#1235 Carson Block | The King of Short Selling Reveals His Secrets

Carson Block is the founder of Muddy Waters Research. In this conversation we talk about the short selling environment, ESG grift, AI stocks, US & China relations, and what exactly is happening with tech companies with sky high valuations in private market & have come out in the public market. ======================= Backed by world-class investors, including Google's AI Fund, Range has redesigned wealth management from the ground up. Range delivers a tech-first experience that provides fast, high-quality, transparent wealth management services making it simple to optimize and grow your wealth. With Range, you get comprehensive services like tax optimization, investment management, and estate planning with no hidden fees. That means no AUM fees. Get started today with code POMP15 for 15% off any quarterly plan for your first year at ⁠⁠⁠⁠⁠range.com/pomp⁠⁠⁠⁠⁠ ======================= Sign up for a StartEngine account today using the link below and explore live investment opportunities where you can start investing with as little as $100:⁠⁠⁠https://invest.startengine.com/?utm_source=podcast&utm_medium=anthonypomp&utm_campaign=startengine-own⁠⁠⁠ The information provided in this marketing material is for illustrative purposes only and should not be considered as financial advice. Past performance, including the success of certain individuals, is not indicative of future results. Investing in any market, including startups, involves risks, and there is no guarantee that similar opportunities will yield comparable returns. Number of Users is determined by counting user profiles with unique email addresses which are active and have been confirmed*Includes $760M in funds raised as of May 9, 2023 via Reg. CF and Reg. A+ combined through StartEngine’s funding portal and broker dealer, StartEngine Capital, LLC and StartEngine Primary, LLC respectively, as well as StartEngine’s own raises. Also includes $470M in funds raised previously through offerings conducted on http://www.seedinvest.com outside of the StartEngine platform. In May 2023, StartEngine acquired assets of SeedInvest, including email lists for SeedInvest’s users, investors and founders seeking to raise funds. ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Carson Block is the founder of Muddy Waters Research. In this conversation, we talk about the short selling environment, the ESG grift, AI stocks, US-China relations, and what exactly is happening with all of these tech companies that had sky-high valuations in the private

• 0:46Anthony Pompliano?

  market and now have come out into the public market. I always enjoy talking to Carson because he understands public markets, both the long and short side, and his track record is absolutely incredible when it comes to finding and publishing research on tons of companies that are misleading or fraudulent. This conversation delves into a lot of detail, and I hope that you enjoy it. Here is my conversation with Carson Block. This episode is brought to you by Range. Are you day trading, a crypto enthusiast, or a tech worker? Or are you just an overall investing enthusiast? Listen up, you need Range. Backed by some of the world-class investors, including Google's AI fund, Range has redesigned wealth management from the ground up specifically for us. They deliver

• 1:28Anthony Pompliano?

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• 2:10Anthony Pompliano?

  To managing your money. The founders built Range for themselves to solve all these old school problems and now it's available to all of us. Use code POMP15 for 15% off any quarterly plan for your first year at range.com/pomp. Again, use code POMP15 for 15% off at range.com/pomp. This episode is brought to you by StartEngine. The biggest fortunes aren't made on Wall Street. They're made way before startups hit the stock market. Consider Mike Walsh. He was just a regular guy, but then he invested $5,000 into Uber and that investment money, it grew to a staggering $24.8 million. Such opportunities were once behind closed

• 2:51Anthony Pompliano?

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• 3:37Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 4:01Anthony Pompliano?

  All right, guys. Bang, bang. I've got Carson here with me. Carson, I thought a great place for us to start this conversation is this idea of a reappearance of short selling. But there's kind of two different stories from my external view. We have on one side, folks like yourself or Hindenburg Research who have these great track records of shorting stocks coming out and kind of exposing a lot of, whether they're actual frauds or kind of mismanagement and just bad behavior in the market, kind of a check on, you know, the people who are just ultra bulls, ultra long all the time. On the other side, we see short selling coming up a lot when it comes to these meme stocks and these short squeezes that are occurring. It appears that usually the people who are shorting there are kind of more traditional hedge funds that don't necessarily specialize just in shorting.

• 4:45Anthony Pompliano?

  Can you give us a little bit of your understanding or kind of like your view as to on one side, it seems like short selling is working and people are making money and they're calling out the bad companies. On the other side, it seems like people are getting blown up left and right and you know, people on Reddit are having a field day and it's like, which one is it?

• 5:00Speaker 02

  Right, well, it can be both. And I think what a lot of people don't understand about what we do as activist short sellers, short selling itself is a niche and activist short selling is a niche within a niche. And the issue is, so vast majority of the shortable universe consists of companies that are just basically melting ice cubes. So if you're going to short it, you have, you think it's melting faster than whoever's on the other side of this thinks it's melting. And that's, that's fine, but for activist short sellers, that's not what we do. We're not going out, you know, at least good activist short seller isn't going out and

• 5:43Speaker 02

  screaming like, I think the competition is going to erode margins faster than the street does. My model beats that, like, no. The crux of what we do is we're looking for situations in which generally management has manipulated the information that it's giving to investors. And that's usually so that management can pump the stock and dump it. Sometimes it's because they're, you know, they're able to get the companies to engage in transactions with companies they have interests in. But in any event, it's, it's when management is misleading, egregiously misleading or outright

• 6:23Speaker 02

  lying or concealing, you know, lies of omission, concealing material information. So that's where activist short sellers come into play and we're not usually looking forward to say, we think this is what's going to happen. We're looking backward. The company told you this, this was misleading because blah, blah, blah, and they didn't tell you that. And so, you know, up to you investor, you know, you extrapolate the future based on a past that you've just been shown was a lot less positive than you thought it was. So that's, that's what activist short sellers do and. You know, it really, in the post-GFC environment,

• 7:06Speaker 02

  you know, it just seems like every public company CEO feels like it's his God-given right to monetize at least like $50 million worth of stock. And the environment is, has been so corroded because like, you know, pretty much in so many of these companies are really pushing, you know, they're, they're close to the line in a lot of respects. And I guess what's different is the long side, at least, you know, until maybe 22 and arguably still the case, though, the long side began cheering this on because it became clear in the post-GFC world that on the long side, you were no longer being remunerated for caring about risk, right?

• 7:50Speaker 02

  So the guys who cared about risk got derided as value investors and sort of laughed into a corner. And, you know, the dudes who are like, yeah, give me some narrative, give me some blue pill, I'm going to crush that shit up and, you know, blow some rails. Those were the people who were, you know, rewarded financially. So that's why there is this, there's still this target-rich environment for activist short sellers is because the behavior has just become so pervasive and so egregious on the part of company managements. Now, when you look at the bigger picture and these, and how you've got more and more funds saying, okay, we're not going to do single-name shorts anymore. So that's, there's somewhat different dynamics there.

• 8:33Speaker 02

  So most long-short funds, historically, the dirty secret is, they didn't really care about shorting. It's just a way to get a higher fee structure, right? Like, they're trying to make their money on the long side and, you know, charge a 2 and 20 instead of just being paid, you know, like, like 100 bips on, you know, on assets under management. So they were sort of reluctantly shorting. Now, Those, you know, those are the pretend shorters as well as the real ones. They're usually looking for the melting ice cube type of shorts. And, um, you know, that's fine, but really that was never a strategy that was designed to make money. It was not an absolute return strategy. It's like, we're looking to generate alpha.

