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On this episode of On The Tape Danny is joined by his “The Big Short” colleagues Vincent Daniel and Porter Collins to discuss Mike Wilson’s bullish note (3:30), earnings season kicking off (9:30), Tesla volatility (20:10), and their favorite investment ideas in the market right now (28:00). Later, Dan and Guy interview Adam Demuyakor, Founder and Managing Partner of Wilshire Lane Capital, and talk about his background on Wall Street (38:35), why he started Wilshire Lane Capital (41:10), how he looks at proptech (43:00), advice he is giving to his portfolio companies about the macro environment (52:40), and his philanthropic efforts (57:12).
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Show Transcript:
Dan Nathan: [00:00:00] iConnections Ad. [00:00:00][0.2]
Guy Adami: [00:00:50] You’re listening to a bonus episode of On the Tape. Through our partnership with iConnections later on, we’re going to go off the tape with Adam Demuyakor of Wilshire Lane Capital. But first, I have three people that you all know and love. Three people that I’ve grown to know and love. Vinny Daniels, Porter Collins, and of course, the great Danny Moses of the Big Short Fame. Now, these guys, the two first guys, Danny, I’m leaving you out of this Porter and Vinny, their work is easily some of the smartest, most accessible, easily understandable synthesizer or whatever word you want to use. They do it for you. They put in all the hard work they put forth in a way that makes it easy to understand. And quite frankly, in our world, typically, if you’re early, you’re wrong. In their world, typically they’re early and right. And the three of you guys have these phone conversations from time to time, and one of you inevitably starts with, okay, what are we doing? So we thought a great segment here on the tape would be, What are we doing with Vinny Porter and Danny. Danny am I right? [00:01:59][68.8]
Danny Moses: [00:02:00] You’re right. And a day like today, we’d be like, What’s going on? So we would walk in on the trading desk. We’d all get in around the same time, like 6:45 a.m. Porter and I would be on the same train line, but obviously very different towns, as you can imagine where Porter’s coming from, Vinny on the Long Island Railroad coming, vinny would get there with this coffee. With the coffee. Everybody had their particular thing in the morning and we get on to the desk depending on what day it was was. Most days like, all right, what are we doing? But today would be it would have been what is going on. And so it’s one of those two things always. But you’re right, guy. Normally it’s what are we doing? But the sub segment can be what’s going on. And so that’s kind of where we are today. And this is one of those days is the perfect time to bring out those phrases. So good to have my boys on here. [00:02:42][42.1]
Guy Adami: [00:02:43] What I’ve learned, I think Dan can speak to this as well. But what we’ve learned is the audience loves Forget about me and Dan. The audience are tired of the two of us. The audience loves the three of you. I remember as a kid and I know, Vinny, you can relate to this Batman and Robin was the shit like I would. I mean, Batman and Robin was on. I was watching. [00:03:01][18.1]
Vincent Daniel: [00:03:01] Which one? The Adam West? [00:03:02][1.3]
Guy Adami: [00:03:03] Adam West. I mean, the genius of Adam West. But I mention this because every once every eight episodes Batgirl would show up. It wasn’t every episode. It was like every eight episodes. And all of a sudden you saw it in the sort, in the opening, whatever Batgirl was going to, and you were so jazzed up. And that’s what you guys have become. I mean, Dan and I might be Batman and Robin and maybe Danny is like Commissioner Gordon or something. I have no idea. Or Alfred, perhaps. But you guys collectively have become our Batgirl, and people want more Batgirl. So take it away, fellas. I mean, what? Listen, the last couple trading sessions have been epic. I mean, we’re doing this on Monday. The market’s going to wind up closing up 2%, give or take a lot of it on the back of what’s going on in Europe, some of it on the back of Mike Wilson, who, by the way, has been correct the whole way down. I’m not saying he changed course, but what he said is tactically, the market might go up a little bit here. So I think all those things are lining up. But Danny Moses is laughing here. [00:04:02][59.5]
Vincent Daniel: [00:04:03] Hold on Guy, can I can I interrupt? So I remember distinctly on the last thing Danny making a comment where I was cracking up because I remember history of him saying this before with other people saying, if Mike changes his tune, I will turn bullish. [00:04:21][17.4]
Danny Moses: [00:04:24] I didn’t even have a second to breathe Vinny [00:04:25][1.2]
Vincent Daniel: [00:04:25] VNow, Danny, we ask you, Mike changed his tune, at least for the next 10%. I think that’s that’s a short term call. Where are you going, Danny? [00:04:35][9.9]
Danny Moses: [00:04:35] Is it bonus season at Morgan Stanley or something? What is going on like? I did not expect that out of Mr. Wilson that quickly kind of changed. He obviously saw something or sensed something in the market. That Thursday rally to me wasn’t meaningful, but to a lot of people it was people feel like that put in some type of floor here Friday, try to retrace most of that, obviously. And here we are today. So he must be seeing things that I don’t see, I guess, because he’s in the words of Batman and the superheroes, he’s all powerful, I guess. I’m not sure. [00:05:04][28.3]
Guy Adami: [00:05:04] Danny So what you’re saying, just so I understand, because as you know, I’m not the brightest bulb in the fixture. What you’re saying is, despite the fact that last week you said that you will turn bullish when Mike Wilson of Morgan Stanley, the same Mike Wilson who I mentioned earlier, that’s been right the entire way down, the same Mike Wilson, who was castigated by most of Wall Street for an epic call. The same Mike Wilson who came on our podcast, the same Mike Wilson you were high fiving and hugging on the way out that Mike Wilson, when he turned bullish. You’re going to turn bullish, you’re saying, here on Monday? Well, I didn’t really mean it. Is that accurate? [00:05:41][36.9]
Danny Moses: [00:05:42] No, I read his note. I looked at what he said. I evaluated it myself. And I think he’s being cute. I think it’s a short term tactical trade. He said it itself. He’s not bullish. He’s just near-term not bearish. Vinny, F U Vinny [00:05:55][13.0]
Porter Collins: [00:05:55] What Eisman says to Tony Cosenza in March of 2009, you’re wrong. [00:05:59][4.3]
Danny Moses: [00:06:00] That wasn’t me that I didn’t do that. There was somebody else that said that. [00:06:04][4.1]
Porter Collins: [00:06:05] Eisman said that to Tony Cosenza. [00:06:06][1.0]
Danny Moses: [00:06:06] Yeah. Eisman said it. Exactly. You’re wrong. [00:06:08][1.9]
Vincent Daniel: [00:06:08] There were two famous bottoms in 2009. Porter mentioned the first one. The second one, God bless him. Hall of Famer Ed Hyman comes into our office in February 2009. Do you remember this? And he turned bearish. Which are things you never hear from Ed Hyman. Never. [00:06:28][19.5]
Porter Collins: [00:06:29] There’s a third two, by the way, Rosenberg came into our office and wasn’t bullish, but he goes, I’m not really as bearish anymore. He’s like, You’re right, we all know you’re wrong. [00:06:39][10.7]
Danny Moses: [00:06:40] So we comparing this Mike Wilson moment to not as a contra indicator, but as a real indicator, are we saying that he coming in and doing that meant this was going to happen? What are you saying here? [00:06:50][10.5]
Vincent Daniel: [00:06:51] No, but I think we have to respect the fact, first off, that you said you would buy some stocks when he went bullish. But I think you have to respect the fact that we are due for a counter trend rally. We had been due for a counter trend rally. It’s the fourth quarter. All this stupid crap we always hear up 10%, blah, blah, blah. I don’t think he’s turning long term bullish, but we just have to respect the fact that the market has the potential to go up ten 12% just because of a counter trend rally and oversold conditions. [00:07:22][31.7]
