TAMSanity and the Golden Age of Fraud

Published on
November 16th, 2020
Duration
85 minutes

TAMSanity and the Golden Age of Fraud

Mike Green in Conversation ·
Featuring Jim Chanos

Published on: November 16th, 2020 • Duration: 85 minutes

Jim Chanos, president of Kynikos Associates, is one of the most legendary investors of all-time, short seller or otherwise. Even after an incredible bull run that has taken many short sellers out back behind the woodshed to be put down, he's still generating incredible alpha for his investors. In this interview with Mike Green of Logica Capital Advisors, Chanos explains why we are in a golden age of fraud where the market fails to recognize frauds until the last minute. He also highlights the dynamic of growth-starved investors willing to throw money at any company that can demonstrate a large total addressable market (TAM) even if there is no demonstrable chance of profit. He cites business models like Uber and Grubhub as examples of the market's TAMSanity. He also touches on two of his highest conviction shorts, IBM and the commercial real estate sector, with IBM being described as the ultimate example of a COVID loser and commercial real estate being described as a "slow motion train wreck." Filmed on November 11, 2020. Key Learnings: Investors wanting to get short must be cautious and manage risk as the market is not pricing in fraud until the last minute. As well, IBM should serve as an example of the types of companies who have failed to innovate and whose death has been accelerated by COVID. The writing is on the wall for commercial real estate and the debt and leverage in the industry can help investors determine the timing of its slow death as obligations will eventually have to be met.

