June 11, 2025 • 18 mins
Chanos & Co. founder Jim Chanos discusses the outlook for the US stock market, his views on Tesla and why he is betting against Carvana. Speaking with Scarlet Fu on Bloomberg Television, Chanos also responds to Michael Saylor dismissing his recommendation to short the shares of Strategy and buy Bitcoin.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:06):
Really appreciate your joining us today, Jim on set here
at Bloomberg World Headquarters, Killing Joe. We're talking, of course
about Scott Bessett testifying before the Houseways and Means Committee,
And of course this comes on the heels of two
days of China US trade talks in which President Trump
has declared a done deal. He talks about the US
imposing fifty five percent tariffs on China and the China
imposing ten percent on US.
Speaker 1 (00:28):
You are a long time China bearer.
Speaker 2 (00:30):
You've been monitoring the economy's transition from export investment led
to one that's consumption led. You also teach at Yale
Management School Business. What kind of grade would you give
this trade deal, this so called trade deal.
Speaker 3 (00:42):
I'd give it a temporary incomplete so far, because we
don't have all the details yet, and it doesn't seem
to be a whole lot different from where we were,
you know, not too long ago. So I think we
need to see, As always in these things, the devil's
in the details, and so we'll have to say see.
Speaker 4 (01:01):
What goes on.
Speaker 3 (01:03):
But as I mentioned before we went on the air,
it does appear that China ended up holding some cards
after all.
Speaker 2 (01:08):
Yeah, you're referring, of course to rare earth's and magnets,
and it turns out that China does have a lot
of leverage over that in terms of whether it allows
licenses for export and how quickly it allows shipments. And
this is something that industry had pressed President Trump on.
Is this going to be a cudgel that Beijing continues
to hold over the US?
Speaker 3 (01:26):
I mean, obviously we're going to try to diversify and
increase our sources of strategic metals and rare earths. I
think the administration's been clear about that. But the fact
of the matter is, Scarlat, I don't think the market
ever really believed that the most onerous of tariffs was
ever going to go in. I mean, even though the
market was down twenty percent at one point at its
(01:49):
worst day to day, I think got a daily closed
twelve percent in April, runing sestements for the S and
P never really dropped that much. They've flattened out, they
didn't collapse, and so the market has been kind of
looking through all this for a while now.
Speaker 2 (02:05):
Yeah, Well, onstock that did move a lot, of course,
as Tesla and as a long time skeptic of Tesla,
I'm curious to get your take on the very public
breakup between Elon Musk and President Trump. Musk is now
saying that he has some regrets over his comments, and
he also says that they went too far. Does this
drama change Tesla's narrative or prospects in any material way?
Speaker 4 (02:25):
Yeah, it was all, at the end of the day,
a big nevermind, right.
Speaker 3 (02:28):
But look, I think that that depending on how this
all came about, and there's all kinds of stories, and
who knows, certainly everyone's going to tell their story. The
fact of the matter is, it does look like the legislation,
with a lot of benefits for EVS and solar, is
going to change that dynamic dramatically, and that does have
(02:51):
a material effect on Tesla's businesses, both in the auto
credits for their customers seventy five hundred dollars each called
ZEV credits, themissions credits that they sell for cash that looks.
Speaker 4 (03:06):
Like it may be going away, and then.
Speaker 3 (03:08):
A variety of possible IRA credits and certainly solar credits
for their Solar City subsidiary. So there's a lot for
them to lose in the House legislation. It may change
with the Senate and with compromise. We'll have to see.
But when we get past all the personal stuff and
kind of all the craziness from last Thursday, there are
(03:29):
some real impact in the legislation, and it doesn't appear
that the White House is backing down on.
Speaker 1 (03:34):
That right right.
Speaker 2 (03:36):
I mean, Elon Musk and his executives over at Tesla
have also been promoting videos showing a driver list Tesla
on the streets of Austin, and of course that's a
hint that their robotaxi launch will move forward, I believe
at the end of this month. Does that remove some
of the concern about the legislation that takes away some
of those tax credits and tax benefits that Tess has enjoyed.
Speaker 3 (03:58):
Well, I mean, I think almost everyone at this point
agrees that the company is not being valued for its
just its auto operations. It would be trading at thirty
or forty dollars a share, not three hundred and something.
So the two pillars or three pillars that it rests
on are autonomous driving related robotaxis, and then the optimist
(04:22):
robot line and so everything has to go right for
those valuations to play out. We'll see. I mean, you know, robotaxi.
