WEBVTT - Jim Chanos Talks SpaceX IPO

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>Welcome back to Bloomberg Money. I'm Tom Keen with Scarlett Food.

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<v Speaker 2>It is a very special edition here. Yes, on your

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<v Speaker 2>personal finance, on your retirement, Scarlett, did you get your

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<v Speaker 2>leverage ETF set up for SpaceX? You feel I can't

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<v Speaker 2>do that.

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<v Speaker 1>I'm only passive.

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<v Speaker 3>You're very passive.

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<v Speaker 2>No one's going to be passive with SpaceX. This morning,

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<v Speaker 2>we're seeing the pricing year with some stability or up

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<v Speaker 2>twenty one percent off the one fifty level.

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<v Speaker 3>This is indeed an honor joining us now.

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<v Speaker 2>He's been extremely active on global Wall Street in the

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<v Speaker 2>last four or five days. James Chanos is with Chanos

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<v Speaker 2>and Company definitive on the Street of a cautious view.

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<v Speaker 2>Jim Chanos honored to have you here. Let me just

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<v Speaker 2>cut to the chase. What is a distinctive feature that

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<v Speaker 2>makes SpaceX remind you of en Run?

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<v Speaker 4>I don't know that it reminds me of Enron, Tom,

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<v Speaker 4>but it reminds me of the en Run time frame.

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<v Speaker 3>How's that in that?

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<v Speaker 4>I've always said that Wall Street has a printing press too,

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<v Speaker 4>just like the FED. It just takes a while to

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<v Speaker 4>get going and one of the things that I think

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<v Speaker 4>SpaceX is ushering in in twenty twenty six is massive

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<v Speaker 4>equity issuance. And historically, without a doubt, in the twentieth

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<v Speaker 4>and twenty first century, anytime you have seen massive IPOs

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<v Speaker 4>and secondaries relative to the size of the market or

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<v Speaker 4>the economy, investors generally have been advised to be a

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<v Speaker 4>little more cautious or reduce their risk. So that nineteen

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<v Speaker 4>ninety nine, two thousand, twenty twenty one, for the first

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<v Speaker 4>half of that year during the meme stock and spackcraze,

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<v Speaker 4>we are now going to break records in twenty twenty

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<v Speaker 4>six for IPOs and secondaries, and SpaceX of course is

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<v Speaker 4>the granddaddy kicking it all off in a big way.

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<v Speaker 4>But we're going to see Opening Eye and Ethropic and

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<v Speaker 4>probably some others.

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<v Speaker 3>So we're going to shatter records.

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<v Speaker 4>And so it's telling you that right now supply is

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<v Speaker 4>meeting demand, which we haven't seen, by the way, in

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<v Speaker 4>twenty three, twenty four, and twenty five, but we're seeing

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<v Speaker 4>it now in twenty six.

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<v Speaker 2>I look Jim Channels at this and we've had a

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<v Speaker 2>wonderful amount of time here with mister Chenos, so much

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<v Speaker 2>to talk about. Scarlett's got some themes. I have some

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<v Speaker 2>themes as well. Ed Lodlow front of me. You see

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<v Speaker 2>how he did that. Ed Ludlow just stole my thunder

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<v Speaker 2>here you get to do it. Chanos is thinking about

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<v Speaker 2>the neo cloud. This is the team here. The New

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<v Speaker 2>York Times article of a day or so ago is

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<v Speaker 2>SpaceX worth one point eight gazillion dollars. XAI seems to

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<v Speaker 2>be suddenly changing its business model from developing models like

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<v Speaker 2>GROC to basically becoming an Ed Lovelow neo cloud. The

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<v Speaker 2>entire evaluation rests on xai's progress. The neo cloud strategy

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<v Speaker 2>is a commodity business that is valued far lower on

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<v Speaker 2>the public markets. Jim Chenos to Isaac and the crew

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<v Speaker 2>over at the New York Times. They're talking innovation, but

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<v Speaker 2>you're predicting they'll go safe.

