In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss Where Are All The Bankruptcies? Here’s an excerpt from the episode:
Tobias: Yeah, that’s a good idea. Well, I was going to say I saw Chanos– Chanos said that the market had never bottomed this high before. Are there any companies that will go bankrupt this year? [crosstalk]
Jake: Permanent new high plateau. No bankruptcy.
Tobias: Bed Bath & Beyond
Bill: Yeah, they are– I don’t know who they are.
Jake: How do you have record debt and then– ripping corporate debt, let’s say, and increasing interest rates, and not somehow get closer to the edge of more bankruptcies?
Bill: Yeah, [crosstalk] should be some.
Jake: I would say, capitalism is not working if bankruptcies are too low.
Tobias: Yeah, Bed Bath & Beyond looks like it’s in a little bit of trouble.
Jake: Probably ripping on [laughs] some bankruptcy.
Tobias: It’s down today. Well, I think it did. I think it did have a big rally. It’s up January. Remember when Hertz got its cue and hit the big rally? What’s the thesis on that stuff?
Jake: I have no idea. I’m not that smart.
Bill: Yeah. I don’t know either. It’s not a game I’m trying to play.
Tobias: That everybody has been scared of. Yeah, frontrunning that stuff. Did you guys take a look at the Hindenburg piece on Adani?
Tobias: It’s too long. I couldn’t look at it either.
Jake: [laughs] Yeah.
Tobias: It’s hard to know. I don’t know. I saw their response.
Jake: Claiming fraud, that’s usually what Hindenburg is doing, right?
Tobias: They say that there’s some hidden accounts and there’s some trading between the hidden accounts and some other stuff like that. I don’t know. I just thought it was very long and I saw the Adani response have a little bit of like an attack on India. Attack on Adani is an attack on India. I don’t know. Do you need to do that? If you’re confident, you just buy back stock.
Jake: Yeah. Doth protest too much.
Tobias: Yeah, a little bit. What about Beyond, Carvana? I don’t know enough about how close they are.
Bill: Yeah, I don’t know either. There are smart people that think they’re going bankrupt. I have no idea.
Tobias: Carvana is funny because I think it’s– [crosstalk]
Jake: What do you do with that information?
Tobias: It’s quite an interesting business.
Jake: You’re going to short it to zero?
Tobias: That’s an awful lot. Yeah.
Tobias: It’s had a big rally. It’s had a big rally over the last–
Tobias: It’s crazy, the rally that we’ve seen. Hats off to Cathie Wood. She’s had a blockbuster January. I think she’s up nearly 30% for January.
Jake: Is that right? Wow.
Tobias: Carvana is up 113% year to date.
Bill: There you go.
Jake: And it’s only January 31st. [laughs] What’s the IRR on that?
Tobias: It’s up to almost 10 bucks. It’s crazy. It’s up 50% over the last four days.
Jake: Ooh. So, you’re going to short that to zero?
Tobias: Not me.
Jake: This is a difficult game.
Tobias: Yeah, it is. Yeah. “Hindenburg were right on Nikola. Likely right on Adani.” I don’t know, but–
Jake: These all seem like eight-foot bars to me. Not one-foot bars.
Tobias: Yeah, they are hard, aren’t they? Yeah. The richest man in the world is the LVMH, as they call him Emily in Paris. I’m sorry I know so much about this show.
Tobias: JVMH. It’s getting sad– [laughs]
Jake: Yeah. [laughs]
Tobias: As you can imagine, we’re watching that for my benefit.
Jake: Yeah, I’m sure.
Bill: Beyond’s financials do not look inspiring.
Jake: Which one?
Tobias: Which one? Beyond’s? Yeah.
Bill: Beyond. Even if you don’t account for the inventory growth, this is not a company that generates much free cash flow at all.
Jake: You need to think beyond the financials, Bill.
Bill: I guess.
Tobias: “Uber still doesn’t make money.” Yeah.
Jake: Just got to get scale.
Tobias: [laughs] Yeah. I think Uber is one of those things that should be a good business, but it’s still not. You can’t take a swing at it yet.
Jake: Well, I don’t know. Is there pricing power? I’m not sure. How do you get pricing–? Well, I guess if you have two competitors, Lyft and Uber, with some implicit- [crosstalk]
Tobias: How often do you use Lyft?
Jake: I own a vehicle. So, I don’t use either one of them all that often. [laughs] But when I’m traveling, I tend to Uber.
Tobias: Yeah, I try to use both to keep them honest, but there are just not as many cars using Lyft in the areas that I use. So, it’s hard to find a Lyft at that time.
Bill: The cost structure in these businesses is nuts. I don’t know why SG&A just doesn’t go down. There’s like no leverage.
Jake: Yeah. We’d never get any learning curve efficiencies on this, despite your own growth.
Bill: Yeah. And R&D in a lot of these things just seems like a hamster wheel that just continues to spin and get bigger and bigger.
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