‘Big Short’ traders reuniting for hedge-fund week are long

IT’S another sign, if one were needed, of the perilous state of the short-selling industry right now – at an event featuring some of the most famous names in the game, there was hardly a bearish view among them.

Porter Collins, Steve Eisman, Vincent Daniel and Danny Moses shot to fame thanks to The Big Short, the book and movie chronicling successful trades they and others made in the financial crisis. The foursome made a killing at FrontPoint Partners betting against mortgage-backed debt before the crash.

Last week, reuniting for a panel at an alternative investments conference in Miami, they made it clear they still like to go against consensus – only these days that mostly involves being long what other investors in the market avoid.

“What all of us have done during our career is try to be contrarians,” Collins, co-founder of Seawolf Capital, said on the panel. As well as looking at what is priced to perfection and what could go wrong, that also means asking: “Where are cheap assets, what can go right, and how do we make money off that?” he noted. 

Collins added that he currently sees value in emerging markets – such as Asian stocks, which are cheap thanks to their unpopularity. His Seawolf co-founder Daniel agrees but for different reasons; he expects the US dollar to weaken, and says that will benefit developing-nation assets. 

Moses, who also co-founded Seawolf before starting Moses Ventures, favours value names. In a nod to his bearish track record, he is also long gold to protect from all manner of dangers. 

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign Up

Sign Up

Meanwhile Eisman touted homebuilder stocks, based on a conviction that the Federal Reserve is on course to ease monetary policy later this year, and that the new White House will support the sector. Eisman, who was placed on leave from his role as a senior portfolio manager at Neuberger Berman following social-media remarks relating to Gaza, was listed in the conference agenda as “Businessman” and “Investor”.

Industry woes

The lack of bearish conviction at an event dubbed “The Big Short Panel” by organisers chimes with the broader malaise infecting the business of betting against securities in expectation that they will drop. The short-selling universe has been rapidly shrinking in the face of the relentless US bull market, lingering regulatory threats and the rise of unpredictable retail traders. 

Several legendary investors including Jim Chanos have quit the business, while the number of short-bias hedge funds tracked by HFR has shrunk by more than 70 per cent since 2008. The number of new activist campaigns – where investors seek company flaws and bet against them before making their findings public – slipped to near a record low last year, according to Diligent Market Intelligence.

SEE ALSO

Norway US$1.8 trillion fund returns 13% on gains in US tech stocks

The latest blow to the industry came last month when Nate Anderson, the famous activist short seller behind Hindenburg Research, announced that the prolific firm is shutting down.

As the US economic cycle continues to defy the naysayers and an ostensibly business-friendly White House touts tax cuts and deregulation to drive animal spirits ever higher, the outlook for this breed of investor remains murky. 

Even Nvidia’s 17 per cent plunge on Monday (Jan 27), which wiped US$589 billion from the value of the artificial intelligence darling, turned out to have been a “buy-the-dip” moment, Moses said. To the four Big Short panelists, it all means diversification, not shorting, is the best contrarian approach.

“You want to own value names that could potentially get the benefit of a secular shift that might occur,” added Moses. “From a risk reward perspective, (it’s) thinking away from what everyone is doing.”