Comments

Transcript

  • JT
    Joseph T.
    24 November 2020 @ 21:06
    Did someone say brilliant?
  • ds
    durgesh s.
    24 November 2020 @ 05:07
    As Always Chanos comes with enough reason to scare the lights of the Bulls
  • TC
    Timothy C.
    16 November 2020 @ 22:54
    Interesting commentary on IBM. As someone in high tech, one thing I've noticed about IBM is that they spend a lot of research in emerging technologies (take Watson for example), but their conversion rate into product and revenue is abysmal.
    • SD
      Shyam D.
      23 November 2020 @ 05:32
      Yeah the client base is all the legacy companies who are struggling to transition.
  • DD
    Darrell D.
    17 November 2020 @ 06:19
    Just when I thought I understood Mike's and Jim's breadth of knowledge of markets, chapter 7 happened and humbled me once again! Real Estate (RE) investing is not discussed much in the RV circles outside of financial vehicles (i.e. REITs). RE constitutes a considerable portion of my net worth and a significant amount of my monthly passive income. RE can be the gateway to entrepreuship for anyone! RE is not a zero sum game like other financial asset classes. I wish RV had a RE channel :)
    • MK
      Mark K.
      22 November 2020 @ 17:32
      I agree with you. I've gone back and replayed that section at least 2 times.
  • YC
    Yi C.
    22 November 2020 @ 03:17
    I am not professional in accounting but am trying to verify the NOI number on SLG. Jim said the last five quarters NOIs are 130 -> 122 -> 115 -> 105 -> 99. But it is 130 -> 135 ->115 ->105 ->99 from my calculation. It thus cast some doubt on the statement that NOI is dropping before COVID. My calculation is NOI = Revenue - Operation Expense - Real Estate Tax -> Ground Rent
    • YC
      Yi C.
      22 November 2020 @ 03:27
      Trying to expand my idea a bit more. Assuming the current NOI (99million) persists into future for eternity and no recovery nor deterioration, the implied cap rate is 10% based on current stock price.
  • GT
    Gerald T.
    21 November 2020 @ 23:21
    Hmmm, @WallStreetCynic on Twitter referenced at the and if the conversation is someone named Michael Whitney....and not much activity. How does one follow Jim?
  • AW
    Aaron W.
    20 November 2020 @ 04:56
    This was excellent, actionable, insightful, thank you gentlemen!
  • FA
    FAISAL A.
    18 November 2020 @ 02:39
    Green screen has got to go
    • CO
      Craig O.
      19 November 2020 @ 02:15
      Mike Green should be able to afford a real green screen.
  • YB
    Yair B.
    18 November 2020 @ 23:57
    What an incredible interview! Really feel blessed to have access to these minds on RV!
  • WM
    William M.
    18 November 2020 @ 16:50
    RV at it's best - outstanding!
  • EC
    Edward C.
    18 November 2020 @ 10:29
    Mike, that was amazing. Thank you. The wisdom, knowledge and experience as well as the thought process. Would also be fantastic to see you sit with Christopher Cole again.
  • KS
    Karl S.
    18 November 2020 @ 02:53
    An hour with Chanos redeems the cost of realvision. Mike did a great job, as he always does. Just a great interview. Thanks.
  • RM
    Randall M.
    16 November 2020 @ 23:42
    Anybody know the names of the mentioned EU REIT and movie theater REIT? Would love to look closer.
    • WT
      William T.
      17 November 2020 @ 19:47
      They didn't give the names
    • AL
      Andrew L.
      18 November 2020 @ 00:30
      The movie theatre REIT is most likely EPR Properties. 46% of portfolio rev comes from Theaters.
  • SJ
    Sy J.
    18 November 2020 @ 00:19
    Colored contacts?
  • NM
    Nitin M.
    17 November 2020 @ 15:47
    His tidbit on 1099s for Uber drivers is eye-opening. Chanos is always refreshing to get folks grounded in reality.
    • LW
      Luke W.
      17 November 2020 @ 22:47
      Yeah my jaw dropped when I heard that. I am DEFINITELY going to ask the next Uber driver I ride with about it.
  • TW
    Tom W.
    16 November 2020 @ 21:29
    As an old fart myself, I enjoyed this video listening to thoughtful experience (and data) as well as the November 12 Brent Johnson interview with Russell Napier. In this video, towards the end, Jim mentions that the demise of questionable companies will be hastened by rising interest rates. Mr. Napier not only predicts rising rates (unlike a certain website founder) but explains why rates will rise using thoughtful experience--and data. Too bad Jim is not available for us old fart's portfolios.
    • LS
      L S.
      17 November 2020 @ 18:07
      What will "push" rates up, Tom?
    • WT
      William T.
      17 November 2020 @ 20:15
      LS - inflation
  • MO
    Master O.
    16 November 2020 @ 07:50
    Mike Green I'm still waiting for you to bring in Nassim Taleb for an interview. I know you invited him via twitter but got blocked. Perhaps doing it via the official channel by calling his office at NYU or maybe contacting someone in the NYU community or an Alum might do the trick. If the clowns at Bloomberg can get him how is it that RV cannot?! I beg of you to try until you get him.
    • LS
      L S.
      17 November 2020 @ 18:15
      Green always for the win. One of the really good, thoughtful non-sellouts. The most valuable RV guy, in my estimation.
  • BB
    Bojo B.
    16 November 2020 @ 09:19
    Great interview. The golden age of fraud is a perfect analogy for today’s society. Since this whole thing is based on confidence, it is worrying that recently they don’t even try to keep up a veneer of legitimacy, probably preparing for the final kill. Out-of-control censorship is just one example. Hard to see how it doesn’t end up in fascism or anarchy as a visceral expression of vengeance to fraud.