• 9:16Speaker 02

  So, you know, we're going to be, you know, we're like, you know, we're like 150 gross. And we're, you know, we're net long 50 and, you know, we're just trying to create alpha with our shorts. And every now and then you have a year in which the market goes down. And that's when those shorts are, are actually going to provide some absolute return. But by and large, you're doing it to smooth volatility. Um, so that generally worked, except the problem is allocators got really tired of losing money, um, you know, on the short side. Because, you know, I mean, at least until, you know, late 21, 22, the market was just going up. That's it. So, so you had that dynamic.

• 10:00Speaker 02

  And then something else that also I think a lot of, um, a lot of short sellers, you know, have been in the game a long time because look, the reality is you haven't had a lot of people since the financial crisis come out of the woodwork to say, you know, I want to be a, a traditional short seller. So these are mostly people who were, you know, whose careers started well before the GFC. What they don't understand is when they look at their book and they say, well, I'm short, you know, 50 different names or 30 different names. Um, so there's diversification there. They're short the same factors in many cases. So, you know, and this, this is something, this is a more sophisticated way of looking at market movements

• 10:43Speaker 02

  and understanding them is looking at what factors are actually responsible for the movement. So it's no longer just saying, you know, beta drives markets. It's factors, you know, style factors like momentum, or you could have, you know, tech, et cetera. So when you're short, when you're, when you're concentrated in these factors in your short book.

• 11:06Speaker 02

  You know, and something moves against you. I mean, like especially the guys who are shorting kind of the scammy little companies or the ones that are out ahead of themselves, they're short the momentum factor. And so when momentum starts, you know, popping, I mean, they took real losses. So that's part of the reason that even prior to the meme stock phenomenon, a lot of funds that were running short books decided that they were going to do short indices instead of shorting single names or short ETFs. But the meme stock thing, yeah, I mean, it's, it's just one more thing that, you know, it's a, it's another bitter pill, I guess, for short sellers because it's like, hey, you've got all of these retail investors who individually are pretty small,

• 11:50Speaker 02

  but they bands together in order to pursue completely non-economic behavior. You know, like, what are you going to do about that? Like if, you know, if, if they're going to say, yeah, I'm proudly going long, you know, AMC, you know, or, or Tupperware. I mean, yeah, what do you do if they want to be non-economic? So it's, um, you know, it, it's being a traditional short seller. Again, you were never out there trying to make absolute returns, except in down years. But it's, it's only been worse and harder. But again, for guys like us, you know, we're more activist short sellers. We're like investigative journalists digging into companies to expose dark secrets.

• 12:30Speaker 02

  And rather than selling subscriptions and ads, you know, we, we take risk and trade alongside these investigative reports. So it's, it's different from what most traditional short sellers did.

• 12:43Anthony Pompliano?

  Talk to me a little bit about like the anatomy of one of these deals, right? So how do you guys come up with the ideas? Is it somebody giving you a tip? Are you guys doing a kind of on the ground research? Do you have kind of a bucket of names? And you're like, okay, let's see if we can go find, you know, kind of a thread to start pulling? Like, maybe like, where do the ideas come from? And then in each one is probably a little different, but like, what is the process at which you then say, okay, we've got a kernel of information that we believe this could be a potential fraud or misleading or whatever? How do you get and build the conviction to eventually go put a short on where if you're wrong and you put a report out, you're drawing attention to the name, it could go against you. Right? And people say, no, actually we disagree and then you lose money. So like, how do you build that conviction and where do these ideas come from?

• 13:27Speaker 02

  Sure. Well, I'll take I'll take the second idea first because it'll help inform then where where the ideas come from. So the when you when you look at our process, I'd say there are basically two stages to it. So if if you were a if you were, say, a Tiger Cub, which they generally do. They will short the fraudy type companies, the stock promotions. That's been a Tiger specialty. So by the time they get conviction internally and they have the meeting and say, yeah, this, you know, this sounds like this. This is a problematic company. Let's put some risk on. Let's short it. So we probably take more or less the same amount of time to get to that level where we say,

• 14:11Speaker 02

  this is in this is a problematic company and that call it two or three weeks. But the issue for us is we're going to go public. And, you know, I I I've referred to this as market based prosecution. Like we're we're trying to build a case against the company and often the individual managers of the company in the public. And we're not trying to talk to other short sellers and say, you know, you should short this. Like, actually, we don't want that. We don't want other guys shorting it and crowding it because it does make it more squeezy. We're talking to the longs. So what is going to be, you know, so we need to present an overwhelming case that's going to make longs say, wow, I didn't know this. I've been misled.

• 14:55Speaker 02

  You know, I got to I got to reevaluate this position here. And it's hard because a lot of people on the long side, they get really defensive. You know, and they take it almost as a personal affront, like you're challenging their their intelligence. And you can be a really, really sharp investor and you can still get scammed. You could and I've been defrauded hard, even in the past 13 years that I've been doing this. Like I was the victim of a major master fraud carried out right under my nose. Um, so it's not that, you know, so unfortunately, when longs take these things as insults to their intelligence.

• 15:36Speaker 02

  They shouldn't. I mean, it's, you know, but in any event, that's the type of resistance that we're going to meet. And everybody wants us to be wrong. Everybody on the long side wants us to be wrong. And the companies are going to come back with everything they have. They're spending other people's money to try to throw, oftentimes throw like a tidal wave of public relations at us. To try to, you know, to basically, you know, try to push the stock back up and get out of trouble. So that's what, that will take months for us. I mean, we've taken, you know, in some cases, over a year to build the case. And it, it depends on exactly what the thesis is, but a lot of times it involves field work.

• 16:19Speaker 02

  So we've, we've done some stuff recently, um, you know, late last year and we've talked a little bit about it this year as well. We're short a European company, um, you're German and UK real estate. And we were short the bonds. So this isn't something that US investors know, but you know, they've been taking valuation gains on their assets, you know, because basically they say, oh, you know, it used to be worth thirty million euro. Uh, yeah, now it's worth forty million euro and they're borrowing against this inflated base. We send investigators out like, well, this building is completely shut down. It's covered with graffiti. It's got broken windows. Looks like a real piece of shit. Like, how are you going to say that it's suddenly worth like ten million more euro?

• 17:03Speaker 02

  And worth forty million euro, which, you know, we know it's x square meters roughly on a per square meter basis is way too high. So that's the type of thing we'll do. We also pull filings from around the world. And this is one of the things that's interesting, you know, the US, we consider to be a very transparent jurisdiction, but it's not when it comes to corporate filings. But I mean, Europe, Asia, you know, like pretty much all around the world. We can get interesting information, including subsidiary financials. And, you know, we'll look at those things and sometimes the subsidiary financials don't add up to what's been reported in the SEC consolidated financials. So that's something else we do. We'll talk to industry experts and we want to make

• 17:46Speaker 02

  Sure that we understand the way the business should look. We speak to a lot of former employees. And when we have these conversations, we don't do so as muddy waters. So we usually do those through these, you know, expert or consulting networks. So we're paying, you know, like $1,200 an hour for a call or something like that. And, you know, it's important to us that we position ourselves as potential long investors in the stock because we don't want somebody to go in and think like, oh, you know, they'll be happy if I give them the negative stuff. You know, we're trying to get them to think we want the positive. And if negative things start to come out, then we then we drill into it. But those are really the tools of the trade plus a significant amount of accounting analysis

• 18:31Speaker 02

  on the the actual consolidated financials and the disclosures. Now, where do the ideas come from? As you noted, there are far there are far fewer funds that are shorting single names. So we did used to get pitched ideas all the time. The way that funds, once upon a time, if they were short something that was kind of scammy, they would go to the traditional media to pitch a story like Enron. While the media is generally not in the business, traditional media is generally not in the business of reporting, you know, bad things or doing investigative reporting into companies because the economics of of that are just not there. Just takes way too much in the way of resources.

