WEBVTT - BONUS: Muddy Waters Capital Founder Carson Block 0:00:02.520 --> 0:00:11.879 Bloomberg Audio Studios, Podcasts, radio news. This is Masters in 0:00:11.960 --> 0:00:15.480 Business with Barry Ritholts on Bloomberg Radio. 0:00:17.040 --> 0:00:21.800 This week we have an extra special bonus episode live 0:00:22.200 --> 0:00:27.800 from future Proof. My conversation with Muddy Waters Carson Block 0:00:28.320 --> 0:00:34.560 really a fascinating conversation, not only about how he developed 0:00:34.560 --> 0:00:39.520 an interest in shorting fraudulent equities and companies, but how 0:00:39.560 --> 0:00:44.839 his firm has evolved into a comprehensive research shop and 0:00:45.640 --> 0:00:49.480 a long short hedge fund. I thought the conversation was fascinating, 0:00:49.680 --> 0:00:52.560 and I think you will also, with no further ado. 0:00:53.240 --> 0:00:59.560 My conversation with Muddy Waters Carson Block live at Citywide 0:00:59.640 --> 0:01:05.600 future Proof Miami. I'm so fascinated by your career, what 0:01:05.640 --> 0:01:07.200 you've done, what you've built. 0:01:08.120 --> 0:01:11.680 I first kind of became aware of you. I don't know. 0:01:11.720 --> 0:01:13.760 It seems like it was a long time ago with 0:01:13.840 --> 0:01:19.640 the reverse Chinese mergers and Sino Forrest. Then wait, China 0:01:19.760 --> 0:01:22.319 is doing what. I don't understand any of this. Tell 0:01:22.400 --> 0:01:25.920 us how you kind of fell into that aspect of 0:01:26.760 --> 0:01:30.800 markets and how you ended up becoming an activist short seller. 0:01:31.160 --> 0:01:35.120 I will try to nutshell this, but I grew up 0:01:35.160 --> 0:01:40.160 in investing. My father was an equity analyst and was 0:01:40.200 --> 0:01:45.600 working with him from ninety nine to two alongside covering microcaps. 0:01:46.319 --> 0:01:50.320 And we were just getting lied to incessantly by these managements. 0:01:50.400 --> 0:01:52.680 And back then they had forty five days to file 0:01:52.720 --> 0:01:55.280 their forms for so let me take them on non 0:01:55.360 --> 0:01:58.640 deal roadshow to meet institutions. Stock would go up and 0:01:58.720 --> 0:02:01.720 let me'd find out later that hit the bid. So 0:02:03.400 --> 0:02:06.520 this is the same time that you had the largest 0:02:06.520 --> 0:02:11.119 companies in the world like Enron, WorldCom Health South Hidelphia 0:02:11.160 --> 0:02:16.360 blowing up an accounting scandals. So my my realization around 0:02:16.400 --> 0:02:19.440 two thousand and two, I was really demoralized. It's like, look, 0:02:19.520 --> 0:02:22.760 I want to be an investor, but this is this 0:02:22.919 --> 0:02:26.560 market is riddled with financial predators from top to bottom. 0:02:27.240 --> 0:02:32.160 How do I protect myself against that? So I went 0:02:32.200 --> 0:02:35.560 to law school with just this amorphous idea that that 0:02:35.639 --> 0:02:38.919 would give me some tools, and you know, fast forward, 0:02:39.480 --> 0:02:42.959 decided to practice law, ended up in China. Jones Day 0:02:43.480 --> 0:02:46.480 left to start the first self storage business in mainland China. 0:02:46.800 --> 0:02:50.880 I don't recommend it, and anyway, I was just sort of, 0:02:50.919 --> 0:02:53.280 you know, keep trying to keep that business from failing. 0:02:53.520 --> 0:02:56.800 In two thousand and nine, when my father got really 0:02:56.800 --> 0:02:59.959 excited about a bunch of these Chinese companies that had 0:03:00.040 --> 0:03:03.400 had gone public in the US via reverse merger, and 0:03:04.120 --> 0:03:07.399 like I had my own problems, I wasn't really that interested. 