‘Big Short’ Investor Calls it Quits & Cannabis Products Up in Smoke?

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0:32Good morning, Brew Daily Show. I'm Toby Howell. And I'm Ann Berry. Today, why is Michael Burry of Big Short fame shutting down his fund? And Pepsi going naked on its snacks. It's Friday, November 14th. Let's ride.

0:50Good morning and happy Friday. I have a wheelie specific story to start this morning show. A 19-year-old college kid named Oscar DeLatte just set the world record for the longest wheelie in human history. Now, Anne, a rite of passage for every kid is trying to rip that front tire up and pop a wheelie, if only for a few seconds. But Oscar did it for six and a half hours, traveling 93 miles in the process. He went 752 unbroken laps around an indoor track before finally collapsing and saying he was sore in one very specific area. When Wall Street Journal columnist Jason Gay tracked him down to ask why, he said, because it's fun.

1:30And of course, that's why he did it. Wheelies are fun. I was literally going to ask what we thought the chafing situation was. I'm glad you led with that, Toby. And also, let's just talk about how much of a record this is. It beat the last record by a whopping 43 miles. People are taking this really seriously. It was a very serious thing he said towards the end. Jason Gay asked him, like, were you daydreaming or were you thinking about something else? He's like, no, because I realized that it was getting intense, like the record was coming up. And so he was locked in and focused. He could have watched both The Godfather 1 and The Godfather 2 back-to-back in that time.

2:04Instead, he rode around a track for 752 miles. Time well spent, if you ask. Yeah, I must have gone wheelies high, just like runners high. Well, look, now a word from our presenting sponsor, U.S. Bank. With holiday shopping season just around the corner, folks are doing everything they can to stay on budget, including paying later when it makes sense. Introducing the U.S. Bank Split World MasterCard, a new type of card that lets you pay later on every purchase. With the Split Card, all purchases are automatically divided into three payments and placed into a payment plan to be paid back over three months.

2:35As if you're looking for additional flexibility, any purchase over$100 can be extended to six or 12 months with equal monthly payments for a low monthly fee. Whether you're gifting a loved one some concert tickets or are buying yourself a new sofa, you can pay later on every purchase with the U.S. Bank Split Card. Learn more at usbank.com slash Split Card. That's usbank.com slash Split Card. Michael Burry made one big contrarian bet against the housing market in 2008 and was right. His latest contrarian bet, however, may have caused him to shutter his entire fund. Scion Capital, the$155 million investment fund Burry used to make his infamous short, is no more after Burry terminated its registration status with the SEC.

3:18For months, Burry has gone after all the mega spenders in the AI build-out game, including NVIDIA and Palantir, disclosing substantial short positions against both. And while he took to social media to clarify some narratives around his shorts, namely that they were only about a tenth of the size of the$920 million some outlets reported, the deregistration comes as his bets against AI have taken some paper losses. What does a dereg entail? Bernie might have shut things down completely and liquidated the fund. More likely, though, is he's trying to do away with public reporting because the quarterly 13F his fund has to file causes full-on media circuses with everyone pouring over his latest moves.

4:01Burry also posted to X on Wednesday saying, on to much better things November 25th, so it looks like he'll be back soon. Either way, Scion is no more, Anne, but worth exploring is why Burry is so bearish against the biggest AI names. What's he seeing that others maybe aren't? Yeah. So there's a couple of things that I found fascinating. And we talk about this a little bit in the Brew Market Show. First of all, can we talk about how iconic Michael Burry actually is? Okay. And this sounds ridiculous, but in the grand scheme of hedge fund world,$150 million-ish as a fund size is actually not that big, right?

4:34And yet everyone's looking to see what this one guy is doing. And he pulled a similar move, by the way, in 2008, when he predicted the housing crash and he just was dealing with investor pressure in all eyes and what he was doing. So a couple of things. When it comes to Palantir, you know, I talked about this a bit in the past. Palantir is just incredibly, you can call it expensive or just a high valuation stock. It's a complete outlier compared to a lot of the others out there. If you look at one particular metric that nerds like me like to look at, it's the price to earnings ratio. It's up there in the 230s.

