Finance

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Charlie Munger didn’t manage to help pull off one final deal with his lifelong partner Warren Buffett, but he remained hopeful that Berkshire Hathaway, with nearly $160 billion cash, will find its elephant one day.
“We have $160 billion in cash, plus a great credit rating we deserve. And who in the hell has that? Not very many,” Munger said in CNBC’s special “Charlie Munger: A Life of Wit and Wisdom,” which aired Thursday.

“It can’t be anything too small because it doesn’t matter how good it is, we’re of a size now where too small just doesn’t move the needle very much. So we need something big to come along and use up all our cash, and some borrowing,” he told CNBC’s Becky Quick in an interview conducted shortly before his death this week at age 99.
The Omaha-based conglomerate held a record level of cash — $157.2 billion — at the end of September. Buffett has been touting a possible “elephant-sized acquisition” for years, but his recent deals didn’t quite meet such lofty expectations.
Berkshire bought insurer Alleghany Corp. for $11.6 billion last year, while expanding its energy empire by purchasing Dominion Energy’s natural gas pipeline and storage assets for almost $10 billion. But Berkshire’s total market value now approaches $800 billion.
Squeeze new lemons
Munger, Berkshire’s late vice chairman, said such a mammoth deal may have to be done by the next generation of leaders at the conglomerate.
“I don’t think it’s hopeless. It may have to be done by some different people,” Munger said. “You know that next time, we may not be able just to squeeze a little more lemon juice out of the old lemons. They may have to squeeze some new lemons, meaning new people have to make the decisions.”

It could be Greg Abel, vice chairman of Berkshire’s non-insurance operations and Buffett’s designated successor, or Ajit Jain, Berkshire’s vice chairman of insurance operations, or Buffett’s two investing lieutenants, Ted Weschler and Todd Combs, Munger said, adding it could also be “somebody not yet identified.”
Berkshire’s huge war chest had been a cause for concern when interest rates were near zero, but with short-term rates topping 5% the cash pile is now earning a substantial return.
Over the years, Munger often defended Berkshire’s inaction, always seeing the virtue of sitting on the sidelines, biding its time, letting cash grow and patiently waiting for a good opportunity.
“There are worse situations than drowning in cash, and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back,” Munger once said. More

China’s retail sales have generally remained lackluster since the onset of the Covid-19 pandemic in early 2020.
“I’m hopeful we will see an incremental improvement over the next year,” said Daniel Zipser, leader of McKinsey’s Asia consumer and retail practice. “But there are no signs it should be a strong, v-shaped recovery.”
Zipser said there’s a clear shift in China for consumers to spend on services rather than goods.

Consumers eating shabu shabu at a restaurant in Lianyungang City, East China’s Jiangsu Province, Nov 26, 2023.
Future Publishing | Future Publishing | Getty Images

BEIJING — China’s consumer isn’t going to be spending big anytime soon, which means companies need to be more strategic to tap what’s still a massive market, according to McKinsey.
“I’m hopeful we will see an incremental improvement over the next year,” said Daniel Zipser, leader of McKinsey’s Asia consumer and retail practice.

“But there are no signs it should be a strong, V-shaped recovery,” said Zipser, who is also a senior partner at McKinsey and author of a new report called “China Consumption: Start of a New Era.”
China’s retail sales have generally remained lackluster since the onset of the Covid-19 pandemic in early 2020. Despite the end of Covid controls at the end of last year, falling global demand for Chinese goods and a slump in the real estate market have weighed on the country’s overall economy.
Looking ahead, growth is expected to slow. The government is tackling long-standing issues in the real estate sector, while tensions with major trade partners such as the U.S. have risen.

The overall economic recovery and the recovery of the property market has not been what people hoped for.

Daniel Zipser
senior partner, McKinsey

All that has kept Chinese consumer sentiment at the same level it was about 12 months ago, when the country was still living under Covid restrictions, Zipser pointed out in a phone interview Thursday.
“The overall economic recovery and the recovery of the property market has not been what people hoped for,” he said. “People are aware of the geopolitical tensions, very aware of … exports declining.”

