Watch CNBC's full interview with legendary short seller Jim Chanos

Joining us today for an exclusive

interview

, famed

short

seller

Jim Chanos is here to talk about the markets and the stocks he continues to bet on and why our investment committee is here: Josh Brown Jim Leventhal Jenni Harrington is the CEO and Portfolio Manager at Gilman Hill Asset Management Rob Seaton works in UBS Private Wealth Management and is also a Forbes Top 100 Financial Advisor. We want to check where the stock is at this very moment in what has been a volatile few hours of trading with the Dow right now holding on to a one and a half percent gain which is better than 300 points, that impressive number of claims today Today, everyone digests it, of course, and then the surprising move higher in oil, plus the president saying there could be a 10 million barrel cut or Joe Kernan reporting that first, let's welcome. on Jim Chanos, although he joins us today by phone, Jim, welcome back.

I hope you and yours are safe and healthy. We are Scott and I hope the same for everyone here and for all the family members. Yes, we appreciate it. Can you help us first? I want to, I want to make sure that our viewers understand exactly the angle that we're coming from today. What is your current positioning in the market? Is he net

short

as we speak well? Scott, if you remember, we run basically two different types of capital pools, we have just the short, which we've basically been doing since 1985 for clients that use us as a hedge, and from time to time we have our own hedge fund, which basically It is always net long, but to varying degrees at this time. that's about 50 percent or so a little bit of net long and that's on the lower end of where we've been, we de-risked on the long side, they came back in late February early March and that's probably because a while and then in short positions where it has been difficult to stay short, obviously in my world, in that world, if the market goes your way, you invest less and of course, conversely, if it goes against you, you invest more , so your constant having to change that and depending on the client, we have managed accounts for clients that ask us to stay at 100% and then in the funds we have discretion and we are probably around 75% and that's basically, already you know, something online historically. that's where we are and you know it's been a crazy ride obviously as your viewers know yeah for sure it's interesting that you say it's hard to fall short.

I'm wondering what your current overview is on where this market goes from here, if you think we could retest the lows if we don't go down or if you think we have bottomed out in some aspects or are close to achieving that simple answer. I have no idea, so basically what we tell customers is for them. We're looking back and forward, I think that's the simplest way to describe it, we're looking at ideas that are silly based on 2019, and since everyone is going to dismiss 2020, possibly with justification, you know what these things look like. . How do companies see themselves coming out of this and our question?

Well, companies with questionable business models are still overpriced today based on 2021, and surprisingly, there are still plenty of situations like that where they are simply structurally unprofitable companies. They're not going to win, they didn't make any money in 2019, they're certainly going to lose a lot of money in 2020 and they're not going to make any money in 2021, and I think those are the actions of their viewers. we should avoid and that is the type of thing we are short. Do you have short positions covered? As you say, it's hard to go short given the huge downdraft we've seen in the market.

Well, you and I had an argument. You already know. sometimes it's better to be lucky than good and we covered our shorts at the beginning of this week and and just because they were so low, you know, if you remember, when I delivered alpha, I gave a talk in 2017 about frackers and and and we just pointed out that we've been telling you to customers for a long time that the model was in economy, it was in economy at $25 oil, it was in economy at $50 oil, it was in economy at $70 oil and and and you know, those The birds have come home after saying all of that, I mean, a lot of our shorts were just decimated and you know the risk/reward has changed like anything else in the market and so you know individual situations, obviously, we are. be selective and if the stocks you really need fall for some reason whether anticipated or unforeseen, you know we're going to get out and you know it's one of the few things that short

seller

s do in bear markets that people forget, we're often Buyers on Weakness and Luck in Coffee was a good example today, and we fell short thanks to Muddy Waters, who urged me to take a look at it in February.

You know, the company goes out. Storekeepers die. The risk/reward dynamic has obviously changed over time. to move forward so you completely covered your lucky short on coffee as the stock we are looking at right now is down over 70% Jim yes we did we did it before we opened this morning and luck is a great example of you know, when people talk about banning short selling or restricting short selling, you know that the fundamental short sellers and the community were talking about this action in January and February as a fraud and it is one of the Things that short sellers are the real-time financial detectives in situations like this?

And when you restrict that capacity, you eliminate important players in the market. I wonder then how you would respond and we are in a crisis, obviously, yes, we all recognize that. that for those suggesting that you short stocks and let me differentiate here, I'm not actually referring to the short positions that you had for a very long period of time long before the winds of the virus started blowing and started , they already know. change and enter in a big way, but what would you say to those who would suggest now that we have what could be considered a quote-unquote forced recession, so to speak, and that shorting stocks or perhaps initiating new short sales now is not it's the solution?