5:06So lots of people, he's not alone in saying maybe it's getting a little nosebleedy up there. I do think too, his general thesis is that AI CapEx is insanely large and it's a recurring expense. It's not a one-off expense. Big tech is spending $400 billion this year on AI infrastructure. These GPUs cost tens of thousands of dollars, but unlike something like a railroad or even like a fiber optic buildout, these chips only last three to five years. They depreciate very quickly. And he says that some of these big names are playing a little fast and loose with their depreciation schedules, which are artificially inflating their earnings.

5:42So he has this general thesis right now that CapEx is going to be this large and recurring expense if one of the balls drop, if OpenAI can't follow through on one of its spending commitments, if Oracle can't build out the data centers for OpenAI, and these things are depreciating faster than maybe companies are saying, that's where it all feels like a little bit of a house of cards to him. Now, having said that, his bets against Palantir and his bets against Nvidia have taken on some water. And there's this saying that the market can stay irrational longer than you can stay solvent. So maybe that is part of the reason why he's kind of taking his chips out of the public eye and maybe going to like a family office model where he can manage that money without the prying eyes of the public.

6:24Yeah, totally. It's interesting, though. He's not the only voice that's made this argument that the chips don't last as long as perhaps some of these companies are assuming, again, with big implications for whether they're going to have to come out of pocket and pay some more down the line. And then just in general, short sellers are kind of taking their chips and going home. Hindenburg Research shut down earlier this year after, you know, running very large and controversial shorts against his, their most recent one was the Adani conglomerate, also famously shorted Nikola. That ended up being a good call.

6:56But right now the environment is just hostile to bears in general. Right now you have Tech optimism is still overwhelming. Retail sentiment just seems relentlessly bullish. And AI is probably the strongest macro narrative we've had in a decade. So it's not a fun time to be a bear right now, which is maybe why Michael Burry, one of the most famous bears of all time, is saying, I just don't need this public scrutiny anymore. Yeah. And actually, I think it was one hedge fund manager I saw summed it up in one pithy sentence. He said, I'm in the market because I had to be in the market. I hate that I'm in the market.

7:27Basically, there's just nowhere else he feels to go right now. Well, moving on, the deal to end the government shutdown yesterday has been drawing some attention, not only for what it funds, but what it quietly prohibits. Buried deep within the deal is a provision that will make many hemp-derived products illegal, closing a loophole of the 2018 farm bill that enabled the industry to thrive. Now, the$28 billion hemp industry is potentially under existential crisis. Essentially, the rule set a stricter limit on the amount of THC, which is the intoxicating chemical found in marijuana that a hemp product can contain.

8:02For the last seven years, each product containing 0.3 % of THC or less has been considered technically legal. Now, these products come in many forms, such as drinks, tinctures, vapes and edibles, all of which have exploded in sales and popularity in recent years. Industry advocates say these restrictions will hurt legitimate hemp growers who not only make THC-infused beverages and more, but also produce non-THC goods that primarily contain CBD, which is a non-psychoactive part of cannabis and is widely marketed as beneficial for health. But lawmakers believe that the loophole in the 2018 Farm Bill unleashed a wave of unregulated cannabis products that were sold online, across state lines, at gas stations and other places where marijuana is still actually outlawed.

8:46So Toby, the cannabis world has been flying high since 2018. But now it seems like the bill to reopen the government has actually been quite buzzkill. Yeah, this was such a little sneaky thing that went into this, you know, government opening a bill that a lot of people overlooked initially. But then hemp farmers were like, no, this completely undermines our entire business because that shift. I mean, it doesn't sound like much going from 0.3 % THC by weight to 0.4 milligrams per container is a big deal because anyone who has, you know, had a gummy or something like a single hemp gummy can be in, you know, the 2.5 to 10 milligram range.

