tv Fast Money Halftime Report CNBC May 4, 2016 12:00pm-1:01pm EDT
believe it may come in weaker. >> and raising the curtains on the jobs coming of course friday ahead of a lot of earnings data and a lot more with the fox, met life, and prudential, and the week ist not over by a long s t shot, jon. >> not at all. >> and zone c-- sohn conference is kicking off in the next hour with scott wapner and the "half." >> carl, thank you so much, and welcome to the "halftime report special event" live from the 21st annual sohn conference from the lincoln center and this is the place to be because the top hedge fund managers in the business are here to share their best investment ideas and raise mo e e noo for pediatric research, and this year, we are the exclusive broadcast partner at sohn and that means that you will only see this event on
cnbc. and we have a great lineup. we have our host for the hour with jim chanos, and david rosen will be here as well as carson block from muddy waters. and jim, you have had a long history here at sohn and we will go through some of the picks through the years later, and before we get to that and get to some of the thoughts on china, and get to the breaking news of john kasich leaving the presidential race, and it appear appears that though the dance floor is cleared for the trump/clinton ticket. what are your thoughts? >> well, scott, first of all, thank you for having me here, and it is a pleasure to be here. we are down to the two-horse race obviously, and going to be hillary versus trump, it appears, unless there is some last-minute machinations at the republican convention, but at the very least, it should be
interesting august, september, ookay, and we have not seen anything like this. >> and it appears we will not see a contested convention at the way it looks now, and are you disappointed that the vice president did not run? you have been an outspoken supporter of his. >> well, the race would have been more interesting on the democratic side if he had run, but i am sorry that he didn't, but he had important reasons not to, but having said that, the democrats are in good shape going into november. >> that is interesting what sort of going to take place, and what about the market, and the impact? either person, one of those two poom, i mentioned is likely to be the next president of the united states, and does it matte matter? >> well, what you have to do -- >> well, unless something crazy happens between now and then. >> well, if hillary retains the lead, and she has solid lead in the polls as well as the country know her positions whether you
agree with them or not, and the wild card is trump, because we don't know what the policies would be. >> interest withing run into the fall for sure, and so good to have you here not only because sohn is the backdrop, but news overnight from china, and you are becoming most identifiable with china and betting against it for year s, and devaluing th currency since august and now some reports that they are encouraging the e kconomists to give the rosier than maybe accurate forecasts of things. >> yep. >> and are you still betting against china in the same magnitude that you were in the past? >> well, we are, but it is always going to change, scott. for example, as you remember, we werecao casinos, and so, now, you can see that as
it is bigger and bigger, they are inflating the real estate market again, and it is amazing, but they have done it, and they have opened up the credits again, and so some of ings that worked in 2010, '11 and '12 is going the work again. the other is the hard industrial space, and they have had huge rallies up to the bottom, and some of the companies are setting up for the the next leg down. >> talking about freeport, bhp, and those types of stocks? >> a number of them, but we are not talking about them today, but it is a good bet if it is levered and negative free cash flow, and if you are betting on china, we are interested in it. >> you have made a case that you are no longer betting against the winds of the world if they were there, and the las vegas sands, that ship has sailed. you brought up alibaba in the past as it relates to china, and are you short that name? >> we are short, and short for
accounting reasons. we are real questions on the metric, and we have real questions on the cash flow. and most importantly, the biggest part of the business which is the fulfillment side of the business delivering you the package is unconsolidated on the financial statement. we just don't see how profitable or unprofitable that business is. i suspect it is unprofitable, and they are funding it from the cash flows apparent. and so no real free cash flows at alibaba, and that is what is interesting about the story. >> and the sector play so to speak may have changed throughout the years, but the thesis is remaining intact, and what about the size of the short, if you will. i mean, is it where it was, and the e economy has, you know, in some cases imploded in areas, and does that mean that you are still betting -- >> changed. changed. if you are looking at the aggregate of the broader china expose sure, and we relooking at