Danny Moses: [00:07:23] I guess one of the things he said was he was talking about our earnings so far and we’re kind of in the first correct me if I’m wrong, we’re like 10 to 15% of the way through earnings year. We’re not in the meat yet. Right. We just kind of touch the surface aren’t as bad or that earnings downward revisions might get pushed out to next quarter or later this quarter or so forth. So it was really, I guess, just a timing call, but I think everyone was a little taken aback by the rally last Thursday. Kind of inexplicable. And for some reason to me and this is why we’re talking about it, some reason the sell offs make a lot more sense to me than the rallies. And no, no, this isn’t about being a pessimist or a half empty or anything like that. I like to look at the actuality. Okay. So let’s talk about what has been driving the market these last few weeks, but all about the U.K. But to me, it’s been more than that. It’s been about the faith in the central banks and people’s belief that the central banks can cure all the ills. And with that, knowing there were on the other side of that coin that if central banks come around, it adds to inflation. That’s not good. For the first time, people looking at budget deficits, people looking at fiscal debt. And so I’m looking at I’m reading through this stuff and yes, fire the Treasury chief in the U.K., bring in Jeremy Hunt. Oh, he’s the greatest, like whatever. And poor Liz Truss, they’re trying to already force her out. But look at the numbers. We’re talking about a flea on a cows ass in terms of 70 billion or 40 billion sterling on a, what, two and a half trillion dollars debt load in the UK? And so I don’t want to go on here, but this is I want to set the stage here is that here’s a $2.5 trillion total debt for the UK and they’re going to do things that actually are going to hurt the economy and hurt the consumer. So correct me if I’m wrong, but from a health perspective and GDP, I don’t see the ratio of debt to GDP getting any better. And I think we have this little respite where the gilts are coming in 50 or 60 basis points, and I think that’s been the buy signal to the market. But a month ago, gilts were already moving higher without any of this noise. So with that kind of as a background, give me your thoughts here, because to me, that’s all this is at this moment in time. And if that reverses right back where we were. [00:09:21][118.0]
Vincent Daniel: [00:09:21] Oh, if you took the numbers and just swapped the name us for UK, you’d be like, Oh, the US looks fantastic compared to these other people. I mean, the US budget deficit way worse. [00:09:34][12.5]
Danny Moses: [00:09:34] Yup, it’s over 120, 120% or something like that. So I’m with you. So tell me what I’m missing. Other then the market was definitely oversold. People were looking for an excuse to buy, not to sell at that point. I get it. I don’t believe in this rally. Congrats to Mike Wilson for being strategically short term correct. And I do think he’s a genius and I should follow him in. [00:09:53][18.5]
Vincent Daniel: [00:09:53] The markets like a percent off the bottom. [00:09:55][1.6]
Danny Moses: [00:09:55] Yeah, well, probably a little bit more than that from this point. We hit 34 and change. I think the S&P is 36, something almost 3700 3670. But my point is that what are we doing from here? Because to me, we’re about to go into an earnings season where we got Goldman, Johnson and Johnson, Lockheed Martin, Netflix, we’re getting Procter Gamble, we get Tesla ever heard of that company, IBM. We’re getting a lot of different things from a lot of different industries. SL Green We’re going to hear a lot about the current state, and my feeling is you have to press shorts here, but I would certainly so long as that, you know, our, you know, getting the benefit of a rally like this, I mean, that’s what I would be doing if we were sitting on our desk, managing our portfolio. We would be taking in our longs here Vin no? [00:10:34][38.9]
Vincent Daniel: [00:10:35] I think it’s important to keep in mind what companies have reported so far. So for the past three or four days, it’s actually in our old wheelhouse, right? It’s the big boy banks and the big girl banks. And all of them, almost all of them have done really well. Generally speaking, there have been some one offs here and there. But take a look at Bank of America today. The big story out of today, out of the earnings from Bank of America, is that credit costs are at what, quarter, a 50 year low, all time low. In terms of credit costs. The names were high. I think Bank America projected therefore, Q Nim is going to be higher than expectations. And none of that really should surprise us, given the fact that one of the bigger beneficiaries of this rising rate environment should be the banks absent what should happen to credit costs over the next three quarters. I think where earnings get a lot more difficult as after the big banks report and we start getting into non-bank market or the regular market and we’ll see where forward projections go. Because you’re right, Danny, the E is a problem should be. [00:11:35][60.2]
Porter Collins: [00:11:36] None of these trends are in your favor. Delta all flag is a pretty good sign that they’re passing through some of the costs, the higher ticket prices. You guys booked tickets anywhere? They’re higher. But everything else, the trend is down and there’s no signs of stabilization anywhere. [00:11:52][16.0]
Danny Moses: [00:11:53] The economy is not the stock market or the stock market is not the economy. Right. So this is we’ve been talking about this cycles unlike anything else, like we’ve never been in a, quote cycle like this. And so things are still, quote, fine in the economy. But I don’t believe that the stocks are reflecting, obviously what’s on the come in. That means how do they survive in a higher rate environment? And certainly banks get the benefit of higher rates near term without the credit costs come in. They are reserving they’re probably reserving appropriately at the moment. But that trend only has one way to go. And today we see that Carlos Hernandez resigned and stepped down at JPMorgan. He runs the investment bank. He’s been there 36 years. Again, I’m not going to overread into it, but it’s pretty interesting that they reported last week they didn’t announce it then. He announces it today and he’s going to retire at the end of Q1. You know, he’s not a young guy, but I just find that interesting because he sees he’s like, I’m getting the hell out of here now because anything is wrong at JPMorgan specifically. He doesn’t want to deal with this. He sees probably what’s going to happen. Again, maybe you guys have a different opinion on that. And I’m not would not trade JPMorgan based upon that. But my point is that the people that have seen a lot of cycles like him see what’s coming. And so, again, if we were sitting on our desks today and we probably got caught a little bit in something like this because we’re set up a certain way. And I realize you guys now trade things other than financials. You have a lot of energy and there’s other implications, but put your financial hat back on. Let’s take some of the auto finance companies. Right. We’re going to get Ally, I think is reporting later this week that’s going to be a pretty good indication for what’s really going on and kind of the blue collar middle America credit world. To me, that’s a better indication. Give me your thoughts on that. And I want to talk about some other earnings that are going to be coming up. [00:13:24][91.0]
Porter Collins: [00:13:24] Can we just talk about one of the thing that we called a lot of years ago was the Goldman’s remeber the whole push into into subprime lending and into the consumer lending markets gong gone. We told everybody they’ll be out in five years. [00:13:37][13.2]
Danny Moses: [00:13:38] Is this bad for Patrick Cantlay? Who’s this? Who’s the sponsor now? I saw he’s thinking maybe CEO of Capital, bring on Patrick Cantlay. So anyway, you know, I saw that and he’s changed Solomon’s changed the bank like three different times reorg this merge this I mean so they obviously see what’s coming also in. [00:13:54][16.6]
Porter Collins: [00:13:55] Can’t take away from the fact that investment banking sucks right now and trading sucks right it just the higher rates is not good for the bank. [00:14:01][5.6]
Danny Moses: [00:14:01] Yeah but Goldman’s lucky they never went full tilt into the retail space because they see what’s going to be happening. And I think I think you saw is like we have two choices. We can go deeper at this point when we see what’s happening or we can kind of pull back. And I think they chose to pull back because they can make money on their trading desks, irry for them than it is out there in lending to retail. [00:14:19][18.5]
Vincent Daniel: [00:14:20] They also felt it was a profitable way to lower their cost of funding, so essentially gather retail based, regulated CDs. But on the other hand, they had this loan book and I remember going to a meeting with Porter It was like the first time we went to a Goldman meeting in a while and both of us stood up and like, what are you doing right? Like. [00:14:39][19.0]
Danny Moses: [00:14:40] What are we doing? [00:14:40][0.5]
Vincent Daniel: [00:14:41] You’re Goldman f’ing Sachs. You’re trying to turn yourself in to Discover what is going on here. So to me, this is a move that they should have never done at all or should have jettisoned this initiative a long time ago. In terms of ally and auto, if you think about some of the things that we’ve been adamant about the auto sector, that it’s probably one of the sectors that is hurt the worst from a rising rate tape because so much of everything in auto is purchased via financing and monthly payments. And those monthly payments are predicated on the two year Treasury, which has gone 400 bips up in your face. And we’ve been going with that a little bit. Just how we think about everything in terms of financing. Well, just in terms of like we believe that we are sadly in a financialized economy where the cost of capital is so far a larger factor than almost anything else. And as a result, as you’ve increased the cost of capital, all of a sudden earnings perhaps not 3Q But going forward are going to have material material headwinds. So as a result, we’re worried more about the E than almost anything else from a bottom up. Perspective. I mean, what percentage of houses are sold with a mortgage? 95%. I forget the number, but it’s practically all the incremental. Same thing with auto [00:15:58][77.4]
