Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, obviously,
Speaker 1: numerous assets across, you know, across the market have been crushed.
Speaker 1: But you know, one of the things, you know, math
Speaker 1: says that something could go down and it actually could
Speaker 1: go down another and it could go down another could
Speaker 1: go down from there. So there is this question of like, well,
Speaker 1: are is there real value at some point that's going
Speaker 1: to emerge out of this rubble or is it really
Speaker 1: just a lot of trash that's going to zero. Yeah.
Speaker 1: The thing that kind of worries me when it comes
Speaker 1: to valuations is, you know, people talk a lot about
Speaker 1: the ponds and omics of things like cryptocurrencies, but then
Speaker 1: or just the idea that the only value they get
Speaker 1: is by money continuously about flowing into them. But then
Speaker 1: I kind of I worry that you could make that
Speaker 1: case for a lot of traditional assets as well, stocks
Speaker 1: and bonds. Right, So, we've just seen valuations go up
Speaker 1: and up and up seemingly without limit, which kind of
Speaker 1: means that on the downside, maybe they can go go
Speaker 1: much further than you would normally think. Well, and I
Speaker 1: guess the question too is you know, like cryptocuragies aren't
Speaker 1: bolstered by like well free cash flows or like some
Speaker 1: cash of the bank that eventually makes it vailable. But
Speaker 1: in a company, you know, the question is do the
Speaker 1: unit economics works? Is there an actual business model? So
Speaker 1: you can have money losing companies that might still be
Speaker 1: worth something because there's like a business model there to
Speaker 1: be salvaged. But if you get a lot of companies
Speaker 1: that really in no economic conditions, whether it's boom Times
Speaker 1: or bus have something that is actually a business model
Speaker 1: that could be turned into something that can generate cash flow,
Speaker 1: then right, you can get into the situation which the
Speaker 1: only reason they were going up is because of investor money,
Speaker 1: and when that's gone, perhaps the assets over the zero Yeah, exactly,
Speaker 1: And it just feels like there's so much uncertainty at
Speaker 1: the moment. And of course the big wild card is
Speaker 1: the backdrop of inflation, which we haven't really had to
Speaker 1: deal with before. Right, normally things started going a little
Speaker 1: bit weaker in terms of the economy, we would expect
Speaker 1: the central bank to step in and do something, you know,
Speaker 1: provide some support and that would lift valuations up. Once again,
Speaker 1: that doesn't seem like it's going to happen this time.
Speaker 1: It's a very new dynamic and it wasn't even in place,
Speaker 1: you know, obviously in two thousand and eight, two thousand
Speaker 1: and nine, when there was aggressive response to the downturns. Anyway,
Speaker 1: enough of our talking, because I'm really excited about our guests,
Speaker 1: someone who knows a lot about the state of the
Speaker 1: world valuations, whether whether the assets are cheap or whether
Speaker 1: it's just more pontonomics all the way down. We are
Speaker 1: going to be speaking with Jim Chainos. He is the
Speaker 1: co founder of Chainos and Company, which used to be
Speaker 1: called Kinkos. He's probably one of was famous hedge funders
Speaker 1: slash short sellers in the world on Wall Street. Really
Speaker 1: needs no introduction, so let's bring him straight in. So
Speaker 1: we just did one you. Thank you so much for
Speaker 1: coming on on Lots. I don't think we've ever had
Speaker 1: you before, so this is a real thrill to have
Speaker 1: you on. Hey, thanks for having me guys. But I
Speaker 1: would say that, you know, being a famous hedge funder
Speaker 1: or or even work short seller is a pretty low
Speaker 1: bar these days. Well, so you said something that has
Speaker 1: really stuck with me. For the last two years. And
Speaker 1: I want to start the conversation here. You know, it
Speaker 1: is summer, and the stock market, after plunging in March,
Speaker 1: had started surging, and people really going into a lot
Speaker 1: of these like sort of like internet companies and like
Speaker 1: ubers and grub hubs and all of these, uh, you
Speaker 1: know tech companies that recently I pod and you said
Speaker 1: something interesting. You're like, if they're not making money now? Uh?
Speaker 1: And I don't remember your exactly right, but you said,
Speaker 1: if they're not making any money now when all of
Speaker 1: us so many people are stuck home, ordering online and
Speaker 1: so forth, they're not making any money now, when are
Speaker 1: they ever going to make money if not in the
Speaker 1: beautiful perfect economic condition of everyone in uh, in summer
Speaker 1: order buying so much online? Is that still the case? Like,
Speaker 1: have any of these companies made any progress to having
Speaker 1: a business model? So the companies we were talking about
Speaker 1: were some of the gig economy at Darlings and and
Speaker 1: continue to be so ine And you know, we we
Speaker 1: like to drill down not only in the financials of
Speaker 1: the business, but also the business models and and to
Speaker 1: see if they make sense. And what became pretty apparent
Speaker 1: to us in a number of them, particularly some of
Speaker 1: the well known companies like Uber and Lyft and door
Speaker 1: Dash which came public later. H is that the unit
Speaker 1: economics were terrible, and and not only that they were
Speaker 1: terrible at a time when they should have been nirvana.
Speaker 1: As you point out that the for example, food delivery,
Speaker 1: when everybody was getting checks from the government and stuck
Speaker 1: at home UM and and restaurants were going out of
Speaker 1: their way to make delivery you know, acceptable and easy,
Speaker 1: and yet the food delivery companies still couldn't make money
Speaker 1: because there were just too many people with outstretched hands
Speaker 1: earning fees. And so you know, it got it got
Speaker 1: to the point where narratives, by one the first first
Speaker 1: quarter of one, which was sort of the peak of
Speaker 1: the craziness, narratives trumped everything. And if you had a
Speaker 1: story and you could spin it about about uh, you know,
Speaker 1: future size of market and profitability by twenty you could
Speaker 1: go public, uh you know, do us back uh. And
Speaker 1: And unlike the dot com era UM, where those kinds
Speaker 1: of sort of pine in the sky UH stories had
Speaker 1: you know, two, three, four, sometimes five billion dollar valuations UM.
Speaker 1: In this case, they had sometimes even eighty billion dollar valuations.
Speaker 1: And and that's why we sort of called it the
Speaker 1: dot com era on steroids, because we're setting aside the
Speaker 1: profitable companies, you know, the sort of legitimate Silicon Valley companies.
