1 00:00:13,720 --> 00:00:16,680 Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg weekly 2 00:00:16,720 --> 00:00:20,119 Speaker 1: markets podcast. I'm Sarah Ponzac, a markets reporter on the 3 00:00:20,120 --> 00:00:23,240 Speaker 1: Cross Asset Team, and I'm Mike Reagan, a senior editor 4 00:00:23,280 --> 00:00:26,040 Speaker 1: at Bloomberg. Sarah, I'm excited. Did you know we have 5 00:00:26,040 --> 00:00:29,720 Speaker 1: a new Twitter handle for all of the podcasts on Bloomberg. 6 00:00:29,880 --> 00:00:32,680 Speaker 1: I do, and it's pretty amazing because you might guess 7 00:00:32,680 --> 00:00:37,040 Speaker 1: exactly what that handle is at podcasts pretty easy to remember, 8 00:00:37,159 --> 00:00:40,080 Speaker 1: you can't forget it, So go give podcasts a follow. 9 00:00:40,200 --> 00:00:42,880 Speaker 1: You'll see everything related to What Goes Up and all 10 00:00:42,920 --> 00:00:46,200 Speaker 1: of Bloomberg's other podcasts out there as well. Well. This 11 00:00:46,240 --> 00:00:50,080 Speaker 1: week What Goes Up, we'll be focusing on what goes down. 12 00:00:50,440 --> 00:00:52,960 Speaker 1: We'll interview one of the most successful short sellers in 13 00:00:53,000 --> 00:00:56,200 Speaker 1: the business about how he finds opportunities to bet against 14 00:00:56,200 --> 00:00:58,639 Speaker 1: stocks in the middle of the bowl market that we're 15 00:00:58,640 --> 00:01:01,040 Speaker 1: currently in, and we'll all so dive into what markets 16 00:01:01,040 --> 00:01:06,000 Speaker 1: are expecting ahead of next week's big FED meeting. And Sarah, 17 00:01:06,200 --> 00:01:09,680 Speaker 1: I'm excited about something else too. Obviously, we do our 18 00:01:09,760 --> 00:01:13,679 Speaker 1: weekly end of show tradition, which is the craziest thing 19 00:01:13,920 --> 00:01:16,440 Speaker 1: we saw on markets this week. Our first guest I 20 00:01:16,480 --> 00:01:18,960 Speaker 1: told him about this thing we do when he said, 21 00:01:19,120 --> 00:01:21,880 Speaker 1: I've got about a dozen crazy things I could talk about. 22 00:01:21,920 --> 00:01:23,720 Speaker 1: All right, well, I'm ready to hear at least five 23 00:01:23,720 --> 00:01:26,600 Speaker 1: of them. We'll see how much time we have. But 24 00:01:26,680 --> 00:01:29,800 Speaker 1: before I introduced him, I want to basically explain what 25 00:01:29,840 --> 00:01:32,800 Speaker 1: he does. Now. He's an activist short seller. Uh. And 26 00:01:32,800 --> 00:01:34,200 Speaker 1: the reason why I want to explain it, I know 27 00:01:34,280 --> 00:01:36,959 Speaker 1: there's a lot of sophisticated listeners out there who know 28 00:01:37,040 --> 00:01:40,319 Speaker 1: exactly what that is. But there's some unsophisticated listeners. And 29 00:01:40,360 --> 00:01:42,679 Speaker 1: I know that because I've basically been grabbing every phone 30 00:01:42,720 --> 00:01:45,800 Speaker 1: I can see and subscribing them to the podcast. You know, friends, 31 00:01:45,800 --> 00:01:48,760 Speaker 1: I'm like, you're a kindergarten teacher. Have I got the podcast? 32 00:01:48,800 --> 00:01:52,840 Speaker 1: It's totally fine, It's it counts. Um. So an activist 33 00:01:52,880 --> 00:01:56,600 Speaker 1: short seller. Now, a short seller is someone who bets 34 00:01:56,640 --> 00:01:59,240 Speaker 1: that stocks are going to go down. Um, the opposite 35 00:01:59,280 --> 00:02:01,280 Speaker 1: of your traditional long investor. And the way they do 36 00:02:01,360 --> 00:02:04,240 Speaker 1: that is they'll go to their broker and say, I'd 37 00:02:04,240 --> 00:02:07,640 Speaker 1: like to borrow a thousand shares of this company, and 38 00:02:07,800 --> 00:02:11,000 Speaker 1: say the company's selling at a hundred dollars a share. Uh. 39 00:02:11,080 --> 00:02:15,040 Speaker 1: The short seller then sells those borrowed shares and pockets 40 00:02:15,040 --> 00:02:18,640 Speaker 1: a hundred thousand dollars for selling them. And then what 41 00:02:18,720 --> 00:02:21,280 Speaker 1: they're hoping is that that stock price goes down. And 42 00:02:21,320 --> 00:02:24,360 Speaker 1: if they're not activist short, they'll go and release some 43 00:02:24,440 --> 00:02:27,359 Speaker 1: research explaining why they think the stock is gonna go down. 44 00:02:27,360 --> 00:02:30,280 Speaker 1: They might go on a podcast, for example, go on 45 00:02:30,360 --> 00:02:33,000 Speaker 1: TV and talk it up and with any luck, say 46 00:02:33,040 --> 00:02:37,040 Speaker 1: the stock goes from a hundred dollars to fifty dollars. Well, 47 00:02:37,120 --> 00:02:40,680 Speaker 1: the short then repays that loan. Remember that loan was 48 00:02:40,720 --> 00:02:44,240 Speaker 1: in borrowed stock, not borrowed dollars. So they now just 49 00:02:44,320 --> 00:02:47,560 Speaker 1: buy a thousand shares for fifty dollars a share, and 50 00:02:47,840 --> 00:02:50,960 Speaker 1: they pocket that fifty thousand in between, minus the fees 51 00:02:51,000 --> 00:02:54,160 Speaker 1: to the broker. So we're lucky today to have one 52 00:02:54,160 --> 00:02:56,280 Speaker 1: of the most skilled short sellers out there. He actually 53 00:02:56,400 --> 00:03:00,840 Speaker 1: his fund, spruce Point Capital Management. Uh they're activism fund. 54 00:03:01,400 --> 00:03:04,320 Speaker 1: According to Barkley Hedge, a database that tracks these things, 55 00:03:04,600 --> 00:03:09,600 Speaker 1: return last year the best market neutral equity fund performance 56 00:03:09,680 --> 00:03:12,840 Speaker 1: of last year. Uh So, Ben ben Axer of Spruce 57 00:03:12,880 --> 00:03:15,000 Speaker 1: Point Capital, Welcome to the show. Hey Mike, thanks for 58 00:03:15,080 --> 00:03:18,880 Speaker 1: having me. Did I batch the explanation of activism shurtelling there, 59 00:03:19,040 --> 00:03:21,680 Speaker 1: you forgot that. In addition to repaying fees to the broker, 60 00:03:21,680 --> 00:03:23,680 Speaker 1: there's dividends paid as well, so you get a factor 61 00:03:23,680 --> 00:03:29,680 Speaker 1: and all those costs, right, okay. Also joining the show 62 00:03:29,840 --> 00:03:34,040 Speaker 1: this week is Sebastian Boyd, who covers Laddan markets and 63 00:03:34,120 --> 00:03:39,160 Speaker 1: global credit markets for the Bloomberg Markets Live blog. Sarah 64 00:03:39,200 --> 00:03:42,040 Speaker 1: little known piece of trivia about Sebastian Boyd, he actually 65 00:03:42,120 --> 00:03:46,560 Speaker 1: started the whole global financial crisis. I had no idea, 66 00:03:46,640 --> 00:03:51,080 Speaker 1: but I can't wait to hear the story behind. He'll 67 00:03:51,120 --> 00:03:53,160 Speaker 1: explain it all at the end. Let him, Let him wait. 68 00:03:53,280 --> 00:03:58,560 Speaker 1: Sebs in town. He's based in Santiago, Chili, but he's 69 00:03:58,560 --> 00:04:01,840 Speaker 1: in town to attend day high yield investment conferences. That right, 70 00:04:01,880 --> 00:04:05,680 Speaker 1: So that's right. So I've spent yesterday and Tuesday listening 71 00:04:05,680 --> 00:04:09,240 Speaker 1: to high yield and leverage loan investors the moaning their 72 00:04:09,520 --> 00:04:12,520 Speaker 1: the fate. So I guess we'll hear about what they 73 00:04:12,560 --> 