VALUE: After Hours (S02 E12): Deploying Capital, 4 Horsemen of Coronapocalypse and Local Helping

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In this episode of the VALUE: After Hours Podcast Taylor, Brewster, and Carlisle chat about:

  • Managing Capital In A Downturn
  • The 4 Horsemen of Coronapocalypse Who Saw It Coming
  • How Can We All Become A Positive Force In Our Local Communities
  • Plus Or Minus Five Months From The Bottom Doesn’t Make Much Difference To Long Term Returns
  • Expect An Explosion In Innovative Projects From Workers Forced To Work From Home
  • Do Airlines Deserve A Bailout
  • Does Berkshire Use Its Cash For Acquisitions Or Buybacks
  • Which High Profile Hedge Fund Will Blow up First
  • Is Now The Time To Invest In Gold

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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Full Transcript

Bill Brewster:
What’s going on?

Tobias Carlisle:
Zero eyeballs. I got three thumbs up. I don’t know how that’s happening.

Bill Brewster:
Okay. Well, that’s fine.

Tobias Carlisle:
All right. Look, let’s just get underway. They can watch. We’ve got 21. We just bounced up. Here we go. We got some people in the room.

Bill Brewster:
No, 10. There’s only 10. There can never be more than 10.

Tobias Carlisle:
There we go. We got a few people. Hey, what’s up Har and Patel? There we go. We got a few folks. All right. We got lots. 41.

Bill Brewster:
Welcome to markets in turmoil, live edition.

Tobias Carlisle:
We’re getting some good numbers. Hey Ian Cassel, how you doing?

Bill Brewster:
Hey, what up Ian?

Tobias Carlisle:
52. We got some good numbers here. All right. Let’s get underway.

Jake Taylor:
Get rolling.

Tobias Carlisle:
This is Value After Hours with my amigos Bill Brewster and Jake Taylor. We’re going to be talking about corona-pocalypse as always, big market sell off. Bill, what’s your topic?

Bill Brewster:
I’m going to talk about how I’m thinking about deploying capital right now and sort of managing through this.

Tobias Carlisle:
Nice. And Jake, what’s your topic today?

Jake Taylor:
What capital? I’m just kidding. I’m going to be talking… I’m actually going to be talking about things that maybe we can do in our own local communities to be a positive force during a difficult time.

Tobias Carlisle:
That’s a good one, and I’ll be talking about the four horseman of the corona-pocalypse, the guys who predicted not necessarily that eating a bat in a wet market in China would lead to a 30% sell off in the states. But the guys who foresaw something coming for other reasons. Normally what I’d say we’d talk about it right after this, but it’s not like we’re running a…

Bill Brewster:
We’re talking right now.

Tobias Carlisle:
We’re going live. So Bill, you want to kick it off?

Managing Capital In A Downturn

Bill Brewster:
Yeah. Sure. I guess so. So I sort of wrote to… I’m running the family money or whatever, so I wrote them a note recently and talked about how I was thinking through managing capital in this downturn. And I sort of got some feedback from some people that I talk to that said that maybe my allocation was maybe a little defensive. And I guess just taking a step back, the way that I sort of think the most probably way this all plays out is right now I don’t think it’s an exaggeration to say that this is a war against a virus. So I think that we do, as humans, I think we ban together and we try to do this, accomplish this goal and bend this curve for, I don’t know, a month or two. And we’re going to get more data, and we’re going to figure out where we are. And I think that once we get the data, we’re going to be able to sort of adjust to the normal of life, whatever the heck that looks like over the next couple months.

Bill Brewster:
And either we are going to lose this war and life is going to continue and it’s going to be super painful, and we’re going to lose a lot of people. Or we’re going to win it, and life is going to continue. And I think it’s actually going to be pretty fucking awesome to see humanity do what we are trying to accomplish. Either way-

Tobias Carlisle:
We need to give a trigger warning. There might be some… Because we’re doing this live, we’re going to swear. We’re going to be normal. So if that’s the kind of thing that offends you, then perhaps you should tune out right now.

Bill Brewster:
So yeah, I mean, the point of this podcast is sort of to be a little bit informal.

Tobias Carlisle:
Honest. This is how we actually talk to each other.

Bill Brewster:
That’s right. So the job of an equity manager is not to worry about, in my opinion, what the next four to six months looks like. The job is to figure out what it looks like 18 to 24 months from here. And all of this conversation obviously needs to be caveated with the fact that we are doing a live podcast because crazy stuff is going on in the world, and we don’t want human suffering. But-

Tobias Carlisle:
We’re only down 10% yesterday, and last time I looked, we’re up about 4% today, which is like that’s a good quarter.

Bill Brewster:
That’s right.

Tobias Carlisle:
When we’re releasing these 10 day after the fact, nothing was happening. That was fun, and then all of a sudden we’ve been moving like 20% in the interim.

Bill Brewster:
Yeah. People are like, “What’s going on?”

Tobias Carlisle:
People are like when we did that one at 1.4 and then by the time it came out, the 10 years at 50 beeps.

Bill Brewster:
Yeah. I mean, talk about things I may have to eat crow on. Everything I’ve ever talked about corporate bonds, like those guys may end up owning every asset intensive industry out there. There’s some Fulcrum asset somewhere that’s going to make guys a ton of money.

Bill Brewster:
But anyway, I got some pushback or not pushback but some feedback on how I’m positioned right now. And the way that I’m thinking about it is I need to make sure that I survive this first. Buffett and Munger, their core teaching to me is do not sacrifice what you have and need for what you don’t need. The upside is not worth sacrificing the ultimate downside. And then the other part of it is to the extent that I am sort of defensively positioned, I want to wait for that real opportunity that can sort of step change my life to really make a bet.

Jake Taylor:
Up or down?

Bill Brewster:
Well, hopefully up. I mean, I think right now if you’re looking at certain things and you have a view that the world continues again in 18 months, there is almost certainly cheap stuff out there, or at least really reasonable. You got to get through a lot of fear and you got to be willing to take a lot of risk. I mean, it’s not free. And I think asset allocation sort of protects you against the possibility that the system collapses for lack of a better term. And I don’t know where you hide in that scenario. [crosstalk 00:06:24]

Tobias Carlisle:
Shotgun shells.

Jake Taylor:
You’re positioning right now fetal or-

Bill Brewster:
No. I am honestly the most bullish that I have been in probably over a month. For the first time, I’m actually seeing our policy response as a nation come together, and people realize what the fuck we are up against. To me, that’s pretty encouraging actually, and I think the next six months are going to be really, really scary. And if you’re holding a business that has operating leverage, that is not really the bet that I want to make right now. And maybe those bounce back harder than anything. I don’t think I’m willing to catch that knife. But there are other knives that I’m willing to look at.

Jake Taylor:
I think it’d be fun to… You guys remember FOMO?

Bill Brewster:
Yeah.

Jake Taylor:
That felt like not that long ago, but now it’s like I haven’t heard… Nobody’s fearing of missing out anymore.

Tobias Carlisle:
There’s lots at the supermarket. If you’re trying to get toilet paper, there’s lots of FOMO.

Jake Taylor:
That’s true.

