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Welcome back to Bloomberg Money. I'm Tom Keen with Scarlett Food. It is a very special edition here. Yes, on your personal finance, on your retirement, Scarlett, did you get your leverage ETF set up for SpaceX? You feel I can't do that.
I'm only passive.
You're very passive.
No one's going to be passive with SpaceX. This morning, we're seeing the pricing year with some stability or up twenty one percent off the one fifty level.
This is indeed an honor joining us now.
He's been extremely active on global Wall Street in the last four or five days. James Chanos is with Chanos and Company definitive on the Street of a cautious view. Jim Chanos honored to have you here. Let me just cut to the chase. What is a distinctive feature that makes SpaceX remind you of en Run?
I don't know that it reminds me of Enron, Tom, but it reminds me of the en Run time frame.
How's that in that?
I've always said that Wall Street has a printing press too, just like the FED. It just takes a while to get going and one of the things that I think SpaceX is ushering in in twenty twenty six is massive equity issuance. And historically, without a doubt, in the twentieth and twenty first century, anytime you have seen massive IPOs and secondaries relative to the size of the market or the economy, investors generally have been advised to be a
little more cautious or reduce their risk. So that nineteen ninety nine, two thousand, twenty twenty one, for the first half of that year during the meme stock and spackcraze, we are now going to break records in twenty twenty six for IPOs and secondaries, and SpaceX of course is the granddaddy kicking it all off in a big way. But we're going to see Opening Eye and Ethropic and probably some others.
So we're going to shatter records.
And so it's telling you that right now supply is meeting demand, which we haven't seen, by the way, in twenty three, twenty four, and twenty five, but we're seeing it now in twenty six.
I look Jim Channels at this and we've had a wonderful amount of time here with mister Chenos, so much to talk about. Scarlett's got some themes. I have some themes as well. Ed Lodlow front of me. You see how he did that. Ed Ludlow just stole my thunder here you get to do it. Chanos is thinking about the neo cloud. This is the team here. The New York Times article of a day or so ago is
SpaceX worth one point eight gazillion dollars. XAI seems to be suddenly changing its business model from developing models like GROC to basically becoming an Ed Lovelow neo cloud. The entire evaluation rests on xai's progress. The neo cloud strategy is a commodity business that is valued far lower on the public markets. Jim Chenos to Isaac and the crew over at the New York Times. They're talking innovation, but you're predicting they'll go safe.
Well, what's really interesting, Tom, is that about a week ten days ago, the vast driver for the SpaceX tam in their perspectus, was the enterprise solutions for XAI. Basically, grock what what the models produce? Right the software? And instead they basically did a one eighty pivot and said, we are going to lease out our capacity to Anthropic
and Google. And that's the neo cloud model, right, that's your equipment less are and that is a much lower value business in the marketplace than being a model company or a hyperscaler. And we've been following data centers for a long long time and basically it's a finance business, right You're you're buying the chips from in Video somebody else and then you're leasing them out to Anthropic or it's a day to return business. It's not a super
high tech business. Yet twenty two plus trillion of the twenty nine and a half trillion of SpaceX TAM in their perspectives, is based on that business. And it just struck me as very very odd that right before the IPO they would pivot to a much lower margin and lower valuation business than the hopes and dreams which you guys have mentioned I've mentioned based on producing these wonderful aiagentic software products from ROC and it's one of many head scratchers about this deal.
At what point does financial reality, the kinds of things you were just talking about breaking down the numbers become more important and matter more than the storytelling the hopes and dreams part of it, because that's what Elon musk excels it, and that's what people are buying in On.
So the question is is this the Elon premium? Is it Elon premium times two or Elon premium divided by two.
I think that that's really the question here, because there.
Are people who believe in Elon and have bid up Tesla accordingly to well beyond where I think most fundamental analysts think it's worth because of optimist robots and autonomous driving and all that good stuff. And now you have another Elon hopes and dreams company with an even bigger valuation, and so does that double the value or does it basically say, okay, well I'm going to pick one, because neither of them, let's face it, are being valued on
their operations. SpaceX is, I believe, depending what I heard in the green room, is probably now at about one hundred and ten times revenues, and just history tells us you just never really make much money buying equities at over one hundred times revenues.
Yeah, well, you, as we know, are inherently skeptical. Your company name's Kinnicos skeptic. You're not being able on SpaceX or Tesl or Elon Musk completely tracks. Is there anything in the SpaceX financials or Musk's management of the company that does impress you that you can say a good job on look, I.
Think Startlink's a real business.
We can look at their businesses again, we have to go on what's in the perspective. Startlink's a real business, It's growing, it will probably continue to grow, although its growth is slowing. The launch business is still losing money
after twenty two years. And I'd be remissed from my fellow glass half Empty participants if I didn't point out that the rocket that all of this depends upon, Starship still has not achieved Earth orbit in twelve missions, right, and half of those ended up with some sort of misapp So there's a lot riding on all of that. I think Starlink is a real business. It's it's worth
a couple hundred billion dollars. But the real hopes and dreams here is on Xai, which is, by the way, a company they bought in February for two hundred and fifty billion in stock that the market is now valuing it probably well over trillion and a half dollars.
I'm Bloomber Television.
