Jim Chanos on Who's Getting Caught Swimming Naked

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 MarketsJim Chanos Says Biggest Risk for Markets Is DeepSeek-Like EventOnly Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 0:59Speaker 01

  But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:41Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 1:57Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 2:02Tracy Alloway?

  And I'm Tracy Alloway.

• 2:04Joe Weisenthal?

  Tracy, I guess one good thing about market crap, 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 go up. Things get revealed in a downturn. Things that were unsustainable are shown to definitively be unsustainable when the downturn hits.

• 2:28Tracy Alloway?

  Right. What's that old Buffett 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?

• 2:45Joe Weisenthal?

  Yeah.

• 2:45Tracy Alloway?

  Short sellers.

• 2:46Joe Weisenthal?

  That's right. They definitely do, especially when it's been like 15 years since a 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.

• 2:57Tracy Alloway?

  Instead of dead bodies floating to the top?

• 3:00Joe Weisenthal?

  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 surface and those bodies happen to be naked too. He's going to tell us what naked bodies are floating to the surface. Jim Chanos, founder of Chanos and Company, longtime investor, short seller. Thank you for coming back on Odd Lots.

• 3:24Speaker 04

  No, thanks for having me. It's my pleasure.

• 3:26Joe Weisenthal?

  I only recently learned that Scott Besant, I say only recently learned as if I looked this up, I heard it from you as you were walking into the studio. He worked for you.

• 3:34Speaker 04

  Yeah, he was my first analyst.

• 3:36Joe Weisenthal?

  Incredible.

• 3:36Speaker 04

  I taught him everything he knew, up to a point, I guess.

• 3:39Joe Weisenthal?

  Up to a point. Okay.

• 3:41Tracy Alloway?

  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 9?

• 3:49Joe Weisenthal?

  At 11:28 a.m.

• 3:50Tracy Alloway?

  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?

• 3:58Speaker 04

  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 then of course run our own money. So. Since 1996, we've always been hedged, but we've seen obviously substantial alpha in the last couple of weeks, i.e. 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 really kicked in.

• 4:43Joe Weisenthal?

  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 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 outsized returns from you when they go down?

• 5:07Speaker 04

  Yeah. In our business model, over 40 years, basically, it morphed into the idea that fundamental shorts allow you to be more long.

• 5:18Joe Weisenthal?

  Yeah.

• 5:19Speaker 04

  And that's, 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, it enables you to have a long portfolio that actually will outperform.

• 5:34Joe Weisenthal?

  Yeah.

• 5:35Tracy Alloway?

  I mean, it is true that before this month, being a short seller did not seem that fun for like the past 10 years. And we've done episodes on the hard life of being a short seller. Are the gains now enough to offset like a decade of lines going up?

• 5:56Speaker 04

  Well, again, the lines are going up, but, but it was all a matter of if you're selling insurance, as I was and advise people to do now. The idea was, was is the insurance working? And the insurance was working. Really for even post global financial crisis for for quite a while and then starting about 2018, 2019 and right into the GameStop episode in the in the first quarter of 2021. It didn't work at all and and but it has worked since GameStop and even though the markets made new highs, you know, as recently, I think, as January, the short side has not been too bad. I mean, Bloomberg has a has an index, the the most shorted basket, which

• 6:41Speaker 04

  you can take a look at if you're a Bloomberg subscriber.

• 6:43Tracy Alloway?

  Thank you for the plug.

• 6:44Speaker 04

  My pleasure. And and it has it has done relatively well relative to the market since since early 2021.

• 6:53Joe Weisenthal?

  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 November. No, well, was it?

• 7:07Tracy Alloway?

  It was FTX. It was actually before FTX imploded officially, but after we did the infamous box episode.

• 7:16Joe Weisenthal?

  But you know what? The last time we talked to was November 23, 2022, right as FTX was imploding. But is this another point in the history here that's important? November 30, 2022 was when Chad GPT came out and then we got this incredible AI wave and people started piling everything into Nvidia and all these data center plays, etc. And in a previous odd lots, and I don't remember what that was, you've talked about data centers before and some brutal data center economics.

• 7:47Speaker 04

  Terrible.

• 7:48Joe Weisenthal?