Bill Brewster:
But look, I think the important thing to remember is that it is true that there was a lot of FOMO. And it goes back to the pin tweet that after this podcast I’m going re-pin that [Skillicap 00:07:38] tweet where at the top, everybody things that we’re going to grow and grow and grow and grow and grow, and at the bottom, everybody’s worried about tomorrow.

Tobias Carlisle:
Well, here’s my question. How do you know it’s the bottom?

Bill Brewster:
You don’t. That’s why I don’t have that kind of confidence in myself.

Tobias Carlisle:
Because just on that point, I’ve seen apparently you’re not allowed to call tops. That’s considered bad manners, but you’re allowed to call bottom whenever you want. I’ve seen blokes that hate calling… Just firing off the bottoms like they got unlimited ammo.

Bill Brewster:
I’m not calling a bottom. I’m just saying if you are willing to take equity exposure and you’re willing to look out two years, I think that there is a reasonable chance that with that exposure, there are good deals out there to the extent that you don’t want to take the exposure. I mean, right now it’s survival mode. I wouldn’t fault anybody for taking less.

Jake Taylor:
Isn’t it funny how things change? And this is actually a shout out to Ian about what people worry about as far as you can look at the financial statements. And we go from revenues the only thing that matters at the very top, to then maybe sort of income statement. More generally, maybe some earnings. Then we work our way back to balance sheet, and now we might even be all the way up to the top of the balance sheet where it’s just the current assets and liabilities that matter the most and maybe even all the way up to cash.

Bill Brewster:
That’s why I sold airlines when I did. I was asking people liquidity questions, and everybody was answering with balance sheet. And I was like no. You’re not having the right discussion right now. The world has stopped and it may remain stopped for four to five months.

Tobias Carlisle:
The greatest investor in the world, Ray Dalio, he says that cash is trash. When they were hemorrhaging into the market over the weekend, do you think he still felt that cash was trash at that point?

Bill Brewster:
I would suspect not. Thank you for listening, Ray. Sorry for taking a shot at you.

Tobias Carlisle:
Just tune in in the comments, Ray. I’ll get you on the pod.

Bill Brewster:
He’s got the text message thing, man. He doesn’t need to shoot us this.

Tobias Carlisle:
Yeah. So-

Jake Taylor:
I’m going to stay out of that one.

No One Knows Where The Bottom Is

Tobias Carlisle:
To summarize Bill, you don’t know where the bottom is. But looking out two to three years, you think now’s a pretty good time.

Bill Brewster:
Look, I don’t know the answer to the question. I mean, I think anyone that knows is lying or thinks they know is lying to themselves. But I see a couple paths going on, and I think that we either beat this virus as a species or it beats us and we go on. And sadly a lot of people have to die. And I hope I’m not one of those people. I hope my kids aren’t one of those people. But at the end of the day, at some point, we got to make a choice. I don’t think we’re going to sit here for two years like this. I mean, we do that, all bets are off. Everything crashes. At some point [crosstalk 00:10:27]… Well, no. At some point you say, “Damn the torpedoes,” and you go. But right now thankfully we don’t have to make that choice. We’re trying to gather the data.

Tobias Carlisle:
Can I just ask the guys who are watching at home, can you see each other’s comments? Is it under the stuff that I put up under the screen because I just don’t know how this works. I feel like Dick Vandycke can in that Mary Poppins. I’m like playing the symbol and trying to put everybody’s comments up. I’m hardly following the conversation at all. Sorry fellows.

Bill Brewster:
I can tell. I suspect you look right now like I look when my wife talks to me sometimes, and she’s like, “Are you actually listening to what I’m saying?”

Tobias Carlisle:
I shouldn’t have injected the cocaine.

Jake Taylor:
The Charlie Brown parents. Wa-wa-wa-wa-wa.

Bill Brewster:
So yeah. So anyway, I don’t know.

Jake Taylor:
Let me ask you this, Bill. Don’t you want to see one quarter’s worth of financials-

Bill Brewster:
No.

Jake Taylor:
… before you get too far? No?

Bill Brewster:
What do you need to see it for? If it’s got operating leverage, it is trash. Assume revenues are nothing.

Tobias Carlisle:
All right. Everybody can see everything. Awesome.

Bill Brewster:
I mean, the world’s stopped, man.

Tobias Carlisle:
Well, that’s cool. So I don’t need to add them. You guys can see all… I’ll just add them. Can you, Bill and Jake, can you see the comments when I throw them up there?

Jake Taylor:
No. But it’s all right.

Bill Brewster:
I mean, look, I think by the time that you want your certainty, a lot of this stuff is going to have moved. And you don’t have to go all in and be the hero. But there are businesses out here that are printing money, like Charter for instance. Every single person is paying their broadband. Their shares are way down. I’m not saying buy the stock. Do your own work. But Tom Rutledge is buying the stock right now. So if you want to wait, you got to wait. But-

Plus Or Minus Five Months From The Bottom Doesn’t Make Much Difference To Long Term Returns

Tobias Carlisle:
Here’s a counter point, a nice tweet from [EddieElephbane 00:12:16] yesterday. He said, “Plus or minus five months from the bottom doesn’t really make much difference to your returns over the long run.” So given that that’s the case, why wouldn’t you just say, “Look, I’m going to wait, have a look at a quarter’s worth of 10 Qs. And then I’m going to make my decision.”

Bill Brewster:
I mean, I think that’s sort of what I’m doing with the defensive posturing and asset allocation. But within the equity portfolio, I’m not going to go to cash and wait. I mean, I think that’s sort of a separate question. I think first question is how much do I want to risk, and then once you answer that, it’s like a decision tree. Within what I want to risk, I’m not going to wait. That’s crazy to me. Then you shouldn’t have risked it.

Jake Taylor:
I do agree that you can’t wait for the robins to start chirping to know that it’s spring time in this game, as Buffett said. But at the same time, I know we’ve gone down quite a bit in a very, very rapid amount of time. But it still feels like this is kind of early in the whole thing to me.

Bill Brewster:
Of course it does. It’s terrifying right now. The deaths haven’t even come in yet, and they’re about to. And that’s going to suck. But, I mean, you kind of have to think through that in my opinion. It’s sick. It’s sad that I’ve had to do it, but I’ve tried to visualize different paths of how this stuff works out, and I don’t know, I might be wrong. But that’s why I’m defensively postured to the extent that people think I am.

Tobias Carlisle:
I think-

Jake Taylor:
Toby, what do you think? What you’re kind of deploy strategy?

Tobias Carlisle:
My strategy’s about 20% cash. I got some shorts at about 20%.

Bill Brewster:
I’m 34 when I’m talking, right?

Tobias Carlisle:
I’m 100% long a whole lot of stuff that I think is undervalued. We’re about to go through a rebalance, so I have my list of stuff that I really want to own. I’m astonished at the stuff that is available out there. I think it’s just nose bleed cheap, not nose bleed. Whatever really, really cheap is. I forgotten what the word is because it’s been so long since I’ve seen any of it.

Jake Taylor:
Pound the table.

Bill Brewster:
I think it’s called drooling.

