Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: The Robin Hood Foundation is enlisting the boldest names in
Speaker 2: finance for a stock picking contest. Participants are donating ten
Speaker 2: thousand dollars and making two stock picks, a long and
Speaker 2: a short per entry. Bloomberg LP, the parent of Bloomberg Television,
Speaker 2: is working with the Robin Hood Foundation on the competition.
Speaker 2: And one of the players here Carson Block. He's the
Speaker 2: founder and CEO of Muddy Waters. Carson is currently ranked
Speaker 2: at number twenty on the leaderboard and Carson this game.
Speaker 2: I'm getting a kick out of it because when it started,
Speaker 2: we were in a market that was net long, and
Speaker 2: now you're looking at a lot of people starting to
Speaker 2: win more deeply off their shorts. For example, Bill Ackman
Speaker 2: short the financials that looked smart today, Stan Druckenmiller's short
Speaker 2: consumer discretionary. What about you when you think about the
Speaker 2: ability to go short in this market, how deeply do
Speaker 2: you dive in?
Speaker 3: Well? So for us, I mean we do.
Speaker 1: All of our shorts are basically the subject of activist short.
Speaker 3: Reporting at some point.
Speaker 1: So the name that we're short for the contest anyway,
Speaker 1: and we're not actually short, it in real life anymore.
Speaker 3: But is Griffles, and.
Speaker 1: That was the subject of an activist short report by
Speaker 1: Gotham City Research, and that's a company based in Spain.
Speaker 1: And it's actually pretty interesting because you know, at this moment,
Speaker 1: obviously there's a lot of political turmoil, and you go
Speaker 1: to Vice President jd Vance's dressing down of NATO ministers
Speaker 1: a few weeks ago over a free speech in the EU.
Speaker 1: It's funny because with Griffles, the national regulator in Spain
Speaker 1: actually investigated the allegations by Gotham City Research and has
Speaker 1: largely corroborated them. Griffles expects to pay though a fine
Speaker 1: of no more than one million euro. However, the principles
Speaker 1: behind Gotham City Research are presently under criminal investigation for
Speaker 1: that report in Spain and could do up to six
Speaker 1: years prison time. So Griffls really does have this political
Speaker 1: overtone as well. That makes it interesting.
Speaker 4: Well, I want to talk about a stock that actually
Speaker 4: you don't recommend going short.
Speaker 5: I'm talking about Tesla.
Speaker 4: You spoke to Bloomberg TV about a month ago about
Speaker 4: Elon Musk and Tesla.
Speaker 5: Let's take a quick listen.
Speaker 1: It's one thing to ask whether you bet on Elon Musk,
Speaker 1: but I would not bet against him. I wonder if
Speaker 1: he's I suspect he has switched views on a macro level,
Speaker 1: but especially with how he thinks about Tesla, that would
Speaker 1: be a little bit embarrassing for him to say publicly.
Speaker 1: So yeah, maybe just banging the table about oh Ai
Speaker 1: AI and robotaxis is how he tries to cover up
Speaker 1: that sentiment shift internally.
Speaker 5: So Carson, that was on February eighteenth.
Speaker 4: The stock is down mightily since then, down about thirty
Speaker 4: eight percent year to date. I know that Tesla has
Speaker 4: broken the hearts of many folks who have tried to
Speaker 4: go short it. But is that still the advice don't
Speaker 4: bet against Elon Musk.
Speaker 1: Well, i'd say more aptly, Tesla has broken the backs
Speaker 1: of many people who've been shorted. But look, I still
Speaker 1: maintain that it's really hard to bet against Elon Musk.
Speaker 1: Of course, that was awesome timing when I said that,
Speaker 1: because it's been about the best short you could find
Speaker 1: on the planet since the moment in which I said that.
Speaker 1: But you know, I think that's more due to market
Speaker 1: factors and technicals and political uncertainty. Look, I've long been
Speaker 1: critical and I agree with many of the shorts over
Speaker 1: the years that he has not been honest. I've called
Speaker 1: him publicly a liar, but also nobody has played the
Speaker 1: public company game better than Elon Musk. Now is he
Speaker 1: doing ereper bowl damage to the Tesla brand with his
Speaker 1: political involvement. I mean maybe, But again, this guy for
Speaker 1: years and years and years has done nothing but pull
Speaker 1: rabbits out of the hat. Just when you thought like
Speaker 1: he was about to go over the edge of the cliff,
Speaker 1: he comes back. So it's just a very difficult person
Speaker 1: against against whom to bet. So yeah, I there, you know,
Speaker 1: We're happy looking elsewhere for shorts.
Speaker 6: What do you think about the broader mag seven?
Speaker 3: Carson?
Speaker 6: Back in October you said close your eyes and buy
Speaker 6: in terms of the big US stocks. For a while,
Speaker 6: that was a great still a great bet right until
Speaker 6: I guess the market hit it's high right in.
