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Speaker 1: Please to bring in our next guest, Jim Chanos. He's

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Speaker 1: the founder of Chinos and Company. Thanks so much for

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Speaker 1: joining us. He's in studio or inter Interactive Broker's studio.

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Speaker 1: He says, China's on a treadmill to hell and shared

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Speaker 1: those concerns with the House of Representatives Select Committee on

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Speaker 1: the Chinese Communist Party this week. Talk to me about

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Speaker 1: the hearing, you know, were you able to kind of

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Speaker 1: get a sense of whether or not And I know

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Speaker 1: you weren't there physically in person, but you did offer

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Speaker 1: your insight. Were you able to get it a sense

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Speaker 1: on what the committee's doing? Are they going to be successful?

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Speaker 1: Are they going to do anything?

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Speaker 2: In fact that's.

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Speaker 3: Above my pay grade? Thanks for having me. Is to

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Speaker 3: the politics in Washington, and I do think that the

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Speaker 3: committee is doing good work in calling attention to these issues.

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Speaker 3: And you know, we've been we've been pretty negative on

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Speaker 3: China now for a better part of thirteen years. And

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Speaker 3: I think the risks that China poses have morphed from

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Speaker 3: purely financial uh to to now beyond that into the

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Speaker 3: political realm and the national security realm. And I think

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Speaker 3: that's that makes this a bigger story and the economic

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Speaker 3: model risks as to how China sort of deals with

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Speaker 3: those may in fact affect the politics.

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Speaker 1: And yeah, does does the contagent spread beyond what I

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Speaker 1: think most people are expecting at this point?

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Speaker 3: The good news is is that the risks to the

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Speaker 3: real estate market and the economic model do not have

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Speaker 3: a lot of direct contagent risks to Western banks and

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Speaker 3: particularly American banks. Where the risks are are in our

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Speaker 3: equity and debt investments that that you know, various funds hold,

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Speaker 3: pension funds hold, retail investors hold uh and and I

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Speaker 3: think that's that's the bigger issue as opposed to a

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Speaker 3: two thousand and eight type transmission from their real estate

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Speaker 3: bubble bursting to everyone's real estate bubble bursting. They can

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Speaker 3: keep that internal, but it's a big problem.

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Speaker 2: What are the threats beyond an economic collapse or a

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Speaker 2: property collapse in China, I'm talking geopolitical threats, national security threats.

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Speaker 2: What's the stuff that keeps you up at night?

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Speaker 3: Well, the morphing from spending on the additional high speed

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Speaker 3: rail link that's unprofitable, or the next apartment building and

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Speaker 3: putting up and basically building another aircraft carrier. You know,

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Speaker 3: the classic nineteen thirty scenario where a number of countries

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Speaker 3: you know, ramped up their defense spending as a way

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Speaker 3: to stimulate and we know how that ended. And so

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Speaker 3: I think that we saw reports even today. I mentioned

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Speaker 3: it earlier that Chinese defense spending may be a lot

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Speaker 3: greater than we think, you know, as high as four

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Speaker 3: percent of GDP. The US is three percent of GDP.

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Speaker 3: So they are spending more money. It used to be

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Speaker 3: directed internally with with internal security systems and that, but

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Speaker 3: increasingly now it's hard to miss that that it's also

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Speaker 3: external with the Blue Water Navy and UH and increased

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Speaker 3: tensions around Taiwan.

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Speaker 2: Well, let's talk about that. I mean, how much of

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Speaker 2: a concern do you think that is right now? An

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Speaker 2: invasion of Taiwan.

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Speaker 3: Well, as I said earlier, I think the real risk

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Speaker 3: is something something happens, right, an incident that's that's unexpected. Right.

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Speaker 3: You have now ships transversing crossing each other's bios. You

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Speaker 3: have a lot of aircraft in the area, and all

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Speaker 3: we need is someone you know, a pilot to make

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Speaker 3: a mistake or get scared or or you know, a

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Speaker 3: mishap of somewhat, and then you have an you have

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Speaker 3: an international incident, and and that's I think as the

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Speaker 3: temperature kind of rises in the in South China Sea,

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Speaker 3: I think that's the real risk as a is to

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Speaker 3: a premeditated you know, attack on a Western country or

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Speaker 3: Western ally.

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Speaker 1: So you want to short China potentially, Well, we've been short.

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Speaker 3: We've been short China for for years. You know, paradoxically,

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Speaker 3: we're less short China now than we were ten twelve

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Speaker 3: years ago because China has gone nowhere. I mean, the

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Speaker 3: stock market has basically been flat for twelve years, and

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Speaker 3: as every other stock market has tripled or quadrupled. So

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Speaker 3: it's been a very poor place for Western investors to

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Speaker 3: part their money for years, not just for the last

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Speaker 3: twelve years, but really for the last twenty years. And

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Speaker 3: I think that's going to continue to be the case.

