Monday 27 July 2020
Sunday 26 July 2020
Why Facts Don’t Change Our Minds - Lessons for Persuaders
By James Clear
The economist J.K. Galbraith once wrote, “Faced with a choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy with the proof.”
Leo Tolstoy was even bolder: “The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.”
What's going on here? Why don't facts change our minds? And why would someone continue to believe a false or inaccurate idea anyway? How do such behaviors serve us?
The Logic of False Beliefs
Humans need a reasonably accurate view of the world in order to survive. If your model of reality is wildly different from the actual world, then you struggle to take effective actions each day.
However, truth and accuracy are not the only things that matter to the human mind. Humans also seem to have a deep desire to belong.
In Atomic Habits, I wrote, “Humans are herd animals. We want to fit in, to bond with others, and to earn the respect and approval of our peers. Such inclinations are essential to our survival. For most of our evolutionary history, our ancestors lived in tribes. Becoming separated from the tribe—or worse, being cast out—was a death sentence.”
Understanding the truth of a situation is important, but so is remaining part of a tribe. While these two desires often work well together, they occasionally come into conflict.
In many circumstances, social connection is actually more helpful to your daily life than understanding the truth of a particular fact or idea. The Harvard psychologist Steven Pinker put it this way, “People are embraced or condemned according to their beliefs, so one function of the mind may be to hold beliefs that bring the belief-holder the greatest number of allies, protectors, or disciples, rather than beliefs that are most likely to be true.”
We don't always believe things because they are correct. Sometimes we believe things because they make us look good to the people we care about.
I thought Kevin Simler put it well when he wrote, “If a brain anticipates that it will be rewarded for adopting a particular belief, it's perfectly happy to do so, and doesn't much care where the reward comes from — whether it's pragmatic (better outcomes resulting from better decisions), social (better treatment from one's peers), or some mix of the two.”
False beliefs can be useful in a social sense even if they are not useful in a factual sense. For lack of a better phrase, we might call this approach “factually false, but socially accurate.” When we have to choose between the two, people often select friends and family over facts.
This insight not only explains why we might hold our tongue at a dinner party or look the other way when our parents say something offensive, but also reveals a better way to change the minds of others.
Facts Don't Change Our Minds. Friendship Does.
Convincing someone to change their mind is really the process of convincing them to change their tribe. If they abandon their beliefs, they run the risk of losing social ties. You can’t expect someone to change their mind if you take away their community too. You have to give them somewhere to go. Nobody wants their worldview torn apart if loneliness is the outcome.
The way to change people’s minds is to become friends with them, to integrate them into your tribe, to bring them into your circle. Now, they can change their beliefs without the risk of being abandoned socially.
The British philosopher Alain de Botton suggests that we simply share meals with those who disagree with us:
“Sitting down at a table with a group of strangers has the incomparable and odd benefit of making it a little more difficult to hate them with impunity. Prejudice and ethnic strife feed off abstraction. However, the proximity required by a meal – something about handing dishes around, unfurling napkins at the same moment, even asking a stranger to pass the salt – disrupts our ability to cling to the belief that the outsiders who wear unusual clothes and speak in distinctive accents deserve to be sent home or assaulted. For all the large-scale political solutions which have been proposed to salve ethnic conflict, there are few more effective ways to promote tolerance between suspicious neighbours than to force them to eat supper together.”
Perhaps it is not difference, but distance that breeds tribalism and hostility. As proximity increases, so does understanding. I am reminded of Abraham Lincoln's quote, “I don't like that man. I must get to know him better.”
Facts don't change our minds. Friendship does.
The Spectrum of Beliefs
Years ago, Ben Casnocha mentioned an idea to me that I haven't been able to shake: The people who are most likely to change our minds are the ones we agree with on 98 percent of topics.
If someone you know, like, and trust believes a radical idea, you are more likely to give it merit, weight, or consideration. You already agree with them in most areas of life. Maybe you should change your mind on this one too. But if someone wildly different than you proposes the same radical idea, well, it's easy to dismiss them as a crackpot.
One way to visualize this distinction is by mapping beliefs on a spectrum. If you divide this spectrum into 10 units and you find yourself at Position 7, then there is little sense in trying to convince someone at Position 1. The gap is too wide. When you're at Position 7, your time is better spent connecting with people who are at Positions 6 and 8, gradually pulling them in your direction.
The most heated arguments often occur between people on opposite ends of the spectrum, but the most frequent learning occurs from people who are nearby. The closer you are to someone, the more likely it becomes that the one or two beliefs you don't share will bleed over into your own mind and shape your thinking. The further away an idea is from your current position, the more likely you are to reject it outright.
When it comes to changing people's minds, it is very difficult to jump from one side to another. You can't jump down the spectrum. You have to slide down it.
Any idea that is sufficiently different from your current worldview will feel threatening. And the best place to ponder a threatening idea is in a non-threatening environment. As a result, books are often a better vehicle for transforming beliefs than conversations or debates.
In conversation, people have to carefully consider their status and appearance. They want to save face and avoid looking stupid. When confronted with an uncomfortable set of facts, the tendency is often to double down on their current position rather than publicly admit to being wrong.
Books resolve this tension. With a book, the conversation takes place inside someone's head and without the risk of being judged by others. It's easier to be open-minded when you aren't feeling defensive.
Arguments are like a full frontal attack on a person's identity. Reading a book is like slipping the seed of an idea into a person's brain and letting it grow on their own terms. There's enough wrestling going on in someone's head when they are overcoming a pre-existing belief. They don't need to wrestle with you too.
Why False Ideas Persist
There is another reason bad ideas continue to live on, which is that people continue to talk about them.
Silence is death for any idea. An idea that is never spoken or written down dies with the person who conceived it. Ideas can only be remembered when they are repeated. They can only be believed when they are repeated.
I have already pointed out that people repeat ideas to signal they are part of the same social group. But here's a crucial point most people miss:
People also repeat bad ideas when they complain about them. Before you can criticize an idea, you have to reference that idea. You end up repeating the ideas you’re hoping people will forget—but, of course, people can’t forget them because you keep talking about them. The more you repeat a bad idea, the more likely people are to believe it.
Let's call this phenomenon Clear's Law of Recurrence: The number of people who believe an idea is directly proportional to the number of times it has been repeated during the last year—even if the idea is false.
Each time you attack a bad idea, you are feeding the very monster you are trying to destroy. As one Twitter employee wrote, “Every time you retweet or quote tweet someone you’re angry with, it helps them. It disseminates their BS. Hell for the ideas you deplore is silence. Have the discipline to give it to them.”
Your time is better spent championing good ideas than tearing down bad ones. Don't waste time explaining why bad ideas are bad. You are simply fanning the flame of ignorance and stupidity.
The best thing that can happen to a bad idea is that it is forgotten. The best thing that can happen to a good idea is that it is shared. It makes me think of Tyler Cowen's quote, “Spend as little time as possible talking about how other people are wrong.”
Feed the good ideas and let bad ideas die of starvation.
The Intellectual Soldier
I know what you might be thinking. “James, are you serious right now? I'm just supposed to let these idiots get away with this?”
Let me be clear. I'm not saying it's never useful to point out an error or criticize a bad idea. But you have to ask yourself, “What is the goal?”