Speaker 1: I'm talking about the stuff at the end of the
Speaker 1: whip um and and you know, that's what was sort
Speaker 1: of shocking to us, was just how big people were
Speaker 1: paying for the you know, in effect, the option value
Speaker 1: that the business would be worth something, you know, possibly someday,
Speaker 1: even though the business model was certainly unproven in one
Speaker 1: and and that that's to us probably the most striking
Speaker 1: part of what happened um in the markets and Silicon
Speaker 1: Valley versus a twenty years ago. So one of the
Speaker 1: things about being a short seller is that it can
Speaker 1: also it can often be a fraught emotional experience for many,
Speaker 1: many months and even years, until you're sort of proven
Speaker 1: right or the market turns your way. So I'm curious,
Speaker 1: what if the past few years been like for you,
Speaker 1: you know, watching some of these companies that you know
Speaker 1: aren't um generating earning, some of them aren't even cashlow positive,
Speaker 1: and seeing them attract loads and loads of money, And
Speaker 1: then how are you feeling right now? Because it does
Speaker 1: seem like some of the errors getting kicked out of
Speaker 1: the valuation tires of of these companies that you have
Speaker 1: long been been criticizing or targeting. Yeah, so really what happened, Uh,
Speaker 1: the sort of right of the valkyries of the short
Speaker 1: side was was sort of kicked off. And when Powell
Speaker 1: reversed course at Christmas. Uh you remember, you know, the
Speaker 1: markets had gone down almost and high yield was ticking up,
Speaker 1: and and they were tightening gradually and completely reversed course. UM.
Speaker 1: And by the way, the real GDP was roughly two
Speaker 1: percent in the fourth quarter of eighteen and two percent
Speaker 1: in the first quarter of nineteen. There was there was
Speaker 1: nothing going wrong with the economy, but he blinked and
Speaker 1: and that that turbo charged the markets in UM and
Speaker 1: then with the pandemic UM, you saw just the unprecedented
Speaker 1: both monetary and fiscal support. And and also I would
Speaker 1: point out in the fall of ten, when we saw
Speaker 1: a widespread reduction in retail commissions. If you remember, everybody
Speaker 1: went to zero commissions, and you had the advent of
Speaker 1: robin Hood and UM and a Merrittrade and Schwab all
Speaker 1: all advertising. And that's when we saw retail begin to
Speaker 1: pour into the market. Prior to that, for the ten
Speaker 1: years of the bull market from two thousand nine to nineteen,
Speaker 1: retail was basically buying you know, index funds and and
Speaker 1: ets and and basically you know, sort of investing reasonably.
Speaker 1: But starting in the fall of twenty nineteen, everybody decided
Speaker 1: to pick stocks and buy options, and you can see
Speaker 1: it in the price chart of State Tesla or whatever.
Speaker 1: The high flyers really began to go in October of nineteen,
Speaker 1: and uh, you know, they took a speed bump in
Speaker 1: March of with the pandemic, but but as soon as
Speaker 1: the Fed opened the spigots, it was back to the races.
Speaker 1: And it really went on until sort of the first
Speaker 1: quarter of one, which was a period unlike anything you know,
Speaker 1: I've seen in my forty years of being on the
Speaker 1: short side. It was it was the meme stocks, um
Speaker 1: But what it was really striking to me was the
Speaker 1: fact by February of one, for a couple of week periods,
Speaker 1: SPACs were raising new SPACs were raising on average three
Speaker 1: billion in cash every night, and and that was equal
Speaker 1: to the U S savings rate UM. So so for
Speaker 1: a brief period time spacts were taking the entire U
Speaker 1: S savings rate, which just struck me as the height
Speaker 1: of absurdity. Um and and and so you know, most
Speaker 1: stocks peeked out in that first quarter, first half of
Speaker 1: one and and you know, our performance uh hit its
Speaker 1: bottom there and uh and and really began kind of
Speaker 1: climbing in the summer of one. Even though the market
Speaker 1: made a new high in the fall, um a lot
Speaker 1: of stocks began to falter um And then we saw
Speaker 1: in our portfolio, and I think overall, we we began
Speaker 1: to see disasters, things like Peloton and robin Hood at
Speaker 1: the DraftKings and and you know, stocks that were suddenly
Speaker 1: darlings were suddenly down fifties six um on perceived you know,
Speaker 1: bad news. And and that was before that was you know,
Speaker 1: as the market was peaking in October November. So some
Speaker 1: of these gig economy companies that you mentioned in the beginning,
Speaker 1: their unit economics, they just didn't work too many fees
Speaker 1: even under the best conditions. You know, some of those
Speaker 1: names you just mentioned, like a Robin Hood, Pelotona Center, Like,
Speaker 1: how do you think about any value for them now?
Speaker 1: Because it doesn't seem like in theory that it should
Speaker 1: be impossible for robin Hood, and I guess they're un
Speaker 1: charged fees, so maybe maybe that is tough. It doesn't
Speaker 1: seem like it should be impossible for those to be
Speaker 1: viable businesses. Like at what point, I guess, Like, how
Speaker 1: do you think about how far this could go? Well?
Speaker 1: I mean, like anything, we we look at you know,
Speaker 1: we look at what is our upside and downside and
Speaker 1: try to structure our trades accordingly. UM. But but you know,
Speaker 1: for for a money losing, money losing financial generally trade
Speaker 1: slightly below tangible book value. I mean that's where the
Speaker 1: Chinese banks trade, is where the European banks trade, who
Speaker 1: are profitable. UM. But people don't trust the numbers and
Speaker 1: trust the model long term. So I would say that that,
Speaker 1: you know, some of the money losing brokers like coin
Speaker 1: base or robin Hood, or some of the fintech companies,
Speaker 1: which was another absurdity UH voisted on the market in UM,
Speaker 1: you know, those stocks are going to probably trade below
Speaker 1: book value, slightly below book value, and for some of
Speaker 1: these companies that's a long way down. Do you think
Speaker 1: something changed in terms of fundamental investor behavior that allowed
Speaker 1: us to get to the one point or is this
Speaker 1: just what we've seen before, I mean, most notably with
Speaker 1: the tech bubble, like we can have instances where valuations
Speaker 1: go absolutely crazy or did something actually happen that makes
Speaker 1: this period unique in some way? I think there's a tracy.
Speaker 1: I think there's a confluence of events. And if you
Speaker 1: remember that in the tech bubble, it was primarily tech, right, Uh,
Speaker 1: there were a lot of value stocks that actually held
Speaker 1: up pretty well in the in the in the ensuing
Speaker 1: bear market, to where a lot of hedge funds made
Speaker 1: their reputation, for example being short the garbage and long
Speaker 1: value in in and and and so you have this
Speaker 1: one pocket of insanity based on a narrative. Um, the
Speaker 1: Internet and and everything else was kind of you know,
Speaker 1: reasonably priced given where rates were in the economy. And
Speaker 1: remember the recession that we had in O one oh
Speaker 1: two was pretty mild. It was a business driven a
Speaker 1: recession didn't really affect the consumer at all. Um, And
Speaker 1: so this go around, it's almost everything and that's what's
Speaker 1: so that's what's so interesting. Um, you know, it was
Speaker 1: not only technology, but think about things like cap rates
Speaker 1: in real estate, you know, down at three and four
Speaker 1: percent and and and crypto and n f T s
Speaker 1: and and and just a wide variety. I mean, I
Speaker 1: still have lots of shorts in my portfolio where the
Speaker 1: companies are barely profitable and they're trading at at you know,
Speaker 1: thirty times cash flow and forty times cash flow is
Speaker 1: still even after the decline. And I think that that, um,
Speaker 1: the one thing that that people are not prepared for
Speaker 1: is interest rates resetting meaningfully higher because they just haven't.
