WEBVTT - Jim Chanos Talks Credit Markets, Bitcoin 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.840 --> 0:00:10.480 The legendary Wall Street short sellar Jim Chainos also spoke 0:00:10.520 --> 0:00:12.840 out about private credit not so long ago. He said, 0:00:12.920 --> 0:00:16.200 quote now, with the advent of private credit, institutions are 0:00:16.239 --> 0:00:19.000 putting money into this magical machine that gives you equity 0:00:19.079 --> 0:00:23.240 rates of return for senior debt exposure, which again should 0:00:23.239 --> 0:00:25.680 be the first red flag. We rarely get to see 0:00:25.680 --> 0:00:28.960 how the sausage is made. Jim Chanos joins us now. 0:00:29.000 --> 0:00:31.360 He is president and managing partner of Chenos and Company. 0:00:31.480 --> 0:00:33.920 He is here with us exclusively. Good to see you again, Jim. 0:00:34.000 --> 0:00:36.000 It just good to be here. Thanks for having me. 0:00:36.159 --> 0:00:38.360 So you heard what the CEO Barkley said about this 0:00:38.640 --> 0:00:41.320 idea of whether it's one bad actor or some aspect 0:00:41.360 --> 0:00:44.600 of circumstances that leads people in companies to behave a 0:00:44.600 --> 0:00:46.760 certain way. What does your spidey sense tell you? 0:00:47.240 --> 0:00:50.200 Well, I teach a course on the history of financial fraud, 0:00:50.240 --> 0:00:52.440 as you know, and one of the themes of the 0:00:52.520 --> 0:00:56.320 course is that the fraud cycle follows the financial cycle 0:00:56.360 --> 0:00:59.680 with a lag, and the more extreme the financial cycle 0:01:00.240 --> 0:01:05.360 i e. The bigger the bull market, usually more fraud 0:01:05.520 --> 0:01:10.400 is follows thereafter with a leg, so you don't really 0:01:10.440 --> 0:01:13.880 see the large amounts of fraud till after the cycle turns. 0:01:14.280 --> 0:01:18.320 This is early and a lot of consumer credit metrics 0:01:18.319 --> 0:01:20.360 are still kind of holding up. But we are starting 0:01:20.400 --> 0:01:24.559 to get some canaries in the coal mine in subprime auto. 0:01:24.640 --> 0:01:28.640 As you mentioned, the first brand's case is kind of 0:01:28.640 --> 0:01:32.319 mind blowing given what they were hiding, and I suspect 0:01:32.319 --> 0:01:34.600 we'll see more, but I don't think we're going to 0:01:34.600 --> 0:01:37.720 see a tidal wave of it until the actual financial 0:01:37.760 --> 0:01:41.160 cycle turns. Then I think we're going to see a 0:01:41.160 --> 0:01:41.560 lot of it. 0:01:41.720 --> 0:01:43.720 And how extreme is this current financial cycle. 0:01:44.600 --> 0:01:45.679 This one's pretty extreme. 0:01:45.880 --> 0:01:49.280 I mean we're now really sixteen years into a bull 0:01:49.360 --> 0:01:54.920 market in credit inequities, it's getting more speculative. We saw 0:01:55.840 --> 0:01:59.360 a mini speculative blow off in twenty twenty one, we're 0:01:59.360 --> 0:02:04.320 seeing it again in twenty twenty five. Standards get reduced, 0:02:04.400 --> 0:02:07.640 as I like to say, people's sense of disbelief erodes 0:02:07.720 --> 0:02:08.280 over time. 0:02:08.639 --> 0:02:11.520 They begin to believe things. You know they're too good to. 0:02:11.440 --> 0:02:15.000 Be true because there's pressure to put investors' money to work, 0:02:15.240 --> 0:02:17.799 and I think some of that's happening now in private credit. 