The good people of New York City’s Harmonie Club decided to honour short seller James Chanos, founder of hedge fund Kynikos Associates, on Tuesday night for just generally being a mensch.
Unfortunately, during his talk with Bloomberg TV’s Scarlet Fu at Harmonie’s dinner, Chanos did not have good news.
This should surprise no one given his status as Wall Street’s most noted bear.
He’s turned his eyes on the US auto lending sector.
“What we’re seeing is in some markets lenders are lending 125% on used car values … which should scare the heck out of everybody,” he told Fu and his fellow diners at the club.
We’ve noted in the past that things have gotten so bad in the oil industry that workers have stopped paying their car loans.
“For a lot of workers who don’t own a home, particularly in the sun belt or the energy sector, their car or their truck was their main asset,” he continued. “That’s seeming to turn down now.”
It’s a turn it seems the entire market is taking, and Chanos also said that that is going to bring out some funny behaviour in corporate America.
“It’s very clear that what we see in terms of corporate behaviour or fraud follows the financial cycle but follows it with a lag,” he said.
“And the reason being that as bull markets go on more and more rational people suspend their sense of disbelief and want to get in on all kinds of schemes and things that in more rational times might make you want to keep your money in your wallet. And increasingly also managers feel they can get away with brazen behaviour.”
Of course, when the money funding that behaviour (from public or private markets) dries up, people start asking questions.
And nobody likes questions.
Watch the full interview below, from Bloomberg: