April 12, 2025 • 40 mins
In a big bull market, people will overlook a lot. They'll suspend their disbelief. They'll buy into fantastical, unrealistic stories about the future. But when the momentum turns sharply the other way, all of this reverses. Then, as the cliché goes, you see who's been "swimming naked." So what have we learned from the recent market volatility? On this episode, we speak with legendary short-seller Jim Chanos, now the founder of Chanos & Co. We talk about cloud stocks and datacenters, AI, private equity, the Trump tariffs, and the strong evidence that Elon Musk isn't serious about tackling spending.
Read more: Everything You Need to Know About the Basis Trade Spooking Markets
Jim Chanos Says Biggest Risk for Markets Is DeepSeek-Like Event
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal.
Speaker 3 (00:23):
And I'm Tracy Alloway.
Speaker 2 (00:24):
Tracy, I guess one good thing about market crow, I
don't know if it's even good because I like when
lines go up no matter what. But you know, people
always say, oh, this can't go on forever, and they're
talking about some specific trend or here's a scam or
here's a bezel in the economy that will exist as
long as the lines that go up. Things get revealed
in a downturn, Things that were unsustainable are shown to
(00:46):
definitively be unsustainable when the downturn hits.
Speaker 3 (00:49):
Right, what's that old buffet quote when you don't see
who's swimming naked until the tide starts to go out.
And I think, I think we are probably at that moment.
And I got to say, in terms of who likes
when lines go down, you know who likes when lines
go down? Yeah, short sellars.
Speaker 2 (01:07):
That's right, they definitely do. Especially what it's been like
fifteen years since the line has gone down, and so
many short sellers have had such a brutal time. Maybe
we'll put swimming naked in the headline of this.
Speaker 3 (01:18):
Instead of a dead body is floating to the top.
Speaker 2 (01:21):
Maybe it's a little we'll have to figure out. Anyway,
let's just jump right to it. We've had him on
the show in the past, someone we always enjoy talking to.
He is going to tell us about what bodies are
going to float to the service, and those bodies happen
to be naked too. He's gonna tell us what naked
bodies are floating to the service. Jim Chaeno is founder
of chenos In Company, longtime investor, short seller. Thank you
(01:44):
for coming back on odd Lots.
Speaker 4 (01:45):
No, thanks for having me. It's my pleasure.
Speaker 2 (01:47):
I only recently learned that Scott Bessen. I say recently learned,
as if I looked this up. I heard it from
you as you were walking into the studio. He worked
for you.
Speaker 4 (01:55):
Yeah, he was my first analyst.
Speaker 2 (01:56):
Incredible.
Speaker 4 (01:57):
I taught him everything he knew up to a point,
I guess to a point.
Speaker 3 (02:01):
Okay, all right, I'm just going to ask basic questions
to start. But what has the past week or so.
Let's see, we're recording this on April ninth at eight am. Yeah,
we have to be that specific on the time now
because things change so quickly. What has the past week
been like for you?
Speaker 4 (02:19):
Well, we're not in the business of running outside money anymore,
so that ended a couple of years ago, but we
do advise clients and of course run our own money.
So since nineteen ninety six we've always been hedged. But
we've seen obviously substantial alpha in the last couple of weeks. Ie,
(02:39):
the stuff we're short has gone down much more than
the market. We tend to be long in the market passively,
and that usually happens right when the market shifts gears.
A lot of the more questionable story stocks, frauds, hypes
begin to underperform. And that was not the case until
really about the tariff, the Liberation day, and now it's
(03:02):
really kicked in.
Speaker 2 (03:04):
If I'm a equity, if I'm an asset allocator, is
that why I allocate to someone who specializes in short selling,
Not because they are going to give me positive returns
a month after month after month, but that it allows
me to be more comfortably long risk assets in my
other investments because I have this knowledge that I'll get
(03:24):
outside return outside returns from you when they go down.
Speaker 4 (03:28):
Yeah, in our business model over forty forty years. Basically
it morphed into the idea that fundamental shorts allow you
to be more long. Yeah, and that's really at the
end of the day, your shorts are financing your long portfolio.
If your shorts don't go up or go down, enables
(03:49):
you to have a long portfolio that actually will outperform. Yeah.
Speaker 3 (03:56):
I mean, it is true that before this month, being
a short seller did not seem that fun for like
the past ten years, and we've done episodes on the
hard life of being a short seller. Are the games
now enough to offset like a decade of lines going up?
Speaker 4 (04:17):
Well, again, the lines are going up. But it was
all a matter of if you're selling insurance as I
was and advised people do do now, the idea is
the insurance working, and the insurance was working really for
even post global financial crisis for quite a while, and
then starting about twenty eighteen, twenty nineteen, and right into
(04:41):
the Game Stop episode in the first quarter of twenty
twenty one, it didn't work at all. But it has
worked since Game Stop and even though the market's made
new highs, you know, recently, I think is January, the
short site has not been too bad. I mean, Bloomberg
has an index the most shorted basket, which you can
(05:02):
take a look at if you're a Bloomberg subscriber. Thank
you for the plug, my pleasure, and it has it
has done relatively well relative to the market since since
early twenty twenty one.
Speaker 2 (05:15):
Let's talk about some areas of the market. Let's just
jump right into it. I think actually the last time
we had you on I'm looking at this was FTX
November or was it it wastually That's.
Speaker 3 (05:29):
Right, it was actually before FTX imploded officially, but after
we did the infamous box episode.
Speaker 2 (05:37):
But you know what, the last time we talked to
was November twenty third, twenty twenty two, right as FTX
was uploading. But there's just another point in the history
here that's important. November thirty of twenty twenty two was
when chaed GPT came out, and then we got this
incredible AI wave and people started piling everything into Nvidia
(05:58):
and all these data center plays, et cetera. And in
previous odd lads, and I don't remember what that was.
You've talked about data centers before. In some brutal data
center economics are terrible. One of the things that we've
seen in this downturn. See I'm putting this all together.
This is not totally incoherent. One of the things that
we've seen in this downturn is some really like sharp
(06:20):
reversals for the big AI plays that were baked. Those
were just so hot. And so I'm curious now, like
you know, you've talked about data centers, et cetera, tell
us where you're seeing some of this stuff right now.
Speaker 4 (06:31):
So the AI bet is an uncertain bet. We don't
know what the returns on this massive investment is going
to be yet, and even the mag seven will tell you, yeah,
well it's uncertain. We think it's going to be worth
the risk, but it's an uncertain payot and I'll leave
that up to people who are much more well versed
(06:52):
in technology than I am. Our view was that the
old legacy data centers that were built to basically handle
the cloud, not AI. We're in trouble and we're a
bad business to begin with. It have gotten only worse.
And that was that was the bet. It's still the bet.
I think it's a really I've called it one of
(07:13):
the worst business models I've ever seen. Because the cap
x is enormous. You've got to keep replacing the air
conditionings and the racks and the networking equipment and to
keep these centers running, and the returns on capital are
just abysmally low. So we kind of said, oh, right,
AI is a thing. It's an uncertain thing. Market loved it.
(07:35):
Now market's questioning it. But we do know that the
old data centers, the ones that have been around now
twenty years, yeah, Equinas to Digital Realty, Digital Bridge, those
have really challenged business models.
Speaker 3 (07:48):
So one of the things that happened recently is Core
We've did its IPO and it had initially targeted two
point seven billion and it came in at one point
five five billion. And the interesting thing to me is
part of that was a really big order from in Vidia,
and in Vidia is very interwoven with Core weaves model.
(08:13):
Since we're already talking about floating bodies and people swimming naked,
I'm going to try to be as distasteful as I can,
but how incestuous is the relationship between Core Weave and Nvidia.
Speaker 4 (08:24):
So for those of us that are a little bit
older than you two, I mean, we remember some of
the round tripping that was going on in telecom equipment
back in nineteen ninety two thousand, with Nortel and Lucent
providing financing for its customers and then selling things into
those customers on cheap terms, and the whole thing unwound
(08:46):
very quickly when the dot com bubble and telecom bubble imploded.
I put a tweet out that got some notice where
I saw it in Nvidia not only was doing the
core weave kind of just but had just bought a
distributor there, and that that was also a little worrisome. Now,
it's only a small part of their business, it's not material.
(09:07):
But when you start to see this stuff on the margin,
where the companies are increasingly round tripping with their customers,
or financing their customers, or buying in their inventory via distributors,
you begin to wonder. You know, if it's just on
the margin, that's fine. But as we all know, on
(09:28):
the margin is everything right. If you miss your earnings
by a couple of pennies, your stock can be devastated.