0:02:18.600 --> 0:02:22.080 So the stock market has barely blinked. With all these 0:02:22.360 --> 0:02:25.120 blow ups, the credit market kind of dismissed them as 0:02:25.160 --> 0:02:29.440 idiosyncratic until Jamie Dimond warned about the prospect of more cockroaches, 0:02:29.520 --> 0:02:31.519 and then that kind of got people's attention just a 0:02:31.560 --> 0:02:31.960 little bit. 0:02:32.000 --> 0:02:32.280 Here. 0:02:32.840 --> 0:02:34.880 At what point does this become something that the credit 0:02:34.919 --> 0:02:36.440 market starts to panic over. 0:02:36.720 --> 0:02:37.280 Well, we don't. 0:02:37.320 --> 0:02:39.840 We haven't seen it yet, as you as you say, 0:02:40.639 --> 0:02:46.480 credit spreads are still almost record lows. So people are 0:02:46.520 --> 0:02:51.120 still partying, you know, it's the punch bowls being taken away. 0:02:51.800 --> 0:02:53.960 Only a couple of people may have noticed it yet, 0:02:54.000 --> 0:02:57.880 but so far it's still it's still partying like it's 0:02:57.960 --> 0:03:00.520 nineteen ninety nine, and the credit markets for the most part. 0:03:00.800 --> 0:03:03.200 What I found really fascinating was that Jamie Diamond didn't 0:03:03.280 --> 0:03:06.400 really target private credit in his comments. 0:03:06.440 --> 0:03:07.919 He kind of just made the comments generally. 0:03:08.000 --> 0:03:10.760 Yet the industry got kind of defensive when he spoke 0:03:10.840 --> 0:03:12.960 up are these firms justified in doing so? 0:03:13.080 --> 0:03:13.600 I mean, you. 0:03:13.520 --> 0:03:16.720 Point out that they have promised these equity like returns 0:03:17.000 --> 0:03:19.320 that raises questions about the economics of their business. 0:03:19.520 --> 0:03:20.960 Yeah, there's two things that bother me. 0:03:21.280 --> 0:03:25.040 The way private credit is being sold to investors, and 0:03:25.080 --> 0:03:27.760 I sit on investment committee, so I see this and 0:03:29.120 --> 0:03:31.840 really it's one of these too good to be true 0:03:31.919 --> 0:03:34.960 type promises. We're going to give you senior debt exposure, 0:03:35.200 --> 0:03:39.320 often secured somehow, but with equity rates of return double 0:03:39.320 --> 0:03:42.600 digit type returns, which makes you wonder about the underlying 0:03:42.640 --> 0:03:43.680 credits themselves. 0:03:44.240 --> 0:03:47.360 That's number one. And then related to that is how. 0:03:47.320 --> 0:03:50.680 Much leverage is being used within the vehicles to juice 0:03:51.520 --> 0:03:54.080 the equity like rate of return. And then the other 0:03:54.120 --> 0:03:58.920 thing that concerning to me is the explosion now in 0:03:59.040 --> 0:04:04.400 captive regulation subsidiaries by the largest largest players in this. 0:04:05.840 --> 0:04:08.520 Area, owning insurance companies. 0:04:08.560 --> 0:04:12.600 And where there really isn't a true arms length difference 0:04:12.640 --> 0:04:15.360 between the people buying the credit and the people selling 0:04:15.360 --> 0:04:18.240 the credit to them, and that is worrisome. 0:04:18.440 --> 0:04:20.479 That's something we saw in the Drexel days. 0:04:20.480 --> 0:04:23.400 By the way, one of the things that got us 0:04:23.400 --> 0:04:26.280 so concerned in nineteen eighty eight and eighty nine in 0:04:26.320 --> 0:04:30.560 the Drexel junk bond kingdom was the fact that more 0:04:30.600 --> 0:04:34.719 and more of Mike Bilkins's clients had regulated subsidiaries like 0:04:34.800 --> 0:04:42.240 savings and loans insurance companies, thrifts, trust companies where they 0:04:42.320 --> 0:04:46.840 were buying the same credit that in effect others in 0:04:46.920 --> 0:04:51.600 the Kingdom were selling without a lot of arm's length disclosure. 