  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 reversals for the big AI plays that were big. Those were just so hot. And so I'm curious now, like, you know, you've talked about data centers, etc. Tell us where you're seeing some of this stuff right now.

• 8:10Speaker 04

  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 the Mag Seven will tell you.

• 8:21Joe Weisenthal?

  Yeah.

• 8:22Speaker 04

  Where it's uncertain. We think it's going to be worth the the risk, but it's an uncertain payout. And I'll leave that up to to people who are much more well versed in technology than I am. Our view was that the old legacy data centers that were built to basically handle the cloud, not AI, were in trouble and and were a bad business to begin with and have gotten only worse. And that that was that was the bet. It's still the bet. I think it's a really, I've called it one of the worst business models I've ever seen because the capex is enormous. You gotta 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.

• 9:07Speaker 04

  So we kind of said, all right, AI is a thing. It's an uncertain thing. Market loved it. Now the market's questioning it. But we do know that the old data centers, the ones that have been around now.

• 9:19Joe Weisenthal?

  Is this like an Equinix?

• 9:20Speaker 04

  Yeah, Equinix, Digital Realty, Digital Bridge.

• 9:23Joe Weisenthal?

  Yeah.

• 9:24Speaker 04

  Those those have really challenged business models.

• 9:27Tracy Alloway?

  So one of the things that happened recently is CoreWeave did its IPO and it had initially targeted 2.7 billion and it came in at 1.5 billion. And the interesting thing to me is part of that was a really big order from Nvidia. And Nvidia is very interwoven with CoreWeave's model. 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 CoreWeave and Nvidia?

• 10:03Speaker 04

  So for those of us that are 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 99, 2000 with Nortel and Lucent providing financing for for its customers and then.

• 10:20Speaker 04

  Selling things into those customers on on cheap terms and the whole thing unwound very quickly when the dot com bubble and telecom bubble imploded. I I put a tweet out that got got some notice where I saw Nvidia not only was doing the core we've got deals, but had just bought a distributor of theirs. And and that that was also a little worrisome. Now, it's only a small part of their business. It's not material. But when you start to see this stuff on on the the margin, where companies are increasingly round tripping with with their customers or financing their customers or buying in their inventory via distributors, you begin to wonder, you know, if if it's just on

• 11:04Speaker 04

  the margin, that's fine. But as we all know, on the margin is everything, right? If you miss your earnings by a couple of pennies, you can 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 1998, 99, 2000 dynamic at work where companies are stretching to make numbers. That has not been the case up until now, right? Through 2023, 2024, demand's been amazing.

• 11:33Joe Weisenthal?

  Yeah.

• 11:33Speaker 04

  Blowout numbers. But it's something to keep an eye on as a shift.

• 11:39Joe Weisenthal?

  So 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 rally going.

• 11:50Speaker 04

  Aggressive, aggressive, aggressive moves with your customers and your distributors.

• 11:54Joe Weisenthal?

  Because that's what everyone's been wondering, right? And I guess like all of the 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 maybe is something that we could be a little bit thankful for in some sense. But we're the trade, trade war to go away tomorrow.

• 12:13Speaker 04

  Yeah.

• 12:13Joe Weisenthal?

  And we were returned to what we were talking about in January.

• 12:16Speaker 04

  I saw your post earlier today about if tariffs run away like this, all the other stuff that that is suddenly concerning.

• 12:21Joe Weisenthal?

  This would be the concern.

• 12:23Speaker 04

  Yeah, I look, on the margin, again, on the margin, I think these numbers are not material, their their deal with CoreWeave, the distributor they bought, but it's something to keep an eye on.

• 12:33Joe Weisenthal?

  Tracy, I just want to do, by the way, some of these names, I just for listeners, Digital Realty is below where it was like at its 2020 peak after having plunged from about 195 to 133.

• 12:45Joe Weisenthal?

  Their names, Courtweave is actually just slightly above its IPO price of 40. That was a crazy day.

• 12:50Tracy Alloway?

  Hanging in there.

• 12:50Joe Weisenthal?

  It's at 4135 right now. So anyway.

• 12:53Tracy Alloway?

  So one of the things that happened in the early 2000s 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 out of this. If you invested in Google, Amazon, you made a lot of money. Is there any possibility of that happening when it comes to AI? Do you see a winner?

