1 00:00:09,280 --> 00:00:13,160 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:13,200 --> 00:00:17,280 Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, obviously, 3 00:00:17,880 --> 00:00:21,360 Speaker 1: numerous assets across, you know, across the market have been crushed. 4 00:00:21,720 --> 00:00:24,040 Speaker 1: But you know, one of the things, you know, math 5 00:00:24,239 --> 00:00:28,920 Speaker 1: says that something could go down and it actually could 6 00:00:28,920 --> 00:00:31,240 Speaker 1: go down another and it could go down another could 7 00:00:31,280 --> 00:00:34,000 Speaker 1: go down from there. So there is this question of like, well, 8 00:00:34,080 --> 00:00:37,000 Speaker 1: are is there real value at some point that's going 9 00:00:37,040 --> 00:00:39,880 Speaker 1: to emerge out of this rubble or is it really 10 00:00:39,920 --> 00:00:42,960 Speaker 1: just a lot of trash that's going to zero. Yeah. 11 00:00:43,159 --> 00:00:45,840 Speaker 1: The thing that kind of worries me when it comes 12 00:00:45,840 --> 00:00:48,760 Speaker 1: to valuations is, you know, people talk a lot about 13 00:00:48,800 --> 00:00:53,360 Speaker 1: the ponds and omics of things like cryptocurrencies, but then 14 00:00:53,880 --> 00:00:56,240 Speaker 1: or just the idea that the only value they get 15 00:00:56,320 --> 00:01:00,360 Speaker 1: is by money continuously about flowing into them. But then 16 00:01:00,440 --> 00:01:03,200 Speaker 1: I kind of I worry that you could make that 17 00:01:03,280 --> 00:01:05,600 Speaker 1: case for a lot of traditional assets as well, stocks 18 00:01:05,600 --> 00:01:08,520 Speaker 1: and bonds. Right, So, we've just seen valuations go up 19 00:01:08,560 --> 00:01:11,520 Speaker 1: and up and up seemingly without limit, which kind of 20 00:01:11,520 --> 00:01:14,959 Speaker 1: means that on the downside, maybe they can go go 21 00:01:15,120 --> 00:01:17,640 Speaker 1: much further than you would normally think. Well, and I 22 00:01:17,640 --> 00:01:21,520 Speaker 1: guess the question too is you know, like cryptocuragies aren't 23 00:01:21,800 --> 00:01:24,640 Speaker 1: bolstered by like well free cash flows or like some 24 00:01:25,040 --> 00:01:27,240 Speaker 1: cash of the bank that eventually makes it vailable. But 25 00:01:27,600 --> 00:01:31,000 Speaker 1: in a company, you know, the question is do the 26 00:01:31,120 --> 00:01:34,240 Speaker 1: unit economics works? Is there an actual business model? So 27 00:01:34,280 --> 00:01:36,360 Speaker 1: you can have money losing companies that might still be 28 00:01:36,360 --> 00:01:39,000 Speaker 1: worth something because there's like a business model there to 29 00:01:39,080 --> 00:01:41,720 Speaker 1: be salvaged. But if you get a lot of companies 30 00:01:41,760 --> 00:01:45,120 Speaker 1: that really in no economic conditions, whether it's boom Times 31 00:01:45,200 --> 00:01:48,320 Speaker 1: or bus have something that is actually a business model 32 00:01:48,360 --> 00:01:51,080 Speaker 1: that could be turned into something that can generate cash flow, 33 00:01:51,640 --> 00:01:53,720 Speaker 1: then right, you can get into the situation which the 34 00:01:53,720 --> 00:01:56,040 Speaker 1: only reason they were going up is because of investor money, 35 00:01:56,240 --> 00:02:00,720 Speaker 1: and when that's gone, perhaps the assets over the zero Yeah, exactly, 36 00:02:00,760 --> 00:02:02,720 Speaker 1: And it just feels like there's so much uncertainty at 37 00:02:02,720 --> 00:02:04,720 Speaker 1: the moment. And of course the big wild card is 38 00:02:04,800 --> 00:02:07,400 Speaker 1: the backdrop of inflation, which we haven't really had to 39 00:02:07,440 --> 00:02:11,000 Speaker 1: deal with before. Right, normally things started going a little 40 00:02:11,040 --> 00:02:13,959 Speaker 1: bit weaker in terms of the economy, we would expect 41 00:02:13,960 --> 00:02:16,640 Speaker 1: the central bank to step in and do something, you know, 42 00:02:16,720 --> 00:02:20,160 Speaker 1: provide some support and that would lift valuations up. Once again, 43 00:02:20,639 --> 00:02:22,639 Speaker 1: that doesn't seem like it's going to happen this time. 44 00:02:23,040 --> 00:02:25,720 Speaker 1: It's a very new dynamic and it wasn't even in place, 45 00:02:25,760 --> 00:02:27,480 Speaker 1: you know, obviously in two thousand and eight, two thousand 46 00:02:27,480 --> 00:02:31,160 Speaker 1: and nine, when there was aggressive response to the downturns. Anyway, 47 00:02:31,840 --> 00:02:34,280 Speaker 1: enough of our talking, because I'm really excited about our guests, 48 00:02:34,280 --> 00:02:36,320 Speaker 1: someone who knows a lot about the state of the 49 00:02:36,320 --> 00:02:40,800 Speaker 1: world valuations, whether whether the assets are cheap or whether 50 00:02:40,880 --> 00:02:43,760 Speaker 1: it's just more pontonomics all the way down. We are 51 00:02:43,800 --> 00:02:46,280 Speaker 1: going to be speaking with Jim Chainos. He is the 52 00:02:46,360 --> 00:02:49,680 Speaker 1: co founder of Chainos and Company, which used to be 53 00:02:49,720 --> 00:02:52,560 Speaker 1: called Kinkos. He's probably one of was famous hedge funders 54 00:02:52,919 --> 00:02:57,120 Speaker 1: slash short sellers in the world on Wall Street. Really 55 00:02:57,160 --> 00:03:00,200 Speaker 1: needs no introduction, so let's bring him straight in. So 56 00:03:00,280 --> 00:03:03,240 Speaker 1: we just did one you. Thank you so much for 57 00:03:03,280 --> 00:03:05,000 Speaker 1: coming on on Lots. I don't think we've ever had 58 00:03:05,120 --> 00:03:07,280 Speaker 1: you before, so this is a real thrill to have 59 00:03:07,320 --> 00:03:10,760 Speaker 1: you on. Hey, thanks for having me guys. But I 60 00:03:10,800 --> 00:03:13,480 Speaker 1: would say that, you know, being a famous hedge funder 61 00:03:13,680 --> 00:03:15,680 Speaker 1: or or even work short seller is a pretty low 62 00:03:15,680 --> 00:03:19,600 Speaker 1: bar these days. Well, so you said something that has 63 00:03:19,680 --> 00:03:22,160 Speaker 1: really stuck with me. For the last two years. And 64 00:03:22,200 --> 00:03:24,200 Speaker 1: I want to start the conversation here. You know, it 65 00:03:24,320 --> 00:03:29,960 Speaker 1: is summer, and the stock market, after plunging in March, 66 00:03:30,000 --> 00:03:32,320 Speaker 1: had started surging, and people really going into a lot 67 00:03:32,360 --> 00:03:34,680 Speaker 1: of these like sort of like internet companies and like 68 00:03:35,200 --> 00:03:38,920 Speaker 1: ubers and grub hubs and all of these, uh, you 69 00:03:38,920 --> 00:03:41,920 Speaker 1: know tech companies that recently I pod and you said 70 00:03:41,960 --> 00:03:45,680 Speaker 1: something interesting. You're like, if they're not making money now? Uh? 71 00:03:45,720 --> 00:03:47,240 Speaker 1: And I don't remember your exactly right, but you said, 72 00:03:47,240 --> 00:03:49,400 Speaker 1: if they're not making any money now when all of 73 00:03:49,480 --> 00:03:51,840 Speaker 1: us so many people are stuck home, ordering online and 74 00:03:51,880 --> 00:03:55,200 Speaker 1: so forth, they're not making any money now, when are 75 00:03:55,240 --> 00:03:57,560 Speaker 1: they ever going to make money if not in the 76 00:03:57,640 --> 00:04:03,360 Speaker 1: beautiful perfect economic condition of everyone in uh, in summer 77 00:04:04,360 --> 00:04:07,000 Speaker 1: order buying so much online? Is that still the case? Like, 78 00:04:07,040 --> 00:04:09,560 Speaker 1: have any of these companies made any progress to having 79 00:04:09,560 --> 00:04:12,760 Speaker 1: a business model? So the companies we were talking about 80 00:04:12,760 --> 00:04:17,520 Speaker 1: were some of the gig economy at Darlings and and 81 00:04:17,760 --> 00:04:22,040 Speaker 1: continue to be so ine And you know, we we 82 00:04:22,520 --> 00:04:25,039 Speaker 1: like to drill down not only in the financials of 83 00:04:25,120 --> 00:04:28,719 Speaker 1: the business, but also the business models and and to 84 00:04:28,760 --> 00:04:33,080 Speaker 1: see if they make sense. And what became pretty apparent 85 00:04:33,120 --> 00:04:35,080 Speaker 1: to us in a number of them, particularly some of 86 00:04:35,360 --> 00:04:38,040 Speaker 1: the well known companies like Uber and Lyft and door 87 00:04:38,120 --> 00:04:42,320 Speaker 1: Dash which came public later. H is that the unit 88 00:04:42,440 --> 00:04:46,600 Speaker 1: economics were terrible, and and not only that they were 89 00:04:46,680 --> 00:04:49,600 Speaker 1: terrible at a time when they should have been nirvana. 90 00:04:49,839 --> 00:04:52,560 Speaker 1: As you point out that the for example, food delivery, 91 00:04:52,600 --> 00:04:55,520 Speaker 1: when everybody was getting checks from the government and stuck 92 00:04:55,560 --> 00:04:58,360 Speaker 1: at home UM and and restaurants were going out of 93 00:04:58,360 --> 00:05:01,680 Speaker 1: their way to make delivery you know, acceptable and easy, 94 00:05:02,000 --> 00:05:05,360 Speaker 1: and yet the food delivery companies still couldn't make money 95 00:05:05,839 --> 00:05:08,440 Speaker 1: because there were just too many people with outstretched hands 96 00:05:08,520 --> 00:05:12,320 Speaker 1: earning fees. And so you know, it got it got 97 00:05:12,360 --> 00:05:15,640 Speaker 1: to the point where narratives, by one the first first 98 00:05:15,760 --> 00:05:18,599 Speaker 1: quarter of one, which was sort of the peak of 99 00:05:18,640 --> 00:05:23,440 Speaker 1: the craziness, narratives trumped everything. And if you had a 100 00:05:23,480 --> 00:05:27,200 Speaker 1: story and you could spin it about about uh, you know, 101 00:05:27,360 --> 00:05:31,719 Speaker 1: future size of market and profitability by twenty you could 102 00:05:31,880 --> 00:05:36,080 Speaker 1: go public, uh you know, do us back uh. And 103 00:05:36,080 --> 00:05:40,320 Speaker 1: And unlike the dot com era UM, where those kinds 104 00:05:40,360 --> 00:05:44,920 Speaker 1: of sort of pine in the sky UH stories had 105 00:05:45,120 --> 00:05:49,280 Speaker 1: you know, two, three, four, sometimes five billion dollar valuations UM. 106 00:05:49,720 --> 00:05:55,120 Speaker 1: In this case, they had sometimes even eighty billion dollar valuations. 107 00:05:55,880 --> 00:05:57,640 Speaker 1: And and that's why we sort of called it the 108 00:05:57,680 --> 00:06:01,400 Speaker 1: dot com era on steroids, because we're setting aside the 109 00:06:01,400 --> 00:06:06,640 Speaker 1: profitable companies, you know, the sort of legitimate Silicon Valley companies. 