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Season 2, Episode 15, Transcribed: Chris Brown on Healthcare, Tech Stocks

Moderator 0:02
Welcome to the Contrarian Investor Podcast. We give voice to those who challenge prevailing sentiment in global financial markets. This podcast is for informational purposes only. Nothing on this podcast should be taken as investment advice. guests were not compensated for a period, nor today’s supply payment in order to appear. Individuals on this podcast may hold positions and securities that are discussed. This is our urge to educate themselves and make their own decisions. Now, here’s your host, Mr. Nathaniel E. Baker.

Nathaniel E. Baker 2:24
Chris Brown of Aristides Capital Management. You are the manager of a long short equity fund. And interestingly enough, this fund has produced positive returns every year since inception in 2008. And I wanted to get your views here on a number of things. First of which is the fact that if I understood correctly, you are now bearish on two sectors that have done very well over the last month and that people seem to To believe, will continue to do well regardless of what happens in the broader economy. I’m talking here about tech it, and healthcare. And especially in the case of healthcare, this is something that is seen as being very much economy agnostic. Something that can, as I said, do well, even when the economy is in a downturn or a recession. And these are two areas that investors have flocked to in the equity markets over the last month or so, as I mentioned, but your views are different here. So I thought it’d be really interesting if you could share that with us.

Chris Brown 3:43
Yeah. Hey, Nat. Thanks for having me on. We’re, we’re working very hard to try to try to counter our record of not having a losing year. 2020 has been brutal so far. So yeah, I mean, I think we’ve always been kind of a very value focused, firm. And you know, for a long time, even before I had a hedge fund did my personal investing, I’d like to kind of buy the assets that were cheap into, stay away from the classes that were expensive. And, you know, I think right now, it’s funny because people see an economic slowdown. And so of course, you want to like race away from things that are cyclical or that are economically exposed. And I think people are racing towards some of the things that are, you know, seen as more defensive. And interestingly, I think whoever tweeted that this is like if the Great Depression and the NASDAQ bubble had a baby was just so spot on with that, because that’s kind of that’s what you’re seeing.

I think, in general, and maybe this is a dated philosophy, but kind of the way I used to think about defensive companies is something that would make money, no matter what I think these days, it seems like investors you have a defensive company is something that will have revenue growth no matter what, hmm. And I look around and I see companies with business models that are just, you know, either certainly not sustainable or probably not sustainable, that are being paid, you know, tremendous multiples of enterprise value to revenue, because of the revenue growth that they have. You know, it’s just, it’s phenomenal to see sales, sales growth be afford in such a, such a multiple and you know, I don’t know if you view or into factors a lot, but if you you know, if you go to like, you look at like Bloomberg factors to watch or whatever and you look at like first quintile versus fifth quintile sales growth this year, five year sales growth, it’s like the number one performing factor here today, plus 20%. Which is an eight percent better cumulatively, then it’s performed over the last 15 years. So you’ve had, you know, a factor that generally isn’t associated with any excess returns whatsoever, suddenly, you know, pop a plus, you know, 2000 basis points so far this year.

Nathaniel E. Baker 6:16
Okay, so is this a type of situation where it’s past performance? investors are thinking that past performance will equal future results and then some or what are investors getting wrong here in your opinion?

Chris Brown 6:32
I don’t think investors are thinking very much well, right on it, I think figure of speech Yeah. I do like kind of the behavioral finance model of, you know, if you if you found food in a certain spot before then you go back hunting there thinking that you’re gonna, you’re gonna find juicy berries or a nice fresh deer there again, and I you know, I think not only does a it’s a it’s a good description of day trader behavior, but it’s probably good Good description of institutional investor behavior as well. And honestly, I think people have just been, people have been rewarded for buying stocks that have revenue growth. You know, it almost reminds me of, I don’t know, if you were trading back in the tech bubble or not, but it’s a mutual fund called Janice 20, it was just 20 concentrated positions. And the fun kept doing so well, that that it attracted a lot more assets. And, you know, they only held 20 positions. And so every time they got assets, they put them back into the same 20 positions they were holding, and, and so the fun kept doing even better. And I think, you know, like on the institutional side these days, like growth managers have done really well. Just holding, you know, the Tesla’s of the world and the things that have revenue growth attached to them kind of regardless of you know, an enterprise software is like kind of the epicenter for us of where we see just really difficult valuations on things that are they’re kind of hard to justify And then but you’ve also like day traders are doing the same things. And it’s, it’s interesting because the day trading community, it seems like fun flows are split into three places. One is, you know, hapless value stocks that are, you know, like the, this is down a lot therefore I will buy it, like the airlines in the US owes to the world. And then two is the same kind of tech stocks that institutions are buying. And then three is just sheer utter fraud story stocks the day which are pretty popular as well. So, you know, for us like one of the, I think going back to that NASDAQ bubble analogy, like that’s super important for me because, you know, I think it’s it’s really the only description that fits like what you’re seeing, I mean, you know, you see in like, daily act, you know, trades per day and new accounts just go up tremendously at Robin Hood and fidelity and he trade in Schwab and it’s just, you know, in a way that you really haven’t seen And you’ve also seen like, dollar volume in OTC stocks in the first quarter of 2020 was the highest it’s been since the first quarter of 2000s. And the second highest it’s been ever. So that’s it’s just all of this froth at the same time that the underlying economy has kind of fallen off a cliff.