• 13:25Speaker 04

  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 Nvidia or whatever succeeding, or maybe a couple of companies we don't know yet that will take advantage of it. The flip side to be the glass half empty guy is that what everyone also forgets about the internet was that it destroyed as many businesses as it brought forward. You know, in 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,

• 14:10Speaker 04

  what have you. And I suspect that AI will be very similar. We'll see, you know.

• 14:16Joe Weisenthal?

  You're not a hater.

• 14:17Speaker 04

  No, no, I'm open minded about it. I think 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.

• 14:32Tracy Alloway?

  What's the path to monetization for these AI companies? Because you already pointed out, the cost of capital is really high.

• 14:39Speaker 04

  Yeah, I don't know. And that's, we still haven't seen the aha moment as we did with the internet with online retailing and communities like America Online, where suddenly, you know, your aunt was on it and getting emails.

• 14:55Joe Weisenthal?

  And paying money.

• 14:55Speaker 04

  And paying money, paying money for it and getting emails and.

• 14:59Tracy Alloway?

  You have mail.

• 15:16Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And this episode, we're diving into the digital forces shaping finance. Shaun McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 15:32Speaker 05

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service institutional clients.

• 15:40Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese Merrick of Ripple says.

• 15:48Speaker 06

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 16:08Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 16:18Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Millions of Americans are taking peptides, short strings of amino acids that can act as biological signals for cells. Peptides like insulin can occur naturally in the body, or they can be synthetically introduced to induce a biological process, as happens with semaglutide, the active ingredient in Ozempic. Now, Bloomberg's Anika Inamputi reports peptides may be exploring their next frontier: the brain. People are taking peptides for mental clarity and cognitive benefits as alternatives to psychiatric medications and to gain a competitive edge or stave off the effects of aging. Both insulin and semaglutide are approved by the U.S. Food and Drug Administration.

• 17:02Speaker 01

  Because importing or selling unapproved peptides for human use is not legal in the U.S., many people turn to online forums for guidance and overseas vendors with questionable credentials to obtain them. Unapproved peptides, which are marketed as research chemicals, have been circulating in what's become a billion-dollar gray market. Amid the rise of do it yourself medicine as people increasingly turn to social media or artificial intelligence for medical help, doctors warn against self experimentation and advise talking to providers before trying any new therapies. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 17:41Joe Weisenthal?

  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 really is just leverage. And, you know, I'm looking at a share price, the shares of like Apollo, for example, I guess, maybe the private credit. That was at 189.30 on December 9. That's at 109. Blackstone shares look pretty similar. We're talking like 40% declines. That was at 200. It's at 118 right now. That's below where it was in late 2021. Private assets are like the story that Tracy and I keep

• 18:23Joe Weisenthal?

  coming back to. What is your takeaway from this like really intense selling of these names?

• 18:28Speaker 04

  Yeah, I mean, I I'm a little surprised at how intense the selling has been so quickly. But, look, I mean, I I agree with with Cliff Asness, who's done a great job talking about this. This is volatility laundering. And and the idea that that these funds don't have the same risks as equity funds have is, to me, preposterous. You're buying businesses on leverage. And and we're now seeing that as it's becoming increasingly hard for for these deals to for them to bring these deals public or get exits. And again, on the margin, you're seeing a little bit of odd behavior in some of the private equity funds in trying to entice their investors to stick around. We'll have to see. I mean, up until now,

• 19:11Speaker 04

  for the last 15 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 will be a long period of lackluster or no equity returns with higher interest rates.

• 19:42Joe Weisenthal?

  Can you actually just, when you said, oh, at the margins, we're starting to see some janky behavior with regards to their partner LPs. What do you, what's going on?

• 19:51Speaker 04

  Yeah, 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 to agree to put money into the next fund.

• 20:10Joe Weisenthal?

  [laughing]

• 20:11Speaker 04

  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 fund performance that is starting to become more lackluster, right? Rolling 10-year returns in private equity are beginning to converge with that of the regular equity market.

• 20:31Tracy Alloway?

  To your point about the length of the sell-off, 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 mark to market losses so soon. You can hold on for longer theoretically.

• 20:45Speaker 04

  Yep.

• 20:46Tracy Alloway?

