WEBVTT - SPAC Attack 0:00:00.400 --> 0:00:04.080 Strap on your parachute. It's time for What Goes Up 0:00:04.120 --> 0:00:14.040 with Sarah Ponzick and Mike Reagan. Hello and welcome to 0:00:14.120 --> 0:00:18.200 What goes Up, a Bloomberg weekly market podcast. I'm Sara Pantek, 0:00:18.320 --> 0:00:21.280 a reporter on the Cross Asset team, and I'm Mike Reagan, 0:00:21.480 --> 0:00:24.560 a senior editor on the Markets team at Bloomberg. This 0:00:24.600 --> 0:00:27.080 week on the show, COVID nineteen has changed how we 0:00:27.120 --> 0:00:30.640 all live and how many invest and that evolution is 0:00:30.680 --> 0:00:33.440 still taking place. So how has it all changed for 0:00:33.520 --> 0:00:36.440 the type of investor that some would call an opportunistic 0:00:36.560 --> 0:00:39.199 bear a short seller. We speak with one of the 0:00:39.200 --> 0:00:42.280 best in the industry, and of course we will close 0:00:42.320 --> 0:00:45.279 out the episode with our tradition the craziest thing I 0:00:45.320 --> 0:00:48.320 saw in markets this week? And please, if you saw 0:00:48.440 --> 0:00:50.920 something crazy, give us a call and let us know 0:00:51.000 --> 0:00:54.240 about it on the Bloomberg Podcast hotline at six ft 0:00:54.320 --> 0:00:58.400 six three to four three f nine, Oh, and leave 0:00:58.440 --> 0:01:01.360 us a voicemail. Maybe we'll play it on the show. Also, 0:01:01.440 --> 0:01:04.759 you can tweet in our general direction at podcasts and 0:01:05.040 --> 0:01:07.400 let us know the craziest thing you saw on markets 0:01:07.400 --> 0:01:09.960 and we'll we'll perhaps bring it up in the show. 0:01:10.400 --> 0:01:12.880 I got a couple of crazy things, Sarah, get ready, 0:01:13.200 --> 0:01:15.840 I'm coming in hot. I'm gonna see if you can 0:01:15.840 --> 0:01:19.080 top yours from last week because I'm still impressed um 0:01:19.080 --> 0:01:21.240 by it, Mike. But also I do want to say 0:01:21.240 --> 0:01:24.400 we got a reply from one of our listeners on 0:01:24.440 --> 0:01:27.800 Twitter who reached out in response to one of our 0:01:27.880 --> 0:01:30.000 crazy things from last week, so I also have that 0:01:30.040 --> 0:01:32.920 tweet handy for us to read out. Absolutely good. We 0:01:33.040 --> 0:01:35.360 like the interaction, so keep the tweets coming, keep the 0:01:35.400 --> 0:01:38.800 voicemails coming. We're happy to hear, uh, you're crazy. Thanks. 0:01:38.800 --> 0:01:40.679 In just a general opinion of the show, who you 0:01:40.680 --> 0:01:43.280 think would be a good guest. We're open to all 0:01:43.360 --> 0:01:47.120 your suggestions here and what goes up Sarah. Before we 0:01:47.160 --> 0:01:49.120 introduced our guests, I gotta give a shout out and 0:01:49.240 --> 0:01:51.440 thank you to my friend Dave. I'm actually in my 0:01:51.560 --> 0:01:55.040 friends basement right now because there's work being done at 0:01:55.040 --> 0:01:57.000 my house and these guys are making a lot of 0:01:57.000 --> 0:02:00.240 noise and making even more noises my my darn dog 0:02:00.440 --> 0:02:02.880 will not shut up. So thanks to Dave for letting 0:02:02.880 --> 0:02:05.240 me squat in his basement. Here well as Dave a 0:02:05.240 --> 0:02:07.960 listener of the podcast, I'll probably listen to this one 0:02:08.000 --> 0:02:10.920 if I tell him, Okay, gave a shout out and 0:02:10.960 --> 0:02:13.480 his kids got one of those cool video game chairs. 0:02:13.560 --> 0:02:15.639 You know, I feel like Captain Kirk here sits in 0:02:15.720 --> 0:02:18.360 the chair, if only you had the big headphones onto. 0:02:18.760 --> 0:02:20.680 I know, I know, I need I need more, I 0:02:20.720 --> 0:02:23.720 need more gear. But as you said, uh, Sarah turning 0:02:23.760 --> 0:02:27.160 the show this week, actually second time on the show. Uh. 0:02:27.160 --> 0:02:30.920 He's the founder and chief investment officer of the hedgephone 0:02:31.040 --> 0:02:35.840 spruce Point Capital Management. Uh. He's very successful short seller 0:02:35.919 --> 0:02:41.200 and researcher into companies and short ideas. His name is 0:02:41.240 --> 0:02:44.359 Ben Axer. Also, Sarah, I'm claiming this guy is a 0:02:44.440 --> 0:02:46.160 Jersey guy too. I know, I don't think he lives 0:02:46.160 --> 0:02:48.960 there anymore, but he is a Jersey guy at heart 0:02:48.960 --> 0:02:51.360 to the show. Let's be clear, that's South Jersey, not 0:02:51.480 --> 0:02:55.600 North Jersey. Oh boy, yeah yeah, I'll say being from Florida, 0:02:55.800 --> 0:02:59.440 making that South versus North distinction is pretty pretty important too. 0:03:00.120 --> 0:03:06.079 That's important Ben, as uh, Sarah alludes to in the introduction. 