The right thing is, how would you respond to that type of criticism? I'm not suggesting that you're looking for more targets right now or not, you can tell me that of course, but just the general perception of short sellers. In the environment we live in today, Scott, I think I would turn that around and say, you know, when times are booming and people are hyping stocks left, right and center and investors are speculating on the margin and often urge to do so. So whatever the venue, whether it's television, print media, or whatever, I would say that that behavior causes a lot more financial damage to investors than any behavior could be that of fundamental short sellers who, in general, in a environment like the current one, they are net buyers. of shares, so we were selling shares to those people who were probably doing things that they should not be doing with their capital in late 2019 and early 2020 and now we are buying back shares that were a cushion for the market, so you have to be a little careful about this, as I suspect that much more harm is done to bystanders and investors in general by behavior that should probably be controlled at the time of excess than anything else, as I said, that short sellers are doing in 2020 and certainly not I don't want to speak for you, are you currently looking for more opportunities on the short side or is it because the market has dropped so much that you're a little timid to do that right now?

Well, I mean, obviously. the reviews are lower, so we're always looking for opportunities, that's what we do. I don't know where the markets are going. That has long been our view as a company and my opinion as a chief investment officer. I don't know where the market is. I don't know if people know where the stock market is going. What we try to do is analyze companies and we've been quite successful in doing that, so the idea that each idea stands on its own merits is an important part of it. So if valuations are low, then we'll be less likely to do anything.

That said, as I said at the beginning of our conversation, there are many situations where valuations are still surprisingly excessive, so I want to say that it's interesting now that there are a lot of things that look interesting and cheap. One area I would warn people about, for example, is virus stocks. I mean, there are tons of companies that I hear about every day. You know, on your network. Another place is where you should be. buy XYZ because it is doing well right now in this forced lockdown, so many of these companies are not really structural growth; stocks are trading at 30, 40, 50 times earnings because they will do well in the first and second quarter of 2020, but of course when the virus subsides, we all know it will, those companies will probably start to fade so attractive in the future, so that would be one area.

I think I would tell your viewers to be very careful. on things that are going well because people are inside and will stay inside for the next three, four or five weeks or three, four or five months. I mean, are you suggesting when you say virus stockpiles just to make sure we're all okay? on the same page here the zoom media is the TV Doc stuff I've seen a big umbrella against the zooms the Clorox is I mean you know I could give you a list of 30 names and I have a list of 30 names We were saying a lot of companies are in countercyclical behavior right now because of the virus and again what we really urge investors to do is look at the business and look at 2019 and make an educated guess and do your research and do your job and how you think that will be seen in 2021 and if it is still a cheap stock then it could be an attractive long term investment, but if it is really very expensive based on the 19th and then 2021 then you might want to think twice. you're as low as zoom media for example, we're not, how about you tell adam no?

No, no, I wouldn't do that to Josh. We'll get to Josh in just a minute. I wonder if we will resume our conversation. It's also interesting what you talked about, you know, analyzing stocks, that's obviously what you do for a living, this environment is incredibly difficult to analyze anything that's used to cancel, you have to cancel 2020, I mean, again, I think that and I think the market is and ultimately, but you also have to be very careful because 2020 is going to expose a lot of business models, for example, look at the restaurant industry, where we have been short and we continue being short.

I have talked about some of these actions in your program. and elsewhere on CNBC, I mean, what people really misunderstood here was that they looked at restaurant companies that are basically ORS franchises and said that these companies are valued by assets and therefore actually They just collect coupons in the form of royalty fees, but what they missed was that their franchisees were really leveraged, the people who were operating the checkouts and struggling before the virus hit, there were several chapter elevens in the restaurant industry in December, January and February and then the franchisor is the guys like Dunkin and Wendy's and restaurant brands, all of our owners too, so they lease restaurants to investors and then sublet them to their restaurant franchisees, so there's kind of a hidden double leverage there and then on top of that most of those companies then I went out and bought a lot of stocks at the highs and then we have companies that are really leveraged that are now basically the really leveraged restaurant owners underneath them that are also leveraged and losing money and they're going out of business, so it's like triple leverage and I think those business models will be exposed in 2020 for what they really are and then I think that will be one of the dark sides of the buyback boom.

I think names like Wendy's Duncan and Q are restaurant brands that you had said before that you were short, you're still three of us, we're still out, yeah, and another alternative shorts and more shares in the restaurant space as well or are they primarily the ones that they did, they're primarily now, you're still those primarily, but we keep you informed very closely on the entire space, let it, I think let it be, even in the perspectives of what we're dealing with currently, some of these companies that have self-service obviously could see it work. in the business or at least try to follow the line to the other side, yes, again, we are analyzing situations, we are trying to normalize the business, so we will cancel the first quarter and the second quarter and really see how the business seems to go Let's go now, we are not with restaurants, what we have to understand is that some of theirfranchisees don't make it and then I think that's why you have to be very careful with those in the other related group and with you and I've talked about it before.

