Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week on the podcast What Can I Say, an
Speaker 1: extra special guest Jim Chano Safina Coast Associates. There are
Speaker 1: few people in the world who understand the side of
Speaker 1: the street that he works on better than Jim. He
Speaker 1: is a famed investigator into financial fraud. He has been
Speaker 1: a short seller for pretty much his entire career. On
Speaker 1: a fundamental basis, he understands why companies go out of
Speaker 1: business and what the signs are that investors should be
Speaker 1: looking for. He teaches a class at Yale on financial fraud.
Speaker 1: There really is no one better to discuss the world
Speaker 1: of short selling and fraud than Jim Chanos. So, with
Speaker 1: no further ado, my conversation with Jim Chainos, This is
Speaker 1: Masters in Business with Barry Ridholts on Bloomberg Radio. My
Speaker 1: extra special guest this week is Jim Chanos of Kinkos Associates.
Speaker 1: He is famous for exposing a number of financial frauds,
Speaker 1: including Boldwin United Uh. He was a critic of Drexel
Speaker 1: Burnham and he of course was famously short and Ron,
Speaker 1: which eventually went bust in a firestorm of accounting, fraud
Speaker 1: and problems. Jim Chanos, Welcome back to Masters in Business.
Speaker 1: Always good to be back, Barry UM. Next time we
Speaker 1: do this, we'll have to do it in person, but
Speaker 1: for now we'll we'll operate remotely and UH, I won't
Speaker 1: get to see you WinCE UM when we talk about
Speaker 1: certain subjects. But for people who may not be familiar
Speaker 1: with you, explain exactly what kind of coast does and
Speaker 1: how you work. Well, we're celebrating our thirty fifth anniversary
Speaker 1: UH this year. So UH what I set up the
Speaker 1: firm in to basically provide hedge services for UH high
Speaker 1: net worth individuals. IT it then morphed into institutional investors
Speaker 1: and basically we construct short portfolios based on fundamentals for
Speaker 1: investors who want to hedge their portfolios or or go
Speaker 1: more long by being short. UM. And so the the
Speaker 1: ethos of the firm was was I like to joke
Speaker 1: that that I mean the insurance business UM. And what
Speaker 1: we're trying to do is construct better hedges than than
Speaker 1: just passively UH hedging a portfolio using futures or et
Speaker 1: fs and UH and we're still doing it thirty five
Speaker 1: years later. Do you tailor your short selections to a
Speaker 1: specific portfolio. Oh, so you're edging across the board the
Speaker 1: sort of risk they have. Do how narrow and specific
Speaker 1: can you get? Well, so we have we have funds
Speaker 1: that are are open to to a broader group of
Speaker 1: investors who are qualified and and there we we have
Speaker 1: our core portfolio, whether it's a US only or a
Speaker 1: global portfolio of which the US is a subset. But
Speaker 1: we also run managed accounts for large investors who have
Speaker 1: specific needs or specific restrictions. Uh, we can't do certain things.
Speaker 1: We can't do certain geographies, we have to be above
Speaker 1: certain market caps, and so on and and again it's
Speaker 1: up to the client. The idea is to is to
Speaker 1: provide the service that the client needs and wants um
Speaker 1: for for their needs. So we we try to let
Speaker 1: the client do the asset allocation um and and we
Speaker 1: will dial up or dial down the short exposure as
Speaker 1: needed in our funds. However, of course we need to
Speaker 1: do that. Quite quite interesting. So thirty five years that's
Speaker 1: a good long run. How has the art of short
Speaker 1: selling changed over that time period. Well, it's changed in
Speaker 1: a couple of ways. I mean, the the the biggest
Speaker 1: change and most obvious change is the massive reduction and
Speaker 1: interest rates that have occurred over that period, the sort
Speaker 1: of generational or more UM and and that of course,
Speaker 1: UH reduces returns because part of the return on the
Speaker 1: short side is the rebate you get from the prime
Speaker 1: brokers in the cash received from the short sale. UM.
Speaker 1: There's a misconception out there that short selling is costly.
Speaker 1: In fact, short selling actually produces income to the extent
Speaker 1: of the rate on short term rates. So it hasn't
Speaker 1: produced much income in the last few years, given where
Speaker 1: short rates are. But back in we were starting with
Speaker 1: a six or seven or eight sent head start every
Speaker 1: year because the short cell proceeds UH invested in cash
Speaker 1: or T bills yielded high single digits. So that's number one,
Speaker 1: and that's that's sort of beyond our control. UM. The
Speaker 1: other more interesting development is how how we and other
Speaker 1: investors I think process information and UH and and this
Speaker 1: applies to the long side as well. But on the
Speaker 1: short side, UH you really UH had to go out
Speaker 1: and and find information. In the eighties, if you had
Speaker 1: a ten queue hot off the presses, if you will,
Speaker 1: from a filing, you might have the information ahead of
Speaker 1: someone for two or three days. UM. Today, information, as
Speaker 1: you know, comes at you at a fire hose, and
Speaker 1: so it's not the obtaining of information, UM, it's the
Speaker 1: the analyzing and processing of the information and the sifting
Speaker 1: of information that I think gives you an edge in
Speaker 1: fundamental investing. UM. Of course, then with the advent of
Speaker 1: much more machine learning and algorithmic traders, you have uh,
Speaker 1: basically computers looking for word changes and looking for various
Speaker 1: different patterns at a rate at which humans can't even comprehend.
Speaker 1: So in some ways, generating alpha on the short side
Speaker 1: or the long side really involved sort of thinking beyond
Speaker 1: a you know what the immediate information is UM, or
Speaker 1: more importantly, if the information being presented to you, which
Speaker 1: is often the case in my world, is intentionally misleading.
Speaker 1: And I think that's one of the few edges that
Speaker 1: short sellers have in this environment where the computers can
Speaker 1: read things faster than you can. UM, often uh that
Speaker 1: information is being gamed. Huh. Quite quite quite interesting. So
Speaker 1: so you mentioned UM, big machine learning, big data AI,
Speaker 1: algorithmic trading. There seems to be an infinite amount of
Speaker 1: competition on both a long only side and the active side.
Speaker 1: What sort of competition exists on your side of the street,
Speaker 1: on the short selling side, well after thirty or five
Speaker 1: years and basically a bull market, and certainly ten years
Speaker 1: of a bull market, UH, the last ten years, as
Speaker 1: you might imagine, there aren't a lot of people doing
Speaker 1: what I do. UM. I think longer term that's probably
Speaker 1: a good thing. But the number of people who actually
Speaker 1: want to engage in fundamental short selling UH usually can
Speaker 1: fit around a dinner table and sometimes does. Well. That
Speaker 1: sounds like an interesting meal. I'll have to work my
Speaker 1: way into an invitation the next time there's one of those.