• 19:13Speaker 02

  A lot of people don't want to read long form journalism and they just don't need the threats and the actual or actual, you know, litigation. So they would come to us. Now, again, that has dried up somewhat because, you know, a lot of funds stopped doing single name shorting. But, you know, for us, I mean, we were looking a lot of times, and it sounds almost flippant to say this, but we're looking for the stuff that seems too good to be true. So if there's a lot of money flowing into a particular into a particular industry, you know, the the scammers are going to come out of the woodwork. And so it's not necessarily the first company in the space that goes public, not necessarily the second. But by the time you're on the third or fourth company going public in a given space to try to capitalize.

• 19:56Speaker 02

  On the money grab, there's probably something to do there. Companies that have significant assets or operations in emerging or frontier markets. Always, you know, worth looking at. Companies with complex accounting. So it's, you know, and then a lot of times it's just following people around like certain, you know, key shareholders or stock promoters or investment banks or even lawyers, you know, following them around and seeing what they're involved in and, you know, because these guys, once you're in scam stock world, you generally don't get hired into legitimate company world. So, you know, every few years they'll pop up in a new place and, you know, we, we look for those guys.

• 20:39Anthony Pompliano?

  What is the ESG grift? I know it's something that you've talked a lot about and it's one of these industries where a lot of money has flowed. We now are starting to see analysis of like ESGs all over someone's website. The portfolio may not reflect the ESG, you know, kind of talking that they're doing. We're now even seeing some people say, well, hold on a second. Some of the actions we're taking that are ESG friendly may actually be hurting certain countries or companies like what, what is kind of your take on that whole world right now?

• 21:06Speaker 02

  Well, I mean, there's a lot to unpack there and, but I mean, at a high level, one of the, you know, the issue is there are a lot of subsidies at stake. And so the companies that have become really big are the ones that are best at hoovering up the subsidies and they're not doing it by coloring within the lines. So for example, if you look at Sunrun and the, this is, you know, I think largely true of the other major residential solar companies. There are these investment tax credits that you get if you put a solar system on your roof and the vast majority of Sunrun customers don't actually buy the systems outright from Sunrun.

• 21:50Speaker 02

  If they did, they would pay roughly $3 a watt for the system. But what they do instead is they enter into power purchase agreements with Sunrun. So Sunrun installs at its own cost, it installs the system on the roof and basically you agree that you're going to buy power from it. Twenty to twenty-five years. And so Sunrun then takes these power purchase agreements. And sometimes they're leases, but it's a similar concept. They then take these power purchase agreements and they stick them in an entity. And they, you know, and basically each one of these power purchase agreements entitles so somebody to have an investment tax credit. So Sunrun and the other solar companies lose money hand over fist.

• 22:31Speaker 02

  I mean, even their EBITDA is massively negative, which really takes a special type of business to do that consistently. But these are just cash incineration machines. But so Sunrun's unable to use these investment tax credits itself. But it effectively sold them by sticking these PPAs into an entity and kind of selling off an interest that receives the the tax credit. Now, the issue here, the grift, is that if you go back to what my statement that if you bought this from Sunrun and said, yeah, hey, I'm going to pay cash, put it on my roof, you pay about three dollars a watt. By the time Sunrun finishes all of these machinations and valuation games

• 23:13Speaker 02

  of for the PPAs, because that's what it then gets the investment tax credit on is the agreement, not the system. They go and they claim credits that are based on about five dollars a watt. It's like, whoa, wait, how, wait, like, if the arm's length value is three dollars a watt, you know, how is it that just because you put a bunch of paper on it, you flip it into a different entity, it's five dollars a watt? And we've gone into this in detail, but one of the, but I think the clearest, most abusive tactic that they use to juice the valuation is when they, when they say, well, what's this power purchase agreement worth? They actually include the value of the anticipated tax credit in that. So like, oh, well, you know, we're getting a tax credit of this.

• 23:58Speaker 02

  So that automatically like boosts the valuation of this by, you know, twenty, twenty-five percent. And then, of course, now there's a little bit more of a tax credit, so we boosted again. And so it's this iterative, you know, process, but, you know, it's just ludicrous. Now, that's the problem when you have, when you have a setup, and I, I understand why, you know, the government has certain, you know, they've got policies that they think are good for society. Let's subsidize the private market, you know, to do this, but. Problem is you're always gonna have people who are abusive and push, you know, and really push the line there, or maybe are even are over the line. Those are the ones who are gonna be the winners, the ones who are just able to vacuum up the

• 24:39Speaker 02

  money the best. So that's one way in which ESG is a grift, just tremendous abuse. And that's not just in the residential solar space, it's in a lot of this green stuff. Wherever there are subsidies, the winners generally are abusing the system. You know, then of course, we have the whole greenwashing thing, you know, calling something sustainable and green when it's not. And then, as you alluded to, there are a lot of questions about like, well, gee, you know, how, I mean, is a solar panel really as green? I mean, a lot of times when they talk about, you know, the carbon savings, they're excluding where it's made, China. What type of power is used to produce it? Coal-fired power.

• 25:20Speaker 02

  How does it get over here? Diesel-powered boat. And then, what happens when the sun doesn't shine? Well, you generally have to have a backup generator online. So when you look at the utility-scale solar projects and wind projects, they have to have a power plant that's idling, because you can't just say, okay, well, we're gonna flip the switch and spin it up. So it's idling and emitting carbon all the time. So when you get these accounting, when you get the accounting for the carbon emissions, a lot of times, it excludes that stuff. And I'll just like to give you an example, one of, I think, the most egregious examples of this type of bullshit accounting that I've come across.

• 26:01Speaker 02

  Within the EU, companies like, or countries like Germany, had shut down a number of their coal, well, they were going to shut down their coal-fired power plants. But the way the EU's carbon accounting system works is, if you take, if you stop burning coal, but you replace it with biomass or wood that is sourced from outside of the country, then you can use that in your coal-fired power plant. I guess there's not a lot of capex needed to change it over, and it won't count against the country's carbon emissions. But the reality is if you're burning wood to get a unit of energy, you are releasing far more CO2 into the atmosphere than you would with coal alone. So they're basically

• 26:46Speaker 02

  saying, oh, look, we're reducing, you know, our carbon emissions, you know, we're on target to meet the EU's, you know, the EU's goal, but they're just burning a bunch of fucking trees to do that. So that's part of how the system is gamed and, um, and, and part of why it's really, I mean, just top to bottom and, you know, right to left. I think like, like ESG is largely a grift and, you know, bottom line is the one energy source that we always should have focused on was nuclear, but the Greens hated that. And so, yeah, I mean, you want something that's cheap, renewable and, you know, and basically limitless. Yeah, nuclear.

• 27:28Anthony Pompliano?

  The funniest part to me is when you see the ESG company rankings come out and the oil companies are above like Tesla, right? And again, like without even getting into all the details, you're like, all right, something's going on here. We probably should look at. Um, another area where I think a lot of people have questions and I know you've got a lot of expertise because a good part of your early career was actually on companies based in China and you had immense success in terms of finding these businesses, kind of calling them out, shorting them and not only profiting, but also I think kind of cleaning up a lot of that market. What is kind of your view of US-China relations and even Chinese companies both based in China and then trying to cross-list into the US? It seems like there's like a geopolitical conversation and, you know, are we in competition?

