1 00:00:02,360 --> 00:00:06,680 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:06,840 --> 00:00:09,520 Speaker 2: Really appreciate your joining us today, Jim on set here 3 00:00:09,600 --> 00:00:12,600 Speaker 2: at Bloomberg World Headquarters, Killing Joe. We're talking, of course 4 00:00:12,600 --> 00:00:15,520 Speaker 2: about Scott Bessett testifying before the Houseways and Means Committee, 5 00:00:15,520 --> 00:00:17,239 Speaker 2: And of course this comes on the heels of two 6 00:00:17,280 --> 00:00:20,680 Speaker 2: days of China US trade talks in which President Trump 7 00:00:20,680 --> 00:00:23,520 Speaker 2: has declared a done deal. He talks about the US 8 00:00:23,560 --> 00:00:26,720 Speaker 2: imposing fifty five percent tariffs on China and the China 9 00:00:26,760 --> 00:00:28,080 Speaker 2: imposing ten percent on US. 10 00:00:28,440 --> 00:00:29,960 Speaker 1: You are a long time China bearer. 11 00:00:30,040 --> 00:00:33,720 Speaker 2: You've been monitoring the economy's transition from export investment led 12 00:00:33,760 --> 00:00:36,520 Speaker 2: to one that's consumption led. You also teach at Yale 13 00:00:36,520 --> 00:00:39,839 Speaker 2: Management School Business. What kind of grade would you give 14 00:00:39,920 --> 00:00:41,800 Speaker 2: this trade deal, this so called trade deal. 15 00:00:42,440 --> 00:00:45,080 Speaker 3: I'd give it a temporary incomplete so far, because we 16 00:00:45,159 --> 00:00:47,720 Speaker 3: don't have all the details yet, and it doesn't seem 17 00:00:47,760 --> 00:00:50,000 Speaker 3: to be a whole lot different from where we were, 18 00:00:51,520 --> 00:00:53,880 Speaker 3: you know, not too long ago. So I think we 19 00:00:53,960 --> 00:00:57,280 Speaker 3: need to see, As always in these things, the devil's 20 00:00:57,320 --> 00:01:00,400 Speaker 3: in the details, and so we'll have to say see. 21 00:01:01,920 --> 00:01:02,600 Speaker 4: What goes on. 22 00:01:03,320 --> 00:01:05,200 Speaker 3: But as I mentioned before we went on the air, 23 00:01:05,240 --> 00:01:07,759 Speaker 3: it does appear that China ended up holding some cards 24 00:01:07,760 --> 00:01:08,280 Speaker 3: after all. 25 00:01:08,480 --> 00:01:11,600 Speaker 2: Yeah, you're referring, of course to rare earth's and magnets, 26 00:01:11,600 --> 00:01:13,840 Speaker 2: and it turns out that China does have a lot 27 00:01:13,880 --> 00:01:16,480 Speaker 2: of leverage over that in terms of whether it allows 28 00:01:16,520 --> 00:01:19,880 Speaker 2: licenses for export and how quickly it allows shipments. And 29 00:01:19,920 --> 00:01:22,640 Speaker 2: this is something that industry had pressed President Trump on. 30 00:01:23,160 --> 00:01:25,000 Speaker 2: Is this going to be a cudgel that Beijing continues 31 00:01:25,000 --> 00:01:26,000 Speaker 2: to hold over the US? 32 00:01:26,680 --> 00:01:29,240 Speaker 3: I mean, obviously we're going to try to diversify and 33 00:01:29,319 --> 00:01:33,520 Speaker 3: increase our sources of strategic metals and rare earths. I 34 00:01:33,600 --> 00:01:37,960 Speaker 3: think the administration's been clear about that. But the fact 35 00:01:38,000 --> 00:01:39,919 Speaker 3: of the matter is, Scarlat, I don't think the market 36 00:01:40,080 --> 00:01:43,600 Speaker 3: ever really believed that the most onerous of tariffs was 37 00:01:43,680 --> 00:01:45,720 Speaker 3: ever going to go in. I mean, even though the 38 00:01:45,760 --> 00:01:49,440 Speaker 3: market was down twenty percent at one point at its 39 00:01:49,520 --> 00:01:52,200 Speaker 3: worst day to day, I think got a daily closed 40 00:01:52,280 --> 00:01:56,080 Speaker 3: twelve percent in April, runing sestements for the S and 41 00:01:56,160 --> 00:02:00,160 Speaker 3: P never really dropped that much. They've flattened out, they 42 00:02:00,160 --> 00:02:02,920 Speaker 3: didn't collapse, and so the market has been kind of 43 00:02:02,920 --> 00:02:04,960 Speaker 3: looking through all this for a while now. 44 00:02:05,160 --> 00:02:07,680 Speaker 2: Yeah, Well, onstock that did move a lot, of course, 45 00:02:07,720 --> 00:02:11,160 Speaker 2: as Tesla and as a long time skeptic of Tesla, 