00:04:14,760 Speaker 1: were saying the moaning their fate later on in the show. 74 00:04:14,880 --> 00:04:17,400 Speaker 1: We'll get into to all that. And let's start with 75 00:04:17,440 --> 00:04:20,839 Speaker 1: you though, you know, like I said, return, According to 76 00:04:20,960 --> 00:04:25,960 Speaker 1: Barkley Hedge, the top market neutral equity fund last year 77 00:04:26,560 --> 00:04:27,800 Speaker 1: This is at a time when you know, the bull 78 00:04:27,880 --> 00:04:31,440 Speaker 1: market is raging on. In the media and the financial media, 79 00:04:31,520 --> 00:04:34,200 Speaker 1: we read all these horror stories about short sellers, you know, 80 00:04:34,400 --> 00:04:37,480 Speaker 1: David Einhorn trying to short the bubble basket he called it. 81 00:04:37,960 --> 00:04:41,039 Speaker 1: And Bill Ackman with his struggles with with Herbal Life. 82 00:04:41,920 --> 00:04:45,200 Speaker 1: What are you doing right that these guys are doing wrong? Well, 83 00:04:45,440 --> 00:04:47,400 Speaker 1: thank you. It's so an honor just to be named 84 00:04:47,400 --> 00:04:49,200 Speaker 1: in the in the same breath of these other you know, 85 00:04:49,240 --> 00:04:52,279 Speaker 1: successful fund managers. But what we try to do is 86 00:04:52,480 --> 00:04:55,440 Speaker 1: find companies where we can really have an edge, right 87 00:04:55,480 --> 00:05:00,320 Speaker 1: you mentioned Herbal Life, Tesla. These are multi multibillion dollar companies. 88 00:05:00,320 --> 00:05:02,000 Speaker 1: Where we've had a lot of success I think is 89 00:05:02,000 --> 00:05:04,640 Speaker 1: in some of the smaller to mid cap names. You know, 90 00:05:04,680 --> 00:05:06,880 Speaker 1: these are names billion, two billion, all the way up 91 00:05:06,880 --> 00:05:09,800 Speaker 1: to six billion, that are less trafficked. They have a 92 00:05:09,800 --> 00:05:12,920 Speaker 1: lower short interest, they don't have a well understand stood 93 00:05:12,960 --> 00:05:15,880 Speaker 1: bear case. They might have a structural flaw or an 94 00:05:15,920 --> 00:05:21,080 Speaker 1: accounting problem that is you know, accelerating results um, which 95 00:05:21,160 --> 00:05:23,200 Speaker 1: is you know, providing a short term boost to their 96 00:05:23,240 --> 00:05:26,200 Speaker 1: share price. So we're trying to look in the names 97 00:05:26,200 --> 00:05:29,159 Speaker 1: are less trafficked. You know, maybe there's fewer cell side 98 00:05:29,160 --> 00:05:32,720 Speaker 1: analysts that are covering it. Maybe there's a higher retail 99 00:05:32,760 --> 00:05:35,320 Speaker 1: base that's in the name that might not understand what's 100 00:05:35,320 --> 00:05:37,640 Speaker 1: going on. So it's it's by looking where other people 101 00:05:37,680 --> 00:05:40,040 Speaker 1: aren't looking, I think is where we're getting a slightly 102 00:05:40,040 --> 00:05:43,320 Speaker 1: differentiated edge. I know over the past couple of years, 103 00:05:43,320 --> 00:05:45,280 Speaker 1: many of people have looked at the games we've sent 104 00:05:45,320 --> 00:05:48,000 Speaker 1: in equities and said equities is really the place to be. 105 00:05:48,080 --> 00:05:50,080 Speaker 1: You want to be positioned in risk. But you've also 106 00:05:50,640 --> 00:05:53,720 Speaker 1: called the environment we've been in a golden era for 107 00:05:53,839 --> 00:05:56,360 Speaker 1: short selling. Why is that? How is it possible that 108 00:05:56,440 --> 00:05:59,760 Speaker 1: some people are so gung ho going long the stock market, 109 00:05:59,800 --> 00:06:02,479 Speaker 1: but yet you're finding so many opportunities to short. It 110 00:06:02,520 --> 00:06:04,520 Speaker 1: comes down to valuation, right, I mean, at the end 111 00:06:04,520 --> 00:06:06,480 Speaker 1: of the day, you know, you have to understand the 112 00:06:06,520 --> 00:06:09,120 Speaker 1: price you're paying for the security you own. In our 113 00:06:09,200 --> 00:06:11,200 Speaker 1: view is that the market has been rich. Why Why 114 00:06:11,279 --> 00:06:13,560 Speaker 1: is it rich? I mean interest rates have been suppressed 115 00:06:13,640 --> 00:06:17,120 Speaker 1: artificially low for a long time. That's invited a lot 116 00:06:17,120 --> 00:06:21,800 Speaker 1: of easy money looking for returns, and equities have you know, 117 00:06:21,839 --> 00:06:24,800 Speaker 1: outperformed as an asset class. But in certain cases there's 118 00:06:24,839 --> 00:06:27,960 Speaker 1: been pockets of bubbles. Right, We've seen you know, new 119 00:06:28,000 --> 00:06:31,640 Speaker 1: industries like you know, bitcoin come up, marijuana stocks, um 120 00:06:31,839 --> 00:06:35,760 Speaker 1: These are sort of classic examples of too much money chasing, 121 00:06:36,240 --> 00:06:39,039 Speaker 1: you know, too few returns. Now. I think the other 122 00:06:39,080 --> 00:06:42,560 Speaker 1: aspect is a regulator environment. We're in a very low 123 00:06:42,600 --> 00:06:46,080 Speaker 1: regulatory regime under you know, Donald Trump, who's cutting budgets 124 00:06:46,080 --> 00:06:47,839 Speaker 1: to the e p A, the you know, the SEC 125 00:06:48,120 --> 00:06:52,160 Speaker 1: is brought the fewest case enforcement cases this year, you know, 126 00:06:52,240 --> 00:06:54,680 Speaker 1: than any other year in prior year. So it's a 127 00:06:54,720 --> 00:06:58,920 Speaker 1: combination of these factors that's creating an environment where you know, 128 00:06:59,400 --> 00:07:03,080 Speaker 1: share prices are excessive, where short sellers can come in. Mike, 129 00:07:03,160 --> 00:07:05,120 Speaker 1: to your point, you know, why do we do activism. 130 00:07:05,120 --> 00:07:08,520 Speaker 1: We do it because we can clearly communicate a differentiated 131 00:07:08,880 --> 00:07:11,320 Speaker 1: you know, you point to explain why we think, you know, 132 00:07:11,400 --> 00:07:14,040 Speaker 1: these securities overvalued, and that's how sort of we go 133 00:07:14,120 --> 00:07:16,920 Speaker 1: about it. I also wonder, you know, so much of 134 00:07:17,080 --> 00:07:20,320 Speaker 1: the brain power on Wall Street in recent years has 135 00:07:20,360 --> 00:07:23,680 Speaker 1: been focused on sort of how to be the best 136 00:07:23,720 --> 00:07:26,840 Speaker 1: possible passive investor you can be, you know, whether it's 137 00:07:26,960 --> 00:07:31,520 Speaker 1: UM factor investing, the whole advance of the quant funds 138 00:07:31,560 --> 00:07:34,240 Speaker 1: and and really you know, looking at the market more 139 00:07:34,280 --> 00:07:37,040 Speaker 1: from a thirty thousand foot level than actually getting in 140 00:07:37,080 --> 00:07:41,080 Speaker 1: the weeds and digging through individual companies filings. I mean, 141 00:07:41,160 --> 00:07:42,600 Speaker 1: is that part of it you think has this sort 142 00:07:42,640 --> 00:07:46,360 Speaker 1: of art of sort of bottoms up research. Um, it's 143 00:07:46,400 --> 00:07:49,200 Speaker 1: obviously not a lost art, but it's it's certainly not 144 00:07:49,240 --> 00:07:51,800 Speaker 1: what it used to be. I think you raise a 145 00:07:51,840 --> 00:07:55,080 Speaker 1: great point. I mean, computers are smart for many things. 