“They don’t yet have the confidence this will be different [in] 2024, 2025.”

Clear winners and losers

Despite the overall gloom, there’s a divergence in how Chinese consumer companies are affected.
McKinsey’s analysis of 80 publicly listed consumer companies that generate most of their revenue from mainland China found a significant divergence — many saw double-digit growth while others saw double-digit declines.
“I think in the old days, you could invest in whatever you want[ed], everything will grow, most companies have been doing well,” Zipser said. “Those days are over.”

Today, the market is more competitive, he said, pointing out that the product is much more important and the “consumer is much more sophisticated.”
Those tastes have changed swiftly with the country’s economic boom of past decades, creating a lucrative market for American corporations such as Apple and Starbucks.
Between 2012 and 2022, China’s per capita GDP more than doubled to $12,720, according to the World Bank. U.S. GDP per capita rose by about 47% during those 10 years to $76,398 in 2022, the data showed.
China’s massive size means that even if the economy slows from a high pace of growth to around 4% or 5% a year, the country’s incremental increase in retail sales will be the same as the combined total retail sales of South Korea, India and Indonesia, Zipser said.
Slower growth is still growth. China’s retail sales rose by 7.6% in October from a year ago, beating analysts’ expectations.
Major e-commerce companies reported third-quarter revenue growth. While growth for most companies was modest, bargain-focused Pinduoduo saw revenue nearly double from a lower base.

What people are buying

Consumers in China are spending more on services, rather than goods, Zipser said.
“We see particularly the restaurant companies doing well,” he said, noting related categories such as alcohol are also getting a boost.
He said he expects people in China will travel more internationally as it gets easier to apply to visas and the cost of flights comes down.
The McKinsey report found that international travel is only about half of where it was prior to the pandemic.
Zipser added that in contrast to the rise of value brands in more mature markets, premium brands are generally doing well in China.
He said that’s because when consumers in China are “trading down,” instead of buying a cheaper brand, they are actually finding discounted ways to buy the same product, spending less overall or purchasing a smaller package size.
Companies that adapt to new consumer trends also do well.
During the latest Singles Day shopping festival that ended Nov. 11, traditional e-commerce channels saw gross merchandise volume — an industry metric of sales over time — fall by 1% from last year, McKinsey found.
In contrast, livestreaming saw GMV climb by 19% during that time, the report said. More

The SEC is formally engaging with asset managers ahead of a much anticipated decision on whether the regulator will approve a bitcoin exchange-traded fund.
SEC officials also met with representatives from BlackRock and the Nasdaq on Wednesday, according to a separate memo.
The growing confidence in the market that a bitcoin ETF will eventually be approved appears to have boosted the price of bitcoin.

Filip Radwanski | Sopa Images | Lightrocket | Getty Images

The U.S. Securities and Exchange Commission is formally engaging with asset managers ahead of a much anticipated decision on whether the regulator will approve a bitcoin exchange-traded fund, according to memos published this week.
The regulator said in a memo that it met with Grayscale on Thursday about the potential conversion of the Grayscale Bitcoin Trust into an ETF. The SEC had previously blocked this move, but Grayscale challenged that decision in court and won.

SEC officials also met with representatives from BlackRock and the Nasdaq on Wednesday, according to a separate memo. BlackRock filed for a bitcoin ETF in June, followed shortly by a handful of other asset management firms.
While the SEC could still decide to block crypto ETFs, many industry experts expect that such funds will launch in the U.S. early next year. The regulator has delayed decisions on several bitcoin funds in recent months and may choose to approve or deny all applications at around the same time.
SEC Chair Gary Gensler has been a vocal critic of crypto but has said in recent public appearances that he would listen to his staff’s input on a potential bitcoin ETF.
Grayscale also recently hired John Hoffman, a longtime Invesco ETF executive, as a managing director. Hoffman will serve as the head of distribution and strategic partnerships for Grayscale, a sign that the crypto asset manager is gearing up to launch the fund if approved.
The growing confidence in the market that a bitcoin ETF will eventually be approved appears to have boosted the price of bitcoin. The cryptocurrency was trading above $37,000 on Thursday after falling to about $26,000 late this summer.

