Bill and Grant welcome Marc Cohodes and Dr. Ben Hunt to The End Game for a special ‘Markets In Turmoil’ edition.
The collapse of Greensill and the recent unwind of Archegos have sent ripples cascading through markets, but what is really going on behind the scenes and what are the likely ramifications?
One thing is for certain, the narrative around both of these events is woefully misguided. We discuss the importance of each event to broader markets, how they came to be possible, what the real story behind the careful-constructed narrative appears to be as well as assessing the potential fallout…
Grant Williams:
Before we get going, here’s the bit where I remind you that nothing we discuss during The End Game, should be considered as investment advice. This conversation is for informational and hopefully, entertainment purposes only. While we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor, before putting a dime of your money into these crazy markets. Now, on with the show.
Grant Williams:
Welcome everybody to another edition of The End Game. This is a very special Markets in Turmoil edition that Bill and I have decided really needs to do. Because obviously markets are in turmoil and there’s chaos everywhere. What better way to drag in a massive audience than to create hyperbolic headlines. Joining me as always for this, my partner in crime, the great Bill Fleckenstein.
Bill Fleckenstein:
How are you today, mate?
Grant Williams:
Mate, I’m good. How’s the turmoil treating you?
Bill Fleckenstein:
For once the turmoil mostly missed me, with the exception of the fact that they destroyed gold for a while.
Grant Williams:
Yeah, that tends to happen.
Bill Fleckenstein:
What is going to be interesting is what we might be able to piece together that is not generally well known about what’s going on behind the scenes and the prime brokers in these leveraged crazies like Mr. Bill Wang and what the ramifications might be. Are there going to be any? Have we seen it? I think it’d be useful to be able to get out in front of the pack on this topic.
Grant Williams:
In front of the pack is a perfect segue into our guest. The leader of the Epsilon Theory Pack, Dr. Ben Hunt is going to be joining us and our mutual friend Marc Cohodes who himself has found himself in a similar position to Bill Hwang though but without the leverage of being screwed over by his prime broker.
Bill Fleckenstein:
Well, and yeah, where maybe the prime broker was not doing what it’s supposed to do to begin with. Slightly different in that the total return swaps, they probably executed them in too big a size. In Marc’s case, they didn’t really have to borrow what they were supposed to have and decided to make him pay for it. Slightly different issue.
Grant Williams:
Either way, these two gentlemen joining us shortly, have great insight into this. Bill and I thought we could just kick this around and try, as you said, at the beginning of that, Bill, get a handle on what’s really going on. Because this is one of those things that just the sheer size of the Archegos thing and the number of prime brokers it’s dragged into it, tells me that this isn’t a two-day and done thing. This is going to change things material I would imagine.
Bill Fleckenstein:
Well, I would think for sure, we’re going to get new legislation. Which we probably ought to have. It’s so funny, it’s like a roach motel with these prime brokers and investment banks in that, not to say everyone a worse, it’s a problem. But as entities, every time they pass regulations to stop them from doing some things, and then the regulators go overboard, they find some new nook and cranny to get into and cause incredible amounts of problems.
Bill Fleckenstein:
I guess one thing that would be really interesting, which I don’t think we’ll find out without a subpoena is, what groups of guys are gaining up on markets or securities? How much collusion and things like that are there? I used to kind of poopoo that idea because I know how difficult it is to really actually manipulate something. But it would seem that some of these guys were doing just that. Are these the only people doing that? And who else might be doing it? When you layer that on the passive investing and the structure products, is it any wonder the tape is so squirrelly all the time?
Grant Williams:
I think the one thing we know is the answer to the question, are they the only ones doing it? I think we can answer that pretty categorically without any fear of being wrong. That there’s absolutely no chance in hell that they’re the only people doing it. They’re the only people who so far have been carried out on a stretcher, but who knows where that leads.
Bill Fleckenstein:
It really is a shame that the SEC has abdicated its responsibility over the last 20 years. The way that Elon Musk made fun of them, so obviously on several occasions, in the fact that they did nothing about the people that were signing fraudulent financial statements in the ‘08 crisis, et cetera. On top of every other monetary sin and crazy things we have going on, we have an SEC that seems uninterested in doing its job.
Grant Williams:
Well, Ben has written some fantastic notes recently about this. He’ll be joining us shortly. And Marc obviously, is no stranger to listen to this podcast. Why don’t we bring the gents in? What do you reckon? Well, Dr. Ben Hunt, welcome to the podcast. Great to have you back here again.
Dr. Ben Hunt:
Great to be here with all of your guests here.
Grant Williams:
Joining us also, the wonderful Marc Cohodes, from the mountains of Montana.
Marc Cohodes:
How’s it going, fellas. I was looking forward to doing this one day. These greedy rat bastards have opened a window for us to jump through.
Grant Williams:
Haven’t they just. There’s so much to talk about. There’s just so many big stories that all seem to be coming together. If you don’t mind, Ben, what I’d love to do is use your writing as a framework for this conversation. Because you’ve written three pieces that frame this so beautifully, the three aspects of it. The first one being Hunger Games, which you and I have spoken about before. Then The Best Way to Rob a Bank, I think it was. Most recently, Tigers Can’t Change Their Stripes.
Grant Williams:
I think those three pieces, A, everybody should read them. But, B, I think they do such a great job of giving us almost three chapters for this conversation. I think we do them in chronological order and go back to The Hunger Games, there’s been developments in that. But perhaps if you can flesh out, just the broad narrative of that piece. I know Marc’s had some thoughts on it, Bill and me as well.
Dr. Ben Hunt:
Sure. Well it’s interesting, I think, about these three notes that I wrote, is that they were all very separate in my mind when I wrote them. The hunger games piece was really sparked by the GameStop, Reddit, Robinhood, Melvin Capital. All of that, that was really what sparked that note. And it was in reaction to the, call it narrative, that’s what I like to focus on. This narrative that what is happening with GameStop? “Well, it’s the way we democratize Wall Street.” This was the victory or the little guy to just stick it to the suits. To stick it to that battle short seller of Gabe Plotkin.
Dr. Ben Hunt:
What struck me so strongly in all of this was, God, that’s just such a lie. It was such a knowing lie that it’s put forward as all of these knowing lies are placed forward, as a way to keep the game going. What game is that? It’s The Hunger Games. It’s that dystopian vision where the entertainment value of what is being provided, these horrible competitions, that’s what was happening with us as well.
Dr. Ben Hunt:
I think the main thrust of that piece, was to try to describe how this narrative, this story, was just this pleasant veneer over a reality. Sinew and bone of market makers, like Citadel Securities, of hedge fund against hedge fund. And the way that they create these stories, whether it’s around a GameStop or the like. None of this was meant as an attempt to defend Gabe Plotkin for God’s sake. I think the short position that he had on GameStop was unconscionable, frankly. It was lazy. It’s an artifact of, I think, the big stack poker that you can play now, because of the enormous leverage that’s available to private pools of capital.
Dr. Ben Hunt:
That wasn’t the point of the piece. The point of the piece was to try to look at well, what is the reality of market structures and market players? And how is that the same as it ever was on Wall Street? The Greensill piece, the note, The Best Way to Rob a Bank, of course it’s a take on the old, “What is the best way to Rob a bank?” You own a bank. That’s the best way to Rob a bank.