Tobias Carlisle:
Drooling cheap. Yeah. Well, I’m drooling cheap. Whatever it is. There’s some stuff out there that I think is really cheap. I think you got to go right into the center of the pain to really get it, which means I already hold an airline. I’ve got some energy. I’m going to get some insurance. Just going to… Stuff that’s got healthy balance sheets, lots of cash flows. I don’t think you can go very wrong. These values are very good. Some of them I think they’re prime for some very big returns over looking at three to five years.

Bill Brewster:
I think if you wait, I think… I mean, it’s almost certainly not a bottom. I don’t think you can catch bottoms. But I think that you’ve got to at least contemplate the bull case here. And I understand why it’s really easy to be bearish because it’s super, super scary. But-

Tobias Carlisle:
What does that mean? What does it mean to be bullish and bearish? I don’t really… I do understand what the terms mean, but in the context of investing, I think that the market’s going to get the shit kicked out of it here. I still think there’s lots more to go. But equally, I think there’s some undervalued stuff that’s going to do very well over like three to five years. So what happens in the interim is unpredictable. It’s completely unknowable over the next quarter to whatever. They’ve just injected… I’ve lost count of the number of hundreds of billions that have been stuck into the market by the fed and handed out to folks by the government. So I have no idea what that does.

Is This The End Of ‘Just In Time’ Inventory Management

Tobias Carlisle:
If you shoot a whole lot of cocaine into the system, there are probably people who’ve passed that get up and start dancing again. But I don’t know that that necessarily solves the problem for the longer run. I think the problem’s more we’ve been running just in time. We’ve been optimizing for efficiency. We may have to start optimizing a little bit more for resiliency. What does that do to incomes? What does that to earnings? What does that do to balance sheets? Maybe balance sheets get more cash on them. Maybe we earn a little bit less. I don’t think we know really what’s happened here, but I think you can simplify your life just by looking at individual companies and figuring out what each of those is going to do.

Bill Brewster:
Yeah. I think you’re almost certainly right. I hope you’re right. I do think that we probably need to worship return on invested capital a little bit less and worship resiliency a little bit, and maybe not pay CEOs in huge options that incentivize some of this behavior.

Jake Taylor:
[inaudible 00:17:11]

Do Airlines Deserve A Bailout?

Bill Brewster:
Yeah. Like that guy from Boeing needs to lose everything. If we’re going to bail out Boeing, screw that guy. And I’m sorry if you’re one of the 10, but I’m not sorry. I mean, you pull that move on that company and leave it in this financial condition to throw to the taxpayers. I am not cool with that.

Bill Brewster:
But I just think to your point, Toby, everybody wants to say, “Hey, time arbitrage is my advantage.” Okay. Right now is when you can play a time arbitrage game.

Tobias Carlisle:
That’s right.

Bill Brewster:
And it is scary. But this is it. It’s super easy to be long term when everybody’s joyful.

Tobias Carlisle:
How hard is it to buy Berkshire here really? I mean, every time I say it’s cheap on a price book value basis, everybody says, “Well, that’s a 1231 figure, and all of that stuff’s fallen.” I’m like do you want to be technically correct here, you giant nerd, or do you just want to make some money? I’m in the money making business. You want to buy it when it gets cheap, and this is a good opportunity.

Bill Brewster:
Okay. So the way that you view that happens to be the same way that I view something like Charter right now. I think if you look at Markel, I think Schwab has gotten blown apart. And I understand that rates are zero. If you think rates are going up ever, that thing is a bulldozer collecting assets. Don’t buy them unless you know what you’re doing. But there are opportunities out there depending on the type of bets that you want to make. That’s all I’m saying. Or don’t buy them. I mean, that’s fine too. But this is what risk looks like, and it’s terrifying.

Jake Taylor:
Toby, do you have any concerns about the metrics that you are keying off of when you’re doing a quantitative kind of a screen? Having so-

Tobias Carlisle:
Yeah, I’m worried they don’t work. What else are you looking at? What else can you use?

Jake Taylor:
Well, I’m worried I’m wrong about everything because I like the airlines for a while.

Tobias Carlisle:
I’m told you can’t use historical data because that’s already happened, and we’re looking forward. But what data are you using? What future data are you basing your decisions on? That’s what I want to know. How do I get access to that?

Jake Taylor:
Okay. That’s fair. But my point is more that maybe things have moved faster than at any other previous time.

Tobias Carlisle:
87 is pretty quick.

Jake Taylor:
That maybe then hanging your hat on quantitative backward looking is maybe apples to oranges more at that point.

Tobias Carlisle:
Well, how do you-

Jake Taylor:
I don’t know. Just something that I would be thinking-

Tobias Carlisle:
But what… You mean in terms of using earnings and cash flow figures that are historical because we’ve gone into this universal or this world now where they’re going to materially depressed. So now you’re expecting earnings to be at 100 and your P/E is 10 based on 100. And it turns out earnings are at 50, in which case your P/E is really 20. Right?

Jake Taylor:
Yeah. Or maybe even-

Bill Brewster:
Just this year though. This is what normalizing earnings means, right? So you can’t just look at the next six months. You got to have a company that makes it through. There could be a lot of bankruptcies. The equity could get wiped out in a lot of this stuff. But this is part of normalization.

Jake Taylor:
Let’s draw back to like a biological kind of a thought experiment, and if you take an ecosystem and you really shake it up, the survivors and the previous incumbents can often change seats very rapidly. So if you’re betting on reversion to the mean, which is sort of implicit in all quantitative based values type of investment, maybe it doesn’t quite… The biology would say, “Well, shit. Maybe some of these companies are…” Some are earning more than we would’ve ever thought. Some are earning way less, and they’re not making it into your screen because things have been so dramatically upset. The apple cards been changed so much so quickly.

Tobias Carlisle:
I don’t use a single metric though. Acquirer’s Multiple is a very good one. It’s the best of all of the metrics. Single year is fine. But if you’re looking at other things, like making sure they’ve got the cash flows there. Looking at where they have traded on an ensemble of metrics is a good idea. Making sure the balance sheet is healthy, making sure there are no indications of fraud or earnings manipulation, all those things. If you’re going that process and something looks undervalued, even if the earnings… I mean, I’m trying to buy stuff where the earnings are largely depressed in the expectation that they’re going to look better on the other side. And that’s one of the reasons I don’t like return on invested capital. I do think there is a place for it. If you’re trying to buy the compounders, that’s the time to use it. Using free cash flow on return in investment capital, that’s… And then doing a whole lot of work on the business itself, that’s perfectly fine. That’s a perfectly fine way to invest. It’s incredibly difficult. There are not very many people who can do that very well. For the very vast majority of people, simpler metrics are going to be a much better way of going about doing it, and I include myself in the very vast majority of people.

Jake Taylor:
I don’t think you’re wrong. I’m curious what your current thoughts are on kind of an unprecedented shift in fundamentals versus potentially market prices.

Tobias Carlisle:
To Bill’s point, do you are really think this is… I think that we get through these crises pretty quickly, right? When I say pretty quickly, I think a year is pretty quickly. I think that we get through it. Everybody’s very adaptable. I spoke to four guys yesterday who run substantial businesses. They’re all positive, adaptable. They’re looking at new business and thinking that might not come in. Losing some of the old business, having to adjust some things. But this is what I always say that management in businesses that suck, they don’t just sit there and watch the business fall to dust. They try a whole lot of stuff. You can look at it happening with… I’m not necessarily advocating for the stocks. I don’t particularly like it, but it has been cheap. Had a go at it, didn’t really work out. GME, GameStop. They’re trying lots of different things. I don’t know if any of them are going to work.

