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May 31, 2017

Famed Shortseller: “I’m starting to believe that there could be some real problems with Canada"

Looks like Canadian investors are getting itchy.

After rumors started flying that Carson Block (founder of Muddy Waters - a short seller that gained fame shorting Sino-Forest Corp) was shorting Element Fleet Management, its stock plummeted ending the day down about 15%. Curiously, Carson Block didn't know anything about the company until the rumor broke. Regardless, the knee-jerk reaction by investors is telling.

“Particularly given what happened to Home Capital in recent weeks I kind of wonder if Canadian investors are really nervous about the stuff that they’re holding and that’s why there was so much sensitivity around Element this morning,” Block said.

“When I see a reaction like we saw to a stock that I had never heard of because people were evidently concerned that we were about to short it, that tells me that maybe we’re at a point in Canada where investor denial is just starting to crack,” he said.

The Canadian housing market is one of the most overvalued asset classes in the world. This puts many Canadian companies at risk. But don't tell that to Canadians. Many believe the current Canadian scenario is different from that of the US a decade ago. For this very reason, it might not be.

“Every time you hear that, you know that it can happen, and it’s going to.”

Complacency has set in. And that's very dangerous.

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