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Speaker 3: Broadly speaking, China does not treat Western capital very well.

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Speaker 2: How are you betting against China right now?

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Speaker 3: We have some direct shorts in the financial area, We

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Speaker 3: have some indirect shorts that depend on China for a

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Speaker 3: fair amount of their revenues. I said, our direct shorts

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Speaker 3: are probably no more than four or five six percent

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Speaker 3: of our portfolio. In twenty ten eleven, it was above

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Speaker 3: twenty percent.

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Speaker 2: We've spent a lot of time over the past few

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Speaker 2: months talking about the struggles of the Chinese economy and

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Speaker 2: the data that we get, or the lack thereof of

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Speaker 2: data that we get. Jim, what evidence do you have

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Speaker 2: that the Chinese economy is actually worse than what Beijing

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Speaker 2: says or what markets already believe.

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Speaker 3: Yeah. The funny thing is is that if you have

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Speaker 3: an investment driven economic model, which they do, the GDP

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Speaker 3: is actually accurate. I noticed something over the weekend that

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Speaker 3: Michael Pettis pointed out that in an investment driven model

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Speaker 3: GDP growth is actually an input, it's not the residual.

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Speaker 3: I think is a really interesting observation. That is. I've

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Speaker 3: always joked that China's the only major developed economy that

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Speaker 3: knows its annual GDP on January one of that year. Yeah,

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Speaker 3: and so you know, whatever the number needs to be,

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Speaker 3: they will put enough stimulus in terms of new investment

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Speaker 3: to hit that number, give or take. So I don't

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Speaker 3: quibble with the quality with the actual numbers they're putting out,

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Speaker 3: but it's the quality of the numbers if you will

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Speaker 3: that if you never write off bad investments, the actual

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Speaker 3: costs to GDP are sitting in your banking system in

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Speaker 3: terms of bad debts, and you have to either inflate

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Speaker 3: that away or recapitalize your banking system. And so that's

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Speaker 3: the nexus of this economic model with economic growth, and

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Speaker 3: it's a banking issue ultimately, and so I think that

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Speaker 3: that that's where I worry that as long as the

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Speaker 3: bank's never write off the bad debts, that's where the quality,

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Speaker 3: if you will, of disclosure is poor.

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Speaker 1: Let's chif you're just slightly won our last minute here

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Speaker 1: before the break, you're sticking with us the rm IPO

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Speaker 1: with today shares rally twenty four percent, stock close sixty

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Speaker 1: three to fifty nine. Your thoughts on the valuation? It

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Speaker 1: seems a bit high, are you? Are you not convinced

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Speaker 1: by the ah?

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Speaker 3: I think it's what one hundred and twenty times earnings

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Speaker 3: And fifth, I think revenues are two and a half

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Speaker 3: billion and went out at a sixty billion.

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Speaker 2: Dollar evaluation, and twenty five percent of its revenues come

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Speaker 2: from China.

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Speaker 3: Yeah, so so twenty five twenty almost twenty five times

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Speaker 3: revenue seems a little steep, But what do I know?

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Speaker 2: Are you gonna short it?

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Speaker 3: Well? You can't yet, so it's a limited float, and

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Speaker 3: but I'm sure at some point we'll we'll crack open

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Speaker 3: the perspectus.

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Speaker 1: Have you been thinking about shorting in video? No, no, no,

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Speaker 1: don't get in the way of the we have.

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Speaker 3: We have things that are that are perceived as AI plays,

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Speaker 3: that are that are trading much more expensive than in

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Speaker 3: video does. So it's so no need to go after

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Speaker 3: the OG.

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Speaker 1: What kind of opportunities has this opened up? As someone

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Speaker 1: who looks at the market with a very critical eye.

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Speaker 3: Well, I think anytime we see one of these tectonic

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Speaker 3: shifts in new technology, like the Internet in the nineties,

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Speaker 3: people at first embrace everything. Everything is going to benefit.

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Speaker 3: But what you find out, of course, is that when

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Speaker 3: it's truly a major shift, is that those technologies end

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Speaker 3: up harming as many businesses as they create. And so

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Speaker 3: if you think about the companies that were in the

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Speaker 3: business of distributing analog physical products that became digitized, they

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Speaker 3: went away, Blockbuster Video, Eastern Kodak, I mean, companies like that,

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Speaker 3: record stores I mean, and I suspect that if AI

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Speaker 3: is as big as most people think it will be,

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Speaker 3: you will see lots of businesses that had moats find

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Speaker 3: out that the motes have been breached. So your software

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Speaker 3: as a service. What prevents a corporation from having AI

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Speaker 3: design its own software for various different applications, right, And

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Speaker 3: there's lots of things that suddenly you don't think about.

