Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini.
Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you’re the typical investor, it’s probably time to be a little bit more cautious.”Chanos, president and founder of Kynikos Associates, admittedly knows it has been a humbling year for his cohort, with some short only funds even closing up shop.But he told Reuters that the market is primed for short-sellers like him and as a result has gone out to raise capital for his mission: “Markets mean-revert and performance mean-reverts and even alpha mean-reverts if at least my last 30 years are any indication.
And the time to be doing this is when you feel like the village idiot and not an evil genius, to paraphrase my critics.”Chanos’ bearish views are so well respected that the New York Federal Reserve has even included him as one of the money managers on its investment advisory counsel.
By his own admission, Chanos said he tends to be the one most skeptical on the markets.Chanos knows bad news when he sees it as he is known as the man who almost single handedly vindicated short sellers by revealing the ongoing fraud at Enron and WorldCom. And he sounded the alarm bell early on struggling computer giant Hewlett Packard.
Just last week, he sent shares of CGI Group Inc., the parent of CGI Federal, which is the main contractor behind the U.S. government’s glitch-plagued HealthCare.gov website, under selling pressure after Newsweek revealed that Chanos had placed a major short position.Chanos spoke about his other shorts including Caterpillar and – yes, just in time for Christmas — coal stocks at the Reuters Global Investment Outlook Summit and even shared some of his observations on the 1 percent and what they owe the rest of us.
On the U.S. stock market Chanos: “A few years back, I felt the U.S. was the best house in a bad neighborhood for a cliché hackneyed term and certainly there were better places that I think on a macro basis to be short like China. Our thinking is changed on that now. I think that the U.S. market is pretty fully discounting an awful lot of good news. While one can never be precise on markets and that’s not why my clients pay me, we’re finding many more opportunities (on the short side) in the U.S markets than we found a few years ago. The U.S. market at roughly 1,800 on the S&P is trading at 19 times earnings. I am always sort of befuddled because people use a much lower figure on that…we went back and triple-checked trailing 12-month S&P 500 earnings and they are only $95. A lot of companies report earnings before the bad stuff and we’re talking about GAAP earnings – actually talking about real accounting earnings – they are only $95. So for you to believe that the market is only at 14 times, 15 times next year’s number, you have to make some pretty robust assumptions on earnings growth to get to $95 to that $120 or $125 figure.”Déjà vu all over again.
Continue reading: [blogs.reuters.com]