Speaker 1: So so, given given this small amount of competition, UM,
Speaker 1: what makes each short seller unique? Are everybody looking at
Speaker 1: the same things and taking the same positions? If you're
Speaker 1: all fundamental or are some of the short sellers out
Speaker 1: there a little more technically oriented. Well, again, if we're
Speaker 1: gonna just speak about fundamental short selling, most of it
Speaker 1: is done within the guys of long short funds. So
Speaker 1: are like or or something like that, or just a
Speaker 1: traditional you know, some of the well known names that
Speaker 1: that that we all know in the hedge fund world,
Speaker 1: you know, have teams that that look for shorts. So
Speaker 1: that's that's really our competition. Then we consider them to
Speaker 1: be very good competition. UM. And then you have people,
Speaker 1: of course that specialized. You can look at someone like
Speaker 1: Carson Block that that has focused internationally and non China. UM.
Speaker 1: We've generally been generalists. We look all around the globe. UM.
Speaker 1: Typically we've always looked in the mid to large cap area.
Speaker 1: There's an awful lot of short sellers who have done
Speaker 1: very well focusing on on small caps and microcaps UM
Speaker 1: that that's never been our world. And so you know,
Speaker 1: we've generally avoided it for a lot of reasons. But
Speaker 1: they're people that do that. And and and then you
Speaker 1: have the whole new world of activist short selling where
Speaker 1: people go out and and and and publish UM two
Speaker 1: on their website or on social media UH their research UM,
Speaker 1: you know, for for everybody to see. And and we've
Speaker 1: our view on that is is that we've, as you know,
Speaker 1: selectively disclose our ideas as we see fit. But but
Speaker 1: don't publish long reports, nor do we publish on on
Speaker 1: the vast majority of our UH positions. We may we
Speaker 1: may be public don five to ten percent of our
Speaker 1: positions at any one time. So you raise a very
Speaker 1: interesting question here about short positions explain to the general
Speaker 1: investing audience why short sellers don't like to be public
Speaker 1: with their short positions. Well, there's a there's a lot
Speaker 1: of reasons for a lot of them having to do
Speaker 1: with issuer retaliation. Number one. UM. One of the there's
Speaker 1: lots of asymmetry on the short side, and one of
Speaker 1: them is that corporate managements don't like to be held
Speaker 1: to account by short sellers by and large, and often
Speaker 1: we'll use shareholder funds corporate funds to harass or litigate
Speaker 1: against short sellers UM in the in the guise of
Speaker 1: of of trying to protect the company. And so that's
Speaker 1: number one, and that just raises various different agency risks
Speaker 1: for for someone that does that. UM. And number two,
Speaker 1: I mean, like all things being equal, I think, as
Speaker 1: any businessman, you'd rather keep proprietary what you'd like to
Speaker 1: keep proprietary, and only take an issue public what luck
Speaker 1: you have to or choose to And uh, I think
Speaker 1: that that's UM. One of the one of the one
Speaker 1: of the odd paradoxes of that is is that I've
Speaker 1: always wondered by the money management UM industry has not
Speaker 1: fought back on the on the SEC's disclosure rules for
Speaker 1: long investors UM who are not in an activist campaign
Speaker 1: or are not in a corporate control campaign UM, because
Speaker 1: there were all kinds of UH people that follow investors
Speaker 1: UH in their portfolios. And and for investors who don't
Speaker 1: turn their portfolios over a lot, they're in effect giving
Speaker 1: away their intellectual property for free. And the industry has
Speaker 1: never really challenged that. And I I don't know why.
Speaker 1: Let's talk a little bit about the challenges of being
Speaker 1: short in a market that seems to want to do
Speaker 1: nothing but go up except for very brief periods. What
Speaker 1: have we quadrupled from the lows of oh nine to
Speaker 1: the highs? How do you maintain short positions into the
Speaker 1: teeth of that? Well, so there's a big misconception about
Speaker 1: our business in that we run most of our accounts
Speaker 1: either actually hedged or benchmarked long. So so again it
Speaker 1: gets back to the whole idea that we're providing a
Speaker 1: hedge and not necessarily being directional for most investors. So
Speaker 1: and we started doing this in the mid nineties UH,
Speaker 1: and and the idea being that were long the market
Speaker 1: in effect and short our stocks, and so we're relatively
Speaker 1: market agnostic UM. And and just generally we're trying to
Speaker 1: create alpha from our short positions either going down UH
Speaker 1: in in actuality or or underperforming relatively. So the idea
Speaker 1: I assume that the market will go up over time,
Speaker 1: as most investors do. The problem is the failure rate
Speaker 1: among individual corporations is quite high and and so the
Speaker 1: idea is to try to winnow those out from a
Speaker 1: broad portfolio. Quite quite interesting. So given that, what do
Speaker 1: you use as a benchmark, Well, for the most part,
Speaker 1: for our US funds, it's the smp UM. It's it's
Speaker 1: simplest and still at the end of the day, most
Speaker 1: indices will will track it one way or the other,
Speaker 1: with variations in certain years UM. And then we use
Speaker 1: the M s c I for the global UH portfolio. Huh.
Speaker 1: That's really really interesting. So you mentioned you began with
Speaker 1: a mostly um high net worth clientele and that's morphed
Speaker 1: into an institutional client base. How have those changes come
Speaker 1: about and how has it affected what you do? So
Speaker 1: the reason that that it's come about is that in
Speaker 1: the eighties, the hedge fund industry was still generally the
Speaker 1: purview of high net worth families and individuals, and it
Speaker 1: only really became UH it wasn't until the nineties that
Speaker 1: institutions and investment boards and corporate boards got more comfortable
Speaker 1: with using hedge funds and other alternatives as part of
Speaker 1: their portfolio UM and so we we began to see
Speaker 1: a growth in institutional investing in the nineties, particularly towards
Speaker 1: the end of the nineties. And then and then you
Speaker 1: had sort of the golden era of hedge funds, which
Speaker 1: was two thousand two to two thousand and six, when
Speaker 1: hedge funds sort of made their chops in the long
Speaker 1: short equity world by being short the right things in
Speaker 1: two thousand to two thousand two, being short the dot
Speaker 1: com bubble stocks and telecom and you know a lot
Speaker 1: of the things that got taken to extremes and being
Speaker 1: long value and so hedge funds made money on both
Speaker 1: sides of their book for a number of years. And
Speaker 1: then of course the money flooded in UM and then
Speaker 1: the and then basically the UH. It all came crashing
Speaker 1: down for the hedge fund industry in long short in
Speaker 1: oh seven, O eight o nine, when UH hedge funds
Speaker 1: did not head or did not hedge as much as
Speaker 1: they should have and got caught just as much as
Speaker 1: most investors did um in the in the bare market
Speaker 1: of eight oh nine, and it's better. It's been a
Speaker 1: tough flog ever since. I very much recall something you
Speaker 1: said in one of our prior conversations. If you go
Speaker 1: back thirty years, there were five hundred or so hedge
Speaker 1: funds and they all created alpha. Today there's eleven thousand
Speaker 1: hedge funds, and it's more or less still those five
Speaker 1: hundred hedge funds that are the alpha generators still still accurate.