Don’t miss these stories from CNBC PRO: More

The share of days worked from home ballooned in the Covid-19 pandemic’s early days, and subsequently declined through 2022.
However, it has flatlined in 2023, suggesting more companies aren’t calling employees back to the office.
Long-term technological and demographic trends suggest the prevalence of remote work may grow in 2025 and beyond.

Morsa Images | Digitalvision | Getty Images

The share of workers being called back to the office has flatlined, suggesting the pandemic-era phenomenon of widespread remote work has become a permanent fixture of the U.S. labor market, economists said.
“Return to the office is dead,” Nick Bloom, an economics professor at Stanford University and expert on the work-from-home revolution, wrote this week.

In May 2020 — the early days of the Covid-19 pandemic — 61.5% of paid, full workdays were from home, according to the Survey of Working Arrangements and Attitudes. That share fell by about half through 2022 as companies called employees back to in-person work.
However, the story has changed in 2023.
The share of paid work-from-home days has been “totally flat” this year, hovering around 28%, said Bloom in an interview with CNBC. That’s still four times greater than the 7% pre-pandemic level. The U.S. Census Bureau’s Household Pulse Survey shows a similar trend, he said.

Meanwhile, Kastle data that measures the frequency of employee office swipe-ins shows that office occupancy in the 10 largest U.S. metro areas has flatlined at around 50% in 2023, Bloom said.
“We are three and a half years in, and we’re totally stuck,” Bloom said of remote work. “It would take something as extreme as the pandemic to unstick it.”

Why remote work has had staying power

The initial surge of remote work was spurred by Covid-19 lockdowns and stay-at-home orders.
But many workers came to like the arrangement. Among the primary benefits: no commute, flexible work schedules and less time getting ready for work, according to WFH Research.
The trend has been reinforced by a hot job market in the U.S. since early 2021, giving workers unprecedented leverage. If a worker didn’t like their company benefits, odds were good they could quit and get a job with better work arrangements and pay elsewhere.
Research has shown that the typical worker equates the value of working from home to an 8% pay raise.
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However, the work-from-home trend isn’t just a perk for workers. It has been a profitable arrangement for many companies, economists said.
Among the potential benefits: reduced costs for real estate, wages and recruitment, better worker retention and an expanded pool from which to recruit talent. Meanwhile, worker productivity hasn’t suffered, Bloom said.
“What makes companies money tends to stick,” he said.

Remote policies show ‘incredible diversity’

These days, most remote work is done as part of a “hybrid” arrangement, with some days at home and the rest in the office. About 47% of employees who can work from home were hybrid as of October 2023, while 19% are full-time remote and 34% are fully on site, according to WFH Research.
About 11% of online job postings today advertise positions as fully remote or hybrid, versus 3% before the pandemic, said Julia Pollak, chief economist at ZipRecruiter.
While remote work is the labor market’s new normal, there’s significant variety from company to company, Pollak said.

For example, 7% of workers are required to be in the office one day a week, while 9% are required in two days, 13% three days and 8% four days, according to a recent ZipRecruiter employer survey. Nearly 1 in 5, 18%, have discretion over their in-person workdays.
“The new normal is this incredible diversity,” Pollak said.
“There’s still a lot of experimentation going on,” she said. “But the aggregate effect is that remote work is steady.”

Why remote work will likely increase beyond 2025

While it’s unlikely that the prevalence of remote work will ever decline to its pre-pandemic level, it’s possible that a U.S. recession — and a weaker job market — may cause it to slide a bit, economists said.
“Employers say the biggest benefit of remote work is retention,” Pollak said. In a labor market with more slack, “retention gets much easier.”
However, since work-from-home arrangements also save companies money, it’s likely a severe recession would be necessary to see a meaningful decline, Bloom said.