Danny Moses: [00:16:00] Meanwhile, part of this entire crisis in the UK was born of one thing leverage that the pension funds were levered to get higher returns. That’s it. So here they want to blame everybody for a tax cut. Yeah, it wasn’t the right decision, but on the margin, it looks like. Oh, that it will blame that. No. If there was no leverage in the pension funds, they are trying to get a higher return. We wouldn’t have any issue. And you know what? Four months ago or five months ago, that same announcement would not have had that impact probably on the bond market over there so. [00:16:26][26.3]
Vincent Daniel: [00:16:26] It was just a catalyst that finally sparked. But I think the broader point that we keep hammering home is that the Fed and all these central banks, 14 years of easy money, low, steady environments, everyone got lulled into a sense of complacency and kept levering up at every moment. And they thought that central banks could save them. And I think the bell was wrong. And the central banks can’t save you and they can’t save you when inflation is higher. And so I think what this is telling me is that energy’s ruling the bond market and they can’t get energy down. [00:16:59][32.7]
Danny Moses: [00:17:00] What does that mean? Energy’s ruling the bond market. So explain that. [00:17:02][2.4]
Vincent Daniel: [00:17:03] So energy is the thing that’s crushing the economy. So Europe, UK, even here, Biden’s SPR. That’s the thing that’s fueling inflation and that’s the thing that the bond market has to worry about that the Fed has to worry about. That’s why they’re hiking rates because of inflation and oils and everything we do look at everything, plastics, cars, then you go into heating the homes and all that type of stuff. Is that energy I think at the end of the day is ruling what’s going on in the bond markets. [00:17:31][28.3]
Danny Moses: [00:17:32] For sure and every time we feel like there’s going to be a bail out or someone’s going to change course. RBA only goes 25 basis points instead of 50 B It’s inflationary to a degree, right? So energy prices go up, so it then itself builds the other side. So I feel like as opposed to it’s sell every rally burst by every dip because of that. And what upsets me honestly why I’m angry is not because I didn’t listen to Mike Wilson. No, because I know people are going to get drawn in again to this. We’ve had a couple of days of this FOMO. You know what? I’ve been waiting to buy the market. I’m in, I’m in, in the bottom is here. I just don’t think that we’re even close to that because the realization what is clear, it’s not just energy costs. Porter It’s rates like to your point, you just made a few minutes ago, Vinnie, the financialization of the global economy. It is what it is. You know what? It was blissful for almost two decade, mean a decade and a half. This was the greatest thing. Bernanke gets the Nobel Prize for his research he did about the Great Depression, the honor him. I mean, where were the signs of all this crap? We can go on and on. But the point is that we’re on the other side of that now. And so to me, it becomes very simple. You can ignore all of that noise. Ignore. But what does it mean to the companies themselves? What does it mean can a company manage through an earnings cycle? Can they benefit from this? Actually, to your point, can energy companies benefit that have good balance sheets, that don’t have a lot of debt and so forth, and you can own them. And I love that you guys in the last few years for those people that don’t listen to us a lot to know that you guys kind of, I’m guessing, spend 25, 35% of your time on financials, but it is a key ingredient, especially because every company is so financialized and they have to understand banks and credit from here. It’s so frickin valuable to everything that you guys are doing. So give us a little flavor because I know I’m looking at the earnings and it used to just be you guys be done. In the first week, Porter had his quarterly rowing party and it was always during earnings season it would show up. You have drunk on the desk but you know sometimes but but now you have to stay awake for the next several weeks because you got a lot of energy coming. Right? A lot of industrials coming, a lot of stuff. So tell me what you guys are looking for and what you’re spending a lot of time on right now because it’s not just the banks. [00:19:35][122.9]
Vincent Daniel: [00:19:36] Well, the first thing I think, which is very interesting is like, what are we doing? What do we do today? Right. And Porter, you looked at our trade blotter today. We did nothing. There was one small little trade in the trade blotter today. We did not change a thing. So obviously we didn’t sell any longs. Obviously we didn’t cover any shorts, nor did we press shorts. Because my perspective is, I think of the three of us, I sadly respect near term stupidity more than you two. I, for whatever reason, think it’s coming more than you guys do. And I could tell you a lot of my screens that I look at, which shows oversold conditions are a size and all that, we’re just not at a point where I’m not in the mood to change the theme of what I think, but I’m also not in the mood to press short because I’d rather see some of the technicals from the oversold conditions get to a little bit more overbought. I don’t know if it gets there, but all I know is that this is not the time. I feel like pressing something. I’d rather wait and see if we’re going to get the stupidity of a four two rally and the like to see if it comes to fruition. [00:20:41][65.4]
Porter Collins: [00:20:42] I will tell you you’re in a bad mood to start the day. You know, trade. We did do recently and we did cover a bit of Tesla Thursday. Morning or. [00:20:50][7.2]
Danny Moses: [00:20:50] Oh, you’re a genius. Yeah. Thursday or Friday. You mean Friday morning? [00:20:53][3.1]
Porter Collins: [00:20:53] Thursday, like, till, like 200. [00:20:54][1.1]
Danny Moses: [00:20:55] Thursday before the funeral. Oh, my God. And then the second. So I gotcha. Okay. [00:20:59][4.0]
Porter Collins: [00:20:59] We cut it. We cut it. Well, it was big. It was massive for us. [00:21:04][4.3]
Danny Moses: [00:21:04] Yeah because as you mentioned, Porter, a couple of weeks ago, it’s amazing to be in a story that gets bigger as the stock goes down because we’re long that DSL. Q But yeah. [00:21:11][6.1]
Porter Collins: [00:21:11] But the stock’s obviously down. You know, they’re going to cheap, in my words, not in my opinion. They’re going to cheat, and they always do. [00:21:19][8.0]
Danny Moses: [00:21:21] Porter Oh. So I had a whole conversation with Vinny about this. So let’s think, like, keep going deeper on that thought, right? Because that’s why I believe what if this is the quarter that Elon Musk goes, you know what, screw everybody. I’m done. Not that he’s going to resign, but I’m like, I don’t care about the investors. I don’t care about anybody. You know what we are missing? We’re guiding down. The world stinks. I’m having my come to Jesus moment. It’s what if this is the moment? [00:21:44][23.0]
Vincent Daniel: [00:21:45] How is he going to pay for Twitter? [00:21:46][0.8]
Danny Moses: [00:21:46] If that’s his angle, maybe that’s his angle to crush the stock to the point where they know it’s not. [00:21:50][3.9]
Vincent Daniel: [00:21:50] Any one scorched earth theory on why Tesla might go heat. So he’s got to, like, burn everything so he could get out of Twitter. [00:21:57][7.1]
Danny Moses: [00:21:58] Yeah, maybe he burns everything so bad. I’m not saying that’s going to necessarily happen, but I don’t care. Should I take some down? Probably ahead of it? Probably. Would we be doing that on the desk? [00:22:07][9.2]
Vincent Daniel: [00:22:07] We might short more couple days from now, so who knows? [00:22:10][2.5]
Danny Moses: [00:22:10] But listen, it’s the right thing to do to take it down. And here’s why. Once it breaks, it’s gone. It’s not going to go from 220 or 215 down to 185. It’ll go to 50 now, maybe not in a straight line, but it will go. So once this story breaks, like we’ve seen on Carvana and some other names and you know, where these buy now pay later companies, the upstarts or what, once they break in, they’re vulnerable, they’re gone. And I think when a stock starts to go down, Tesla and some others, people take a fresh look because all of a sudden they’re annoyed and they want to know if they’re, quote, missing something. And I think once you start to look at this thing on fundamentals, at the end of the day, even if they beat by a penny and do a dollar three adjusted or whatever the number is going to be in the quarter to me, we’re past that at this point. [00:22:50][40.3]
Vincent Daniel: [00:22:51] And penny stock, 200 something dollars. Do you know what the COVID lowers in the stock? [00:22:55][4.2]
Danny Moses: [00:22:56] Let’s see. Period. What was it, 70. [00:22:57][1.6]
Vincent Daniel: [00:22:58] March of 20? It was like 22 or 23 bucks. Right. Okay. 200. [00:23:03][4.2]
