Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome back to Bloomberg Money. I'm Tom Keen with Scarlett Food.
Speaker 2: It is a very special edition here. Yes, on your
Speaker 2: personal finance, on your retirement, Scarlett, did you get your
Speaker 2: leverage ETF set up for SpaceX? You feel I can't
Speaker 2: do that.
Speaker 1: I'm only passive.
Speaker 3: You're very passive.
Speaker 2: No one's going to be passive with SpaceX. This morning,
Speaker 2: we're seeing the pricing year with some stability or up
Speaker 2: twenty one percent off the one fifty level.
Speaker 3: This is indeed an honor joining us now.
Speaker 2: He's been extremely active on global Wall Street in the
Speaker 2: last four or five days. James Chanos is with Chanos
Speaker 2: and Company definitive on the Street of a cautious view.
Speaker 2: Jim Chanos honored to have you here. Let me just
Speaker 2: cut to the chase. What is a distinctive feature that
Speaker 2: makes SpaceX remind you of en Run?
Speaker 4: I don't know that it reminds me of Enron, Tom,
Speaker 4: but it reminds me of the en Run time frame.
Speaker 3: How's that in that?
Speaker 4: I've always said that Wall Street has a printing press too,
Speaker 4: just like the FED. It just takes a while to
Speaker 4: get going and one of the things that I think
Speaker 4: SpaceX is ushering in in twenty twenty six is massive
Speaker 4: equity issuance. And historically, without a doubt, in the twentieth
Speaker 4: and twenty first century, anytime you have seen massive IPOs
Speaker 4: and secondaries relative to the size of the market or
Speaker 4: the economy, investors generally have been advised to be a
Speaker 4: little more cautious or reduce their risk. So that nineteen
Speaker 4: ninety nine, two thousand, twenty twenty one, for the first
Speaker 4: half of that year during the meme stock and spackcraze,
Speaker 4: we are now going to break records in twenty twenty
Speaker 4: six for IPOs and secondaries, and SpaceX of course is
Speaker 4: the granddaddy kicking it all off in a big way.
Speaker 4: But we're going to see Opening Eye and Ethropic and
Speaker 4: probably some others.
Speaker 3: So we're going to shatter records.
Speaker 4: And so it's telling you that right now supply is
Speaker 4: meeting demand, which we haven't seen, by the way, in
Speaker 4: twenty three, twenty four, and twenty five, but we're seeing
Speaker 4: it now in twenty six.
Speaker 2: I look Jim Channels at this and we've had a
Speaker 2: wonderful amount of time here with mister Chenos, so much
Speaker 2: to talk about. Scarlett's got some themes. I have some
Speaker 2: themes as well. Ed Lodlow front of me. You see
Speaker 2: how he did that. Ed Ludlow just stole my thunder
Speaker 2: here you get to do it. Chanos is thinking about
Speaker 2: the neo cloud. This is the team here. The New
Speaker 2: York Times article of a day or so ago is
Speaker 2: SpaceX worth one point eight gazillion dollars. XAI seems to
Speaker 2: be suddenly changing its business model from developing models like
Speaker 2: GROC to basically becoming an Ed Lovelow neo cloud. The
Speaker 2: entire evaluation rests on xai's progress. The neo cloud strategy
Speaker 2: is a commodity business that is valued far lower on
Speaker 2: the public markets. Jim Chenos to Isaac and the crew
Speaker 2: over at the New York Times. They're talking innovation, but
Speaker 2: you're predicting they'll go safe.
Speaker 4: Well, what's really interesting, Tom, is that about a week
Speaker 4: ten days ago, the vast driver for the SpaceX tam
Speaker 4: in their perspectus, was the enterprise solutions for XAI. Basically,
Speaker 4: grock what what the models produce? Right the software? And
Speaker 4: instead they basically did a one eighty pivot and said,
Speaker 4: we are going to lease out our capacity to Anthropic
Speaker 4: and Google. And that's the neo cloud model, right, that's
Speaker 4: your equipment less are and that is a much lower
Speaker 4: value business in the marketplace than being a model company
Speaker 4: or a hyperscaler. And we've been following data centers for
Speaker 4: a long long time and basically it's a finance business,
Speaker 4: right You're you're buying the chips from in Video somebody
Speaker 4: else and then you're leasing them out to Anthropic or
Speaker 4: it's a day to return business. It's not a super
Speaker 4: high tech business. Yet twenty two plus trillion of the
Speaker 4: twenty nine and a half trillion of SpaceX TAM in
Speaker 4: their perspectives, is based on that business. And it just
Speaker 4: struck me as very very odd that right before the
Speaker 4: IPO they would pivot to a much lower margin and
Speaker 4: lower valuation business than the hopes and dreams which you
Speaker 4: guys have mentioned I've mentioned based on producing these wonderful
Speaker 4: aiagentic software products from ROC and it's one of many
Speaker 4: head scratchers about this deal.
Speaker 1: At what point does financial reality, the kinds of things
Speaker 1: you were just talking about breaking down the numbers become
Speaker 1: more important and matter more than the storytelling the hopes
Speaker 1: and dreams part of it, because that's what Elon musk
Speaker 1: excels it, and that's what people are buying in On.
