Jim Chanos on Why Some of the Worst Hit Parts of the Market Still Have More Pain Ahead

Joe Weisenthal (0:09)

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

Tracy Alloway (0:14)

And I'm Tracy Alloway.

Joe Weisenthal (0:15)

So Tracy, obviously, numerous assets across the market have been crushed. But one of the things, math says that something could go down 90% and it actually could go down another 90%. It could go down from there. So there is this question of like, well, is there real value at some point that's going to emerge out of this rubble?

Or is it really just a lot of trash that's going to zero?

Tracy Alloway (0:42)

Yeah, the thing that kind of worries me when it comes to valuations is, people talk a lot about the pons and nomics of things like cryptocurrencies, but then, or just the idea that the only value they get is by money continuously flowing into them. But then I worry that you could make that case for a lot of traditional assets as well, stocks and bonds, right?

So we've just seen valuations go up and up and up, seemingly without limit, which kind of means that on the downside, maybe they can go much further than you would normally think.

Joe Weisenthal (1:17)

Well, and I guess the question too is, cryptocurrencies aren't bolstered by like, oh, well, free cash flows, or like some sort of cash in the bank that eventually makes it valuable. But in a company, the question is, do the unit economics work? Is there an actual business model? So you can have money losing companies that might still be worth something because there's like a business model there to be salvaged.

But if you get a lot of companies that really in no economic conditions, whether it's boom times or busts, have something that is actually a business model that could be turned into something that can generate cash flow, then right, you can get into the situation which the only reason they were going up is because of investor money. And when that's gone, perhaps the assets are worth zero.

Tracy Alloway (1:59)

Yeah, exactly. And it just feels like there's so much uncertainty at the moment. And of course the big wild card is the backdrop of inflation, which we haven't really had to deal with before, right? Normally, things started going a little bit weaker in terms of the economy, we would expect the central bank to step in and do something, provide some support and that would lift valuations up once again.

That doesn't seem like it's gonna happen this time around.

Joe Weisenthal (2:22)

That's a very new dynamic and it wasn't even in place, obviously in 2008, 2009, when there was aggressive response to the downturn. Anyway, enough of our time, I'm really excited about our guest, someone who knows a lot about the state of the world, valuations, whether the assets are cheap or whether it's just more upon synonyms all the way down.

We are going to be speaking with Jim Chanos. He is the co-founder of Chanos & Co, which used to be called Kinnikos. He's probably one of the most famous hedge funders slash short sellers in the world, on Wall Street, really needs no introduction. So let's bring him straight in.

Tracy Alloway (3:00)

So we just did one.

Joe Weisenthal (3:00)

I know.

Jim, thank you so much for coming on Odd Lots. I don't think we've ever had you before. So this is a real thrill to have you on.

James Chanos (3:08)

Thanks for having me, guys. But I would say that being a famous hedge funder or even worse short seller is a pretty low bar these days.

Joe Weisenthal (3:17)

Well, see, you said something that has really stuck with me for the last two years. And I want to start the conversation here. You know, it was summer 2020 and the stock market after plunging in March had started surging and people really going into a lot of these like sort of like internet companies and like Ubers and Grubhubs and all of these, you know, tech companies that recently IPO'd. And you said something interesting. You're like, if they're not making money now, and I don't remember your exact words, but you said, if they're not making any money now, when all of us, so many people are stuck home ordering online and so forth, if they're not making any money now, when are they ever going to make money? If not in the beautiful, perfect economic conditions of everyone in summer of 2020, buying so much online. Is that still the case? Like have any of these companies made any progress to having a business model?

James Chanos (4:10)

So the companies we were talking about were some of the gig economy darlings in 2020 and continued to be so in 2021