1
00:00:10,160 --> 00:00:13,520
Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.

2
00:00:13,600 --> 00:00:16,640
Speaker 1: I'm Tracy Alloway and I'm Joe wi isn't they so? Joe?

3
00:00:17,120 --> 00:00:20,360
Speaker 1: You know, one of the most famous maxims in markets

4
00:00:20,520 --> 00:00:22,640
Speaker 1: has to be that I think it's that warrant. It's

5
00:00:22,680 --> 00:00:25,800
Speaker 1: Warren Buffett, isn't it the quote about when the tide

6
00:00:25,800 --> 00:00:28,479
Speaker 1: goes out, you get to see who's swimming naked. It's

7
00:00:29,160 --> 00:00:31,840
Speaker 1: it's a cliche. We are in a big time tide

8
00:00:31,880 --> 00:00:35,120
Speaker 1: goes out the environment. I mean the number of CEOs

9
00:00:35,600 --> 00:00:39,040
Speaker 1: of various companies who have written some version of like

10
00:00:39,360 --> 00:00:43,640
Speaker 1: I screwed up, this was all my fault, I misjudged, etcetera.

11
00:00:44,200 --> 00:00:46,320
Speaker 1: Every day it feels like there's another one. And it

12
00:00:46,440 --> 00:00:48,200
Speaker 1: is true. When there is a bear market, when there's

13
00:00:48,200 --> 00:00:52,599
Speaker 1: a downturn, you discover both frauds, and you discover insolvencies,

14
00:00:52,640 --> 00:00:55,600
Speaker 1: and you discover unsustainable structures. It all comes out right.

15
00:00:55,720 --> 00:00:58,160
Speaker 1: It is a popular saying for a reason, which is

16
00:00:58,200 --> 00:01:01,120
Speaker 1: that it tends to be true. Is kind of amazing

17
00:01:01,160 --> 00:01:04,240
Speaker 1: me about this particular cycle, is I guess just the

18
00:01:05,160 --> 00:01:08,120
Speaker 1: speed at which all of this seems to be happening,

19
00:01:08,280 --> 00:01:10,880
Speaker 1: So you know, it was only a few months ago

20
00:01:11,240 --> 00:01:15,280
Speaker 1: that we had Jim Chainos, the fame short seller, on

21
00:01:15,319 --> 00:01:19,240
Speaker 1: the podcast talking about how he thought that there was

22
00:01:19,240 --> 00:01:21,640
Speaker 1: going to be more pain ahead for a lot of

23
00:01:21,680 --> 00:01:25,600
Speaker 1: different froth spots in the market, and how interest rates

24
00:01:25,640 --> 00:01:28,160
Speaker 1: going up basically meant that a bunch of frauds were

25
00:01:28,160 --> 00:01:32,080
Speaker 1: going to be exposed. Yeah, and so basically the market

26
00:01:31,920 --> 00:01:34,360
Speaker 1: at particularly a lot of the tech stocks and a

27
00:01:34,360 --> 00:01:37,959
Speaker 1: lot of the gig economy, is sharing economy, the arc economy,

28
00:01:38,040 --> 00:01:41,319
Speaker 1: all these things really have gotten hit pretty hard since

29
00:01:41,319 --> 00:01:44,200
Speaker 1: we talked to Jim earlier in the summer, and it's

30
00:01:44,240 --> 00:01:46,040
Speaker 1: still a mess. And so I guess part of the

31
00:01:46,120 --> 00:01:48,760
Speaker 1: question is, well, what does it look like at the bottom,

32
00:01:48,760 --> 00:01:50,920
Speaker 1: What have we learned, what are we seeing with the

33
00:01:50,960 --> 00:01:54,480
Speaker 1: tide going out? And are we any closer to you know,

34
00:01:54,560 --> 00:01:57,440
Speaker 1: something that could resemble like a bottom for this market? Right?

35
00:01:57,520 --> 00:01:59,800
Speaker 1: And then also I guess my question is do fra

36
00:02:00,240 --> 00:02:03,040
Speaker 1: pick up in this environment or do they get exposed

37
00:02:03,080 --> 00:02:06,320
Speaker 1: and more difficult to perpetrate. So we're going to be

38
00:02:06,400 --> 00:02:09,440
Speaker 1: talking about all those things with Jim Chainos. This is

39
00:02:09,480 --> 00:02:13,119
Speaker 1: an episode that we recorded live at the Berkeley Forum

40
00:02:13,240 --> 00:02:17,480
Speaker 1: for Corporate Governance in San Francisco. Jim is of course,

41
00:02:17,520 --> 00:02:20,040
Speaker 1: the co founder of Chainos and Co. Which used to

42
00:02:20,040 --> 00:02:26,760
Speaker 1: be called Kinnicos. Here's our conversation. Hi Ji, Hi guys now, Jim,

43
00:02:26,800 --> 00:02:28,920
Speaker 1: the last time we spoke to you, I think was

44
00:02:28,960 --> 00:02:32,040
Speaker 1: in June of this year. Fast forward a few months.

45
00:02:32,120 --> 00:02:36,600
Speaker 1: You are completely correct, froth was blown off the top

46
00:02:36,639 --> 00:02:39,280
Speaker 1: of the frothy stocks in the market. I don't even

47
00:02:39,280 --> 00:02:41,800
Speaker 1: have a question. I think I'm just gonna ask you, like,

48
00:02:41,960 --> 00:02:44,600
Speaker 1: tell us what's going to happen now. Look, we're getting

49
00:02:44,600 --> 00:02:48,840
Speaker 1: a situation where the various parts of speculation are getting

50
00:02:48,919 --> 00:02:51,680
Speaker 1: rung out of this market one by one. We talked

51
00:02:51,680 --> 00:02:54,760
Speaker 1: a little about them back in June. I think we've

52
00:02:54,800 --> 00:02:56,920
Speaker 1: waited right in the middle of kind of our second

53
00:02:56,919 --> 00:03:01,000
Speaker 1: crypto crisis over these past few days. On top of it,

54
00:03:01,080 --> 00:03:05,400
Speaker 1: you've got the tech complex melting down, and a lot

55
00:03:05,440 --> 00:03:07,679
Speaker 1: of this is just the byproduct as we discussed of

56
00:03:08,200 --> 00:03:11,360
Speaker 1: perhaps the most speculative market that I've seen in my

57
00:03:11,440 --> 00:03:16,040
Speaker 1: lifetime forty years on the street, which was and one

58
00:03:16,120 --> 00:03:19,120
Speaker 1: by one, whether it's crypto, whether it's n f t S,

59
00:03:19,440 --> 00:03:24,040
Speaker 1: whether it's SPACs, the poster children for that speculation are

60
00:03:24,080 --> 00:03:27,160
Speaker 1: basically being taken out to the woodshed. And disposed of,

61
00:03:27,480 --> 00:03:31,800
Speaker 1: and the question will be does it spread to something

62
00:03:31,919 --> 00:03:35,240
Speaker 1: in the markets anyway that's much broader than that, and

63
00:03:35,520 --> 00:03:38,400
Speaker 1: that remains to be seen again kind of like Tracy,

64
00:03:38,480 --> 00:03:40,840
Speaker 1: I don't even have a question exactly, but f t

65
00:03:41,120 --> 00:03:43,760
Speaker 1: X give us, give us the Jim Chaino's take. Well,

66
00:03:43,800 --> 00:03:46,320
Speaker 1: I mean, I think Joe, you basically are probably better

67
00:03:46,360 --> 00:03:50,360
Speaker 1: prepared than me to talk about that, because the quintessential

68
00:03:50,520 --> 00:03:54,520
Speaker 1: moment for me in the whole crypto saga was the

69
00:03:54,560 --> 00:03:58,160
Speaker 1: interview that you and Matt Levin had with SPF. I

