VALUE: After Hours (S03 E40): Inflation And Value By Decade, Small Caps And Interest Rates, And Wu Wei

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In this episode of the VALUE: After Hours Podcast, Jake Taylor, Mike Mitchell, and Tobias Carlisle chat about:

  • Munger’s View On Inflation
  • John Malone’s Compensation Theory
  • The Future of Work Is Hybrid
  • The Wu Wei Investing Strategy
  • Knowing Your Investing Personality
  • When’s The Next Crash?
  • Hybrid Work Means Urban Sprawl
  • T&E Budgets Will Be Trimmed
  • Labor Has More Bargaining Power
  • Inflation And Value By Decade
  • The Future For Lumber Prices
  • The Bear Case For Housing
  • The Bull Case For Housing
  • Why Companies Should Have D&O Liability Insurance

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

Jake: Does that fit with the board stuff, too. How’s that going to–?

Mike: We’re living in Fort Collins.

Jake: Well, yeah, and then, standing [crosstalk] practice.

Tobias: We’re live, fellas. It’s 10:30 AM on the West Coast, 1:30 PM on the East Coast. If you’d like to watch this live, you go to The Acquirers Podcast on YouTube. Press the button, you’ll get a notification. We do it once a week, same time, every week, except maybe next week, might be going a little bit earlier, because I’ve got a flight to catch. What’s up, fellas? We’re joined by Mike Mitchell.

Mike: Sorry, everybody.

Tobias: Impact performance coming off the bench and Jake Taylor on tour. Our man in St. Louis.

Jake: On tour. [laughs]

Tobias: On the ground.

Jake: Yeah. Man on the street.

Tobias: We are live.

Jake: What’s up boys? Mike, good to have you here. I’m excited.

Mike: I know. It’s been– [crosstalk]

Jake: Not that I don’t love Bill, obviously.

Mike: Feels great. Yeah, I was flying back from a wedding in Southern California and was on a JetBlue plane. So, he said, “Can you do After Hours? I was like, “I doubt they want me, but if they do, then the answer’s yes. I’m doing nothing, today.” It is a good day. Happy to be back.


Tobias: I got to give a little shoutout. We’ve got India, Dublin, Ireland, Montreal, Saudi Arabia, Chapel Hill, North Carolina. Montreal, did I say that? Crazy. It’s awesome.

Jake: That’s the whole world, practically.

Tobias: Australia, you’re all locked down. You’ve got nothing else to do. It’s 3:30 AM, but you’re probably awake from the night before. So, hello. 3:30 AM on a Wednesday morning.

Mike: Dreaming crypto, bro. I’d be awake for the crypto trades.

Jake: Oh, my God.

Jake: Crypto never sleeps.

Jake: So exhausting, I have to imagine.

Tobias: What topics have you guys got for today? You want to riff– I’ve got a few things here, but JT, you got some veggies?

Jake: I do. I have a little segment on Wu Wei. So, we’re going a little Eastern philosophy. I’m going to need your help carrying this one over the finish line, TC–

Tobias: I love a little bit of Wu Wei.

Jake: Yeah. How about you, Mike?

Mike: I’m down. [crosstalk] it on me.


Mike: Wait, I’m sorry. I’m sorry. You’re breaking up. I didn’t hear you. I’m sorry.

Tobias: Yes.

Mike: What was that? All I hear [crosstalk] background. I don’t hear you [crosstalk]

Tobias: Mike’s got to be joking.

Jake: [crosstalk] sir.

Mike: I’m going to a gun range after this.

Jake: [laughs]

Tobias: I’ve got a good one from Euclidean, John Alberg. He had this chart in– You see Euclidean’s value firm, machine learning quanti kind of– I think they’re based in Seattle. They’re West Coast anyway. He has this relationship between inflation and value by decade. It’s pretty–

Jake: Is it consensual?

Tobias: It’s a pretty good fit, but I wouldn’t be raising it if it didn’t work. Yeah, it’s consensual.

Jake: Okay.

Tobias: Yeah, I don’t know. That’s a good question. I don’t know. Inflation, is that ever consensual? I think you have that kind of thrust upon you.

Jake: Yeah, it’s monetary– No, never mind.

Tobias: Yeah, don’t keep going, though.