Nathaniel E. Baker 9:21
Yeah. Yeah, you mentioned bubble and I am old enough to remember it was not trading it per se. But I recall putting a little bit of money into some of these tech stocks, in its expectations that they will continue to go up and they didn’t. And that is basically what caused me to not become a trader and go into a different route instead. But that’s another story for another day. But nevertheless, there are some distinctions here between bubble and today First of all, the where we are in the cycle, actually, I was gonna say where we are in the cycle of the economy. But in many ways that’s exactly the same. We’re at the tail end of a very long boom period. Of course, the late 90s did not have anything like the Coronavirus. But one other distinction here is the fact that companies, you mentioned revenues, if I’m not mistaken, a lot of these companies didn’t have any revenues at all. They barely had the promise of revenues. And so it was a much more blatant shell game type of thing. From what I recall, and a lot of the companies now like these are serious companies, at least on most of them, and they have actual revenues, and are growing their revenue. So do you think there’s anything to that? Yeah,

Chris Brown 10:42
I mean, I’m to say, I think there’s definitely a difference between like, the Microsoft’s and Amazons and Facebook’s and Googles of the world, that you can, you know, you can pretty much you know, put a free cash flow to enterprise value on those companies and, you know, there’s a big A lot of big tech, they were along to some extent. So I don’t I don’t hate all tech, I, you know, I just I don’t like the, the $20 billion company with 400 million in revenue, and 40 million in free cash flow and 80 million in stock based comp, that’s, that’s where I see issues at this point, because you can, you know, you’re just discounting a lot, a lot of years of revenue growth there. And you’re also discounting leverage in the model that in the course of you know, some of these companies have been around for five or six or seven years and, and, you know, have reached pretty decent scale in terms of revenues at this point, but you still don’t see any actual profitability starting to emerge it

Nathaniel E. Baker 11:45
Okay. And then what about healthcare? what’s the what’s the issue there?

Chris Brown 11:48
Well, I have nothing against healthcare broadly, the Gileads and the the kind of pharmas of the world that actually make money and, you know, traded 10 to 25 times earnings are fine. And I wouldn’t, you know, wouldn’t try to go after those. I just see, there’s a lot of shorts out there that are just total frauds. And it’s, it’s interesting because, you know, for me, like, you typically I would think, a lot of like, you know, you see a company and you think, gosh, this is obviously a fraud. You know, with five minutes to work, those companies usually catch like $20 million valuations, they’re really kind of too small to short, every once in a while, you get lucky and one of them pops into being in the window, where it’s, you know, it’s big enough to short and for us, that’s anything over $100 million, we really tend not to sort by that. But these days, I mean, you’ve got like, just absolutely, companies with all sorts of ridiculous high jinks that are trading, you know, in the $600 $700 million to $2 billion kind of market cap valuations which you just you know, seeing that kind of stuff is just it’s pretty insane and it’s It makes it, it really makes it challenging on the short side, because things that are just hugely high conviction ideas. I mean, we usually size positions where we’re used to taking some pain and being able to stay in the position. But I mean, we’re not this companies where you’re like, wow, this should be worth $20 million, and then it’s worth $200 million. And you short it, and you think it’s the best thing since sliced bread on the short side. And next thing, you know, the stocks worth, you know, $600 million. It’s been a challenging environment, you know, for those, but I think that’s where that’s where all the targets are. I mean, there’s there’s a lot of, you know, negative 90, negative 95%, negative 100%. Kind of equities, over the next two years in the biotech space in particular.