110 00:06:06,680 --> 00:06:08,839 Speaker 1: I'm talking about the stuff at the end of the 111 00:06:08,880 --> 00:06:12,920 Speaker 1: whip um and and you know, that's what was sort 112 00:06:12,920 --> 00:06:16,520 Speaker 1: of shocking to us, was just how big people were 113 00:06:16,600 --> 00:06:20,279 Speaker 1: paying for the you know, in effect, the option value 114 00:06:20,680 --> 00:06:24,080 Speaker 1: that the business would be worth something, you know, possibly someday, 115 00:06:24,520 --> 00:06:28,800 Speaker 1: even though the business model was certainly unproven in one 116 00:06:29,400 --> 00:06:32,640 Speaker 1: and and that that's to us probably the most striking 117 00:06:32,720 --> 00:06:36,120 Speaker 1: part of what happened um in the markets and Silicon 118 00:06:36,240 --> 00:06:39,680 Speaker 1: Valley versus a twenty years ago. So one of the 119 00:06:39,720 --> 00:06:42,640 Speaker 1: things about being a short seller is that it can 120 00:06:42,680 --> 00:06:47,680 Speaker 1: also it can often be a fraught emotional experience for many, 121 00:06:47,720 --> 00:06:51,760 Speaker 1: many months and even years, until you're sort of proven 122 00:06:51,880 --> 00:06:55,719 Speaker 1: right or the market turns your way. So I'm curious, 123 00:06:55,760 --> 00:06:58,679 Speaker 1: what if the past few years been like for you, 124 00:06:58,680 --> 00:07:01,960 Speaker 1: you know, watching some of these companies that you know 125 00:07:02,080 --> 00:07:06,719 Speaker 1: aren't um generating earning, some of them aren't even cashlow positive, 126 00:07:07,000 --> 00:07:09,080 Speaker 1: and seeing them attract loads and loads of money, And 127 00:07:09,120 --> 00:07:11,840 Speaker 1: then how are you feeling right now? Because it does 128 00:07:11,920 --> 00:07:14,720 Speaker 1: seem like some of the errors getting kicked out of 129 00:07:14,800 --> 00:07:18,560 Speaker 1: the valuation tires of of these companies that you have 130 00:07:18,760 --> 00:07:27,400 Speaker 1: long been been criticizing or targeting. Yeah, so really what happened, Uh, 131 00:07:27,440 --> 00:07:29,760 Speaker 1: the sort of right of the valkyries of the short 132 00:07:29,840 --> 00:07:33,160 Speaker 1: side was was sort of kicked off. And when Powell 133 00:07:33,640 --> 00:07:38,960 Speaker 1: reversed course at Christmas. Uh you remember, you know, the 134 00:07:39,000 --> 00:07:43,040 Speaker 1: markets had gone down almost and high yield was ticking up, 135 00:07:43,080 --> 00:07:48,280 Speaker 1: and and they were tightening gradually and completely reversed course. UM. 136 00:07:48,760 --> 00:07:51,600 Speaker 1: And by the way, the real GDP was roughly two 137 00:07:51,640 --> 00:07:54,040 Speaker 1: percent in the fourth quarter of eighteen and two percent 138 00:07:54,080 --> 00:07:56,200 Speaker 1: in the first quarter of nineteen. There was there was 139 00:07:56,240 --> 00:08:00,480 Speaker 1: nothing going wrong with the economy, but he blinked and 140 00:08:00,480 --> 00:08:05,560 Speaker 1: and that that turbo charged the markets in UM and 141 00:08:05,600 --> 00:08:09,440 Speaker 1: then with the pandemic UM, you saw just the unprecedented 142 00:08:09,440 --> 00:08:13,080 Speaker 1: both monetary and fiscal support. And and also I would 143 00:08:13,080 --> 00:08:16,120 Speaker 1: point out in the fall of ten, when we saw 144 00:08:16,160 --> 00:08:20,960 Speaker 1: a widespread reduction in retail commissions. If you remember, everybody 145 00:08:20,960 --> 00:08:23,360 Speaker 1: went to zero commissions, and you had the advent of 146 00:08:23,440 --> 00:08:27,240 Speaker 1: robin Hood and UM and a Merrittrade and Schwab all 147 00:08:27,440 --> 00:08:30,280 Speaker 1: all advertising. And that's when we saw retail begin to 148 00:08:30,320 --> 00:08:32,920 Speaker 1: pour into the market. Prior to that, for the ten 149 00:08:33,000 --> 00:08:36,319 Speaker 1: years of the bull market from two thousand nine to nineteen, 150 00:08:36,800 --> 00:08:39,640 Speaker 1: retail was basically buying you know, index funds and and 151 00:08:39,720 --> 00:08:44,920 Speaker 1: ets and and basically you know, sort of investing reasonably. 152 00:08:45,440 --> 00:08:49,000 Speaker 1: But starting in the fall of twenty nineteen, everybody decided 153 00:08:49,040 --> 00:08:51,439 Speaker 1: to pick stocks and buy options, and you can see 154 00:08:51,440 --> 00:08:54,000 Speaker 1: it in the price chart of State Tesla or whatever. 155 00:08:54,320 --> 00:08:57,560 Speaker 1: The high flyers really began to go in October of nineteen, 156 00:08:58,440 --> 00:09:01,080 Speaker 1: and uh, you know, they took a speed bump in 157 00:09:01,240 --> 00:09:04,280 Speaker 1: March of with the pandemic, but but as soon as 158 00:09:04,360 --> 00:09:07,280 Speaker 1: the Fed opened the spigots, it was back to the races. 159 00:09:07,720 --> 00:09:10,000 Speaker 1: And it really went on until sort of the first 160 00:09:10,080 --> 00:09:14,720 Speaker 1: quarter of one, which was a period unlike anything you know, 161 00:09:15,360 --> 00:09:17,240 Speaker 1: I've seen in my forty years of being on the 162 00:09:17,280 --> 00:09:21,040 Speaker 1: short side. It was it was the meme stocks, um 163 00:09:21,080 --> 00:09:23,680 Speaker 1: But what it was really striking to me was the 164 00:09:23,760 --> 00:09:28,240 Speaker 1: fact by February of one, for a couple of week periods, 165 00:09:28,280 --> 00:09:31,560 Speaker 1: SPACs were raising new SPACs were raising on average three 166 00:09:31,600 --> 00:09:35,400 Speaker 1: billion in cash every night, and and that was equal 167 00:09:35,440 --> 00:09:39,120 Speaker 1: to the U S savings rate UM. So so for 168 00:09:39,160 --> 00:09:41,640 Speaker 1: a brief period time spacts were taking the entire U 169 00:09:41,679 --> 00:09:44,400 Speaker 1: S savings rate, which just struck me as the height 170 00:09:44,440 --> 00:09:49,160 Speaker 1: of absurdity. Um and and and so you know, most 171 00:09:49,160 --> 00:09:51,559 Speaker 1: stocks peeked out in that first quarter, first half of 172 00:09:52,280 --> 00:09:56,960 Speaker 1: one and and you know, our performance uh hit its 173 00:09:57,000 --> 00:10:00,720 Speaker 1: bottom there and uh and and really began kind of 174 00:10:00,760 --> 00:10:03,840 Speaker 1: climbing in the summer of one. Even though the market 175 00:10:03,840 --> 00:10:06,240 Speaker 1: made a new high in the fall, um a lot 176 00:10:06,280 --> 00:10:09,360 Speaker 1: of stocks began to falter um And then we saw 177 00:10:10,280 --> 00:10:13,000 Speaker 1: in our portfolio, and I think overall, we we began 178 00:10:13,040 --> 00:10:16,480 Speaker 1: to see disasters, things like Peloton and robin Hood at 179 00:10:16,480 --> 00:10:19,760 Speaker 1: the DraftKings and and you know, stocks that were suddenly 180 00:10:20,600 --> 00:10:26,800 Speaker 1: darlings were suddenly down fifties six um on perceived you know, 181 00:10:26,920 --> 00:10:30,480 Speaker 1: bad news. And and that was before that was you know, 182 00:10:30,520 --> 00:10:33,760 Speaker 1: as the market was peaking in October November. So some 183 00:10:33,840 --> 00:10:37,040 Speaker 1: of these gig economy companies that you mentioned in the beginning, 184 00:10:37,520 --> 00:10:41,240 Speaker 1: their unit economics, they just didn't work too many fees 185 00:10:41,360 --> 00:10:43,800 Speaker 1: even under the best conditions. You know, some of those 186 00:10:43,880 --> 00:10:48,080 Speaker 1: names you just mentioned, like a Robin Hood, Pelotona Center, Like, 187 00:10:48,160 --> 00:10:52,200 Speaker 1: how do you think about any value for them now? 188 00:10:52,240 --> 00:10:55,160 Speaker 1: Because it doesn't seem like in theory that it should 189 00:10:55,160 --> 00:10:58,800 Speaker 1: be impossible for robin Hood, and I guess they're un 190 00:10:58,840 --> 00:11:01,520 Speaker 1: charged fees, so maybe maybe that is tough. It doesn't 191 00:11:01,520 --> 00:11:03,640 Speaker 1: seem like it should be impossible for those to be 192 00:11:04,080 --> 00:11:07,959 Speaker 1: viable businesses. Like at what point, I guess, Like, how 193 00:11:07,960 --> 00:11:11,320 Speaker 1: do you think about how far this could go? Well? 194 00:11:11,360 --> 00:11:14,680 Speaker 1: I mean, like anything, we we look at you know, 195 00:11:14,720 --> 00:11:17,120 Speaker 1: we look at what is our upside and downside and 196 00:11:17,200 --> 00:11:22,400 Speaker 1: try to structure our trades accordingly. UM. But but you know, 197 00:11:22,559 --> 00:11:27,000 Speaker 1: for for a money losing, money losing financial generally trade 198 00:11:27,080 --> 00:11:29,760 Speaker 1: slightly below tangible book value. I mean that's where the 199 00:11:29,840 --> 00:11:32,360 Speaker 1: Chinese banks trade, is where the European banks trade, who 200 00:11:32,360 --> 00:11:35,880 Speaker 1: are profitable. UM. But people don't trust the numbers and 201 00:11:35,920 --> 00:11:40,400 Speaker 1: trust the model long term. So I would say that that, 202 00:11:40,520 --> 00:11:44,160 Speaker 1: you know, some of the money losing brokers like coin 203 00:11:44,200 --> 00:11:47,640 Speaker 1: base or robin Hood, or some of the fintech companies, 204 00:11:47,640 --> 00:11:53,720 Speaker 1: which was another absurdity UH voisted on the market in UM, 205 00:11:53,800 --> 00:11:55,840 Speaker 1: you know, those stocks are going to probably trade below 206 00:11:55,880 --> 00:11:58,600 Speaker 1: book value, slightly below book value, and for some of 207 00:11:58,600 --> 00:12:02,480 Speaker 1: these companies that's a long way down. Do you think 208 00:12:02,559 --> 00:12:07,520 Speaker 1: something changed in terms of fundamental investor behavior that allowed 209 00:12:07,640 --> 00:12:13,000 Speaker 1: us to get to the one point or is this 210 00:12:13,160 --> 00:12:16,040 Speaker 1: just what we've seen before, I mean, most notably with 211 00:12:16,240 --> 00:12:19,600 Speaker 1: the tech bubble, like we can have instances where valuations 212 00:12:19,640 --> 00:12:24,120 Speaker 1: go absolutely crazy or did something actually happen that makes 213 00:12:24,440 --> 00:12:29,000 Speaker 1: this period unique in some way? I think there's a tracy. 