Jim Chanos: We’re In The Golden Age Of Fraud

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Kits eat free. Today's number 25.

“That was the percentage decrease in Canadian travel to the US in 2025.”

What did the beaver say to the maple tree? What's up? It's been nice non-you. How are you, Ed? I'm doing very well.

Same for. The weather's nice. I've been going out to Long Island. Getting tan. I had a wedding this weekend, which was nice.

Are you at that age? Yeah, the weddings. They're happening. They're coming. Every other weekend it feels like.

I first had fun and then it gets a little bit, you're like, wow.

It's a lot of trucking out. But it was a beautiful wedding and a really good time. So I'm very, very happy for my friends. In two or three years, you'll experience the doovers where people realize like, "We only got married because we were 27 and it didn't work."

So it'll be a few of those. In 10 years, that's when the really ugly divorce is set in because they have kids. Okay. Then in about 20 years, you'll go to the second weddings. When you decide to tie the knot, I just can't wait.

I wish I would be a fly on the wall. It's a very rational conversation around using testing that you take the money for the wedding for a down payment for a house. You're the kind of guy to adjust that. And I just wish I could see you.

Actually, I think it's the opposite. I think I want the awesome wedding and dislodge on the party. I don't think she cares that much about it. But I think having a sick wedding is, I think he got out of sick wedding. I'm a little, I'm a little probably done on my head screwed on quite straight on that one.

What I would suggest is just throw a huge party and don't tell anyone it's a wedding because when people hear the term wedding, they've marked everything up by 50%. That's a really interesting point. Yeah. Maybe just don't get the wedding plan.

I get an events plan to pretend that you're celebrating your birthday and then you kind of trojan also wedding. It's an interesting strategy. Or if you do what I did, just go down to City Hall with a woman who looks like she's about to start dilating

and get married in front of a judge. That was the room. That was the romance I brought. And we had to call four different people to get a witness that morning.

“That's how I expressed my love and my undying commitment.”

I love it. I love it. So you're not a fan of the big wedding or where do you stand on the issue?

So first off what you have to acknowledge is in all of these decisions.

You're an influencer, not a decision maker. And that is, I'm a big believer in dividing and conquering. In a partnership and in my partnership, I'm in charge of money and movies and everything else she decides. Because she has much better instincts and judgment than I do across everything.

So she pretends to listen to me and she nods. You know, I say, well, you know, we should stick in the U.S. for high school kids just like, oh, no, we're moving to Europe. Oh, okay. Just tell me where to be when.

Just tell me where to be when. Send me the address. So, but yeah, I get used to that. Decide pick one or two things you're really good at and just acknowledge every other decision is going to be made by your partner.

Okay. Money and movies is a good, that's a good combo. That's, that's, that's fun to be in charge of those two things. And you're good at both of those. I'm outstanding at both of those things.

Yeah, that's, that's my value at speaking of money. Let's get to our, let's get to our guest. Let's do it. Our guest today is one of the most famous short sellers on Wall Street.

and also the LeBron James of Shortselling.

He first made a name from South in 1982 when, as a junior analyst,

he urged clients to bet against a piano manufacturer that had expanded into insurance just months later the company filed for bankruptcy. But he is perhaps best known for calling the collapse of Enron before it imploded. That bet cemented his reputation as one of Wall Street's most respected skeptics. Now he is sounding the alarm once again this time about AI.

He has argued that today's AI boom may be an even bigger bubble than the dot com era. So we wanted to understand why one of Wall Street's most successful

contrary and investors thinks the market has become so euphoric and what he believes

investors are missing. Here is our conversation with the legendary Shortselling Jim Channers. Jim, great to have you on the show. Thank you for joining us. I'm going to start with a simple two-part question for you.

“Is this market in a bubble and if so, is it going to pop?”

The market is very, very expensive. I learned a long, long time ago about 40 years ago when I started my firm. That the market was inherently predictable. But there were companies and sectors within the market that are often much more predictable. And so I don't know if the market broadly speaking is in a bubble.

It's certainly quite expensive as it's pretty much it's ever been. Right up there with the with 1999, 2000, the dot com bubble you referenced. But look, I mean, it's been expensive for a number of years. However, what we are seeing right now is an unprecedented capex boom. And capex boom tend to end badly.

They tend to leave behind very productive assets. As they did during the dot com telecom build out or going back further, the railroad build out of the 19th century. But investors often get burned along the way and financing that build up. And that's my concern right now.

Particularly as it relates to the physical assets related to AI.

“What are some of the biggest concerns that you're seeing in the market as it relates to AI?”

There are several things going on. As the circular financing, there's the explosion in AI debt as the fact that the debt appears to be increasingly. Going off of the balance streets of the hyperscalers and stuffed into these S.P.V. I mean, there's a lot going on to be sort of skeptical of which things do you see as the largest concerns in AI right now? Well, if we go back to the the dot com analogue.

Most of the spending that was done and Scott knows this back in the late 90s was by enterprise. And and by relatively profitable telecom companies. The spending by the dot com's and the sea licks and the fiber guys was relatively small amount of the total capital spending.

And the companies that had ineffective unprofitable business models that remained unprofitable and basically a lot of them went bankrupt.