0:04:52.000 --> 0:04:54.440 And so that is something to keep our eye on, 0:04:54.480 --> 0:04:55.599 I think, is the. 0:04:55.520 --> 0:04:58.920 Use of captive regulated subs to buy this stuff. 0:04:59.200 --> 0:04:59.920 Yeah, it's your point. 0:05:00.040 --> 0:05:02.120 Private credit has kind of become the a Girl of 0:05:02.200 --> 0:05:05.799 asset classes. Everyone talks about it. Every asset management firm 0:05:06.080 --> 0:05:08.039 wants to be able to offer. Every bank seems to 0:05:08.080 --> 0:05:09.920 want to get in after missing out. 0:05:10.600 --> 0:05:12.599 Sort of like private equity five to ten years ago. 0:05:12.600 --> 0:05:15.160 Exactly, everyone's a stakeholder, so it feels like everyone's kind 0:05:15.160 --> 0:05:18.840 of incentivized to make sure that whatever happens stays an 0:05:18.839 --> 0:05:20.520 idiosyncratic story and nothing. 0:05:20.240 --> 0:05:23.840 More right or hedge funds fifteen years ago. Yeah, look, 0:05:24.440 --> 0:05:29.520 these things are being sold aggressively. It's a wonderful product 0:05:29.560 --> 0:05:34.080 for people that have targeted rates of return needs, endowments, 0:05:34.600 --> 0:05:39.440 pension funds. But again, it's just something that worries me 0:05:39.760 --> 0:05:43.280 when equity rates to return are promised on credit instruments. 0:05:43.720 --> 0:05:45.560 Usually there's something you're not seeing. 0:05:45.960 --> 0:05:47.520 Let's talk about something that may or may not be 0:05:47.560 --> 0:05:49.599 worrying to you, which is what's happening in big tech. 0:05:50.040 --> 0:05:52.279 They are investing tens of billions of dollars to build 0:05:52.320 --> 0:05:55.320 out data centers to boost their AI capabilities. They announce 0:05:55.360 --> 0:05:57.640 partnerships where they take equity stakes in each other and 0:05:57.640 --> 0:06:00.960 buy stuff from each other. Is this so called circular 0:06:01.040 --> 0:06:03.240 funding a problem in and of itself? 0:06:03.240 --> 0:06:04.200 Does it raizor antenna? 0:06:04.600 --> 0:06:06.839 Well, what we've told clients because we went through the 0:06:06.880 --> 0:06:09.719 first time we saw this in ninety nine, two thousand 0:06:09.720 --> 0:06:12.000 and two thousand and one, where there was a lot 0:06:12.560 --> 0:06:16.080 of circular financing and vendor financing. Back then it was 0:06:16.120 --> 0:06:20.919 the telecoms, but the customers that were taking that vendor 0:06:20.920 --> 0:06:25.240 financing from the Loosens and Nortel's of the world were 0:06:25.240 --> 0:06:31.080 predominantly profitable. The Celex raised about forty five billion over 0:06:31.120 --> 0:06:34.760 five years competitive local exchange cares. They had a flawed 0:06:34.760 --> 0:06:38.200 business model, most of them went broke, and then the 0:06:38.240 --> 0:06:41.880 fiber optic guys did build outs and most of them 0:06:42.960 --> 0:06:45.960 had to be restructured or went bankrupt. But we were 0:06:46.000 --> 0:06:50.120 talking about one hundred billion dollars of vendor financing over 0:06:50.160 --> 0:06:53.240 the five years or so that it was happening, which 0:06:53.360 --> 0:06:56.000 was a lot at the time, but it pales into 0:06:56.040 --> 0:06:58.839 comparison with some of the numbers were starting to hear 0:06:58.920 --> 0:07:03.080 about both this year, next year, twenty seven, twenty eight 0:07:03.960 --> 0:07:08.480 for the capital needs of the AI companies, and that's 0:07:08.839 --> 0:07:10.000 you know, that's a red flag. 0:07:10.320 --> 0:07:11.080 It's a red flag. 0:07:11.120 --> 0:07:16.040 I mean, is circular financing funding an unmistakable sign of 0:07:16.080 --> 0:07:17.160 market over exuberance. 