I think sharing economy companies will be hurt, not better. I know there's this idea that, well, everyone is going to do food deliveries and we're all going to take Ubers and no one is going to buy a car again and I think the other side of the coin is that the labor problem for the Collaborative economy companies are going to gain a lot of importance as we emerge from this crisis. Please note that we, as taxpayers, are paying correctly. so unemployment benefits for many drivers, uber lyft GrubHub etc. but the reason we pay that is because the companies themselves never contributed to the unemployment funds, the idea is to keep employees as independent contractors instead of employees, and I think both political parties are going to look pretty hard at coming out of the crisis to improve corporate responsibility in a lot of different ways, whether it's keeping employees as independent contractors or restricting buybacks.

We haven't thought through these issues yet that I think are going to make a difference for US businesses. Well, I want to put it specifically on Uber Xand and Grub Hubs and the things I mentioned before. You mentioned Josh's name. and I want to bring it up Jim I'm sure he has a question for you too hey Josh are you there yeah of course hey Jam greetings from the south shore of Long Island my friend my face the second favorite place in the whole world. Josh, you know you do. I wanted to uh I just wanted to mention it because no.

I don't know if all viewers are aware of this, but you've actually taught a class on financial fraud at an Ivy League. From a university and philosophical point of view, recessions in bear markets have a positive side, since this is the only way in which we truly discover fraudulent operators, whether on Wall Street or in blue-chip companies, in quotes, and each market crash, the second wave that occurs after the initial shock. What stopped was that we realized that a lot of magicians were really behind the curtain and weren't actually performing magic. You played a major role in exposing Enron after the dotcom crash.

You recommended a book to me, The Match King, about the collapse of a giant multinational corporation in the depression and so we did and of course Madoff was unmasked by oh wait, what happens is people thought they had returns, the returns They were ghosts and when they went to get their money at once, there was just not enough money to give it back to the people, so my question is the first. I'm sure you consider that to be a positive because these schemes and scandals can't go on forever and that's when they stopped, but the second part of that. is what areas of the economy or the stock market do you think about without mentioning anyone's name specifically yes, where do you think the next big scandal will emanate from? what kind of work are you guys doing on that question yeah, I bet you think that's a great question on In fact, I'm teaching my class remotely and this coming Monday's case is Ivar Kreuger at the King party and my good friend Frank, my partner will be invited to give a lecture in class and you touched on one of the topics. class, which is that the fraud cycle follows the business and financial cycle with a lag as the economic expansion drags on and the bull market drags on, people's sense of disbelief reduces and they begin to believe more things than are too good to be true and inevitably when the cycle goes down and people get stingy with their capital, as most frogs today generally should weed out Ponzi schemes or Ponzi schemes once or twice, it becomes harder to maintain the game because the cheap capital is not available and the business model collapses and then we see the bad practices and I have always joked that that is the best defense lawyer and the best prosecutor for a company is its fact, the price It's that people don't bother when they're making money.

The good thing is that they look the other way at bad corporate behavior, the short sellers, the journalists, the naysayers will point out that a guy is doing this, he's doing that, he's obviously lying and people will shrug their shoulders and move on, so what will stocks go up, but when people start? losing money, boy, do they get angry and put political pressure on legislators, on law enforcement regulators to crack down? We saw that after the dotcom wave with Enron and Sarbanes-oxley, so where are the excesses today and where might the gray area be around the world?

The bright line and I think two areas are really areas to

watch

: the first is fraud, I think fraud hiding in plain sight, which is the aggressive and overly aggressive use of metrics instead of differential earnings, and we see it particularly. in the liberal use of stock-based compensation in Silicon Valley, but everywhere where people simply pay employees with stock and add it to pro forma earnings, however it is cut, compensation is an expense that must be accounted for, whether paid in stock or cash. and then I could go on to all the adjustments to EBIT Don in the private equity space and we don't have time to get into all that, but a lot of the aggressive and maybe overly aggressive Bay are looking at You're in the face in this cycle and a lot in the west coast and then if we want to go further west, I think the other area and we saw it this morning hope

full

y and I have to avoid these Chinese companies like the plague.