And if they're doing deals like this to basically, you know,
make sure they make or beat numbers, you know, then
we have the old We have the old nineteen ninety eight,
ninety nine, two thousand, dynamic at work where companies are
stretching to make numbers. That has not been the case
(09:49):
up until now. Right through twenty twenty three, twenty twenty four,
demand's been amazing. Yeah, blowout numbers, but it's something to
keep an eye on at the shift.
Speaker 2 (10:00):
So in other words, like the insinuation here is not
that there's something like per se bad, but history says
that when you see stuff like this, to keep the.
Speaker 4 (10:10):
Real aggressively aggressive aggressive moves with your customers and your distributed.
Speaker 2 (10:14):
Because that's what everyone's been wondering, right, And I guess
like all of this stuff with the trade turmoil has
like like we actually it's kind of amazing because I
think we've gone two weeks without talking about AI, which
may something maybe it's something that we could be a
little bit thankful for in some sense. But we're the
trade trade war to go away tomorrow. Yeah, and we
were returned to what we were talking about in January.
Speaker 4 (10:36):
I saw your post earlier today about if tariffs run
away like this and all the other stuff that is
suddenly should.
Speaker 2 (10:42):
Be a concern.
Speaker 4 (10:43):
Yeah. I look on the margin again, on the margin
I think these numbers are not material that they're deal
with Core Week the distributor their bought, but it's something
to keep an eye.
Speaker 2 (10:53):
On, Tracy, I just want to do, by the way,
some of these names are just for listeners digital realties below.
Where it was like at its twenty twenty peak, after
having plunged from about one ninety five to one thirty three,
named Cornweave was actually just slightly above its IPO price
of forty That was a czy day. It's anging in
the the said forty one thirty five right now. So anyway,
(11:14):
So one.
Speaker 3 (11:14):
Of the things that happened in the early two thousands
with the telecoms and Internet bubble is I think people
a lot of people expected some of these companies to fail,
but I guess the bet was maybe a handful of
them would be huge winners from the development of the Internet.
And it's true. You know, we have like Google come
(11:36):
out of this. If you invested in Amazon, you made
a lot of money. Is there any possibility of that
happening when it comes to AI. Do you see a winner?
Speaker 4 (11:46):
Oh? I mean, I think there's going to be a
lot of winners if it's as revolutionary as a technology
as it appears to be, we'll see all kinds of
new business models and probably a company that we might know,
like in video where ever succeeding, or maybe a couple
of companies we don't know yet that we'll take advantage
of it. The flip side to be the glass half
(12:07):
empty guy, is that what everyone also forgets about the
Internet was that it destroyed as many businesses as it
brought forward, you know, and any business that was in
the analog business that went digital, so you actually had
a physical product that went digital was absolutely devastated, like
Kodak or Blockbuster Video or the Yellow Pages, what have you.
(12:31):
And I suspect that AI will be very similar. We'll
see just you know you're a hater. No, No, I'm
open minded about it. I think if it really is
an amazing technology, and I think it just you're going
to have to see both sides of the coin for
capitalism with it. It'll probably it'll probably devastate a number
of business models as well.
Speaker 3 (12:53):
What's the path to bundetization for these AI companies, because
you already pointed out the cost of capital is really high.
Speaker 4 (13:00):
Uh, I don't know, and that's we still haven't seen
the the aha moment as we did with the Internet,
with with online retailing and communities like America Online where
suddenly you know your aunt was on it, and then
getting email money and paying money, paying money for it
and getting emails.
Speaker 3 (13:19):
And you have mail.
Speaker 2 (13:37):
Let's pivot because you have been fond over the years
to talk about this sort of myth that private equity
is something more than just adding leverage to companies and
that there's this perceived stability. Yeah, it's very nice. You
don't have to look at your marks every day that
it really is just leverage. And you know, I'm looking
at a share price. The shares of like Apollo, for example,
(13:59):
I guess maybe the Good Credit that was at one
eighty nine thirty on December ninth, that's at one oh nine.
Blackstone shares look pretty similar. We're talking like forty percent
declined air that was at two hundred. It's at one
eighteen right now. That's belower it was in late twenty
twenty one. Private assets are like the story that Tracy
(14:19):
and I keep coming back to. What is your takeaway
from this, like really intense selling of these names.
Speaker 4 (14:24):
Yeah, I mean, I'm a little surprised at how intense
the selling has been so quickly. But look, I mean,
I agree with with the cliff Asnas who's done a
great job talking about this. This is volatility laundering, and
the idea that these funds don't have the same risks
as equity funds have is to me preposterous. You're buying
(14:46):
businesses on leverage, and we're now seeing that as it's
becoming increasingly hard for these deals, for them to bring
these deals public or get exits. And again on the margin,
you're seeing a little bit of odd behavior some of
the private equity funds in trying to entice their investors
to stick around. We'll have to see. I mean, up
(15:07):
until now, for the last fifteen years, getting back to
the beginning of our conversation, sell offs have been relatively
short and sharp. So if you held off on marking
your portfolio down, you generally were rewarded by not having
to take the mark right. The markets kept going, and
the nightmare scenario for private equity and arguably private credit
(15:30):
will be a long period of lackluster or no equity
returns with higher interest rates.
Speaker 2 (15:39):
Can you actually just when you said, oh, at the margins,
we're starting to see some jinky behavior with regards to
their partner LPs. You what's going on.
Speaker 4 (15:48):
There was a story I think on Bloomberg just yesterday
or the day before where one of the funds was
asking investors if they wanted to sell their LP investment
in one of the funds or transfer it, they had
to get permission from the GP. In order to get permission,
they had agree to put money into the next one.
(16:08):
And that story caught my eye, And so you know
when you start to see that, And now we're starting
to see time series of fun performance that are starting
to become more lackluster right rolling ten year returns and
private equity are beginning to converge with that of the
regular equity market.
Speaker 3 (16:28):
To your point about the length of the selloff, I mean,
we've established that one of the competitive advantages of doing
private credit versus public is you're not forced to take
the marked market losses so soon you can hold on
for longer. Theoretically, we're seeing a lot of people right
now talk about, you know, emergency moves from the Fed,
(16:48):
maybe a cut sooner than the market had expected a
week or two ago. Do interest rates matter for private
credit at the moment? How much of a buffer for
what lower rates actually provide.
Speaker 4 (17:02):
Here. Well, I think spreads matter, okay, so and we've
seen we've seen them widening out of credit spreads. So
I think that one of the reasons people think the
FED is going to ease is because of that right weakness,
not not because of low inflation. And so you're seeing
a relatively very quick increase in credit spreads over the
past two weeks. I mean, it's really moved. So I
(17:25):
don't think that that that's the panacea that people are expecting,
at least not yet. Even with a FED ease, because
junk credit is rates are going up.
Speaker 2 (17:37):
Right, they could the FED could do something just about
like the sheer mechanical breakdown. If it's happening the plumbing,
the plumbing people love to talk about the plumbing of
the treasury market.
Speaker 4 (17:47):
The base is straight. I read something. I read something
today about the basis.
Speaker 3 (17:51):
Thank you, thank you for reading.
Speaker 2 (17:53):
Listen, pause right there, listeners. Jim Chandos is a reader
of the Odd Launch newsletter, which means you should be
to what is it What does a GP of a
private fund do when the IPO window is slammed shut
when there really is not a lot of M and A.
(18:13):
So basically very few opportunities for liquidity or distribution or
anything like that. What kind of move do they make?
Speaker 4 (18:21):
You? Better? Better practice your writing of a heartfelt apology
letters to your LPs, because the IRRs you've been telling
them that the fund has been getting prior to its
wind up are going to turn out to be way
overstated to the actual returns. So look, it's it's problematic.
I mean, investors are going to get back stakes in
private companies that they might not want. Oh so distributions
(18:44):
in kind, yeah, exactly, and so if you can't cash
out and so yeah, I think it's going to be
problematic for a number of funds. I mean, I'm sure
there'll be plenty that'll do fine. But the days of saying, well,
I'm going to earn fourteen fifteen percent with very little volatility,
so this is a free lunch, I think are over.
Speaker 3 (19:04):
The other narrative that pops up from time to time
is this idea of dry powder. There are a bunch
of funds out there who have been holding cash for
a long time, just waiting to snap up distressed assets
once everything finally crashes. Is that real?
Speaker 4 (19:20):
I don't know. I mean, you have to get into
the sort of weeds of every specific fund, but I mean,
if they've been holding cash for years and years and years,
they certainly weren't earning that fourteen and fifteen percent investors
were hoping for. So I don't know, I don't know
how the accounting works on that, but I'm sure. Look,
there is some unused capacity in the private equity world.
(19:45):
But on the other hand, that doesn't get you your returns.
