Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Allaway and I'm Joe. Wise, isn't all Joe.
Speaker 1: I feel like it's been a pretty bumper year for
Speaker 1: financial frauds and scandal, And maybe bumper year isn't the
Speaker 1: right way to put it, but I feel like a
Speaker 1: bunch of them have sort of been coming to light
Speaker 1: over the past twelve months or so. Yeah, it's kind
Speaker 1: of a weird time because the stock stock indusseries as
Speaker 1: right now, they're all basically right at all time highs.
Speaker 1: But we've handled a lot of I don't know if
Speaker 1: like they're like per se frauds, but things going badly
Speaker 1: blow ups, companies collapsing, hedge funds losing a ton of money.
Speaker 1: It's kind of been a slightly weird time because things
Speaker 1: that you don't necessary certily expect at the top, or
Speaker 1: maybe you do. Basically a lot of things going south
Speaker 1: generally speaking. Yeah, I mean normally it's like that Warren
Speaker 1: Buffett quote where when the tide goes out, that's when
Speaker 1: you see people swimming naked. But the tide, by no means,
Speaker 1: has been going out lately. As you mentioned, we have
Speaker 1: stocks pretty close to all time highs, we have ample liquidity.
Speaker 1: It's a weird time for stresses in the financial system
Speaker 1: like this to be coming to light. And yet we've
Speaker 1: had quite a few. So most recently we had our
Speaker 1: Chagos losing billions of dollars. Before that, we had Green
Speaker 1: Sill blowing up, and then earlier we of course had
Speaker 1: wire card as well. So, um, you know the rule
Speaker 1: of three, we have three things happening. So we're going
Speaker 1: to talk about that today with really a fraud or
Speaker 1: scandal spotting extraordinaire. Yeah, I'm super excited about this. You know,
Speaker 1: it's kind of like, you know, the food thing is,
Speaker 1: we do seem to be like at the verge of
Speaker 1: what like people think are like people are feeling optimistic,
Speaker 1: Like growth expectations in the United States are like running
Speaker 1: sky high. Like people aren't negative. But what does seem
Speaker 1: to be clear is that, like after this incredible bill
Speaker 1: run and whether you want to define it by the
Speaker 1: last year or the last several years, there's just a
Speaker 1: lot of like sloppy behavior that's sort of coming up
Speaker 1: to the surface right now. Yeah, and so yes, I'm
Speaker 1: very excited about this conversation. Yeah, Well, as I mentioned
Speaker 1: we have a sloppy behavior expert coming on, so um,
Speaker 1: we're gonna be talking to John Hampton. He's the co
Speaker 1: founder and chief investment officer over at Bronte Capital Management.
Speaker 1: Also a previous Odd Thoughts guest, and a man who
Speaker 1: was also early on a bunch of things. Um, but
Speaker 1: top of mind is probably wire Card, Valiant and Gosh,
Speaker 1: I remember Pontenegro way back in two thousand nine. That
Speaker 1: was an interesting one. So um, John, welcome to the show.
Speaker 1: Thanks so much for coming back on. Glad to be here.
Speaker 1: I was going to correct Tracy's Warren Buffett quote. Warrant
Speaker 1: said it's only when the tide goes out that you
Speaker 1: see swimming naked, and it was wrong. The tide isn't
Speaker 1: out at all. I mean, market all time highs and
Speaker 1: we're already seeing people that are swimming naked. It's kind
Speaker 1: of a bizarre market. As a sort of very big picture,
Speaker 1: It's been an expensive ball market for a long time,
Speaker 1: but the period from sort of the middle of November
Speaker 1: to the middle of February was a bizarre retail media
Speaker 1: where the most retailed stocks possible tech stocks that have
Speaker 1: no technology, just flat frauds, penny stocks, etcetera, or went vertical.
Speaker 1: We discovered in the middle of that that some very
Speaker 1: big money was also playing in them. So Archigos ber
Speaker 1: Sex is a company that several people have alleged the fraud.
Speaker 1: I've not done the work myself, but the arguments put
Speaker 1: out by both US and Block at Muddy Waters and
Speaker 1: A Stevenson Yang and J Capital alleging that g X
Speaker 1: is a fraud looked very, very convincing to me. And
Speaker 1: despite that, the stock sort of doubled immediately. The good
Speaker 1: shortcase came out and we now know that there was
Speaker 1: retail money, just retail money on a different scale and
Speaker 1: a different style at Archiegoss chasing that up. That pressure
Speaker 1: has eased off lately, we're starting to see the nonsense
Speaker 1: stocks falling and often quite falling quite far. And if
Speaker 1: you don't look at the red chatboards now, you see
Speaker 1: that they're full of other warr and Buffett quotes, g
Speaker 1: quotes about buying when there's blood in the streets. And
Speaker 1: it's almost comical at the moment that retail investors could
Speaker 1: be talking about blood in the streets at exactly at
Speaker 1: the same time as the market is literally hitting new
Speaker 1: eyes on a daily basis. Well, that change has changed
Speaker 1: my life because I short nonsense stocks, and shorting nonsense
Speaker 1: stocks gave me the worst three or four months of
Speaker 1: my career in the Leader over the Christmas period, and
Speaker 1: it has suddenly become exceedingly nice. We're making money on
Speaker 1: both sidebook at the moment, we're making money on loans
Speaker 1: because we're long udernary stocks in the markets making new eyes,
Speaker 1: and we're making money on shorts that the nonsense stocks
Speaker 1: are deep lading. And I don't know how long this
Speaker 1: will last, but it's extremely pleasant having been extremely unpleasant.
Speaker 1: We should also talk about our friends at Greenfel, and
Speaker 1: I don't want to link Greenfill and Archer got other
Speaker 1: than to say that the symptoms of the extremely difficult market.
Speaker 1: But I've heard lots of Donson said about green Sill,
Speaker 1: so I might start here right. What would you say then,
Speaker 1: is that when you say started green Cell, what is
Speaker 1: what is your your big picture thought on them? The
Speaker 1: big picture thought is that old stuff is new again.