Most of the spending was done by AT&T by by Bank America by Coca-Cola who were networking their systems together to take advantage of the internet.

“And then on top of that you remember we had the Y2K and I remember my firm we replaced all our PCs in 1999.”

So a lot of the capital spending budgeting and spending was by fairly profitable companies. What happened in the dot com era was that they just got too optimistic in terms of how much they needed an order books collapsed. Beginning in late 2000 into in 2001 and so S&P earnings collapsed 40% from the middle of 2000 to the middle of 2001. They dropped as much as they did during the global financial crisis which a lot of people find hard to believe. And so nowadays we are seeing much much more concentrated capital spending in the form of a build out by the hyperscalers by the the so called neoclouds and by the AI companies themselves.

So we're seeing a lot more risk in a lot smaller subset of the market. The broader question of course is is will there be a return on this investment and that that question is is remains to be seen.

S&P profits grew 6% in the decade before Netscape, 6% per annum and they grew 6% per annum in the decade after Netscape.

So for all of the wonderment of the internet and it's certainly changed their lives and it brought forth all kinds of new businesses and kills a lot of old businesses. You wouldn't have really kind of noticed it in the aggregate economic or even arguably financial statistics. And so the question will be what will AI bring in the form of productivity, what will it bring in the way of enhanced profitability and how much of that is being front loaded today. And that's a big question because like the dot com boom we have an accounting identity problem that follows these capex blooms.

Namely that the companies that are spending the money do not expense immediately most of that money that's being spent. It's capitalized and depreciated over 5 to 10 years. The companies receiving a lot of that money. The Nvidia's of the world, the caterpillar tracters of the world, the utilities. They're receiving in terms of revenues and profits immediately.

So the same dollar is basically contributing to profits in a far greater extent than it does in a more normalized economy where it would be recognized as revenue by one.

Company and expense by another.

“And that's what we're seeing and that's why SNP profits have taken off in the last two years.”

It's because of this mismatch. Could you describe more speak more to this this expensing problem? Because I think a lot of the argument as to why we shouldn't be worried about any of this is one GDP growth is growing as a result of AI. To SNP earnings are also growing because of AI and significantly.

And then three a lot of the financing a lot of the debt that was kind of the the undoing in previous cycles.

I mean, it's coming from companies that actually do have significant profits that actually do have significant cash flows. And that you could make the argument that actually they have the money and the credit. To build the amount of data centers that they all build it.

“So what would be your response to people who make that argument and how does that relate to these expensing problems and perhaps these accounting problems that you bring up?”

Well, all three of those were present in 1999 and 2000. As I said, the companies that were taking on the most debt and obligations to build out their networks were by large. The largest most credit were the companies in the United States. And so that that happened then. And it's really an important point to make. However, there was also a mismatch SNP earnings grew 30% from mid-98 to mid 2000.

So they're growing even faster today. But then as I said, there was a collapse. We had a mild corporate recession and in GDP dropped 1%. And corporate profits dropped 40%. And they dropped because order books collapsed.

People realized they didn't need 10,000 routers. They needed 2,000. So they canceled their order books. But the guys who were building the routers had had expense levels that were predicated on the boom. Lasting longer and growing further than it actually did.

So this mismatch in earnings is substantial right now. It's in the hundreds of billions of dollars a year. And it's the real reason that corporate profits are growing way above trend.

“I mean, I think the economy we agree is doing fine.”

Which means corporate profits maybe should be growing eight or nine. But they're growing somewhere like 28 or 29. So you get an idea of really just how much of the profitability is going to the chip companies, and to the infrastructure companies for this build up. So that the question becomes, and Scott's better judge of this.

I think that I am, is what is the ultimate ROI on all the spend?

for Bank America and Coca-Cola and 3M and my company and riverside and what have you?

“And that I think is a little bit more nebulous right now in terms of what companies are seeing.”

And relative to their spend.

Jim, it's nice to finally me.

I've been following your work for what feels like three decades. And yes, I do remember the dot com, I still nursing those wounds. The economist perfectly called the dot bomb implosion. They said it would go from B to C, then to B to B, then the infrastructure guys would be hit. They just laid it out the implosion perfectly.

They laid it out though in 1997 and from that point the NASDAQ tripled. And the question I would have for you is, do you think we're in 97 or 99?

“And I think you're going to say we're in 99, but how do you discern the difference between something that's overvalued?”

And things are about to go insane. Versus we're in the beginning of the end if you will. Is there a way to tell if we're in 97 or 99?

Well, first of all, I would argue Scott that tell me anything in the corporate world of the technology world that hasn't gotten faster since 1997.

So in terms of the ability of investors to sort of react to things. In my experience has been kind compressed dramatically in the last 30 years. So these things get sort of figured out much quicker than they did back when I was shorting I Omega and scouring the Yahoo message boards. To figure out whether it was overvalued or not. So not that's number one.

Number two, we're not so close to the ignition point as we think. I mean, chatGPT was fall of 2022. So we're now entering the fifth year of this. It's not the Netscape moment of 1996. I don't believe.

