Famous short-seller Jim Chanos says the GameStop saga was the most “surreal” episode of his career and worries that things are “getting off track” with populist politicians looking to capitalize on the situation.
“This has been a week that even we, the ancients, have not seen before,” Chanos said in an interview with the Financial Times. “I’ve been doing this for 40 years and I don’t remember a period like the last 10 days.”
Comments from Chanos, founder of Kynikos Associates, come after a dramatic period in the United States stock market. Shares in companies like video game retailer GameStop and struggling movie operator AMC Entertainment have grown stratospheric as retailers have besieged sellers who bet against the companies.
“One of the most surreal aspects is that it has become political and the corollary is that they are blaming the short sellers, the guys who were killed,” said Chanos.
The confusion captivated Wall Street, as several major hedge funds were hit by multi-billion dollar losses inflicted by an amorphous and profane group of day traders loosely organized around a forum on the social media site Reddit, called r / WallStreetBets.
“This week’s Reddit-inspired short squeeze on U.S. stocks and deleveraging in global markets is a reminder that social media has not lost its influence in markets simply because Trump left office with a blocked Twitter account,” John Normand, chief fundamental cross-asset strategy at JPMorgan, delighted in a note to its customers on Friday night.
Chanos, who rose to fame two decades ago by predicting the fall of energy giant Enron, said he was particularly shocked by the vitriol aimed at short sellers – investors who bet companies’ shares will fall – given how hard they have been fighting. recently years.
“This is a euphoric market, which is moving from a new high to another,” he said. “The short sellers were beaten and left to die and we are still blaming them.”
Melvin Capital, a $ 12.5 billion hedge fund managed by Gabe Plotkin, was forced to seek a $ 2.75 billion cash injection from its larger rivals Citadel and Point72 Asset Management, after losing 30 percent in the first three weeks of January.
The New York firm, which publicized its bet against GameStop in regulatory proceedings, drew the ire of retail inventors who accessed online forums like Reddit to increase the shares of companies the firm was betting on.
The narrative quickly turned from a short squeeze on Melvin – which proved to be a success because the short position in the company was huge in relation to stock fluctuations – and an anti-establishment movement that was compared to Occupy Wall Street.
Last week, I saw a flurry of other hedge funds also recovering short positions and forced to cut long positions, while closing the door in case r / WallStreetBets traders target their positions. This contributed to the S&P 500 losing 3.3 percent last week, its biggest weekly loss since the nervous talks leading up to the US presidential election.
But Chanos resented the idea that GameStop is a political movement that aims to “end the lawsuits”. He points out that there were several hedge funds that had long positions in the company and profited from the rise.
“What really happened here is that a lot of short sellers and hedge funds have lost a lot of money and a lot of retail investors, as well as a lot of hedge funds, have made a lot of money,” he said.
Chanos also called the political fury and conspiracy theories that emerged after frantic negotiations forced online brokers, which predominantly cater to retail investors, to crack down on popular stock bets “absurd”.
The Kynikos founder said the changes were mainly due to regulations that require brokers to place guarantees for the trades that their clients conduct at central clearing houses, and the frantic activity means that many of them have a hard time doing so.
“We are seeing a level of misunderstanding about how markets work, caused by a whole new generation of investors who have never seen a bear market and somehow think they are being prevented from their rightful place at the table by these investment funds. hedge of evil, ”he said.
