Jim Chanos tore into crypto after Sam Bankman-Fried’s FTX exchange imploded. The short seller compared the crypto crash to the dot-com bubble bursting. Chanos expects the S&P 500 to plunge, Tesla’s growth to slow, and Twitter to distract Elon Musk. Loading Something is loading.
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Jim Chanos has trashed cryptocurrencies after Sam Bankman-Fried’s FTX became the latest industry player to collapse into bankruptcy.
The famed short-seller and Chanos & Company boss compared the ongoing crypto crash to the dot-com bubble bursting on Bloomberg’s “Odd Lots” podcast this week.
Chanos warned that the S&P 500 could plunge another 55% before bottoming out. He also predicted Tesla’s growth would slow as its rivals catch up and it runs short of customers, and suggested Twitter might be an expensive distraction for its new owner, Elon Musk.
Here are Chanos’ 10 best quotes, lightly edited for length and clarity:1. “The various parts of speculation are getting wrung out of this market one by one. We’ve waded right into the middle of our second crypto crisis. On top of that you’ve got the tech complex melting down. Whether it’s crypto, whether it’s NFTs, whether it’s SPACs, the poster children for that speculation are basically being taken out to the woodshed and disposed of. ”
2. “All the use cases for crypto kept changing. It was going to be an alternative currency. It was going to be a store of value. It was going to 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 really was, ‘How can we extract the most amount of fees from unsuspecting investors?'”
3. “When you need fiat is the time when people are most afraid, and when fear stalks the markets. Governments can not only enforce contracts and adjudicate fraud, but they can act as lenders of last resort and establish 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 markets turn down and people become a little bit more leery, since most frauds require new capital to keep going, they tend to get exposed. Madoff in December of 2008 is a good example. Enron and WorldCom and Tyco are also in that class. In this cycle, I think crypto is probably going to be right up there.”
5. “Regulators are archaeologists, not detectives. Asset prices are both the staunchest defense attorney and the harshest prosecutor for financial fraud. Nobody’s out looking to bring the bad guys in when everybody’s making money. It’s only when people start losing money that you begin to get a public outcry of ‘throw the rascals in jail’.”
6. “This looks a lot more to me like the dot-com era on steroids than the prelude to the global financial crisis. It’s a pretty bad mark-to-market effect for equity-type investors, much like the dot-com era, but I don’t see contagion through the credit markets.” (Chanos noted the crypto industry is relatively small and largely separated from the traditional banking and payments system.)
7. “If it was a bottom, it would be the most expensive bottom probably in modern financial history. Most bear markets have basically bottomed out somewhere between nine and 15 times the previous peaks of earnings. If we think that earnings are peaking right now, nine to 15 times would be 1,800 to 3,000, 3,100 on the S&P. We’re a long way away from that.” (Chanos’ comments suggest the S&P 500 could fall as much as 55% from its current level of about 4,000 points.)
8. “Tesla has immense gross profit margins of 30%, when the rest of the industry is lucky to get 15% or 20%. We don’t think that’s sustainable. Investors are still looking for 40% to 50% growth for the next decade, which pretty much means Tesla is going to be the entire car industry by the early 2030s. We just don’t think that’s going to happen.” (Chanos, who is short Tesla, underscored the relatively small size of the luxury-car market, and mounting 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’m scratching my head at some of the initiatives. It’s probably going take a disproportionate amount of his attention over the near term.” (Chanos was discussing Musk’s recent Twitter acquisition and the early changes he’s made to the social-media company.)
10. “Some of these business models have been questionable from the get-go. Take a look at at ride hailing or food delivery. These companies have been around for 10 or 15 years, and they haven’t found a way to make profit. They’re not scaling. DoorDash actually has higher losses per order now than a few years ago.”
Read more: Goldman Sachs says the S&P 500 will remain flat through 2023. Here’s their 5-step playbook for finding returns — and avoiding crippling losses — next year