Speaker 3: Last month.
Speaker 6: Now we've seen the Magnificent seven come down. I think
Speaker 6: all of them are losers year to date, with the
Speaker 6: exception of Meta. Is is it time to short these
Speaker 6: stocks or do you think they're going to continue to
Speaker 6: have I guess a little bit of resilience even after
Speaker 6: the pause that refreshes maybe that we've just seen.
Speaker 1: So the larger context of what I was saying there
Speaker 1: was I was talking about how in the US the
Speaker 1: markets are so warped by passive investing and fundamentals matter,
Speaker 1: you know, less and less every day. So the mag
Speaker 1: seven will continue to attract because the S and P
Speaker 1: five hundred index, it's it's really an active index, right,
Speaker 1: they always call to herd and drop the weakest, and
Speaker 1: then the companies who are experience, that are experiencing the
Speaker 1: most market cap appreciation get greater weighting. So it's also
Speaker 1: a momentum index. So momentum has sold off. But when
Speaker 1: you look at why has momentum been such a strong
Speaker 1: way to play the markets for you know, since really
Speaker 1: the GFC, it has to do with monetary policy, you know,
Speaker 1: and what's been for the vast majority of.
Speaker 3: Time extreme stimulus.
Speaker 1: And it's also been significantly attributable to the shift from
Speaker 1: active investing to passive investing. So I don't see us
Speaker 1: going in reverse way from passive.
Speaker 3: So yeah, like twenty two, you.
Speaker 1: Had a reversal when rate when you know, conditions tightened
Speaker 1: and rates went up, and we're seeing political uncertainty weighing
Speaker 1: on the markets right now. But yes, structurally, the top
Speaker 1: names in the S and P five hundred are going
Speaker 1: to going to continue to attract flows, and most of
Speaker 1: those flows come from four oh one K purchasing. So
Speaker 1: if you see a situation which unemployment climbs significantly and
Speaker 1: four oh one K net flows become net negative.
Speaker 3: Then you have to watch out.
Speaker 1: Then all those stocks go into reverse hard, and it's
Speaker 1: hard to see where the bottom would be.
Speaker 3: But at this point in time, I don't see that.
Speaker 2: You know, Carson. One thing that I've been watching very
Speaker 2: closely is a turn and sentiment around financial stocks. This
Speaker 2: is a hot trade. At the end of last year,
Speaker 2: you made some big calls. The one against BX empt
Speaker 2: in regard to the dividend turned out to play out.
Speaker 2: Now I'm wondering how you're looking across the financials universe.
Speaker 2: Are you looking for new shorts in banks, in real estate?
Speaker 2: Where's the pain?
Speaker 1: Well, I mean, look, we're we're generally not thematic, so
Speaker 1: we you know, and we're only thematic when we look
Speaker 1: in the rear view mirror.
Speaker 3: So we did.
Speaker 1: We were really early on a lot of shorting the
Speaker 1: ESG type names. I mean so right now, we're not
Speaker 1: looking in any specific sectors or even industries. I you know,
Speaker 1: in terms of commercial real estate, you know, I'm not
Speaker 1: you know, I don't know how much juice there is
Speaker 1: to be squeezed there, because now there is this uncertainty
Speaker 1: around rate cuts. You know, f rates get cut enough,
Speaker 1: at some point, the CRE starts to look less bad
Speaker 1: than it had been looking. So at this point, you know,
Speaker 1: I don't really want to try to make it. I've
Speaker 1: never wanted to try to make a rates bet, at
Speaker 1: least on the future direction of rates. So I think
Speaker 1: if you're considering CRE type shorts, you're starting to get into.
Speaker 3: That land right now.
Speaker 1: So, as you said, our thesis on BXMT played out.
Speaker 1: You know, we're happy about that, but I think there's
Speaker 1: too much uncertainty going forward for.
Speaker 2: Us anyway, Carson, what about elsewhere in the world of
Speaker 2: financial is one thing that there's a lot of bell
Speaker 2: ringing about is the difference between public and private marks. Yeah,
Speaker 2: you are starting to see more private capital type vehicles
Speaker 2: enter the public markets. Private capital entering public markets. Are
Speaker 2: you looking at BBC's or other types of vehicles that
Speaker 2: might have private holdings that might not be reflecting those
Speaker 2: underlying marks.
Speaker 1: Well, that's interesting because I think it was maybe around
Speaker 1: twenty fifteen BDC's were pretty hot area for short sellers,
Speaker 1: and also prior to the financial crisis, you know, if
Speaker 1: you remember, David Einhorn Greenlight famously shorted one of the
Speaker 1: bit Allied Capital and wrote a book on that. So yeah,
Speaker 1: BDC's in the past have been very aggressive with their marks.