Nathaniel E. Baker 13:43
Yeah, the market can stay irrational longer than you can stay solvent, the old adage there, but it is interesting that because you have an active short book, and I wanted to talk to you about that, because that’s actually where I met you was at a short investing conference, short selling conference, I guess. So yeah, so you mentioned biotech. And you are you do have some active shorts in that sector as well as in the tech space. And I want to ask you about those and get some individual names from you. But let’s first take a short break.

Moderator 14:25
You’re listening to the Contrarian Investor Podcast. You’re on iTunes, Spotify, Stitcher, and other platforms where podcasts are found. Subscribe and supply and unless rating me on social media search for Contrarian Investor Podcast on Twitter, and Instagram. You can find us on LinkedIn as well go to We want to hear from our listeners. email your thoughts to a repository of all podcast episodes and materials available on our website Now back to the program. Here’s Mr. Baker.

Nathaniel E. Baker 15:07
Okay, welcome back. We are back here with Chris Brown of Aristides Capital. This is the section of the show where our guests discusses their background. And we try to get to know the individual a little better discussing their career to date, and how they wound up in the position they currently find themselves. I mentioned that you’ve managed this hedge fund for over 10 years now, era studies capital. I’m also curious where that name comes from. But yeah, first would be interested in hearing you just talk through what happened in your career today and how you find yourself now.

Chris Brown 15:45
Yeah, absolutely not. So, era studies were actually named after the first winner of the Kentucky Derby in Louisville. And you know, when I was I was naming my firm I decided I didn’t want to name it after like a God a heaven or a mythical something that never dies because this River Bridge is boring. So although Yeah, it does unfortunately result in a email address. It’s very difficult to spell. So yeah, so I was I thought pretty unusual background. I was a, you know, kind of nerdy math and science kid and really my dad was a chemical engineer mom was a stay at home mom and I didn’t know that, like, the business world was really a thing whatsoever. So I kind of watched financial news network compulsively as a kid and traded my first stock when I was 12. But I didn’t. I didn’t really know that that was a career option. And I was an only child and my mom really wanted me to be a doctor. So I took a Air Force scholarship to medical school. And then when my second year of medical school is 1999, he thought comm bubble was in in full blast and I was I was trading options with my dad. Then, my classmates and I had a, had an investment club and I met this broker from Louisville. And then I actually started a state registered investment advisory firm slash commodity trading advisor in 99, during my second year of school, and it occurred to me like, Hey, this is what I really want to be doing, and I probably shouldn’t be in medicine at all. Unfortunately, though, the Air Force scholarship that I had the medical school really created a lot of complication for me, because the military said like, if you leave, you have to come be a line officer in the Air Force for four years, and I did not really want to be fat. So I was pretty much had to stay in medicine for a while I finished my residency at Wright Patterson Air Force Base stayed on as chief resident. Then I became the psych clerkship director there for Uniformed Services University for a few years. And so early in 2007, I started thinking about what I wanted to do in 2008 When I got out of the military, and I came across a back testable database product, and designed quantum strategy around that, and started trading that my own personal account, and then and then the crisis happened in August 2007, which I didn’t know at the time was the climate crisis, I just knew I had a big drawdown in the portfolio that I was trading. And I had a bunch of socks that I was buying them because I thought they were going to go up. And then when they didn’t go up, I had a problem. So I thought, you know, it would really make a lot of sense to pair this with, like, traditional deep value strategy. And so that’s, that was kind of the genesis of the strategy of the fund. And after that, it was just a matter of finding service providers and, you know, learning more about risk management, kind of refreshing myself on options and futures, taking the series 65 again, all that good stuff. I was in Kentucky at a time so it’s one of the few states that makes you aware register as a hedge fund manager, they don’t have the usual exemptions there. So that was, you know, that was fun too.

Nathaniel E. Baker 19:07
Interesting. Wow, that is a unusual background. Most people who manage hedge funds usually come from, if not, I have another hedge fund and somewhere on the sell side, and you know, they have the Wharton or Harvard MBA type thing, and, and all that stuff, but you have a completely different background. And, of course, the interesting thing here is with with all that science background, I would think would put you in a very good position to be able to judge some of these medical stocks.