9:22So 0.4 % is essentially nothing. And so it completely undermines that entire business model. And this is a pretty big market right here because Whitney Economics estimated that there are 300 ,000 jobs at risk. That's when you consider all the farmers, the extractors, the manufacturers, the logistics, the retail centers as well. So this is not a small industry by any means that was just totally wiped out by this one bill. Do we know how this snuck in? I would look to try and see how did this get in there. And I haven't been able to do it yet, at least not in time for our conversation. I want to go trace the trail.

9:54It looks like it actually is tied back to Mitch McConnell, actually, because he was a champion of this hemp bill back in 2018 because it was going to be an economic catalyst for Kentucky. But then after, you know, the market may have been flooded by some of these slightly unregulated, intoxifying hemp products, he went back and said, whoa, whoa, whoa, that's not our initial intent. This was to use legal hemp to make things like rope, not necessarily these products. So maybe this is as he's exiting the Senate was his last, you know, favor or something saying, hey, I want to reframe how that initial farm bill was interpreted.

10:29And maybe that's how it got into this larger bill as a whole. There is one group, though, that is doing a bit of a victory lap here, and that's the big alcohol groups, which have been lobbying for a ban. And, you know, saying basically that this has had a real impact on the consumption of alcohol, the fact that lots of entrepreneurs and startups have been able to go after THC as sort of an alternative to alcohol, but also to have THC in some beverages. So that is one group that's feeling actually quite pleased about this outcome. All right, let's head to our Stock of the Week, Dog of the Week, the segment where Ann and I pick one stock that is embracing its inner fall coziness and one stock that still thinks summer is the superior season.

11:07I won the pre-show game of Hopscotch, so I'm up first, and my Stock of the Week is Cisco. The stock, synonymous with the dot-com bubble, inched oh so close to reaching its dot-com peak again. The closing record to beat was$80 a share, and while Cisco gave it its best shot, gaining nearly 5 % on a red day overall for the market, it fell just short at$77.38 a share. As you might expect, it's a wave of AI-related demand that is powering it to similar heights. The company posted strong earnings yesterday, saying it booked$1.3 billion in AI-related revenue last quarter as demand for its all-in-one server racks starts to heat up.

11:46But Ann, there's a certain level of poetic symmetry here. Cisco rode the dot-com bubble to become the biggest company in the world at the time. How ironic would it be if it finally makes it back to the peak it once inhabited, only for its ascent to be powered by yet another potential bubble? Very Sisyphean to think about. Oh, Sisyphean. Good use of that sort of classical reference. By the way, isn't this the moment? Just speaking for me, this is where I start to have some sympathy for Michael Burry. The idea that we're now doing a victory lap because a company is hitting the high it reached 25 years ago in another bubble.

12:18It's a sign of an extraordinary time. Well, Cisco, fascinating to see how it's really come out of its earnings season. One of the things it did do, did you see this? It actually increased its outlook for the year. So this is one of these companies. There've been many that did really, really well in their earnings as a vacuum, but it's really sending signs to the market things are going to get even better that's getting rewarded. Now, this is, again, I said it was very symmetrical that if you look at its stock chart and you zoom out, you're like, oh, it is so close to that peak that it once inhabited.

12:46But its market cap is actually a lot lower because its share count has shrunk in the past quarter century. So at its peak, it was worth more than half a trillion dollars. And again, half a trillion meant a lot more back then than it does these days. Today, it's worth only about$300 billion. And I did have to look, what does Cisco actually do? It doesn't make any of the GPUs that are powering or training any of these models. But what it just did actually is roll out this single plug-in rack that does a bunch of AI stuff that a store or a hospital or a factory might need locally on site. And it's kind of like a plug and play thing.

13:23So it combines your chips that you're getting from NVIDIA. It combines storage. It combines your networking hardware and also security software monitoring tools. So it's kind of this plug and play solution if you don't want a mess of wires, if you don't want to assemble it yourself locally on site. So it's an infrastructure play, not necessarily one of a chip play or one of the sexier names like NVIDIA like that. So interesting though that this company that everyone has heard about and everyone holds up as, you know, Peak Mania is now returning to very similar heights. There was a little hidden gem in there too because I sort of just poked around to see what else was going on.