Sorry, I mean, I know how many times you have to burn investors in these companies that are too good to be true and grow at 40 or 50 percent a year with all kinds of audit transactions with affiliated variable interest entities based in the Cayman Islands. Hi Jim, I want to, I want to, I want to, I want to clarify some of that because I think it's an important point. MSCI, as part of its index management, specifically on foreign stocks and emerging market stocks, has given China a greatly improved role in the composition of those indices to the point where investors Those who buy stocks overseas increasingly own China if they stick to that benchmark and let's face it, most do, so that's the first part, stock markets have been somewhat blessed by investing in China. companies by virtue of the fact that many of them are listed on the Nasdaq or the New York Stock Exchange, so do you consider those two things to be part of the risk here for most investors

watch

ing us right now?

Well, I think those are those They've certainly contributed to investors having a love affair or an overweight in China and, in addition to the idea that, you know, now listen, in China they know me a little bit as a guy with the glass Half empty, to be fair, but you know. The secular growth rate that China reports is tremendously attractive to people if the economy is really growing 6% a year and the rest of the world is struggling, why wouldn't you look there for secular growth stories? The problem is that a terrible Many of those secular growth stories are literally manufactured for Western investors and that's the problem, which is why we had been so light on China, if you remember, about a year ago and you were talking to me, you know that We were as close to the ground in China as we have been in years, we have been increasing our China exposure in our global short funds and global coverage because I also see another problem emerging from this crisis.

I think US-China relations have really suffered. and if we had seen some of the activities from China last year that we are seeing now, like expelling all the Western journalists and things like that a year ago, I think people would have been running with their hair on fire, but because it has happened in the context of the virus, we have somewhat neglected it, but things are getting much worse on the US-China front and if you think about post-virus corporate supply chains and the dependence on imported products that are essential to our well-being and national security, I think, and even if you look at the Democratic positions, Biden's positions and others, I mean they've hardened as well, so I suspect things are going to get worse between the United States and China before they get better.

So you are as negative today about China as you were many years ago, when you were the loudest voice, we were one of the only voices, so we are not as negative as we were in 2010-11, we had about a quarter. of our short global funds and short hedge funds in China, but we got to five last year and I think we're a little over ten right now, so let me ask you, you said you know one thing that makes it difficult to go short. It's when a stock goes cream like some of the energy stocks have done and like Luckyin has done today where you've covered everything else it's when a stock goes parabolic like it's that very winter date, are you still short ? that and how that affected their thinking on their positioning, so Tesla and we told customers in January/February that the three month period of November, December and January was one of the craziest periods I've ever seen. life.

My 40 years on Wall Street and if you remember, I know Josh saw some of this stuff and maybe some of your other retail panelists, for some reason, they came to the market and one guy named individual stories in a way that we hadn't seen . really since January February 2000, at the end of the dotcom boom, and we saw the parables that we saw from Tesla, Virgin Galactic and others, and we saw it in the retail trading data in E Trade and options and Robin Hood and so on and so on. um, and I hadn't seen that that was the only thing that was missing in this bull market over the last ten years, it was just manic speculation by individuals, sure enough, in January and February we had it and you know, we saw These stocks they go parabolic and if you are parabolic you are short, obviously your position is getting much bigger, so in situations like that, if we like the name like we like Tesla, we will have to cover some of it if it passes our risk parameters, but then we will sell it even again down if we want to maintain a maximum position again.

One of the challenges of the short side is that you get bigger when it goes against you and you get smaller when it goes for you, that's still us. They are still basically short Tesla is still one of my favorite positions, from my point of view nothing has changed here, this is a car company, it will lose money again this year. What I find fascinating about Tesla is that the 2021 estimates tracking the rising stock are now being slashed, I think Tony Sacco Nagi, who you know, yesterday cut his 2021 adjusted EPS number from $18 to $11 I mean, that's not affected by the virus, so we're seeing big cuts in this company.

They are building two plants, they finished China, they are building Berlin, they are increasing capacity. I think at exactly the wrong time and if you know anything about manufacturing economics, you'll know that the units you also need to cover your overhead if you're building more and more. capacity and if you're not producing at more than 90 percent capacity, you're basically not going to be profitable, but from a risk standpoint, you covered some of the Tesla short when your position went up because the stock was gone. parabolic as we say above, yes we have a five percent limit on our funds so if something goes over five percent we have to cover it, but on the other hand, you know, we will add on the way down if we still like it the position he was in.

It was a very constructive story and it was about a company called Valeant Pharmaceuticals that went from one hundred and thirty-two to sixty and we had to start covering stocks at 180 and 200 on the way up, but then we sold them all the way out. Do you think that, although I mean the balance sheet fundamentals of the cash position have improved, would you admit that, although it is correct, it is not an insolvency story, at least not here and not yet, but also? It also has a market capitalization of eighty-nine billion dollars and a total enterprise value of more than $100 billion.