Yesterday there were images of a robotaxi in Austin, but
what no one talked about was the trailer car right
behind it. So so I mean there's two cars for
every Robotaxi, and there was a driver in the second car.
(04:44):
And so I mean, and the cost model for this,
people are using absurdly low numbers for the cost per mile,
not understanding the cost for redundancy and safety as well
as self insurance and a lot of other costs that
are in people who are bullish in their models.
Speaker 4 (05:03):
So we'll have to see.
Speaker 3 (05:05):
And as for autonomy, I mean full level four, level
five autonomy, I mean they've been promising it for ten
years now, for there's still at level two, just like
everybody else, I maintained by twenty thirty or so, every
car is going to have level four or five autonomy.
It's going to be a standard feature like cruise control
(05:26):
is now or anti lock breaking. So I think you know,
at that point you're then kind of relying on the robots.
Speaker 2 (05:36):
Let's talk a little bit about that bullish environment you
just mentioned. You've called the post COVID market euphoria, the
Golden Age of fraud, and we've seen the S and
P five hundred had that gigantic draw down in April,
but it's now right back to within about two percent
of its record high. On top of that, you've got
a white House that has been shattering norms and continues
to do so, and it plays Lucy goosey with laws
(05:57):
and rules. How would you characterize environment now?
Speaker 3 (06:00):
Well, I mean so Wall Street has been a center
for this kind of activity in terms of stuff that
I think a crosses the line, i e.
Speaker 4 (06:09):
The Golden Age of fraud.
Speaker 3 (06:11):
We now have a bipolar world because Washington, DC is
also a center for it. Look, I think that this
bull market is going to go until you know it doesn't.
I keep telling people we're going to need to fill
every last bull and Wall Street will do it. They
took a good shot at it in twenty twenty one
(06:31):
with the advent of SPACs and NFTs and mean coins,
and we're going to see that happen again. You know,
going forward, issuance is already starting to increase dramatically. We're
seeing a big pickup in insider sales, particularly the companies
we cover, So executives are selling to retail investors, just
not a good sign. And the sec and regulators and
(06:54):
what others have taken generally a very to be charitable lass,
a fair approach to the market where people can say
almost anything they want, there's no downside to it, and
the use of pro forma metrics, which I've been talking
about for years now, it just gets worse by the year.
Speaker 2 (07:12):
So it sounds like and I want to connect the
dots to the White House as well here, because when
the president is showing meme coins and hosting dinners for
the meme coins buyers, there's got to be a spillover
effect into the business culture. Does it just give companies
that are inclined already a free past to engage in
more questionable behavior.
Speaker 3 (07:29):
Yeah, except that that meme coins aren't securities at least
that's been the ruling so far right, and stocks and
bonds are. And there are rules for saying things about
stocks and bonds that don't necessarily apply to crypto. And
so I see that the administration is very wisely stayed
within that boundary of embracing crypto and get rich quick
(07:51):
schemes for lack of a better term in crypto. But
it's where people cross the line and start making promises
about stocks and bonds that I'm concerned. That's my world,
and I see just you know, lack of a lack
of oversight there.
Speaker 2 (08:08):
All right, let's dive a little bit deeper into your world.
Then you no longer manage outside capital, but you do
manage your own funds, and you advise clients, chinos and companies,
a family office and an advisory and a new idea
that you've justice closed. A new short idea is Carvana CVNA.
The stock is up about sixty six percent so far
this year. It's made a round trip back to a
four year high. It's a used auto retailer, which is
(08:31):
a pretty straightforward business.
Speaker 1 (08:33):
Why do you call it a misunderstood story?
Speaker 4 (08:35):
Then? So this is this is a revisit. We were
short at this stock successfully.
Speaker 3 (08:40):
In twenty twenty two and twenty twenty.
Speaker 4 (08:42):
Three and covered, and now it's back.
Speaker 3 (08:46):
I joked the other day that you know, investors on
the long side look for that hundred bagger. We do too,
for companies that are already up one hundred x, and
Carvana is basically up almost one hundred x from its
lows in twenty twenty two and twenty twenty three, so
it's completely round trip back to where it was in
twenty twenty one. But people have perceived it as a
(09:09):
secular growth story.
Speaker 4 (09:12):
It's cyclical.
Speaker 3 (09:13):
Their revenues dropped year over year in mid twenty twenty
three from selling cars down over thirty percent.