Long-term trends suggest the share of employees who work from home is only likely to grow from here, possibly starting in 2025, Bloom said.
For example, improving technology will make remote work easier to facilitate, Bloom said. Younger firms and CEOs also tend to be more enthusiastic about hybrid work arrangements, meaning they’ll get more popular over time as existing business heads retire, he added.Don’t miss these stories from CNBC PRO: More

Cathie Wood just notched her best month.
Wood’s flagship Ark Innovation ETF (ARKK) rallied 31% this month, scoring its strongest month ever since its inception in 2014.
Driving the innovation fund higher this month were biotech names CRISPR Therapeutics and Twist Bioscience, along with Roku, Coinbase, Block and Shopify.

Cathie Wood, CEO of Ark Invest, speaks during an interview on CNBC on the floor of the New York Stock Exchange on Feb. 27, 2023.
Brendan McDermid | Reuters

Cathie Wood notched her best month ever as her holdings of innovative technology stocks roared back from steep losses amid declining Treasury yields in November.
Wood’s flagship Ark Innovation ETF (ARKK) rallied 31.1% this month, scoring its strongest month ever since its inception in 2014. The fund rebounded dramatically from three straight months of losses, pushing 2023 gains to 47%.

Stock chart icon

Ark Innovation ETF

Driving the innovation fund higher this month were biotech names CRISPR Therapeutics and Twist Bioscience, along with Roku, Coinbase, Block and Shopify, which were all up at least 50%.
Despite the stellar performance this year, ARKK has suffered about $664 million in outflows in 2023, according to FactSet. Due to ARKK’s big losses over the past two years — down 67% in 2022 and off by 23% in 2021 — many of the fund’s more recent investors are likely to remain hugely underwater. It closed 2020 at $124.48, compared to today’s trading level around $46.
Wood has been a firm believer that many of her big holdings stand to be leading beneficiaries from the artificial intelligence boom, including Tesla, Twilio and UiPath.
The 68-year-old CEO of Ark Invest previously said she expects the economy to slow down more than the consensus, creating an ideal environment for artificial intelligence-driven companies to expand as firms seek to salvage profit margins by using their products.Don’t miss these stories from CNBC PRO: More

DBRS Morningstar Senior Vice President Vitaline Yeterian and Managing Director Elisabeth Rudman said on Wednesday that such a large concentration to a troubled real estate borrower raises concerns about risk management and highlights the broader risks for the banking sector.
Julius Baer has a strong capital position with a CET1 capital ratio of 16.1% as of the end of October, the bank said Monday, significantly above its own floor of 11%.
“However, we see the recent significant fall in Julius Baer’s share price as a reminder of the rising impact of technology and social media on stakeholder behavior,” DBRS Morningstar said.

A pedestrian sheltering under an umbrella passes a Julius Baer Group Ltd. branch in Zurich, Switzerland, on Tuesday, July 13, 2021.
Stefan Wermuth | Bloomberg | Getty Images

The share price of Julius Baer plummeted after the Swiss private bank disclosed 606 million Swiss francs ($692.7 million) of loan exposure to a single conglomerate client.
Julius Baer CEO Philipp Rickenbacher at an event on Wednesday declined to comment on rumors that the bank’s large exposure was to Signa, according to Reuters. CNBC has also reached out for comment.

The disclosure and swirling concerns about concentration of risk in the lender’s private debt business, came against a backdrop of emerging news that troubled Austrian real estate group Signa was teetering. It filed for insolvency on Wednesday.
The 606 million Swiss franc exposure to one client — via three loans to different entities within a European conglomerate — is collateralized by commercial real estate and luxury retail, the company revealed. It represents around 18% of Julius Baer’s CET1 capital as of the end of June 2023, according to analysts at DBRS Morningstar.
The bank last week booked provisions of 70 million Swiss francs to cover the risk of a single borrower in its private loan book.
DBRS Morningstar Senior Vice President Vitaline Yeterian and Managing Director Elisabeth Rudman on Wednesday said that such a large concentration of funds to a troubled real estate borrower raises concerns about risk management and highlights the broader risks for the banking sector, as highly leveraged companies grapple with higher debt financing costs in a perilous economic environment.
The European Central Bank recently examined the commercial real estate sector and the provisioning methods and capital buffers of European banks.

