Jim Chanos Talks Credit Markets, Bitcoin
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What is the main topic discussed in this episode?
Hello and welcome. This is The Michelle Hussein Show. I'm Michelle Hussein. I speak with people like Elon Musk.
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You certainly ask interesting questions.
Bloomberg Audio Studios. Podcasts. Radio. News. The legendary Wall Street short seller Jim Chanos also spoke out about private credit not so long ago. He said, quote, now with the advent of private credit, institutions are putting money into this magical machine that gives you equity rates of return for senior debt exposure, which, again, should be the first red flag. We rarely get to see how the sausage is made. Jim Chanos joins us now. He is president and managing partner of Chanos & Company. He is here with us exclusively. Good to see you again, Jim.
Good to be here. Thanks for having me.
So you heard what the CEO of Barclays said about this idea of whether it's one bad actor or some aspect of circumstances that leads people in companies to behave a certain way. What does your spidey sense tell you?
Well, I teach a course on the history of financial fraud, as you know, and one of the themes of the course is that the fraud cycle follows the financial cycle with a lag. And the more extreme the financial cycle, i.e., the bigger the bull market is, Usually more fraud follows thereafter with a lag. So you don't really see the large amounts of fraud until after the cycle turns. This is early. And a lot of consumer credit Metrics are still kind of holding up, but we are starting to get some canaries in the coal mine. In subprime auto, as you mentioned, the first brand's case is kind of mind-blowing, given what they were hiding. And I suspect we'll see more, but I don't think we're going to see a tidal wave of it until the actual financial cycle turns.
And then I think we're going to see a lot of it.
And how extreme is this current financial cycle?
What concerns does Jim Chanos have about private credit markets?
This one's pretty extreme. I mean, we're now really 16 years into a bull market in credit, in equities. It's getting more speculative. We saw a mini speculative blow off in 2021. We're seeing it again in 2025. Standards get reduced, as I like to say, people's sense of disbelief. erodes over time, they begin to believe things that are too good to be true because there's pressure to put investors' money to work. And I think some of that's happening now in private credit.
So the stock market has barely blinked with all these blow-ups. The credit market kind of dismissed them as idiosyncratic until Jamie Dimon warned about the prospect of more cockroaches. And then that kind of got people's attention just a little bit here. At what point does this become something that the credit market starts to panic over?
Well, we haven't seen it yet, as you say. Credit spreads are still almost record, record lows. So people are still partying. You know, if the punch bowl is being taken away, only a couple of people may have noticed it yet. But so far, it's still partying like it's 1999 in the credit markets for the most part.
What I found really fascinating was that Jamie Dimon didn't really target private credit in his comments. He kind of just made the comments generally. Yet the industry got kind of defensive when he spoke up. Are these firms justified in doing so? I mean, you point out that they have promised these equity-like returns that raises questions about the economics of their business.
Yeah, there's two things that bother me. The way private credit is being sold to investors, and I sit on investment committees, so I see this. And really, it's one of these too-good-to-be-true type promises. We're going to give you senior debt exposure, often secured somehow, but with equity rates of return, double-digit type returns, which makes you wonder about the underlying credits themselves. That's number one.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–2:14
2
What concerns does Jim Chanos have about private credit markets?
2:14–5:33
3
How does the financial cycle influence fraud according to Jim Chanos?
5:33–9:50
4
What red flags should investors look for in the current credit market?
9:50–13:23
5
Why is Jim Chanos skeptical about the current state of private credit?
13:23–21:25
Speakers
5 identifiedMore from Bloomberg Talks
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