00:00Dan, I'd be remiss in not pointing out, when we talk about a lot of these big tech names,
00:04a lot of them are way far away from record highs. Apple hasn't hit a record high since early
00:08December, I believe, Microsoft since October. And I think you have to go all the way back
00:13to August of last year, the last time Meta was at a record high. Yet heading into this
00:17earnings season, expectations still seem high for what they're going to post in terms of
00:21earnings, growth and revenue. Yeah, I mean, I think it's going to be interesting to see
00:26how the market investors react to it, because there's pluses and minuses for all the names
00:32that are reporting this week. And it's one of the most difficult earnings seasons in my mind
00:38that we've seen over the last few years, because there's no clear direction in my mind of how
00:44the stocks are going to respond. So let's take them one at a time. If you look at Tesla, you can
00:50say, well, we all know the numbers have got to come down because the EV tax credits expired at
00:55the end of September in the US. But you know that Elon Musk is going to talk about robo taxis and
01:02autonomous robots and energy storage and full self-driving. I picked up my new Tesla this Sunday.
01:08You know, I love it. But the numbers are too high. So what does the market focus on, especially at
01:14these valuation levels? And, you know, Microsoft, similar situation where, you know, the numbers are
01:19going to be good because OpenAI is growing so fast. But you know, the losses associated with OpenAI are
01:25also going to go up a lot. Yeah. And with Meta, similar situation, numbers are going to be
01:30fantastic. Yeah. But the CapEx numbers, you with Meta Compute announced earlier this year,
01:36you know, are going to go up a lot. We've seen Oracle stock get destroyed and be down 45% from
01:41its highs based on that. Well, let me stop you there on Meta, too, because I mean, that's probably
01:46really emblematic. I mean, we saw this the last earnings three months ago when they reported,
01:51again, blockbuster numbers on the revenue side, even to a certain extent on profitability. We saw
01:56the shares plunge more than 10% because everyone was so hyper-focused on those costs. And I'm
02:01wondering if that is the real story over these next couple of weeks when these companies report.
02:06It doesn't matter what the growth rate is of everything else. People are going to be more
02:10focused on the growth rate of those costs. Exactly. And also, how do you monetize that? Because
02:16if you look at names like a Google or an Amazon or Microsoft, you go, they already have big cloud
02:22businesses and that they can sell that capacity to other customers. Meta doesn't have that. They're
02:28going to have to build that. And then they're going to have to go, you know, up against those guys who
02:33already have big established businesses. And then you throw Oracle in on top of that. So you look at
02:40Meta and you go, well, it's really they're in a tough spot because of it. But how much of that's
02:44discounted in the stock? And you know, the numbers are going to be really good or you think
02:50I think the numbers are going to be really good based on the strength of the ad market and how
02:54well they're doing in that. And so it'll be, well, is this like the day Oracle reported when the stock
03:01was up a lot? Or is this like the next three months when the stock gets almost cut in half?
03:06And I'd rather stay away and just see where the dust settles. As the saying goes, the market has to
03:12keep pitching, but you don't have to swing. Well, Dan, outside of just Meta, when you think
03:17about all of this CapEx that's planned, I want to talk about how it's being funded, because you are
03:22seeing a lot of these hyperscalers really tap the bond market and issue debt in order to fund
03:27some of these ambitions. That was a big story this time three months ago, pretty much. How are you
03:32thinking about that dynamic as we await some of these key numbers? Well, I mean, I wrote about it this
03:38weekend, but I've got short positions and a basket of names associated with private credit, because I
03:45think what we saw at Tricolor and First Brands and the defaults there and the pressures that caused,
03:51I don't think we're done yet. And I think you're going to see somebody before the end of the year
03:55have a big problem with one of these data center deals, because for right now, all of these names are
04:01getting funding. I think by the time we get to the end of the year, you're going to find out that some
04:06of these names are not going to get the funding, because not everybody that's associated with AI is
04:12going to win. You started to see that change at the end of October, obviously, with kind of the Google
04:18ecosystem of companies up about 20% since then, whereas the open AI ecosystem of companies such as
04:24Oracle or SoftBank, Nvidia, etc., they're down about 20% since the end of October. So that's why I worry that as we
04:33get towards the end of this year and we figure out, well, these guys are winning in enterprise and
04:37those guys are not, and the same thing in consumer, I think you're going to see a continued shakeout in
04:44the AI trade. And that's why we have a basket on that. And also Japan as well, where we've got some
04:50shorts around that, because we've seen what can happen when the bond market goes into conniptions
04:57and, you know, up 41 basis points in two days with Japanese bond yields on the 40 year, that
05:04certainly qualifies. And, you know, it's something you need to think about and to snap elections on,
05:09I think, February 8th. Right. No, absolutely. We certainly saw the ripple effects coming from
05:13Japan for our bond market last week. But I want to go back to that that basket that you have when it
05:19comes to public and private credit names and the short that you have on. It's interesting that you're,
05:23you know, focusing on the credit names there, the credit providers, rather than the tech names
05:28themselves when it comes to those short positions. Talk us through the logic there.
05:33Well, I mean, I think the thing is that the credit side of it is more likely to see pressure in my
05:41mind where you've seen, for example, look at NVIDIA. It's trading at 25 times earnings and the S&P is
05:50trading at 22 times. Yet you're looking at the companies, if you believe the estimates, revenues
05:55are going to be up 57 percent. So it is really been arguably beaten down in the sense that the
06:03revenues earnings forecasts have gone up, but the stock hasn't done much in, you know, since late
06:10October. And so I think you're seeing in some ways more of that discounted in those names where
06:18the credit related ones, I think you could see a lot more damage being done. And so some of it's,
06:24we've got some longs in AI equities. We've got some shorts in AI equities, but the credits,
06:30the credit shorts and the Japan related shorts are what we're trying to use to hedge the portfolio.
06:36And quite honestly, we're just trying to take down risk into these earnings, because as I said earlier,
06:41you can make a case for them being up big on the other side of earnings or down big on the other
06:45side of earnings. And I'd rather see where the dust shakes out. And normally I have much stronger,
06:50you know, views on how these things are going to trade. But, you know, we saw with Oracle,
06:55if it was all about the numbers, the stock wouldn't have been cut in half since, almost cut in half
06:59since September. Highs.
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