Dr. Ben Hunt:
And of course, that’s what Lex Greensill and Greensill capital did they. They owned a bank and able to use that for something that is more and more, it was just outright fraud. Just outright fraud. I think there’s an element to the Greensill story that I think is different from the GameStop and Melvin Capital story on the one hand and the last chapter in this trifecta or the Archegos story. Greenville to me, was just a classic fraud. A classic old school fraud. That’s not to say that there aren’t strong fraudulent elements in these other episodes we’re talking about, but Greensill was just that classic kind of fraudulent attack.
Dr. Ben Hunt:
Then probably the third piece, was on what happened recently about Archegos. And what really struck me, and I got to say, I owe a lot to Marc, because we’ve been talking about all three of these events. It kind of clicked for me recently about, what do these three events have in common? Why are we seeing these three events now, with markets at highs? What’s going on here?
Dr. Ben Hunt:
I think it does come back to, what we were all talking about around Robinhood and GameStop and Melvin and Citadel and the like. It all comes back to the massive amount of leverage that is injected into the system, that’s been pulled in by, I like to call them raccoons. Like a Gabe Plotkin or a Bill Wong or someone like that. But it’s also pushed into the system by all of the banks who are trying to make a buck and have access to unlimited capital, with no I’ll say penalty for getting it wrong.
Dr. Ben Hunt:
That’s kind of what ties these three together, to me. It all comes back, as you were saying, Grant, that first note about The Hunger Games we are engaged in today, where we have a market reality of unbelievable leverage, that is available for private gain and put forward by entities where their losses are socialized. That’s the big framework, for me at least.
Grant Williams:
Marc, as you’ve watched this play out, obviously, the most recent episode, the Archegos debacle, it’s a horse of a different color, but that must have pinged a lot of bells in your memory. But let’s go back to the first one that the GameStop, the Plotkin, Melvin Capital stuff. What were your thoughts on that as you saw that begin to play out?
Marc Cohodes:
This is an evolving story. The one thing that’s fascinating or sad, is how wrong the mainstream media has gotten all of this. How badly they missed it. How the coverage is horrible and how the coverage is sold to the masses, almost like Russian propaganda.
Marc Cohodes:
I have respect for the individual investor, and I actually really like Portnoy] a lot. I think his movement makes sense because Joe Sixpack should have a shot against the Stevie Cohens and some of these other clowns who use crazy leverage to manipulate stocks. Joe Sixpack deserves a shot and a seat at the table.
Marc Cohodes:
However, there was not a chance in hell that this Reddit movement, was behind the GameStop, because the money involved was so significant. I chatted up with Ben, where you go back and forth. And the media completely missed it. I did podcast, there’s going to be some stuff coming out that I’m involved in, where I get into, there had to have been big money behind this. Whether it was a Softbank, I don’t pronounce the guy’s name, right. I call him Crouching Tiger, Bill Hwang or whatever it is. This clown is a criminal. He’s been a criminal. He should be behind bars and everyone should be rolled over.
Marc Cohodes:
I think he was responsible, it will come out, for the GameStop and some of these antics. I don’t feel bad for Plotkin. He deserves all of the heat and the financial loss he gets. But he was the patsy at the poker table. He was short in irresponsible amount of GameStop. He was short Viacom. He was short Discovery. He was short GSX. He was short all of these names that Crouching Tiger went up against. And Crouching with the aiding and abetting of these crimes, with this excessive leverage, to create these Ponzi corners, have basically, although people don’t think this, they’ve destroyed the markets. The markets are beyond broken. And we are in a path that no one has ever seen before, because you have basically wiped out the short community.
Marc Cohodes:
The short community is wiped out. People may take trades here and there, but you can’t leverage properly, you can’t hedge properly, you can balance your books, you can’t do options to keep yourself afloat. There’s not a person alive, who can manage a GSX position from 30 to 140, 40 to 150, 36 in the span of nine months. There’s no persona alive or has ever been alive, who can manage that kind of volatility, risk, et cetera.
Marc Cohodes:
I don’t want to any smoke from anyone on this, because I’m not a racist, but the US markets and this volatility, is starting to trade very Asian-like. Where you have these Chinese stocks that used to go up 80%, 90%, 500%, they’d get halted, and it’s revealed to be a complete fraud or Ponzi scheme and it goes away. No one could be short these things, because you’d get destroyed. When they blow up, everyone loses massive amounts of money.
Marc Cohodes:
The SEC doesn’t work, the government doesn’t work. The Fed has flooded the system and the brokers, which used to be brokers, but now they’re banks, the most profitable lending in society is to these greedy hedge funds. And as Bill so aptly says, if you can borrow $100 billion dollars at three and 30 and go for broke, you can make billions and billions for yourself. And if you lose, so what? It’s on the bank’s books and you just made a mistake.
Marc Cohodes:
The risk reward, the reward for taking undue risks and excessive leverage to blow up the system is skewed 100% wrong. 100% in the favor of these greedy, criminal practitioners. And the mainstream media, which used to lean up again against it, now chomps at the bit to make Stevie Cohen look great, Citadel look great, brokers look great. You make this Hello Kitty or whatever his name is, Pet My Pussy, Roaring Tiger, whoever it is.
Marc Cohodes:
You glorify a guy who allegedly, because who knows what the truth is anymore, turns 50,000 into 50 million. Everyone reads and hears this and says, “If this guy can do it, I can do it too.” This excessive leverage, which I’ve whined on, I’ve written Elizabeth Warren on, every senator on, I keep going on it, it will destroy what used to be a wonderful business. We are watching in slow motion and quick motion, the destruction of the free markets. We’re just watching the destruction of it. That’s why I railed against it. That’s why I can’t stand it.
Marc Cohodes:
I’m not a macro guy, but I think I see the ball so clearly. I think Ben is so on top of this and is so on top of the game and is so right. People need to really take this in. Back when I was an impressionable young guy, who used to be a counselor at a boys camp and the camp director was a great, great fellow. He always said something and it’s been pounded in my head. “When things get crazy,” he used to say, he said, “Marc, don’t just do something, stand there. Because if you do something and you see crazy,” he says, “it’s always the wrong decision.”
Marc Cohodes:
These times and what’s going on, is crazy. People don’t really need to act. What they need to do is look at this thing, think it through, read Ben’s stuff ad there’s some other great stuff out there. Read it through and think. And then after you’ve thought it through, if you want to act, go act. But just don’t act because you think this is crazy, or how long can this last, or we know how it can end. No one knows how this ends. No one knows how this ends. No one knows what level it ends from or the timing thereof. That’s my opening salvo in this demolition derby.
Grant Williams:
Fleck, this is something you and I haven’t really talked about this. I’m not 100% sure of your views on this particular part of the story, this first part, the Reddit revolution, if you want to call it that. What were your thoughts on that? Given what Marc said, do you see it similarly or are there any wrinkles to it from your perspective?