• 28:10Anthony Pompliano?

  Are we working together? Maybe both, you know, kind of what's going on there? And then these companies, when you start looking at some of the, the legal structurings of the cross-listings, the companies that are in China, it seems like there's still frauds that continue to pop up there. Like just kind of talk a little bit about US and China and kind of how you're viewing those two markets right now.

• 28:28Speaker 02

  Wow. Yeah, no, that's, that's, there's really a lot to unpack there too. Um, oh boy. Well, maybe the place to start is you, you characterized our earlier work as having helped clean up the space and. That was true for a moment in time, but what happened? So I, I started doing this by accident, really. I was out of the markets. I was living in China. I had a business there and my father was a micro cap investor, professional investor. He got really interested in these Chinese stocks that had listed in the US via reverse merger. You know, they're all growing so quickly, so profitable.

• 29:09Speaker 02

  And, um, and what a, you know, what a gift to American investors that they chose the US to list. So I had no notion that there was widespread fraud here, but he asked me to look at one company initially. It was a company called Orient Paper. And, you know, he told me some things about it that just seemed like red flags, but I, you know, I didn't really want to look at this company because I had my own, you know, just every day was like a grind, you know, with my business there and it's kicking my ass. So I, but ultimately this is my father, so I took a look at it. And just before going up there to take a look at the factory, that's when I finally read the filings and it was filled with obvious lies.

• 29:54Speaker 02

  I mean, these filings, I mean, just like prices, the valuation of land, of equipment. I mean, just, just shit that, you know, because I'd been in China and doing business there long enough. I guess I was seeing the matrix and I knew that these things were lies. So wrote a report exposing that, having no idea that this was systemic. And, you know, immediately was contacted by a lot of people who said, you know, like, these are hedge funds who'd been shorting these things. Look at this one, look at that one. And just opening the 10 Ks and like, oh my God, obvious fraud. So very soon realized that it was systemic. Now, why was this systemic?

• 30:36Speaker 02

  To some extent, the entire, well, the entire finance industry, there are just massive conflicts of interest and people can point fingers in other directions. But that's really acute when it comes to China. But ultimately, you know, of all the, from the first wave of fraud. So we, we then sprinted. So this was June of 2010, we published this first report. And, you know, I'd say that this wave ended in late 2013. Most of the companies, Chinese companies' valuations in the US, at least the reverse merger ones, were in the toilet by then. And, um, you know, people, the zeitgeist was China is uninvestable. And nobody wanted to look at Chinese companies.

• 31:20Speaker 02

  And so what had, what had happened was, you know, during that, that whole wave of fraud, and that's chronicled in the movie, The China Hustle, that you, you talked about. Only one company chairman ever has done material jail time in the US. And that's because he was actually a citizen of Taiwan, not of, not of the PRC. Otherwise, China drew a moat around these guys. And then Chinese, Chinese policy banks, like China Development Bank, began financing take privates of some of these obvious complete frauds.

• 32:01Speaker 02

  And so investors in the US were actually, or investors in quotes, if you're along these things. Some of them got paid huge premia as these, you know, as these things were taken out. And so what China knew about us, that, you know, we evidently don't know about ourselves, is that it's really easy to wipe our memory. So again, as China's cleaning up some of these total frauds, and most of them had just basically gone to well below a dollar and traded on the pink sheets, if traded at all. By taking out a few of them.

• 32:37Speaker 02

  2014 comes around Alibaba is going to go public. Everybody wanted Alibaba, man, that was hot, it was sexy, this and that. So all of a sudden, we're off to the races. And so then, then you got this next wave of Chinese IPOs. And these were generally online companies. And I mean, they were, they were real businesses in most cases, you know, like the RTOs, the reverse merger Chinese companies from the first wave. I mean, they weren't real businesses. They, most of them were just basically empty boxes with like a facade of a, of a factory. But um, these were more real and they're online, so it's harder to prove. Now, we would look at the filings for a number of these things and we would see that the tax treatments were fucked up.

• 33:20Speaker 02

  And that's pretty common with these frauds because when you're making things up, you know, one lie basically leads to, you know, you need like a hundred lies to cover up one lie. So that's, you'd often see the strains in the tax treatment. But going public and saying to investors who, you know, were just so desperate for more growth narrative, especially since the US was recovering slowly from the GFC, saying like, hey, we think it's a fraud because this tax, you know, these taxes don't make sense. Now, people want the photos, they want the overwhelming proof. And I mean, at the end of the day, they didn't want us to be right. And by that point in time, we were also up against this kind of institutional barrier,

• 34:05Speaker 02

  which is all of these guys who basically pegged their careers to being long China stuff. Well, I mean, if you're now saying this, you know, these larger, more established, you know, companies are also frauds, what are they going to do with their careers? You know, like this is, you know, like they'll die on this hill. And so there was so much institutional resistance in those instances. And then China also overtly turned hostile to people like us. And that actually happened in the summer of 2012, when they sent out Ministry of State Security personnel to basically every investigative firm in China. And, you know, who are your foreign clients? What are they looking at? You know, are there any of them hedge funds? Are they short sellers?

• 34:49Speaker 02

  And basically chilled that industry and they put a lot of the government filings on lockdown as well. So it's today, it's, I mean, almost impossible to get these filings, but that's part of China's generally closing itself off. But Everybody had forgotten about this and didn't care in the US until Luckin Coffee came along. Now, we didn't do the work on Luckin. Somebody else did. We publicized it. I mean, we went into their data room and validated it. And I know who did the work, so that also spoke to me a little bit more. But yeah, I mean, the fraud there was just so bad that the auditor actually had no choice but to find it when doing the audit, you know, right after we had publicized this third party's work.

• 35:33Speaker 02

  And so it's just funny talking to reporters after Luckin imploded when, you know, they're saying, "Wow, this is incredible." Like, like, "Bro, this has been the game forever." And understand this, and I think this is the big, big point that people really should take away from the situation is, if nobody gets punished, which again, nobody except for one guy who was Taiwanese, has done prison time in the US, and I'm sure none of them have done prison time in China for defrauding US investors. It's heads I win, tails I don't lose. If this thing works out, I make, you know, I used to say tens of millions. Now it's hundreds of millions, maybe even north of a billion. If it doesn't work out, eh, whatever. What have I, what have I lost from doing this?

• 36:18Speaker 02

  So that's, that's the thing. And, you know, so people then, after Luckin, what happened then was the SEC really started looking at it again, but they hated. The SEC hated and hates China cases because just the amount of time it takes to get stuff from China, then you have to get it translated, incredibly resource intensive. And even once it's translated, you don't understand the legal context. You know, if you're an SEC enforcement attorney, you have to bring in people who are experts to explain it. It's super resource intensive and you almost never get anything out of it because they're able to sit in China and give the finger to the US regulators.