This is a company that hasn't made money since its inception and it's not going to make money this year and I'm not going to have a million Robo taxis like I promised this year, so it's a car company that I follow, yeah, it seems very Simple to point it out to people, but we have to keep doing it. Car companies don't trade at half Revenues are now trading at about 0.25 of revenues and of course Tesla trades at four times revenues so the risk/reward is I think a bit of a no-brainer . I remember Charlie Munger's quote from months ago aboutthis.

I want to remind our viewers and I know you know this, but remind them too and get them to react about Tesla. He would never buy it. I would never short it. I think Elon Musk is quirky and may overestimate himself, but he may also not be wrong all the time, is there something about Musk himself and the nature of the way these stocks are traded? It's hard to be a player, well, you know, I think we talked a little bit earlier about my fraud course and there's a wonderful model that we use by a woman named Mary Ann Jennings wrote a great book the seven signs of ethical breakdown and it's a list check of all the great frauds in history and it is a seven point list of attributes that all the great frauds that have been in history and all I will say is a test, I think I check six or seven of the boxes and you will know that mr.

Munger's Comment I don't know what that statement really says. I think that statement actually describes almost everyone, but this has been such that, in theory, you could be right about almost everything you say and yet actions can work against you regardless, right, there are certain things that are cult-type actions, you know where I'm going, yeah, when I want to mention that, regardless of what argument you make about whether it's prudent or relevant or fundamentally sound. It may not matter how the market trades something, whether it's Tesla or something else, this is simply the example we are using and what mr.

Munger was talking about, well, they're called stocks until they're Scott, and again, I think when you're pricing the cult at basically sixteen times the price of the rest of the industry, it's better to stay hidden, it sucks because there's no there's room for error here and I think that's the opportunity, if you're skeptical, Jim, you know Rob and he's with us today and he has a question for you too. Rob, hi, Rob, hi, Jim. It's great to have you on the show. I know I feel like short selling plays a vital role and function of the market and keeps management honest and you are one of the best at that so thank you for participating.

I have a couple of questions for you: do you think investors? Three questions are actually looking beyond where you are in 2021, has that migration begun, that's number one, number two, given the induced coma that we've put the economy in, are you surprised at how well prices are going up? markets and that has something to do with cash on the sidelines and you? I know, ultimately, this will be the depth of passive investing in the index, in case of where the markets are, what is your opinion on those issues? I'll pass last. Don't know. I'm generally a fan of passive investing. on investment committees and allocating capital, as well as managing my hedge fund and you know I'm often the one advocating a large dose of passivity because for most investors that makes sense, so I'll go for that. a couple of builds and again with the general view that I don't really know specifically where the markets are going, but if you want to think in terms of frameworks, I don't think the market is tremendously cheap here, it's down a lot, but on the other hand , we can ignore, we can ignore a 20/20, but if you look at the S&P, I think last year there was about a hundred and sixty dollars in gains, give or take, and as we get there, as we were before the virus.

I think what people were looking for was that they were reducing their numbers for 2020, it was somewhere around that same number, but that had a 21 percent tax rate and I pointed out to people who know the not small possibility that the Democrats take the white vote. The House and the Senate and I know the Senate is a lot more complicated right now, but if corporate tax rates went back to 35 percent, $160 is $130 and therefore the S&P is kind. you know, okay, it's not 10 times, which is where a lot of bear markets bottomed at 10 times or less in 2009, it was eight times Peaks' previous earnings in 2007, the slopes peaked, I think around $ 100 per S&P share and I think the S&P went down to around 600 650 700 and also in 2002 and it goes back to 1990 so they aren't giving things away here but they certainly aren't as expensive as they were a month and a half ago .

About ten days ago, were you the hedge fund buyers on the long side thinking you knew the market had gone too low too? quick, two weeks ago, when I think about this on the 19th or the 18th or somewhere around there where it hit bottom, I think I'd have to double check, but I think we were probably net buyers, yeah, I'm pretty much sure of that. This is just because a lot of things went down to two prices that were the risk/reward for what we do, they're just not there anymore, but then a lot of things pulled back dramatically.

I mean, we had some stocks that went up a hundred percent in the next seven. Eight days, how do you see things like the airlines here or the hotels, things that obviously would have been affected from a stock market point of view and will face a lot of problems in the future? Yes, we know we weren't. We weren't in the cruise lines or the airlines, we were, you know, we're in the casinos and you know, I think those are such problematic business models and you're really going to have to figure it out like I indicated at the beginning. from the program, what do these business models look like coming out of this?

