Jim Chanos: Don't blame Obama for market sell-off

By Lawrence Delevingne

Fri Nov 9, 2012


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Hedge fund managers react to the elections.


   
   Jim Chanos (Photo: Bloomberg)
Hedge fund managers were among the most involved players in the presidential election, and now the industry is taking stock of what four more years under Barack Obama means for their investments, tax rates, and how their firms are regulated.

But whether it was high-fives or stiff drinks Tuesday night, managers had to immediately deal with a tanking stock market this week. Was it Obama's fault?

"The market has been acting choppy since third quarter earnings have been out anyway and let's face it, we also had a pretty good run into the Fall," said Jim Chanos, an Obama fundraiser and head of $6 billion short-biased firm Kynikos Associates in an interview with Absolute Return. "Attributing specific daily market moves to political events I've learned is kind of a mug's game. I don't think anyone knows for sure. It could have as much to do with the Chinese power transition as it does the U.S. election for all we know."

Another Obama booster, $19.8 billion Farallon Capital Management founder Tom Steyer, disagreed. "Of course the market is responding to the election," he told Bloomberg TV, noting that the market rallied in 2004 when George Bush beat John Kerry. "That led us to four years of economic disaster. So I don't put a lot of credence into the market's short term reaction to an election."

But most hedge fund managers would agree figuring out causality wasn't important. "I would have preferred Romney, but you can make money regardless of the result," said George Schultze, founder of $225 million Schultze Asset Management, whose distressed fund is up about 20% year to date through October. "People are upset the market is tanking, but hedge funds can go long or short--that's why we're paid the big bucks."

Other Romney backers seemed to shrug off the election news. "You win some, you lose some," $9.6 billion Third Point founder Dan Loeb told The New York Times. "We can all disagree. I have friends and we have spirited discussions. Sure, I am not getting invited to the White House anytime soon, but as citizens of the country we are all friendly."

"Congratulations to @BarackObama @davidaxelrod and team. As a patriot I wish the President a successful term #bringustogether," tweeted Anthony Scaramucci, managing member of $6.5 billion fund of hedge funds SkyBridge Capital (he also said "They won, we lost, next" just before). Scaramucci, a prominent Romney fundraiser, was not immediately available for comment, but his firm's performance may be a reason for the upbeat mood: the SkyBridge Multi-Adviser Hedge Fund Portfolio is up 16.71% as of October 17.

Acerbic Obama critic Cliff Asness, founder of $16.2 billion AQR Capital Management, declined to comment. Leon Cooperman, another outspoken detractor who leads $6.1 billion Omega Advisors in New York City, was more focused on dealing with the aftermath of Hurricane Sandy. "I have extreme problems with my office due to the hurricane and that is where I am focused," Cooperman wrote by email in response to an interview request on the elections.

One thing everyone can agree on in the short term is dealing with the fiscal cliff.

Chanos, who has called for higher taxes on millionaires like himself, asked Republicans to be more specific with their plans to raise revenues. "It's all well and good to say 'I want to lower rates or at least not raise them and I want to close loopholes.' My answer is, which ones? Be specific, please. List them in order," he said. "Once you start going to things like mortgage interest deductions or charitable contributions, you begin to realize that that tears the economic fabric in other ways. How about we start with carried interest? No one seems to want to put that on the table. What about corporations accruing but not paying their federal taxes by keeping their profits off shore?"

"This was a businessman, mind you, who said he would not trade a dollar of revenue for 10 dollars of lower costs," added Chanos about Romney's position on new taxes and government spending. "That's how crazy that side really is in terms of how they view this--this country is not going to get to a bi-partisan solution if that remains the position of the party."

George Soros, another longtime Democratic booster, also wants a debt deal. "Hopefully the Republicans in office will make better partners in the coming years, most urgently in avoiding the so-called fiscal cliff," the billionaire former hedge fund manager told Reuters.

They may have bipartisan help. Recent Republican donors Lee Ainslie of $10 billion Maverick Capital and John Burbank of $3.4 billion Passport Capital were among those to recently sign onto the Campaign to Fix the Debt, a non-partisan campaign founded by former deficit commissioners Al Simpson and Erskine Bowles.

Managers apparently aren't changing their portfolios because of the election.

"All year, we've positioned portfolios consistent with our viewpoint that global economic growth would be weak, hence risk assets--e.g. carry currencies and equity indices--were vulnerable," said Samer Nsouli, chief investment officer of $70 million macro firm Lyford Group International. "With Obama remaining President and Democrats gaining two Senate seats, we think successful bipartisan cooperation to resolve the fiscal cliff before yearend is possible but will be rancorous and lengthy. With economic data weak and Spain and Greece showing stress in recent days, we are not changing our viewpoint or portfolio positioning."

Distressed investor Schultze, who fears higher taxes and regulation, said an Obama win presents more short opportunities for companies in oil, coal and other power producing industries, because of increased regulation. The election also creates long opportunities in precious metals, because of continued government stimulus measures and potential inflation, and healthcare companies, because health care reform will likely remain law.

Chanos said he wasn't changing his portfolio based on the election. "All things being equal, our portfolio would probably do better under uncertainty," he chuckled. "We're not changing much. Like everyone else, we're going to wait and see how developments play out."

See also: Obama adds hedge fund bundlers | Goldman Sachs, SkyBridge among Mitt Romneys hedge fund bundlers | Paul Ryan to hedge funds: Successful = Good

ISSN: 2151-1845 / CDC10004H