Speaker 1: I mean, I think generally, I don't know about the
Speaker 1: specific numbers anymore, but I think directionally in magnitude, that's
Speaker 1: still a pretty accurate statement. Um. You know what. The problem,
Speaker 1: of course, until I think very recently, is that you
Speaker 1: just had a lot of fairly, you know, reasonably sophisticated
Speaker 1: money trading against each other. Um And And the reason
Speaker 1: you get lots of alpha at different uh parts of
Speaker 1: the market segment is because you get unsophisticated investors who
Speaker 1: come in and start providing capital and start doing dumb
Speaker 1: things with their money. And that was certainly the case
Speaker 1: in n and two thousand, where where retail investors stopped
Speaker 1: buying mutual funds and started speculating in stocks directly taking
Speaker 1: things up, you know, to just incredible valuations. And for
Speaker 1: the most part in this last bull market, we saw
Speaker 1: it as mostly a institutional or passive driven market until
Speaker 1: really the fourth quarter of last year and the first
Speaker 1: couple of months of where I saw the retail investors
Speaker 1: come back in a big way. Um, it's as if
Speaker 1: someone flipped the switch in October November of last year
Speaker 1: and and all of a sudden story stocks began doing
Speaker 1: what they did in early early two thousand and that
Speaker 1: for us was a was a bit of a warning sign. Yeah,
Speaker 1: the tenure bull market will will do that on the
Speaker 1: mom and pop side. But I'm curious on the institutional side.
Speaker 1: You're known as as somebody who identifies corporate fraud or
Speaker 1: mouth seasance or companies that are potentially going to go bankrupt.
Speaker 1: What sort of a spike do you see following an
Speaker 1: event like oh, eight oh nine, or what's happened so
Speaker 1: far in well, it's interesting in in um in oh
Speaker 1: uh in nine and two thousand or oh, you know nine,
Speaker 1: the reactions were a lot different. Um, the two thousand
Speaker 1: to oh to bear market was drawn out, it was
Speaker 1: every bit as vicious as as O eight oh nine.
Speaker 1: People kind of forget that Mastak was down from the
Speaker 1: peak in two thousand to O two and the S
Speaker 1: and P was down, so very similar kinds of draw
Speaker 1: downs that we saw in in O eight oh nine.
Speaker 1: In O a oh nine, it seemed to be mostly
Speaker 1: compressed into one year, the faithful year of oh eight UM,
Speaker 1: where it was more spread out over two years in
Speaker 1: in two thousand to two thousand and two, UM, and
Speaker 1: what we saw in in UH we saw just basically
Speaker 1: sharp rallies in both bear markets. But uh uh in
Speaker 1: in two thousand to two two O two UM, the
Speaker 1: rallies were weaker and weaker and were sold each and
Speaker 1: every time. UM. You know, eight O nine it seemed
Speaker 1: to be the value seemed a lot sharper at the time,
Speaker 1: but shorter given the compressed nature of what we're seeing,
Speaker 1: you know, As to what just happened in March April,
Speaker 1: I have no idea yet. I don't know that anybody
Speaker 1: else does. We'll see, I mean, uh, certainly the willingness
Speaker 1: to speculate has come back in a very quickly in
Speaker 1: the month of April from what we saw in March
Speaker 1: and UH. In that I think, as any observer of
Speaker 1: the market will tell you, UM, that is at least
Speaker 1: a little bit disconcerting, given how fast people are willing
Speaker 1: to sort of overlook what what appears to be happening
Speaker 1: to the economy, um, with the assumption that everything will
Speaker 1: be just fine, um come and certainly that might be
Speaker 1: the case, but it might not. We just don't know. Well, well,
Speaker 1: we'll get to the markets in the economy in a
Speaker 1: little bit. I'm intrigued by the your reference of rallies
Speaker 1: during a bear market. I recall very vividly watching a
Speaker 1: stock you were short and ron fall for a year,
Speaker 1: a year solid, and it did not move in a
Speaker 1: straight line. It would drop and then rallied back almost
Speaker 1: two thirds three quarters of what it lost. How challenging
Speaker 1: is it to sit in a position like that that
Speaker 1: you're short and it feels like you're getting even though
Speaker 1: you're on the right side of the trade, it feels
Speaker 1: like you're getting your face ripped off every day. Yeah,
Speaker 1: it's and and those rallies test your conviction. Um. And
Speaker 1: the idea is that if if the fundamentals haven't changed,
Speaker 1: they're certainly getting worse. You know, you you just have
Speaker 1: to to keep your conviction and watch your risk levels
Speaker 1: like anything else. UM. But yes, it does seem to
Speaker 1: to uh to me and to others that that companies
Speaker 1: that are particularly controversial UM and and and and going
Speaker 1: into what might be their their terminal phase UM tend
Speaker 1: to have increased trading volatility. And UH that that is
Speaker 1: just we take as a given. So we give these
Speaker 1: things a little bit more wide parameter um when they
Speaker 1: when they begin to to have problems. But yes, I
Speaker 1: mean I remember, I remember number of situations, uh in
Speaker 1: the last twenty years where the company ended up going bankrupt,
Speaker 1: and yet there was a series of forty and fifty
Speaker 1: rallies along the way that would have you believe that
Speaker 1: everything was was fine and they solved their problems, when
Speaker 1: in fact they never had. My my big takeaway from
Speaker 1: being short specific companies in O eight oh nine was
Speaker 1: to learn to marry a put as opposed to merely
Speaker 1: being short naked the stock. I wish I had learned
Speaker 1: that before the crisis as opposed to after. But such
Speaker 1: as life, let's talk a little bit about where we
Speaker 1: are in the state of the economy and the state
Speaker 1: of the market. It's the end of April this market
Speaker 1: has recovered a substantial portion of the sell off that
Speaker 1: began in February. Are the markets being optimistic too optimists
Speaker 1: stick or are they seeing something that the rest of
Speaker 1: us might not be seen? Well, obviously, you know it's
Speaker 1: too early. It's always too early to tell, UM. But
Speaker 1: what I would say is that, UM, you know, we've
Speaker 1: we've been saying, UH that I think market participants, whether
Speaker 1: you're a bull or bear, writing off UM as as
Speaker 1: you know, just just a massive, massive deceleration uh and
Speaker 1: decline in the economy. And and really the markets will
Speaker 1: look forward to to figuring out, okay, what what our
Speaker 1: business is worth based on sort of a normalized UM
Speaker 1: rate of return. And that's where things get interesting because
Speaker 1: if you look at if you look at where the
Speaker 1: markets have come back to, UM, we were supposed to
Speaker 1: we were supposed to make about a hundred and seventy
Speaker 1: seventy five dollars on the SNP this year. That that's
Speaker 1: out the window. UM. I think the number was roughly
Speaker 1: a hundred seventy last year. UM. And and so the
Speaker 1: estimates I've now seen for one, uh, have the SMP
Speaker 1: back to the sort of a hundred seventy dollar number,
Speaker 1: but that's starting to come down. Um, so we've basically
Speaker 1: discounted back a recovery for lack of better term, a
Speaker 1: full recovery in one. And I'm just not so sure that,
Speaker 1: at least in the case of some businesses, that that
Speaker 1: optimism might be a little bit misplaced. So so let's
Speaker 1: stay with that theme. If we're looking at originally profits
Speaker 1: on the SMP five hundred of a hundred and seventy dollars,
Speaker 1: first question is where do you really see that number
Speaker 1: shaking out by the time is over? And second, what
Speaker 1: sectors are going to be, uh the biggest pain points
Speaker 1: of that decrease in profitability? So, I mean, you know,
Speaker 1: for twenty it's Anyone's guests, and I think we'll see
Speaker 1: a lot of the kitchen sinc phenomenon. That management teams
Speaker 1: will realize that wall streets giving them a past for
Speaker 1: this year, so they're gonna they're gonna load whatever costs
Speaker 1: they can in the rest of this year. UM. Where
Speaker 1: I am a little bit more skeptical is is terms
Speaker 1: of ongoing profitability in one. I will be surprised it
Speaker 1: certainly could happen, but I will be very surprised if
Speaker 1: we're at twenty nine levels of profitability in UM, and
Speaker 1: certainly for some industries, I think it's gonna be a
Speaker 1: lot more challenged, whether you're you know, in the in
Speaker 1: the travel or leisure business, the restaurant business, UM, a
Speaker 1: variety of other things companies rely on on UM sort
Speaker 1: of robust UM UH. Supply chains are gonna have problems
Speaker 1: and and consumer behavior may change. We don't know yet.