214 00:12:29,040 --> 00:12:31,840 Speaker 1: I think there's a confluence of events. And if you 215 00:12:31,920 --> 00:12:36,480 Speaker 1: remember that in the tech bubble, it was primarily tech, right, Uh, 216 00:12:36,600 --> 00:12:38,840 Speaker 1: there were a lot of value stocks that actually held 217 00:12:38,880 --> 00:12:41,640 Speaker 1: up pretty well in the in the in the ensuing 218 00:12:41,679 --> 00:12:44,120 Speaker 1: bear market, to where a lot of hedge funds made 219 00:12:44,120 --> 00:12:47,080 Speaker 1: their reputation, for example being short the garbage and long 220 00:12:47,200 --> 00:12:52,679 Speaker 1: value in in and and and so you have this 221 00:12:52,800 --> 00:12:56,840 Speaker 1: one pocket of insanity based on a narrative. Um, the 222 00:12:56,880 --> 00:12:59,800 Speaker 1: Internet and and everything else was kind of you know, 223 00:13:00,000 --> 00:13:03,480 Speaker 1: reasonably priced given where rates were in the economy. And 224 00:13:03,520 --> 00:13:05,800 Speaker 1: remember the recession that we had in O one oh 225 00:13:05,800 --> 00:13:09,120 Speaker 1: two was pretty mild. It was a business driven a 226 00:13:09,160 --> 00:13:13,079 Speaker 1: recession didn't really affect the consumer at all. Um, And 227 00:13:13,160 --> 00:13:17,520 Speaker 1: so this go around, it's almost everything and that's what's 228 00:13:17,520 --> 00:13:20,840 Speaker 1: so that's what's so interesting. Um, you know, it was 229 00:13:20,880 --> 00:13:25,080 Speaker 1: not only technology, but think about things like cap rates 230 00:13:25,080 --> 00:13:28,120 Speaker 1: in real estate, you know, down at three and four 231 00:13:28,240 --> 00:13:31,880 Speaker 1: percent and and and crypto and n f T s 232 00:13:32,360 --> 00:13:34,840 Speaker 1: and and and just a wide variety. I mean, I 233 00:13:34,880 --> 00:13:37,760 Speaker 1: still have lots of shorts in my portfolio where the 234 00:13:37,800 --> 00:13:41,600 Speaker 1: companies are barely profitable and they're trading at at you know, 235 00:13:41,760 --> 00:13:44,319 Speaker 1: thirty times cash flow and forty times cash flow is 236 00:13:44,400 --> 00:13:49,359 Speaker 1: still even after the decline. And I think that that, um, 237 00:13:49,400 --> 00:13:52,160 Speaker 1: the one thing that that people are not prepared for 238 00:13:52,720 --> 00:13:58,080 Speaker 1: is interest rates resetting meaningfully higher because they just haven't. 239 00:13:58,120 --> 00:14:01,440 Speaker 1: It hasn't happened in most invest there's lifetime. I came 240 00:14:01,440 --> 00:14:04,440 Speaker 1: on the street in nineteen just as rates were peaking, 241 00:14:05,080 --> 00:14:09,040 Speaker 1: and and and so the idea that that actually interest 242 00:14:09,120 --> 00:14:10,920 Speaker 1: rates are not going to be two or three percent 243 00:14:11,480 --> 00:14:15,679 Speaker 1: for the foreseeable future is going to be hard for 244 00:14:15,720 --> 00:14:18,679 Speaker 1: a lot of investors to to to deal with. If 245 00:14:18,720 --> 00:14:21,120 Speaker 1: we go back to you know, what I would think 246 00:14:21,120 --> 00:14:25,160 Speaker 1: would be more reasonable rates, um, based on what we're 247 00:14:25,160 --> 00:14:28,360 Speaker 1: seeing in the economy and inflation whatever. This market will 248 00:14:28,400 --> 00:14:30,880 Speaker 1: not be able to handle five or six percent ten year. 249 00:14:31,080 --> 00:14:34,760 Speaker 1: I mean just won't. And and so so many business 250 00:14:34,760 --> 00:14:38,800 Speaker 1: models are that we look at are just extremely low 251 00:14:38,840 --> 00:14:42,040 Speaker 1: return on invested capital because capital has been so plentiful 252 00:14:42,080 --> 00:14:59,880 Speaker 1: for the last you know, twelve years. You mentioned the fintech, 253 00:15:00,400 --> 00:15:02,680 Speaker 1: mentioned the gig economies. When you look at like just 254 00:15:02,840 --> 00:15:06,960 Speaker 1: terrible business models or business models that can only possibly 255 00:15:07,000 --> 00:15:10,280 Speaker 1: survive under the cheapest, most abundant capital, what else is 256 00:15:10,360 --> 00:15:13,520 Speaker 1: out there that looks egregious? I mean there's there's almost 257 00:15:13,520 --> 00:15:16,680 Speaker 1: the whole cross section of reads just seems absurd to 258 00:15:16,800 --> 00:15:19,480 Speaker 1: us that you're gonna be buying, you know, apartment buildings 259 00:15:19,480 --> 00:15:23,360 Speaker 1: that a three percent cap rate that's before capital spending. Uh, 260 00:15:23,440 --> 00:15:27,160 Speaker 1: that's pre tax with the tenure at three thirty today. Um, 261 00:15:27,200 --> 00:15:30,440 Speaker 1: I mean this just makes no sense. And and office 262 00:15:30,480 --> 00:15:33,720 Speaker 1: buildings and and warehouse I mean, just go across the board, 263 00:15:34,040 --> 00:15:37,520 Speaker 1: data centers. I mean, it's it's just it is, we've 264 00:15:37,560 --> 00:15:40,400 Speaker 1: gotten so used to feasting on these ultra low interest 265 00:15:40,480 --> 00:15:44,320 Speaker 1: rates that I don't think people realize, you know, what, 266 00:15:44,440 --> 00:15:47,960 Speaker 1: where equities will trade in a in a resetting market 267 00:15:47,960 --> 00:15:51,200 Speaker 1: where where risk free rates are are four or five percent. 268 00:15:51,800 --> 00:15:54,920 Speaker 1: And I think that's that's a big area. But even 269 00:15:54,920 --> 00:15:59,600 Speaker 1: things like electric utilities and and and consumer package good companies, 270 00:15:59,640 --> 00:16:03,040 Speaker 1: I mean, the things are all still trading at times 271 00:16:03,040 --> 00:16:07,160 Speaker 1: earnings and and I think that that that they've been 272 00:16:07,200 --> 00:16:10,520 Speaker 1: seen as defensive because they're not technology, but at this 273 00:16:10,560 --> 00:16:12,760 Speaker 1: point they may have as much risk as the text douts. 274 00:16:13,360 --> 00:16:16,440 Speaker 1: So you know, I hesitate to ask you for a 275 00:16:16,520 --> 00:16:19,400 Speaker 1: price target on the SMP five hundred, but could you 276 00:16:19,400 --> 00:16:22,960 Speaker 1: give an indication of how low you think things could go? 277 00:16:23,360 --> 00:16:26,920 Speaker 1: And also what do you think is the most overvalued 278 00:16:26,960 --> 00:16:29,480 Speaker 1: at the moment and the most vulnerable to hire rates. 279 00:16:30,600 --> 00:16:33,280 Speaker 1: I mean, I'm long the SMP five my hedge fund 280 00:16:33,320 --> 00:16:36,320 Speaker 1: just f y I so so yeah, so so we're 281 00:16:36,400 --> 00:16:40,000 Speaker 1: long the broad market in short short radioactive sort of 282 00:16:40,040 --> 00:16:42,400 Speaker 1: group of companies. So just get that out there for 283 00:16:42,480 --> 00:16:45,160 Speaker 1: full disclosures. I don't really I don't have a target 284 00:16:45,200 --> 00:16:49,320 Speaker 1: for the SNP. I do think that the SNP is, 285 00:16:49,600 --> 00:16:53,080 Speaker 1: you know, corporate profits, which for years have been mean reverting, 286 00:16:53,360 --> 00:16:55,960 Speaker 1: have not been and you know this has been a 287 00:16:56,000 --> 00:16:59,840 Speaker 1: golden age for the corporation in terms of profitability and value, 288 00:17:01,040 --> 00:17:04,520 Speaker 1: and you know that that remains to be seen whether 289 00:17:04,560 --> 00:17:07,399 Speaker 1: those profit margins will hold up longer term there at 290 00:17:07,440 --> 00:17:10,480 Speaker 1: record levels. So I you know, I don't know where 291 00:17:10,480 --> 00:17:13,119 Speaker 1: the SMP can trade. That's a that's a that's my 292 00:17:13,160 --> 00:17:16,040 Speaker 1: cop out answer. I know that that some of the 293 00:17:16,040 --> 00:17:19,879 Speaker 1: stuff we're in just trades at such extreme premiums to 294 00:17:20,040 --> 00:17:24,320 Speaker 1: that that that you know, if if the market does 295 00:17:24,520 --> 00:17:27,160 Speaker 1: note goes nowhere, I think we're gonna do just fine 296 00:17:27,160 --> 00:17:32,480 Speaker 1: on our short portfolio. What's most overvalued right now? I 297 00:17:32,640 --> 00:17:35,119 Speaker 1: I right now, I think that if you can find 298 00:17:35,240 --> 00:17:38,080 Speaker 1: any companies and there are a lot of them that 299 00:17:38,119 --> 00:17:41,520 Speaker 1: are earning you know, low to mid single digits return 300 00:17:41,560 --> 00:17:45,320 Speaker 1: on capital, things like the real estate industry for example, 301 00:17:45,720 --> 00:17:48,800 Speaker 1: or a number of consumer companies, a number of companies 302 00:17:49,000 --> 00:17:52,600 Speaker 1: in the E s G space like solar um or 303 00:17:52,760 --> 00:17:55,439 Speaker 1: just the the unit economics are just crappy, and then 304 00:17:55,640 --> 00:17:59,920 Speaker 1: and but there's a narrative UM and and where there's 305 00:18:00,080 --> 00:18:03,080 Speaker 1: leverage UM, and there are lots and lots of these 306 00:18:03,200 --> 00:18:06,359 Speaker 1: names out there. UM those are going to I think, 307 00:18:06,680 --> 00:18:10,920 Speaker 1: you know, be be problematic going forward if if rates 308 00:18:11,000 --> 00:18:14,919 Speaker 1: drift higher, because again people just are are used to 309 00:18:14,960 --> 00:18:17,800 Speaker 1: financing things at two and three percent and those days 310 00:18:17,800 --> 00:18:20,720 Speaker 1: may be over. Man. I have a million questions. You know, 311 00:18:20,760 --> 00:18:23,439 Speaker 1: a certain obviously you know we're not going to get 312 00:18:23,480 --> 00:18:28,320 Speaker 1: the gym chainos SMP end of smp U forecast. But 313 00:18:28,400 --> 00:18:31,720 Speaker 1: I am curious more broadly, because everyone's like, is this 314 00:18:31,760 --> 00:18:34,120 Speaker 1: the bottom? Is this the bottom? You've seen these cycles 315 00:18:34,200 --> 00:18:37,320 Speaker 1: obviously there's the dot com era, You've seen lots of 316 00:18:37,359 --> 00:18:40,919 Speaker 1: other crashes. How should people think about what it looks 317 00:18:41,000 --> 00:18:45,000 Speaker 1: like not from a numerical perspective per se, but what 318 00:18:45,000 --> 00:18:46,760 Speaker 1: what it looks like when the pain ends, or what 319 00:18:46,840 --> 00:18:49,080 Speaker 1: other things people might look forward to say, Okay, this 320 00:18:49,160 --> 00:18:52,320 Speaker 1: is now, this is uh, this is what bottoms kind 321 00:18:52,320 --> 00:18:55,159 Speaker 1: of look like. Well, what I've been kind of surprised 322 00:18:55,200 --> 00:18:58,560 Speaker 1: at and this sort of again to use the it's 323 00:18:58,600 --> 00:19:01,320 Speaker 1: never exactly the same, but to you the two thousand analog, 324 00:19:01,960 --> 00:19:04,920 Speaker 1: I've been kind of surprised since November just how much 325 00:19:05,000 --> 00:19:09,080 Speaker 1: retail investors continue to want to speculate um. Yeah, and 326 00:19:09,480 --> 00:19:12,639 Speaker 1: and that that to me has been one of the 327 00:19:12,680 --> 00:19:14,800 Speaker 1: things that's kept me, you know, as exposed on the 328 00:19:14,800 --> 00:19:16,880 Speaker 1: short side, you know, in our hedge fund and short 329 00:19:16,920 --> 00:19:19,240 Speaker 1: fund as I have been. I mean, you know, Cathy 330 00:19:19,280 --> 00:19:23,359 Speaker 1: Wood was getting you know, inflows, uh for most of 331 00:19:23,400 --> 00:19:27,280 Speaker 1: the first quarter UM in some cases record inflows. And 332 00:19:27,320 --> 00:19:29,360 Speaker 1: we see it in the meme stocks that people were 333 00:19:29,400 --> 00:19:33,119 Speaker 1: still speculating. Every time the market, you know, started stopped 334 00:19:33,119 --> 00:19:36,919 Speaker 1: going down, the meme stocks would jump. And every and 335 00:19:37,080 --> 00:19:41,000 Speaker 1: every time the market stops going down, my shorts typically 336 00:19:41,000 --> 00:19:45,280 Speaker 1: go up. Thirty to two weeks um and and that's 337 00:19:45,320 --> 00:19:47,720 Speaker 1: exactly what they did in two thousand and two thousand 338 00:19:47,800 --> 00:19:51,119 Speaker 1: one and two thousand two UM and and people just 339 00:19:51,640 --> 00:19:55,080 Speaker 1: are still I still want to believe that that this 340 00:19:55,160 --> 00:19:58,160 