0:03:07.480 --> 0:03:09.240 But he asked me to look and he asked me 0:03:09.240 --> 0:03:12.280 to look at this first one called Orient Paper. And 0:03:12.600 --> 0:03:14.280 the first thing he told me he'd been at a 0:03:14.360 --> 0:03:17.440 conference that these guys had gone to, and you know 0:03:17.639 --> 0:03:20.640 what he's hearing is, oh, you know, chairman Leo, he's 0:03:20.680 --> 0:03:24.240 different from other Chinese company chairmen. He doesn't smoke, and 0:03:24.280 --> 0:03:27.080 he doesn't chase women. And you know, my father's telling 0:03:27.120 --> 0:03:29.519 me this woman, you know, late night in Shanghai, and 0:03:29.560 --> 0:03:32.400 I'm like, I'm sure neither of those things is actually true. 0:03:32.560 --> 0:03:35.120 But the fact that this is making its rounds at 0:03:35.160 --> 0:03:41.280 the conference, somebody is trying to game Western investor psychology. 0:03:41.800 --> 0:03:45.800 So that got my attention. Early twenty ten, went up 0:03:45.800 --> 0:03:48.640 to see the company and it was a Potemkin factory, 0:03:48.680 --> 0:03:51.600 Like I never believed that such a thing could exist, 0:03:51.880 --> 0:03:54.400 where at the time it's market cap is one hundred 0:03:54.440 --> 0:03:57.360 and fifty million, had just reported one hundred three million 0:03:57.400 --> 0:04:01.240 dollars in revenue and the real revenue two to five 0:04:01.320 --> 0:04:05.880 million dollars that it was these empty box So I 0:04:05.960 --> 0:04:08.840 exposed that with the thirty some ond page report. And 0:04:08.880 --> 0:04:11.160 the only reason I did that was I felt like 0:04:11.200 --> 0:04:13.280 I was stuck in my business in Shanghai, like a 0:04:13.280 --> 0:04:15.560 few hundred people who are leaving their stuff. 0:04:15.320 --> 0:04:16.760 In my facility. 0:04:16.800 --> 0:04:20.800 The industry did not exist because it's a bad industry 0:04:20.839 --> 0:04:24.200 to be in in China, and I don't know, there's 0:04:24.240 --> 0:04:26.520 like a power and feeling like you have nothing to lose. 0:04:26.560 --> 0:04:28.200 So I just threw the ball as far down the 0:04:28.200 --> 0:04:30.159 field as I could wrote that report. 0:04:30.720 --> 0:04:31.520 It went viral. 0:04:32.240 --> 0:04:34.840 Quickly found out this was systemic, and one year later 0:04:34.920 --> 0:04:37.560 Bloomberg's like, oh, he's one of the fifty most influential 0:04:37.600 --> 0:04:40.800 in global finance with Ben Bernanki and Warren Buffett, and 0:04:40.800 --> 0:04:43.120 it was like, well, yes, of course that's the natural 0:04:43.320 --> 0:04:44.599 path from self storage. 0:04:44.640 --> 0:04:48.000 That's every thirty page analyst report tends to lead to that. 0:04:48.320 --> 0:04:51.600 So it's funny because you and I kind of came 0:04:51.640 --> 0:04:55.320 of age in the markets similar period. The dot com 0:04:55.360 --> 0:04:59.880 implosion was certainly fundamental to my view of both markets 0:05:00.240 --> 0:05:04.320 and short sellers, and then the financial crisis. How do 0:05:04.400 --> 0:05:06.960 you look at how the markets have changed over the 0:05:07.080 --> 0:05:12.920 ensuing decade, as between QE and zero interest rate policy, 0:05:12.960 --> 0:05:17.560 and more recently the Cares Act and the mascul fiscal stimulus. 0:05:18.040 --> 0:05:21.240 I grew up thinking short sellers were the ones who 0:05:21.360 --> 0:05:25.680 kept the market honest and responsible. That seems to be 0:05:25.720 --> 0:05:27.039 a minority of you these days. 0:05:28.040 --> 0:05:33.200 Yeah, well, I've come to the view that there's an 0:05:33.279 --> 0:05:38.440 inverse relationship between interest rates and the amount of dishonesty 0:05:38.480 --> 0:05:42.760 in society. So the lower your rates, the more easy 0:05:42.800 --> 0:05:46.120 money is, the more dishonesty you get in society. And 0:05:46.200 --> 0:05:53.200 so the emergency monetary policy outlived the emergency. And you 0:05:53.279 --> 0:05:55.400 know what I felt is that just each year I've 0:05:55.400 --> 0:05:59.719 been doing this, that investors are more and more anesthetized 0:05:59.760 --> 0:06:04.320 to Now. The flip side of that is that behaviors 0:06:04.360 --> 0:06:08.720 that were once really only present in microcap land will 0:06:08.760 --> 0:06:12.600 those bubble up to MidCap land because of the inflation 0:06:12.680 --> 0:06:16.000 of market caps. So on one hand, my business has 0:06:16.040 --> 0:06:21.400 gotten harder because unless it's something really really egregious, like 0:06:21.520 --> 0:06:25.400 people don't care. But then yes, you'll find that type 0:06:25.440 --> 0:06:29.400 of behavior now even in mid cap companies, and you 0:06:29.400 --> 0:06:34.120 know an environment where and just to be clear, it's 0:06:34.120 --> 0:06:37.120 a small minority of companies that are frauds the world's 0:06:37.160 --> 0:06:41.000 bigger problem is the gray zone, right, the things where yeah, 0:06:41.040 --> 0:06:44.760 nobody's gonna get convicted. Tech you know, lawyers have signed off, 0:06:45.400 --> 0:06:49.160 the auditor is okay with it, and that gray zone 0:06:49.279 --> 0:06:56.560 behavior whereby you can significantly misrepresent economic reality that is 0:06:56.600 --> 0:06:59.240 almost maybe the norm in many respects. 0:06:59.360 --> 0:07:02.040 So this secret is to corrupt the attorneys and the 0:07:02.120 --> 0:07:03.560 orderers and then it's home free. 0:07:04.040 --> 0:07:05.760 Wait, corrupt the attorneys. 0:07:06.600 --> 0:07:11.760 Right, So you mentioned microcaps, small cap mid caps. I 0:07:11.800 --> 0:07:14.680 read a note of yours not too long ago talking 0:07:14.720 --> 0:07:18.200 about the big caps and the megacaps, where so many 0:07:18.280 --> 0:07:20.440 people have been calling this a bubble, and so many 0:07:20.440 --> 0:07:23.080 people have saying, gee, I'd like to shorten video. 0:07:23.320 --> 0:07:24.800 You kind of went out of your way. 0:07:24.600 --> 0:07:29.280 To say, hey, maybe one day there's a downside play here, 0:07:29.360 --> 0:07:33.000 but this freight train is really difficult to step in 0:07:33.040 --> 0:07:36.280 front of. What are your thoughts on on the hyperscalers, 0:07:36.320 --> 0:07:38.160 the megacap tech companies? 0:07:38.440 --> 0:07:39.080 Three things? 0:07:39.800 --> 0:07:43.640 Number one, there are easier better shorts out there than 0:07:43.840 --> 0:07:47.360 in video. Number two. The reason why I was making 0:07:47.400 --> 0:07:51.200 those comments is that flows have driven so much of this, 0:07:51.320 --> 0:07:55.640 Like you have obviously the passive bid, and it squeezes 0:07:55.720 --> 0:08:00.320 floats and by squeezing floats. It's not a linear impact 0:08:00.360 --> 0:08:04.600 on stock prices. It's a parabolic impact on stock prices 0:08:04.640 --> 0:08:09.120 at least of the winners. So the idea that something 0:08:09.200 --> 0:08:12.440 is overvalued, that's a reference to its fundamental value. But 0:08:12.640 --> 0:08:16.440 I think you have to consider its technical value. And 0:08:16.480 --> 0:08:21.320 that's what everybody fails to say when they're criticizing these 0:08:21.600 --> 0:08:23.000 things on a fundamental basis. 0:08:23.080 --> 0:08:25.560 It's like, well what are the technicals of this? Now? 0:08:26.280 --> 0:08:27.280 That's my second point. 0:08:27.320 --> 0:08:30.080 My third point is up till one month ago, I 0:08:30.120 --> 0:08:35.240 was completely sanguine on the on SMP and markets in 0:08:35.240 --> 0:08:38.640 general and the economy. And my view has one eight 0:08:38.960 --> 0:08:42.040 And I think the wrong question is well what do 0:08:42.080 --> 0:08:44.760 you think of the valuations or stock prices of XYZ 0:08:44.880 --> 0:08:48.160 of these AI companies? And the right question is what 0:08:48.440 --> 0:08:51.920 is about to happen to society and to the market 0:08:52.000 --> 0:08:55.160 as a result of AI. And I and like I 0:08:55.200 --> 0:08:58.480 said on this like a month ago, I wouldn't even 0:08:58.480 --> 0:09:01.600 refer to these models as a I had this rule. 0:09:01.840 --> 0:09:04.319 These are large language models. They are not going to 0:09:04.360 --> 0:09:08.920 create new information. They merely process information that's already out there. 