• 36:59Speaker 02

  And then China codified that into law in 2021 where any company must, you know, with, with people or assets in China must get express approval from the China Securities Regulatory Commission before cooperating with an overseas regulator. So China puts that in law that basically you can't even respond to the SEC, even if you're listed there. So. You know, there's, there's no way of protecting US investors and um, you know, I'm, I'm glad to see that the cynicism toward China has returned, but I mean, it was, that was only after countless hard lessons have been learned by investors. And you know what? The moment China's GDP really,

• 37:41Speaker 02

  you know, the, not the lie, the bullshit GDP number they give you, but like in reality, the moment China does start turning things around economically, everybody's going to want to forget these lessons and rush in with a bunch of cash and claim to have edge and, oh, I know, you know, I have Guanxi over there. And, you know, the cycle will repeat because in the US, we just can't help ourselves.

• 38:03Anthony Pompliano?

  We're capitalists at the end of the day. Another area where a ton of capital continues to flow is artificial intelligence. It seems like in the private markets specifically, that is basically holding or propping up the venture capital kind of funding environment. It's just put AI on the name, on the end of a name and money will show up at your door. What about in the public markets? Are you guys seeing the same type of thing where there's tons of money pouring into legitimate businesses or the illegitimate? What are you seeing in AI?

• 38:29Speaker 02

  Well, you're definitely seeing like a lot of companies do the global find and replace, you know, taking out servers and putting AI or software AI. So yeah, everybody's suddenly in AI play. I mean, maybe one of the just most laughable ones and, you know, we're, we're short this name. We haven't published on it, but this company called Applied Digital. Those guys seem like a bunch of jokers and some very questionable dealings with the investment bank B Riley. But yeah, I think we're, we haven't seen a bunch of companies going public yet that are, you know, AI plays that are total scams. I mean, I'm, that's coming, right?

• 39:10Speaker 02

  But we're, we've got kind of a, you know, we've got a bit of a weak market that's, you know, I think been holding up the IPOs. But uh, you know, I mean, if, if this were a few years ago before the SEC really put a chill on the SPAC market, I mean, you know, the SPAC, AI SPACs would just be like the golden age of being an activist short seller all over again, you know, or that plus the China reverse mergers. But yeah, it's coming. Guys like us will be all over it. And, you know, at the end of the day though, you, we do need more of these companies out there because You know, what, what happens when there's, there's so much money flooding into a space, if there really only a few places for it to go, like Nvidia, you know, good luck.

• 39:54Speaker 02

  Like, I'm not that Nvidia is a scam, but I mean, even if it were like, good luck trying to break that because it's the focal point, the relatively few focal points for the money flooding into AI. But once you start increasing the denominator here, the money gets sprinkled around, then it's a lot easier, you know, it's a lot easier to come out and break the stock price when you can present compelling information about why the, you know, investors have been misled.

• 40:24Anthony Pompliano?

  How do you think about short sellers making money? One of the things, and not your firm, but there's an article about Hindenburg, right? And obviously they've been writing a bunch of short reports and stuff. But somebody broke down the math of what they possibly could have made in some of these shorts. And what was fascinating to me about it was less about, you know, how much money they are making or not making, because it wasn't, you know, fully confirmed. It was all kind of loose guestimates, if you will. But it was more of, we're now having a conversation about it where people are realizing this could be a viable investment strategy. It could actually make money. People have been talking about longs like that forever, right? And kind of the ability to go long and make money. And we can see you bought the stock at X price and you got it at Y price, whatever.

• 41:07Anthony Pompliano?

  I was actually pretty surprised to see folks trying to back into the math of like, hey, how much are the people actually making on the short side? Without sharing specific numbers or kind of whatever you're comfortable with, like, has the opportunity widened in terms of, you know, the economic kind of capital you can gain here? Or has it actually shrunk as there's less short sellers or less public companies? Like, what are some of the dynamics that maybe feed into the ability for short sellers to make money doing this?

• 41:34Speaker 02

  Well, okay, so it's, for, for one thing, there are a lot of activist short sellers out there. You just haven't heard of most of them. And so on Seeking Alpha on any given day, there are a bunch of guys screaming at the top of their lungs, you know, this is the worst thing ever, you know, like writing about some 90 million market cap piece of shit. And You know, like, the world doesn't notice them. In the US, we're used to this sort of public criticism, so guys like that don't move the needle. And a lot of them will try this for a little while and then just, you know, flame out because it's they're not getting traction. And what a lot of people forget about Hindenburg is that, you know,

• 42:18Speaker 02

  that's, I mean, Hindenburg and its principal Nate Anderson, when he was grinding it out for years as an activist short seller, didn't really have much of a brand. And, you know, this was reported, I think, in the New York Times, but, you know, he was at one point worried about getting evicted because he, you know, he was having problems making his rent payments. And then they broke through on Nicola and just, you know, I mean, blew up overnight, right? You know, the Hindenburg brand. And they do great work, and now they're noticed. But that's the thing, like, you, it's a very tough space, at least with US companies to break into. It's a lot easier in Europe, because they're, you know, Europe

• 43:01Speaker 02

  is much more a culture of, you know, not criticizing people and companies publicly. And PS, you don't have the speech protections outside of the US that you do in the US. So that's, that's another dynamic. Now, even when you look at guys like, you know, like me, like Nate, whatever, you know, we make, we make good money. I mean, by most people's standards in the world, like, we make pretty nice money. But in finance, if you think about it in finance industry terms, first of all, you know, the, the amount of brain damage per dollar that we earn is way off the scale, way off the charts relative to,

• 43:46Speaker 02

  you know, just being like the close your eyes and buy kind of, you know, business model. Because of all the litigation, you know, like, I mean, I've now been through, you know, fucking three investigations, France, Germany, even the US, which the US wasn't supposed to happen, and millions and millions of dollars of legal fees, and just bullshit, time sucks, et cetera. You know, on top of the companies that sue us and shit like that. You know, the death threats, et cetera. So

• 44:17Speaker 02

  You know, even if you're, you know, even if you're like, oh, that's good money. I think I can make what Carson Block makes. A lot of people, when they start doing it, they're just like, fuck. There are easier ways, you know, if you're bright and talented, there are easier ways in this industry of making that kind of money. Absolutely. Why do I do it? I mean, it's what I want to do. Like, so that's the thing, and it's cliche, but it's cliche for a reason. It comes back to this. You know, you really have to enjoy what you do. You have to find meaning and purpose in it. Because if you're like, yeah, I'm going to do this for the money, you're going to be gone in, you know, within months. Probably because you're just going to find out it's such, there's so much bullshit here and it's so hard.

• 45:00Speaker 02

  Um, so, yeah, I mean, there, there are a lot of guys who, like I said, you know, a new one is probably born every day to go on Seeking Alpha and scream about something, but the people who are relevant, who have staying power. Um, there aren't that many of us and, you know, like, and there's some, some of whom I have very high opinions of. Others of whom I think suck and they cut corners and they're doing shit they shouldn't be doing. So it's like every other industry, you know, you've got people who operate at a high level and do the right things. And then you've got people not so much.

• 45:32Anthony Pompliano?

  Yeah. It's interesting you describe it this way in terms of, um, uh, like the brain damage per dollar. Uh, one of the things I've been fascinated with, and I've talked with a number of investors who, you know, most people would know their names and are highly respected as to why has there not been a new, young, long activist investor? Right? If you go back to the days of the Carl Icons, you know, all, all these people who like now are, are kind of seen as legends of Wall Street or, or people who have been doing this a long time and, uh, um, really kind of took the activist approach and went in and fixed these businesses and suggested things, made a lot of money doing it. It doesn't seem like there's really been anyone who's kind of said, hey, I'm going to go do that. And one of, one of the thought processes has been, it's a hard life, right?

• 46:13Anthony Pompliano?

