Helen. Joe. We're talking, of course, about Scott Bessent testifying before the House Ways and Means Committee. And of course, this comes on the heels of two days of China-U.S. trade talks in which President Trump has declared a done deal. He talks about the U.S. imposing 55% tariffs on China and China imposing 10% on us. You are a long-time China bear. You've been monitoring the economy's transition from export- and investment-led to one that's consumption-led. You also teach at Yale Management School of Business. What kind of grade would you give this trade deal, this so-called trade deal?
I'd give it a temporary incomplete so far, because we don't have all the details yet, and it doesn't seem to be a whole lot different from where we were, you know, not too long ago. So I think we need to see, as always in these things, the devil's in the details. And so we'll have to see what goes on. But as I mentioned before we went on the air, it does appear that China ended up holding some cards after all.
Yeah. You're referring, of course, to rare earths and magnets. And it turns out that China does have a lot of leverage over that in terms of whether it allows licenses for export and how quickly it allows shipments. And this is something that industry had pressed President Trump on. Is this going to be a cudgel that Beijing continues to hold over the U.S.?
I mean, obviously, we're going to try to diversify and increase our sources of strategic metals and rare earths. I think the administration's been clear about that. But the fact of the matter is I don't think the market ever really believed that the most onerous of tariffs was ever going to go in. I mean, even though the market was down 20% at one point at its worst day-to-day, and it closed down 12% in a day in April. Earnings estimates for the S&P never really dropped that much. They flattened out, but they didn't collapse. And so the market has been kind of looking through all this for a while now.
Yeah, well, one stock that did move a lot, of course, is Tesla. And as a longtime skeptic of Tesla, I'm curious to get your take on the very public breakup between Elon Musk and President Trump. Musk is now saying that he has some regrets over his comments, and he also says that they went too far. Does this drama change Tesla's narrative or prospects in any material way?
Yeah, it was all, at the end of the day, big — never mind. But look, I think that depending on how this all came about, there's all kinds of stories and who knows? Certainly everyone is going to tell this story. The fact of the matter is it does look like the legislation with a lot of benefits for EVs and solar is going to change that dynamic dramatically. And that does have a material effect on Tesla's business, both in the auto credits for their customers, $7,500 each, the so-called ZEV credits, the emissions credits that they sell for cash — that looks like it may be going away. And then the variety of possible IRA credits and certainly solar credits for their SolarCity subsidiary. So there is a lot for them to lose in the House legislation. It may change with the Senate and with compromise. We'll have to see.
But when we get past all the personal stuff and kind of all the craziness from last Thursday, there are some real impacts in the legislation. And it doesn't appear that the White House is backing down on that.
Right. Right. I mean, Elon Musk and his executives over at Tesla have also been promoting videos showing a driverless Tesla on the streets of Austin. And of course, that's a hint that their Robotaxi launch will move forward, I believe, at the end of this month. Does that remove some of the concern about the legislation that takes away some of those tax credits and tax benefits that Tesla has enjoyed?
Well, I mean, I think almost everyone at this point agrees that the company is not being valued for just its auto operations. It would be trading at 30 or $40 a share, not 300 and something. So the two pillars or three pillars that it rests on are autonomous driving-related, Robotaxis, and then the Optimus humanoid robot. And so everything has to go right for those valuations to play out. We'll see.
I mean, you know, Robotaxi yesterday there were images of a Robotaxi in Austin, but what no one talked about was the trailer car right behind it. So does that mean there are two cars for every Robotaxi, and there was a driver in the second car. And so, I mean, and the cost model for this, you know, people are using absurdly low numbers for the cost per mile, not understanding the cost for redundancy and safety as well as self-insurance and a lot of other costs that the bullish people put in their models. So we'll have to see.
And as for autonomy, I mean, full level four, level five autonomy — they've been promising it for ten years now, but for now there's still level two, just like everybody else. I maintain by 2030 or so every car is going to have level four or five autonomy. It's going to be a standard feature like cruise control is now or anti-lock braking. So I think, you know, at that point, you're then kind of relying on the robots.
Let's talk a little bit about that bullish environment you just mentioned. You've called the post-COVID market euphoria the golden age of fraud. And we've seen the S&P 500 have that gigantic drawdown in April, but it's now right back to within about 2% of its record high. On top of that, you've got a White House that has been shattering norms and continues to do so, and it plays loosey-goosey with laws and rules. How would you characterize the environment now?