70
00:03:58,160 --> 00:04:01,640
Speaker 1: think back in April, where I pointed out he kept

71
00:04:01,640 --> 00:04:05,320
Speaker 1: saying the quiet parts out loud about how business models

72
00:04:05,360 --> 00:04:08,800
Speaker 1: were in effect Ponzi schemes. And I think we're gonna

73
00:04:08,840 --> 00:04:12,840
Speaker 1: look back at that as a watershed moment because the

74
00:04:12,960 --> 00:04:17,360
Speaker 1: crises in liquidity and the revelations on the stable coins

75
00:04:17,680 --> 00:04:22,080
Speaker 1: all immediately followed that interview and it was one of

76
00:04:22,080 --> 00:04:25,360
Speaker 1: those moments, and kudos to you all. It was one

77
00:04:25,400 --> 00:04:28,240
Speaker 1: of those moments in the markets that not only went

78
00:04:28,360 --> 00:04:32,400
Speaker 1: viral on social media, but but went viral amongst professionals

79
00:04:32,440 --> 00:04:35,160
Speaker 1: and others. Have you seen this interview? Did you see

80
00:04:35,200 --> 00:04:38,520
Speaker 1: what was said here? And it's very rare you get

81
00:04:38,520 --> 00:04:41,280
Speaker 1: that aha moment like that crystallized, But that was one

82
00:04:41,320 --> 00:04:44,440
Speaker 1: of them, and the whole idea, and I've called it

83
00:04:44,480 --> 00:04:48,360
Speaker 1: a predatory junkyard. As you know, the whole crypto structure,

84
00:04:48,520 --> 00:04:52,880
Speaker 1: in my view, was designed to extract fees from really

85
00:04:52,960 --> 00:04:56,479
Speaker 1: unsuspecting investors and investors that were kind of sold a

86
00:04:56,520 --> 00:04:59,120
Speaker 1: bill of goods where the bill of goods kept changing.

87
00:04:59,800 --> 00:05:02,320
Speaker 1: You know, we remember all the use cases for crypto

88
00:05:02,440 --> 00:05:04,760
Speaker 1: as they kept changing over the past handful of years.

89
00:05:05,120 --> 00:05:07,039
Speaker 1: It was going to be an alternative currency, it was

90
00:05:07,040 --> 00:05:08,440
Speaker 1: gonna be a store of value, it was going to

91
00:05:08,480 --> 00:05:11,040
Speaker 1: be inflation hedge, and at the end of the day,

92
00:05:11,160 --> 00:05:14,640
Speaker 1: it was really just a speculative asset and speculative asset

93
00:05:14,680 --> 00:05:19,160
Speaker 1: class and with an immense cost structure built around it.

94
00:05:19,560 --> 00:05:23,680
Speaker 1: So the idea really was for the crypto you know community,

95
00:05:24,279 --> 00:05:27,160
Speaker 1: was how can we extract the most amount of fees

96
00:05:27,600 --> 00:05:32,280
Speaker 1: from unsuspecting investors. And that's my view and I still

97
00:05:32,320 --> 00:05:35,600
Speaker 1: hold to it. What happens now for crypto is there

98
00:05:35,640 --> 00:05:39,000
Speaker 1: a recovery here or is this so bad? I mean

99
00:05:39,120 --> 00:05:42,240
Speaker 1: f t X, Sam Bankman freed, and you know, I

100
00:05:42,320 --> 00:05:45,160
Speaker 1: was there at that Odd Lots interview as well, and

101
00:05:45,200 --> 00:05:48,480
Speaker 1: we were all sat in the room quite shocked by

102
00:05:48,560 --> 00:05:51,480
Speaker 1: what SPF had just said. For those who haven't listened

103
00:05:51,520 --> 00:05:54,599
Speaker 1: to it, we asked him to describe how yield farming works,

104
00:05:54,640 --> 00:05:56,320
Speaker 1: and he basically says, well, you put money in a

105
00:05:56,360 --> 00:05:59,120
Speaker 1: box and more money comes out of the box, and

106
00:05:59,160 --> 00:06:02,160
Speaker 1: you worry about the use case later. All right, So

107
00:06:02,320 --> 00:06:05,880
Speaker 1: fast forward to today, it's all falling apart. Can crypto

108
00:06:06,080 --> 00:06:09,200
Speaker 1: emerge from this and potentially find, you know, a new

109
00:06:09,279 --> 00:06:14,039
Speaker 1: narrative to sell a new potential use case. Yeah, I'll

110
00:06:14,080 --> 00:06:17,159
Speaker 1: just add the ultimate irony in the last couple of

111
00:06:17,200 --> 00:06:21,240
Speaker 1: days is the crypto community talking and sort of begging

112
00:06:21,240 --> 00:06:24,320
Speaker 1: and asking where are the regulators? Is really truly the

113
00:06:24,400 --> 00:06:29,400
Speaker 1: ultimate irony since the crypto ethos was about, you know,

114
00:06:29,440 --> 00:06:33,120
Speaker 1: really being outside of the regulatory environment and being a

115
00:06:33,200 --> 00:06:37,680
Speaker 1: separate and independent system um, and now it's begging for

116
00:06:37,680 --> 00:06:40,920
Speaker 1: for the same sorts of things. And you know, as

117
00:06:40,960 --> 00:06:44,280
Speaker 1: I pointed out for a few years, the real problem

118
00:06:44,320 --> 00:06:49,719
Speaker 1: with anti fiat structures is exactly when you need fiat

119
00:06:50,000 --> 00:06:53,520
Speaker 1: is the time when people are most afraid and when

120
00:06:53,600 --> 00:06:58,680
Speaker 1: fear stalks the markets, because governments, through their various different

121
00:06:58,880 --> 00:07:03,200
Speaker 1: means can not only enforce contracts and adjudicate fraud, but

122
00:07:03,279 --> 00:07:06,200
Speaker 1: in effect connect as lenders of last resort and or

123
00:07:06,480 --> 00:07:10,080
Speaker 1: established deposit insurance, which is exactly what everyone looks for

124
00:07:10,200 --> 00:07:12,440
Speaker 1: when when people are worried about getting the money back.

125
00:07:13,160 --> 00:07:16,360
Speaker 1: And it's why alternative currency schemes and by the way,

126
00:07:16,400 --> 00:07:18,960
Speaker 1: crypto isn't the first. I mean, they've been all kinds

127
00:07:19,000 --> 00:07:23,360
Speaker 1: of alternative currency schemes to FIAT for centuries now, and

128
00:07:23,640 --> 00:07:27,560
Speaker 1: they always flourish in bull markets when people's sense of

129
00:07:27,600 --> 00:07:30,920
Speaker 1: disbelief is suspended and people begin to believe things that

130
00:07:30,960 --> 00:07:33,800
Speaker 1: are too good to be true. And crypto and all

131
00:07:33,840 --> 00:07:36,320
Speaker 1: the other ancillary aspects of crypto, whether it's n f

132
00:07:36,360 --> 00:07:39,720
Speaker 1: T s or what have you, really were the latest

133
00:07:39,800 --> 00:07:42,120
Speaker 1: iteration of that. The last time we talked to you

134
00:07:42,120 --> 00:07:44,760
Speaker 1: said that as well. What's an example of an alternative

135
00:07:45,200 --> 00:07:48,040
Speaker 1: currency that thrived in a bull market? What's a historical

136
00:07:48,080 --> 00:07:50,400
Speaker 1: parallel to so, I mean you had you had the

137
00:07:50,480 --> 00:07:54,840
Speaker 1: various different banking systems that that thrived in the early

138
00:07:54,920 --> 00:07:58,840
Speaker 1: nineteenth century in the US. That's certainly probably one that

139
00:07:58,840 --> 00:08:02,600
Speaker 1: that economic history orients would point to. And we can

140
00:08:02,640 --> 00:08:06,280
Speaker 1: go back further. I mean the various different currencies that

141
00:08:06,280 --> 00:08:09,840
Speaker 1: that the father of FIAT, John Law, who I teach

142
00:08:09,880 --> 00:08:12,920
Speaker 1: in my fraud course, brought forth in the early seventeen

143
00:08:12,960 --> 00:08:15,760
Speaker 1: hundreds in France. But there have been a number of them.