46 00:02:11,240 --> 00:02:13,200 Speaker 2: I'm curious to get your take on the very public 47 00:02:13,200 --> 00:02:16,320 Speaker 2: breakup between Elon Musk and President Trump. Musk is now 48 00:02:16,360 --> 00:02:18,840 Speaker 2: saying that he has some regrets over his comments, and 49 00:02:18,880 --> 00:02:21,560 Speaker 2: he also says that they went too far. Does this 50 00:02:21,639 --> 00:02:25,079 Speaker 2: drama change Tesla's narrative or prospects in any material way? 51 00:02:25,520 --> 00:02:26,720 Speaker 4: Yeah, it was all, at the end of the day, 52 00:02:26,720 --> 00:02:28,000 Speaker 4: a big nevermind, right. 53 00:02:28,400 --> 00:02:33,400 Speaker 3: But look, I think that that depending on how this 54 00:02:33,440 --> 00:02:35,480 Speaker 3: all came about, and there's all kinds of stories, and 55 00:02:35,520 --> 00:02:40,440 Speaker 3: who knows, certainly everyone's going to tell their story. The 56 00:02:40,480 --> 00:02:43,280 Speaker 3: fact of the matter is, it does look like the legislation, 57 00:02:44,680 --> 00:02:47,800 Speaker 3: with a lot of benefits for EVS and solar, is 58 00:02:47,840 --> 00:02:51,720 Speaker 3: going to change that dynamic dramatically, and that does have 59 00:02:51,760 --> 00:02:54,680 Speaker 3: a material effect on Tesla's businesses, both in the auto 60 00:02:54,720 --> 00:03:00,320 Speaker 3: credits for their customers seventy five hundred dollars each called 61 00:03:00,440 --> 00:03:06,440 Speaker 3: ZEV credits, themissions credits that they sell for cash that looks. 62 00:03:06,200 --> 00:03:08,600 Speaker 4: Like it may be going away, and then. 63 00:03:08,520 --> 00:03:11,880 Speaker 3: A variety of possible IRA credits and certainly solar credits 64 00:03:11,880 --> 00:03:15,360 Speaker 3: for their Solar City subsidiary. So there's a lot for 65 00:03:15,400 --> 00:03:18,760 Speaker 3: them to lose in the House legislation. It may change 66 00:03:18,760 --> 00:03:21,640 Speaker 3: with the Senate and with compromise. We'll have to see. 67 00:03:22,120 --> 00:03:25,359 Speaker 3: But when we get past all the personal stuff and 68 00:03:25,960 --> 00:03:29,280 Speaker 3: kind of all the craziness from last Thursday, there are 69 00:03:29,400 --> 00:03:33,320 Speaker 3: some real impact in the legislation, and it doesn't appear 70 00:03:33,360 --> 00:03:34,880 Speaker 3: that the White House is backing down on. 71 00:03:34,800 --> 00:03:35,760 Speaker 1: That right right. 72 00:03:36,160 --> 00:03:38,760 Speaker 2: I mean, Elon Musk and his executives over at Tesla 73 00:03:38,760 --> 00:03:41,960 Speaker 2: have also been promoting videos showing a driver list Tesla 74 00:03:42,240 --> 00:03:44,080 Speaker 2: on the streets of Austin, and of course that's a 75 00:03:44,160 --> 00:03:48,360 Speaker 2: hint that their robotaxi launch will move forward, I believe 76 00:03:48,360 --> 00:03:51,600 Speaker 2: at the end of this month. Does that remove some 77 00:03:51,640 --> 00:03:54,840 Speaker 2: of the concern about the legislation that takes away some 78 00:03:54,880 --> 00:03:57,960 Speaker 2: of those tax credits and tax benefits that Tess has enjoyed. 79 00:03:58,240 --> 00:04:00,880 Speaker 3: Well, I mean, I think almost everyone at this point 80 00:04:00,880 --> 00:04:03,960 Speaker 3: agrees that the company is not being valued for its 81 00:04:04,000 --> 00:04:08,040 Speaker 3: just its auto operations. It would be trading at thirty 82 00:04:08,120 --> 00:04:10,800 Speaker 3: or forty dollars a share, not three hundred and something. 83 00:04:11,720 --> 00:04:15,640 Speaker 3: So the two pillars or three pillars that it rests 84 00:04:15,720 --> 00:04:22,240 Speaker 3: on are autonomous driving related robotaxis, and then the optimist 85 00:04:22,360 --> 00:04:25,640 Speaker 3: robot line and so everything has to go right for 86 00:04:26,080 --> 00:04:31,520 Speaker 3: those valuations to play out. We'll see. I mean, you know, robotaxi. 