0:07:17.440 --> 0:07:22.000 Well, similar to my concerns about private credit owning regulated 0:07:23.160 --> 0:07:27.080 investing subsidiaries, one of the things that has caught my 0:07:27.160 --> 0:07:30.400 eye that is concerning now is we're starting to see 0:07:30.400 --> 0:07:35.320 the advent of so called SPVs, which are entities and 0:07:35.400 --> 0:07:37.680 this comes from the end run era and the global 0:07:37.680 --> 0:07:41.680 financial crisis, entities that are specifically set up to hold assets, 0:07:42.040 --> 0:07:45.040 borrow against those assets, and take it off balance sheets. 0:07:45.920 --> 0:07:48.680 So you just showed an equity investment as opposed to 0:07:49.080 --> 0:07:51.280 the massive amount of debt that's being taken on. 0:07:51.920 --> 0:07:54.240 And that again. 0:07:54.120 --> 0:07:58.040 Is something that worries us because if there's one sort 0:07:58.040 --> 0:08:01.480 of consistent theme that we're seeing amongst the players that 0:08:01.600 --> 0:08:05.840 know this the best in video Microsoft companies like that 0:08:06.400 --> 0:08:08.720 is they seem to now be willing to do anything 0:08:08.760 --> 0:08:12.840 to get the actual equipment off their books and either 0:08:12.920 --> 0:08:17.840 keep it in the footnotes or use innovative financing to 0:08:17.920 --> 0:08:22.560 sell it. And I think they're concerned about depreciating lives 0:08:23.760 --> 0:08:25.760 and some of the accounting on this, as well as 0:08:25.800 --> 0:08:28.520 just the immense capital needs that they don't want to 0:08:28.520 --> 0:08:30.320 put directly on their balance sheets. 0:08:30.400 --> 0:08:31.520 So how do you HYDI against this? 0:08:32.960 --> 0:08:36.040 Look, I mean, it's driving the market right AI is 0:08:36.080 --> 0:08:39.120 the displacement of this cycle. Right If the Internet was 0:08:39.800 --> 0:08:44.400 the displacement idea of the nineties, certainly it's AI right now. 0:08:44.760 --> 0:08:47.880 And if AI goes, there's not going to be a 0:08:47.880 --> 0:08:52.520 lot of places to hide because it's so embedded right 0:08:52.559 --> 0:08:56.200 now in the psyche of investors. So we better hope 0:08:56.200 --> 0:09:00.640 it works, and because if not, there might be some 0:09:00.720 --> 0:09:01.960 disappointment down the road. 0:09:02.280 --> 0:09:04.920 You've pointed out that the AI driven capital spending boom 0:09:04.920 --> 0:09:07.560 we're seeing today is comparable to the Internet build out 0:09:07.559 --> 0:09:11.120 in the late nineties. So when companies start tapping the 0:09:11.120 --> 0:09:13.160 brakes a little bit, pulling back on their spending by 0:09:13.280 --> 0:09:15.480 just a bit, how quickly will that show up in. 0:09:15.440 --> 0:09:19.520 Earnings and margins? Given where we are in this market. 