Speaker 1: is the bottom. Uh that I'm you know, I'm gonna 341 00:19:58,280 --> 00:20:02,680 Speaker 1: make my stand here. And I don't know, but I 342 00:20:03,040 --> 00:20:06,640 Speaker 1: do know that the the willingness, particularly of the people 343 00:20:06,680 --> 00:20:09,440 Speaker 1: who came late to the party, the retail investor buying 344 00:20:09,440 --> 00:20:13,359 Speaker 1: individual stocks are options to still speculate is still there 345 00:20:13,760 --> 00:20:16,520 Speaker 1: and and and it's it's somewhat shocking to me. Now 346 00:20:16,560 --> 00:20:20,159 Speaker 1: this latest swoon and the crypto sell off we're seeing 347 00:20:20,240 --> 00:20:22,840 Speaker 1: may dampen some of that. We'll have to see. But 348 00:20:22,960 --> 00:20:25,520 Speaker 1: that's been one of the surprises to me, is just 349 00:20:25,520 --> 00:20:28,320 Speaker 1: just how much people are willing to to keep come 350 00:20:28,400 --> 00:20:31,320 Speaker 1: in and when the market sort of stops going down 351 00:20:31,600 --> 00:20:35,440 Speaker 1: by the most speculative stocks for a bounce. So we've 352 00:20:35,440 --> 00:20:37,479 Speaker 1: been talking obviously a lot about the sort of the 353 00:20:37,520 --> 00:20:40,720 Speaker 1: retail angle, because that really does sort of dominate the story, 354 00:20:41,080 --> 00:20:44,320 Speaker 1: maybe since the end of eighteen or middle of on 355 00:20:44,440 --> 00:20:47,400 Speaker 1: the free trade start. Yeah, but the other big one 356 00:20:47,400 --> 00:20:49,480 Speaker 1: of the big stories of the last twelve years or 357 00:20:49,560 --> 00:20:53,280 Speaker 1: maybe much longer, And I know that you've been critical 358 00:20:53,320 --> 00:20:57,959 Speaker 1: of it is the opposite the pe industry institutional, and 359 00:20:58,000 --> 00:21:00,760 Speaker 1: like the degree to which it has been this sort 360 00:21:00,760 --> 00:21:03,760 Speaker 1: of like one way train up. I'm pretty sure you're 361 00:21:03,800 --> 00:21:06,879 Speaker 1: skeptical of some of the marks they've had over the years, Like, 362 00:21:07,320 --> 00:21:09,439 Speaker 1: isn't this going to be the end for some of 363 00:21:09,480 --> 00:21:12,880 Speaker 1: these highly especially if interest rates go to where you're 364 00:21:12,920 --> 00:21:15,120 Speaker 1: talking about them? Is this going to be the end 365 00:21:15,160 --> 00:21:18,560 Speaker 1: for some of these more leveraged models. So a couple 366 00:21:18,560 --> 00:21:22,399 Speaker 1: of things about about the private equity industry. Um, I 367 00:21:22,960 --> 00:21:26,320 Speaker 1: suspect they're about to have the same reality check that 368 00:21:26,400 --> 00:21:29,960 Speaker 1: hedge funds had after the global financial crisis. So as 369 00:21:29,960 --> 00:21:32,359 Speaker 1: we we talked about a little earlier. You know, hedge 370 00:21:32,400 --> 00:21:35,240 Speaker 1: funds made their chops in the first you know, first 371 00:21:35,640 --> 00:21:39,000 Speaker 1: seven or eight years of this century. Right, they were 372 00:21:39,040 --> 00:21:43,120 Speaker 1: short the dot com garbage, they were long value, and 373 00:21:43,240 --> 00:21:45,919 Speaker 1: both of those trades paid off from two thousand to 374 00:21:46,080 --> 00:21:49,119 Speaker 1: two oh seven in a big way. And and hedge 375 00:21:49,160 --> 00:21:53,399 Speaker 1: funds began to attract large amounts of assets and it 376 00:21:53,440 --> 00:21:57,600 Speaker 1: completely fell apart in the GFC most most equity hedge funds. 377 00:21:57,720 --> 00:22:00,520 Speaker 1: We're talking about equity hedge funds here most equity hedge funds, 378 00:22:00,560 --> 00:22:04,560 Speaker 1: we're net long and and buying you know, value all 379 00:22:04,600 --> 00:22:07,800 Speaker 1: the way down and got killed. Um and and hedge 380 00:22:07,800 --> 00:22:09,880 Speaker 1: funds have had a rough go of it ever since. 381 00:22:09,920 --> 00:22:15,000 Speaker 1: Really quite frankly, UM think about private equity. Private equity 382 00:22:15,520 --> 00:22:19,920 Speaker 1: has had two major developments at their wind at their 383 00:22:19,960 --> 00:22:23,679 Speaker 1: back for the last you know, forty years, but particularly 384 00:22:23,720 --> 00:22:26,720 Speaker 1: for the last certainly twelve years. And and that is 385 00:22:27,320 --> 00:22:32,960 Speaker 1: massively declining interest rates and rising equity values. And so 386 00:22:33,000 --> 00:22:35,800 Speaker 1: if you are a leverage buyer of equities, that has 387 00:22:35,840 --> 00:22:39,760 Speaker 1: been a massive tail wind. And what is shocking to me, 388 00:22:40,160 --> 00:22:42,680 Speaker 1: and I allocate capital, I sit on some investment committees, 389 00:22:42,720 --> 00:22:44,960 Speaker 1: so I see the private equity numbers and I hear 390 00:22:45,000 --> 00:22:49,120 Speaker 1: the pitches. What is shocking to me is that if 391 00:22:49,200 --> 00:22:53,159 Speaker 1: you were buying a portfolio of stocks leverage two or 392 00:22:53,200 --> 00:22:56,720 Speaker 1: three to one, that you would expect to be doing 393 00:22:56,760 --> 00:22:58,960 Speaker 1: a hell of a lot better than the SNP five 394 00:22:59,359 --> 00:23:02,600 Speaker 1: over the past of years of the Russell Um you know, 395 00:23:02,640 --> 00:23:04,639 Speaker 1: even net of fees. And the fact of the matter 396 00:23:04,680 --> 00:23:07,760 Speaker 1: is that's not really been the case. And and I 397 00:23:07,800 --> 00:23:10,480 Speaker 1: think that's going to be one of the biggest problems 398 00:23:10,520 --> 00:23:14,399 Speaker 1: for private equity is the fact that that that you know, 399 00:23:14,480 --> 00:23:18,760 Speaker 1: the returns net of fees and adjusted for leverage have 400 00:23:18,840 --> 00:23:21,800 Speaker 1: gotten a lot more pedestrian in the last handfull of years. 401 00:23:22,119 --> 00:23:25,040 Speaker 1: And if we're going to revalue interest rates structurally higher 402 00:23:25,720 --> 00:23:28,159 Speaker 1: where you're not going to get easy exits and the 403 00:23:28,160 --> 00:23:31,240 Speaker 1: I p O market, you know, closes down, you know, 404 00:23:31,280 --> 00:23:33,640 Speaker 1: then private equity is going to have some heavy weather 405 00:23:33,720 --> 00:23:37,040 Speaker 1: of it. And and it has been the asset of 406 00:23:37,119 --> 00:23:40,840 Speaker 1: choice for institutional investors, there's no doubt about that. And 407 00:23:41,240 --> 00:23:44,800 Speaker 1: I think that that you know, that that alone tells 408 00:23:44,840 --> 00:23:47,680 Speaker 1: me that that if if you're big and private equity, 409 00:23:48,800 --> 00:23:50,760 Speaker 1: you have'd be taking a look at your allocations and 410 00:23:50,840 --> 00:23:53,480 Speaker 1: understanding you won't leverage equity. And just because they don't 411 00:23:53,520 --> 00:23:58,080 Speaker 1: market you know, promptly, doesn't mean you're not taking the risks. 412 00:23:58,240 --> 00:24:01,600 Speaker 1: And that that that's my concern about that. So just 413 00:24:01,640 --> 00:24:04,080 Speaker 1: to broaden that point out a little bit, you know, 414 00:24:04,880 --> 00:24:07,199 Speaker 1: we are at the point now where some people are 415 00:24:07,280 --> 00:24:11,200 Speaker 1: drawing parallels to UM two eight and the financial crisis, 416 00:24:11,280 --> 00:24:14,280 Speaker 1: and or you know, they say, oh, we're going to 417 00:24:14,320 --> 00:24:17,520 Speaker 1: get there. But the difference that you often here stated 418 00:24:17,560 --> 00:24:19,960 Speaker 1: between two thousand eight and now is the reduction and 419 00:24:20,080 --> 00:24:24,399 Speaker 1: leverage in the financial system. And I'm curious what you 420 00:24:24,440 --> 00:24:27,200 Speaker 1: think about the degree of leverage that may or may 421 00:24:27,240 --> 00:24:30,760 Speaker 1: not be out there, because you know, especially with something 422 00:24:30,800 --> 00:24:34,040 Speaker 1: like crypto, it feels like it's such a new asset 423 00:24:34,080 --> 00:24:36,639 Speaker 1: class and it's quite hard to track. It feels like 424 00:24:36,680 --> 00:24:39,520 Speaker 1: there could be linkage is there that we just don't 425 00:24:39,520 --> 00:24:43,359 Speaker 1: really have a good sense of at the moment. Yeah, 426 00:24:43,359 --> 00:24:46,680 Speaker 1: I mean we we clearly, you know, the warning sides 427 00:24:46,760 --> 00:24:49,359 Speaker 1: were everywhere back you know, six and oh seven, because 428 00:24:49,400 --> 00:24:51,040 Speaker 1: you can see it on the balance sheets right of 429 00:24:51,080 --> 00:24:53,040 Speaker 1: the banks and the brokers. They were just getting more 430 00:24:53,080 --> 00:24:55,000 Speaker 1: and more levered, and they were getting more and more 431 00:24:55,080 --> 00:24:58,160 Speaker 1: leveraed to so called level two and level three assets 432 00:24:58,160 --> 00:25:01,560 Speaker 1: which were we're hard and harder to value. And in 433 00:25:01,680 --> 00:25:04,040 Speaker 1: this go around, you know, I think that that the 434 00:25:04,920 --> 00:25:07,600 Speaker 1: general is basically always fight the last war, right, and 435 00:25:07,640 --> 00:25:10,480 Speaker 1: we we we regulated the banking system pretty tightly after 436 00:25:10,520 --> 00:25:14,600 Speaker 1: the GFC, and so I don't think there's systemic banking 437 00:25:14,720 --> 00:25:18,800 Speaker 1: risk out there in terms of the need for government intervention. 438 00:25:18,920 --> 00:25:20,840 Speaker 1: And what we saw in oh A at No. Nine, 439 00:25:21,400 --> 00:25:24,480 Speaker 1: it's it's much more diffuse and and it's much more 440 00:25:25,000 --> 00:25:28,760 Speaker 1: it's much more localized, and things like crypto and as 441 00:25:28,760 --> 00:25:31,600 Speaker 1: you say, the sort of is that there hidden leverage 442 00:25:31,600 --> 00:25:34,440 Speaker 1: in that system, My guess is there is, but we'll 443 00:25:34,440 --> 00:25:38,240 Speaker 1: we'll find out probably shortly. And then other mechanisms that 444 00:25:38,520 --> 00:25:40,760 Speaker 1: we haven't talked about fintech, but you know, sort of 445 00:25:40,760 --> 00:25:44,240 Speaker 1: the shadow shadow banking world of fintech, which you know, 446 00:25:44,320 --> 00:25:46,119 Speaker 1: I've been joking now for a while it is just 447 00:25:46,160 --> 00:25:49,639 Speaker 1: simply subprime lending, you know, done on an app. You know, 448 00:25:50,119 --> 00:25:53,040 Speaker 1: we'll find we'll find bodies floating to the surface, probably 449 00:25:53,080 --> 00:25:55,680 Speaker 1: there before all is said and done. As well. I 450 00:25:56,000 --> 00:25:58,479 Speaker 1: don't think the systemic issues, though, are the same. And 451 00:25:58,520 --> 00:26:01,320 Speaker 1: every every bull market has its own flavor, and this 452 00:26:01,359 --> 00:26:04,280 Speaker 1: one was not as depth driven, you know, as it 453 00:26:04,320 --> 00:26:07,560 Speaker 1: would relate to to I think risks to the banking system. 