87 00:04:31,720 --> 00:04:34,840 Speaker 3: Yesterday there were images of a robotaxi in Austin, but 88 00:04:34,880 --> 00:04:36,880 Speaker 3: what no one talked about was the trailer car right 89 00:04:36,960 --> 00:04:41,440 Speaker 3: behind it. So so I mean there's two cars for 90 00:04:41,480 --> 00:04:44,840 Speaker 3: every Robotaxi, and there was a driver in the second car. 91 00:04:44,920 --> 00:04:48,000 Speaker 3: And so I mean, and the cost model for this, 92 00:04:48,680 --> 00:04:52,440 Speaker 3: people are using absurdly low numbers for the cost per mile, 93 00:04:52,720 --> 00:04:56,560 Speaker 3: not understanding the cost for redundancy and safety as well 94 00:04:56,600 --> 00:04:59,480 Speaker 3: as self insurance and a lot of other costs that 95 00:05:00,200 --> 00:05:03,039 Speaker 3: are in people who are bullish in their models. 96 00:05:03,480 --> 00:05:05,159 Speaker 4: So we'll have to see. 97 00:05:05,360 --> 00:05:08,320 Speaker 3: And as for autonomy, I mean full level four, level 98 00:05:08,320 --> 00:05:11,320 Speaker 3: five autonomy, I mean they've been promising it for ten 99 00:05:11,400 --> 00:05:15,560 Speaker 3: years now, for there's still at level two, just like 100 00:05:15,600 --> 00:05:20,880 Speaker 3: everybody else, I maintained by twenty thirty or so, every 101 00:05:20,960 --> 00:05:23,960 Speaker 3: car is going to have level four or five autonomy. 102 00:05:23,960 --> 00:05:26,800 Speaker 3: It's going to be a standard feature like cruise control 103 00:05:26,920 --> 00:05:31,039 Speaker 3: is now or anti lock breaking. So I think you know, 104 00:05:31,480 --> 00:05:34,920 Speaker 3: at that point you're then kind of relying on the robots. 105 00:05:36,320 --> 00:05:38,560 Speaker 2: Let's talk a little bit about that bullish environment you 106 00:05:38,680 --> 00:05:42,280 Speaker 2: just mentioned. You've called the post COVID market euphoria, the 107 00:05:42,320 --> 00:05:44,760 Speaker 2: Golden Age of fraud, and we've seen the S and 108 00:05:44,800 --> 00:05:47,120 Speaker 2: P five hundred had that gigantic draw down in April, 109 00:05:47,160 --> 00:05:49,559 Speaker 2: but it's now right back to within about two percent 110 00:05:49,560 --> 00:05:51,480 Speaker 2: of its record high. On top of that, you've got 111 00:05:51,480 --> 00:05:54,520 Speaker 2: a white House that has been shattering norms and continues 112 00:05:54,560 --> 00:05:57,000 Speaker 2: to do so, and it plays Lucy goosey with laws 113 00:05:57,000 --> 00:05:59,719 Speaker 2: and rules. How would you characterize environment now? 114 00:06:00,680 --> 00:06:04,040 Speaker 3: Well, I mean so Wall Street has been a center 115 00:06:04,160 --> 00:06:07,479 Speaker 3: for this kind of activity in terms of stuff that 116 00:06:07,560 --> 00:06:09,599 Speaker 3: I think a crosses the line, i e. 117 00:06:09,720 --> 00:06:10,719 Speaker 4: The Golden Age of fraud. 118 00:06:11,000 --> 00:06:14,599 Speaker 3: We now have a bipolar world because Washington, DC is 119 00:06:14,640 --> 00:06:19,040 Speaker 3: also a center for it. Look, I think that this 120 00:06:19,120 --> 00:06:23,359 Speaker 3: bull market is going to go until you know it doesn't. 121 00:06:23,400 --> 00:06:26,200 Speaker 3: I keep telling people we're going to need to fill 122 00:06:26,240 --> 00:06:29,160 Speaker 3: every last bull and Wall Street will do it. They 123 00:06:29,160 --> 00:06:31,800 Speaker 3: took a good shot at it in twenty twenty one 124 00:06:31,920 --> 00:06:35,360 Speaker 3: with the advent of SPACs and NFTs and mean coins, 125 00:06:35,960 --> 00:06:38,800 Speaker 3: and we're going to see that happen again. You know, 126 00:06:38,839 --> 00:06:42,200 Speaker 3: going forward, issuance is already starting to increase dramatically. We're 127 00:06:42,240 --> 00:06:45,760 Speaker 3: seeing a big pickup in insider sales, particularly the companies 128 00:06:45,760 --> 00:06:50,000 Speaker 3: we cover, So executives are selling to retail investors, just 129 00:06:50,080 --> 00:06:54,279 Speaker 3: not a good sign. And the sec and regulators and 130 00:06:54,320 --> 00:06:58,440 Speaker 3: what others have taken generally a very to be charitable lass, 131 00:06:58,440 --> 00:07:02,360 Speaker 3: a fair approach to the market where people can say 132 00:07:02,400 --> 00:07:05,719 Speaker 3: almost anything they want, there's no downside to it, and 133 00:07:06,120 --> 00:07:09,000 Speaker 3: the use of pro forma metrics, which I've been talking 134 00:07:09,000 --> 00:07:11,800 Speaker 3: about for years now, it just gets worse by the year. 135 00:07:12,040 --> 00:07:14,000 Speaker 2: So it sounds like and I want to connect the 136 00:07:14,000 --> 00:07:15,920 Speaker 2: dots to the White House as well here, because when 137 00:07:15,920 --> 00:07:18,600 Speaker 2: the president is showing meme coins and hosting dinners for 138 00:07:18,720 --> 00:07:21,520 Speaker 2: the meme coins buyers, there's got to be a spillover 139 00:07:21,560 --> 00:07:25,160 Speaker 2: effect into the business culture. Does it just give companies 140 00:07:25,440 --> 00:07:27,960 Speaker 2: that are inclined already a free past to engage in 141 00:07:28,360 --> 00:07:29,520 Speaker 2: more questionable behavior. 142 00:07:29,720 --> 00:07:32,800 Speaker 3: Yeah, except that that meme coins aren't securities at least 143 00:07:32,880 --> 00:07:36,520 Speaker 3: that's been the ruling so far right, and stocks and 144 00:07:36,600 --> 00:07:39,880 Speaker 3: bonds are. And there are rules for saying things about 145 00:07:39,880 --> 00:07:43,200 Speaker 3: stocks and bonds that don't necessarily apply to crypto. And 146 00:07:43,240 --> 00:07:46,800 Speaker 3: so I see that the administration is very wisely stayed 147 00:07:46,800 --> 00:07:51,480 Speaker 3: within that boundary of embracing crypto and get rich quick 148 00:07:51,480 --> 00:07:55,000 Speaker 3: schemes for lack of a better term in crypto. But 149 00:07:56,440 --> 00:07:59,320 Speaker 3: it's where people cross the line and start making promises 150 00:07:59,360 --> 00:08:04,120 Speaker 3: about stocks and bonds that I'm concerned. That's my world, 151 00:08:04,200 --> 00:08:07,600 Speaker 3: and I see just you know, lack of a lack 152 00:08:07,640 --> 00:08:08,400 Speaker 3: of oversight there. 153 00:08:08,440 --> 00:08:10,520 Speaker 2: All right, let's dive a little bit deeper into your world. 154 00:08:10,520 --> 00:08:13,400 Speaker 2: Then you no longer manage outside capital, but you do 155 00:08:13,480 --> 00:08:16,520 Speaker 2: manage your own funds, and you advise clients, chinos and companies, 156 00:08:16,560 --> 00:08:19,360 Speaker 2: a family office and an advisory and a new idea 157 00:08:19,400 --> 00:08:23,760 Speaker 2: that you've justice closed. A new short idea is Carvana CVNA. 158 00:08:23,800 --> 00:08:25,960 Speaker 2: The stock is up about sixty six percent so far 159 00:08:26,040 --> 00:08:27,760 Speaker 2: this year. It's made a round trip back to a 160 00:08:27,840 --> 00:08:31,040 Speaker 2: four year high. It's a used auto retailer, which is 161 00:08:31,040 --> 00:08:33,040 Speaker 2: a pretty straightforward business. 162 00:08:33,400 --> 00:08:35,360 Speaker 1: Why do you call it a misunderstood story? 163 00:08:35,400 --> 00:08:37,959 Speaker 4: Then? So this is this is a revisit. We were 164 00:08:38,360 --> 00:08:40,880 Speaker 4: short at this stock successfully. 165 00:08:40,960 --> 00:08:43,040 Speaker 3: In twenty twenty two and twenty twenty. 166 00:08:42,760 --> 00:08:46,760 Speaker 4: Three and covered, and now it's back. 167 00:08:46,840 --> 00:08:50,280 Speaker 3: I joked the other day that you know, investors on 168 00:08:50,360 --> 00:08:54,200 Speaker 3: the long side look for that hundred bagger. We do too, 169 00:08:54,920 --> 00:08:56,920 Speaker 3: for companies that are already up one hundred x, and 170 00:08:57,240 --> 00:09:00,520 Speaker 3: Carvana is basically up almost one hundred x from its 171 00:09:00,520 --> 00:09:03,520 Speaker 3: lows in twenty twenty two and twenty twenty three, so 172 00:09:03,559 --> 00:09:05,520 Speaker 3: it's completely round trip back to where it was in 173 00:09:05,559 --> 00:09:09,920 Speaker 3: twenty twenty one. But people have perceived it as a 174 00:09:09,960 --> 00:09:11,160 Speaker 3: secular growth story. 175 00:09:12,120 --> 00:09:12,880 Speaker 4: It's cyclical. 176 00:09:13,320 --> 00:09:18,920 Speaker 3: Their revenues dropped year over year in mid twenty twenty 177 00:09:18,960 --> 00:09:22,280 Speaker 3: three from selling cars down over thirty percent. 