Speaker 1: I mean, where everyone's in lockdown UM and and what
Speaker 1: kind of permanent changes are there going to be UM,
Speaker 1: you know, in a post pandemic world. I don't know
Speaker 1: that we we we know for sure. And then on
Speaker 1: top of that, I think we'd be remiss if we
Speaker 1: didn't talk about not only the political side, but the
Speaker 1: political costs to corporate America from another round of bailouts.
Speaker 1: And and I really think it will be hard pressed
Speaker 1: for corporate America to keep corporate tax rate going forward,
Speaker 1: for example, And that makes a huge difference that we
Speaker 1: did some numbers, and and that hundred and seventy dollar
Speaker 1: level on the SMP five drops down to a hundred
Speaker 1: and thirty five dollars UM if you change the tax
Speaker 1: right back to which is what one of the parties
Speaker 1: is certainly advocating UM. And so you could just simply
Speaker 1: get a recision of the Trump tax cuts UM as
Speaker 1: one possible alternative that would change earnings power for the
Speaker 1: intermediate term, you know, rather permanently. Huh. Quite quite interesting.
Speaker 1: Here's the pushback adhere to that, and it goes something
Speaker 1: like this. After September eleventh, we heard that nobody was
Speaker 1: going to fly again, that travel was going to be
Speaker 1: a problem, real estate in in New York and big cities,
Speaker 1: We're going to be affected. And we ended up not
Speaker 1: seeing that sort of response after six months or so,
Speaker 1: might we see the same sort of recovery? Absolutely, and
Speaker 1: and and we we certainly might. Um. But after I mean,
Speaker 1: I think we understood that nine eleven was was the
Speaker 1: instance of wrong place, wrong time, right. I mean, so
Speaker 1: so there were there were countries and people who lived
Speaker 1: with terrorist attacks, such as the UK and Israel and
Speaker 1: other places for decades, right, and and we we we
Speaker 1: had a we had a basic template there that those
Speaker 1: economies generally shrugged off terrorist events that were you know,
Speaker 1: bombings and that sort of thing. Um. In the US
Speaker 1: being the US, we we we handled a little differently.
Speaker 1: We went to war. But UM. But but I think
Speaker 1: that that there was a sense that Okay, UM, you
Speaker 1: you know you're in the wrong, wrong square, wrong building.
Speaker 1: You know that that that is a sad thing. But UM,
Speaker 1: a pandemic is something quite different because it transmits. And
Speaker 1: so I think that that's why this is, this is
Speaker 1: so different UM, and I think is going to be
Speaker 1: with people for a while and the way they changed
Speaker 1: their behaviors. Again, I certainly expect that most activity will
Speaker 1: go back to somewhat somewhat normal. But corporate America generally
Speaker 1: is a very leveraged er D and and we've had
Speaker 1: years and years and years and years of cost cutting.
Speaker 1: We've had interest rates go down to zero percent, We've
Speaker 1: cut corporate tax rates dramatically. So you have you have
Speaker 1: operating margins and net margins that are about as good
Speaker 1: as they've ever been. Keep in mind that revenue growth
Speaker 1: has not been great in the last ten years and
Speaker 1: so UM, you had had global economy that was slowing
Speaker 1: before coronavirus UM. And we haven't even gotten to my
Speaker 1: favorite country, China yet, and so uh, there are small
Speaker 1: changes in activity here UM could have disproportionate impacts on
Speaker 1: profitability for lots of different industries, and yet it would
Speaker 1: seem to be back to normal, you know, as we
Speaker 1: go about our day to day lives. It just might
Speaker 1: be that corporate America is not as profitable as it
Speaker 1: used to be. So you referenced China. Let's briefly look
Speaker 1: at what's going on there. How significant is this pandemic
Speaker 1: to that giant, populous nation and what does their business
Speaker 1: community look like, what does their investment climate look like
Speaker 1: in the years once we get past this pandemic. Yeah,
Speaker 1: I think that that one of the underappreciated things that's
Speaker 1: happened during this pandemic has been a a dramatic hardening
Speaker 1: of U. S. China relations Um. That that has occurred,
Speaker 1: um for a lot of reasons, including the pandemic itself.
Speaker 1: But um, you keep in mind last month China expelled
Speaker 1: a number of Western journalists from the country. We've had
Speaker 1: this war of world words between the Trump administration and
Speaker 1: China regarding the pandemic source. Um. But and if this
Speaker 1: had happened last year when we were having the trade
Speaker 1: talk travails, I think it would have been a far
Speaker 1: more newsworthy But it's been kind of been put on
Speaker 1: the back page. But I think that the West's view
Speaker 1: and even Europe's view of China has hardened dramatically in
Speaker 1: the last few months. UM. I know certainly the democratic
Speaker 1: the democrats view of China has also hardened, uh in
Speaker 1: the last handful of months. So we have a situation
Speaker 1: where we're getting a little bit more adversarial politically, so
Speaker 1: for whatever that means for for ongoing trade talks. UM.
Speaker 1: But I also think that that corporate America has kind
Speaker 1: of learned its lesson with the tariffs and everything else,
Speaker 1: that there's an increasing nationalism at work here, and that
Speaker 1: bringing your supply chain out of China may make some sense. UM.
Speaker 1: On top of all that, China is still remains to
Speaker 1: me the big credit story globally. UM. We just took
Speaker 1: an updated our look at all the Chinese large banks,
Speaker 1: for example, and they basically grew their assets last year
Speaker 1: anywhere from ten to fift sort of as they have
Speaker 1: been UM. So you know, every year, uh, China seems
Speaker 1: to grow uh it's debt at some multiple of nominal GDP.