I'm Bloomberg Radio worldwide, where it's Jim Channel's thrially could join us today in this historic moment for his Wall Street.
And all of us around the world.
So the short crew is said, Tesla, Tesla, Tesla someone like SpaceX, and I'm enjoying a fifty three percent per year return since sort of the beginning of COVID, you know, back six years or show. So you know again, Tesla's done better than good and there's a model negative free cash flow right now. How long can the optimists of SpaceX keep this going without delivering a more conventional income statement.
Well, I think you answered the question right in years if possible. But Tesla is trading at about fourteen times revenues, right It does have one hundred billion in revenues, and it amped revenues pretty quickly in twenty nineteen and twenty twenty, So there is a real business there in terms of large amounts of revenues and some cash flow. It's not trading at one hundred and ten times revenues, and that's a magnitude of difference. I think that's really important for your viewers.
I've got just for the first time Scar. I've ever looked the fame BQ function, yes, and the Bloomberg and of course Channels nails the price to sales because he studied time.
Del than years ago.
I've got twenty well, right now, I've got a number of twenty seven times revenue, and the BQ Skreme it may be a little higher than that.
I've never seen a stock like that.
So that I mean, I'm glad you guys bring up Tesla because there is this expectation that Tesla and SpaceX will somehow merge or will be combined in the same way that XAI and SpaceX Scott combined and merged. How are you thinking through that? What does that mean for investors who believe in the Tesla business but are maybe skeptical of SpaceX.
Well, again, if it happens, and I have no idea.
If it will happen, or Elon need to make it happen.
No, he doesn't need to make it happen. He can keep them separate if he wants. It's solely up to him. We all know that. But it would be an equity for equity deal, and so I don't know how much value that would add in terms of cutting overhead is not the story here, right, It's really it's really what these companies will produce in the next five ten years.
I look at this, Jim Chenos, is an historic moment and the answer is to the cycles. And I opened up talking about Enron and all that. I want you to talk about. The short business right now is a hugely important part of financial society. In this great bull market we're in right now, there's a lot of scars out there.
How do you keep that going?
When you see SpaceX right now? How do you keep a short model going with bull sectors and a bull trend in the broader market.
So through twenty twenty three, we're running outside money. Now we run our own money. We've been hedged in the short world since nineteen ninety six. Basically our view has been, we don't know where the market's going, nor does anybody else, so we'd rather be long the market and short our collection of radioactive companies, if you will. And that's been
a very profitable business. And it's been a very profitable business for the last few years too, despite the market hitting new highs, because there's been a lot of stocks, as you guys know, that have lagged dramatically. So our view is always belong the market and be short some percentage of companies with bad businesses. And that's nothing I would recommend your views to do at home, all right.
I don't recommend short selling for most people. It's really for the pros for lots of reasons, things like getting an interest rebate on your shorts and a variety of other things. But I will say that one of the things right now that is very apparent that insurance is cheap, and it's cheap for all the reasons I know.
Want to interrupt with Scarlett. I wants to get more questions in. It is SpaceX radioactive.
We'll have to see where it settles out. You can't short it right now anyway. So it's a mood question. I mean, I think that anything trading over one hundred times revenues is of our interest. Historically, returns have been awful at those valuations.
You mentioned earlier the dot com bubble? Are we doing dot com bubble two point zero right now?
Oh? This is much bigger the AI.
The AI build out relative to the TMT buildout of ninety nine two thousand is multiples, even as a percent of the economy GDP. And an important thing to point out is that when you get these capex booms in technology, they're tremendously accreative to earnings. And there's a simple accounting reason why that is when Tom buys chips for his data center from Nvidia and Video recognizes that as revenue
and profit. Tom capitalizes those expenses and writes them off over five to ten years, and so you have a mismatch for the same dollar in a cap x boom is recognized as profits by one entity and deferred by the same people at spending the dollar. And that happened in ninety ninety eight, ninety nine, two thousand. From the middle of ninety eight, SMP operating earnings rose thirty percent
to the middle of two thousand. Over the two years from the middle of two thousand to the middle of two thousand and one, when order books got pulled, sm peer earnings dropped forty percent.
Was there too much accounting for a Friday?
I think, so I'll leave it. I'll stop like that. Jim.
Let me ask you one last question before we let you go, because this is Bloomberg money, after all. How do you approach your own financial planning? How does it compare with how you advise or manage money for others?
Well, it's mostly in my business in ancillary things since I'm semi retired right now and I'm advising people, not directly running their money.
So it's pretty conservative.
But so you said, forget or you do make a lot.
Of changes, it's mostly passive. Again for most people, I think that's the way to go.
Jim, how we got our merch over here, Scarlett's got our Knicks jacket.
You're ready to go.
Let's go next week.
I am record and are going to San Antonio. Why aren't we seeing you in the front row quickly here?
Well, first of all, I live in Bucalock, Bucks County, Tom so I'm outside of Philly.
So you're doing the seventy six or second.
Secondarily, my sons were born in Manhattan. I'm diehard Knicks fans, but I'm a Milwaukee Bucks fan.
I'm a cheesy I was going to hear that.
I just had to get that for the record as well.
Jim, thank you so much for Thank you so much for having me.
Jim Chanos, founder and President of Chenos and Company,