Speaker 1: But without even realizing what is what is radical and
Speaker 1: what is new here. Trade finance has been in the
Speaker 1: nineteenth century was an enormous business and being in Australian.
Speaker 1: I'll talk about it parochially. You, as a wool farmer
Speaker 1: in Australia or for that matter, of cotton farmer in America,
Speaker 1: would be selling your stuff to the looms in the UK,
Speaker 1: where industrialization meant that they just had last loom fabric factories.
Speaker 1: And for an Australian selling well to the UK, it
Speaker 1: was six months to deliberate and another sort of six
Speaker 1: months before you've got the message back that it was delivered,
Speaker 1: and the farmer couldn't wait a year to get paid.
Speaker 1: In fact, it's completely unreasonable to expect them to wait
Speaker 1: a year to get paid. If you were a American
Speaker 1: cotton farmer, was less way less than a year, but
Speaker 1: it was still an unreasonable amount of time. And so
Speaker 1: what you would have is these multinational banks that would effectively,
Speaker 1: by either cotton in America or the will in Australia,
Speaker 1: you finance the purchase of it, finance delivery and it
Speaker 1: would all be settled up over time. And there were
Speaker 1: three great trade finance banks around the world, and they
Speaker 1: all came actually unsurprisingly with the British Empire, two of
Speaker 1: whose names you will know to this day, and one
Speaker 1: of the who's name has been consigned to history. The
Speaker 1: two that you'll knows to this day of Hong Kong
Speaker 1: and Shanghai Bank and Standard Charted, and they're both big
Speaker 1: Asian banks, with HSBC being a big global bank headquartered
Speaker 1: in London, and the idea of the bank whose name
Speaker 1: is Hong Kong and Shanghai Banks would be headquartered in London.
Speaker 1: There's its origins to the fact there was a giant
Speaker 1: trade finance bank. The one that you won't know was
Speaker 1: a bank called English Scottish and Australian and English, Scottish
Speaker 1: and Australian would have once been mentioned in the same
Speaker 1: breath as HSBC or Standard Charted and up until ninety
Speaker 1: two it was headquartered in London as well. In two
Speaker 1: or three, I don't remember the year it moved its
Speaker 1: headquarters from London to Australia, renamed itself A and Z
Speaker 1: Bank and is now one of the big four Australian banks.
Speaker 1: It also sold its operations in the Middle East in India,
Speaker 1: so it used to own a giant in the Middle
Speaker 1: East in India called Greenlands. But when I worked for
Speaker 1: aand DEAD Bank, and this was in the late nineties
Speaker 1: and Z banks still had the residual the giant trade
Speaker 1: finance operation, and ZAID Bank alone amongst the Australian banks
Speaker 1: had branches in over two hundred countries, which is pretty
Speaker 1: well every country in the world. And that sort of
Speaker 1: thing was the residual of a trade finance operation. Now,
Speaker 1: with modern communications and but delivery at trade finance has
Speaker 1: gone from being a very very big and very important
Speaker 1: business to a small business. And the idea that a
Speaker 1: SBC was at ore A and z was at a
Speaker 1: car to trade finance business now looks a little bit absurd,
Speaker 1: but that's what it once was, and now a typical
Speaker 1: thing that might be involved in trade finances. I know
Speaker 1: a guy who strips down cars for recycling. He has
Speaker 1: a huge car yard at the outer part of Sydney
Speaker 1: and one of the businesses is stripping down alternators, which
Speaker 1: are a sort of electric spinning parts of the car,
Speaker 1: and they contain about a kilo of copper, maybe a
Speaker 1: kilo and a half, which is I guess five dollars
Speaker 1: US worth of copper that somebody has to unwind it.
Speaker 1: And the process is that the alternators get stripped down.
Speaker 1: In Australia then shifts to a low wage country in
Speaker 1: this case, probably Indonesia, but if it's the United States,
Speaker 1: almost certainly Mexico. The things have disassembled, some are reconditioned,
Speaker 1: some are just stripped down to their copper, and then
Speaker 1: the copper is sent to smelters pro probably in a
Speaker 1: country that has historically been tolerant of pollution, but these
Speaker 1: days mostly China, and the process is shipping millions and
Speaker 1: millions of dollars of copper around the world. Because the
Speaker 1: people in the low wage countries can't afford to finance
Speaker 1: those millions of dollars of copper. There's almost variably a
Speaker 1: trade finance company in there. And the typical sort of
Speaker 1: risk that you might be taking is the ultimately the
Speaker 1: recycled bits of metal are going to be sent to
Speaker 1: say thirty or forty different recycling yards in China, and
Speaker 1: those recycling yards you've got a credit risk against them,
Speaker 1: and you know the two ways of solving that that
Speaker 1: they buy the copper upfront, or it's some kind of
Speaker 1: cash on delivery system, and the alternative way of financing
Speaker 1: it is that you have some kind of experts in
Speaker 1: trade finance who knows that those Chinese that's are good
Speaker 1: for it. And the idea that you have some experts
Speaker 1: that knows which hundred and fifty Chinese recycling, Yeah, it's
Speaker 1: are good for the money in the West is a
Speaker 1: pretty difficult idea. And I'm not an expert in broad
Speaker 1: detection in China, but I would have no way of
Speaker 1: credit prossessing a hundred and fifty copy yards. Now there
Speaker 1: are businesses ensuring this, and the classic business insuring this
Speaker 1: is a French business could Boiler Hermes and I was
Speaker 1: talking to a Frenchman who pronounced it Euler, so I'll
Speaker 1: have to go with Youula. But Uler does sort of
Speaker 1: trade finance ensure the insurance, and it's a pretty reputable
Speaker 1: player and it's been around for a very long time,
Speaker 1: but it's not an enormous business. And then along comes
Speaker 1: other insurance companies wanting to get in on the act.
Speaker 1: And I'm thinking of my local one Insurance Australia group
Speaker 1: who did a joint venture with Tokio with a tide
Speaker 1: broker in Australia. At they are ensuring this sort of stuff.
