Short-Seller Sounds Warning
When Jim Chanos speaks, the investment world listens.
Not because he is a sage of value, growth, or technology stories.
Instead, he’s one of the greats at identifying the emperors with no clothes.
He famously bet against Enron in 2001.
As he did against Wirecard, the now bankrupt European payment and transaction company.
And he was there for the housing bubble collapse too.
If there’s a bubble bursting, Chanos is probably there betting against it or he’s on his way.
That’s why his recent interview with CNBC is particularly interesting (both thoughtful and worrisome) for investors.
He’s not calling for 100% cash just yet, but he does have a clear warning all investors should hear.
Three Sobering Facts From Recent Jim Chanos Interview
You can watch Chanos’ CNBC segment in full right here.
There are a lot of topics covered (like a “shooting war” breaking out in Asia) that investors can’t reliably handicap at this point.
But there is a lot of actionable information there.
That’s why we segmented these three quotes from the interview to focus on.
They are about the rally, history, andabout what Chanos’ main hedge fund is doing right now.
“Long Way Down”
“Since I’ve been on the street in 1980, not one bear market has ever traded above 9 to 14 times above the previous peak earnings…”
“That’s a long way down. That’s [S&P 500] at 1800 to 2800.”
Considering the S&P 500 is right gourd 4,100, that is predicting a total decline of 32% to 58% from these levels before this bear market is over with.
It’s not a crazy forecast.
The markets weren’t far off from the 32% drop point a few months ago.
The one bullish counterpoint may actually be the massive inflation we’ve seen.
It could go a long way to keep the bear market lows higher than they would normally be.
After all, none of the major bear markets of the previous 40 years were preceded by a near 40% increase in total money supply.
We’re not saying the bear market is over. But it may not be as extreme as everyone thinks.
“[The market has] assumed that in six months corporate profits will go up 12%, inflation down to 2%, and the Fed may be easing by the end of the year. That’s nirvana if you’re a bull. Market is pricing in a goldilocks scenario.”
This is a hard bear pitch with a touch of subtlety.
It should be familiar to Dynamic Wealth Research readers at this point in the rally.
The argument posits that everything is priced for perfection right now.
There’s a chance everything could go right.
If it did, current stock prices would be justified.
However, if everything doesn’t go right, there could be a lot of pain ahead.
In the end, it’s a more elegant way of saying, the risks far outweigh the rewards for the market overall.
“In our hedge fund. We are slightly net short. And then slightly net long. We are about zero right now.”
This is the final point that we think we should bring up.
Chanos is bringing up a lot of points about the risks in the stocks.
But he is not positioning for everything to blow up immediately.
That’s a great example of how to play the current market conditions for max advantage.
There’s money to be made here, but it may not be the time to buy more than you can sell quickly.
So it's ok to buy the momentum, but be sure to have an exit plan before doing so.