144
00:08:15,800 --> 00:08:20,800
Speaker 1: And the problem again is is they rely on a

145
00:08:20,840 --> 00:08:24,440
Speaker 1: system of trust, whereby the systems that FIAT has developed

146
00:08:24,440 --> 00:08:28,520
Speaker 1: in the past three hundred years have really been designed

147
00:08:29,200 --> 00:08:32,240
Speaker 1: to engender trust. It's the offset, of course, to the

148
00:08:32,280 --> 00:08:35,480
Speaker 1: downside of FIAT, which is debasement. And so the crypto

149
00:08:35,640 --> 00:08:39,840
Speaker 1: community pointed out the risks of debasement and UH and

150
00:08:39,880 --> 00:08:43,400
Speaker 1: all the other risks of sovereign governments getting involved in

151
00:08:43,400 --> 00:08:46,800
Speaker 1: your currency, but they forgot the good parts and and

152
00:08:46,880 --> 00:08:49,160
Speaker 1: that's I think the lesson that we have to learn.

153
00:08:49,800 --> 00:08:53,560
Speaker 1: Do you worry about crypto drama, what's going on in

154
00:08:53,559 --> 00:08:58,040
Speaker 1: that industry having a contagious effect on either the rest

155
00:08:58,080 --> 00:09:01,840
Speaker 1: of Silicon Valley or the wider market, given that they're

156
00:09:01,880 --> 00:09:05,240
Speaker 1: do seem to be these interlinkages between for instance, crypto

157
00:09:05,240 --> 00:09:09,760
Speaker 1: players and venture capital firms. Yeah, I mean, to me,

158
00:09:09,840 --> 00:09:13,280
Speaker 1: this looks this looks a lot more as we discuss

159
00:09:13,400 --> 00:09:15,360
Speaker 1: this looks a lot more to me like the dot

160
00:09:15,400 --> 00:09:18,880
Speaker 1: com era on steroids rather than sort of the prelude

161
00:09:18,920 --> 00:09:22,240
Speaker 1: to the global financial crisis because of the nature of

162
00:09:22,240 --> 00:09:26,480
Speaker 1: of the banking system and payments. I don't think this

163
00:09:26,600 --> 00:09:29,480
Speaker 1: is a contagion effect. I do think it's it's a

164
00:09:29,480 --> 00:09:33,400
Speaker 1: pretty bad mark to market effect for equity type investors,

165
00:09:33,640 --> 00:09:36,160
Speaker 1: much like the dot com era. But I don't think

166
00:09:36,240 --> 00:09:39,360
Speaker 1: it is contagion through the credit markets. I mean, I think,

167
00:09:39,400 --> 00:09:42,600
Speaker 1: why I saw something this morning that it might even

168
00:09:42,600 --> 00:09:44,440
Speaker 1: be lower now as we speak. But I think the

169
00:09:44,520 --> 00:09:47,760
Speaker 1: crypto mark to market for the all the coins out

170
00:09:47,760 --> 00:09:50,840
Speaker 1: there is something now below one trillion, somewhere on eight

171
00:09:50,880 --> 00:09:54,080
Speaker 1: hundred billion dollars. And uh, you know, eight hundred billion

172
00:09:54,080 --> 00:09:56,600
Speaker 1: dollars is a lot of money. But I'll remind you

173
00:09:56,679 --> 00:09:59,480
Speaker 1: that until about a week ago, you know, Tesla's market

174
00:09:59,520 --> 00:10:01,920
Speaker 1: cap was a hundred billion dollars. That's just one stock.

175
00:10:02,520 --> 00:10:06,280
Speaker 1: So I think the contagion effects are probably going to

176
00:10:06,320 --> 00:10:22,679
Speaker 1: be dimnimus to the to the payments and credit system.

177
00:10:22,720 --> 00:10:25,079
Speaker 1: I definitely want to get to like tech stocks and

178
00:10:25,240 --> 00:10:27,400
Speaker 1: Tesla and all that in one second, but one last question.

179
00:10:27,440 --> 00:10:30,040
Speaker 1: You know, it's this, as you pointed out, the crash happens,

180
00:10:30,040 --> 00:10:32,880
Speaker 1: people say we're are the regulators. This is again, I

181
00:10:32,880 --> 00:10:35,319
Speaker 1: think a classic part of the cycle that the regulators

182
00:10:35,559 --> 00:10:38,679
Speaker 1: seem to come in late. What does history say about

183
00:10:38,840 --> 00:10:42,120
Speaker 1: how far they go? Would you expect to see, for example,

184
00:10:42,360 --> 00:10:46,319
Speaker 1: criminal charges people in jail as a result of this

185
00:10:46,640 --> 00:10:49,840
Speaker 1: dot com trading on steroids in crypto. Yeah. So one

186
00:10:49,880 --> 00:10:51,600
Speaker 1: of the things, one of the things I teach is

187
00:10:51,640 --> 00:10:55,800
Speaker 1: that not only are are the regulators archaeologists not detectives,

188
00:10:56,360 --> 00:11:00,079
Speaker 1: but that that asset prices are both the staunch a

189
00:11:00,320 --> 00:11:05,520
Speaker 1: defense attorney and the harshest prosecutor for financial fraud. That

190
00:11:05,640 --> 00:11:08,640
Speaker 1: nobody's out looking to bring the bad guys in when

191
00:11:08,640 --> 00:11:12,800
Speaker 1: everybody's making money. It's only when people start losing money

192
00:11:12,840 --> 00:11:15,760
Speaker 1: that you begin to get a public outcry of of,

193
00:11:15,880 --> 00:11:18,240
Speaker 1: you know, throw the rascals in jail. You know, if

194
00:11:18,280 --> 00:11:20,880
Speaker 1: we go back again to the dot com era, people

195
00:11:20,920 --> 00:11:23,120
Speaker 1: were losing money and dot com for a better part

196
00:11:23,120 --> 00:11:26,040
Speaker 1: of a year. But it wasn't until the Enron and

197
00:11:26,080 --> 00:11:30,319
Speaker 1: World Com scandals hit that the federal government really geared

198
00:11:30,400 --> 00:11:33,520
Speaker 1: up its efforts to uh to look at corporate wrongdoing

199
00:11:33,600 --> 00:11:36,200
Speaker 1: and and bring on Sarbanes Oxley. So this is gonna

200
00:11:36,200 --> 00:11:38,200
Speaker 1: be the same thing. I mean, people have lost a

201
00:11:38,240 --> 00:11:41,079
Speaker 1: lot of money in crypto, a lot of new investors,

202
00:11:41,120 --> 00:11:43,440
Speaker 1: a lot of young investors, so you're gonna get a

203
00:11:43,440 --> 00:11:47,600
Speaker 1: political outcry nowdo to to regulate this system and and

204
00:11:47,679 --> 00:11:52,040
Speaker 1: bring bad guys to justice. Now. I've also pointed out

205
00:11:52,120 --> 00:11:54,000
Speaker 1: that it seems to me that there might be a

206
00:11:54,000 --> 00:11:57,160
Speaker 1: reason why a lot of these crypto entrepreneurs live in

207
00:11:57,200 --> 00:12:00,840
Speaker 1: places like the Bahamas in Dubai and not New York City,