  Like, yeah, yes, there's social media, there's all these things you get, but just because you're long the stock, same as being short the stock, like you're still telling someone they're doing a bad job, right? And, and so it, I, I wonder how much of that plays into, you know, people just not wanting to be as public, maybe, as maybe they were back in the day before social media, before there was so much interest on this activist, you know, type of investing in either direction.

• 46:35Speaker 02

  Well, I'm speaking a little bit out of school now because it's not what I do. But I mean, we have looked at long side activism as a business model in the past. And so here are my impressions. Similar to short activism, it's very hard to break through. I think there are a lot of managers out there trying to do long side activism. But you know, number one, unless, until you, for most of them, unless and until you raise a meaningful amount of AUM and can really accumulate significant shares of the voting stock, you know, you're irrelevant. So how do you raise a bunch of AUM? Well, you do it with a track record of activism. Okay, but you know, so you have this chicken or egg problem. Number one.

• 47:20Speaker 02

  Number two, you know, with all those years of free money, a lot of the low hanging fruit was plucked long ago in terms of, you know, easy strategic fixes, governance fixes, you know, what, you know, business fixes. And so what you ended up getting into was, I think a lot of long side activism did become this form of, you know, like extractive capitalism, basically where it's like you don't have enough debt on the balance sheet. You know, well, you know, I want to run the business conservatively for a rainy day. Nah, shut up. You know, if you oppose this idea of levering up your balance sheet, you know, selling your real estate and leasing it back, et cetera, then you know, we're going to, we'll go to a proxy contest.

• 48:02Speaker 02

  So what a lot of it ended up becoming in the U.S. was financial engineering, which, you know, I'm no fan of that. I mean, a lot of what we look for are companies that are overly financially engineered. You know, the accounting is legal, but it's very misleading and it's covering up a lot of rot within the business. But it's this type of extreme, highly aggressive financial engineering by long side activists that can create the conditions for muddy waters to later come in. So, but yeah, I mean, why, you know, why, why should I as an allocator give a dollar to this guy who's trying to break through and, you know, be a financial engineer when, you know, there are these other better established players over there. But the final thing is, and this is...

• 48:47Speaker 02

  You know, and this is, I think, maybe, you know, if you talk to the established players, this is probably the answer they would give you is that, look, we were very effective, but we don't have to go public to do it. We don't want, the goal is not to go public and have a war. The goal is to be constructive behind the scenes, work with the board, work with management, and, you know, and, and, and basically generate, you know, create value that way. So, um, so yeah, I think a lot of the most successful activists, I think they define themselves, maybe that's a little bit too strong a statement, but I think a lot of the most successful activists

• 49:25Speaker 02

  are actually looking for, you know, non-campaign campaigns, just quiet behind-the-scenes, um, you know, situations. So, yes, it just, it doesn't generate the headlines, but that's where a lot of the action is.

• 49:38Anthony Pompliano?

  Yeah, that makes sense. Um, one of the last questions I have for you is, you all manage a fund, so it's not only just your capital, it's also outside capital. Um, you've had this impressive track record, I've seen in filings where you guys have talked about, you know, I don't know if it's eight, nine, 10 different D-listings after you guys have kind of published on companies. And so, what is like the LP or the institutional kind of appetite for this type of stuff, right? And what I mean by that is, I think, it's twofold. It's like, one, there's an investment strategy, right, of kind of activist short-selling. But then there's also this idea of like, if I allocate to muddy waters, uh, I also am then dealing with like, is Carson going to get a death threat today, right? It's like, you know, is there going to be a lawsuit? Like, there's all these other components to it. And so like, how have you seen maybe that change over time as well?

• 50:21Anthony Pompliano?

  Especially when, you know, you first started out, you were based in China, you were going after Chinese companies. It was kind of like, you, you were really doing research and stuff like that. So like, now you're a full-blown asset manager who's got a, a track record and, and, you know, I think most people would agree, or one of, if not the best short sellers over the last, you know, 15, 20 years. How does the institutional world kind of respond to this? Or what does that environment look like today?

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• 51:44Speaker 02

  So yeah, I mean, look, our LP base is, you know, it's generally speaking, smaller institutions and ultra-high net worth individuals. And the reality is with activist short selling, you know, people might look at the numbers and say, whoa, you know, great numbers or whatever, but it's not scalable. Really, there's, you know, it's not, you could not manage a billion dollars in AUM in an activist short selling strategy. Like, it just, no.

• 52:17Anthony Pompliano?

  Why not?

• 52:17Speaker 02

  I mean, because you just, so you're only be, most of us, I mean, us anyway, we're generally going to be out there five or maybe six times a year on a company. And the trade capacities, the companies that are, that are generally better situated for activist short selling are the ones that don't have as much sell-side coverage. So they're, they're mid caps. And actually, very few short activists can swing a bat in the mid-cap space. Most are in the micro-cap and small-cap space because that's where Get the most egregious behaviors. So we have the resources to really deconstruct complex mid-cap type situations. But you know, at the end of the day, these are not large caps.

• 52:59Speaker 02

  So we can only have so much money in the trade, like the trades only have so much capacity. And if we're doing this only five or six times a year, I mean, call it even four to six. There's just not that, that much money that we can actually put to work productively. So that's the, you know, the, the issue with short activism. People could look at the numbers and be like, wow, great numbers, but yeah, you can't scale it to be that big. And you know, and if you do, then the tail starts wagging the dog. You're, you're looking for like large liquid companies as opposed to problematic companies, you know? Let's look at this large liquid company and see if we can find some problems. So I think that, you know, I, I think really trying to scale, you know, much bigger than we are.

• 53:44Speaker 02

  I mean, we, we returned capital at one point, um, you know, because we're just like, look, this is too much. You know, we, we can't put this much to work. So that's the issue there. Now, I mean, in terms of LP base, um, yeah, so smaller institutions, I mean, we'll, we'll never be pretty enough in this space for sovereign wealth fund. I mean, our, our investors generally are like, look, we, we, we're not worried about headline risk. We don't have that big a name. So like, nobody's going to give a fuck that, you know, like blah, blah, blah, backs muddy waters. Now we do have a few investors who do have some name brands based on the type of institution they are. But, you know, they, I mean, look, they, they, they believe in what we do. They understand that we're keeping markets honest.

• 54:29Speaker 02

  And they have to get comfortable with the idea that, you know, at the end of the day, if it came out that you were invested with us, like it's not, it's not going to be the end of the world. Right? Like people would forget it pretty quickly and it's not even a story to begin with. So, um, so there's that, but yeah, we, uh, you know, um, there's a lot of, you know, uh, I, I gotta tell you, you know, there, you know, we, we spend a lot of time, or I've spent a lot of time, uh, insulting certain sovereign wealth funds and their governments. So like the Saudis, um, so I don't think we're ever going to get like, uh, PIF money. You know, like some of the other, you know, and we've, we've made, we've made comments about Norges Bank as well about how, I mean, you know, they're, they're great like sec lenders,

• 55:14Speaker 02

  you know, if you see Norges in something, I mean, they, they own all this dog shit around the world. But, um, anyway, so yeah, that's a, it's kind, it's a very niche type of LP who's, who's interested in investing with us. And I guess the final thing is to that, like, you know, for me, um, I, I'm not going to be what a lot of institutional investors would want me to be, right? You're not going to come into the office, meet with me, and I'm not going to wear suit. Um, I'm not going to have that institutional looking office. I'm not going to refrain from, you know, saying fuck this, fuck that. Um, and like, that's, that's, those are the behaviors that you undertake if you really care about raising money. But, you know, my attitude is like, look, I want you to understand what we're

• 55:58Speaker 02

  all about because, you know, if you, you know, if you have a problem, you know, with this, then like, we're not, we're not a good match. Let's save each other time and, you know, and you're not going to, you know, worry like, does he smoke weed? Because the answer is yes. Not before meetings and stuff, but you know, like, I just, you got to be comfortable with us personally and professionally, um, you know, to, is, is my view. And so, yeah, I, we are not going to pretend to be, you know, more polished than we are.