pretty p much any of the commodity exporting countries whose prime trade partner is china, and the places like south america, and africa, and australia, and tons of h things to do on the short side, and in companies and countries wholly dependent on china, and that is why it is so interesting. >> and by the way, happy 30th, your firm celebrated the 30th anniversary, and so it is a great year. >> thank you. >> and i have some of the traders here, and stephen weiss is here with josh brown. and steve, you have spent a lot of time thinking about what is happening in china, and how that market is impacting our own markets here, and so is everybody else. >> yeah. i think that the worst thing they can do is to nonevent deback to the weaker devoi of the currency market is 30%, and they are doing it at 4.6%, and all it is going to do is to hasten the outflow or the
outflow capital as the investors are worry and the chinese are wor worried about how much lower is this going to go? as you recall, they heightened the bet and raised it, so i think that to jim's point that, you can't have confidence that they know what to do or they are going to do the right thing, and when you look at the accounting as well, and on jim's other side, it is long alibaba and still long on it? >> yes. i'm long j.b. as well, and they don't have the accounting issues of bau ba has, but the markets got a little sanguine with the investors about china is cured and fine and doing the right thing. >> and seemingly do the go from 18.10 to 20.80. >> how is that rebalancing story working for them? the consumers and the services as they open up the spigots and still building more condose and airport airports. >> right. it has gone back to the infrastructure they said they would not build, and added to the debt piles, and it is gotten
to the point of nonperforming loans with, we have a definition, they moved the goal line, and they increase the tolerance for it, so you have to stay with china and it will impact the rest of the world. >> and so it does. the struggling economy there is just one of the reasons that why perhaps some are worried that the stock market here is going to lose the gains that it has. i was doing a panel last evening with abby joseph cohen who had interesting comments about the bull market and whether it was on the last leg. this is what she had to say. >> some of the valuation metrics that we have become accustomed to in combination with the low interest rates which is assessing the valuation is suggest i suggesting that the bull market can continue a while longer, and i don't see the end of it at least in my forecast horizon. >> i'd love to get your sort of thoughts, jim, on the overall
market, and we have talked a lot about china, and you think about what the market is doing here, and suggestion of steve cohen out at millken a couple of evenings ago that the bull market was ending. what are your thoughts? >> well, we have thoughts like everybody else, and we try not to act on them. we run a hedge book, so we are long on the market broadly with the sprinkling of a few individual ostocks, and short with companies that we believe are short. so having said that, it is not cheap. we have the widest disparity ever between regular gaap earnings and the so-called operated earnings. and so i think that it is the 20% now. so you have basically the number that everyone loves the use is 115 or # $116 and always going to 130 or 140 for the s&p 500, but the real number, the number that we look at is more like 85 or $86. on that metric, i mean the
market is really fully priced. it does not mean it can't stay fully priced or get more expensive, but the risks are higher the higher that you go. >> and also, there has been a considerable amount of conversation over the last many days for the weeks or the months about the future of the hedge fund business, and the p performance is bad across the industry, and i asked lee couperman a question about that last night on the panel in which abby joseph cohen appeared and i want to get your reaction to it on the other side. >> and now, the industry in the downturn and i would not be concern concerned about the hysteria, and don't worry about the hedge fund friends, because they are all making a living and the industry is in to a downturn. >> this is the response to the question, and this is a model itself with the 2 and 20 model is dead and changing, and so how would you answer the question about hedge funds right now? >> well, in 30 years of history, we have never charge d 2 and 20.