Speaker 1: And the first time I actually came across them was
Speaker 1: when they were ensuring a whole of copy yards in
Speaker 1: China and they devolved simultaneously. So what what what was
Speaker 1: really going on was that copper was being sold, and
Speaker 1: it was metal recycling copper sort of alternative stuff being
Speaker 1: sold to recycling companies in China who were taking delivery
Speaker 1: and paying a little later. And it might have been
Speaker 1: fifty million dollars of copper in a shipment, and suddenly
Speaker 1: these guys ordered sort of three million and they're at
Speaker 1: thirty of them. And I'm surprised if the scandal has
Speaker 1: some sort of hit. But it's one of the bits
Speaker 1: that sits inside this insurance chain on trade finance. Now
Speaker 1: that insurance trade on trade finance included i AG, it
Speaker 1: included Tokeyo and Marine is also included the Australian, the Australian,
Speaker 1: but London based UM Greenfield. And the kindest way you
Speaker 1: can say this is that they walked into a shrinking
Speaker 1: business and they grew it like crazy where all the
Speaker 1: counterparties are obscure. Now I'm an old sort of guy,
Speaker 1: and the most scary thing in the world to invest
Speaker 1: in is a fast growing financial because anybody can grow
Speaker 1: a financial fast by just taking more risks. You want
Speaker 1: to grow a sub fright financial fast, you just stand
Speaker 1: up on the New York subway and say, does anyone
Speaker 1: want to borrow a thousand dollars and waigh the money.
Speaker 1: You have a very large loan book. Very fast, it
Speaker 1: won't be very good, right, And essentially the kindest version
Speaker 1: of this is this with the trade finance version of
Speaker 1: the same. Now, at some point it went from being
Speaker 1: the trade finance version of that to an unindoctorated pondsy
Speaker 1: and I don't know what that point was. But if
Speaker 1: you're a financial institution that has lost a lot of money,
Speaker 1: there are two parts. One is to admit it and
Speaker 1: the other one which has put the foot flap to
Speaker 1: the floorboards and hope to grow backfast. And somewhere along
Speaker 1: the line, Green Sill became that. And then there were
Speaker 1: a bunch of people who needed money. And one of
Speaker 1: the interesting things in this world is that the people
Speaker 1: who really really really need money have the net of
Speaker 1: finding the people who really really really need to lend it. Right.
Speaker 1: So you know, if I were sitting down, if I
Speaker 1: were sitting on the New York subway waving around, anyone
Speaker 1: want to borrow a thousand dollars? I get a fair
Speaker 1: few takers the first day, but by the fifth day,
Speaker 1: what would be happening would be everybody who is a
Speaker 1: completely desperate degenerate at my doorstep, right. And so somewhere
Speaker 1: along the lines they went into they got to that
Speaker 1: point and attracted the most degenerate gambler in the market.
Speaker 1: And the most degenerate gambler in the market has blown up. Yes,
Speaker 1: its name is soft Bank. John, Can I just press
Speaker 1: you on one thing about soft Bank because I wanted
Speaker 1: to ask you about this. So soft Bank's vision fund
Speaker 1: invested in green Cell. And when you look at something
Speaker 1: like green Cell, you know it's basically trade finance or
Speaker 1: cash advance. It doesn't strike me as a company with
Speaker 1: a particularly strong technology angle or pitch, Like, what exactly
Speaker 1: do you think the attraction was there? Entirely honest, It
Speaker 1: had no technology pitch, but it told everybody had had
Speaker 1: a technology which, right, which is a good way of
Speaker 1: raising money. Um, so specialty financed with like a tech valuation? Yes, yeah,
Speaker 1: The way to get valuation for a bullshit insurer in
Speaker 1: the US is to call it thinking. Right. There are
Speaker 1: several fin techs bacts which are just completely bad bullshit
Speaker 1: traditional insurers, but they are the most highly valued insurance
Speaker 1: companies in the world. The way that you get a
Speaker 1: high valuation for a junkie lender is to call it tech.
Speaker 1: But that that would be the kind interpretation for soft banks,
Speaker 1: but not kind interpretation for soft bank was that that
Speaker 1: capital that was invested by soft bank in Greenfield leave
Speaker 1: it up and then was invested by green sill in
Speaker 1: soft bank entity. So there's a company for Viewing being
Speaker 1: an example. And Viewing is a legitimates attempt at electro
Speaker 1: chromatic pimmable windows. You have a skyscraper where when you
Speaker 1: need a lot of heathen you you have we dont
Speaker 1: being completely transparent, and when you don't need a lot
Speaker 1: of heat in you make the windows quite dark because
Speaker 1: the sun is shining on them. And we see that
Speaker 1: with with chromatic glasses that you can do it much
Speaker 1: much better if you make the windows in some sense
Speaker 1: electro chromatic. There's a legitimate s g idea. But Viewing
Speaker 1: was a soft bank company of the good reason I
Speaker 1: suspect there was a legitimate tech idea, and to be
Speaker 1: mild with a disaster. And if you go look at
Speaker 1: glass door on Viewing and you go through the reviews
Speaker 1: on Viewing in two thousand and eighteen. The reviews are
Speaker 1: along the lines of, well, you know, on the plus side,
Speaker 1: there's a lot of room in the cart. And Viewing
Speaker 1: was absolutely a death store. It's cumulative revenue fifteen million stumulants,
Speaker 1: spending hundreds and hundreds and it just didn't seem to
Speaker 1: get traction. I don't know whether it didn't get traction
Speaker 1: because the product doesn't work, or the product was badly
Speaker 1: marketed the genuine or that the cost structures just didn't work.