You know, buying companies and adding value to them is
where the returns are. So if there were funds and
firms holding dry powder and asset prices get marked down
a lot, that should be good thing for them.
Speaker 2 (20:01):
It just seems I mean, the issue to me, and
I've sort of talked about this in various ways, is
that for the last fifteen years, you're a dummy if
you had dry powder, right the market has told you
over and over again, right like, So this is why
I'm always kind of skeptical that there could even possibly
be much And it's interesting, you know, look like we're
like two weeks into or no, it's been a week
(20:23):
since Liberation Day, but you go a few weeks before
that obviously the weakness started picking up, and now we're
seeing you know, we've seen this sort of dislocation and treasuries.
It seems like if you have fifteen years of people
telling you you're a moron for holding, for being under levered, Yeah,
then a downturn in just sort of normal investments can
metastasize into financial problems very quickly.
Speaker 4 (20:44):
Well, it also depends, tracy, how you define dry powder.
A lot of firms defined dry powder as the ability
to capital call on their limiteds. It's not actually cash
sitting in a bank acount. Yeah. Yeah, and I think
that will become much more problematic in a downturn.
Speaker 2 (20:58):
I've got to pick up the phone.
Speaker 4 (20:59):
Yeah yeah, look, yeah, so.
Speaker 3 (21:02):
You're primarily a markets guy, but you are no stranger
to Macro. Talk to us a little bit about I
guess the relationship between what we're seeing in markets and
the real economy right now.
Speaker 4 (21:14):
Yeah, I mean, the transmission mechanism via tariffs will happen
pretty quickly, I think. I mean, you saw Walmart warn today,
Delta has pulled their guidance. Both of those were just today.
I mean, it's kind of stunning. How if you think
about the nuts and bolts of these tariffs and how
they work. Despite what our president says, the importing entity
(21:37):
pays the tariff, right, it's not a tax on China.
And so you're a small and medium businessman. You just
got one hundred thousand dollars worth a product that landed
at Long Beach Port from China, and your broker is saying, yeah,
just come down with a cashiers check for one hundred
thousand dollars for the governments and will release your product.
Businesses don't have that, yeah, And so I mean there's
(22:00):
practical aspects these tariffs that I don't think we kind
of know all the implifications and how it will ripple
through the economy. And I suspect you'll start by May
getting some pretty decent real time feedback on from businesses saying,
you know, we're cutting out profit guidance because if they
(22:21):
can't pass it on completely, and study after study shows
they can't, usually then profit margins, which, by the way,
let us not forget all right, all time highs are
going to hit an air pocket.
Speaker 3 (22:33):
We have seen some companies pulling their forward guidance already, right.
Speaker 2 (22:36):
Jack, Yeah, Delta, Delta this morning, Walmart, Walmart when their
chart came out. When Donald Trump pulled out the chart
on Liberation Day and the market immediately tanked. The view
from a lot of people is like, if people actually
understood the size of what's what these numbers are, the
market would be a down lot more. Do you stands?
And again, anything could happen by the time there's but
(22:57):
on April ninth that there is still an element of
disbelief that this could actually be where our turn.
Speaker 4 (23:03):
Oh. I think there definitely is a level of disbelief.
I mean the stock market is still twenty times latest
twelve month earnings, and I mean they're coming down, but
people still think earnings are going to be up ten
percent this year. And I don't know what planet they're on,
and so I think that that that's number one. And
the size of the tariffs was stunning. I remember it
(23:24):
was watching the press conference after the market closed, and
I don't have the best eyest in the world. I
had to get close to the TV to make sure.
Speaker 2 (23:30):
Reading the numbers show was that fifty or five percent?
Speaker 4 (23:37):
Yeah?
Speaker 3 (23:38):
Yeah, I mean that says a lot like the idea
that it could be fifty or five percent at all
is pretty nuts. The point you were making about profit margins,
I think is really important, and a lot of the
macro impact of the tariffs depends on how corporations actually
react to the tariffs. Do they choose to absorb the
additional costs themselves or do they pass it on to customers.
(24:02):
What's your sense of flexibility there? And then more generally,
where do you see inflation going from here? Because obviously
there is tension between prices going up in the immediate
term because of the tariffs and demand being destroyed and
US getting deflation.
Speaker 4 (24:18):
I think Walmart's warning this morning was maybe instructional in
that they went out of their way to say that
they were pulling their profit guidance, I believe, but told
people that their revenue growth guidance was still intact for
this year, which seems to me to imply that they're
not going to pass on these tariffs since they get
(24:40):
so much other stuff from China, right eat it, They're
going to eat it, and because otherwise they would say, well,
we're going to hike prices fifteen twenty percent and our
revenue is going to be up fifteen to twenty percent.
They didn't say that, they said three to four percent,
but margins. You know, we don't know on margins yet. Yeah.
Speaker 2 (24:57):
I think this is really important because I think if
you were to go back six months ago, before the election,
so much of the TERRORFF conversation was this very simple
minded what does it mean for inflation in the FED?
And now the sort of deeper question of like, are
you uniquecapping corporate profitability in America and what does that
mean for all these different I.
Speaker 4 (25:16):
Think that's the bigger risk that inflation.
Speaker 3 (25:18):
If you remember the past few years, the reason we
had record corporate profits was because companies were able to
pass on inflation to customers. The whole price over volume
idea that we've been talking about.
Speaker 2 (25:43):
Let's talk about a guy, uh Elon Musk. For many years,
you were famously the BFF, your BFF, Elon Musk. We
did an episode recently with Nick Denton, founder of Gawker Media,
and he said he said, he said, the fall of
Elon Musk is a story that a new journalist should
come out of retirement for it may be the biggest
(26:03):
story of our lives. He's been pronounced, you know, done
dead many times, and Tesla is always is this different
this time? In your view, I don't look.
Speaker 4 (26:13):
I mean, he's tied himself to the administration in a
way that is frankly kind of to me amazing and
shocking at the same time. So he is tied tied
now politically, you know, in a way that he never was.
That's number one. But to me, Tesla is beyond Elon Musk.
(26:33):
Tesla is a real sort of benchmark stock for me
because of the way in which Elon effortlessly sells the
story of the future to investors. And I've always said,
I've always said that in bull markets, people put a
premium on promises, and in bear markets, they put a
discount on reality. And this is a stock that's still
(26:56):
there's a handful of others that's still traded, you know,
forty fifty times revenues, where people still believe, they still
believe in the promise of robotics and AI and robotaxis.
And he's captured the imagination of a whole set of investors,
particularly retail investors, who just are rabid with the idea
(27:16):
that this is the company of the future. And so
that's number one. Number two, I mean, ultimately he's going
to have to deliver on these promises, and because you
know what the car business he's got right now, ain't
all that Margins are imploding, profits are down now for
three or four years in a row. He's going to
(27:38):
have down, I think down sales this year in terms
of units. So I remember when the es is where
we're all going to be driving Tesla's in twenty thirty, right,
that's not happening. And so it'll be curious to see
when the robotaxis are rolled out this summer in Austin.
How exciting is that? And then of course you know
(27:59):
the big one is we're all going to have you knows,
Rosie the robot from the Jets in our house doing
our tasks from Tesla. And again, I being the skeptic,
I think I don't see the robotics, the humanoid robotics
market being a whole lot different from the car market. Right,
it's utility. People will have one. It'll be thirty to
(28:22):
fifty thousand dollars, there'll be fifteen companies making them, and
margins will be it'll be a manufacturing margin business. You know,
cars have tons of software and them tons of chips
in them. They're amazing utility for the consumer, but they're cars.
They have a low margin and a lot of people
make them, and I think it's going to be the
(28:42):
same with robotics.
Speaker 3 (28:44):
I always wonder how much rope the tech believers are
giving companies to fulfill their promises. And I remember I
asked Kathy Wood about this, like what is her time
frame for actually making a profit. Because there's a premium
on good stories. You can keep selling a good story
for a pretty long time and a certain set of
investors will believe it. What's the catalyst for that actually
(29:08):
starting to change?
Speaker 4 (29:09):
Well again, I mean I think that the number one,
interest rates have a big determined on those kinds of stories,
because if we believe at least some of the rudiments
of finance, you're willing to you're willing to pay more
for profits and cash flow ten years in the future
than when rates are higher. That's number one. And for
(29:31):
all these companies like this, ninety five percent of the
value is in the terminal value. That's number one. Number two,
it's look, it's castles in the sky. I mean in
bull markets. People believe these stories and that's as old
as human nature. And when things get get tight, I
mean we kind of forget Tesla was one hundred dollars
(29:53):
a couple of years ago, down from five hundred, and
it dropped eighty percent in twenty twenty two. It varies.