0:03:06.120 --> 0:03:08.520 You know, you've kind of made your your name and 0:03:08.560 --> 0:03:10.400 your fame as a short seller. But your fund is 0:03:10.440 --> 0:03:13.760 a long short fund, and I'm just curious, I know, 0:03:14.480 --> 0:03:17.880 especially in the ball utility earlier in this year, was 0:03:17.919 --> 0:03:20.519 it almost time to take your your short seller hat 0:03:20.560 --> 0:03:23.200 off and start looking at long So I mean, any 0:03:23.200 --> 0:03:26.119 opportunities on the long end for you this year? Yeah, 0:03:26.160 --> 0:03:30.040 I mean certainly, um in March when there was a 0:03:30.080 --> 0:03:32.640 lot of forced the leveraging and forced selling, that was 0:03:33.240 --> 0:03:35.200 you know, a good time to rebalance the book a 0:03:35.200 --> 0:03:38.680 little bit, you know, take some opportunistic gains on the 0:03:38.720 --> 0:03:42.040 short side, um, and look to rebound, look to find 0:03:42.400 --> 0:03:45.640 you know, opportunistic longs. More of our longs are you 0:03:45.680 --> 0:03:48.400 know index hedges. You know, with what we're trying to do, 0:03:48.440 --> 0:03:53.400 We're trying to find fundamentally flawed companies with poor governance, 0:03:53.680 --> 0:03:57.560 bad accounting, short those and be you know long and 0:03:57.640 --> 0:04:03.600 underlying index like and industry index and then create alpha 0:04:04.040 --> 0:04:08.240 right by benefiting from the decline and the the overvalued 0:04:08.480 --> 0:04:12.200 or poorly organized security and uh you know be headed 0:04:12.200 --> 0:04:14.760 with some some underlying index there. So yeah, it was 0:04:14.760 --> 0:04:18.120 a great time to rebalance and uh, reorganize and rethink 0:04:18.120 --> 0:04:20.960 about the strategy um in the post COVID world. So, 0:04:21.040 --> 0:04:24.120 like you said, you like to really dig into statements, 0:04:24.160 --> 0:04:26.599 balance sheets and and find issues with accounting. But I 0:04:26.640 --> 0:04:29.080 am just curious. There's this one index that I track 0:04:29.200 --> 0:04:32.200 often just kind of as a sentiment indicator of what's 0:04:32.240 --> 0:04:34.400 going on in the market, and that's a Golden SAS 0:04:34.440 --> 0:04:37.080 basket of the most shortage stocks, and it hit a 0:04:37.080 --> 0:04:40.400 record high. I tweeted about this, and my little claim 0:04:40.440 --> 0:04:42.320 to fame, I guess is that it went viral. Jim 0:04:42.400 --> 0:04:45.680 Chaino's brought it up in a conversation and mentioned that 0:04:45.720 --> 0:04:48.520 of Bloomer Reporter had written R I P shorts And 0:04:48.600 --> 0:04:51.200 I do want to get your sense like, yes, yes, 0:04:51.320 --> 0:04:54.360 you focus on individual companies, but if you look at 0:04:54.400 --> 0:04:58.000 this market from a whole, how difficult has it been 0:04:58.040 --> 0:05:02.040 to be someone who really does make a business or 0:05:02.080 --> 0:05:06.360 make a profit from being bearished on companies? No, it's been. 0:05:06.480 --> 0:05:09.000 It's an incredibly difficult and it's getting more difficult. I 0:05:09.040 --> 0:05:13.400 think the biggest impediment to successful short selling is you know, 0:05:13.640 --> 0:05:16.720 monetary policy and and what the Feds you know, looking 0:05:16.760 --> 0:05:19.640 to do, which is, you know, bring rates to ultra low, 0:05:19.920 --> 0:05:23.960 ultra low levels that make you know, holding cash, you know, unattractive. 