Speaker 1: I have no idea, right, but this thing was absolutely
Speaker 1: clearly on the way out past and then Greenfield lenter
Speaker 1: four hundred million dollars and called it trade finance. Now,
Speaker 1: it can't be trade finance because Viewing hasn't sold anything,
Speaker 1: so it's receivables to factor. It's just an unsecured lines
Speaker 1: to a soft banking entity about four millions, which doesn't
Speaker 1: make any sense. Now, in this case, there's a good
Speaker 1: chance that soft baker might get the money back because
Speaker 1: Viewing Viewing looks like it might be a bit better
Speaker 1: now and it might get specked. But to pretend that
Speaker 1: this was trade finance at the end, and that they
Speaker 1: were provided and softmak must have known that this was
Speaker 1: not technologically driven trade finances. They were lending the softmare
Speaker 1: controlled entities. At the end, this was just a ponzi
Speaker 1: that was taking money from any books end with whether
Speaker 1: that anybody included somethingly or unknowingly, some bank would clearly
Speaker 1: a beneficiary. So your contention is that you know what,
Speaker 1: what was ostensibly some form of trade factoring just sorry,
Speaker 1: trade finance just became sort of completely reckless lending to anyone. Well,
Speaker 1: what did you like? This was Greenstell was a private company,
Speaker 1: so what. But but you were early on along with
Speaker 1: others and sort of I don't know, blowing the whistle
Speaker 1: is the right term, but sort of calling out their practices.
Speaker 1: What were the hints from the outside early on that
Speaker 1: something was a mess. In this case, the idea that
Speaker 1: trade finance could be ten x is because it used
Speaker 1: to be. It is just an idea that flies in
Speaker 1: the face of history. There's a very very good reason
Speaker 1: why trade finances are shrinking business on d and fifty
Speaker 1: year basis right, and the very very good reason is
Speaker 1: better communications, better finance, and better transport. Right, all of
Speaker 1: those and the bits that are left are the bits
Speaker 1: that are by definition a little risky. Financing stuff sold
Speaker 1: to retailers is risky. We know that because retailers default.
Speaker 1: And if you look at oilers oilers results, oilers results
Speaker 1: go up and down with retell, right, But the other things,
Speaker 1: this whole sort of mental commodities change chain, where you're
Speaker 1: financing to an unidentifiable company in China. The idea that
Speaker 1: this could be a ten times bigger business was sort
Speaker 1: of an asthma. I have to say that I'm completely
Speaker 1: reliant here on. I became very reliant here on certain journalists,
Speaker 1: the ft journalists, Twitter Handles, Bonde, Robert Smith, and more
Speaker 1: importantly the Austry journalist, journalist Duncan Mayven and Don't even
Speaker 1: sent me some questions about Insurance Australia Group, and I
Speaker 1: put two and two together and realized that Insurance Australia
Speaker 1: Group might be ensuring vast amounts of stuff on which
Speaker 1: it was likely to default. And I sent a quick
Speaker 1: about a page and a half letter to the local regulators.
Speaker 1: And in this case, the local regulator is somebody who
Speaker 1: used to sit five chairs away from me in the
Speaker 1: Federal Treasury when I was a very junior employee in
Speaker 1: the Federal treasure and he's now the sort of head
Speaker 1: insurance regulator in Australia. So we sort of knew each other,
Speaker 1: and I always I put an editor adversion letter on
Speaker 1: my block. But to say that I called the whisk
Speaker 1: and learn any real sense overstates my role. The real
Speaker 1: the real whistle calls here were Duncan Duncan Maven Robert Smith,
Speaker 1: who were both who were both fantastic journalists and certainly
Speaker 1: worth subscribing to their papers for I looked at it
Speaker 1: and knew they were right. And I knew they were
Speaker 1: right because the idea of a very fast trade by trade,
Speaker 1: fast growing trade finance company just didn't make any logical sense. Now,
Speaker 1: the second one of these blow ups, um I didn't
Speaker 1: mention Credit Swiss here, but Duncan Maven had certainly asked
Speaker 1: several questions of Credit Swiss because Credit Swiss had this
Speaker 1: fund that was buying all the green silk paper, and
Speaker 1: it was selling the green silk paper to its clients
Speaker 1: on the basis that it was double A rated and
Speaker 1: insured and either it is insured or it's not and
Speaker 1: it is ensure it. Then Insurance Australia Group and Copy
Speaker 1: of Marine in some order are going to take billions
Speaker 1: of dollars of losses, and if it's not ensured, then
Speaker 1: at first glance, the clients that swiss are going to
Speaker 1: take billions of dollars at losses. But we know from
Speaker 1: the last cycle that if you miss self wrapped clients,
Speaker 1: just straight out miss sell, then those losses will slip
Speaker 1: back to you and you can pull out any of
Speaker 1: the marketing documents to this fun It was absolutely clear
Speaker 1: it was pitched to the investors as double A rated
Speaker 1: insure it and as far as I can tell, there
Speaker 1: was no due diligence done by credits with around those statements.
Speaker 1: And it's absolutely clear to me the credits with if
Speaker 1: it can't collect from the insurers, is going having to
Speaker 1: pay the clients out there at the moment saying well
Speaker 1: that the problems our clients problem, which is, you know,
Speaker 1: a pretty self destructive thing to do, because you know,
Speaker 1: if your credits with your pitch to the world is
Speaker 1: that you know, we're a good home to say high
Speaker 1: networth people too have as the sort of generalized financial advisor,
Speaker 1: and then when the ship hits the band, okay, high
Speaker 1: networth people were going to screw you. You know, Screwing
Speaker 1: your clients is not a good business model anyway, and
Speaker 1: that's probably enough to think that credits With his long
Speaker 1: term structurally challenged. But they must know that those losses
Speaker 1: are going to wind up with them. The second part
Speaker 1: of that is, you know, there's never only one cop roach,
Speaker 1: and we didn't know about Archie Goods. But I'm actually
Speaker 1: chasing down and I'm not going to name it, another
Speaker 1: very big European fraud where we think that Credits With
Speaker 1: is going to have ten blow tend fig at the
Speaker 1: loss is something and that bill your range and you know,
Speaker 1: this multiple pop roach they had credit Swiss is kind
Speaker 1: of amusing. I knew who built bang was because I
Speaker 1: followed him before he had blown up, because he actually
Speaker 1: owned some Chinese fluds that I was sure, and the
Speaker 1: guy was always very aggressive there. But if you had
Speaker 1: a diversified portfolio, some of which were frauds, but all
Speaker 1: of which were in China, and you did this over
Speaker 1: to since two thousand and eleven, he did all right
Speaker 1: until you know, you doubled down and then doubled down again,
Speaker 1: and then doubled down again on G S X. But
Speaker 1: when he no longer took public money the sort of
Speaker 1: strengths are taking public money, which is one of which
Speaker 1: is that's pretty hard to be certain times leader, because
Speaker 1: your planets don't trust you. Disappear and the guy turned
Speaker 1: into a revealed himself to be a complete degenerate gambler.
