Short seller Jim Chanos believes that health care stocks should suffer as an "unintended consequence" of a "rushed" Republican tax plan that will lead to lower prices for the industry.
"This bill has been rushed. The question is: what are the unintended consequences? One of the areas, that we think, if it goes through, it's going to impact the health care economy a lot more than people think," warned the longtime investor. "I think it will be as Paul Ryan has hinted at: it will be the opening salvos for 2018 and 2019 on cutting entitlements, which is Medicare and Medicaid again."
Chaos explained that as a short seller, he thinks the current GOP legislation will harm health care stocks by undermining key aspects of former President Barack Obama's landmark Affordable Care Act, also known as "Obamacare."
Short selling is a practice in which traders can bet against a company by selling shares they don't own and buying them back at a lower price.
"They're going to go after Obamacare in this sort of backdoor sneaky way. We actually have this saying with the health care stocks: we think 'winter is coming,'" said Chaos, quoting a popular phrase from HBO's hit show "Game of Thrones." "But we think that 'winter is coming' is the reality for the U.S. health care sector; that deflation, not inflation, is coming."
The S&P 500's health care sector has outperformed this year, up 20 percent since January with names like Mylan and Aetna leading the charge.
Chanos is founder and managing partner of Kynikos Associates, one of the largest short selling investment firms in the world.