From the University of Chicago's Booth School of Business, Chicago Booth Review, Capitalisn't, February 16:
The Wall Street Journal wrote that “Wall Street's best-known bear is going into hibernation” after short seller Jim Chanos announced he would close his main hedge funds late last year, in part due to diminishing interest in stock picking. Short selling, which bets on drops in asset prices, wins when companies and governments fail and has gained a predatory reputation over the years. Just last week, the China Securities Regulatory Commission announced new measures to limit short selling.
On this episode of the Capitalisn’t podcast, hosts Luigi Zingales and Bethany McLean sit down with Chanos to discuss the relationship between short sellers and our information environment, the fallout from the “meme stock” craze, the effects of the Federal Reserve’s interest rate policies, and how short selling can contribute to market efficiency and resilience. Do short sellers play a positive role by uncovering corporate fraud, mismanagement, and systemic risks? What safeguards are necessary to prevent short-selling abuse and ensure fair and transparent markets?Audio Transcript
....Bethany: There is no question that the last decade has been a very tough time for short sellers. The Federal Reserve’s low-interest-rate policy helped make investors very, very bullish, which meant that even questionable stocks only went up, and so, short sellers could short something that seemed overvalued, and the stock would just continue to go up.
Stocks obviously crashed in the pandemic, but that was really short-lived. The continuation of the Fed’s policy meant that, at least for a few years, even post-pandemic, literally, stocks only went up, and we seem to be back in that world a little bit today.
Last fall, Jim Chanos abruptly closed his hedge fund. As one person wrote, “Wall Street’s best-known bear is going into hibernation.” That’s what the Wall Street Journal wrote, and they noted that his firm managed less than $200 million today, down from $6 billion in 2008.
Data tracker HFR noted that, overall, hedge funds that focus on bearish bets manage $5.3 billion, down from $6.2 billion in 2012. The business has shrunk. And so, the question is, is short selling dead? We thought the best guest we could have on to answer this question is, of course, Jim Chanos.
Jim, the idea for this episode came from one of our listeners, someone you know, actually, who wrote in an email to me: “What does it say about capitalism if Jim Chanos can’t find enough investors willing to profit from its frauds, fads, and failures, not to mention the competitive forces that are necessary for a functioning market? Is short selling dead?”
I wanted to start by asking you that question. Do you think your decision to close your fund says something more broadly about the state of short selling and even capitalism?
Jim Chanos: Well, I don’t know about that. Increasingly, our clientele, we realized, has the ability to do a lot of what we were doing for them through their own back office, their own risk-management protocols.
Having said that, a lot of exhaustion has set in among investors. To your questioner’s point, when is this ever going to matter? If markets are ruled by liquidity and positioning, will fundamentals ever count on the short side? The traditionalist in me says, “Yes, of course it will.” It may take time; it may take a cycle. But if that doesn’t happen, then we can ask much broader questions about markets as a whole, in all aspects. If you just say one side of the market isn’t working, I think by definition, then you have to worry about many sides of the market not working.....
....MUCH MORE
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January 17, 2024:
"'I'm not dead yet': Jim Chanos isn't done short selling despite hedge fund wind down" (TSLA)