Speaker 1: But I knew none of that, and the complete degenerate
Speaker 1: gambler took likely diversified positions in controversial stock. Sleep at
Speaker 1: six or seven comes Now. The problem is that if
Speaker 1: you take if you buy controversial stock, can you're right,
Speaker 1: you tend to make a lot of money. But it's
Speaker 1: more than once that the crowd is going to be
Speaker 1: right about a controversial stock. And the one that allegedly
Speaker 1: did him in was Viacom. Via com at one level
Speaker 1: is just a giant global old media business, like news
Speaker 1: corps for that matter, like Disney, But it's probably a
Speaker 1: more controversial one than the others because when you look
Speaker 1: at Via Comms businesses, they scream out yesterday, right. The
Speaker 1: movie studio doesn't, but CPSTV certainly does. My son is
Speaker 1: twenty one and I haven't seen him watch Free to
Speaker 1: Wear TV at all, and the last five years he
Speaker 1: watches a lot of video, right, But it's almost all
Speaker 1: nonlinear video. The second thing that they own is MTV Kelodeon,
Speaker 1: and both of those look pretty challenged. Nickelodeon because our
Speaker 1: friends at Netflix are spending billions of dollars on children's TV.
Speaker 1: Children's TV is one of particularly young children's TV is
Speaker 1: one of the ways that you guarantee loyalty. But you know,
Speaker 1: music channels no longer seemed particularly constrained, and even their
Speaker 1: biggest part of the movie Branchise, which is I think
Speaker 1: James Bond, James Bond, feels a little bit tappy these days.
Speaker 1: You know, I kind of like a James Bond film
Speaker 1: that there's a dose sort of twenty century sexual cringe
Speaker 1: about James Bond. Right, The jokes that were acceptable in
Speaker 1: just aren't acceptable now. So that feels a little yesterday too,
Speaker 1: And so sort of when I think of yesterday, I
Speaker 1: think of via Com and buying massive stakes in what
Speaker 1: should be a declining business doesn't look particularly sensible. Yeah,
Speaker 1: just to jump in for a second, I mean, one
Speaker 1: of the things that's actually really struck me is that
Speaker 1: if you look at viacom chart, you obviously have the
Speaker 1: big you're raised during the blow up, but it hasn't
Speaker 1: bound back at all. In fact, it's it's it's sold
Speaker 1: off further, even after everybody is sort of aware of
Speaker 1: the block trades. But before we go on further, I
Speaker 1: just want to ask to be clear, just for listeners.
Speaker 1: I think you said you're are you short credit swis
Speaker 1: or were you or are you still? I am a
Speaker 1: short credit Swiss but I was short credit Swissing fairly
Speaker 1: big quantity in the past, and I'm now short credit
Speaker 1: Swissing very small quantity. So you can probably think of
Speaker 1: me as a credit buyer. But bye bye to Kama.
Speaker 1: Now even then you say Viacom, Viacom year to date
Speaker 1: it's flat, right, Well, it's actually up. If I go
Speaker 1: back to one January it was thirty six dollars sixty
Speaker 1: it's currently right. The idea that you can you can
Speaker 1: blow yourself up buying a stock that is flat year
Speaker 1: to date on leverage is pretty astonishing. And the only
Speaker 1: reason this was possible as that went from thirty six
Speaker 1: to nine via the princely sum of about a hundred.
Speaker 1: So he must have every time it went up, he
Speaker 1: must have bought more. Now there's an old scam in
Speaker 1: funds management, which is to buy a bunch of their
Speaker 1: liquid stocks and walk them up by more of them,
Speaker 1: and your performance is great. And so because your performance
Speaker 1: is great, you buy more, and then you buy more
Speaker 1: and they walk up a bit further and you're suddenly
Speaker 1: the best performed manager in the world. And retail investors
Speaker 1: are often not very sophisticated. Some money flows in and
Speaker 1: eventually you're as a giant bag holder full of illiquid stocks.
Speaker 1: And and that can be done elier, it can be
Speaker 1: done accidentally by a deluded fund manager. And if I
Speaker 1: think of the accidentally by a deluded fund manager, I
Speaker 1: probably think of the great Woodford scandal in the UK,
Speaker 1: where a lot of what was happening was there. And
Speaker 1: if I actually think accidentally by a deluded fund manager,
Speaker 1: I would think that ar Genetics Fund was an awful
Speaker 1: lot like that to me, right, But the idea that
Speaker 1: somebody that comes out of the Tiger Complex, you know
Speaker 1: it was a protege of Julian Robertson, was you know,
Speaker 1: this guy had he degree and he was doing the
Speaker 1: scale that he was deluding himself on Viacom is a
Speaker 1: pretty astonishing thing. It didn't surprise me that the lender
Speaker 1: that lost the money here was Credit Swiss, but I
Speaker 1: didn't know about it in advance. And part of the
Speaker 1: reason why I am a cover of Credit Swist is
Speaker 1: that when you get lucky, and I did get lucky here,
Speaker 1: you've got to take some off the table. Now. We
Speaker 1: got lucky because we didn't know that GOS was going
Speaker 1: to happen. But we didn't know that. We looked in
Speaker 1: several places and we found ship needed credits with and
Speaker 1: if we can find it crunches, there are probably a
Speaker 1: few more. So, just going back to the start of
Speaker 1: this conversation, what is it about the current environment? We
Speaker 1: were talking about it earlier. You know, you have stocks
Speaker 1: at very high valuations, you have ample liquidity, the economy
Speaker 1: is recovering. By most accounts, things should be going pretty
Speaker 1: well for a lot of businesses. But like, what is
Speaker 1: it in the environment that is making some of these
Speaker 1: scandals come to fruition or that's showing up these latent
Speaker 1: stresses in financial business models. I don't know. That's the
Speaker 1: short end, the long end through. If I knew what
Speaker 1: it was that turned the environment from unbridled uphoria back
Speaker 1: to slight realism, I'd be the richest catch fund manager
Speaker 1: in the world. I genuinely don't know. But while we
Speaker 1: we have been through a period of complete unbridled mania
Speaker 1: right the period November to February was complete Maine. And
Speaker 1: at the end of such a period you can expect
Speaker 1: a bunch of me We've had a ball market of
Speaker 1: pretty enormous proportions with a little two months in direct.