Speaker 1: And we joked that this can't keep going on forever,
Speaker 1: but so far it has. But now we see just
Speaker 1: monstrous amount of debt, mortgage debt, personal debt, corporate debt
Speaker 1: in the Chinese economy. And that's something that China still
Speaker 1: is going to have to grapple with going forward. Um.
Speaker 1: They haven't had to do so in a in a
Speaker 1: major way, but at some point it will, it will happen. Um.
Speaker 1: Chinese apartments are still the most important asset class in
Speaker 1: the world in my view. We were talking earlier about
Speaker 1: the challenge of being short in the face of a
Speaker 1: rising market. When we see the government reaction to a crisis,
Speaker 1: when we see the Fed adding a couple of trillion
Speaker 1: dollars to their balance sheet and Congress passing the Cares Act,
Speaker 1: which was over two trillion dollars, I guess we're gonna
Speaker 1: have to start calling that Cares Act one because it
Speaker 1: looks like there's more and more of that coming. What
Speaker 1: does that do to the market, What does that do
Speaker 1: to the economy? And how do you feel about being
Speaker 1: short in the face of almost five trillion dollars in stimulus? Well, Well,
Speaker 1: first of all, remember we're, as I mentioned, we're also
Speaker 1: a long the S and P and the MSc. I
Speaker 1: so UM, so again we try to focus on how
Speaker 1: central bank activity impacts certain industries in our stocks. UM.
Speaker 1: But I think that that one thing I will say,
Speaker 1: you know, regarding the Cares Act and the p p
Speaker 1: P Payroll Assistance Program, is that once again the federal
Speaker 1: government has been asked to backstop business. And I don't
Speaker 1: want to get into, um the semantics and the and
Speaker 1: the ideology of of whether or not this is capitalism
Speaker 1: or not capitalism. UM. I have my views on that,
Speaker 1: as everybody else does. But what I do think is
Speaker 1: that it means that if the U. S. Taxpayer is
Speaker 1: going to stand behind corporate America for every unanticipated risk
Speaker 1: and and I do look as coons at people say, well,
Speaker 1: nobody could have foreseen this, so therefore, you know, everybody
Speaker 1: deserves a bailout of some certain amount. UM. My point
Speaker 1: on that is is that the real risks are always
Speaker 1: the ones you don't foresee, because if you do foresee them,
Speaker 1: you mitigate them or insure against them. UM. And so
Speaker 1: if the taxpayer is once again going to be on
Speaker 1: the hook for trillions of dollars UM to support businesses
Speaker 1: and support their employees, and I certainly think we should
Speaker 1: be supporting their employees, I'm not I'm not as convinced
Speaker 1: on on the rest of the corporate bailouts. UM. Well,
Speaker 1: then certainly I think that the taxpayer deserves a premium
Speaker 1: going forward UM, and and that corporate tax rates should
Speaker 1: in fact go higher, because in fact that should be
Speaker 1: the in effect the insurance premium that is paid to
Speaker 1: the U. S. Taxpayer every year UM to cover these
Speaker 1: blanket risks that keep showing up every ten years and so.
Speaker 1: And I think that's gonna be a very strong case
Speaker 1: to the American public UM that if you're going to
Speaker 1: end mind um corporate America with the U. S. Treasury
Speaker 1: and also the Federal Reserve by e the currency UM,
Speaker 1: then you should be compensated for it. And I think
Speaker 1: that that, I think is going to be a pretty
Speaker 1: strong argument. Yeah, I'm I'm fascinated how not only are
Speaker 1: there no atheists and foxholes, but there are no Austrians
Speaker 1: or Libertarians during financial crises. It's amazing how suddenly everybody
Speaker 1: becomes pro bail out at the first sign of trouble.
Speaker 1: But you raise a really interesting question about the upcoming election.
Speaker 1: Is this gonna be essentially a referendum and how President
Speaker 1: Trump has handled the coronavirus or is this a bigger
Speaker 1: ideological debate between labor and capital, between taxpayers and bailouts. Yeah. So,
Speaker 1: so I had this view that that, you know, labor
Speaker 1: is kind of I don't know if it's a Marxist
Speaker 1: view or or or whatever, but I do believe that
Speaker 1: that we've seen in the US these sort of long
Speaker 1: waves of capital versus labor, and labor became ascendant with
Speaker 1: the New Deal in the in the in the thirties, UM,
Speaker 1: and we took a much more, a much more status
Speaker 1: approach towards helping workers. UM. Some countries took the status
Speaker 1: approach too far in the in the late thirties and
Speaker 1: we end up at war. But but that all changed
Speaker 1: um with with the great inflation of the sixties and
Speaker 1: seventies and the fact that business was on its rear
Speaker 1: end and capital had been treated pretty shabbily UM, particularly
Speaker 1: from the late sixties to the late seventies, and with
Speaker 1: the election of Margaret Thatcher in seventy nine in the
Speaker 1: UK and Ronald Reagan in the U s and the
Speaker 1: eighty the pendulum began to swing back and we we
Speaker 1: began cutting capital gains taxes, central banks aggressively. The Paul
Speaker 1: Volker fought inflation UM and and we we saw returns
Speaker 1: on corporate assets, you know, begin to appreciate dramatically. And
Speaker 1: of course we also know that median wages and labor
Speaker 1: rates pretty much hit their peak in the late seventies UM.
Speaker 1: And so I think that that there was been a
Speaker 1: long since punctuated by acceleration in the global financial crisis,
Speaker 1: that the little guy was being left behind, the worker
Speaker 1: was being left behind. And I think in a in
Speaker 1: a in an interesting way, Donald Trump tapped into that
Speaker 1: in twenties sixteen. I just don't think, uh that he
Speaker 1: really meant it um and and I e it was
Speaker 1: just a message to get elected as opposed to following
Speaker 1: through UM with policies that we're going to really really
Speaker 1: change that um with this latest set of bailouts UM.
Speaker 1: I think when when fear turns to anger, as it
Speaker 1: inevitably will, as we sort of look at at you know,
Speaker 1: who got bailout money, who who took money they shouldn't,
Speaker 1: we're already seeing some of that UM. I think that
Speaker 1: that that that anger is going to be stoked even more.
Speaker 1: And so the question is do we finally see policies
Speaker 1: like a rising minimum wage, higher corporate taxations, higher rates
Speaker 1: on capital gains, end of carried interest um. That is
Speaker 1: a lot less um capital friendly and a lot more
Speaker 1: labor friendly coming out of this, And that's I think
Speaker 1: gonna be one of the most important political economy questions
Speaker 1: that investors will have to think about. Huh, that's quite interesting.
