ed piece in the Financial Times on Friday.