208
00:12:00,920 --> 00:12:03,640
Speaker 1: So you know, it might be. And I think there

209
00:12:03,679 --> 00:12:06,839
Speaker 1: are one or two actually that are technically fugitists from

210
00:12:06,840 --> 00:12:10,640
Speaker 1: justice already. So it's gonna be interesting to see see

211
00:12:10,679 --> 00:12:14,320
Speaker 1: what we see from a prosecutorial as opposed to a

212
00:12:14,360 --> 00:12:18,760
Speaker 1: regulatory initiative against this, and what kind of wrongdoing that

213
00:12:18,840 --> 00:12:22,640
Speaker 1: gets exposed if it turns out that there was actual

214
00:12:23,000 --> 00:12:26,520
Speaker 1: misrepresentations or assets that were claimed to be there, we're

215
00:12:26,559 --> 00:12:29,240
Speaker 1: not there. On the other hand, it just seems, I mean,

216
00:12:29,520 --> 00:12:31,840
Speaker 1: people have been warning about this for for now a

217
00:12:31,840 --> 00:12:35,120
Speaker 1: few years. It's not like the warning signs weren't there

218
00:12:35,640 --> 00:12:38,760
Speaker 1: for people to notice. Yeah, there's at least one crypto

219
00:12:38,920 --> 00:12:44,319
Speaker 1: entrepreneur that has effectively purchased diplomatic community as well preemptively.

220
00:12:44,679 --> 00:12:46,520
Speaker 1: Nothing has happened to him yet, but he has it.

221
00:12:47,080 --> 00:12:50,760
Speaker 1: Let's talk about frauds more generally, and you mentioned en Ron,

222
00:12:50,840 --> 00:12:55,240
Speaker 1: and you've obviously been a player throughout different boom and

223
00:12:55,280 --> 00:13:00,360
Speaker 1: bust cycles. What generally happens to frauds in a down turn?

224
00:13:00,440 --> 00:13:03,600
Speaker 1: I'm assuming many of them get exposed, but there must

225
00:13:03,600 --> 00:13:06,960
Speaker 1: also be incentive there to maybe start new ones and

226
00:13:07,000 --> 00:13:11,880
Speaker 1: try to bury some of your problems as they get worse. Well,

227
00:13:11,960 --> 00:13:14,520
Speaker 1: that is a problem in that that as it becomes

228
00:13:14,520 --> 00:13:18,160
Speaker 1: more and more difficult to to meet expectations, often the

229
00:13:18,160 --> 00:13:23,080
Speaker 1: frauds get exponentially worse as they go on. But what

230
00:13:23,280 --> 00:13:25,920
Speaker 1: I would point out is that the fraud cycle follows

231
00:13:25,960 --> 00:13:30,880
Speaker 1: the financial cycle with a lag. So typically broad thrives

232
00:13:30,960 --> 00:13:33,600
Speaker 1: in a in a in a bull market, and the

233
00:13:33,679 --> 00:13:37,560
Speaker 1: longer the bull market and the longer the the business expansion,

234
00:13:37,840 --> 00:13:42,000
Speaker 1: typically the worst the waves of fraud that are subsequently discovered.

235
00:13:42,360 --> 00:13:45,720
Speaker 1: And then when when markets turned down and people become

236
00:13:46,000 --> 00:13:50,120
Speaker 1: a little bit more leary, since most frauds require new

237
00:13:50,160 --> 00:13:53,679
Speaker 1: capital to keep going, they tend to get exposed after

238
00:13:53,720 --> 00:13:56,360
Speaker 1: the markets turned down and made off in December of

239
00:13:56,400 --> 00:13:59,120
Speaker 1: oh eight's a good example. Um, And of course what

240
00:13:59,240 --> 00:14:02,080
Speaker 1: we mentioned and on in world common tycho and that

241
00:14:02,200 --> 00:14:06,080
Speaker 1: class in this cycle, I think it's going to be.

242
00:14:06,679 --> 00:14:10,160
Speaker 1: I think crypto is probably gonna be right up there. Uh,

243
00:14:10,160 --> 00:14:13,240
Speaker 1: and that has started clearly, But I think the fraud

244
00:14:13,280 --> 00:14:17,520
Speaker 1: that's occurring is much more subtle, and I think it's

245
00:14:17,559 --> 00:14:22,280
Speaker 1: going to be even harder to prosecute. And and that's

246
00:14:22,320 --> 00:14:27,680
Speaker 1: the abuse of metrics, self described and self generated metrics

247
00:14:27,720 --> 00:14:30,960
Speaker 1: that now investors have just gotten so used to, which

248
00:14:31,000 --> 00:14:34,480
Speaker 1: are really, in my opinion, you know, mask over business

249
00:14:34,520 --> 00:14:38,600
Speaker 1: plans that probably will never be profitable, and and the

250
00:14:38,600 --> 00:14:43,760
Speaker 1: amount of adjusted adjusted profitability and adjusted EBITDA. There was

251
00:14:44,000 --> 00:14:47,000
Speaker 1: one of our shorts reported last night and they said

252
00:14:47,040 --> 00:14:50,840
Speaker 1: that they expected to be profitable by the end of

253
00:14:51,920 --> 00:14:58,520
Speaker 1: three on an adjusted basis adjusted for other operating costs.

254
00:14:58,720 --> 00:15:01,480
Speaker 1: I have no idea what that mean, but you know,

255
00:15:01,960 --> 00:15:05,560
Speaker 1: analysts dutifully this morning said they expect to be profitable

256
00:15:05,560 --> 00:15:09,280
Speaker 1: at the end of three UM. And so the investors

257
00:15:09,240 --> 00:15:14,280
Speaker 1: have gotten so used to, particularly Silicon Valley, describing profitability

258
00:15:14,400 --> 00:15:17,120
Speaker 1: as they would like it and not as it really exists,

259
00:15:17,480 --> 00:15:20,080
Speaker 1: that you kind of wonder will the SEC cracked down

260
00:15:20,120 --> 00:15:23,080
Speaker 1: on that, Will will Congress crack down on that and

261
00:15:23,080 --> 00:15:25,600
Speaker 1: and get us back to kind of generally accepted accounting

262
00:15:25,600 --> 00:15:29,600
Speaker 1: principles as opposed to accounting principles or whatever I want

263
00:15:29,600 --> 00:15:32,800
Speaker 1: them to be. Well, as you say, the fraud cycle

264
00:15:33,120 --> 00:15:36,600
Speaker 1: follows the financial cycle. And of course one way that

265
00:15:37,280 --> 00:15:40,720
Speaker 1: Silicon Valley companies in particular, all companies, but Silicon Valley

266
00:15:40,720 --> 00:15:45,320
Speaker 1: in particular, flatters their financials makes profitability look better is

267
00:15:45,800 --> 00:15:50,240
Speaker 1: you know, substantial share based compensation and you know it's

268
00:15:50,240 --> 00:15:53,000
Speaker 1: not really a cash expense, but of course still investors

269
00:15:53,040 --> 00:15:57,640
Speaker 1: are paying it. What happens to this place, Silicon Valley?