Danny Moses: [00:23:03] It could go there. Your lips to God’s ears. But this is a good example of how we would manage a position like this on the desk, because all that being said, I would probably be the one to say leave it. Wouldn’t be pressing it right then he would be the one to say, Guys, you got to take it down. And then I would say, All right, instead of taking it down, let’s do a put replacement. And then Porter would say, I don’t know about that, but it would say, the ball’s too rich to put stop doing the puts. It’s a waste of money. Just cover it and whatever will come back. Then we’ll get to our position, we’ll all claim our stake, and then the thing will report and then it’ll trade up 6% in the aftermarket. And you’ll give me an eye roll and I’ll say it’s going to come back in Porter say add to it. We’ll add a little bit. It’ll keep going up 8%. Then we’ll stop and then we’ll get in a fight. [00:23:45][41.0]
Porter Collins: [00:23:47] By the way the Tesla vol is 70. You got to be out of your mind people. It just wasting money. Crazy how many first of all how many people play options in Tesla and the and the valves just so expensive it’s 80 vol I understand it’s just it’s like throwing money away, buying puts and buying calls all the time. I just I’m happy I was just sitting in a shorten waiting this sucker out to the Enron of this cycle to occur. [00:24:09][21.8]
Vincent Daniel: [00:24:10] We become major users of our side just as sort of a contrarian signal. And let’s pick on Tesla. But there’s a lot of names that fall under this jurisdiction. The R I got to take in general within your themes, you want to short when the RSIs are at 70 and you want to cover when they’re 28. So our view is just cover a little bit. Let him report, you know, he’s going to cheat, you know, that dollars to donuts, he’s going to cheat. And let’s see if the market reacts to the cheating or not. Usually it does. And then afterwards you could press it after the stock is up. [00:24:41][31.1]
Danny Moses: [00:24:42] All right. Well, listen, it’s certainly been timing is not a coincidence here, that the markets are volatile, have been more down than up. This name is always been in the news a lot. He has been flailing to kind of, I don’t know, cry for help, get attention, whatever it might be. But I feel like this thing is all coming together where we’re finally going to get whether it’s Wednesday or Thursday or two Thursdays from now, we’re finally going to get the kind of moment, I think, where we get a market selling off to the levels that it needs to go, maybe not all the way, but towards it. And I think Tesla is going to get revalued and looked at from a completely different perspective. But we’ll see. And I think Vinny the mentality has been to kind of cover it. That’s been the Pavlovian thing to do. And by the way, it’s been the right thing. And until proven differently, let me ask Mike Wilson what he thinks about Tesla. Maybe I should ask him before we end the quarter. But no, in all seriousness, it’s going to be really interesting because I think the timing of this this is a backdrop. Oh, yeah, that’s a good point. That’s a good point. They’re going to be wearing about 600, 700 million of the Twitter deal, I should say. So anyway. I mean, we’ll see. But again, just real quick stuff. You’re looking for Blackstone should be a really interesting quarter. That’s coming up later in the week. American Express, always a good luck. I expect that number to be solid vinny, as I’m sure you would agree, given the high end consumer has been good in spending. So it’s going to be interesting. But to me, this is when the earnings begin. The banks are pretty predictable and I think they’d sold off to a level where you work in a short time after this go wasn’t anything catastrophic that was going to come. [00:26:08][86.9]
Vincent Daniel: [00:26:09] But I did like, you know, Mike Wilson. I get he’s saying a tactical rally here and he said that the Q3 earnings are not great but not reflecting the weakness in the market. I don’t know. I go back to there’s been some horrendous earnings. Look at FedEx, what was it, GM or Ford, I forget which preannounced. [00:26:24][15.4]
Danny Moses: [00:26:25] Ford. [00:26:25][0.0]
Vincent Daniel: [00:26:26] That was terrible. And the news that came out this weekend with regards to our policy shift with semiconductors in China and prohibiting or substantially reducing the ability of US employees to work in China in their semiconductor initiatives is a big deal. And look, we’re not semiconductor experts, we’re just reading that article. It’s like, Oh, that’s not a good thing. [00:26:46][20.4]
Danny Moses: [00:26:47] Let me ask you guys a question. If you’re the Fed right now, you’re dancing up and down. Powell’s like this is perfect. This is the best I could hope for the markets telling me that what I’m doing is fine. It’s not destroying it. I got credit to widen out a little bit. I got financial conditions to tighten a little bit. And look, the market’s reacting this way. I may go 100 basis points in a couple of weeks. I mean, he won’t. But I’m just thinking to himself that he doesn’t have to now worry, at least in the near-term. So they’re just adding fuel, the collective investor community that wants to rally the market like this. And to me, first of all, down a thousand, up a thousand. I don’t care. You’re bearish, which is not healthy. Right the volatility that we’re seeing in all asset classes, you know, bonds, currencies, equities, whatever, that’s not healthy because you cannot manage your portfolio. It’s hard to manage a business it’s hard to do a lot of things when that’s kind of what’s going on. And that’s unfortunately, I think at the end of the day, I would expect negative revisions and I expect the markets to go lower. [00:27:47][59.7]
Porter Collins: [00:27:47] But I think we all agree the market’s not bottom yet. 18 plus times earnings here. Earnings are going one way and they’re going down probably somewhere south of 200 bucks in S&P earnings. And the other thing is, is that we keep talking about is that retail has been buying the dip all year long. There’s been $50 billion of inflows and it’s all been to tech. We talked about this last on the tape episode. There’s been inflows. And so this market is going to bottom when there’s finally 50 billion of outflows, not inflows, those bell ringing moments of the bottom. This is certainly not it right here. [00:28:19][32.1]
Danny Moses: [00:28:20] All right, guys, before we wrap, everybody wants to hear not only what are we doing, but what are you guys doing? Give us some of your favorite picks right now as we head into the meat of earnings season two or three picks, maybe you guys are kind of focused on long or short. [00:28:31][11.3]
Porter Collins: [00:28:33] Well, in terms of what type of investors we are, we’re contrarian. We are balance sheet investors. If you see us pitching growth ideas, you should run the other way. And I think still our favorite idea is the fact that we’re in an energy crisis and in an energy crisis, you want to own the cheapest form of fuel and Vinny will probably pitch something slightly different than I’m pitching, but I think you continue to buy coal names and BTU give Australians CONSOL Energy. These stocks are now balance sheet stories where they’re, you know, you’re going to continue to pay down debt and it’s going to accrue to the equity holders and the free cash flow yields are over 50% and there’s just nowhere else you can find that attractive of ideas out here. And I think it’s a a very low risk idea and something that obviously there’s about 15 people on planet Earth applying it. And energy as a percentage of the S&P has gone from something like 1.5 to 5%. I think it is I’m maybe off my number, but maybes two and a half to five and we’ve had 70% outperformance by Energy over the S&P since COVID. I continue to think that number is going higher percentage of energy and it might not be energy goes up a lot. It’s just that on a relative basis, S&P earnings are going down and energy earnings are flat to up. And so I think that’s a continued trade that we want to stick with. And we’re long energy and we’re short a lot of stocks with a lot of garbage names out there. And it’s a little bit of the old school tiger, long, good cash flowing businesses and short garbage and bad companies and bad management. That’s the trade we still have on. [00:30:15][102.2]
Vincent Daniel: [00:30:15] Just to reiterate what Porter said were extremely thematic, right? And so when we see an underlying fundamental theme, we tend to concentrate in that theme and go with it. So Porter mentioned energy and we think that energy with fits and starts is probably going to be in a 3 to 10 year bull market. My favorite part of the sector, aside from coal, which I like in the near term, is and I’ve mentioned that many times, is uranium and nuclear. There was a recent acquisition done, major acquisition done, Imco recently acquired a 48% stake in Westinghouse and. What I did today all day long is is start to really do work on it to see where this thing can go and how much it can go. What I like about it from a market perspective, I think this is one of the first companies or stocks that institutional people can own. [00:31:04][48.3]
Danny Moses: [00:31:04] CCJ, which I’m. [00:31:05][0.8]
Vincent Daniel: [00:31:05] CCJ. I apologize that institutions can own and own in size because it’s going to have market cap and it’s going to have liquidity. Most of the stuff that we’re playing in is illiquid, and maybe 30 people own some of these names as opposed to 15 people that own call names. But if we’re right on the growth in nuclear over the next 5 to 10 years, the stock and the group has the potential to be major homeruns. [00:31:27][22.3]