Bill Brewster:
Relative strength lately.

Tobias Carlisle:
Because it’s already four to zero.

Bill Brewster:
It’s not actually down that much anymore. We’re [inaudible 00:23:45].

Tobias Carlisle:
But they’ve got an interesting approach now. They’re going to turn them into… As a gamer, do you want to go and hang out at a gaming version of Starbucks? I think that’s kind of an interesting idea. I don’t know if that’ll work or not, but I think it’s an interesting… It’s worth trying.

Jake Taylor:
Not for the next six months, but yeah, maybe eventually.

Bill Brewster:
And that’s the thing. So I think that the biggest question is what’s your burn rate and can you make it through? Obviously you’re making a call on how long this duration is. What I’m telling you is I happen to think that after two months, we are either going to get, the data is going to start declining, and then the banks and everybody are going to be like, “All right. There’s a clear end in site, and we’re going to provide liquidity.” Or the data’s going to be so scary that we say, “We got to go forward,” and hopefully everybody makes it. But I don’t think we crash the entire system over this, and I could be totally wrong. If I am, Peter Schiff is right. But right now gold’s getting crushed because this is really deflationary in the short-

Tobias Carlisle:
The thing is everybody just sells whatever they’ve got. Nobody even looks at what they’re selling when they get scared enough. Gold is probably going to work out from here in that everybody’s tipping out. That’s what happened last time as well.

Bill Brewster:
But there are certain stocks that are too. I mean, there’s good businesses out there that are selling at a much more discounted… I understand that the valuations might have been stretched before. I think it’s hard to argue on some of these things that they’re not at least reasonable.

Bill Brewster:
But ABM Dev was one that I was thinking of. That’s one that I’m glad I’m out of. I think that actually comes out Thursday. But with all that work on the negative working capital side of that business, the ironic thing right now is when your sales slow, you got to make all your payables and your AR’s not coming in. I mean, that working capital shrink is actually death right now to them, and that entity just stopped. And they have a lot of fixed costs and the interest expense… That is obviously unholdable to me right now. But there are other things out there. I don’t know.

The 4 Horsemen of Coronapocalypse Who Saw It Coming

Tobias Carlisle:
Fellows, let’s move on to another topic. I’ve got a comment up on the screen. I don’t think you guys can see this. But I’ll just read it out for your purposes. “Unless you believe that the stock market was a bubble before the virus outbreak, there is no way you can justify the sell off, even if companies post zero revenues in the next year or so.” So this dovetails with my topic, which was I agree with all of the hot takes that… Someone did the mad libs for if you could’ve predicted that someone was eating a bat in a Chinese wet market or whatever it is that a pangolin that led to a big sell off in the stock market here and come down and collect your prize. You’re right. Nobody was going to get the precise detail of the thing that led to the big sell off.

Tobias Carlisle:
However, there are lots of guys out there how have been talking… Now I’ll just talk about a few of the things that I watched that we all had plenty of notice of. Mick Faber did a great… So the yield curve inversion as the first thing. Cam Harvey did his PhD dissertation on it I think. In back test it worked really well. I think his PhD dissertation, I’m not entirely sure, but I think it was late ’80s, early ’90s. Basically it’s had no false positives, and it’s preceded every single big sell off that we’ve seen. And I don’t think it’s so much as an indicator that the stock market’s going to sell off. I think it’s an indicator that there are some financial difficulties under the hood when the front stocks getting more expensive than further back through the term structure.

Tobias Carlisle:
So yield curve inversion. On average, from the yield curve inversion to the sell off or the recession, I think it’s about 10 months. And he made his announcement in about June last year. So it’s basically right on time. And then he went on Mick Fabar’s podcast, and he talked about it. He went on a podcast with Josh Brown and I think Michael Batnick and talked about it on that. Got picked up in Business Insider. It was everywhere for a while, and everybody just kind of forgot about it. And then now we’ve gone into a sell off.

Tobias Carlisle:
One of the things… Now I acknowledge that this indicator is less good than it used to be, but value selling off is an indicator that something is coming in the market. If you listen to my real vision interview with Chris Cole, he says before he asks me one of the questions that it’s one of the metrics that he tracks to look at what he thinks is coming in terms of volatility. So when value starts underperforming, that leads to sort of like a precursor to some big sell off.

Tobias Carlisle:
And then you remember Cliff Asness wrote that paper where the six weeks of just being punished for being a value [crosstalk 00:28:44]. Arguably that was a pretty good harbinger of something coming.

Tobias Carlisle:
New York Fed has this recession odds at 30%. That was a little while ago, a month or so ago. If you go and look at that indicator, that indicator does… It doesn’t give very many false positives. Last time it kind of spiked like this was 2007, and the time before that was about in the 2000s I think. It’s a pretty good indicator. And then on top of that, as we’ve discussed before on the podcast, there are a lot of value indicators. Cape. I know that Shiller P/E is kind of… People don’t really like it because it gives them the wrong answer I think is the real reason, not because it’s indicating anything. Not because it’s wrong because it disagrees with what they think. I think that the Shiller CAPE was silly high. It was over 30, and now it was 22 or something the last time I looked at it. Long run means 16.7. long run means the long run mean for a reason. It’s because we traded below that for a long time. I don’t know if that’s the real mean. I think if you look at the mean over the last 20 years, it’s probably higher. Look at the mean over the last 30 years, it’s probably a bit lower.

Tobias Carlisle:
So I think that you didn’t necessarily have to know the precise nature of the draw down or the precise cause of the draw down to have some sort of inkling that something was coming. And there were a lot of pretty reliable indicators that said rather than looking at the stock market, just like the global economy was in a little bit of a trouble. The global economy was starting to cool a little bit. And often that leads to some weakness in the stock market.

Bill Brewster:
Yeah. I think both things can be true. I think the argument… So that statement that was posed said if you don’t think the market was in a bubble, and I’m going to add or overvalued, there’s no way that this sell off is justified if earnings are zero. Okay. Well, I think you just went through most of the reasons that maybe people disagree that the market was valued appropriately. I also agree with the fact that if you are running a DCF and your one year is zero, it actually doesn’t impact the value 30% on most companies. Ironically, it actually hurts the ones that are front loaded the most. But I think both are true. I think liquidity is going to determine investment results over the next two years.

Jake Taylor:
[crosstalk 00:31:14]

Bill Brewster:
So liquidity, you should be okay. If not, you’re screwed.

Jake Taylor:
Maybe that’s a partial explanation for why value is sort of that canary. It leads into the eye of the storm because it tends to be more front loaded in what you can measure today. So maybe that gets whacked first potentially if you start discounting things.

