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The Robin Hood Foundation is enlisting the boldest names in finance for a stock picking contest. Participants are donating ten thousand dollars and making two stock picks, a long and a short per entry. Bloomberg LP, the parent of Bloomberg Television, is working with the Robin Hood Foundation on the competition. And one of the players here Carson Block. He's the founder and CEO of Muddy Waters. Carson is currently ranked at number twenty on the leaderboard and Carson this game.
I'm getting a kick out of it because when it started, we were in a market that was net long, and now you're looking at a lot of people starting to win more deeply off their shorts. For example, Bill Ackman short the financials that looked smart today, Stan Druckenmiller's short consumer discretionary. What about you when you think about the ability to go short in this market, how deeply do you dive in?
Well? So for us, I mean we do.
All of our shorts are basically the subject of activist short.
Reporting at some point.
So the name that we're short for the contest anyway, and we're not actually short, it in real life anymore.
But is Griffles, and.
That was the subject of an activist short report by Gotham City Research, and that's a company based in Spain. And it's actually pretty interesting because you know, at this moment, obviously there's a lot of political turmoil, and you go to Vice President jd Vance's dressing down of NATO ministers a few weeks ago over a free speech in the EU. It's funny because with Griffles, the national regulator in Spain actually investigated the allegations by Gotham City Research and has
largely corroborated them. Griffles expects to pay though a fine of no more than one million euro. However, the principles behind Gotham City Research are presently under criminal investigation for that report in Spain and could do up to six years prison time. So Griffls really does have this political overtone as well. That makes it interesting.
Well, I want to talk about a stock that actually you don't recommend going short.
I'm talking about Tesla.
You spoke to Bloomberg TV about a month ago about Elon Musk and Tesla.
Let's take a quick listen.
It's one thing to ask whether you bet on Elon Musk, but I would not bet against him. I wonder if he's I suspect he has switched views on a macro level, but especially with how he thinks about Tesla, that would be a little bit embarrassing for him to say publicly. So yeah, maybe just banging the table about oh Ai AI and robotaxis is how he tries to cover up that sentiment shift internally.
So Carson, that was on February eighteenth.
The stock is down mightily since then, down about thirty eight percent year to date. I know that Tesla has broken the hearts of many folks who have tried to go short it. But is that still the advice don't bet against Elon Musk.
Well, i'd say more aptly, Tesla has broken the backs of many people who've been shorted. But look, I still maintain that it's really hard to bet against Elon Musk. Of course, that was awesome timing when I said that, because it's been about the best short you could find on the planet since the moment in which I said that. But you know, I think that's more due to market factors and technicals and political uncertainty. Look, I've long been critical and I agree with many of the shorts over
the years that he has not been honest. I've called him publicly a liar, but also nobody has played the public company game better than Elon Musk. Now is he doing ereper bowl damage to the Tesla brand with his political involvement. I mean maybe, But again, this guy for years and years and years has done nothing but pull rabbits out of the hat. Just when you thought like he was about to go over the edge of the cliff, he comes back. So it's just a very difficult person
against against whom to bet. So yeah, I there, you know, We're happy looking elsewhere for shorts.
What do you think about the broader mag seven?
Carson?
Back in October you said close your eyes and buy in terms of the big US stocks. For a while, that was a great still a great bet right until I guess the market hit it's high right in.
Last month.
Now we've seen the Magnificent seven come down. I think all of them are losers year to date, with the exception of Meta. Is is it time to short these stocks or do you think they're going to continue to have I guess a little bit of resilience even after the pause that refreshes maybe that we've just seen.
So the larger context of what I was saying there was I was talking about how in the US the markets are so warped by passive investing and fundamentals matter, you know, less and less every day. So the mag seven will continue to attract because the S and P five hundred index, it's it's really an active index, right, they always call to herd and drop the weakest, and then the companies who are experience, that are experiencing the most market cap appreciation get greater weighting. So it's also
a momentum index. So momentum has sold off. But when you look at why has momentum been such a strong way to play the markets for you know, since really the GFC, it has to do with monetary policy, you know, and what's been for the vast majority of.
Time extreme stimulus.
And it's also been significantly attributable to the shift from active investing to passive investing. So I don't see us going in reverse way from passive.
So yeah, like twenty two, you.
Had a reversal when rate when you know, conditions tightened and rates went up, and we're seeing political uncertainty weighing on the markets right now. But yes, structurally, the top names in the S and P five hundred are going to going to continue to attract flows, and most of those flows come from four oh one K purchasing. So if you see a situation which unemployment climbs significantly and four oh one K net flows become net negative.
Then you have to watch out.
Then all those stocks go into reverse hard, and it's hard to see where the bottom would be.
But at this point in time, I don't see that.