Speaker 2 (30:01):
Twenty twenty two feels like a long time ago. All right,
I want to talk about ELON, but from a different
angle for a second. When DOGE was announced, yeah, people
didn't really know what it was, and then like it
sort of start over. Once it started going, it looked like, oh,
these cuts like have these moves have not seem to
have any rhyme or reason other than decapping the federal government.
(30:22):
And a lot of guys are like, look, I'm all
in favor of cutting waste, but I'm not so sure
about this anyway. I was probably one of those guys.
I'll cop to it. But we did an episode a
while back with this professor at Boston University on Medicare fraud,
and I thought to myself, Okay, if there's one area
that maybe some of these cracked data scientists could go
into and find some evidence and really like make some
(30:43):
efficiencies and so forth, this would be Medicare. However, this
week I saw a headline that says health insurers cheer
increase of Medicare advantage payments. I don't know what Medicare
advantages yet. I know I'm supposed to look this up.
Health insurers that offer Medicare advantage plants. The seniors cheered
a Trump administration's decision announced Monday to increase federal reimbursement
(31:05):
rates by twenty five billion dollars next year. What's medicure?
This is in the Albanion Times Union. What is Medicare advantage?
Why are they cheering this?
Speaker 4 (31:15):
You're asking the old guy, right, Yeah.
Speaker 2 (31:16):
No, No, I think it's because you know about these
companies very well. And what does it say that the
reimbursement rates came in so much higher than expecting? Joe?
Speaker 3 (31:24):
If you if you watch cable news, you would know
all about Medicare advent.
Speaker 4 (31:28):
Yes, yes you would. So I tweeted out when Doge
started out, I said, if they don't go after Medicare advantage,
you know right away then you know they're not that serious, Okay,
And so that kind of tells you where I'm coming
out on this. Medicare advantage has been just a windfall
for the insurers. It's it's basically for people that are
eligible for Medicare. It's supplemental, and it's also all it
(31:50):
can be all inclusive, meaning that you you you have
a carrier treat you for not only that which Medicare covers,
but but additional things. The problem becomes it's what we
call upcoding, and that's where the fraud has occurred because
the government has will give Medicare advantage carriers a tiered
set of payments depending on how sick their patient is
(32:12):
coming into the program. So, you know, I could be
relatively healthy. I don't know how they're going to code
me when they go to the government for their reimbursement
to say, mister chaenhas is very sick and blah blah
blah blah. So we get, you know, X thousand dollars
from him per year as opposed to y thousand dollars
for him per year. And that's that's a big problem.
(32:36):
There were some public companies that were purely in Medicare
advantage that we were short, and a lot of them
were bought up by companies like CBS and others, and
we just couldn't believe it because if you did any
kind of due diligence on these companies, you realize that
they were they were upcoding.
Speaker 2 (32:53):
I guess implicitly, if you're shorting them, that's a bet
that someone takes this issue seriously in the public sector.
And it looks like at least here's a guy who
came into cut spending and he now we're.
Speaker 4 (33:05):
Yeah, I mean they're going they're going after the small stuff,
they're going after the I'm a bear on DOGE. I
mean they they they're going after the political stuff. They're
going after this ridiculous thing from two weeks ago about
the number of Social Security numbers going to you know,
illegals and and things like that. This is all political
theater and and the real the real cuts are are
(33:27):
in areas that that they haven't touched. And so we'll
have to see. But it didn't get past me. That
Musk basically now is all but saying he's going to
be gone from DOGE in May. You know, he four
months and so and Vivic never got going. And so
I think that that this is they're finding out that
(33:50):
what they thought was fraud in ways, it's turning out
to be, you know, authorized programs that you might not
agree with politically, but we're authorized, right and and and
need legislative prescriptions. So I think they're not even going
to come close to their target of a trillion dollars
and two trillion dollars. I think that's just pipe dreams.
Speaker 3 (34:11):
I completely forgot about Vivek, but you're right he did.
Speaker 4 (34:15):
Yeah, yeah, he didn't didn't even get to day one.
Yeah yeah, Jim.
Speaker 3 (34:21):
Hopefully you won't mind me asking this question, but I
think it's fair to say you are a financial markets veteran.
You've seen, You've seen a lot of stuff happen over
the years. Are there any historical parallels or analogies to
our current moment in time?
Speaker 4 (34:39):
No, I mean, given what's driving markets as we sit here,
I don't think we've ever seen anything like this where
where a global hedgemond has willingly said I'm going to
basically shoot myself in the foot and get rid of
the exorbitive privilege that we've had as being the global
hedgemon with the reserve currency. They're trying to dismantle that
(35:01):
as we speak, and I think that just has all
kinds of impacts that none of us have lived through.
So we'll have to see unless it gets reversed. And
so I don't know what the you know what the
analog for this is we're just gonna have to let
everybody else take it day by day. But you know,
the idea that that that markets are now going to
(35:22):
react to you know, tweets, and as as someone I
follow said, you know, this is still a vibes market,
not a math market, and and and that as it
relates to the equities, And I think that's well said.
I think that that this stuff just goes back and forth,
and I think that's kind of no way to run
an economy and no way to run markets.
Speaker 2 (35:42):
That was a great place to leave, But I'm gonna
go end on like a more boring question on the
medicare advantage stuff.
Speaker 4 (35:49):
Yeah, and all these.
Speaker 2 (35:51):
People can come in here and talk to us about
upcoading and a fraud. Where did in your view when
you've looked into this and why these companies end up
getting bought out in the short stonn't work. Where is
the force coming from that prevents whether it's the you know,
HHS or whatever, from actually taking.
Speaker 4 (36:08):
There, So there's actually there's actually arms of the government.
Speaker 2 (36:12):
This isn't like none of this was like new. Why
why does it in your view? Does it not get addressed?
Speaker 4 (36:17):
I don't know. And you know, I've called this the
Golden Age of fraud, and and you know, it just
seems that that we have a willingness in the corporate
sector and elsewhere, and in the nexus of government and
corporate of just not holding people to account for this
stuff in the white collar crime area. And and I
think medicare is is just a wonderful example of that
(36:40):
in the in the our budget, the federal budget. And
so the fact that that they haven't even gone after
this or addressed this yet for DOGE is really telling
to me, because it's there. It's it's low hanging fruit.
And you know, if you look at the if you
look at the ten k's of these companies that we
were short, I mean there's there's criminal investigation after state
(37:03):
level investigation listed in their legal proceedings, and yet most
of them, when they get caught, they pay a fine
and nobody goes to jail. And it's so disgusting.
Speaker 2 (37:15):
Even if they reversed as trade tradery, there's so much rot.
I'm so angry right now. Jim Chandos, thank you so much.
This was a very satisfying episode. I found this very fun.
Speaker 3 (37:25):
Thank you for coming in therapeutic.
Speaker 4 (37:29):
My pleasure.
Speaker 2 (37:30):
Thank you for coming on oblains my pleasure, Tracy. I
love talking to Jim.
Speaker 3 (37:48):
Yes, although that was bleak and I had.
Speaker 2 (37:51):
To say, you know what, you know what, Yeah, it's bleak,
and but Jim knows ball and I enjoy talking to
a ball nowhere like Jim.
Speaker 3 (37:59):
I have to say for our listeners, I rarely see
Joe in a bad mood, and he is actually in
a bad mood this morning. Usually Joe has to put
up with me being cranky.
Speaker 2 (38:09):
And yeah, did we switch this week?
Speaker 3 (38:11):
Yeah? I think we switched. No, but I mean it's bad.
I feel bad too, And it is just crazy to
think that one man could end it all with just
a simple announcement or even like some words of comfort
and indication.
Speaker 4 (38:29):
Cool, be cool.
Speaker 2 (38:30):
And unfortunately, when I hear the words term be cool,
I just think of the scene in pulp fiction everybody
be cool. I'm not going to say the rest. Yeah,
he said be cool. It didn't work.
Speaker 3 (38:42):
Yeah, And if only he did something or said something
at the very least, we could all go back to
worrying to your point about AI and yeah, stuff like that.
Speaker 2 (38:51):
Yeah, shall we leave it there, Let's leave it there.
Speaker 3 (38:54):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy al.
Speaker 2 (39:00):
And I'm Jill Wisenthal. You can follow me at The Stalwart.
Follow our guest Jim Chanos, He's at Real Jim Chanos.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at dashbot In, Kale Brooks at Kale Brooks. More
odd Lots content, go to Bloomberg dot com slash odd Lots,
where we have our daily newsletter and all of our episodes,
and you can chat about these topics twenty four to
(39:21):
seven in our discord Discord dot gg slash od Lots.