Danny Moses: [00:31:29] Interesting, well, to go from where we were five years ago on the desk talking about banks and financials, talk about coal and nuclear energy is interesting. It tells me everything that I need to know and people need to pay attention to what you guys are doing. And so, listen, what are we doing? We want to make this a regular segment as a part of on the tape. I would love to do this very often with you guys. I think we should target at least a couple times a month. If you guys out there like it, please let us know. You can go to [email protected] And just say, we’d love to hear more. We’re going to do it whether you like it or not. But we’d love to hear more. Want to come on. And so, boys, it was great being back with you. I really just felt like I was on the trading desk doing what are we doing, where we going? And we’ll have a lot to say, maybe a special spaces or something in the next week or so with back with Dan and Guy on the tapes. And we’re going to have a lot more earnings to talk about, specifically an EV company on Wednesday. But love you guys and thanks for coming on today. [00:32:22][52.5]
Guy Adami: [00:32:23] When we come back, a conversation with Adam Demuyakor from Wilshire Lane Capital. [00:32:28][5.1]
Dan Nathan: [00:32:31] iConnections Ad. [00:32:31][0.8]
Guy Adami: [00:33:23] Adam Demuyakor is founder and managing partner of Wilshire Lane Capital. Prior to founding Wilshire Lane Capital, he worked as a venture capital investor at Fifth Wall Ventures and Andreessen Horowitz. Before his career in venture capital, Adam worked as an investor on Wall Street, both as a hedge fund investor at the Carlyle Group and in the real estate group at Morgan Stanley in New York City. Adam graduated with high honors from Harvard College and has an MBA from Harvard Business School. Adam, welcome to on the tape. Adam was thrilled you’re with me and Dan here for off the tape. And listen, we’re in interesting times for sure, and I want to get to that. But before we start, tell us a little bit about your background, how you’ve gotten here. I think people really enjoy hearing the path forward. [00:34:10][47.1]
Adam Demuyakor: [00:34:11] It’s great to be here with you guys. Dan and Guy. Yeah, I agree. It’s a super interesting time, but on my background it starts with my parents. My parents immigrated over to the U.S. from Ghana. My dad got his PhD the University of Southern California, born here in L.A. but grew up in Georgia, ended up being a professor’s kid, ended up being six five decent at sports and academics, played basketball at Harvard. Funny enough, my teammate was actually Jeremy Lin. There’s a little bit of a fun fact and then went into Wall Street directly out of undergrad, worked at Morgan Stanley Real Estate Group, so it more or less been in real estate for 11, 12 years or so after that ended up having stops at the Carlyle Group, also at Andreessen Horowitz and then Fifth Wall before starting my own firm. [00:34:50][39.3]
Guy Adami: [00:34:51] That’s fascinating. Listen, completely off topic. I was actually able to do the color commentary of a Columbia Harvard men’s basketball game at Columbia and Tommy Amaker, who you obviously know, believe it or not, Dan, he’s he is a CNBC fan, so we got a chance to chat. And Jeremy Lin actually showed up at Columbia and the place went crazy when he got into the gym. So that Harvard program, Tommy’s done a great job there. [00:35:19][27.7]
Adam Demuyakor: [00:35:19] Him going into the gym is probably the first and one of the few times that the crowd ever went crazy seeing a Harvard basketball player so [00:35:25][5.7]
Dan Nathan: [00:35:25] I love what you said, that you were the son of a professor. You did okay of academics and also athletics. But let me tell you, this Guy, you know, I played lacrosse over at University of Pennsylvania. And when I was at Penn, just, you know, we had a pretty good basketball team in the early to mid nineties, but you didn’t get to Wharton Graduate School on your academics. Now, in your case, you got to Harvard Business School after Harvard undergrad, correct? [00:35:50][24.7]
Adam Demuyakor: [00:35:50] Yes, absolutely. Basketball, unfortunately, had nothing to do at that time. [00:35:53][3.0]
Dan Nathan: [00:35:54] Nothing to do with that. So tell us about the feelings that you have towards Harvard and the community. And you just mentioned Lin and Linsanity was a big part of this city for a little bit here. But tell us a little bit about your connection with the university and obviously graduate school and how much it meant for you. Listen, Morgan Stanley, Carlyle Group, Andreessen, and now your own firm. I mean, these are some storied franchises. [00:36:14][20.0]
Adam Demuyakor: [00:36:15] I appreciate it. And none of it would have occurred if it wasn’t for Harvard. As you mentioned, I actually went there for undergrad. I also went back for Harvard Business School to get my MBA. So that’s six years in Cambridge. That’s a lot of snowstorms. It’s a lot of cold nights. But honestly, I think unequivocally, without going to that university, I wouldn’t have been able to do the things that you mentioned. And subsequently, I grew up in a small town in Georgia called Buford. That’s actually Gwinnett County population around 12000 to 15000 people, super small town. And, you know, I didn’t really expect much of myself back then. It was only until I went to Harvard. I was like, you know what? This is an opportunity to compete with some of the best and the brightest. This is an opportunity to see what I can do and I think really like pushed my ambition to another level. So it started with that like I guess the confidence and knowing that like you could compete academically with some of the best in the world and after that being like, okay, well where can we go from here? Where can we take this degree? So it all started with that too. That that’s why I love the university so much and we’ll be a lifetime fan. [00:37:13][57.9]
Guy Adami: [00:37:13] We started the show by talking about the markets and I want to get to that and I want to obviously talk about well, Charlayne as well. But what we’re living through the last specifically the last couple of weeks, but quite frankly, since November, December is some really fascinating moves and instruments that historically haven’t moved the way they’re doing. But what do you make of everything that’s going on from your vantage point? Dan and I look at things, we’re sort of boots on the ground. My sense is you’re a little more 15 to 25000 feet up. Love to hear your perspective. [00:37:41][27.4]
Adam Demuyakor: [00:37:42] It’s funny because in venture capital, one of the going into one of the best things about it is that supposedly we are insulated from the markets. And so I don’t necessarily from my day job need to watch CNBC day to day and see what it Mr. Powell say today or how that’s impacting the markets. But it just goes to show that this year has been in real justification, that we’re not disconnected from those markets. It’s just the lag. It’s a lag. And that lag is now like coming home. I think it goes to show that 2019, 2020, 2021 were really, really excessive years. They were outlier years in many ways. You had so much capital that was prevalent. Deals were getting faster and faster, funds were raising so much more larger pools of capital valuations start being disconnected further and further away from reality. And I think that the other side of that is that you saw the SPAC out, so many companies being SPAC out, and that’s how they were basically doing their exits. And now you’re seeing on the other side of that the performance of these companies. Both have gone through traditional IPOs, and SPACs have not been doing well in the public market so far through this year and the end of the back half of 2021. So as a result, I think many venture capital investors who previously were not so sensitive to valuations are now finding themselves to be more valuation sensitive and more focus on uni economics, because the public markets have spoken and basically said like, Hey, you guys don’t really know what you were doing. And so as a function of that, I think that now we’re in a different world where I am a lot more VCs and venture funds are being way more conservative. I think now trying to like selectively choose deals as a result. It’s much harder for startups than it was a year or two ago, and we can talk about this later, but I think in the end it’s going to be better for the industry what’s going on right now. [00:39:17][95.5]
Dan Nathan: [00:39:18] Yeah, no doubt. I mean, things got a little overexuberant and you just you mentioned SPACs and at that time, I mean, interest rates were essentially zero. And so talk to us a little bit about this because I think a lot of investors of all different stripes got used to a very low interest rate environment, easy monetary policy. You come from a background in real estate. As a real estate investment banker, I suspect that you’ve always been a lot more focused on interest rates than many of your peers in finance, whether it be VC, private equity or public markets. Talk to us a little bit about coming up with that sort of sensibility. [00:39:54][35.9]
