Have you spend any time with us and talk about stocks. Thanks for having me. And the markets and Everything Else in between steve weis and josh brown. Youll see them throughout the hour as well a great collection of investors on the stage stage behind us giving their views on the market which are at record highs as were sitting here having this conversation give us your view on where you see the markets and where they are now. If its justified or not in your mind. Well, define justified. Well, why to you think were here i think were here because basically the Central Banks have todaysy theres the general view that whats worked will continue to work Monetary Policy will stay easy, and and well live with the valuations, so i think that kind of sums up the way i think most investors think. Yeah, youre not saying, and maybe its purposefully, that theres any sort of credit due to the president or his expected agenda is that purposeful that you dont think that hes responsible at all for where we are . Well, if you look at the the easiest check on that is to look as josh has often done at the other markets, and say, okay, how have they done look at mexico and our president s archnemesis and look at emerging markets and look at europe they have all done well. This is a synchronized bull market, so to to put it either pro or con on basis of president trumps policies i think is at this point a stretch. Is it harder to find short opportunities in an environment where, as i said, were at record highs. Its easier, of course. I mean, just they dont work. Thats kind of where i was goingch. What makes you think though that sort of this story will change and that some of these Brilliant Ideas that you think you have in your book and that your analysts have come up will absolutely start marking were long the market in what we do. So the idea is can we deliver alpha. We need an environment where stocks disperse and where people begin to sell bad news we do have that. Its been a better environment, for example, for that in 17 than it was certainly for news 16, and and so we are seeing stocks selectively, shockingly go down on bad news. Others, however, just keep chugging ahead, and so the the idea is to risk manage those that you love that are still chugging ahead and try to maximize what you can make and the ones where they are working. Ill open up the floor. I know these guys have some questions for you before we get into individual stories. Yeah. To that point, so much of the narrative so much of the market has been etfd to death and you have sectors down on the whole 20 . Yes. While the s p is giving you about 10 , so it is or it isnt, i guess is the point, so whats your view on what the impact on the rise of passive investing, etfs, it hasnt distorted the market if you have that dispersion. I think, you know, certainly i think the market was far more correlated last year than it has been this year i mean, i can make that statement factually. Right. Weve had some success in certain areas, as you point out this year, and so, you know, remember when were talking about etfs, were also talking about sector etfs, right yes. So if money continues to flow in the sectors that are working and shuns those that arent, were really seeing sort of the first derivative of what is the effect of momentum investing and sort of retail, and as we all know retail will chase by and large when they are making what works as opposed to those that buy the s p 500 index. So the qs index which is what they should be doing, by the way. Going back to scotts question about the market overall. Do we have to yeah, we have to, but youre a hedge and youre a bottoms up. Yeah. Just look at valuation for a second or forget the word valuation, but in terms of whats in place and where youre going to go on a relative basis versus equities. Youve got negative rates some place and basically rates near zero every place else and youve got this overused term, but accurate nonetheless of a synchronized Global Economic expansion where everything is moving up, so why cant stocks continue to go and then i agree with you trumps done nothing to make the market go. As a matter of fact, i could argue in fact that hes held it back, not that somebody else wouldnt have, not that obama mind you hasnt, but if he should get tax reform done or if the republicans get it done with the cooperation of some democrats and you get you get some sort of revitalization to the u. S. Through infrastructure, then couldnt you see the market even take another massive uptick, massive like 10 i have news on tax reform. You want to do it now the market is certainly the danger, i guess, weve been talking about, jim, the danger is being out of this market or short the market rather than in because of the expectation of tax reform, that the economy appears to be good enough and earnings are expected to be good enough to at least keep the the market stable if not moving higher, youve got the potential as steve said of a massive leg up. That would be great. Great for the longs by shorts. Again, its company specific. But to get to tax reform. Let mow point out a couple of things first of all, you know who you dont hear clamor for cutting Corporate Tax rate, large corporations are, because under most scenarios they actually their cash tax rate will gun mmhmm. And so its an important thing to understand that the effective tax rate of our in aggregate, theres lots of sectors where its different somewhere in the mid to high 20 area and the cash tax rate is in the teens, so so they are not going to see youre not going to see a big boost to the s p 500 eps based on our work, particularly if it includes a nondeductibility of interest. But theres some other well, wait. Sorry, sorry, sorry so the nondeductibility of interest is a big deal. Yeah. And a lot of the details of the tax reform plan, and i know the secretary of treasury hinted at some of them this morning, are really important because they are going to drive