DBRS Morningstar says the capital levels of Julius Baer are adequate to absorb further losses, with a hypothetical 606 million Swiss franc loss accounting for around 280 basis points of the Swiss bank’s 15.5% CET1 ratio, based on risk-weighted assets of 21.43 billion Swiss francs as of the end of June.
“However, we see the recent significant fall in Julius Baer’s share price as a reminder of the rising impact of technology and social media on stakeholder behavior,” they said in Wednesday’s note.

“Meanwhile, the limited level of disclosure makes it hard to assess the full picture for the bank at this stage. Any kind of deposit outflow experienced by Julius Baer would be negative for the bank’s credit profile.”
Rickenbacher issued a statement on Monday confirming that the bank would maintain its dividend policy, along with other updates, while reassuring investors that any excess capital left at the end of the year will be distributed via a share buyback.
Julius Baer has a strong capital position with a CET1 capital ratio of 16.1% as of the end of October, the bank said Monday, significantly above its own floor of 11%.
Even under a hypothetical total loss scenario, the Group’s pro-forma CET1 capital ratio at Oct. 31 would have exceeded 14%, the bank said, meaning it would have remained “significantly profitable.”
“Julius Baer is very well capitalised and has been consistently profitable under all circumstances. We regret that a single exposure has led to the recent uncertainty for our stakeholders,” Rickenbacher said.
“Together with investing and multi-generational wealth planning, financing is an inherent part of the wealth management proposition to our clients.”

He added that the board is now reviewing its private debt business and the framework within which it is conducted.
Nonetheless, Julius Baer’s shares continued to fall and were down 18% on the year as of Thursday morning.
“We continue to closely monitor sectors that have come under stress as a result of more uncertain economic times, higher for longer interest rates, tightening in lending conditions, weaker demand, higher operating costs, and in particular the commercial real estate sector,” DBRS Morningstar’s Yeterian said.
Several economists in recent weeks have suggested that there are lingering vulnerabilities in the market that may be exposed in 2024, as the sharp rises in interest rates enacted by major central banks in the last two years feed through.
Exposure to commercial real estate emerged as a concern for several major lenders this year, while the risks associated with panic-driven bank runs on smaller lenders became starkly apparent in March, with the collapse of Silicon Valley Bank.
The ensuing ripple effects shook global investor and depositor confidence and eventually contributed to the downfall of Swiss giant Credit Suisse.
A common theme during the mass withdrawals of investment and customer deposits was a panic exacerbated by rumors about the lender’s financial health on social media, a trend bemoaned by its bosses at the time. More

