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