178 00:09:23,160 --> 00:09:23,959 Speaker 4: Units dropped. 179 00:09:24,760 --> 00:09:28,199 Speaker 3: That came back, But what really has us going is 180 00:09:28,240 --> 00:09:31,400 Speaker 3: a couple of things. First is the accounting. We love 181 00:09:31,559 --> 00:09:34,880 Speaker 3: bad accounting, and this is a company that is now generating, 182 00:09:35,440 --> 00:09:39,199 Speaker 3: over the latest twelve months about seventy percent of their 183 00:09:39,240 --> 00:09:42,240 Speaker 3: operating profit is coming from gain on sale of. 184 00:09:43,760 --> 00:09:44,640 Speaker 4: Subprime loans. 185 00:09:44,800 --> 00:09:49,200 Speaker 3: So they're originating subprime loans and selling them immediately for gains. 186 00:09:49,880 --> 00:09:52,520 Speaker 4: And this is something that the chairman of. 187 00:09:52,480 --> 00:09:56,439 Speaker 3: The company, you know, is very familiar with, Ernie Garcia. 188 00:09:56,520 --> 00:10:00,480 Speaker 3: The second he started with a company called Ugly in 189 00:10:00,520 --> 00:10:05,720 Speaker 3: the nineties that got into trouble for subprime lending. It 190 00:10:05,840 --> 00:10:09,000 Speaker 3: then became drive Time, and Drivetime is the parent the 191 00:10:09,080 --> 00:10:10,160 Speaker 3: experient of Carvana. 192 00:10:10,800 --> 00:10:11,880 Speaker 4: So there's a history here. 193 00:10:12,520 --> 00:10:17,720 Speaker 3: But that amount of income coming from a sale of subprime. 194 00:10:17,360 --> 00:10:20,079 Speaker 4: Loans is staggering. 195 00:10:20,559 --> 00:10:23,720 Speaker 3: Yeah, and you should not be putting an enormous multiple 196 00:10:23,800 --> 00:10:28,000 Speaker 3: on this fifty sixty seventy times. On top of that, 197 00:10:28,360 --> 00:10:31,280 Speaker 3: two other things that are kind of new to the story. 198 00:10:31,720 --> 00:10:35,040 Speaker 3: Number one is the short interest has collapsed. It was 199 00:10:35,080 --> 00:10:38,000 Speaker 3: one of the most shortened stocks in twenty twenty three, 200 00:10:39,520 --> 00:10:42,440 Speaker 3: and now the short interest is back to multi year 201 00:10:42,480 --> 00:10:45,760 Speaker 3: lows as a percent of outstanding. So the bears, the 202 00:10:45,840 --> 00:10:49,200 Speaker 3: other bears have given up. And number two, we've seen 203 00:10:49,400 --> 00:10:53,920 Speaker 3: a dramatic increase in insider selling, something we just talked 204 00:10:53,960 --> 00:10:56,800 Speaker 3: about in May and June in the shares of Carvana. 205 00:10:57,240 --> 00:10:59,920 Speaker 3: So the last time we saw this type of selling, 206 00:11:00,080 --> 00:11:03,319 Speaker 3: the stock also was getting ready to go down dramatically. 207 00:11:03,440 --> 00:11:05,199 Speaker 2: Yeah, so that's another red flag, and of course we 208 00:11:05,240 --> 00:11:06,960 Speaker 2: should mention that we are out to Carvana. 209 00:11:07,040 --> 00:11:07,640 Speaker 1: Four comment. 210 00:11:08,440 --> 00:11:10,839 Speaker 2: Because of all of that, I want to switch gears 211 00:11:10,840 --> 00:11:12,840 Speaker 2: a little bit here, because you are also blowing up 212 00:11:12,880 --> 00:11:15,480 Speaker 2: on social media over the last couple of days due 213 00:11:15,520 --> 00:11:19,559 Speaker 2: to your call to go long bitcoin and short MSDR Strategy. 214 00:11:19,840 --> 00:11:22,440 Speaker 2: Michael Saylor, the CEO of Strategy, you spoke with us 215 00:11:22,520 --> 00:11:25,559 Speaker 2: yesterday on bloomber Crypto. Here's what he told us about 216 00:11:25,559 --> 00:11:26,960 Speaker 2: your trade. 217 00:11:27,440 --> 00:11:29,679 Speaker 5: You know, I don't think he understands what our business 218 00:11:29,760 --> 00:11:33,559 Speaker 5: model is we're actually the largest issue or of bitcoin 219 00:11:33,679 --> 00:11:37,400 Speaker 5: back credit instruments in the world. So last week we 220 00:11:37,640 --> 00:11:42,240 Speaker 5: just raised a billion dollars by selling preferred stock non 221 00:11:42,320 --> 00:11:46,880 Speaker 5: cumulative called stride. That means we basically borrowed money that 222 00:11:46,920 --> 00:11:49,360 Speaker 5: we never have to pay back that we pay a 223 00:11:49,400 --> 00:11:52,120 Speaker 5: dividend on, but we could suspend the dividend if we 224 00:11:52,200 --> 00:11:56,200 Speaker 5: needed to. So Jim has been thinking that we somehow 225 00:11:56,240 --> 00:11:58,880 Speaker 5: needed to sell the equity. So at the end of 226 00:11:58,920 --> 00:12:01,160 Speaker 5: the day, if he's lucky enough to short the stock 227 00:12:01,200 --> 00:12:04,319 Speaker 5: below one time's nov we're going to issue the preferreds, 228 00:12:04,360 --> 00:12:07,920 Speaker 5: buy back the stock, and make money for our shareholders. 