146 00:07:55,120 --> 00:07:57,360 Speaker 1: I mean, they can trade a stock infinitely faster than 147 00:07:57,400 --> 00:07:59,360 Speaker 1: I can with you know, my key strokes. They can 148 00:08:00,040 --> 00:08:02,200 Speaker 1: you know, look at numbers, crunch numbers. But what I 149 00:08:02,240 --> 00:08:05,360 Speaker 1: think is lost is the art of judgment and looking 150 00:08:05,400 --> 00:08:08,040 Speaker 1: at a holistic picture of a company, not just the 151 00:08:08,080 --> 00:08:11,360 Speaker 1: financial statements, but the proxy statement to see, you know, 152 00:08:11,480 --> 00:08:14,840 Speaker 1: how governance changes are being made that might you know, 153 00:08:14,920 --> 00:08:19,000 Speaker 1: give management a greater incentive of our shareholders. Or subtle 154 00:08:19,080 --> 00:08:23,960 Speaker 1: changes in language or tone used by management on conference calls. Um. 155 00:08:24,000 --> 00:08:27,200 Speaker 1: You know other ways which management can office skate information 156 00:08:27,240 --> 00:08:30,080 Speaker 1: from the public by redacting information at the SEC and 157 00:08:30,120 --> 00:08:32,440 Speaker 1: that you know, we've had success for example, doing foy 158 00:08:32,520 --> 00:08:36,199 Speaker 1: as freedom of information requests, getting that information that computers 159 00:08:36,559 --> 00:08:38,360 Speaker 1: you know, will never be able you know, to get 160 00:08:38,360 --> 00:08:41,520 Speaker 1: by writing letters to regulators so the move to the 161 00:08:41,520 --> 00:08:44,560 Speaker 1: past environment has made it difficult for short sills in 162 00:08:44,600 --> 00:08:47,760 Speaker 1: some regard. But you know, good old fashioned homework, looking 163 00:08:47,760 --> 00:08:50,920 Speaker 1: at the holistic picture, getting various data points, bringing together, 164 00:08:51,040 --> 00:08:54,240 Speaker 1: synthesizing a thesis, and then putting into action in a 165 00:08:54,559 --> 00:08:56,320 Speaker 1: you know, in a short report. I think you know 166 00:08:56,440 --> 00:08:58,559 Speaker 1: is what has given us alpha in an edge. But 167 00:08:58,679 --> 00:09:00,560 Speaker 1: I want to come back to what you said about 168 00:09:00,600 --> 00:09:03,080 Speaker 1: an era of easy money and also low regulation and 169 00:09:03,080 --> 00:09:06,360 Speaker 1: bring Sebastian in here, because a lot of what's happened 170 00:09:06,400 --> 00:09:08,079 Speaker 1: over the past two weeks have kind of come in 171 00:09:08,120 --> 00:09:10,800 Speaker 1: the face of that. People talking about the FED, well, 172 00:09:10,840 --> 00:09:13,520 Speaker 1: now cutting interest rates would be even more easy money. 173 00:09:13,520 --> 00:09:15,679 Speaker 1: But also on the regulation side, you have a lot 174 00:09:15,720 --> 00:09:17,679 Speaker 1: of people talking about big tech now, and you have 175 00:09:17,760 --> 00:09:21,320 Speaker 1: potential anti trust probes going into play. I want to 176 00:09:21,360 --> 00:09:23,600 Speaker 1: turn to the FED though, and get your view, Sebastian. 177 00:09:23,640 --> 00:09:26,760 Speaker 1: As we head into the FED meeting next week, a 178 00:09:26,760 --> 00:09:29,280 Speaker 1: lot of people are paying attention how high are the 179 00:09:29,320 --> 00:09:32,240 Speaker 1: stakes for the FED to really queue up that they 180 00:09:32,320 --> 00:09:35,720 Speaker 1: might actually be cutting rates to appease markets at this juncture. 181 00:09:36,480 --> 00:09:38,920 Speaker 1: I think the stakes couldn't be any higher. Um, the 182 00:09:39,000 --> 00:09:43,480 Speaker 1: FED has had a couple of missteps with its communication recently. 183 00:09:43,559 --> 00:09:46,200 Speaker 1: In December, we all thought they were going to hike, 184 00:09:46,240 --> 00:09:47,600 Speaker 1: and then in January we all thought they were going 185 00:09:47,679 --> 00:09:51,000 Speaker 1: to cut. They really need to thread the needle, as 186 00:09:51,040 --> 00:09:53,840 Speaker 1: it were, with their communications between now and the end 187 00:09:53,920 --> 00:09:56,000 Speaker 1: of the year. It's not something they found very easy, 188 00:09:56,080 --> 00:09:58,760 Speaker 1: but a misstep by the FED at this junction could 189 00:09:58,760 --> 00:10:01,360 Speaker 1: be really pretty disastrous for all sorts of st classes, 190 00:10:02,120 --> 00:10:05,000 Speaker 1: and especially since you focus on the credit market seb 191 00:10:05,040 --> 00:10:07,680 Speaker 1: are they sort of is gung ho pricing in a 192 00:10:07,760 --> 00:10:10,760 Speaker 1: rate cut, as as the short term interest rates market, 193 00:10:10,840 --> 00:10:14,760 Speaker 1: and arguably the stock market maybe not quite as gung 194 00:10:14,800 --> 00:10:18,240 Speaker 1: ho as the the short term interest rates market, which 195 00:10:18,280 --> 00:10:22,040 Speaker 1: is uh looking for for rathermore cuts. In fact, that 196 00:10:22,160 --> 00:10:24,080 Speaker 1: they're starting now to think about when the hikes are 197 00:10:24,080 --> 00:10:27,080 Speaker 1: going to come. They're so confident they've already started pricing 198 00:10:27,080 --> 00:10:29,600 Speaker 1: in the end of the of the using cycle, but 199 00:10:29,640 --> 00:10:32,480 Speaker 1: then no, suddenly, if there were not to be too 200 00:10:32,559 --> 00:10:35,320 Speaker 1: higher two cuts this year, I think credit markets would 201 00:10:35,360 --> 00:10:37,040 Speaker 1: feel a lot of pain. That's very much in the 202 00:10:37,040 --> 00:10:40,880 Speaker 1: assumption ben for you. If the Fed were to cut. 203 00:10:41,000 --> 00:10:43,600 Speaker 1: We all know the FED does not want to help 204 00:10:43,800 --> 00:10:46,959 Speaker 1: create asset bubbles. They do not want to fuel excesses. 205 00:10:47,240 --> 00:10:49,480 Speaker 1: But in your mind, if we were to see the 206 00:10:49,520 --> 00:10:52,960 Speaker 1: FED cut, does this just really embolden your case for 207 00:10:53,240 --> 00:10:56,360 Speaker 1: this golden era of short selling because it's just even 208 00:10:56,400 --> 00:10:59,280 Speaker 1: more easy money for longer. Precisely, I think the key 209 00:10:59,280 --> 00:11:03,120 Speaker 1: word is moral hazard. Like, you know, the fact that 210 00:11:03,160 --> 00:11:06,760 Speaker 1: the FED is considering cutting rates, I just think is um. 211 00:11:06,800 --> 00:11:08,760 Speaker 1: I don't know the word for it, but it blows 212 00:11:08,800 --> 00:11:11,000 Speaker 1: my mind, to be blunt with you, that that the 213 00:11:11,040 --> 00:11:13,400 Speaker 1: market is so addicted to easy money that that's the 214 00:11:13,480 --> 00:11:15,160 Speaker 1: only thing that will keep it up. I mean we're 215 00:11:15,160 --> 00:11:18,959 Speaker 1: now nine or ten years into a corrective cycle. I mean, 216 00:11:19,040 --> 00:11:22,040 Speaker 1: these companies have very good balance sheets. You know, there's growth, 217 00:11:22,040 --> 00:11:25,000 Speaker 1: I'll be you know, low growth. There's been under investment 218 00:11:25,120 --> 00:11:27,160 Speaker 1: in capex. A lot of the money has been going 219 