They are disasters this year. We know, but you know, Airlines. I can give you a pretty educated guess. Airlines, they will continue to exist. I probably don't know. I think they are great businesses, but they will continue to exist, so you can look at the capital structure and see that maybe there is something interesting to do. Cruise lines. I don't understand it, I just haven't understood it all along. No? -we, the taxpayers of your convenience company flags, wanted you to have taxpayer assistance, which was patently absurd in my opinion and I just think the business is probably going to be permanently hurt, so it depends, I mean, yeah, and what are we going to do like In what society are we going to be like 9/11 where you know our lives changed?

We give up small personal freedoms when we travel or whatever, due to safety concerns, are we going to congregate as much as a result of this? There are costs to businesses that are involved in dealing with the general public, whether it's higher insurance costs, higher costs related to health elves, whatever it may be. I mean, I think investors really have to put a lot of care into this when they look at business models. coming out of the virus to find out if my companies are going to change permanently or is it purely temporary, let me talk more about the topic of coming out of this because another company that you have fallen short with is super and Derrick Oz with Shahid, a CEO, commented that a couple of weeks ago about this very thing, I'm going to read the quote and we can hear his reaction on the other side, our balance sheet is incredibly strong, he said we have a lot. of liquidity on the books that we believe positions us to come out of this crisis and we will come out of this crisis strong, capable and important now their reserves are obviously down, yes, because of the virus, that's not a surprise, but the fact that is saying about the other side, don't you agree with him?

I do not agree on an important point and one of the reasons why we are still missing all the collaborative economy type companies is that I believe that their entire business model is based on this labor arbitration that they basically are, are their employees, their Drivers, in fact, are not employees and that is HUGE because keep in mind that right now the cost of supporting a salaried employee is usually twenty percent of someone's income in the form of payroll taxes, group of unemployment. taxes and a variety of other taxes for employers and typically the employee pays about half of that, in the case of the gig economy the employees pay all of that and that's why a lot of these drivers realize That they are not earning much more, that is not the case. even less than minimum wage when you take into account all their additional expenses and that is why these businesses exist.

I mean, you know the taxi business has been around for a long time, so I think if you're an investor in the sharing economy you have to at least consider the possibility that the whole labor relations aspect of this business model is going to change and I think that's really important, and if it does and if it changes like you say, it could be, and you know, I've seen some some politicians in Washington in the last few days raised this same issue related to the virus and it what happens next and the people who are struggling right now and who were driving fools, whether part-time or even

full

-time, who Now you're doing it, there's no moment where you know you think it's a result net negative, even if that changes how the company operates after this.

Well, I mean, obviously, I think they're going to have higher payroll-related expenses and then the question will be whether investors will be able to charge consumers more if they do that and you know, that remains to be seen, but you know it's a business model. fundamentally unprofitable and even when Uber says well, we're going to be tight. EBIT positive, you know, I think he said Q4 2020, not 2021, people got excited, you know, I kept pointing out to people, yeah, that's before stock-based compensation, which is almost half a billion. of dollars a year so they are really profitable if they are not counting that and this is the problem if you look at GrubHub.

I mean, just look at what they did recently, if you want to talk about bad actors, they did this promotion, they promoted a promotion with their restaurants where they urge. the restaurants offered deep discounts and delivered through GrubHub and then in the fine print they told the restaurants that of course they wouldn't take cuts on their cut, so you know this is an almost predatory business model for food. Delivery guys, I mean, I think they have an even more existential problem, which is that I think a lot of the independent restaurants, which is where they make money, don't make money at the McDonald's of the world, at the Burger Kings.

They are still short, they are still one of my favorite positions and I think structurally they just don't make money and here is your information on GrubHub, if GrubHub doesn't make money in the first half of 2020, I would say we will probably never make money, by the way, they gave us a statement because what you say about the so-called dine-in-support program the company was running is actually true: the discount price grub said drops. on the shoulders of the restaurants, not GrubHub paying the discount, so to speak, they say and I'm just going to read this for our viewers, they say that since its launch, participants have seen thirty percent more orders on average and, So, because it's working well for those restaurants GrubHub is doubling down on the promotion and encouraging more signups by donating $200 $250 to each participating restaurant Based on the results so far, we anticipate this GrubHub funding will help generate at least a hundred million dollars in sales of restaurants and it will cost GrubHub About thirty million dollars we asked them for a statement on this program and this is how they responded Jim, yeah well they got caught up in that and I don't think when they made that announcement they originally had that program.

I think they've been criticized on social media, in the press, and in restaurants for doing that when they implemented it. It's great for them if they're going to try to return it, but it still gets to my problem, which is I just don't think this is a profitable business and they're getting tired of delivering through the GrubHub fast food establishments themselves, so They don't make money in that business delivering hamburgers. Is there a way? I wonder. On the other hand, forgive me for interrupting you. I wonder, on the other side of this, if the world changes in some ways and I watch.