13:57And there's this one line in there which is called Industrial Internet of Things, which grew at 25%. And Cisco was asked to explain what do you mean by this? And they said two things were powering that. One, they said it was physical AI, which we've heard NVIDIA talk about, right? So manifesting in places like manufacturing. The other thing that they said actually was this was a sign of actually reshoring of manufacturing, which is sort of interesting. This is one of the tech companies actually now saying, here's a real example of how tariffs are perhaps having a positive impact on our business.

14:26All right, we're going to take a quick break and come back with our dog of the week. The crypto landscape changes daily. Keep up with some of the best launches and new tech all in one place on your commute. Join Ripple for a series of crypto and blockchain conversations with some of the best in the business. Learn how traditional banking benefits from the blockchain. Or how your digital assets can be kept safe and secure thanks to their all-in-one custody platform. Or how you can convert fiat to stablecoin faster than you can get home. Or how you can send a transaction halfway across the world before you make it to work.

15:00Or how you're probably already using crypto technology without even realizing it. Level up your commute and join Ripple and host David Schwartz for a special series of blockchain conversations on Blockstars the podcast. Payments, custody, stablecoin, it's happening with Ripple. Not everyone's up at 4am, but with Disney Campaign Manager, you can find the folks who are. I feel seen. I'm literally brewing coffee while most people are still dreaming. With Disney Campaign Manager, you can reach unique audiences like us, or maybe just Toby in this instance, no matter where or when they start their day.

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16:29Now, what started as a narrative driven boom based on high expectations of AI chip demand, quantum breakthroughs and new energy infrastructure is now getting a bit of a reality check. Let's take the case of CoreWeave, which had high hopes of building and renting out cloud computing facilities. But the slide began after it reported a third party data center was actually falling behind schedule. The pullback reflects some shaken enthusiasm about the AI trade or at least sort of derivatives like these as mixed results and small pieces of negative news are knocking already volatile stocks off course.

17:02Toby, the future is starting to look pretty uncertain for these kinds of companies. Yeah, these names are ones that retail traders know very well. The Wall Street bets crowd knows very well because Oklo, Deave Wave, Core Wave, Cypher, Tempest. These are companies that had insane run ups over the past couple of years. And there are a lot of them are close to zero revenue, pre revenue, but with, you know, multi billion dollar valuations. And what I think happened is earnings season brought a lot of these companies back to reality. Because when you look around and you saw that 82 % of the S &P 500s beat on earnings per share, 77 % beat on revenue.

17:37And yet here you are holding the bags of these companies that are not making any revenue and don't even forecast revenue within the next decade. You start to scratch your head and say, maybe there's a little more value out here than these speculative names. So I think what happens is you saw comparison happening to actually revenue. trading stocks and saying, maybe these are not the right companies to have in my portfolio. Yeah, it's sort of amazing. And then also there's sort of different parts of this here. You've got sort of the AI pieces, but there's also the quantum computing pieces. And it's really interesting because you've got companies out there like IBM, for example, which I used to think of as this kind of the stodgy computing business, starting to get rewarded and treated like a much more glamorous quantum stock.

18:16So to your point, folks looking around and earning season at companies with, let's face it, no earnings and actually saying, let's go and see folks who are showing us the money. And they kind of got a little bit bait and switch maybe by some rumors around the government plowing money into or policy support into quantum names. There was rumors throwing that the Treasury Department would take stakes in these pure quantum plays. Those rumors eventually got contradicted and then started to disappear a little bit. So that was another kind of narrative driven thing that was pumping these stocks up that kind of disappeared out from underneath them.