Speaker 1: If I look back, two thousand left stocks were objectively
Speaker 1: cheap and people were scared as there are a bit.
Speaker 1: By two thousand and fifteen, stocked ceased to being objectively
Speaker 1: cheap as you could make a case for, and then
Speaker 1: they continued going. The period over Glass Christmas was a
Speaker 1: period where the Reddit crowd took complete nonsense to the moon,
Speaker 1: and that Reddit crowd taking complete nonsense to the moon
Speaker 1: turned out not just a bit the Reddit crowd, but
Speaker 1: certain aggressive funds like Archegos who decided to play along
Speaker 1: with it. That's always seeing at the moment, in some sense,
Speaker 1: is a few little blow ups at the edge of
Speaker 1: there's going to be fifteen or twenty archegos out there.
Speaker 1: There's going to be a bunch of really stupid stuff
Speaker 1: out there that blows up, and we're going to think,
Speaker 1: how the hell were we that stupid? But to be honest,
Speaker 1: I don't think it. I mean, it's barely started, and
Speaker 1: I don't think there's any particular reason why January was
Speaker 1: so good for nonsense and March was so add the nonsense. Right,
Speaker 1: it's just what happens. I genuinely have no idea. But
Speaker 1: you think stuff like Archie goes more is coming, not
Speaker 1: necessarily that scalpers say, but more blow ups are coming. Yeah,
Speaker 1: it's not possible to have a ballmarket of the scale
Speaker 1: that we've had and not have some some people running
Speaker 1: around with no clothes. Who thinks they're they're wearing God's finery? Right,
Speaker 1: it's just the emperors are going to get exposed. I
Speaker 1: wish I knew who that all they, who they all were?
Speaker 1: I know who a few are, right, and surprising number
Speaker 1: of times when I know who the emperor wearing no
Speaker 1: closes the lended to their emperor's credits with um. There's
Speaker 1: probably a good reason why it's credit switched too. And
Speaker 1: the last time you had me on the podcast that
Speaker 1: about European banking margins and how the banking marches are terrible.
Speaker 1: But the Swiss banks have had another big problem, which
Speaker 1: is that once upon a time they had a very
Speaker 1: large competitive advantage, and the very large competitive advantage with
Speaker 1: syncresy and secrecy got taken away from them. They're almost
Speaker 1: definitionally the Swiss banks are just not just a shadow
Speaker 1: of what they used to right there is much smaller
Speaker 1: business and their core business has compressed margins too, and
Speaker 1: the Swiss establishment. They want to blame the previous CEO
Speaker 1: who clearly wasn't of the Swiss establishment, but in fact
Speaker 1: I think that's just missing the point. The real problem
Speaker 1: is that this bank is a shadow of its former self.
Speaker 1: Its revenue opportunities have disappeared, and it's a very large organization.
Speaker 1: And the very large organization financial revenue opportunities disappeared will
Speaker 1: solved for the lack of revenue by taking more risks.
Speaker 1: And that's why they wound up sidling up to an
Speaker 1: obvious Ponti artists like lex S Greenfield. Why they decided
Speaker 1: that lending money to somebody who had previously run a
Speaker 1: criminal funds management organization and lending it not on small
Speaker 1: scale but billions and billions and billions of dollars, it
Speaker 1: was worth it because they had a need. They had
Speaker 1: a need to lend just like lex S Greenfield had
Speaker 1: a need to put his foot flat to the floorboard
Speaker 1: when when his business wasn't doing very well. So you
Speaker 1: know you asked why, now, well you know why in general,
Speaker 1: which is the credits with his less of the business
Speaker 1: and so at length. And that's going to be a
Speaker 1: particular European problem and the frauds that I'm following in
Speaker 1: Germany which show not going to name has been an
Speaker 1: extremely big borrower from thanks that feel they have a
Speaker 1: neat to lend and make aspect um. I should just
Speaker 1: mention here that when we first wrote about your short
Speaker 1: position in credits, we did ask the bank for comment
Speaker 1: and they declined to do so. Um, but we'll follow
Speaker 1: up with them again. John, you also mentioned our investment
Speaker 1: very briefly. What's your take there because you were sort
Speaker 1: of talking about them in the context of this idea
Speaker 1: that you could be buying a liquid stocks and pushing
Speaker 1: the price up and sort of generating your own momentum.
Speaker 1: Is that what you think is going on with some
Speaker 1: work funds. It's most obvious with the auction if you
Speaker 1: have a look at the auction fund, A very very
Speaker 1: large number of the companies in as a reverse mergence
Speaker 1: of moderate liquidity, about eight or nine of which we
Speaker 1: would regard as natural shows. And when it started getting
Speaker 1: out closed, it started selling or reduced in the size
Speaker 1: of its position in REGENERAAL and Regenera On is a
Speaker 1: biopic of the highest quality in the world, but it's
Speaker 1: highly liquid to buy more of these companies are under pressure.