0:05:24.200 --> 0:05:26.800 I mean, I'm I'm constantly looking at you know, interest 0:05:26.880 --> 0:05:29.680 rates and what what banks are offering, how yield savings banks, 0:05:29.680 --> 0:05:32.159 which at the beginning of the year we're offering to 0:05:32.160 --> 0:05:33.600 two and a quarter two and a half percent and 0:05:33.680 --> 0:05:36.480 now offering sixty basis points. So you know, you look 0:05:36.520 --> 0:05:39.799 at inflation and then you you take the after tax 0:05:39.839 --> 0:05:42.800 gain on holding money and how yield savings account and 0:05:42.800 --> 0:05:47.000 you're losing money, right, So, UM, the money, relatively speaking, 0:05:47.080 --> 0:05:49.359 is going into the market. Some people view the market 0:05:49.400 --> 0:05:53.279 is attractive UM, and that's pushing up valuations, which makes 0:05:53.600 --> 0:05:58.680 it very difficult to short individual securities, particularly individual securities 0:05:58.680 --> 0:06:01.960 that are heavily you know, index owned UM. As you said, 0:06:02.000 --> 0:06:05.919 now there's an index that even tracks most shorted UM stocks. 0:06:05.920 --> 0:06:07.760 I mean there's an index for almost everything, and then 0:06:07.800 --> 0:06:10.640 you have a lot of money following index behavior. So 0:06:11.040 --> 0:06:13.680 what we're trying to do is find stocks that are 0:06:14.279 --> 0:06:17.960 not heavily indect owned, that are heavily retail traded or 0:06:18.040 --> 0:06:20.680 hedge fund owned. That way, we know there's an act 0:06:21.120 --> 0:06:23.760 an active holder that we can communicate with and try 0:06:23.800 --> 0:06:27.279 to convince them of our alternative viewpoints on the stock. 0:06:27.400 --> 0:06:30.280 So so yeah, it's gotten more difficult. It's it's very 0:06:30.480 --> 0:06:33.839 m rate dependent, index dependent, but there are still ways 0:06:33.839 --> 0:06:37.159 to be successful by you know, navigating what works and 0:06:37.160 --> 0:06:39.840 what doesn't. Well. Sorry, I like that humble brag you 0:06:39.920 --> 0:06:41.880 got in there about your tweet that went viral. That 0:06:41.960 --> 0:06:45.320 was that was well done that. I had a viral 0:06:45.400 --> 0:06:48.400 tweet recently too. It was I was drinking a beer 0:06:48.640 --> 0:06:51.200 at a bumble bee landed in my beer and drek 0:06:51.240 --> 0:06:53.200 itself to death and I took a video of it. 0:06:53.480 --> 0:06:55.520 That tweet went viral too, but maybe not as cool 0:06:55.560 --> 0:06:58.000 as your. I I saw that video, that's the one 0:06:58.000 --> 0:07:01.560 that went viral, like that was sort of baby fire. 0:07:01.760 --> 0:07:04.680 I kind of felt bad for the bee people. A 0:07:04.720 --> 0:07:06.480 lot of people were mad at me for not saving 0:07:06.520 --> 0:07:09.200 that be, but I'm I'm a little chicken. It was 0:07:09.240 --> 0:07:12.040 a good been, a good Jersey beer cane. I couldn't. 0:07:12.400 --> 0:07:14.679 I could not let that be get away with drinking 0:07:14.720 --> 0:07:17.520 too much of it. But Charah's your point about the 0:07:17.760 --> 0:07:22.400 most shorted uh you know uh index Goldman index. But 0:07:22.600 --> 0:07:25.600 I think if I know your process a little bit 0:07:25.720 --> 0:07:29.040 the way I do, I think you you probably tend 0:07:29.080 --> 0:07:31.920 to stay away from the type of sort of popular, 0:07:32.080 --> 0:07:34.120 crowded shorts that end up on a list like that. 0:07:34.240 --> 0:07:37.280 Is that sort of an intentional thing? Um? You know, 0:07:37.320 --> 0:07:40.800 you try to sort of go where other shorts you know, 0:07:40.880 --> 0:07:44.200 aren't really crowded into and making it sort of the 0:07:44.240 --> 0:07:48.120 position susceptible to a squeeze. Yeah, now that's a great point, Mike. 0:07:48.360 --> 0:07:51.440 Um I would say some of my least successful shorts 0:07:51.440 --> 0:07:54.480 have been ones that you know, the short interest has 0:07:54.520 --> 0:07:58.080 been over ten or fift it indicates some level of 0:07:58.160 --> 0:08:01.360 crowded nous and or you know, there's already a well 0:08:01.400 --> 0:08:05.480 known short thesis in the marketplace. Um So, our better 0:08:05.520 --> 0:08:09.040 success has been with companies short