Speaker 1: It hasn't happened in most invest there's lifetime. I came
Speaker 1: on the street in nineteen just as rates were peaking,
Speaker 1: and and and so the idea that that actually interest
Speaker 1: rates are not going to be two or three percent
Speaker 1: for the foreseeable future is going to be hard for
Speaker 1: a lot of investors to to to deal with. If
Speaker 1: we go back to you know, what I would think
Speaker 1: would be more reasonable rates, um, based on what we're
Speaker 1: seeing in the economy and inflation whatever. This market will
Speaker 1: not be able to handle five or six percent ten year.
Speaker 1: I mean just won't. And and so so many business
Speaker 1: models are that we look at are just extremely low
Speaker 1: return on invested capital because capital has been so plentiful
Speaker 1: for the last you know, twelve years. You mentioned the fintech,
Speaker 1: mentioned the gig economies. When you look at like just
Speaker 1: terrible business models or business models that can only possibly
Speaker 1: survive under the cheapest, most abundant capital, what else is
Speaker 1: out there that looks egregious? I mean there's there's almost
Speaker 1: the whole cross section of reads just seems absurd to
Speaker 1: us that you're gonna be buying, you know, apartment buildings
Speaker 1: that a three percent cap rate that's before capital spending. Uh,
Speaker 1: that's pre tax with the tenure at three thirty today. Um,
Speaker 1: I mean this just makes no sense. And and office
Speaker 1: buildings and and warehouse I mean, just go across the board,
Speaker 1: data centers. I mean, it's it's just it is, we've
Speaker 1: gotten so used to feasting on these ultra low interest
Speaker 1: rates that I don't think people realize, you know, what,
Speaker 1: where equities will trade in a in a resetting market
Speaker 1: where where risk free rates are are four or five percent.
Speaker 1: And I think that's that's a big area. But even
Speaker 1: things like electric utilities and and and consumer package good companies,
Speaker 1: I mean, the things are all still trading at times
Speaker 1: earnings and and I think that that that they've been
Speaker 1: seen as defensive because they're not technology, but at this
Speaker 1: point they may have as much risk as the text douts.
Speaker 1: So you know, I hesitate to ask you for a
Speaker 1: price target on the SMP five hundred, but could you
Speaker 1: give an indication of how low you think things could go?
Speaker 1: And also what do you think is the most overvalued
Speaker 1: at the moment and the most vulnerable to hire rates.
Speaker 1: I mean, I'm long the SMP five my hedge fund
Speaker 1: just f y I so so yeah, so so we're
Speaker 1: long the broad market in short short radioactive sort of
Speaker 1: group of companies. So just get that out there for
Speaker 1: full disclosures. I don't really I don't have a target
Speaker 1: for the SNP. I do think that the SNP is,
Speaker 1: you know, corporate profits, which for years have been mean reverting,
Speaker 1: have not been and you know this has been a
Speaker 1: golden age for the corporation in terms of profitability and value,
Speaker 1: and you know that that remains to be seen whether
Speaker 1: those profit margins will hold up longer term there at
Speaker 1: record levels. So I you know, I don't know where
Speaker 1: the SMP can trade. That's a that's a that's my
Speaker 1: cop out answer. I know that that some of the
Speaker 1: stuff we're in just trades at such extreme premiums to
Speaker 1: that that that you know, if if the market does
Speaker 1: note goes nowhere, I think we're gonna do just fine
Speaker 1: on our short portfolio. What's most overvalued right now? I
Speaker 1: I right now, I think that if you can find
Speaker 1: any companies and there are a lot of them that
Speaker 1: are earning you know, low to mid single digits return
Speaker 1: on capital, things like the real estate industry for example,
Speaker 1: or a number of consumer companies, a number of companies
Speaker 1: in the E s G space like solar um or
Speaker 1: just the the unit economics are just crappy, and then
Speaker 1: and but there's a narrative UM and and where there's
Speaker 1: leverage UM, and there are lots and lots of these
Speaker 1: names out there. UM those are going to I think,
Speaker 1: you know, be be problematic going forward if if rates
Speaker 1: drift higher, because again people just are are used to
Speaker 1: financing things at two and three percent and those days
Speaker 1: may be over. Man. I have a million questions. You know,
Speaker 1: a certain obviously you know we're not going to get
Speaker 1: the gym chainos SMP end of smp U forecast. But
Speaker 1: I am curious more broadly, because everyone's like, is this
Speaker 1: the bottom? Is this the bottom? You've seen these cycles
Speaker 1: obviously there's the dot com era, You've seen lots of
Speaker 1: other crashes. How should people think about what it looks
Speaker 1: like not from a numerical perspective per se, but what
Speaker 1: what it looks like when the pain ends, or what
Speaker 1: other things people might look forward to say, Okay, this
Speaker 1: is now, this is uh, this is what bottoms kind
Speaker 1: of look like. Well, what I've been kind of surprised
Speaker 1: at and this sort of again to use the it's
Speaker 1: never exactly the same, but to you the two thousand analog,
Speaker 1: I've been kind of surprised since November just how much
Speaker 1: retail investors continue to want to speculate um. Yeah, and
Speaker 1: and that that to me has been one of the
Speaker 1: things that's kept me, you know, as exposed on the
Speaker 1: short side, you know, in our hedge fund and short
Speaker 1: fund as I have been. I mean, you know, Cathy
Speaker 1: Wood was getting you know, inflows, uh for most of
Speaker 1: the first quarter UM in some cases record inflows. And
Speaker 1: we see it in the meme stocks that people were
Speaker 1: still speculating. Every time the market, you know, started stopped
Speaker 1: going down, the meme stocks would jump. And every and
Speaker 1: every time the market stops going down, my shorts typically
Speaker 1: go up. Thirty to two weeks um and and that's
Speaker 1: exactly what they did in two thousand and two thousand
Speaker 1: one and two thousand two UM and and people just
Speaker 1: are still I still want to believe that that this
Speaker 1: is the bottom. Uh that I'm you know, I'm gonna
Speaker 1: make my stand here. And I don't know, but I
Speaker 1: do know that the the willingness, particularly of the people
Speaker 1: who came late to the party, the retail investor buying
Speaker 1: individual stocks are options to still speculate is still there
Speaker 1: and and and it's it's somewhat shocking to me. Now
Speaker 1: this latest swoon and the crypto sell off we're seeing
