Well-known short seller Jim Chanos says the GameStop saga was the most “surreal” episode in his career, and is concerned that things are “going completely off track” with populist politicians who want to take advantage of the situation.
“It was a week we had never seen before,” he said. Chanos said in an interview with the Financial Times. “I’ve been doing this for 40 years and I do not remember a period like the last ten days.”
The remarks of mr. Chanos, the founder of Kynikos Associates, is coming to a dramatic period for the US stock market. Shares in companies such as video game retailer GameStop and struggling theater operator AMC Entertainment rose stratospherically as retailers besieged short sellers against the ventures.
“One of the most surreal aspects is that it has become political and the result is that they blame the short sellers, the guys who were killed,” Chanos said.
The chaos has wowed Wall Street as several large hedge funds have been hit with billions of dollars in losses inflicted by an amorphous, wicked group of day traders loosely organized around a forum on the social media site Reddit called r / WallStreetBets.
“The Reddit-inspired brief pressure on US equities and the reduction of debt in world markets is a reminder that social media has not lost its influence on markets just because Trump left office with a blocked Twitter account,” John Normand, head of cross-asset fundamental strategy at JPMorgan, surprised him Friday night in a note to his clients.
Chanos, who gained notoriety two decades ago by predicting the downfall of energy giant Enron, said he was particularly shocked by the vitriol aimed at short sellers – investors betting that shares in companies would fall – given how much they have in recent years time has struggled for years.
“It’s a euphoric market that has gone from new high to new high,” he said. “Short sellers have been beaten and left for dead, and we still blame them.”
Melvin Capital, a $ 12.5 billion hedge fund managed by Gabe Plotkin, was forced to request a $ 2.75 billion cash injection from major rivals Citadel and Point72 Asset Management after failing in the first three weeks of January Lost 30 percent.
The New York firm, which has filed its bet against GameStop in regulations, has angered retail inventors who have worked at online forums such as Reddit to drive shares in companies that the company has been betting on.
The story quickly changed from a brief push on Melvin – which was successful because the short position in the company was large relative to the stock fleet – and in an anti-establishment movement compared to Occupy Wall Street.
Last week, a spate of other hedge funds also cut shorts and forced them to cut long positions as they cut down the shutters as the traders of r / WallStreetBets targeted their positions. This contributed to the S&P 500 losing 3.3 percent last week, its biggest weekly loss since the nervous trade that preceded the US presidential election.
But Chanos got the idea that GameStop is a political movement to ‘keep it going’. He points out that there were a number of hedge funds that had long positions in the company and benefited from the rally.
“What really happened here was a lot of short sellers and hedge funds lost a lot of money and a lot of retail investors as well as a lot of hedge funds made a lot of money,” he said.
Mr. Chanos also cites the political anger and conspiracy theories that emerged after the insane trading online brokers, who cater mainly to retail investors, forced the betting in popular stocks to weaken.
The Kynikos founder said the moves were mainly due to regulations requiring brokers to place collateral for transactions their clients make to central cleaning houses, and the fierce activity has meant many of them have struggled to do so.
‘We see some misunderstanding about how markets work, which brings with it a whole new generation of investors who have never seen a bear market and somehow think they are being held back from their rightful place at the table by this evil hedge funds, ”he said.