Why do you want to criticize bad ideas in the first place? Presumably, you want to criticize bad ideas because you think the world would be better off if fewer people believed them. In other words, you think the world would improve if people changed their minds on a few important topics.
If the goal is to actually change minds, then I don't believe criticizing the other side is the best approach.
Most people argue to win, not to learn. As Julia Galef so aptly puts it: people often act like soldiers rather than scouts. Soldiers are on the intellectual attack, looking to defeat the people who differ from them. Victory is the operative emotion. Scouts, meanwhile, are like intellectual explorers, slowly trying to map the terrain with others. Curiosity is the driving force.
If you want people to adopt your beliefs, you need to act more like a scout and less like a soldier. At the center of this approach is a question Tiago Forte poses beautifully, “Are you willing to not win in order to keep the conversation going?”
Be Kind First, Be Right Later
The brilliant Japanese writer Haruki Murakami once wrote, “Always remember that to argue, and win, is to break down the reality of the person you are arguing against. It is painful to lose your reality, so be kind, even if you are right.”
When we are in the moment, we can easily forget that the goal is to connect with the other side, collaborate with them, befriend them, and integrate them into our tribe. We are so caught up in winning that we forget about connecting. It's easy to spend your energy labeling people rather than working with them.
The word “kind” originated from the word “kin.” When you are kind to someone it means you are treating them like family. This, I think, is a good method for actually changing someone's mind. Develop a friendship. Share a meal. Gift a book.
Be kind first, be right later.
The economist J.K. Galbraith once wrote, “Faced with a choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy with the proof.”
Leo Tolstoy was even bolder: “The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.”
What's going on here? Why don't facts change our minds? And why would someone continue to believe a false or inaccurate idea anyway? How do such behaviors serve us?
The Logic of False Beliefs
Humans need a reasonably accurate view of the world in order to survive. If your model of reality is wildly different from the actual world, then you struggle to take effective actions each day.
However, truth and accuracy are not the only things that matter to the human mind. Humans also seem to have a deep desire to belong.
In Atomic Habits, I wrote, “Humans are herd animals. We want to fit in, to bond with others, and to earn the respect and approval of our peers. Such inclinations are essential to our survival. For most of our evolutionary history, our ancestors lived in tribes. Becoming separated from the tribe—or worse, being cast out—was a death sentence.”
Understanding the truth of a situation is important, but so is remaining part of a tribe. While these two desires often work well together, they occasionally come into conflict.
In many circumstances, social connection is actually more helpful to your daily life than understanding the truth of a particular fact or idea. The Harvard psychologist Steven Pinker put it this way, “People are embraced or condemned according to their beliefs, so one function of the mind may be to hold beliefs that bring the belief-holder the greatest number of allies, protectors, or disciples, rather than beliefs that are most likely to be true.”
We don't always believe things because they are correct. Sometimes we believe things because they make us look good to the people we care about.
I thought Kevin Simler put it well when he wrote, “If a brain anticipates that it will be rewarded for adopting a particular belief, it's perfectly happy to do so, and doesn't much care where the reward comes from — whether it's pragmatic (better outcomes resulting from better decisions), social (better treatment from one's peers), or some mix of the two.”
False beliefs can be useful in a social sense even if they are not useful in a factual sense. For lack of a better phrase, we might call this approach “factually false, but socially accurate.” When we have to choose between the two, people often select friends and family over facts.
This insight not only explains why we might hold our tongue at a dinner party or look the other way when our parents say something offensive, but also reveals a better way to change the minds of others.
Facts Don't Change Our Minds. Friendship Does.
Convincing someone to change their mind is really the process of convincing them to change their tribe. If they abandon their beliefs, they run the risk of losing social ties. You can’t expect someone to change their mind if you take away their community too. You have to give them somewhere to go. Nobody wants their worldview torn apart if loneliness is the outcome.
The way to change people’s minds is to become friends with them, to integrate them into your tribe, to bring them into your circle. Now, they can change their beliefs without the risk of being abandoned socially.
The British philosopher Alain de Botton suggests that we simply share meals with those who disagree with us:
“Sitting down at a table with a group of strangers has the incomparable and odd benefit of making it a little more difficult to hate them with impunity. Prejudice and ethnic strife feed off abstraction. However, the proximity required by a meal – something about handing dishes around, unfurling napkins at the same moment, even asking a stranger to pass the salt – disrupts our ability to cling to the belief that the outsiders who wear unusual clothes and speak in distinctive accents deserve to be sent home or assaulted. For all the large-scale political solutions which have been proposed to salve ethnic conflict, there are few more effective ways to promote tolerance between suspicious neighbours than to force them to eat supper together.”
Perhaps it is not difference, but distance that breeds tribalism and hostility. As proximity increases, so does understanding. I am reminded of Abraham Lincoln's quote, “I don't like that man. I must get to know him better.”
Facts don't change our minds. Friendship does.
The Spectrum of Beliefs
Years ago, Ben Casnocha mentioned an idea to me that I haven't been able to shake: The people who are most likely to change our minds are the ones we agree with on 98 percent of topics.
If someone you know, like, and trust believes a radical idea, you are more likely to give it merit, weight, or consideration. You already agree with them in most areas of life. Maybe you should change your mind on this one too. But if someone wildly different than you proposes the same radical idea, well, it's easy to dismiss them as a crackpot.
One way to visualize this distinction is by mapping beliefs on a spectrum. If you divide this spectrum into 10 units and you find yourself at Position 7, then there is little sense in trying to convince someone at Position 1. The gap is too wide. When you're at Position 7, your time is better spent connecting with people who are at Positions 6 and 8, gradually pulling them in your direction.
The most heated arguments often occur between people on opposite ends of the spectrum, but the most frequent learning occurs from people who are nearby. The closer you are to someone, the more likely it becomes that the one or two beliefs you don't share will bleed over into your own mind and shape your thinking. The further away an idea is from your current position, the more likely you are to reject it outright.
When it comes to changing people's minds, it is very difficult to jump from one side to another. You can't jump down the spectrum. You have to slide down it.
Any idea that is sufficiently different from your current worldview will feel threatening. And the best place to ponder a threatening idea is in a non-threatening environment. As a result, books are often a better vehicle for transforming beliefs than conversations or debates.
In conversation, people have to carefully consider their status and appearance. They want to save face and avoid looking stupid. When confronted with an uncomfortable set of facts, the tendency is often to double down on their current position rather than publicly admit to being wrong.
Books resolve this tension. With a book, the conversation takes place inside someone's head and without the risk of being judged by others. It's easier to be open-minded when you aren't feeling defensive.
Arguments are like a full frontal attack on a person's identity. Reading a book is like slipping the seed of an idea into a person's brain and letting it grow on their own terms. There's enough wrestling going on in someone's head when they are overcoming a pre-existing belief. They don't need to wrestle with you too.
Why False Ideas Persist
There is another reason bad ideas continue to live on, which is that people continue to talk about them.
Silence is death for any idea. An idea that is never spoken or written down dies with the person who conceived it. Ideas can only be remembered when they are repeated. They can only be believed when they are repeated.