Speaker 1: may dampen some of that. We'll have to see. But
Speaker 1: that's been one of the surprises to me, is just
Speaker 1: just how much people are willing to to keep come
Speaker 1: in and when the market sort of stops going down
Speaker 1: by the most speculative stocks for a bounce. So we've
Speaker 1: been talking obviously a lot about the sort of the
Speaker 1: retail angle, because that really does sort of dominate the story,
Speaker 1: maybe since the end of eighteen or middle of on
Speaker 1: the free trade start. Yeah, but the other big one
Speaker 1: of the big stories of the last twelve years or
Speaker 1: maybe much longer, And I know that you've been critical
Speaker 1: of it is the opposite the pe industry institutional, and
Speaker 1: like the degree to which it has been this sort
Speaker 1: of like one way train up. I'm pretty sure you're
Speaker 1: skeptical of some of the marks they've had over the years, Like,
Speaker 1: isn't this going to be the end for some of
Speaker 1: these highly especially if interest rates go to where you're
Speaker 1: talking about them? Is this going to be the end
Speaker 1: for some of these more leveraged models. So a couple
Speaker 1: of things about about the private equity industry. Um, I
Speaker 1: suspect they're about to have the same reality check that
Speaker 1: hedge funds had after the global financial crisis. So as
Speaker 1: we we talked about a little earlier. You know, hedge
Speaker 1: funds made their chops in the first you know, first
Speaker 1: seven or eight years of this century. Right, they were
Speaker 1: short the dot com garbage, they were long value, and
Speaker 1: both of those trades paid off from two thousand to
Speaker 1: two oh seven in a big way. And and hedge
Speaker 1: funds began to attract large amounts of assets and it
Speaker 1: completely fell apart in the GFC most most equity hedge funds.
Speaker 1: We're talking about equity hedge funds here most equity hedge funds,
Speaker 1: we're net long and and buying you know, value all
Speaker 1: the way down and got killed. Um and and hedge
Speaker 1: funds have had a rough go of it ever since.
Speaker 1: Really quite frankly, UM think about private equity. Private equity
Speaker 1: has had two major developments at their wind at their
Speaker 1: back for the last you know, forty years, but particularly
Speaker 1: for the last certainly twelve years. And and that is
Speaker 1: massively declining interest rates and rising equity values. And so
Speaker 1: if you are a leverage buyer of equities, that has
Speaker 1: been a massive tail wind. And what is shocking to me,
Speaker 1: and I allocate capital, I sit on some investment committees,
Speaker 1: so I see the private equity numbers and I hear
Speaker 1: the pitches. What is shocking to me is that if
Speaker 1: you were buying a portfolio of stocks leverage two or
Speaker 1: three to one, that you would expect to be doing
Speaker 1: a hell of a lot better than the SNP five
Speaker 1: over the past of years of the Russell Um you know,
Speaker 1: even net of fees. And the fact of the matter
Speaker 1: is that's not really been the case. And and I
Speaker 1: think that's going to be one of the biggest problems
Speaker 1: for private equity is the fact that that that you know,
Speaker 1: the returns net of fees and adjusted for leverage have
Speaker 1: gotten a lot more pedestrian in the last handfull of years.
Speaker 1: And if we're going to revalue interest rates structurally higher
Speaker 1: where you're not going to get easy exits and the
Speaker 1: I p O market, you know, closes down, you know,
Speaker 1: then private equity is going to have some heavy weather
Speaker 1: of it. And and it has been the asset of
Speaker 1: choice for institutional investors, there's no doubt about that. And
Speaker 1: I think that that you know, that that alone tells
Speaker 1: me that that if if you're big and private equity,
Speaker 1: you have'd be taking a look at your allocations and
Speaker 1: understanding you won't leverage equity. And just because they don't
Speaker 1: market you know, promptly, doesn't mean you're not taking the risks.
Speaker 1: And that that that's my concern about that. So just
Speaker 1: to broaden that point out a little bit, you know,
Speaker 1: we are at the point now where some people are
Speaker 1: drawing parallels to UM two eight and the financial crisis,
Speaker 1: and or you know, they say, oh, we're going to
Speaker 1: get there. But the difference that you often here stated
Speaker 1: between two thousand eight and now is the reduction and
Speaker 1: leverage in the financial system. And I'm curious what you
Speaker 1: think about the degree of leverage that may or may
Speaker 1: not be out there, because you know, especially with something
Speaker 1: like crypto, it feels like it's such a new asset
Speaker 1: class and it's quite hard to track. It feels like
Speaker 1: there could be linkage is there that we just don't
Speaker 1: really have a good sense of at the moment. Yeah,
Speaker 1: I mean we we clearly, you know, the warning sides
Speaker 1: were everywhere back you know, six and oh seven, because
Speaker 1: you can see it on the balance sheets right of
Speaker 1: the banks and the brokers. They were just getting more
Speaker 1: and more levered, and they were getting more and more
Speaker 1: leveraed to so called level two and level three assets
Speaker 1: which were we're hard and harder to value. And in
Speaker 1: this go around, you know, I think that that the
Speaker 1: general is basically always fight the last war, right, and
Speaker 1: we we we regulated the banking system pretty tightly after
Speaker 1: the GFC, and so I don't think there's systemic banking
Speaker 1: risk out there in terms of the need for government intervention.
Speaker 1: And what we saw in oh A at No. Nine,
Speaker 1: it's it's much more diffuse and and it's much more
Speaker 1: it's much more localized, and things like crypto and as
Speaker 1: you say, the sort of is that there hidden leverage
Speaker 1: in that system, My guess is there is, but we'll
Speaker 1: we'll find out probably shortly. And then other mechanisms that
Speaker 1: we haven't talked about fintech, but you know, sort of
Speaker 1: the shadow shadow banking world of fintech, which you know,
Speaker 1: I've been joking now for a while it is just
Speaker 1: simply subprime lending, you know, done on an app. You know,
Speaker 1: we'll find we'll find bodies floating to the surface, probably
Speaker 1: there before all is said and done. As well. I
Speaker 1: don't think the systemic issues, though, are the same. And
Speaker 1: every every bull market has its own flavor, and this
Speaker 1: one was not as depth driven, you know, as it
Speaker 1: would relate to to I think risks to the banking system.
