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Jim Chanos: "The Lesson That Shaped My Understanding Of How Fragile The System Is"
Excerpted from Steven Drobny's new book: The New House Of Money,
Chapter 2 - The Biggest Short, An Interview with Jim Chanos
...
Tell me about the back half of 1987. Did you do well in the stock market crash?
Yes, we did extremely well in 1987. But people forget that the market ended flat for the year. It had a big rally for eight months and then peaked at the end of August. The stock market crash was the end of the move, not the beginning. I remember vividly being at my brother’s wedding in Wisconsin the weekend it peaked, thinking that the market would never go down.
By September my performance was back to flat on the year and the October crash put us up. What really scared me in October of 1987 was that after Monday’s crash, on the Tuesday and Wednesday of that fateful week, there was a lot of concern about not getting paid, that brokerage firms would have to liquidate. That was a wake-up call that really helped us to protect ourselves later during the crisis in 2008.
It was my first lesson in the fact that if you do not watch your balance sheet correctly as a short seller, you are an unsecured creditor of a brokerage firm. It was a quick education in the importance of prime broker and credit relationships and how, for example, it was preferable to be in the US rather than London from this perspective.
That lesson also shaped my understanding of how fragile the system was. I believe the system was much closer to going down in two days in 1987 than at any point in 2008. People think I am crazy when I say that. But people who remember those two days remember that we were worried that the clearing system was not going to work and that people were not going to get paid. I was worried that I was not going to get paid our profits.
Full chapter here...
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FUCK YER PROFITS BITCH
So ... I am supposed to put on my surprise face when storied investors say "when it crashes, you might not get paid"?
Seriously?
Regards,
Cooter
tears are gonna fall...
SERIOUSLY!!!
"fuck yer profits bitch"
Why is that? You sound like all those people accusing michael burry or "betting against America". As though betting against the stupidity of wall street and the fed is a bad thing
he knowingly gambles in a corrupt rigged casino. i couldn't care less whether he gets paid or not.
well, if we are ever going to get to a point of free, honest markets in this country, there has to be real, honest price discovery. When that inevitably occurs, short sellers deserve to get paid. This guy is trying to spread the message. I also know its a corrupt, rigged casino. I know Im gambling by being short S&P, but when this market inevitably declines to where it outta be, probably less than the '666' low it hit a few years ago. If we go all zimbabwe and the market goes up becuase they print until it does so, then Im well aware that I will be losing some of my money. Thats why I have the best insurance in the world, shiny stuff
1987 was worse than 2008?! Is he fucking high, dumb or ignorant. The system did collapse in 2008. Every bank went bankrupt and the central banks had to invent $20 trillion to keep it all going. Fuck this guy and all the rest of his inside trader fucking friends!
If you're a Baptitst Minister who thinks everyone who "gambles" is commiting sin before God; maybe you're on the wrong web-site.
Greenskeeper_Carl
Do you refer these as profit? How do you refer expropriation?
Jim is simply high lighting the point that the folks in Wall Street are creatures of selfishness not benevolent system savers. Calling him a bitch is shooting the messenger.
Whenever he is interviewed he comes across as a decent guy, a bit CPA wonkish. He does not seem to be a mega egomaniac creep like many hedge fund managers. Chanos also busted Enron - so he will always get high marks from me on that one. The AH's at Enron were not only crooks but they were arrogant crooks.
James Chanos also came up through the ranks as an analyst so he pretty much paid his dues. I enjoy listening to him Ray Dalio, Kyle Bass and a few others.
I wish Dr. Michael Burry was interviewed more but he stays pretty low key.
https://www.youtube.com/watch?v=1CLhqjOzoyE
The biggest worry about this article is that these are the guys that are important, designing the systems, running the systems.
With jerks like this we have unlimited, untested, INNOVATIVE FINANCIAL PRODUCTS designed to fail and these JERKOFFs only care about getting paid.
FINANCIAL SYSTEMS are too important to be designed and managed by FINANCIAL people
Did you actually read the article?
Chanos didnt and doesnt use innovative financial products because he is worried about counterparty risk. He only trades in cleared stuff, hence the "worried about getting paid."
Reading is fundamental, bro
This is why I encourage people to open Futures accounts; they're a 100 times better regulated than anything in the stock market; and if you want to short the S&P; or whatever, there's a contractd for it; but it's not an ETF. Yes, Joh Corzine existed, he was a once in century act. and he got away with it because we don't have a legal system anymore; but aside from him; it's very well run.
The real lesson was his dick wouldn't get hard any longer when he expected it to do so. Take his advice - the man has learned his lesson well.
1987 is very underapreciated, under studied. it was the wake up call for the Fed and the SEC that they were doing everything wrong; unfortunately, reality got put on hold while the Princeton graduates made magic circles in the air.
Very important article. this is why checking into Zero Hedge is useful.
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://goo.gl/yioYBZ
So... This guy was more concerned in 1987 because he might have missed his daily salary....
The horor...