Speaker 4: So the question is is this the Elon premium? Is
Speaker 4: it Elon premium times two or Elon premium divided by two.
Speaker 3: I think that that's really the question here, because there.
Speaker 4: Are people who believe in Elon and have bid up
Speaker 4: Tesla accordingly to well beyond where I think most fundamental
Speaker 4: analysts think it's worth because of optimist robots and autonomous
Speaker 4: driving and all that good stuff. And now you have
Speaker 4: another Elon hopes and dreams company with an even bigger valuation,
Speaker 4: and so does that double the value or does it
Speaker 4: basically say, okay, well I'm going to pick one, because
Speaker 4: neither of them, let's face it, are being valued on
Speaker 4: their operations. SpaceX is, I believe, depending what I heard
Speaker 4: in the green room, is probably now at about one
Speaker 4: hundred and ten times revenues, and just history tells us
Speaker 4: you just never really make much money buying equities at
Speaker 4: over one hundred times revenues.
Speaker 1: Yeah, well, you, as we know, are inherently skeptical. Your
Speaker 1: company name's Kinnicos skeptic. You're not being able on SpaceX
Speaker 1: or Tesl or Elon Musk completely tracks. Is there anything
Speaker 1: in the SpaceX financials or Musk's management of the company
Speaker 1: that does impress you that you can say a good
Speaker 1: job on look, I.
Speaker 3: Think Startlink's a real business.
Speaker 4: We can look at their businesses again, we have to
Speaker 4: go on what's in the perspective. Startlink's a real business,
Speaker 4: It's growing, it will probably continue to grow, although its
Speaker 4: growth is slowing. The launch business is still losing money
Speaker 4: after twenty two years. And I'd be remissed from my
Speaker 4: fellow glass half Empty participants if I didn't point out
Speaker 4: that the rocket that all of this depends upon, Starship
Speaker 4: still has not achieved Earth orbit in twelve missions, right,
Speaker 4: and half of those ended up with some sort of
Speaker 4: misapp So there's a lot riding on all of that.
Speaker 4: I think Starlink is a real business. It's it's worth
Speaker 4: a couple hundred billion dollars. But the real hopes and
Speaker 4: dreams here is on Xai, which is, by the way,
Speaker 4: a company they bought in February for two hundred and
Speaker 4: fifty billion in stock that the market is now valuing
Speaker 4: it probably well over trillion and a half dollars.
Speaker 3: I'm Bloomber Television.
Speaker 2: I'm Bloomberg Radio worldwide, where it's Jim Channel's thrially could
Speaker 2: join us today in this historic moment for his Wall Street.
Speaker 3: And all of us around the world.
Speaker 2: So the short crew is said, Tesla, Tesla, Tesla someone
Speaker 2: like SpaceX, and I'm enjoying a fifty three percent per
Speaker 2: year return since sort of the beginning of COVID, you know,
Speaker 2: back six years or show. So you know again, Tesla's
Speaker 2: done better than good and there's a model negative free
Speaker 2: cash flow right now. How long can the optimists of
Speaker 2: SpaceX keep this going without delivering a more conventional income statement.
Speaker 4: Well, I think you answered the question right in years
Speaker 4: if possible. But Tesla is trading at about fourteen times revenues,
Speaker 4: right It does have one hundred billion in revenues, and
Speaker 4: it amped revenues pretty quickly in twenty nineteen and twenty twenty,
Speaker 4: So there is a real business there in terms of
Speaker 4: large amounts of revenues and some cash flow. It's not
Speaker 4: trading at one hundred and ten times revenues, and that's
Speaker 4: a magnitude of difference. I think that's really important for
Speaker 4: your viewers.
Speaker 2: I've got just for the first time Scar. I've ever
Speaker 2: looked the fame BQ function, yes, and the Bloomberg and
Speaker 2: of course Channels nails the price to sales because he
Speaker 2: studied time.
Speaker 3: Del than years ago.
Speaker 2: I've got twenty well, right now, I've got a number
Speaker 2: of twenty seven times revenue, and the BQ Skreme it
Speaker 2: may be a little higher than that.
Speaker 3: I've never seen a stock like that.
Speaker 1: So that I mean, I'm glad you guys bring up
Speaker 1: Tesla because there is this expectation that Tesla and SpaceX
Speaker 1: will somehow merge or will be combined in the same
Speaker 1: way that XAI and SpaceX Scott combined and merged. How
Speaker 1: are you thinking through that? What does that mean for
Speaker 1: investors who believe in the Tesla business but are maybe
Speaker 1: skeptical of SpaceX.
Speaker 4: Well, again, if it happens, and I have no idea.
Speaker 1: If it will happen, or Elon need to make it happen.
Speaker 4: No, he doesn't need to make it happen. He can
Speaker 4: keep them separate if he wants. It's solely up to him.
Speaker 4: We all know that. But it would be an equity
Speaker 4: for equity deal, and so I don't know how much
Speaker 4: value that would add in terms of cutting overhead is
Speaker 4: not the story here, right, It's really it's really what
Speaker 4: these companies will produce in the next five ten years.