270
00:15:57,800 --> 00:16:01,000
Speaker 1: What happens to share based compensation in an era in

271
00:16:01,040 --> 00:16:04,760
Speaker 1: which shares go down? I imagine for employees they're not

272
00:16:04,800 --> 00:16:07,000
Speaker 1: as excited about getting stocked as they might have been

273
00:16:07,040 --> 00:16:08,840
Speaker 1: a year ago or two years ago as part of

274
00:16:08,840 --> 00:16:12,600
Speaker 1: their camp. So talk to us about like how that unfolds,

275
00:16:12,640 --> 00:16:15,160
Speaker 1: and like what the down cycle of an industry that's

276
00:16:15,200 --> 00:16:18,440
Speaker 1: so driven by equity issuance two employees? What happens in

277
00:16:18,440 --> 00:16:22,080
Speaker 1: a down cycle? Well, it was a big issue Joe

278
00:16:22,360 --> 00:16:25,480
Speaker 1: in posted dot com era, and back then it was

279
00:16:25,520 --> 00:16:29,560
Speaker 1: stock option accounting that became that went under the microscope

280
00:16:29,880 --> 00:16:32,800
Speaker 1: and ultimately had to be accounted for. And now, of course,

281
00:16:32,880 --> 00:16:36,520
Speaker 1: in effect it's taken out through the use of pro

282
00:16:36,600 --> 00:16:40,680
Speaker 1: formal adjustments. But what what people found out was that

283
00:16:40,960 --> 00:16:44,640
Speaker 1: it had just a tremendous pro cyclical effect on things.

284
00:16:45,120 --> 00:16:47,600
Speaker 1: That is, when your stock price was going up, you

285
00:16:47,640 --> 00:16:51,120
Speaker 1: didn't have to issue as many shares for a given

286
00:16:51,120 --> 00:16:55,200
Speaker 1: dollar level of compensation. And now that the stock is down,

287
00:16:55,600 --> 00:16:58,560
Speaker 1: if your stock is down eight or you have to

288
00:16:58,640 --> 00:17:02,160
Speaker 1: just issue massive amount of stock, So you're issuing more

289
00:17:02,240 --> 00:17:05,040
Speaker 1: stock as it goes down, You're diluting people. So it

290
00:17:05,080 --> 00:17:09,400
Speaker 1: becomes procyclical to the downside as well, and the numbers

291
00:17:09,400 --> 00:17:12,560
Speaker 1: are now becoming meaningful. The company I mentioned just a

292
00:17:12,560 --> 00:17:15,960
Speaker 1: few minutes ago that reported last night it's got run

293
00:17:16,080 --> 00:17:18,720
Speaker 1: rate share based comp of almost a half a billion

294
00:17:18,760 --> 00:17:22,600
Speaker 1: dollars and based on their current share count, that means

295
00:17:22,680 --> 00:17:25,040
Speaker 1: that that the shares outstanding are going to be going

296
00:17:25,119 --> 00:17:27,560
Speaker 1: up something like seven to ten percent a year just

297
00:17:27,680 --> 00:17:30,680
Speaker 1: on the back of share based comp. The other problem

298
00:17:30,760 --> 00:17:33,960
Speaker 1: is we've seen a number of companies, beginning in the

299
00:17:34,000 --> 00:17:38,240
Speaker 1: second quarter UH companies like door Dash and Salesforce, dot

300
00:17:38,280 --> 00:17:43,600
Speaker 1: Com and Zoom announced large share buyback programs to offset

301
00:17:43,640 --> 00:17:46,399
Speaker 1: the dilution of the share base comp. So you have

302
00:17:46,560 --> 00:17:49,879
Speaker 1: the you have the silliness of the share based compy

303
00:17:50,040 --> 00:17:53,879
Speaker 1: excluded from the adjusted profit figures and actually being a

304
00:17:53,920 --> 00:17:56,760
Speaker 1: positive for operating cash flow and the cash flow statement.

305
00:17:57,240 --> 00:18:01,119
Speaker 1: But yet now the substantial share buy back cost is

306
00:18:01,160 --> 00:18:04,800
Speaker 1: below the line in the cash flow statement under financing.

307
00:18:05,520 --> 00:18:09,359
Speaker 1: So it's skewed incentived in so many different ways. But

308
00:18:09,480 --> 00:18:12,000
Speaker 1: I don't it's getting worse. The amount of share based

309
00:18:12,000 --> 00:18:15,120
Speaker 1: camp for some of these companies is actually going up

310
00:18:15,160 --> 00:18:19,240
Speaker 1: faster than revenues. So they're on the treadmill, if you will,

311
00:18:19,280 --> 00:18:21,000
Speaker 1: and I don't know how they're going to get off it.

312
00:18:21,880 --> 00:18:25,120
Speaker 1: Why do you think investors have been willing to accept

313
00:18:25,480 --> 00:18:28,520
Speaker 1: these types of pro forma adjustments in the past, because,

314
00:18:28,560 --> 00:18:31,320
Speaker 1: I mean, this has been a known issue. I think

315
00:18:31,359 --> 00:18:33,520
Speaker 1: we had someone from the SEC recently. I think it

316
00:18:33,640 --> 00:18:35,239
Speaker 1: was an article in the Wall Street Journal. They were

317
00:18:35,280 --> 00:18:38,240
Speaker 1: talking about this. We used to make fun of, you know,

318
00:18:38,320 --> 00:18:42,080
Speaker 1: community adjusted ebit DAW and stuff like that. People knew

319
00:18:42,119 --> 00:18:45,040
Speaker 1: that this was happening, and yet it didn't seem to

320
00:18:45,080 --> 00:18:47,760
Speaker 1: have that much impact on either the company's share price

321
00:18:47,960 --> 00:18:51,720
Speaker 1: or its ability to raise funding. Yeah, until it did, right,

322
00:18:51,920 --> 00:18:55,560
Speaker 1: And again that that's my view on the pro cyclicality

323
00:18:55,600 --> 00:18:59,359
Speaker 1: of all these kinds of developments. They make things look

324
00:18:59,600 --> 00:19:01,399
Speaker 1: much better than they are on the way up, and

325
00:19:01,440 --> 00:19:04,080
Speaker 1: they really hitch it pretty hard on the way down,

326
00:19:04,760 --> 00:19:08,159
Speaker 1: and so it just increases the amount of votility in

327
00:19:08,320 --> 00:19:11,680
Speaker 1: given corporate assets. There's one other aspect I will mention

328
00:19:11,960 --> 00:19:15,400
Speaker 1: that your audience might not appreciate, and and we saw

329
00:19:15,440 --> 00:19:18,440
Speaker 1: it in the dot com bust, and that is if

330
00:19:18,480 --> 00:19:23,439
Speaker 1: you have a lavish equity issuance culture, and you have

331
00:19:23,520 --> 00:19:27,640
Speaker 1: a compliant board that basically will agree to almost any

332
00:19:27,720 --> 00:19:34,639
Speaker 1: management equity issuance plan, then when you issue stock options

333
00:19:34,960 --> 00:19:39,280
Speaker 1: and various different equity instruments to your management and your employees,

334
00:19:40,200 --> 00:19:44,439
Speaker 1: if the boards rubber stamp things, well, they will rubber

335
00:19:44,520 --> 00:19:49,439
Speaker 1: stamp repricing those equity awards if the stock goes lower,

336
00:19:49,920 --> 00:19:53,800
Speaker 1: or granting more if the stock goes lower to keep

337
00:19:53,840 --> 00:19:58,160
Speaker 1: employees happy. And what that means is is that boards

338
00:19:58,160 --> 00:20:02,360
Speaker 1: are acquiescing to not only call options, but they're granting

339
00:20:02,400 --> 00:20:06,960
Speaker 1: put options to the employees and management. And that's a

340
00:20:07,080 --> 00:20:12,040
Speaker 1: frightening alternative because number one, the black Shoals model is

341
00:20:12,040 --> 00:20:15,360
Speaker 1: only picking up the cost of the call options, and

342
00:20:15,440 --> 00:20:18,600
Speaker 1: b you don't really want a management team that has

343
00:20:18,640 --> 00:20:21,439
Speaker 1: a bunch of puts in their stock as well as calls.