    • LS
      L S.
      17 November 2020 @ 18:14
      When I have called out this "normalized" leftism on these boards, people have chided me as somehow being mean for others expressing totally chaotic and ruinous points of view. It's astonishing what elite and cultural normalcy can bring, even from investors who made their millions precisely because freedom and markets were available to them. Many of the elites that are interviewed here (not all, and certainly not these guys) are part of the problem.
  • OT
    Omar T.
    16 November 2020 @ 17:37
    One very important issue that few are talking about: A big issue in Ohio, and probably elsewhere (I am just not that familiar), is the percentage of people who will be permanently working from home even after covid. The reason this is a HUGE deal is that municipal taxes go to where you work not where you live. So basically it is a massive tax shift away from Democrat run major cities, to townships and suburbs where people used to commute from to go to work downtown. Look at a voting map and you see deep blue concentrations in cities surrounded by a sea of red. Major cities will either need to be bailed out in some way by the Republican and rural dominated Ohio state legislature, or by the Federal gov that looks split. Without help, this means cities will be forced to either raise taxes or cut spending. Both options drive people and businesses faster out of the major cities making the situation worse, particularly when the cost cutting is done by hitting police budgets (a roundabout way of attacking the police pensions and benefits instead of cutting costs elsewhere). As commercial rents in major cities are forced to come down to try to keep people and businesses from moving out or working from home, it means that commercial property values must come down which also hits the tax base. Property taxes pay for a lot of things, including schools (think teacher’s union). This will put even more pressure to either raise taxes, or cut staff. So basically, unless the democrats are able to capture the U.S. senate and spray Fed money everywhere. I see a significant risk of a medium term self re-enforcing downturn for American cities. I think real vision should bring an expert on to talk about the tax consequences of work from home.
    • MW
      Max W. | Real Vision
      16 November 2020 @ 17:47
      In Cincinnati new business centers of West Chester and Blue Ash developed in the suburbs as a result of businesses being excessively taxed downtown. Downtown is a ghost town now. I used to love going down at Christmas time to have lunch and go to Macy's in the old Art Deco buildings but now the Macy's is gone, Tiffany's moved to the suburbs and the restaurant overlooking the ice skating rink is closed. I haven't been back since COVID but I can only imagine how bad this trend will be exacerbated by COVID and work from home. Counter point: I was talking with someone who had a ton of NYC clients had run off to Cincinnati to wait out COVID and many mentioned they aren't coming back because of lower costs and a pleasant surprise at how it wasn't as much of a wasteland as your average New Yorker will have you believe. We'll see which dynamic wins out but there are some potential tailwinds for tertiary cities like the ones that dot Ohio and the rest of the midwest.
    • LS
      L S.
      17 November 2020 @ 18:11
      Omar, why should others continue to support failed systems, with paid off or fraudulent voters to boot? If we are honest about all types of governmental corruption, both corporate and personal welfare alike, we need to admit that all of these sick behaviours should be purged from the system so that we can re-start honestly. NOT "reset" like all the corrupt globalists and their leftist US counterpart governors and mayors would have.
  • AR
    Alexander R.
    16 November 2020 @ 16:25
    As we are reaching almost all time high on s/p 500 today, this conversation just make you think on what shaky ground everything is build. Once it will brake, it will not be your average bear market. Which make me think, I am not the only one who realized it, the government will shut down the markets and will bail out everyone with trillions of printed money. This will be an epic currency collapse There is not enough GOLD in your portfolio even if it is above 50%
    • PC
      Peter C.
      17 November 2020 @ 13:46
      What's in your portfolio? How much gold bullion, gold stocks,....
  • hs
    hanumath s.
    17 November 2020 @ 11:20
    I really like a quote from Mike at the tail part of the interview where he says "Just because that it is not being immediately rewarded it is not the right thing to do", as someone who is betting his own small amount of capital how does one not go bust in this process? Or did I misunderstand the quote, and the words are directed only towards new and incoming analysts?
  • AR
    Anik R.
    17 November 2020 @ 09:25
    Wow what a legend
  • JF
    Jason F.
    17 November 2020 @ 09:12
    Really good chat, what Real Vision is all about, sometimes focussed, sometimes rambling, always insightful.
  • RH
    Ron H.
    17 November 2020 @ 06:41
    Excellent and insightful interview. Thank you both very much. IBM has a horrific balance sheet. Including negative tangible book value. Goodwill is so often a euphemism for bad acquisitions. That makes it one of around 40% of US equities in a similar position, according to a stat I pulled from Vincent Deluard in late 2019. Most of these are zombie companies. And that number is on the rise, fast. Balance sheet analysis has been thrown out of the window, along with other fundamental skills. Yet these are now the companies supposed to take the baton and drive a great rotation. Call me a skeptic. RV, please bring Richard Koo, the originator of the 'balance sheet recession', back with an update on his views.