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<v Speaker 4>Well, what's really interesting, Tom, is that about a week

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<v Speaker 4>ten days ago, the vast driver for the SpaceX tam

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<v Speaker 4>in their perspectus, was the enterprise solutions for XAI. Basically,

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<v Speaker 4>grock what what the models produce? Right the software? And

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<v Speaker 4>instead they basically did a one eighty pivot and said,

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<v Speaker 4>we are going to lease out our capacity to Anthropic

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<v Speaker 4>and Google. And that's the neo cloud model, right, that's

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<v Speaker 4>your equipment less are and that is a much lower

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<v Speaker 4>value business in the marketplace than being a model company

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<v Speaker 4>or a hyperscaler. And we've been following data centers for

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<v Speaker 4>a long long time and basically it's a finance business,

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<v Speaker 4>right You're you're buying the chips from in Video somebody

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<v Speaker 4>else and then you're leasing them out to Anthropic or

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<v Speaker 4>it's a day to return business. It's not a super

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<v Speaker 4>high tech business. Yet twenty two plus trillion of the

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<v Speaker 4>twenty nine and a half trillion of SpaceX TAM in

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<v Speaker 4>their perspectives, is based on that business. And it just

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<v Speaker 4>struck me as very very odd that right before the

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<v Speaker 4>IPO they would pivot to a much lower margin and

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<v Speaker 4>lower valuation business than the hopes and dreams which you

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<v Speaker 4>guys have mentioned I've mentioned based on producing these wonderful

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<v Speaker 4>aiagentic software products from ROC and it's one of many

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<v Speaker 4>head scratchers about this deal.

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<v Speaker 1>At what point does financial reality, the kinds of things

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<v Speaker 1>you were just talking about breaking down the numbers become

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<v Speaker 1>more important and matter more than the storytelling the hopes

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<v Speaker 1>and dreams part of it, because that's what Elon musk

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<v Speaker 1>excels it, and that's what people are buying in On.

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<v Speaker 4>So the question is is this the Elon premium? Is

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<v Speaker 4>it Elon premium times two or Elon premium divided by two.

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<v Speaker 3>I think that that's really the question here, because there.

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<v Speaker 4>Are people who believe in Elon and have bid up

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<v Speaker 4>Tesla accordingly to well beyond where I think most fundamental

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<v Speaker 4>analysts think it's worth because of optimist robots and autonomous

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<v Speaker 4>driving and all that good stuff. And now you have

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<v Speaker 4>another Elon hopes and dreams company with an even bigger valuation,

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<v Speaker 4>and so does that double the value or does it

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<v Speaker 4>basically say, okay, well I'm going to pick one, because

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<v Speaker 4>neither of them, let's face it, are being valued on

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<v Speaker 4>their operations. SpaceX is, I believe, depending what I heard

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<v Speaker 4>in the green room, is probably now at about one

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<v Speaker 4>hundred and ten times revenues, and just history tells us

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<v Speaker 4>you just never really make much money buying equities at

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<v Speaker 4>over one hundred times revenues.

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<v Speaker 1>Yeah, well, you, as we know, are inherently skeptical. Your

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<v Speaker 1>company name's Kinnicos skeptic. You're not being able on SpaceX

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<v Speaker 1>or Tesl or Elon Musk completely tracks. Is there anything

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<v Speaker 1>in the SpaceX financials or Musk's management of the company

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<v Speaker 1>that does impress you that you can say a good

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<v Speaker 1>job on look, I.

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<v Speaker 3>Think Startlink's a real business.

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<v Speaker 4>We can look at their businesses again, we have to

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<v Speaker 4>go on what's in the perspective. Startlink's a real business,

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<v Speaker 4>It's growing, it will probably continue to grow, although its

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<v Speaker 4>growth is slowing. The launch business is still losing money

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<v Speaker 4>after twenty two years. And I'd be remissed from my

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<v Speaker 4>fellow glass half Empty participants if I didn't point out

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<v Speaker 4>that the rocket that all of this depends upon, Starship

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<v Speaker 4>still has not achieved Earth orbit in twelve missions, right,

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<v Speaker 4>and half of those ended up with some sort of

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<v Speaker 4>misapp So there's a lot riding on all of that.

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<v Speaker 4>I think Starlink is a real business. It's it's worth

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<v Speaker 4>a couple hundred billion dollars. But the real hopes and

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<v Speaker 4>dreams here is on Xai, which is, by the way,

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<v Speaker 4>a company they bought in February for two hundred and

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<v Speaker 4>fifty billion in stock that the market is now valuing

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<v Speaker 4>it probably well over trillion and a half dollars.

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<v Speaker 3>I'm Bloomber Television.