According to a familiar saying, academic disputes are so vicious precisely because the stakes are so low. But in a scholarly battle over inequality, the stakes are rather higher. Research by a trio of French economists—Thomas Piketty, Emmanuel Saez and Gabriel Zucman—has popularised the notion that American income inequality is soaring. Other economists have built heaps of research upon these findings, while politicians have pledged to undo the trends through higher taxes and spending. To most people the phrase “inequality is rising” seems self-evidently true.Others have cast doubt on the trio’s findings, however—notably Gerald Auten of the Treasury Department and David Splinter of the Joint Committee on Taxation, a nonpartisan group in Congress. We first analysed their work in 2019, as part of a cover story. It modifies the French trio’s methodology and comes to a very different conclusion: American post-tax income inequality has hardly risen at all since the 1960s. In the past few days the Journal of Political Economy (JPE), one of the discipline’s most prestigious outlets, has accepted their paper for publication.This has not settled the debate. In fact, the opposing sides are digging in. “I don’t think that inequality denial (after climate denial) is a very promising road to follow,” Mr Piketty tells your columnist. “We’ve been showered with prizes from the establishment for our academic contributions on this very topic,” adds Mr Saez. Others say the JPE paper has won the day. “It seems clearly correct to me,” says Tyler Cowen of George Mason University. “The Piketty and Saez work is careless and politically motivated,” says James Heckman, a Nobel prizewinner at the University of Chicago.You might think that analysing trends in income inequality would be straightforward. Don’t people’s tax returns tell researchers all they need to know? But although tax returns are useful, they can mislead. Americans who are partners in a company, or hold investments, often have enough trouble estimating their own income. Now imagine trying to estimate the incomes of millions of people over several decades, accounting for overhauls to the tax code. Researchers then need to account for the 30-40% of national income that is not even reported on tax returns—including some employer-provided benefits and government welfare. Researchers’ methodological choices have huge effects on the results.Messrs Auten and Splinter focus much of their attention on the distorting impact of an important tax reform in 1986. Before it was introduced many rich people used tax shelters that allowed them to report less income on their tax return and therefore pay less to the irs. In “Mad Men”, a television series about advertising executives in the 1960s, Don Draper and his pals fund their lavish lifestyles by putting lots of spending on expenses. Reforms made such wheezes harder, and increased incentives to report income, in part by lowering rates. Looking only at his tax return, Draper might appear to have got richer after 1986, even as his true income stayed the same. Once this is corrected for, the rise in top incomes is less dramatic than it might at first appear. In some papers one-third of the long-term rise in inequality occurs around 1986.Messrs Auten and Splinter make other adjustments. Messrs Piketty and Saez have focused on “tax units”, typically households who file taxes in a single return. This introduces bias. In recent decades marriage has declined among poorer Americans. As a consequence, the share of income enjoyed by those at the top appears to have risen, as the incomes of poorer people are spread across more households, even as those of richer households remain pooled. Messrs Auten and Splinter therefore rank individuals.They also account for benefits provided by employers, including health insurance, which reduces the share of the top 1% in 2019 by about a percentage point. They make different assumptions about the allocation of government spending, and about misreported income. All in all, they find that after tax, the top 1% command about 9% of national income, compared with the 15% or so reported by Messrs Piketty, Saez and Zucman. Whereas the trio conclude that the share of the top 1% has sharply increased since the 1960s, Messrs Auten and Splinter find practically no change.Their paper is a valuable contribution. Greg Kaplan of the University of Chicago, who edited it, notes that it was reviewed by four expert referees and went through two rounds of revisions that he oversaw. The paper is scholarly in the extreme (including delights such as “the deduction for loss carryovers is limited to 80% of taxable income computed without regard to the loss carryover”). The authors are clearly obsessive about the history of the tax code.Yet their methodology has its own difficulties. “The remarkable thing is that almost all of their modifications push in the same direction—that’s something you wouldn’t expect a priori,” says Wojciech Kopczuk of Columbia University. Mr Splinter, speaking at a seminar in 2021, seemed not to have thought deeply about the potentially distorting effects of the decline of America’s informal economy. The gradual shift from cash-in-hand payments to direct deposits could have forced poorer folk such as cleaners and taxi-drivers to report more income on tax returns, making them appear richer when in fact they were not.I feel bad for you / I don’t think about you at allThe trio has concerns as well. Mr Piketty argues that “in order to get their results, Auten-Splinter implicitly assume that non-taxed labour income, pension income and capital income has been much more equally distributed than taxed income since 1980”, which he believes is unrealistic. Mr Saez seems a little fed up with the scholarly battle. “Our experience is that they haven’t changed anything of substance following these long exchanges.” But the JPE paper makes Mr Kopczuk “think that together with earlier papers we are now getting (wide) bounds for where the truth might be”. As a consequence, the idea that inequality is rising is very far from a self-evident truth. ■Read more from Free exchange, our column on economics:How to save China’s economy (Nov 23rd)The false promise of green jobs (Oct 14th)In praise of America’s car addiction (Nov 9th)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