Bill Fleckenstein:
I think Ben’s vantage point and marks is exactly correct. It was a kind of a fun story in a COVID period, where people were looking for something to do, that they had the tip of the iceberg on. These Reddit guys were winning it for a while and then the blow up happened. There are a host of contributing factors. But as I listened to this and I layered on top of what I already know, it seems like the elephant in the room and Marc already touched on it, maybe Ben did as well, is that the fact of the matter is, the SEC has refused to do its job. It won’t look into anything. Whether we want to talk about insider trading, fraudulent financial statements, the systemic risk posed by the massive concentration in the passive investing that Mike Greens talked about, there’s a whole group of things that are going on and others, like these total return swaps that this guy used.
Bill Fleckenstein:
There’s all sorts it. There’s tons of abuses, and the SEC does nothing. If the regulators don’t care and then we’ve got this crazy backdrop that’s been created by the stimulus and all that sort of thing, is it any wonder that people go crazy and do as crazy stuff as we know about and we don’t know yet? I think it’s important to try to figure out how bad this is now and where it’s likely to lead. But unless the markets break it up, we’re not going to see any relief, until somehow, there’s enough pressure created for the SEC to actually do its job. I’m not holding my breath on that score.
Grant Williams:
What’s interesting, Ben, coming back to you, just how soon after this, because I think everybody looked at this as a self-contained little story, the Reddit stuff, the GameStop, it was self-contained. We had winners, we had losers, it was all kind of wrapped up in a neat little bow and everyone then forgot about it. If you look at the Google trend searches for Robinhood, they’ve fallen through the floor. It kind of came and went and that was it. Did you think it was coincidental how quickly Greensill then came to light in the wake of that? Was that pure coincidence? Or is that, do you think, symptomatic that there is a bigger tidal change in play here?
Dr. Ben Hunt:
Not coincidentally at all, in as far as I think that there are more of these blowups to come. And the reason I think that is that, the way you make money by levering up, is you’re basing a look at, I’ll use this $10 phrase, cross-asset correlations. You’re looking at payers, basically. Because you’re going to lever up and you’re going to have some positions long, you’re going to have some positions short. And you’re saying, “This relationship holds pretty steady across time.” That’s how you develop your VAR model to say, “Oh, go ahead, Mr. PB. I just need 8X leverage on the strategy that I’ve got here.”
Dr. Ben Hunt:
As an aside, I still remember this back in ‘05, when it suddenly clicked for me, how to does Stevie Cohen make 40% a year. Well, it’s because he’s levered eight times. He’s making 5%. We know how Stevie Cohen made his 5%, but then he leveraged it up eight times. There’s your 40%. But you’re basically looking at a very core, fundamental level. You lever up because you think I’ve got payers that I could put on two sides of this thing. Those correlations are breaking down. They just are. Why? Because these enormous barges, I like to call them, there should be a Suez Canal reference here somewhere. Barges that had been sailing in a direction for like 40 years, whether it’s in terms of interest rates, whether it’s in terms of deflationary versus inflationary expectations. Whether it’s in terms of globalization, which has been this phenomenal force for deflation the last 30 years.
Dr. Ben Hunt:
Those enormous barges, I think, have slowed down and now are steaming up the river in the other direction. So that all of these correlations and payers that we would base a strategy of taking on significant leverage, those correlations are breaking down. And it’s not going to stop, because once these barges start moving in a new direction, they don’t stop. They keep going.
Dr. Ben Hunt:
I do think there’s more to come and I don’t know what stops the supply of leverage here. What I mean by that is, all right, Credit Suisse is going to take another loss. Credit Suisse, a criminal enterprise, basically, that’s paid $9 billion in fines over the last decade, for what they’ve been caught at, they’re going to take a couple of billion losses on Archegos, they’ve got $10 billion in funds with Greensill that once the insurance wrapper was taken off by Tokyo Marine, they had to put the gates up on that fund. It’s just another criminal enterprise. Right?
Dr. Ben Hunt:
But it doesn’t matter. Credit Suisse can’t go out of business. They can’t. It cannot happen in this world. So long as you’ve got suppliers of capital and so long as you’ve got the capital that’s available to them at bupkis cost, the flood of leverage to all of these guys, they’re always guys, I guess, it’s not going to stop. It’s not going to stop. What you’ve got is a continuing flood of leverage available, at the same time that our world, I really believe, has had an inflection point on a couple of crucial dimensions.
Dr. Ben Hunt:
It’s kind of the Seinfeld theory, right? What George would say, whatever I think is wrong. All of these correlations are going to shift now. So that’s why I think, you can see these again, highly levered plays, blowing up like clockwork, a decade, 13 years, after the last crisis like this. And I think there’s a lot more to come.
Grant Williams:
The one seeming certainty to me, is that there will have to be a reduction in the leverage offered by the banks now. Surely, Marc, Credit Suisses and the Nomuras of the world, they will have to reduce the leverage. They will have to look at the leverage they’ve got out there. They will have to start pulling that back and trying to do it as quietly as they can. But it seems unconsciously, even though I totally agree with you, Ben, this is not going to stop. But surely it doesn’t have to stop to change everything, it has to be just lowered. Because in the unwind alone, you’ve got chaos.
Marc Cohodes:
Let’s put a spin on this. The short answer, I think is yes. But the one thing I think I want to hit Ben on, you two fellas is, this guy who blew up Crouching, he was levered and who knows what to believe anymore, let’s just say eight to one, all long at a market at all time highs. And if you pencil out his positions, whether it’s Viacom or Discovery or GSX, whatever he was in, I have him up this year before the margin call, maybe between 100% and 300%. He was up, leveraged. Viacom was up 100%, Discovery was up 100%, GSX was up 50%. This guy was way, way the fuck up, in terms of this position [inaudible 00:27:16] going to have even more access.
Marc Cohodes:
I think part of it is, what does de-leveraging question you ask, Grant, I’m curious what Ben thinks. There were some form of criminality that must have been discovered, either through the SEC or the DOJ, in letters or subpoenas to these crimes, to get everyone off their ass. Because there’s not a chance in hell, this guy got a margin call being up 300%. No fucking way.
Marc Cohodes:
I think the problem here and what really needs to be on unwrapped, is what led the banks to the so-called meeting? Because if I had an account with Goldman, I sure wouldn’t be happy that Goldman goes behind my back and has meetings with my other prime brokers that they shouldn’t even know about. How were these positions even accumulated and put together and wrapped and levered and derivative, the way they were, to create this massive collusion type of squeeze?
Marc Cohodes:
The short answer to your question is, yes, they do need to de-leverage to some degree. But the criminal aspect of how this was all put together, through the use of leverage, to manipulate these stocks, is I think the big story and the big story is yet to come.
Dr. Ben Hunt:
I can jump in on that. Marc and I had a call, I guess it was about a week ago. And for me, this idea that the general counsel, the GC, the Goldman, the Morgan Stanley, that they got a letter from, I think Marc is probably right. It’s probably the DOJ rather than the SEC. That really rang true to me. Because Marc, frankly, I don’t know that he was up that much in his capital account. From what I think, the guys is, and I’ll use this term affectionately, a degenerate trader. And you know how these traders are, right? You take a little hit in Viacom and so you’re going to double, and you’re going to triple down on that.
Dr. Ben Hunt:
I don’t know that he was up like say 100% on his capital position, but Marc, I think you’re exactly right. He wasn’t down big. This was a portfolio that needed its sales trimmed. It wasn’t a portfolio that needed to get blown up. That makes no sense in any world that I’m aware of, where the last thing that a Goldman or Morgan Stanley wants to do, is to kill what is a pretty golden goose for them.