Tobias Carlisle:
I just think the bid goes away. I think value guys are a little bit more disciplined for the most part. What happens at the end of a bull market is people look at price trajectories, and just the stuff that’s gone up the most is the stuff that they want to be in. And value stocks are kind of not those stocks. They’re the stocks are cheap. So if you’re a value guy and you’re hunting around for stuff that’s undervalued, for one thing there’s a lot less of it and it doesn’t have that attractive price trajectory. But that’s why momentum works really well right up to the end of the [inaudible 00:32:14], and then it gets taken to the woodshed or I mean right up to the end of the berm, and then it gets taken to the woodshed in the bust.

Bill Brewster:
Yeah. I mean, look, I’m done making proclamations about bonds and corporate debt and stuff. Talk about being proved wrong in 1000 different ways. But-

Tobias Carlisle:
Why are you proved wrong?

Bill Brewster:
Because-

Jake Taylor:
Well, I did them before.

Bill Brewster:
Well, yeah. Because I was focused on things like they have no convenience, and I didn’t know the whole world would default at once. Not that it will. But if you’re a lender to a cruise line, you may end up with some nice equity or the airlines.

Tobias Carlisle:
You might end up working on the boat.

Bill Brewster:
Or yeah. Or the casino.

Tobias Carlisle:
I think they’re going to get bailed out I think.

Bill Brewster:
… Petri dish.

Tobias Carlisle:
They’re going to get bailed out.

Bill Brewster:
Who knows what it looks like.

Tobias Carlisle:
It used to be you took the boat to the courtroom steps and you auctioned it off, and the next bloke, he got a cheap boat. And he then went and made a whole lot of money on his boat until he leave it up and got a whole fleet of them. And then he went bust and gave it to the next bloke. That’s how it works.

Bill Brewster:
Yeah. Well, now you just have to wait 21 days to get on it because those things are gross.

Tobias Carlisle:
21 days to get on, and then 21 days to get off.

Bill Brewster:
Yeah. You’re going to be there for a while.

Jake Taylor:
Now you lever up back all your stock and then hire a huge lobbying team, and then get your bailout.

Bill Brewster:
Yeah. I don’t know that I like this take. I feel like this is way overblown.

Jake Taylor:
For now. Wait until the pleas start coming in of the real pain start.

Bill Brewster:
Dude, I know. I mean, I follow the airlines really closely. I’ve been very vocal that I disagreed with Doug Parker running a levered buy back strategy. I don’t think they should get bailed out. I have very different feelings on like Delta, Alaska, Southwest. I mean, those guys run a tight ship. But it is what it is. The cards came out.

Tobias Carlisle:
Was Jamie Dimon’s heart event a leading indicator?

Bill Brewster:
Oh god. I didn’t like that at all. We need Jamie right now.

Tobias Carlisle:
You got to look at the Ford data.

Bill Brewster:
Really?

Bill Brewster:
You know what’s interesting, if you look at the history of Bank of America, I mean, what made Bank of America was APG Anene going into… I hope I didn’t mess up his name, but going into a situation like this when no one else would lend money, he was the one that was the liquidity provider. I hope that’s what our banks can do. I know a lot of people don’t want them taking credit risk right now, but we need to get through this. And everyone needs to get through it together. I mean, this is not… Like we’ve gone from everything is moderately okay and we disagree politically to like an all out war against a virus. That’s an amazing shift.

Tobias Carlisle:
It doesn’t feel like some of the political disagreement has gone away though.

Bill Brewster:
Yeah. That’s what crisis does. That’s why I’m actually bullish.

Tobias Carlisle:
Well, I think you should be bullish. I mean, whatever that means. I think you should be.

Bill Brewster:
I am optimistic about our future more so than I was when people were like, “Oh, it’s all fake news. Go to the restaurant.” Now we’re finally all on the same page. We can fight this thing together, except for West Virginia. Get on the page, West Virginia. Come on.

Tobias Carlisle:
I saw a note from Paul-

Bill Brewster:
I think we are all going through some pain. Stop what you’re doing.

Expect An Explosion In Innovative Projects From Workers Forced To Work From Home

Tobias Carlisle:
Paul Graham said if you’re a software programmer and you’re trapped at home and you need some tools to communicate, building those tools is probably a good startup idea. So I think there’s going to be a lot of that going on. I think a lot of people are discovering the joys of working from home for the first time, or their limitations. And then they’re going to adapt and do some other things. I think there’s potential that there’s this explosion of very useful work tools that come out of this, and there’s already a lot. I mean, we’re doing this… All of this stuff that I’m using at the moment is free. I don’t-

Jake Taylor:
Magic.

Tobias Carlisle:
I’m on a free trial of Ecamm Live, that’s where you can see this. Shout out to those guys. You want to sponsor this, let me know.

Bill Brewster:
Lord knows Google demonetized us.

Tobias Carlisle:
Google. That’s right. We’re not going to get… Actually, I protested, and they said that we can monetize it. So the $6 is back on, boys.

Bill Brewster:
Bang.

Jake Taylor:
Yeah.

Bill Brewster:
Man, things are looking up.

Tobias Carlisle:
I think we’re trending at talking about some positive stuff. So I think it’s a good time to segue to Jake’s topic.

How Can We All Become A Positive Force In Our Local Communities

Jake Taylor:
All right. I’ll try to keep this quick because I feel like we need to hit the question and answer session. But this has me thinking about how can I come out of this with having helped people who really needed the help. I don’t know. I think all of us are in a very fortunate position in general to where we are in life and that there are a lot of people much closer to the edge.

Tobias Carlisle:
I’m trapped at home with three kids, Jake.

Jake Taylor:
Well, I didn’t say it was perfect. Okay. So I’ll just run through some of the ideas that I had, and if anyone else wants to share some ideas, I would love to hear them because I’m looking for more ways to be helpful.

Jake Taylor:
But I love seeing that they’re doing special hours for elderly people only so that the stores aren’t as crowded for them, that they can do things like keep running life for them without putting extra risk. I’m trying to figure out a way that I can run errands for elderly people in a way that’s efficient without putting them in jeopardy either. Like just go pick up prescriptions for them, go pick up groceries, those kind of things.

Bill Brewster:
That’s a pretty good idea.

Jake Taylor:
I’m actually working with a friend, with Richi, maybe setting up some kind of little website that would be sort of a matchmaker thing where you put in your zip code if you want to help, and you put in your zip code if you need help. And we try to just like match you up so you can call someone and get some help.

Bill Brewster:
Shout out to Richi, one of the good people in the world.

Jake Taylor:
Yeah. For sure.

Jake Taylor:
I was thinking about setting up my own sort of office hours where for an hour a day or whatever it is that if anybody wanted to call, they could just call and talk to somebody and not feel like you were disturbing someone. Because I think all of us in isolation like this, it’s kind of like… We’re early on in this. I think it’s going to get harder mentally to not be The Shining at some point.

Bill Brewster:
Yes.

Jake Taylor:
I mean, honestly, people who are losing their jobs maybe going crazy watching their kids. There could be a lot of mental brain damage over the next however long it takes. And they may need, want to reach out to somebody, and I don’t want it to feel like someone was bothering me. So if you set up hours that make it explicitly, yes, this is the time you should call me, then hopefully maybe they pick up the phone.

Jake Taylor:
Likewise, reaching out to people in your life who you think maybe need to hear from you. Just pick up everyone’s spirits.

Tobias Carlisle:
Isn’t that why we’re doing this podcast?