Speaker 1: Now there's plenty of leverage out there in corporate leverage
Speaker 1: and and and again I think the risk it might
Speaker 1: not be credit risk, it might be rape risk. That's
Speaker 1: you know, a whole different that was the seventies, and
Speaker 1: that's a whole different kettle of fish than than sort
Speaker 1: of these deflationary credit shocks we had um in the
Speaker 1: past twenty years. So again we'll we'll have to see.
Speaker 1: Now if you want to talk about systemic problems, and
Speaker 1: and you know there's there's lots of them elsewhere around
Speaker 1: the globe. And then on top of it, I think
Speaker 1: you've got geopolitical issues that are probably, you know, really
Speaker 1: really different from the last last ten to twenty years.
Speaker 1: You know, the the the the rise of China, and
Speaker 1: and you know, for God's sakes, we have a land
Speaker 1: war going on in Europe right now. You mentioned fintech
Speaker 1: for a second, and you also mentioned it earlier in
Speaker 1: the chat, like can you tell what is it about
Speaker 1: this particular industry and the way it's structured. I don't
Speaker 1: even know what fintech is, to be honest, sometimes like
Speaker 1: I don't know if it's lending or trade whatever it did,
Speaker 1: But what is it about fintech that caused you to
Speaker 1: focus some or that you see such egregious valuations and
Speaker 1: business models? Fintech is a label used to get higher valuations.
Speaker 1: And I need to interview or sometimes all abous and
Speaker 1: and and and and it and boiled. And it's furthermore,
Speaker 1: since the advent of the Internet, it really has boiled
Speaker 1: down to we have a way of figuring out what
Speaker 1: people who generally don't pay back their loans, will pay
Speaker 1: back their loans. So are we have algorithms and we
Speaker 1: have big data, and we have all these things that
Speaker 1: these stagy bank and credit rating agencies and consumer credit
Speaker 1: companies haven't figured out. And we're going to get people
Speaker 1: to to to pay us back who we're paying us.
Speaker 1: We're lending lots of money to a big, big rates
Speaker 1: and fees. And every down cycle you know, since has
Speaker 1: seen the as companies blow up because it turns out
Speaker 1: they didn't have a better mousetrap. They just had the
Speaker 1: credit cycle and they're back and the algorithms didn't didn't work,
Speaker 1: you know, when things got tough, And I think this
Speaker 1: is gonna be no different. I mean, I just you know,
Speaker 1: I just see the narratives by by the companies that
Speaker 1: claimed they figured this out again. And the reality is
Speaker 1: is that after twelve years of easy credit and consumers
Speaker 1: getting flushed with government payments and all kinds of things,
Speaker 1: you know, everybody looks like a great credit. It's not
Speaker 1: going to be till till times get tough that you're
Speaker 1: gonna see, you know, where the risks in your your
Speaker 1: portfolio are. And and this was just another way for
Speaker 1: Silicon Valley to kind of tell another narrative, but this
Speaker 1: one's been around for a while. The first fintech companies,
Speaker 1: UH came out in I have a process question based
Speaker 1: on that answer. But you you talked about the idea
Speaker 1: of the credit cycle at a company's back when you're
Speaker 1: making your investments, and in particular when you're assuming short positions,
Speaker 1: how do you balance the macro environment and your expectations
Speaker 1: for the broader economy versus company specific insights that you
Speaker 1: might have. Because again, we kind of hinted at this
Speaker 1: at the beginning in the intro, but it's I don't
Speaker 1: want to say it's easy, but you can find a
Speaker 1: company and say, like wow, that this company has problems,
Speaker 1: there's a flaw in the business model. But if everything
Speaker 1: is moving in its favor, if there aren't very many
Speaker 1: defaults at that particular moment in time, it can kind
Speaker 1: of go along just fine for for quite a while.
Speaker 1: So how do you balance those two things? Yeah, so
Speaker 1: um and and can and does and so look what
Speaker 1: we're trying to find. What we're trying to find, particularly
Speaker 1: aproposed Joe's comments at the beginning of our conversation is
Speaker 1: the does the business look problematic when everything should be
Speaker 1: going its way. Facts, the odds in in the skeptics favor, right.
Speaker 1: So if you're if you're you know, a food delivery company,
Speaker 1: and you're not making money when when people are throwing
Speaker 1: money at you and everybody's at home, you know, maybe
Speaker 1: you have an issue and and and maybe the model
Speaker 1: just doesn't work. And so again we're looking for businesses
Speaker 1: that with really low return on invested capital. It's a
Speaker 1: big big thing we focus on. You know what for
Speaker 1: every dollar you give them uh to invest in the business,
Speaker 1: what do they return? And you know, for most of
Speaker 1: corporate America that number is in in double digits. It's somewhere,
Speaker 1: you know, in the mid teens to low teams. And
Speaker 1: yet there's just lots of companies out there that the
Speaker 1: people have thrown money out better, earning four or five
Speaker 1: six percent on their capital. And if you're only earning
Speaker 1: four or five or six percent of capital at the
Speaker 1: top of the business cycle with rates at two or
Speaker 1: three percent, you know you're gonna be in trouble. So
Speaker 1: we try to look at the macro and understand that
Speaker 1: that there will be cycles and and to try to
Speaker 1: find companies that are either unprofitable or or barely profitable,
Speaker 1: you know, and when things are good, because certainly things
Speaker 1: when things aren't good, it's gonna they're gonna make heavy
Speaker 1: weather of it. I should make one other point, Tracy,
Speaker 1: and that that's the other thing that has really struck
Speaker 1: us in this cycle, which is sort of addresses this
Speaker 1: question of yours. Is the amazing use of pro form
Speaker 1: of metrics by corporate America. And and you know, it's
Speaker 1: amazing how many companies will report numbers and the media
Speaker 1: will will dutifully say, you know, Salesforce dot Com, you know,
Speaker 1: beat expectations, and you know, made so much money. And
Speaker 1: then you look at the actual financial statements you see
Speaker 1: the lost money, and and you know this is this
Speaker 1: is getting worse and worse. And I think, you know,
Speaker 1: as it relates to to the course I teach on fraud.
Speaker 1: You know, I've been telling my students for the last
Speaker 1: couple of years that a lot of the disingenuousness in
Speaker 1: corporate America is happening right in front of you through
Speaker 1: the aggressive use of of self defined metrics, and the
Speaker 1: most egregious of which, of course, is adding back share
Speaker 1: based compensation, which Silicon Valley is just you know, lavish
Speaker 1: and using and as long as we just pay our
Speaker 1: people in stock that that doesn't count. And I think
Speaker 1: that virtuous circle is going to turn into a vicious
Speaker 1: cycle on the way back down. It already has for
Speaker 1: some companies. Presumably if if the if the assumption no
Speaker 1: longer exists that stocks only go up, then people might
Speaker 1: actually want more cash exactly, and then you have to
Speaker 1: run it through your P and U or the or
Speaker 1: the equity. You're just going to have just a lot
Speaker 1: more delution. You're gonna have to just issue more and
Speaker 1: more shares for a given dollar value. And so you know,
Speaker 1: in in in any case, I think that that metric
Speaker 1: and that for example, the gig economy companies, they were
Speaker 1: just masters at this. It's just uber lift or dash.
