Jim Chanos says there's something wrong with the stock market when rates this low cause panic
- Prominent short seller Jim Chanos says he's concerned about the fragility of the stock market in response to increases in interest rates.
- "One of the things that worries me is just how fragile we seem to be to small rises in interest rates," Chanos told CNBC's Sarah Eisen.
- While government debt rates rallied for much of 2018 — sometimes sharply — borrowing costs are still far below historical norms.
Prominent short seller Jim Chanos is troubled by the fragility of the stock market, telling CNBC on Thursday that recent equity sell-offs in response to modest increases in borrowing costs isn't a healthy sign.
"One of the things that worries me is just how fragile we seem to be to small rises in interest rates," Chanos told CNBC's Sarah Eisen. "If I were to tell you that nominal GDP growth recently was 6 percent, with record low unemployment — and good jobs numbers, good wage numbers — and you say 'Gee! We're having a problem with 3 percent interest rates,' you'd say that's — you know — what kind of fragility in the system?"
Chanos, who spoke from the Yale CEO Summit in New York, referenced the recent rise of the 10-year Treasury note yield above 3 percent.
Strategists blamed the quick rise in interest rates for stock downturns in February and October, when both the Dow Jones Industrial Average and the S&P 500 entered correction levels with falls of more than 10 percent. While government debt rates rallied for much of 2018 — sometimes sharply — borrowing costs are still far below historical norms.
The benchmark 10-year yield traded at highs above 5 percent for several years before the financial crisis; the long-term rate has not traded above 3.5 percent since 2011.
"In interest rate-sensitive industries, we're talking about what a slowdown they've seen in the last two months in their business," Chanos said. "Something seems to me a little bit off that if, eight or nine years into a recovery, we can't handle a 10-year — which normally trades a full point below nominal GDP — that would be 5 percent. If rates went to 5 percent, people would probably lose their minds."
The short seller also noted equity turmoil in Europe, where the German DAX, the FTSE 100 and the Stoxx 600 indexes are all more than 12 percent off their 52-week highs despite near-zero interest rates.
Chanos founded Kynikos Associates in 1985 and has more than $2.1 billion in assets under management, according to an SEC filing.