I have already pointed out that people repeat ideas to signal they are part of the same social group. But here's a crucial point most people miss:
People also repeat bad ideas when they complain about them. Before you can criticize an idea, you have to reference that idea. You end up repeating the ideas you’re hoping people will forget—but, of course, people can’t forget them because you keep talking about them. The more you repeat a bad idea, the more likely people are to believe it.
Let's call this phenomenon Clear's Law of Recurrence: The number of people who believe an idea is directly proportional to the number of times it has been repeated during the last year—even if the idea is false.
Each time you attack a bad idea, you are feeding the very monster you are trying to destroy. As one Twitter employee wrote, “Every time you retweet or quote tweet someone you’re angry with, it helps them. It disseminates their BS. Hell for the ideas you deplore is silence. Have the discipline to give it to them.”
Your time is better spent championing good ideas than tearing down bad ones. Don't waste time explaining why bad ideas are bad. You are simply fanning the flame of ignorance and stupidity.
The best thing that can happen to a bad idea is that it is forgotten. The best thing that can happen to a good idea is that it is shared. It makes me think of Tyler Cowen's quote, “Spend as little time as possible talking about how other people are wrong.”
Feed the good ideas and let bad ideas die of starvation.
The Intellectual Soldier
I know what you might be thinking. “James, are you serious right now? I'm just supposed to let these idiots get away with this?”
Let me be clear. I'm not saying it's never useful to point out an error or criticize a bad idea. But you have to ask yourself, “What is the goal?”
Why do you want to criticize bad ideas in the first place? Presumably, you want to criticize bad ideas because you think the world would be better off if fewer people believed them. In other words, you think the world would improve if people changed their minds on a few important topics.
If the goal is to actually change minds, then I don't believe criticizing the other side is the best approach.
Most people argue to win, not to learn. As Julia Galef so aptly puts it: people often act like soldiers rather than scouts. Soldiers are on the intellectual attack, looking to defeat the people who differ from them. Victory is the operative emotion. Scouts, meanwhile, are like intellectual explorers, slowly trying to map the terrain with others. Curiosity is the driving force.
If you want people to adopt your beliefs, you need to act more like a scout and less like a soldier. At the center of this approach is a question Tiago Forte poses beautifully, “Are you willing to not win in order to keep the conversation going?”
Be Kind First, Be Right Later
The brilliant Japanese writer Haruki Murakami once wrote, “Always remember that to argue, and win, is to break down the reality of the person you are arguing against. It is painful to lose your reality, so be kind, even if you are right.”
When we are in the moment, we can easily forget that the goal is to connect with the other side, collaborate with them, befriend them, and integrate them into our tribe. We are so caught up in winning that we forget about connecting. It's easy to spend your energy labeling people rather than working with them.
The word “kind” originated from the word “kin.” When you are kind to someone it means you are treating them like family. This, I think, is a good method for actually changing someone's mind. Develop a friendship. Share a meal. Gift a book.
Be kind first, be right later.
Saturday 25 July 2020
Sixth-formers able to haggle for top UK universities under new grading system
Experts warn ‘sharp-elbowed’ middle classes more likely to talk their way into places as institutions look to expand writes Anna Fazackerley in The Guardian
A-level results day at Rochdale sixth form a year ago. This year, experts say, students will have much more power to negotiate their university places. Photograph: Gary Calton/The Observer
School leavers may feel that, with A-level exams cancelled, they have lost control over their future. But experts say they have never had more power to talk their way into their first-choice university, even if they miss their grades.
As sixth-formers nervously await next month’s teacher-assessed results from the exams regulator, Ofqual, research by the Institute for Fiscal Studies has found that in the aftermath of coronavirus, the UK higher education sector is facing losses of between £3bn and £19bn in the new academic year, depending on how many students enrol.
Many universities expect to lose 50-100% of their lucrative international student intake, a blow that will hit the most selective institutions hardest. While they have agreed to a government cap on student numbers to maintain stability, it was set with enough room for successful universities to increase UK student numbers to make up some of the shortfall.
Nick Hillman, director of the Higher Education Policy Institute thinktank, says: “The way they are grading A-levels this year gives [young people] much more room to negotiate. You can easily ring and make a case for being let in based on your grades being wrong.”
He says that if universities have lots of empty seats this year they will be “in compulsory redundancy territory”.
Simon Marginson, professor of higher education at Oxford University, agrees school leavers have “an unusual level of power this time”. In ordinary years universities, particularly the elite ones, have been wary of letting in too many applicants with lower grades for fear it could affect their position in the all-important league tables.
Marginson predicts this year could be different. “No one loses competitive position if everyone shifts the same way at the same time, as seems likely. The name of the game is organisational survival and everyone knows that.”
However, many academics are concerned that more disadvantaged candidates might be less likely to negotiate offers and hunt down good places in clearing.
Barnaby Lenon, former head of Harrow public school and chair of the Independent Schools Council, has urged university admission authorities to look beyond “dodgy” A-level grades, which “could be wrong”, when deciding who to admit.
Everyone has heard tales of middle-class parents picking up the phone to Oxford or Cambridge to argue for their child’s place. Lee Elliot Major, professor of social mobility at the University of Exeter, says: “Never underestimate the adeptness of the sharp-elbowed middle classes at exploiting opportunities. And no opportunity is more prized than a place at a prestigious university.”
Elliot Major worries that next month’s frantic last-minute market for places may further skew the playing field against poorer young people. “There is a genuine fear that many disadvantaged pupils who would have excelled in their A-levels this year will be penalised with lower scores by the system of calculated grades, which estimates grades on the basis of historical averages of schools,” he says.
Some believe Ucas, the admissions service, is not helping. Mark Corver, former director of analysis and research at Ucas and now founder of dataHE consultancy, has warned the government there is not enough detailed data publicly available to allow students and teachers to prove if the Ofqual grading process has gone wrong for them.
“We’ve asked Ucas repeatedly to release some simple tables showing the typical exam grades that applicants with different predicted grades get in a normal year. They have steadfastly refused,” he says. “We’ve found them reluctant and obstructive. Given they are a charity and not a commercial organisation, it’s very disappointing.”
However, Richard O’Kelly, head of analytical data at Ucas, denies the organisation is being obstructive. He says it cannot publish the data set, which breaks down results by factors including gender, ethnicity and social background, because it creates an “unacceptable risk” of individual applicants being identifiable. He adds: “We have published more data during this year than ever before to promote confidence amongst students and universities.”
Sophie Hatton, an 18-year-old school leaver from Birmingham, says she is feeling “increasingly anxious” waiting for her A-level grades. “At first I thought it was great having all my exams cancelled. Then it hit me how terrifying it is that two years of work could account for nothing as I have no full way of showing my potential.”
Hatton is hoping to study sociology at Nottingham Trent University, but she says that if she doesn’t get the grades she needs she will get on the phone and try to negotiate, “to prove I am a determined, hard-working student”.
Kate Spalding, another 18-year-old waiting for her results, in Southampton, says she was upset for days after hearing she could not sit her exams: “I felt all my work had gone to waste.” Now, she says, she has decided to trust her teachers and is feeling more confident.
She is planning a gap year, but if she does not get the grades she needs to study drama at Manchester or Leeds, she intends to retake her A-levels later in the year.
