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Here’s How To Bet With The World’s Best Short Seller
By Growth Stock Wire on August 28, 2009 | More Posts By Growth Stock Wire | Author's Website
In 2007, Jim Chanos became “The World’s Best Short Seller.” That year, his now-legendary bet against the banking industry earned him a reported $350 million paycheck.
This week, Chanos made headlines when he unveiled his latest short-selling target: health care. Here’s what he had to say…
Health care is growing now at about 10% per annum in the U.S., versus 3% for the economy. As someone with a sharp pencil and an eye for this kind of thing, this can’t last…[it's] the most interesting large group of companies heading for major problems we’ve seen in a long, long time.
This might come as a surprise to Growth Stock Wire readers, but I agree with Chanos. Let me explain…
Two weeks ago, I wrote it was time to load up on Big Pharma stocks. But I may have jumped the gun. I should’ve known better than to trust politicians.
Remember the plan Big Pharma recently negotiated with President Obama? The world’s largest drugmakers pledged $80 billion in cost savings for prescription drugs over 10 years. In exchange, the president conceded government price controls for Medicare drugs and promised not to facilitate channels to import cheaper drugs from Canada.
But Congressional Democrats have made it clear this deal is between drugmakers and the White House - not them. Ultimately, lawmakers will have final say on what the reform package includes. And now, White House staff is dropping hints the deal may have been signed in pencil.
I think there’s an additional round or two of negotiation before Big Pharma declares a political victory. The same is true of the president’s preliminary deal with hospitals and deals to come with insurers and doctors.
But there’s no way to say for sure. And the market hates uncertainty. So it’s no surprise money is flowing out of health care stocks faster than every sector but consumer goods.
That’s the trend Chanos is eager to cash in on. And like Chanos, I think the sector is likely to get cheaper from here. In the near term, “Big Health” stocks - including drugmakers, hospitals, insurers, and medical-device makers - are headed for volatility… and some of them could get wiped out with the stroke of a politician’s pen.
Over the long term, I believe health care expenses (read “revenue” for Big Health) will continue to grow by double digits in a post-ObamaCare environment. President Obama’s first priority for health care reform is coverage for America’s 45 million uninsured. No matter how you slice it, 45 million new “paying customers” will add to costs. And medical inflation points to long-term gains in health care stocks.
Yet, in the short-term, Congress’ tinkering and bickering is likely to push blue-chip health care stocks down another 15%-20% from here. That’s not chump change, especially for big caps.
If you’ve got a long-term position in Big Health, expect higher volatility. And don’t be surprised to see your brokerage account shrink at least temporarily with all the uncertainty around reform efforts. If you haven’t bought yet, sit tight. You’ll likely see better prices down the road.
Aggressive traders who want to make a bet alongside the world’s best short seller should look to buy puts on the Health Care Select Sector SPDR Fund (XLV). The exchange-traded fund holds the largest drug and device makers in the world.
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GOOD NEWS!!! There is finally a great movie out about stock market manipulation, the SEC, and short selling called: “Stock Shock.” Amazon has it or stockshockmovie.com has a trailer.
Decimal Place Trading caused the recession of 2008
This recession was caused by the manipulation of stock prices on Wall Street through naked short-selling, flash trading, high-frequency trading, secret software, super-fast computers and what I feel was the main cause of this corruption: “Decimal Place Trading.” As I write this article today, much of this corruption is now slowly coming out through social media outlets such as Twitter and Facebook, along with bloggers on the internet, Yahoo bulletin boards, and the movie Stock Shock. The news media is also to blame for what has taken place in this country — including the near-collapse of Wall Street and the banking industry.
There are many things to point fingers at or place the blame on, and I can think of a few off-hand that I would like to cover — the first being Wall Street’s regulation changes. I am no expert — I am not even a writer — but decided to tell this story since the business news media was not telling it. These Wall Street regulation changes contributed to the aforementioned problems in many ways, with the first being the removal of fractions in stock pricing. On January 29, 2001, the New York Stock Exchange, or NYSE, went to four-decimal-place trading. On March 12, 2001, the National Association of Securities Dealers Automated Quotation, or NASDAQ, followed suit. This new rule had the best of intentions as we headed toward the computer and digital world, but over time it was manipulated and companies like Goldman Sachs figured out how to take advantage of the new system. I am not sure how it happened, whether it was lobbied for years or what — but along came the biggest mistake of all with the elimination of the uptick rule in July of 2007. This rule had been implemented after the great depression, and had been in place since 1938. How could the Securities and Exchange Commission, or SEC, abolish a rule that had been in place for close to 70 years, and had worked? Put these two changes together, and you get a simple equation: greed plus corruption equals recession.
Reports have been released on the web that Goldman Sachs made over 100 million dollars per day in 46 out of 64 trading days in Fiscal Year 2009, second quarter (April, May and June). Let me say that again. They made over 100 million dollars per day, and are still doing it as I write this letter today. But the question remains, how did they do it? There has been no report of this by any of the news media. How can this be? This corruption is 100 times the gravity of the Bernie Madoff story, and yet there has been no coverage by CNBC or Bloomberg News. Why? Goldman Sachs, upon Wall Street transitioning to fractions and the abolishment of the uptick rule, designed secret software and used this software to gain an advantage on every potential investor. Basically, Goldman Sachs became a Las Vegas poker dealer in New York City on Wall Street, turning profits on investors every trade with their super-fast computers and software.
Richard Keane August 26th, 2009 Revised version