Jim Chanos, famed US investor who predicted Enron demise says: Go short MTN

MTN’s difficult path just got a little rockier. At a heavyweight gathering of hedge fund managers in New York, the South African-headquartered cellphone business was singled out as the most attractive “short” in the world today. Jim Chanos, famous for his 2001 prediction that Enron would go bust, says the Nigeria is a “borderline failed state” whose well publicised fine will “eviscerate” MTN. His was not the only bad news for South African-listed stocks. Barloworld, too, is likely to be in the crosshairs of global money managers looking to follow advice to “short” vulnerable stocks. Barlows depends heavily on its franchise to sell Caterpillar heavy machinery products – the other company highlighted by hedge fund managers as being significantly overpriced relative to deteriorating prospects. – Alec Hogg

By Saijel Kishan

(Bloomberg) — As hedge fund managers including David Einhorn and Jim Chanos touted their trade ideas at one of the industry’s marquee events, the overriding message was clear: Go short.

Billionaire Stan Druckenmiller said the bull market in stocks is wearing itself out. Other speakers at the Sohn Investment Conference in New York on Wednesday recommended betting against targets ranging from machine maker Caterpillar Inc. to MTN Group Ltd., Africa’s largest wireless operator.

A pedestrian checks his mobile handset as he passes a giant logo outside the headquarters of MTN Group Ltd. in Johannesburg, South Africa, on Friday, Aug. 2, 2013. MTN, Africa's largest wireless operator, said first-half headline earnings per share would be 20 percent to 25 percent higher following a foreign currency exchange boost. Photographer: Nadine Hutton/Bloomberg
A pedestrian checks his mobile handset as he passes a giant logo outside the headquarters of MTN Group Ltd. in Johannesburg, South Africa, on Friday, Aug. 2, 2013. Photographer: Nadine Hutton/Bloomberg

After a week when the $2.9 trillion hedge fund industry came under attack from billionaires Steven A. Cohen, Warren Buffett and Daniel Loeb over talent, fees and performance, some of the other biggest names in finance offered ammunition for skeptical investors in the Lincoln Center crowd. Druckenmiller, who has one of the best long-term track records in money management, said that while he’s been critical of Federal Reserve stimulus policy for the last three years, he had expected it would lead to higher asset prices.

“I now feel the weight of the evidence has shifted the other way,” Druckenmiller said. “Higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself.”

Read also: PIC slams MTN’s R23m resignation payment to Dabengwa – pendulum swings back

Druckenmiller, a former chief strategist for George Soros, said gold is his largest currency allocation as central bankers experiment with the “absurd notion of negative interest rates.”

‘Fancy Multiple’

Einhorn, who runs $9 billion Greenlight Capital, said shares of Caterpillar are set to topple along with the prices of natural resources like coal and iron ore, and its revenue from construction won’t save it. Einhorn said the Peoria, Illinois-based company’s earnings will fall to $2 per share, a little more than half what Wall Street analysts predict.

“The market thinks Cat’s business is at the bottom and poised for recovery, so the shares trade at a fancy multiple of perceived trough earnings,” Einhorn said. “But is it really at or near trough?”

Chanos, famed for predicting the 2001 collapse of Enron Corp., recommended shorting Johannesburg-based MTN Group as demand for services in its largest markets is being hurt by falling commodity prices.

Read also: Number crunching: MTN’s bloated $3.9bn fine. BP, VW better off.

The company gets more than 60 percent of its sales from Nigeria and South Africa, where declining oil and metals prices have slowed economic growth, said Chanos, who runs Kynikos Associates. Subscriber numbers have fallen in both countries, exacerbated by outages ordered by the government in Nigeria, its No. 1 market, he added.

“Nigeria is a borderline failed state in our view,” Chanos said. Profits to MTN shareholders could be “eviscerated” by about 50 percent, he said.

‘Insolvent’ Economy

PointState’s Zach Schreiber, an alumnus of Druckenmiller’s former hedge fund, said he’s pessimistic on oil in the longer term and betting against the Saudi riyal.

Saudi Arabia is economically unsustainable at current oil prices and is likely to be “structurally insolvent” in two to three years, according to Schreiber, who made a $1 billion profit shorting oil in 2014.

Jeffrey Gundlach, whose DoubleLine Capital is one of the fastest-growing mutual fund companies, suggested shorting utility stocks and buying mortgage real estate investment trusts, both through exchange-traded funds. With one turn of leverage, the trade should return 35 percent, he said.

Read also: Top money managers agree – no time to punt MTN; and SA’s most underrated CEO

Gundlach, whose firm is known for fixed-income investing, also told attendees at the conference to prepare for a Donald Trump presidency. The presumptive Republican nominee is “extremely comfortable with debt,” he said.

Block, Fisher

Carson Block of Muddy Waters Capital recommended shorting Bank of the Ozarks Inc., saying its earnings growth is unsustainable and its balance sheet may come under pressure.

Adam Fisher, chief investment officer of CommonWealth Opportunity Capital, offered a dim view on Japanese bonds. “The 30-year bond in Japan may be the most overpriced security on the face of the Earth,” he said.

Fisher wasn’t keen on betting against European sovereign debt, however, saying that trade would be a “widow-maker.”

Glenview Capital Management founder Larry Robbins set the tone when he kicked off the conference.

Robbins cited a dozen causes for “fear and doubt” in the global markets ranging from China to the U.S. presidential election, drug pricing to the Zika virus. He likened the increasing criticism of the hedge fund industry — which is having its worst start to a year in terms of performance and client withdrawals since 2009 — to a game of dodgeball.

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