0:09:19.720 --> 0:09:22.280 So the problem in two thousand and two thousand and 0:09:22.280 --> 0:09:26.640 one was basically wasn't really vendor financing. As I said, 0:09:26.679 --> 0:09:29.120 that was all in about one hundred billion dollars over 0:09:29.200 --> 0:09:32.920 five years. The real problem was double and triple ordering 0:09:33.160 --> 0:09:36.920 of equipment, where people put in orders for routers and 0:09:37.000 --> 0:09:42.280 network equipment and capacity and then basically all at once. 0:09:42.520 --> 0:09:44.760 In late two thousand and early two thousand and one, 0:09:44.840 --> 0:09:47.839 they pulled back, we don't need all these routers, we 0:09:47.840 --> 0:09:49.920 don't need all these switches, we don't need all this 0:09:50.000 --> 0:09:54.800 fiber optic gear, and order books just collapsed and S 0:09:54.840 --> 0:09:58.360 and P earnings dropped forty percent from peak to trough. 0:09:58.600 --> 0:10:02.880 The SMP dropped about forty per there was a mild recession. 0:10:02.960 --> 0:10:06.280 GDP dropped about one percent for two quarters. It really 0:10:06.400 --> 0:10:09.120 was not like the global financial crisis or even eighty 0:10:09.240 --> 0:10:12.319 nine to ninety when we had a banking crisis, but 0:10:12.640 --> 0:10:15.400 it was terrible for corporate profits because there was so 0:10:15.640 --> 0:10:21.960 much basically steroidal of profit participation profit margins from all this. 0:10:22.600 --> 0:10:24.440 So that's what we're kind of keeping an eye on, 0:10:24.559 --> 0:10:29.040 is order books and looking for any signs that suddenly 0:10:29.080 --> 0:10:33.000 maybe we don't need all of these router GPUs or 0:10:33.160 --> 0:10:35.480 all of these data centers or what have you. 0:10:36.080 --> 0:10:38.160 And it's not just things tied to AI. 0:10:38.320 --> 0:10:40.640 I look at the fifty five billion dollar takeout of 0:10:41.040 --> 0:10:44.640 electronic arts marking the biggest LBO ever. It's deal making 0:10:44.679 --> 0:10:47.400 like it's two thousand and seven, going beyond the order 0:10:47.440 --> 0:10:50.080 books of the big tech companies. As an inherent skeptic, 0:10:50.280 --> 0:10:52.040 what are you watching for to get a sense of 0:10:52.600 --> 0:10:54.319 how and when the music stops? 0:10:54.480 --> 0:10:58.000 Well again, we want to see the underlying profitability of 0:10:58.400 --> 0:11:02.160 the engine, rightI I come up with a profitable business model, 0:11:02.200 --> 0:11:05.080 because right now, if you think about it, open AI 0:11:05.280 --> 0:11:10.040 is I think seventy roughly two thirds of all queries 0:11:10.160 --> 0:11:13.319 and are open AI. And they're going to do thirteen 0:11:13.400 --> 0:11:16.920 billion of revenues this year, thirty billion next year, you know, 0:11:17.040 --> 0:11:20.200 with capital spending needs and the hundreds of billions of dollars. 0:11:20.600 --> 0:11:21.880 So at some point. 0:11:21.840 --> 0:11:24.920 Someone's got to come up to say, we actually have 0:11:25.400 --> 0:11:29.040 a model that will directly lead to cash flow and 0:11:29.080 --> 0:11:32.840 profits so we can service the debt that we're taking 0:11:32.880 --> 0:11:35.480 on to build the data centers and build the infrastructure. 0:11:36.160 --> 0:11:39.400 And we'll have to see. I mean, what I've said 0:11:39.440 --> 0:11:44.480 is I'd rather be long the companies that are producing 0:11:44.520 --> 0:11:48.200 the magic from the chips than the landlords where the 0:11:48.240 --> 0:11:51.640 chips reside. Right, So, if this is going to truly 0:11:51.679 --> 0:11:56.040 be revolutionary, and it probably will be. I think you're 0:11:56.080 --> 0:11:57.920 going to have to see stuff coming out of the 0:11:58.000 --> 0:12:03.600 hyperscalers and open AI, really interesting applications that can be monetized. 