Speaker 1: I think you are dead on when you reference Trump's
Speaker 1: brilliant messaging in there. There's a footnote discussion about whether
Speaker 1: when he first began running he really wanted to win
Speaker 1: or it was just a brilliant marketing ploy. But he
Speaker 1: has tapped into a form of nationalistic popularism that certainly
Speaker 1: resonates with thirty of of the electorate. So really, what
Speaker 1: is the election about if not the incumbent? It sounds
Speaker 1: like you think there's a longer cycle. Uh, and the
Speaker 1: pendulum is swinging from one extreme, uh, and it's beginning
Speaker 1: to reverse and head in the other direction. Am I
Speaker 1: misstating that? I think there is. I mean, if you
Speaker 1: look at certain certain US bolling things. I mean, look
Speaker 1: at the support for a national healthcare program. It's broad,
Speaker 1: it's dramatic, and it cuts across party lines. Look at
Speaker 1: the support for higher minimum wage again, it's broad, it's dramatic,
Speaker 1: it cuts across party lines. There's a number of these
Speaker 1: issues that that that cut across party lines that I
Speaker 1: think the the the heads of the parties have tried
Speaker 1: to sort of ignore, um that that because obviously there's
Speaker 1: lots of you know, lots of donor interest for it
Speaker 1: to be ignored. But there really is a view out there. UM.
Speaker 1: And I think another set of bailouts is only going
Speaker 1: to make this this this uh sense that we've had
Speaker 1: since the global financial crisis of unfairness of how taxpayers
Speaker 1: were bailing out you know, guys who shouldn't have been
Speaker 1: bailed out. Um, we're gonna see that again in a
Speaker 1: major way. I think, after after and and and you
Speaker 1: ignore it at your own peril. I I keep, you know,
Speaker 1: telling people, Um, this is the set of circumstances we
Speaker 1: have now for corporate returns in corporate America is about
Speaker 1: as good as it's gonna get. I mean, it's gonna
Speaker 1: be really hard. After years and years of cutting interest rates,
Speaker 1: cutting taxes, UM, cutting costs, going global, um, slashing labor rates. UM.
Speaker 1: You know this is this is pretty good. Um And
Speaker 1: and there's lots of reasons to believe that you will
Speaker 1: revert to the mean and some of those uh, some
Speaker 1: of those items, and that could have just huge implications,
Speaker 1: as I mentioned earlier, for corporate profitability. So I recall
Speaker 1: in ten you were a pretty big donor um to
Speaker 1: the Democrats. Who did you like originally in the Democratic primary?
Speaker 1: And what do you think of the race now that
Speaker 1: it's become a head to head between Trump and Biden. Well,
Speaker 1: I mean as as as I think you know. I mean,
Speaker 1: I'm a I'm a longtime friend and supporter of the
Speaker 1: Vice president. So um, I I actually wrote in his
Speaker 1: name in twos sixteen. Uh and so um, I want
Speaker 1: to be consistent. And was that in Was that in
Speaker 1: New York or in Florida? Because it was New York?
Speaker 1: All right, so we'll let you, We'll let it go.
Speaker 1: I was in Florida. Yeah, and I and and I
Speaker 1: did so with that in mind voter as a New
Speaker 1: York voter. But but um, look, I think that I
Speaker 1: think for lots of reasons, um, that we don't need
Speaker 1: to get into He's he's a far better candidate, uh
Speaker 1: not least of which I think we're gonna need given
Speaker 1: the polarity in this country. I think we're gonna need
Speaker 1: a period of healing, not only internally but externally with
Speaker 1: our allies and UH and I think Vice President Biden
Speaker 1: UM is far better um able to do that, uh
Speaker 1: and and and then turn turn this over to the
Speaker 1: next generation UH of Democratic leaders, which I think he
Speaker 1: will do. But it's gonna be Look, it's gonna be
Speaker 1: an interesting election. I think that all all accounts arts.
Speaker 1: You know, it's it's a pretty tight race as of
Speaker 1: spring of lot can happen in the next six months,
Speaker 1: as we know that it's also going to boil down
Speaker 1: to UH to a handful of states. Although I did
Speaker 1: see one interesting thing that that made me uh, that
Speaker 1: gave me UM a little bit of pause. UM, and
Speaker 1: that is someone pointed out that, uh, there are eight
Speaker 1: states that Trump took in that are basically right now
Speaker 1: in the toss up category within margin of error. UM,
Speaker 1: there are no states that Hillary took in that are
Speaker 1: in that same category. That makes a lot of sense.
Speaker 1: You I have to go back to part of your
Speaker 1: statement earlier, because it sounded like you were hinting that
Speaker 1: you think Biden is going to be assuming he's elected,
Speaker 1: only planning on staying one term. Did I did I
Speaker 1: pick up that you turn it over to the next generation.
Speaker 1: You you are? You are? You're putting words in my mouth.
Speaker 1: I did not say that. How well, I think that
Speaker 1: I think that his vice president selection will be made
Speaker 1: with that obviously in mind. Um and I think that, Uh.
Speaker 1: I would be very surprised if the vice president uh
Speaker 1: chooses someone who's seventy five years old to be his
Speaker 1: running mate. Um so so not Elizabeth Warren or Bernie Sanders.
Speaker 1: I suspect it won't be. But I don't know anything.
Speaker 1: I suspect. I suspect it will be a younger woman.
Speaker 1: Uh huh so like an Amy Klobuchar or someone of
Speaker 1: that generation. Probably, As I said, I don't know anything,
Speaker 1: and so I think we'll own that within the next
Speaker 1: month or so. But I suspect it will be a
Speaker 1: younger woman. So how concerned are you as a Democrat
Speaker 1: about Biden's reputation as a gas machine? Uh? So, the
Speaker 1: things that endear people uh to Joe Biden, I don't
Speaker 1: think have changed, and I don't think the vice president
Speaker 1: has changed. Uh. He is a plane talker. He says
Speaker 1: what's you know? In his head and in his heart
Speaker 1: and Uh. And I think that that people, actually, the
Speaker 1: people that like Joe Biden liked him for that. Um
Speaker 1: and and and you know, then again, can we just
Speaker 1: compare him to who's in the White House now? And
Speaker 1: and so I for anyone anyone that always raises that issue,
Speaker 1: I've also seen, you know, spend time with the Vice president.
Speaker 1: Will tell you you know, I've seen the man very recently,
Speaker 1: UM by heart repeat uh legal opinion for example, um
Speaker 1: Scalia's legal opinion on handguns that was written back a
Speaker 1: number of years ago in a debate on gun control
Speaker 1: we had in my apartment. I saw the Vice President
Speaker 1: literally recite verbatim UM, paragraphs from that opinion. And and
Speaker 1: and this is someone who who has been in office
Speaker 1: for a long long time, both in the Senate and
Speaker 1: as Obama's vice president. Um. He knows things, and he
Speaker 1: knows people who know things, and he's based basic decisions
Speaker 1: on science and and and again, I mean this is
Speaker 1: this is what I think most of us, whatever your
Speaker 1: your political leanings, kind of expect of people in the
Speaker 1: highest office in the land. And to me that that
Speaker 1: would would be a refreshing change. But as I said,
Speaker 1: it's going to be a tight it's going to be
Speaker 1: a tight It's going to be a tight election, and uh,
Speaker 1: it's gonna come down to the wire. So I completely
Speaker 1: disagree with you, and I will save my rebuttal for
Speaker 1: the next time we have you at dinner. I have
Speaker 1: two last political questions I have to ask. One is
Speaker 1: you you mentioned the president has his own tendency towards gaffs.
