Jim Chanos on Who's Getting Caught Swimming Naked

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Joe Weisenthal (0:18)

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

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, I guess one good thing about market, I don't know if it's even good, because I like when lines go up no matter what, but 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.

Tracy Alloway (0:49)

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 we are probably at that moment. And I gotta say, in terms of who likes when lines go down, you know who likes when lines go down? Yeah. Short sellers.

Joe Weisenthal (1:07)

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

Tracy Alloway (1:18)

Instead of dead bodies floating to the top?

Joe Weisenthal (1:21)

Maybe it's a little, we'll have to figure out. Anyway, let's just jump right to it. We've had them 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 gonna tell us what naked bodies are floating to the surface. Jim Chanos, founder of Chanos & Co, long time investor, short seller. Thank you for coming back on Odd Lots.

James Chanos (1:45)

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

Joe Weisenthal (1:47)

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

James Chanos (1:55)

Yeah, he was my first analyst.

Joe Weisenthal (1:56)

Incredible.

James Chanos (1:57)

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

Joe Weisenthal (1:59)

Up to a point, okay.

Tracy Alloway (2:02)

All right, I'm just gonna ask basic questions to start, but what has the past week or so? Let's see, we're recording this on April 9th.

Joe Weisenthal (2:10)

At 1128 AM.

Tracy Alloway (2:11)

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?

James Chanos (2:19)

Well, we're not in the business of running outside money anymore, so that ended a couple years ago, but we do advise clients and 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 when the market shifts gears, a lot of the more questionable story stocks, frauds, hypes begin to underperform. That was not the case until really about the tariff, the liberation day, and now it's really kicked in.

Joe Weisenthal (3:06)

If I'm an asset allocator, is that why I allocate to someone who specializes in short selling? Not because they're 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 investment because I have this knowledge that I'll get outsized returns from you when they go down?

James Chanos (3:28)

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

That's really, at the end date, 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. Yeah.

Tracy Alloway (3:56)

I mean, it is true that before this month, being a short seller did not seem that fun for 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 a decade of lines going up?

James Chanos (4:17)

Well, again, the lines are going up, but it was all a matter of if you're selling insurances, as I was, and advise people to do now. The idea was, is the insurance working? And the insurance was working really for even post-global financial crisis for quite a while, and then starting about 2018, 2019, and right into the GameStop episode in the first quarter of 2021, it didn't work at all.