Speaker 1: They'll tell you adjusted. They're going to all be adjusted,
Speaker 1: even thought positive, it's at some point in the future.
Speaker 1: And then you look at the numbers and they're losing
Speaker 1: hundreds of millions of dollars in the quarters. What's the
Speaker 1: best historical analogy for crypto beanie babies? That that's that's
Speaker 1: that that's n f T s um. Sorry, but look,
Speaker 1: you know the thing about the thing about alternative alternative
Speaker 1: monetary systems. There's a long history of them, and they
Speaker 1: tend to they tend to be uh you know, adopted
Speaker 1: um or embraced or or recommended in good times not
Speaker 1: bad times. And I think that's a really interesting you know,
Speaker 1: aside that that I tell my friends who are kind
Speaker 1: of heavily invested in the concept of crypto. And you know,
Speaker 1: the first guy to think about this I teach in
Speaker 1: my fraud course was John Law maybe the greatest financial
Speaker 1: criminal of all time. Uh, you know, he wrote about
Speaker 1: this in seventeen oh five and on this this seminal
Speaker 1: work he did on the nature of FIAT currencies, and
Speaker 1: he pointed out that the state should embrace FIAT and
Speaker 1: he knew the risks. He knew the risks of debasement
Speaker 1: and inflation and all of these things that the reason
Speaker 1: why people wanted gold and silver and not paper. But
Speaker 1: he also made a couple of really interesting observations, and
Speaker 1: one of which was that in times of stress and
Speaker 1: I'm forgetting his actual term from seventeen o five, but
Speaker 1: that people actually will embrace government based FIAT because the
Speaker 1: government can adjudicate fraud uh and contracts. And then he
Speaker 1: talked about the fact that that the banking system based
Speaker 1: on that could also offer protection. He didn't say in
Speaker 1: deposit insurance, so he wasn't a far thinking yet, but
Speaker 1: it was the first sort of four runners of that,
Speaker 1: and the whole idea that when when you know you
Speaker 1: are you are in a situation where nobody trusts anything,
Speaker 1: you actually want the state to back things, and you
Speaker 1: want the ability of the federal reserved to be a
Speaker 1: lender of last resort, and you want to have the
Speaker 1: fact that you know that if you have two hundred
Speaker 1: fifty dollars in the bank, no matter what happens, you
Speaker 1: still have two dollars in the bank. And I think
Speaker 1: that's a really important concept that we kind of forget
Speaker 1: every time everything is going to the moon and we're
Speaker 1: all making lots of money, you know, speculating in things
Speaker 1: um and and that's that's the really interesting thing about
Speaker 1: crypto to me is that a lot of the concepts
Speaker 1: behind its adoption early on have proven to basically be
Speaker 1: not there or wanting. You know, it was going to
Speaker 1: be a replacement currency, Well, no it's not. Well it's
Speaker 1: going to be a diversifying asset. Well no, it hasn't
Speaker 1: been and you know, and and and we can check
Speaker 1: down the list and you know better than I do,
Speaker 1: but I do think there was a seminal moment. Was
Speaker 1: the interview that you had with Sam Bankman free that
Speaker 1: And I said so at the time, I mean that
Speaker 1: to me was a bell loud and clear that one
Speaker 1: of the crypto you know giants is telling you, you know,
Speaker 1: glad out yeah, yeah, ponzi noting and you know he
Speaker 1: said the real, real quiet part out loud, and and uh,
Speaker 1: that's when you boiled down a lot of these structures.
Speaker 1: That's what they are. And and I've called it a
Speaker 1: predatory junkyard and I stand by that. So I have
Speaker 1: a philosophical question based on that. But you know, there
Speaker 1: are a lot of hardcore crypto believers out there, especially
Speaker 1: of bitcoin, the Bitcoin maximalists and those types, and they
Speaker 1: look at something like Bitcoin and say, oh, this is
Speaker 1: the future of the monetary system and everything is going
Speaker 1: to change because of this. And then someone like you
Speaker 1: looks at Bitcoin and presumably says this is a ponzi
Speaker 1: And you know, it's just money following money, and that's
Speaker 1: all there is to it. How is it that two
Speaker 1: different people can look at the same asset like a
Speaker 1: bitcoin and come to wildly different conclusions about its worth
Speaker 1: and its value. So I should say that, you know,
Speaker 1: bitcoin is the leading currency, is sort of like the
Speaker 1: dollar of the crypto space. And and and because of
Speaker 1: its limited you know, issuance or whatever, I have no
Speaker 1: idea where it's going to trade. But what what my
Speaker 1: problem was was all the ecosystem built around crypto that
Speaker 1: is clearly just rent seeking. And and that's that's been
Speaker 1: my criticism of the whole space is just all the
Speaker 1: various staking, you know, staking things the quote unquote yields
Speaker 1: um the ridiculous of high fees they charged. I've been
Speaker 1: publicly shortcoin based. I'm not because I thought, you know,
Speaker 1: bitcoin was going down, but because they're over earning and
Speaker 1: and and so that to me was really was this
Speaker 1: this vast ecosystem that's sprung up overnight around it to
Speaker 1: basically extract fees from unsuspecting, primarily retail investors. I'll give
Speaker 1: you a great example. Um So, if you look at
Speaker 1: coin basis first quarter in retail trading value was huge
Speaker 1: compared to institutional but they earned almost the revenues. They
Speaker 1: earned almost a billion in commission revenues from retail traders
Speaker 1: during the quarter, and they earned only less than fifty
Speaker 1: million from institutional investors. Turns out that the on a
Speaker 1: dollar value of trading value, the retail is paying almost
Speaker 1: sixty times the rate of of institutions, and and so
Speaker 1: you know, it gets to my point that this is borderline,
Speaker 1: you know, predatory behavior in the industry, where the fees
Speaker 1: and and everything else is just just outrageous um not
Speaker 1: to mention some of the claims about you know, how
Speaker 1: you're yielding and what you're what the economic engine is
Speaker 1: behind these yields. And that's my complaint with what's going
Speaker 1: on in crypto is all of the circus around it.
