Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: China's moves to support is ala economy and markets continue,
Speaker 2: with its banks slashing benchmark lending rates by more than
Speaker 2: investors and economists were expecting. They're taking cues from officials
Speaker 2: who have implemented a host of measures to revive growth
Speaker 2: and put a floor under the housing market. The PBOC
Speaker 2: has already signaled that more easing is on the cards,
Speaker 2: including lowering the reserve requirement ratio. Now, just over a
Speaker 2: month ago, going short Chinese stocks was one of the
Speaker 2: world's most popular traits. Fast forward to now bullish China,
Speaker 2: it's one of the most crowded positions after paging stimulus
Speaker 2: blitstoked a short lived rally. Well our next guests became
Speaker 2: famous back in twenty eleven, shorting Chinese companies at a
Speaker 2: time when they were the Wall Street darlings, joining us
Speaker 2: exclusively now Mighty Water's founder cousin Block smptimes called.
Speaker 1: The king of short selling costs and good to have
Speaker 1: you with us.
Speaker 2: It seems like China is a great spot to start
Speaker 2: because you started short selling Chinese companies back in twenty eleven.
Speaker 2: The likes of Sino four is Ichi e lacking coffee,
Speaker 2: and you're still not lacking China, even though I've seen
Speaker 2: a slew of measures, policy changes and efforts to perhaps,
Speaker 2: you know, have more transparency.
Speaker 1: Why is that.
Speaker 3: Sure?
Speaker 4: Well, I come at China mostly from the US listed
Speaker 4: China stock perspective and to a lesser extent, Hong Kong.
Speaker 4: But the thing, the reasons why I have been calling
Speaker 4: China uninvestable in terms of the equities since twenty ten
Speaker 4: have to do with governance, and so particularly for the
Speaker 4: non mainland listed equities. Governance was always a problem because
Speaker 4: it was especially for US listed ADR for people who
Speaker 4: in China managers who wanted to commit fraud. It was
Speaker 4: a heads I win tales, I don't lose proposition because
Speaker 4: the US has never actually materially disciplined a confirmed fraudster
Speaker 4: from China. So you had that issue of governance. But
Speaker 4: then you overlay the capriciousness of China's policy and we
Speaker 4: began really seeing this around twenty eighteen twenty nineteen, when
Speaker 4: China began just turning dials and all of a sudden
Speaker 4: deciding that it was going to zero effectively for some
Speaker 4: period of time, the for profit education industry and then
Speaker 4: d D. Tushi which was about to go public, and
Speaker 4: Ali Baba's and Financial so you now have this, So
Speaker 4: you have that capriciousness of policy, and that has gotten worse.
Speaker 4: But the other thing that foreign investors in particular didn't understand,
Speaker 4: or took them a long time to understand, is that
Speaker 4: China doesn't view itself, at least at the policy making level,
Speaker 4: as on a long term basis needing foreign capital. So
Speaker 4: every now and then they'll say the right things, and
Speaker 4: there's history of this, they'll attract foreign capital and then
Speaker 4: they'll help incinerate it.
Speaker 3: So on top of.
Speaker 4: The governance risks, the capriciousness of policy risks, you also
Speaker 4: now have the geopolitical risks. She has been pretty clear
Speaker 4: at times that something that I thought was never actually
Speaker 4: on the table a few years ago, that China might
Speaker 4: try to take Taiwan by force, that is I think
Speaker 4: on the table. So there were previously, again just for
Speaker 4: governance reasons. If you own these stocks and you're in
Speaker 4: the US, you could wake up one morning and you
Speaker 4: know one.
Speaker 3: Of the companies is zero.
Speaker 4: Then with capriciousness of government policy, you know several of
Speaker 4: your stocks you could wake up and find them to
Speaker 4: be zeros. But now with the geopolitical risk, all of
Speaker 4: the China equities you own, you could wake up one
Speaker 4: day and there're zeros because war has started. So from
Speaker 4: a medium to long term perspective, I once again just
Speaker 4: still fail to see how having money committed to China
Speaker 4: makes sense now on a short term basis.
Speaker 3: I don't have an opinion.
Speaker 4: So if you're long China because you get that it's
Speaker 4: a trade, okay, great, Like you know, reasonable people can
Speaker 4: disagree on that.