Dr. Ben Hunt:
I’m with you on this Marc, that there had to be a necessary and sufficient conditions. The trigger or the match to me, I think, had to be something that’s been outside of discussion to date. I really do believe it is the fact that, we know the SEC and the DOJ out there has had their eyes on Wong from before the 2012 conviction. I think you’re right, Marc. I think there was a letter that prompted, the come to Jesus moment, where all the GCs get on a call together and have to, “Wait, how much exposure to bill?” moment. I’m with you on that, very much.
Dr. Ben Hunt:
So to get back to your original question, Grant, I think that that element will actually, I don’t see leverage coming down, man. How can you do that? I really think, everything that I’m describing or that we’re describing about a change in the environment, I think it makes it more likely. I think the moral hazard is greater. If I’m running a hedge fund today, man, you lever up and you put it all on red. That’s absolutely what you do.
Dr. Ben Hunt:
I think back to the fund I used to run and I think there was some kind of, “How could I have been so stupid?” There are two ways to own a sports franchise in the United States today. One way is to accumulate a lot of money and then just hug and an equity index and charge a performance fee on your beta. We all know guys who do that. That’s a great hedge fund model.
Dr. Ben Hunt:
The other hedge fund model is, lever up, put it on red. Because you’ll always get a second act if it goes wrong. If it gets right, congratulations, you’re like Gabe and you own a piece of the Charlotte Hornets or whatever team he bought. You want to own a sports team? Those are the two ways to do it. I don’t see what stops either of those patterns. I don’t think that leverage comes out of system very much.
Bill Fleckenstein:
Well, it seems to me though, that if this was precipitated by some irregularity that the DOJ or shockingly, the SEC caught, and that precipitated the meeting and the language that allowed Goldman and the others to start liquidating, it strikes me as extremely unlikely, that leverage won’t come down. Because if I’m a prime broker, if you’re one of these banks now all of a sudden, you know that, “Oh my God, we didn’t really know this.” They start scouring the, the, their books for other ones.
Bill Fleckenstein:
I think over the next short while, they’re going to be watching extra carefully and making guys do stuff. Because there’s a blind spot they weren’t aware of. It’s still like when they all got caught with the CDSs and the mortgage paper. I’d be shocked if the leverage doesn’t come down in the short run, for guys that are being extra excessive. I could be wrong about that, but seems to me that, that’s one ramification of this.
Bill Fleckenstein:
I would think that the Congress is going to do something about it because, A, it’s headline grabbing and B, sort of like the makeup there now is a group that would want to get involved.
Dr. Ben Hunt:
What are they going to do, Bill? Right? About Congress, right? They’re going to say, “Oh, let’s put on a transaction tax or something.” I don’t know what they’re going to do to get at the root of this. Which is money’s way too cheap, and the banks are too big to fail. Unless you’re willing to address any of those things, which clearly no one in any government in the world is willing to address, either of those two things.
Dr. Ben Hunt:
In the absence of that, what really changes here? Because if I’m an MD at whatever at Morgan Stanley, I get something from my compliance guy and the GCs office says, “Let’s look into those perfected security interest now, before you write the next note with your counterparty over there. Let’s make sure we got that in line.” I’ll dance to that tune for a month or two, but then I got to think, “Man, I ain’t going to get my bonus that way.” I don’t know what really changes unless you address either the price of money or the too big to fail aspects. And I don’t see anything happening there in our lifetimes.
Grant Williams:
Let’s talk a little bit about prime brokers then, because as you’ve alluded to there, Ben, there’s a huge incentive mismatch here, at the individual level, working in a prime brokerage department at a major bank. These guys are incentivized to go out and gather clients and lend money and gather assets. On a personal basis, honestly, in my experience of being inside those banks, I don’t know how much these guys really knew what was going on. It was case of like everything is these days, it’s an asset gathering exercise. If you bring in big hedge funds that want to lever up, and one of borrow money and the bank and lend and earn their margin, then you will get paid a big bonus. That incentive structure is what we are seeing the downside of right now, with the Archegos thing.
Dr. Ben Hunt:
I’ve got a direct answer for this, Grant. The remedy for this is Bear Stearns. Bear Stearns ain’t ever happening ever again. We saw that with Robinhood. If Bear Stearns had not had enough capital, they’d been capitalize, are you kidding? Look, the Fed would have been in there that night. They would have been, “You’re basically shut down from operations.”
Dr. Ben Hunt:
I did this with, Bear was a prime broker of mine. I got my money out back in January. I got lucky enough to kind of see it coming. You get a run on the bank and the bank fails. That’s what happens, when you make mistakes like this. If your cowboy traders blow up the firm, they blew up the freaking firm. And that is what cannot happen today. What will not happen today. That’s why I don’t think the leverage comes out because there’s no penalty. There’s no penalty. There’s none. There’s no penalty in Credit Suisse.
Grant Williams:
You’re absolutely right. Go ahead, Bill.
Bill Fleckenstein:
You’re right about that. There’s no penalty from a regulatory standpoint. Unless this was completely one off, if it was, then I don’t know what there really is to talk about, if we think there’s not going to be any legislation to change it. But if it wasn’t one off, I cannot believe from a self-preservation standpoint, that some of these firms, aren’t going to look at it and make sure that there isn’t another one of these items lurking.
Bill Fleckenstein:
Now, that may only last for six or eight, nine months. But I don’t think that they’re going to be able to laugh it off, like right away. Unless there aren’t any more of them after they scrubbed their books. Just from a self-preservation standpoint, I would think it would have to. Certainly, the firms really got tagged hard are going to be looking at whether or not they have any more exposure to this.
Dr. Ben Hunt:
Well, Bill, let me ask you. What if you do this sort of analysis, you’re UBS. You say, “Whew, dodged that bullet. Let’s look at our books here.” Let’s say you make some calls with your buddies in other banks and you kind of piece, like I said, “Well, you know what? There is one player out there that seems to have a heck of a lot of exposure too, and it’s Softbank. What do you do with that? You’re going to say, “No, no, no. Sorry, Masayoshi, you need to cool your jets man. We’re not going to do business with you.”
Dr. Ben Hunt:
What do you do, Bill? Because if it’s Softbank, you say, “Oh, sorry.” They’re not going to… Anyway, you see where I’m going with this. I don’t think it’s something that [crosstalk 00:38:42].
Bill Fleckenstein:
Again, I think it depends. Look, self-preservation is a pretty potent motivator. What I’m suggesting is, if these various different derivative bet books are littered with this sort of activity and these guys that run these firms start to get a sense of that, I think they are incentivized to try to cut it back.
Bill Fleckenstein:
I know the point you’re making and I understand it and I can see them. If nothing else bad happens in the next, pick a number, two weeks or a month, if nothing pops up, then nothing will change. I agree with you. But I think in the moment, I’m sure people are scrambling at these firms to try to figure out what exposure they may have. It’s too soon to think, we can laugh it off. Because they have to be a little bit scared.
Dr. Ben Hunt:
I ain’t laughing, Bill. I’d love to. I hear what you’re saying and I think you’re right.