Chris Brown 19:33
Yeah, I mean, so I was kind of known as like the the evidence based medicine expert, when I was, you know, doing residency education and teaching med students and so that is that’s something I’m very comfortable with. I think I think you might have seen our tilson, you might have caught me tilson, the year we presented tilray up but the year before we did that energist talk which is very Very science heavy. And so yeah, from time to time, the basic education is really helpful. Hmm, yeah, it’s interesting because one of the things that was hardest for me to learn is that, you know, you don’t want to get too caught up in the exact science of things, because the science of things can kind of make sense sometimes, and you can be really caught up in it. And, you know, early on in my biotech investing, especially on the long side, there were a couple things that really appealed to me scientifically, that as a short seller, just had obvious red flags that, you know, like the CEO that just issues capital on a serial basis whenever he can, or this company is headquartered in Utah, or, you know, just kind of the usual things that short sellers do to keep them out of trouble. And it’s really actually it’s kind of more important to focus on the big picture things than to get to get too bogged down in the science sometimes like the science matters, but it doesn’t matter as much Matches whether, you know, the management team is actually someone that you’d want to give your money to or that you want to run away from.

Nathaniel E. Baker 21:07
So what does being in Utah have to do with being a shortable stock?

Chris Brown 21:12
Oh, that’s interesting. I think just yeah, there’s a there’s kind of a saying that there’s a lot of frauds in Utah and South Florida.

Nathaniel E. Baker 21:21
South Florida doesn’t surprise me. But Utah?

Chris Brown 21:24
Yeah, um, well, I it’s, you know, because like, Mormons are some of the nicest people that you could ever meet. And, you know, it’s and they’re a very tight knit group. And it’s just, there’s a lot of affinity fraud. I think, you know, it’s, you know, kind of the same reason that made off prospered in the Jewish community in South Florida. I think, you know, there’s a lot of definitely a lot of Mormon identity fraud in Utah.

Nathaniel E. Baker 21:48
Interesting. So a company that’s based in Utah then would potentially be a red flag.

Chris Brown 21:52
Oh, yeah, absolutely.

Nathaniel E. Baker 21:54
Wow. Okay. You know, this is obviously very topical now with the Coronavirus and all of that. And to your point about these biotechs, a lot of them have been bid up because they may hold the promise of a vaccine or a treatment for Corona, have you looked at into that at all? Is that something that, that you explore?

Chris Brown 22:16
Oh, yeah, I mean, that’s obviously it’s a really, you know, I, you know, drifting into what’s topical and what’s moving is, I think, important and, you know, we’re, as a smaller fund, you know, being able to be nimble is definitely an important part of our process. So, yeah, I think it’s interesting because, you know, it’s a big market opportunity, right. I mean, like Coronavirus is taking away, you know, trillions of dollars of GDP and so like, betting against a company with a small chance of success, just because it’s valued at a billion dollars or whatever, is potentially a tricky proposition. And novio is a company that, you know, we’re not particularly involving, we have a very tiny residual options position. There. But it’s interesting because, you know, that was that was a battleground stock that a lot of people got involved with early on and I can see like, you know, kind of both sides have been points, it’s like, on the one hand, they have never made a vaccine that has actually come to market or any product that’s come to market for that matter. On the other hand, they actually did have a, you know, a phase one trial and murderers that was was pretty decent. You know, we’re like, kind of roughly 70% of the patients had, you know, some sort of T cell response to to their vaccine and their clinical which was published in a good journal, I forget if it’s New England Journal, or wherever it was, you know, it had a very strong publication behind it. And so, you know, novia is an interesting company in that, you know, it’s kind of a junky company with a history of being promotional and really promising too much. And yet, you know, even if they came out with kind of a mediocre vaccine, you know, that’s one that would potentially be valuable. And so that’s something that we haven’t, we haven’t been super excited about shorting them. And their delivery mechanism is very problematic and that they use this weird thing where they basically like take some needles and shock the vaccine into your tissues, which is not it’s kind of a painful delivery mechanism and it’s, and more importantly, like it’s, it’s very clunky like you have to you can’t just distribute single files or single two syringes you have to have this clunky clunky delivery mechanism and so it’s pretty problematic this slide

Nathaniel E. Baker 24:35
Inovia, I-N-O?

I-N-O. Yeah Talk is something like quadrupled since it has grown into some day trader vehicle and, you know, you get I mean, there’s so much like, you know, sources reflexivity in these two like, stock goes up, and then a company is pretty starved for capital, all of a sudden, you know, day traders are trading 100% of the float every day. It’s fairly easy to have at the money stock offerings. And so these relatively junky, not commercially viable, terrible ish companies that are not good enterprises can all of a sudden, you know, raise a lot of cash for themselves. And so they become, like, fairly unattractive on the short side pretty quickly

You have a small position as a short you said?