And then think of all the VC infrastructure and other sort of ecosystem around technology. That exists today to take advantage of these fabulous investment opportunities that really didn't exist as much in 1996 or 1997. So I would say that there's one other indicator, however, that I think has been full proof in trying to figure out whether you're closer to a beginning or an end. And that is equity issuance. And equity issuance really didn't start picking up until, you know, late '98 '99 in the dot com boom and then crescendoed in the first quarter of 2000.

We haven't had a lot of equity issuance. We had a split in 2021 at one point post game stop. Spacts were raising about two and a half to three billion a night, which at the time was equivalent to the US savings rate. And of course, we know I've added it and didn't last law. And gave retail investors some industry in late '21 and '22. 2026 is entirely different animal as SpaceX would indicate.

We are now seeing massive equity issuance. And we're going to probably, you know, unless things really cool off a lot faster here, we're going to see probably record amounts of equity issuance in 2026.

And so I've always joked that Wall Street has a printing crest as well as the Fed. It just takes a while to get it going.

And Wall Street's printing crest is now going full bore in this year.

“So I think that there's a fair amount of indicators that tell us we're closer to a '99 type moment than a '97 though, but who knows?”

So I do my investment conference every year when we severed Miami and February. And in February 2000, we met and we were about 10 days away from the peak. We didn't know it. But one fellow gave a short and pointed out that it had doubled in 1999. It had doubled in January of 2000. It had doubled again in the first two weeks of February 2000 and did a final double the week of our conference, which was the third week of February.

So to one of your points, I mean, when you're in a parabola, you know, you have price risk if not time risk.

So the market being at a near historic highs in terms of valuation, rational argument, AI being the epicenter for driving that what feels like a rational, valuations also very rational.

“When you look at within the AI ecosystem, assuming that sort of ground zero for leverage upon leverage or the tail of the whip of over valuations and presenting opportunities for short sellers such as yourself or someone who shorts the market.”

Are you, do you find the right best targets to be the hyper scalars, the Nvidia's, the SpaceX's, or do you find that it's the adjacent, and maybe our less don't have the same cash flows, the same brand equity.

Like, what is the white meat of the white meat of the soft tissue of the soft tissue, or you think these things are really have the potential to go down, you know, 90 plus percent of fuel.

Since 1996, we run our portfolio or advise our clients to be hedged, right? So we're long, we're long the market in short, a portfolio of 40 what we think structurally over valued situations.

“And in the AI space, we focused really over the course of most of this year in the adjacent company, so we're, we're, in effect, long the hyperscalers, we're in effect, long in video since we own them through the indices.”

But where we've been, then, short are the Bitcoin miners who have suddenly become data center companies, the so-called near clouds that are not, are not estimated to make money until 2030 or beyond, despite a booming market for what they do.

And, and those kinds of narratives that have sprung up in companies that have sprung up to take advantage of investor capital.

Where you can't really make the business model work, and it's getting tough enough for the hyperscalers, we can talk about that in a few minutes. They are seeing increasing increasingly lower returns on their investor capital, but there's businesses out there that are doing deals for sort of low single digit mid single digit pre-tax returns on capital, who have weighted average cost of capital of 12, 15 percent. And, and they're doing it because it's growth, they can announce deals, and similar to the dot com era, those kinds of companies usually are the ones that end up in the most trouble, because they're capital intensive.

They're low return, and when when sentiment changes and the capital markets tighten up, they can't access capital anymore, and they collapse. And so there's just a lot of those out there, but I want to add just one other interesting observation about this. And as much as the AI and the leverage in some of the accounting and corporate structures are questionable in this boom, the overall stock market itself is a lot more expensive than it was in 1990. And by that I mean, in 1999, it was the so-called TMT section that you remember, technology media telecom that just had stratospheric valuations, and then there were just lots and lots and lots of companies that traded at 10 and 11 and 12 times earnings.

And in fact, value guys did pretty well coming out of the dot com boom, as those stocks were bit up, as everything else collapsed. Now we're seeing all kinds of sort of what I would call, you know, relatively senior companies or mature companies trading at 40 and 50 times earnings. Take a look at Walmart, take a look at caterpillar, take a look at, you know, a lot of companies that are not square in the AI.

“Height that are training it extremely extremely high valuations. One of our favorites just as an example is WD 40 WD 40 is grown its revenues and earnings. I think something at about a 3% pace over the past couple of decades.”

And it trades at 40 times earnings. And so I mean, it's just lots of those kinds of companies that because of the trend of passive index investing. And the fact that retail and households have the largest share ever of their assets in stocks means that the broad market is relatively expensive relative to just technology.

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With real profits, it won't happen. Retroing Read, try and find qualified talent with sponsored jobs. Master indeed, Alpha, yet out of indeed.de/recruiting. We're back with property markets. You mentioned some of those kind of funky new names that a data center is near clouds that like core weave and nebias and all of these other names.

And then there's of course some of the newer memory names like Sandisk, SK Heinix.

I mean, a lot of these companies that suddenly just have exploded.

“And I think a lot of people would agree that there's probably a lot of speculation going on in there and therefore a lot of risk.”