Speaker 1: And if you look at the way that the ARC
Speaker 1: Main Fund has behaved, it's done the same thing but
Speaker 1: with Tesla, but not on the same scape. So they
Speaker 1: have sold relatively good fans like Google to buy controversial
Speaker 1: names like Tesla as Tesla got weaker. Now the Genetics
Speaker 1: Fund looks to me like a mass exercise in marking
Speaker 1: the Main Fund much much lesser. Right, the Main Fund
Speaker 1: makes some sense to me. The Genetics Fund makes no
Speaker 1: sense to me. And the Genetics Stund is an area
Speaker 1: over which we have considerable expertise. And I should disclose
Speaker 1: here that we both we own end like Regenera, and
Speaker 1: we're short a few names. So it was sort of
Speaker 1: amusing to us what watching them sell Regenera On to
Speaker 1: buy the names were short. But yeah, the Genetics Fund
Speaker 1: is The Genetics Fund is a very large punt holding
Speaker 1: love to be liquid position and it's head flood. John.
Speaker 1: I'm sure Tracy is going to be really annoyed with
Speaker 1: me because I bring this up every once in a while.
Speaker 1: But you know when you you mentioned that period like
Speaker 1: kind of like from December through the middle of February
Speaker 1: where things just went absolutely ballistic, And that's when I
Speaker 1: noticed that, like the fuel cell companies we actually talked
Speaker 1: about when we talked when we had our ARC episode,
Speaker 1: they went absolutely nuts. And for me, like I remember
Speaker 1: them because those all went nuts in the late ninety
Speaker 1: and then collapsed. Do you fit like you know all
Speaker 1: the all of these like electric vehicle battery SPACs, fuel
Speaker 1: cell companies, charging companies, and so forth. Do you see
Speaker 1: much there or as as in your view as most
Speaker 1: of this joke. I'm not going to name I'm not
Speaker 1: going to name names, but we're short about a dozen
Speaker 1: different names that looked a little like that. Now, the
Speaker 1: only one I will name is Nicola, and Nicola had
Speaker 1: an extremely competent shortcase written on it, whereupon the stock doubled. Now,
Speaker 1: as of today, the stock is trading twenties below the
Speaker 1: extremely competent shortcase. But that's a sort of extreme version
Speaker 1: of the retail mania. As far as anyone can tell,
Speaker 1: Nicola has none nothing worth happening except billions of mark
Speaker 1: cap and a good bid in their stock. You were
Speaker 1: talking about the fuel cell companies that will once big,
Speaker 1: and the obvious name there is plug Power, and plug
Speaker 1: plug Power is a very hot stock in the dot
Speaker 1: com era. Here was going to be the future, and
Speaker 1: I guess you know it's still the future. Maybe it
Speaker 1: always will be right. But the thing that amazes me
Speaker 1: about plug Power is the share a count. I've just
Speaker 1: pulled up the numbers, so I'm going to read you
Speaker 1: share accounts going back to two thousand dishes, and it's
Speaker 1: a remarkable series. Four point three million, five million, five
Speaker 1: point one seven point to seven point three eight point five,
Speaker 1: eight point six, eight point seven, twelve point seven, twelve
Speaker 1: point nine point two, twenty two point seven, thirty eight
Speaker 1: point to a hundred and six point one hundred and
Speaker 1: seventies three hundred hundred and eighty one million, eight billion,
Speaker 1: three hundred and three million, four hundred billions. That share
Speaker 1: account is the sort of share account pattern that you
Speaker 1: see with a multiple reverse merger, dilusive penny stuff. It's
Speaker 1: not the sort of thing that you see in it's
Speaker 1: been a company that had relatively recently sixty billion of
Speaker 1: market cabin was raising money in billion dollars, right, So yes,
Speaker 1: you you your name is plug Power is to me astonishing.
Speaker 1: It's certainly a technology of the future that may always
Speaker 1: be one right, But it's astonishing to me that a
Speaker 1: company with six d and twenty nine employees has has
Speaker 1: both needed to and managed to raise money on that
Speaker 1: sort of escape. Just in general, what is the environment
Speaker 1: like right now for identifying shorts and also monetizing them
Speaker 1: plus six or eight months, I would have said that
Speaker 1: the ideal the environment of identifying shorts was like shooting
Speaker 1: fish in a barrel. It was so easy to find
Speaker 1: a piece of overpriced nonsense. The only problems are until
Speaker 1: mid devery the fish shot that right, you know you
Speaker 1: would you would short the most obvious fraught and it
Speaker 1: would double or triple in your face. The fishes stop
Speaker 1: shooting back. So the environment has been distinctly better from
Speaker 1: my perspective. I'm well aware that retailer forty millions accounts
Speaker 1: in the period post pandemic, and you know, some people
Speaker 1: have got a taste for gambling on the fish might
Speaker 1: shoot back again. But the identification thing is dead easy.
Speaker 1: The managing the book is incredibly hard. And almost all
Speaker 1: of my fellow short sellers have had an extremely rough
Speaker 1: year because they were very good at the identification. They
Speaker 1: thought this money for jam and then they lost a
Speaker 1: lot of money. So, just on this notion of retail
Speaker 1: getting more interested in stocks and maybe participating in them
Speaker 1: in a very speculative way, has that changed the way
Speaker 1: you invest at all? Or do you think it's going
Speaker 1: to change the way the hedge fund industry operates. Well,
Speaker 1: there are certain things that I've done that I didn't
Speaker 1: even imagine, one of which, for instance, is we have
Speaker 1: had to calculate an estimate of the game in every
Speaker 1: stock in the stock market. The reason is that we
Speaker 1: became there in January, but then very very intensely, every
Speaker 1: of the risk of gam e squated. And the idea
Speaker 1: that a small number of options could drive a stop
Speaker 1: to the moon and that retails could be persuaded to game,
Speaker 1: and the idea that the most active option contract in
Speaker 1: America one day, I think, was an eight hundred dollars
Speaker 1: short dated game stock coll is so absurd. But we
Speaker 1: had to live in a world that looked like that.
