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President Trump’s chief economic adviser Larry Kudlow on Sunday painted the rosiest of pictures in an interview on Fox News, projecting that the U.S. economy next year could see “one of the greatest economic growth rates” ever despite the damage done by the coronavirus pandemic.
Famed short seller Jim Chanos of Kynikos Associates doesn’t sound nearly as bullish.
“ ‘Where I am a little bit more skeptical is in terms of ongoing profitability in 2021… I will be very surprised if we’re at 2019 levels of profitability in 2021.’ ”
That’s his view of what lies ahead for the U.S. economy and the stock market, which he shared with Barry Ritholtz on Bloomberg Radio over the weekend.
“For 2020, it’s anyone’s guess, and I think we’ll see a lot of the kitchen sink phenomenon that management teams will realize that Wall Street is giving them a pass for this year,” Chanos added. “So, they’re going to load whatever costs they can in the rest of this year.”
Needless to say, it’s been a rough stretch of earnings so far this year. In fact, while everybody knew that the first-quarter numbers would be bad, the results have been even worse than expected as companies are beating forecasts by the lowest rate in at least 10 years.
JPMorgan equity strategist Mislav Matejka said that only about 65% of the companies that have already reported results are beating estimates, the lowest beat ratio since the 2008 financial crisis.
“Amid the escalation of the COVID-19 crisis, and the sharp fall in activity, the S&P 500 is facing its worst quarter in a decade in terms of earnings delivery,” Matejka wrote in a note to clients.
In the view of Chanos, who teaches a class on financial fraud at Yale University, the climate will improve as the U.S. slowly gets back to business, but he’s much more cautious about what lies ahead than what we seem to be hearing from the Trump administration.
In terms of investor appetite for risk and the fierce rebound in the stock market after the depths of the March lows, Chanos admits it’s a bit of a head-scratcher.
“The willingness to speculate has come back very quickly in the month of April from what we saw in March,” he explained to Ritholtz. “As any observer of the market will tell you, that is at least a little bit disconcerting given how fast people are willing to sort of overlook what appears to be happening to the economy with the assumption that everything will be just fine come 2021.”
Listen to the full hourlong interview:
Monday’s session was a decent place to be for short sellers, with the Dow Jones Industrial Average DJIA, -0.77% down more than 200 points. The S&P SPX, -0.27% was also lower, while the tech-heavy Nasdaq COMP, +0.61% managed to shake off early declines to push higher.