0:09:09.200 --> 0:09:12.440 Don't call it AI, they're lllms. But I call it 0:09:12.480 --> 0:09:13.040 AI now. 0:09:13.080 --> 0:09:17.520 Right, they're neither artificial nor intelligence. They're something else. But 0:09:17.720 --> 0:09:20.880 given that, and given this one eighty but we're going 0:09:20.920 --> 0:09:23.960 to dive right into AI in a minute. But since 0:09:24.600 --> 0:09:28.520 you built your reputation before the firm is pivoted into 0:09:28.760 --> 0:09:33.520 a full service research shop, both long and short, you've 0:09:33.559 --> 0:09:39.320 criticized SPACs, crypto thematic ETFs, NFTs. Where has there been 0:09:39.360 --> 0:09:43.640 the biggest destruction of investor wealth in that group? 0:09:44.679 --> 0:09:47.240 Well in that group, Okay, so it's a little bit 0:09:47.400 --> 0:09:51.520 in vogue. I think to point toward private credit right now, 0:09:52.440 --> 0:09:56.440 and the reality is like who knows, right, there's there's 0:09:56.480 --> 0:09:57.040 no data. 0:09:57.160 --> 0:09:58.280 It's really opaque. 0:09:58.800 --> 0:10:02.120 My concerns there, and I recognize that data is not 0:10:02.240 --> 0:10:06.480 the plural of anecdote. But in the past few months, 0:10:06.559 --> 0:10:09.360 some of the research we've done, I've looked at some 0:10:10.000 --> 0:10:13.000 abs issuers and this is not private credit, but I 0:10:13.120 --> 0:10:15.959 was really surprised to see as I went down the 0:10:16.040 --> 0:10:19.720 rabbit hole of abs issuances that a lot of the 0:10:19.720 --> 0:10:24.320 paperwork that should be done to basically show release of 0:10:24.440 --> 0:10:28.080 lians of loans that are being securitized and filed publicly, 0:10:28.880 --> 0:10:32.200 that paperwork is not being filed publicly and at first, 0:10:32.240 --> 0:10:34.520 I thought, oh my god, we've got these guys on fraud. 0:10:34.559 --> 0:10:37.760 They're selling off loans that are still encumbered. And I 0:10:37.800 --> 0:10:41.880 spoke with a couple of securitization attorneys and they said, no, no, no, 0:10:41.920 --> 0:10:45.640 that's market practice. The warehouse lender just provides a letter 0:10:45.760 --> 0:10:48.560 saying that the lians are released. It doesn't get filed publicly. 0:10:49.120 --> 0:10:51.120 And so I asked each of them, well, what's to 0:10:51.160 --> 0:10:54.800 stop the sponsor of the securitization from forging the letter 0:10:54.880 --> 0:10:57.240 because he thinks, like, look, the loans are, the ABSs 0:10:57.280 --> 0:11:00.560 are already over collateralized. I can double pledge these, you know, 0:11:00.600 --> 0:11:02.960 because if the warehouse lender, if it's not public, the 0:11:02.960 --> 0:11:04.959 warehouse lender wouldn't know if somebody forged it. 0:11:06.080 --> 0:11:09.360 Huh yeah, that's a good point. 0:11:10.120 --> 0:11:13.120 And so I when I see that the largest financial 0:11:13.160 --> 0:11:15.920 institutions are not dotting eyes and crossing t's. 0:11:16.559 --> 0:11:16.720 You know. 0:11:16.760 --> 0:11:19.480 I've a conversation with somebody recently who gave me data 0:11:19.480 --> 0:11:22.200 point from a private equity firm that's doing a lot 0:11:22.240 --> 0:11:25.160 of clos The conversation from somebody who's on the p 0:11:25.520 --> 0:11:29.080 side going to the CLO guys is like, hey, so 0:11:29.160 --> 0:11:31.560 what do we know about the performance of the underlying loans, 0:11:31.880 --> 0:11:33.200 like how are they performing? 