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Golden times for fraudsters: Short seller Jim Chanos: The crash will come – it is only a matter of time message


• Jim Chanos sees the market developing into “greatest short opportunity ever”
• Criticism of a lack of financial supervision
• Elon Musk and Tesla shares as a prime example of everything that goes wrong on the market

As a short seller, Jim Chanos benefits from falling prices. It is therefore no wonder that he is currently predicting a crash in the stock market. “This market is developing into one of the greatest short opportunities of all time. We are facing problems, I don’t know when, but they will come,” said the famous short seller in an interview with the “Financial Times”. Even if one could criticize that such a statement only has to be held long enough until one day it actually arrives, one should not carelessly copy it. Because the investor can look back on an impressive list of successful short businesses: Chanos and his short sale hedge fund Kyniko Associates became famous above all with a successful bet against the energy company Enron, which went bankrupt in 2001. In the recent past, the short sale expert was also right at the car rental company Hertz, which had to file for bankruptcy in the Corona crisis. Also with his bet against Wirecard, whose share price has been smeared by the exposure of a balance sheet scandal since mid-June, Chanos recently earned around 100 million US dollars, according to the “Financial Times”.

With regard to his business, the investor is aware of the fact that success is usually preceded by weeks or months of pain before the expected price disaster occurs. For example, it was also at Wirecard, Chanos told the British business newspaper. Accordingly, it could still take weeks or months before the crash he predicted actually occurs. In the end, however, the climate on the market does not allow any other development.

Market climate as “intoxicating witch’s brew for problems”

In view of the current mood on the stock market, the short seller speaks to the “Financial Times” of an “intoxicating witch’s brew for problems” and a “golden age of fraud” and names several factors that he believes lead to exaggerated euphoria and the currently disastrous Market climate. One reason is the bull market, which has been going on for ten years, which is driven by central bank interventions and has led to the fact that – for fear of missing something – as many private investors are now invested in the market as recently before the dotcom bubble burst. There is also a policy under the US President Donald Trumpwho don’t take the facts very precisely, and the “Fake it until you make it” culture of Silicon Valley. All of this has led to the fact that the stock market currently offers a fertile field for people who would rather handle the truth with ease. Therefore, corporate malefactors would currently get away with their behavior for a long time, says Chanos. The best example of this is probably Wirecard.

The expert therefore does not leave the hair, especially with the authorities, which are actually responsible for the supervision of the financial market and the detection of fraud. The regulators are something like archaeologists for the financial sector, Chanos said in an interview. “They’ll tell you what the problem was after a company collapsed,” said the short seller. In contrast, Chanos sees himself and others in his industry as detectives who would look for financial reporting fraud before all other inconsistencies and want to eradicate fraud, said the investor, who teaches a course on financial fraud detection at Yale University, in an interview with ” Citywire “.

Chanos also told the Financial Times that it was his mission to understand a business model and then check whether the company’s financial reports would reflect it. He is primarily looking for “legal fraud” in which companies would adhere to the accounting rules, but still have an intention to deceive – for example, by using aggressive accounting practices, which would hide debts in subsidiaries, for example. At the moment, however, you don’t have to look for a scam so much, because one of them “stares directly into the face through the use of company-specific key figures,” says the short seller. As an example of this, he gives the key figure EBITDAC, which some companies would now use. The “C” to which the conventional EBITDA is supplemented stands for “Corona Virus” – the key figure is intended to indicate what profits a company would have had without the Corona pandemic. Since regulators would not be more stringent with such creative, reality-obscuring metrics, shortsellers would now have a unique opportunity.

Tesla as an example of “culture of deception”

The example of the Tesla share shows that an apparently cheap short opportunity does not always work out. According to the “Financial Times”, Jim Chanos has been betting on a fall in the electric car share for around five years – instead, its price has increased six-fold over this period. Nevertheless, the expert remains extremely critical of Tesla. The company polishes its results through accounting tricks, is unprofitable, is under increasing competitive pressure and the Tesla share is extremely leveraged, Chanos told the newspaper. In addition, there is a “culture of deception” for the e-car manufacturer, since it sells autonomous driving to customers, although this technology does not yet exist. According to him, there is one main reason why the Tesla share is still soaring: “I think Elon Musk personifies the hopes and dreams of this bull market,” said Chanos. Personality and big ideas are more important than fundamental data. The Tesla share is thus a prime example of everything that, according to the investor, is currently in trouble on the market – a sufficient reason for him to remain short despite the previously lossy trade.

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