Jim Chanos on Crypto, Tech and the Golden Age of Fraud

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

So Joe, one of the most famous maxims in markets has to be that, I think it's Warren Buffett, isn't it? The quote about when the tide goes out, you get to see who's swimming naked.

Joe Weisenthal (0:27)

Yes.

Tracy Alloway (0:29)

It's a cliche.

Joe Weisenthal (0:29)

We are in a big time tide goes out environment. I mean, the number of CEOs of various companies who have written some version of like, I screwed up, this was all my fault, I misjudged, et cetera.

Every day, it feels like there's another one. And it is true. When there is a bear market, when there's a downturn, you discover both frauds and you discover insolvencies and you discover unsustainable structures. It all comes out. Right.

Tracy Alloway (0:55)

It is a popular saying for a reason, which is that it tends to be true. What is kind of amazing me about this particular cycle is, I guess, just the speed at which all of this seems to be happening. So, you know, it was only a few months ago that we had Jim Chanos, the famed short seller, on the podcast talking about how he thought that there was going to be more pain ahead for a lot of different froth spots in the market and how interest rates going up basically meant that a bunch of frauds were going to be exposed.

Joe Weisenthal (1:29)

Yeah, and so basically the market, particularly a lot of the tech stocks and a lot of the gig economy, sharing economy, the ARK economy, all these things really have gotten hit pretty hard since we talked to Jim earlier in the summer, and it's still a mess. And so I guess part of the question is, well, what does it look like at the bottom? What have we learned? What are we seeing with the tide going out? And are we any closer to, you know, something that could resemble like a bottom for this market?

Tracy Alloway (1:57)

Right. And then also, I guess my question is, do frauds pick up in this environment, or do they get exposed and more difficult to perpetrate? So we are going to be talking about all those things with Jim Chanos. This is an episode that we recorded live at the Berkeley Forum for Corporate Governance in San Francisco. Jim is, of course, the co-founder of Chanos & Co., which used to be called Kinnikos.

Here's our conversation.

Joe Weisenthal (2:23)

Hi, Jim.

Tracy Alloway (2:25)

Now, Jim, the last time we spoke to you, I think, was in June of this year. Fast forward a few months, you were completely correct.

More froth was blown off the top of the frothiest stocks in the market. I don't even have a question. I think I'm just going to ask you, like, tell us what's going to happen now.

James Chanos (2:43)

Look, we're getting a situation where the various parts of speculation are getting rung out of this market one by one. We talked a little bit about them back in June.

I think we've waited right in the middle of kind of our second crypto crisis over these past few days. On top of it, you've got the tech complex melting down. And a lot of this is just the byproduct, as we discussed, of perhaps the most speculative market that I've seen in my lifetime 40 years on the street, which was 2021

And one by one, whether it's crypto, whether it's NFTs, whether it's SPACs, the poster children for that speculation are basically being taken out to the woodshed and disposed of. And the question will be, does it spread to something in the markets anyway that's much broader than that? And that remains to be seen.

Joe Weisenthal (3:37)

Again, kind of like Tracy, I don't even have a question exactly, but FTX, give us the Jim Chanos tape.

James Chanos (3:43)

Well, I mean, I think, Joe, you basically are probably better prepared than me to talk about that because the quintessential moment for me in the whole crypto saga was the interview that you and Matt Levine had with SPF, I think back in April, where as I pointed out, he kept saying the quiet parts out loud about how business models were in effect Ponzi schemes.

And I think we're going to look back at that as a watershed moment because the crises in liquidity and the revelations on the stable coins all immediately followed that interview.

And it was one of those moments and kudos to you all. It was one of those moments in the markets that not only went viral on social media, but went viral amongst professionals and others. Have you seen this interview? Did you see what was said here?