Jim Chanos vs Charlie Gasparino

This could get ugly. Dane Hamilton has found a speech yesterday by Jim Chanos, short-seller extraordinaire:

Chanos cited recent travails at a well-known New York investment bank that’s still around (yes, that one) that was the subject of repeated unsourced reports on a certain well-known business television channel (guess). The reports hammered the bank’s share price.

Chanos said he happened to be on his firm’s trading desk on that particular day, right in the thick of trader-land, where rumors are as rife as market positions.

“I run the world’s largest short-selling fund,” Chanos told the SIFMA conference. “We hear everything. That day we didn’t hear any rumors (about the bank).”

“Some of our financial journalists are MAKING the news,” said Chanos. “And blogs are saying things and reporters are reporting it as news.”

Chanos is calling for more government investigations into where journalists are getting phony tips that they foist on the market as news. “There are IM messages, email records, taped phone calls. This is not hard. Inspector Clouseau could do it.”

“A lot of this is just being manufactured to sell stories and get ratings.”

Um, big problem here, Mr Chanos: taking phony tips and foisting them on the market as news, even if it does happen, isn’t illegal. So it’s hard to see how Inspector Clouseau, or anybody else, could possibly get a warrant to search IM messages, email records, or anything along those lines.

Chanos clearly loves working in a world where he "hears everything" but where the plebs who read blogs or watch CNBC can’t be trusted with such rumors.

Or maybe he’s just upset that there are some rumors he doesn’t hear, or only hears when everybody else does. Heaven forfend Charlie Gasparino should ever get something first!

Yes, there is a problem with sensationalism in the financial media. But the solution to that problem is not heavy-handed government investigations. (Does Chanos really want US media outlets to be regulated by the government? Really really?) Rather, the solution is simply for investors to learn to be a little more critical when watching the telly.

Not everything you hear in the markets is true, and not every rumor reported by Gasparino is true either. There is some signal amidst the noise on CNBC, but it takes a lot of time and patience to be able to reliably distinguish the one from the other.

Update: Gasparino calls to say that he doesn’t think Chanos could have talking about him – although he does admit that he was the person who did all the reporting on Lehman for CNBC. Gasparino has a point: if anything he’s been criticized for being too nice about Lehman, rather than for driving down the stock. "If he’s talking about me, he’s completely and utterly wrong: the shorts attacked me for being too positive," says Charlie.

Update 2: Now Chanos gets in touch. He neither confirms nor denies that he was talking about Gasparino, but does write:

Actually, trading on, or inducing others to trade on, information you know to be false, IS a crime. It’s securities fraud, and is a criminal, not civil, offense. I did not advocate curtailing the freedom of the press in my speech; I simply pointed out that some members of the electronic media may be widely disseminating baseless rumors as "scoops" during market hours, thus creating the very volatility that they(and others) are blaming hedge funds and short-sellers for.

Jim, I think it’s fair to say that criminal prosecutions of media outlets would yes constitute "curtailing the freedom of the press". What’s more, in order for there to be a criminal offense the outlets would not only have to be disseminating baseless rumors, they’d have to be knowingly disseminating baseless rumors. Which is not something I believe any members of the electronic media have been doing.

Chanos also passes along an article from FINalternatives, which he says is "a much more accurate account of what I said on Monday":

According to Chanos, the financial press and bloggers are contributing to heightened market anxiety by spreading rumors on specific firms.

“We live in a time in which the financial press has a compressed time frame and everyone is looking for a scoop,” he said.

In light of the Bear Stearns meltdown and bailout, Chanos said recent rumors spread by a television network about a certain brokerage firm’s stock price taking a nose-dive was just an attempt by the network to make the news as opposed to reporting it.

“I run the world’s largest short-selling firm and we have a trading desk in New York second to none, and we hear everything. But we didn’t hear anything about that day’s rumor about the firm’s stock taking a nosedive. They’re taking obscure blogs where someone is saying something with no responsibility or evidence whatsoever and reporting it as news, which does nothing more than inflame other traders.”

Chanos is urging regulators to crack down and throw the book at traders trading on information they know to be false.

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