i always thought it was accepted and it is accepted. i sit on a number of investment committees so i have a unique perspective as well as being a manager, no doubt that the hedge fund performances has bottomed in '09 and disappointing, and the the problem of the industry is that when it lagged on the upside it told clients that we are hedging. we don't have full exposurexposd yet when the market in 2011 or 2015 when the market took a tumble, but it still remained flat on the year, the industry got killed, and so, at the end of the day, it is really not adding any outputt or value in the aggregate, and some of it has to do with the fees, but it is because some of them are nothing but mutual funds, and you don't have to charge 2 and 20 to get the market exposure, and you will be sold at 1.25 or so. >> you think that hedge funds are too big in itself? >> well, is it is $3 trillion
compared to the global industry, and people tend to focus on the equity hedge funds which are only a subset of it, and as indicated the market will ultimately winnow this out. the half life potential is short, and not many around 30 years, and so typically they only last a handful of years which ultimately tells you something about the history, and in the problem of the low return environment and when you are charging 2/20 on the nominal rate of return the investor will get 4 of 5. >> well sh, we are seeing wheree manager is making more money than the investors just from the 2%. >> yes. >> and one fund came to us by $2 billion and they have averaged less than 2% in the last three years but they are getting 2/20 and figure it out. who is putting the money to these people, too. >> and it is that, while the market was going up, everybody could justify sub par
performance, but the market is going up 15%, and the hedge funds are going up 10, and it is okay, because they are a diversifier and the problem is when the market goes down and they lose 100% of the market down or more then you have a real problem. that is what people are concerned about. >> take a quick break, and josh is going to stick with us, and of course, jim chanos is here for the hour, and now, on the halftime report, we heard about valeant. what does jim chanos think about that? because he is the defender of it. >> and now, known for health care, we know that tech sector is a loser lately, and find out what he is focused on lately, and find out from ira sohn just ahead. we are working on the prototype to match customers to gear. watson, let's give it a try.
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man 1: when did this happen? man 2: over the last six months. man 1: how did we miss it? man 2: we caught it, just not in time. man 1: who? how? man 2: not sure, probably off-shore, foreign, pros. man 1: what did they get? man 2: what didn't they get. man 1: i need to call mike... man 2: don't use your phone. it's not just security, it's defense. bae systems. all right. welcome back, and we are live for a halftime report special event from the live sohn conference where cnbc is the exclusive broadcast partner. you will only see it here. and kate kelly is here roaming around the great hall looking for great stories today. kate, what's the things that you are looking out for today? >> hey, scott.
interesting morning so far, and we had half h a dozen presenters at the next wave presentations which is the beginning half of the ira sohn conference and it is a couple of interesting ideas to move the market. and performance polymers is up 8%, and bobbing around in the eleva elevated area, and the idea being that it is a specialty pharmaceutical company and dramatically undervalued and david rozzen, the former s.a.c. tra trader, and rubric capital, you will be talking to him, and also a short on the gogo, the wi-fi provider on airplanes has been the ub jekt of criticism lately, and genevieve carr cited a number of reasons they were low on the stock, because of the poor customer service at the airports, and arrogance, so they are just facing too much competition. so interesting comments there. and we have heard about oil, and
from a person who has been on your show before said it is a great buyer for the variety of reasons, and believes it is past the low. and now, scott, getting to names, he is acknowledging what a rough ride for hedge funds, and when you think that the fundamentals of the stock is good, but the price is bad, you have to hang in. >> yeah. kate, thank you so much, and kate is going to be here throughout the day, and giving you all of the breaking news, and speaking of the health care, and larry robbins, jim chanos has been negative on the health care stock valeant and paying off because the stock is down 74% when he first went public the short position in 2014, and are you still negative valeant? >> well, we are still short, because, it is interesting that people are trying to bottom fishb in this name anying that the stock is cheap. but we think it is anything but cheap. everybody is using metrics that
are just as bad as valeant's accounting itself and excluding all of the bad stuff. we like to look at the cash flows of the company, and if you are looking at the cash flows, latest 10k which they finally filed and the operating cash flow was $2.2 billion last year, and it was $200 in cap x, and so the free cash flow was $200 billion, and if you add the interest back to that of $1.5 billion you have free cash flow before the interest which is much better metric than anybody has made up pro forma e bita. and as we spoke before the break, they don't make their