Speaker 1: I want to ask you your you mentioned coin based,
Speaker 1: but I got to ask you about another specific company
Speaker 1: that you've had opinions done over the years. Of course,
Speaker 1: that's Tesla. I know you're shorted for a long time
Speaker 1: that I think you paired back your shorts as it
Speaker 1: went to the moon, and you know, I still obviously
Speaker 1: it's come back, but it's in a way, you know,
Speaker 1: it's like the Bellweather of the Kathy Wooden portfolio. It's
Speaker 1: also probably like the ultimate meme stock does it? Is
Speaker 1: it a sustainable company at this point? Like, hey, do
Speaker 1: you have a position on it? But be do you
Speaker 1: what do you like? What does it look? What do
Speaker 1: you look at Tesla right now? What do you see? Well?
Speaker 1: I see a company. Yes, they will they will survive.
Speaker 1: They they've made it past eighteen that was in question
Speaker 1: as Musk you know, admitted later. But no, they they
Speaker 1: certainly at this point, you know, got past the tipping point. However,
Speaker 1: it's a big however, they are dramatically over earning right now.
Speaker 1: And I think the risk to the stock is the
Speaker 1: fact that and I do think by the way, I
Speaker 1: think it is the Bellweather stock in the stock market.
Speaker 1: I think it's sort of like Cisco was where people
Speaker 1: were just kind of put putting their hopes and dreams
Speaker 1: and you know, any any hardware having to do with
Speaker 1: the Internet, Cisco was going to dominate it. And and
Speaker 1: it's the same sort of thing now. So whether it's
Speaker 1: E V s or or Solar or what have you.
Speaker 1: You know, Tesla is seen as the one stop shopping
Speaker 1: for that. And I think that that accordingly, you know,
Speaker 1: Testas still trades at almost ten times revenues and thirty
Speaker 1: times gross profits. So it's trading you know, like like
Speaker 1: a fast company or UM, but it it is an
Speaker 1: auto company. It has gross margins. Oft now the they
Speaker 1: have is that almost every other auto company in the
Speaker 1: world has gross margins. And so Tesla, which is earning
Speaker 1: you know, trading it's just a monster multiple, is also
Speaker 1: trading on a monster multiple of a profit stream that
Speaker 1: is going to get competed. And and that that is
Speaker 1: the risk of Tesla that becomes, you know, just an
Speaker 1: established e V company amongst a whole bunch of established
Speaker 1: EV companies. And I think that one of the things
Speaker 1: that people thought was that you know, the other O
Speaker 1: E M s would never get their act together, and
Speaker 1: and certainly for a while they didn't. But now with
Speaker 1: the advent of Ford and you know, the F one
Speaker 1: fifty lightning and and lots of other products that are
Speaker 1: both out and coming, you know, it's going to be
Speaker 1: the auto industry. And and make no mistake about it,
Speaker 1: Tesla is a car company. You know, they're building car plants,
Speaker 1: their capital intensive There's one of the risk to Tesla
Speaker 1: that I think is under appreciated by the market, and
Speaker 1: that is um this company turned the profitability corner when
Speaker 1: it opened the China plant, and we and others have
Speaker 1: a large suspicion that a disproportionate amount of the profits
Speaker 1: are coming out of Shanghai, and that, of course, you know,
Speaker 1: raises all kinds of other risks to the multiple um
Speaker 1: and whether or not they can actually you know, X pay,
Speaker 1: you know, get get their hands on that money. And
Speaker 1: I think that's not appreciated by the market as much
Speaker 1: as it should be. If you look at the company's
Speaker 1: gross profit margins. It took off as soon as Shanghai,
Speaker 1: you know, started volume production. Do you have a position
Speaker 1: on Tesla? Now, yeah, we're we're short. We we have
Speaker 1: a we have a Yeah. I know you've been critical
Speaker 1: of regulators and you you mentioned earlier that regulators are
Speaker 1: sort of backward looking and always fighting the last war.
Speaker 1: And I guess my question is why is that? Because
Speaker 1: you know, you look at something like Tesla and Elon
Speaker 1: Musk in the circus around Twitter, you could easily make
Speaker 1: the case that the SEC should be doing something here. Certainly,
Speaker 1: if you look at Crypto, you could be saying it
Speaker 1: certainly make the case they should do something here. And
Speaker 1: there's very little incentive for governments to actually let crypto,
Speaker 1: you know, just run wild. I mean, especially since a
Speaker 1: lot of crypto proponents basically say, we're trying to create
Speaker 1: an alternative monetary system to a government dominated one. But
Speaker 1: what's going on, like why why don't the regulators get
Speaker 1: more involved? So I've said a couple of things. I've
Speaker 1: said obviously that that journalists and short sellers and we're
Speaker 1: being very self serving here are real time financial detectives
Speaker 1: because they're incentivized to look for things, whereas regulators and
Speaker 1: law enforcement and legislators are are financial archaeologists. They'll tell you,
Speaker 1: you know, with much clarity, five or ten years after
Speaker 1: the fact, why you lost money and why this was fraudulent.
Speaker 1: And a lot of that has to do with the
Speaker 1: fact that much of that is political by its very nature.
Speaker 1: And I've also said that basically the strongest defense attorney
Speaker 1: and the harshest prosecutor for any any company is its
Speaker 1: stock price, and and that when everything's going up, it's
Speaker 1: kind of hard to throw stones, particularly politically, to say, okay,
Speaker 1: well maybe we should be taking a look at this.
Speaker 1: What do you want to do stifle innovation? I mean,
Speaker 1: that was what the securities regulators heard about crypto and
Speaker 1: in fact, I mean to me, the failure of global
Speaker 1: securities regulators to to in concert, you know, basically declare
Speaker 1: most crypto coins um and schemes securities is a major
Speaker 1: failing and because they clearly are, and I think that
Speaker 1: that that would have stopped a lot of the nonsense
Speaker 1: that that has subsequently happened if these coins that ever
Speaker 1: had to register as securities offerings. I think that's one
Speaker 1: one easy thing to point out to say, you know, ge,
Speaker 1: you guys dropped the ball on this one. But but
Speaker 1: as for everything else, it's not until investors start losing
Speaker 1: money that they begin to to get upset with with
Speaker 1: with people. Look at the look at the Meme stocks
Speaker 1: in January of in January one, you know when when
Speaker 1: Robin Hood, because of capital issues, you know, froze people
Speaker 1: from from adding to their accounts. People were upset because
Speaker 1: they couldn't buy more. And and there were hearings about that. Yeah,
Speaker 1: the stocks are now down dramatically, but and and they
Speaker 1: were blaming short sellers for example, and hedge funds who
Speaker 1: got run over. It was it was like bizarre world.