Bill Fleckenstein:
Again, that’s why I asked the question. If there’s a lot of this out there, it’ll start to be discovered. I think in the moment, they’ll force it to be taken down. If there isn’t much else, you’re right. It’ll be a speed bump and the next time it will be worse.
Dr. Ben Hunt:
I think, unfortunately, it’s too painful to take it down. It’s the same situation as saying it’s the same situation as saying, “Why wouldn’t the Fed start getting off zero?” Then you say, “What happened to Q4 of ‘18?” There you go. You can’t.
Bill Fleckenstein:
But that’s different. The fed can’t leave ZIRP. If I’m running a firm, let’s pick Goldman. Let’s say they had a near miss on this. And then they start looking around, they find other guys they’re going to go first and liquidate them. They’re going to [crosstalk 00:40:28] to take it down.
Dr. Ben Hunt:
[crosstalk 00:40:29] And see their earnings get crushed?
Bill Fleckenstein:
[crosstalk 00:40:34] Let me ask you this, would you rather have your earnings get crushed or get a smoking hole of a couple billion dollars blown in your balance sheet, like what just happened? I just think it’s too near the accident for guys to be-
Dr. Ben Hunt:
Everyone here is going to think that they’re too smart to be the one to be the Credit Suisse patsy, or the Nomura and have the hole blown off of them. I just don’t think unless you change the underlying environment, that has free money markets out of top, right? Nobody’s worried about going out or you’re worried about not performing as well as the next guy. I think in these circumstances, it doesn’t break risk taking behavior. It actually exacerbates it. I think it exacerbates it on both the banking side and on the asset manager side.
Dr. Ben Hunt:
I’d love to think that everyone looks at this as a cautionary tale. I think instead, the reaction is going to be, and this will be promoted by the press, it’s a one off thing. We saw this in Bear Stearns too. “There’s no systemic issue here, it was just a bad actor. He’s was just a bad egg. Otherwise, party on.” Unfortunately, I think that’s my guess of how it-
Marc Cohodes:
I’m going to come with the wild card or the joker in all of this. I feel pretty strongly on this. First of all, Crouching Tiger, aka Wong. He didn’t have 15 billion personally. I don’t think he had a billion, personally. I think he may have had 300 million. I think his fund was a front for a very bad actors. Very bad actors, aka money launderers, which is why everything was disguised as a “family office.”
Marc Cohodes:
The wild card here is that if our markets start to get influenced by foreign actors and/or bad actors and manipulation purposes, through the use of excessive leverage, The Elizabeth Warrens and the Sherrod Browns will get off their ass, and cram legislation down these guy’s throat, if the primes don’t clean up their act. I think all this stuff and all this noise about this, know your customer and anti money laundering laws, at least I know through my Wirecard experience is just lip service, that this shit has been going on for some time.
Marc Cohodes:
Because there’s no better way to launder money and to get excess wall, than excess leverage in financial markets. So, depending on how and what shakes out with Crouching and who his investors really were, and who’s been influencing this market, aka Softbank and others. There may be enough of a pushback on what’s going on, where the Warren’s of the world go to the Goldman’s and say, “You do it this way, or we’ll do this.”
Marc Cohodes:
My solution to all this all along has been, forget transaction tax, just tax the living shit out of excessive leverage and however someone wants to define it. “If you want to play the game, here’s the ante.” This goes from Citadel all the way down. “Ken, if you want to play the game or Steven Cohen, you want to play the game or any of these guys, you tax, you come with a level of margin, which is acceptable and anything above it, is kind of like a luxury tax in basketball.
Marc Cohodes:
Some of my pals own part of the Golden State Warriors, that luxury tax is a choke. If you think you want to get all the players and play the luxury tax, it is a real challenge in your mind, if you want to go that route. There has to be something. I agree with Ben, that nothing will change. I agree with Fleck that the primes will take it down. But it just depends what side of this chalk you’re on and why we need the mainstream media, and the regulators and the fearsome foursome known as us, to say, guys, “Let’s get to the fucking bottom of what went on, so we don’t blow this thing into smithereens.”
Marc Cohodes:
Because I think Ben, I’m not going to speak for him, if this keeps on going, what happens? I’m not going to speak for anyone else, if this keeps on going, what’s going to happen? But at some point, you start blowing pistons through the hood of the car. I think these times and what’s happened in the last three months with markets at all time highs. And it used to be hedge funds when they blew up, you’d have a dust pan event for two or three days. You’d put them in the dust pan to go in the dumpster and that’s it.
Marc Cohodes:
Now a hedge fund blows up by some unknown clown, who’s a criminal, who’s had a past and now you’ve cost the primes $10 billion and counting. It’s literally insane. This is with the market at highs. I think Ben put out a poll on Twitter, “How many of these are yet to come?” God even knows, but the number’s bigger than a bread box.
Marc Cohodes:
I think these times are so extreme, the wild card and the jokers are out there on how this shakes. I think it’s going to be downright frightening with how it all goes.
Grant Williams:
The Softbank name has been dropped into this conversation half a dozen times now. It feels as though they’re somewhere in the middle of all this. Because it’s just the nature of the markets they play in, the way they do their business. Marc, what do you think Softbank’s role in all this has been?
Marc Cohodes:
I think they’re the absolute hub of all of this. I think a spoke as Silicon Valley, a spoke as their fraudulent holdings, a spoke WeWork, a spoke as their ties to the investment banks, spoke as the leverage, spoke as the internationality to it, the spoke as their ties to bad guys. I think they’re ground zero behind all of this. They’re sitting on all these shaky and shady assets, that need the market’s very high and speculative, in order for them to monetize their way out of it.
Marc Cohodes:
I think they are the front of any conversation and they pull the so-called well-known gamma squeezed on the QQQs, on the backside of what the Tesla crowd did. And I think that set the bar and showed others how you manipulate markets to the upside at an exponential rate of speed. I think they are the hub of the Musk’s, what just happened, the short squeeze, the gamma squeeze, the peddling, a bunch of overly price shit shmucks, if you will. I think they’re the eye of a storm.
Dr. Ben Hunt:
I’ll jump in here to say that I have been increasingly thinking that, I’ll just blurt this out. I think increasingly, that the Japanese financial system is increasingly corrupt. I’ll use that word right there. That I see Japan, I see Tokyo as being an epicenter for throwing the rods through the… wrecking the engine. It is Softbank for sure, as an observer. But also, I can’t get over Tokyo Marine. Because they were the key player in the whole Greensill fraud. Because they were writing these insurance wrappers on the crappy loans that the Greensill was originating.
Dr. Ben Hunt:
They were the mono-line. They were the MBIA, they were the mBank, to use some names from the pre financial crisis of the mortgage market. That was the role their play on there. Look at Nomura, Marc, you put out this chart the other day on Twitter about the balance Nomura’s balance sheet, it’s growth and giving out money to guys like an Archegos or the links that the US arm on it.
Dr. Ben Hunt:
It goes back to, I think of these kind of very basic policy positions of artificially priced money and a complete zombification, so that there is no corporate penalty at the highest levels for taking these types of risks. I think a Softbank, I’m increasingly just starting to look at the entire Japanese financial sector, as something that is making my spidey sense, tingle a lot.