18:48So it was these things are narrative driven in general because there are no underlying fundamentals. So when certain things start to shift in that, that's when you start to see these names lose a third of their value. I mean, their stock chart looks crazy because it does go very, very high, but then it kind of precipitously comes down the last month or so. Not yet seeing it, though, in the private companies. Toby, we've got to remember there's some of the biggest players in the AI trade, like OpenAI, not actually public yet. We haven't yet seen any reduction in some of the values of those names.

19:17Takes a little bit of time to catch up. Let's sprint to the finish with some final headlines. Throw away your napkins, and because where PepsiCo is going, we won't need them. The Snack Food Giant is introducing a new line of Cheetos and Doritos without the flavored dust that makes them so finger-licking good. It's part of a new line of Naked products, versions of its popular products that strip out artificial dyes in an effort to appear healthier. So if you see Simply Naked spelled N-K-D on a bag of Cheetos, you're in for a slightly paler colorway and a way less dusty experience. Now, the big question here is how do they taste?

19:53And Pepsi execs are confident you'll be impressed. They tested the Naked line with expert tasters who ate them under special lights that prevented them from seeing the color of the chips. And the reviews were it's going to be the same crunch and the same flavor. And Naked Doritos and Cheetos sounds like a good time to me. I think it's really exciting, but it's so interesting, isn't it? The idea that having the visual and the color of the chip can change. It's like smelling an onion and eating an apple a little bit. It's that sort of sensory overload. That is a great point because your nose and your eyes do influence what your taste buds are tasting.

20:25So maybe under that specific red light experiment, they tasted fine. But if I reach into a bag of Cheetos and I don't get any of the Cheeto dust on me, am I going to want to eat them? And it is very funny. Rachel Fernandinho, head of PepsiCo Foods US, said it wasn't based on consumer data or trends. No insight would ever suggest removing color from Doritos or Cheetos because these are fan favorites. So basically she said, no one asked for this. No one wanted this, but they're testing it out anyway. So it's a very funny thing that they're trying. They're trying to appear healthier, even though consumers haven't said, we want Cheetos to appear healthier.

20:59No, exactly. And personally, like I love Doritos. Like if they don't glow in the dark for me when I go and eat them, I'm not sure if I'm interested in the entertainment value anymore. Well, look, our next headline is for those who are tired of going to the ATM and wish they could have the ATM brought to them. Well, now that's possible with Robin Hood. The brokerage is partnering with food delivery app GoPuff to allow customers to withdraw cash from their Robinhood bank accounts and deliver it to their door for a$6.99 fee or$2.99 if they have more than$100 ,000 in assets in their Robinhood accounts.

21:31Now, this is something that was teased back in March by CEO Vlad Tenev when he said the company wanted to offer luxurious perks for its members, such as helicopter rides, a chance to buy tickets to the Met Gala, and now cold, hard cash brought in a sealed paper bag. For now, it's only available in New York, but there are plans to launch the service in San Francisco, Philadelphia, Washington, D.C., and other major cities in the coming months. Toby, are we going to see someone bring you a stack of Benjamins anytime soon? I'm not ordering cash anytime soon. I think that what Robinhood is doing is trying to kill banks and kill credit cards.

22:08They're trying to kill all legacy institutions at the same time. They basically said, what's the only reason people go to banks anymore at all? Most of services can be carried out electronically. The one thing keeping people going to physical locations was withdrawing cash. You have to go to an ATM or you have to go to a bank and say, so by saying, hey, we're going to have it literally basically door dash to your door. You don't need to go to these institutions at all anymore. So in its war against legacy finance, I think they were going after their last thing, tying people to physical locations, which is cash delivery.

22:41It just feels not that trustworthy. Like you don't want stacks of cash going around on a delivery bike. But they said there will be security. You're going to have a verification code that you have to give to the delivery driver. But interesting that we're now doing contactless cash delivery. Doesn't this feel like we've gone into the realm of the ridiculous now? I really want to take this seriously, but to pay$6.99 to have cash delivered from something unlike the other stuff that gets delivered to you, cash is actually being dispensed by a machine for the most part, the holes in the wall. I don't think we're getting cash anytime soon.