Speaker 1: And and and yet you know, I I talked to
Speaker 1: a lot of congressional staffs at that time, and and
Speaker 1: you know they were just hearing from their constituents how
Speaker 1: outrageous this was. And and you know these things are
Speaker 1: politically motivated. With the lag it's crazy and retrospect all
Speaker 1: the different politicians about the outrage of not being able
Speaker 1: to add to your game stop position in February. You know, Uh,
Speaker 1: I want to go back to something. You're talking about
Speaker 1: resetting and or moving significantly higher. And I don't listen
Speaker 1: to many podcasts because I don't really have time, but
Speaker 1: one that I did listen to is one that you
Speaker 1: did years ago with Matt Klein when he was at
Speaker 1: the FT, and you talked a bit about the business
Speaker 1: of short selling and in particular how short sellers think
Speaker 1: about rates and the fact that in the zerp environment
Speaker 1: it's kind of no fun or no great because you
Speaker 1: sell a share, you get cash and you park it somewhere,
Speaker 1: but you don't get any yield on that cash, which
Speaker 1: I had never heard of. No one really talks about that.
Speaker 1: So like from the does the business of short selling
Speaker 1: get better in this higher rate environment because you can
Speaker 1: earn yield on the cash that you talk a little
Speaker 1: bit about the business of short selling in a different
Speaker 1: rate environment. Yeah, so so a big so. The golden
Speaker 1: age of of of short selling alpha was basically, you know,
Speaker 1: the eighties and the late nineties, and and part of
Speaker 1: that was due to basically the fact that in addition
Speaker 1: to the fact that that stocks you know, basically fluctuated
Speaker 1: a lot, was that on your short cell proceeds you
Speaker 1: got eighty percent you split with the prime broker. Typically
Speaker 1: the cash received the interest on that segregated cash. So
Speaker 1: when rates were six and five and six and seven,
Speaker 1: you were earning five or six percent on on the cash.
Speaker 1: That was a big cushion. Um. Now, obviously you're obligated
Speaker 1: to pay any dividends from your short position, but but
Speaker 1: a lot of shorts you know, have very low yields
Speaker 1: or don't pay dividends. That was a nice, nice, you know,
Speaker 1: cushion to the short side. That all went away with
Speaker 1: ZERP right. And there was another factor that prior to
Speaker 1: really uh the GFC that there was kind of a
Speaker 1: floor on negative rebates at zero percent. That in effect
Speaker 1: that unless it was a really crazy risk ARB situation
Speaker 1: or something that it was very rare that you actually
Speaker 1: had to pay to short something, you might earn a
Speaker 1: low or interest rate. You might earn two percent instead
Speaker 1: of six percent on the cash, but you didn't have
Speaker 1: to pay negative ten or twenty. And with the advent
Speaker 1: of much more transparent market algorithmic trading, where you got
Speaker 1: these monster books that are long and short or whatever,
Speaker 1: rebate rates you know, often go negative and hard to
Speaker 1: borrow stocks, and that became a new reality. So those
Speaker 1: two factors definitely impacted your returns on the short side,
Speaker 1: both relatively and uh and and absolutely, Jim, I think
Speaker 1: that's a great place to leave it. I mean, we
Speaker 1: could talk for hours and hours longer, but this was
Speaker 1: a real treat. It's kind of crazy. It took this
Speaker 1: so long to have you on, but it seems like
Speaker 1: perfect timing. So appreciate you coming on online. I'm so
Speaker 1: happy we finally finally got to do it. Thank you.
Speaker 1: Gotta do it again, no more waiting six years things
Speaker 1: all right, all right, thank you? That was fun. Yeah, well,
Speaker 1: obviously that was great. Is a real treat to talk
Speaker 1: to Jim. Hearing him talk about some of these other
Speaker 1: areas that aren't tech and how much he sees like
Speaker 1: this sort of what he views is like this egregious
Speaker 1: evaluation is pretty eye opening. Yeah, and it sort of
Speaker 1: gets to the that ponzi no nomics point, Like, obviously
Speaker 1: a stock isn't necessarily a ponzi. You know, a company
Speaker 1: can have real cash flows and real potential profits. But
Speaker 1: it does feel like we have had this, I guess,
Speaker 1: this overall dynamic of just money flowing into things almost indiscriminately.
Speaker 1: It feels like, well, you know one thing too, is
Speaker 1: this listening to this? And it's sort of obvious, but
Speaker 1: I think it's worth driving home. The sticks are extremely
Speaker 1: high for whether this question of will inflation essentially be
Speaker 1: transitory or will like or are we in a new
Speaker 1: stained higher inflation, higher rate environment, Because if we really are,
Speaker 1: like the yields are going to continue to chase it,
Speaker 1: then that's where you get it. You know, you're talking
Speaker 1: about utilities or you talk about like reads like these
Speaker 1: are sort of like industries and sectors that aren't particularly
Speaker 1: sexy by any stretch, but they are very rate sensitive
Speaker 1: and there's a lot of room for multiples potentially to
Speaker 1: come down. So do you hear them talking about reads
Speaker 1: or do you hear them talking about data centers or
Speaker 1: do you hear them talk about utilities in this sort
Speaker 1: of same breath as fin techs and cryptos and gig
Speaker 1: economy stocks. You could see like how high the stakes
Speaker 1: are for like, well, where do where do rates end up?
Speaker 1: What is like terminal? What does the terminal look like? Right?
Speaker 1: Like your entire reputation as an investor is going to
Speaker 1: come down to whether you've got the inflation called right,
Speaker 1: because that's going to change everything in markets, right, I
Speaker 1: mean arguable that our head, but I mean still yeah,
Speaker 1: like there's huge swaths of the market that could be
Speaker 1: very highly, highly affected by what goes on from here. Still, anyway,
Speaker 1: tons to digest? There to do? Can we do an
Speaker 1: episode where I interview you about fintech? I mean, I
Speaker 1: do have thoughts, and it did. It did come up
Speaker 1: recently in our stable coin episode the parallels with p
Speaker 1: t P. But I do feel like to some extent,
Speaker 1: like the peer to peer bubble or direct lending bubble
Speaker 1: was like a very nice microcosm of a lot of
Speaker 1: the trends that we're seeing now. But anyway, um, let's
Speaker 1: leave it there. Let's leave it there. Okay, this has
Speaker 1: been another episode of the All Thoughts podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway and
Speaker 1: I'm Joe. You can follow me on Twitter at The Stalwart.
Speaker 1: Follow our guest Jim Chano is on Twitter. He's at
Speaker 1: Wall Street Cynic. Follow our producer Carmen rond Veguez at
Speaker 1: Carmen Arman. Follow the Bloomberg Head Of podcast for in
Speaker 1: chest leav at bray CHESSCA Today, and check out all
Speaker 1: of our podcasts Bloomberg under the handle head Podcasts. Thanks
Speaker 1: for listening to