No Sudden Debt, you;re wrong about that. read it again. or get someone to translate it into Belgian; yeah, I know. Walloons and waffles.
Chanos: "It was my first lesson in the fact that if you do not watch your balance sheet correctly as a short seller, you are an unsecured creditor of a brokerage firm."
The average U.S. Citizen is an unsecured creditor of the harpies and warlocks on Wall Street, and the .gov mandarins.
5.9 for Technical Merit and 5.9 for Style.
I particularly like the use of Harpies, Warlocks and Mandarins to create a colorful image.
How's that 'China Will Collapse' bet working out for him?
Really well actually. It is one of his better positions.
His bet was mainly on Chinese property and real estate companies. It is not a short all of China bet. He is a bright guy and one of a handful of hedge fund managers I respect.
>>How's that 'China Will Collapse' bet working out for him?
I guess we know who is long BABA in the thread
Let it be a lesson to anyone buying these levered bull/bear ETFs. You're never going to see that bet pay off by holding on to it. Sell it immediately when the move is made. Don't get greedy.
Better yet don't have anything to do with ETF's. they were invented and marketed for the retail market; which should tell you something. Nobody needs an ETF.
Good read. Thanks
In 1987 the Fed had just begun to set it's elbows into the game and the reality cycle, the market cleansing excess leverage in kind, remained an option. Continental Illinois was the beginning of the rope-a-dopes.
Chanos, most Natural Complex Systems are stable because they have Resiliency.
When that's used up, things come undone quite fast, and all bets are off. You need a lofty position to 'know' this?
Speaking of books and the abuse of Power, Amazon is putting the squeeze on Authors, who are getting caught in the dispute between one Publisher (Hachette) and Amazon.
The authors are getting squeezed on Margin and Income, as Amazon is treating books like any material commodity and pushing down on price. CBS did a blurb on this in their evening news last night.
Thanks for reporting "news" that is already months and months old, moron.
Amazing read, THANKS TYLERS!!
Jim Chanos is the man.
When (not if) the next crash comes then they should be worried perhaps about keeping their heads on their shoulders.
"Since the risk of loss on a short sale is theoretically infinite, short selling should only be used by experienced traders who are familiar with its risks."
SOURCE: Investopedia
Jim Chanos: "My reply to that has always been: I have seen more stocks go to zero than infinity."
Great read!
getting tired of these puff pieces.
Relax - it's the goddamn weekend. If you don't like it, don't read it - watch a football game or take the dog for a walk or get a life, but nobody is holding your nose to the computer screen. I went for a swim among other things this morning, now it is time for a beer and some ZH. Hell, I gotta whole nother day without the goddamn market. Sunday I fly home low and slow over the mountains back to the coast, and have two hours plus of not thinking about the market or Ebola or Obummer or ANY of that shit, because I'm flying over some of the most beautiful country on the planet. Enjoy yourself sometimes gents and ladies.
well said.
I enjoy myself by coming to ZH and agreeing I'm both tired of puff pieces and totally relaxed about enjoying myself on a weekend.
does this very post seem pointless? yes, somewhat, but I'm enjoying myself :)
edit: now I read the article.
Puff piece !! What would appear substantial to you? kittens playing with a ball of yarn / Puff PIece ! Dude, it's very important information.
OK admit it, who the frig ranks this article high? I was being lenient giving it a 1.
This and the Feynman piece were crap, at least by the normal weekday rating scheme
Yeah, but it still made you think to suss out the bullshit. Still can't dance to it so I only give it a 3.
I think it's safe to say I speak for many of us when I say we want moar Kyle Bass and moar cowbells. In that order.
Definitely want more Kyle Bass; but there is U-tube; and it does have a search bar; you'd be surprised what on there.
LOL, plus I was in a bad mood. It got me to shut down and get out...
Everybody is a genius who "Saw it coming" this time... because this is the most telegraphed market crash/correction/collapse of all human history.
The FED told us a year ago when they'd stop printing money. Are there really people out there who still think taking away a $Trillion/year from the market isn't going to make baby fall down & go boom?
I respect Jim, but I was there at big firms for both events and I would argue the system was in waaaay worse danger in 2008. A stock-clearing system that was a little technologically inadequate in 1987 doesn't even begin to compare with the total vapor lock the money markets endured during the 2008 crisis.
The stock market can always catch up, even if a few trades get dk'd along the way. The failure of commercial paper, money markets, repo etc. is apocalyptic. Perhaps it's because I was too young to know better, but I wasn't that scared in 1987. But in 2008, I thought we might go down for the count.
Market fragility and system fragility are two different things and it's probably not helpful to conflate them, as he does to some extent.
Agreed. I saw both as well. In 87 I had a bird's eye view from a Schwab quotron room where most of the old geezers were having heart attacks as their option strategies imploded. I had already tapped out the triple witching Friday 3 days before LOL.
What is interesting about the current stretched elastic that the FED has let go of is that there are players who think that they can dictate the next "Lehman" victim (or 5 or 6). Should be a hell of a ride.
I'm gonna skip the popcorn and go straight to the hot wings.