Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Bloomberg LP, the parent company of Bloomberg Television, is working
Speaker 2: with the Robinhood Foundation for a stock picking competition for
Speaker 2: ten thousand dollars that will go to charity in order
Speaker 2: to fight poverty in New York. You pick a long
Speaker 2: and a short investment and you can register through Monday,
Speaker 2: October twenty eighth. You can sign up at Robinhood dot org.
Speaker 2: The competition is for charitable purposes only and does not
Speaker 2: constitute financial or investment advice. For more about the competition
Speaker 2: and his own investment choices, we are joined now by
Speaker 2: David Einhorn of green Light Capital, and perhaps first talk
Speaker 2: about this program for a minute. Pick a ticker. You
Speaker 2: have a sensorially gamified charity. Why did you guys do
Speaker 2: it this way? You're closely involved with the Robinhood Foundation.
Speaker 2: And what do you expect out of the program.
Speaker 3: Yeah, we just thought it would be a little bit
Speaker 3: of a fun thing to do in conjunction with the
Speaker 3: annual investor conference that's been going on for eleven or
Speaker 3: twelve years. The idea is is anybody who wants to
Speaker 3: participate and donate ten thousand dollars. Pick along, pick a short,
Speaker 3: see how it does over the next six months, and
Speaker 3: whoever wins can gets to choose which Robinhood supported organization
Speaker 3: get gets a chunk of the money.
Speaker 2: Now, did you participate? Are you picking it on a
Speaker 2: long and a short for this game?
Speaker 4: One hundred percent? Of course?
Speaker 1: What are they?
Speaker 4: Well, I'm not the shorts.
Speaker 3: People are allowed to keep confidential, and I'm going to
Speaker 3: keep mind confidential. But I'm going to pick Peloton, which
Speaker 3: is the stock that I pitched yesterday at the Robin
Speaker 3: Good conference.
Speaker 2: Now, talk a little more about that, because from what
Speaker 2: I understand, you came dressed in full gear to make
Speaker 2: this a pitch to the audience there. What is it
Speaker 2: about Peloton that you like right now? I understand that
Speaker 2: you said that it's undervalued, but what's the catalyst?
Speaker 1: Is it M and A or something else that you're
Speaker 1: looking at?
Speaker 4: Well, I think there's a lot to like with Peloton.
Speaker 3: They have a large customer base that hays forty four
Speaker 3: dollars a.
Speaker 4: Month and is extremely engaged.
Speaker 3: Ride's an average to thirteen times a month and has
Speaker 3: very very low attrition. So most subscription type models like
Speaker 3: this trade a really high valuations. Peloton has suffered over
Speaker 3: the last number of years because they thought they were
Speaker 3: going to be a much bigger company than they've turned
Speaker 3: out to be. Maturity has hit them a little bit
Speaker 3: sooner than they expected, and they had a cost base
Speaker 3: which was entirely based on Hey, the only thing that
Speaker 3: matters to us is revenues, because you know, Wall Street
Speaker 3: values us on price to sales and stuff like that,
Speaker 3: and so, as I said at the conference yesterday, there's
Speaker 3: a lot of cost cutting for Peloton to do. Peloton
Speaker 3: probably needs to spend more time on the Peloton and
Speaker 3: if they do that, the margins will improve a lot,
Speaker 3: and the stock is relatively inexpensive relative to other types
Speaker 3: of subscription model type of companies decides they're going to
Speaker 3: get a new CEO who should be announced, you know,
Speaker 3: sometime relatively soon, and in the worst case, if they're
Speaker 3: not really able to turn around. This is certainly the
Speaker 3: type of company that there's a number of larger companies
Speaker 3: I think that would be very interested in owning this
Speaker 3: if it came.
Speaker 1: Down to that. David, I also want you to weigh
Speaker 1: in over here.
Speaker 2: It's interesting as we speak right now, Tesla had come
Speaker 2: out with earnings over the last twenty four hours, the
Speaker 2: stock is up more than nineteen percent at the moment.
Speaker 2: It's been a stock that you have been short before.
Speaker 2: Wondering what you think about this stock at this valuation
Speaker 2: here and whether you would ever go short again.
Speaker 3: Yeah, we don't really comment on our short positions anymore.
Speaker 3: We stopped doing that a few years ago, and so
Speaker 3: whether Tesla is a shorter potential short, it's not something
Speaker 3: that I'm going to discuss.
Speaker 2: Can you speak to the valuation as it stands now
Speaker 2: and how it fits into the broader story around stock
Speaker 2: market valuations right.