0:11:33.600 --> 0:11:36.560 Huh? Why did we track that we don't service them? 0:11:36.920 --> 0:11:38.120 Like this is. 0:11:38.120 --> 0:11:42.640 Reminiscent of right out of the Yeah, this is reminiscent 0:11:42.679 --> 0:11:45.360 of some of the behaviors and credit. So then okay, 0:11:45.840 --> 0:11:48.720 I combined again, it's not data, these are anecdotes, but 0:11:48.760 --> 0:11:51.080 I combine that with also what I noticed starting a 0:11:51.080 --> 0:11:53.600 few years ago. You know, every time I talk to 0:11:53.640 --> 0:11:56.880 an allocator, you know, because we're actually we run a fund. 0:11:56.880 --> 0:11:58.719 We're a hedge fund, so you know, we're talking to 0:11:58.720 --> 0:12:01.360 allocators all the time. And you know what do you 0:12:01.360 --> 0:12:04.280 guys investing in everybody all of a sudden starts saying 0:12:04.320 --> 0:12:06.480 private credit, private credit, private credit. 0:12:06.960 --> 0:12:07.160 You know. 0:12:07.280 --> 0:12:09.440 That also reminds me of the Internet bubble, because the 0:12:09.440 --> 0:12:11.960 way I used to think about that as it was 0:12:12.000 --> 0:12:16.600 happening is there's too much money chasing too few investable companies. 0:12:16.640 --> 0:12:19.920 So I don't think if there are problems in private credit, 0:12:20.000 --> 0:12:22.599 Like my first bet is not that it's at Apollo, 0:12:23.160 --> 0:12:26.360 But I also know we have looked at the insurance industry, 0:12:26.720 --> 0:12:29.120 and so I know a lot of these insurers have 0:12:29.160 --> 0:12:32.640 been bought by smaller pe firms. I mean they're basically 0:12:32.720 --> 0:12:35.440 using these things to finance their deals. The Ft did 0:12:35.480 --> 0:12:38.400 a great article a few Alphaville a few months ago 0:12:38.520 --> 0:12:41.280 on the credit ratings agencies. I mean, it's not even 0:12:41.320 --> 0:12:44.360 SMP in Moody's. The number one is Egan Jones. So 0:12:44.480 --> 0:12:47.280 corporate headquarters is like an eight bedroom house in suburban 0:12:47.920 --> 0:12:51.720 Boston literally, and I think they did like two thousand 0:12:51.760 --> 0:12:55.480 deals last year that they raided. I mean, if you 0:12:56.040 --> 0:12:59.880 lived through the GFC and we're paying attention, you know, 0:13:00.240 --> 0:13:03.520 like starting to see some dots connect. So that does 0:13:03.559 --> 0:13:07.400 have me worried also, and if that does intersect with 0:13:07.600 --> 0:13:10.640 what I think could happen in the labor markets from 0:13:10.800 --> 0:13:13.600 AI job displacement, you know, like I know you want 0:13:13.640 --> 0:13:15.079 to pivot back to it, but I'm just going to 0:13:15.120 --> 0:13:18.120 put it out there. I think it's not unrealistic to 0:13:18.200 --> 0:13:22.040 say fifteen percent of knowledge work jobs in the US 0:13:22.440 --> 0:13:24.560 in three years are gone. And if it's not three, 0:13:24.600 --> 0:13:26.959 it's going to be five. But it might not be fifteen, 0:13:27.000 --> 0:13:30.040 it could be twenty twenty five percent. I mean, that's 0:13:30.360 --> 0:13:32.000 and I can work through how I got there. 0:13:32.320 --> 0:13:37.680 Let's dive deeper into AI. It's both an investible asset 0:13:37.880 --> 0:13:42.400 a shortable asset, and a tool that you're using to 0:13:42.520 --> 0:13:44.480 run a business. So I want to hit each of 0:13:44.520 --> 0:13:48.400 those things, starting with how are you using AI as 0:13:48.440 --> 0:13:54.520 a tool to manage a business to identify long and 0:13:54.559 --> 0:13:59.839 short opportunities? What is true AI not just lms me 0:14:00.280 --> 0:14:01.840 for your daily work? 0:14:02.240 --> 0:14:05.320 Well, I mean in the past again, since finding religion 0:14:05.440 --> 0:14:08.360 just a few weeks ago. I mean, this is something 0:14:08.400 --> 0:14:11.160 I've been hammering. Most of my employees have worked for 0:14:11.200 --> 0:14:15.040 me for over ten years. We're an old firm for 0:14:15.080 --> 0:14:16.840 a hedge fund. I mean I used to joke that 0:14:17.280 --> 0:14:20.080 this is probably true that if you look at trips 0:14:20.080 --> 0:14:23.560 and falls per dollar of AUM, we maybe are the 0:14:23.600 --> 0:14:26.640 highest in the world. And that was kind of funny 0:14:26.640 --> 0:14:30.160 to say until I started saying, guys, why are you 0:14:30.360 --> 0:14:33.680 literally taking months to put together one hundred