drugs, but buy them. the most a drug can have is a 0 20-year patent, and if we look at the fact that they have bought $40 billion worth of companies, and we use a 20-year life on those purchased companies -- >> generous. >> that is $2 billion a year to set aside to rolling off drugs. you take that number out of the $3.5 billion and interest of 1.5 and 2 billion the amortize, there is knotting for the shareholderers and it is not trading 3 times the earning as your guest said monday. >> and let me ask you this, because some have criticized bill ackman, and he has acknowledged that he should have sold the stock when it was above $200, but the stock as you have been short publicly is down something like 75%. can you stay short too long or stay long too long? >> yes, of course. the difference being that he has taken on a lot of debt, and the company has take n on a lot of
debt even though we were short the stock. so i would keep pointing out that the total enterprise value of the company is still $50 billion and so you are is to believe for the stock to be worth mid-30s that all of the businesses that pierson bought are worth 50% more than he paid for them. if they are only worth what he paid for them, the stock is worth zero. >> jim, can you think of any companies that have gotten into this position with over $30 billion in debt and less than half of it at one point in equity? how many come back are the that, and probably not many. >> not many. there have been a few, but not many, and the problem again here is that the business model. the whole idea was to the buy things, and then hike the prices dramatically, and to matter what he said or they said, we u saw it turned out not to be true. the payors have woken up, and that is the thing, and the pbm and that is a separate story one day, but valeant was genius at gaming the system.
but that game is over. and so the ability to hike the prices on drugs for toe fungus to $800 from $85 is over. that compound is over. and people are looking in the rear-view mirror not understanding that this is financial engineering and not pharmaceutical development. >> and are you suggesting that some have said that, and the extreme bear case here was that the value was another enron, and you have experience in exposing, and one of the things that made you famous, and are you sumging that valeant is going to way of enron and you look at it, and is say that the stock is not cheap? >> i have not said that, scott, but what i have said is that even their earnings and the pro forma way they are presenting it are way, way misleading. and that is by not putting the
amortization in, and the pro forma and the absurd $10 to $12 to have everybody focus on it is silly. >> and what about the argument of somebody of his caliber would not have come in as ceo if it were totally unsalvageable. >> they need $60 million to walk through the door and take a tough project. >> so you don't look bad because you came in so late? >> well, you have been to do what you -- well, i have been in plenty of situations where well meaning guys have come in and couldn't do it. >> and to the upside of $400 million? >> well, if it works, but i would trade the $500 million, and still, you know, given the par parngo's results, it would be able to sell off some noncore a asset, and if joe papa is the guy who can get this business
not only from the credibility standpoint and from the actual business standpoint of performing again, and shis th e there -- is there a chance that the business is going to be right. and a lot of people are operating on the stockton basis of perception that bausch&lomb is of the perfect business and i heard it again monday and if you look at the back of 10k and they discuss it a product revenue line and with the exception of pharma, including over the counter, and device, and so on, it is most of bausch & lomb's business was down in 15 versus 14. >> and they would say that a lot of it had to do with the fx and if you adjust for the fx many of the businesses were plflat or
growing? >> but not much. and fx, we are going down a rabbit hole that we don't have time for, and the point being that even bausch&lomb benefited from the price index, because they have pharmaceutical built into it, and people were throwing around $10 or $20 billion, but it is probably not worth 8 or 9. >> we will come back to talk to jim chanos and talk energy and get his thoughts from chaneer to chevron. and we will look at his winners, because he has generated a lot of alpha. and stay tuned to cnbc owl day, because we will have more from the sohn conference, and also larry robin, and jeff gunlach and others.
owen! hey kevin. hey, fancy seeing you here. uh, i live right over there actually. you've been to my place. no, i wasn't...oh look, you dropped something. it's your resume with a 20 dollar bill taped to it. that's weird. you want to work for ge too. hahaha, what? well we're always looking for developers who are up for big world changing challenges like making planes, trains and hospitals run better. why don't you check your new watch and tell me what time i should be there. oh, i don't hire people. i'm a developer. i'm gonna need monday off. again, not my call.