Chris Brown 25:22
we have we have we actually have just a small residual options position and there was a time when that stock first blew out where the options volatility just got to be so high that it was kind of irresistible not to write both puts and calls. And so that’s, that’s basically our position in inovio is where we still have a little bit of a short and some of the options there.

Nathaniel E. Baker 25:44
Okay, what about other other BioPharms that you are bearish on?

Chris Brown 25:48
Yeah, I think one of the one of the hardest to short, but I think probably the most egregiously valued is Cyberdyne, which is CYDY this is a company it’s a absolutely a serial diluter they’re fully diluted shares outstanding is something on the order of 630 million. So this is a $2 billion company at this point, which just utterly boggles my mind like this. This company was short, even at a $200 million valuation and now it’s basically 10 times that. I mean, these guys are just tremendously sketchy and interesting. Yeah, the only thing that if the bar was super tight, it trades OTC it’s not optional, but I would just say, if anyone’s listening to this podcast, who’s a retail investor, I you know, just be aware this is this is one of the most widespread promotes that I have ever seen. I mean, I have, I am just I am bewildered by the number of different sources that are promoting this company and You know nothing is you don’t want to bet, you know, we’ll kind of you know getting away from the science for a second like with HIV for example, like you just don’t want to bet on 25 year old asset. You know, that’s a good rule of thumb if an assets been around for a couple of decades like probably, you know, the drug companies the world are not stupid like there’s you know, there’s people out there looking to acquire drugs all the time and if an asset has been around for you know, enough years that its patents are about to expire, then you know, somebody smart has taken a look at it and decided that it’s not worth purchasing and you don’t want to be the person who comes in and tries to buy that asset for a high price.

Nathaniel E. Baker 27:42
Yeah, here too the stock has seen a massive run up but it’s a lot less liquid. As you mentioned, C-Y-D-Y. Psycho dime psycho din, which just kind of sounds sketchy if we’re being honest, right? But so you mentioned the widely public publicized or widely marketed, what are what kind of stuff do you look for there to find out if something’s being being pumped?

Chris Brown 28:07
I mean, that one’s that one’s super easy because literally people call you know, like, there’s no there’s literally like hired people who like, call me to try to sell me the stock. So I think that’s, that’s a nice tip like if you can like sign up for, you know, this the newsletters and the promotes like, you know, as a short seller I would say like, unfortunately most of the things they call you about are probably too small to really be excited about shorting, right. I mean, they sell companies that are just super aggressively promoted. Like Vusix is another example where someone is always calling me trying to tell me the latest good news on musics that ticker V-U-C-I and when the reality of ewz is that’s a, you know, it’s basically commodity hardware provider. That’s subscale. And and really has no chance of success. And but they have been like phenomenal at raising capital through the years and they just did another $11 million raise. But being on this being on this calling list and those mailing list is kind of helpful.

Nathaniel E. Baker 29:15
And this one is actually a little more liquid and looks like it’s NASDAQ. So it’s not OTC, I don’t think. And the run up has been a little less dramatic. It’s high 52 week high actually was last July from the look of it. And it’s only very recently that it’s seen a jump, like over the last couple weeks really trading around $2.40, as we record this here

Chris Brown 29:40
and I wouldn’t, I wouldn’t necessarily encourage your listeners to like run out and short Vuzi tomorrow. Right? I think what happens with these, you know, my experience is a company like this, that sorts are really in it to get paid. And I think one way that we get paid is ultimately when they can’t raise capital or when the only way they can raise capital. You is some sort of very diluted offering. So if I’m a short and I see that, like, hey, this company has less than nine months of cash left, and as a terrible company, like that’s going to kind of attract me to short it. And then when they do a raise, like they just did, and they raised $11 million. And that probably covers, you know, eight months or so of cash burn, you know, now that they’ve got more cash in the bank that, you know, my payout is now deferred. And I’ve got more risks for being in the trade. And so it’s a less exciting trade for me. And so if I’m ashore, you know, if I haven’t already covered, there’s a good chance over the next week or two that I might be covering there. And so those are shorts where it’s best to, you know, when it’s plus another 50 or 100%. From here, before people forget about the next capital raise coming. That’s that’s really the time to get involved and things like that.