Speaker 3: I'm not going to argue with that.
Speaker 4: But if you're thinking of marrying this, that's a path
Speaker 4: that a lot of people have been burned by before
Speaker 4: and I wouldn't think that this time would be different.
Speaker 2: So constant China is a trade, It is not an investment.
Speaker 2: I just want to put it out there as well.
Speaker 2: China does need foreign capital right now. And when it
Speaker 2: comes to transparency, accountability, governance, it is really trying to address.
Speaker 2: We've seen a lot of reforms, yet you say it
Speaker 2: has not done enough.
Speaker 1: Would you say it is in the right direction?
Speaker 3: Well, okay.
Speaker 4: From a very long term perspective, there are two things
Speaker 4: that I think she has done at a very high
Speaker 4: level correctly So number one, the fixed asset bubble. I mean,
Speaker 4: it was no secret for over twenty years that there's
Speaker 4: a massive fixed asset bubble. And every now and then policymakers,
Speaker 4: you know, particularly under the cool Wind regime, they would
Speaker 4: talk about how they need to rebalance the economy and
Speaker 4: they would start to do that. They would tighten up
Speaker 4: on lending to property and other consumers or other deployers
Speaker 4: of capital in the fixed assets, and then they would
Speaker 4: look at the data. The lights flash red, they stared
Speaker 4: into the abyss and they lost their nerve and the
Speaker 4: taps were opened again, and the.
Speaker 3: Bubble continued to inflate.
Speaker 4: So he probably because he's been able to perfect population
Speaker 4: control measures during COVID, has felt that he has the
Speaker 4: ability to really tighten the screws and prick that bubble
Speaker 4: in a way that he previously didn't and the government
Speaker 4: before he became chairman did not feel. So from a
Speaker 4: long term perspective, that's good. That's necessary to reset the
Speaker 4: balance in China's economy. The other thing that he's done
Speaker 4: that smart is his focus or he's had the focus
Speaker 4: on technology go away from that traditional you know, consumer
Speaker 4: led technology SaaS you know, online et cetera into real
Speaker 4: hardcore industrial technologies. So from a strategic perspective for China,
Speaker 4: that's beneficial. But you know, in terms of yes, China
Speaker 4: wants foreign capital right now, but the moment that she
Speaker 4: feels that doesn't need it, or that the costs of
Speaker 4: it outweigh the benefits foreigners are going to be horribly abused. Again,
Speaker 4: it's this movie plays repeatedly.
Speaker 2: So what would it take for you to change your mind?
Speaker 2: What would it take for China to be investible?
Speaker 3: Well, you know, look, I'm obviously never the person.
Speaker 2: Are you just not liking China at all? No matter
Speaker 2: what China does, you're not going to like it. I mean,
Speaker 2: is that a fair assumption to make? Is that the
Speaker 2: real picture when it comes to constant block in China?
Speaker 4: Well, I've always considered that the domestic equities were different
Speaker 4: from a governance perspective than the offshore equities, particularly the
Speaker 4: US equities. There was always more recourse, the heads on
Speaker 4: wind tails, I don't lose equation doesn't necessarily exist with
Speaker 4: domestic onshore equities. So, and that's something that we haven't
Speaker 4: looked at before. But if you're looking at buying Chinese equities,
Speaker 4: in the US that governance risk is always there. I
Speaker 4: don't believe the numbers. I do trust the numbers are
Speaker 4: much more likely to trust the numbers on shore. But
Speaker 4: at the end of the day, China, in contrast to
Speaker 4: say Vietnam, which we are very constructive on, doesn't feel
Speaker 4: like it really needs foreign capital, and I don't think
Speaker 4: it intends to be accommodating the foreign capital on a
Speaker 4: long term basis.
Speaker 2: Okay, let's talk about the US over valued. Some say,
Speaker 2: we've seen what forty seven straight sessions of record and
Speaker 2: the most expensive in decades.
Speaker 1: Is that something to be concerned about.