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Speaker 3: I kind of joked a little bit a few months

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Speaker 3: ago when IBM CEO came out and said that AIM

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Speaker 3: may make some of the IBM workforce redundant, and I joked,

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Speaker 3: what happens when the clients find that same thing out?

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Speaker 2: Yeah, I mean that's a that's a really good point.

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Speaker 2: I want to shift gears a little bit and talk

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Speaker 2: about your strategy around shorting and what you're seeing in

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Speaker 2: the market today. I think a lot of people, of course,

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Speaker 2: understand your history with being a fraud hunter and going

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Speaker 2: after companies like Enron in the past. I'm wondering if

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Speaker 2: over the last few decades, with regulatory changes, you've seen

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Speaker 2: fraud reduced or are there increased instances of potential fraud

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Speaker 2: out there.

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Speaker 3: I've called this the golden Age of fraud. I think

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Speaker 3: there's more fraud in the financial markets now than there

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Speaker 3: has ever been. Why. And I teach a course in

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Speaker 3: the history of financial market fraud. So so the cycles

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Speaker 3: go back to the late seventeenth century. I think that

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Speaker 3: that it always changes. But what really has me bothered

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Speaker 3: now is that a lot of it hides in plain

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Speaker 3: sight in the way in which companies report their business

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Speaker 3: and their metrics. So prior to to say, ten years ago,

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Speaker 3: you really had to to sort of if a company

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Speaker 3: was making unusual changes to its earning statements, you know,

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Speaker 3: they would have to explain it away. And nowadays, adjusted

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Speaker 3: earnings are basically the norm, and companies add back all

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Speaker 3: kinds of things that they don't don't really a little expense.

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Speaker 3: Oh it's amazing. Coinbase in the fourth quarter of last year,

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Speaker 3: I think share based comp was almost eighty percent of revenues,

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Speaker 3: and they just added it.

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Speaker 2: Back, I mean. And so yeah, we go back to

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Speaker 2: the we work. Why we work didn't go public the

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Speaker 2: first time community adjusted, Yeah, that was at this point

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Speaker 2: it's a joke. But then it wasn't a joke.

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Speaker 3: I know, and invest lost a lot of money, and

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Speaker 3: the sec you know, promised kind of a crackdown on

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Speaker 3: this a number of years ago. They admonished companies as

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Speaker 3: are called to not lead with these kinds of results.

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Speaker 3: But I mean, you know, for God's sakes, General Electric

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Speaker 3: in the first quarter had sixteen pages of adjustments and

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Speaker 3: it's earnings release. I mean, it's really you know, and

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Speaker 3: companies that just take restructuring charges annually. Every year they

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Speaker 3: take a restructuring charge, well, if you take it every year,

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Speaker 3: it's it's recurring. And I think that that in Silicon

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Speaker 3: Valley is in particular, you know, pretty bad at this

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Speaker 3: where companies that lose hundreds of millions of dollars every

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Speaker 3: quarter are reporting you know, break even adjusted profits and

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Speaker 3: so you just wonder if they're really businesses or are

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Speaker 3: they executive enrichment schemes.

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Speaker 1: Question mark for you you know, although this is the

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Speaker 1: gold Najer, fraud activist activity has dropped by eighty five

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Speaker 1: percent since it hit a peak in twenty fifteen. These

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Speaker 1: are numbers from Direct Market Intelligence. Yeah, answered the question

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Speaker 1: I posed just before the break, I mean, is the

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Speaker 1: er of the short seller behind us?

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Speaker 3: I think everybody asks that during every bull market, you know,

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Speaker 3: nineteen ninety nine and early two thousand and it was

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Speaker 3: the same sort of question, you know, will short selling

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Speaker 3: ever work? And it's sort of the corollary, does value

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Speaker 3: investing ever? Work again. You know, when people pay higher

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Speaker 3: and higher prices for questionable corporate assets, and the question

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Speaker 3: is is yeah, generally, yeah, it comes back and businesses

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Speaker 3: generally find their true value over time. I mean, just

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Speaker 3: look at the Meme stock you know, run up and

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Speaker 3: now disaster from twenty twenty one to today, and there

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Speaker 3: was no price too high to pay for some of

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Speaker 3: these stocks because they had a short position, and ultimately

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Speaker 3: most of them have have come crashing down to earth.