• 56:29Anthony Pompliano?

  Yeah, that makes sense to me. Uh, my last question for you is, there's a bunch of companies that were really, really hot private companies. They went public, massive valuations. I'm thinking WeWork, I'm thinking BuzzFeed, you know, all these different businesses. They now have drawn down significantly. Some even argue, maybe they are mid caps at this point, right? And kind of like, I'm not saying that they're doing anything wrong. I don't even know if anyone has come out and publicly said that they, you know, done fraud or anything, anything like that. But just like, now the size is significantly lower than they were. What do you think happens to those types of companies? Like, are that, is that like a things in motion stay in motion and they're likely to just keep going down over time and eventually get delisted? Do you think that there's like a, a theme in some of these really hot private companies from years ago? Hey, the market's just down and like, it'll

• 57:12Anthony Pompliano?

  come back and those companies will benefit? How do you kind of think of maybe like this cohort of, I'll call it like tech and tech enabled businesses that got tons of private funding, went public and the public markets essentially have rejected those valuations and reset them at something much lower?

• 57:26Speaker 02

  It's an interesting question because the short answer is I don't know, but it's interesting because I used to joke some years ago that 700 million is the new zero, right? Like, nothing ever went to zero. And now I think you could even say like the new zero is like north of a billion. You know, I think there's a lot psychologically that happens here where investors will look, just reflexively look like, well, peak market cap was like, you know, 22 billion. So at like 1.3, you know, there's got to be some value there, which is a totally non-scientific, ass-backward way of valuing a company. But I think that that's effectively what goes on.

• 58:09Speaker 02

  So, you know, what ends that? So I don't know. I mean, you look at WeWork, it's funny because, I mean, that business model has always been a bad business model. It's just a rent arbitrage. I'm like, yeah, it was cool, you know, cool offices, right? You spent a lot more on your, you know, on your CapEx, you know, on your FFNO than like Regis did. But Regis has been bankrupt at least once, I think maybe twice. It's always been a shit business model. But do people, will it always hold some allure, for a long time, hold some allure? Because it used to be SoftBank valued it at, like, what, almost 50 billion? I mean, people still think SoftBank is smart money. Like, people still care what Masa thinks.

• 58:53Speaker 02

  I mean, it's, you know, it's the biggest joke on the planet. So, okay, maybe not the biggest, but Masa and SoftBank have certainly been, you know, the butt of many jokes internally, even before, you know, like, all this stuff hit the skids, where we are. But, yeah, so I don't, I don't know. But I think that inherently that WeWork business model, a rent arb, is just such a difficult business model. Maybe you could run it profitably at a relatively small scale, but, you know, that's probably a better private business than a public business.

• 59:28Anthony Pompliano?

  Yeah, that makes sense. And it, I think, just speaks to kind of like the way you think about the business, right? It's like, at the end of the day, you could put all the bells and whistles on it, it's a rent arbitrage business. And is that a good business or not? And one of the aspects that I think I've really paid attention to is the public narratives on plenty of businesses, well, public and private.

• 59:48Anthony Pompliano?

  It isn't the same as maybe, you know, kind of a direct, just boil it down to what is it? And I do wonder how much of that is in the mainstream media, certain journalists, they just don't, they're ill-prepared to combat the professional communications teams. Like, I think a lot about, you know, like, if you are a journalist at one of these mainstream outlets, and I have plenty of friends that are there that are amazing, and I have plenty of friends there that I'm like, "Hey, you probably should go find a different, you know, role," right? And they probably know that. But the ones who are not skilled, who are not trained, who have not been doing it for a long time, they get run over by the communications teams, right? And then vice versa, the ones who are really good, they're calling bullshit left and right. It's like, you know, like the referee who just throws the yellow flag every single play on the football field, right?

• 1:00:32Anthony Pompliano?

  They're like, "That's not true, that's not true," whatever. And so, you know, you described earlier, short sellers, like, there's really good ones and there's ones who aren't so great. I think you see that in companies, you see that in the journalism side. And so, really, it's when you're reading this stuff, trying to figure out who are the really high-quality journalists that when you read it, you know that they're just not rewriting the press release, they actually have done work and, you know, you can kind of put more, I think, weight on it. And so, you know, how many articles got written about WeWork as a rent arbitrage business? Not that many, right? I mean, there's a movie, they don't really talk about that that much.

• 1:01:06Speaker 02

  Yeah, well, it's funny, I know one of the venture, I know a principal at one of the WeWork's venture backers, and this is before, this is, you know, maybe a couple of years ago, I sat down with him, and it's just funny, we had these really different takes on Adam Newman. And I was, I got into it first, I was like, you know, as soon as I read this article in the FT about how he was having these retreats, and, you know, and he's preaching veganism, and, you know, but he actually apparently really eats meat, like, I knew this guy's a fucking, like, a total scammer. Like, that's, that's a, that's a glimpse of how he really thinks about the world.

• 1:01:48Speaker 02

  I, you know, I assume, you know, you really are, you know, would never, you know, put money with a guy like that again. He's like, "No, you're wrong." Like, he was probably the best salesman I'd ever met. And you know, I'm like, but yeah, that's a problem, right? Like, that's a guy I want to short, a good salesman. He's like, no, that's a guy I want to go long in venture because you know, he's going to be able to, you know, convince more people to put in more money at higher valuations and eventually convince somebody to, you know, bring them like, you know, bring them public and subscribe to the IPO. And, you know, so in the venture world, they want the salesman, the short sellers, we want the salesman, you know, we're just different parts of the lifecycle, I guess, you know, is the, is the irony.

• 1:02:31Anthony Pompliano?

  You should go look at that venture capitalist portfolio. Maybe there's a good short ideas in there for when they're public.

• 1:02:37Speaker 02

  Well, he's actually one of the guys who's like more of a like purist and zealot and like, you know, it's, it's something I, it's something I puzzle over with, uh, you know, I, so several, a couple of years ago, we had some interns and I brought him to New York and I sat down with the guy who's CEO of a reasonable sized investment bank. And, um, he, you know, he finished making, he made a point or he told a story and then he said to the interns, I said, you know, reputation is everything and you know, you can't sacrifice your reputation. You got to be honest and above board and this and that. And, you know, I'm like nodding and like, yes, that's exactly correct. But then he told the story, which is a great story and I'll try to nutshell it,

• 1:03:17Speaker 02

  but he got into, he got into the business in investment banking in the eighties. Um, he went to a school that banks didn't recruit from. So he sent in applications. He was getting rejected everywhere. So he took his first Boston rejection letter and it was signed by somebody in HR. So he called up the first Boston switchboard in New York and he said, yeah, give me a, you know, I want to talk to a vice president, you know, not understanding that like everybody at a bank is a VP. And, you know, the switchboard operator said, which one? And he's like, well, just start reading from the directory alphabetically. So, you know, Jim Adams. Yeah, I'll talk, I'll talk to Jim Adams. Jim Adams picks up the phone. He says, hi, my name is so and so.