Speaker 4: Well, there's a debate as to what really drives when
Speaker 4: you talk about the US market, especially the S and
Speaker 4: P five hundred or the MAG seven. I'm in the
Speaker 4: camp that although I haven't I don't have the facility
Speaker 4: with math to really try to prove this out. But
Speaker 4: I'm in the camp that believes of what drives that
Speaker 4: index are flows. And so at the end of every month,
Speaker 4: US workers, you know a lot of them, their paychecks
Speaker 4: go into their four one case, which are retirement funds,
Speaker 4: and there's a robo bid for these stocks. And what
Speaker 4: happens is you reduce the effective supply of stock because
Speaker 4: you're taking out the active owners of stocks that will decide, hey,
Speaker 4: at this price, I'm the seller at a lower price
Speaker 4: on the buyer, and you're replacing that with a holder
Speaker 4: that will never sell unless and until it has outflows
Speaker 4: because people are drawing down the retirement accounts. So, according
Speaker 4: to that view, as long as the labor market is
Speaker 4: reasonably strong in the US, which it is, you're not
Speaker 4: going to see outflows. You're just going to continue to
Speaker 4: see inflows, especially in those in the most heavily weighted
Speaker 4: names in the UH, in the S and P five hundred.
Speaker 4: So I have in the past few years I have
Speaker 4: looked back on my career as an activist short seller
Speaker 4: and you know, kind of done the math and felt like, well,
Speaker 4: you know, I probably could have just been levered long
Speaker 4: the S and P five hundred, deferred my taxes and
Speaker 4: gone through a lot less bs and and being more
Speaker 4: or less the same possession financially. So yeah, I mean
Speaker 4: that that does make the market more fragile.
Speaker 3: But there's a FED put. There's always a FED.
Speaker 4: Put, you know, is there does there come a point
Speaker 4: in time when the system breaks and the FED can't
Speaker 4: fix it.
Speaker 3: Theoretically, yes, in our lifetimes. I don't know.
Speaker 4: So I think for now it probably just pays not
Speaker 4: to think too much. Just close your eyes and buy
Speaker 4: you know, probably bag seven uh.
Speaker 1: Cost and speak of mech seven. Let's speak about Nvidia.
Speaker 2: I mean, that's what's driving that sentiment that that were
Speaker 2: seeing three trillion dollar market cab we're talking about pe
Speaker 2: of sixty three. It's driving a lot of the other
Speaker 2: companies up as well. Are that companies which are unduly
Speaker 2: benefiting from that run we're seeing because of Nvidia?
Speaker 1: Point them out.
Speaker 4: For us, so not ready to do that. You know,
Speaker 4: when we point them out, there's usually a full report
Speaker 4: behind that because you know, but we need that in
Speaker 4: case we get sued, which does happen quite a bit.
Speaker 4: But in every hype cycle, and AI is obviously the
Speaker 4: hype cycle, in every hype cycle, you get opportunists who
Speaker 4: have companies that are maybe semi real, maybe not even
Speaker 4: that real, but they decide to take advantage of it
Speaker 4: because there's so much money chasing that. So yes, there
Speaker 4: will continue to be more. I mean, previously it was
Speaker 4: crypto and there were you know, there were a number
Speaker 4: of companies that were really dodgy in a crypto crypto
Speaker 4: mining space or crypto adjacent spaces. So I mean, and
Speaker 4: even the full on crypto companies are probably pretty dodgy
Speaker 4: to begin with. But yeah, there will be a lot
Speaker 4: of people who take advantage of the AI hype cycle.
Speaker 4: You can make money as a trader there as long
Speaker 4: as you're in on the joke and you're not left
Speaker 4: holding the bag. But there will be painful bag holding eventually.
Speaker 2: So there is a bubble wedding to bust, and if so,
Speaker 2: how soon do you think that might happen?
Speaker 4: Well, I mean that doesn't necessarily mean that it's a bubble.
Speaker 4: Like I don't opine on in video. I've got two friends,
Speaker 4: each very smart, highly accomplished, and they've got a bet
Speaker 4: about whether.
Speaker 3: In video is going to be down by.
Speaker 4: Fifty percent in the next you know, I guess another
Speaker 4: nine months or so. They each make compelling arguments. I
Speaker 4: don't have a view, but I do know that there
Speaker 4: will be a lot of pretenders in the space looking
Speaker 4: to vacuum up the dollars are being thrown into the space,
Speaker 4: and those are the ones that are not We will
Speaker 4: consider shortening.