0:12:04.280 --> 0:12:07.960 I think a lot of investors, however, are basically investing 0:12:07.960 --> 0:12:10.920 in the picks and shovels, the data centers, the equipment guys, 0:12:11.360 --> 0:12:12.760 and I think that's at the end of the day 0:12:12.840 --> 0:12:14.000 going to be a commodity business. 0:12:14.200 --> 0:12:16.319 Okay, well, eventually it will be. As of now, it 0:12:16.360 --> 0:12:18.640 hasn't gotten there yet. Jim, stay with us because we're 0:12:18.640 --> 0:12:20.920 going to discuss a lot more, including some of your trades. 0:12:21.200 --> 0:12:38.280 This is Bloomberg. This is Bloomberg Markets. I'm Scarlett Food. 0:12:38.280 --> 0:12:41.600 We are back with Jim Chanos, founder of Chenos and Company. Jim, 0:12:41.679 --> 0:12:43.880 I want to get an update on your bet against 0:12:44.000 --> 0:12:47.200 MSTR Strategy, And to be clear, this is not a 0:12:47.240 --> 0:12:49.960 bet in which you, Jim Chainos, are anti bitcoin. You're 0:12:50.040 --> 0:12:52.360 kind of agnostic on where the price goes. You just 0:12:52.360 --> 0:12:54.080 don't believe that the stock should be trading at this 0:12:54.160 --> 0:12:57.839 hefty premium to the value of its bitcoin simply because 0:12:57.880 --> 0:13:01.400 Strategy owns bitcoin and is raising money to buy weren't bitcoin? 0:13:01.679 --> 0:13:02.600 Where are we at here? 0:13:03.040 --> 0:13:06.400 So you're exactly right. I mean, we're agnostic on bitcoin. 0:13:06.440 --> 0:13:08.600 I have no idea where bitcoin is going or what 0:13:08.640 --> 0:13:12.240 it's worth, but we own bitcoin against. 0:13:11.920 --> 0:13:13.440 The micro strategy short. 0:13:13.480 --> 0:13:17.040 This was an arbitrage and we just as you know, 0:13:17.080 --> 0:13:20.360 we just weren't and aren't believers in this whole concept 0:13:20.400 --> 0:13:24.920 of bitcoin treasury companies trading at premium to the underlying asset. 0:13:25.360 --> 0:13:28.720 And it's interesting, I mean, since we were on last 0:13:28.840 --> 0:13:31.800 I mean the so called m NAB, the premium has 0:13:31.840 --> 0:13:34.360 compressed from about one point nine to one point four. 0:13:35.400 --> 0:13:37.959 But what's really interesting is what's happened to all the 0:13:38.640 --> 0:13:41.959 strategy you want to be companies. Most of those now 0:13:42.000 --> 0:13:47.160 have gone to below one point zero NAV, so they've 0:13:47.240 --> 0:13:48.200 been completely. 0:13:47.880 --> 0:13:48.760 Blown out of the water. 0:13:49.600 --> 0:13:52.960 And strategy is kind of the granddaddy of this and 0:13:53.320 --> 0:13:55.600 is still holding on at one point four. But again, 0:13:55.640 --> 0:13:58.640 we just think that investors are much better suited if 0:13:58.640 --> 0:14:02.839 they're bitcoin believers in buying bitcoin at a dollar. 0:14:02.800 --> 0:14:03.720 Not a dollar forty. 0:14:04.120 --> 0:14:06.360 And you say that m NAV should be at one, 0:14:06.400 --> 0:14:08.480 you advise clients when the m NAV was between two 0:14:08.520 --> 0:14:09.800 point two to two point three. 0:14:09.840 --> 0:14:11.360 Have you covered any of your shorts? 