Is it your view though that big tech, Google, Microsoft, Amazon, Meta that they are relatively safe and protected right now? Or are they just as at risk as anyone else? I don't know that they're as at risk given their balance sheets. We know Google just went into negative free cash flow in this last quarter. These companies are still funding most of their bill from internally generated cash.

So in that respect, they're in much better shape than some of the other companies. But again, that didn't, you know, that didn't prevent general electric from going down, you know, 40% to 2001 and 2002. And increasingly, the returns on that investment that they are increasingly making are dropping. They're still robust, but they're not what they were. And in fact, you know, we track that pretty closely. And most of the return on incremental invested capital that is how much operating additional operating profit are you getting from an additional amount of investment.

There's been pretty much cut in half for the hyperscalers over the past year and a half. And that's, that's a lot. And companies that were earning 100% incrementally on their capital are now earning 25%. And a couple of the companies are now earning in the teens on their incremental investment.

“And if that continues to deteriorate over the next 12 to 18 months, I think the C-Sweets and Silicon Valley for some of the giants are going to be having some interesting conversations.”

About their continued spend. I know that they feel that they can't quote unquote lose the race. But there could come a point, you know, 18 months now, whether they're all losing the race.

Not not for Nvidia or open AI or anthropic, but for you and for me and for, you know, the plumber down the street and corporate America.

And what what advantages and what increases to productivity and profitability will that bring.

“And that that I think is still the 64 trillion dollar question before the market because we have seen a lot of that yet.”

We might. And hopefully we will. But that will remain to be seen. It seems that the breaking point that you outlined in your scenario of what could happen over the next 12 to 18 months.

The turning point is when the people in the C suite at big tech have that conversation and say we're not sure that this actually makes sense.

Are you surprised that that hasn't happened yet given the fact that we haven't really seen the ROI yet in AI that we haven't seen it. And assume a level at least, you know, you point out that the return on incremental investor capital, which as you correctly point out is declining for big tech.

“I mean, why hasn't that conversation happened yet? And do you think that it will happen?”

So human nature is still human nature and this is the shiny new object and people are still enamored with it. And the boards of directors have it yet started to ask difficult questions.

Because companies are still making their earnings estimates and generally being rewarded or not completely trashed for it.

But as I say, if the trends continue that we clearly see over the past two years, it's going to be hard to keep justifying growing your capital spending. You know, 40, 50% a year, if your operating income is only growing 10% a year, that will get noticed and it will get noticed by the market. And it might be already noticed by the market. The hyper scaleers are underperforming. You know, the the big buyers of compute have unperformed in the past sort of three, four months. So who knows, we'll have to see that that has been a fascinating question to me is to what extent.

Or the points that you're making already priced in. And in a lot of ways, it seems that there are certain corners of the market where it is priced in certain corners of the market where it doesn't exist whatsoever. And I can't quite understand what to make of that. And more importantly, what to do about that from investing perspective. What is your view on that?

Yeah, I would agree with you. You know, there are these still these buckets of speculative capital that keeps sloshing around to keep looking for the hot new area. So we give up on hyper scaleers, we buy neoclows and if we give up on neoclows, we buy chip companies and memory companies. And if we hire those, we buy something, we buy Apple, which is hitting a new high, who's not spending any money. So it's, it's as old as stock markets, right? I mean, the people just keep looking for the the hottest area.

“But I would think that if overall the AI spend begins to to get pulled back because of lower returns, I think the whole ecosystem, much like the whole ecosystem really prospered in 2024 and 2025.”

Everything went up. Now we're starting to see some discernment. And I think that'll continue if the, if the RO, I see is continue to draw. That discernment is, are you seeing that based on what we're seeing in the bond markets, whether it's CDS prices are exploding or pops, even interest in the stock markets. I mean, the Nasdaq is in correction territory.

We're seeing the stock market. There's a lot of, there's a lot of bifurcation going on. I mean, we're having a very good year on the short side. And I think the S&P is within the stone's throw of of it's all time high and the equal weighted S&P is at all time highs. And yet under the surface, there's a lot of stocks that are down 20, 30, 40%. So, so it has started already. In, by the way, just to go back to the Pearl, that started late 99.

And not following generally the, I think Amazon picked in the fall of 99 or summer of 99.

So this has happened before. And yet, you can still see indices and certain sectors continue to race to all time highs. But, but as I indicated, you know, before the broader problem is, is that the rest of the market ain't so cheap. So, sloshing around is moving, you know, companies around. I haven't looked at Apple recently, you know, Scott, maybe Scott Miller's is Apple back at 40 times earning 50 times.

“I mean, something like that, non-growing earnings, I think.”

So you said it's a, it's a mature company being priced as a growth company.

You said something that fascinated me that when I think about looking for shorting opportunities, you, you naturally go to the stuff that's most appears to be most irrationally priced. But I find there's, there's, there's risk to the upside that these irrationally priced products stocks, you could wake up and they can double. And whereas, you mentioned something fascinating that I hadn't thought about and that is a company like WD40, I don't, I think the risk that you wake up and it's doubled is much lower than we wake up and find out that there's a rational as it is that space access doubled.