Speaker 2: If you're not a pining over Nvidio? Are you a
Speaker 2: pining of a Tesla? We've seen how you know Elon
Speaker 2: Moss has unveiled his ROBOTAXI, much anticipated but lacking on details,
Speaker 2: big plans of course, that human EIGHTE robot as well,
Speaker 2: that robo van lots of plans about lacking details invested,
Speaker 2: obviously not liking. We've seen how the stock has you know,
Speaker 2: has taken a tumble.
Speaker 1: What's your take on Tesla?
Speaker 4: Well, yeah, I make everybody mad when I talk about Tesla,
Speaker 4: the bulls and the bears, because number one, nobody, probably
Speaker 4: nobody has ever played the public company game better than
Speaker 4: Elon Musk. And several years ago the only letter I've
Speaker 4: ever written to investors, I had this epiphany about Tesla
Speaker 4: and Elon Musk, and you know, there is is in life,
Speaker 4: probably a need for a certain amount of gilding the lily.
Speaker 4: When it works, we call it hutzpa, and we applaud.
Speaker 4: Now when it's too much, it doesn't work, then the
Speaker 4: person's Trevor Milton, and you know we he's derided and
Speaker 4: occasionally prosecuted. Elon has this perfect balance between bsing and delivering.
Speaker 3: Okay, I mean.
Speaker 4: The cars drive the rockets fly, the satellites work.
Speaker 3: He does these incredible things.
Speaker 4: Does he routinely over promise, I mean say things that
Speaker 4: it's hard to imagine he can say with a straight face,
Speaker 4: Yes he does. But does that matter? Apparently not?
Speaker 1: So.
Speaker 4: Yeah, nobody's played the game better than he has. It's
Speaker 4: it is a volatile stock, but you know, it continues
Speaker 4: to get flows, going back to what I said earlier,
Speaker 4: and will continue to get flows. And I think what
Speaker 4: was really what everybody on the bear side missed about it.
Speaker 4: You know, the arguments were, oh, Tesla doesn't have the scale,
Speaker 4: it can't compete with Toyota, Volkswagen, blah blah blah. And
Speaker 4: that's true, they didn't have the the sales base scale
Speaker 4: or the manufacturing scale. But what all of the bears
Speaker 4: missed and was what my epiphany really was in twenty
Speaker 4: one was that Elon understood that the base, that the
Speaker 4: scale he needed to have was capital base. And so
Speaker 4: when he was able to yoke that stock price way
Speaker 4: up and have this enormous market cap, I mean even
Speaker 4: you know, even if the company's bleeding billions of dollars
Speaker 4: and the stock is sinking, there's so much market cap
Speaker 4: that he continued, can continue to raise money, and Tesla's
Speaker 4: not going bankrupt in the you know, for a very
Speaker 4: long time. And that's what the bears missed because the
Speaker 4: bears were hung up on this, Oh it bleeds money,
Speaker 4: it's going to go bankrupt. And look, I was in
Speaker 4: that camp for a number of years, but now he
Speaker 4: Elon pulls rabbits out of the hat constantly. It's one
Speaker 4: thing to bet on him or bet on Tesla, but
Speaker 4: I just I just won't bet against Elon. I did
Speaker 4: in a minor way several years ago we had long date,
Speaker 4: We had crash puts on Tesla that almost hit and
Speaker 4: paid off.
Speaker 3: But it's just you can't bet against the guy.
Speaker 2: If you take a look at Tesla stocks, right, Carson,
Speaker 2: I mean, big loser this year, but still trading at
Speaker 2: high multiples pe of sixty one, The question really is
Speaker 2: whether Tesla's fundamentals can support this kind of pricing for
Speaker 2: the stock.
Speaker 3: Your take on that, well, my take is it doesn't matter.
Speaker 3: It's never mattered.
Speaker 4: And if you really scratch the surface on the earnings,
Speaker 4: a lot of that has to do with selling credits,
Speaker 4: you know, carbon credits. So from an in Tesla's accounting
Speaker 4: has always been heavily criticized by the bears, and they're
Speaker 4: not wrong. And I look, I'm not current on the
Speaker 4: accounting or the numbers, just to be.