2012, petro bras and bali up, and seagate, and extraordinary losses, and sothebys is down 31% since you presented nit 2014, and why do you come here? >> well, number one, i have been coming here since the inception, and so i got involved with ira sohn from the very first conference 16 or 17 years ago. i think it is an amazing charity, and any time that you can raise money, and in a good vol up tear way for this, this mission, you have to do it. so i have been a part of and honored to be a part of it since the inception, and openfully continue to be a part of it. >> and you are the cleanup h hitter as they speak, and you are the last but not least presenter. >> last but not least. >> and no, everybody sticks around for the last one and they don't do it by accident. >> well, small crowd. >> i love it, because it is a drama on the room and it dims to the podium, and we will see what
you have to deliver later on and you won't tell us ahead of time obviously, so we will see, but i want to talk about another pick. we have mentioned the energy plays earlier, and some of them play into the things that we have talked about, but you been bearish on the lng and chaneer. >> yes. >> and does it put you at odds with carl icahn, and what is your take on the chineer? h >> well, the bull case miscategorizes the bear case. the bulls believe that contracts are no good, but we agree with bears that it is money good. and so when he -- >> that is a real thing. >> yes, the problem is that you are simply overpaying for it with no chance at all for crossover runs, and with that, cheniere's cost estimates are too low in the forecast, and having said all that, you are paying a ridiculous price for
2020 or 2021 cash flows relative to almost any other type of energy infrafrauk chstructure p you can buy today. so people are paying up for a wealth income stream which we believe is overstated due to cost estimates and not the reven revenues, but the maintenance cap x on $30 billion of iron and steel in the swamp as we say, is 200 million in the year and that is a 150-year life, and that is a little bit too lo low. and so, if you are putting in more reasonables assumptions, yu can get to the point where you are paying 2x to 3x to 4x what you can buy other energy-type companies today in the marketplace for. so you are paying the retail when everybody else is paying wholesale. >> that is the bear case. and they have seats on the board, and is it possible that you can both be right depending
upon the time horizon, because he would make the argument if he were sitting here, look, if the oil prices go up, which they think they will will eventually whether it is 2019 or 2020 that is going to help the business and you could be right near term -- >> this is nothing to do with the oil, but the liquefication. >> and well, the price of oil affects the price of liquid gas? >> well, no, we are in a glut, and it is going to be worse because of the lng plants built around the world, and this is the case, that it a glut to continue for ample years and no glut over the pricing, and the fallout is diminimus, and you can buy lng expose sure or chevron or royal dutch at prices that are much, much cheaper than cheniere and that is what is so interesting, because people are playing up for pure play, and really in excessive amounts. in addition to the plants with the exception of one have not been built yet so you are at are
risk for cost overruns for the next five years if they are built out, and we will see. >> and that may or may not manifest itself. >> right. >> and you have obviously done well in the stock, because it has come down, and making a long term bet, i guess, and maybe you are as well. s sueky is out, and carl icahn is responsible for him leaving the company, and does that change your thesis, sad to see him go, or happy to see him going? >> i have no opinion of him staying or going. >> the leadership did not factor in long or short? >> well, maybe a more wild card in the market, and the market sort of appreciated that, but at the end of the day, this is going to be a bet on how profitable can the plant operate and at what capital cost, and any way you pencil it out, it is going to be expensive bet. and out to 2020, the cash does not come in for any meaningful
way in fife years. >> if you want to get exposure into the world of lng, rex tiller has been talking about it at exxon for a period of time that you could get the exposure, but not a direct exposure, and would that be a name that you would prefer to be in? >> well, other names that we are not positive on, but shell and chevron and others in aus trail that are reasonably large lng plays, but the problem is that everybody is built to capacity, and building xcapacity on the demand that is basically flat. so we have a real glut situation occurring in the commodity, and one of the few commodities in the energy space that has not rallied. i think that it is at the end of the day is the other inherent problem here, and the cost estimates at the end of the day are way too low and too sanguine of how you will operate these plants, but again, we won't know until 2020. >> and now,b we have breaking
news here at sohn with kate. what are you seeing? >> coming are from the auditorium where muddy waters announced a big short of bank of the ozarks which is a bank holding in little rock, arkansas, and he says that the earnings are unsustainable at best, and the balance sheet is under a lot of pressure, and among other things he is concerned about a unfunded loans and the real estate port fofoli and the stock was down 14% in the first minute of the presentation which started a few minutes ago and now down 8% or 9% and people are reacting quickly to the names today, scott. >> yeah. interesting. and he is going to be with us in a little bit, too. thank you, kate. and also coming up s.e.c. alum, and one of the few investors picked to present at sohn and his name is david rosen from rubric, and he is going to be joining us next. and are also, betting against
elon musk. and we hear that some of the stocks are silly. we will get so much more from jim chanos here at the sohn conference. what are you doing right now? making a cake! ayla reminds me of like a master chef and emiana reminds me of like a monster chef. uh oh. i don't see cake, i just see mess. it's like awful. it feels like i am not actually cleaning it up what's that make mommy do? (doorbell) what's that? swiffer wetjet. so much stuff coming up. this is amazing woah. wow. now i feel more like making a mess is part of growing up. stop cleaning. start swiffering.