Grant Williams:
As I listen to this, Marc, what you talked about there, a gamma squeeze is nothing new. This is not an original concept. Neither is a short squeeze. None of these things. These are as old as the hills. What is it that makes them so dangerous now? Is it purely the amount of leverage in the system? Because if that’s the case, then the answer’s right there. A gamma squeeze shouldn’t be able to do the damage it did. The short squeeze, shouldn’t be able to do the damage they’re doing. They’re only enabled by this massive amount of leverage. Because they can just be such a bigger scale than they ever were able to before.
Marc Cohodes:
I listened to those hearings when the head of Reddit said that they put together, for a period of time, the world’s largest hedge fund, 15 million users, all decided to buy GameStop at once, “And we showed those suits or we showed those people, who was boss?” That’s collusion flat out and collusion is illegal. But if you look at what Crouching Tiger did, through his Ponzi scheme an illegal methods, opening six to eight prime brokerage accounts and getting in all these wacky derivatives, we all know how wacky those derivatives can be with that kind of leverage. He single handedly, through the help of the primes.
Marc Cohodes:
When you’re owning 20% of the company, forget the float in a name like Discovery or Viacom which is a $40 billion enterprise and you decide to target a guy’s book. As Ben said, Melvin, who thought he had the big stack and it turns out against these guys, he had the little stack and the knock on effects of who Melvin was talking to. Let’s say Melvin was short GME and iRobot and Discovery and Viacom and GSX. You can rest assured Stevie Cohen will short the same names and all Melvin’s buddies were short the same names. And Crouching Tiger decided to big stack them against the leverage, with his weapons of mass destruction banks.
Marc Cohodes:
They colluded and they manipulated this stocks to such a degree and created such a systematic squeeze, they basically not only burn the building down and the house down, they melted the wires, they melted the steel and turned everyone else into ash. On a back in the day Volkswagen colluded type of short squeeze. When you saw what happened to the Tesla crowd, the stock basically pre-split has gone from what $175 to lack of a better term, $3,500? That’s what, 20 times in 16 month? Tesla’s up 20 times in 16 to 18 months?
Marc Cohodes:
If you can do that in a name like Tesla and Softbank did the test drive of what you could do in the QQQs. Crouching Tiger and his pals, with the help of the illegal disclosure activity, trading in these pockets of names. It wasn’t the whole market. It was names where they controlled the game. It was something that no one’s ever seen. And a guy like Fleck and I, when you see a name that you’re short go up 20%, the average person says, “Let’s do more.” Then it goes up 40%, you say, “Let’s do even more.” But then when it’s up 60%, you say, “Do we have a problem?” At 80%, you have a real problem. As they’re taking your margins requirements up and option premiums go through the roof.
Marc Cohodes:
So this was orchestrated, this was coordinated. This was highly levered. I don’t know if the primes knew or didn’t know about it. I think the real question, if I was a mainstream media guy is, “How did this Thursday meeting come about? What went off to have this Thursday meeting?” There’s four of us on this call. Let’s say we didn’t know each other or what anyone’s positions are. We get a memo Wednesday afternoon saying, “We’re going to have a meeting Thursday morning about our improprieties? We’ve noticed illegal, Ponzi type of relationships with this guy, amongst all of us? Are we going to say, what the fuck we didn’t know? Or did we kind of know, but we didn’t want to ask too many questions?
Marc Cohodes:
I find all this stuff so beyond troubling. And the movement in this stocks, both up and down, so troubling. It’s easy and lazy for the mainstream media to slough it off as a one-time event. Everything’s a one-time event. It’s all one time, the 100 year flood every five minutes. The once in a lifetime hedge fund failure.
Marc Cohodes:
But Ben has some brilliant points. I can’t urge anyone listening to this, especially if you’re in the government or a regulator to bring this fella in and to thoroughly discuss. You should frankly, bring the four of us in. But truly bring him in to unwind everything he sees, because he can outline what’s going on and the problem. I think I have something of the solution and Fleck knows other problems with the wiring of the system and the Fed and lack of regulatory, and Grant ties it all together.
Marc Cohodes:
But this is serious ass shit, that’s been going down. And we’re old enough and we’re cynical enough to say nothing can change or this, that, and the other. But I’ll tell you, something better change and better change quick, because otherwise, I think this Frankenstein is going to be unleashed. And the movement back to your real question, the asymptotic movement of these random shorts, that we’re all Melvin names, who comes from the Stevie Cohen family tree, that were squeezed from Crouching Tiger, who’s from the Tiger family tree. This is also a civil war or mafia of one mafia of hedge fund versus another.
Marc Cohodes:
There’s so much really that’s been at play over a very short period of time, but these moves make it, that a guy like me, doesn’t want to be short anything for the sheer danger that something now can go up 400% in two weeks. It used to be, I’d think a name can go up 20%, 30%, I’ll just do more this’ll blow over. No, we’ve unleashed nukes that a guy like myself and I am a tough ass man, and I’ve seen a lot at age 60. But I’ve never ever seen anything like this, nor do I want to see anything like this. And it better stop. It better stop soon.
Grant Williams:
You talked a bit about collusion there, Marc. Fleck, I want to come to you with this. Because there’s two sets of collusion going on here, right? We’ve had, as you said, Marc, the Reddit CEO coming on and talking about this 15 million guys getting together. Clearly, that is collusion. The only difference though, between the retail collusion and the hedge fund collusion is that the people working in the hedge fund have taken exams and have signed documents, saying they understand the rules of the game. They know what they’re allowed to do. They know what they’re not allowed to do. And they are breaking rules they’ve signed up to.
Grant Williams:
The retail guys are breaking laws they have no idea that they’re breaking. They just don’t understand that, “Hey it’s not okay for us all to get together and talk about, hey, we’re all going to go and buy GameStop.” They just don’t get it. Yet what I’ve seen is a couple of stories about how retail traders here are being pulled in to be questioned about this stuff. What is it about that, Bill? It seems that nobody wants to go after anybody meaningful.
Grant Williams:
We want to look like we’re doing something about this, but I don’t see anybody in the DOJ in the SEC coming out and saying, “We are going to crack down on this, we are going to find who’s colluding, we’re going to find the ringleaders and we are going to take them to task.”
Bill Fleckenstein:
Well, first of all, I think it’s an important distinction you make. If you’re a professional and you act as a group to do something, you know is wrong, that’s obviously illegal. If you’re a bunch of people who don’t really know how the game is supposed to be played and what you’re supposed to do, and you think, “Hey, let’s all go…”
Bill Fleckenstein:
It’s like the silver short squeeze. These folks think there’s a silver squeeze to be had and there isn’t. They all think that. That’s not worked so far. I’m not saying silver, couldn’t go up aa ton for other reasons, but they tried it, it didn’t work. They tried these other things and it worked. I don’t have such a problem with that. It’s more the professionals, who know better and what we really don’t know, is how many of these little entity, little cabals are out there. Was this a one-off? I doubt it.
Bill Fleckenstein:
If it’s five firms, five little rings, that’s a big deal, maybe. If it’s 20, it’s an even bigger deal. It gets back to the problem that we’re all talking about and that is, there’s no real application of securities laws, until after something bad happens. Until that is the case, the only thing that’s going to regulate this even slightly, is individual’s own fear of, “Oh my God, I could lose a lot of money,” whether you’re running a firm or you’re running a hedge fund. That’s what I was alluding to with Ben is that, some guys at Goldman who don’t have these skin or are high enough up, may not want to get big trouble right now, to pick just one name.