Adam Demuyakor: [00:39:55] It’s a really great point. I think the fact that I came from Wall Street came from investment banking. Traditional private equity really has colored the way that I view venture capital. For us we really have always been focused on the financial statements, financial analysis. We’ve always been focused on people at Wilshire Lane have to know accounting as controversial as that sounds when it comes to venture capital. We really want to focus on the unit economics and the ultimate profitability potential of a company. And so we had a feeling going back to 2019, even back in 2019, I was feeling apprehensive of valuations. We just believe in cycles and I think that it’s easy to say that now, but if you take things back to 2020 and 2021, a lot of the chatter out there or venture capital is we’re like, Yo, yeah, valuations are high now, but there’s just so much liquidity, so much cash out there. We think that there’s another 4 to 5 years left. And I think for me, if you kind of just looked at where interest rates were and you looked at literally the money supply that was available, there was so much cash that you’d have to believe that this cannot go into perpetuity and that there would have to be if you had this much cash, this much availability, this much demand, inflation can occur. And I think like 3 to 4 years ago, people would be like, oh, inflation is not really a thing that impacts us. And so the Fed has always been a little bit too conservative about that, but like inflation is not going to really occur. And here we are, you know, a year and a half later that we have massive inflation. And so I think that it just comes from, yes, how I was trained and understanding that implicitly, there’s always cycles and we have been at the in my opinion, we were if you kind of look at peak to trough on valuations, we were getting running hot. We were running, you know, pre 2000 stock market crash hot. And so I could in time win, but I felt inevitably like valuations would drop. And so that’s why we started to be a little bit more conservative in our deployment in 2021 and the front half of this year, because we felt that dry powder would be very valuable. And now we’re seeing tons of discounts not tied to discounts, much preferential terms. It’s a lot more fun to be an investor today than it was a year and a half ago, in my opinion. [00:41:53][118.1]
Guy Adami: [00:41:54] Morgan Stanley, Carlyle Group. Andreessen any point, the easy decision would have been to stay at any one of those three incredible firms. So that’s the easy one. You made a great career for yourself, then, extraordinarily well. The tough decision is using all the pedigree and then creating your own shop, which you did. So speak to us about Wilshire Lane Capital, the value prop, what you guys and gals are doing. Get us in the weeds a little bit because I’m sure people want to hear. [00:42:20][26.1]
Adam Demuyakor: [00:42:21] You’re absolutely right Guy. I think there’s never a right time to be an entrepreneur or be a general partner. There’s always going to be a slew of reasons you can continue to accumulate more logos, more pedigree, more experience, more personal wealth, which all of those things I think can be helpful. I think for me where it became apparent that it would be a decent time or as good of a time as ever. Is that one I saw start diminishing returns, right? I felt like, okay, I’m working at one more great firm wasn’t necessarily going to be a validation or proof point that would really add too much of anything and two, I think once you start to see yourself, whenever you work for UPS or partners at another firm, when they make decisions and you start to feel like, okay, like, you know what? This is actually something I would have done differently, and you have the reason for why you would have done it differently, and then you track what that shadow decision potentially could be, and you start to see like, Oh, wait, you know what? That decision actually could make sense. It’s not now it’s like a stylistic difference. And if you feel like stylistically that difference can actually generate alpha and meaning competitive advantage in the market. That’s the time to go. And so that’s what I saw with Wilshire Lane in 2019. I felt that there were still proptech or real estate technology, you know, the Airbnb, the Compas category, if you will, now had a plethora of funds. I felt that nobody was really focusing on two things. One, partnership with private strategic real estate firms, not just the largest REITs of the world, but really like more nimble entrepreneur real estate firms. And then taking that and parlaying it into a specific focus on the early stage, I think a lot of Proptech firms had started to get focused on more and more, aum, larger fund sizes. That pushes you into the later stage. In many ways, the early stage had been vacated. And so we’re Wilshire Lane. We’re focused on having those partnerships with the smaller strategic firms and also that specific focus on the early stage being Pre-Seed series, seed series a. That’s what’s been unique about us, and I think it’s worked out so far. [00:44:21][120.1]
Dan Nathan: [00:44:21] So you use this term proptech. So it’s property tech. So talk to us a little bit about you just mentioned Airbnb Encompass. And again, these are all household names here. We understand the use cases for those. What are some things that really excite you that are just ways away, you know, like ten years from now have the potential to be as disruptive as an Airbnb to, let’s say, the hotel industry or comp the way it was disruptive to the incumbents in the real estate industry. Talk to us about some of these trends, because it’s not something on the tip of, let’s say, guy in my tongue right now. [00:44:52][31.1]
Adam Demuyakor: [00:44:53] We look at Proptech is really kind of next in line after biotech and fintech. These are also niche categories that when they appeared, people were like, hey, is this a large category? Does it actually need specialization? And now, today, I don’t think anybody would really argue. Right. Like biotech is massive. FinTech is massive. And we think that real estate, tech or proptech is really next in line. For one, it’s touching the largest asset class in the world, which is real estate. And then now you’re starting to have technology intersect with that. And so when we look at Proptech, or at least at Wilshire Lane, we look at it in two ways. One, it’s companies that are using technology to monetize space in innovative way. And so, like, that’s Airbnb. You would have an extra bedroom, an extra home that’s sitting there. Vacant technology could come on and monetize it. The second way is actually a company that sells technology outright to the real estate industry. Case in point, like a beats or like a latch or like a lemonade, they’re actually selling to commercial landlords. And so both of those work for us. We add value to those companies by actually having our strategic partners. So we have Morgan Properties, largest private multifamily landlord in the country, $15 billion a year, and they’re our anchor L.P. and our latest fund. We also have related invest in the fund l an m group, the largest affordable housing developer in New York, one of the largest housing trust group, etc.. And so we actually can add value to the early stage company vis a vis our partnerships. Dan, to your second question, as far as what are the areas that excite us? Real estate’s massive. There’s so many different asset classes and places, I think categories that we’ve done well in the past. We were one of the first investors in ghost kitchens, like how can you take back of office the kitchens and monetize that specifically for delivery only and then also self-storage, right? So we are one of the few proptech companies have invested in neighbor neighbor dot com is a lot like Airbnb but for self-storage. So if you have an attic or shed or a garage that’s sitting empty, you can put it on neighbor ecom. Your neighbor can literally put their extra ski gear, their boxes of clothing or whatnot over and pay you a couple hundred bucks a month, which would be cheaper than public storage or extra space storage. We also incubated stuff, so stuff takes that and now is monetizing the commercial spaces. There’s tens of thousands of the hundreds of thousands of that square footage that’s in office spaces. Retail spaces and stuff converts it into enterprise level self-storage. So that’s what we’ve done in the past. I think going forward we’re really focused on affordability. I think that there’s a concern now that first, I think that Gen-Z and millennials were having a hard time getting homes in the first place because, you know, a lack of liquidity and then also valuations start to run up. And now on the back half of that, now you’re having interest rates go up, right? You’re seeing 30 year fixed mortgage as being at 7%. So what we’re concerned about is that there could actually be a whole generation that gets kind of boxed out, if you will, from home ownership and may not stand to benefit from that wealth creation opportunity as well as like the tax effectiveness of owning real estate. And so we’re looking at models of how you can actually help out when it comes to affordability and access, when it comes to homeownership. And then, of course, multifamily is our strong our sweet spot with our partners from Morgan Properties. We’ve invested in companies like a shoe shoe, which basically allows renters to pay rent on time, that builds their credit better, allows them to build wealth. And then from there, we also invested in Jetty, which is a security deposit alternative and pinata, which is rent rewards and so on and so forth. I think there’s a ton of opportunities that are still out there in Proptech, particularly in an environment like this. [00:48:11][197.8]