00:11:27,240 --> 00:11:30,120 Speaker 1: to buy backs, which has also been you know, propping 220 00:11:30,200 --> 00:11:32,200 Speaker 1: up share prices. This is not not what we need. 221 00:11:32,240 --> 00:11:34,720 Speaker 1: We need internal investment, We need smart m and A. 222 00:11:34,880 --> 00:11:37,920 Speaker 1: We need to you know, funnel money into industries that 223 00:11:37,960 --> 00:11:41,720 Speaker 1: are creating productive value like you know, technology agrees, you know, 224 00:11:42,200 --> 00:11:45,120 Speaker 1: is a bright spot in the economy. But uh yeah, 225 00:11:45,160 --> 00:11:48,640 Speaker 1: low rates would just exacerbate the moral hazard and would 226 00:11:48,679 --> 00:11:51,360 Speaker 1: embolden us to continue to look for more shorts. But 227 00:11:51,520 --> 00:11:54,040 Speaker 1: in the near term, say they do hint next week 228 00:11:54,080 --> 00:11:56,640 Speaker 1: that a rate cuts coming. I mean, you know, the 229 00:11:56,640 --> 00:11:59,200 Speaker 1: assumption is you'll just see a rally and everything is. 230 00:11:59,240 --> 00:12:01,520 Speaker 1: It's hempting for someone like you just sort of flatten 231 00:12:01,600 --> 00:12:03,560 Speaker 1: out your positions ahead of that, or or you you 232 00:12:03,679 --> 00:12:06,240 Speaker 1: just understand that there'll be a short term effect and 233 00:12:06,760 --> 00:12:08,559 Speaker 1: you can ride it out even if the stocks you're 234 00:12:08,679 --> 00:12:11,200 Speaker 1: shorting are rallying. Yeah. I mean, look, we we do 235 00:12:11,280 --> 00:12:13,760 Speaker 1: trade around our positions a little bit to tweak, you know, 236 00:12:13,880 --> 00:12:16,520 Speaker 1: short term view and FED or what other economic data 237 00:12:16,559 --> 00:12:18,520 Speaker 1: is out there. But I mean we're really focused on 238 00:12:18,559 --> 00:12:21,920 Speaker 1: fundamentally flawed companies. Were trying to find fraudulent companies. We're 239 00:12:21,960 --> 00:12:24,599 Speaker 1: trying to find companies that have a fundamental crack in 240 00:12:24,640 --> 00:12:28,880 Speaker 1: their business. If the FED cut rates suddenly or gave 241 00:12:28,920 --> 00:12:31,080 Speaker 1: a stronger tone, yeah, the share prices might rally in 242 00:12:31,080 --> 00:12:33,600 Speaker 1: the short term, but that's probably an opportunity for us 243 00:12:33,600 --> 00:12:37,480 Speaker 1: to add or short. Sorry I am I should point 244 00:12:37,520 --> 00:12:39,720 Speaker 1: out I'm kind of talking my book here personally because 245 00:12:39,800 --> 00:12:43,240 Speaker 1: I profiled Ben in the latest Bloomberg's Markets magazine. So 246 00:12:43,360 --> 00:12:45,000 Speaker 1: if you're listening out there, pick it up. I would 247 00:12:45,000 --> 00:12:47,120 Speaker 1: also say it's a good read. So he's not talking 248 00:12:47,120 --> 00:12:52,000 Speaker 1: his own book. Oh I'm blushing. But but I also 249 00:12:52,240 --> 00:12:54,160 Speaker 1: want to talk about some of the fang stocks because 250 00:12:54,200 --> 00:12:56,959 Speaker 1: I know these are obviously a lot larger companies. These 251 00:12:57,000 --> 00:12:58,920 Speaker 1: are I would imagine, not names that you would go 252 00:12:59,000 --> 00:13:01,720 Speaker 1: out there in short. Um, but if you talk about 253 00:13:01,840 --> 00:13:06,199 Speaker 1: this low regulation environment being a place that actually fuels excesses, 254 00:13:06,600 --> 00:13:10,640 Speaker 1: I'm curious, from a contrarian standpoint, is it possible, but 255 00:13:10,800 --> 00:13:13,560 Speaker 1: say you have these very very large bit tech companies, 256 00:13:13,600 --> 00:13:17,680 Speaker 1: you continue to see evaluations rise. Is it potentially possible 257 00:13:17,720 --> 00:13:19,800 Speaker 1: that if we see a little bit of regulation it 258 00:13:19,840 --> 00:13:23,199 Speaker 1: could be good? Look, I think yes. I mean I 259 00:13:23,280 --> 00:13:25,559 Speaker 1: think I'm a proponent of of a certain amount of 260 00:13:25,600 --> 00:13:29,120 Speaker 1: regulation in various industries. I mean, I've seen what industries 261 00:13:29,160 --> 00:13:31,600 Speaker 1: that have very little regulation can happen. We've seen you know, 262 00:13:31,679 --> 00:13:34,960 Speaker 1: bitcoin for example, a new Nissan industry, or no regulation 263 00:13:35,040 --> 00:13:37,199 Speaker 1: invites a lot of frauds. So a certain amount of 264 00:13:37,200 --> 00:13:40,319 Speaker 1: regulation is certainly good. Um. You know, some of the 265 00:13:40,360 --> 00:13:43,840 Speaker 1: tech companies clearly have gotten very big, very powerful. Um. 266 00:13:43,880 --> 00:13:46,200 Speaker 1: I mean, it's remarkable what some of them are doing, 267 00:13:46,360 --> 00:13:49,640 Speaker 1: you know, with data and AI for example, on Facebook, 268 00:13:50,000 --> 00:13:53,200 Speaker 1: you can upload a photo and they recognize everyone you 269 00:13:53,240 --> 00:13:55,640 Speaker 1: and your friends, and then you know, you go to 270 00:13:55,679 --> 00:13:58,160 Speaker 1: Google and you search for a watch and then you 271 00:13:58,200 --> 00:13:59,920 Speaker 1: go on Facebook and you see watch ads. I mean, 272 00:14:00,040 --> 00:14:02,559 Speaker 1: it's it's like big Brother. Um. So I do think 273 00:14:02,559 --> 00:14:04,559 Speaker 1: there needs to be some regulation, and that would be 274 00:14:04,800 --> 00:14:06,920 Speaker 1: probably a good thing for the long run. What I 275 00:14:06,960 --> 00:14:09,640 Speaker 1: think is amazing is if you go back to the 276 00:14:09,720 --> 00:14:12,400 Speaker 1: sort of the start of your hedgephund and your career 277 00:14:12,440 --> 00:14:15,720 Speaker 1: as a short some of the first targets were these 278 00:14:15,800 --> 00:14:19,320 Speaker 1: Chinese companies that listed in the us UM and there 279 00:14:19,320 --> 00:14:21,960 Speaker 1: were so many of them that listed here that were 280 00:14:22,000 --> 00:14:25,080 Speaker 1: just such blatant frauds. You know, it was quite the 281 00:14:25,120 --> 00:14:27,320 Speaker 1: regulation that sorted that out. It was the market itself. 282 00:14:27,360 --> 00:14:29,880 Speaker 1: I mean, are those opportunities gone? Has the market sort 283 00:14:29,880 --> 00:14:32,760 Speaker 1: of self policed them out of existence? Or there's still 284 00:14:32,800 --> 00:14:34,920 Speaker 1: something to be had. There's plenty to be had, Yeah, 285 00:14:35,000 --> 00:14:36,880 Speaker 1: I think Um. I mean, if you're talking about the 286 00:14:36,960 --> 00:14:39,840 Speaker 1: Chinese stocks specifically, I think it's sort of like a 287 00:14:39,880 --> 00:14:43,000 Speaker 1: cat and a mouse. The early ones that were fraudulent, 288 00:14:43,280 --> 00:14:46,600 Speaker 1: um were easier to spot, but you know, the mouse 289 00:14:46,720 --> 00:14:49,480 Speaker 1: has adapted and gotten smarter, and so the second and 290 00:14:49,560 --> 00:14:52,600 Speaker 1: third generation of Chinese companies that are coming public today. 291 00:14:53,120 --> 00:14:55,680 Speaker 1: They know the methods that we used to find, you know, 292 00:14:55,720 --> 00:14:58,560 Speaker 1: the crookedness in some of the companies, so they've adapted gonalismarter. 