Posts Tagged ‘Jim Chanos’

THE POWER OF NEGATIVE THINKING: 4 SHORT SELLING THEMES

THE POWER OF NEGATIVE THINKING: 4 SHORT SELLING THEMES

Profile of man thinking

Courtesy of The Pragmatic Capitalist 

Jim Chanos recently gave an interesting interview on the power of negative thinking and the benefits of short selling.  Most interesting were the 4 major themes Chanos looks for in his short positions.  Much like a long only macro thinker Chanos develops his specific short positions from much larger macro themes.  In the article he detailed the 4 themes he looks for:

Some recurring themes in shorting selling:

  • Booms that go bust – define boom as anything that is fueled by debt in which the cash flows produced by the asset do not cover the cost of the debt.  The internet is not a boom since they didn’t have debt.  The telecom bubble that went along with it was.
  • Consumer fads – Investors like to extrapolate strong growth well further into the future than they should.  It’s also a great source of decoration for your office, he’s got a Cabbage Patch Kid next to a George Forman Grill next to a Nordic Trak.
  • Technological Obsolescence – Everyone thinks the old product will last longer than it actually does.  Examples were Wang Word Processors (replaced by PCs), Record Stores (replaced by digital downloads).  He says the internet is the cheapest way to distribute anything.  However, people are still renting DVDs by mail, which surprises him (hint: likely short Netflix!).  These businesses always look cheap but the cash flow goes down just as fast as the share price (think Kodak film).
  • Structurally flawed accounting – Beware serial acquirers, they often write down the assets of the acquired firm in the stub period that no one sees.  Ask management what the nets assets of the firm were on their latest end of quarter and what they were when they were acquired. Most management won’t tell you this, some will, however.  But by writing down inventory and A/R they can “spring load” results once the company is acquired.  They’re supposed to adjust the purchase price, but more don’t.

Source: Market Folly 


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Chanos: Recurring Themes in Short Selling

Chanos: Recurring Themes in Short Selling

Courtesy of Joshua M Brown, The Reformed Broker 

I linked to this summation of Jim Chanos’s short selling discussion last night, but I loved the post so much I decided to excerpt the most interesting part.  According to Chanos (via My Investing Notebook), these four themes come up in great shorting opportunities fairly regularly:

1. Booms that go bust – define boom as anything fueled by debt in which the cash flows produced by the asset do not cover the cost of the debt. The Internet is not a boom since they didn’t have debt. The Telecom Bubble that went along with it was.

2. Consumer Fads – investors like to extrapolate strong growth well further into the future then they should. It’s also a great source of decoration for your office, he’s got a Cabbage Patch Kid next to a George Forman Grill next to a Nordic Trak.

3. Technological Obsolescence – Everyone thinks the old product will last longer than it actually does. Examples were Wang Word Processors (replaced by PCs), Record Stores (replaced by digital downloads). He says the internet is the cheapest way to distribute anything. However people are still renting DVDs by mail, which surprises him (Hint: likely short Netflix!). These businesses always look cheap but the cash flow goes down just as fast as the share price (think Kodak and film).

4. Structurally-Flawed Accounting – beware serial acquirers, they often write down the assets of the acquired firm in the stub period that no one sees. Ask management what the net assets of the firm were on their latest end of quarter and what they were when they were acquired. Most management won’t tell you this, some will, however. But by writing down inventory and A/R they can “spring load” results once the company is acquired. They’re supposed to adjust the purchase price but most don’t.

Chanos notes that the Enron short story (which made him famous on its way to zero) was like ‘one-stop shopping’ for these red flags, it featured conference calls with foul language, mark-to-model accounting, off-balance sheet stuff, etc.

I highly suggest you click over to read the whole post if you want to learn more about short selling and its place in finance.