Bill Brewster:
Yeah, we do it for the people.

Jake Taylor:
It is, yeah. Buying gift cards for family run, small, local businesses, restaurants, massage, trainers.

Bill Brewster:
Keep them afloat.

Jake Taylor:
They need float, right? They need some working capital to get through this for sure. [crosstalk 00:39:14]

Bill Brewster:
So what I was saying about the airlines back when I was accused of… Well, I actually did own them. So it was true. But I was spend your money on those credit cards. They need that.

Tobias Carlisle:
Are you out of the airlines?

Bill Brewster:
More importantly… What?

Tobias Carlisle:
Are you out?

Bill Brewster:
Yeah, man. I announced it on the Twitter machine. That’s where all declarations happen.

Tobias Carlisle:
That’s formal. I guess that’s official.

Bill Brewster:
The thing that sucks about talking about it so publicly is I don’t know how to get… This is why I say don’t follow people. It’s hard to tell people I’ve changed my mind. I try to do it, but yeah, I just… I got a transcript, and everything just was like… That’s when the light went off. I was just like, “Oh, this is a liquidity crisis. You can’t manage through this.” And I sold.

Jake Taylor:
Good on you for fighting the commitment consistency bias there.

Bill Brewster:
Well, let’s get back to good things that people can do.

Jake Taylor:
Good things, yeah. Like buying and squirreling away some toys for your kids. If you have kids at home that you can kind of pull out when you need them in strategic times where things are really rough and they need a little pick me up or something because they’re… Imagine their perspective. They maybe see you stressed out. They’re scared. They don’t know what’s going on potentially.

Bill Brewster:
My four year old’s running around telling me about the corona. I’m like well… But what do you do? I tried to show him the visualization from The Washington Post where it was like, “This is why we’re doing it.” They don’t get it. But I think they might get it. I don’t know.

Jake Taylor:
I don’t think they get it.

Bill Brewster:
There’s adults that don’t get it. Dude, my kids are gifted. Speak about your own kids.

Jake Taylor:
Yeah. The other thing is we, in our family, are doing a 100 pushups a day challenge where we kind of all do the pushups together, try to stay healthy. Funny side note to counter balance that. When I went for a little like panic buying session at the store a couple weeks ago or whatever it is, I bought like six bags of chips because I’m like the salt and vinegar chips I love them. This’ll get me through a long time. Well, it’s like I’ve already eaten them all basically. I got to re-up the chips now because it’s like I dramatically under appreciated my lack of willpower.

Bill Brewster:
I’ll tell you for real something that… And I don’t know how you can do it, and it would be tough. And it’s bound to have problems. But if this Mitt Romney sends checks to everybody idea gets actually passed, I really don’t need that check. I need to figure out a way to give it to somebody that does. And I think that there’s probably a lot of people in a similar situation. I mean, figuring out how to actually disperse it. I feel absolutely terrible for the restaurant industry. I mean, those people are sacrificing… I don’t even know how to say who’s sacrificing the most. What I know is that the burden falls on the lower class and the lower middle class, and I don’t even mean to refer to them that way. I mean it economically, and I feel for them. When this is over, I’m going to spend as much as I can to help them because it is terrible what they’re having to do.

Tobias Carlisle:
You’re going to go to restaurants a lot when this is done.

Bill Brewster:
I don’t know what I’m going to do, man. I don’t know.

Jake Taylor:
Steaks all day.

Bill Brewster:
No, it’s not that. I mean, tip your waiters a lot. It’s not a joke, man. These people are like losing everything. And I don’t know what the answer is. So I don’t know. It’s some messed up stuff. These are some bad cards to get dealt.

Tobias Carlisle:
So what’s the stock market done while we’ve been talking? Every time we record… Last time, it was up or down 5%.

Bill Brewster:
I don’t know. It’s nice not to look.

Jake Taylor:
I don’t know. Let’s poll the audience.

Tobias Carlisle:
So we’re getting to that… We’ve got 15 minutes. So let’s do some questions. You guys throw them into the-

Bill Brewster:
5%.

Tobias Carlisle:
… comments and questions.

Bill Brewster:
Hey, real quick.

Tobias Carlisle:
Up five?

Bill Brewster:
Yeah. Well, not since we were talking, just on the day.

Tobias Carlisle:
Just for the day. Right.

Bill Brewster:
Real quick. Look, part of what we’re doing here is trying to have a conversation like we would at a bar or whatever. I think that’s part of what makes the podcast great. I had said something about somebody allegedly pumping on Twitter. Steve, I’m sorry that I… I didn’t mean it in that way. I can certainly be accused of pumping Delta on Twitter. I meant it colloquially… however you say that word. But if I say something that offends people, sometimes I talk too much, and it’s not meant… I don’t know anybody that I’m talking about. Ray Dalio is probably a great guy that’s not getting blown up right now. But maybe he is. But for real, I am sorry. So that’s that.

Jake Taylor:
Also, this is for entertainment purposes as well. So don’t take anything too seriously here.

Tobias Carlisle:
This is not a flotation device.

Bill Brewster:
Not investing advice. Do not come here for that.

Tobias Carlisle:
There we go. Up five. VP up two. There we go. Value doing their thing. We have some questions coming in in a moment, and then I’ll throw them out to you guys. We got a little lag here.

Bill Brewster:
Titillating.

Jake Taylor:
Heck of a time, huh?

Bill Brewster:
This is like Tom Russo’s capacity to [crosstalk 00:44:36] investor capacity.

Tobias Carlisle:
Thoughts on Busters? Anybody got a view on Dave and Busters. I should throw that one up.

Bill Brewster:
No one’s going there. Next.

Tobias Carlisle:
Here we go, is it possible to short the bond market? This is a for the leveraged finance guys. Is to possible to short the bond market? Do you mean is it physically capable of doing it, or is it sensible to do it?

Bill Brewster:
Who you asking, me? Bonds aren’t my thing. I’ve been so wrong on treasuries, corporate debt, and anything else, I deserve to just listen.

Tobias Carlisle:
Graftech is up 24%.

Bill Brewster:
Oh.

Tobias Carlisle:
Here we go, here’s a Berkshire question. [crosstalk 00:45:19] You think Berkshire will use-

Jake Taylor:
Bam, take under.

Does Berkshire Use Its Cash For Acquisitions Or Buybacks?

Tobias Carlisle:
Here’s a question, does Berkshire use the cash for acquisitions or to buy back stock?

Bill Brewster:
I don’t know, man. This is the problem. Yeah, 24% bounce. I’m looking at a six month chart. We’ll talk later. Anyway, on Berkshire, I think this is sort of the problem with the size. I mean, I think you’re going to get to see a decent peak of what… I mean, if they can’t deploy it here, then when can they do it? It would be disappointing to just be a couple liquidity lines or something. You’d hope some prefs are attached or something that really moves the needle, or he buys in shares. One of the two.

Tobias Carlisle:
He can do both, can’t he? I guess the question is which does he do first? When the stock was selling off like that, if you’d have been him, would you have been in there buying that stock?

Bill Brewster:
That’s the thing that’s tough. I mean, for so long he’s talked about partners. And he has written the last two letters on buy backs. So it’s part of now if you’re selling, you’ve sort of been warned by the shark not to get in the water. But the other side is if he’s buying in a lot of shares here, he’s sort of taking advantage of people’s fear. I don’t know. I don’t know how he thinks about it.