0:14:11.400 --> 0:14:15.160 We have not covered any of our shorts. But you know, again, 0:14:15.640 --> 0:14:19.440 we reserve the right to change our mind. But I 0:14:19.440 --> 0:14:22.240 think as long as micro Strategy keeps selling its paper 0:14:22.560 --> 0:14:24.800 to buy bitcoin, we're going to do the same thing 0:14:24.840 --> 0:14:25.600 that they're doing. 0:14:26.000 --> 0:14:28.960 You mentioned that the m NAV of the copycat strategy 0:14:29.000 --> 0:14:30.920 companies has gone below one. 0:14:31.160 --> 0:14:32.920 Have you did you bet against any of those? 0:14:33.080 --> 0:14:33.640 No, we did not. 0:14:33.800 --> 0:14:37.600 We just kept it to Strategy and it was the biggest, 0:14:37.600 --> 0:14:42.000 it was the most liquid. The premium at two plus 0:14:42.400 --> 0:14:44.600 was at one point I think fifty or sixty billion 0:14:44.640 --> 0:14:49.920 dollars just the premium. It's kind of staggering how big 0:14:49.960 --> 0:14:54.040 the arbitrage was. In my forty years of experience, when 0:14:54.040 --> 0:14:57.720 these kinds of things set up, maybe they're five hundred 0:14:57.760 --> 0:15:00.600 million dollar opportunity of billion dollars a couple billion, you 0:15:00.800 --> 0:15:03.760 rarely see tens of billions of dollars of premium in 0:15:03.800 --> 0:15:04.720 these kinds of trades. 0:15:05.360 --> 0:15:06.480 It was highly unusual. 0:15:06.800 --> 0:15:08.560 Let me ask the obvious question, why do you think 0:15:08.600 --> 0:15:10.800 Strategies and Now is holding up at one point four 0:15:10.880 --> 0:15:13.600 when everyone else has gone below one. 0:15:14.280 --> 0:15:15.120 It's a good question. 0:15:16.320 --> 0:15:19.800 In fact, you know people that like this concept and 0:15:19.920 --> 0:15:22.480 I don't you know, should be buying the other companies 0:15:22.480 --> 0:15:26.640 and buying bitcoin at a discount, but again that's not. 0:15:27.000 --> 0:15:28.640 They can't add to their bitcoin. 0:15:28.720 --> 0:15:31.800 So there are some diehards who still believe that micro 0:15:31.840 --> 0:15:35.200 strategy is adding value by being able to sell securities 0:15:35.200 --> 0:15:38.640 and buy bitcoin. The problem is he's doing that at 0:15:38.680 --> 0:15:42.880 your expense, the new investor, and so the whole thing 0:15:43.040 --> 0:15:44.480 just never made sense. 0:15:44.560 --> 0:15:46.040 It still doesn't make sense, all right. 0:15:46.080 --> 0:15:48.080 I want to talk about carbon as well, because you've 0:15:48.080 --> 0:15:50.080 embarrashed on that for a couple of years, and in 0:15:50.120 --> 0:15:53.160 part because of its reliance on the sale of subprime loans. 0:15:53.400 --> 0:15:56.880 Given the problems we've seen with Prima Lend and Tree Colore, 0:15:57.040 --> 0:15:59.920 subprime auto loans just doesn't sound like a good business 0:16:00.000 --> 0:16:00.680 idea right now. 0:16:01.400 --> 0:16:06.120 It is for them, so they're still booking hefty gains 0:16:06.160 --> 0:16:10.520 on their sale loans. But look, there's just lots of 0:16:10.560 --> 0:16:11.680 red flags at Carvana. 0:16:12.640 --> 0:16:13.720 It's not new news. 0:16:14.400 --> 0:16:17.440 But what really would worry me if I was new 0:16:17.440 --> 0:16:21.400 to this story is the fact that a Carvana affiliate 0:16:21.520 --> 0:16:27.040 services the loans Bridgecrest, And again, we just don't have 0:16:27.200 --> 0:16:31.360 complete transparency as to what's going on. And given the 0:16:31.400 --> 0:16:36.240 news in the subprime model space of default bankruptcies, rising delinquencies, 0:16:36.600 --> 0:16:39.040 the fact that that Carvana seems to be sailing through 0:16:39.080 --> 0:16:42.920 it without with Narus scratch stretches credulity in my. 0:16:42.880 --> 0:16:44.720 Opinion, so your shortest still on right now. 0:16:44.760 --> 0:16:46.240 We're still short Carvana. 