Dan Nathan: [00:48:12] One of the themes that we hear all about is the financialization of all these different categories within our economy, and really they seem to be tech enabled. And so. Those last three examples you just gave seem to be they have the ability to become a mega-trend in a way like these were things where there wasn’t a lot of data attached to it, where the user of that service could actually benefit. It was more that kind of middle layer or the financial institution. Talk to us about will we see megatrends emerge within the financialization of property tech? Is that where we’re going? Here’s one for us. It’s like when you think about Apple. Last week they announced a high interest savings rate for their Apple card. This is not an area that ten years ago people thought that Apple would be playing in, but all of a sudden now they have a billion and a half iOS users and they have the ability to connect with consumers of all sorts and do all sorts of services, I guess, with them, that sort of thing. So I’m just curious what’s coming out of Proptech as it relates to the financialization of certain processes within the industry that you think are going to be like huge trends? [00:49:18][66.4]
Adam Demuyakor: [00:49:19] Yes, I think two trends that come to mind. One is when you’re kind of looking at millennials, right, and Gen Z now becoming decision makers and controlling more and more capital as it pertains to real estate, I think the expectations are higher in a lot of ways as far as like how to actually engage either a as a resident or B as owner occupier or so on and so forth. And so for one, like multifamily, what we’re seeing is that folks who are used to using their phones to basically navigate everything when it comes to buying things online or potentially how they order food, potentially how they access their entertainment, and then they come back home to their apartment and it’s basically very old school. If something breaks, if my toilet breaks at my door breaks, I have to email my property manager. Or even worse, I have to go walk there now I think would have been more acceptable back in like the 20 teens or 20 tens, but not anymore. These days people like I would like to have an engagement app that allows me to be able to control that experience. And I think the second part of the revolution is when it comes to like access, right? Access the financial access to real estate. Can technology help when it comes to like the fractional izing or like the divvying up of access real estate? So I think like one that’s popular, right, is Picasso that basically allows people to like work together. I’m buying a second home. It’s like, okay, so like now we can do that when it comes to a second home, which is kind of like a luxury type of item, but can we do this something similar like this for the everyday American? If I’m a person and know I’m not able to afford a house by myself, is there a way that I can do some sort of community angle where I can get friends and family to also be in pretty seamlessly? Can I also work with a group of my buddies who also work together in finance and buy a home elsewhere and then be able to monetize that home separately? Utilizing technology. Another company that we invested in is called Awning Brokerage, and so it’s very similar to Zillow, but it’s basically like Zillow, but literally for a single family rental. So help you identify a home lets you know what the yield of that home would be and then we’ll actually help you manage that home. Right. And so I think that and then from there, there are plans from like, okay, so we’ll help you identify a home, let’s help you get the mortgage and in addition to that, help you slice up the equity so you can afford it as well. We think that that’s the next part of the real estate revolution. 1.0 was more or less like knowledge. So you saw companies like Zillow and like truly are really like moved to the forefront. And I think like, you know, call like 2.0 is moving towards how can we actually get to transactions and then more access for those who want ownership or some sort of economic participation. [00:51:45][146.0]
Guy Adami: [00:51:46] Since you mentioned comp is so I got an opportunity to interview Robert Rifkin. I want to say it was 2013/14. Don’t ask me if I’m off by a year or so. But we talked about real estate and how he was bringing technology to the forefront there. And it made sense to me. But if you think about it, he was probably literally ten years ahead of his time because that’s where the world is now, clearly. But, you know, a lot of things have happened since you mentioned earlier how you’re being discerning over the last year and a half, two years. And I’ll say this, your job was probably very difficult when money was free and valuations didn’t matter. And you probably passed on a lot of things that other people were jumping at. But now that the world is coming to some sense of normalcy, this is where you make your bones. So I’m curious, speak to the process at Wilshire. I’m curious as to how do you think about things? How do you get together? How do you create not opportunities but decisions? [00:52:38][52.3]
Adam Demuyakor: [00:52:40] So for us, we’re very thesis driven guys. So for one, we don’t think that all categories in Proptech are great. There are many categories that we’ve skipped on in the past. For example, we have thought the idea of short term rental, right, where you literally take over a multifamily building and convert it into a hotel, would have issues. And there’s a graveyard of companies that have now tried to do that. So we passed on that category. So not all categories are equal. And how we identify the categories we like is like we’ll go into it will identify how real estate can help unlock it. And we try to identify what are the growth potential of that. And we typically like to see, you know, 10 to 15% year over year category growth. We think that that’s great for potentially building big businesses and we like to see large hands. Once we have that, then we go into the companies in the spaces that actually we think that technology can unlock our next level of growth in that space. That’s like what ghost kitchens were. What these self-storage businesses I mentioned, we’re also looking at e-commerce and last mile fulfillment, right? People want to be able to be able to buy something and get it in 2 hours or get it in 3 hours. You have to have some sort of real estate component that’s closer to the end user and you have to have technology on top of that. So that’s another category we like. And then from there, we identified all the different companies that are in that space and we underwrite them on a case by case basis. And so we look at the normal things that most venture capitalists look at, like, who are the other investors? The founders found a problem fit. Is there someone who has a track record of beating adversity? Is there diversity in the team as well? Right. Something we’re willing to look at. And then from there, identifying, underwriting the company. So, yes, there’s revenue growth, but is there also solid, unique nomics? Additionally with that, how much money has to be spent to generate a dollar of net revenue back? That was a big problem. Case in point with like we work we work was growing very quickly with the amount of capital outlay that it had to produce in order to receive those dollars back was not worth it. And that’s why we wouldn’t have invested in a company like that later stage. And then we also look at the financial performance, look at the gross margins, all of that, and we kind of line up all those in our investment criteria. And then from there, look at the companies, identify where the weaknesses are, these weaknesses that are permanent weaknesses or weaknesses that can be overcome over time. And then we will make our decisions as a team and then, you know, we’ll typically look for feedback as well from our strategic partners, right? So if we ever see part of like Morgan Properties or Related, we’ll reach out to them and say, hey, like, look, if we invest in this company, what are the prospects that you actually will give them a portfolio level deal in the next year, year and a half? And if they say yes, that’s extra information that we can flow into our process, letting us know like, hey, there’s some baked in revenue here. So it’s a fully and all encompassing process, but I think you’ll see us go a little bit further on granularity when it comes to the financials and an economics in capital efficiency, because we’re just not one of those types of firms. That’s like growth over everything. It’s like kind of growth, but like at what cost? [00:55:24][164.6]
Dan Nathan: [00:55:25] Let’s go back to the macro for a second, because you just mentioned earlier this lag from the public markets to the private markets. And obviously, Guy and I don’t have too many opportunities to talk to HBS scholars like yourself have also been practicing at such a high level. But I’m assuming that your portfolio companies really are interested in what you have to say about the macro and your experience with different interest rate environments. And like right now we have currencies going berserk and the stock market’s down 25%. And so the lag traditionally is, what, 6 to 9 to maybe 12 months from public markets to private markets. What is some of the advice that you’re giving your portfolio companies about the macro environment, how long you think the sort of volatility in the risk assets that matter to them, that matter to a U.S. consumer, that matters to an enterprise that’s looking to rethink how they focus on their own real estate. I’m just curious, what are some of the things that you’re focused on, the advice that you’re giving right now? [00:56:22][56.7]