293 00:14:58,600 --> 00:15:01,760 Speaker 1: But having said that, there's clearly some opportunities out there. 294 00:15:02,240 --> 00:15:05,120 Speaker 1: But no, I think the SEC has definitely been you know, 295 00:15:05,240 --> 00:15:08,840 Speaker 1: burdened with a lot of inquiries, probably under resource to 296 00:15:08,920 --> 00:15:13,280 Speaker 1: find and police you know, all the the financial scams 297 00:15:13,280 --> 00:15:15,600 Speaker 1: and schemes that are out there, and so that's part 298 00:15:15,640 --> 00:15:17,520 Speaker 1: of you know, our role as an activist short, so 299 00:15:17,600 --> 00:15:20,400 Speaker 1: to kind of fill that void in a sense, um 300 00:15:20,760 --> 00:15:23,040 Speaker 1: by you know, exposing what we think are the bad 301 00:15:23,080 --> 00:15:26,240 Speaker 1: companies and the bad actors. So I'm curious, Uh. You know, 302 00:15:26,240 --> 00:15:28,880 Speaker 1: obviously in the US, an activist short like Ben Uh 303 00:15:29,040 --> 00:15:30,800 Speaker 1: can go out there and make his case. I don't 304 00:15:30,840 --> 00:15:32,920 Speaker 1: think that works in every market around the world. Have 305 00:15:33,000 --> 00:15:36,080 Speaker 1: you have you run into any sort of activist shorts 306 00:15:36,080 --> 00:15:38,160 Speaker 1: in the Laddin markets or is it is that a 307 00:15:38,280 --> 00:15:40,960 Speaker 1: risky place to be a short? It would work certainly 308 00:15:41,160 --> 00:15:44,160 Speaker 1: in fact, yeah, that's some of the markets are crying 309 00:15:44,200 --> 00:15:48,920 Speaker 1: out for. No, we do have a few activist investors 310 00:15:48,920 --> 00:15:51,720 Speaker 1: in Brazil. Is one very high profile guy called Nelson 311 00:15:51,760 --> 00:15:54,360 Speaker 1: Toni who's who's a very activist investor, but not in 312 00:15:54,960 --> 00:15:57,520 Speaker 1: in the same model at all. UM. A lot of 313 00:15:57,840 --> 00:16:00,520 Speaker 1: Latin American companies tend to be family owned that controlled 314 00:16:00,520 --> 00:16:03,840 Speaker 1: by one big shareholder. Normally they don't have a very 315 00:16:03,960 --> 00:16:07,320 Speaker 1: large free float, so it's not it's a dissimilar structure 316 00:16:07,320 --> 00:16:09,560 Speaker 1: to to the U S market. What most companies are 317 00:16:09,560 --> 00:16:12,440 Speaker 1: actually owned by their shareholders and in Latin America that 318 00:16:12,520 --> 00:16:15,040 Speaker 1: generate you know, there's one guy, Yeah, that is it. 319 00:16:15,160 --> 00:16:17,960 Speaker 1: It must be tough to shorter company that's got a 320 00:16:18,040 --> 00:16:20,160 Speaker 1: huge majority owner like that, or is it? Or no, 321 00:16:20,680 --> 00:16:23,280 Speaker 1: yes and no. I mean one of our best successes 322 00:16:23,320 --> 00:16:25,000 Speaker 1: in the past twelve months has been a coming called 323 00:16:25,000 --> 00:16:28,200 Speaker 1: Weiss Markets. Mike, you might be familiar from, you know, 324 00:16:28,240 --> 00:16:32,320 Speaker 1: growing up in this area. They have supermarkets in New Jersey, Pennsylvania, 325 00:16:32,320 --> 00:16:34,880 Speaker 1: and Virginia and New York. UM we think they're structurally 326 00:16:34,880 --> 00:16:38,040 Speaker 1: at a disadvantage in those markets. Obviously the supermarket space 327 00:16:38,080 --> 00:16:41,040 Speaker 1: is very competitive. It's twenty five percent plus owned by 328 00:16:41,120 --> 00:16:44,680 Speaker 1: the Weiss family. UM. Mr Weiss is the chairman, he's 329 00:16:44,720 --> 00:16:48,600 Speaker 1: the CEO. UM. We did an activist campaign. We did 330 00:16:48,600 --> 00:16:51,600 Speaker 1: a survey of the products at a supermarkets twenty percent 331 00:16:51,680 --> 00:16:55,080 Speaker 1: higher than Walmart than Trader Joe's. How can this persist? So, 332 00:16:55,240 --> 00:16:57,760 Speaker 1: you know, we put it on our website and uh, um. 333 00:16:57,880 --> 00:17:00,280 Speaker 1: Quite honestly, I was expecting some response from Ice, but 334 00:17:00,280 --> 00:17:02,560 Speaker 1: they were quite quiet, and I'm sure they're not very 335 00:17:02,560 --> 00:17:05,080 Speaker 1: fond of you, but they did listen. They cut their 336 00:17:05,119 --> 00:17:08,480 Speaker 1: prices on a thousand products. Yeah, so they listened. Clearly 337 00:17:08,560 --> 00:17:11,600 Speaker 1: they were listening, but they didn't retaliate by boosting their 338 00:17:11,600 --> 00:17:14,960 Speaker 1: dividend or doing a share buy back. Um. The CEO 339 00:17:15,040 --> 00:17:18,160 Speaker 1: didn't even buy backstock even after his share price fell 340 00:17:18,200 --> 00:17:21,440 Speaker 1: fifteen pcent after our report. So um, no, it can 341 00:17:21,480 --> 00:17:23,000 Speaker 1: be done, but it has to be done I think 342 00:17:23,000 --> 00:17:24,879 Speaker 1: with the right company and the right set up. And 343 00:17:25,119 --> 00:17:27,480 Speaker 1: that's almost the type of thing in activists long would 344 00:17:27,520 --> 00:17:31,520 Speaker 1: do you know? It influenced the management to the lower prices. Well, 345 00:17:31,560 --> 00:17:33,479 Speaker 1: I mean, look, you have to be competitive, right, and 346 00:17:33,520 --> 00:17:36,040 Speaker 1: we felt that they were over earning UM for a period. 347 00:17:36,040 --> 00:17:38,760 Speaker 1: But now they can't over earn when consumers can now 348 00:17:38,840 --> 00:17:41,760 Speaker 1: shop and get you know, products delivered through Blue Apron 349 00:17:41,920 --> 00:17:44,960 Speaker 1: or through you know, Amazon Home delivery. So there's there. 350 00:17:45,119 --> 00:17:46,760 Speaker 1: I think they finally reached their point where they had 351 00:17:46,760 --> 00:18:04,640 Speaker 1: to do something or I mean competitive. So, boy, you're here, 352 00:18:04,680 --> 00:18:07,240 Speaker 1: we have to get your insight moving over on the 353 00:18:07,280 --> 00:18:09,400 Speaker 1: credit markets. You're here for a conference, so why don't 354 00:18:09,400 --> 00:18:11,840 Speaker 1: you walk us through. I mean, what's the tone like 355 00:18:11,960 --> 00:18:15,200 Speaker 1: there and what what were the main highlights. Well, it's 356 00:18:15,200 --> 00:18:16,959 Speaker 1: funny that we were talking about the the lack of 357 00:18:17,000 --> 00:18:21,080 Speaker 1: regulation because the the some of the corners of the 358 00:18:21,080 --> 00:18:25,160 Speaker 1: credit market are very unregulated, particularly the leverage loan market. 