Tobias Carlisle:
Come on.

Bill Brewster:
I say pull the trigger. No, I’m with you. But I’m just saying what he may feel. I don’t know.

Tobias Carlisle:
If you earn stock, if you’re out there buying and trading stock, I’m not talking about the guys… Berkshire hold is who are in it for the long run. They don’t even notice when it sells off like this. I don’t think they notice much anyway. I don’t think they’re checking it all the time.

Bill Brewster:
Probably right.

Tobias Carlisle:
The people who are trading it, if you’re going to trade against Buffett, then you get what’s coming to you.

Bill Brewster:
Yeah. No doubt.

Jake Taylor:
Let me ask you this. Does Buffett want his last big hooray to be-

Tobias Carlisle:
Buy backs.

Jake Taylor:
… a buy back, or is it a real big blockbuster, 100 year style acquisition?

Bill Brewster:
That’s got to be out there though.

Tobias Carlisle:
You can do both, can’t you?

Jake Taylor:
Give it some time. He’s patient.

Bill Brewster:
I understand, but I think… I mean, I’m not sure that that is going… That business that we’re talking about is so good that I don’t think that business right now needs some fire sale. I don’t know. I think it’s harder than this one is the big one. But hopefully I’m wrong for the Berkshire complex.

Tobias Carlisle:
Got another question up from Troy Springer. “Dan Rasmussen on Invest Like The Best argued this may be the turning point for growth value spreads. Do you agree?” Yeah. I do think so. But then I’m kind of the guy who’s been calling for it-

Jake Taylor:
Crying at the altar for-

Tobias Carlisle:
For about a year now. So take that with a grain of salt. But if you look back at the six events… So we’ve got pretty good data going back to ’63, lots of data going back to about ’51, and then there’s price book data going back to about 1920, something like that. You can see that there are periods of this value under performance, and they almost always ended with a bust. And then value’s started working again. I don’t know if this time is going to be that. I’d be astonished if value doesn’t work out of the bottom though. If it doesn’t work out of the bottom, I’ll be driving a bus. I’m hoping and praying that it works.

Tobias Carlisle:
So I got a question here, “With Warren Buffett investing in OXY, does that make it a safe haven?” Warren Buffett’s position-

Bill Brewster:
No.

Tobias Carlisle:
… is in the prefs, in special prefs.

Bill Brewster:
No, he took to common. He did take to common down. And he’s down like 60%. No, it’s not safe.

Tobias Carlisle:
All right.

Bill Brewster:
I mean, if you know what you’re doing in oil, then maybe. But looking and saying Buffett bought that so I’m going to buy it, Buffett has gotten waxed on that thing. So has Carl Icahn. That guy’s gotten waxed in energy.

Tobias Carlisle:
Yeah. He’s a little bit burn bust, Icahn.

Bill Brewster:
Yeah.

Jake Taylor:
Mm-hmm (affirmative).

Tobias Carlisle:
Thoughts on [crosstalk 00:49:24]

Bill Brewster:
I’m not saying he’s not right. I’m just saying I wouldn’t look at him and say he did it, I’ll do it.

Tobias Carlisle:
Value Stock Geek says, “For the shorting of the bond market, there are inverse treasury ETFs.”

Bill Brewster:
Value Stock Geek, good solid account there.

Tobias Carlisle:
Good Twitter account.

Jake Taylor:
Tremendous account.

Tobias Carlisle:
Follow along on Twitter. Here we go, “When will Chris Cole make…” Ah, sorry. I’ll just add this.

Bill Brewster:
Ah, dang. You’re going to keep that one for yourself.

Tobias Carlisle:
I’m going to add it. I’m chasing this comment off the screen because there’s a bit of lag.

Jake Taylor:
Toby’s playing video games.

Tobias Carlisle:
Yeah, I am.

Bill Brewster:
I know, right. He’s got that dopamine going.

Jake Taylor:
There’s sweat breaking out. I can see it.

Tobias Carlisle:
Here we go. Got it. “When will Chris Cole make another appearance?” So I invited Chris on. I spoke to him on Friday at about 5:00 PM, and he’s in Texas. So it was about 7:00 PM his time. He was falling asleep on the phone. He’s had such a monster week. But he was telling me some scary stories. I’d love to have him on. I invited him on. He’s right in the thick of things at the moment. So he’s having trouble getting some time. But we may record one after the close or later in the week. I’m hopeful. But he’s got a lot on his plate at the moment. I don’t really want to be bothering him too much. But we’ll let you know. There’s definitely a plan to do it.

Bill Brewster:
This is sort of like when he makes his money, right?

Tobias Carlisle:
Yes.

Bill Brewster:
I mean, it’s the wait, wait, wait, go.

Which High Profile Hedge Fund Will Blow up First?

Jake Taylor:
Question. Where is the high profile hedge fund blow up?

Tobias Carlisle:
Yeah, that’s a great question. I think it’s Bridgewater, isn’t it?

Jake Taylor:
I don’t know. If I knew the answer, I’d probably be wealthier than I am.

Bill Brewster:
Hit me on the text machine.

Tobias Carlisle:
So Bridgewater was hitting the repo, right?

Bill Brewster:
I have no idea what they were doing.

Tobias Carlisle:
I thought I read, somebody correct me if that’s wrong, but I thought I read that the repo went $500 billion and then it went whatever it is, $850 billion or something. It just massive monopoly money at this moment. I thought that was because Bridgewater was hitting every bid and just flooding all of the markets. They’re trying to de-leverage, reduce… Now that Vol spiked, they got to take their profiles down right at the time of that the market’s selling off. And so I think that maybe Bridgewater is the… I think Bridgewater’s getting bailed out or maybe I’m wrong. I don’t want to be sued by Bridgewater. I don’t have any money. I don’t have any insight either. There’s a mis-remembered articles that I’m reading.

Bill Brewster:
Remember when you just backtracked everything because you got scared of Ray Dalio mid-sentence? I get it. Yo, Ray, I didn’t say any of that.

Jake Taylor:
I do always think about if you guys watch the show Arrested Development, and then they’re talking about the family was on the stimmy they were calling it. Like, “Hey, I need to get some of that stimmy.” It’s like stimulus money that was out there. I always think about what that with all these repos and everything. It’s like how do I get on that stimmy? I need some of the stimmy.

Tobias Carlisle:
I’d love to get a bailout right now.

Bill Brewster:
I mean, man, do you see how MVR traded two days ago or whatever? I mean, there’s some crazy stuff going on. I get it. I mean, price discovery’s hard right now.

Is Now The Time To Invest In Gold

Tobias Carlisle:
So here’s a question, “With a dollar being of no value and inflation going up, is GLD a good investment now?”

Bill Brewster:
I bet this is super deflationary at first, and secondly, I would maybe argue… I mean, Fiat is nothing but trust, right? It’s possible if we can all band together and actually beat this thing that the system gains trust. I don’t know that I would bet on it, but I don’t think that it’s that… I’m not sure anything is certain right now when it comes to whether inflation or deflation is coming. I do think massive stimulus is coming, and it’s hard not to see inflation three, four, five years down the road from it. But who knows.