Speaker 1: So the amount that we needed to tighten up our
Speaker 1: risk management was remarkable. Now that it's that much tighter,
Speaker 1: my guess is that it's not going to get loosened
Speaker 1: doctor very much once and twice shy. We didn't lose
Speaker 1: meaningfully large amounts of money, but it was still an
Speaker 1: extremely unpleasant period. We were underforming like crazy, and the
Speaker 1: best thing I could say is that all my competitors
Speaker 1: were going out of business and we were right. But
Speaker 1: that should make life easier for us in the future.
Speaker 1: But a lot of the risks that we thought were
Speaker 1: theoretical turned out to not be just theoretical. They turned
Speaker 1: out the absolute thing effects and the idea of a
Speaker 1: Portfoli elio that looks like four and a half times
Speaker 1: leave it long short all the same trade are and
Speaker 1: the particular trade I'm thinking of that case is the
Speaker 1: blot Can trade, which was long the future short parts.
Speaker 1: So you're long booking dot Com and Google and Apple,
Speaker 1: and your short BlackBerry and research most BlackBerry. You're short
Speaker 1: retailers like game Stock at Billard's, your short that landlords
Speaker 1: like Massteri and there. I said, you're short by part
Speaker 1: of the problem because Bacom looks like the past as well.
Speaker 1: That trade, which you know I would normally associate with
Speaker 1: geniuses like Druck and Miller, the trade the great trade.
Speaker 1: Just don't leave it five times, right, because if you
Speaker 1: leave it five times and the retail crowd cap cotton
Speaker 1: on your debt. Alright, I actually like the trade. I
Speaker 1: just don't like it on the scale of stuff. Do
Speaker 1: you feel like the retail from the whole reddit everything
Speaker 1: the insane, aggressive, almost weaponized. Some people put it called buying.
Speaker 1: Do you feel comfortable that there was that peaked some
Speaker 1: point in Q one? I think it peaked. I don't
Speaker 1: feel comfortable that that peak is permanent, and we're not
Speaker 1: going to manage the book on the basis that that
Speaker 1: peak is permanent. Right. You asked how it's changed his
Speaker 1: stunt management. Well, you know, it's scared, right, and I'm
Speaker 1: going to stay scared because they always do. But yeah,
Speaker 1: it has peaked. Whether it's a peak is permanent, I
Speaker 1: have no idea whatsoever. Gambling was stunt, right, So it's
Speaker 1: always a possibility that people decide that gambling is done again.
Speaker 1: Do it only even grant the scale? I tried. I
Speaker 1: tried not to get try to work out how to
Speaker 1: manage my risks. But you know, I've got to be
Speaker 1: aware that there are non rational actors there who's whose
Speaker 1: goal isn't to make money. Their goal is well maybe
Speaker 1: they tell you that to make money and the big
Speaker 1: goal is just the gamble. Well, John, it's always great
Speaker 1: having you on. Thank you so much for for coming
Speaker 1: on another episode. That was great, John, Thank you so
Speaker 1: much for coming up. Good pleasure. Thank you. So it's
Speaker 1: always a pleasure talking to John. I mean, he has
Speaker 1: such a great track record when it comes to spotting
Speaker 1: inconsistencies in financial models, and I always find it really
Speaker 1: interesting listening um to the way he thinks about taking
Speaker 1: on short positions and how he comes to those conclusions. Um.
Speaker 1: But one of the things that's that struck me there
Speaker 1: is just this idea that I mean, it was kind
Speaker 1: of amazing to listen to him say that he had
Speaker 1: to you Gamma squeeze analysis on all their short positions
Speaker 1: because of what happened to game Stop in January, and
Speaker 1: in that way, game Stop and retail participation really is
Speaker 1: kind of changing the way the market and the hedge
Speaker 1: fund industry is working. Yeah, it might end up be
Speaker 1: that the Game stop story was like just like some
Speaker 1: sort of like true peak of the mania, Like if
Speaker 1: you look at um on the terminal, like if you
Speaker 1: look at like call option volume, other market volume measures
Speaker 1: things like that, it basically is like right around when
Speaker 1: game stop happened, and a bunch of other things, and
Speaker 1: so you know, like you know, the market still at
Speaker 1: all time highs and people are still gambling on all
Speaker 1: kinds of things. But it could end up being that
Speaker 1: a lot of the charts that's sort of like really
Speaker 1: captured that moment, like we're really right around the game stop. Yeah,
Speaker 1: but it's opened the door right to this kind of behavior,
Speaker 1: Like it's created of a possibility that I don't think
Speaker 1: people thought was actually there before, which is that you
Speaker 1: could force a squeeze with tactical call buyings and things
Speaker 1: like that that would be massively painful for anyone out
Speaker 1: there with a short position. That was pretty wild just
Speaker 1: in general, though, Like I love like hearing how John
Speaker 1: thinks about everything, and just like the degree to which
Speaker 1: he sort of like understand the sort of the basic
Speaker 1: of like business models, or hearing him talk about like
Speaker 1: the history of trading finance and why it emerged when
Speaker 1: you when you go talk about green Sill and he says, well,
Speaker 1: we have to look back to trade finance over a
Speaker 1: hundred years ago. Like that's such a great beginning to
Speaker 1: your conversation. Yeah, it makes sense, like this idea that
Speaker 1: like essentially it's solved a sort of like information gap,
Speaker 1: and that in a world in which like you sort
Speaker 1: of know your counterparties and you have good information and everything, like,
Speaker 1: it shouldn't be like a rapidly like super you know,
Speaker 1: super big business. It's like a pretty good uh, an
Speaker 1: interesting sign or an interesting tell. Yeah, for sure. Shall
Speaker 1: we leave it there? Yeah, let's leave it there. All right.
Speaker 1: This has been another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe wi Isn't All. You can
Speaker 1: follow me on Twitter at the Stalwart. And you can
Speaker 1: follow our guests John Hampton on Twitter. He's at John
Speaker 1: Underscore Hampton. Follow our producer Laura Carlson, She's at Laura M. Carlson.
Speaker 1: Follow the Bloomberg head of podcast, Francesca Levi at Francesca Today,
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