Speaker 4 (09:23):
Units dropped.
Speaker 3 (09:24):
That came back, But what really has us going is
a couple of things. First is the accounting. We love
bad accounting, and this is a company that is now generating,
over the latest twelve months about seventy percent of their
operating profit is coming from gain on sale of.
Speaker 4 (09:43):
Subprime loans.
Speaker 3 (09:44):
So they're originating subprime loans and selling them immediately for gains.
Speaker 4 (09:49):
And this is something that the chairman of.
Speaker 3 (09:52):
The company, you know, is very familiar with, Ernie Garcia.
The second he started with a company called Ugly in
the nineties that got into trouble for subprime lending. It
then became drive Time, and Drivetime is the parent the
experient of Carvana.
Speaker 4 (10:10):
So there's a history here.
Speaker 3 (10:12):
But that amount of income coming from a sale of subprime.
Speaker 4 (10:17):
Loans is staggering.
Speaker 3 (10:20):
Yeah, and you should not be putting an enormous multiple
on this fifty sixty seventy times. On top of that,
two other things that are kind of new to the story.
Number one is the short interest has collapsed. It was
one of the most shortened stocks in twenty twenty three,
and now the short interest is back to multi year
(10:42):
lows as a percent of outstanding. So the bears, the
other bears have given up. And number two, we've seen
a dramatic increase in insider selling, something we just talked
about in May and June in the shares of Carvana.
So the last time we saw this type of selling,
the stock also was getting ready to go down dramatically.
Speaker 2 (11:03):
Yeah, so that's another red flag, and of course we
should mention that we are out to Carvana.
Speaker 1 (11:07):
Four comment.
Speaker 2 (11:08):
Because of all of that, I want to switch gears
a little bit here, because you are also blowing up
on social media over the last couple of days due
to your call to go long bitcoin and short MSDR Strategy.
Michael Saylor, the CEO of Strategy, you spoke with us
yesterday on bloomber Crypto. Here's what he told us about
your trade.
Speaker 5 (11:27):
You know, I don't think he understands what our business
model is we're actually the largest issue or of bitcoin
back credit instruments in the world. So last week we
just raised a billion dollars by selling preferred stock non
cumulative called stride. That means we basically borrowed money that
we never have to pay back that we pay a
(11:49):
dividend on, but we could suspend the dividend if we
needed to. So Jim has been thinking that we somehow
needed to sell the equity. So at the end of
the day, if he's lucky enough to short the stock
below one time's nov we're going to issue the preferreds,
buy back the stock, and make money for our shareholders.
If the stock trades at a week premium, we're just
(12:11):
going to sell the preferreds, and if the stock rallies up,
he's going to get liquidated and wiped out. What he
still doesn't understand is we're not a holding company or
a closed and trust. We're an operating company. So when
we issue trust can't leverage the bitcoin. They can't issue
preferred shares, they can't issue permanent shares of equity out
(12:35):
of premium.
Speaker 4 (12:36):
We can.
Speaker 1 (12:38):
Jim your response, yes, I.
Speaker 3 (12:41):
Always love it when management say, well, he just doesn't
understand our business. Michael Sailor is a wonderful salesman, but
that's what he is. He's a salesman, and what he's
selling investors is the concept that you give me your
money and I'm just going to go by bitcoin and
hopefully the value of my stock trades that are preemium
to the value of that bitcoin, and so as long
(13:03):
as I can keep doing that, I generate value. And
this is, of course, I called it financial gibberish, because
on top of that, he also said in your interview,
he said the company should not just be valued on
the basis of the bitcoin holdings, but on a multiple
of the profits that accrue from when I do this
(13:23):
financial alchemy. And I pointed out on social media, I said, well,
that's akin to saying, well, my house that rose in
value from four hundred and fifty thousand to five hundred
thousand dollars last year is not worth five hundred thousand,
it's worth one and a half million, because it's worth
the five hundred thousand plus a twenty multiple on the
(13:44):
fifty thousand dollars increase. And of course that's absurd, but
that's the claim he's making on top of that, he's
basically now saying that that, well, I'll sell preferred not common,
to dilute the shareholders and compress the premium. And let
me just interject really importantly here, I'm actually doing what
(14:06):
he is advocating, right, I am selling micro Strategy securities
to buy bitcoin. Let's be clear, it's the hedge trade.
I don't know where bitcoin.