the debate they are also going to drive the lobbying pushback. Mmhmm. You know, noninterest deductibility occurs, what do you think the Real Estate Industry is going to say, what private equity is going to say they will be out of business do you see that happening . No. There are ways they can massage it if they allow to depreciate it all up front. You have accelerated depreciation right now, steve. Who is that for then, the Small Business owner, the person that has 50 employ eds they say they will be hammered by obamacare taxes. Yeah. Thats who that thats for them. Were not addressing in those. The russell 2000 may be on the leading edge. On the leading edge, but in aggregate, the s p 500 is the largest corporation. Thats trumps base though so if they did it that way, if they did in t in a way where its a net neutral, corporate america, maybe a slight negative and great for the Small Business owner, thats who voted for thats who voted for trump, probably more so than executive and fortune 500 class. Again, thats not going to move your earnings on the s p 500 very much. One thing, if you do waive the Interest Rate deduction the other impact, of course, will that while it will be grandfathered, that asset prices are going to come down quite a bit. Do you think that will happen i think they would. So and one other point here i mean, mnuchin secretary mnuchin talked this morning is passers. Its all about passers and in effect getting the way down for the way in which wealthy people hold their assets in sub chapter sollc corpse, are also the people that pay very high rates. I have a partnership, and whether who that hey place, to job creators, service people, were not going to include Certain Industries we are going to include others thats when tax reform begins to get very, very difficult because everybody now has to then lobby to get this. Can we just assume that they will lean towards the side of the real estate type of development or the private equity this is what these guys know. Away from that, i think its a nonstarter. Are you saying that this administration would actually lean toward where it hasnt shown interest no, no, no. I didnt think so. Let jump ahead to a stock weve talked about on numerous occasion and one you may talk about later. I dont know what youll do later. Despite a list of executive departures thats literally a page and a half long and and questions over deliveries and so many other issues, tesla is up 70 year to date. Yeah. And youre still short the name, correct . We are still short the name the only people more bearish than us are the Corporate Executives so why isnt the market paying more attention to all of the things that you always tell us are wrong with this company well, i mean, and weve been pretty accurate on most things weve said about the company, not the stock certainly, although solar city was an exception to that, that everybody forgets about, but this is a good example of i think of cult stock in the market whereby the market will look at anything the way it wants to and a Glass Half Full kind of mode the stock was up 5 yesterday on the story that china might stop combustion activity by 2030. By 2030, right. Chip also said it will be rebalancing its economy for the last seven years. Also will cut steel production. And heres the interesting point. China on the margin, ask any oil trader, has been the driver for Global Petroleum demand. Gasoline is 50 of Petroleum Refined product. Diesel is another 15 , so twothirds of all petroleum goes to cars basically or trucks. If the biggest driver of that is ending, why wasnt oil down 2 , 3 yesterday, right . But so you get my point in that the market looks at this company. There was some disturbing data this morning out from the national highway Traffic Safety board on a recent crash, and and the company and the board said well, there was no Data Collected so they couldnt really analyze it. Do you think tesla, one of the things i read, said that the autopilot did contribute to the death. Yeah, but my point being that the bulls will tell you this is a Software Data collection company, not a car company. Right. Except when it doesnt suit them. Isnt it so hard to get the shorts right when theres not a definitive catalyst, you know, with sole over city. To me that was going to be definitive catalyst with all selling all the bonds to to a privately held subsidiary and that was coming out so i bought it the company was probably going to go bankrupt. Right, right. So cash in a momentum market, cant you cant this keep going up in your face . Sure, of course it can. How do you handle that . How do you manage that well, you manage it as part of a portfolio, right. This is a company where you have every single Senior Executive department seeing senior people leave, you know. Faster than you can say whatever you would have a company losing billions of dollars. Right. You would have a company thats about to have competition from the Biggest Companies on earth. How talking about amazon . Im not talking about amazon. Couldnt be more different if you wouldnt be short this, what would you be short . Because were analyzing the stock, not the company. Right. And generally my view, 0 yea 30 years, might be wrong, eventually youll get it right. Youre prepared to stay the course theres no guarantees. You wont tell us if youll cover whenever you do, but it sounds like your level of conviction doesnt sound to me like its wavered one iota. More bearish, the higher it gets. Anything that would happen where you would say, you know what, i was right but the story has materially changed. Sure. And if i stay in this i will ultimately be wrong. That happens all the time. What would that be on tesla probably, if if they actually show me they can turn profitability selling cars at 60,000 to 100,000. So a per unit these guys sell cars profitably. At the end of the day we believe in a car company its not a software company, not a Camera Company its a car company, and