  • hw
    harry w.
    17 November 2020 @ 05:59
    Great interview. The hot topic surely though should have been his ‘maximum’ shorting Tesla. Why was this topic avoided?
  • CM
    Cory M.
    17 November 2020 @ 04:04
    Mike, to call this a fantastic interview understates what should be obvious when two very intelligent people record a conversation between themselves. Thank you so much for hosting and directing the flow of topics. Of all the things that this 90 minutes brought to mind, the one at the forefront right now is simple. What path would you recommend for a young individual who loves economics/finance to take in order to develop and learn the fundamental analytical skills for picking individual equities that You and Mr Chanos conclude are sadly scarce today? Is formal education a requirement or is there another road that would better serve one in becoming the next Mike Green or Jim Chanos?
  • IM
    Indranath M.
    17 November 2020 @ 03:42
    Great interview. Mike Green awesome as usual. Kudos to RV!
  • JB
    Jonathan B.
    17 November 2020 @ 01:03
    Private market food delivery companies are a great example of Tamsanity. They were saved by Coivid. Engaging in a price war to win the US suburban market was a horrible business model, but they were sustained by nearly free VC money. While food delivery works for Meituan in China due to population density and the fact that it is a super app with much more functionality, the same shouldn't have been applied to the US. I'd put some of the splashy names under a good outcome, bad process investment. Though I suppose one can say their total TAM is all ground shipping!
  • JH
    Jesse H.
    16 November 2020 @ 23:24
    Fantastic stuff from both Mike and Jim. Learned a lot, and a very enjoyable conversation. Will be sharing this one with family & colleagues.
  • JZ
    Juerg Z.
    16 November 2020 @ 23:04
    Why the comments are not shown?
  • SH
    Samuel H.
    16 November 2020 @ 22:48
    Can anyone point to the report Mike was talking about that showed 98% of Robinhood traders lost money?
    • MW
      Max W. | Real Vision
      16 November 2020 @ 22:58
      options trades*
  • JT
    John T.
    16 November 2020 @ 22:00
    I really enjoyed this discussion. As a frustrated bear and gold bug in this leg of market craziness, I've adopted the strategy of just one put in IWM for every 100 point gain in the Russell 2000, while slowly levering up my portfolio of gold miners and SLV with calls. I'm also sticking with the longest dated options - so I still have a number expiring Jan 2022 but newer ones in Jan 2023. The basic idea is that central bank reactions will drive up gold, but the puts are a hedge against a March-style deleveraging event. I know the stories of the poor souls short tech in 1998 or short housing/financials in 2006 and I'm just hoping I last long enough to be right. It's a very tough market for bears.
  • sc
    sung c.
    16 November 2020 @ 20:19
    Awesome interview! Always enjoy listening to insights shared by Jim Chanos. Great stuff!
  • TA
    Timothy A.
    16 November 2020 @ 19:38
    Uber also hires all their Engineers on OPT and H1B guest worker visas so they don't pay payroll taxes. So they are using the 1099-K loophole for there drivers and H1B and OPT for there engineers.
  • KB
    Kirk B.
    16 November 2020 @ 19:28
    The segment of the interview regarding commercial real estate (beginning at 58.:52) was the best discussion to date on RV regarding the commercial real estate market. As a retired commercial real estate executive, I was impressed by Jim Chanos's insightful, fact-based analysis of the commercial real estate market, reflecting a solid understanding of the factors that drive that market. I hope that RV will provide more interviews of this quality concerning the commercial as well as the residential real estate markets. (I am looking forward to the advertised interview of Sam Zell on RV.)
  • BS
    Boris S.
    16 November 2020 @ 18:42
    Mike literally cant have a bad interview
  • TP
    Timothy P.
    16 November 2020 @ 18:19
    This is the quality of interviews I expect from Real Vision. More, please.
  • AK
    Ado K.
    16 November 2020 @ 18:07
    The next one that comes after Jim are the maxis, few understand this.
  • JA
    Jon A.
    16 November 2020 @ 17:38
    Just terrific and insightful over last 40 years because awareness of hidden risk is best way to avoid it.
  • SH
    Sin H.
    16 November 2020 @ 12:43
    On the discussion about people / food delivery services, Mike referenced drivers leasing cars and paying insurance in order to transport people / make deliveries. For some of these services and in eligible markets, they have partnered with car rental companies where drivers can rent a car in a weekly basis.
  • PJ
    Peter J.
    16 November 2020 @ 12:33
    Tremendous interview, thanks to both Mike and Jim
  • PB
    Pieter B.
    16 November 2020 @ 11:25
    Thanks a lot for the interesting conversation!
  • DD
    Dmitry D.
    16 November 2020 @ 11:02
    Was waiting for it since Mike first posted on Twitter and unsurprisingly it delivered on the promise and then some!
  • VP
    Veselin P.
    16 November 2020 @ 10:09
    amazing! for a beginner, this brought a lot value. Probably for advanced investors as well
  • JM
    Jason M.
    16 November 2020 @ 09:22
    Excellent interview. Thank you Mike.
  • GP
    Garrett P.
    16 November 2020 @ 07:54
    Mike Green! Always a must listen to. Thank you RV