Jake Taylor:
Have you guys watched the Miners lately? On Friday, they absolutely cratered. I don’t know, down 25%, 30% or something. And now they’re back up. I was watching it, and I was like, “Ah, kind of starting to get into my price range where I wouldn’t mind owning them.” And of course I’m sucking my thumb, and on Monday, it’s like it rips. Today it’s ripping. It’s 50% higher than it was when I was looking at it on Friday. It’s like sometimes my laziness really bites me in the ass.

Tobias Carlisle:
Here’s a-

Bill Brewster:
It’s hard when things are moving this fast.

Tobias Carlisle:
Yeah. I think you’re going to get lots… I think you’ll get another bite of the cherry. I’m not too worried about… I think when things get really fast, when it’s lots of volatility and excitement, the best thing you can do is slow yourself down. And so if you’re lazy in this environment, my hat’s off to you, sir. Good for you. You’re a cool man under fire.

Tobias Carlisle:
Sorry. Lots of questions about puts and calls and using options in this market or is-

Bill Brewster:
No.

Tobias Carlisle:
Yeah. You think in [inaudible 00:54:31] too high? That was one of the questions.

Bill Brewster:
I think if you don’t know what you’re doing, you are going to get destroyed if you start entering the options market right now. I mean, you could… I don’t know. I’m sure there are enticing put spreads to sell under some businesses. I’m sure there are good structured trades where you can sell a put to buy a call. I get it. That is not where I’m trying to play right now. I think it’s hard enough to try to play the vanilla game.

Jake Taylor:
My friend Kolbi was telling me about Berkshire I think it was only through a month or something with a… Was it like a 5%? Basically you could get paid 5% to get put Berkshire to you. I don’t know exactly the exact structure of it. But it was like it seemed kind of reasonable actually. I think that insurance product you’re selling is actually maybe pretty expensive at this point.

Bill Brewster:
Yeah, it makes sense. But you better have the cash to not get called out of the position because I messed around with some Tesla options, and I might as well just donated all my money. I got pinged out [crosstalk 00:55:39].

Jake Taylor:
On the way up or on the way down?

Bill Brewster:
It was terrible.

Tobias Carlisle:
Two quick ones.

Jake Taylor:
What’s going on here?

Tobias Carlisle:
Chris Yoder says that Bridgewater wasn’t hitting the repo. They can access market directly per Raoul Pal, who is the real vision. There’s a good comment here I just want to throw out. Do you think the airlines will be bailed out? I’m trying to hit it. Here we go. There’s always money in the banana stand. That’s a ripper. Respond to this. So do the airlines get bailed out?

Bill Brewster:
Yeah. I don’t see how they don’t. I mean, if you read the White House transcript from Saturday, they were mentioned three times, and one of which was strategically important. So I think it’s almost inevitable.

Jake Taylor:
All of them?

Bill Brewster:
Yeah.

Jake Taylor:
Is there a Lehman in there?

Bill Brewster:
I mean, I don’t see how… I might not be seeing things right. But I got scared, and I sold because I thought that a bailout was on the way. Now there are rumors, and I think it probably happens. It all depends on duration. If this thing goes on for six months, there’s no way they can survive. If it goes on for two, they got a shot.

Tobias Carlisle:
Here’s a good one. What about Ackmans’ stock? Seems like the hedge made money and it was a 40% discount to NAV last week. I think that’s a good idea.

Bill Brewster:
That’s not a bad idea at all. I mean, eventually you’re going to have to pay them the hurdle, but I bet that’s a long way away.

Tobias Carlisle:
All right. Here’s one. Will BRK buy Boeing out of distress?

Bill Brewster:
No.

Tobias Carlisle:
I had a quick look at Boeing this morning. So it’s an $83 billion-

Jake Taylor:
Depends on the price.

Tobias Carlisle:
It’s an $83 billion EV right now. Probably going to earn $4 to $5 billion, maybe up to $7 billion. It’s still not that attractive. It’s not just free money. You could fall by half from here, and it’s still kind of… I don’t know.

Bill Brewster:
I think what you have to do is look at the last year of what that entity has gone through and ask yourself, “Why would Buffett want to introduce that kind of risk to Berkshire?”

Jake Taylor:
Yeah, but to Toby’s point about sort of management bottoming out too, it could definitely get some new blood in there and turn it around and get things going in the right direction. Hard to do worse than they done the last year, right?

Bill Brewster:
I guess. Heavily union, super long lead times, constant R&D needed, big operating leverage. I don’t know.

Tobias Carlisle:
I took a look at-

Jake Taylor:
Was that Tesla or Boeing-

Bill Brewster:
It was the airlines that I loved as of two months ago, as of a month ago, two weeks.

Tobias Carlisle:
I took a look at Boeing’s return on invested capital and using Y Charts. Shout out to those guys. That’s a cool tool that I used for free provided I pump it, which I’m doing right now. Full disclosure. So I looked-

Bill Brewster:
Can I get some of that Y Charts money?

Jake Taylor:
Yeah, where’s my-

Bill Brewster:
Where’s that Y Charts freedom?

Tobias Carlisle:
That’s for the Twitter account, not for the podcast.

Bill Brewster:
Oh, that’s fair.

Jake Taylor:
All right.

Tobias Carlisle:
I looked at the return on invested capital for Boeing. So I ran it back as far as I could send it back. It’s been pretty… I can’t remember exactly what the numbers were. But it’s been like 10-15% for a really long time. And then over the last five years, it’s just exploded. So it’s all of a sudden it’s like a… I can’t remember the exact figures, but it’s up like four or five times where it was. So clearly they’ve-

Jake Taylor:
How’d they do that?

Tobias Carlisle:
Shenanigans.

Bill Brewster:
I’d like to see how that’s calculated. It’s probably all that buy backs that they did.

Tobias Carlisle:
Well, it’s shenanigans is how they did it. And now all of the issues are coming home to roost. And now we got to bail those guys out.

Bill Brewster:
That’s why that guy needs to lose everything. That’s it. Claw him back.

Bill Brewster:
We were talking about companies that might come out of this stronger. Zoom is running what I perceive to be the Henry Shine playbook where Henry Shine got like really ingrained in dental… I was going to say supply chain, but it’s the tools that people use by like making sure they were in all the dental schools. I guess Zoom just put their product in all the universities. And that’s what a lot of professors are now teaching on. So that’s pretty interesting. Shout out to my boy Kevin for that.

Tobias Carlisle:
The stock ZOOM has had a really good run. But that’s not the ticker.

Tobias Carlisle:
Fellows, that’s coming up on time.

Bill Brewster:
That’s all she wrote I think. Thank you all for tuning in.

Tobias Carlisle:
I feel like I’ve bene playing a video game for an hour. I have no idea what we’ve just said. I’m going to go back and watch this one and lament. But thanks everything for tuning in. This is really fun. This is much more fun than just talking to each other. So we’ll see you next week I guess for the same time for another one. I hope the market’s done something in between. It’d be really a shame if we came back in between.

Bill Brewster:
Have a good one.

Tobias Carlisle:
Take it easy.

Jake Taylor:
Be good to each other.

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