Nathaniel E. Baker 30:52
Okay. What about any other high conviction bearish opinions you have on on biotechs or healthcare stocks?

Chris Brown 30:59
Another one that I wouldn’t necessarily run out and short tomorrow, but one that I think is tremendously interesting is A-X-D-X which is accelerate diagnostics. This is a company that, for a long time had a very high valuation had a had a greater than a billion dollar market cap. And the way they achieved this market cap was the float is very tightly controlled by insiders who had a very low basis in the stock. And anytime they needed to raise capital, the insiders would participate for a giant chunk of the offering themselves so that there wasn’t very much capital to be raised from outside sources. And I and this is kind of like a recurring theme of you know, you’ll see certain guys will will acquire a company with a very low cost basis or acquire lots of shares in a company with a very low cost basis, and then they’ll create The perception of value, because when everyone sees Oh, like, Look, this guy is super smart. And he’s buying a chunk of this offering, you know, and what they don’t realize is, well, this guy’s basis in the stock is 10 cents. And so he’s really just increasing the value of the prior investment that he already has made. And it’s just kind of the cost of playing the game for him. So x dx. I think the only one buying stock recently has been the chairman. He’s bought a lot, a lot of sock 70 year old guy. I don’t think he really knows what he’s doing at this point. The technology is tremendously old. And he talked about like reasons to be bearish on healthcare earlier. This is an interesting company in theory, they help you to identify bacterial infections of the blood faster and so you can treat them faster. You know, my wife’s a physician. It’s really hard being a doctor right now. Like If you’re if you’re not treating Coronavirus, the fact that everyone is running around at the clinic or the hospital with Coronavirus, kind of screws up the delivery of all the rest of medical care, like, like the surgeries are hard to do, especially the ones that are overnight, like medical delivery is just a really hard now, and with the fact that like people aren’t wearing masks and aren’t necessarily distancing, you know, medical care is going to be hard probably for the rest of the year. So if you’re a hospital administrator right now, and you’re just losing money hand over fist, you know, and you’re worried about how you’re keeping your people safe, and how you’re keeping people on the payroll, like the last thing you want to do is think about, you know, some some big new capital expense in your laboratory. But as I said, I mean, that’s kind of just one extra strike against these guys, but the main reason that I don’t like them is the technology is just incredibly antiquated and the meanwhile, they’re losing Like 60 some million dollars a year, you know, I mean, that’s a pretty huge Kaspar and the ultimate markets not going to be that big. And but you know, long before they get to break even, there’ll be a better technology coming to market. Because you know, that basically the technology they’re using is a couple decades old, a couple of decades old. Yeah, I mean, they’re, they’re literally they have basically kind of, like, automated in a machine some of the same things that you use to identify bacterial species when I was in high school. It’s, it’s pretty insane. sounds insane. Yeah. Yeah. It’s, it’s, it’s crazy. You know, diagnostics is an area where, like, it’s very easy to over promise and under deliver. And, you know, I think in general, just being incredibly skeptical of any diagnostics company, that you know, even before theranos, like diagnostics was just a, it’s a it’s easy to promise a lot and it’s hard to deliver a lot. And these days, I mean, there’s a lot of you know, there’s a lot of really cool cutting edge modern technologies. And this companies is not one of them.

Nathaniel E. Baker 35:03
That’s really interesting. And another thing you raised here, which is from a contrarian perspective, very interesting is this whole idea of insider transactions. You’ll see it cited a lot in research about how Oh, this company’s insiders are buying. That means it must be a good investment. And to your point, a lot of times, yeah, they are sitting on a bunch of free or almost free shares. And so it’s just kind of the cost of them doing business like you mentioned.

Chris Brown 35:32
Yeah. I mean, I think like, I would personally not view insider buying has a bearish signal, unless you’re dealing with an insider who has a history of prior firms of trying to run that scam, I guess, is an invalid way of saying it. You know, like if there’s a certain, you know, just hypothetically, if there was a certain generic billionaire who had a habit of acquiring companies that are low bases, and then going out and buying socks very frequently. Like even if the SEC were not set particularly sanction that hypothetical billionaire, like that should absolutely be a warning flag to you that there’s potentially some scumbag eree going on. Hmm.

Nathaniel E. Baker 36:17
Reminds me of a certain billionaire out in California who has a car company you’ve been involved with? I don’t want to talk about Tesla, actually. Because Oh, no, because it’s it’s like, I don’t feel like there’s anything really new to add to this.