  We're seeing a lot of people right now talk about, you know, emergency moves from the Fed, 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 would lower rates actually provide here?

• 21:06Speaker 04

  Well, I think spreads matter more.

• 21:07Tracy Alloway?

  Okay.

• 21:07Speaker 04

  So, and we've seen, we've seen a 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 because of low inflation.

• 21:18Joe Weisenthal?

  Yeah.

• 21:19Speaker 04

  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 don't think that that's the panacea that people are expecting, at least not yet, even with a Fed ease, because junk credit is, is, rates are going up.

• 21:40Joe Weisenthal?

  Right. They could, the Fed could do something just about like the sheer mechanical breakdown if it's happening.

• 21:46Tracy Alloway?

  The plumbing.

• 21:47Joe Weisenthal?

  The plumbing. People love to talk about the plumbing of the treasury market.

• 21:50Speaker 04

  The basis trade. I read something, I read something today about the basis.

• 21:54Tracy Alloway?

  Oh, thank you. Thank you for reading.

• 21:56Joe Weisenthal?

  Listen, pause right there, listeners. Jim Chanos is a reader of the Odd Lots newsletter, which means you should be too. What is an LP, what is 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? So basically, very few opportunities for liquidity or distribution or anything like that. What kind of moves do they make?

• 22:24Speaker 04

  You better, better practice your writing of a heartfelt apology letter 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 problematic. I mean, investors are going to get back stakes in private companies that they might not want.

• 22:46Joe Weisenthal?

  Oh, so like distributions and kind?

• 22:48Speaker 04

  Yeah, exactly. And so if you can't cash out. And so, yeah, it, 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, you know, 14, 15% with very little volatility. So this is a free lunch, I think are over.

• 23:08Tracy Alloway?

  The other narrative that pops up from time to time is this idea of, of dry powder, that 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?

• 23:24Speaker 04

  I don't know. I mean, I, you'd have to get into the, the, 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 14 and 15% investors were hoping for. So I, 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. 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 a good thing for them.

• 24:04Joe Weisenthal?

  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 15 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, I'm 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 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 in treasuries. It seems like if you have 15 years of people telling you you're a moron for holding, for being under levered.

• 24:42Speaker 04

  Yeah.

• 24:43Joe Weisenthal?

  Then a downturn in just sort of normal investments can metastasize into financial problems very quickly.

• 24:48Speaker 04

  Well, it also depends, Tracy, how you define dry powder. A lot of firms define dry powder as the ability to capital call on their, on their limits.

• 24:56Joe Weisenthal?

  All right.

• 24:56Speaker 04

  It's not actually cash sitting in a bank account.

• 24:58Tracy Alloway?

  Yeah.

• 24:58Joe Weisenthal?

  Yeah.

• 24:59Speaker 04

  And I think that will become much more problematic in a downturn.

• 25:02Joe Weisenthal?

  I'm not going to pick up the phone.

• 25:03Speaker 04

  Yeah, yeah. Look, yeah.

• 25:05Tracy Alloway?

  So 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.

• 25:17Speaker 04

  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 pays the tariff.

• 25:42Joe Weisenthal?

  Right.

• 25:42Speaker 04

  Right? It's not a tax on China. And so you're a small and medium businessman, you just got $100,000 worth of product that landed at Long Beach Port from China, and your broker is saying, yeah, just come down with a cashier's check for $100,000 for the government, and we'll release your product. Businesses don't have that.

• 26:01Tracy Alloway?

  Yeah.

• 26:02Speaker 04

  And so, I mean, there's real practical aspects.

• 26:06Speaker 04

  These tariffs that I don't think we kind of know all the

• 26:09Joe Weisenthal?

  Yeah.

• 26:09Speaker 04

  Implications and how it will ripple through the economy. And I suspect you'll start by May getting, getting some pretty decent real time feedback on, from businesses saying, you know, we're cutting our profit guidance. Because if they can't pass it on completely and, and study after study shows they can't usually, then profit margins, which by the way, let us not forget are at all time highs,

• 26:35Speaker 04

  are going to hit an air pocket.

• 26:36Tracy Alloway?

  We have seen some companies pulling their forward guidance already, right Jim?

• 26:40Joe Weisenthal?

  Yeah, Delta, Delta this morning.