interests under five percent, 0:08:09.120 --> 0:08:14.040 ideas not heavily socialized. You know where we scour the public, 0:08:14.320 --> 0:08:17.600 you know, blogosphere and don't see any evidence that anyone's 0:08:17.600 --> 0:08:20.440 talked about a particular stock. Um you know, we've written 0:08:20.440 --> 0:08:22.760 two reports recently, one on son Nova, another one on 0:08:22.840 --> 0:08:28.360 GFL environmental relatively undiscussed companies still multibillion dollar market caps 0:08:28.560 --> 0:08:31.160 where we can be a leading voice, you know, companies 0:08:31.160 --> 0:08:33.720 of low short interests, where you know the risk of 0:08:33.720 --> 0:08:37.120 a squeeze is low. So, Ben, something that I thought 0:08:37.120 --> 0:08:39.320 of a lot about lately, and I feel like we 0:08:39.440 --> 0:08:44.720 hear about constantly is how the coronavirus is changing trends 0:08:45.120 --> 0:08:48.000 and what that may mean and Oftentimes people point to 0:08:48.800 --> 0:08:51.720 big mega cap tech companies or the likes of Zoom, 0:08:51.720 --> 0:08:54.520 which we are using right now, UM, that really enable 0:08:54.559 --> 0:08:57.680 people to work from home, that enable a digitized environment. 0:08:58.000 --> 0:09:00.520 And I'm curious from your perspective the way you think 0:09:00.559 --> 0:09:03.480 if there are any trends that you see really emerging 0:09:03.880 --> 0:09:08.000 from what's happened in and lasting and how you can 0:09:08.040 --> 0:09:12.400 then funnel that into possibly your process or just a 0:09:12.440 --> 0:09:16.920 broad investing process in general. Yeah. Absolutely, We're definitely looking 0:09:16.960 --> 0:09:20.080 at how covid has reshaped the universe and the world 0:09:20.080 --> 0:09:22.880 we know and certainly you know, one of our key 0:09:22.920 --> 0:09:25.280 early conclusions was that the you know, internet and e 0:09:25.320 --> 0:09:28.320 commerce was gonna was going to really grow its share 0:09:28.320 --> 0:09:31.839 of the consumers um purchasing behavior. You know, we identified 0:09:31.880 --> 0:09:34.440 a company earlier this year that we we've showed him 0:09:34.440 --> 0:09:37.440 been public about called Prestige Brands. UM. They're a roll 0:09:37.520 --> 0:09:41.880 up of OTC branded products. UM. These could be throat 0:09:41.920 --> 0:09:45.679 lozengers or other things you might find in a write 0:09:45.679 --> 0:09:48.520 aid or a CBS in the drug store. They have 0:09:48.559 --> 0:09:53.079 a relatively undeveloped e commerce strategy, you know, under ten 0:09:53.120 --> 0:09:56.240 percent of their sales re reconnerce and they celebrant, you know, 0:09:56.280 --> 0:09:59.319 a branded product when you know, for example, if you 0:09:59.360 --> 0:10:01.280 go into CBS or Walmart, you might find a store 0:10:01.280 --> 0:10:03.680 brand at a cheaper price. So you know, in the 0:10:03.760 --> 0:10:07.440 COVID world, you have high unemployment, you have consumers looking 0:10:07.440 --> 0:10:10.000 to save money UM, and you have consumers looking to 0:10:10.040 --> 0:10:13.760 shop online. So a company like Prestige Brands, we believe 0:10:14.120 --> 0:10:16.720 it's ill suited for this with a higher price product 0:10:17.040 --> 0:10:20.680 and a very undeveloped e commerce strategy. So you know, 0:10:20.720 --> 0:10:23.200 absolutely we're thinking about this. I mean, these are going 0:10:23.240 --> 0:10:26.280 to be longer term impact trends. We had always been 0:10:26.360 --> 0:10:29.240 vocal in our belief that you know, a vaccine and 0:10:29.280 --> 0:10:32.280 a resolution to this pandemic was going to take longer 0:10:32.280 --> 0:10:35.920 than anticipated. They were continuing to think about ways and 0:10:36.120 --> 0:10:38.959 UM which companies are going to benefit and and being 0:10:39.000 --> 0:10:54.520 a disadvantage in this new paradigm. Yeah, but I know 0:10:54.720 --> 0:10:59.920 some of your early successes were with companies from Trying 0:11:00.280 --> 0:11:03.000 that had had listed in the US. I feel like 0:11:03.120 --> 0:11:05.840 that's come full circle now where there's