Despite the government’s cap on student numbers this year, with financial penalties for those that exceed it, many selective institutions are planning for expansion, within the boundary of an extra 5% on last year’s enrolment forecasts.
Prof Colin Riordan, vice-chancellor of Cardiff University, a member of the Russell Group, says his university is anticipating a 2% growth in UK student numbers this year. “Given the way the cap has been set, it is conceivable that quite a few selective universities will take marginally more students than last year, and altogether that could be quite a lot,” he says.
Yet Riordan admits that for institutions such as his, international students and not UK ones make the real financial difference – and their numbers will be unclear until October or November. “Really we won’t know how many international students we will get until they actually turn up – or don’t,” he says.
Vice-chancellors say the way A-levels are being calculated this year is making them nervous. Another Russell Group head, who asked not to be named, says: “We have thousands of students who have put us as first choice and accepted our offer. Usually we can be pretty accurate on what percentage will achieve the grades. But this year if there is even 10% inflation on that, that’s a big difference.”
The government has confirmed, in new guidance issued earlier this month, that it will not penalise universities for going over their cap because a larger number of students than expected meet their offer grades. But the vice-chancellor says that, in a Covid-19 world, a big increase would put pressure on facilities. “There are two nightmares: one where no one turns up, and one where everyone turns up while we are trying to do social distancing,” he says.
If prestigious institutions expand, they could suck up some students who might have chosen mid-ranking universities, leaving some of those institutions without enough undergraduates – and their £9,250 a year fees. Marginson says this would leave universities at the bottom of the sector “facing very difficult times”.
Dean Machin, head of policy at the University of Portsmouth, agrees. “We have potentially got the worst of both worlds. For sector stability we enabled government to control the number of people who go to university – and unfortunately it is unlikely to provide all universities the protection they were seeking.”
The Office for Students regulator is consulting on new powers to intervene faster to protect students in case any universities or colleges are at risk of closure.
School leavers may feel that, with A-level exams cancelled, they have lost control over their future. But experts say they have never had more power to talk their way into their first-choice university, even if they miss their grades.
As sixth-formers nervously await next month’s teacher-assessed results from the exams regulator, Ofqual, research by the Institute for Fiscal Studies has found that in the aftermath of coronavirus, the UK higher education sector is facing losses of between £3bn and £19bn in the new academic year, depending on how many students enrol.
Many universities expect to lose 50-100% of their lucrative international student intake, a blow that will hit the most selective institutions hardest. While they have agreed to a government cap on student numbers to maintain stability, it was set with enough room for successful universities to increase UK student numbers to make up some of the shortfall.
Nick Hillman, director of the Higher Education Policy Institute thinktank, says: “The way they are grading A-levels this year gives [young people] much more room to negotiate. You can easily ring and make a case for being let in based on your grades being wrong.”
He says that if universities have lots of empty seats this year they will be “in compulsory redundancy territory”.
Simon Marginson, professor of higher education at Oxford University, agrees school leavers have “an unusual level of power this time”. In ordinary years universities, particularly the elite ones, have been wary of letting in too many applicants with lower grades for fear it could affect their position in the all-important league tables.
Marginson predicts this year could be different. “No one loses competitive position if everyone shifts the same way at the same time, as seems likely. The name of the game is organisational survival and everyone knows that.”
However, many academics are concerned that more disadvantaged candidates might be less likely to negotiate offers and hunt down good places in clearing.
Barnaby Lenon, former head of Harrow public school and chair of the Independent Schools Council, has urged university admission authorities to look beyond “dodgy” A-level grades, which “could be wrong”, when deciding who to admit.
Everyone has heard tales of middle-class parents picking up the phone to Oxford or Cambridge to argue for their child’s place. Lee Elliot Major, professor of social mobility at the University of Exeter, says: “Never underestimate the adeptness of the sharp-elbowed middle classes at exploiting opportunities. And no opportunity is more prized than a place at a prestigious university.”
Elliot Major worries that next month’s frantic last-minute market for places may further skew the playing field against poorer young people. “There is a genuine fear that many disadvantaged pupils who would have excelled in their A-levels this year will be penalised with lower scores by the system of calculated grades, which estimates grades on the basis of historical averages of schools,” he says.
Some believe Ucas, the admissions service, is not helping. Mark Corver, former director of analysis and research at Ucas and now founder of dataHE consultancy, has warned the government there is not enough detailed data publicly available to allow students and teachers to prove if the Ofqual grading process has gone wrong for them.
“We’ve asked Ucas repeatedly to release some simple tables showing the typical exam grades that applicants with different predicted grades get in a normal year. They have steadfastly refused,” he says. “We’ve found them reluctant and obstructive. Given they are a charity and not a commercial organisation, it’s very disappointing.”
However, Richard O’Kelly, head of analytical data at Ucas, denies the organisation is being obstructive. He says it cannot publish the data set, which breaks down results by factors including gender, ethnicity and social background, because it creates an “unacceptable risk” of individual applicants being identifiable. He adds: “We have published more data during this year than ever before to promote confidence amongst students and universities.”
Sophie Hatton, an 18-year-old school leaver from Birmingham, says she is feeling “increasingly anxious” waiting for her A-level grades. “At first I thought it was great having all my exams cancelled. Then it hit me how terrifying it is that two years of work could account for nothing as I have no full way of showing my potential.”
Hatton is hoping to study sociology at Nottingham Trent University, but she says that if she doesn’t get the grades she needs she will get on the phone and try to negotiate, “to prove I am a determined, hard-working student”.
Kate Spalding, another 18-year-old waiting for her results, in Southampton, says she was upset for days after hearing she could not sit her exams: “I felt all my work had gone to waste.” Now, she says, she has decided to trust her teachers and is feeling more confident.
She is planning a gap year, but if she does not get the grades she needs to study drama at Manchester or Leeds, she intends to retake her A-levels later in the year.
Despite the government’s cap on student numbers this year, with financial penalties for those that exceed it, many selective institutions are planning for expansion, within the boundary of an extra 5% on last year’s enrolment forecasts.
Prof Colin Riordan, vice-chancellor of Cardiff University, a member of the Russell Group, says his university is anticipating a 2% growth in UK student numbers this year. “Given the way the cap has been set, it is conceivable that quite a few selective universities will take marginally more students than last year, and altogether that could be quite a lot,” he says.
Yet Riordan admits that for institutions such as his, international students and not UK ones make the real financial difference – and their numbers will be unclear until October or November. “Really we won’t know how many international students we will get until they actually turn up – or don’t,” he says.
Vice-chancellors say the way A-levels are being calculated this year is making them nervous. Another Russell Group head, who asked not to be named, says: “We have thousands of students who have put us as first choice and accepted our offer. Usually we can be pretty accurate on what percentage will achieve the grades. But this year if there is even 10% inflation on that, that’s a big difference.”
The government has confirmed, in new guidance issued earlier this month, that it will not penalise universities for going over their cap because a larger number of students than expected meet their offer grades. But the vice-chancellor says that, in a Covid-19 world, a big increase would put pressure on facilities. “There are two nightmares: one where no one turns up, and one where everyone turns up while we are trying to do social distancing,” he says.
If prestigious institutions expand, they could suck up some students who might have chosen mid-ranking universities, leaving some of those institutions without enough undergraduates – and their £9,250 a year fees. Marginson says this would leave universities at the bottom of the sector “facing very difficult times”.