• 26:42Speaker 04

  Walmart.

• 26:43Joe Weisenthal?

  Walmart. When that 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, what these numbers are, the market would be down a lot more. Do you sense, and again, anything could happen by the time, but on April 9th, that there is still an element of disbelief that this could actually be where our tariffs schedule ends up?

• 27:07Speaker 04

  I think there definitely is a level of disbelief. I mean, the, the stock market's still at 20 times latest 12 month earnings. And I, I mean, they're coming down, but people still think earnings are going to be up 10% this year. And I don't know what planet they're on. And, and so I think that, that that's number one. And, and the size of the tariffs was stunning. I remember it was watching the press conference after the market closed. And I don't have the best eyesight in the world. I had to get close to the TV to make sure I was reading the, reading the numbers.

• 27:37Joe Weisenthal?

  Screenshots.

• 27:38Speaker 04

  Was that 50 or 5%? I'm like, what? Yeah.

• 27:42Tracy Alloway?

  I mean, that says a lot. Like the idea that it could be 50 or 5% at all is, is pretty nuts.

• 27:48Speaker 04

  Yeah.

• 27:49Tracy Alloway?

  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? What's your sense of flexibility there? And then more generally, where do you see inflation going from here? Cause obviously there is tension between prices going up in the immediate term because of the tariffs and demand being destroyed and us getting deflation.

• 28:22Speaker 04

  I think Walmart's warning this morning was, was maybe instructional in that they went out of their way to say that they were pulling their profit guidance, I believe. But, 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 so much of their stuff from China, right?

• 28:45Joe Weisenthal?

  They're gonna eat it.

• 28:45Speaker 04

  They're gonna eat it. And because otherwise, they would say, well, we're gonna hike prices 15%, 20%, and our revenue is gonna be up 15% to 20%. They didn't say that. They said 3% to 4%, but margins, you know, we don't know on margins yet.

• 29:00Joe Weisenthal?

  Yeah, 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 tariff conversation was this very simple-minded, what does it mean for inflation in the Fed? And not this sort of deeper question of like, are you kneecapping corporate profitability in America? And what does that mean for all these different kinds of business models?

• 29:19Speaker 04

  I think that's the bigger risk, not inflation.

• 29:21Tracy Alloway?

  Well, 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.

• 29:47Speaker 01

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• 31:10Joe Weisenthal?

  Let's talk about a guy, Elon Musk, who, for many years, you were famously

• 31:15Speaker 04

  My BFF?

• 31:17Joe Weisenthal?

  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 any journalist should come out of retirement for. It may be the biggest story of our lives." He's been pronounced, you know, done, dead, many times, and Tesla is always...

• 31:38Speaker 04

  Yep.

• 31:38Joe Weisenthal?

  Is this different this time in your view?

• 31:40Speaker 04

  Look, 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. 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, and there's a handful of others,

• 32:25Speaker 04

  that still trade at, you know, 40, 50 times revenues, where people still believe, they still believe in the promise of robotics and AI and robot taxis. And he's captured the imagination of a whole set of investors, particularly retail investors, who just are rabid with the idea that this is the company of the future. And, and so, that, that's number one. Number two, I mean,

• 32:52Speaker 04

  Ultimately, he's going to have to deliver on these promises. And, 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 have down, I think, down sales this year in terms of units. So I remember when the S's were all going to be driving Teslas in 2030, right? That's not happening. And so it'll be curious to see when the robot taxis are rolled out this summer in Austin. How exciting is that? And then, of course, you know, the, the, the big one is, uh, we're all going to have, uh, you know, Rosie, Rosie, the robot, uh, from the Jetsons in our, in our, in our house, you know, doing our, doing our tasks from Tesla.

• 33:37Speaker 04

  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? I mean, it's utility. People will have one. It'll be $30,000 to $50,000. There'll be 15 companies making them. And, and margins will be, it'll be a manufacturing margin business. You know, cars have tons of software in them, tons of chips in them. They're amazing utility for the consumer. But they're cars, they have a low margin and, and a lot of people make them. And I, I think it's going to be the same with robotics.

• 34:11Tracy Alloway?