Speaker 3 (39:26):
And if you enjoy odd Lots, if you like it
when we talk to veteran investors like Jim Chanos, then
please leave us a positive review on your favorite podcast platform.
And remember, if you are a Bloomberg subscriber, you can
listen to all of our episodes absolutely add free. All
you need to do is find the Bloomberg channel on
Apple Podcasts and follow the instructions there. Thanks for listening,
(40:10):
Benea
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal.
Speaker 3 (00:23):
And I'm Tracy Alloway.
Speaker 2 (00:24):
Tracy, I guess one good thing about market crow, I
don't know if it's even good because I like when
lines go up no matter what. But you know, people
always say, oh, this can't go on forever, and they're
talking about some specific trend or here's a scam or
here's a bezel in the economy that will exist as
long as the lines that go up. Things get revealed
in a downturn, Things that were unsustainable are shown to
(00:46):
definitively be unsustainable when the downturn hits.
Speaker 3 (00:49):
Right, what's that old buffet quote when you don't see
who's swimming naked until the tide starts to go out.
And I think, I think we are probably at that moment.
And I got to say, in terms of who likes
when lines go down, you know who likes when lines
go down? Yeah, short sellars.
Speaker 2 (01:07):
That's right, they definitely do. Especially what it's been like
fifteen years since the line has gone down, and so
many short sellers have had such a brutal time. Maybe
we'll put swimming naked in the headline of this.
Speaker 3 (01:18):
Instead of a dead body is floating to the top.
Speaker 2 (01:21):
Maybe it's a little we'll have to figure out. Anyway,
let's just jump right to it. We've had him on
the show in the past, someone we always enjoy talking to.
He is going to tell us about what bodies are
going to float to the service, and those bodies happen
to be naked too. He's gonna tell us what naked
bodies are floating to the service. Jim Chaeno is founder
of chenos In Company, longtime investor, short seller. Thank you
(01:44):
for coming back on odd Lots.
Speaker 4 (01:45):
No, thanks for having me. It's my pleasure.
Speaker 2 (01:47):
I only recently learned that Scott Bessen. I say recently learned,
as if I looked this up. I heard it from
you as you were walking into the studio. He worked
for you.
Speaker 4 (01:55):
Yeah, he was my first analyst.
Speaker 2 (01:56):
Incredible.
Speaker 4 (01:57):
I taught him everything he knew up to a point,
I guess to a point.
Speaker 3 (02:01):
Okay, all right, I'm just going to ask basic questions
to start. But what has the past week or so.
Let's see, we're recording this on April ninth at eight am. Yeah,
we have to be that specific on the time now
because things change so quickly. What has the past week
been like for you?
Speaker 4 (02:19):
Well, we're not in the business of running outside money anymore,
so that ended a couple of years ago, but we
do advise clients and of course run our own money.
So since nineteen ninety six we've always been hedged. But
we've seen obviously substantial alpha in the last couple of weeks. Ie,
(02:39):
the stuff we're short has gone down much more than
the market. We tend to be long in the market passively,
and that usually happens right when the market shifts gears.
A lot of the more questionable story stocks, frauds, hypes
begin to underperform. And that was not the case until
really about the tariff, the Liberation day, and now it's
(03:02):
really kicked in.
Speaker 2 (03:04):
If I'm a equity, if I'm an asset allocator, is
that why I allocate to someone who specializes in short selling,
Not because they are going to give me positive returns
a month after month after month, but that it allows
me to be more comfortably long risk assets in my
other investments because I have this knowledge that I'll get
(03:24):
outside return outside returns from you when they go down.
Speaker 4 (03:28):
Yeah, in our business model over forty forty years. Basically
it morphed into the idea that fundamental shorts allow you
to be more long. Yeah, and that's really at the
end of the day, your shorts are financing your long portfolio.
If your shorts don't go up or go down, enables
(03:49):
you to have a long portfolio that actually will outperform. Yeah.
Speaker 3 (03:56):
I mean, it is true that before this month, being
a short seller did not seem that fun for like
the past ten years, and we've done episodes on the
hard life of being a short seller. Are the games
now enough to offset like a decade of lines going up?
Speaker 4 (04:17):
Well, again, the lines are going up. But it was
all a matter of if you're selling insurance as I
was and advised people do do now, the idea is
the insurance working, and the insurance was working really for
even post global financial crisis for quite a while, and
then starting about twenty eighteen, twenty nineteen, and right into
(04:41):
the Game Stop episode in the first quarter of twenty
twenty one, it didn't work at all. But it has
worked since Game Stop and even though the market's made
new highs, you know, recently, I think is January, the
short site has not been too bad. I mean, Bloomberg
has an index the most shorted basket, which you can
(05:02):
take a look at if you're a Bloomberg subscriber. Thank
you for the plug, my pleasure, and it has it
has done relatively well relative to the market since since
early twenty twenty one.
Speaker 2 (05:15):
Let's talk about some areas of the market. Let's just
jump right into it. I think actually the last time
we had you on I'm looking at this was FTX
November or was it it wastually That's.
Speaker 3 (05:29):
Right, it was actually before FTX imploded officially, but after
we did the infamous box episode.
Speaker 2 (05:37):
But you know what, the last time we talked to
was November twenty third, twenty twenty two, right as FTX
was uploading. But there's just another point in the history
here that's important. November thirty of twenty twenty two was
when chaed GPT came out, and then we got this
incredible AI wave and people started piling everything into Nvidia
(05:58):
and all these data center plays, et cetera. And in
previous odd lads, and I don't remember what that was.
You've talked about data centers before. In some brutal data
center economics are terrible. One of the things that we've
seen in this downturn. See I'm putting this all together.
This is not totally incoherent. One of the things that
we've seen in this downturn is some really like sharp
(06:20):
reversals for the big AI plays that were baked. Those
were just so hot. And so I'm curious now, like
you know, you've talked about data centers, et cetera, tell
us where you're seeing some of this stuff right now.
Speaker 4 (06:31):
So the AI bet is an uncertain bet. We don't
know what the returns on this massive investment is going
to be yet, and even the mag seven will tell you, yeah,
well it's uncertain. We think it's going to be worth
the risk, but it's an uncertain payot and I'll leave
that up to people who are much more well versed
(06:52):
in technology than I am. Our view was that the
old legacy data centers that were built to basically handle
the cloud, not AI. We're in trouble and we're a
bad business to begin with. It have gotten only worse.
And that was that was the bet. It's still the bet.
I think it's a really I've called it one of
(07:13):
the worst business models I've ever seen. Because the cap
x is enormous. You've got to keep replacing the air
conditionings and the racks and the networking equipment and to
keep these centers running, and the returns on capital are
just abysmally low. So we kind of said, oh, right,
AI is a thing. It's an uncertain thing. Market loved it.
(07:35):
Now market's questioning it. But we do know that the
old data centers, the ones that have been around now
twenty years, yeah, Equinas to Digital Realty, Digital Bridge, those
have really challenged business models.
Speaker 3 (07:48):
So one of the things that happened recently is Core
We've did its IPO and it had initially targeted two
point seven billion and it came in at one point
five five billion. And the interesting thing to me is
part of that was a really big order from in Vidia,
and in Vidia is very interwoven with Core weaves model.
(08:13):
Since we're already talking about floating bodies and people swimming naked,
I'm going to try to be as distasteful as I can,
but how incestuous is the relationship between Core Weave and Nvidia.
Speaker 4 (08:24):
So for those of us that are a little bit
older than you two, I mean, we remember some of
the round tripping that was going on in telecom equipment
back in nineteen ninety two thousand, with Nortel and Lucent
providing financing for its customers and then selling things into
those customers on cheap terms, and the whole thing unwound
(08:46):
very quickly when the dot com bubble and telecom bubble imploded.
I put a tweet out that got some notice where
I saw it in Nvidia not only was doing the
core weave kind of just but had just bought a
distributor there, and that that was also a little worrisome. Now,
it's only a small part of their business, it's not material.
(09:07):
But when you start to see this stuff on the margin,
where the companies are increasingly round tripping with their customers,
or financing their customers, or buying in their inventory via distributors,
you begin to wonder. You know, if it's just on
the margin, that's fine. But as we all know, on
(09:28):
the margin is everything right. If you miss your earnings
by a couple of pennies, your stock can be devastated.
And if they're doing deals like this to basically, you know,
make sure they make or beat numbers, you know, then
we have the old We have the old nineteen ninety eight,
ninety nine, two thousand, dynamic at work where companies are
stretching to make numbers. That has not been the case
(09:49):
up until now. Right through twenty twenty three, twenty twenty four,
demand's been amazing. Yeah, blowout numbers, but it's something to
keep an eye on at the shift.