359 00:18:25,200 --> 00:18:27,040 Speaker 1: There's not a great deal of every site that they 360 00:18:27,040 --> 00:18:29,840 Speaker 1: tend to be private contracts between you know, a lender 361 00:18:29,880 --> 00:18:32,520 Speaker 1: and a borrower, and there have been all sorts of 362 00:18:32,520 --> 00:18:37,760 Speaker 1: shenanigans there and that's the big theme of this conference 363 00:18:37,800 --> 00:18:41,720 Speaker 1: this week, was concerned from investors about the tricks that 364 00:18:41,760 --> 00:18:44,040 Speaker 1: are being played on them. And this is when we 365 00:18:44,119 --> 00:18:46,480 Speaker 1: hear the term covenant. Were basically, what's going It's the 366 00:18:46,520 --> 00:18:49,840 Speaker 1: covenant war exactly right, And it struck me it was 367 00:18:49,840 --> 00:18:51,240 Speaker 1: a big topic. It's been a big topic for the 368 00:18:51,280 --> 00:18:54,359 Speaker 1: last few years, and I was slightly surprised at the 369 00:18:54,480 --> 00:18:57,439 Speaker 1: level of concern. It's the big issue that they are 370 00:18:57,480 --> 00:19:01,240 Speaker 1: worried about. It's it's the erosion of of covenants and 371 00:19:01,320 --> 00:19:04,199 Speaker 1: not just the it's one thing for the covenants to 372 00:19:04,240 --> 00:19:07,120 Speaker 1: be weak, and everyone knows their weak and you get 373 00:19:07,119 --> 00:19:10,760 Speaker 1: paid a bit extra. The problem is that the covenants 374 00:19:10,760 --> 00:19:15,000 Speaker 1: are often slightly deceptive. Um you know the high power, 375 00:19:15,440 --> 00:19:19,160 Speaker 1: highly paid lawyers who go around and delete commas and 376 00:19:19,160 --> 00:19:21,320 Speaker 1: and remove words, and suddenly the covenant doesn't mean what 377 00:19:21,320 --> 00:19:24,520 Speaker 1: you thought it meant. And most investors are not lawyers. 378 00:19:24,720 --> 00:19:27,440 Speaker 1: It's an issue for them. Yeah, I bet. I'm curious 379 00:19:27,640 --> 00:19:30,560 Speaker 1: how much you think about the macro as you're picking stocks. 380 00:19:30,600 --> 00:19:32,600 Speaker 1: I mean, do you have a take on sort of 381 00:19:32,640 --> 00:19:35,719 Speaker 1: the overall market? I know you've you've found pockets evaluations 382 00:19:35,760 --> 00:19:38,560 Speaker 1: that are kind of ridiculous. But are you shorten the 383 00:19:38,560 --> 00:19:41,240 Speaker 1: the SMP as a whole these days? Uh? No. We 384 00:19:41,320 --> 00:19:42,879 Speaker 1: use it as a as a hedge for some of 385 00:19:42,920 --> 00:19:45,880 Speaker 1: our shorts to remove some market data. But um, look, 386 00:19:46,240 --> 00:19:48,600 Speaker 1: you know about a year ago you had quoted my 387 00:19:48,840 --> 00:19:51,080 Speaker 1: comment about we're in the golden era of short selling. 388 00:19:51,119 --> 00:19:54,000 Speaker 1: I mean ever since then, the market has been flat, right, 389 00:19:54,040 --> 00:19:55,879 Speaker 1: I mean over the past twelve months. I mean we 390 00:19:55,920 --> 00:19:58,800 Speaker 1: expect the market to continue to be somewhat you know, 391 00:19:58,960 --> 00:20:01,159 Speaker 1: range bound. You know, the companies we're looking at are 392 00:20:01,200 --> 00:20:04,040 Speaker 1: generally not hitting their targets. I mean we do talk 393 00:20:04,080 --> 00:20:06,879 Speaker 1: to companies, you know, and I know CEOs in different 394 00:20:06,880 --> 00:20:10,080 Speaker 1: industries across the country. I mean everyone's telling me, you know, 395 00:20:10,119 --> 00:20:13,280 Speaker 1: growth is slowing, So I don't expect, you know, even 396 00:20:13,480 --> 00:20:15,480 Speaker 1: if the FED cuts rates, that might give it a 397 00:20:15,480 --> 00:20:17,560 Speaker 1: short termbers, but I don't see that as a cause 398 00:20:17,600 --> 00:20:20,400 Speaker 1: for the market to break out two new highs here 399 00:20:20,640 --> 00:20:23,399 Speaker 1: um In terms of you know, a macro view um 400 00:20:23,480 --> 00:20:25,800 Speaker 1: industry wise, I mean, with our short selling, we do 401 00:20:25,880 --> 00:20:29,240 Speaker 1: look for industries that are slightly under pressure. As I 402 00:20:29,280 --> 00:20:32,760 Speaker 1: mentioned the supermarket industry. It's easier to shorter company in 403 00:20:32,760 --> 00:20:37,000 Speaker 1: an industry going through disruption or structurally declining revenues. That 404 00:20:37,119 --> 00:20:39,560 Speaker 1: it is like you know, shorting the fang stocks, which 405 00:20:39,560 --> 00:20:41,919 Speaker 1: are you know, are growing and it's just it's a 406 00:20:41,920 --> 00:20:44,600 Speaker 1: debate whether are they growing fift or twelve percent? And 407 00:20:44,640 --> 00:20:48,440 Speaker 1: do growth industris really care. So finding industries going through 408 00:20:48,720 --> 00:20:52,520 Speaker 1: cyclical disruption or um just change is a lot easier 409 00:20:52,560 --> 00:20:55,280 Speaker 1: from a macro perspective, Mike yea. And often times it 410 00:20:55,320 --> 00:20:57,560 Speaker 1: seems like in your work you'll find a company that 411 00:20:58,200 --> 00:21:01,760 Speaker 1: people are convinced they have a unique product that's really 412 00:21:01,760 --> 00:21:04,800 Speaker 1: about to be commoditized or taken over. By a competitor 413 00:21:04,840 --> 00:21:06,920 Speaker 1: that that seems to be a pretty common theme. Yeah, 414 00:21:06,960 --> 00:21:08,399 Speaker 1: I know, we've had a lot of success with what 415 00:21:08,440 --> 00:21:11,040 Speaker 1: i'd call one trick ponies. You know this is a company, 416 00:21:11,280 --> 00:21:12,960 Speaker 1: um I think you know in your article we talked 417 00:21:12,960 --> 00:21:16,440 Speaker 1: about caesar Stone. It's like they make courts countertops. They 418 00:21:16,440 --> 00:21:19,119 Speaker 1: were an early mover in that market. But a countertop is, 419 00:21:19,520 --> 00:21:21,679 Speaker 1: let's face it, it's a commodity, right, different you know, 420 00:21:21,720 --> 00:21:24,159 Speaker 1: styles and shades. But over time, you know, as competition 421 00:21:24,200 --> 00:21:27,280 Speaker 1: comes in, margins get competed in, profits go away and 422 00:21:27,359 --> 00:21:29,840 Speaker 1: share price decline. So we do look for, you know, 423 00:21:29,960 --> 00:21:32,879 Speaker 1: companies where we can understand clearly what the product is, 424 00:21:32,920 --> 00:21:34,520 Speaker 1: that that product is going through a cycle, and when 425 00:21:34,560 --> 00:21:36,879 Speaker 1: it's going to be you know, disrupted. All right, Before 426 00:21:36,880 --> 00:21:38,600 Speaker 1: we get to the craziest thing I ever saw in 427 00:21:38,640 --> 00:21:41,200 Speaker 1: markets this week, I've got to hear this story. Seven. 428 00:21:41,400 --> 00:21:45,640 Speaker 1: How did you potentially or actually cause the financial started. 429 00:21:45,680 --> 00:21:47,399 Speaker 1: I'm gonna go out and say it, Sep started the 430 00:21:47,400 --> 00:21:52,280 Speaker 1: financial Christis, don't don't at me at seb on Twitter 431 00:21:52,359 --> 00:21:54,840 Speaker 1: about this? What? First off? I should say it wasn't 432 00:21:54,840 --> 00:21:59,160 Speaker 1: on purpose. He's very sorry. I'm very sorry. I want 433 00:21:59,160 --> 00:22:01,000 Speaker 1: to do it again. Back into a thousand and seven, 434 00:22:01,000 --> 00:22:03,160 Speaker 1: I was the investment banking reporter for Bloomberg in London 435 00:22:03,760 --> 00:22:05,840 Speaker 1: and the subprime crisis and be going on in the US, 436 00:22:06,640 --> 00:22:08,760 Speaker 1: and bare had already got into trouble with some of 437 00:22:08,760 --> 00:22:12,680 Speaker 1: its its hedge funds for investing cdeos, so the topic 438 00:22:12,760 --> 00:22:14,399 Speaker 1: was very much in the news. But I came in 439 00:22:14,440 --> 00:22:16,119 Speaker 1: one morning and there was a press release from BMP 440 00:22:16,160 --> 00:22:19,240 Speaker 1: paraboug which was a bank that I covered, that they 441 00:22:19,280 --> 00:22:21,520 Speaker 1: had had to freeze prices on some of their funds 442 00:22:21,560 --> 00:22:24,160 Speaker 1: because they weren't able to value the assets and the funds. 