Jim Chanos, the ultra-cynic, is out with a new short position. According to Lynnley Browning of Newsweek, Chanos is shorting CGI Group Inc. (NYSE:GIB), the company that has shown extraordinary incompetence in running the Obamacare website, healthcare.gov.
Jim Chanos bets big on CGI’s incompetence
The famed market bear is not just shorting it, CGI Group Inc. (NYSE:GIB) is one of largest short positions of his hedge fund, Kynikos Associates. According to a 10-page memo sent to clients of the $6 billion fund, Jim Chanos thinks that the shares of the company have a lot of room to fall. He mentions the decreasing cash flow as a red flag that warrants further scrutiny. Jim Chanos also criticized the accounting wizardry used by the company to show higher earnings, especially by double-counting revenues from acquisition Logica plc. Analysts at Deutsche Bank have also questioned the way the company is auditing its earnings report.
CGI Group Inc. (NYSE:GIB) has spectacularly botched the Obamacare website, healthcare.gov, a failure that can cost the company future government contracts. While Jim Chanos talked about the flaws of CGI Group, Newsweek does not mention his opinion of the Affordable Care Act itself. Obamacare has been severely criticized by other hedge fund managers, most notably Paul Singer, founder of Elliott Management. Singer wrote that the disastrous roll-out of Obamacare does not come as a surprise to him, he noted in an investor letter,
“It is no surprise, given the highly ideological component of its founding impulse as well as the lack of executive experience in its inventors, that the rollout of the national electronic network just weeks ago would turn into a (possibly temporary, but more likely ongoing) fiasco.”
On the other end, we have several hedge funds who have bet on healthcare companies and hospitals that will benefit from the roll-out of Obamacare. Larry Robbins’ Glenview Capital, Sandler Capital Management, have bet on such healthcare stocks.
Other high-profile shorts include oil and coal
While speaking at the Reuters Investor Summit last month, Jim Chanos said, “If you’re the typical investor, it’s probably time to be a little bit more cautious,” Staying true to his cautious approach, Jim Chanos has revealed other high-profile short bets in the past months. He disclosed that he was betting against Warren Buffett’s latest long position, Exxon Mobil Corporation (NYSE:XOM), in the summit. Jim Chanos said that oil explorers have increasingly deteriorating economics with an expensive cost structure. He explained that Exxon has limited growth potential and looks more like a value-trap now. Jim Chanos is also bearish on most coal explorers.
CGI dipped over 2% on news of Jim Chanos’ short bet today.