Well, I mean, so Wall Street has been a center for this kind of activity in terms of stuff that I think crosses the line, i.e., the golden age of fraud. We now have a bipolar world because Washington, D.C. is also a center for it. Look, I think that this bull market is going to go until it doesn't. And I keep telling people we're going to need to fill every last bull, and Wall Street will do it. They took a good shot at it in 2021 with the advent of SPACs and NFTs and meme coins, and we're going to see that happen again.
You know, going forward, issuance is already starting to increase dramatically. We're seeing a big pickup in insider sales, particularly in the companies we cover. So executives are selling to retail investors. It's not a good sign. And the SEC and regulators and others have taken generally a very, to be charitable, laissez-faire approach to the markets where people can say almost anything they want. There's no downside to it. And the use of pro forma metrics, which I've been talking about for years now, this just gets worse by the year.
So it sounds like — and I want to connect the dots to the White House as well here — because when the president is issuing meme coins and hosting dinners for the meme coin buyers, there's got to be a spillover effect into the business culture. Does it just give companies that are inclined already a free pass to engage in more questionable behavior?
Yeah, except that the meme coins aren't securities. At least that's been the ruling so far. And stocks and bonds are, and there are rules for saying things about stocks and bonds that don't necessarily apply to crypto. And so I see that the administration has very wisely stayed within that boundary of embracing crypto and get-rich-quick schemes, for lack of a better term, in crypto. But it's where people cross the line and start making promises about stocks and bonds that I'm concerned. That's my world. And I see just, you know, a lack of oversight there.
All right. Let's dive a little bit deeper into your world then. You no longer manage outside capital, but you do manage your own funds and you advise clients. Chanos & Company is a family office and an advisory, and a new idea that you've just disclosed — a new short idea is Carvana. The stock is up about 66% so far this year. It's made a round trip back to a four-year high. It's a U.S. auto retailer, which is a pretty straightforward business. Why do you call it a misunderstood story then?
So this is a revisit. We were short the stock successfully in 2022 and 2023 and covered, and now it's back. I joked the other day that investors on the long side look for that 100-bagger; we look for companies that are already up 100x, and Carvana is basically up almost 200x from its lows in 2022 and 2023. So it's completely round-tripped back to where it was in 2021. But people have perceived it as a secular growth story. It's cyclical. Their revenues dropped year over year in mid-2023 from selling cars, down over 30%. Units dropped and came back. But what really has us going is a couple of things. First is the accounting. We love bad accounting. And this is a company that is now generating, over the latest 12 months, about 70% of their operating profit is coming from gain on sale of the subprime loans.
So they're originating subprime loans and selling them immediately for gains. And this is something that the chairman of the company, Garcia, is very familiar with. He started with a company called Ugly Duckling in the nineties that got into trouble for subprime lending. It then became DriveTime, and DriveTime is the parent of Carvana. So there's a history here. But that amount of income coming from the sale of subprime loans is staggering.
And you should not be putting an enormous multiple on this — 50, 60, 70 times. On top of that, two other things that are kind of new to this story. Number one is the short interest has collapsed. It was one of the most shorted stocks in 2023. And now the short interest is back to multi-year lows as a percent of outstanding. So the other bears have given up. And number two, we've seen a dramatic increase in insider selling, something we just talked about, in May and June, in the shares of Carvana. So the last time we saw this type of selling, the stock also was getting ready to go down dramatically. So that's another red flag.
And of course, we should mention that we reached out to Carvana for comment because of all of that. I want to switch gears a little bit here, because you are also blowing up on social media over the last couple of days due to your call to go long Bitcoin and short Strategy. Michael Saylor, the CEO of Strategy, spoke with us yesterday on Bloomberg Crypto. Here's what he told us about your trade.
You know, I don't think he understands what our business model is. We're actually the largest issuer of Bitcoin-backed credit instruments in the world. So last week we just raised $1 billion by selling preferred stock, non-cumulative, called Stride. That means we basically borrowed money that we never have to pay back, that we pay a dividend on, but we could suspend the dividend if we needed to. So Jim has been thinking that we somehow needed to sell the equity. So at the end of the day, if he's lucky enough to short the stock below one times NAV, we're going to issue the preferred, buy back the stock, and make money for our shareholders. If the stock trades at a weak premium, we're just going to sell the preferred. And if the stock rallies up, he's going to go liquidate and wiped out. What he still doesn't understand is we're not a holding company or a closed-end trust, we're an operating company. So when we issue, they can't leverage the Bitcoin, they can't issue preferred shares, they can't issue permanent shares of equity at a premium. We can.