so much scrutiny 0:11:05.960 --> 0:11:09.960 on those companies that the Trump administration obviously putting a 0:11:10.000 --> 0:11:15.080 lot of threats and pressure on UM potentially delisting them 0:11:15.120 --> 0:11:17.440 and you know that sort of thing. Has that opportunity 0:11:17.760 --> 0:11:21.440 set sort of been exhausted or maybe not exhausted, but 0:11:21.679 --> 0:11:24.920 you know, it seemed to be a very sort of 0:11:25.520 --> 0:11:27.440 not to say shooting fish in a barrel, but but 0:11:27.520 --> 0:11:31.560 almost a very lucrative, you know, fertile place to look 0:11:31.600 --> 0:11:34.439 for shorts, say five to ten years ago. Is that 0:11:35.000 --> 0:11:37.800 Are there still opportunities there? Or has the rest of 0:11:37.840 --> 0:11:40.199 the world caught up with the people who were looking 0:11:40.320 --> 0:11:42.959 skeptically at China and and even the regulators in the 0:11:43.040 --> 0:11:46.480 US catching up this undergreen. Yeah, that's a great question. 0:11:46.600 --> 0:11:50.120 I would say, Um, it's definitely gotten harder UM in 0:11:50.200 --> 0:11:53.920 the quest to find, you know, find, exploit, uh and 0:11:54.000 --> 0:11:58.160 hold accountable Chinese investment scams UM. The first generation that 0:11:58.200 --> 0:12:00.760 I was involved with back in two thousand, eight, nine 0:12:00.800 --> 0:12:04.080 and ten, exposing those companies, it was like shooting whether 0:12:04.120 --> 0:12:06.800 they say fish in a barrel or ducks in a barrel. UM. 0:12:07.240 --> 0:12:10.760 Some of the frauds were very obvious. UM. But it's 0:12:10.760 --> 0:12:13.400 like a cat and mouse scheme, right the uh you know, 0:12:13.480 --> 0:12:16.160 the mouse got smarter and figured out, you know, how 0:12:16.200 --> 0:12:20.760 to avoid the cat. UM. So successive generations of Chinese 0:12:20.840 --> 0:12:23.880 frauds have been harder to identify. And also I would 0:12:23.920 --> 0:12:26.760 point out, you know, getting information out of China's been 0:12:26.880 --> 0:12:29.960 very hard. I mean, the Chinese are very attuned to 0:12:30.000 --> 0:12:32.840 the fact that short sellers are looking at their stocks 0:12:32.880 --> 0:12:35.000 here in the New York Stock Exchange in the NASDAK 0:12:35.240 --> 0:12:40.160 and so accessing information UM that was more easily available 0:12:40.200 --> 0:12:43.320 ten years ago is getting harder. And frankly, that's you know, 0:12:43.400 --> 0:12:45.800 one of the reasons, you know why we've been spending 0:12:45.840 --> 0:12:48.439 a little bit less time on our shorts in China. 0:12:49.120 --> 0:12:52.960 We've actually found more success up in Canada. We've spent 0:12:53.000 --> 0:12:55.320 a lot of time looking at the Canadian market, which 0:12:55.320 --> 0:12:58.400 is very receptive to short selling, has been receptive to 0:12:58.559 --> 0:13:01.559 us UM and I we think is you know, underserved 0:13:01.559 --> 0:13:05.280 from a short selling perspective, But there are still opportunities globally. 0:13:05.360 --> 0:13:08.559 China has definitely gotten harder, but other markets, other companies 0:13:08.600 --> 0:13:11.040 from around the world to come here certainly are good 0:13:11.080 --> 0:13:14.000 opportunities for us to know, to really dig in. So 0:13:14.000 --> 0:13:16.600 sticking with factors then that make your job harder. You 0:13:16.640 --> 0:13:20.840 mentioned the FED earlier on in the show Monetary Policy. 0:13:21.679 --> 0:13:23.880 Looking even further than that, because I remember the last 0:13:23.880 --> 0:13:26.680 time you came on the show, we discussed how fed 0:13:26.760 --> 0:13:32.679 policy and decreasing regulation I'll throw right now although the 0:13:32.720 --> 0:13:36.320 economy needed it, but fiscal policy and a growing deficit, 0:13:36.760 --> 0:13:42.520 all of these factors right now which are really helping 0:13:42.800 --> 0:13:46.679 stocks rise in general. At the same time, though, do 0:13:46.760 --> 0:13:49.560 they make your job at all easier? The fact that 0:13:50.000 --> 0:13:53.400 there are companies that can prosper, that can grow in 0:13:53.480 --> 0:13:57.280 this type of environment that maybe otherwise wouldn't be able 0:13:57.320 --> 0:14:00.319 to do so, or have other underlying issue is at 0:14:00.360 --> 0:14:05.679 stake that can be pinpointed. No, that's a great question. Actually, Um, 0:14:05.720 --> 0:14:07.600 there are puts in takes with everything right, I would 0:14:07.600 --> 0:14:11.840 say the opportunities currently are that we're seeing very immature, 0:14:12.760 --> 0:14:19.240 very poorly diligence companies come public probably prematurely. Um. You've 0:14:19.240 --> 0:14:23.200 probably heard a lot about the bulliance and frost in 0:14:23.240 --> 0:14:28.400 the spack market. Special purpose acquisition corporations raising money UM, 0:14:28.520 --> 0:14:32.440 some with almost very limited defined purposes going out buying 0:14:32.520 --> 0:14:35.840 companies and helping them accelerate their I p O process 0:14:35.920 --> 0:14:39.880 quicker than the traditional route. That certainly has caught our 0:14:39.920 --> 0:14:43.760 attention because those companies has said, we believe are a 0:14:43.840 --> 0:14:47.840 little bit less diligence UM and and a little premature. Um, 0:14:47.880 --> 0:14:50.360 so those are those are good opportunities to SPACs and 0:14:50.400 --> 0:14:52.120 even the traditional I p O s that are that 0:14:52.160 --> 0:14:56.240 are coming public now you know, we're seeing them come 0:14:56.280 --> 0:14:59.480 public with less regulatory scrutiny to I mean, the SEC 0:14:59.720 --> 0:15:02.360 is lower the bar a little bit in terms of 0:15:02.840 --> 0:15:06.280 you know, a company not necessarily needing an audit or 0:15:06.360 --> 0:15:10.920 certain at testations. Uh, if they're below a certain threshold level. 0:15:10.960 --> 0:15:13.680 These are opportunities for us, no doubt. Um, well, you know, 0:15:13.880 --> 0:15:16.120 and we certainly welcomed them each thing. You say that 0:15:16.200 --> 0:15:18.880 because I think when the whole we work to baccle 0:15:19.160 --> 0:15:21.400 went down, you know, and they you know, couldn't get 0:15:21.400 --> 0:15:24.200 that I p O to the finish line. Um. I 0:15:24.240 --> 0:15:27.840 think a lot of people interpreted that as, uh, you know, 0:15:27.920 --> 0:15:31.920 it's it's tough to get sort of a questionable company 0:15:31.960 --> 0:15:34.320 to public markets. But you're you're not finding that to 0:15:34.400 --> 0:15:36.520 be the case. It sounds like no. I mean, one 0:15:36.560 --> 0:15:38.680 thing that we like to look at is, uh, you know, 0:15:38.720 --> 0:15:42.520 companies are very keen on promoting their EBITDA or their 0:15:42.520 --> 0:15:47.040 adjusted EBITDA with we work. I remember the whole pushback was, 0:15:47.200 --> 0:15:52.400 you know, we work defined a community EBITDA, which you 0:15:52.440 --> 0:15:55.520 know it was highly adjusted. I mean, look, we wrote 0:15:55.560 --> 0:15:59.800 a report on company called GFL recently and they had 0:16:00.080 --> 0:16:03.080 or run rate EVA DA and it came with a 0:16:03.120 --> 0:16:07.240 paragraph this long of disclaimers about what how they were 0:16:07.280 --> 0:16:09.600 defining it. And these are big red flags. I mean, 0:16:09.640 --> 0:16:13.400 invest just have to get really comfortable with language and 0:16:13.480 --> 0:16:16.040 EVA DA that you could drive a truck through um 0:16:16.080 --> 0:16:18.280 and all the assumptions that management can put into it. 0:16:18.360 --> 0:16:20.680 But this is a classic sign of a you know, 0:16:20.760 --> 0:16:24.200 of a bolt market when companies are able to sell highly, 0:16:24.800 --> 0:16:30.200 highly adjusted, highly aggressive interpretations of EVA DA. So you said, 0:16:30.200 --> 0:16:33.520 these are classic signs of a bowl market. And every 0:16:33.520 --> 0:16:36.040 time I hear that, it's so amazing to me because 0:16:36.080 --> 0:16:38.440 to some of these might seem like late cycle signals, 0:16:38.480 --> 0:16:42.800 but we just experienced a recession and the fastest fall 0:16:42.840 --> 0:16:45.480 into a bear market on record. I mean, when you 0:16:45.520 --> 0:16:48.480 see what's going on with SPACs, when you see other 0:16:48.560 --> 0:16:51.840 factors as you just mentioned, of the sort, what does 0:16:51.840 --> 0:16:56.960 that tell you about where we stand in the market cycle, 0:16:57.280 --> 0:17:00.320 Because it just seems like everything is so twisted lately. 