Speaker 3: Clear, but it doesn't matter.
Speaker 4: And when you look at I mean, it's amazing to
Speaker 4: look at the evolution of Elon Musk, right.
Speaker 3: He was once the.
Speaker 4: Darling of the political left in US. He was seen as,
Speaker 4: you know, an environmentalist, and now he's the darling.
Speaker 3: Of the political right. And it hasn't hurt.
Speaker 4: I mean, he's and you know, and he was a
Speaker 4: lot of people now do compare him to Trump, and
Speaker 4: I think there are I think in terms of personality,
Speaker 4: there are a lot of valid comparisons. But what's interesting
Speaker 4: is when Elon started his jihad against short sellers, especially
Speaker 4: Jim Chinos, probably back around twenty fifteen sixteen if I
Speaker 4: remember correctly, just like Trump himself, when Trump was running
Speaker 4: for president, Elon recognized the potential of a populist movement.
Speaker 4: So he made he created this whole sort of market
Speaker 4: populist movement, the sentiment that hey, by buying my stock,
Speaker 4: you are sticking it to these powerful shadowy short sellers.
Speaker 4: And you know, back then, I didn't understand why he
Speaker 4: was so fixated on short sellers, and I thought it
Speaker 4: was just some you know, thin skin or you know,
Speaker 4: easily bruised ego, and that could be true, but I
Speaker 4: think it was really strategic that he understood that by
Speaker 4: setting up this plot of good versus you know, purportedly evil,
Speaker 4: he could get people to buy the stock. And that
Speaker 4: is part of the reason why you don't bet against
Speaker 4: the guy, and why nobody has played the game, the
Speaker 4: Public Company game better than Elon Musk.
Speaker 2: The thing is constant. He's aligned himself so closely with Trump.
Speaker 2: Is there a risk to that?
Speaker 4: Yeah, people thought so back then, but I you know,
Speaker 4: I don't think so. I mean, it's but the.
Speaker 3: Guy.
Speaker 4: The guy is incredible. I mean I don't say that
Speaker 4: as a fanboy, but it's now. I once thought, I
Speaker 4: once thought that that would be a risk to the brand,
Speaker 4: but you know, they're I mean, America.
Speaker 3: Is pretty evenly split. The world is pretty evenly split.
Speaker 4: So you know, if the if the left isn't going
Speaker 4: to buy the cars, then the right's going to buy them.
Speaker 4: And if you went back to twenty fifteen or twenty sixteen,
Speaker 4: you know, the right would scoff at the idea of
Speaker 4: electric cars, and now they love Elon Musk, and for
Speaker 4: them buying a you know, a tesla is a bit
Speaker 4: of a you know, a symbol of supporting libertarianism or
Speaker 4: you know, a right wing populism.
Speaker 3: So yeah, I don't think it matters for the brand.
Speaker 2: I just want to put it out there though, that
Speaker 2: once upon a time you did say that.
Speaker 1: Elon Musk is a liar.
Speaker 3: Yeah, well he does lie.
Speaker 4: Yeah, I mean that's I mean, I think I just
Speaker 4: said that, you know a few minutes ago. Yes, he
Speaker 4: does lie, but there's enough truth in what he does. Again,
Speaker 4: the rockets fly, the cars drive, you know, the satellites work,
Speaker 4: you know, So there's He's got this. He has this
Speaker 4: perfect balance between lying and deception and delivering in truth,
Speaker 4: the perfect balance for this moment in time.
Speaker 2: A lot of our.
Speaker 1: Eyes on the US election. Does it matter who wins
Speaker 1: for the financial markets?
Speaker 2: Would you know a Trump administration be better for the
Speaker 2: stock market or would Kamala Harris?
Speaker 3: Well, I'm going to answer that with some nuance.