Dean Machin, head of policy at the University of Portsmouth, agrees. “We have potentially got the worst of both worlds. For sector stability we enabled government to control the number of people who go to university – and unfortunately it is unlikely to provide all universities the protection they were seeking.”
The Office for Students regulator is consulting on new powers to intervene faster to protect students in case any universities or colleges are at risk of closure.
Friday 24 July 2020
Jim Chanos: ‘We are in the golden age of fraud’
Harriet Agnew in The FT
Jim Chanos has been cast as the “Darth Vader of Wall Street”, the “Catastrophe Capitalist” and the “LeBron James of short selling”. The 62-year-old titan of the $3.2tn global hedge fund industry predicted the downfall of US energy giant Enron almost two decades ago, making a fortune in the process. But the course of true riches, it seems, never did run smooth. On the day of our encounter, Tesla, which Chanos has bet against for the past five years, overtakes Toyota as the most valuable carmaker in the world, leaving him nursing heavy losses. But more about that later.
I am ensconced at Oswald’s, an elegant London members’ club for oenophiles. It’s the first time I’ve set foot in a restaurant in four months. But where more appropriate to interview the short-seller than an antique mirrored dining room in Mayfair, the heart of the European hedge fund industry? It’s three days before “Super Saturday”, when London’s restaurants and bars can reopen. I’ve been granted an exception and am the sole diner. Social distancing would not be a problem here, however. The round tables are generously spaced apart, designed with discretion in mind.
I am to have early dinner — Chanos is to have lunch. He is in Miami Beach, where he has been stuck since the start of lockdown in early March. For our encounter, he has persuaded Prime 112 steakhouse, his go-to place on Friday nights, to allow him to use its private room. When he comes on screen, his air is more benevolent academic than pantomime villain, dressed in a white open-necked shirt and blazer. Chanos likes to present himself as a “real-time financial detective who is incentivised to root out fraud”. Or, more prosaically, a “forensic financial statement junkie”.
To critics, short selling represents the scourge of modern capitalism. Whereas so-called value investors such as Warren Buffett try to buy shares in companies that the market is underestimating, short-sellers such as Chanos seek out overvalued companies. They borrow shares and then sell them, hoping to buy them back later for less. In short, “they are profiting when others are losing money”, says Chanos — and this makes some people uncomfortable.
Chanos is buoyant. A week earlier, one of his largest short positions — the German payments company Wirecard — filed for bankruptcy, after admitting that €1.9bn of its cash probably did “not exist”. This followed a five-year FT investigation into its accounting practices. Chanos’s funds made almost $100m from the trade, according to an investor. He laughs: “It’s bittersweet, Harriet, because short-sellers put up with weeks and months of misery, and you feel good for hours and days.”
Even its detractors acknowledge that short selling, in a normal environment, helps the markets to question conventional wisdom. But a sharper complaint, usually heard from targets, is that short-sellers acting together to sow FUD (fear, uncertainty and doubt) about a company’s accounting or financial position can become a self-fulfilling prophecy. In the past, investors such as Chanos have moved markets just by revealing a bet against a particular company.
Chanos happily concedes that he talks frequently to other short-sellers. He shorted Luckin Coffee, once touted as China’s answer to Starbucks, after Carson Block of Muddy Waters encouraged him to look at it. (The company is now being investigated for accounting fraud.) But it’s “a myth” that short-sellers act together, he tells me from Prime 112’s private room. “If there were conspiracies, we’d be in something much more profitable than short selling.”
I mention Canadian insurer Fairfax Financial. It sued a group of hedge funds, including those run by Chanos, Dan Loeb and Steve Cohen, for allegedly driving down its stock under a short selling scheme. “That was the perception, but it wasn’t true,” says Chanos. “The case was thrown out [in 2018] on jurisdictional grounds. Our allegation was that the company was overstating their earnings, and during the process they restated their earnings.”
Chanos’s hedge fund manager Kynikos Associates is named after the ancient Greek word for “cynic”. His pitch is that he can identify corporate disasters-in-the-making. The New York-based outfit employs 20 people and has $1.5bn in assets under management. Chanos also teaches a course on the history of financial fraud (“how to detect it, not how to commit it”, he quips) at Yale University, his alma mater. The syllabus stretches back to the 17th century. Today, he says, “we are in the golden age of fraud”.
Chanos describes the current environment as “a really fertile field for people to play fast and loose with the truth, and for corporate wrongdoers to get away with it for a long time”. He reels off why: a 10-year bull market driven by central bank intervention; a level of retail participation in the markets reminiscent of the end of the dotcom boom; Trumpian “post-truth in politics, where my facts are your fake news”; and Silicon Valley’s “fake it until you make it” culture, which is compounded by Fomo — the fear of missing out. All of this is exacerbated by lax oversight. Financial regulators and law enforcement, he says, “are the financial archaeologists — they will tell you after the company has collapsed what the problem was.”
All in all, it’s “a heady witch’s brew for trouble”.
---
A waiter arrives to take his order. Chanos knows the menu by heart and picks a wedge salad of iceberg lettuce, bacon, tomatoes and Roquefort dressing, followed by a strip steak (medium) with a baked potato. He doesn’t normally eat or drink like this at midday but says he will make an exception for Lunch with the FT, and orders a glass of Cabernet Sauvignon.
At Oswald’s, the general manager Michele greets me with a glass of champagne and explains that the chef will prepare his own selection of dishes for me. I’m out of practice with ordering, so this comes as something of a relief.
Chanos’s mission is focused on understanding a company’s business model and then ascertaining if its financial statements reflect it. Certain themes crop up time and again in his hunt for short positions: technological obsolescence, consumer fads, single-product companies, growth via acquisitions and accounting games. Notably he looks for “legal fraud” — where companies adhere to the accounting rules and regulations but there’s still an “intent to deceive”. Enron epitomised this — Chanos identified that it was using aggressive accounting to front-load profits and hide debt in its subsidiaries.
He wasn’t the first short-seller to the Wirecard party. Chanos initiated a short in the German payments company last year and increased the position last autumn, when the FT published documents indicating that profits at Wirecard units in Dubai and Dublin were fraudulently inflated and that customers listed in documents provided to auditor EY did not exist.
Wirecard’s collapse, when it finally came, was dramatic. But, says Chanos, most fraud is on the edges. And these days, often it is “staring at you right in the face through the use of company-designed metrics” through which they are “gaming the system”. He is referring to creative accounting measures used to flatter companies’ books, notably office-space provider WeWork’s now infamous community-adjusted ebitda. The coronavirus crisis has spawned “ebitdac”, or earnings before interest, taxes, depreciation, amortisation — and coronavirus — where companies are adding back profits they say they would have made but for the pandemic.
Regulators, he says, could be much firmer in clamping down on metrics “that just are increasingly unmooring themselves from reality”.
Growing up as the son of Greek and Irish immigrants who ran a chain of dry-cleaning shops in Milwaukee, Chanos says he was interested in stock markets at an early age. After Yale, he worked for an investment bank in Chicago and then retail brokerage Gilford Securities, where he began writing research on individual stocks. He had a baptism by fire: “The first major company I looked at and wrote up turned out to be an immense accounting fraud.”
