In this interview with CNBC, James Chanos explains that regardless of the economic cycle, people’s susceptibility to believing narratives over facts increases the longer the cycle stretches. This leads to poor financial decisions in both bull and bear markets. In bull markets, greed takes over, and people chase “too good to be true” stories fuelled by FOMO, ignoring fundamentals. Here’s an excerpt from the interview:
Chanos: The one similarity is that…. and I teach a course on the history of financial fraud.
The longer the cycle goes, whether the business cycle, or the the related financial cycle, i.e bull market. The more people’s sense of disbelief is eroded.
They begin to believe things that are too good to be true you know. FOMO, to use the current term.
And so people begin to embrace narratives rather than fundamentals the longer you go. “Well I know they lose lots of money now but they’re going to make a lot of money in five years or whatever.”
And so that’s as old as human nature, and I don’t think that’s going to change.
The techniques change, and the stories change, but in bear markets people want profits and cash flow and won’t even pay up for that.
In bull markets they’ll pay up for dreams.
You can watch the entire interview here:
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