• 1:03:58Speaker 02

  And he looks at that letter, the woman who signed it, the HR, you know, person who signed it and says, yeah, Sharon Michaels told me I should call you to set up an interview. Oh, oh, okay, yeah. So he totally like finagles this interview, goes in. The guy's like, man, you're great. Let me introduce you to, you know, my director. And the director's like, man, you know, great interview, you know, let me introduce you to an M D. And so by the end of the day, an M D calls, calls down to the person in H R and it's like, yeah, you know, we're giving this guy an offer. She's like, well, we, we can't, we rejected him. They're like, no, you're hiring him. So he got hired. Like, what a great story, like the, you know, the, the chutzpah, like, it's awesome.

• 1:04:42Speaker 02

  But we just finished saying, don't bullshit people, you know, be honest, your reputation's everything. And so the lesson here is that there's an acceptable, if not optimal, level of bullshit in this world. And that the world, especially in finance, runs on some level of bullshit. And so it's an interesting philosophical question to ponder, you know, when have you crossed the line? Like, when, when is your level of bullshit too much? And I think if we look at Elon Musk, it's, you know, it's like a great case study. I mean, this guy lies a lot, but he also delivers on stuff too. Like he built the car, the rocket flies, et cetera.

• 1:05:21Speaker 02

  So, you know, like net, net, where, you know, and on the short side, I will admit, a lot of people have Elon Musk derangement syndrome, but, you know, but he does lie a lot. So it's a, it's, it's an interesting, it's an interesting dynamic.

• 1:05:37Anthony Pompliano?

  Yeah, this is fascinating to me because how do you get at? If you were talking to the founder, right? Let's say you're talking to Elon and you said to Elon, hey, why did you say X? And I don't know, let's say it was delivering the vehicle on a certain timeline. It's like one of the critiques, right? It's they'll say a timeline and then the car's not delivered. And he would say, at the moment when he says it, he's like, because we're going to do it. But he full on believes that he's not, you know, bullshitting and trying to lie or manipulate the stock price or whatever. So let's just hold constant for a second, the, the assumption that like, he fully believes that is the timeline. And because he chooses the timeline that is ridiculously short and aggressive, he doesn't hit it. What I've always wondered is like, in on one regard, like, we need a guy like that to be able to make the car and fly the rocket and like, do all that kind of stuff.

• 1:06:21Anthony Pompliano?

  On the same side, right, like, when you evaluate what he's saying, you're like, this is bullshit. There's no way he's going to deliver a brand new car in two months. Right. And like, even the engineers probably working on it are like, dude, two months, like, if I sleep at the factory, maybe three, right, but like, two months is like, impossible.

• 1:06:36Anthony Pompliano?

  I guess it like, kind of gets into this weird world of like, if he believes it, and he's just being overly optimistic, and he eventually does deliver the car, but it's like a timeline thing versus take like an Enron where it's like a, just an accounting fraud, and it's just like, hey, these people are lying, right? How does the market view that? Because I think Elon's this fascinating example of like, there are people who literally will yell and scream all day long about how Elon is the greatest thing since Jesus. And then there's other people who are like, this guy lies all the time and is full of shit. And like, by the way, I'm complaining on Twitter, right? Where like, he's, it's like, I don't know, how do you like, balance it? And then maybe there isn't a right answer, but I think he is maybe like, the epitome of this, you know, kind of conundrum, if you will.

• 1:07:20Speaker 02

  Yeah, no, I mean, he's definitely, he definitely is the epitome of the, you know, of that, that tension. You know, we all believe in honesty, but, you know, and the reality is, so I, or I shouldn't say the reality is, my assumption is, I think he understands a lot of times that he's lying. And it's not just, you know, making pronouncements about the future that are too optimistic, but even saying, talking about things that are or are not. But I think he understands this, but, you know, the short case was always predicated on, hey, you're going to get crushed by the majors, right? You're not, you don't have a large enough sales base, you know, so your unit costs are going

• 1:08:02Speaker 02

  to be too high, and everybody was looking at the manufacturing base. But what Elon, I think, was focused on and what only he understood, and you know, like everybody on the short side, it just took too long to under, many, I think, do not understand this, is that what mattered was the capital base. So by getting Tesla's market value so high, right, even if, you know, like, I mean, they're not going to run out of cash because they can keep issuing stock all the way. I mean, there's so much, you know, I mean, I'm not sure where the cap is right now, but as of a couple of years ago, when I, when I had this, this thought, it was about double that of Toyota Motors,

• 1:08:45Speaker 02

  right? So I think he got that, hey, in order to compete with these guys, in order to have staying power, I need to have massive market cap. And I think he said, I'm going to do whatever it takes to have that massive market cap. So, you know, maybe, maybe it's a bit, you know, of an armchair quarterback to say, well, yeah, but you really didn't have to be that egregious in a number of these bullshit pronouncements, you know. I mean, maybe he didn't, but, you know, and do I think that he should still be held accountable despite the fact that, and like, people on the short side hate when I say this, but he did move

• 1:09:25Speaker 02

  the needle. He pushed the world toward electrification of vehicles much faster than it would have gone without the majors. Now, again, I will, you know, we can dive into this and explain why, well, if you're filling up your car with coal-fired power, you're probably better off with like, you know, a six-cylinder internal combustion engine, but putting that to the side, you know, the future of humanity at some point does need to be based on electrification, which I would argue for nuclear, you know, nuclear-powered electrification. But, but yeah, he's, you know, but, but I think that, I think that's what the game was. He just, he knew he needed the market cap because otherwise he couldn't, he couldn't do it.

• 1:10:07Speaker 02

  But unfortunately, I feel like he can't turn off that, you know, it's, he was rewarded, you know, as he pushed the needle. I think he, I think he's changed a lot personality-wise over the years. I mean, I don't know him well, like, I met him one time back in like 13, but. I feel like he's changed a lot personality wise over the years because if you're, you know, if you cross the line and you get a positive reward, it's very Pavlovian, I think, this process. So I don't know that he's what I would consider to be a good person anymore, good at heart, but look, he's done some, he's done some things that need to be done. And I guess where I'm, where I most admire him is actually in the space realm because, you know,

• 1:10:48Speaker 02

  I knew somebody who used to be very senior at NASA on the technology side. And I mean, he told me things like the average age of a NASA engineer at that time was, you know, like in the upper 50s and they still program in like Fortran because these are government jobs. And it's clear like the future of space for America is, has to be private sector. So, and you know, and Boeing sucks, you know, overruns and, you know, and Elon's gotten it, he's got it done in that, in that area. So, you know, hat tip to him.

• 1:11:18Anthony Pompliano?

  Carson, that's a great place for us to end. Where can we send people to find you on the internet or find out more about Muddy Waters?

• 1:11:23Speaker 02

  Well, I mean, I've got a, I'm not that active on Twitter or X, which is something Elon has fucked up. But that's at Muddy Waters Re. And we publish our research, muddywatersresearch.com. Unfortunately, we don't check the info box as often as we should, but there's also, yeah. So, but anyway, that's, that's the best way to do it.

• 1:11:46Anthony Pompliano?

  Awesome. I appreciate you taking the time to do this. We'll definitely do it again in the future.

• 1:11:49Speaker 02

  All right. Thanks, man. Enjoyed it.