Jim Chanos on Tariffs, Trump, AI, DeepSeek, China, Risky Markets

0:00 you are a born skeptic some might even say a cynic uh you've built your career on questioning conventional wisdom what people what companies say so when it comes to expectations for Trump ecomics and the market under Donald Trump what is the crowd perhaps getting wrong what are they not seeing well I think that that and I've been posting that I think the budget cuts are going to be a lot harder than people think I mean we're going after kind of the the lwh hanging fruit both practically and politically right now the usaid stuff um but this is and is outrageous as some of the things that the Doge committee is finding and I agree that some of them are are pretty silly I think that materially we're not really going to be able to to do a lot until you get to kind of more serious

0:47 items like Medicare Medicaid defense um the thir and yeah the the the the hot the hot ticket third rail type stuff and that's going to be much much tougher and so I think we're still in the early parts of sort of political theater on on trumponomics and then of course we have the whole separate issue of tariffs and that gets me to the next question I mean you look at Trump's policies overall they're both populist and as you've described them standard Republican but so far he's chosen to focus on trade War over say cutting taxes so what does this tell you about trumponomics in this second go round rather than the first attempt yeah so I mean we he obviously came right out of the gate with with the tariffs over this past weekend that have

1:32 been walked back temporarily um so it appears they're serious there um we'll see um the fact that that Mexico and Canada kind of agreed to do things that they had already agreed to do I mean Mexico had 10 to 15,000 troops on its border going back to 2017 in a promise they made to Trump the first go around and and reiterated with Biden um so again how much is political theater how much is is is real we'll have to see uh the China the China tariffs I think obviously are a lot more serious and and are worth watching what's the economic risk well the economic risk I mean there's a couple of of problems with the message which is well we charge enough tariffs

2:18 we really can eliminate things like the income tax and and a lot of other sort of broad promises and the fact of the matter is I mean tariffs I think brought in about $80 billion last year and so you know in order for tariffs to replace the income tax which is about two trillion of our four trillion revenues you got to have a lot of tariffs so I don't think we're looking at that I think the question is is this being used as a national security cudgel as well as an economic cudle or or or is it is it strictly economics because they really believe they can raise a lot of money with tariffs the numbers just kind of don't pencil out I am curious though when we talk talk about the potential overhang of this I mean I know In fairness to the Trump Administration

3:04 it's only been a couple of weeks here but the idea that now Mexico and Canada have won a one-month reprieve at least for investors and economic Watchers that's another month of uncertainty do you think we'll get more of a concrete policy meaning an actual resolution of some form or another that will at least provide some certainty to the market whether the market likes it or not that's a whole another conversation yeah well I think drama's part of the message Romain I mean it wasn't the first Administration I don't see a whole lot different changing in this I mean I the one thing you might might at least point out in the past administration for good or bad I I I didn't have to you know check my my X feed first thing in the morning to see what what was coming out of the White House overnight um and so you know we're back to we're back to uh

3:50 uh a much more volatile set of political you know political pronouncements and streams and walk backs and it's a little more uncertainty well how much confidence do you have in the people around Trump because Trump himself we know he's just sort of this Vortex but there are some relatively competent people around him including the treasury secretary who you have some familiarity with back when you were running Kos he was one of your first analyst out there he was my first so you liked him then do you still like him now I I I like Scott penson an awful lot I we don't share the same politics but he's a man of U of of real character and uh I think he was probably the best man for the job given the political Arena um so I'm I'm hoping he does well I think he you know he will

4:36 do well hopefully and uh I know he has the country's best interests at heart and you did see him but you didn't actually get to talk to him about what he's doing right now well I was able to see him and congratulate him after he got uh got the the nod so uh he's got his hands full you've described the last few years as uh the Golden Age of fraud funny accounting questionable behavior on the parts of investors of companies how would you describe where we are now given that the lines between government and business are pretty much blurred uh more intertwined than ever you've got Elon Musk running Doge you've got the president selling his own meme coin you've got Regulators perhaps taking their hands off the wheel completely yeah I I I I'm hardpressed to think that that we're going to see uh less of it in the in the near term uh it