229 00:12:08,400 --> 00:12:11,600 Speaker 5: If the stock trades at a week premium, we're just 230 00:12:11,679 --> 00:12:15,920 Speaker 5: going to sell the preferreds, and if the stock rallies up, 231 00:12:16,000 --> 00:12:19,480 Speaker 5: he's going to get liquidated and wiped out. What he 232 00:12:19,559 --> 00:12:22,559 Speaker 5: still doesn't understand is we're not a holding company or 233 00:12:22,600 --> 00:12:26,520 Speaker 5: a closed and trust. We're an operating company. So when 234 00:12:26,559 --> 00:12:30,720 Speaker 5: we issue trust can't leverage the bitcoin. They can't issue 235 00:12:30,760 --> 00:12:35,120 Speaker 5: preferred shares, they can't issue permanent shares of equity out 236 00:12:35,120 --> 00:12:35,880 Speaker 5: of premium. 237 00:12:36,080 --> 00:12:36,520 Speaker 4: We can. 238 00:12:38,280 --> 00:12:41,040 Speaker 1: Jim your response, yes, I. 239 00:12:41,040 --> 00:12:43,600 Speaker 3: Always love it when management say, well, he just doesn't 240 00:12:43,720 --> 00:12:49,160 Speaker 3: understand our business. Michael Sailor is a wonderful salesman, but 241 00:12:49,240 --> 00:12:52,000 Speaker 3: that's what he is. He's a salesman, and what he's 242 00:12:52,000 --> 00:12:55,080 Speaker 3: selling investors is the concept that you give me your 243 00:12:55,160 --> 00:12:57,600 Speaker 3: money and I'm just going to go by bitcoin and 244 00:12:57,640 --> 00:13:00,400 Speaker 3: hopefully the value of my stock trades that are preemium 245 00:13:00,760 --> 00:13:03,360 Speaker 3: to the value of that bitcoin, and so as long 246 00:13:03,360 --> 00:13:06,840 Speaker 3: as I can keep doing that, I generate value. And 247 00:13:06,840 --> 00:13:09,640 Speaker 3: this is, of course, I called it financial gibberish, because 248 00:13:10,400 --> 00:13:12,920 Speaker 3: on top of that, he also said in your interview, 249 00:13:13,280 --> 00:13:16,040 Speaker 3: he said the company should not just be valued on 250 00:13:16,080 --> 00:13:20,239 Speaker 3: the basis of the bitcoin holdings, but on a multiple 251 00:13:20,320 --> 00:13:23,800 Speaker 3: of the profits that accrue from when I do this 252 00:13:23,960 --> 00:13:28,160 Speaker 3: financial alchemy. And I pointed out on social media, I said, well, 253 00:13:28,160 --> 00:13:31,640 Speaker 3: that's akin to saying, well, my house that rose in 254 00:13:31,760 --> 00:13:34,680 Speaker 3: value from four hundred and fifty thousand to five hundred 255 00:13:34,679 --> 00:13:38,360 Speaker 3: thousand dollars last year is not worth five hundred thousand, 256 00:13:38,360 --> 00:13:40,880 Speaker 3: it's worth one and a half million, because it's worth 257 00:13:40,880 --> 00:13:44,400 Speaker 3: the five hundred thousand plus a twenty multiple on the 258 00:13:44,440 --> 00:13:49,040 Speaker 3: fifty thousand dollars increase. And of course that's absurd, but 259 00:13:49,120 --> 00:13:52,600 Speaker 3: that's the claim he's making on top of that, he's 260 00:13:52,920 --> 00:13:57,240 Speaker 3: basically now saying that that, well, I'll sell preferred not common, 261 00:13:57,640 --> 00:14:01,880 Speaker 3: to dilute the shareholders and compress the premium. And let 262 00:14:01,880 --> 00:14:06,000 Speaker 3: me just interject really importantly here, I'm actually doing what 263 00:14:06,200 --> 00:14:10,080 Speaker 3: he is advocating, right, I am selling micro Strategy securities 264 00:14:10,200 --> 00:14:13,199 Speaker 3: to buy bitcoin. Let's be clear, it's the hedge trade. 265 00:14:13,280 --> 00:14:14,800 Speaker 3: I don't know where bitcoin. 