Speaker 2 (10:00):
So in other words, like the insinuation here is not
that there's something like per se bad, but history says
that when you see stuff like this, to keep the.
Speaker 4 (10:10):
Real aggressively aggressive aggressive moves with your customers and your distributed.
Speaker 2 (10:14):
Because that's what everyone's been wondering, right, And I guess
like all of this stuff with the trade turmoil has
like like we actually it's kind of amazing because I
think we've gone two weeks without talking about AI, which
may something maybe it's something that we could be a
little bit thankful for in some sense. But we're the
trade trade war to go away tomorrow. Yeah, and we
were returned to what we were talking about in January.
Speaker 4 (10:36):
I saw your post earlier today about if tariffs run
away like this and all the other stuff that is
suddenly should.
Speaker 2 (10:42):
Be a concern.
Speaker 4 (10:43):
Yeah. I look on the margin again, on the margin
I think these numbers are not material that they're deal
with Core Week the distributor their bought, but it's something
to keep an eye.
Speaker 2 (10:53):
On, Tracy, I just want to do, by the way,
some of these names are just for listeners digital realties below.
Where it was like at its twenty twenty peak, after
having plunged from about one ninety five to one thirty three,
named Cornweave was actually just slightly above its IPO price
of forty That was a czy day. It's anging in
the the said forty one thirty five right now. So anyway,
(11:14):
So one.
Speaker 3 (11:14):
Of the things that happened in the early two thousands
with the telecoms and Internet bubble is I think people
a lot of people expected some of these companies to fail,
but I guess the bet was maybe a handful of
them would be huge winners from the development of the Internet.
And it's true. You know, we have like Google come
(11:36):
out of this. If you invested in Amazon, you made
a lot of money. Is there any possibility of that
happening when it comes to AI. Do you see a winner?
Speaker 4 (11:46):
Oh? I mean, I think there's going to be a
lot of winners if it's as revolutionary as a technology
as it appears to be, we'll see all kinds of
new business models and probably a company that we might know,
like in video where ever succeeding, or maybe a couple
of companies we don't know yet that we'll take advantage
of it. The flip side to be the glass half
(12:07):
empty guy, is that what everyone also forgets about the
Internet was that it destroyed as many businesses as it
brought forward, you know, and any business that was in
the analog business that went digital, so you actually had
a physical product that went digital was absolutely devastated, like
Kodak or Blockbuster Video or the Yellow Pages, what have you.
(12:31):
And I suspect that AI will be very similar. We'll
see just you know you're a hater. No, No, I'm
open minded about it. I think if it really is
an amazing technology, and I think it just you're going
to have to see both sides of the coin for
capitalism with it. It'll probably it'll probably devastate a number
of business models as well.
Speaker 3 (12:53):
What's the path to bundetization for these AI companies, because
you already pointed out the cost of capital is really high.
Speaker 4 (13:00):
Uh, I don't know, and that's we still haven't seen
the the aha moment as we did with the Internet,
with with online retailing and communities like America Online where
suddenly you know your aunt was on it, and then
getting email money and paying money, paying money for it
and getting emails.
Speaker 3 (13:19):
And you have mail.
Speaker 2 (13:37):
Let's pivot because you have been fond over the years
to talk about this sort of myth that private equity
is something more than just adding leverage to companies and
that there's this perceived stability. Yeah, it's very nice. You
don't have to look at your marks every day that
it really is just leverage. And you know, I'm looking
at a share price. The shares of like Apollo, for example,
(13:59):
I guess maybe the Good Credit that was at one
eighty nine thirty on December ninth, that's at one oh nine.
Blackstone shares look pretty similar. We're talking like forty percent
declined air that was at two hundred. It's at one
eighteen right now. That's belower it was in late twenty
twenty one. Private assets are like the story that Tracy
(14:19):
and I keep coming back to. What is your takeaway
from this, like really intense selling of these names.
Speaker 4 (14:24):
Yeah, I mean, I'm a little surprised at how intense
the selling has been so quickly. But look, I mean,
I agree with with the cliff Asnas who's done a
great job talking about this. This is volatility laundering, and
the idea that these funds don't have the same risks
as equity funds have is to me preposterous. You're buying
(14:46):
businesses on leverage, and we're now seeing that as it's
becoming increasingly hard for these deals, for them to bring
these deals public or get exits. And again on the margin,
you're seeing a little bit of odd behavior some of
the private equity funds in trying to entice their investors
to stick around. We'll have to see. I mean, up
(15:07):
until now, for the last fifteen years, getting back to
the beginning of our conversation, sell offs have been relatively
short and sharp. So if you held off on marking
your portfolio down, you generally were rewarded by not having
to take the mark right. The markets kept going, and
the nightmare scenario for private equity and arguably private credit
(15:30):
will be a long period of lackluster or no equity
returns with higher interest rates.
Speaker 2 (15:39):
Can you actually just when you said, oh, at the margins,
we're starting to see some jinky behavior with regards to
their partner LPs. You what's going on.
Speaker 4 (15:48):
There was a story I think on Bloomberg just yesterday
or the day before where one of the funds was
asking investors if they wanted to sell their LP investment
in one of the funds or transfer it, they had
to get permission from the GP. In order to get permission,
they had agree to put money into the next one.
(16:08):
And that story caught my eye, And so you know
when you start to see that, And now we're starting
to see time series of fun performance that are starting
to become more lackluster right rolling ten year returns and
private equity are beginning to converge with that of the
regular equity market.
Speaker 3 (16:28):
To your point about the length of the selloff, I mean,
we've established that one of the competitive advantages of doing
private credit versus public is you're not forced to take
the marked market losses so soon you can hold on
for longer. Theoretically, we're seeing a lot of people right
now talk about, you know, emergency moves from the Fed,
(16:48):
maybe a cut sooner than the market had expected a
week or two ago. Do interest rates matter for private
credit at the moment? How much of a buffer for
what lower rates actually provide.
Speaker 4 (17:02):
Here. Well, I think spreads matter, okay, so and we've
seen we've seen them widening out of credit spreads. So
I think that one of the reasons people think the
FED is going to ease is because of that right weakness,
not not because of low inflation. And so you're seeing
a relatively very quick increase in credit spreads over the
past two weeks. I mean, it's really moved. So I
(17:25):
don't think that that that's the panacea that people are expecting,
at least not yet. Even with a FED ease, because
junk credit is rates are going up.
Speaker 2 (17:37):
Right, they could the FED could do something just about
like the sheer mechanical breakdown. If it's happening the plumbing,
the plumbing people love to talk about the plumbing of
the treasury market.
Speaker 4 (17:47):
The base is straight. I read something. I read something
today about the basis.
Speaker 3 (17:51):
Thank you, thank you for reading.
Speaker 2 (17:53):
Listen, pause right there, listeners. Jim Chandos is a reader
of the Odd Launch newsletter, which means you should be
to what is it What does a GP of a
private fund do when the IPO window is slammed shut
when there really is not a lot of M and A.
(18:13):
So basically very few opportunities for liquidity or distribution or
anything like that. What kind of move do they make?
Speaker 4 (18:21):
You? Better? Better practice your writing of a heartfelt apology
letters to your LPs, because the IRRs you've been telling
them that the fund has been getting prior to its
wind up are going to turn out to be way
overstated to the actual returns. So look, it's it's problematic.
I mean, investors are going to get back stakes in
private companies that they might not want. Oh so distributions
(18:44):
in kind, yeah, exactly, and so if you can't cash
out and so yeah, I think it's going to be
problematic for a number of funds. I mean, I'm sure
there'll be plenty that'll do fine. But the days of saying, well,
I'm going to earn fourteen fifteen percent with very little volatility,
so this is a free lunch, I think are over.
Speaker 3 (19:04):
The other narrative that pops up from time to time
is this idea of dry powder. There are a bunch
of funds out there who have been holding cash for
a long time, just waiting to snap up distressed assets
once everything finally crashes. Is that real?
Speaker 4 (19:20):
I don't know. I mean, you have to get into
the sort of weeds of every specific fund, but I mean,
if they've been holding cash for years and years and years,
they certainly weren't earning that fourteen and fifteen percent investors
were hoping for. So I don't know, I don't know
how the accounting works on that, but I'm sure. Look,
there is some unused capacity in the private equity world.
(19:45):
But on the other hand, that doesn't get you your returns.
You know, buying companies and adding value to them is
where the returns are. So if there were funds and
firms holding dry powder and asset prices get marked down
a lot, that should be good thing for them.