443 00:22:24,200 --> 00:22:27,280 Speaker 1: They literally they couldn't find anyone who wanted to make 444 00:22:27,280 --> 00:22:29,840 Speaker 1: a price on these asset backed securities and their funds, 445 00:22:30,480 --> 00:22:32,800 Speaker 1: and that meant that they weren't able to value the funds, 446 00:22:32,800 --> 00:22:35,440 Speaker 1: that they were going to stop, they were going to 447 00:22:35,560 --> 00:22:39,200 Speaker 1: freeze the funds, and that created total panic. It was 448 00:22:39,240 --> 00:22:42,399 Speaker 1: the first time that the crisis spread out beyond the US, 449 00:22:42,760 --> 00:22:45,960 Speaker 1: and it was the first time that regulators and people 450 00:22:46,000 --> 00:22:48,399 Speaker 1: in the banking markets realized that this is going to 451 00:22:48,480 --> 00:22:51,080 Speaker 1: be a very serious problem. The market had literally just stopped. 452 00:22:51,200 --> 00:22:54,199 Speaker 1: You couldn't value these things, and unfortunately, what a lot 453 00:22:54,240 --> 00:22:56,720 Speaker 1: of banks were doing back then was using these asset 454 00:22:56,760 --> 00:23:00,240 Speaker 1: back products to finance themselves. So so what particularly sent 455 00:23:00,240 --> 00:23:05,280 Speaker 1: banking model m Gorman, Sacks, Morgan, Stanley, Lehman brothers. They 456 00:23:05,280 --> 00:23:08,159 Speaker 1: were financing themselves in short term markets and using a 457 00:23:08,160 --> 00:23:10,920 Speaker 1: lot of asset back lateral to do that. And if 458 00:23:10,920 --> 00:23:12,760 Speaker 1: you can't you know, no one wants to buy the 459 00:23:12,760 --> 00:23:16,880 Speaker 1: collateral of the collaterals useless. Then it created a huge 460 00:23:16,880 --> 00:23:18,919 Speaker 1: funding problem for the banks. But that was that was 461 00:23:18,960 --> 00:23:21,080 Speaker 1: really the first time on the record someone was saying, 462 00:23:21,119 --> 00:23:23,399 Speaker 1: we simply can't value these things, we don't know the 463 00:23:23,440 --> 00:23:25,879 Speaker 1: price of them. And then that is just a first 464 00:23:25,920 --> 00:23:28,240 Speaker 1: domino in a row of it was. It's the most 465 00:23:28,280 --> 00:23:32,080 Speaker 1: read story I've ever written. Do you remember the exact 466 00:23:32,119 --> 00:23:38,080 Speaker 1: amount it was readers? You still remember, still remember by 467 00:23:38,160 --> 00:23:42,920 Speaker 1: far the biggest story I've ever written. And then later 468 00:23:42,960 --> 00:23:45,560 Speaker 1: that morning when the your eyebal fixing came in, um, 469 00:23:45,960 --> 00:23:49,040 Speaker 1: your eyebol spike, And that was from then on it 470 00:23:49,119 --> 00:23:52,280 Speaker 1: was a year of craziness. A year of craziness to 471 00:23:52,280 --> 00:23:55,600 Speaker 1: a week of craziness. That's the craziest thing sets done 472 00:23:55,640 --> 00:23:58,400 Speaker 1: in a in a decade. But for the week, Sarah, 473 00:23:58,640 --> 00:24:01,600 Speaker 1: have you witnessed any crazy things this week. So something 474 00:24:01,600 --> 00:24:04,120 Speaker 1: that I did think was a bit crazy was if 475 00:24:04,160 --> 00:24:06,439 Speaker 1: you look at h y G, which is a popular 476 00:24:06,520 --> 00:24:09,480 Speaker 1: high yield e t F uh, in the beginning of 477 00:24:09,480 --> 00:24:13,080 Speaker 1: the month, short interest as a percentage shares outstanding this is, 478 00:24:13,080 --> 00:24:17,480 Speaker 1: according to market data, was at thirty seven percent. Now 479 00:24:17,560 --> 00:24:19,600 Speaker 1: that's the highest ever the fund was created in two 480 00:24:19,640 --> 00:24:24,160 Speaker 1: thousand seven. So people getting really serious about getting bearish 481 00:24:24,320 --> 00:24:27,800 Speaker 1: on h y G. Well, clearly those bets didn't pay off. 482 00:24:27,960 --> 00:24:30,400 Speaker 1: It's these are very much used for short term trading, 483 00:24:30,800 --> 00:24:33,320 Speaker 1: and because of that, after the record shorts, we saw 484 00:24:33,440 --> 00:24:35,720 Speaker 1: record inflows ever for the fund as well, just because 485 00:24:35,720 --> 00:24:38,800 Speaker 1: there was so much demand of a potential short squeeze 486 00:24:38,880 --> 00:24:41,560 Speaker 1: that we started to see creations in the e t 487 00:24:41,680 --> 00:24:44,480 Speaker 1: F and it went from record shorts to record inflows 488 00:24:44,520 --> 00:24:46,680 Speaker 1: within a day. Um, it's pretty crazy. Don't say the 489 00:24:46,680 --> 00:24:53,040 Speaker 1: word short squeeze bends now. Feel it's pretty close, but 490 00:24:53,160 --> 00:24:55,720 Speaker 1: bet up probably you don't ever go short something that's 491 00:24:56,760 --> 00:24:59,480 Speaker 1: short interests already out of that only on a short 492 00:24:59,560 --> 00:25:01,760 Speaker 1: term base. This if I have a hard catalyst, Yeah, 493 00:25:01,840 --> 00:25:06,120 Speaker 1: staying short those names a long time is How about you, Ben, 494 00:25:06,119 --> 00:25:09,320 Speaker 1: Have you seen any crazy crazy market events this week? Yeah? 495 00:25:09,359 --> 00:25:11,159 Speaker 1: So I mean we started off the week with the 496 00:25:11,440 --> 00:25:15,160 Speaker 1: big M and A headline United Technologies and Raytheon. UM. 497 00:25:15,280 --> 00:25:17,159 Speaker 1: You know we've been following I've been following the areospace 498 00:25:17,240 --> 00:25:19,800 Speaker 1: and defense industry for a long time. To me, it's 499 00:25:19,800 --> 00:25:23,120 Speaker 1: sort of marks possibly a peak in that industry. Why. 500 00:25:23,280 --> 00:25:25,919 Speaker 1: I mean, it was a stock for stock deal. Nobody 501 00:25:25,960 --> 00:25:29,080 Speaker 1: was pulling up any cash, you know, if you read 502 00:25:29,119 --> 00:25:32,040 Speaker 1: between the lines. To me, it seemed more motivated by 503 00:25:32,160 --> 00:25:36,640 Speaker 1: optimizing cost structures UM, which is generally a bad thing 504 00:25:36,760 --> 00:25:40,000 Speaker 1: for suppliers in the aerospace and defense chain. UM. So 505 00:25:40,080 --> 00:25:43,040 Speaker 1: the craziest thing that happened out of this UM. You know, 506 00:25:43,080 --> 00:25:45,639 Speaker 1: I've had some success in the past shorting you know, 507 00:25:45,920 --> 00:25:49,200 Speaker 1: M and A rumors and headlines. UM. There was a 508 00:25:49,280 --> 00:25:53,440 Speaker 1: headline out by c. L King, regional broker you've probably 509 00:25:53,440 --> 00:25:55,639 Speaker 1: never heard of, saying that aero Jet Rocket Dine is 510 00:25:55,680 --> 00:25:58,879 Speaker 1: a takeover target. UM. The stock trading about forty but 511 00:25:59,000 --> 00:26:02,439 Speaker 1: now given that Etheon was as big as Customer was subsumed, 512 00:26:02,920 --> 00:26:05,800 Speaker 1: now it's worth sixty dollars and the takeout scenario. UM. 513 00:26:05,840 --> 00:26:07,600 Speaker 1: I've been following this company for a while. Used to 514 00:26:07,600 --> 00:26:09,639 Speaker 1: be gen Corp. UM. This was a real dog of 515 00:26:09,640 --> 00:26:12,200 Speaker 1: a stock at three dollars, now it's at forty. It's 516 00:26:12,200 --> 00:26:14,399 Speaker 1: been riding the wave in the sector, but now some 517 00:26:14,480 --> 00:26:17,760 Speaker 1: broker thinks it's we're sixty because it's customer just got taken. 