Baldwin-United was a piano company that had morphed into a financial supermarket. Chanos’s research pointed out inconsistencies with its numbers and recommended that investors sell the stock. It went bankrupt the following year, in 1983, at the time the largest-ever US corporate bankruptcy. Baldwin’s collapse piqued the interest of Gilford’s hedge fund clients who followed its stock recommendations, notably George Soros and Michael Steinhardt. “What else does the kid not like?” they asked, Chanos recalls.
Soon afterwards, he joined Deutsche Bank in New York. It was a shortlived affair. In September 1985, The Wall Street Journal ran a front-page investigation into the “aggressive methods” of a network of short-sellers that it alleged was driving down the shares of US companies. The then 27-year-old Chanos was portrayed as an enfant terrible at the centre of the network. “People think I have two horns and spread syphilis,” he quipped in the article. Deutsche fired him and his boss. “The postscript is that nine of the 10 companies mentioned [in the article] either went bankrupt or were prosecuted for fraud,” he says.
Chanos’s wedge salad and my own starter (a plate of oysters, deliciously juicy, with a glass of crisp white Burgundy) arrive.
It must take a certain personality type to be a perma-bear, I venture.
A long time ago, Chanos believed that going short was just “the mirror image of going long”. He has changed his tune on this, however, “because there is a lot of behavioural finance at work in the markets”. On Wall Street, he says, “the bull case is everywhere” — optimistic management projections, takeover rumours that boost targets’ stock prices, and company earnings estimates revised upwards.
“So I think that it does take a certain peculiar personality — and I’ll leave it at that — to say ‘OK, here’s my facts and here’s the conclusions I draw from my facts, and that’s why I think there’s an opportunity on the short side here.’”
Many can’t stomach it. Less than a year after the 1985 launch of Kynikos — amid “the rip-roaring bull market” of the time — Chanos’s business partner declared that he wasn’t comfortable with the pure short selling side of the business. He said his accountant had advised him to sell back his stake to Chanos for a nominal amount of $1. “And I paid him right there on the spot out of my wallet,” says Chanos. “It was the greatest trade I think I ever did,” he adds with a chuckle.
--
Chanos has put the remains of his salad to one side to make way for the steak. I’m delighted by my main course: deep red toro tuna carpaccio, garnished with avocado mousse.
My guest has one of the best track records in the hedge fund industry. The Kynikos Capital Partners fund, a long/short equity strategy, has gained 22 per cent a year on average over the past 35 years — double that of the S&P 500 index. In the same period, against the backdrop of rising equity markets, its US short-only Ursus strategy — named after the Latin for “bear” — has lost 2 per cent a year.
The past decade has been a difficult one for short-sellers in general, as trillions of dollars of central bank stimulus have lifted prices of assets indiscriminately across the board. How do you trade that? “Very carefully and painfully,” he says.
Fundraising has been tough. Kynikos’s assets peaked at around $7bn after 2008, when short-only Ursus gained 44 per cent, net of fees. They have slumped to $1.5bn since then. This year Chanos sold a minority stake in the management company to boutique investment firm Conlon & Co and the family office of Richard M Daley, former mayor of Chicago.
Prolonged periods of quantitative easing — most recently to ease the economic pain of the coronavirus crisis — is “adding to inequality” by benefiting the people who own financial assets, says Chanos. He believes that the Federal Reserve ought to cut credit card rates for consumers, which are still 15-18 per cent in the US, and sees a potential political backlash against the central banks for their part in how “the rich have gotten much richer and the vast majority of people have not”.
Political risk is one of the reasons that Chanos is shorting gig economy companies such as ride-hailing apps Uber and Lyft and online food-delivery platforms Grubhub and Just Eat Takeaway. Not only are they losing money, but he believes that there is going to be a greater political focus on low-wage workers, which poses an existential threat to their business models.
Chanos sits on the finance committee of US presidential hopeful Joe Biden, who is supporting a new California law to strengthen legal protections for gig economy workers. A Biden administration raises the prospect of higher taxes. “I think it’s fair that rates of taxation on capital probably should go up, relative to rates of taxation on earned income. I know that makes me a communist on Wall Street but I’ve always felt that.”
Chanos declines a second glass of wine, joking that “I don’t want to be drunk for this.” Defeated by his huge steak and salad, he asks the waiter to put them in a doggy bag. On my encouragement, he decides to be a good sport and orders the “decadent” fried Oreos that the restaurant is famous for. My own dessert is a coconut choc ice.
I return to the subject of Tesla, whose shares have surged around six-fold in the five years since Chanos began shorting the company. What is going on here? “I think Elon Musk has personified the hopes and dreams of this bull market,” he says, setting out his bear case against Tesla, which he sees as unprofitable, highly leveraged and facing increasing competition. Tesla “burnishes its results through aggressive accounting”, in his view. He also describes it as “a culture of deception” because it is selling self-driving to consumers, which as yet “doesn’t exist”.
What, I ask, is Chanos’s main motivation: to be rich or to be right?
“I want to do this until they pull me out of the seat,” he replies. When Wirecard filed for insolvency, there was “an electricity” that ran through Kynikos. “That keeps you going.” And so, he says, does his belief that “this market is setting up to be one of the great short opportunities of all time”.
“Trouble’s coming, I don’t know when, but it’s coming.”
Jim Chanos has been cast as the “Darth Vader of Wall Street”, the “Catastrophe Capitalist” and the “LeBron James of short selling”. The 62-year-old titan of the $3.2tn global hedge fund industry predicted the downfall of US energy giant Enron almost two decades ago, making a fortune in the process. But the course of true riches, it seems, never did run smooth. On the day of our encounter, Tesla, which Chanos has bet against for the past five years, overtakes Toyota as the most valuable carmaker in the world, leaving him nursing heavy losses. But more about that later.
I am ensconced at Oswald’s, an elegant London members’ club for oenophiles. It’s the first time I’ve set foot in a restaurant in four months. But where more appropriate to interview the short-seller than an antique mirrored dining room in Mayfair, the heart of the European hedge fund industry? It’s three days before “Super Saturday”, when London’s restaurants and bars can reopen. I’ve been granted an exception and am the sole diner. Social distancing would not be a problem here, however. The round tables are generously spaced apart, designed with discretion in mind.
I am to have early dinner — Chanos is to have lunch. He is in Miami Beach, where he has been stuck since the start of lockdown in early March. For our encounter, he has persuaded Prime 112 steakhouse, his go-to place on Friday nights, to allow him to use its private room. When he comes on screen, his air is more benevolent academic than pantomime villain, dressed in a white open-necked shirt and blazer. Chanos likes to present himself as a “real-time financial detective who is incentivised to root out fraud”. Or, more prosaically, a “forensic financial statement junkie”.
To critics, short selling represents the scourge of modern capitalism. Whereas so-called value investors such as Warren Buffett try to buy shares in companies that the market is underestimating, short-sellers such as Chanos seek out overvalued companies. They borrow shares and then sell them, hoping to buy them back later for less. In short, “they are profiting when others are losing money”, says Chanos — and this makes some people uncomfortable.