Speaker 2 (20:01):
It just seems I mean, the issue to me, and
I've sort of talked about this in various ways, is
that for the last fifteen years, you're a dummy if
you had dry powder, right the market has told you
over and over again, right like, So this is why
I'm always kind of skeptical that there could even possibly
be much And it's interesting, you know, look like we're
like two weeks into or no, it's been a week
(20:23):
since Liberation Day, but you go a few weeks before
that obviously the weakness started picking up, and now we're
seeing you know, we've seen this sort of dislocation and treasuries.
It seems like if you have fifteen years of people
telling you you're a moron for holding, for being under levered, Yeah,
then a downturn in just sort of normal investments can
metastasize into financial problems very quickly.
Speaker 4 (20:44):
Well, it also depends, tracy, how you define dry powder.
A lot of firms defined dry powder as the ability
to capital call on their limiteds. It's not actually cash
sitting in a bank acount. Yeah. Yeah, and I think
that will become much more problematic in a downturn.
Speaker 2 (20:58):
I've got to pick up the phone.
Speaker 4 (20:59):
Yeah yeah, look, yeah, so.
Speaker 3 (21:02):
You're primarily a markets guy, but you are no stranger
to Macro. Talk to us a little bit about I
guess the relationship between what we're seeing in markets and
the real economy right now.
Speaker 4 (21:14):
Yeah, I mean, the transmission mechanism via tariffs will happen
pretty quickly, I think. I mean, you saw Walmart warn today,
Delta has pulled their guidance. Both of those were just today.
I mean, it's kind of stunning. How if you think
about the nuts and bolts of these tariffs and how
they work. Despite what our president says, the importing entity
(21:37):
pays the tariff, right, it's not a tax on China.
And so you're a small and medium businessman. You just
got one hundred thousand dollars worth a product that landed
at Long Beach Port from China, and your broker is saying, yeah,
just come down with a cashiers check for one hundred
thousand dollars for the governments and will release your product.
Businesses don't have that, yeah, And so I mean there's
(22:00):
practical aspects these tariffs that I don't think we kind
of know all the implifications and how it will ripple
through the economy. And I suspect you'll start by May
getting some pretty decent real time feedback on from businesses saying,
you know, we're cutting out profit guidance because if they
(22:21):
can't pass it on completely, and study after study shows
they can't, usually then profit margins, which, by the way,
let us not forget all right, all time highs are
going to hit an air pocket.
Speaker 3 (22:33):
We have seen some companies pulling their forward guidance already, right.
Speaker 2 (22:36):
Jack, Yeah, Delta, Delta this morning, Walmart, Walmart when their
chart came out. When Donald Trump pulled out the chart
on Liberation Day and the market immediately tanked. The view
from a lot of people is like, if people actually
understood the size of what's what these numbers are, the
market would be a down lot more. Do you stands?
And again, anything could happen by the time there's but
(22:57):
on April ninth that there is still an element of
disbelief that this could actually be where our turn.
Speaker 4 (23:03):
Oh. I think there definitely is a level of disbelief.
I mean the stock market is still twenty times latest
twelve month earnings, and I mean they're coming down, but
people still think earnings are going to be up ten
percent this year. And I don't know what planet they're on,
and so I think that that that's number one. And
the size of the tariffs was stunning. I remember it
(23:24):
was watching the press conference after the market closed, and
I don't have the best eyest in the world. I
had to get close to the TV to make sure.
Speaker 2 (23:30):
Reading the numbers show was that fifty or five percent?
Speaker 4 (23:37):
Yeah?
Speaker 3 (23:38):
Yeah, I mean that says a lot like the idea
that it could be fifty or five percent at all
is pretty nuts. The point you were making about profit margins,
I think is really important, and a lot of the
macro impact of the tariffs depends on how corporations actually
react to the tariffs. Do they choose to absorb the
additional costs themselves or do they pass it on to customers.
(24:02):
What's your sense of flexibility there? And then more generally,
where do you see inflation going from here? Because obviously
there is tension between prices going up in the immediate
term because of the tariffs and demand being destroyed and
US getting deflation.
Speaker 4 (24:18):
I think Walmart's warning this morning was maybe instructional in
that they went out of their way to say that
they were pulling their profit guidance, I believe, but told
people that their revenue growth guidance was still intact for
this year, which seems to me to imply that they're
not going to pass on these tariffs since they get
(24:40):
so much other stuff from China, right eat it, They're
going to eat it, and because otherwise they would say, well,
we're going to hike prices fifteen twenty percent and our
revenue is going to be up fifteen to twenty percent.
They didn't say that, they said three to four percent,
but margins. You know, we don't know on margins yet. Yeah.
Speaker 2 (24:57):
I think this is really important because I think if
you were to go back six months ago, before the election,
so much of the TERRORFF conversation was this very simple
minded what does it mean for inflation in the FED?
And now the sort of deeper question of like, are
you uniquecapping corporate profitability in America and what does that
mean for all these different I.
Speaker 4 (25:16):
Think that's the bigger risk that inflation.
Speaker 3 (25:18):
If you remember the past few years, the reason we
had record corporate profits was because companies were able to
pass on inflation to customers. The whole price over volume
idea that we've been talking about.
Speaker 2 (25:43):
Let's talk about a guy, uh Elon Musk. For many years,
you were famously the BFF, your BFF, Elon Musk. We
did an episode recently with Nick Denton, founder of Gawker Media,
and he said he said, he said, the fall of
Elon Musk is a story that a new journalist should
come out of retirement for it may be the biggest
(26:03):
story of our lives. He's been pronounced, you know, done
dead many times, and Tesla is always is this different
this time? In your view, I don't look.
Speaker 4 (26:13):
I mean, he's tied himself to the administration in a
way that is frankly kind of to me amazing and
shocking at the same time. So he is tied tied
now politically, you know, in a way that he never was.
That's number one. But to me, Tesla is beyond Elon Musk.
(26:33):
Tesla is a real sort of benchmark stock for me
because of the way in which Elon effortlessly sells the
story of the future to investors. And I've always said,
I've always said that in bull markets, people put a
premium on promises, and in bear markets, they put a
discount on reality. And this is a stock that's still
(26:56):
there's a handful of others that's still traded, you know,
forty fifty times revenues, where people still believe, they still
believe in the promise of robotics and AI and robotaxis.
And he's captured the imagination of a whole set of investors,
particularly retail investors, who just are rabid with the idea
(27:16):
that this is the company of the future. And so
that's number one. Number two, I mean, ultimately he's going
to have to deliver on these promises, and because you
know what the car business he's got right now, ain't
all that Margins are imploding, profits are down now for
three or four years in a row. He's going to
(27:38):
have down, I think down sales this year in terms
of units. So I remember when the es is where
we're all going to be driving Tesla's in twenty thirty, right,
that's not happening. And so it'll be curious to see
when the robotaxis are rolled out this summer in Austin.
How exciting is that? And then of course you know
(27:59):
the big one is we're all going to have you knows,
Rosie the robot from the Jets in our house doing
our tasks from Tesla. And again, I being the skeptic,
I think I don't see the robotics, the humanoid robotics
market being a whole lot different from the car market. Right,
it's utility. People will have one. It'll be thirty to
(28:22):
fifty thousand dollars, there'll be fifteen companies making them, and
margins will be it'll be a manufacturing margin business. You know,
cars have tons of software and them tons of chips
in them. They're amazing utility for the consumer, but they're cars.
They have a low margin and a lot of people
make them, and I think it's going to be the
(28:42):
same with robotics.
Speaker 3 (28:44):
I always wonder how much rope the tech believers are
giving companies to fulfill their promises. And I remember I
asked Kathy Wood about this, like what is her time
frame for actually making a profit. Because there's a premium
on good stories. You can keep selling a good story
for a pretty long time and a certain set of
investors will believe it. What's the catalyst for that actually
(29:08):
starting to change?
Speaker 4 (29:09):
Well again, I mean I think that the number one,
interest rates have a big determined on those kinds of stories,
because if we believe at least some of the rudiments
of finance, you're willing to you're willing to pay more
for profits and cash flow ten years in the future
than when rates are higher. That's number one. And for
(29:31):
all these companies like this, ninety five percent of the
value is in the terminal value. That's number one. Number two,
it's look, it's castles in the sky. I mean in
bull markets. People believe these stories and that's as old
as human nature. And when things get get tight, I
mean we kind of forget Tesla was one hundred dollars
(29:53):
a couple of years ago, down from five hundred, and
it dropped eighty percent in twenty twenty two. It varies.
Speaker 2 (30:01):
Twenty twenty two feels like a long time ago. All right,
I want to talk about ELON, but from a different
angle for a second. When DOGE was announced, yeah, people
didn't really know what it was, and then like it
sort of start over. Once it started going, it looked like, oh,
these cuts like have these moves have not seem to
have any rhyme or reason other than decapping the federal government.