Jake: [laughs]

Tobias: Then, Chuck Royce of Royce small cap, they’ve looked at the relationship between small cap interest rates in inflation and I’m highlighting it. So, it’s probably going to be good news. I don’t want to give it away yet.

Jake: [laughs]

Tobias: Let’s wait a little bit.

Jake: So, let me see if I can summarize this. A guy running a small cap fund and a guy that likes value are both in agreement that things are looking good. [laughs]

Tobias: I haven’t said– We don’t know what the research says yet, I’m going to save that up front a little bit.

Jake: Very well.

Tobias: Mike, you’ve got a topic? You can riff on one of mine. You can have one of mine.

Mike: I want to riff. I’m here to riff. The stuff that I’m paying attention to, I’m not really going to talk about because everybody is so tired of it. I’m just not going to discuss it. But I have jobs now, talking about two jobs actually, three counting my wife’s practice. So, anything you guys want to know about starting medical practice in Northern Colorado, I’m ready to talk about.

Tobias: Well, let’s do a little– [crosstalk]

Jake: A huge audience.

Tobias: Let’s do an update on you.

Mike: On Mike Mitchell? Then, I also joined two boards. One of them, I’m on a compensation committee. So, it’s been a fascinating experience. I haven’t been to a public company board meeting since Vail in 2000– 2010, I think, it was the last one I went to. So, it’s been a minute and that was just as an advisor. So, it’s interesting going to– [unintelligible [00:04:49]. That was interesting [crosstalk]

Jake: I’d love to hear some of the comp– your thoughts around that because I know it’s an issue– [crosstalk]

Mike: [unintelligible [00:04:59]

Jake: I think, it’s totally underappreciated and underrepresented in the investment and business world, the incentives and how they get messed up.

Mike: Yeah, the most shocking thing is that as a brand-new board member, I was actually asked to be on the comp committee, because usually, the two committees, you really want to be on are nominating and comp. Those are the ones that really everybody wants to talk to you and wants to know where your vote really starts to count.

Tobias: The most popular man in the room if you’re on the comp committee.

Mike: It turns out for this board, for the Canadian, GreenFirst member board, the nominating governance and comp committee is all one. My friend, Kyle, who stepped down from the board asked me to go on the board [unintelligible 01:00:06]. There was an opening and they’re like, “Mike, do you want to join them?” “The answer is 100% yes.” It was funny because we were discussing in the board meeting, your fees for this transaction that they just didn’t it’s all disclosed as one number, So, that’s all [unintelligible 00:05:59] what’s out there, he was talking about it.

It’s wild. There comes a switch mentally where you own so much of a company, so much percentage wise of the company, and I think my current stake is like four and change percent. So, whenever they’re like, “Oh, the fee for legal was this–”

Jake: Yeah, you’re calculating it.

Tobias: [laughs]

Mike: Thank you. I’m like– [crosstalk]

Jake: It’s out of my pocket.

Mike: I’m like, that’s a six-figure check from the Mitchell family.

Tobias: [laughs]

Mike: Yeah, I actually really care about that. Sorry, adjusting my mic. Actually, I have some thoughts. So, it’s really an interesting dynamic. On the comp stuff, what’s so interesting about it for GreenFirst is GreenFirst is a brand-new company. It did not exist really a year ago and there was a chance, it was just going to be a single-mill operation in Ontario, and now, it’s seven. It’s actually the third largest lumber producer in Eastern Canada. It’s one of the top 10 in Canada. It’s a very real company now.

So, what that means is we have 1500 employees, and we’ve got a real board, a real CEO, and what’s so neat and fun about it for me is that the company didn’t exist. So, we’re doing this all from scratch. There’s no board fees. My comp as of today is zero, which as a very large shareholder that is a compensation structure I can totally get behind.

Jake: I thought you’re taking– [crosstalk]

Tobias: How do you feel about it as a director?

Jake: -and board feet. [laughs]

Mike: They didn’t think any of the lumber.

Jake: Delivery.

Mike: So, in depending on the day, that’s either very good or very bad decision. But realistically, you have to pay directors only because– I’ve already spent [unintelligible [00:07:43] on it. Since becoming a director, which is a couple of weeks old, I’ve probably spent 20 hours on this, and you’re like, “That’s fine, because I’m a huge shareholder.” But if you want good, talented, thoughtful people, paying them $0, and then hoping they go buy $5 million shares of stock is not going to happen. So, you have to pay them something.