5:22 sure seems like we're going to see more of it um look this is this is a cych of the likes of which I've never seen and the willingness of people to believe things that just simply aren't true it never stops to ceases to amaze me um particularly as the cycle carries on and uh and the willingness of management teams now to to project way into the future and make all kinds of claims and Promises um I think is also sort of unprecedented it's always been there but it's it's it's greater now you know I've I've always said that that bull markets place a premium on profit promises and bare markets discount reality and right now there's lots of companies making lots of promises lots of promises but what is the reality and I mean and to

6:08 Scarlett's point you have some conflicts of interests and some of the folks who are um I don't know if they're in charge I mean they would say they're not in charge but certainly sort of leading the charge uh in sort of trying to sort of root out whatever they they think uh could potentially be bogging us down here if you're not a friend of Elon Musk or a friend of trump that's and you're running a company or an invest fund should you be worried yeah I mean I I don't know I don't know how personal it's all going to get to companies and and individuals but but I am concerned that we have this whole new new structure set up um with people that are basically going in again and if you read the president's executive order setting up the Doge committee which was an existing committee the US Digital

6:53 Services committee um it has no budgetary Authority or even recommendations it's it's set up as a technology and software Consulting organization so obviously the bwick has expanded to to be something much greater than that and the question will be you know will at some point a federal judge somewhere say wait a minute you know this is yeah you're going beyond your your purview beyond your legal does it undermine Faith though in the system I mean particularly when I see people rooting around in the Treasury System I mean we can talk about USA ID and some of these other things but the treasury I mean we're talking about the backbone of our econom pay structure yeah I mean we'll see and and we'll see uh to the extent when it goes beyond just you know aerobic

7:39 studies about shrimp in US Aid and gets into you know Social Security and and Medicaid payments and things like that they're really serious and then I think you're going to see uh you're going to if there's any push back it's going to be pretty serious I want to shift our conversation now to the tariffs on China which you said are going to be much more serious the US began imposing an additional t % tariff on Chinese Goods uh and beijing's response was targeted tariffs on about 80 products which hardly seems like a proportional response what does this reveal does this indicate that China has more to lose from a trade war with the US than the other way around I mean the the the argument from the administration is that they do right that China has much more to lose they're much more export driven country um we'll have to we'll have to

8:25 see I mean I think China probably feels it was proportional and we don't know what discussion are going on behind the scenes so I I think again wait and see but I I think that 10% isn't going to do it by the way I mean getting back to our early conversation about the amount of tariffs you need to raise serious revenues you know you you would have to raise them substantially on on both China and the EU and we haven't seen that yet so we we'll we'll have to see what exactly comes within 30 days 60 days does it escalate or does it does does to cool off and it was an early campaign promise that he's delivered on and now he's moved on to something else but at the same time this comes at a precarious time for China's economy you've been warning for a long time

9:10 about um China's debt bubble and its broken economic model what does the imposition of tariffs now at an additional 10% but you know perhaps going even higher mean for that long-term decline yeah it doesn't it doesn't help it that's for sure because I mean China uh saw fewer Reliance on net exports um after 2010 when we first put out our warning and that it's growing again and uh part of that is due to the fact that the investment driven model that we've been crying wolf about forever I'll be it correctly um is losing its impetus to continue to grow and the banking system is still bloated um and we've seen now problems in the residential real estate area completely trickled down into the

9:56 actual developers um so they've got a model that that really now is is facing kind of a a Crossroads with what they're going to do and and the US putting on major tariffs to one of their few thriving parts of the engine the export manufacturing area isn't going to help Jim we look at the market it's now 3 months after the election and the S&P 500 is up about 4% just about a percent shy of its record high isn't it still just a big long trade right now how significantly different is the market under Trump than it was under Biden well I mean it did pretty well under Biden it did pretty well under Trump trump first goor round too so it's it's done pretty well under both administrations and historically the