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hi, welcome back to "halftime report" live from the 21st an yum sohn conference and we go to sharon epperson with the headlines. >> and this is what is happening this hour. nbc news report ing thing that governor john kasich is going to suspend the presidential campaign clearing the way for donald trump to snare the nomination. and he was sto cal pain in virginia, but inste, he is making a statement in columbus at 5:00 p.m. today. officials say a gunman opened up fire in katy, texas, killing one employee and injuring another before fatally killing himself. they say that the alleged shooter had been fired from the company today. and homeland security is announcing steps that it plans to reduce wait times at america's busiest airports and they will increase the number of security officers and work to increase the number of eligible trav
travelers in the prescreening program, and later today, grammy award winning artist are will debut her album at starbucks, and coreen bailey rae will debut this a month before the official release. back to you. and carl icahn was listen org watching the conversation and he called me in the break, and he says, hello, and he respects you, but he disagree with you, and he is saying ta you ob fus skating the risk/reward and no risk in the story if you like the contracts and say what you want about the cost overruns like you did, there is no risk in the story in his mind if you like the contracts they have. >> well, there is, to say that there is no risk at all is a little bit, i think that even carl would say that is not a statement that i think that any one would want to make.
i think that i was clear in saying that we agree, the contracts are fine. we are fully in agreement with the bulls on that, but it is a matter of costs which are an estimate. we think that the company that we have analyzed the costs of oher lng plants up and operating, and we believe that cheniere's numbers in the forecast are too low and again, it is a forecast. we know that their maintenance cap x of 200 million a year on $30 million of lng plant and equipment in texas and louisiana is too low. and so if you start to deducting these things from the forecast of the 2020 number, the stock is exceedingly expensive relative to other energy cash flows ta you can buy to today. so i don't know where we are in disagreement. >> i think that he was disagr disagreeing because he was disagreeing with the metrics that you have come up, but that is what makes the market. two sides on this one, and i'm
not carl icahn and he is not sitting here, so i can't come back at you any further, but i wanted to let you know in fact what he said, and he did und underscore hello and he does respect you. >> hello, carl. we are of due for a drink. >> maybe i will arrange that and be in the middle of that, and them the next guest is one of the select managers who wants to present the next event at the sohn conference, david rosen is the performance manager who specializes in deep investing, and thank you for spending time with us here today at sohn. what are you pitching to tai? >> a company called polymers which is a company that is trading as if it is a commodity company, and it is our view that stock is undervalue and looking at it relative to the six years and relative to the market, and relative to our view in terms of
intrinsic value. >> it is a smaller cap name for those who don't know or frankly have not heard of it before and i hadn't before you pitched it. kra, and so you can follow it is the ticker, and the market cap on this is fairly small. 700 million. >> approximately. >> and maybe larger after you pitched it. >> so our view is that the stock that i mentioned before, kraton is a case where the marginal growth is worth $65 a share, and if we can get a little bit more optimistic we can assume a multiple more comparable where we believe it is 300% pure closer to the $90, and predicated on three main things. the first is the material cost cutting that the company is undergoing today to add roughly $50 million to the earnings over the next couple off years. number two, they have a j.v. they have been spending aggressively on, and that is
