Submitted by Taps Coogan on the 11th of April 2020 to The Sounding Line.

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Legendary short seller and founder of Kynikos Associates, Jim Chanos, recently spoke with Bloomberg Markets about the widening bailout of Wall Street, voicing his frustration with demands for a bailout of private equity firms. He also shares his investing outlook in light of the bounce in markets and his bearish outlook for China.

Some excerpts from Jim Chanos:

“The thing that is most interesting to me is the trials and tribulations of private equity and how private equity is sort of trying to present themselves to Washington and elsewhere as in need of assistance. I took a look a the four largest publicly traded private equity companies (Apollo, Blackstone, Carlyle, and KKR) and at their year-end letters they boasted of having over $300 billion of dry powder to put to use when there were values or distressed situations. So, I am a little bemused, bepuzzled, and somewhat outraged, I guess, that private equity would be pushing to the front of the line here to try to get taxpayer assistance… When the fear turns to anger post all of this, we’re going to be looking at how fast some of these programs were put together. I noted today, for example, that the state of Nevada pointed out that professional gamblers would be eligible for expanded unemployment under the CARES act. So, I guess we are at the point now where the US taxpayer is literally bailing out gamblers. Those sort of things… the public is going to come back to and we are going to see the externalities of some of these programs have political and other costs to them.”

“… I think private equity is possibly at a crossroads similar to where Hedge Funds were post the Global Financial Crisis, and that is that people are going to start to judge the high fees and the liquidity and ask: Am I really getting the return commensurate with the risk?. Prior to the virus, I think the answer was a qualified ‘perhaps not’ and an awful lot of private equity hadn’t returned a whole lot better than public market returns. And then when you adjust for the risk and leverage and the liquidity, they were found wanting… Again, what everybody loves about private equity is the smooth returns, but life just isn’t that simple…”

“What we’ve been telling our clients… is to look at situations where the companies had questionable business models in 2019 and arguably in 2021 with the idea that 2020 is a write-off… But there are lots and lots of companies that are almost troubled today that are still trading at valuations that would have been seen as excessive looked at backwards in 2019. Forget short selling, investors should be looking at their portfolios and trying to weed out those kinds of situations, because you are (now) getting a chance to sell those companies back at pretty premium valuations… You might not have thought that three or four weeks ago, but here you are with a lot of companies that were losing money in 2019 and that are going to be losing money in 2021 back to, if not their February highs, within a stone’s throw of it.”

For what it’s worth, I couldn’t agree more. There is more to the interview, so enjoy it above.

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