Chanos is buoyant. A week earlier, one of his largest short positions — the German payments company Wirecard — filed for bankruptcy, after admitting that €1.9bn of its cash probably did “not exist”. This followed a five-year FT investigation into its accounting practices. Chanos’s funds made almost $100m from the trade, according to an investor. He laughs: “It’s bittersweet, Harriet, because short-sellers put up with weeks and months of misery, and you feel good for hours and days.”
Even its detractors acknowledge that short selling, in a normal environment, helps the markets to question conventional wisdom. But a sharper complaint, usually heard from targets, is that short-sellers acting together to sow FUD (fear, uncertainty and doubt) about a company’s accounting or financial position can become a self-fulfilling prophecy. In the past, investors such as Chanos have moved markets just by revealing a bet against a particular company.
Chanos happily concedes that he talks frequently to other short-sellers. He shorted Luckin Coffee, once touted as China’s answer to Starbucks, after Carson Block of Muddy Waters encouraged him to look at it. (The company is now being investigated for accounting fraud.) But it’s “a myth” that short-sellers act together, he tells me from Prime 112’s private room. “If there were conspiracies, we’d be in something much more profitable than short selling.”
I mention Canadian insurer Fairfax Financial. It sued a group of hedge funds, including those run by Chanos, Dan Loeb and Steve Cohen, for allegedly driving down its stock under a short selling scheme. “That was the perception, but it wasn’t true,” says Chanos. “The case was thrown out [in 2018] on jurisdictional grounds. Our allegation was that the company was overstating their earnings, and during the process they restated their earnings.”
Chanos’s hedge fund manager Kynikos Associates is named after the ancient Greek word for “cynic”. His pitch is that he can identify corporate disasters-in-the-making. The New York-based outfit employs 20 people and has $1.5bn in assets under management. Chanos also teaches a course on the history of financial fraud (“how to detect it, not how to commit it”, he quips) at Yale University, his alma mater. The syllabus stretches back to the 17th century. Today, he says, “we are in the golden age of fraud”.
Chanos describes the current environment as “a really fertile field for people to play fast and loose with the truth, and for corporate wrongdoers to get away with it for a long time”. He reels off why: a 10-year bull market driven by central bank intervention; a level of retail participation in the markets reminiscent of the end of the dotcom boom; Trumpian “post-truth in politics, where my facts are your fake news”; and Silicon Valley’s “fake it until you make it” culture, which is compounded by Fomo — the fear of missing out. All of this is exacerbated by lax oversight. Financial regulators and law enforcement, he says, “are the financial archaeologists — they will tell you after the company has collapsed what the problem was.”
All in all, it’s “a heady witch’s brew for trouble”.
---
A waiter arrives to take his order. Chanos knows the menu by heart and picks a wedge salad of iceberg lettuce, bacon, tomatoes and Roquefort dressing, followed by a strip steak (medium) with a baked potato. He doesn’t normally eat or drink like this at midday but says he will make an exception for Lunch with the FT, and orders a glass of Cabernet Sauvignon.
At Oswald’s, the general manager Michele greets me with a glass of champagne and explains that the chef will prepare his own selection of dishes for me. I’m out of practice with ordering, so this comes as something of a relief.
Chanos’s mission is focused on understanding a company’s business model and then ascertaining if its financial statements reflect it. Certain themes crop up time and again in his hunt for short positions: technological obsolescence, consumer fads, single-product companies, growth via acquisitions and accounting games. Notably he looks for “legal fraud” — where companies adhere to the accounting rules and regulations but there’s still an “intent to deceive”. Enron epitomised this — Chanos identified that it was using aggressive accounting to front-load profits and hide debt in its subsidiaries.
He wasn’t the first short-seller to the Wirecard party. Chanos initiated a short in the German payments company last year and increased the position last autumn, when the FT published documents indicating that profits at Wirecard units in Dubai and Dublin were fraudulently inflated and that customers listed in documents provided to auditor EY did not exist.
Wirecard’s collapse, when it finally came, was dramatic. But, says Chanos, most fraud is on the edges. And these days, often it is “staring at you right in the face through the use of company-designed metrics” through which they are “gaming the system”. He is referring to creative accounting measures used to flatter companies’ books, notably office-space provider WeWork’s now infamous community-adjusted ebitda. The coronavirus crisis has spawned “ebitdac”, or earnings before interest, taxes, depreciation, amortisation — and coronavirus — where companies are adding back profits they say they would have made but for the pandemic.
Regulators, he says, could be much firmer in clamping down on metrics “that just are increasingly unmooring themselves from reality”.
Growing up as the son of Greek and Irish immigrants who ran a chain of dry-cleaning shops in Milwaukee, Chanos says he was interested in stock markets at an early age. After Yale, he worked for an investment bank in Chicago and then retail brokerage Gilford Securities, where he began writing research on individual stocks. He had a baptism by fire: “The first major company I looked at and wrote up turned out to be an immense accounting fraud.”
Baldwin-United was a piano company that had morphed into a financial supermarket. Chanos’s research pointed out inconsistencies with its numbers and recommended that investors sell the stock. It went bankrupt the following year, in 1983, at the time the largest-ever US corporate bankruptcy. Baldwin’s collapse piqued the interest of Gilford’s hedge fund clients who followed its stock recommendations, notably George Soros and Michael Steinhardt. “What else does the kid not like?” they asked, Chanos recalls.
Soon afterwards, he joined Deutsche Bank in New York. It was a shortlived affair. In September 1985, The Wall Street Journal ran a front-page investigation into the “aggressive methods” of a network of short-sellers that it alleged was driving down the shares of US companies. The then 27-year-old Chanos was portrayed as an enfant terrible at the centre of the network. “People think I have two horns and spread syphilis,” he quipped in the article. Deutsche fired him and his boss. “The postscript is that nine of the 10 companies mentioned [in the article] either went bankrupt or were prosecuted for fraud,” he says.
Chanos’s wedge salad and my own starter (a plate of oysters, deliciously juicy, with a glass of crisp white Burgundy) arrive.
It must take a certain personality type to be a perma-bear, I venture.
A long time ago, Chanos believed that going short was just “the mirror image of going long”. He has changed his tune on this, however, “because there is a lot of behavioural finance at work in the markets”. On Wall Street, he says, “the bull case is everywhere” — optimistic management projections, takeover rumours that boost targets’ stock prices, and company earnings estimates revised upwards.
“So I think that it does take a certain peculiar personality — and I’ll leave it at that — to say ‘OK, here’s my facts and here’s the conclusions I draw from my facts, and that’s why I think there’s an opportunity on the short side here.’”
Many can’t stomach it. Less than a year after the 1985 launch of Kynikos — amid “the rip-roaring bull market” of the time — Chanos’s business partner declared that he wasn’t comfortable with the pure short selling side of the business. He said his accountant had advised him to sell back his stake to Chanos for a nominal amount of $1. “And I paid him right there on the spot out of my wallet,” says Chanos. “It was the greatest trade I think I ever did,” he adds with a chuckle.
--
Chanos has put the remains of his salad to one side to make way for the steak. I’m delighted by my main course: deep red toro tuna carpaccio, garnished with avocado mousse.