Speaker 4: I think, for if you're in the finance industry in America,
Speaker 4: Trump is definitely better for you. Does it matter to
Speaker 4: the markets, and going back to my view that the
Speaker 4: kind of an autopilot effectively or at least you know,
Speaker 4: the S and P five hundred is because of blows
Speaker 4: and just excess liquidity. I mean, even with the Fed
Speaker 4: having raised rates, there's still so much liquidity in the
Speaker 4: system that you see, you know, I mean to me,
Speaker 4: I'll never understand what the actual value of bitcoin is, right,
Speaker 4: it's a currency without a country, and if there's any
Speaker 4: intrinsic value, it's well beyond that. So that just shows
Speaker 4: you there's still so much liquidity in the system.
Speaker 3: So I don't.
Speaker 4: See Kamala winning impacting that. But definitely Trump makes finance
Speaker 4: somewhat less crappy to be in as an industry. Somewhat
Speaker 4: you can't really put the toothpaste back in the tube,
Speaker 4: given how far we've come in terms of onerous legislation,
Speaker 4: rules and regulation, but he'll make it somewhat less onerous.
Speaker 1: I want to touch on Vietnam.
Speaker 2: What's a short seller like you betting long on Vietnam Alia?
Speaker 2: When you talked about how you're taking issue with China
Speaker 2: because of you know, transparency, governance, accountability, the same issues
Speaker 2: do apply with Vietnam.
Speaker 4: Well, dam not, I'll so I'll obviously take the other
Speaker 4: side of that. And look, with China, I've lived there twice.
Speaker 4: I've done about six years in country. I was living
Speaker 4: there again from five to ten, and that's when I
Speaker 4: started Muddy Waters, and I studied, started to kind of
Speaker 4: by act, I mean, effectively by accident. But at the
Speaker 4: time I started it and realized that, my god, there's
Speaker 4: this whole world that has no idea. You know, they
Speaker 4: throw all this money into China and they have no
Speaker 4: idea what's going on. It was stunning to me that
Speaker 4: there was such an information disconnect, such a disconnect between
Speaker 4: perceptions of foreigners as to how business is done in
Speaker 4: China and what really goes on. And then in twenty seventeen,
Speaker 4: I was going around saying, hey, you know, Trump has
Speaker 4: been became president, and so many aspects of the US
Speaker 4: China bilateral relationship are underwater. But in the markets that's
Speaker 4: not yet underwater, and everybody's really excited about Chinese stocks.
Speaker 4: But twenty twenty, when COVID hit, that was a breaking point,
Speaker 4: and so I ask I said to myself, this is
Speaker 4: going to be different. This is going to be the
Speaker 4: time when finally the West has a real serious break
Speaker 4: with China, and it's going to be the biggest geopolitical
Speaker 4: realignment since World War Two, and it's all going to
Speaker 4: involve countries' relationships to China. And so the winners in
Speaker 4: that world or in this world that we're in are
Speaker 4: the ones that are non aligned.
Speaker 3: So in in Vietnam, and you.
Speaker 4: Know, Vietnam's number going to be the US's ally, but
Speaker 4: it's definitely not going to be China's ally, right, And so.
Speaker 3: With SBI.
Speaker 2: Thomas quickly running out, I have to get this in.
Speaker 2: I want to take a look at the outlook for
Speaker 2: short selling. You've said before, how you know you feel
Speaker 2: like a gun is pointed at short sellers and that
Speaker 2: you're years as a short seller are pretty numbered. Talk
Speaker 2: to us about where this is going and might it
Speaker 2: be the end for you soon into the shot selling,
Speaker 2: so that.
Speaker 4: What you're referring to is actually I think it was
Speaker 4: an article that a couple of Bloomberg print journalists wrote
Speaker 4: a couple of years ago, and we took issue with
Speaker 4: that because they spent an entire day with me, and
Speaker 4: I think they took that somewhat out of context, but
Speaker 4: really excited about our Vietnam Fund product. But that doesn't
Speaker 4: mean that I'm getting out of short selling. We're doing
Speaker 4: things and resources mostly on the long side. Doesn't mean
Speaker 4: I'm getting out of short selling. It's a difficult time
Speaker 4: for short selling. But yeah, I mean I'm still coming
Speaker 4: to the office and you know, long and strong vehicles.
Speaker 1: Carson, we have delivered that. Thank you for joining us.
Speaker 2: Cousin Block Muddy Waters Capital founder and CIO.
Speaker 1: This is Lumberg. Stay with us.