266 00:14:14,440 --> 00:14:16,440 Speaker 2: Is going to go, and it doesn't matter to you, 267 00:14:16,480 --> 00:14:17,800 Speaker 2: actually does well, it doesn't matter. 268 00:14:18,040 --> 00:14:23,200 Speaker 3: The premium compressing matters to me. And so it's important 269 00:14:23,240 --> 00:14:25,920 Speaker 3: to understand that in twenty twenty four and twenty twenty five, 270 00:14:26,440 --> 00:14:28,720 Speaker 3: mostly at the end of twenty four and twenty five, 271 00:14:29,400 --> 00:14:34,160 Speaker 3: micro Strategy has sold thirty five billion dollars roughly of securities, 272 00:14:34,600 --> 00:14:38,680 Speaker 3: thirty three billion in common and convertible into common, and 273 00:14:38,760 --> 00:14:42,520 Speaker 3: two billion in preferred most recently. The market for the 274 00:14:42,520 --> 00:14:46,320 Speaker 3: preferred stock that he's selling is tiny relative to common, 275 00:14:47,200 --> 00:14:49,800 Speaker 3: Let's be clear about that. And in his own words 276 00:14:49,840 --> 00:14:52,800 Speaker 3: that you just played back, he makes a case that 277 00:14:52,840 --> 00:14:53,240 Speaker 3: you have to. 278 00:14:53,240 --> 00:14:54,880 Speaker 4: Be crazy to buy these preferreds. 279 00:14:54,960 --> 00:14:58,440 Speaker 3: Right, He's going to pay you a dividend, maybe it's 280 00:14:58,880 --> 00:15:03,200 Speaker 3: not redeemable, is perpetual, And if I don't pay the dividends. 281 00:15:03,200 --> 00:15:05,920 Speaker 3: They're not cumulative. I don't have to pay the back dividends. 282 00:15:06,440 --> 00:15:08,760 Speaker 3: So you know who in the right mind institutionally would 283 00:15:08,760 --> 00:15:09,760 Speaker 3: buy these preferreds? 284 00:15:10,000 --> 00:15:10,760 Speaker 1: That's my question. 285 00:15:10,800 --> 00:15:12,680 Speaker 2: Do you think there's always going to be buyers for 286 00:15:12,760 --> 00:15:15,840 Speaker 2: these preferreds, especially if Bitcoin starts to trend lower or 287 00:15:16,120 --> 00:15:16,880 Speaker 2: materially lower. 288 00:15:17,080 --> 00:15:20,160 Speaker 3: And again he said, well, if the stock trades below 289 00:15:20,480 --> 00:15:25,600 Speaker 3: one m multiple m NAV, we call it, you know, chainos, 290 00:15:25,680 --> 00:15:27,840 Speaker 3: I'll just five at by common. I can assure you 291 00:15:27,840 --> 00:15:30,440 Speaker 3: if it trades below one, I will have covered my short. 292 00:15:30,800 --> 00:15:32,400 Speaker 2: Is there a catalyst, though, or a certain set of 293 00:15:32,440 --> 00:15:34,680 Speaker 2: conditions that would drive the premium down to collapse? 294 00:15:34,720 --> 00:15:36,080 Speaker 4: The catalyst is Michael Saylor. 295 00:15:37,200 --> 00:15:42,760 Speaker 3: It's exactly he's been selling equity to himself compressed the NAV. 296 00:15:43,360 --> 00:15:47,240 Speaker 3: And I would point out I posted something just yesterday 297 00:15:47,280 --> 00:15:51,280 Speaker 3: as well that for all of this, the premium to 298 00:15:51,400 --> 00:15:55,920 Speaker 3: NAV that micro strategy has averaged has been right around 299 00:15:55,920 --> 00:15:59,560 Speaker 3: the levels we are today about one point eight, and 300 00:15:59,640 --> 00:16:03,640 Speaker 3: we put this trade on and advise clients somewhere between 301 00:16:03,640 --> 00:16:08,360 Speaker 3: two point two and two point three. But it's traded 302 00:16:08,640 --> 00:16:10,920 Speaker 3: at one, and it's traded size three and a half. 303 00:16:11,160 --> 00:16:12,920 Speaker 1: Where do you think it should be it should be 304 00:16:12,920 --> 00:16:13,400 Speaker 1: at one. 305 00:16:13,600 --> 00:16:17,440 Speaker 3: I mean, I just think because all for all the 306 00:16:17,480 --> 00:16:20,160 Speaker 3: advantages he claims, you have agent what we call agency 307 00:16:20,240 --> 00:16:23,680 Speaker 3: risk in finance, you have the fact that he could 308 00:16:23,680 --> 00:16:26,880 Speaker 3: do something to the detriment of shareholders. 309 00:16:27,160 --> 00:16:28,240 Speaker 4: And of course we're not. 310 00:16:28,200 --> 00:16:32,960 Speaker 3: Calculating any deferred taxes in our nav which theoretically that there. 