Speaker 4: Now now, I'm really not going to go anywhere near that.
Speaker 2: So let's talk about valuations more generally. Because of course,
Speaker 2: the AI trade in general has been a very hot one.
Speaker 2: I'm wondering if you think that if some of these
Speaker 2: stocks have gone too far, and how you're playing the
Speaker 2: AI trade.
Speaker 3: Well, you know, the thing is is we don't have to,
Speaker 3: you know, bet against things that seem like they're expensive
Speaker 3: when there's so much excitement around them. So these stocks
Speaker 3: are very high. There's a lot of enthusiasm. There's been
Speaker 3: enthusiasm for a long time. I think the market as
Speaker 3: a whole is really, you know, quite expensive considering we're
Speaker 3: a strong part of the economic cycle and we're about
Speaker 3: twenty three times earnings, so it's it's hard to wind
Speaker 3: up for me as somebody who actually paid a lot
Speaker 3: of attention to what I.
Speaker 4: Pay for things to want to chase those things.
Speaker 3: We do have a couple of companies that you know,
Speaker 3: maybe have options on AI coming our direction. So for example,
Speaker 3: we own HP which makes PCs, and PCs are due
Speaker 3: for a regular replacement cycle because a lot we're bought
Speaker 3: after COVID in twenty twenty, twenty twenty one, and we
Speaker 3: could have a better than normal cycle if if AIPCS
Speaker 3: turn out to be a thing. I have only traces
Speaker 3: about ten times earnings, pase a three and something percent dividend.
Speaker 4: They're spending one hundred percent of recash.
Speaker 3: Flow returning it to shareholders, so you get about seven
Speaker 3: percent buyback. So we can see you know, mid teens
Speaker 3: high teams growth for the next couple of years, just
Speaker 3: as you go through a cycle share account reduction, and
Speaker 3: so this you're paying just ten times journeys, which is
Speaker 3: very reasonable from our perspective.
Speaker 2: You know, I totally understand that you don't want to
Speaker 2: talk about individual short wagers. However, will you kind of
Speaker 2: explain the thinking around short investing right now? There are
Speaker 2: a lot of people who feel very burned in the
Speaker 2: way that markets have really melted up in a large way.
Speaker 2: What does the environment for shorting look like to you
Speaker 2: and what are the kind of parameters that you think around.
Speaker 3: Yeah, we're actually having a pretty decent year in our
Speaker 3: short book, particularly consider how the market has gone up.
Speaker 3: We made a change a couple of years ago in
Speaker 3: response to sort of the meme stuff, and what we
Speaker 3: basically figured out is that the right tail for your
Speaker 3: best short ideas has changed. So it used to be
Speaker 3: I'd want to put the most money in whatever I
Speaker 3: thought my best idea is, But your best idea is
Speaker 3: probably something that you think is going to go to zero,
Speaker 3: and that's where the crazy stuff goes on. So we
Speaker 3: kind of flipped the short portfolio in the sense that
Speaker 3: our bigger shorts tend to be more boring and our
Speaker 3: smaller shorts are tend to be a little bit more exciting,
Speaker 3: and it's enabled us to maybe manage the volatility relating
Speaker 3: to the occasional craziness that hits a one stock or another,
Speaker 3: particularly in the more volatile and probably going to zero
Speaker 3: part of the short pastard.
Speaker 2: While we're talking about volatility as well, I know you
Speaker 2: this year had written two investors basically saying that it
Speaker 2: doesn't really matter who would win the election when it
Speaker 2: comes down to the markets more directly. But I am
Speaker 2: still really curious about how you're thinking about the election
Speaker 2: less than two weeks away.
Speaker 1: Uncertainty around how long it will take to know what
Speaker 1: the votes.
Speaker 2: Really come out to be at the end of the day.
Speaker 2: How do you think about that uncertainty and investing around it.
Speaker 3: Yeah, look, I don't know how to handicap, but the
Speaker 3: only real protect projection I'm going to make about the
Speaker 3: election is it's going to be held on November fifth,
Speaker 3: and beyond that, it's really hard to know. The election
Speaker 3: seems to be very close, and you know, I don't
Speaker 3: know whether we'll have a winner anytime soon. I don't
Speaker 3: know whether either candidate is preparing to concede if it's
Speaker 3: a close election, So we'll just have to kind of
Speaker 3: see how that plays. I'm taking a relatively conservative posture
Speaker 3: into the election. I view this as a potentially uncertain event.