Adam Demuyakor: [00:56:23] So this has been a common theme throughout this year. I feel like this year we’ve been talking to our portfolio companies probably more than ever because they’ve needed more help. More advice is that advice that we have given has been, I think, for one, focus on cash. Cash management is very key. Do you have a good capital efficiency ratio, like what I mentioned before, how many dollars are you burning on a monthly basis to generate how much you’re producing? On a net revenue standpoint, the greatest companies can go one for one. Literally, they’ll generate 200 K of net revenue in a month and they’ll also burn 200 K of net revenue that same month to get there. Right. These are early stage business of an early stage business can do a 1 to 1 ratio. That’s fantastic. We like to see 2 to 1 ratios at most beyond three. I think you start to get in trouble and then also your unique economics. Are your payback periods efficient? Are you actually having the right types of customers or you’re having customers that stick with you and have good retention and aren’t necessarily just churning forever? And then I think from like looking at the macro, I actually wrote an email out to our portfolio companies back in April. It was titled Now is the Time and now is the time to be conservative and try and play defense and try and pay attention to ways that you can survive. So if there’s capital that you’ve left on the table, go back and go get it. Go raise instead of around $0.06. You can if you think you can raise around now, go ahead and raise it now. Take cash. You need to survive right now. Like the motto is Survive, survive now and then you can thrive later. And I think the bad news is that inflation has subsided. There’s no reason to think that the Fed is going to slow down dramatically between now and the end of the year. So I think there’s going to continue to be more and more pain. But I think the good news is that prior to all this happening, there was record breaking numbers of capital raised in venture capital, tens of billions of dollars, the largest funds ever. And so that capital is still there. I think the venture capital community will come back off the sidelines, but it may take until the middle of next year. And so I think that if you can survive as a company, if you. In make your cash runway survive until the middle of next year, at least. And you could show a good business model while doing so. I think you can be rewarded because there’s going to be less competition. A lot of companies are going to die between now and then. You’re going to look better and there’s going to be VCs are going to be trying to get off the sidelines that need to put money to work. And so the general advice stand that we’ve been giving them is survive now, thrive later. But it’s not going to be into perpetuity. I think if you give it a year or so, there will be a great opportunities on the other side and less competition for you. [00:58:53][150.8]
Guy Adami: [00:58:54] Luke 1248 poorly written book was written a long time ago. To whom much is given, much is required. I’m not suggesting you were given anything. None of us were given anything. But the point is, you know, when you’ve accomplished great things, a lot is required of you. And I happen to agree with that. You’ve accomplished great things, but you’re giving back. Talk to us about nine dots and some of the philanthropic efforts that you’re doing. [00:59:13][19.4]
Adam Demuyakor: [00:59:14] I agree with that completely. Too much is given. Much is required. A central part of my family’s ethos. My ethos and flows to our to our firm. But me personally, yes. Nine dots, I like to say jokingly, but also serious in a lot of ways. Nine dots is the best thing that I do. So I’m on the board of 9 dots. 9 dots a nonprofit organization which basically helps children in Southern California. The poorest children have access to subsidized computer science. So it’s not necessarily like other programs where you have to do it after school or before school or summer camp, which are great. But there’s a lots of impediments to a lot of the poorest children. Why they can’t study computer science after school. They have to get back to their families and have other responsibilities. And so 9 dots literally will just plug in computer science courses into the existing curriculum at these Title One schools. And so it’s just like technology class. So they go to P.E., they go to art, they go to math, and after that, they go to technology. And they literally are learning computer science how to code and actually getting some level of proficiency. By the time they graduate from high school, they can go to college and go to a CS program and succeed. You know, for me, going into computer science was not even it wasn’t even in the cards. When I first attended Harvard, I was just so massively intimidated by it. I just didn’t. So I just went to economics, sociology, kind of like everybody else who’s interested in finance. But I think that on a go forward basis, for those that are now going to college, I think being illiterate when it comes to coding and computer science will lead you at a big disadvantage. I think it’s going to be key. There’s technology is touching so much of what we do. And then also, you see wealth creation from wealth creation standpoint when you see these companies go public. I pulled up the Lyft S-1 and you looked at what percentage of the engineers that were there that stood to benefit from this liquidity event. And you’re really talking about less than 5% of these engineers are black and brown. And so not saying that necessarily we need to create more superstars, more of the Rob Rifkin’s of the world, if you will. But just a young child who studied computer science growing up, has access in high school and then can go to college and then have a good job if you. All my portfolio companies one of the things they all have in common is that they need engineers. They can’t get enough of engineers. There’s a dearth of talent. If you can have these younger, black and brown or poor students have access computer science, they’ll probably have a good job for the rest of their lives and be able to provide for their family. So nine dots is at the crux of that. I initially found them by asking the question I was asking like, why aren’t more people that look like me pitching Andreessens of the world or pitching, you know, the fifth balls of the world or the Wilshire Lanes? And I was told it was a funnel issue. The problems in the funnel, we would hire them, we would invest in them, but there’s not enough coming through the door. And so I kept asking why. And I pointed to while there’s a lack of technical talent when it comes to some of these groups of people, and this is inclusive of women as well. And so I was like, okay, if that’s the case, let’s go to the funnel, let’s go to the source and let’s try and fix it. So I’m just trying to do my part however I can. [01:02:08][173.2]
Guy Adami: [01:02:08] A lot of people try. Very few people succeed. You’re succeeding. So congratulations. We have a really interesting audience that listens to these. Tell the audience how they can find you and they’re going to find Wilshire Lane Capital. [01:02:18][9.8]
Adam Demuyakor: [01:02:19] Yeah. So you can go to our website, WilshireLaneCapital.com. If you’re a company or a real estate strategic partner that’s looking for a venture firm like us that’s fairly nimble and will help you get access to technology. You can email us at info at WilshireLaneCapital.com. You also find me on LinkedIn or why not? I’m fairly accessible. This conversation was was awesome catching up with you guys. I think we’re in interesting times, but what’s exciting is that I think you actually have to just be a good investor to survive. You no longer will get just a trophy for playing, so I’m excited to see how this all shakes out in next couple of years. [01:02:53][33.3]
Dan Nathan: [01:02:53] You’re speaking Guy Adami’s language there. Adam, listen, it was our sincere pleasure. We don’t offer participation trophies around here on Joey Guy. [01:03:02][8.9]
Guy Adami: [01:03:02] Now, nor should anybody. But that’s another conversation for another time. Thanks, Adam. Thanks once again to CME Group and I connections for sponsoring this episode of On the Tape. If you like what you heard, make sure you hit, follow and leave us a review. It helps people find our show and we love hearing from you can also email us at on the tape at risk reversal. Dot com any time. Follow and connect with us on Twitter at on the tape pod and we’ll see you next time. [01:03:32][29.3]
Dan Nathan: [01:03:33] On the tape is a risk reversal media production. This podcast is for informational purposes only. All opinions expressed by me and Nathan Guy, Danny, Danny Moses and any other participants are solely our opinions and should not be relied upon for specific investment decisions. [01:03:33][0.0]
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