Do you find that in terms of your, your own risk calculation that the, the lesser risk to the upside of some of these stocks that these mundane stocks that have risen with all, with the tide, do you find that those in fact create in your view better shorting opportunities and some of the names we talk about?

“Did it tell you, by for KDI, am I had both in the portfolio, how's that, so?”

Right. I had some, some companies that just are just simply overpriced by any kind of traditional corporate finance metric by, by a hundred percent. And generally, those stocks, you know, they're not going to double on you overnight and generally they've been what we call pretty good alpha shorts, right? They've been flat for years as the market is going up. Then you have the hopes and dreams stocks, right?

And, and, and for the hopes and dreams stocks, you need the market to help you out, right? You need the stock market to go down and retail investors to actually lose money.

And that's when the hopes and dreams stocks go down 90 percent.

You know, WD-40's not going down 90 percent. But, but, but the hopes and dreams stocks really are the ones that that, you know, have the most risk and should therefore be sized accordingly in your portfolio at smaller positions, or via puts or, you know, the variety different ways you can express your view without taking inherently unlimited risk that you have on a classic short position. So there's, there's a few ways we figured out I do that after 40 years, but, but look, you can't, you can't avoid it.

And those types of names are the ones that excite retail people. I would take you back just a few years when we were short similar kinds of things like Peloton and Beyond Meat. And, uh, it wasn't so long ago that those stocks were up 10x before they dropped 95x. So it's a, it's an exciting game and, and mad me. So, I, I want to double click on the idea of the mechanics. The SpaceX comes out at 80 times revenues, it goes to 120 times revenues.

And call me a boomer. I just, I just can't, I can't wrap my head around that. And, so I think, okay, this is an opportunity to short it. And I think, well, I know what I'll do. I'm, I'm not as sophisticated investor out shorting. I'm going to go buy puts. And what I find out is that puts are really expensive that word is out that this might be overvalued.

“And then I think, well, okay, I'm going to sell calls that creates its, that has its own inherent risk, right?”

What? You guys look at every which way but lose to express a viewpoint in the most advantageous way in terms of risk to reward. The recognizing the market's pretty good at calibrating stuff. But what mechanics around expressing a viewpoint around a stock being overvalued is in your view, your optimal means of expressing that viewpoint.

Well, again, we, we beta adjust our portfolio number one.

“So, so really highly volatile situations like a SpaceX or whatever will be very small positions relative to a core position that that might be much greater.”

That's number one. And, and a portfolio of 40 names goes a long way of diversifying you, particularly if you're in things like WD-40 or whatever. You, you diversify a way, a lot of that idiosyncratic, you know, short side risk on the upside. And I give away the potential reward as well. So, it's, it's an alpha game on the short side.

And the idea is you find enough enough really bad business models that, that, that the one or two that are going to just be W, like Tesla did for us in 2019 and 2020. And by the way, Tesla, Tesla was a two to three percent position during that period for us. And, you know, and we just have to keep cutting it back because it just kept going up and up and up and up. And to keep it at two or three percent.

“So, you have to, you have to use dynamic risk mitigation as well.”

And if something's going against you on the short side, you can't just let it run. You have to trim it to keep it within your risk parameters. And the same thing on the downside, you have to add to it. So, there's a lot of paradoxes in the short side, that's the biggest one. Things that go against you become bigger and things that go your way become smaller.

It works against you in an individual way.

However, in a portfolio of 40 names, you know, you're always going to have, you know, names that are working, names that aren't working and most of them just mucking about.

So, it's a matter of structuring the right portfolio, not being too concentrated in one area like AI. You know, we have a number of AI shorts. It is not an AI short fund. You know, it's, we're in all kinds of diverse consumer industries, financials, all kinds of things. So, again, trying to, for our clients, just build a portfolio that makes the most sense,

with business models that just inherently are unprofitable, or will never be profitable, or about to be unprofitable. And then combine it with the right passive indices on the other side. So, a SpaceX, the head you against the SpaceX is different versus the head you against the WD40. So it works on the assets side of the balance you two. The tone I'm getting from you that's surprising to me is, I was think of Jim Cheneau's as like a maverick cowboy,

like taking extraordinary risks sort of the bill actmen, you know, your concentrated, if you have conviction, and if you're not, you know, commission, and what I hear from you is something we talk about a lot, and that is no one individual is bigger than the market and the key is diversification.

You sound quite frankly just like a very thoughtful, not always a conservative, but tempered, you know,

hedge fund manager. Have you always been like that, or as have you, as you've got an older and have registered, you know, idiot, synchrysis of the market, you'd become a little bit more measured and recognize that,

“okay, let's have 40, not, not four. Have you changed over time, or is the perception of you being a maverick a little bit outdated?”

We were a cowboy from 1985 to 1995, we were in much more concentrated, ran on margin, and made a fortune from 85 to 1991, and then gave a lot of it back from 1995, and we had a client who was a fantastic client of ours for 20 years. They came to us and said, well, why don't you just run this hedge for us, and don't use margin, and be less than 100% invested, we'll take the long side of the portfolio and we'll judge you accordingly, I eat on an alpha basis,

and that changed our business model overnight, and so really for the last 30 years, we've been running portfolios that are much less concentrated than people think, and if you go on to Twitter, people would think that I'm only short Tesla, like three other stocks, and of course, I like to write about Tesla and three other stocks, but we are short 40 names in various levels, well below 100% invested and hedged, so we're much more conventional in that respect than I think people think and youth thought.

before I move on, could you share some of those names that you're short on?