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<v Speaker 2>I'm Bloomberg Radio worldwide, where it's Jim Channel's thrially could

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<v Speaker 2>join us today in this historic moment for his Wall Street.

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<v Speaker 3>And all of us around the world.

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<v Speaker 2>So the short crew is said, Tesla, Tesla, Tesla someone

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<v Speaker 2>like SpaceX, and I'm enjoying a fifty three percent per

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<v Speaker 2>year return since sort of the beginning of COVID, you know,

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<v Speaker 2>back six years or show. So you know again, Tesla's

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<v Speaker 2>done better than good and there's a model negative free

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<v Speaker 2>cash flow right now. How long can the optimists of

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<v Speaker 2>SpaceX keep this going without delivering a more conventional income statement.

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<v Speaker 4>Well, I think you answered the question right in years

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<v Speaker 4>if possible. But Tesla is trading at about fourteen times revenues,

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<v Speaker 4>right It does have one hundred billion in revenues, and

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<v Speaker 4>it amped revenues pretty quickly in twenty nineteen and twenty twenty,

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<v Speaker 4>So there is a real business there in terms of

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<v Speaker 4>large amounts of revenues and some cash flow. It's not

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<v Speaker 4>trading at one hundred and ten times revenues, and that's

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<v Speaker 4>a magnitude of difference. I think that's really important for

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<v Speaker 4>your viewers.

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<v Speaker 2>I've got just for the first time Scar. I've ever

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<v Speaker 2>looked the fame BQ function, yes, and the Bloomberg and

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<v Speaker 2>of course Channels nails the price to sales because he

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<v Speaker 2>studied time.

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<v Speaker 3>Del than years ago.

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<v Speaker 2>I've got twenty well, right now, I've got a number

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<v Speaker 2>of twenty seven times revenue, and the BQ Skreme it

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<v Speaker 2>may be a little higher than that.

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<v Speaker 3>I've never seen a stock like that.

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<v Speaker 1>So that I mean, I'm glad you guys bring up

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<v Speaker 1>Tesla because there is this expectation that Tesla and SpaceX

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<v Speaker 1>will somehow merge or will be combined in the same

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<v Speaker 1>way that XAI and SpaceX Scott combined and merged. How

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<v Speaker 1>are you thinking through that? What does that mean for

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<v Speaker 1>investors who believe in the Tesla business but are maybe

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<v Speaker 1>skeptical of SpaceX.

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<v Speaker 4>Well, again, if it happens, and I have no idea.

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<v Speaker 1>If it will happen, or Elon need to make it happen.

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<v Speaker 4>No, he doesn't need to make it happen. He can

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<v Speaker 4>keep them separate if he wants. It's solely up to him.

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<v Speaker 4>We all know that. But it would be an equity

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<v Speaker 4>for equity deal, and so I don't know how much

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<v Speaker 4>value that would add in terms of cutting overhead is

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<v Speaker 4>not the story here, right, It's really it's really what

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<v Speaker 4>these companies will produce in the next five ten years.

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<v Speaker 2>I look at this, Jim Chenos, is an historic moment

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<v Speaker 2>and the answer is to the cycles. And I opened

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<v Speaker 2>up talking about Enron and all that. I want you

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<v Speaker 2>to talk about. The short business right now is a

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<v Speaker 2>hugely important part of financial society. In this great bull

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<v Speaker 2>market we're in right now, there's a lot of scars

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<v Speaker 2>out there.

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<v Speaker 3>How do you keep that going?

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<v Speaker 2>When you see SpaceX right now? How do you keep

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<v Speaker 2>a short model going with bull sectors and a bull

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<v Speaker 2>trend in the broader market.

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<v Speaker 4>So through twenty twenty three, we're running outside money. Now

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<v Speaker 4>we run our own money. We've been hedged in the

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<v Speaker 4>short world since nineteen ninety six. Basically our view has been,

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<v Speaker 4>we don't know where the market's going, nor does anybody else,

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<v Speaker 4>so we'd rather be long the market and short our

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<v Speaker 4>collection of radioactive companies, if you will. And that's been

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<v Speaker 4>a very profitable business. And it's been a very profitable

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<v Speaker 4>business for the last few years too, despite the market

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<v Speaker 4>hitting new highs, because there's been a lot of stocks,

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<v Speaker 4>as you guys know, that have lagged dramatically. So our

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<v Speaker 4>view is always belong the market and be short some

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<v Speaker 4>percentage of companies with bad businesses. And that's nothing I

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<v Speaker 4>would recommend your views to do at home, all right.