Speaker 1: You know, from our perspective, the issue is is there
Speaker 1: enough liquidity in the you know, in the BDC and
Speaker 1: so a lot of the air had come out of
Speaker 1: them at some point. It's not an area that we've
Speaker 1: looked at recently, but yeah, you know, I think once
Speaker 1: you get a lot of capital flowing into that space,
Speaker 1: you will certainly have players who are going to be
Speaker 1: a lot more aggressive. And really anybody who gets to
Speaker 1: make up their marks and gets compensated based on that
Speaker 1: has a built in incentive to be really aggressive with
Speaker 1: the marks. And we've never believed whether it's a VC fund,
Speaker 1: a private equity fund, a BBC, we've never believed that
Speaker 1: across the board these marks are genuine marks or really
Speaker 1: you know, good fit eighth expressions the values of the
Speaker 1: underlying assets, So yeah, that could be interesting.
Speaker 5: Yeah, well, there's plenty of capital flowing in.
Speaker 4: We know that, especially from retail now, which is a
Speaker 4: new buyer base. I do want to go around the
Speaker 4: world and I want to talk a little bit about China.
Speaker 4: Of course, your views on China are well known, but
Speaker 4: you've seen this chorus of cell side analysts come out
Speaker 4: and talk about China in a bullish light. You think
Speaker 4: about City just this week downgrading US stocks, saying to
Speaker 4: basically upgrade and buy China.
Speaker 5: I'm just wondering what you make of that in this cycle.
Speaker 1: Well, everybody's got to sell a growth narrative, right, so,
Speaker 1: you know, China's been this. I mean, there's so much
Speaker 1: muscle memory, you know, for the past couple decades of
Speaker 1: selling the China growth narrative that I'm not surprised everybody's
Speaker 1: going back to that and they're willing to forget all
Speaker 1: of the political risk that Chijinping presents and how he's
Speaker 1: basically zeroed out. You know, several classes of public company
Speaker 1: shares in the past, such as for profit education, are
Speaker 1: close to zero did out. Look, it's you know, China
Speaker 1: is a trade, it's not an investment. You date China.
Speaker 1: You don't marry China, like I get it. If from
Speaker 1: a tactical perspective you want to allocate money there, fine,
Speaker 1: but I but that's the kind of place you wake
Speaker 1: up one morning and you know they invaded Taiwan and
Speaker 1: maybe the US is going to war over that, and
Speaker 1: you know, basically you don't want to be long anything
Speaker 1: China related at that point in time. So I think
Speaker 1: everybody who's rushing in headlong needs to be aware of
Speaker 1: those risks and needs to have eyes wide open. This
Speaker 1: is not China is not marriage material.
Speaker 6: Carson, you married Vietnam. You're I guess considering an engagement
Speaker 6: with India.
Speaker 3: I want to talk about your longs.
Speaker 6: You mentioned the possibility of war, which seems more likely
Speaker 6: now than it has in decades. I mean, we're seeing
Speaker 6: a war in the eastern theater of Europe, and Ryan
Speaker 6: Mattu came out this morning and said they see defense
Speaker 6: sales surging forty percent on the European spending boom that's expected.
Speaker 6: Is that you think one of the most important long
Speaker 6: threads for investors to pay attention.
Speaker 1: To European defense spending well in general, war, you know,
Speaker 1: I mean spending around the worldely. Well, look from from
Speaker 1: a defense spending perspective, that's you know that that one's
Speaker 1: above my pay grade. But the geopolitical risks and the
Speaker 1: risks of war absolutely, you know, I don't know that
Speaker 1: Russia is in a position to make further moves in
Speaker 1: Europe in the next few years. But you know, what
Speaker 1: we're doing with Ukraine and basically rewarding Russia, I think
Speaker 1: that leaves a.
Speaker 3: Lot of powder in that powder keg.
Speaker 1: Obviously, the situation with Taiwan, I don't know that we're
Speaker 1: doing anything right now to dissuade Chinese aggression against Taiwan.
Speaker 1: You know, Iran has been I think beaten back nicely
Speaker 1: by the Israelis recently, but they're probably not going to
Speaker 1: go quietly into that good night. So yeah, this is
Speaker 1: a world that has a lot of risks of real
Speaker 1: you know, of expansion of kinetic war. So you know,
Speaker 1: and in valuations just generally don't seem to recognize that
Speaker 1: because risk is massively underpriced, as it has been since
Speaker 1: the GFC.
Speaker 4: Carson, I'm devastated to say, if we have to leave
Speaker 4: it there, I hope to speak to.
Speaker 5: You again soon.
Speaker 4: Really enjoyed this conversation. Hope to see you in studio
Speaker 4: next time too. That is Carson Block of Muddy Waters
Speaker 4: Capital