Well, again, we've written about a number of them, public forums on some of them, that are just highly questionable, like the Neal Clouds, and Mr. Musk's two companies, both Tesla and SpaceX are in that Tesla and SpaceX, yes, I prefer my CEOs to have a more,

“a more, shall we say, strength in relationship with the truth?”

And then for years and years, we were short, we were short, a significant amount of portfolio in China, which we aren't anymore, and that kept us in pretty good stead from 2010 to 2020, because of just how crazy that market is, and how crazy that economy was based on real estate, and that's now completely reversed, and that trade has moved on,

but it's important to remember this doesn't always just happen here.

We'll be right back, and for even more markets content, sign up for our newsletter at propertymarkets.com. If you'll allow it, I'm gonna throw some numbers at you. According to some recent polling from the good people at Pew, about half of Americans now use AI chatbots or something in their lives, whether it's work or personal. That's a dramatic increase from just two years ago when it was more like 30% of the country.

But here's the funny thing, only 16% of the country thinks AI will have a positive impact on society. Two thirds of Americans think AI technology is advancing too quickly, and most Americans, especially young Americans, don't trust AI, nor the people in charge of it. And all this polling was done before an open AI agent went rogue and hacked another company. On today's point from box, isn't that the thing signs fiction warned us about for all those years? Yes.

And what can we do about it?

“What's the best way to think about age in politics?”

You don't want to be ages, right? Do you think term limits are more important than age limits? Some old people are really sharp, very standard is popping off, and he's like, what? 2,000? I'm still fed up with the fact that most of our lawmakers are so old.

The gerontocracy feels like a huge problem in American politics.

We're now in our third oldest congress in history.

So why won't the boomers retire? I gave serious consideration last year to not run again. I asked 17 term congressman Jim Clyburn, that exact question. And I kept being asked, how do you feel?

“Clyburn, who turned 86 just this week, is running for reelection in South Carolina again?”

And I kept asking it, I feel fine. And the simple then why would you quit? This week on America actually, congressman Clyburn makes the case for experience and the establishment. In Donald Trump, find a way out of the war in Iran. The Iran war has been by a long margin, Trump's biggest policy failure. Part of the reason that he has been unable to end the war is because

he can't accept the loss that it would imply from his war goals. I'm Treet Barara. And this week in Bremer, the founder and president of the leading global risk firm Eurasia group joins me to break down the latest in the war in Iran. The episode is out now.

Search and follow stay tuned with Preet wherever you get your podcasts. We're back with property markets. One of the my favorite adages in short selling, which I feel like just sums it all up, is that the market can stay irrational longer than you can stay solvent. And I find that to be an important point.

And my takeaway is that the name of the game of short selling isn't actually to be correct. It is to know when the market will agree with you that you are correct. And to me, those are two very, very different games. And I feel as if it's sort of under discussed when it comes to short selling.

bubble issues trends that we're seeing in the market.

And then everyone says, yeah, but the market's going up. So I guess, how do you think about that problem and how do you do you agree with my takeaway? That it's actually about time. After 40 years, I will make one observation about that statement. And that is, I tend to hear it right before the bulls are the ones that become in solid.

“So it's, you have to be a little bit careful when people say, well, yeah, of course, you know,”

prices are crazy, but so what they can get crazier. And at that point, the bears have already taken their pain. And it left the field or reduced their risk or whatever. And it's usually the unspisticated investor who's on margin, who's about to get killed. But setting that aside, it gets back to the point of portfolio construction and diversification.

And this is lots of businesses you can analyze. And Scott knows this better than me or you.

That just make no sense, right, where the just the returns out there, the returns will never be there.

Dream is being sold or the returns are below the cost of capital and they're using depth to finance it or what have you. And the failure rate in business is quite high in most companies fail. You just have to avoid the ones, the 2% that, you know, not only prosper, but go on for 50 and 60 and 70 years. Because that's where people make most of their money on the long side, the indices. It's the successes.

And most companies fail. So again, if you watch your risks and mitigate your risks and avoid the 100 excess, generally, you can do pretty well.

A diversified hedge short portfolio for a listener who's hearing this and is in total agreement with you on the risks in AI.

Some of the problems and some of those names that have just gotten flat out overvalued over their skis.

“What should they actually do in their investment portfolio?”

Like is this the moment where you, I mean, do you sell anything, do you go short anything, what will be your advice on? One thing I would just tell investors is if you have a portfolio full of companies that are based, that are going to be profitable for five years. You might want to start trimming those, right? Because predicting the future I found over 40 years is really, really hard. And the further out you go and predicting the future, the harder it gets.

And so if, you know, your favorite sell side analysts is telling you, will the stock is cheap at only 40 times 2035 EBITDA. You know, maybe step aside. Because it really is that's where the blow up risk in your portfolio resides. In terms of, and there's lots of those companies right now, where because of AI, whatever, they're being built literally as castles in the sky based on 2030 or 2035, you know, hopes of profitability. And they're not cheap on those metrics.