454 00:26:07,600 --> 00:26:10,679 Speaker 1: Now there's plenty of leverage out there in corporate leverage 455 00:26:10,840 --> 00:26:14,320 Speaker 1: and and and again I think the risk it might 456 00:26:14,320 --> 00:26:16,879 Speaker 1: not be credit risk, it might be rape risk. That's 457 00:26:17,200 --> 00:26:19,520 Speaker 1: you know, a whole different that was the seventies, and 458 00:26:19,720 --> 00:26:22,680 Speaker 1: that's a whole different kettle of fish than than sort 459 00:26:22,680 --> 00:26:25,840 Speaker 1: of these deflationary credit shocks we had um in the 460 00:26:25,880 --> 00:26:29,200 Speaker 1: past twenty years. So again we'll we'll have to see. 461 00:26:29,720 --> 00:26:32,760 Speaker 1: Now if you want to talk about systemic problems, and 462 00:26:32,760 --> 00:26:36,040 Speaker 1: and you know there's there's lots of them elsewhere around 463 00:26:36,040 --> 00:26:37,880 Speaker 1: the globe. And then on top of it, I think 464 00:26:37,920 --> 00:26:42,399 Speaker 1: you've got geopolitical issues that are probably, you know, really 465 00:26:42,880 --> 00:26:46,840 Speaker 1: really different from the last last ten to twenty years. 466 00:26:47,040 --> 00:26:50,520 Speaker 1: You know, the the the the rise of China, and 467 00:26:50,520 --> 00:26:52,400 Speaker 1: and you know, for God's sakes, we have a land 468 00:26:52,400 --> 00:26:56,960 Speaker 1: war going on in Europe right now. You mentioned fintech 469 00:26:57,080 --> 00:26:58,879 Speaker 1: for a second, and you also mentioned it earlier in 470 00:26:58,920 --> 00:27:00,719 Speaker 1: the chat, like can you tell what is it about 471 00:27:00,920 --> 00:27:04,160 Speaker 1: this particular industry and the way it's structured. I don't 472 00:27:04,160 --> 00:27:06,199 Speaker 1: even know what fintech is, to be honest, sometimes like 473 00:27:06,280 --> 00:27:08,320 Speaker 1: I don't know if it's lending or trade whatever it did, 474 00:27:08,359 --> 00:27:11,119 Speaker 1: But what is it about fintech that caused you to 475 00:27:11,160 --> 00:27:14,000 Speaker 1: focus some or that you see such egregious valuations and 476 00:27:14,080 --> 00:27:18,120 Speaker 1: business models? Fintech is a label used to get higher valuations. 477 00:27:18,280 --> 00:27:23,760 Speaker 1: And I need to interview or sometimes all abous and 478 00:27:23,560 --> 00:27:26,399 Speaker 1: and and and and it and boiled. And it's furthermore, 479 00:27:26,440 --> 00:27:29,360 Speaker 1: since the advent of the Internet, it really has boiled 480 00:27:29,359 --> 00:27:32,800 Speaker 1: down to we have a way of figuring out what 481 00:27:33,119 --> 00:27:36,400 Speaker 1: people who generally don't pay back their loans, will pay 482 00:27:36,440 --> 00:27:39,159 Speaker 1: back their loans. So are we have algorithms and we 483 00:27:39,240 --> 00:27:41,919 Speaker 1: have big data, and we have all these things that 484 00:27:42,000 --> 00:27:45,760 Speaker 1: these stagy bank and credit rating agencies and consumer credit 485 00:27:45,800 --> 00:27:48,879 Speaker 1: companies haven't figured out. And we're going to get people 486 00:27:48,960 --> 00:27:51,560 Speaker 1: to to to pay us back who we're paying us. 487 00:27:51,920 --> 00:27:54,359 Speaker 1: We're lending lots of money to a big, big rates 488 00:27:54,359 --> 00:27:59,320 Speaker 1: and fees. And every down cycle you know, since has 489 00:27:59,359 --> 00:28:01,960 Speaker 1: seen the as companies blow up because it turns out 490 00:28:02,240 --> 00:28:04,240 Speaker 1: they didn't have a better mousetrap. They just had the 491 00:28:04,240 --> 00:28:08,359 Speaker 1: credit cycle and they're back and the algorithms didn't didn't work, 492 00:28:08,560 --> 00:28:11,280 Speaker 1: you know, when things got tough, And I think this 493 00:28:11,359 --> 00:28:14,159 Speaker 1: is gonna be no different. I mean, I just you know, 494 00:28:14,280 --> 00:28:18,400 Speaker 1: I just see the narratives by by the companies that 495 00:28:18,640 --> 00:28:21,960 Speaker 1: claimed they figured this out again. And the reality is 496 00:28:21,960 --> 00:28:25,959 Speaker 1: is that after twelve years of easy credit and consumers 497 00:28:26,040 --> 00:28:28,960 Speaker 1: getting flushed with government payments and all kinds of things, 498 00:28:29,320 --> 00:28:31,600 Speaker 1: you know, everybody looks like a great credit. It's not 499 00:28:31,640 --> 00:28:33,960 Speaker 1: going to be till till times get tough that you're 500 00:28:33,960 --> 00:28:36,280 Speaker 1: gonna see, you know, where the risks in your your 501 00:28:36,320 --> 00:28:39,720 Speaker 1: portfolio are. And and this was just another way for 502 00:28:39,800 --> 00:28:42,520 Speaker 1: Silicon Valley to kind of tell another narrative, but this 503 00:28:42,560 --> 00:28:45,840 Speaker 1: one's been around for a while. The first fintech companies, 504 00:28:46,000 --> 00:28:51,120 Speaker 1: UH came out in I have a process question based 505 00:28:51,120 --> 00:28:53,600 Speaker 1: on that answer. But you you talked about the idea 506 00:28:53,600 --> 00:28:57,480 Speaker 1: of the credit cycle at a company's back when you're 507 00:28:57,520 --> 00:29:02,640 Speaker 1: making your investments, and in particular when you're assuming short positions, 508 00:29:03,120 --> 00:29:07,440 Speaker 1: how do you balance the macro environment and your expectations 509 00:29:07,440 --> 00:29:12,880 Speaker 1: for the broader economy versus company specific insights that you 510 00:29:12,960 --> 00:29:16,160 Speaker 1: might have. Because again, we kind of hinted at this 511 00:29:16,240 --> 00:29:19,520 Speaker 1: at the beginning in the intro, but it's I don't 512 00:29:19,520 --> 00:29:21,600 Speaker 1: want to say it's easy, but you can find a 513 00:29:21,640 --> 00:29:25,840 Speaker 1: company and say, like wow, that this company has problems, 514 00:29:26,000 --> 00:29:29,360 Speaker 1: there's a flaw in the business model. But if everything 515 00:29:29,440 --> 00:29:32,720 Speaker 1: is moving in its favor, if there aren't very many 516 00:29:32,880 --> 00:29:36,720 Speaker 1: defaults at that particular moment in time, it can kind 517 00:29:36,760 --> 00:29:40,320 Speaker 1: of go along just fine for for quite a while. 518 00:29:40,480 --> 00:29:44,120 Speaker 1: So how do you balance those two things? Yeah, so 519 00:29:44,240 --> 00:29:48,239 Speaker 1: um and and can and does and so look what 520 00:29:48,280 --> 00:29:50,960 Speaker 1: we're trying to find. What we're trying to find, particularly 521 00:29:51,400 --> 00:29:54,840 Speaker 1: aproposed Joe's comments at the beginning of our conversation is 522 00:29:55,200 --> 00:29:58,920 Speaker 1: the does the business look problematic when everything should be 523 00:29:58,960 --> 00:30:03,320 Speaker 1: going its way. Facts, the odds in in the skeptics favor, right. 524 00:30:03,720 --> 00:30:06,160 Speaker 1: So if you're if you're you know, a food delivery company, 525 00:30:06,160 --> 00:30:09,040 Speaker 1: and you're not making money when when people are throwing 526 00:30:09,080 --> 00:30:11,440 Speaker 1: money at you and everybody's at home, you know, maybe 527 00:30:11,480 --> 00:30:14,240 Speaker 1: you have an issue and and and maybe the model 528 00:30:14,320 --> 00:30:17,960 Speaker 1: just doesn't work. And so again we're looking for businesses 529 00:30:18,440 --> 00:30:21,120 Speaker 1: that with really low return on invested capital. It's a 530 00:30:21,120 --> 00:30:23,880 Speaker 1: big big thing we focus on. You know what for 531 00:30:23,920 --> 00:30:26,760 Speaker 1: every dollar you give them uh to invest in the business, 532 00:30:26,760 --> 00:30:29,480 Speaker 1: what do they return? And you know, for most of 533 00:30:29,520 --> 00:30:32,720 Speaker 1: corporate America that number is in in double digits. It's somewhere, 534 00:30:32,840 --> 00:30:35,960 Speaker 1: you know, in the mid teens to low teams. And 535 00:30:36,040 --> 00:30:38,120 Speaker 1: yet there's just lots of companies out there that the 536 00:30:38,160 --> 00:30:41,040 Speaker 1: people have thrown money out better, earning four or five 537 00:30:41,320 --> 00:30:44,480 Speaker 1: six percent on their capital. And if you're only earning 538 00:30:44,480 --> 00:30:46,120 Speaker 1: four or five or six percent of capital at the 539 00:30:46,120 --> 00:30:48,560 Speaker 1: top of the business cycle with rates at two or 540 00:30:48,600 --> 00:30:51,560 Speaker 1: three percent, you know you're gonna be in trouble. So 541 00:30:52,160 --> 00:30:54,760 Speaker 1: we try to look at the macro and understand that 542 00:30:54,760 --> 00:30:57,760 Speaker 1: that there will be cycles and and to try to 543 00:30:57,800 --> 00:31:02,120 Speaker 1: find companies that are either unprofitable or or barely profitable, 544 00:31:02,440 --> 00:31:05,240 Speaker 1: you know, and when things are good, because certainly things 545 00:31:05,560 --> 00:31:08,160 Speaker 1: when things aren't good, it's gonna they're gonna make heavy 546 00:31:08,160 --> 00:31:10,880 Speaker 1: weather of it. I should make one other point, Tracy, 547 00:31:10,960 --> 00:31:13,680 Speaker 1: and that that's the other thing that has really struck 548 00:31:13,760 --> 00:31:17,040 Speaker 1: us in this cycle, which is sort of addresses this 549 00:31:17,160 --> 00:31:20,760 Speaker 1: question of yours. Is the amazing use of pro form 550 00:31:20,800 --> 00:31:25,960 Speaker 1: of metrics by corporate America. And and you know, it's 551 00:31:26,040 --> 00:31:30,680 Speaker 1: amazing how many companies will report numbers and the media 552 00:31:30,760 --> 00:31:34,280 Speaker 1: will will dutifully say, you know, Salesforce dot Com, you know, 553 00:31:34,840 --> 00:31:38,080 Speaker 1: beat expectations, and you know, made so much money. And 554 00:31:38,080 --> 00:31:40,280 Speaker 1: then you look at the actual financial statements you see 555 00:31:40,280 --> 00:31:43,840 Speaker 1: the lost money, and and you know this is this 556 00:31:43,920 --> 00:31:46,920 Speaker 1: is getting worse and worse. And I think, you know, 557 00:31:46,880 --> 00:31:49,520 Speaker 1: as it relates to to the course I teach on fraud. 