going on in the back half at roughly another $125 million and another thing is the transiti transitional acquisition of arizona chemicals and the company guided to 1.40 of the appreciation, and if you are embedding all $65 million of the expected, it is more than double that. so it is our view that a company with $7 of prospective free cash trading at $25 is compelling. >> a lot of people have not heard of the name, and we will follow it throughout. david rosen, thank you so much. david rosen with rubric capital. and now coming up, chanos versus musk. we have the eye on two entrepreneur company, and that is true. the details are ad h, and stay tuned for the founder of muddy wa sds the carson block who is wrapping up his presentation as we speak. the halftime report with scott wapner is the place for market-moving interviews. >> you don't call a company a sewer because they made a
mistake. >> don't be surprised to have a 5% or 10% move the other way. >> real debates. >> we ended the year modestly higher than it began. >> and the most profitable hour of the trading day. >> i get a tweet about the show, and i'm on the show. this is the greatest moment of my life. >> the halftime report at noon eastern. olay luminous
melissa lee and david faber at the sohn conference with big int interviews. and america's pension crisis, a major decision coming down that could have big ramifications for your retirement. now, over to phil lebeau with the breaking news. phil? >> michelle, take look at the shares of tesla under pressure after the announce ment of two key executives in the manufacturing of the model x, the new suv that has had a number of problems, two of the executives are leaving tesla, and one of them greg reichow and stepping down from v.p. of production and john ensign to depart as vp of manufacturing.
scott, the bottom line is this, you have have two key executives in the manufacturing of the vehicles leaving tesla, and that one reason why the shares are under pressure today, and speaks to the question of whether or not they are going to be having more problems to inkrecrease th production and not with just the model x, but the model s and then the model 3. >> well, phil, you have a knack for a segue, my man. phil lebeau live in chicago for us, and we have jim chanos, and we were going to talk about tesla as we speak and do you want to react to this news, and by the way, i have heard you make negative comments on tesla before, but you have never come out to say you are short the stock? >> we are short tesla and solar city. make it clear. and so one of the tip-offs in valeant going back a couple of years was the exodus of the executive suite of senior vps and above and a ton of them left. every few months another guy would leave, and one of the
historical sign posts of a company in trouble is when numbers of senior people leave over a short period of time. tesla fits that bill. we have a chart that we have an flood of people leaving in the past few years. and that is not a good sign. and this is not just a model x. these production people are going to be needed for the model 3 which is the real story. >> this is not the sort of exodus of talent as you say, it's not the core to your thesis. you have questioned -- force. >> we have questions on the profitability of the business. if you're losing money, $120,000 car, you're not going to be telling a $35,000 car. the problem with the tesla story is that it's based on the 2020 to 2025, you know, projections on selling half a million cars. there is a company that cannot forecast the delivery one quarter out. yet, everybody is confident about what they're going to make in 2020 or 2025.