Speaker 1: I've heard a lot of people say nothing sticks to
Speaker 1: this president time and time again. As both a candidate
Speaker 1: and an elected official, he does things that would have
Speaker 1: absolutely torpedoed any other candidate. What are your thoughts on that?
Speaker 1: I have some of my own. How has he managed
Speaker 1: to become the taflon don Well Barry. I mean, you
Speaker 1: have to remember in US political history of the country,
Speaker 1: will vote for a potted plant because it's not the
Speaker 1: other guy. Um. You know, in in all of the
Speaker 1: biggest landslide elections, the loser got around the vote. I
Speaker 1: think McGovern gott As I recall, but I mean it
Speaker 1: just it is we are to some extent, you know,
Speaker 1: it's your guy right or wrong, um in in the
Speaker 1: United States, and so that number usually coalesces around UM.
Speaker 1: And so I think that that for people that that
Speaker 1: are going to try to put trying to put rationalization
Speaker 1: as to why people support one candidate or another. Uh,
Speaker 1: you know, despite whatever they do, you can kind of
Speaker 1: start and then figure it out. Um. And And what
Speaker 1: that means is is that this election is going to
Speaker 1: come down to independence again. And one of the things
Speaker 1: that struck me in the election, in the exit polling,
Speaker 1: was that if you looked at people that disliked both candidates, um,
Speaker 1: they tended to then vote for Donald Trump. So I
Speaker 1: just saw an article yesterday that's ad over the past
Speaker 1: two months, the number of undecided has just about doubled,
Speaker 1: which is quite fascinating. Yeah. So I think that once
Speaker 1: once we get out of our bunkers and we there's
Speaker 1: a bit of a normalized campaign, I think you'll see
Speaker 1: the differences. I suspect you will. Um And And let's
Speaker 1: not forget I mean this. This last election also came
Speaker 1: down to about eighty thou votes in five states, and
Speaker 1: it was a much closer run thing than that I
Speaker 1: think others would have you believe. And yeah, he threaded
Speaker 1: the needle. And and you had the comy situation a
Speaker 1: week or two before the election, and his margin of
Speaker 1: victory in those five states was actually smaller than the
Speaker 1: vote that Jill Stein got exactly. And so so again
Speaker 1: I think that that you know, we we we drew
Speaker 1: a lot of conclusions from that. But on the other hand,
Speaker 1: I suspect the Biden campaign. I kind of no, a
Speaker 1: Biden campaign understands this, understands the battleground states. Um. I
Speaker 1: think that they will not make some of the mistakes
Speaker 1: the Clinton campaign made. And we'll see, but but it
Speaker 1: will again be be a close thing. Last political question
Speaker 1: before we move on, had the coronavirus pandemic erupted a
Speaker 1: year earlier, would Andrew Cuomo be the Democratic nominee? I'll pass.
Speaker 1: I'm a friend of the governors as well, so I'm
Speaker 1: gonna pass on that question. All right, Well you could
Speaker 1: you could pass that along to me, to him on
Speaker 1: my behalf and tell him. Um, that's what I'm thinking.
Speaker 1: All right, So let's do our favorite questions. We ask
Speaker 1: all of our guests. You're under lockdown, you happen to
Speaker 1: be in Florida. What are you streaming these days? Tell
Speaker 1: us what you're watching on Netflix? What are you listening
Speaker 1: to in podcasts? What are you doing to keep entertained
Speaker 1: during this shelter in place. Well, I mean, first of all,
Speaker 1: I've been teaching my Yale class on financial fraud remotely
Speaker 1: this spring, so uh so one day a week I've
Speaker 1: I've had to uh, I've had to get acquainted with
Speaker 1: with my class remotely and do my lectures. Um. In
Speaker 1: terms of entertainment, I will tell you one thing way
Speaker 1: that that we have watched recently, that apropo of our
Speaker 1: political discussion that I really really have gotten into is
Speaker 1: the new series on f X MRS America, which is
Speaker 1: the story of Phillish Schlafley and the Stop the e
Speaker 1: r A movement versus uh the National Organization women Gloria
Speaker 1: Stein and Bell Abs Betty for Dan and it's just
Speaker 1: this great nineteen seventies period piece. Um. Kate Blanchett plays
Speaker 1: Phillish laughly and it's uh, it's well done. As someone
Speaker 1: who went through that as a kid of the seventies,
Speaker 1: I've gotten a kick I've gotten a kick out of
Speaker 1: out of that series recently. UM, And I just finished
Speaker 1: I just finished a great book. Since I'm stuck in Miami,
Speaker 1: I finished a great book, financial history book, which I
Speaker 1: would highly recommend to your listeners on the Great Florida
Speaker 1: Land Boom. Um. That that is just a fantastic history
Speaker 1: of the first credit bubble of the Roaring twenties, which
Speaker 1: was the Florida land boom in the Miami Beach land
Speaker 1: land bubble um from n nine that preceded the Great Crash.
Speaker 1: And it's just a great history of Florida and a
Speaker 1: great history of of sort of speculation gone mad um
Speaker 1: before the hurricane hit and dashed all those hopes. And uh,
Speaker 1: it's a terrific financial read. So so let's stay with books,
Speaker 1: because the one of the last times we had you on,
Speaker 1: you recommended a book that I ended up not only loving,
Speaker 1: but recommending to a bunch of people who so loved it.
Speaker 1: And that was a world lit only by fire. Just
Speaker 1: a fascinating just just a fascinating history. Tell us some
Speaker 1: other favorite books you like to recommend? What else are
Speaker 1: you reading? I'll give you one. I'll give you one
Speaker 1: from my bookshelf that I dust off every few years. Um,
Speaker 1: and I picked it up again. It's on my nightstand
Speaker 1: and I'm gonna try to get through it, hopefully when
Speaker 1: my class ends in a few weeks. But every four
Speaker 1: or five years I come back to, uh, the Great
Speaker 1: Carl Sagan's book, The Demon Haunted World and and I can't.
Speaker 1: I don't know if you know it, but it's it's
Speaker 1: a terrific book by by Sagan, one of the last
Speaker 1: he wrote before he passed away, about how we think
Speaker 1: about things as a as um humanity and why we
Speaker 1: believe certain things we do in the absence of evidence.
Speaker 1: And he goes into you know, whether it's witchcraft or
Speaker 1: belief in ghosts or or whatever it might be, UM,
Speaker 1: lief in you know, what makes it particularly topical is
Speaker 1: is the belief in incures with no evidence, as we've
Speaker 1: seen more recently with the coronavirus, and why people are
Speaker 1: willing to to bloom onto stuff. UM. And it's just
Speaker 1: a wonderful, wonderful book about kind of why we are
Speaker 1: who we are when it comes to belief in the
Speaker 1: supernatural and uh, and and in in a variety of
Speaker 1: other sort of beliefs we have. UM. It makes me
Speaker 1: think every time I reread the book. I have that
Speaker 1: book on my shelf and I haven't read it in
Speaker 1: I don't know, twentysomething years, but I'm gonna pull that off.
