Chanos Selling Moody’s Short: The Blowup Bargain Hunters Hoped For

Bloomberg reports that James Chanos has decided to go short on Moody’s (MCO):

He said Moody’s may face lawsuits for keeping its ratings of loans to the riskiest home borrowers too high.

So what does this mean for investors? Well, one’s first conclusion may be that it is bad for Moody’s investors. I disagree. Yes, the stock price may fall, but for bargain hunters like myself this should be a blowup that we hope for. If Moody’s temporarily blows up, the stock will surely not go to zero as the returns on capital of this business are extremely high.

In conclusion, if Moody’s becomes a MagicFormula stock, it will probably be a no-brainer buy.

MCO 1-yr chart