If you want to be liked, don’t be a short-seller. Some other investors might defend you, at least in the abstract, as an important part of a healthy and efficient market. But to most you are—at best—a ghoul who profits from the misfortune of others. At worst, you are a corporate raider who bets that honest firms will go bust and then spreads lies about them until they do. Even your defenders will melt away if you pick the wrong target (shares they own) or the wrong moment (a crash in which many are losing money but you are making it).Since the authorities are often among these fair-weather friends, the list of historical short-selling bans is long. It features 17th-century Dutch regulators, 18th-century British ones and Napoleon Bonaparte. The latest addition, issued on November 6th, came from South Korea’s Financial Services Commission. It has caught the zeitgeist well, and not just among the army of local retail investors who blame shorts for a soggy domestic stockmarket. Wall Street’s “meme stock” craze also cast amateur traders as the heroic underdogs, pitted against villainous short-selling professionals.Meanwhile, one of America’s best-known shorts, Jim Chanos, wrote to his investors on November 17th to announce the closure of his main hedge funds. “Our assets under management just fell to the point where it was no longer economic to run them,” he explains, defining that point as “a few hundred million”. At its peak in 2008, a few years after predicting the downfall of Enron, an energy company, his firm was managing “between $6bn and $7bn”. Since being set up in 1985 its short bets have returned profits of nearly $5bn to its investors.The shorts who remain in the game, then, face two threats. The first is an old one: that regulators, egged on by those who view short-selling as immoral, will clamp down on their business model. The second, more insidious, threat is that investors have lost patience with that business model and no longer want to put their money into it. Should short-sellers fall prey to either danger, financial markets will be worse at allocating capital, and those who invest in them will be worse off.Start with the charge that betting on asset prices falling is immoral. This view holds that short-sellers drive down prices, hurting other investors’ returns and making it harder for companies (or even governments) to raise capital. Most obviously, it ignores the fact that the shorts’ biggest targets tend to be those, like Enron, that have themselves defrauded investors. Short-sellers are the only people with a strong financial incentive to uncover such frauds and bring them to light, saving investors from even greater losses in the long run. The same is true of firms that are simply overvalued. Had shorts managed to puncture the dotcom bubble earlier, or the more recent ones in SPACs and meme stocks, fewer investors would have bought in at the top and lost their shirts.Meanwhile, there is scant evidence that short-selling depresses prices. A study of six European countries that temporarily banned short-selling during the crash of March 2020, by Wolfgang Bessler and Marco Vendrasco of the University of Hamburg, found that these bans failed to stabilise stockmarkets. Instead, they reduced liquidity, increasing the gap between “buy” and “sell” prices and thereby making transactions more costly. Moreover, the shares of smaller firms—often painted as victims of bigshot shorts—suffered more from a deterioration in market quality.What short-sellers can do, if they head off the second threat and convince their investors to stick with them, is alert the rest of the market to assets they believe to be overvalued. They are often successful in this endeavour: take Adani Enterprises, a vast Indian conglomerate that was loudly shorted by Hindenburg Research in January, and whose share price is down 39% since the start of the year. Such arguments might be self-interested, but so are those of any fund manager talking up their book.The difference is that the longs are backed by investment banks, public-relations advisers and the companies themselves, all with a clear interest in selling optimism and hype. Markets work better, and capital is allocated more efficiently, when there are also killjoys willing to take the opposing side. And with stockmarkets, especially America’s, close to their all-time highs, the insurance against a crash that short-selling funds provide may be particularly valuable to investors. After all, notes Mr Chanos, the fact that it is so out of fashion means it is cheaper than ever.■Read more from Buttonwood, our columnist on financial markets: Investors are going loco for CoCos (Nov 23rd)Ray Dalio is a monster, suggests a new book. Is it fair? (Nov 16th)Forget the S&P 500. Pay attention to the S&P 493 (Nov 8th)Also: How the Buttonwood column got its name More