But I think what struck me, having sat as an advisor on two boards on Applebee’s and Zale’s going into this, GreenFirst, that board meeting was one of the best I’ve been to. I think the dynamic is– I left so energized. I think one of the dynamics is that, if you go into an existing board that’s been around for 30 years, or 40 years, or however long, everybody’s got their own little agenda. They’ve got their own little– I’m used to making $125,000 a year, and I’m used to coming to a meeting and having a lunch, and I’ve got my friends. It becomes this little fiefdom dynamic where you have to cleverly go in and break up these little regimes and try to get new ideas brought in.

For GreenFirst, it’s never existed. It’s like a startup. So, you’re really starting from scratch. So, you can do anything you want. So, the chairman the comp committee says, “Well, what do you think about this?” I’m like, “I like that,” and then, “I see another company that does it this way, and what you think about this?” So, there isn’t really a set agenda that anybody has. Everybody’s just sort of– But the words that I like to hear, it’s always– I heard it a lot, which made me very happy as– Well, what’s the most shareholder friendly thing to do? What’s the way to create the best alignment? So, I’m just like, “I’m aligned, I want you to be aligned, and I think we’ll get there. I feel good about it.” So, that’s what’s going on with me. It’s actually a lot of work, but when I got asked to do it, I was like, “Oh, shit. Yes, of course. I’ll do it. I’d love to.” It’s been fun and hopefully, it’ll keep being fun.

Why Companies Should Have D&O Liability Insurance

Tobias: Would you look at what Berkshire does as a model for some of those things? Do you have D&O?

Mike: Yeah. We do and we will have D&O. I wouldn’t say it this way, if we didn’t, I wouldn’t candidly, because you know like they’re– So, number one, Berkshire is an insurance company, so they have the ability to self-insure. It’s just for me, like, there’s so many things that happened. We were on sale board and there’s another micro-cap company I’m thinking of that’s kind of well-known on Twitter, I won’t mention the name, but it’s had some restatement issues, and there’s just so much shit can happen. You do everything right, and you try really, really hard, and then somebody just does something bad, and Warren talks about that. He says, “Somewhere in Berkshire, there’s too many people. Someone’s doing something wrong.”

In Berkshire, you have essentially unlimited funding, I’m not 100% sure it makes sense to go out and get D&O. For me and my family, I definitely want D&O, because if somebody does something really crazy and as hard as we work, we don’t catch it, that liability, it’s just not worth the time for my family to take it. So, my personal view, other people could disagree with me. If somebody wants to go on a board and not have insurance, God bless you, but that’s not me.

Jake: Buffett’s passed on a business or several businesses because of the potential liability of them, even though it’s a reasonable business. One was a security thing, he actually said like, “Whoever owns this business should have a net worth in two figures.”

Mike: Yeah, [crosstalk]

Jake: “Because there’s just too much downside liability for you.”

Mike: That’s it. Honestly, you have to think that way of like, “Listen, I’m really excited, and I’d love to do it, but it’d be great education, and I’d love to help shape the future. But if my family is going to lose 100% of everything, not just 100% of the investment–” which would be bad enough if it didn’t work out. But losing my house doesn’t seem like a pretty good outcome for me. So, I take a strong pass. The Berkshire stuff, I think, we all, myself included, hold it up as the model for how people should be incentivized, how board should think about it. The number one thing for me is I agree wholeheartedly with the sentiment that nobody should be on a board if they need the board fee to live. Meaning, when I approach compensation–

Jake: And call it ‘independent.’

Mike: Correct. Yeah, correct. If I’m unhappy with the way that my board seats are– I’m not happy with the direction of the board, it’s not a problem. I have a full-time job. It’s just, “Thank you very much. I enjoy you guys, I’ll still be a shareholder, but I’ll do it from the outside.” I have the ability to walk away from it. I don’t think anybody should be a board member if they don’t have the ability to walk away from it, because you become, exactly to your words, you’re technically independent, but you’re not. You’re not focused on shareholders, you’re focused on keeping your job. Luckily, we don’t have that issue with either of the two boards that I’m on. So, my thought is as little cash as possible, as much stock as possible, I think that creates more of an alignment. I think people need cash, then getting a job as opposed to being on a board makes a lot more sense. I’m fortunate that I’ve just got a spouse that supports me, and I’m basically a bum. So, I don’t need the cash.

