The Bloomberg Oddlots podcast by Tracy Alloway and Joe Weisenthal is a series I enjoy, and each episode they dive into the interesting areas of finance and economics.
On the 19th April episode, they invited John Hempton , co-founder and CIO of Bronte Capital. John Hempton runs a long/short fund but for good reason, he is much better known for his shorts. He has a reputation for spotting "sloppy behaviour", in addition to his famous tangles with Bill Ackman/Valeant and being early on a number of frauds such as Wirecard.
The podcast can be found here
In this episode, he gives a breakdown of what happened in the recent few months with the Reddit frenzy, to the Archegos implosion and on to Credit Suisse and Greensill.
Here is my selection of the highlights.
02.20 - intro to John Hempton and he launches into his explanation of what happened recently with Archegos and stock market frenzy
05:25 - Greensill and Trade Finance. He gives a brief history of trade finance and the Greensill problem. He also made the link between Greensill's lending and Softbank.
20:00 - Joe asks John how he spotted the warning signs with Greensill. The idea that a company specialising in trade finance can be a growth company flies in the face of what he knows. Trade finance is a shrinking business because over the decades or centuries, better technology has reduced the lag time between a producer selling something and receiving payment for it, which is the reason for trade finance's existence. Hence in the face of this, Greensill can only grow by taking on more risk. He also credited a few journalists at the Financial Times with good investigative work.
23:15 - He makes the link between the Greensill issues and Credit Suisse.
25:40 - he mentions Archegos and why they imploded.
30:00 - he mentions how fund managers can buy up illiquid stocks, pushing up prices, leading to good performance, attracting more investors and buying more illiquid stocks, continuing the cycle. The problem is that they may end up holding the bag of illiquid stocks and taking the losses.
37:50 - He talks about the growth of Ark funds and their use of illiquid stocks
41:00 - Joe asks for his opinion on electric vehicles, battery charging and fuel cell companies.
44:10 - Tracy asks about the general environment for short selling
Summary
I find his way of speaking quite engaging and he can weave the disparate parts into an interesting narrative. Joe and Tracy probably felt the same way because they basically allowed him to go on and on, only jumping in with a few questions.
He makes the important point that in finance, it is hard to grow without taking on more risk. Using the example of Greensill, as trade finance is a declining business, they grew by lending to less credit worthy counterparties. When they suffered losses, they had to grow even faster, which they can only do by taking on more risk.
With Credit Suisse, when they lost the advantage of favourable banking secrecy laws, they turned to taking on riskier trades (Archegos and Greensill).
Another key takeaway is that where there is one cockroach, there are often others to be found. My interpretation is that where the structure (business area, companies etc) is problematic, and if a problem surfaces, there may be more problems that are not obvious.
Overall, a very good listen for stock investors.
None of the above should be construed as investment advice. Do your own due diligence as I will not be responsible for any loss/risk.
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