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Speaker 1: We'll get back to that specific one in a second,

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Speaker 1: but first I want to ask about the I guess

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Speaker 1: rising short seller in the market right now, in Nate

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Speaker 1: Anderson and Hindenburg. He's been big bets against a Donnie

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Speaker 1: or rather he's said very public negative things about a

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Speaker 1: Donnie Icon enterprises. You know, do you see eye to

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Speaker 1: eye with some of the calls that he's made.

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Speaker 3: Look, I think Nate and Hindenberg have done great work

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Speaker 3: on a number of names, Nicola and others, and you'd

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Speaker 3: be wise to at least hear what they have to say,

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Speaker 3: even if you don't agree with it, if it's well

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Speaker 3: researched and like anything, you know, stock prices are our

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Speaker 3: opinions based on facts. And so at the end of

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Speaker 3: the day, it's essential for a marketplace, whether they're positive

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Speaker 3: facts or negative facts. And if you're a good investor,

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Speaker 3: you know it behooves you to to basically hear both

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Speaker 3: sides of any story.

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Speaker 2: We'd be remiss if I didn't ask for an update

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Speaker 2: from you on Tesla shares up one hundred and twenty

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Speaker 2: four percent this year.

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Speaker 3: Yeah, we are short Tesla. We remained short. It's one

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Speaker 3: of our forty four positions that we have. Tesla is

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Speaker 3: in many ways I think epitomizes this bull market. It's

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Speaker 3: a hopes and dream stock. It's trading at seventy five

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Speaker 3: times earnings, which aren't growing anymore. It looks like revenues

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Speaker 3: are going to be challenged in terms of growth. So

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Speaker 3: it's now again an AI story or ROBOTAXI story, or

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Speaker 3: a battery story or a robotics story. It's it's whatever

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Speaker 3: you want it to be. And it reminds me a

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Speaker 3: lot of Cisco back in nineteen ninety nine and two thousand,

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Speaker 3: where Cisco was a networking company. Tesla is a car company,

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Speaker 3: but Cisco was going to get into everything else that

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Speaker 3: had anything to do with the Internet, and people put

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Speaker 3: a higher and hire multiple on it, and ultimately Cisco

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Speaker 3: did okay, but the stock price dropped ninety percent.

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Speaker 1: I'm going to do a quick lightning round of some

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Speaker 1: stuff that has been reported that you are are have

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Speaker 1: been short recently. Just have meny yes or nos. If

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Speaker 1: you're still short Digital Realty Trust, we are short the

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Speaker 1: data centers sl Green real too.

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Speaker 3: Sl Green. We are short commercial real estate.

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Speaker 1: Okay, Tesla, you said Sun Run, you said the.

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Speaker 3: Solar leasing companies. I've called them science projects. They're absolutely hysterical.

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Speaker 3: They lose hundreds of millions of dollars, huge negative free

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Speaker 3: cash flow. And getting back to our early conversation about metrics,

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Speaker 3: they report rather than a regular P and L, which

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Speaker 3: would be embarrassing, they report these net present value calculations

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Speaker 3: based on the panels they put up on people's roofs.

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Speaker 3: And it's absolutely hilarious the way they do it, and

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Speaker 3: I think investors are going to find out the hard

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Speaker 3: way about it.

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Speaker 2: All right, Jim, we're gonna spend the last forty seconds

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Speaker 2: with you getting your thoughts on what you're watching, what

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Speaker 2: you're streaming, what you're doing, and what you're seeing at

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Speaker 2: the movie theater. New movie out dumb money. It's got

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Speaker 2: me Davidson in it, It's got Seth Rogan in it.

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Speaker 2: Are you going to see it? Have you seen it?

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Speaker 2: It's all about memestocks.

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Speaker 3: I told one of your colleagues earlier. I don't see

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Speaker 3: the needs since I lived on money five days a

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Speaker 3: week in the marketplace. So at some point I'm sure

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Speaker 3: I'll see it. I you know, I think it celebrates

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Speaker 3: the memestock investors winning over you know, Wall Street and

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Speaker 3: and the evil hedge funds. The sad thing is is

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Speaker 3: that most of those memestock investors have lost large amounts

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Speaker 3: of money, you know, chasing these ideas, because, as we

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Speaker 3: pointed out, a lot of these companies came crashing down

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Speaker 3: to earth and in some cases have already gone bankrupt.

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Speaker 2: Hey, Jim, really appreciate you taking the time and joining us,

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Speaker 2: especially for such a long period of time. Jim Chanos,

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Speaker 2: the founder of Chenos and Company, legendary short seller. Here

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Speaker 2: in our Bloomberg Interactive Broker Studio