I think we all think that somehow it will change. What happens if you look? There was talk months ago of a possible deal for this company, which, as you know, some may have found the suggestion of who might buy them outlandish, but if you look into the future and see that the world and habits are changing in In some ways, a company like this is more attractive to a larger player because people will actually want to get food delivered more often than they would go to a restaurant, and in certain places, restaurants can be half the size .

On the other hand, here's the conundrum with that, that question, Scott, if you don't make money delivering for the big chains, which is where a lot of the volume is and you're only making money delivering for an independent restaurant and an independent restaurant survives this way out of this, why independent restaurants? Ultimately, they don't do this themselves and simply pay an agency fee. Why do they have to give 20% of the profit to a third party? This has been a useless prosperity for restaurants in good times and it doesn't scale. theDelivery drivers can only make two deliveries per hour, it is not like other Silicon Valley Network effect companies, it is literally a body shop, you have to have more drivers to make deliveries and that is the inherent problem why this will never be profitable, let me go.

Sorry, no, I was going to say I wanted to bring in another of our panelists. Get a question. We're passing time as quickly as it usually does in these

interview

s. Jennie Harrington. You have a question for Jim. Thanks Jim. I'd love to go back to one of your previous comments where you said you put on your shorts to get the energy out at the beginning of the week. You took off your shorts. I'd assume you'd expect improvement from here, so I'm just curious. If you're exploring buys in the energy space and if there are any micro-industry or micro-industry issues specific to that company that you're really finding value in and things that could have upside, yeah, I mean, I haven't been a fan of Scott.

I know for a long time I would tell your viewers to avoid the frackers that is a simple general statement, long or short, just avoid them, they incinerate capital, it is not a business, it is a plan, more money has gone to the ground from which it has come, and that is why I have simply been negative in that space since 2014, we continue to be negative, you know, it is difficult because at the moment there is a big game in the price of raw materials even for the integrated countries and I have not recently done a bad job on the cake, so avoid it.

I know that there is some value that people are sniffing around in that sector, but even the integrators that you know, who just had iron balance sheets, remember that when Exxon had an iron balance sheet, it no longer has one, and to be able to do it with the other big companies that paid big dividends and generally, We were quite conservative holding companies for investors, so it's a difficult area. I think it's going to get more difficult. The balance sheets have deteriorated, they haven't improved, and then you have this whole problem where the fracking business model is not really just a business model, but an accounting scam that never depreciated the wells fast enough and, in Overall, you know, stocks had gotten so low that the risk reward fell short and better elsewhere, but I'm not a big fan of the industry, Jim Leventhal.

I have something for Jim. Yes, if I can start by saying that as a long-term stock manager, I have a lot of respect for short sellers. I know it's not just what you do, Mr. Chae knows that, but it helps figure out the price. It is real money that is at risk and when I enter a position, if I believe in the position, one of the metrics I look at is what the short interest is because as you pointed out, you have to cover at some point, so if there is no accounting fraud, short term interest can be very useful, but Mike, my question for you is that we live in this world where every day something comes out of the federal government, whether it is enacted or not, and as an example , one of the things that's being talked about is maybe we'll get an infrastructure bill, you know, that wasn't really talked about a week ago, the question is do you have real money at risk on the short side and you know that the Losses can be endless, if things go wrong, are you too worried in any way?

Any day now something could come out of the federal government that dramatically changes your short-side investing thesis and what you can do about it. Well, again, you know. We're in our hedge fund, we're net long, as I indicated, and in our short programs, for the most part, we offset and how we perform relative to the market, so I've always joked: I'm in the insurance business. . I probably don't think I'm missing any companies right now that would directly benefit from a bill, and as far as government involvement affecting the stock market at this point in my career, I'm pretty resigned.

Due to the fact that there will always be government involvement in financial markets, it seems to be getting worse, not better, when it comes to the government's decision to spend taxpayer money to support several different industries, now that it probably should an infrastructure bill has been approved. It's been done a long time ago given what my rates are but we always worry about that sort of thing and the government increasingly believes it needs to bail out various industries. I would suggest that we talk to the airline again on Monday. I pointed out to clients that the airlines the four or five largest publicly traded airlines in the United States had a total market capitalization of fifty billion dollars in stock why are we talking about stock grants if Carnival Cruise Line can raise money in the debt and bond market in stocks? markets, why don't American Airlines, United Airlines, etc. raise capital in the stock market?

Why does this taxpayer need to do that? And that's just a philosophical question that I have and I think I don't need to address, but uh-huh, but but yeah, Jim, I mean, we always worry about those things and we always know, can the government do something in an area where We are negative and what would affect the evaluation and perception? Surely not, you're obviously not here. He's not the only Jim who is analyzing the current landscape of bailouts and bailouts and disagreeing with certain parts of them, obviously, I'm Josh Brown, yes, I know you wanted to get in again or earlier and we're running out.

