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Get ready for a 'golden age' for short-sellers with market volatility, corporate fraud exposed, says hedge fund manager

Kate Rooney
  • Rising i nterest rates rise and volatility are carving out the perfect opportunity for short-sellers, according to Ben Axler, founder and managing partner at Spruce Point Capital Management.
  • "We do think we are starting to enter the golden age of short-selling," Axler says.
  • Short-sellers and bearish financial analysis can also help regulators, he says.

As interest rates rise and volatility returns to the market, this could be an ideal moment to be shorting stocks, according to Ben Axler, founder and managing partner at Spruce Point Capital Management.

"We do think we are s t arting to enter the golden age of short-selling," Axler told CNBC's Leslie Picker at the Kase Learning: The Art, Pain and Opportunity of Short Selling conference in New York Thursday. "We're now in an interest rate-rising cycle, volatility is back that's good for short-selling, and we think the good old forensic investigative analysis that we do can provide alpha and opportunity in any market."

That deep-diving analysis often done by short-sellers as a part of due diligence, can also help regulators, he said.

"Regulators are a little bit slow to early detection of financial frauds, that's where we can step in share our research with the SEC," Axler said. "We can try to warn investors in advance of a financial meltdowns at some of the companies we've targeted."

There's a misconception on Wall Street that short-sellers are villains, Axler said. To change the perception, they're looking to raise the bar on what he calls a lack of quality research on the short-side.

Among the companies he's short is Tootsie TR Roll Industries, which represents a "classic short" with declining sales and earnings, and rising business costs.

"It's a product that resonated with our grandparents and not with the current generation," Axler said. "Candy has come under fire for being unhealthy, dentists don't recommend it, there's no analysts that cover it."

Tootsie Roll did not immediately return a call for comment.

Although he's not short Tesla TSLA , he would consider it in the future and it fits the mold for an investor base that "might not be seeing the economic realities."

"Tesla investors that have bought into the dream, are seeing that sometimes managers are unable to fulfill the dream, and sometimes stocks do go down," he said.

The company reported a narrower-than-expected loss on Wednesday, and the electric car maker has been burning through cash to make gains in Model 3 production.



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