Chanos Talks Down Sothebys As He Considers Fed Bubble

Chanos Talks Down Sothebys As He Considers Fed Bubble

Is a clash of hedge fund titans Daniel Loeb and Jim Chanos in the works?

In a highly public fashion, Loeb’s Third Point, founded in 1995 and managing $14 billion in assets, acquired a 9.6% stake in the firm and is engaged in what is becoming a rather aggressive takeover battle.

Hedge fund thesis for Spirit Airlines and AerSale, a recent SPAC merger

AirlinesPrescience Partners returned 6.75% for the second quarter, underperforming the S&P 500's 8.55% return but coming out ahead of the Barclay Equity Long/ Short Index's 2.62% return. However, for the first six months of the year, Prescience is up 30.66%, doubling the S&P's 15.25% return and smashing the Barclay Equity Long/ Short Index's 9.27% return. Read More

Sothebys poster child for QE welfare for the rich: Chanos

Yesterday, in a wide ranging interview on CNBC, Chanos, after insightfully questioning when the US Federal Reserve started propping up the stock market, began to unravel the Sotheby’s trade, pointing to a potential market bubble.

Chanos points out that the top 1 percent of the population, the world’s economic “haves,” have significantly benefited from Fed quantitative easing policy, but this wealth effect for the top earners has not trickled down to the real economy, he said.  “If you want to talk about markets being rigged or manipulated, ask the question ‘are (stock) prices now part of the Fed mandate?’ It seems that they are.”

When the investing crowd all thinks in the same direction, watch out below…

Chanos uses Fed policy to set up his thesis regarding a bubble in the market that could impact Sothebys (NYSE:BID).  “When everyone thinks (the same) something (investors) might want to take a few chips off the table.  You might want to say ‘maybe that is not going to work out so everyone will get rich.’”

“Where do they put their money?” Chanos questioned, putting a chart on the screen showing how Sotheby’s has peaked at every market top.

Sothebys a barometer of market tops?

Chanos noted the contemporary art market – a particular weakness for Sothebys (NYSE:BID) – has gone “bonkers” under the Fed’s quantitative easing that has stimulated the spending of the super wealthy.  Chanos correlates this highly selective wealth effect that has increased the price of more than stocks, but also high end real estate and art. The question is what happens if this bubble bursts?

Using a technical trader’s tools, Chanos argues that Sothebys (NYSE:BID) has “double peaked” in the last few years since an amazing race higher after the 2008 sub-prime market bubble and derivatives-led crash.

Will Chanos and Loeb duke it out publically like hedge fund activists Carl Icahn and Bill Ackman?  Not likely as both are considered a different type of investor and utilize more subtle methods to “talk their book.”

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)

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