344
00:20:22,160 --> 00:20:24,439
Speaker 1: And it's something that I don't think a lot of

345
00:20:24,440 --> 00:20:27,240
Speaker 1: people pay enough attention to on the governance side that

346
00:20:27,400 --> 00:20:45,560
Speaker 1: I think I think your your audience might appreciate. I

347
00:20:45,640 --> 00:20:48,640
Speaker 1: have a really short question. Are you gonna make us

348
00:20:48,880 --> 00:20:51,679
Speaker 1: look at the look at which companies reported earnings on

349
00:20:51,760 --> 00:20:54,400
Speaker 1: November eighth and have a half a billion dollar share

350
00:20:54,440 --> 00:20:56,560
Speaker 1: based compensation run Rader? You're gonna just tell us the

351
00:20:56,640 --> 00:21:00,600
Speaker 1: name of the company. It's a fintech company, that it's

352
00:21:00,640 --> 00:21:03,320
Speaker 1: based out where you guys are right now. And uh,

353
00:21:03,560 --> 00:21:06,560
Speaker 1: and let's say let's say, uh, let's say it's involved

354
00:21:06,560 --> 00:21:09,240
Speaker 1: in a sector of fintech. Uh that a lot of

355
00:21:09,240 --> 00:21:13,240
Speaker 1: people have questioned by now pay later. I think that

356
00:21:13,240 --> 00:21:17,280
Speaker 1: that that'll narrow down that that should narrow it down. Well, okay,

357
00:21:17,320 --> 00:21:19,840
Speaker 1: this kind of leads into a process question. But in

358
00:21:19,880 --> 00:21:24,680
Speaker 1: an environment like this, do you find identifying potential shorts

359
00:21:24,840 --> 00:21:30,200
Speaker 1: easier than during the bull market? Identifying them wasn't the problem, Tracy.

360
00:21:30,440 --> 00:21:33,399
Speaker 1: It was where they where the stocks went, that was

361
00:21:33,440 --> 00:21:36,560
Speaker 1: the issue. Um. You know, some of these business models,

362
00:21:36,760 --> 00:21:41,040
Speaker 1: I mean to us and others have been questionable from

363
00:21:41,119 --> 00:21:44,000
Speaker 1: the get go. Um, you know, take a look at

364
00:21:44,040 --> 00:21:47,640
Speaker 1: at ride hailing or or food delivery, something we're all

365
00:21:47,720 --> 00:21:51,080
Speaker 1: familiar with. These companies been around for ten and fifteen years.

366
00:21:51,359 --> 00:21:54,120
Speaker 1: They haven't found a way to make make profit. Door

367
00:21:54,240 --> 00:21:59,360
Speaker 1: Dash to single out, one company actually has higher losses

368
00:21:59,400 --> 00:22:03,520
Speaker 1: per order now then a few years ago, and so

369
00:22:04,000 --> 00:22:08,399
Speaker 1: they're not scaling. And and that is for companies that

370
00:22:08,440 --> 00:22:12,120
Speaker 1: are based on digitization and having a platform and using

371
00:22:12,160 --> 00:22:16,320
Speaker 1: the internet, you had better scale. That's the whole concept.

372
00:22:16,920 --> 00:22:21,159
Speaker 1: And you know, so many business models are showing increasing

373
00:22:21,240 --> 00:22:25,600
Speaker 1: losses as they age, and I just sort of wonder,

374
00:22:25,840 --> 00:22:28,879
Speaker 1: at what point do do people just say okay enough.

375
00:22:29,520 --> 00:22:31,280
Speaker 1: And I've been shocked at it. It went on as

376
00:22:31,359 --> 00:22:33,480
Speaker 1: long as it did for a lot of these business models,

377
00:22:33,560 --> 00:22:39,440
Speaker 1: so identifying them was not the issue. Having other investors

378
00:22:39,520 --> 00:22:42,920
Speaker 1: care about that is really the issue. So I've always

379
00:22:42,960 --> 00:22:45,400
Speaker 1: found this point that you make to be very compelling

380
00:22:45,440 --> 00:22:48,720
Speaker 1: that it's like, Okay, if these right hailing, sharing economy

381
00:22:48,800 --> 00:22:52,520
Speaker 1: whatever companies couldn't make money during the boom, during the

382
00:22:52,600 --> 00:22:54,879
Speaker 1: good times, then when were they ever going to make money?

383
00:22:55,040 --> 00:22:58,159
Speaker 1: The counter that we've heard and we didn't interview not

384
00:22:58,280 --> 00:23:00,159
Speaker 1: long after the last time we talked to you with

385
00:23:00,320 --> 00:23:03,439
Speaker 1: the VC Jason Kelly canvas. He's like, yes, that's a

386
00:23:03,440 --> 00:23:07,960
Speaker 1: good point. On the flip side, investors were encouraging all

387
00:23:08,000 --> 00:23:10,600
Speaker 1: these companies to grow at any cost, and they were

388
00:23:10,640 --> 00:23:13,560
Speaker 1: not being rewarded for profitability. They were rewarding for growth.

389
00:23:13,920 --> 00:23:16,400
Speaker 1: And so it's not fair to say they can't make

390
00:23:16,440 --> 00:23:19,520
Speaker 1: money because they just weren't incentivized to. There was no

391
00:23:19,760 --> 00:23:21,840
Speaker 1: reason why they would have when the games were all

392
00:23:21,880 --> 00:23:25,040
Speaker 1: too growth. When you look at these models, why can't

393
00:23:25,160 --> 00:23:27,560
Speaker 1: in your view, they turned the dial? Because that is

394
00:23:27,560 --> 00:23:30,240
Speaker 1: the big question, right, can they cut costs now? Can

395
00:23:30,280 --> 00:23:33,960
Speaker 1: they sort of like finally like right size and make money.

396
00:23:34,080 --> 00:23:36,360
Speaker 1: We've seen these big stock price to clients. In many

397
00:23:36,400 --> 00:23:41,600
Speaker 1: cases we see management going into cost cutting, layoff profitability mode.

398
00:23:41,880 --> 00:23:43,760
Speaker 1: Why don't you think that they can now turn the

399
00:23:43,840 --> 00:23:47,880
Speaker 1: dials and get to positive cash flow? We'll see and

400
00:23:47,880 --> 00:23:51,960
Speaker 1: and so far they haven't and and so uh, maybe

401
00:23:51,960 --> 00:23:54,280
Speaker 1: they're not losing as much money, but if you look

402
00:23:54,320 --> 00:23:57,159
Speaker 1: at the operating metrics, a lot of them are still

403
00:23:57,200 --> 00:24:01,879
Speaker 1: inherently unprofitable at suitably high up in the income statement,

404
00:24:01,880 --> 00:24:04,920
Speaker 1: whether it's operating income or gross profits. But what we're

405
00:24:04,920 --> 00:24:08,000
Speaker 1: really looking for as short sellers and looking at these

406
00:24:08,040 --> 00:24:11,320
Speaker 1: business models is for the companies that have stopped growing

407
00:24:11,480 --> 00:24:14,800
Speaker 1: and are still losing money, Because if they've stopped growing

408
00:24:15,440 --> 00:24:19,280
Speaker 1: and the losses are still considerable, then the whole idea.

409
00:24:19,359 --> 00:24:23,080
Speaker 1: While we were investing for growth through investing for future capacity,

410
00:24:23,520 --> 00:24:26,160
Speaker 1: investors you know, didn't care as long as our top

411
00:24:26,200 --> 00:24:29,439
Speaker 1: line was growing. But if you're structurally unprofitable as you

412
00:24:29,520 --> 00:24:33,240
Speaker 1: slow down or stopped growing, then you have a problem.