But I think, Berkshire saying or Warren saying, “I take very little salary, and the board members getting paid very little,” and not having D&O, I think that’s the benchmark ideal scenario. It’s not realistic for 99.99999% of companies, but yes. If Warren called and said, “Would you be on the Berkshire Hathaway board for no D&O and [unintelligible 00:13:24],” the answer is, “100%, I would do that to be on the Berkshire board.” That’s one and one. There’s not another example of that.

So, there’s a reason why McDonald’s pays whatever $300,000 a year per board member– I just made that number up. It could be $200,000. I know it’s not $100,000 but there’s a reason why they all pay in D&O. So, they want to get good people, and Berkshire is a one and one. So, it’s not a perfect example for everybody. It’s the standard, I would love it, but unfortunately, Berkshire haven’t called me yet.

Tobias: You’ll still have the issue that you might be completely in the right and you might ultimately prevail but it’s extremely expensive to defend yourself and that’s really what D&O is for. you’re trying to figure out where the wrongdoing lies and you can’t defend yourself with– that’s what it’s being paid for. Then, if it turns out that you were grossly negligent or negligent or whatever the standard is, I don’t know–

Mike: Yeah, that’s right.

Tobias: Then, you’re probably appropriately gone, but it’s that period in between where you’ve got to pay the lawyers and figure it out, that’s really what it’s for.

Mike: Yeah, that’s very well said. I wonder, do you guys know of any other public company that intentionally does not have D&O, including companies that Buffett is invested in–? [crosstalk]

Jake: Tesla.

Tobias: Just [crosstalk] chop shops.

Mike: [laughs] I’m saying that they don’t have D&O because they can get the D&O but choose not to. I’m not saying that they can’t do it.

Jake: Oh, okay. That might not be [crosstalk]

Mike: They are un insurable–

Tobias: Yeah, self-insured.

Mike: I think the idea is that you have to pay these people something, and I’m totally on board with that because I want good people watching out for my investment, but I do think that the key for me is just making sure they’re aligned. You just don’t want a scenario where they’re going to do well regardless of what happens.

John Malone’s Compensation Theory

Mike: I have this Malone philosophy of compensation. It’s probably more relevant to me than the Berkshire theory of compensation.

Tobias: What’s the Malone theory?

Mike: So, John’s idea is that you set these really high standards for stock prices and for results, but when they hit them, if they hit them, you pay the shit out of them. You just don’t cash on him. So, probably recent example, Charter, Tom Rutledge, his options package, I remember the stock was like $200– I think I’m going to be roughly right. I may not be exactly right on this, but John’s comp package and this was through Greg Maffei on comp committee, for Tom Rutledge was like a five different level strike options plan over 10 years. If the stock got above $580, $590, something like that, the guy would stand to make like half a billion dollars. It was going to be insane. But Greg’s point to him was, “Look, if you can take a stock up 2x, 3x, I deserve to pay you,” and he is– [crosstalk]

Jake: Pay the man his money.

Mike: Everybody got rich. Yeah, everybody got rich. Tom, more so. So, John is okay with his guys doing better than everybody else. I would also say we don’t know what a lot of the executives at Berkshire Hathaway make. It’s just not disclosed.

Jake: A lot though, some of them.

Mike: I bet you some of those guys are making nine figures. That wouldn’t surprise me. I bet you if Warren were here, he’d say that’s true, and they’re totally worth it. I should pay him more. That’s my view too, is that you set these targets. For each of the businesses, they have a plan. Something they want to accomplish, it’s a multiyear plan. My view is, if they can do it, you all make a lot of money. So, I don’t mind paying them really well if they do it. If they don’t do it, then that’s a different story. But they do do it, I’m happy to pay them a lot of money. In my mind, that’s a good outcome for everybody.

Tobias: Let’s segue a little bit. Mike, lumber year on year, is that up, forgetting that little squirt in between.

Mike: I did not use that word. I want to be very clear. I did not use that word. I didn’t use it in the pregame talk we had. I didn’t use it– I’m happy to go into it, but I did not bring it up. I just want to make that clear.

Tobias: No, I’m bringing it up. Because I think it’s more of a conversation about inflation. What’s everybody’s feeling on inflation to you? Are we seeing it– as is it transitory? I’m interested because the more articles that I’ve seen, John Authers at Bloomberg has been on a pretty consistently. I think everybody who’s in a position that doesn’t want to see inflation doesn’t see it. Everybody who wants to see it sees it. So, I’m sort of a little bit confused and objectively trying to figure it out. Just interested to know what everybody else thinks.