and fifty 0:14:33.840 --> 0:14:38.160 page slide decks to discuss something internally? Stick it in 0:14:38.560 --> 0:14:42.280 the machine. And so one of my analysts, my longest 0:14:42.280 --> 0:14:49.880 serving employee, ex ex auditor, super bright, but al we 0:14:50.000 --> 0:14:53.360 struggled with communication. I mean one of my skills was 0:14:54.200 --> 0:14:58.880 over months, weeks or months, many many hours trying to 0:14:59.000 --> 0:15:02.560 draw out of her the patterns that she sees. But 0:15:02.680 --> 0:15:06.680 she's just unable to elucidate. Now she's just pumping out 0:15:06.680 --> 0:15:09.800 the memoranda from Claude, and I'm like, wow, this is 0:15:09.960 --> 0:15:12.480 I mean, Cindy, this has saved us, like, you know, 0:15:12.560 --> 0:15:16.120 probably five weeks of you know, like frustrated conversations in 0:15:16.160 --> 0:15:20.240 the conference room like this. So from that perspective, it's helping, 0:15:20.760 --> 0:15:24.640 I think hurting a little bit. You know. I've always 0:15:24.640 --> 0:15:27.600 felt that we have an edge as active as short 0:15:27.640 --> 0:15:31.160 sellers over our competition in terms of how I write 0:15:31.240 --> 0:15:32.000 and communicate. 0:15:32.440 --> 0:15:33.480 Like that edge has gone. 0:15:33.520 --> 0:15:35.760 I mean, you can go to Claude and say, hey, 0:15:36.080 --> 0:15:39.080 you know, write this up as a short report in 0:15:39.120 --> 0:15:39.960 the voice of. 0:15:39.920 --> 0:15:43.160 Carson Block, and you know it's not bad. I mean, 0:15:43.200 --> 0:15:46.280 i it gets you a lot of the way there. 0:15:46.520 --> 0:15:49.160 So so let me flip the question on you and 0:15:49.240 --> 0:15:56.080 ask how has AI changed the fraudster's toolkit? What can 0:15:56.160 --> 0:16:00.680 Claude do for a fabricated document, deep fakes, fake video, 0:16:00.800 --> 0:16:05.440 fake voice, fake docs, fake everything. Has it just become 0:16:05.480 --> 0:16:08.320 an arms race between the good guys and the bad guys? 0:16:10.360 --> 0:16:14.240 Well, look, I mean the tools for forgery never really 0:16:14.280 --> 0:16:16.320 needed to be that sophisticated. I Mean one of my 0:16:16.360 --> 0:16:20.400 favorite examples of that was the Peregrine Financial That guy 0:16:20.520 --> 0:16:24.760 had a post office box and an ink chat and 0:16:24.800 --> 0:16:27.640 that's how he forged his auditor letters. And you know 0:16:27.680 --> 0:16:28.840 that was a few hundred million. 0:16:28.880 --> 0:16:33.200 But Bernie Madoff did not exactly use the most sophisticated technology. 0:16:33.360 --> 0:16:36.720 Yeah, I think the thing that will get to be 0:16:36.800 --> 0:16:40.800 more interesting is if you're a company CEO and you 0:16:40.840 --> 0:16:43.000 know you're kind of you know, like you're pumping your 0:16:43.000 --> 0:16:46.520 stock price, you're monetizing it and hitting the bid. I 0:16:46.520 --> 0:16:49.280 think the more interesting thing is querying it. You know, 0:16:50.000 --> 0:16:53.520 if I were the CEO of XYZ company, what would 0:16:53.560 --> 0:16:55.080 a short sellar focus on? 0:16:55.560 --> 0:16:57.520 You know, like what should I do about that? 0:16:57.840 --> 0:16:59.960 So I think that we're going to get in this 0:17:00.080 --> 0:17:05.159 cat and mouse game of preemption and reaction. But I mean, 0:17:05.200 --> 0:17:06.560 at the end of the day, I mean, if you're 0:17:07.040 --> 0:17:09.240 you know, if you're just ramping your stock price and 0:17:09.359 --> 0:17:12.160 mortgaging your future, and I think as active as short 0:17:12.160 --> 0:17:15.040 sellers will still get there, but you could at least 0:17:15.119 --> 0:17:19.520 dig a wider moat around your you know, around what 0:17:19.560 --> 0:17:22.560 you're doing if you use these AI tools. 