- Jim Chanos broke into crypto after Sam Bankman-Fried’s FTX exchange imploded.
- The short seller compared the crypto crash to the bursting of the dot-com bubble.
- Chanos expects the S&P 500 to plummet, Tesla’s growth to slow, and Twitter to distract Elon Musk.
Loading Something is loading.
Thanks for registering!
Access your favorite topics on the go in a personalized feed. Download the app
Jim Chanos has crushed cryptocurrencies after Sam Bankman-Frieds FTX became the latest industry player to go bankrupt.
The famous short seller and head of Chanos & Company likened the ongoing crypto crash to the dot-com bubble that burst on Bloomberg’s Odd Lots podcast this week.
Chanos warned the S&P 500 could plummet another 55% before bottoming out. He also predicted that Tesla’s growth would slow as its competitors catch up and it lacks customers, and suggested that Twitter could be an expensive distraction for its new owner Elon Musk.
Here are Chanos’ top 10 quotes, slightly edited for length and clarity:
1. “The various parts of speculation are gradually being wrung out of this market. We’ve waded into the middle of our second crypto crisis. In addition, the technology complex is melting away. Whether it’s crypto, whether it’s NFTs, whether it’s SPACs, the figureheads for these speculations are basically put in the woodshed and discarded.
2. “All use cases for crypto kept changing. It should become an alternative currency. It should be a store of value. It should be an inflation hedge. At the end of the day, it was really just a speculative asset class with an immense cost structure built around it. The idea for the crypto community was really, ‘How can we get the most fees out of unsuspecting investors?’”
3. “When you need fiat is when people are most afraid and when fear is haunting the markets. Not only can governments enforce contracts and decide fraud, but they can act as lenders of last resort and set up deposit insurance – which is exactly what everyone looks for when people are worried about getting their money back.”
4. “Typically, fraud thrives in a bull market. When the markets go down and people get a little more suspicious, they tend to be exposed as most scams require fresh capital to continue. Madoff in December 2008 is a good example. Enron and WorldCom and Tyco are also in this class. I think crypto will likely be at the forefront of this cycle.”
5. “Regulators are archaeologists, not detectives. Asset prices are both the most staunch defender and fiercest prosecutor for financial fraud. No one tries to bring in the bad guys when everyone is making money. It’s only when people start losing money that they start to get a public outcry of ‘throw the rascals in jail’.”
6. “This looks a lot more like the dot-com era on steroids to me than the prelude to the global financial crisis. It’s a pretty bad mark-to-market for equity investors, much like the dot-com era, but I don’t see any contagion from credit markets.” (Chanos noted that the crypto industry is relatively small and largely dependent on the traditional banking and payments system is separated.)
7. “If it were a bottom, it would probably be the most expensive bottom in modern financial history. Most bear markets have basically bottomed out between 9 and 15 times previous peak earnings. If we think earnings are just peaking, nine to 15 times would be 1800 to 3000, 3100 for the S&P. We’re a long way from that.” (Chanos’ comments suggest the S&P 500 could fall as much as 55% from its current level of around 4,000 points.)
8. “Tesla has immense gross profit margins of 30% when the rest of the industry is lucky enough to get 15% or 20%. We don’t think that’s sustainable. Investors are still looking for 40% to 50% growth over the next decade, which pretty much means Tesla will be the entire auto industry by the early 2030s. We just don’t think that’s going to happen.” (Chanos, or Tesla for short, underscored the relatively small size of the luxury car market and increasing competition from legacy automakers.)
9. “I don’t think it was worth $44 billion. I think he thinks it probably wasn’t worth $44 billion. I scratch my head over some of the initiatives. It’s likely to take a disproportionate amount of his attention in the short term.” (Chanos discussed Musk’s recent Twitter acquisition and the early changes he made to the social media company.)
10. “Some of these business models were questionable from the start. Look into driving services or food deliveries. These companies have been around for 10 or 15 years and they haven’t found a way to make a profit. They don’t scale. DoorDash actually has higher losses per order now than it did a few years ago.”
Continue reading: Goldman Sachs says the S&P 500 will be flat through 2023. Here’s her 5-step playbook for finding returns next year — and avoiding crippling losses