558 00:31:50,000 --> 00:31:51,600 Speaker 1: You know, I've been telling my students for the last 559 00:31:51,640 --> 00:31:55,440 Speaker 1: couple of years that a lot of the disingenuousness in 560 00:31:55,480 --> 00:31:58,240 Speaker 1: corporate America is happening right in front of you through 561 00:31:58,240 --> 00:32:02,840 Speaker 1: the aggressive use of of self defined metrics, and the 562 00:32:02,840 --> 00:32:04,960 Speaker 1: most egregious of which, of course, is adding back share 563 00:32:04,960 --> 00:32:09,840 Speaker 1: based compensation, which Silicon Valley is just you know, lavish 564 00:32:09,880 --> 00:32:11,920 Speaker 1: and using and as long as we just pay our 565 00:32:11,920 --> 00:32:15,080 Speaker 1: people in stock that that doesn't count. And I think 566 00:32:15,160 --> 00:32:18,080 Speaker 1: that virtuous circle is going to turn into a vicious 567 00:32:18,120 --> 00:32:20,240 Speaker 1: cycle on the way back down. It already has for 568 00:32:20,320 --> 00:32:25,840 Speaker 1: some companies. Presumably if if the if the assumption no 569 00:32:25,880 --> 00:32:29,760 Speaker 1: longer exists that stocks only go up, then people might 570 00:32:29,760 --> 00:32:33,520 Speaker 1: actually want more cash exactly, and then you have to 571 00:32:33,600 --> 00:32:36,320 Speaker 1: run it through your P and U or the or 572 00:32:36,400 --> 00:32:39,200 Speaker 1: the equity. You're just going to have just a lot 573 00:32:39,240 --> 00:32:41,480 Speaker 1: more delution. You're gonna have to just issue more and 574 00:32:41,520 --> 00:32:45,080 Speaker 1: more shares for a given dollar value. And so you know, 575 00:32:45,360 --> 00:32:49,280 Speaker 1: in in in any case, I think that that metric 576 00:32:49,400 --> 00:32:52,960 Speaker 1: and that for example, the gig economy companies, they were 577 00:32:53,040 --> 00:32:56,000 Speaker 1: just masters at this. It's just uber lift or dash. 578 00:32:56,400 --> 00:32:58,680 Speaker 1: They'll tell you adjusted. They're going to all be adjusted, 579 00:32:58,680 --> 00:33:01,800 Speaker 1: even thought positive, it's at some point in the future. 580 00:33:02,240 --> 00:33:04,360 Speaker 1: And then you look at the numbers and they're losing 581 00:33:04,400 --> 00:33:22,880 Speaker 1: hundreds of millions of dollars in the quarters. What's the 582 00:33:22,920 --> 00:33:31,080 Speaker 1: best historical analogy for crypto beanie babies? That that's that's 583 00:33:31,160 --> 00:33:35,360 Speaker 1: that that's n f T s um. Sorry, but look, 584 00:33:36,080 --> 00:33:40,440 Speaker 1: you know the thing about the thing about alternative alternative 585 00:33:40,480 --> 00:33:44,080 Speaker 1: monetary systems. There's a long history of them, and they 586 00:33:44,120 --> 00:33:47,160 Speaker 1: tend to they tend to be uh you know, adopted 587 00:33:47,960 --> 00:33:53,040 Speaker 1: um or embraced or or recommended in good times not 588 00:33:53,160 --> 00:33:56,800 Speaker 1: bad times. And I think that's a really interesting you know, 589 00:33:56,880 --> 00:34:00,240 Speaker 1: aside that that I tell my friends who are kind 590 00:34:00,240 --> 00:34:04,560 Speaker 1: of heavily invested in the concept of crypto. And you know, 591 00:34:04,680 --> 00:34:07,560 Speaker 1: the first guy to think about this I teach in 592 00:34:07,600 --> 00:34:10,240 Speaker 1: my fraud course was John Law maybe the greatest financial 593 00:34:10,320 --> 00:34:13,480 Speaker 1: criminal of all time. Uh, you know, he wrote about 594 00:34:13,520 --> 00:34:16,680 Speaker 1: this in seventeen oh five and on this this seminal 595 00:34:16,719 --> 00:34:19,880 Speaker 1: work he did on the nature of FIAT currencies, and 596 00:34:19,920 --> 00:34:23,360 Speaker 1: he pointed out that the state should embrace FIAT and 597 00:34:23,440 --> 00:34:26,400 Speaker 1: he knew the risks. He knew the risks of debasement 598 00:34:26,520 --> 00:34:29,520 Speaker 1: and inflation and all of these things that the reason 599 00:34:29,600 --> 00:34:32,200 Speaker 1: why people wanted gold and silver and not paper. But 600 00:34:32,239 --> 00:34:34,640 Speaker 1: he also made a couple of really interesting observations, and 601 00:34:34,719 --> 00:34:38,400 Speaker 1: one of which was that in times of stress and 602 00:34:38,400 --> 00:34:41,600 Speaker 1: I'm forgetting his actual term from seventeen o five, but 603 00:34:42,239 --> 00:34:47,160 Speaker 1: that people actually will embrace government based FIAT because the 604 00:34:47,200 --> 00:34:51,960 Speaker 1: government can adjudicate fraud uh and contracts. And then he 605 00:34:52,000 --> 00:34:55,400 Speaker 1: talked about the fact that that the banking system based 606 00:34:55,440 --> 00:34:58,120 Speaker 1: on that could also offer protection. He didn't say in 607 00:34:58,320 --> 00:35:01,799 Speaker 1: deposit insurance, so he wasn't a far thinking yet, but 608 00:35:01,880 --> 00:35:03,839 Speaker 1: it was the first sort of four runners of that, 609 00:35:04,400 --> 00:35:07,040 Speaker 1: and the whole idea that when when you know you 610 00:35:07,040 --> 00:35:10,720 Speaker 1: are you are in a situation where nobody trusts anything, 611 00:35:10,840 --> 00:35:14,120 Speaker 1: you actually want the state to back things, and you 612 00:35:14,160 --> 00:35:15,840 Speaker 1: want the ability of the federal reserved to be a 613 00:35:15,920 --> 00:35:18,120 Speaker 1: lender of last resort, and you want to have the 614 00:35:18,160 --> 00:35:19,640 Speaker 1: fact that you know that if you have two hundred 615 00:35:19,680 --> 00:35:22,319 Speaker 1: fifty dollars in the bank, no matter what happens, you 616 00:35:22,320 --> 00:35:25,600 Speaker 1: still have two dollars in the bank. And I think 617 00:35:25,760 --> 00:35:28,640 Speaker 1: that's a really important concept that we kind of forget 618 00:35:29,120 --> 00:35:31,719 Speaker 1: every time everything is going to the moon and we're 619 00:35:31,719 --> 00:35:34,200 Speaker 1: all making lots of money, you know, speculating in things 620 00:35:34,880 --> 00:35:40,600 Speaker 1: um and and that's that's the really interesting thing about 621 00:35:40,880 --> 00:35:44,560 Speaker 1: crypto to me is that a lot of the concepts 622 00:35:44,600 --> 00:35:49,040 Speaker 1: behind its adoption early on have proven to basically be 623 00:35:49,840 --> 00:35:52,279 Speaker 1: not there or wanting. You know, it was going to 624 00:35:52,320 --> 00:35:55,160 Speaker 1: be a replacement currency, Well, no it's not. Well it's 625 00:35:55,160 --> 00:35:58,640 Speaker 1: going to be a diversifying asset. Well no, it hasn't 626 00:35:58,680 --> 00:36:02,040 Speaker 1: been and you know, and and and we can check 627 00:36:02,080 --> 00:36:03,640 Speaker 1: down the list and you know better than I do, 628 00:36:04,200 --> 00:36:07,160 Speaker 1: but I do think there was a seminal moment. Was 629 00:36:07,360 --> 00:36:10,680 Speaker 1: the interview that you had with Sam Bankman free that 630 00:36:11,080 --> 00:36:13,239 Speaker 1: And I said so at the time, I mean that 631 00:36:13,320 --> 00:36:17,040 Speaker 1: to me was a bell loud and clear that one 632 00:36:17,080 --> 00:36:21,200 Speaker 1: of the crypto you know giants is telling you, you know, 633 00:36:21,680 --> 00:36:28,279 Speaker 1: glad out yeah, yeah, ponzi noting and you know he 634 00:36:28,360 --> 00:36:32,440 Speaker 1: said the real, real quiet part out loud, and and uh, 635 00:36:32,480 --> 00:36:35,000 Speaker 1: that's when you boiled down a lot of these structures. 636 00:36:35,000 --> 00:36:38,080 Speaker 1: That's what they are. And and I've called it a 637 00:36:38,080 --> 00:36:40,880 Speaker 1: predatory junkyard and I stand by that. So I have 638 00:36:40,880 --> 00:36:43,960 Speaker 1: a philosophical question based on that. But you know, there 639 00:36:44,000 --> 00:36:49,120 Speaker 1: are a lot of hardcore crypto believers out there, especially 640 00:36:49,280 --> 00:36:53,399 Speaker 1: of bitcoin, the Bitcoin maximalists and those types, and they 641 00:36:53,440 --> 00:36:56,120 Speaker 1: look at something like Bitcoin and say, oh, this is 642 00:36:56,160 --> 00:36:58,759 Speaker 1: the future of the monetary system and everything is going 643 00:36:58,800 --> 00:37:01,600 Speaker 1: to change because of this. And then someone like you 644 00:37:01,800 --> 00:37:05,680 Speaker 1: looks at Bitcoin and presumably says this is a ponzi 645 00:37:05,960 --> 00:37:09,080 Speaker 1: And you know, it's just money following money, and that's 646 00:37:09,080 --> 00:37:11,640 Speaker 1: all there is to it. How is it that two 647 00:37:11,680 --> 00:37:14,360 Speaker 1: different people can look at the same asset like a 648 00:37:14,400 --> 00:37:19,280 Speaker 1: bitcoin and come to wildly different conclusions about its worth 649 00:37:19,320 --> 00:37:23,480 Speaker 1: and its value. So I should say that, you know, 650 00:37:23,600 --> 00:37:27,120 Speaker 1: bitcoin is the leading currency, is sort of like the 651 00:37:27,160 --> 00:37:30,799 Speaker 1: dollar of the crypto space. And and and because of 652 00:37:30,840 --> 00:37:33,520 Speaker 1: its limited you know, issuance or whatever, I have no 653 00:37:33,600 --> 00:37:36,360 Speaker 1: idea where it's going to trade. But what what my 654 00:37:36,520 --> 00:37:40,840 Speaker 1: problem was was all the ecosystem built around crypto that 655 00:37:41,000 --> 00:37:45,560 Speaker 1: is clearly just rent seeking. And and that's that's been 656 00:37:45,600 --> 00:37:48,560 Speaker 1: my criticism of the whole space is just all the 657 00:37:48,640 --> 00:37:52,760 Speaker 1: various staking, you know, staking things the quote unquote yields 658 00:37:53,200 --> 00:37:56,359 Speaker 1: um the ridiculous of high fees they charged. I've been 659 00:37:56,680 --> 00:38:00,160 Speaker 1: publicly shortcoin based. I'm not because I thought, you know, 660 00:38:00,200 --> 00:38:03,359 Speaker 1: bitcoin was going down, but because they're over earning and 661 00:38:03,360 --> 00:38:07,120 Speaker 1: and and so that to me was really was this 662 00:38:07,120 --> 00:38:11,120 Speaker 1: this vast ecosystem that's sprung up overnight around it to 663 00:38:11,239 --> 00:38:16,640 Speaker 1: basically extract fees from unsuspecting, primarily retail investors. I'll give 664 00:38:16,680 --> 00:38:19,759 Speaker 1: you a great example. Um So, if you look at 665 00:38:19,880 --> 00:38:26,160 Speaker 1: coin basis first quarter in retail trading value was huge 666 00:38:26,400 --> 00:38:31,040 Speaker 1: compared to institutional but they earned almost the revenues. They 667 00:38:31,040 --> 00:38:34,400 Speaker 1: earned almost a billion in commission revenues from retail traders 668 00:38:34,480 --> 00:38:38,000 Speaker 1: during the quarter, and they earned only less than fifty 669 00:38:38,040 --> 00:38:42,400 Speaker 1: million from institutional investors. Turns out that the on a 670 00:38:42,480 --> 00:38:45,920 Speaker 1: dollar value of trading value, the retail is paying almost 671 00:38:45,920 --> 00:38:51,479 Speaker 1: sixty times the rate of of institutions, and and so 672 00:38:51,600 --> 00:38:54,880 Speaker 1: you know, it gets to my point that this is borderline, 673 00:38:55,000 --> 00:38:59,480 Speaker 1: you know, predatory behavior in the industry, where the fees 674 00:38:59,520 --> 00:39:03,719 Speaker 1: and and everything else is just just outrageous um not 675 00:39:03,760 --> 00:39:06,399 Speaker 1: to mention some of the claims about you know, how 676 00:39:06,440 --> 00:39:09,239 Speaker 1: you're yielding and what you're what the economic engine is 677 00:39:09,280 --> 00:39:12,839 Speaker 1: behind these yields. And that's my complaint with what's going 678 00:39:12,880 --> 00:39:16,120 Speaker 1: on in crypto is all of the circus around it. 679 00:39:16,880 --> 00:39:18,680 Speaker 1: I want to ask you your you mentioned coin based, 680 00:39:18,680 --> 00:39:20,920 Speaker 1: but I got to ask you about another specific company 681 00:39:20,960 --> 00:39:23,560 Speaker 1: that you've had opinions done over the years. Of course, 682 00:39:23,600 --> 00:39:26,240 Speaker 1: that's Tesla. I know you're shorted for a long time 683 00:39:26,560 --> 00:39:28,400 Speaker 1: that I think you paired back your shorts as it 684 00:39:28,400 --> 00:39:31,320 Speaker 1: went to the moon, and you know, I still obviously 685 00:39:31,360 --> 00:39:33,600 Speaker 1: it's come back, but it's in a way, you know, 686 00:39:33,680 --> 00:39:36,279 Speaker 1: it's like the Bellweather of the Kathy Wooden portfolio. It's 687 00:39:36,320 --> 00:39:39,840 Speaker 1: also probably like the ultimate meme stock does it? Is 688 00:39:39,840 --> 00:39:42,640 Speaker 1: it a sustainable company at this point? Like, hey, do 689 00:39:42,640 --> 00:39:45,960 Speaker 1: you have a position on it? But be do you 690 00:39:46,400 --> 00:39:47,640 Speaker 1: what do you like? What does it look? What do 691 00:39:47,640 --> 00:39:51,000 Speaker 1: you look at Tesla right now? What do you see? Well? 692 00:39:51,040 --> 00:39:53,600 Speaker 1: I see a company. Yes, they will they will survive. 