0:17:00.960 --> 0:17:05.639 I think it speaks and and recent evidence points to 0:17:05.720 --> 0:17:09.320 the fact that the cycles are getting shorter and they're 0:17:09.320 --> 0:17:13.200 getting more severe. I remember not long ago in December 0:17:13.240 --> 0:17:16.320 of eighteen, when you know, Donald Trump was ratcheting up 0:17:16.840 --> 0:17:20.879 his China trade war rhetoric, and the market corrected pretty 0:17:20.920 --> 0:17:24.600 swiftly in in December, and then with COVID and slow down, 0:17:24.600 --> 0:17:27.280 the market correct even bigger. I can't tell you what 0:17:27.320 --> 0:17:29.800 the next shock shock is going to be, but it 0:17:29.800 --> 0:17:32.680 wouldn't surprise me if we haven't an even bigger draw down, 0:17:33.119 --> 0:17:35.720 you know, next time. Each each of these cycles, you're 0:17:35.760 --> 0:17:40.400 seeing liquidity getting Look, cycles are good and necessary, particularly 0:17:40.440 --> 0:17:43.280 in my industry, where you know, you have headge funds 0:17:43.280 --> 0:17:47.520 selling strategies and their ability to produce alpha and manage risk. 0:17:47.640 --> 0:17:51.520 And then what happens is, you know, when the market 0:17:51.560 --> 0:17:54.320 corrects really swiftly, you find out who who's doing what 0:17:54.359 --> 0:17:56.760 they're saying, and you know who's really managing risk and 0:17:56.760 --> 0:17:59.560 who's not, and the ones that aren't are getting you know, 0:17:59.560 --> 0:18:02.600 wiped out of the system. And you know, the general 0:18:02.640 --> 0:18:05.520 liquidity in the market we found has been going down. 0:18:05.560 --> 0:18:09.240 So I would expect, you know, more ciglicality. I would 0:18:09.240 --> 0:18:12.720 expect the magnitude of the draw downs and the intensity 0:18:13.000 --> 0:18:16.000 to increase each time. And yeah, and and and I 0:18:16.040 --> 0:18:19.199 think possibly diminishing returns to what the FED can do. 0:18:19.240 --> 0:18:22.600 I mean they've already pulled out unprecedented you know, measures 0:18:22.600 --> 0:18:25.880 and buying ETFs, and I don't know how many more 0:18:26.520 --> 0:18:30.000 arrows they have left in the quiver to solve increasingly growing, 0:18:30.080 --> 0:18:33.439 growing problems. And start Just one note to listeners. You know, 0:18:33.520 --> 0:18:36.480 Ben mentioned a few of these stocks. He's he's short 0:18:36.800 --> 0:18:39.320 just out of interest of fairness to them. I'm gonna 0:18:39.600 --> 0:18:42.040 try to dig up all the comments those companies have 0:18:42.119 --> 0:18:45.199 made in response to Ben. No offense been some some 0:18:45.280 --> 0:18:47.320 of them not very friendly towards towards you, as you're 0:18:47.320 --> 0:18:50.600 gonna expect. But but he's rattling, rattling them off left 0:18:50.600 --> 0:18:52.600 and right. So I'll try to find them and we'll 0:18:52.600 --> 0:18:54.640 we include those comments at the end of the episode. 0:18:54.640 --> 0:18:58.080 But I encourage anyone who's interested in this, you can 0:18:58.119 --> 0:19:00.680 read pretty much everything bends are are written about a 0:19:00.680 --> 0:19:03.720 company on his website at spruce Point was it spruce 0:19:03.720 --> 0:19:06.960 Point Capital dot com? Beent spruce Point caps dot com, Ye, 0:19:07.320 --> 0:19:10.400 spruce Point Cap And there's some fact that your whole 0:19:10.400 --> 0:19:13.240 method I find fascinating. I mean that's really deep dive 0:19:13.440 --> 0:19:18.040 and heavy duty research. So we will include the company's comments, 0:19:18.200 --> 0:19:21.000 um and anyone. You know, obviously, as an investor, you 0:19:21.080 --> 0:19:23.440 have to do your own due diligence and and it's 0:19:23.520 --> 0:19:26.760 interested in what Ben has to say, read his reports, uh, 0:19:26.880 --> 0:19:29.320 and and make up your own mind. Uh, you know, 0:19:29.640 --> 0:19:32.399 but we will include any comments we've gotten from the 0:19:32.720 --> 0:19:37.760 companies at the end of the episode comment comment. There's 0:19:37.760 --> 0:19:41.600 several no comments. Yeah, there's no I was hoping you'd 0:19:41.640 --> 0:19:43.639 only talk about the ones who had no comments. That 0:19:43.680 --> 0:19:49.000 makes a lot easier, but there's there's and you know, 0:19:49.040 --> 0:19:52.160 and anyone, anyone who's paid attention to this stuff knows 0:19:52.240 --> 0:19:54.399 that the judge and jury and this obviously is the market. 