if they can show that and it seems to be going the other way, by the way, you know, then we would have to they show that, it would be the most expensive car company in the history of the world. We dont just short companies that are expensive we want to see profits. This is a know when to hold them, know when to fold them business, you guys, i would say were all in, but we im not managing money, you are. And with another company, alibaba, which you were decidedly negative on and short on and questioned the accounting on. Yeah. And came up a year ago here at delivering alpha, not through you, but when joseph si was on the stage. Hes not here. Hoping were you here last year because he wanted to have a little headtohead with you on that but why did you cover alibaba . We covered in january exactly for the reason that josh just alluded to we were short alibaba because we dont like their numbers we dont like what is behind their numbers. We dont like their accounting well, their corporate lawyer was nominated to be chair of the s. E. C. , so something about that told me this might just be a dead story for a while, and we and as i think you know, we were long jd. Com. As a hedge. We first did alibaba back in november of 15. We bought jd. Com and shorted alibaba. Jd was a big winner but the trade still lost money netnet, ten point, so . Jd was less up than alibaba, so for people who think alibaba is this magical company, the company in its interest, particularly its biggest dependant. Were up pretty much the same. This was a play on china online, right . I do have problems with alibabas accounting i still have problems with alibabas accounting, but for the time being weve moved on. Is there a time when you would reconsider reinstituting the short . You never know. Did you see the video of jack ma doing his best Michael Jackson . I may be bullish. Alibaba annual party. Thats not video of Michael Jackson from the past. If i was him id be doing yeah. When you see this though, i mean, what do you make of jack ma and his ability to consistently have the market believe a narrative, even in the face of the naysayers . What is the quality about him . What do you think about him . Got to be the dance moves, right . Have a Michael Jackson danceoff to settle this. I dont know, unless youre doing the polka. I find that he has successfully sort of convinced the market that despite all of the criticism that may be out there about accounting and otherwise that hes got a real company that does a hell of a lot of business thats not going away any time soon. Its a real company the question is how much money do they really make and how do they earn the revenues and book their cost thats the story not that its not a real company, but just an awful lot of his affiliates drive his revenues, and then this i keep coming back to this that if you go on the websites and a lot of people dont realize, a lot of people makes most of its money advertising, not putting buyers and sellers together, no one sees them operation those ads as you pointed out to people again, its a matter of how they have their numbers valiant is a real company. Its how they did their numbers. Whats interesting is that valiant, tesla and alibaba all have one big thing in common that were not talking about their enormous market cap stocks not in the s p 500 and we live in an age where hedge fund managers, Asset Managers are all trying to create alpha and deliver alpha, and if you can find a big liquid stock that gives you gains outside of the s p, theoretically you are jen rate the purest form of alpha possible do you think that the short is being punished in the names on the way up, could have anything to do with Asset Managers being attracted to the relatively few large caps that arent in the benchmarks that everyone else . Didnt help in valiant. It works but it didnt. Thats always really at the end of the day what these things, you know, usually end up they work until they dont. Right. And that exogenous factor, the index factor. Right. You know, it helps them on the way up, and then theres no bid on the way down, right right. Because vanguard is not buying them. Ive been adding to baba. I think its im sort of glad the accounting is so opaque, nothing different from a lot of other chinese companies. Brazil is, you know, fraught with corruption at every level of government. They could teach china some things, so they have been growing. It is mostly an ad model, i get that, but its also a much less expensive stock than some of the others growing not as fast as in the u. S. How do you know i know what im seeing and i know what others are seeing. I cant point to the cat limits. Right now its a proxy to the market im not going to denigrate others for stock picking and finding things outside etfs. If your bedrock is cheap relative to its performance. Right. And we raise questions on the quality of the numbers, the earnings, how can you claim its cheap . Im claiming its cheap on the same metric. Youre comfortable with the numbers. Im comfortable with how others are looking at it as a momentum stock in a momentum market that im looking to take advantage of. Thats a different argument thats a different argument. Im not signing off on the numbers nor am i tesla tesla has been stratosphere. Ill go one step further. Given alibabas history of corporate governance. Right. I would say its worse than that talk to yahoo and talk to the people after they took ali pay, youre comfort basketball that im comfortable with that now, yes im comfortable with that now. Okay. Were going to take a quick break. Coming up, well have much more with jim chanos and other Investment Advice from big newsmakers, including legendary investor Julian Robertson who is live on the stage right behind us as we speak Halftime Report back in a couple of minutes. Well talk about one of jim chanos shorts coming up at ally, we offer lowcost trades and highyield savings. 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