Speaker 2 (14:14):
Is going to go, and it doesn't matter to you,
actually does well, it doesn't matter.
Speaker 3 (14:18):
The premium compressing matters to me. And so it's important
to understand that in twenty twenty four and twenty twenty five,
mostly at the end of twenty four and twenty five,
micro Strategy has sold thirty five billion dollars roughly of securities,
thirty three billion in common and convertible into common, and
(14:38):
two billion in preferred most recently. The market for the
preferred stock that he's selling is tiny relative to common,
Let's be clear about that. And in his own words
that you just played back, he makes a case that
you have to.
Speaker 4 (14:53):
Be crazy to buy these preferreds.
Speaker 3 (14:54):
Right, He's going to pay you a dividend, maybe it's
not redeemable, is perpetual, And if I don't pay the dividends.
They're not cumulative. I don't have to pay the back dividends.
So you know who in the right mind institutionally would
buy these preferreds?
Speaker 1 (15:10):
That's my question.
Speaker 2 (15:10):
Do you think there's always going to be buyers for
these preferreds, especially if Bitcoin starts to trend lower or
materially lower.
Speaker 3 (15:17):
And again he said, well, if the stock trades below
one m multiple m NAV, we call it, you know, chainos,
I'll just five at by common. I can assure you
if it trades below one, I will have covered my short.
Speaker 2 (15:30):
Is there a catalyst, though, or a certain set of
conditions that would drive the premium down to collapse?
Speaker 4 (15:34):
The catalyst is Michael Saylor.
Speaker 3 (15:37):
It's exactly he's been selling equity to himself compressed the NAV.
And I would point out I posted something just yesterday
as well that for all of this, the premium to
NAV that micro strategy has averaged has been right around
the levels we are today about one point eight, and
(15:59):
we put this trade on and advise clients somewhere between
two point two and two point three. But it's traded
at one, and it's traded size three and a half.
Speaker 1 (16:11):
Where do you think it should be it should be
at one.
Speaker 3 (16:13):
I mean, I just think because all for all the
advantages he claims, you have agent what we call agency
risk in finance, you have the fact that he could
do something to the detriment of shareholders.
Speaker 4 (16:27):
And of course we're not.
Speaker 3 (16:28):
Calculating any deferred taxes in our nav which theoretically that there.
Speaker 4 (16:32):
Would be if he sold if he sold bits.
Speaker 2 (16:35):
So the other argument that people make is that the
average MicroStrategy shareholder is not a tourist. These are diehards
who eat downside volatility for breakfast. That's what they say
on social media. How long are you prepared to wait
for this trade to play out?
Speaker 3 (16:47):
You have to stop listening to all social media Scarlett,
because if you do a simple calculation of share turnover,
how often does the micro strategy turn it share share
base over? The last we looked was something like four weeks, So.
Speaker 4 (17:03):
The average average micro strategy shared trades every four weeks.
That's not a long term investor. This is one of the.
Speaker 3 (17:10):
Most actively traded speculation vehicles.
Speaker 4 (17:13):
In the market.
Speaker 2 (17:14):
So there are other companies that are following micro strategies
approach right, the Bitcoin treasury strategy overall and game stop DJT,
the president's media company.
Speaker 1 (17:23):
Does that mean that.
Speaker 2 (17:24):
There are comparable big short opportunities for those specific names
as well.
Speaker 3 (17:28):
Well, you're pointing to another catalyst. So the catalyst is
this is a me too trade? Right, there are other
companies can do it. There's nothing proprietary about Michael Saylor's
business model, right, He's simply buying bitcoin, which is a
highly liquid asset that.
Speaker 4 (17:43):
The trades everywhere.
Speaker 3 (17:45):
So yes, other companies have now looked at this and
said we can do this too, and we can issue
equity to become a bitcoin treasury company. And the more
and more supply we're going to see, the less and
less premium anybody's going to have.
Speaker 2 (17:58):
Jim, I'm going to wrap this up and ask you
one final question to kind of put everything in perspective.
Are the economy and stock market as strong as they
seem to appear. You've got a resilient consumer, you've got
tame inflation, you've got ostellar profits, and you've got stocks
near record high.
Speaker 4 (18:11):
Yeah. I mean everything looks good.
Speaker 3 (18:14):
I think that valuations are back up to their high levels.
And what we're keeping around again is issuance. We're looking
at supply. I always keep joking at. Wall Street has
a printing press too, and the printing presses is starting
to gear up.
