UPDATE 2-Short seller Block calls U.S. stocks rally 'dead cat bounce'

Wed Mar 9, 2016 3:07pm EST
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(Adds comments on Corporate America and short investment calls)

By Jennifer Ablan

NEW YORK, March 9 (Reuters) - Prominent short seller Carson Block, founder of research firm Muddy Waters LLC, said on Wednesday he remains bearish on the U.S. stock market and that the recent rally feels like a "dead cat bounce."

"I would say that this does feel like it is a dead cat bounce because how much more ammunition really do policymakers have?" Block told Reuters at its New York headquarters. "I just don't know if there are that many more bullets that central banks could fire."

A dead cat bounce is a small, short-lived recovery in the price of a declining security, such as a stock. As of Tuesday's close, the benchmark S&P 500 Index had gained in 11 out of 17 sessions since its Feb. 11 low, and on Friday closed above its 100-day moving average for first time in 2016.

The Bank of Japan's negative rates have backfired, Block said. "You see negative interest rates introduced in Japan, and guess what? That didn't really provide the relief that they had hoped for," he said.

"I've been very skeptical about the fundamentals of the U.S. economy for a long time. I don't feel that there have been permanent solutions that have been introduced."

Block said there has been a tremendous amount of misallocation of capital, as a result of loose monetary policies.

"We knew this years ago when we saw companies issuing debt to buy back stock and pay out dividends," he said. "We knew that we would be at a point in a few years where when these companies were just really, maybe not mortally wounded, but seriously wounded."   Continued...