693 00:39:53,680 --> 00:39:56,560 Speaker 1: They they've made it past eighteen that was in question 694 00:39:56,920 --> 00:40:00,359 Speaker 1: as Musk you know, admitted later. But no, they they 695 00:40:01,080 --> 00:40:05,360 Speaker 1: certainly at this point, you know, got past the tipping point. However, 696 00:40:05,640 --> 00:40:09,680 Speaker 1: it's a big however, they are dramatically over earning right now. 697 00:40:09,719 --> 00:40:12,480 Speaker 1: And I think the risk to the stock is the 698 00:40:12,520 --> 00:40:14,560 Speaker 1: fact that and I do think by the way, I 699 00:40:14,600 --> 00:40:16,880 Speaker 1: think it is the Bellweather stock in the stock market. 700 00:40:16,920 --> 00:40:20,320 Speaker 1: I think it's sort of like Cisco was where people 701 00:40:20,320 --> 00:40:22,680 Speaker 1: were just kind of put putting their hopes and dreams 702 00:40:22,680 --> 00:40:25,279 Speaker 1: and you know, any any hardware having to do with 703 00:40:25,320 --> 00:40:28,080 Speaker 1: the Internet, Cisco was going to dominate it. And and 704 00:40:28,200 --> 00:40:30,520 Speaker 1: it's the same sort of thing now. So whether it's 705 00:40:30,560 --> 00:40:34,520 Speaker 1: E V s or or Solar or what have you. 706 00:40:34,520 --> 00:40:37,960 Speaker 1: You know, Tesla is seen as the one stop shopping 707 00:40:38,000 --> 00:40:42,319 Speaker 1: for that. And I think that that accordingly, you know, 708 00:40:42,440 --> 00:40:47,480 Speaker 1: Testas still trades at almost ten times revenues and thirty 709 00:40:47,560 --> 00:40:51,799 Speaker 1: times gross profits. So it's trading you know, like like 710 00:40:52,080 --> 00:40:55,680 Speaker 1: a fast company or UM, but it it is an 711 00:40:55,680 --> 00:41:00,359 Speaker 1: auto company. It has gross margins. Oft now the they 712 00:41:00,360 --> 00:41:04,160 Speaker 1: have is that almost every other auto company in the 713 00:41:04,200 --> 00:41:09,640 Speaker 1: world has gross margins. And so Tesla, which is earning 714 00:41:09,840 --> 00:41:13,440 Speaker 1: you know, trading it's just a monster multiple, is also 715 00:41:13,480 --> 00:41:16,239 Speaker 1: trading on a monster multiple of a profit stream that 716 00:41:16,480 --> 00:41:19,840 Speaker 1: is going to get competed. And and that that is 717 00:41:19,880 --> 00:41:22,440 Speaker 1: the risk of Tesla that becomes, you know, just an 718 00:41:22,560 --> 00:41:26,960 Speaker 1: established e V company amongst a whole bunch of established 719 00:41:26,960 --> 00:41:30,520 Speaker 1: EV companies. And I think that one of the things 720 00:41:30,520 --> 00:41:32,520 Speaker 1: that people thought was that you know, the other O 721 00:41:32,600 --> 00:41:35,239 Speaker 1: E M s would never get their act together, and 722 00:41:35,239 --> 00:41:38,120 Speaker 1: and certainly for a while they didn't. But now with 723 00:41:38,239 --> 00:41:40,640 Speaker 1: the advent of Ford and you know, the F one 724 00:41:40,719 --> 00:41:44,320 Speaker 1: fifty lightning and and lots of other products that are 725 00:41:44,320 --> 00:41:46,960 Speaker 1: both out and coming, you know, it's going to be 726 00:41:47,000 --> 00:41:49,279 Speaker 1: the auto industry. And and make no mistake about it, 727 00:41:49,320 --> 00:41:52,280 Speaker 1: Tesla is a car company. You know, they're building car plants, 728 00:41:52,719 --> 00:41:55,520 Speaker 1: their capital intensive There's one of the risk to Tesla 729 00:41:55,560 --> 00:41:58,160 Speaker 1: that I think is under appreciated by the market, and 730 00:41:58,280 --> 00:42:02,120 Speaker 1: that is um this company turned the profitability corner when 731 00:42:02,120 --> 00:42:05,160 Speaker 1: it opened the China plant, and we and others have 732 00:42:05,280 --> 00:42:08,520 Speaker 1: a large suspicion that a disproportionate amount of the profits 733 00:42:08,760 --> 00:42:12,640 Speaker 1: are coming out of Shanghai, and that, of course, you know, 734 00:42:12,920 --> 00:42:16,399 Speaker 1: raises all kinds of other risks to the multiple um 735 00:42:16,719 --> 00:42:19,440 Speaker 1: and whether or not they can actually you know, X pay, 736 00:42:19,560 --> 00:42:22,400 Speaker 1: you know, get get their hands on that money. And 737 00:42:22,760 --> 00:42:24,960 Speaker 1: I think that's not appreciated by the market as much 738 00:42:24,960 --> 00:42:26,960 Speaker 1: as it should be. If you look at the company's 739 00:42:27,000 --> 00:42:30,440 Speaker 1: gross profit margins. It took off as soon as Shanghai, 740 00:42:30,640 --> 00:42:34,080 Speaker 1: you know, started volume production. Do you have a position 741 00:42:34,120 --> 00:42:37,120 Speaker 1: on Tesla? Now, yeah, we're we're short. We we have 742 00:42:37,200 --> 00:42:40,280 Speaker 1: a we have a Yeah. I know you've been critical 743 00:42:40,480 --> 00:42:44,960 Speaker 1: of regulators and you you mentioned earlier that regulators are 744 00:42:45,000 --> 00:42:47,359 Speaker 1: sort of backward looking and always fighting the last war. 745 00:42:48,640 --> 00:42:52,520 Speaker 1: And I guess my question is why is that? Because 746 00:42:53,160 --> 00:42:55,320 Speaker 1: you know, you look at something like Tesla and Elon 747 00:42:55,400 --> 00:42:58,359 Speaker 1: Musk in the circus around Twitter, you could easily make 748 00:42:58,400 --> 00:43:01,560 Speaker 1: the case that the SEC should be doing something here. Certainly, 749 00:43:01,640 --> 00:43:04,080 Speaker 1: if you look at Crypto, you could be saying it 750 00:43:04,239 --> 00:43:06,560 Speaker 1: certainly make the case they should do something here. And 751 00:43:06,600 --> 00:43:10,319 Speaker 1: there's very little incentive for governments to actually let crypto, 752 00:43:10,360 --> 00:43:13,640 Speaker 1: you know, just run wild. I mean, especially since a 753 00:43:13,640 --> 00:43:16,080 Speaker 1: lot of crypto proponents basically say, we're trying to create 754 00:43:16,120 --> 00:43:20,200 Speaker 1: an alternative monetary system to a government dominated one. But 755 00:43:20,640 --> 00:43:23,040 Speaker 1: what's going on, like why why don't the regulators get 756 00:43:23,080 --> 00:43:26,600 Speaker 1: more involved? So I've said a couple of things. I've 757 00:43:26,600 --> 00:43:29,839 Speaker 1: said obviously that that journalists and short sellers and we're 758 00:43:29,880 --> 00:43:33,600 Speaker 1: being very self serving here are real time financial detectives 759 00:43:33,600 --> 00:43:37,920 Speaker 1: because they're incentivized to look for things, whereas regulators and 760 00:43:38,239 --> 00:43:43,080 Speaker 1: law enforcement and legislators are are financial archaeologists. They'll tell you, 761 00:43:43,080 --> 00:43:46,000 Speaker 1: you know, with much clarity, five or ten years after 762 00:43:46,040 --> 00:43:48,759 Speaker 1: the fact, why you lost money and why this was fraudulent. 763 00:43:49,440 --> 00:43:52,000 Speaker 1: And a lot of that has to do with the 764 00:43:52,040 --> 00:43:55,040 Speaker 1: fact that much of that is political by its very nature. 765 00:43:55,840 --> 00:44:01,400 Speaker 1: And I've also said that basically the strongest defense attorney 766 00:44:01,440 --> 00:44:05,160 Speaker 1: and the harshest prosecutor for any any company is its 767 00:44:05,160 --> 00:44:09,399 Speaker 1: stock price, and and that when everything's going up, it's 768 00:44:09,480 --> 00:44:12,800 Speaker 1: kind of hard to throw stones, particularly politically, to say, okay, 769 00:44:12,880 --> 00:44:15,040 Speaker 1: well maybe we should be taking a look at this. 770 00:44:15,600 --> 00:44:17,839 Speaker 1: What do you want to do stifle innovation? I mean, 771 00:44:17,880 --> 00:44:20,840 Speaker 1: that was what the securities regulators heard about crypto and 772 00:44:20,880 --> 00:44:25,040 Speaker 1: in fact, I mean to me, the failure of global 773 00:44:25,080 --> 00:44:30,960 Speaker 1: securities regulators to to in concert, you know, basically declare 774 00:44:31,080 --> 00:44:35,840 Speaker 1: most crypto coins um and schemes securities is a major 775 00:44:35,920 --> 00:44:39,600 Speaker 1: failing and because they clearly are, and I think that 776 00:44:39,600 --> 00:44:41,920 Speaker 1: that that would have stopped a lot of the nonsense 777 00:44:41,960 --> 00:44:44,880 Speaker 1: that that has subsequently happened if these coins that ever 778 00:44:44,960 --> 00:44:48,040 Speaker 1: had to register as securities offerings. I think that's one 779 00:44:48,320 --> 00:44:51,520 Speaker 1: one easy thing to point out to say, you know, ge, 780 00:44:52,360 --> 00:44:54,840 Speaker 1: you guys dropped the ball on this one. But but 781 00:44:54,920 --> 00:44:57,880 Speaker 1: as for everything else, it's not until investors start losing 782 00:44:57,920 --> 00:45:02,800 Speaker 1: money that they begin to to get upset with with 783 00:45:02,800 --> 00:45:05,040 Speaker 1: with people. Look at the look at the Meme stocks 784 00:45:05,040 --> 00:45:10,440 Speaker 1: in January of in January one, you know when when 785 00:45:10,520 --> 00:45:14,359 Speaker 1: Robin Hood, because of capital issues, you know, froze people 786 00:45:14,400 --> 00:45:19,160 Speaker 1: from from adding to their accounts. People were upset because 787 00:45:19,200 --> 00:45:24,879 Speaker 1: they couldn't buy more. And and there were hearings about that. Yeah, 788 00:45:24,960 --> 00:45:27,839 Speaker 1: the stocks are now down dramatically, but and and they 789 00:45:27,880 --> 00:45:30,879 Speaker 1: were blaming short sellers for example, and hedge funds who 790 00:45:30,920 --> 00:45:34,640 Speaker 1: got run over. It was it was like bizarre world. 