0:19:54.520 --> 0:19:58.240 So we'll see how these trades work out. We always 0:19:58.280 --> 0:20:01.040 like to point out to like in some cases where 0:20:01.760 --> 0:20:03.920 you know, we we have a short recommendation, the stock 0:20:03.960 --> 0:20:06.639 goes up, well, the whole market's gone. You have to measure, 0:20:06.720 --> 0:20:09.240 like how has it gone up relative to the industry 0:20:09.240 --> 0:20:11.159 in the market. What we find is a lot of 0:20:11.200 --> 0:20:13.199 the times that the names that we've written on they 0:20:13.280 --> 0:20:16.240 tend to underperform um and that's really where the you know, 0:20:16.320 --> 0:20:20.399 alpha has generated. So you do obviously a lot of 0:20:20.480 --> 0:20:24.600 digging into balance sheets and a lot of accounting work, 0:20:25.040 --> 0:20:26.760 and I want to get your takes. Something I've been 0:20:26.760 --> 0:20:29.720 thinking a lot about because I read a report that 0:20:29.800 --> 0:20:34.560 talked about how now about of the SMP five hundreds 0:20:34.640 --> 0:20:42.080 value is from intangible assets? How do you possibly view 0:20:42.320 --> 0:20:47.960 intangibles when that's not necessarily something that's going to show 0:20:48.080 --> 0:20:50.639 up in writing on a balance sheet? Or is it 0:20:50.720 --> 0:20:53.520 something that you guys think about when you are thinking 0:20:53.560 --> 0:20:57.160 about a new short position. No. Absolutely, And the GFL 0:20:57.240 --> 0:21:00.240 environmental I keep referencing is is one that we wrote 0:21:00.240 --> 0:21:02.680 about as a perfect example. I mean, they're a roll 0:21:02.840 --> 0:21:06.600 up of over a hundred and forty plus companies in 0:21:06.640 --> 0:21:10.720 the waste management industry. And you know, every time you 0:21:10.760 --> 0:21:14.120 buy a company, you buy the assets of the business, 0:21:14.119 --> 0:21:17.200 you buy the people, and then sort of everything above 0:21:17.320 --> 0:21:20.320 that that you can't ascribe value to is typically goodwill 0:21:20.400 --> 0:21:22.679 and intangibles. It's sort of a plug. Think of it 0:21:22.720 --> 0:21:25.600 as an accounting plug, accounting magic. You know, it's a 0:21:25.640 --> 0:21:29.960 measure to a degree of how much a company is overpaying, 0:21:30.600 --> 0:21:32.399 you know, for an asset. And you know, in the 0:21:32.440 --> 0:21:35.280 case of GFL, they have six and a half billion 0:21:35.320 --> 0:21:39.080 dollars of goodwill from acquiring so many businesses to the 0:21:39.119 --> 0:21:42.600 point where you know, good will is almost of their 0:21:42.600 --> 0:21:46.440 market cap, which is an extreme measure in that industry. 0:21:46.480 --> 0:21:50.159 But but yeah, I mean goodwill is highly susceptible to 0:21:50.920 --> 0:21:54.880 impairment because you know, what we do at Spruce Point 0:21:54.920 --> 0:21:57.560 is look to see, Okay, you know, any company can 0:21:57.560 --> 0:22:00.399 buy another company, but how how do they perform post 0:22:00.400 --> 0:22:03.840 acquisition and did they pay a fair price? And a 0:22:03.880 --> 0:22:06.960 lot of times we find serial acquires like GFL that 0:22:07.000 --> 0:22:10.000 are buying so many businesses they bite off a little 0:22:10.040 --> 0:22:12.080 bit more than they can chew and and end up 0:22:12.080 --> 0:22:14.840 having to impair that goodwill down the road once it 0:22:14.840 --> 0:22:20.040 becomes clear that the businesses haven't performed up to expectations 0:22:20.080 --> 0:22:23.119