10:41 equity markets have done better under Democratic administrations than Republican administrations everyone kind of forgets that but um it's it's hard pressed to see if you you just look at the continuity of the last eight or nine years or even going further back where where the elections were because I mean really they' the Market's done pretty well under under all administrations and because it's done so well there's little institutional appetite for short selling and just over a year ago you converted your hedge fund into a family office and an advisory because of that we recently saw activist short seller uh Nate Anderson quit as well shutting down Hindenberg research is the traditional Short Selling strategy just dead now well I mean so there's two different models there that you've referenced the sort of traditional model that we employed for

11:29 for for better part of 40 years which was just simply putting on short positions hedged or unhedged for our clients um who were looking for that exposure and then there's the short activist model which people like Nate and others have have perfected or or uh really done well with and so I think it's it's almost two different questions um there is virtually very little appetite for a short oriented fund product even if it's hedged um now a lot of that is the Advent of of the so-called pod shops the multi-manager shops which have done a pretty good job of of delivering returns with very little net exposure which is what the long short industry did for years and years and years that changed

12:15 the long short industry morphed into basically mostly long on the hedge fund side um but I I think that uh I think there's always always a market for insurance as I've said and and remember that good fundamental short positions allow you to be more long that's always been the point that they allow you to finance your Longs so for us it was passive right we we we bought the indices and had our short portfolio and by the way I mean gold uh Bloomberg has a wonderful short index in its uh in in the terminal the Goldman Sachs most shorted index it's rebalanced monthly and if you looked at that since the GameStop episode where everybody has basically said Short Selling is dead you

13:00 know there's the risks are too high and you simply shorted that index bought bought the S&P or a related passive index rebalanced monthly that return has been spectacular um and so so there's still Alpha on the short side it's just nobody thinks it's there anymore that's on a more of an index level what about on an individual St that index is actually individual stock the most the most shorted stock it's a representative portfolio of very dicey companies a lot of which we were short but what's the risk out there I mean we talk about I mean we've sort of written all these headlines about the demise and I know it's not completely dead but we talk about I mean short bias funds down like 70% since the financial crisis but even activist campaigns I saw last year was

13:46 like a record low despite all the headlines that we got out all these companies like starboard and a few others it was a record low year for activist campaigns is that a reflection of market dynamics or is that more a reflection of public empy itical Dynamics I think it's both I mean it's remember I mean market prices are are people's uh you know facts people's opinions based on facts and so you know people have gotten much more bullish over General political level level of Regulation the promises that companies made and we talked about earlier so I mean these are all part of a bull market I mean it's just it's just the cycle has lasted a lot longer than a lot of people would have thought including me but uh I think that that that can change too and

14:33 uh and and and so the problem is is that price levels and and the and where we are in that part of the cycle don't give you a good sense of timing they do give you a good sense of how much risk you're taking should the timing change it feels like there's a lot of risk in this market right now when you look at Public Market valuations whether on index level or individual stock level valuations are high you look in technology you you go deeper into AI the valuations are even higher can you make a case that there is a bubble out there and speculation is there Rome not quite as where it was in 2021 which is the most speculative Market I've seen but it's getting back there I mean the the the speculation in meme coins again where just people are floating these things so you did not buy

15:18 the Melania coin as I didn't buy the Enron coin that was floated Yesterday by the way yeah yeah so there you go um so I think that that yeah these are all signs and what we haven't seen yet which we saw in 2021 but I suspect we will see soon is a lot of issuance as I've always said that that Wall Street has a printing press too just like the fed and and once that printing press goes and everybody gets filled generally you end up with some some heavier weather as we did in 2022 haven't seen it yet I suspect we will I want to get your thoughts on deep seek the revelation of deep seek and its technological breakthrough a cheaper more efficient AI model does it help answer the question of whether we're in an AI bubble well what I pointed out when it came out and

16:04 I know nothing about llm models or any of that which one is is better is it underscores the risks of disruptive technology and that is when you are betting on disruptive technology you have to always consider the risk that that technology will be disrupted Itself by a better mouse trap the kid in the garage you know we can we can um uh talk about all of the possible risk and that's that's something coming out of left field that that I think you know can change the argument so I think that's what deep seek underscored was that wait a minute maybe there's a way to do AI with less capex less chips you know cheaper um and nobody had kind of really considered that until deep seek