Speaker 2 (18:30):
It's worrying away, all right. Jim Chaino is always a pleasure.
Thank you so much, President and founder of Chainos and Company.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:06):
Really appreciate your joining us today, Jim on set here
at Bloomberg World Headquarters, Killing Joe. We're talking, of course
about Scott Bessett testifying before the Houseways and Means Committee,
And of course this comes on the heels of two
days of China US trade talks in which President Trump
has declared a done deal. He talks about the US
imposing fifty five percent tariffs on China and the China
imposing ten percent on US.
Speaker 1 (00:28):
You are a long time China bearer.
Speaker 2 (00:30):
You've been monitoring the economy's transition from export investment led
to one that's consumption led. You also teach at Yale
Management School Business. What kind of grade would you give
this trade deal, this so called trade deal.
Speaker 3 (00:42):
I'd give it a temporary incomplete so far, because we
don't have all the details yet, and it doesn't seem
to be a whole lot different from where we were,
you know, not too long ago. So I think we
need to see, As always in these things, the devil's
in the details, and so we'll have to say see.
Speaker 4 (01:01):
What goes on.
Speaker 3 (01:03):
But as I mentioned before we went on the air,
it does appear that China ended up holding some cards
after all.
Speaker 2 (01:08):
Yeah, you're referring, of course to rare earth's and magnets,
and it turns out that China does have a lot
of leverage over that in terms of whether it allows
licenses for export and how quickly it allows shipments. And
this is something that industry had pressed President Trump on.
Is this going to be a cudgel that Beijing continues
to hold over the US?
Speaker 3 (01:26):
I mean, obviously we're going to try to diversify and
increase our sources of strategic metals and rare earths. I
think the administration's been clear about that. But the fact
of the matter is, Scarlat, I don't think the market
ever really believed that the most onerous of tariffs was
ever going to go in. I mean, even though the
market was down twenty percent at one point at its
(01:49):
worst day to day, I think got a daily closed
twelve percent in April, runing sestements for the S and
P never really dropped that much. They've flattened out, they
didn't collapse, and so the market has been kind of
looking through all this for a while now.
Speaker 2 (02:05):
Yeah, Well, onstock that did move a lot, of course,
as Tesla and as a long time skeptic of Tesla,
I'm curious to get your take on the very public
breakup between Elon Musk and President Trump. Musk is now
saying that he has some regrets over his comments, and
he also says that they went too far. Does this
drama change Tesla's narrative or prospects in any material way?
Speaker 4 (02:25):
Yeah, it was all, at the end of the day,
a big nevermind, right.
Speaker 3 (02:28):
But look, I think that that depending on how this
all came about, and there's all kinds of stories, and
who knows, certainly everyone's going to tell their story. The
fact of the matter is, it does look like the legislation,
with a lot of benefits for EVS and solar, is
going to change that dynamic dramatically, and that does have
(02:51):
a material effect on Tesla's businesses, both in the auto
credits for their customers seventy five hundred dollars each called
ZEV credits, themissions credits that they sell for cash that looks.
Speaker 4 (03:06):
Like it may be going away, and then.
Speaker 3 (03:08):
A variety of possible IRA credits and certainly solar credits
for their Solar City subsidiary. So there's a lot for
them to lose in the House legislation. It may change
with the Senate and with compromise. We'll have to see.
But when we get past all the personal stuff and
kind of all the craziness from last Thursday, there are
(03:29):
some real impact in the legislation, and it doesn't appear
that the White House is backing down on.
Speaker 1 (03:34):
That right right.
Speaker 2 (03:36):
I mean, Elon Musk and his executives over at Tesla
have also been promoting videos showing a driver list Tesla
on the streets of Austin, and of course that's a
hint that their robotaxi launch will move forward, I believe
at the end of this month. Does that remove some
of the concern about the legislation that takes away some
of those tax credits and tax benefits that Tess has enjoyed.
Speaker 3 (03:58):
Well, I mean, I think almost everyone at this point
agrees that the company is not being valued for its
just its auto operations. It would be trading at thirty
or forty dollars a share, not three hundred and something.
So the two pillars or three pillars that it rests
on are autonomous driving related robotaxis, and then the optimist
(04:22):
robot line and so everything has to go right for
those valuations to play out. We'll see. I mean, you know, robotaxi.
Yesterday there were images of a robotaxi in Austin, but
what no one talked about was the trailer car right
behind it. So so I mean there's two cars for
every Robotaxi, and there was a driver in the second car.