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<v Speaker 4>I don't recommend short selling for most people. It's really

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<v Speaker 4>for the pros for lots of reasons, things like getting

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<v Speaker 4>an interest rebate on your shorts and a variety of

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<v Speaker 4>other things. But I will say that one of the

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<v Speaker 4>things right now that is very apparent that insurance is cheap,

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<v Speaker 4>and it's cheap for all the reasons I know.

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<v Speaker 2>Want to interrupt with Scarlett. I wants to get more

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<v Speaker 2>questions in. It is SpaceX radioactive.

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<v Speaker 4>We'll have to see where it settles out. You can't

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<v Speaker 4>short it right now anyway. So it's a mood question.

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<v Speaker 4>I mean, I think that anything trading over one hundred

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<v Speaker 4>times revenues is of our interest. Historically, returns have been

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<v Speaker 4>awful at those valuations.

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<v Speaker 1>You mentioned earlier the dot com bubble? Are we doing

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<v Speaker 1>dot com bubble two point zero right now?

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<v Speaker 3>Oh? This is much bigger the AI.

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<v Speaker 4>The AI build out relative to the TMT buildout of

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<v Speaker 4>ninety nine two thousand is multiples, even as a percent

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<v Speaker 4>of the economy GDP. And an important thing to point

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<v Speaker 4>out is that when you get these capex booms in technology,

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<v Speaker 4>they're tremendously accreative to earnings. And there's a simple accounting

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<v Speaker 4>reason why that is when Tom buys chips for his

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<v Speaker 4>data center from Nvidia and Video recognizes that as revenue

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<v Speaker 4>and profit. Tom capitalizes those expenses and writes them off

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<v Speaker 4>over five to ten years, and so you have a

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<v Speaker 4>mismatch for the same dollar in a cap x boom

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<v Speaker 4>is recognized as profits by one entity and deferred by

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<v Speaker 4>the same people at spending the dollar. And that happened

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<v Speaker 4>in ninety ninety eight, ninety nine, two thousand. From the

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<v Speaker 4>middle of ninety eight, SMP operating earnings rose thirty percent

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<v Speaker 4>to the middle of two thousand. Over the two years

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<v Speaker 4>from the middle of two thousand to the middle of

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<v Speaker 4>two thousand and one, when order books got pulled, sm

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<v Speaker 4>peer earnings dropped forty percent.

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<v Speaker 2>Was there too much accounting for a Friday?

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<v Speaker 3>I think, so I'll leave it. I'll stop like that. Jim.

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<v Speaker 1>Let me ask you one last question before we let

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<v Speaker 1>you go, because this is Bloomberg money, after all. How

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<v Speaker 1>do you approach your own financial planning? How does it

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<v Speaker 1>compare with how you advise or manage money for others?

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<v Speaker 4>Well, it's mostly in my business in ancillary things since

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<v Speaker 4>I'm semi retired right now and I'm advising people, not

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<v Speaker 4>directly running their money.

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<v Speaker 3>So it's pretty conservative.

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<v Speaker 1>But so you said, forget or you do make a lot.

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<v Speaker 4>Of changes, it's mostly passive. Again for most people, I

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<v Speaker 4>think that's the way to go.

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<v Speaker 2>Jim, how we got our merch over here, Scarlett's got

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<v Speaker 2>our Knicks jacket.

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<v Speaker 3>You're ready to go.

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<v Speaker 1>Let's go next week.

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<v Speaker 2>I am record and are going to San Antonio. Why

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<v Speaker 2>aren't we seeing you in the front row quickly here?

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<v Speaker 4>Well, first of all, I live in Bucalock, Bucks County,

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<v Speaker 4>Tom so I'm outside of Philly.

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<v Speaker 3>So you're doing the seventy six or second.

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<v Speaker 4>Secondarily, my sons were born in Manhattan. I'm diehard Knicks fans,

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<v Speaker 4>but I'm a Milwaukee Bucks fan.

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<v Speaker 3>I'm a cheesy I was going to hear that.

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<v Speaker 2>I just had to get that for the record as well.

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<v Speaker 4>Jim, thank you so much for Thank you so much

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<v Speaker 4>for having me.

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<v Speaker 1>Jim Chanos, founder and President of Chenos and Company,