Chris Brown 36:35
just briefly if I if I can

Nathaniel E. Baker 36:38
No, no, go ahead.

Chris Brown 36:39
To me me i think i think Tesla’s phenomenally interesting right now. And that like the chart of Tesla is, it’s a lot like the chart of the Russell. It’s a lot like a lot of charts right now where you have like this amazing peak. And then you had, you had kind of a lower, high and the question is like, is this a multi month consolidation that you break out from? And, you know, it’s gonna be like rocket fuel after you break out? Or is this just an eco boom? And we are really, really late in this cycle of insane optimism? And I think that’s, I think it’s a it’s an important question, because I think like the way that most of these individual stock charts resolve, I think the overall market will probably resolve itself in in the same way. And so it scares me a little bit to be as short Tesla as we are. And then, you know, if, you know, if Tesla breaks out to new highs, then that’s a that’s a pretty reliable sign that the market as a whole is going to be tremendously inhospitable to short sellers in the same way that it was from October of 1999 through march of 2000,

Nathaniel E. Baker 38:02
you don’t think that’s reading a little bit too much into it? I mean, this is we’re talking about a stock that can move based on some guy’s tweets, although then again, that could be just about anything these days.

Chris Brown 38:12
No, I think it’s, I think, because it’s kind of the intersection of the things the marginal dollar in the market has been the growth manager who is never going to sell, you know, there’s the institutional growth manager who’s who’s, you know, this has amazing revenue growth, it has an amazing story or go valuation doesn’t matter and I’m not going to sell it and the newly inspired to participate retail investor who’s making three times as many trades as they were three months ago, who is you know, also inspired by this the story there. I just I think it’s the absolute intersection of institutional and day trader growth, stock buying. And you know, I think I get that sense every really is, you know, And honestly like the last time Tesla Pete’s was kind of a ominous sign for the market as a whole.

Nathaniel E. Baker 39:07
True enough, True enough? Yes. And it is a frequent topic of discussion over on the wall street bets Reddit, as you may be aware. All right lastly, do you think Do you see anything that you think might be a catalyst for broader selling in the market? For now, it’s the whole the narrative seems to have taken hold and it’s appears to be winning is that don’t fight the Fed mantra, this idea that the Fed is buying all these assets just today is, you know, was the day they started buying bond ETFs if I’m not mistaken, but what do you think could kind of end this?

Chris Brown 39:47
Oh, so I mean, absolutely. There’s there’s two kinds of support needed. There’s like, tremendous fiscal support and tremendous monetary support is what’s happened, right? I nobody in their right mind has any question that they’re considering. It’d be tremendous monetary support. And so I really think there’s two possible outcomes. One is you also get adequate fiscal support that continues. In which case, you know, no president wants to have the next big recession on their watch. And so I think you’re pretty much guaranteed that we have entered, you know, we wasted $7 trillion on wars and we spent, you know, $5 trillion, fighting a virus, and we don’t have that much money and we’re printing lots of money, ergo, if you really replace everyone’s income, even the poor people who actually spent their money, that’s, that’s a very inflationary scenario, right? And for the first time ever, we actually have a giant, you know, pretty decent part of our book, probably like 9% of our book in things that are directly you know, inflation plays. Okay. Of course, the other end and the other scenario is, if you don’t get the physical support, you know, if you get kind of the mitch mcconnell like wagging the dog is not something you should be doing and deficits matter and blah, blah, blah, then you get into a lot of trouble because, you know, if you’re giving money to rich people into banks, but, you know, 20% of Americans, you know, don’t have enough to make their car payment or house payment or whatever, that obviously the knock on effects of that are huge. And so, you know, the, the overall corporate earnings picture cannot do well, when you have a, you know, a fiscally constrained, you know, consumer and everyone so, you know, I mean, everyone’s earnings leverage is such that if you have a small downtick in revenue, you have a big downtick in earnings, and you know, it’s gonna be it’s gonna be painful. So yeah, I think those are, those are the two outcomes. I don’t really know how to wait them. You know, our typical policy position is kind of like a 20%. net long. Right now we’re about 10%. Not long so I am pessimistic on the economy here. I think most people And slightly bearish in the market. But I do definitely see the potential for, you know, continued upside in nominal equity prices, which doesn’t really correspond with, you know, economic prosperity. Mm hmm.

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