(04:44):
And so I mean, and the cost model for this,
people are using absurdly low numbers for the cost per mile,
not understanding the cost for redundancy and safety as well
as self insurance and a lot of other costs that
are in people who are bullish in their models.
Speaker 4 (05:03):
So we'll have to see.
Speaker 3 (05:05):
And as for autonomy, I mean full level four, level
five autonomy, I mean they've been promising it for ten
years now, for there's still at level two, just like
everybody else, I maintained by twenty thirty or so, every
car is going to have level four or five autonomy.
It's going to be a standard feature like cruise control
(05:26):
is now or anti lock breaking. So I think you know,
at that point you're then kind of relying on the robots.
Speaker 2 (05:36):
Let's talk a little bit about that bullish environment you
just mentioned. You've called the post COVID market euphoria, the
Golden Age of fraud, and we've seen the S and
P five hundred had that gigantic draw down in April,
but it's now right back to within about two percent
of its record high. On top of that, you've got
a white House that has been shattering norms and continues
to do so, and it plays Lucy goosey with laws
(05:57):
and rules. How would you characterize environment now?
Speaker 3 (06:00):
Well, I mean so Wall Street has been a center
for this kind of activity in terms of stuff that
I think a crosses the line, i e.
Speaker 4 (06:09):
The Golden Age of fraud.
Speaker 3 (06:11):
We now have a bipolar world because Washington, DC is
also a center for it. Look, I think that this
bull market is going to go until you know it doesn't.
I keep telling people we're going to need to fill
every last bull and Wall Street will do it. They
took a good shot at it in twenty twenty one
(06:31):
with the advent of SPACs and NFTs and mean coins,
and we're going to see that happen again. You know,
going forward, issuance is already starting to increase dramatically. We're
seeing a big pickup in insider sales, particularly the companies
we cover, So executives are selling to retail investors, just
not a good sign. And the sec and regulators and
(06:54):
what others have taken generally a very to be charitable lass,
a fair approach to the market where people can say
almost anything they want, there's no downside to it, and
the use of pro forma metrics, which I've been talking
about for years now, it just gets worse by the year.
Speaker 2 (07:12):
So it sounds like and I want to connect the
dots to the White House as well here, because when
the president is showing meme coins and hosting dinners for
the meme coins buyers, there's got to be a spillover
effect into the business culture. Does it just give companies
that are inclined already a free past to engage in
more questionable behavior.
Speaker 3 (07:29):
Yeah, except that that meme coins aren't securities at least
that's been the ruling so far right, and stocks and
bonds are. And there are rules for saying things about
stocks and bonds that don't necessarily apply to crypto. And
so I see that the administration is very wisely stayed
within that boundary of embracing crypto and get rich quick
(07:51):
schemes for lack of a better term in crypto. But
it's where people cross the line and start making promises
about stocks and bonds that I'm concerned. That's my world,
and I see just you know, lack of a lack
of oversight there.
Speaker 2 (08:08):
All right, let's dive a little bit deeper into your world.
Then you no longer manage outside capital, but you do
manage your own funds, and you advise clients, chinos and companies,
a family office and an advisory and a new idea
that you've justice closed. A new short idea is Carvana CVNA.
The stock is up about sixty six percent so far
this year. It's made a round trip back to a
four year high. It's a used auto retailer, which is
(08:31):
a pretty straightforward business.
Speaker 1 (08:33):
Why do you call it a misunderstood story?
Speaker 4 (08:35):
Then? So this is this is a revisit. We were
short at this stock successfully.
Speaker 3 (08:40):
In twenty twenty two and twenty twenty.
Speaker 4 (08:42):
Three and covered, and now it's back.
Speaker 3 (08:46):
I joked the other day that you know, investors on
the long side look for that hundred bagger. We do too,
for companies that are already up one hundred x, and
Carvana is basically up almost one hundred x from its
lows in twenty twenty two and twenty twenty three, so
it's completely round trip back to where it was in
twenty twenty one. But people have perceived it as a
(09:09):
secular growth story.
Speaker 4 (09:12):
It's cyclical.
Speaker 3 (09:13):
Their revenues dropped year over year in mid twenty twenty
three from selling cars down over thirty percent.
Speaker 4 (09:23):
Units dropped.
