Taps Coogan – January 30th, 2022

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Legendary short seller and founder of Kynikos Associates, Jim Chanos, recently spoke with CNBC to warn that investors should not expect the Fed to effectively backstop markets as the “craziness” gets squeezed out.

 

Jim Chanos the market weakness:

“The excesses we’ve seen in 2020 and 2021 are in the process of being wrung out… You’ve been talking about the Fed and what it might do… but I would just point out that the Fed… is concerned about the real economy and may not be as concerned about the stock market. We have a Fed that was easing throughout 2007 and 2008. We had a Fed that, probably more important for this discussion, was easing from the second half of 2000 into 2002-2003 and yet the S&P went down 40% and the Nasdaq went down 80% after the Dot Com blowup. The economy had a mild slowdown, that’s it…”

“I think you want to avoid a lot or the stuff that’s… trading at 50 times 2022 or 2023 earnings. There are a lot of those and there not necessarily tech stocks. There are a lot of mundane businesses that, after 10-12 years of a bull market, are trading at really expensive levels for what they are… What really is cheap and what is necessarily just down…?”

“I would note that we are at the one year anniversary of the meme stock craziness and those have round tripped… The wrong lessons were learned from that…” 

The suggestion that the Fed cares more about the real economy is a bit rich, but the overarching point still holds because until inflation starts to roll over, the Fed doesn’t have much room to maneuver.

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