You know, Carson. One thing that I've been watching very closely is a turn and sentiment around financial stocks. This is a hot trade. At the end of last year, you made some big calls. The one against BX empt in regard to the dividend turned out to play out. Now I'm wondering how you're looking across the financials universe. Are you looking for new shorts in banks, in real estate? Where's the pain?
Well, I mean, look, we're we're generally not thematic, so we you know, and we're only thematic when we look in the rear view mirror.
So we did.
We were really early on a lot of shorting the ESG type names. I mean so right now, we're not looking in any specific sectors or even industries. I you know, in terms of commercial real estate, you know, I'm not you know, I don't know how much juice there is to be squeezed there, because now there is this uncertainty around rate cuts. You know, f rates get cut enough, at some point, the CRE starts to look less bad than it had been looking. So at this point, you know,
I don't really want to try to make it. I've never wanted to try to make a rates bet, at least on the future direction of rates. So I think if you're considering CRE type shorts, you're starting to get into.
That land right now.
So, as you said, our thesis on BXMT played out. You know, we're happy about that, but I think there's too much uncertainty going forward for.
Us anyway, Carson, what about elsewhere in the world of financial is one thing that there's a lot of bell ringing about is the difference between public and private marks. Yeah, you are starting to see more private capital type vehicles enter the public markets. Private capital entering public markets. Are you looking at BBC's or other types of vehicles that might have private holdings that might not be reflecting those underlying marks.
Well, that's interesting because I think it was maybe around twenty fifteen BDC's were pretty hot area for short sellers, and also prior to the financial crisis, you know, if you remember, David Einhorn Greenlight famously shorted one of the bit Allied Capital and wrote a book on that. So yeah, BDC's in the past have been very aggressive with their marks. You know, from our perspective, the issue is is there enough liquidity in the you know, in the BDC and so a lot of the air had come out of
them at some point. It's not an area that we've looked at recently, but yeah, you know, I think once you get a lot of capital flowing into that space, you will certainly have players who are going to be a lot more aggressive. And really anybody who gets to make up their marks and gets compensated based on that has a built in incentive to be really aggressive with
the marks. And we've never believed whether it's a VC fund, a private equity fund, a BBC, we've never believed that across the board these marks are genuine marks or really you know, good fit eighth expressions the values of the underlying assets, So yeah, that could be interesting.
Yeah, well, there's plenty of capital flowing in.
We know that, especially from retail now, which is a new buyer base. I do want to go around the world and I want to talk a little bit about China. Of course, your views on China are well known, but you've seen this chorus of cell side analysts come out and talk about China in a bullish light. You think about City just this week downgrading US stocks, saying to basically upgrade and buy China.
I'm just wondering what you make of that in this cycle.
Well, everybody's got to sell a growth narrative, right, so, you know, China's been this. I mean, there's so much muscle memory, you know, for the past couple decades of selling the China growth narrative that I'm not surprised everybody's going back to that and they're willing to forget all of the political risk that Chijinping presents and how he's basically zeroed out. You know, several classes of public company shares in the past, such as for profit education, are
close to zero did out. Look, it's you know, China is a trade, it's not an investment. You date China. You don't marry China, like I get it. If from a tactical perspective you want to allocate money there, fine, but I but that's the kind of place you wake up one morning and you know they invaded Taiwan and maybe the US is going to war over that, and you know, basically you don't want to be long anything
China related at that point in time. So I think everybody who's rushing in headlong needs to be aware of those risks and needs to have eyes wide open. This is not China is not marriage material.
Carson, you married Vietnam. You're I guess considering an engagement with India.
I want to talk about your longs.
You mentioned the possibility of war, which seems more likely now than it has in decades. I mean, we're seeing a war in the eastern theater of Europe, and Ryan Mattu came out this morning and said they see defense sales surging forty percent on the European spending boom that's expected. Is that you think one of the most important long threads for investors to pay attention.
To European defense spending well in general, war, you know, I mean spending around the worldely. Well, look from from a defense spending perspective, that's you know that that one's above my pay grade. But the geopolitical risks and the risks of war absolutely, you know, I don't know that Russia is in a position to make further moves in Europe in the next few years. But you know, what we're doing with Ukraine and basically rewarding Russia, I think that leaves a.
Lot of powder in that powder keg.
Obviously, the situation with Taiwan, I don't know that we're doing anything right now to dissuade Chinese aggression against Taiwan. You know, Iran has been I think beaten back nicely by the Israelis recently, but they're probably not going to go quietly into that good night. So yeah, this is a world that has a lot of risks of real
you know, of expansion of kinetic war. So you know, and in valuations just generally don't seem to recognize that because risk is massively underpriced, as it has been since the GFC.
Carson, I'm devastated to say, if we have to leave it there, I hope to speak to.
You again soon.
Really enjoyed this conversation. Hope to see you in studio next time too. That is Carson Block of Muddy Waters Capital