Bill Fleckenstein:
I don’t know what it’s going to take to get the regulators to do their jobs. When you talk about the media, not to pick on the few that might be good at it, and there are some. But the media doesn’t seem to care much about anything in terms of getting… They’re too busy fighting the social justice wars and politics. There doesn’t seem to be any real investigative journalism like Gretchen used to do.
Bill Fleckenstein:
She was probably the best at it. One person can only cover so much. I think if we can get the light of day shined on the subject and get somebody to wake up, then maybe we can get some digging into it. But what this has all come about as a consequence of, is the opaqueness of the rules. So they clamped down on the so-called investment banks after ‘08, for some things, but obviously they left the loopholes open so we could go have this problem.
Bill Fleckenstein:
I think until some light is shined on it and I wouldn’t hold my breath for the media nor the SEC. I’d like to be proven wrong. I don’t see how it changes, other than individually, guys trying to take some risks down.
Grant Williams:
Ben, let me ask you this. Because the more I listen to the three of you guys, the more I read the stuff that you write, the more I think about this stuff, it almost feels to me as though the system, by that I mean the financial system, itself has become too big to fail. It feels as though there is a real fear about policing it, because of the leverage, because of its importance and the sheer size of it now, any take down of anybody who doesn’t even seem on face value to be systemically important, could topple this whole house of cards. Am I way off beat? Because that’s what it-
Dr. Ben Hunt:
I think that’s exactly right. I think that’s at the core of how I’m thinking about this now. There are explicit guarantees in the system. That’s why we call these banks too big to fail because they are explicitly designated as SIFIs Systemically important financial institutions and they have a certain set of regulations that’s placed on them because of that, in terms of their capital requirements and the like. But the guarantee is, you’re a made man. You cannot fail.
Dr. Ben Hunt:
I think what we’re all wrestling with right now, and to your question, Grant, I think there’s a lot more than just these explicit guarantees. I think there’s now an implicit guarantee. I want to pick a number, any asset owner, any asset manager with 20 billion plus in AUM, I think you now have an implicit guarantee that you’re too big to fail.
Dr. Ben Hunt:
What does it mean when the ECBs calling around the weekend after Greensill blows up to talk about contagion? They’re talking about this. Who else is connected here? What does it mean when you hear, “Oh, the Fed was calling around over the weekend, to see if there’s any kind of contagion here.” What do you think they’re talking about? They’re talking about point 72 for example. My point is the point 72 at this point, this is Stevie Cohen’s family office turned into a fund. I think it’s too big to fail.
Dr. Ben Hunt:
I think you’re exactly right, Grant, that there is now of an implicit guarantee placed around so many of these players in the system and to Marc’s point earlier, I would at least have access. I like to play poker, but I’m also a fan of looking at kind of, I’ll call it, the business as poker. Professional poker really changed about 20 years ago, when they changed from the Binions in the downtown Las Vegas and Doyle Brunson to the poker that we have today. And the change was aggression. That’s the big difference, and it changed dramatically.
Dr. Ben Hunt:
The play of professional poker was that some of these kind of young upstarts, realized, “You know what? The way to play this game, the winning strategy, not necessarily for a particular hand, but for the game in general, is to be hyper aggressive.” And I think that’s what we’re seeing today. That it’s clear now, that big stack poker, bullying the table, it works. And it works particularly well when you can get a really big stack with you and your buds, your team with your banks that are more than happy to give you as big stack as you want.
Dr. Ben Hunt:
So we’re going to see these rolling games where big stacks come in and it’s more exciting, destroys the game for anyone that doesn’t have a $20 billion stack. More and more, I think that’s the table stakes today, I think, to really play in markets is $20 billion. It’s a world unlike any of us have seen. It’s a game that it makes me very sad that that’s what’s happened. But I think that’s what is. I think that’s exactly what’s happened here.
Grant Williams:
I think you’re right. It’s terribly sad to look across this industry that has changed so much. It feels as though there’s all kinds of shifts that I can feel around me at the moment. But this shift in markets is not necessarily remotely positive, I don’t think. Marc, you hit the nail on the head when you talked about how this whole industry has been destroyed by this. But can any of you guys see how this ends or is it necessary for things the way they are to continue as long as they can? Because when this does end, it is the end. And Bill and I have been talking about the end game, is the end of this kind of… Ben, you talk about markets being political utilities. Is the ultimate end of that, the end of the financial system?
Dr. Ben Hunt:
I think Marc’s got it right. The one way to address this is to tax leverage. There are different ways to tax it, to raise the price of leverage. I’d love to see it, if you raise the price of leverage by actually allowing the price of money to be non suppressed. I’d love that to happen. That ain’t happening. I think that what could happen would be a law, a regulatory action, to tax, to raise the price of transactions leverage. I think that could help.
Dr. Ben Hunt:
The other thing that could help, this acts at the incentive structure of things. I think that if you made it illegal to have an incentive distribution or a fund manager, until funds were distributed, until there was a redemption by the investor, by the LP, so that you’ve got no more, “Oh, I want to crystallize my 20% after a really good year.” I think acting on the, “Okay, I’m just going to put it all on red.” I think there are ways to address that.
Dr. Ben Hunt:
But I think those are the only two ways to go about it. Either the individual incentives or systemically, to increase the price of leverage. I think those are the chances you’ve got to avoid throwing a rod through the engine and having a 20 car pile up. I think those are your only two shots at this.
Bill Fleckenstein:
I personally don’t think the regulators have any clue about what’s really going on. The idea that they aren’t going to enforce the laws, because everything’s too big to fail, that decision only gets made in the heat of the battle, when something tips over and things start to go wrong and they realize, “Oh my God, we better do something.” That’s where the too big to fail moment happens.
Bill Fleckenstein:
They are so asleep at the switch. It’s not like they’re aware of all this stuff and they say, “Oh my God, this is so dangerous, but we best not do anything because bad things would happen.” They’re not that smart. They have no idea what’s going on. I don’t think that this too big to fail idea is keeping them from doing their jobs. I don’t know what is, but I don’t see anything changing this, unless we get more problems and it starts to really increase the individual concern, as I’ve been saying.
Bill Fleckenstein:
Like I said, if there’s more of these out there, I think the firms will get after themselves. That’ll only impact the short run though. We need damage to be done to financial markets, to ever get anything changed. They never change anything proactively. I agree with you 100% then, the root cause of all this is 20 years easy money and the bubbles and looking the other way. There’s a whole host of things that have brought us to this place. But unless we get some intrepid beings in the media or the government to really look into this and spark some change, it’s going to take an accident of sorts to really make a difference, I am afraid.
Grant Williams:
Well, sadly, there is one very simple solution to all of this, I think. That is to instill Marc Cohodes as the head of the SEC.
Bill Fleckenstein:
I’m all for that.