413
00:24:33,359 --> 00:24:36,040
Speaker 1: And that that's why the things like the door dash

414
00:24:36,080 --> 00:24:38,760
Speaker 1: metric I mentioned to you, you know, the loss is

415
00:24:38,840 --> 00:24:43,119
Speaker 1: per order become important to judge whether or not what

416
00:24:43,240 --> 00:24:46,000
Speaker 1: your guests said is true or not. We've made it

417
00:24:46,119 --> 00:24:50,119
Speaker 1: twenty five minutes without actually mentioning Elon Musk, although we

418
00:24:50,160 --> 00:24:53,399
Speaker 1: did mention Tesla, so I don't again, this is one

419
00:24:53,400 --> 00:24:55,360
Speaker 1: of those things. I don't even have a question, but

420
00:24:55,640 --> 00:25:03,639
Speaker 1: Tesla Elon Musk, Twitter, Jim go. Look, you know the

421
00:25:03,720 --> 00:25:07,399
Speaker 1: Twitter saga is one for the ages, and I'm an

422
00:25:07,440 --> 00:25:11,679
Speaker 1: interested observer like everybody else. We're focused on on Tesla

423
00:25:11,800 --> 00:25:14,720
Speaker 1: the car company, and I would just keep pointing out

424
00:25:14,760 --> 00:25:18,640
Speaker 1: to people that Tesla the car company is not only

425
00:25:18,680 --> 00:25:21,880
Speaker 1: the most profitable car company, which certainly we didn't never

426
00:25:21,920 --> 00:25:24,920
Speaker 1: thought it would be, but is also you know, going

427
00:25:24,960 --> 00:25:29,720
Speaker 1: away still with the stock down almost is still the

428
00:25:29,760 --> 00:25:33,639
Speaker 1: most expensive automobile o EM in the world by a lot.

429
00:25:34,400 --> 00:25:36,840
Speaker 1: And uh, I think we're looking at a company that

430
00:25:36,920 --> 00:25:40,800
Speaker 1: that's training now right around thirty times gross profits thirty

431
00:25:40,800 --> 00:25:44,440
Speaker 1: times gross profits is is you know, their software is

432
00:25:44,480 --> 00:25:47,639
Speaker 1: a service stocks that would kill for that and basically

433
00:25:47,720 --> 00:25:51,679
Speaker 1: sells luxury cars, right he sells fifty and sixty and

434
00:25:51,720 --> 00:25:56,919
Speaker 1: seventy thousand dollar cars that you know have immense gross

435
00:25:56,920 --> 00:26:00,720
Speaker 1: profit margins where the rest of the industry is lucky

436
00:26:00,760 --> 00:26:04,879
Speaker 1: to get fifteen or we don't think that's sustainable. Um,

437
00:26:05,040 --> 00:26:07,080
Speaker 1: we think that the number one the luxury car market

438
00:26:07,119 --> 00:26:10,159
Speaker 1: is a much smaller than people think. And number two,

439
00:26:10,560 --> 00:26:12,240
Speaker 1: even though the o E other o E m s

440
00:26:12,280 --> 00:26:15,840
Speaker 1: have been slow on the uptake, they are coming and

441
00:26:15,960 --> 00:26:18,840
Speaker 1: competition will increase and most cars will be e v

442
00:26:19,040 --> 00:26:22,680
Speaker 1: s by the next five to ten years. And it's

443
00:26:22,720 --> 00:26:26,280
Speaker 1: a tough business. It's a low return on capital business.

444
00:26:26,560 --> 00:26:29,560
Speaker 1: It always has been. He caught the sweet spot to

445
00:26:29,760 --> 00:26:33,920
Speaker 1: his and his shareholders benefit and to the short sellers detriment.

446
00:26:34,640 --> 00:26:37,400
Speaker 1: But now he's got to maintain it. And I think

447
00:26:37,480 --> 00:26:42,840
Speaker 1: that's increasingly difficult because his investors are still looking for

448
00:26:42,840 --> 00:26:48,640
Speaker 1: forty growth for the next you know, decade, and that

449
00:26:48,680 --> 00:26:50,520
Speaker 1: means that pretty much he's going to be the entire

450
00:26:50,560 --> 00:26:53,440
Speaker 1: car industry, you know, by by the early twenty thirties.

451
00:26:53,840 --> 00:26:55,800
Speaker 1: And we just don't think that's going to happen. Are

452
00:26:55,840 --> 00:26:59,240
Speaker 1: you short Tesla right now? We are because I wasn't

453
00:26:59,240 --> 00:27:03,840
Speaker 1: sure because I where you're so obviously the stock has

454
00:27:03,880 --> 00:27:06,199
Speaker 1: come down a lot has gotten hammered over the for

455
00:27:06,240 --> 00:27:08,800
Speaker 1: a while now. But you're just even at the current

456
00:27:08,880 --> 00:27:12,239
Speaker 1: levels unsustainable. Yeah, And I would be remissed if I

457
00:27:12,280 --> 00:27:15,240
Speaker 1: didn't point out that people have now lost more money

458
00:27:15,280 --> 00:27:18,000
Speaker 1: in Tesla than they've made. It's like crypto, I believe.

459
00:27:18,200 --> 00:27:21,560
Speaker 1: Think about that, Yeah, yeah, exactly. And when do you

460
00:27:21,560 --> 00:27:27,920
Speaker 1: think about Twitter? Does that distract from Musk's role at Tesla? Well,

461
00:27:27,920 --> 00:27:31,119
Speaker 1: remember he's also the CEO of a couple of other companies,

462
00:27:31,520 --> 00:27:37,399
Speaker 1: not just Twitter and Tesla. So you know, it's I

463
00:27:37,480 --> 00:27:40,320
Speaker 1: don't understand the value age, I don't understand the price

464
00:27:40,359 --> 00:27:44,520
Speaker 1: he paid, um and and it's to do with what

465
00:27:44,560 --> 00:27:48,960
Speaker 1: he wants. And I believe in private property and free enterprise,

466
00:27:49,000 --> 00:27:51,600
Speaker 1: and you know, I'm kind of scratching my head at

467
00:27:51,640 --> 00:27:55,439
Speaker 1: some of the initiatives, But um, we'll see how it

468
00:27:55,480 --> 00:27:59,480
Speaker 1: plays out. I don't think it was worth four billion dollars.

469
00:28:00,040 --> 00:28:02,520
Speaker 1: I think he thinks it probably wasn't worth forty four

470
00:28:02,520 --> 00:28:05,400
Speaker 1: billion dollars, And it'll be interesting to see how how

471
00:28:05,440 --> 00:28:08,720
Speaker 1: that plays out. But I think it's probably gonna take

472
00:28:08,760 --> 00:28:12,040
Speaker 1: a disproportionate amount of his attention over the near term.

473
00:28:12,080 --> 00:28:14,080
Speaker 1: So we just have about a minute and a half.

474
00:28:14,200 --> 00:28:17,119
Speaker 1: So just like really simple, you know, like when you've

475
00:28:17,240 --> 00:28:20,919
Speaker 1: seen the end sides of many bubbles in your career,

476
00:28:21,320 --> 00:28:23,880
Speaker 1: does it look like we're close to the bottom here?