(30:22):
And a lot of guys are like, look, I'm all
in favor of cutting waste, but I'm not so sure
about this anyway. I was probably one of those guys.
I'll cop to it. But we did an episode a
while back with this professor at Boston University on Medicare fraud,
and I thought to myself, Okay, if there's one area
that maybe some of these cracked data scientists could go
into and find some evidence and really like make some
(30:43):
efficiencies and so forth, this would be Medicare. However, this
week I saw a headline that says health insurers cheer
increase of Medicare advantage payments. I don't know what Medicare
advantages yet. I know I'm supposed to look this up.
Health insurers that offer Medicare advantage plants. The seniors cheered
a Trump administration's decision announced Monday to increase federal reimbursement
(31:05):
rates by twenty five billion dollars next year. What's medicure?
This is in the Albanion Times Union. What is Medicare advantage?
Why are they cheering this?
Speaker 4 (31:15):
You're asking the old guy, right, Yeah.
Speaker 2 (31:16):
No, No, I think it's because you know about these
companies very well. And what does it say that the
reimbursement rates came in so much higher than expecting? Joe?
Speaker 3 (31:24):
If you if you watch cable news, you would know
all about Medicare advent.
Speaker 4 (31:28):
Yes, yes you would. So I tweeted out when Doge
started out, I said, if they don't go after Medicare advantage,
you know right away then you know they're not that serious, Okay,
And so that kind of tells you where I'm coming
out on this. Medicare advantage has been just a windfall
for the insurers. It's it's basically for people that are
eligible for Medicare. It's supplemental, and it's also all it
(31:50):
can be all inclusive, meaning that you you you have
a carrier treat you for not only that which Medicare covers,
but but additional things. The problem becomes it's what we
call upcoding, and that's where the fraud has occurred because
the government has will give Medicare advantage carriers a tiered
set of payments depending on how sick their patient is
(32:12):
coming into the program. So, you know, I could be
relatively healthy. I don't know how they're going to code
me when they go to the government for their reimbursement
to say, mister chaenhas is very sick and blah blah
blah blah. So we get, you know, X thousand dollars
from him per year as opposed to y thousand dollars
for him per year. And that's that's a big problem.
(32:36):
There were some public companies that were purely in Medicare
advantage that we were short, and a lot of them
were bought up by companies like CBS and others, and
we just couldn't believe it because if you did any
kind of due diligence on these companies, you realize that
they were they were upcoding.
Speaker 2 (32:53):
I guess implicitly, if you're shorting them, that's a bet
that someone takes this issue seriously in the public sector.
And it looks like at least here's a guy who
came into cut spending and he now we're.
Speaker 4 (33:05):
Yeah, I mean they're going they're going after the small stuff,
they're going after the I'm a bear on DOGE. I
mean they they they're going after the political stuff. They're
going after this ridiculous thing from two weeks ago about
the number of Social Security numbers going to you know,
illegals and and things like that. This is all political
theater and and the real the real cuts are are
(33:27):
in areas that that they haven't touched. And so we'll
have to see. But it didn't get past me. That
Musk basically now is all but saying he's going to
be gone from DOGE in May. You know, he four
months and so and Vivic never got going. And so
I think that that this is they're finding out that
(33:50):
what they thought was fraud in ways, it's turning out
to be, you know, authorized programs that you might not
agree with politically, but we're authorized, right and and and
need legislative prescriptions. So I think they're not even going
to come close to their target of a trillion dollars
and two trillion dollars. I think that's just pipe dreams.
Speaker 3 (34:11):
I completely forgot about Vivek, but you're right he did.
Speaker 4 (34:15):
Yeah, yeah, he didn't didn't even get to day one.
Yeah yeah, Jim.
Speaker 3 (34:21):
Hopefully you won't mind me asking this question, but I
think it's fair to say you are a financial markets veteran.
You've seen, You've seen a lot of stuff happen over
the years. Are there any historical parallels or analogies to
our current moment in time?
Speaker 4 (34:39):
No, I mean, given what's driving markets as we sit here,
I don't think we've ever seen anything like this where
where a global hedgemond has willingly said I'm going to
basically shoot myself in the foot and get rid of
the exorbitive privilege that we've had as being the global
hedgemon with the reserve currency. They're trying to dismantle that
(35:01):
as we speak, and I think that just has all
kinds of impacts that none of us have lived through.
So we'll have to see unless it gets reversed. And
so I don't know what the you know what the
analog for this is we're just gonna have to let
everybody else take it day by day. But you know,
the idea that that that markets are now going to
(35:22):
react to you know, tweets, and as as someone I
follow said, you know, this is still a vibes market,
not a math market, and and and that as it
relates to the equities, And I think that's well said.
I think that that this stuff just goes back and forth,
and I think that's kind of no way to run
an economy and no way to run markets.
Speaker 2 (35:42):
That was a great place to leave, But I'm gonna
go end on like a more boring question on the
medicare advantage stuff.
Speaker 4 (35:49):
Yeah, and all these.
Speaker 2 (35:51):
People can come in here and talk to us about
upcoading and a fraud. Where did in your view when
you've looked into this and why these companies end up
getting bought out in the short stonn't work. Where is
the force coming from that prevents whether it's the you know,
HHS or whatever, from actually taking.
Speaker 4 (36:08):
There, So there's actually there's actually arms of the government.
Speaker 2 (36:12):
This isn't like none of this was like new. Why
why does it in your view? Does it not get addressed?
Speaker 4 (36:17):
I don't know. And you know, I've called this the
Golden Age of fraud, and and you know, it just
seems that that we have a willingness in the corporate
sector and elsewhere, and in the nexus of government and
corporate of just not holding people to account for this
stuff in the white collar crime area. And and I
think medicare is is just a wonderful example of that
(36:40):
in the in the our budget, the federal budget. And
so the fact that that they haven't even gone after
this or addressed this yet for DOGE is really telling
to me, because it's there. It's it's low hanging fruit.
And you know, if you look at the if you
look at the ten k's of these companies that we
were short, I mean there's there's criminal investigation after state
(37:03):
level investigation listed in their legal proceedings, and yet most
of them, when they get caught, they pay a fine
and nobody goes to jail. And it's so disgusting.
Speaker 2 (37:15):
Even if they reversed as trade tradery, there's so much rot.
I'm so angry right now. Jim Chandos, thank you so much.
This was a very satisfying episode. I found this very fun.
Speaker 3 (37:25):
Thank you for coming in therapeutic.
Speaker 4 (37:29):
My pleasure.
Speaker 2 (37:30):
Thank you for coming on oblains my pleasure, Tracy. I
love talking to Jim.
Speaker 3 (37:48):
Yes, although that was bleak and I had.
Speaker 2 (37:51):
To say, you know what, you know what, Yeah, it's bleak,
and but Jim knows ball and I enjoy talking to
a ball nowhere like Jim.
Speaker 3 (37:59):
I have to say for our listeners, I rarely see
Joe in a bad mood, and he is actually in
a bad mood this morning. Usually Joe has to put
up with me being cranky.
Speaker 2 (38:09):
And yeah, did we switch this week?
Speaker 3 (38:11):
Yeah? I think we switched. No, but I mean it's bad.
I feel bad too, And it is just crazy to
think that one man could end it all with just
a simple announcement or even like some words of comfort
and indication.
Speaker 4 (38:29):
Cool, be cool.
Speaker 2 (38:30):
And unfortunately, when I hear the words term be cool,
I just think of the scene in pulp fiction everybody
be cool. I'm not going to say the rest. Yeah,
he said be cool. It didn't work.
Speaker 3 (38:42):
Yeah, And if only he did something or said something
at the very least, we could all go back to
worrying to your point about AI and yeah, stuff like that.
Speaker 2 (38:51):
Yeah, shall we leave it there, Let's leave it there.
Speaker 3 (38:54):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy al.
Speaker 2 (39:00):
And I'm Jill Wisenthal. You can follow me at The Stalwart.
Follow our guest Jim Chanos, He's at Real Jim Chanos.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at dashbot In, Kale Brooks at Kale Brooks. More
odd Lots content, go to Bloomberg dot com slash odd Lots,
where we have our daily newsletter and all of our episodes,
and you can chat about these topics twenty four to
(39:21):
seven in our discord Discord dot gg slash od Lots.
Speaker 3 (39:26):
And if you enjoy odd Lots, if you like it
when we talk to veteran investors like Jim Chanos, then
please leave us a positive review on your favorite podcast platform.
And remember, if you are a Bloomberg subscriber, you can
listen to all of our episodes absolutely add free. All
you need to do is find the Bloomberg channel on
Apple Podcasts and follow the instructions there. Thanks for listening,
(40:10):
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Tracy Alloway
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