Grant Williams:
I don’t think that’s going to happen. B, if he did take the job, which I know he would with both hands, the security detail you’d require, Marc, would be way too expensive for the government to afford just-
Marc Cohodes:
It would actually work If they let me do it. It wouldn’t take me that long. But I want to throw one, again, I’m the wild card in this whole thing. I have an out of the box way. It’s kind of the markets are sort of like gun violence and all these incidents. There’s one tragic incident after another, whether it’s Sandy Hook or the MGM shooting. There are shootings all the time and they’re awful. And it’s race-based, and it’s psychotic based. It doesn’t matter. It’s bad.
Marc Cohodes:
There’s outrage for three to 30 days and then it just dies down. Then everyone ignores it. If someone were to ever shoot up, someone viewed as important, like the Senate or The House or something had to do to significant, then people would say, or the politicians or the people who can make change would say, “This is a problem.” This right here, the only way to save this thing is if the Elizabeth Warren’s or the Sherrod Brown’s or the Bidens or some adult, were to say, “God, I listened to this Ben Hunt, and this guy has something. And Fleckenstein with his lovely hair has something. We need to do something now. Because these guys are right. If we don’t do something now, this whole thing is one day going to blow up and it will be the end game.”
Marc Cohodes:
So instead of waiting for a tragedy, instead of waiting for a mass shooting of 8,000 people, we’ve seen enough evidence from listening to these four, that something is terribly wrong. We can’t change the price of money, leave the price of money low. But if you abuse the price of money, let’s fucking get after it and tax the crap out of it. Citadel can’t afford the tax. Morgan Stanley, Goldman, Lehman, Piper Jaffray, Nomura. They can all afford it. Stevie Cohen can afford it. Julian Robertson can afford it. Everyone can afford it, if they abuse and use excessive leverage. So let’s tax the living hell out of them.
Marc Cohodes:
Just like if we don’t like the use of AR or whatever they are, let’s tax the crap out of them. Let’s tax the crap out of ammunition. Let’s tax the crap out of whatever. That at least makes it look like they care. Or are on top of some form of action here. Something. I’m begging for something, anything.
Dr. Ben Hunt:
I’m totally stealing Marc’s metaphor of the luxury tax in sports leagues. It’s perfect. Everybody understands what a luxury tax is. Politician, even if they’re listening to us and they go, “This is interesting.” Then they will say, “Oh, I’ve got to go do it.” Unless they have some way of describing it to their constituency. I got to tell you, I’m totally stealing the whole luxury tax idea. Because I think that’s really got legs. Everybody knows what it is. Everybody understands it. I think you’re onto something there, Marc. I really do.
Marc Cohodes:
Yeah, because my buddy, Charlie, owns a piece of The Warriors. Him and I talk about stuff and this basketball luxury tax, with guys who were worth a lot of money, it is really front and center on their decisions. Because if you’re over the tax, you pay triple the over, in tax to the league. These numbers are big numbers, for guys who have a passive investment. If you make this excessive leverage tax look like a luxury tax and you’re over a threshold, it becomes a level where you say, “I’m just not doing it.”
Marc Cohodes:
Or, it will at least encourage responsible thinking. God knows if you have responsible behavior, but at least it will require an adult in the room to think clearly. Man, write about it. Your writing is great. I can think, but I sure can’t write like you or Grant or Fleck. I’m just a literate hanger on-er, who asks thoughts every now and then.
Grant Williams:
Long, may that continue, Marc. Well, look guys, it’s been-
Bill Fleckenstein:
Hanger on-er. That’s a good way to describe you. You’re just a passive hanger on-er.
Grant Williams:
There you go.
Marc Cohodes:
I’m a hanger on-er, I’m just along for the ride.
Grant Williams:
I don’t know that we’ve solved anything, but I tell you what, I’ve got an awful lot to think about as I knew I would when we came into this. My thanks to everybody for joining. Marc, thanks to you as always, mate. It’s always a great joy to sit and talk to you.
Marc Cohodes:
One of my proudest accomplishments, in life is I put you in that clown Fleckenstein together. That’s just…
Grant Williams:
Speaking on behalf of both of us, I thank you. But also Ben, thanks to you as well. Again, every time I get a chance to read what’s going on inside your brain or pick it in person, I grab that with both hands because you have a way about you that so few people do. I think you’re a true original in these markets and a real thought leader. Thanks for everything. Thanks for this conversation.
Dr. Ben Hunt:
Well kind words, thanks to all of you [crosstalk 00:35:15].
Grant Williams:
Listen, maybe Marc, if you do get installed as the head of the SEC, you’ll have us all over for dinner in your swanky new apartment in DC.
Marc Cohodes:
Fuck, I’ll take the Greyhound there If I’d had to. Things are so bad for this shit. Now I’ll commute from Montana in a Greyhound bus to DC if I had to. This is crazy.
Grant Williams:
Please take the Netflix cameras with you along the way. Guys, It’s been fun. Thanks a lot. Let’s do it again sometime.
Dr. Ben Hunt:
Right on. Thanks all.
Marc Cohodes:
Bye
Bill Fleckenstein:
Well, the real question is, how many more of these entities are out there and does that lead to something? Because I just don’t see the authorities waking up and saying, “Hey, do we need to do something?” Maybe they will.
Grant Williams:
I think it comes down to who it touches. There’s no question that there are more of these out there. There’s just no question. Because we all know that-
Bill Fleckenstein:
I would assume so.
Grant Williams:
… everybody’s playing the same game. Some of them are doing it with more leverage than others, but the beauty of this conversation was, so many of the points were crystallizing. To Ben’s point, without the big leverage, you’re just not in the game anymore. So you have to have it. The fact that everybody’s playing the same game to different degrees, it then comes down to how much does your greed override your risk control?
Grant Williams:
Of course, as you’ve written, better than just about anybody, the amount of backstops available to everybody and the privatization of profits, the socialization of risks, is a very real issue. You put all this stuff together and I think you’re right, it will happen again. But when will it actually matter? I think it comes down to who does it take down? Who does it threaten? If it threatens the people in charge, then perhaps they’re forced to do something about it. But I just don’t see the desire.
Bill Fleckenstein:
Me neither. We’ve had too many data points over the last 20 years or so. Regretfully, we need much more damage to get anything done. The question is, whether we’ll get that damage now, or the maybe momentarily, we have a speed bump and then things get worse. I’ve pretty much given up hope that the SEC, the Fed or any of these people that have responsibilities, are ever really going to do their job, until the whole thing is a train wreck. Maybe I’ll be wrong, but that’s the way it looks to me.
Grant Williams:
I think you’re right. Well, all that remains is to thank everybody for listening, to thank our guests, Marc Cohodes and Ben Hunt.
Bill Fleckenstein:
On that happy note.
Grant Williams:
On that happy note, exactly right. If you don’t follow them already, you’ll find Marc on Twitter @AlderLaneeggs, A-L-D-E-R-L-A-N-E eggs. You’ll find Ben @EpsilonTheory, you’ll find me @ttmygh.
Bill Fleckenstein:
And I am at @fleckcap.
Grant Williams:
Still. Mate, good luck this afternoon and a let’s do this again soon.
Bill Fleckenstein:
All righty, mate.
Grant Williams:
All right. Take care.
Bill Fleckenstein:
Talk to you later.
Grant Williams:
Bye.
Bill Fleckenstein:
Bye.
Grant Williams:
Nothing we discussed during The End Game, should be considered as investment advice. This conversation is for informational and hopefully, entertainment purposes only. So while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets.
