What Jim Chanos is tired of hearing in this bull market
In every bull market there are a bunch of prevailing narratives telling you why should buy — but not all of those narratvies ultimately prevail.
Business Insider Senior Finance Correspondent Linette Lopez spoke with famed short seller Jim Chanos at the Nasdaq Market Site about what he is tired of hearing from Wall Street and Silicon Valley these days, and why some companies are choosing an ICO over an IPO. Following is a transcript of the video.
Linette Lopez:Hi, I'm here with Jim Chanos, founder and president of Kynikos Associates, the world's largest short hedge fund.
Lopez:So Wall Street is a place full of geniuses. I'm sure that in your 30 years you've found that.
Chanos: I just ask them.
Lopez:Oh yeah. So given all the geniuses that we have on Wall Street, what are you tired of hearing in this market? What do you hear over and over and over again that kind of drives you a little bit crazy?
Chanos:Well, I mean probably one of the things that I think we look at — a little bit askance — is the idea that we can just keep discounting the same amount of good news over and over and over again. So whether it was tax reform, which powered the market higher at the end of 2019. And people were just simply, you know, every single day coming in and saying, "tax reform is going to be amazing; tax reform's going to be amazing." But the S&P 500 estimates for 2019 are no higher than they were when it became apparent tax reform was going to pass in the summer. And so it's not as if we didn't quantify the impact of tax reform. But yet people wanted to get more and more excited about it and keep discounting it. And that's just the nearest term. But in bull markets people will find all kinds of reasons to discount news over and over and over again. And they do the opposite in bear markets.
Lopez:OK, we've talked about one silly place — Wall Street. Let's talk about another one: Silicon Valley.
Lopez:OK, we're seeing ICOs. We're seeing fewer IPOs. Where is all that money going?
Chanos:Yeah, and we're seeing lots of pro-forma earnings, which is also kind of fun in Silicon Valley. They've resurrected that.
Lopez:You have a weird notion of fun, but OK.
Chanos:Yeah, you know, I think that that the sense has been there's been such a deep private market for deals that no one has needed to go public. Now some would argue that some of the business models that have these incredible valuations in the private market like Uber and Airbnb might not like the scrutiny of public markets.
Lopez:I would never go public.
Chanos:So if you can get a unicorn-type valuation of billion without going public, who needs it?
Lopez:Right, but who's giving them all that money?
Chanos:Well, I mean, first of all, it's not a deep liquid market, right? So it's a round of financing of maybe another billion dollars, but at a higher price. So these are not companies capitalized with, you know, hard assets, and cash of billion. They are being, basically, valued at that based on the last round of financing. And that's an entirely different thing. That's pretty ephemeral and can go poof as it did in '01 and '02.
Lopez:Jim, thank you so much for coming by.
Chanos:This was fun, thanks.
Video: A Fireside Chat with Jim Chanos & Dan Gilbert (Full)
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