Speaker 3 (09:24):
That came back, But what really has us going is
a couple of things. First is the accounting. We love
bad accounting, and this is a company that is now generating,
over the latest twelve months about seventy percent of their
operating profit is coming from gain on sale of.
Speaker 4 (09:43):
Subprime loans.
Speaker 3 (09:44):
So they're originating subprime loans and selling them immediately for gains.
Speaker 4 (09:49):
And this is something that the chairman of.
Speaker 3 (09:52):
The company, you know, is very familiar with, Ernie Garcia.
The second he started with a company called Ugly in
the nineties that got into trouble for subprime lending. It
then became drive Time, and Drivetime is the parent the
experient of Carvana.
Speaker 4 (10:10):
So there's a history here.
Speaker 3 (10:12):
But that amount of income coming from a sale of subprime.
Speaker 4 (10:17):
Loans is staggering.
Speaker 3 (10:20):
Yeah, and you should not be putting an enormous multiple
on this fifty sixty seventy times. On top of that,
two other things that are kind of new to the story.
Number one is the short interest has collapsed. It was
one of the most shortened stocks in twenty twenty three,
and now the short interest is back to multi year
(10:42):
lows as a percent of outstanding. So the bears, the
other bears have given up. And number two, we've seen
a dramatic increase in insider selling, something we just talked
about in May and June in the shares of Carvana.
So the last time we saw this type of selling,
the stock also was getting ready to go down dramatically.
Speaker 2 (11:03):
Yeah, so that's another red flag, and of course we
should mention that we are out to Carvana.
Speaker 1 (11:07):
Four comment.
Speaker 2 (11:08):
Because of all of that, I want to switch gears
a little bit here, because you are also blowing up
on social media over the last couple of days due
to your call to go long bitcoin and short MSDR Strategy.
Michael Saylor, the CEO of Strategy, you spoke with us
yesterday on bloomber Crypto. Here's what he told us about
your trade.
Speaker 5 (11:27):
You know, I don't think he understands what our business
model is we're actually the largest issue or of bitcoin
back credit instruments in the world. So last week we
just raised a billion dollars by selling preferred stock non
cumulative called stride. That means we basically borrowed money that
we never have to pay back that we pay a
(11:49):
dividend on, but we could suspend the dividend if we
needed to. So Jim has been thinking that we somehow
needed to sell the equity. So at the end of
the day, if he's lucky enough to short the stock
below one time's nov we're going to issue the preferreds,
buy back the stock, and make money for our shareholders.
If the stock trades at a week premium, we're just
(12:11):
going to sell the preferreds, and if the stock rallies up,
he's going to get liquidated and wiped out. What he
still doesn't understand is we're not a holding company or
a closed and trust. We're an operating company. So when
we issue trust can't leverage the bitcoin. They can't issue
preferred shares, they can't issue permanent shares of equity out
(12:35):
of premium.
Speaker 4 (12:36):
We can.
Speaker 1 (12:38):
Jim your response, yes, I.
Speaker 3 (12:41):
Always love it when management say, well, he just doesn't
understand our business. Michael Sailor is a wonderful salesman, but
that's what he is. He's a salesman, and what he's
selling investors is the concept that you give me your
money and I'm just going to go by bitcoin and
hopefully the value of my stock trades that are preemium
to the value of that bitcoin, and so as long
(13:03):
as I can keep doing that, I generate value. And
this is, of course, I called it financial gibberish, because
on top of that, he also said in your interview,
he said the company should not just be valued on
the basis of the bitcoin holdings, but on a multiple
of the profits that accrue from when I do this
(13:23):
financial alchemy. And I pointed out on social media, I said, well,
that's akin to saying, well, my house that rose in
value from four hundred and fifty thousand to five hundred
thousand dollars last year is not worth five hundred thousand,
it's worth one and a half million, because it's worth
the five hundred thousand plus a twenty multiple on the
(13:44):
fifty thousand dollars increase. And of course that's absurd, but
that's the claim he's making on top of that, he's
basically now saying that that, well, I'll sell preferred not common,
to dilute the shareholders and compress the premium. And let
me just interject really importantly here, I'm actually doing what
(14:06):
he is advocating, right, I am selling micro Strategy securities
to buy bitcoin. Let's be clear, it's the hedge trade.
I don't know where bitcoin.
Speaker 2 (14:14):
Is going to go, and it doesn't matter to you,
actually does well, it doesn't matter.