0:17:23.240 --> 0:17:27.800 So I always think of short sellers like Jim Chainos 0:17:27.880 --> 0:17:32.879 and the original guys who who really pioneered forensic accounting 0:17:33.280 --> 0:17:37.560 as being so deep into the documents. How useful are 0:17:37.600 --> 0:17:43.119 tools like Claude Cowork as a forensic accountant to help 0:17:43.480 --> 0:17:50.080 either identify patterns in every SEC filing or honing in 0:17:50.119 --> 0:17:54.040 on a specific company's filings and seeing what doesn't smell 0:17:54.119 --> 0:17:55.040 right for me. 0:17:55.200 --> 0:17:57.720 That's a little TBD. I don't know yet. 0:17:57.760 --> 0:17:59.680 I mean, I'm not sure that you can just upload 0:17:59.680 --> 0:18:02.919 a ten and say, oh, you know, what's dodgy about this? 0:18:03.000 --> 0:18:06.320 I mean, first of all, one of the one of 0:18:06.359 --> 0:18:09.040 the secrets. It's not a secret, but of what we 0:18:09.119 --> 0:18:13.760 do is we obtain documents from places people never look. 0:18:14.240 --> 0:18:17.960 So again, like we're you know, we're pulling UCC files 0:18:18.200 --> 0:18:22.239 to look at asset securitizations. We love companies that have 0:18:22.320 --> 0:18:27.720 overseas subsidiaries because most overseas jurisdictions there are publicly filed 0:18:27.760 --> 0:18:28.800 financial statements. 0:18:29.119 --> 0:18:31.240 So we'll pull those and upload them. 0:18:31.520 --> 0:18:33.800 And then also, I'm sure it could really help connect 0:18:33.800 --> 0:18:35.800 the dots with people. I mean right now or up 0:18:35.880 --> 0:18:39.360 till now, we've had to rely on memory, like oh wait, yeah, 0:18:39.400 --> 0:18:41.920 this dude. You know, we've looked at fifty eight entities. 0:18:42.359 --> 0:18:45.480 This dude was in that entity. Oh interesting. So the 0:18:45.520 --> 0:18:48.040 AI is going to get rid of it's going to 0:18:48.240 --> 0:18:50.399 make that part easy. But you still have to go 0:18:50.480 --> 0:18:52.679 out and do the legwork. And you know, a lot 0:18:52.720 --> 0:18:54.639 of times you have to send people in person to 0:18:54.720 --> 0:18:58.399 do document retrieval. So I don't think it's as simple 0:18:58.440 --> 0:19:00.600 as you know, Hey, I woke up today and I 0:19:00.600 --> 0:19:02.840 want to be an activist short seller, like you know, 0:19:03.080 --> 0:19:05.760 which you know, claude, which company should I write about? 0:19:05.800 --> 0:19:08.359 And you know, what's my thesis? Like, you have to 0:19:08.359 --> 0:19:10.960 still do a lot of leg work. But the accounting 0:19:10.960 --> 0:19:16.280 stuff your claude has demonstrated internally again, turning my you know, 0:19:16.280 --> 0:19:21.639 my accounting analysts, the former auditor, turning her poorly expressed 0:19:21.760 --> 0:19:25.760 thoughts into actual words, you know. And of course she's 0:19:25.840 --> 0:19:27.840 iterating with it. No, no, no, that's not what I mean. 0:19:28.160 --> 0:19:30.679 But it's got real accounting knowledge. Oh well, according to 0:19:30.720 --> 0:19:32.480 ASC blah blah blah, and this does not meet the 0:19:32.520 --> 0:19:34.560 definition of the da da da N wow. 0:19:34.720 --> 0:19:36.560 I mean, that's it's really interesting. 0:19:36.640 --> 0:19:38.120 I mean, look, I think at the end of the day, 0:19:38.920 --> 0:19:40.800 part of the edge of being an active as short 0:19:40.800 --> 0:19:44.200 seller is the willingness to be sued, or the tolerance 0:19:44.240 --> 0:19:46.640 for being sued. So I'm not worried that a bunch 0:19:46.680 --> 0:19:49.119 of people are going to run out and like commoditize this. 0:19:49.320 --> 0:19:50.800 And and I think at the end of the day, 0:19:50.920 --> 0:19:55.520 also having a brand where if everybody can produce skeptical 0:19:56.200 --> 0:20:00.240 you know pieces, it's also knowing when the model is 0:20:00.320 --> 0:20:02.960 kind of bullying you, right, like no, no, because that 0:20:03.040 --> 0:20:06.000 happens too. I mean, these things are sickophantic, like wow, 0:20:06.040 --> 0:20:09.960 that's brilliant. Of course it's a fraud person, you know, no. 0:20:10.520 --> 0:20:15.439 To say nothing of double checking for hallucinations. And a 0:20:15.480 --> 0:20:18.320 bunch of lawyers who have been using AI keep getting 0:20:18.320 --> 0:20:21.879 into trouble because it's citing cases that don't really exist, 0:20:22.400 --> 0:20:26.240 and the judge's clerk, also using AI, discovers these cases 0:20:26.240 --> 0:20:30.240 don't exist. But you mentioned a word that's really fascinating. 