i want to see them make the model 3 and sell it profitbly. >> solar city that, is incredibly interesting. you think about 2015, the installation up 70%. the cash flow, i think it was 700 million out the door. now they have -- >> $625. >> right. they announce a deal with john hancock, $225 million, does that solve the problem? >> to sell assets and they're doing at a discount rate above the return on the leases. so that actually destroys value. and that's the problem. in the last quarter, solar city had lease revenues of $75 million. if we assume no expenses, one person at headquarters to basically take the lease payments to the bank, no depreciation, no interest, whatever, they have $6 billion in the business. $300 million divided by $6 billion is a 5% return on the solar leases. we think that john hancock is
using an 8% discount rate. so the problem with solar city is they're losing business -- they're losing money on every installation and making it up on volume. and that's a problem when you have a levered balance sheet. >> have you been short sun edis edison. >> we were short the complex. we covered way too soon last year. so it's one of our big mistakes. we were very, very, very negative on the whole idea of yield codes. we thought that was financial engineering and 2 plus 2 never equals 5. >> there are a lot of naysayers out there. people love to come dump on this stock and dump on the story. >> there are a lot of true believers, too. >> there. you don't put any credence in that? this is like a cult following that follows this company. people who are true believers in your words who think this company is going to be
everything that they want it to be and they're willing to pay up now for that kind of growth. >> they're willing to put a deposit down that is fully refundable, let's be clear. so you don't hear much about the power wall from a year ago. remember all the deposit that's came in for that? well, they quietly scrapped one of them. the other one is not economic. you don't hear much about the giga factor do you? that's because battery technology leap-frogged the type of batteries that will be made in the gigafactory. so they don't talk about that anymore. and that's at the end of the day. he's always moving your attention to something else that's out there and hoping you'll forget to look at what we talk about a year ago. the giga factor is $5 billion. noes where near where it should be in construction. >> you think they have to raise capital? >> i think they're going to definitely have to raise capital. i think that deposit story helps them do. that. >> our next guest made a name for himself as a short seller trying to sniff out fraud using research. he is best known for his
takedown of the chinese company cinaflorist. carson block is the founder of muddy waters. he just wrapped up his presentation and joins us. between mr. chenos and mr. block, we have two of the most notable short sellers around. it's good to have you here. >> thanks. obviously, we're not the center of popularity of the universe with this concentration here. but it's nice to see you. our hue you are short on ozark, why? >> the thesis is the bank is not going to be able to sustain earnings growth and very much priced as a growth stock. and at worse, we can see real funding pressures and, you know, pressure on the balance sheet as well. when real estate markets, when they come off this frothy
period. >> joe? >> bank of ozarks itself, the specialty, is there energy exposure? is that part of the equation or is this more about the orientation that they have in terms of their loans, commercial, residential? what are the specifics with the loans? >> 90% of the loan book is real estate. most of that is commercial. and 35% of the loan book is actually construction loans to real estate developors. and so about two years ago they had no exposure in new york city and now that new york represents about 20% of the loan book, a lot of it is construction loans. they're putting pedal to the metal in southern florida, in california, markets far afield for bank-based in little rock, arkansas. so just think they're taking on a lot of risk in the name of growing quickly and they don't have the funding to make these loans so at the same time they have to go out and acquire other banks, sell the assets and use those departmeosits to fund the
loans. >> so about aed 4dz billi a $4 cap? >> yes. >> you mentioned something saying we're not very popular. people wouldn't have known about some of the issues at valeant without andrew left and citron. people swroent known about issues at enron without jim chenos. do you think the environment is getting better in your mind for what short sellers do for a living because of the kind of stories that you all have uncovered? >> short selling is a initial. i'm a niche of a niche. and i think that in the u.s. it is more tolerant. you know, globally, we have been active in europe recently. there's a lot of resistance to the idea of criticizing a public company. and, you know, my come back to
that is, look, capital markets are really as important as political issues. i mean they affect almost everybody on the facest earth. if we can't criticize certain market participants, that's akin to not being able to criticize political leaders. so there are parts of the world where that message hasn't gone through yet. >> you're never going to be the most popular guy at a wall street cocktail party. but that's okay. i think the short sellers play a very important role in uncovering market malfeasance and that shouldn't be discouraged. >> thank you for spending the hour with us. don't leave me hanging. carson, thank you so much. that is it for us here. "power lunch" begins now.
we have a huge lineup of heavy hitters coming your way over the next two hours. larry robins, phil gross, joe lieberman, howard marks, all of them on tap. welcome to "power lunch." i'm along with tyler mathisen. let's get right to it. we'll kick things off with melissa lee live at the conference in new york. >> hi there. hi, tyler. of course this conference's annual event is about