518 00:26:18,880 --> 00:26:22,560 Speaker 1: So that was a head scratcher. And then on Wednesday, 519 00:26:22,760 --> 00:26:25,159 Speaker 1: another dog of the aerospace industry I followed for a 520 00:26:25,160 --> 00:26:28,200 Speaker 1: while called kratos Um was a two dollar stock and 521 00:26:28,280 --> 00:26:30,200 Speaker 1: number of years ago is now is at twenty. Now 522 00:26:30,240 --> 00:26:34,239 Speaker 1: there are headlines that it too might be a takeover target. So, 523 00:26:34,359 --> 00:26:36,359 Speaker 1: you know, M and A and an industry stokes a 524 00:26:36,400 --> 00:26:39,320 Speaker 1: lot of irrational optimism that even some of the lower 525 00:26:39,400 --> 00:26:42,320 Speaker 1: quality stocks in an industry are now takeover targets, so 526 00:26:42,400 --> 00:26:45,679 Speaker 1: investors be cautioned. That reminds me of when I started 527 00:26:45,680 --> 00:26:47,920 Speaker 1: here in Bloomberg in two thousand seven doing that main 528 00:26:48,160 --> 00:26:50,800 Speaker 1: stock market story every day, I don't know, every day. 529 00:26:50,800 --> 00:26:52,959 Speaker 1: It was like I could make a template and just 530 00:26:53,040 --> 00:26:56,280 Speaker 1: hit you know, stocks rose on takeover speculation in every 531 00:26:57,000 --> 00:27:01,240 Speaker 1: So yeah, that's very reminiscent. So have you witnessed any 532 00:27:01,240 --> 00:27:03,800 Speaker 1: crazy things this week? Well, I'm not sure you'd called 533 00:27:03,800 --> 00:27:06,080 Speaker 1: it crazy, but as an example of where the markets 534 00:27:06,119 --> 00:27:11,199 Speaker 1: are right now. On Thursday, we had Iceland, Ukraine and 535 00:27:11,320 --> 00:27:16,760 Speaker 1: Peru or boring. Um brews a pretty solid emerging market sovereign, 536 00:27:16,840 --> 00:27:18,960 Speaker 1: but it was boring at ninety basis points. I have 537 00:27:19,000 --> 00:27:21,639 Speaker 1: a treasury, so you've got a Latin American country paying 538 00:27:21,680 --> 00:27:24,160 Speaker 1: just over three percent to borrow. That's a really good 539 00:27:24,160 --> 00:27:27,159 Speaker 1: example of why investors are so desperate for yields and 540 00:27:27,160 --> 00:27:29,119 Speaker 1: why there's so much appetite for for some of these 541 00:27:29,200 --> 00:27:32,560 Speaker 1: riskier products. And Iceland, of course one of the big 542 00:27:32,640 --> 00:27:35,280 Speaker 1: victims of the financial crisis. And Ukraine, which the faulted 543 00:27:35,280 --> 00:27:36,760 Speaker 1: a couple of years ago, is one of the biggest 544 00:27:37,240 --> 00:27:40,359 Speaker 1: recent sovereign defaults. It's got a conflict in the eastern 545 00:27:40,400 --> 00:27:43,199 Speaker 1: part of the country. Fairly regular Well, they've had two 546 00:27:43,240 --> 00:27:46,479 Speaker 1: revolutions in the last couple of decades. Um and borrowing 547 00:27:46,520 --> 00:27:49,880 Speaker 1: and under seven percent. Is that the lowest spread they've 548 00:27:49,880 --> 00:27:52,760 Speaker 1: had in a in a while, I would say, yeah, 549 00:27:52,840 --> 00:27:55,639 Speaker 1: that would be the lowes spread they've had ever. Well, ironically, 550 00:27:55,720 --> 00:27:58,520 Speaker 1: my crazy thing is Ukraine based too. Have you guys 551 00:27:58,520 --> 00:28:02,960 Speaker 1: been watching the Chernobyl series at all on HBO? No? No, 552 00:28:03,000 --> 00:28:05,960 Speaker 1: I'm guessing we're all we all are looking at each other. 553 00:28:06,040 --> 00:28:10,920 Speaker 1: I guess you've heard about right, so there's a lot 554 00:28:10,920 --> 00:28:13,680 Speaker 1: of buzz about it. It's got people worried about nuclear 555 00:28:13,760 --> 00:28:16,800 Speaker 1: energy all of a sudden again. And it reminded me 556 00:28:16,840 --> 00:28:19,040 Speaker 1: of one of the craziest things on the Bloomberg Terminal. 557 00:28:19,080 --> 00:28:24,520 Speaker 1: Really in markets anywhere is you can trade futures contracts 558 00:28:24,600 --> 00:28:28,400 Speaker 1: of yellow cake, of of uranium. It's it's it's traded 559 00:28:28,440 --> 00:28:30,840 Speaker 1: on the Nimax. But I don't know if you'd ever 560 00:28:30,840 --> 00:28:33,480 Speaker 1: want to take delivery one of those futures. You call 561 00:28:33,520 --> 00:28:36,640 Speaker 1: your broker and warn them to uh has a high 562 00:28:36,640 --> 00:28:40,720 Speaker 1: cost of carter. So I was wondered, well, what's happened 563 00:28:40,760 --> 00:28:44,960 Speaker 1: to you uranium prices during this Chernobyl frenzy. You know, 564 00:28:45,000 --> 00:28:47,120 Speaker 1: you think people are getting worried about nuclear energy, maybe 565 00:28:47,240 --> 00:28:49,520 Speaker 1: uranium prices are getting affected. Now they're up three percent, 566 00:28:49,640 --> 00:28:52,959 Speaker 1: so so uranium they had a pretty nasty fall though 567 00:28:52,960 --> 00:28:56,600 Speaker 1: about um so I'm gonna I'm gonna try to take 568 00:28:56,640 --> 00:29:01,360 Speaker 1: some delivery of of uranium two fifty pound a lot. Yeah, 569 00:29:01,360 --> 00:29:04,640 Speaker 1: that the cost of story is going to be than 570 00:29:04,640 --> 00:29:11,560 Speaker 1: the actual commodity by the gear. But with that said, 571 00:29:11,880 --> 00:29:14,960 Speaker 1: Ben Axler, Sebastian Boyd, thanks so much for joining us today. 572 00:29:14,960 --> 00:29:23,200 Speaker 1: I appreciate it. Thanks for having me, Thank you What 573 00:29:23,360 --> 00:29:26,400 Speaker 1: Goes Up. We'll be back next week. Until then, you 574 00:29:26,440 --> 00:29:29,280 Speaker 1: can find us on the Bloomberg Terminal website and app, 575 00:29:29,560 --> 00:29:32,720 Speaker 1: or wherever you get your podcasts. We'd love it if 576 00:29:32,720 --> 00:29:34,760 Speaker 1: you took the time to rate interview the show on 577 00:29:34,800 --> 00:29:38,360 Speaker 1: Apple Podcasts so more listeners can find us, and you 578 00:29:38,360 --> 00:29:41,760 Speaker 1: can find us on Twitter. Follow me at at Sarah Pontech, 579 00:29:42,200 --> 00:29:45,760 Speaker 1: Mike is at Rea Anonymous, Our guest Ben Axler is 580 00:29:45,840 --> 00:29:49,960 Speaker 1: at Spruce Point Cap and Sebastian Boyd is at s 581 00:29:50,000 --> 00:29:53,600 Speaker 1: E b A. Boyd. You can also follow Bloomberg Podcasts 582 00:29:53,720 --> 00:29:57,560 Speaker 1: at podcasts. What Goes Up is produced by Tofur Foreheads. 583 00:29:57,600 --> 00:30:01,000 Speaker 1: The head of Bloomberg podcast is Francesco Levi. Thanks for listening, 584 00:30:01,120 --> 00:30:01,960 Speaker 1: See you next time.