So I think if you can find companies that are doing well now are making profits now will probably make more profits. If the boom continues, you'll generally be in good stead then buying, you know, a Bitcoin miner that's losing hundreds of millions of dollars. But it's telling you they're going to make a dollar a share in 2030 and the stocks at 60. That's one practical thing I can tell investors.

“At this point in the cycle, you should be sort of pruning your portfolio of those stories.”

What about investing in index funds at this point? Because I think that's sort of the classic safe move when it comes to equity investing. But to your point, a lot of the names in the S&P are overvalued. There has also been this massive influx of passive investing which arguably might be propping up a lot of these names. And it's generally expensive. I mean, is investing in the S&P either the equal weight or regular S&P. Does that hold more risk at this point than it did before?

I own it. So I'm not the one to ask because I've got these 40 radioactive companies against it, right? So I'm probably not the right person to say, even though I think it is expensive, you know, I own the indices.

I mean, you'd be hard pressed to find any investor who isn't doesn't have significant exposure to the S&P.

“But then perhaps many of us are also agree as you do, looks pretty expensive, which puts us in a tough spot.”

But again, it's hard to time the market and most investors, you know, should have beta in their portfolio. Most investors should be exposed to the stock market. It's just a matter of how much you're aware and what your wrist style tolerance is.

But I would never tell anybody, you know, a young investor or a midlife investor, you know, get out of the stock market because it's expensive.

I have no idea. It might get more expensive as we discover. You discover something you think, okay, there's just way more risk to the downside than risk to the upside. We've discovered something. You, that's half, it strikes me that's kind of half the battle because then what you want is to ensure that other people discover what you've already found. And you have been very adept at, you make these, you do research, you go on media, talk a little bit about how structured or planned. Do you have a system for helping, you're arguably the most famous shortseller in the world.

So you clearly have an ability. Scott, that's a very low bar. There's an old partner in mind. You say, that's like being called the toughest guy in France. I'll come back to that because what I will say is, I think a lot of that is fear of shame. And that is, I put out a post, I think five or six years ago where I said, "Oyo and snap and we work, we're just dramatically overvalued."

I have never seen that kind of pushback anger, character assassination, saying I'm an evil person as I registered from the valley who had all marked their portfolios.

I just couldn't get over, it's as if I'd said that their parents were more criminals or something.

“I've never, so I think a lot of what you endure quite frankly is you have to have thick skin because you can, you can lose a shit ton of other people's money promoting a stock.”

But God help you if you start shit posting a stock. You know, everybody, it feels like whatever it should. I can't believe that hate you get when anyone questions a stock.

It's like it's almost like it's counter-cultural, you're not, you're being non-patriotic.

Jim, where I was headed with this before I started feeling sorry for myself was, what does your firm have a structured approach and investment capital in terms of your own time and money around getting the word out? What is your media strategy around your favorite shorts? There is no media strategy other than doing occasional podcasts and my social media account on X. And again, we try to just point out things that are public and our opinions on things that are public.

“That's what makes prices, right? People's opinions about facts.”

But you're right, there's an asymmetry there that is completely hard to ignore that if you impute a company that people own, they take it quite personally. I went through that and you didn't, we worked, which I, to this day I still can't believe still came public, but because we got shorted on the IPO. But in the post-game stop era, we were pretty publicly short AMC. And the AMC Apes were quite the group. And one of my rules is if any stock has a community, it automatically merits a look on the short side.

But we went through it all again last year in, in what was maybe the greatest classic arbitrage trade I've ever seen in my life, which was of course, being long Bitcoin and being short micro strategy. At its peak there was an $80 billion difference in the value of micro strategy versus the value of its Bitcoin holdings, which you could easily hedge, and you could easily short the micro strategy component of it in a full short rebate. I've never seen, I mean, I remember the three-com Palm spin up back in 2000, and a variety of other sort of classic arbitrage is that we're interesting, and maybe we're a couple billion dollars, that we're hard to implement by putting on the short leg, whatever.

That was $80 billion in December of 2024, and you could do it literally as much as you wanted, and unbelievably, the company helped you out by selling a billion or two billion of common equity every week to close the spread.

So you shorted in Ron in 2000 before it went bankrupt, and it seems that, I mean, there are companies where their multiples have gotten to high, there's too much speculation, too much euphoria, and there's multiples must come down, and then there are companies which are either fraudulent or their businesses don't work or their risk of bankruptcy. And Ron was one of those companies, and you were right about it before anyone else. I guess the question becomes, you know, yes, you might see a few companies that are doing something shady, or their business models don't work, but the logic question is, is that indicative of a larger problem that could bring the markets down.

It's one of the themes of the course on the history of financial market fraud, I teach, and that the fraud cycle follows the financial cycle with a lag, and the longer the financial cycle goes on, the more amount of fraud is ultimately uncovered on the down cycle.

So I've already dubbed this the Golden Age of fraud, and I suspect that when we're on the down part of this cycle, the bodies will float to the surface as they always do.