Source:

Jim Chanos: The Power of Negative Thinking (CFA annual conference 2010) 

Photo by Vince Veneziani, Clusterstock 


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Chanos On Chinese Overheating And Overindulgence

Chanos On Chinese Overheating And Overindulgence

Courtesy of Tyler Durden at Zero Hedge 

You hear the bull story every day on TV and from the likes of Tom Friedman. Michael Pettis and Chanos take the bear side. Below is a recent must-watch, hour long presentation by Jim Chanos, courtesy of Peter Schiff.

 


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CHANOS: THE CHINA BUBBLE IS ABOUT TO BURST

CHANOS: THE CHINA BUBBLE IS ABOUT TO BURST

Courtesy of The Pragmatic Capitalist

Famed short seller, Jim Chanos, has been vocal in recent weeks about his concerns in China.  He is growing increasingly concerned about the real estate bubble in China where an “unprecedented” and “staggering” bubble is being blown by the government.  Chanos says 30 billion square feet of commercial real estate are under construction – that’s a 5 foot by 5 foot cubicle for every person in China.  Although he isn’t calling for a crash, he is increasingly risk averse: 

 


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Chanos: I warned Brown and Geithner of financial calamity

Chanos: I warned Brown and Geithner of financial calamity

Jim ChanosCourtesy of Edward Harrison at Credit Writedowns

Evidence is now surfacing that Timothy Geithner and Gordon Brown were among policymakers warned in April 2007 of an impending financial crisis. Famed fund manager and shortseller Jim Chanos met with the policy makers at the time, along with several other hedgies during the G-8 Summit in Washington, D.C.

Their worry: an impending financial crisis.  Recalling the events, here’s what Chanos has to say.

Jim Chanos: Well, there was a lot of sort of – you have to keep in mind this was Sunday afternoon. You’re at the end of the conference. But I think we were seen probably as much as an annoyance as anything else from people who wanted to catch a plane or get home.

But there was some uncomfortable paper shuffling. There was sort of, you know, that looking at the ceiling across the table. There was a bit of eye rolling. There’s no doubt about that.

And at the end of my talk the fellow running the meeting asked if there was any questions. There were literally no questions and at that point the Chair of the meeting said, “Well, that’s all very interesting and now what do you think about insurance.”

And it was just that complete realization that we’ve got – it just didn’t sink in, the import was not grasped, certainly by the Chair, that they were gonna move on to the next item on the agenda with nary a bit of discussion.

And then shortly after the meeting ended, a few hours later, there were two central bankers, both EU central bankers who came up to me and with their assistants and we exchanged contact information, and both said they thought that my presentation was very interesting and if I had anything additional please send it to them, and to keep in touch and blah, blah, blah.

And that was sort of it. I was thanked by the U.S. delegation and we went on our way. And both Paul Singer and I left the room sort of incredulous that the presentation…really elicited no official questions or comments.

It sort of reminds one of the famous intelligence memo declaring “Bin Laden Determined to Strike in U.S.

More here. If you’re really interested in this story, the …
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Phil's Favorites

Trump's trade war - what was it good for? Not much

 

Trump's trade war – what was it good for? Not much

When you push an opponent, he tends to push back. AP Photo/Ahn Young-joon

Courtesy of Rebecca Ray, Boston University

The 2016 election was a referendum on free trade, which many blamed for destroying millions of American manufacturing jobs. In 2020, it could be about the merits of trade wars.

During President Donald Trump’s first term, he tore up deals, launched a trade war with China and renegotiated NAFTA. His campaign claims the war was a succes...



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Biotech/COVID-19

In rural America, resentment over COVID-19 shutdowns is colliding with rising case numbers

 

In rural America, resentment over COVID-19 shutdowns is colliding with rising case numbers

Business restrictions early in the pandemic, when rural towns had few cases, triggered a backlash that haunts them now. Johannes Eisele/AFP/Getty Images

Courtesy of Lauren Hughes, University of Colorado Anschutz Medical Campus and Roberto Silva, University of Colorado Denver...