791 00:45:35,160 --> 00:45:37,600 Speaker 1: And and and yet you know, I I talked to 792 00:45:37,640 --> 00:45:40,719 Speaker 1: a lot of congressional staffs at that time, and and 793 00:45:40,800 --> 00:45:43,359 Speaker 1: you know they were just hearing from their constituents how 794 00:45:43,400 --> 00:45:46,239 Speaker 1: outrageous this was. And and you know these things are 795 00:45:46,280 --> 00:45:50,040 Speaker 1: politically motivated. With the lag it's crazy and retrospect all 796 00:45:50,080 --> 00:45:52,719 Speaker 1: the different politicians about the outrage of not being able 797 00:45:52,800 --> 00:45:57,279 Speaker 1: to add to your game stop position in February. You know, Uh, 798 00:45:58,000 --> 00:45:59,600 Speaker 1: I want to go back to something. You're talking about 799 00:46:00,560 --> 00:46:04,839 Speaker 1: resetting and or moving significantly higher. And I don't listen 800 00:46:04,880 --> 00:46:06,880 Speaker 1: to many podcasts because I don't really have time, but 801 00:46:07,000 --> 00:46:08,640 Speaker 1: one that I did listen to is one that you 802 00:46:08,640 --> 00:46:11,200 Speaker 1: did years ago with Matt Klein when he was at 803 00:46:11,239 --> 00:46:14,800 Speaker 1: the FT, and you talked a bit about the business 804 00:46:14,800 --> 00:46:18,279 Speaker 1: of short selling and in particular how short sellers think 805 00:46:18,280 --> 00:46:21,320 Speaker 1: about rates and the fact that in the zerp environment 806 00:46:21,760 --> 00:46:24,480 Speaker 1: it's kind of no fun or no great because you 807 00:46:24,560 --> 00:46:27,200 Speaker 1: sell a share, you get cash and you park it somewhere, 808 00:46:27,200 --> 00:46:30,399 Speaker 1: but you don't get any yield on that cash, which 809 00:46:30,440 --> 00:46:32,719 Speaker 1: I had never heard of. No one really talks about that. 810 00:46:32,840 --> 00:46:35,120 Speaker 1: So like from the does the business of short selling 811 00:46:35,600 --> 00:46:38,440 Speaker 1: get better in this higher rate environment because you can 812 00:46:38,520 --> 00:46:42,399 Speaker 1: earn yield on the cash that you talk a little 813 00:46:42,400 --> 00:46:44,600 Speaker 1: bit about the business of short selling in a different 814 00:46:44,680 --> 00:46:48,880 Speaker 1: rate environment. Yeah, so so a big so. The golden 815 00:46:48,920 --> 00:46:51,759 Speaker 1: age of of of short selling alpha was basically, you know, 816 00:46:51,800 --> 00:46:54,400 Speaker 1: the eighties and the late nineties, and and part of 817 00:46:54,440 --> 00:46:57,000 Speaker 1: that was due to basically the fact that in addition 818 00:46:57,000 --> 00:47:00,600 Speaker 1: to the fact that that stocks you know, basically fluctuated 819 00:47:00,600 --> 00:47:05,319 Speaker 1: a lot, was that on your short cell proceeds you 820 00:47:05,440 --> 00:47:08,600 Speaker 1: got eighty percent you split with the prime broker. Typically 821 00:47:09,600 --> 00:47:14,879 Speaker 1: the cash received the interest on that segregated cash. So 822 00:47:15,000 --> 00:47:18,400 Speaker 1: when rates were six and five and six and seven, 823 00:47:19,400 --> 00:47:22,560 Speaker 1: you were earning five or six percent on on the cash. 824 00:47:23,080 --> 00:47:26,280 Speaker 1: That was a big cushion. Um. Now, obviously you're obligated 825 00:47:26,320 --> 00:47:29,239 Speaker 1: to pay any dividends from your short position, but but 826 00:47:29,400 --> 00:47:31,760 Speaker 1: a lot of shorts you know, have very low yields 827 00:47:31,840 --> 00:47:35,880 Speaker 1: or don't pay dividends. That was a nice, nice, you know, 828 00:47:35,960 --> 00:47:38,759 Speaker 1: cushion to the short side. That all went away with 829 00:47:38,840 --> 00:47:42,560 Speaker 1: ZERP right. And there was another factor that prior to 830 00:47:42,960 --> 00:47:46,719 Speaker 1: really uh the GFC that there was kind of a 831 00:47:47,600 --> 00:47:51,480 Speaker 1: floor on negative rebates at zero percent. That in effect 832 00:47:51,520 --> 00:47:54,400 Speaker 1: that unless it was a really crazy risk ARB situation 833 00:47:54,520 --> 00:47:57,160 Speaker 1: or something that it was very rare that you actually 834 00:47:57,160 --> 00:47:59,759 Speaker 1: had to pay to short something, you might earn a 835 00:47:59,800 --> 00:48:01,880 Speaker 1: low or interest rate. You might earn two percent instead 836 00:48:01,880 --> 00:48:04,319 Speaker 1: of six percent on the cash, but you didn't have 837 00:48:04,400 --> 00:48:08,800 Speaker 1: to pay negative ten or twenty. And with the advent 838 00:48:08,880 --> 00:48:12,319 Speaker 1: of much more transparent market algorithmic trading, where you got 839 00:48:12,520 --> 00:48:15,480 Speaker 1: these monster books that are long and short or whatever, 840 00:48:16,400 --> 00:48:19,120 Speaker 1: rebate rates you know, often go negative and hard to 841 00:48:19,120 --> 00:48:23,280 Speaker 1: borrow stocks, and that became a new reality. So those 842 00:48:23,280 --> 00:48:27,719 Speaker 1: two factors definitely impacted your returns on the short side, 843 00:48:27,760 --> 00:48:31,799 Speaker 1: both relatively and uh and and absolutely, Jim, I think 844 00:48:31,800 --> 00:48:33,160 Speaker 1: that's a great place to leave it. I mean, we 845 00:48:33,200 --> 00:48:36,000 Speaker 1: could talk for hours and hours longer, but this was 846 00:48:36,080 --> 00:48:38,640 Speaker 1: a real treat. It's kind of crazy. It took this 847 00:48:38,719 --> 00:48:40,840 Speaker 1: so long to have you on, but it seems like 848 00:48:40,840 --> 00:48:45,759 Speaker 1: perfect timing. So appreciate you coming on online. I'm so 849 00:48:45,840 --> 00:48:48,040 Speaker 1: happy we finally finally got to do it. Thank you. 850 00:48:48,040 --> 00:48:51,000 Speaker 1: Gotta do it again, no more waiting six years things 851 00:48:51,040 --> 00:49:07,759 Speaker 1: all right, all right, thank you? That was fun. Yeah, well, 852 00:49:07,920 --> 00:49:10,239 Speaker 1: obviously that was great. Is a real treat to talk 853 00:49:10,280 --> 00:49:13,200 Speaker 1: to Jim. Hearing him talk about some of these other 854 00:49:13,280 --> 00:49:16,799 Speaker 1: areas that aren't tech and how much he sees like 855 00:49:17,000 --> 00:49:19,080 Speaker 1: this sort of what he views is like this egregious 856 00:49:19,080 --> 00:49:23,359 Speaker 1: evaluation is pretty eye opening. Yeah, and it sort of 857 00:49:23,400 --> 00:49:27,400 Speaker 1: gets to the that ponzi no nomics point, Like, obviously 858 00:49:27,560 --> 00:49:31,880 Speaker 1: a stock isn't necessarily a ponzi. You know, a company 859 00:49:31,920 --> 00:49:35,360 Speaker 1: can have real cash flows and real potential profits. But 860 00:49:36,160 --> 00:49:38,760 Speaker 1: it does feel like we have had this, I guess, 861 00:49:38,760 --> 00:49:43,240 Speaker 1: this overall dynamic of just money flowing into things almost indiscriminately. 862 00:49:43,280 --> 00:49:45,840 Speaker 1: It feels like, well, you know one thing too, is 863 00:49:46,239 --> 00:49:48,600 Speaker 1: this listening to this? And it's sort of obvious, but 864 00:49:48,640 --> 00:49:51,560 Speaker 1: I think it's worth driving home. The sticks are extremely 865 00:49:51,680 --> 00:49:56,600 Speaker 1: high for whether this question of will inflation essentially be 866 00:49:56,640 --> 00:49:59,000 Speaker 1: transitory or will like or are we in a new 867 00:50:00,120 --> 00:50:04,200 Speaker 1: stained higher inflation, higher rate environment, Because if we really are, 868 00:50:04,360 --> 00:50:07,000 Speaker 1: like the yields are going to continue to chase it, 869 00:50:07,040 --> 00:50:08,480 Speaker 1: then that's where you get it. You know, you're talking 870 00:50:08,440 --> 00:50:11,160 Speaker 1: about utilities or you talk about like reads like these 871 00:50:11,160 --> 00:50:14,279 Speaker 1: are sort of like industries and sectors that aren't particularly 872 00:50:14,880 --> 00:50:18,320 Speaker 1: sexy by any stretch, but they are very rate sensitive 873 00:50:18,400 --> 00:50:21,160 Speaker 1: and there's a lot of room for multiples potentially to 874 00:50:21,239 --> 00:50:23,279 Speaker 1: come down. So do you hear them talking about reads 875 00:50:23,320 --> 00:50:24,840 Speaker 1: or do you hear them talking about data centers or 876 00:50:24,880 --> 00:50:27,000 Speaker 1: do you hear them talk about utilities in this sort 877 00:50:27,000 --> 00:50:30,319 Speaker 1: of same breath as fin techs and cryptos and gig 878 00:50:30,360 --> 00:50:33,360 Speaker 1: economy stocks. You could see like how high the stakes 879 00:50:33,400 --> 00:50:36,440 Speaker 1: are for like, well, where do where do rates end up? 880 00:50:36,480 --> 00:50:38,960 Speaker 1: What is like terminal? What does the terminal look like? Right? 881 00:50:39,239 --> 00:50:42,680 Speaker 1: Like your entire reputation as an investor is going to 882 00:50:42,719 --> 00:50:44,920 Speaker 1: come down to whether you've got the inflation called right, 883 00:50:45,000 --> 00:50:47,120 Speaker 1: because that's going to change everything in markets, right, I 884 00:50:47,120 --> 00:50:49,200 Speaker 1: mean arguable that our head, but I mean still yeah, 885 00:50:49,280 --> 00:50:51,840 Speaker 1: like there's huge swaths of the market that could be 886 00:50:51,960 --> 00:50:57,240 Speaker 1: very highly, highly affected by what goes on from here. Still, anyway, 887 00:50:58,120 --> 00:51:01,319 Speaker 1: tons to digest? There to do? Can we do an 888 00:51:01,320 --> 00:51:04,759 Speaker 1: episode where I interview you about fintech? I mean, I 889 00:51:04,800 --> 00:51:06,719 Speaker 1: do have thoughts, and it did. It did come up 890 00:51:06,760 --> 00:51:11,320 Speaker 1: recently in our stable coin episode the parallels with p 891 00:51:11,480 --> 00:51:14,200 Speaker 1: t P. But I do feel like to some extent, 892 00:51:14,280 --> 00:51:19,240 Speaker 1: like the peer to peer bubble or direct lending bubble 893 00:51:19,480 --> 00:51:22,400 Speaker 1: was like a very nice microcosm of a lot of 894 00:51:22,400 --> 00:51:25,319 Speaker 1: the trends that we're seeing now. But anyway, um, let's 895 00:51:25,360 --> 00:51:27,680 Speaker 1: leave it there. Let's leave it there. Okay, this has 896 00:51:27,719 --> 00:51:31,160 Speaker 1: been another episode of the All Thoughts podcast. I'm Tracy Alloway. 897 00:51:31,400 --> 00:51:33,960 Speaker 1: You can follow me on Twitter at Tracy Alloway and 898 00:51:34,000 --> 00:51:37,760 Speaker 1: I'm Joe. You can follow me on Twitter at The Stalwart. 899 00:51:38,080 --> 00:51:40,759 Speaker 1: Follow our guest Jim Chano is on Twitter. He's at 900 00:51:40,880 --> 00:51:44,319 Speaker 1: Wall Street Cynic. Follow our producer Carmen rond Veguez at 901 00:51:44,360 --> 00:51:47,239 Speaker 1: Carmen Arman. Follow the Bloomberg Head Of podcast for in 902 00:51:47,320 --> 00:51:50,560 Speaker 1: chest leav at bray CHESSCA Today, and check out all 903 00:51:50,600 --> 00:51:54,440 Speaker 1: of our podcasts Bloomberg under the handle head Podcasts. Thanks 904 00:51:54,440 --> 00:51:54,960 Speaker 1: for listening to