0:16:46.040 --> 0:16:47.240 And Eerie Insurance. 0:16:47.480 --> 0:16:50.200 This is something that you've spotted accounting problems at for 0:16:50.240 --> 0:16:52.320 a while, and now there's a legal battle that could 0:16:52.320 --> 0:16:56.600 have ramifications for the broader insurance industry that practices overall. 0:16:56.680 --> 0:16:59.200 This is a really odd one. We wrote about this 0:16:59.240 --> 0:17:04.280 with another firm, my brother's firm, in February, pointing out 0:17:04.400 --> 0:17:08.320 that this company was a real kind of unique animal 0:17:08.560 --> 0:17:11.800 in the US publicly traded insurance space. They had set 0:17:11.840 --> 0:17:16.000 themselves up as a servicing company and had the insurance 0:17:16.119 --> 0:17:18.920 all of the insurance operations, which were massive, I think 0:17:18.920 --> 0:17:22.439 the eighth largest insured the US, owned by the policyholders. 0:17:23.000 --> 0:17:27.120 But those companies have no employees, no directors, and Eerie 0:17:27.359 --> 0:17:30.840 itself handles all that for a flat fee of twenty 0:17:30.840 --> 0:17:36.000 five percent of premium. Well, last week a couple of 0:17:36.040 --> 0:17:38.399 things happened. A lawsuit was given a go ahead by 0:17:38.480 --> 0:17:41.840 policy holders who said they're being raped by the high fees. 0:17:42.720 --> 0:17:46.360 But just as ominously, the National Association of Insurance commissioners 0:17:46.600 --> 0:17:49.879 have now taken notice and saying she We're going to 0:17:49.960 --> 0:17:52.720 set up a working group to study this because the 0:17:52.800 --> 0:17:55.199 incentives are wrong. There's an incentives for you just to 0:17:55.200 --> 0:17:58.920 book business because your revenues come off the top line. 0:18:00.320 --> 0:18:04.600 We point out that the company's earnings are supposedly twelve 0:18:04.680 --> 0:18:07.760 dollars per share, but if you actually consolidated them, as 0:18:07.760 --> 0:18:10.399 you should in our opinion, and as they've done in 0:18:10.440 --> 0:18:14.240 the past post Enron, the earnings would be forty fifty 0:18:14.280 --> 0:18:15.000 percent lower. 0:18:15.520 --> 0:18:17.480 So this sounds like late cycle behavior. 0:18:18.160 --> 0:18:21.200 It's just it's it's a kind of one off accounting 0:18:21.240 --> 0:18:23.600 story that has been under the radar for a lot 0:18:23.680 --> 0:18:24.080 of people. 0:18:24.520 --> 0:18:26.480 And it's just again, this is kind of as simple. 0:18:26.600 --> 0:18:30.560 They control these insurance companies, and the insurance companies have 0:18:30.840 --> 0:18:33.640 very cyclical up and down earnings. They lost a lot 0:18:33.640 --> 0:18:37.919 of money in the last quarter, for example, but Eerie 0:18:37.920 --> 0:18:41.000 has smoothed it out by this construct, and we just 0:18:41.040 --> 0:18:42.879 think it's it's an accounting. 0:18:42.520 --> 0:18:43.400 Game, all right. 0:18:43.480 --> 0:18:45.520 Jim, always a pleasure speaking with you. Thank you so 0:18:45.600 --> 0:18:47.160 much for sharing some of your time with us. Jim 0:18:47.200 --> 0:18:49.800 Chanos is founder of Chenos and Company.