Well, quick, I think the answer to why airlines aren't in the debt markets right now might have to do with something they're discussing with Omaha, but we'll find out I want to back up. Uber, I am long shares. I don't disagree with everything you've said, but here are three things the Bulls would respond to you. The first is that, unfortunately, the pool of labor available for Uber drivers is now substantially larger given unemployment. The numbers we've seen in the last two weeks on public transportation could be more risky than Uber's use of this. How many people are now thinking about how I am going to get to work from now on if I no longer want to be there? a commuter train, a subway or a bus, so they might actually benefit marginally for upper middle class commuters and the third thing is that I'm not so sure there is political will to change the employment structure of companies like This and an example of that is that self-employed workers are now included in the unemployment insurance package that comes from exclusive support from the Treasury, they will be treated as if a company laid them off, so it almost seems that they are entrenched in what would you say to those three points that a survey could address specifically about Uber and by the way, I own the stock?

Okay, so in reverse order. I think you're actually making my point. I think employers employees will be put. in those groups, I mean, I think because we're covering these drivers and self-employed workers like I think we should, I think that might be that the employer should pay half of those costs as it is, as you know, CNBC pays the half the salaries of the Scots and Kanako. half of mine and the employee has to shoulder the same amount whether they're an independent, quote-unquote, independent contractor or not, so I think the cost of doing business from a payroll standpoint The ubers and larvae of the world is increasing. to go up now jumping to the first part of your question, will the available number of employees increase well if unemployment becomes structural possibly but if unemployment becomes structural?

I'll cede that point to you, Josh, and realize that a lot of my other businesses are going to have much bigger problems. I assume that unemployment will not be structural and that we will know that we will recover and therefore labor rates will remain the same or maybe even increase, so I think that the onion is unbridled capitalism where everyone is going to fight for minimum wage jobs, I think you could actually see additional regulation not only on the payroll tax side but also on the restrictive minimum wage and other things, so I think we just don't agree on that.

As for the second point, I think that's the interesting one. You know, I've heard both sides of things. I'm never going to use public transportation because you know there are too many people confined in the space and then I've heard I don't want to get into someone's car I don't know who's driving me I don't know what what do you know if they clean the vehicle who was in it before I'm definitely a less than six feet in that vehicle, so I don't know, I don't have to see how that plays out. The problem again in this industry, although it's on a micro level, it's not economical for these to be body shops, literally, leave me, leave me, leave me.

I only have a couple of minutes left, Jimmy. I want to ask you one more question about a stock, if you want, your very long ticker symbol is Joe B, as in Joe Biden, how is this going to affect all of this? How was the virus going to affect us? impact on your ability to campaign we already know we literally went on air today the convention announcement had come out that it is being delayed how is all of that going to impact you? What do you think? Have you talked to him recently? I have not talked with him.

Vice President Lee, but I've certainly talked to his team and been around the campaign almost every day, as you know, I'm close to the vice president. I think I'll take a step back before they talk about specific details there and I don't know much more than the public knows. I would say that I believe the political dynamics will change and I suspect that the virus subsides and/or disappears. Hopefully, I think the speech is going to win a lot. sharper and the elbows are going to get a lot sharper, you know, and unfortunately they've already been pretty sharp, no, but I suspect that when fear turns to anger, you're going to see a different dynamic and a lot of racing around the country and that's what?

Why am I also keeping an eye on the Senate races? Look. You know the convention. I am a Milwaukee native. I was looking forward to this summer's convention and attending some Brewers games and eating some brats, but I'll see what happens there. I think there will be a stark dichotomy between the two candidates and the two parties, probably more than ever after this in the fall. I don't think the markets are focused on that right now. I don't think the markets are focused on the healthcare debate, which I think will pick up, you know, in terms of our healthcare economy and then what should be provided and what shouldn't be provided.

I suspect the virus might even blur the lines between parties on some of these issues on things like healthcare employment, so it's going to be kind of a wild, confusing fall and we'll see what happens, I think the vice president has been correctly aware of where we are and is not trying to make big political points about it. I think that's the right strategy that I made, but I also think that the administration will be held accountable when the time comes and I suspect that's the policy. The rhetoric is going to heat up after the summer.

That's the best I can say. I understand. I really appreciate you being with us today. It's been a while and it's always an interesting conversation and debate. Jim. Thank you so much. I'm glad you invited me guys stay safe everyone Josh we need to make steak soon you too Jimmy that would be nice keep your savings and stay healthy sure that's Jim Chanos the founder of Kenton Coast Associates, you, you.