My guest has one of the best track records in the hedge fund industry. The Kynikos Capital Partners fund, a long/short equity strategy, has gained 22 per cent a year on average over the past 35 years — double that of the S&P 500 index. In the same period, against the backdrop of rising equity markets, its US short-only Ursus strategy — named after the Latin for “bear” — has lost 2 per cent a year.
The past decade has been a difficult one for short-sellers in general, as trillions of dollars of central bank stimulus have lifted prices of assets indiscriminately across the board. How do you trade that? “Very carefully and painfully,” he says.
Fundraising has been tough. Kynikos’s assets peaked at around $7bn after 2008, when short-only Ursus gained 44 per cent, net of fees. They have slumped to $1.5bn since then. This year Chanos sold a minority stake in the management company to boutique investment firm Conlon & Co and the family office of Richard M Daley, former mayor of Chicago.
Prolonged periods of quantitative easing — most recently to ease the economic pain of the coronavirus crisis — is “adding to inequality” by benefiting the people who own financial assets, says Chanos. He believes that the Federal Reserve ought to cut credit card rates for consumers, which are still 15-18 per cent in the US, and sees a potential political backlash against the central banks for their part in how “the rich have gotten much richer and the vast majority of people have not”.
Political risk is one of the reasons that Chanos is shorting gig economy companies such as ride-hailing apps Uber and Lyft and online food-delivery platforms Grubhub and Just Eat Takeaway. Not only are they losing money, but he believes that there is going to be a greater political focus on low-wage workers, which poses an existential threat to their business models.
Chanos sits on the finance committee of US presidential hopeful Joe Biden, who is supporting a new California law to strengthen legal protections for gig economy workers. A Biden administration raises the prospect of higher taxes. “I think it’s fair that rates of taxation on capital probably should go up, relative to rates of taxation on earned income. I know that makes me a communist on Wall Street but I’ve always felt that.”
Chanos declines a second glass of wine, joking that “I don’t want to be drunk for this.” Defeated by his huge steak and salad, he asks the waiter to put them in a doggy bag. On my encouragement, he decides to be a good sport and orders the “decadent” fried Oreos that the restaurant is famous for. My own dessert is a coconut choc ice.
I return to the subject of Tesla, whose shares have surged around six-fold in the five years since Chanos began shorting the company. What is going on here? “I think Elon Musk has personified the hopes and dreams of this bull market,” he says, setting out his bear case against Tesla, which he sees as unprofitable, highly leveraged and facing increasing competition. Tesla “burnishes its results through aggressive accounting”, in his view. He also describes it as “a culture of deception” because it is selling self-driving to consumers, which as yet “doesn’t exist”.
What, I ask, is Chanos’s main motivation: to be rich or to be right?
“I want to do this until they pull me out of the seat,” he replies. When Wirecard filed for insolvency, there was “an electricity” that ran through Kynikos. “That keeps you going.” And so, he says, does his belief that “this market is setting up to be one of the great short opportunities of all time”.
“Trouble’s coming, I don’t know when, but it’s coming.”
Wednesday 22 July 2020
A-level grades to be adjusted downwards
Many students will have at least one adjusted grade to ensure this year’s results are in line with previous years writes Sally Weale in The Guardian
Ofqual said results are still likely to be slightly higher than last year, up 2% at A-level. Photograph: Matthew Horwood/Getty Images
Teacher-assessed A-level grades, submitted by schools in England because exams have been cancelled, will have to be adjusted down by 10 percentage points, though results will still be up on last year.
The exams regulator Ofqual said a substantial number of students would receive at least one adjusted grade – usually downwards – as a result of a standardisation process, designed to ensure this year’s results are in line with those of previous years.
Ofqual said schools and colleges had submitted grades that were higher than would normally be expected, but it was not surprising because teachers had not been given an opportunity to develop a common approach to grading in advance and “naturally want to do their best for their students”.
The regulator also sought to reassure students and their teachers that despite the downward adjustments, results are still likely to be slightly higher than last year, up 1% across all grades at GCSE and 2% at A-level.
The government was forced to cancel all summer exams this year as a result of the Covid-19 pandemic, which closed schools to all but the children of key workers and vulnerable pupils. As a consequence, grades awarded this year will be based on a combination of teacher assessment, class ranking and the past performance of pupils and their schools.
Ofqual revealed that predicted grades submitted by schools and colleges were around 12 percentage points higher than last year’s results at A-level, and 9 percentage points higher at GCSE, with peaks at key grades such as 4 at GCSE which is a pass, and B at A-level which can be required for university entrance.
“Improvement on such a scale in a single year has never occurred and to allow it would significantly undermine the value of these grades for students,” the regulator said.
Ofqual also sought to allay fears that certain groups of pupils, including black, Asian and minority ethnic (BAME) students, as well as those with special educational needs and disabilities (Send) could be disadvantaged by calculated grades. Ofqual said their analysis had found no evidence of widening of gaps in attainment.
Nansi Ellis, assistant general secretary of the National Education Union, said: “It is very good news that results from this year’s extraordinary exams process are broadly comparable to previous years’ results, and that the majority of students will not be disadvantaged by this year’s process.
“A majority of teacher-calculated grades were unchanged by the Ofqual process, showing that centre assessed grades have been as robust as exam grading. This is a credit to the hard work and professionalism of teachers, who have a sound understanding of their pupils’ attainment.”
Teacher-assessed A-level grades, submitted by schools in England because exams have been cancelled, will have to be adjusted down by 10 percentage points, though results will still be up on last year.
The exams regulator Ofqual said a substantial number of students would receive at least one adjusted grade – usually downwards – as a result of a standardisation process, designed to ensure this year’s results are in line with those of previous years.
Ofqual said schools and colleges had submitted grades that were higher than would normally be expected, but it was not surprising because teachers had not been given an opportunity to develop a common approach to grading in advance and “naturally want to do their best for their students”.
The regulator also sought to reassure students and their teachers that despite the downward adjustments, results are still likely to be slightly higher than last year, up 1% across all grades at GCSE and 2% at A-level.
The government was forced to cancel all summer exams this year as a result of the Covid-19 pandemic, which closed schools to all but the children of key workers and vulnerable pupils. As a consequence, grades awarded this year will be based on a combination of teacher assessment, class ranking and the past performance of pupils and their schools.
Ofqual revealed that predicted grades submitted by schools and colleges were around 12 percentage points higher than last year’s results at A-level, and 9 percentage points higher at GCSE, with peaks at key grades such as 4 at GCSE which is a pass, and B at A-level which can be required for university entrance.
“Improvement on such a scale in a single year has never occurred and to allow it would significantly undermine the value of these grades for students,” the regulator said.
Ofqual also sought to allay fears that certain groups of pupils, including black, Asian and minority ethnic (BAME) students, as well as those with special educational needs and disabilities (Send) could be disadvantaged by calculated grades. Ofqual said their analysis had found no evidence of widening of gaps in attainment.
Nansi Ellis, assistant general secretary of the National Education Union, said: “It is very good news that results from this year’s extraordinary exams process are broadly comparable to previous years’ results, and that the majority of students will not be disadvantaged by this year’s process.
“A majority of teacher-calculated grades were unchanged by the Ofqual process, showing that centre assessed grades have been as robust as exam grading. This is a credit to the hard work and professionalism of teachers, who have a sound understanding of their pupils’ attainment.”
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