477
00:28:24,080 --> 00:28:26,639
Speaker 1: And also what do you what would be the signs

478
00:28:26,680 --> 00:28:29,000
Speaker 1: that we are close to something that you would call

479
00:28:29,040 --> 00:28:34,520
Speaker 1: a bottom. Again, market timing is not my forte but um,

480
00:28:34,560 --> 00:28:37,040
Speaker 1: if it was a bottom, it would be the most

481
00:28:37,080 --> 00:28:41,800
Speaker 1: expensive bottom probably in modern financial history. I mean, most

482
00:28:41,840 --> 00:28:46,480
Speaker 1: bear market bottoms have basically bottomed out somewhere between nine

483
00:28:46,520 --> 00:28:52,480
Speaker 1: and fifteen times the previous peaks of earnings. And because

484
00:28:52,720 --> 00:28:54,840
Speaker 1: normally the earnings are depressed at the bottom of a

485
00:28:54,840 --> 00:28:59,720
Speaker 1: bear market. But but if we think that roughly, you know,

486
00:28:59,760 --> 00:29:02,320
Speaker 1: earn things are peaking right now, and they may or

487
00:29:02,360 --> 00:29:05,040
Speaker 1: may not be, but my guess is they're pretty close

488
00:29:05,640 --> 00:29:11,280
Speaker 1: nine to fifteen times would be eighteen hundred two three

489
00:29:11,320 --> 00:29:14,600
Speaker 1: thousand thirty one on the SMP. We're a long way

490
00:29:14,640 --> 00:29:18,880
Speaker 1: away from that, so, you know, I saw it for

491
00:29:18,920 --> 00:29:21,920
Speaker 1: the first time. Facts that was saying that SNP earning

492
00:29:22,040 --> 00:29:24,760
Speaker 1: estimates are coming down for the fourth quarter, are gonna

493
00:29:24,760 --> 00:29:27,280
Speaker 1: be down you over year, So we might be at

494
00:29:27,280 --> 00:29:30,720
Speaker 1: peak earnings right now of two hundred and five or

495
00:29:30,760 --> 00:29:33,600
Speaker 1: two d ten dollars. You know, we were where were

496
00:29:33,600 --> 00:29:36,600
Speaker 1: we the other day? So we were at nineteen and

497
00:29:36,600 --> 00:29:40,440
Speaker 1: a half times that number. That's a pretty rich number

498
00:29:40,480 --> 00:29:44,160
Speaker 1: to be a stock market bottom. All right, Well, Jim Chanos,

499
00:29:44,200 --> 00:29:46,360
Speaker 1: it was lovely seeing you again. We look forward to

500
00:29:46,400 --> 00:29:49,200
Speaker 1: maybe catching up with you in like another four months

501
00:29:49,200 --> 00:29:51,320
Speaker 1: and we'll just ask you we'll just say you were

502
00:29:51,360 --> 00:30:06,680
Speaker 1: right again. Thanks guys, I appreciate that. Well, that was

503
00:30:06,800 --> 00:30:10,520
Speaker 1: our conversation with Jim Chainos at the Berkeley Forum on

504
00:30:10,680 --> 00:30:15,959
Speaker 1: Corporate Governance. Tracy, it's always a pleasure to talk to Jim,

505
00:30:16,000 --> 00:30:18,440
Speaker 1: of course, you know, I thought it was actually interesting.

506
00:30:18,680 --> 00:30:21,719
Speaker 1: Obviously we're in this sort of like fraud exposure cycle,

507
00:30:22,000 --> 00:30:25,520
Speaker 1: but the other sort of pro cyclical element besides discovering

508
00:30:25,560 --> 00:30:28,320
Speaker 1: all this bad activity, it's just what we see about

509
00:30:28,360 --> 00:30:31,400
Speaker 1: financing and what he talked about with share based compensation

510
00:30:31,440 --> 00:30:34,240
Speaker 1: and this sort of compensation structure coming home to roost, right,

511
00:30:34,280 --> 00:30:37,360
Speaker 1: and also the idea that those sorts of share based

512
00:30:37,400 --> 00:30:40,959
Speaker 1: compensation schemes can be an amplifying force for stock prices

513
00:30:41,000 --> 00:30:43,480
Speaker 1: on the way up but also on the way down, right,

514
00:30:43,480 --> 00:30:45,760
Speaker 1: Because you know, when when it comes to uh, you know,

515
00:30:45,880 --> 00:30:49,080
Speaker 1: Silicon Valley, you know, and we think about leverage, we

516
00:30:49,080 --> 00:30:51,800
Speaker 1: we sometimes don't think of tech companies in that because

517
00:30:51,800 --> 00:30:54,400
Speaker 1: they don't have any debt per se. But when you

518
00:30:54,440 --> 00:30:58,000
Speaker 1: think about like how crucial share based compensation was, and

519
00:30:58,040 --> 00:31:00,320
Speaker 1: if you think about it in terms of almost rowing

520
00:31:00,400 --> 00:31:04,400
Speaker 1: from your own investors in order to pay employees and

521
00:31:04,440 --> 00:31:06,520
Speaker 1: so forth so that they'll keep working at the salaries

522
00:31:06,600 --> 00:31:09,720
Speaker 1: it expects, it really is like a form of financial leverage.

523
00:31:09,920 --> 00:31:13,160
Speaker 1: It's just not a credit leverage. Share based capital is

524
00:31:13,200 --> 00:31:17,320
Speaker 1: the lower tier two capital of Silicon valid I like this.

525
00:31:17,400 --> 00:31:22,480
Speaker 1: That's good. That's good. That's yeah. Shall we leave it there.

526
00:31:22,560 --> 00:31:25,280
Speaker 1: Let's leave it there. Okay. This has been another episode

527
00:31:25,320 --> 00:31:27,800
Speaker 1: of the Odd Thoughts podcast. I'm Tracy Alloway. You can

528
00:31:27,800 --> 00:31:30,560
Speaker 1: follow me on Twitter at Tracy Alloway, and I'm Joe

529
00:31:30,560 --> 00:31:32,920
Speaker 1: Wi isn't, though. You can follow me on Twitter at

530
00:31:32,960 --> 00:31:36,160
Speaker 1: the Stalwart, follow our guest Jim Chanos He's at Wall

531
00:31:36,200 --> 00:31:40,440
Speaker 1: Street Cynic, follow our producers Carmen Rodriguez at Carmen Armand

532
00:31:40,480 --> 00:31:43,640
Speaker 1: and Dashel Bennett at Dashbot, and check out all of

533
00:31:43,640 --> 00:31:47,800
Speaker 1: our podcasts under the handle at Podcasts and I wanted

534
00:31:47,840 --> 00:31:49,840
Speaker 1: to let you know about a special event that we're

535
00:31:49,880 --> 00:31:54,000
Speaker 1: holding for listeners. My co host Tracy Alloway and I

536
00:31:54,000 --> 00:31:57,400
Speaker 1: will be speaking with past guest Josh Younger, as well

537
00:31:57,440 --> 00:32:01,680
Speaker 1: as Columbia law professor levmanand in a special live episode

538
00:32:01,800 --> 00:32:05,400
Speaker 1: of The Odd Lots podcast on November nine. We're gonna

539
00:32:05,440 --> 00:32:08,959
Speaker 1: be holding it at Bloomberg h Q, and you're welcome

540
00:32:09,040 --> 00:32:13,240
Speaker 1: to come mingo join. We're gonna have cocktails, canapas and

541
00:32:13,360 --> 00:32:16,360
Speaker 1: other stuff on that day along with the live recording.

542
00:32:16,680 --> 00:32:19,840
Speaker 1: So if you're interested in attending a live episode of

543
00:32:19,880 --> 00:32:22,560
Speaker 1: the Odd Lows podcast as well as meeting me and Tracy,

544
00:32:22,640 --> 00:32:24,720
Speaker 1: as well as meeting our guests, and as well as

545
00:32:24,760 --> 00:32:28,360
Speaker 1: meeting other Odd Lots listeners, go find the rs VP.

546
00:32:28,600 --> 00:32:31,120
Speaker 1: Both Tracy and I have tweeted about it. It's also

547
00:32:31,160 --> 00:32:34,560
Speaker 1: on Bloomberg dot com. Slash odd lots. Sign up and

548
00:32:34,680 --> 00:32:36,640
Speaker 1: join us in New York City at bloomberg Age Q

549
00:32:36,920 --> 00:32:38,080
Speaker 1: on November twenty nine,