High-end short seller Jim Chanos believes the market has more to fall as investors are not prepared for interest rates to continue to rise.
“It’s the only thing people aren’t prepared for however, interest rates are reset significantly higher because this has not happened in the lives of most investors, “Chanos said. The Bloomberg podcast “Odd Lots”. on Wednesday. “The idea that interest rates will not actually be 2% or 3% in the foreseeable future will be difficult for many investors to handle.”
“I still have very short positions in my portfolio where companies are barely profitable and trade at, you know, 30 times cash flow and 40 times cash flow still after the decline,” Chanos said.
Chanos blames the current market instability in part on the Fed’s decision in late 2018 to move to a simpler monetary policy stance. He also cites the free stock rating introduced when Charles Schwab Corp. abolished trading fees in the fall of 2019 as another reason for the ongoing mania for stock trading.
“I was a little surprised since November how many retail investors still want to speculate,” he said. “Cathy Wood received streams for most of the first quarter, in some cases record streams.”
Chanos explained that the market craze intensified in the first quarter of last year, when blank check companies, also known as SPAC, raised billions of dollars a day.
“Over a period of weeks, SPACs have been growing, with new SPACs raising an average of $ 3 billion in cash each night,” Chanos said. “And that was equal to the percentage of savings in the United States. So for a short period of time, the SPAC took the entire percentage of savings in the United States, which just seemed like the tip of the iceberg.”
While higher interest rates are problematic for riskier assets, Chanos does not see much room for hiding in the current market, and the sectors mentioned, including real estate, consumer goods and utilities, may also be areas of concern.
“Just take almost the entire cross section of the REIT,” Chanos said. “It just seems absurd to us that you will buy, you know, residential buildings with an interest rate of 3%, which is before capital expenditures. That’s before taxes. “
Chanos, who in recent years, as is known for his short work with the manufacturer of electric cars Tesla (NASDAQ:TSLA), said he was still withgreyhound still puts and does not believe that investors understand that the company relies on China.
“We and others have a strong suspicion that a disproportionate amount of profits come from Shanghai,” Chanos explained. “And that, of course, you know, raises all sorts of other risks for the masses, and whether they can actually, you know, pay, you know, get that money or not.”
Chanos, who announced the short crypto exchange Coinbase (NASDAQ:COIN) in Marchsees more shortcomings for the company as well as for competitor Robinhood Markets (NASDAQ:HOOD). He said Coinbase “won” last year as it benefited from retail investors.
“If you look at the first quarter of Coinbase in 2022, the volume of retail was huge compared to the institutional,” Chanos said in a podcast. “They earned nearly a billion in commission income from retailers during the quarter. And they made less than $ 50 million from institutional investors. “
“Indeed, this huge ecosystem that has emerged overnight around it to extract mainly fees from unsuspecting mostly retail investors,” Chanos added.
Recall on Tuesday, Coinbase reduced the number of employees by 18% to position for economic downturn.