0:20:30.800 --> 0:20:36.920 You mentioned edge. If all the participants in the markets 0:20:37.000 --> 0:20:41.160 long and short are using the same tools, is there 0:20:41.200 --> 0:20:43.760 any edge to be found that had there or is 0:20:43.800 --> 0:20:46.560 it really about how you're applying these tools where the 0:20:46.640 --> 0:20:47.400 edge comes from. 0:20:47.640 --> 0:20:48.720 That's an interesting question. 0:20:48.840 --> 0:20:50.879 I mean, look, on the on the short side, you 0:20:50.960 --> 0:20:53.480 only make money if people care, right, And so I 0:20:53.480 --> 0:20:58.639 think that's been the problem that most so since the GFC. 0:20:59.640 --> 0:21:03.280 Almost everybody who is running money principally focused on short 0:21:03.280 --> 0:21:06.840 strategies has gone out of business. I mean some you know, 0:21:06.920 --> 0:21:08.920 they rode off into the sunset. You know, I made 0:21:08.920 --> 0:21:12.399 a bunch of money, most carried out, you know. I 0:21:12.400 --> 0:21:15.040 think the problem that a lot of the short sellers 0:21:15.160 --> 0:21:18.600 have had and I had this too, you know, and 0:21:18.680 --> 0:21:20.960 have if I have to actively correct for it is 0:21:21.800 --> 0:21:23.800 you try. You tend to view the world the way 0:21:23.840 --> 0:21:26.320 it should be, not the way it is. And so 0:21:26.480 --> 0:21:29.920 that's the problem. Like when people short you know, Tesla 0:21:30.000 --> 0:21:33.400 because you know Elon Musk this and that, like nobody 0:21:33.440 --> 0:21:36.800 cares right and that that's that's the thing. So I 0:21:37.520 --> 0:21:40.960 think you to be good on the short side, you 0:21:41.080 --> 0:21:44.719 have to understand why people are buying the stock, and 0:21:44.760 --> 0:21:48.240 you have to have a view that goes directly against 0:21:48.240 --> 0:21:50.840 that or that undermines that thesis. And I think so 0:21:50.960 --> 0:21:54.240 much of the time that doesn't happen. So I don't know. 0:21:54.280 --> 0:21:57.480 I think the I don't know that this erodes the 0:21:57.720 --> 0:22:01.000 edge of just of judgment when it comes the longside 0:22:01.240 --> 0:22:03.320 or short side. And then on the long side, I 0:22:03.359 --> 0:22:05.879 mean kind of buy what the smart money is buying 0:22:05.920 --> 0:22:07.919 seems to have worked like I hate to say it, 0:22:07.960 --> 0:22:11.680 but you know, again, technicals versus fundamental value, the technical 0:22:11.760 --> 0:22:14.880 value of something. You know, I don't know that AI 0:22:15.240 --> 0:22:17.960 helps tongue with that right now, but it certainly can. 0:22:18.480 --> 0:22:22.320 Let's talk about AI pretenders, and I'm pulling something else 0:22:22.359 --> 0:22:25.320 you had written a while ago, and there's a little 0:22:25.320 --> 0:22:29.000 bit of a rhyme with late nineties every company edit 0:22:29.040 --> 0:22:31.800 a dot com and their stock would see a pop. 0:22:32.520 --> 0:22:36.000 What are you noticing amongst the fake AI stories, the 0:22:36.040 --> 0:22:39.919 fake pivots, the companies that really have nothing whatsoever to 0:22:40.040 --> 0:22:43.320 use to do with AI other than two or three 0:22:43.320 --> 0:22:45.960 people who work for the company have a Perplexity app 0:22:46.000 --> 0:22:50.520 on their phone. Tell us about the narrative of AI pretenders. 0:22:50.840 --> 0:22:52.959 Well, I look, I think if all of a sudden 0:22:52.960 --> 0:22:56.480 the company has started talking. So I first did this 0:22:57.040 --> 0:23:01.760