“But remember, the core narrative that is, is the harshest prosecutor and the staunchest defense attorney of a company is at stock price. Nobody goes after frauds at all time highs.”

They only go after them after investors have lost money because these kinds of things are political, and the resources to prosecute corporate fraud are political.

And it wasn't until Enron and world calm and Taiko and others had collapsed in 02 that the public, you know, demanded scallops because it wasn't the fact that they overpaid for lots of companies and lost money in the stock market, it's because these were corporate crux.

“And I think we will see the same thing happen in this cycle, except for the possible exception of the fact that a lot of these guys might get pardon first.”

So I'll start to wrap this up. Do you have any advice for young investors? I mean, you seem to be very good at spotting BS in general. How do you do that and what advice would you give to young people who are looking to build that their portfolios? Well, I mean, again, I think we've already talked about some, but I keep keep it passive. It's tough to get into the weeds with the professionals. It's hard enough to make money really digging into these companies and trying to figure out what they're worth.

And most professionals don't add value doing that. So as an amateur doing it, you're still probably better off keeping your costs down and saving as much as you can and just putting it in the market at a young age. That's the that's the simple and it may sound right, but it's the right advice. And then if you want to play around with some of your capital as a young investor and you know, chase a hot story or or put money on something that you think is, you know, is the next and video, you know, go to it. You can take the risk, but don't do it with all your capital. And that's what I find most young investors right now are way too concentrated.

They own one or two or three stocks and and and are betting everything on them and when things go wrong, it's hard to recover from that. So just take a small part of your portfolio and and go chase space acts or whatever, you know, whatever you think might be, you know, mining asteroids 10 years from now. With the bulk of your capital, you know, put it put it in the next funds and just let it grow. Jim Chano, this is the founder and managing partner of Chano's and company, formerly known as Kinnico Associates, the world's oldest exclusive short selling investment firm.

“Jim launched the company in 1985 to implement investment strategies he uncovered while beginning his Wall Street career as a financial analyst with paying weather.”

The Gilbert Securities and Deutsche Bank throughout his investment career. Jim has identified and sold short the shares of numerous well known corporate financial disasters.

He has currently a lecturer in finance at both the Yale School of Management and the University of Wisconsin School of Business, where he teaches a popular class on the history of financial fraud.

Jim, we really appreciate your time. Thank you. My pleasure, guys. Thank you. Scott, what did you think? Well, he's definitely a legend when they talk about when they talk about finance and investing in this era.

“I think no book would be complete without talking about Jim Jim Chano's.”

What struck me was quite frankly, he's just more reasoned and measured and I mean, it sounds like he's running a hedge fund that is really well diversified big on the long side with perhaps more thoughtful a robust hedging as opposed. I'm not sure describing him as a short seller is an accurate description at this point. Because he acknowledges that the markets go up and you want to be in the market, but a lot of the advice he gives to young people, quite frankly, it's exactly the same advice we get.

Be diversified, be in the market, low cost, don't go too big on any one thing, don't be too concentrated. But I was struck at how I would have thought he was a little bit more quite frankly cavalier and pounding the table on how it's saying some of this stuff is he just struck me as very measured and for lack of a better firm, very adult. I think that's exactly what I mean, I want to invest in his fund. Yeah, it sounds like a good fund, right? I mean, there's not one thing that came out of his mouth that I don't agree with.

Literally everything he said from what he's short on to what he's long on to the fact that you don't have much of a choice than to invest in the S&P.

“And the fact that he recognizes, like, yeah, technically I'm long that it can be expensive, but it doesn't mean you go out and sell your S&P.”

You take the drawdown, but then you recognize that over the long term, it's going to go up and to the right. And then you also recognize that there are some bags of shit as well out there in the market. And those are the companies that you can go short on. And I agree with all of his picks, I mean, the neoclouds and cool weave, nevious, like I'm just, I want to invest. Yeah, the piece of data that about just what we're talking about is that if you believe social media,

you think that he mortgage this house and levered up three to one to just go short Tesla.

And what he said that I thought was illuminating was Tesla has never been more than two or three percent of his portfolio.

The short on the short side. And he had to trim it down as it kept on rising.

“And yeah, by the way, Tesla is getting crushed.”

And something I pointed out on social media, if you invested in Tesla in November of 2021, you would be down at this point around 20%. So, there's a little caveat there, which is it's been extremely volatile throughout it. But what I'm a little bit sick of hearing is this idea that Tesla has been this roaring stock that has just crushed over the past five years.

Actually, it hasn't. It has been extremely volatile and depending on when you invested, you might be significantly down on that position over a long period of time. Just want to put that out there because I know that you've been short.

Well, you know, I never liked to say anything negative about Elon Musk, so I'm just going to keep quiet.

Fair enough. This episode was produced by Claire Miller and Dallas and Wise and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is Daniela on Kristen and Donna Hugh and Mia Sauvario. Jake McPherson is our social producer.

Drew Burroughs is our technical director. And Katherine Dylan is our executive producer. Thank you for listening to Proftly Markets from Proftly Media. If you liked what you heard, give us a follow and join us for a fresh take on Markets on Monday. Time.

You have. And come for you. As the long term. And the clouds.