Speaker 1: And I'm also gonna give you a related recommendation. I'm
Speaker 1: trying to remember his name, but the name of the
Speaker 1: book is called Heretics of Science. The author is a
Speaker 1: journalist I think out of Australia or the UK, and
Speaker 1: he embeds himself with the wackiest of coops trying to
Speaker 1: figure out the flat earthers and the anti vaxers and
Speaker 1: just the KKK, like one group after another that is
Speaker 1: very much looked askance at by the general public. And
Speaker 1: his conclusion, more or less is all of these folks
Speaker 1: have a very fundamental error in their basic worlds model
Speaker 1: in their head. And it's like aiming for the moon.
Speaker 1: If you're off by a couple of inches, you missed
Speaker 1: by millions of miles, and extrapolating a little bit of
Speaker 1: flat Earth and to the rest of the world, you
Speaker 1: end up with fairly normal. Otherwise people who believe absolutely
Speaker 1: insane things. You, of all people, would like it because
Speaker 1: you're in the business of figuring out what's true, what's false,
Speaker 1: and why people sometimes believe things that just a kind
Speaker 1: of wacky. I will I will order it today. Thank
Speaker 1: you for that recommendation, right. It reminds me of that
Speaker 1: great study and I think there was a book out
Speaker 1: of the University of Chicago in the late fifties UM
Speaker 1: where the researchers embedded themselves into a group that believed
Speaker 1: the aliens were gonna come down and end the world.
Speaker 1: And as it became with it with a series of
Speaker 1: dates for the end of the world. And as the
Speaker 1: dates came and went without the end of the world UM,
Speaker 1: the movement lost more and more members. But there was
Speaker 1: an interesting observation that those that remained in the movement
Speaker 1: hardened their views as opposed to uh loosened their views
Speaker 1: on on this this series of predictions that the alien
Speaker 1: would would come down and whisked them away and and
Speaker 1: and end the world for everybody else, and and UH
Speaker 1: that that as people as people were shown evidence of
Speaker 1: course that this was was not true. UM that affected
Speaker 1: a number of believers, but the believers that remained actually
Speaker 1: hardened their view against the set of facts and boomerang. Yeah,
Speaker 1: the boomerang effect. And when we talk about it doesn't
Speaker 1: matter which political party or which belief system, that core
Speaker 1: has some cognitive dissonance and doesn't want to admit error,
Speaker 1: and they just doubled down no matter how much evidence
Speaker 1: you throw at them. If anything, it just makes them
Speaker 1: believe it all the more. Yeah, yeah, and and and
Speaker 1: and and that has that has implications for not only markets,
Speaker 1: but politics and lots of other things. All Right, So
Speaker 1: let's get to our final two questions before we have
Speaker 1: to let you go. What sort of advice would you
Speaker 1: give to a recent college grad or or one of
Speaker 1: your Yale students who was interested in a career in
Speaker 1: either finance or the fine art of fraud detection and
Speaker 1: short selling? Don't? Um what? What? Look? I what? I
Speaker 1: When I got into Wall Street in nineteen eighty two,
Speaker 1: nobody no, in nineteen eighty excuse me, um, nobody wanted
Speaker 1: to be there. The guy who hired me in Chicago
Speaker 1: was amused that I was looking for a job in
Speaker 1: in the investment world. Um, with the Dow at seven
Speaker 1: fifty and having gone nowhere since nineteen sixty six. And
Speaker 1: I made more money, uh, in the previous summer working
Speaker 1: in a steel mill for two and a half months
Speaker 1: that I made my first full year on Wall Street.
Speaker 1: That's how That's how out of favor Wall Street was
Speaker 1: in nineteen eighty And we talked about the pendulum was
Speaker 1: about to swing. But I didn't know it. Um. We're
Speaker 1: at the other end of that extreme right now, UM,
Speaker 1: where whereby finance has paid immensely well. For the last
Speaker 1: forty years. We've seen a financialization of the economy. UM.
Speaker 1: We've seen lower tax rates, We've seen all those things.
Speaker 1: And I've got to think that that UM. Being a
Speaker 1: money manager, whether you're a long only guy, a short seller,
Speaker 1: a hedge fund manager, a private equity guy, I think
Speaker 1: it's just gonna be a lot tougher going forward than
Speaker 1: than the last forty years has been UM. And I'm
Speaker 1: just not so sure the rates of return are going
Speaker 1: to be there. UM. Having said all that, UM, if
Speaker 1: it's something you're still you know, convinced you want to do, UM,
Speaker 1: I think you have to adjust your expectations UM as
Speaker 1: to uh how remunerative it's going to be going forward.
Speaker 1: And our final question, what do you know about the
Speaker 1: world of investing, hedge funds, short selling today that you
Speaker 1: wish you knew when you began back in that's that's
Speaker 1: literally forty years ago. Yeah, I I, Well, what I
Speaker 1: really wish is I would have just bought some uh
Speaker 1: uh some some zero coupon treasuries and you know, I
Speaker 1: just went to the beach. But UH, since I was
Speaker 1: that that prescient, UM, I think that that one of
Speaker 1: the things I certainly UM wish I wish I had known,
Speaker 1: UM was to to be far more open in what
Speaker 1: I looked at as in investing opportunities. I was a
Speaker 1: pretty US centric guy, UM until two thousand and five, UM,
Speaker 1: which is pretty late, uh, twenty years into our fund,
Speaker 1: and we did our first global global fund in in
Speaker 1: you know five, and Uh, I wish I had really
Speaker 1: spent more time looking at things like Japan in the
Speaker 1: late eighties, UH, in other places Latin America in the nineties. UM.
Speaker 1: But it's to keep your business open, then, don't don't
Speaker 1: pigeonhole yourself too much. UM. There's there's a reason you
Speaker 1: should be good at something specific. But once you once
Speaker 1: you attain that UM, that knowledge or that experience, UM,
Speaker 1: be willing to be willing to look at lots of
Speaker 1: different opportunities. UM in that in that world. We have
Speaker 1: been speaking with Jim Chanos. He is the founder and
Speaker 1: president of Kinnicos Associates. If you enjoy this conversation, well
Speaker 1: look up an inch or down an inch on Apple iTunes.
Speaker 1: You can see any of the three d and thirty
Speaker 1: or so such prior conversations we've had over the past
Speaker 1: nearly six years. We love your comments, feedback and suggestions
Speaker 1: right to us at m IB podcast at Bloomberg dot net.
Speaker 1: Give us a review on Apple iTunes. You can check
Speaker 1: out my weekly column on Bloomberg dot com Slash Opinion.
Speaker 1: Follow me on Twitter at rit Halts. Sign up for
Speaker 1: our daily reading list at rid Halts dot com. I
Speaker 1: would be remiss if I did not thank our crack
Speaker 1: staff that helps put together these conversations each week. Charlie
Speaker 1: Volmer is my audio engineer slash producer. Michael Boyle is
Speaker 1: my booker slash producer. Michael Batnick is my head of research.
Speaker 1: A Tika Valbrann is our project director. I'm Barry Ritolts
Speaker 1: Hugh been listening to Masters in Business on Bloomberg Radio.