Market Extra: Short seller Block on coronavirus response that has him weighing career change: ‘Money needs to go directly into the hands of people who are negatively impacted by this’

Market Extra

‘We cannot live in a society that just perpetuates the breaking of the middle class,’ says Muddy Waters Capital’s Carson Block

Carson Block, chief investment officer and co-founder of Muddy Waters Capital LLC,


Bloomberg News/Landov

The coronavirus has Carson Block thinking about his career choices.

The founder of San Francisco–based Muddy Waters, who made his name shorting Chinese stocks, told MarketWatch in an interview that the current divide between stock-market valuations and the “underlying economy” may lure him into public service so he can do his part in addressing what he sees as a growing disparity between haves and have-nots.

“We cannot live in a society that just perpetuates the breaking of the middle class,” Block said.

“Watching this train wreck of a response to the pandemic and the economic response, secondly, has made me think more about going into public service in the future,” Block told MarketWatch. “Because I am just so utterly disdainful of people who run the show at present.”

Block’s comments come as the Dow Jones Industrial Average
DJIA,
+3.85%
,
the S&P 500
SPX,
+3.15%

and the Nasdaq Composite Index
COMP,
+2.44%

on Monday were taking flight on some progress from an experimental vaccine being developed by Moderna Inc.
MRNA,
+19.95%
,
which is a candidate to tackle the novel strain of coronavirus that has infected more than 4.7 million people and claimed 315,000 lives globally, according to data compiled by Johns Hopkins University.

Nearly 3 million people applied for unemployment benefits last week, continuing a two-month trend of historically high claims. The coronavirus pandemic has brought the total number of people who have filed for jobless benefits to 36.5 million.

‘Trickle-up economics’

The Federal Reserve and the U.S. government has deployed trillions of dollars in an attempt to curtail the economic carnage from the worst public health crisis in more than a century.

There’s an obvious disconnect between [stock] valuations and the underlying economy … and if this persists it “brings up a valid question” as to “whether capital markets play a useful role in the economy,” Block said.

Comments from the short seller echo those from other prominent Wall Street investors, including billionaire venture capitalist Chamath Palihapitiya, who recently argued that the government hasn’t done enough to put money into the hands of people needing it the most and has instead propped up industries and wealthy investors at the expense of average Americans.

“On Main Street today, people are getting wiped out. Right now, rich CEOs are not, boards that have horrible governance are not. People are,” the Social Capital founder and CEO told CNBC last month. More recently, billionaire Mark Cuban said it’s time for the government to promote “trickle-up economics” to save small businesses, because the Paycheck Protection Program isn’t cutting it.

“Money needs to go directly into the hands of people who are negatively impacted by this,” Block told MarketWatch on Monday. “What nobody wants to say is all of this monetary stimulus and fiscal stimulus is a subsidy for capital. We have been subsidizing capital massively.”

Laugh or cry?

Block and his firm made headlines in 2011 with a short call on Sino-Forest Group, a Toronto-listed lumber company with operations in China. Block alleged accounting fraud. The company denied the allegation but eventually collapsed. Since then Block has become best known for shorting other Chinese companies.

Block is currently targeting GSX Techedu
GSX,
-7.31%
,
a Chinese online-education company, alleging fraud. GSX also has been targeted by another short seller, Andrew Left’s Citron Research, and has previously denied allegations by Citron about its financial statements.

A representative for GSX didn’t immediately return an email and call for comment.

Block’s allegations come as Chinese companies have faced growing scrutiny from investors after China-based coffee chain Luckin Coffee Inc.
LK,
-18.40%

revealed that much of its revenue last year was fabricated by a few employees. Shares of Luckin have been down nearly 90% so far this year.

Opinion:Luckin Coffee demonstrates how risky Chinese IPOs can be, but investors are just not getting the message

“I don’t know whether to laugh or cry,” Block said of what he perceives as a long-running problem with Chinese companies listed in the U.S. 

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