Speaker 2: I look at this, Jim Chenos, is an historic moment
Speaker 2: and the answer is to the cycles. And I opened
Speaker 2: up talking about Enron and all that. I want you
Speaker 2: to talk about. The short business right now is a
Speaker 2: hugely important part of financial society. In this great bull
Speaker 2: market we're in right now, there's a lot of scars
Speaker 2: out there.
Speaker 3: How do you keep that going?
Speaker 2: When you see SpaceX right now? How do you keep
Speaker 2: a short model going with bull sectors and a bull
Speaker 2: trend in the broader market.
Speaker 4: So through twenty twenty three, we're running outside money. Now
Speaker 4: we run our own money. We've been hedged in the
Speaker 4: short world since nineteen ninety six. Basically our view has been,
Speaker 4: we don't know where the market's going, nor does anybody else,
Speaker 4: so we'd rather be long the market and short our
Speaker 4: collection of radioactive companies, if you will. And that's been
Speaker 4: a very profitable business. And it's been a very profitable
Speaker 4: business for the last few years too, despite the market
Speaker 4: hitting new highs, because there's been a lot of stocks,
Speaker 4: as you guys know, that have lagged dramatically. So our
Speaker 4: view is always belong the market and be short some
Speaker 4: percentage of companies with bad businesses. And that's nothing I
Speaker 4: would recommend your views to do at home, all right.
Speaker 4: I don't recommend short selling for most people. It's really
Speaker 4: for the pros for lots of reasons, things like getting
Speaker 4: an interest rebate on your shorts and a variety of
Speaker 4: other things. But I will say that one of the
Speaker 4: things right now that is very apparent that insurance is cheap,
Speaker 4: and it's cheap for all the reasons I know.
Speaker 2: Want to interrupt with Scarlett. I wants to get more
Speaker 2: questions in. It is SpaceX radioactive.
Speaker 4: We'll have to see where it settles out. You can't
Speaker 4: short it right now anyway. So it's a mood question.
Speaker 4: I mean, I think that anything trading over one hundred
Speaker 4: times revenues is of our interest. Historically, returns have been
Speaker 4: awful at those valuations.
Speaker 1: You mentioned earlier the dot com bubble? Are we doing
Speaker 1: dot com bubble two point zero right now?
Speaker 3: Oh? This is much bigger the AI.
Speaker 4: The AI build out relative to the TMT buildout of
Speaker 4: ninety nine two thousand is multiples, even as a percent
Speaker 4: of the economy GDP. And an important thing to point
Speaker 4: out is that when you get these capex booms in technology,
Speaker 4: they're tremendously accreative to earnings. And there's a simple accounting
Speaker 4: reason why that is when Tom buys chips for his
Speaker 4: data center from Nvidia and Video recognizes that as revenue
Speaker 4: and profit. Tom capitalizes those expenses and writes them off
Speaker 4: over five to ten years, and so you have a
Speaker 4: mismatch for the same dollar in a cap x boom
Speaker 4: is recognized as profits by one entity and deferred by
Speaker 4: the same people at spending the dollar. And that happened
Speaker 4: in ninety ninety eight, ninety nine, two thousand. From the
Speaker 4: middle of ninety eight, SMP operating earnings rose thirty percent
Speaker 4: to the middle of two thousand. Over the two years
Speaker 4: from the middle of two thousand to the middle of
Speaker 4: two thousand and one, when order books got pulled, sm
Speaker 4: peer earnings dropped forty percent.
Speaker 2: Was there too much accounting for a Friday?
Speaker 3: I think, so I'll leave it. I'll stop like that. Jim.
Speaker 1: Let me ask you one last question before we let
Speaker 1: you go, because this is Bloomberg money, after all. How
Speaker 1: do you approach your own financial planning? How does it
Speaker 1: compare with how you advise or manage money for others?
Speaker 4: Well, it's mostly in my business in ancillary things since
Speaker 4: I'm semi retired right now and I'm advising people, not
Speaker 4: directly running their money.
Speaker 3: So it's pretty conservative.
Speaker 1: But so you said, forget or you do make a lot.
Speaker 4: Of changes, it's mostly passive. Again for most people, I
Speaker 4: think that's the way to go.
Speaker 2: Jim, how we got our merch over here, Scarlett's got
Speaker 2: our Knicks jacket.
Speaker 3: You're ready to go.
Speaker 1: Let's go next week.
Speaker 2: I am record and are going to San Antonio. Why
Speaker 2: aren't we seeing you in the front row quickly here?
Speaker 4: Well, first of all, I live in Bucalock, Bucks County,
Speaker 4: Tom so I'm outside of Philly.
Speaker 3: So you're doing the seventy six or second.
Speaker 4: Secondarily, my sons were born in Manhattan. I'm diehard Knicks fans,
Speaker 4: but I'm a Milwaukee Bucks fan.
Speaker 3: I'm a cheesy I was going to hear that.
Speaker 2: I just had to get that for the record as well.
Speaker 4: Jim, thank you so much for Thank you so much
Speaker 4: for having me.
Speaker 1: Jim Chanos, founder and President of Chenos and Company,