16:51 now I don't know that deep seek dethrones the other models it's beyond my pay grade but it does underscore the risks of paying multiples of Revenue that are historically considered you know egregious and and now we have companies routinely trading at 20 30 40 times revenues yeah and so that gives you an idea of the risk in those in those businesses I I look at paler and how well it's done and it's talk about Untamed organic growth so at least when it comes to Big Tech and AI this threat of disruptive technology do you see any evidence that institutional investors maybe have an appetite to start ing or looking to protect against some of those positions well they should I don't know if I'm seeing it yet but they should um and and as said there there's and the

17:38 other thing that I'll just mention about disruptive technology is in the the up phase of it as we saw in the late 90s when the internet which was certainly a disruptive technology everything is a positive the internet will affect all things positively and in fact what we found and what what I and my clients made a lot of money on in in in from 2000 to 2010 was how many businesses got unfortunately disrupted by the internet how many businesses went away and I suspect that's going to be the same thing in AI that not a lot of people are talking about yet I mean AI it is a very revolutionary technology and will be benefiting lots of things and hopefully Humanity but by definition it will put a lot of business models out of business

18:23 yeah and it's already we're already starting to hear talk about that and I was interested in how so many people were dismissive of deep seek and its Founders I know there are a lot of questions about exactly what they did and how they paid for it but we saw that same dismissiveness back during uh the computer era when that was coming up and of course during uh the.com bubble what led up to the.com Bubble a lot of the Giants today I mean people scoffed at Jeff Bezos and Amazon people scoffed at what apple and Steve Jobs were doing right and and and again those companies had had big valuations in the up part of cycle but what everybody forgets about Amazon for example is the two 90 plus% declines it had in 0203 and 0708 uh along the way and and for me to

19:09 tell investors well that's fine but by the way when you're down 95% tell me if you're still holding and adding to the position number one number two we then forget about the America onlines the yahoos the ask geves the the businesses that yeah I remember them I I still mock them to this day um but but do we also forget about I mean Den Ron the world commoms and all that because how am I supposed to believe that all of these companies that are trying to sell their AI product and giving numbers as to what they're selling are on the up and up particularly because we don't have a Jim chos out there rattling the cages maybe I'm trying I'm still trying occasionally occasionally me yeah but I look I that's you underscore an important part that fundamental short Sellers play whether fund managers or activists and that is

19:57 they're still the only ones incentivized in real time other than journalists to point this stuff out as we wrap up our conversation here if investors are indeed less sensitive to valuations and that certainly seems to be the case over the last couple years and paf funds are driving a lot of the price action the inflows there what is the impact on the health of markets overall and I mean I guess you could expand that to capitalism yeah so I've had this discussion with my friend Mike Green who's been talking about this now for for years about passivity and the impact on markets and will it just simply lead to more disruptive events meaning everyone going one side of the boat and then going to the other side of the boat um so flows become much much more important I I mean I certainly kind of hope that's not the case in extremists

20:44 it's certainly happening now because the fact of the matter is is that if we can't differentiate valuations if it's all just a matter of flows um then a important part of capitalism and signaling mechanism capitalism is broke right you don't want to be sending a lot of money to the Enron and Worldcom and and theosis of the world you know you want to be sending it to the Amazon and and and so we hope that the market starts differentiating these Beyond just simple flows and narratives and positioning and all the things that everybody watches now like a hawk dayto day and hour to hour because if not we got a bigger problem with capitalism final question to you what's the single biggest risk you see in the next six 12

21:29 months um something that I don't see probably I mean that by definition it's the St yeah exactly I I mean look I think the political theater is going to get ratcheted up it sure seems that way that we're heading to uh to kind of an issue where Congress is going to have to say well I'm just going to abgate my entire responsibility to the executive uh Branch so I suspect I suspect day-to-day it'll be politics but the real risks will be something like deep seek that comes out of left field that that changes people's thinking and you know by definition we don't know what that is