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ValueWalk

The Last Gold Rush...Ever!

By Jacob Wolinsky. Originally published at ValueWalk.

Excerpt from The Last Gold Rush…Ever! courtesy of Post Hill Press

Q3 2020 hedge fund letters, conferences and more

From The Gold Dollar Standard To The Mere Dollar Standard

Few realize that today’s US dollar is the third iteration of the country’s currency in less than a hundred years. (It is no consolation that other countries have done worse. Between 1986 and 1994, Bra...



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Zero Hedge

Rabobank: "A Dangerous Moment"

Courtesy of ZeroHedge

By Michael Every of Rabobank

The markets have started a new week of trading in risk off mode (when this note was heading to press) amid fading expectations that the US Congress will pass another fiscal package. With just 8 days left until the presidential election, both sides may not have a sufficient incentive to reach an agreement. Even if there is no deal in the coming days, a fiscal stimulus is still likely to be agreed after the election to support businesses and households as the US is struggling to contain the coronavirus pandemic. In fact, President Trump’s chief of staff openly admitted that the US is “not going to control” the pandemic and instead will focus on “proper mitigation factors”, such as vaccines and treatments. Former Vice President Biden s...



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Politics

How to track your mail-in ballot

 

How to track your mail-in ballot

Make sure you know when your ballot is arriving, and whether it’s been accepted for counting back at your election office. erhui1979/DigitalVision Vectors via Getty Images

Courtesy of Steven Mulroy, University of Memphis

Many voters who want to participate in the election by mail are concerned about when they’ll receive their ballot – and whether it will get back in time to be counted.

The pandemic has caused interest in ...



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Kimble Charting Solutions

Doc Copper/Gold Indicator Breaking Out Again?

Courtesy of Chris Kimble

The Doc Copper/Gold ratio broke above a 2-year falling channel back in 2016 at (1). Following this breakout, it rallied for the next year. During that year, Copper related assets did very well!

The ratio peaked in the summer of 2018 and created a series of lower highs over the past two years.

The strength of late has the ratio attempting to break above dual resistance at (2).

If the ratio continues to push higher and succeeds in breaking out, Copper, Basic Materials (XLB), and ...



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Chart School

Dow Gann Angle Update

Courtesy of Read the Ticker

Time to see what happens to the Dow post US elections.

The Dow Gann Angle Target 3 (from 2007 top) is on the table, and what a ride that will be. The FED went BRRRRR is all the fundamental news you need to know. Gann angles are very good tool to see how the masses are pushing price.


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The last two US elections saw Bitcoin and the DOW rally well for 6 months, due to stimulus. The most bearish 2020 US Election case for the markets is a Biden win with the Senate and Congress controlled by the Democrats, somehow this blog feels that is very unlikely. So what could go wrong!


...

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Digital Currencies

Bitcoin: the UK and US are clamping down on crypto trading - here's why it's not yet a big deal

 

Bitcoin: the UK and US are clamping down on crypto trading – here's why it's not yet a big deal

Where there’s a bit there’s a writ. Novikov Aleksey

Courtesy of Gavin Brown, University of Liverpool

The sale and promotion of derivatives of bitcoin and other cryptocurrencies to amateur investors is being banned in the UK by the financial regulator, the Financial Conduct Authority (FCA). It is a...



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Mapping The Market

COVID-19 Forces More Than Half of Asset Management Firms to Accelerate Adoption of Digital Marketing Technology

By Jacob Wolinsky. Originally published at ValueWalk.

There is no doubt that the use of technology to support client engagement initiatives brings both opportunities and threats but this has been brought into sharp focus this year with the COVID-19 pandemic.

The crisis has brought to the fore the need for firms to enable flexibility in client engagement – the expectation that providers will communicate to clients on their terms, at their speed and frequency and on their preferred channels, is now a given. This is even more critical when clients are experiencing unparalleled anxiety from both market conditions and their own personal circumstances.

...

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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

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Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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