Short Seller Jim Chanos on Fraud, Meme Stocks, AI, Elon’s Pay

John Johnston (0:00)

Hi Team Value, JJ here, welcome back. Well today, I'm going to react to an interview, a recent interview by famed short seller, Jim Chanos.

He talks about the stock market, about the golden age of fraud, about Elon's pay package and many other things, meme stocks included, so let's get into it.

Scarlett (0:18)

How much does the rate environment overall contribute to the shrinking universe of short selling funds, do you think?

Jim Chanos (0:23)

Well, I think the rate environment is probably the first or second derivative. I mean, it's really the ongoing persistence of the bull market, which has now been 15 years. And we saw something similar, Scarlett, in the late 90s, where the number of short biased funds by 1999 and 2000 really had dwindled to a handful.

And people just got exasperated. And that was right before there was really 10 years from 99 to 9 of just fantastic returns on the short side.

And to bear markets, of course. Right now, what we're seeing in the universe of companies we follow is probably as attractive a time as it was in first half of 2021 And I've said publicly that 2021 was the most speculative market I've ever seen in my 40 years or 45 years of investing. And we're getting back to that. Not quite there, but it's close.

John Johnston (1:20)

Wow, he's saying that close to 2021, where all those SPACs were around the meme stocks. And then there was a big down market, a bear market after that for tech anyway. There was an overall bear market, but tech went down 70%, 80%, 90% in some cases. He said it's getting back to that. But short sellers have been having a really tough time, which is what he indicated there. He's close his hedge fund, now a family office.

So he's indicating here that short sellers are having a really tough time, as tough as they have for a very long time.

Jim Chanos (1:51)

And where the stock market is going, I have no idea.

John Johnston (1:53)

I just did a video today on the stocks today with JJ, a new live channel where I'm doing daily live videos. I'll put a link to that in the description. The channel needs some love. It's new. The YouTube algorithm hasn't found it yet. So go and check it out.

Jim Chanos (2:07)

But the fact of the matter is, is that with the exception of the far right group of companies on the bell curve, most companies underperformed the stock market over time or fail. It's the NVIDIAs or the Teslas or whatever on that far right end that go up quite a lot that give you your returns.

John Johnston (2:27)

Definitely been the case lately with the Magnificent 7 Those stocks have performed incredibly well compared to many other, most other stocks in the stock market. The huge amount of gains from those stocks alone.

Jim Chanos (2:38)

The strategy of being long equity markets broadly and short, idiosyncratic names, I still think makes a lot of sense.

SPEAKER_4 (2:45)

Is AI in a bubble?

Jim Chanos (2:47)

I have no idea.

SPEAKER_4 (2:48)

You lived through bubbles?

Jim Chanos (2:49)

I've lived through bubbles. I'll make one observation as it relates to AI. So if you go back and look at the US economy in the immediate post-internet age, and I think we can all agree the internet changed our lives in a major way. From 1998 to 2007, the US economy grew at 3% real annually.

From 1988 to 1997, the 10 years prior to really the advent of the internet to the public, the economy grew by 3% annually. The internet had no impact on growth. Now it had a lot of impact on individual companies, getting back to my point. There were big, big winners and big, big losers.

John Johnston (3:35)

the.com bubble. A lot of those companies went away. There were a few winners. We think those big mega caps now. Amazon was there during that.com bubble. It had 10 years to get back to where it was in the bubble. Microsoft did well. And we have other companies that were started after that. The Teslas and the Metas were started way after the.com bubble.

Jim Chanos (3:55)

If AI is going to be as transformational as people think it is, and I have no idea whether it will be or not, there will be big winners and there will be big losers.

SPEAKER_5 (4:02)

I just want to follow up on that, though, too. And this kind of leads back to the question Scarlett started off with about the connection between macroeconomic conditions and our markets today. And there does seem to be a disconnect.