311 00:16:32,840 --> 00:16:35,160 Speaker 4: Would be if he sold if he sold bits. 312 00:16:35,240 --> 00:16:37,120 Speaker 2: So the other argument that people make is that the 313 00:16:37,200 --> 00:16:40,720 Speaker 2: average MicroStrategy shareholder is not a tourist. These are diehards 314 00:16:40,720 --> 00:16:43,200 Speaker 2: who eat downside volatility for breakfast. That's what they say 315 00:16:43,200 --> 00:16:45,800 Speaker 2: on social media. How long are you prepared to wait 316 00:16:45,840 --> 00:16:47,000 Speaker 2: for this trade to play out? 317 00:16:47,080 --> 00:16:49,760 Speaker 3: You have to stop listening to all social media Scarlett, 318 00:16:49,800 --> 00:16:53,520 Speaker 3: because if you do a simple calculation of share turnover, 319 00:16:54,200 --> 00:16:58,240 Speaker 3: how often does the micro strategy turn it share share 320 00:16:58,280 --> 00:17:03,280 Speaker 3: base over? The last we looked was something like four weeks, So. 321 00:17:03,240 --> 00:17:07,720 Speaker 4: The average average micro strategy shared trades every four weeks. 322 00:17:08,240 --> 00:17:10,400 Speaker 4: That's not a long term investor. This is one of the. 323 00:17:10,320 --> 00:17:13,960 Speaker 3: Most actively traded speculation vehicles. 324 00:17:13,520 --> 00:17:14,119 Speaker 4: In the market. 325 00:17:14,520 --> 00:17:17,280 Speaker 2: So there are other companies that are following micro strategies 326 00:17:17,600 --> 00:17:21,640 Speaker 2: approach right, the Bitcoin treasury strategy overall and game stop DJT, 327 00:17:21,840 --> 00:17:23,080 Speaker 2: the president's media company. 328 00:17:23,520 --> 00:17:24,360 Speaker 1: Does that mean that. 329 00:17:24,320 --> 00:17:27,800 Speaker 2: There are comparable big short opportunities for those specific names 330 00:17:27,800 --> 00:17:28,160 Speaker 2: as well. 331 00:17:28,280 --> 00:17:31,480 Speaker 3: Well, you're pointing to another catalyst. So the catalyst is 332 00:17:31,520 --> 00:17:34,040 Speaker 3: this is a me too trade? Right, there are other 333 00:17:34,160 --> 00:17:38,080 Speaker 3: companies can do it. There's nothing proprietary about Michael Saylor's 334 00:17:38,560 --> 00:17:41,960 Speaker 3: business model, right, He's simply buying bitcoin, which is a 335 00:17:42,040 --> 00:17:43,439 Speaker 3: highly liquid asset that. 336 00:17:43,600 --> 00:17:44,560 Speaker 4: The trades everywhere. 337 00:17:45,040 --> 00:17:47,679 Speaker 3: So yes, other companies have now looked at this and 338 00:17:47,720 --> 00:17:50,080 Speaker 3: said we can do this too, and we can issue 339 00:17:50,119 --> 00:17:53,520 Speaker 3: equity to become a bitcoin treasury company. And the more 340 00:17:53,520 --> 00:17:55,919 Speaker 3: and more supply we're going to see, the less and 341 00:17:55,960 --> 00:17:57,600 Speaker 3: less premium anybody's going to have. 342 00:17:58,040 --> 00:17:59,520 Speaker 2: Jim, I'm going to wrap this up and ask you 343 00:17:59,560 --> 00:18:01,840 Speaker 2: one final question to kind of put everything in perspective. 344 00:18:02,160 --> 00:18:04,560 Speaker 2: Are the economy and stock market as strong as they 345 00:18:04,640 --> 00:18:07,479 Speaker 2: seem to appear. You've got a resilient consumer, you've got 346 00:18:07,520 --> 00:18:10,600 Speaker 2: tame inflation, you've got ostellar profits, and you've got stocks 347 00:18:10,720 --> 00:18:11,440 Speaker 2: near record high. 348 00:18:11,840 --> 00:18:14,080 Speaker 4: Yeah. I mean everything looks good. 349 00:18:14,440 --> 00:18:18,960 Speaker 3: I think that valuations are back up to their high levels. 350 00:18:20,040 --> 00:18:23,320 Speaker 3: And what we're keeping around again is issuance. We're looking 351 00:18:23,359 --> 00:18:26,119 Speaker 3: at supply. I always keep joking at. Wall Street has 352 00:18:26,119 --> 00:18:29,280 Speaker 3: a printing press too, and the printing presses is starting 353 00:18:29,359 --> 00:18:30,440 Speaker 3: to gear up. 354 00:18:30,600 --> 00:18:33,359 Speaker 2: It's worrying away, all right. Jim Chaino is always a pleasure. 355 00:18:33,440 --> 00:18:36,080 Speaker 2: Thank you so much, President and founder of Chainos and Company.