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Short seller Jim Chanos warned late-game retail investors could end up with the sack as more red flags emerge in a speculative stock market.
“The problem with getting more people involved, from retail, is that it always seems to happen towards the end of each cycle. Retail wasn’t there in 2009 down. They weren’t there. not there in 02 after the dot-com bubble collapsed They were definitely there in 1999, “Chanos said on CNBC’s” Squawk Box “on Tuesday. “So the problem in the last few cycles, in my opinion, is that we have promoters and insiders and people who have been very successful in cashing in as the retail business buys.”
The historic rally in recovery from the pandemic has attracted a record number of new retail investors to participate in the stock market. Many of them have turned to the more volatile and risky areas of the market for inordinate short-term returns, including stocks of companies with failing companies like AMC and GameStop.
Meanwhile, a flood of companies have flocked to public markets to raise capital this year to take advantage of sky-high prices and wild animal spirits. In addition to a traditional burgeoning IPO market, PSPCs – special purpose acquisition companies that are corporate shells formed to bring an unidentified company to the stock exchange – have seen unprecedented growth. as investors crowded in, hoping to hit a home run.
“Wall Street also has a printing house in addition to the Fed. If you get prices high enough, you’ll see a lot of equity issues not just from companies that can put it to good use, but all kinds of dubious companies. plans and outright scam, ”Chanos said. “That’s kind of where we are now. We’re raising money for all kinds of things that probably aren’t going to be productive in the end, but that could line the pockets of the promoters who do.”
The mad rush for cryptocurrencies and other digital coins this year is also a testament to the trading frenzy in this bull market and the excessive risk investors are taking, Chanos said.
“When we start speculating on very different cryptos, questionable coins, the six PSPCs that a guy publishes, the 48 different EV charging companies that go public, that’s when things start. to become risky in my opinion, ”Chanos said. “We’re good in this part of the cycle. I just think the last group of retailers to come is probably going to learn their hard lesson.”
Chanos is a famous Wall Street short seller with a long history of fraud identification. He made a name for himself betting against energy trading company Enron in 2000 after discovering deceptive accounting practices.
His recent short bet against Chinese coffee chain Luckin turned out to be fair as it was revealed that the company’s COO had fabricated sales.
However, as a longtime Tesla bear, Chanos has had a painful 2020 as the electric car maker has recovered by more than 700% in a year of pandemic. The investor previously said he closed his short position in Tesla earlier this year.
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