  I always wonder how much rope, uh, the tech believers are giving companies to fulfill their promises. And I remember I asked Kathy Wood about this, like, what is her timeframe for actually making a profit? Because there's a premium on good stories. You can keep telling a good story for a pretty long time and a certain set of investors will believe it. What's the catalyst for that actually starting to change?

• 34:37Speaker 04

  Well, again, I mean, I think that, that, that number one, interest rates have a, have a big determinant 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, to pay more for profits and cash flow 10 years in the future than when rates are, are higher. That's number one. And for all these companies like this, 95% of the value is in the, you know, the terminal value. That's number one. Number two, it's look, it's castles in the sky. I mean,

• 35:10Speaker 04

  In bull markets, people believe these stories. And it's as old as human nature.

• 35:14Joe Weisenthal?

  Yeah.

• 35:14Speaker 04

  And, and when, when things get, get tight, I mean, we kind of forget Tesla was a hundred dollars a couple of years ago, down from 500. And it dropped 80% in, in 2022. So it varies.

• 35:29Joe Weisenthal?

  2022 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.

• 35:37Speaker 04

  Yeah.

• 35:38Joe Weisenthal?

  People didn't really know what it was. And then like it started, so over, once it started going, it looked like, oh, these cuts like have, these moves do not seem to have any rhyme or reason other than kneecapping the federal government. 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, so 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 crack data scientists could go into and find some evidence and really like make some 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 Advantage is yet.

• 36:23Joe Weisenthal?

  I know I'm supposed to look this up. Health insurers, insurers that offer Medicare Advantage plans to seniors cheer to Trump administration's decision announced Monday to increase federal reimbursement rates by $25 billion next year. What's Medicare, this is in the Albany Times Union. What is Medicare Advantage? Why are they cheering this?

• 36:42Speaker 04

  You're asking the old guy, right?

• 36:43Joe Weisenthal?

  And, 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 expected?

• 36:51Tracy Alloway?

  Joe, if you, if you watch cable news, you would know all about Medicare Advantage.

• 36:55Speaker 04

  Yes, you would. So, so I tweeted out when Doge started out, I said, if, if they don't go after Medicare Advantage, you know, right away, then you know they're not that serious.

• 37:04Joe Weisenthal?

  Okay.

• 37:04Speaker 04

  And, 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 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.

• 37:26Joe Weisenthal?

  Okay.

• 37:26Speaker 04

  The problem becomes it's 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 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 Mr. Chanos 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. There were some public companies that were purely in Medicare Advantage that we were

• 38:07Speaker 04

  short, and a lot of them were bought up by companies like CBS and others. And we just couldn't believe it.

• 38:13Joe Weisenthal?

  Yeah.

• 38:13Speaker 04

  Because if you did any kind of due diligence on these companies, you realize that they were they were upcoding.

• 38:20Joe Weisenthal?

  But I guess implicitly, if you're shorting them, that's a bet that someone takes this issue seriously.

• 38:25Speaker 04

  Yeah.

• 38:25Joe Weisenthal?

  In the public sector. And it looks like at least here is the guy who came in to cut spending and he now we're paying.

• 38:32Speaker 04

  Yeah, I mean, they're going they're going after the small stuff. They're going after 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. I mean, this is all political theater. And and the real the real cuts are in areas that that they haven't touched.

• 38:57Joe Weisenthal?

  Yeah.

• 38:58Speaker 04

  And so we'll have to see. But it didn't get past me that Musk basically now is is all but saying he's going to be gone from Doge in May. You know, he four months.

• 39:10Joe Weisenthal?

  Yeah.

• 39:10Speaker 04

  And so and Vivek never got going. And so I I think that that this is they're finding out that what they thought was fraud in ways is turning out to be, you know, authorized programs that you might not agree with politically, but.

• 39:24Joe Weisenthal?

  Yeah.

• 39:25Speaker 04

  Were authorized, right? And and and need legislative prescriptions.

• 39:30Speaker 04

  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.

• 39:38Tracy Alloway?

  I completely forgot about Vivek, but you're right.

• 39:41Joe Weisenthal?

  Well, he didn't even make it to inauguration.

• 39:44Speaker 04

  Yeah, he didn't. He didn't even get to day one. Yeah.

• 39:48Tracy Alloway?

  Jim, hopefully you won't mind me asking this question, but I think it's fair to say you are a financial markets veteran.

• 39:56Tracy Alloway?

  You've seen.

• 39:57Speaker 04

  Yeah, I'm old.

• 39:58Tracy Alloway?

  You've seen a lot of stuff happen over the years. Are there any historical parallels or analogies to our current moment in time?

• 40:06Speaker 04

  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 hegemon has willingly said, I'm going to basically shoot myself in the foot and get rid of the exorbitant privilege that we've had as being the global hegemon with the reserve currency. They're, they're trying to dismantle that 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 going to have to, like everybody else, take it day by day. But, you know, the idea that, that, that markets

• 40:48Speaker 04

  are now going to react to, you know, tweets. And as, 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, and I think that's kind of no way to run an economy and no way to run markets.

• 41:10Joe Weisenthal?

  That was a great place to leave, but I'm going to go end on like a more boring question on the Medicare Advantage stuff.

• 41:17Speaker 04

  Yeah.

• 41:17Joe Weisenthal?

  And all these people can come in here and talk to us about upcoding and fraud. Where did your view, when you've looked into this and why these companies end up getting bought out and the shorts don't work, where is the force coming from that prevents? Whether it's the, you know, HHS or whatever, from actually taking this stuff seriously.

• 41:36Speaker 04

  Yeah, there's actually, there's actually arms of the government.

• 41:39Joe Weisenthal?

  Right. No, we, this isn't like, none of this stuff is like new.

• 41:41Speaker 04

  No.

• 41:41Joe Weisenthal?

  So why, what, why does, in your view, does it not get addressed?

• 41:45Speaker 04

  I don't know. And, 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 in, in the, in the, um, our budget, the federal budget. And so the fact that, that they haven't even gone after this or addressed this yet from Doge is really telling to me because it's there.

• 42:19Joe Weisenthal?

  Yeah.

• 42:19Speaker 04

  It's, it's low hanging fruit. And, you know, if you look at the, if you look at the 10 Ks of these companies that we were short, I mean, there's, there's criminal investigation after state level investigation listed in their legal proceedings. And yet, most of them, when they get caught, they pay a fine. And, and nobody goes to jail and.

• 42:40Tracy Alloway?

  The cost of doing business.

• 42:41Joe Weisenthal?

  It's so disgusting. Even if they reverse this trade strategy, there's so much rot, isn't there? I'm so angry right now. Jim Chanos, thank you so much. This was a very satisfying episode. I found this very fun. Thank you for coming in.

• 42:53Tracy Alloway?

  Therapeutic.

• 42:54Joe Weisenthal?

  Therapeutic. Thank you. I'm so disgusted. My pleasure, guys. I'm so disgusted. Thank you for coming on, I promise. My pleasure.

• 43:13Joe Weisenthal?

  Tracy, I love talking to Jim.

• 43:16Tracy Alloway?

  Yes, although that was bleak. And I have to say.

• 43:18Joe Weisenthal?

  I know that was bleak. Jim, you know what, you know what? Yeah, it was bleak and I've, but Jim knows ball. And I enjoy talking to a ball knower like Jim.

• 43:26Tracy Alloway?

  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 and.

• 43:37Joe Weisenthal?

  Yeah. Did we switch this week?

• 43:39Tracy Alloway?

  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.

• 43:50Tracy Alloway?

  With just a simple announcement or even like some words of comfort and indication.

• 43:55Joe Weisenthal?

  No, he did. Trump said, be cool.

• 43:57Tracy Alloway?

  Be cool.

• 43:57Joe Weisenthal?

  And unfortunately, when I hear the word term be cool, I just think of the opening scene in Pulp Fiction. It was like, everybody be cool. I'm not going to say the rest. Yeah, he said, be cool. It didn't work.

• 44:09Tracy Alloway?

  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.

• 44:19Joe Weisenthal?

  Yeah.

• 44:20Tracy Alloway?

  Shall we leave it there?

• 44:21Joe Weisenthal?

  Let's leave it there.

• 44:21Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 44:27Joe Weisenthal?

  And I'm Jill Weisenthal. 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 Armin, Dashil Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have our daily newsletter and all of our episodes. And you can chat about these topics 24/7 in our Discord, discord.gg/oddlots.

• 44:53Tracy Alloway?

  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 ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 45:47Speaker 07

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