Speaker 3 (14:18):
The premium compressing matters to me. And so it's important
to understand that in twenty twenty four and twenty twenty five,
mostly at the end of twenty four and twenty five,
micro Strategy has sold thirty five billion dollars roughly of securities,
thirty three billion in common and convertible into common, and
(14:38):
two billion in preferred most recently. The market for the
preferred stock that he's selling is tiny relative to common,
Let's be clear about that. And in his own words
that you just played back, he makes a case that
you have to.
Speaker 4 (14:53):
Be crazy to buy these preferreds.
Speaker 3 (14:54):
Right, He's going to pay you a dividend, maybe it's
not redeemable, is perpetual, And if I don't pay the dividends.
They're not cumulative. I don't have to pay the back dividends.
So you know who in the right mind institutionally would
buy these preferreds?
Speaker 1 (15:10):
That's my question.
Speaker 2 (15:10):
Do you think there's always going to be buyers for
these preferreds, especially if Bitcoin starts to trend lower or
materially lower.
Speaker 3 (15:17):
And again he said, well, if the stock trades below
one m multiple m NAV, we call it, you know, chainos,
I'll just five at by common. I can assure you
if it trades below one, I will have covered my short.
Speaker 2 (15:30):
Is there a catalyst, though, or a certain set of
conditions that would drive the premium down to collapse?
Speaker 4 (15:34):
The catalyst is Michael Saylor.
Speaker 3 (15:37):
It's exactly he's been selling equity to himself compressed the NAV.
And I would point out I posted something just yesterday
as well that for all of this, the premium to
NAV that micro strategy has averaged has been right around
the levels we are today about one point eight, and
(15:59):
we put this trade on and advise clients somewhere between
two point two and two point three. But it's traded
at one, and it's traded size three and a half.
Speaker 1 (16:11):
Where do you think it should be it should be
at one.
Speaker 3 (16:13):
I mean, I just think because all for all the
advantages he claims, you have agent what we call agency
risk in finance, you have the fact that he could
do something to the detriment of shareholders.
Speaker 4 (16:27):
And of course we're not.
Speaker 3 (16:28):
Calculating any deferred taxes in our nav which theoretically that there.
Speaker 4 (16:32):
Would be if he sold if he sold bits.
Speaker 2 (16:35):
So the other argument that people make is that the
average MicroStrategy shareholder is not a tourist. These are diehards
who eat downside volatility for breakfast. That's what they say
on social media. How long are you prepared to wait
for this trade to play out?
Speaker 3 (16:47):
You have to stop listening to all social media Scarlett,
because if you do a simple calculation of share turnover,
how often does the micro strategy turn it share share
base over? The last we looked was something like four weeks, So.
Speaker 4 (17:03):
The average average micro strategy shared trades every four weeks.
That's not a long term investor. This is one of the.
Speaker 3 (17:10):
Most actively traded speculation vehicles.
Speaker 4 (17:13):
In the market.
Speaker 2 (17:14):
So there are other companies that are following micro strategies
approach right, the Bitcoin treasury strategy overall and game stop DJT,
the president's media company.
Speaker 1 (17:23):
Does that mean that.
Speaker 2 (17:24):
There are comparable big short opportunities for those specific names
as well.
Speaker 3 (17:28):
Well, you're pointing to another catalyst. So the catalyst is
this is a me too trade? Right, there are other
companies can do it. There's nothing proprietary about Michael Saylor's
business model, right, He's simply buying bitcoin, which is a
highly liquid asset that.
Speaker 4 (17:43):
The trades everywhere.
Speaker 3 (17:45):
So yes, other companies have now looked at this and
said we can do this too, and we can issue
equity to become a bitcoin treasury company. And the more
and more supply we're going to see, the less and
less premium anybody's going to have.
Speaker 2 (17:58):
Jim, I'm going to wrap this up and ask you
one final question to kind of put everything in perspective.
Are the economy and stock market as strong as they
seem to appear. You've got a resilient consumer, you've got
tame inflation, you've got ostellar profits, and you've got stocks
near record high.
Speaker 4 (18:11):
Yeah. I mean everything looks good.
Speaker 3 (18:14):
I think that valuations are back up to their high levels.
And what we're keeping around again is issuance. We're looking
at supply. I always keep joking at. Wall Street has
a printing press too, and the printing presses is starting
to gear up.
Speaker 2 (18:30):
It's worrying away, all right. Jim Chaino is always a pleasure.
Thank you so much, President and founder of Chainos and Company.
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