Speaker 2: Is there anything that could take off after the election.
Speaker 2: We hear over and over that investors are taking a
Speaker 2: risk off tone before that time.
Speaker 1: So what starts to take off after Well, I.
Speaker 3: Think if you have a clear winner and it's you know,
Speaker 3: in the country, it's clear what direction the country is
Speaker 3: going to go, I'm confident that investors will chase whatever
Speaker 3: is perceived to be a beneficiary of whichever candidate that
Speaker 3: happens to be.
Speaker 2: I want to get your macro view on this as well,
Speaker 2: because a lot of people are worried about the direction
Speaker 2: of inflation. You saw the ten year really a trail
Speaker 2: higher in recent days. Some people think it's a Trump trade.
Speaker 2: What do you think about the direction of travel for
Speaker 2: bonds the macro markets more largely on the heels of
Speaker 2: the selection.
Speaker 3: Yeah, Look, I think that I think we're in We
Speaker 3: moved from a secular deflation for many many years into
Speaker 3: secular inflation, and we've had a you know, a reduction
Speaker 3: in inflation from the peak from a couple of years ago.
Speaker 3: But I think a lot of that is kind of
Speaker 3: run its course, and so there's a decent chance we
Speaker 3: should have inflation re accelerate, probably as soon as the
Speaker 3: next inflation reading as far as I can tell, there's
Speaker 3: still rents that have to flow through. Commodity prices are
Speaker 3: getting stronger, and I think there's some other indications, you know,
Speaker 3: labor prices still going up. You see what's going on
Speaker 3: for example with the Boeing strike. These these wage increases
Speaker 3: are relatively substantial still. So I actually think that the
Speaker 3: inflationary period is kind of the disinflationary period is kind
Speaker 3: of coming to an end, and I think that you
Speaker 3: can see it in the inflation derivatives market and you
Speaker 3: can see it in the bond market.
Speaker 4: Additionally, regular growth is pretty good.
Speaker 3: We're running about three percent. So for that three percent growth,
Speaker 3: and we've got you know, at least two and a
Speaker 3: half and maybe rising inflation from there, and that's nominal
Speaker 3: GDP of five and a half plus. It's hard to
Speaker 3: see why treasury bonds at you know, four percent are
Speaker 3: a little bit better than that our mispriced or why
Speaker 3: rates should come down from that.
Speaker 1: Another that I know that you have had on David,
Speaker 1: it's fair to call you a gold bug.
Speaker 2: We've seen gold hit record highs this year, and I'm
Speaker 2: wondering how much further you think it'll go and why.
Speaker 4: Well, I think that I think that gold looked.
Speaker 3: We've been long gold for about, you know, fifteen years,
Speaker 3: so there's nothing new about me saying something interesting about gold.
Speaker 4: But I think just to the point I.
Speaker 3: Was just making right, if we if we have the FED,
Speaker 3: it seems to on trying to reduce interest rates even
Speaker 3: as inflation you know, maybe bottoming and about to re accelerate.
Speaker 3: That should be pretty good for goals, and I think
Speaker 3: you're beginning to see that in the price of bold
Speaker 3: and gold has had a really strong year. It's been
Speaker 3: a big.
Speaker 4: Help to us.
Speaker 1: Last question for you before I let you go.
Speaker 2: There's been a lot of conversation about how you've been
Speaker 2: thinking about value investing, whether the industry has died or not.
Speaker 1: But a lot of.
Speaker 2: People are looking to get back into that value trade,
Speaker 2: particularly that Russell two thousand value trade.
Speaker 1: What advice would you give them?
Speaker 3: Well, I think with so many professional value investors no
Speaker 3: longer practicing their trade or having assets to manage, there's
Speaker 3: just a lot less competition, and so you can find
Speaker 3: some pretty exciting values in companies that are less talked
Speaker 3: about or less exciting than the ones that everyone wants
Speaker 3: to you know, you know, comment on every day that traded,
Speaker 3: you know, fancy mostly multiples. You have a realfurcated market,
Speaker 3: and we can find companies that are paying large dividends
Speaker 3: and bind.
Speaker 4: Back lots of stock.
Speaker 3: We're going to make a good return just from the
Speaker 3: company giving us the money, and we don't really care
Speaker 3: whether what other investors do.
Speaker 1: David, we got to leave it there.
Speaker 2: Of course, that is David Einhorn of green Light Capital
Speaker 2: talking about his favorite long pick right now.
Speaker 1: We thank you very much for your time.