Jake: Can I climb on my soapbox a little bit for this one?

Tobias: Please do.

Munger’s View On Inflation

Jake: Okay, well, this is against my better judgment. But I was just listening on my walk this morning, listening to the Berkshire meeting as I do religiously now these days. It’s 2015, someone asked about inflation. They asked about the businesses, like which ones would be affected and which ones wouldn’t. Buffett talks about the companies that do not require new capital at higher and higher prices tend to do better than ones that require continuous reinvestment in which to generate income. Of course, that makes perfect sense. Then, Munger said when it gets really high, it starts to become very difficult to figure out who is going to get impacted more than others. Then, he says one thing that people forget is that really high inflation in Weimar Republic plus a Great Depression led to Hitler, and we paid a terrible price for that, obviously, like World War II.

I’m fundamentally bothered by the idea of that– and especially, as a father of two young boys who may or may not have to pay some eventual price for this, our monetary policies in my view are largely taking short-term gain for longer-term pain, and kicking the can down the road, and hoping it will be someone else’s problem. Frankly, I find them to be a little bit spineless, if I’m being honest. The fact that throws more ping pong balls into the hopper and in my opinion of some potential runaway, maybe inflation– we’re certainly playing with fire I think in some ways.

If that then is what would create the dynamics that would lead to a World War type of situation, God just because we couldn’t just like take a little bit of our medicine today and it was politically expedient to just keep kicking the can down the road, shame on you for that. Be a leader and step up, and take some responsibility for where we are. Anyway, I’m going to end my rant there but it was bothering me this morning after listening to that.

Mike: That’s something I disagree with you. Here, you were talking about politicians, and then you use the word ‘responsibility’, and I’m just not sure. You lost me. I was totally–

Tobias: Was it breaking up?

Jake: Yeah. you’re breaking up.

Mike: [laughs] Sorry. I didn’t [crosstalk]

Tobias: Zoom is very inconsistent.

Mike: Tobias probably has a better take on this than I do. I don’t disagree with anything that you said, and I certainly don’t disagree with Charlie’s take on it.

Inflation And Value By Decade

Mike: For me, I have trouble figuring out how much of an increase in assets in goods. How much of the price increase was due to fiscal stimulus, so checks, money hitting everybody’s bank account, and then also, savings accounts, and savings rates increasing because people are going to pay rent, and forbearance, and these kinds of things.

So, how much impact that had versus how much impact when you gave those people money, and they didn’t go back to work. So, it creates these supply chain issues that we’re now feeling like, “So, how much of it is supply driven, and how much of it is demand driven?” I’m having a lot of trouble sort of parsing that out. I think, it’s twofold. One, because I’m not an expert. Two, because I’m just generally not a smart person. So, I can’t really figure out exactly what is what.

Jake: It’s not knowable, though, really.

Mike: Yeah, well, I think this will be knowable in hindsight. We’re 12 months from now, 24 months from now, it’s going to be a really interesting conversation to look back and say, “Well, if the supply stuff starts to look better, if it’s a supply-driven problem, then that should lead to lower prices.” So, you’re starting to see this interesting narrative shift. I’m seeing it on Twitter. Twitter’s amazing for narrative changes. You can almost feel it when it happens. So, there’s a narrative shift happening about discussing deflation as the main story of 2022.

If it’s a supply-driven issue, then that would make some sense to me. When supply chain starts to ease more supply comes online. The question is too, for me, and I pay a lot of attention to housing. If you think that supply chain problems are the main impediment for driving home prices higher, I think it’s a combo of demand and supply. So, when you relieve the supply, I think it might put a cap on pricing, but I’m right about demand and I think it may be inflationary anyway. So, I am a troubled person that– I think will know the answer soon enough. I sure hope it is more supply than demand driven. My hope is that supply when it comes back online can really increase to meet that demand. If not, I think we may be in a little bit of a pinch, because the one thing I see that really just gives me heartburn is interest rates. That’s the one, interest rates being low is supporting a lot of what’s going on. If interest rates really have a material increase– and I couldn’t tell you if they have it or not, but– [crosstalk]

Tobias: They’ve been running up a little bit, I’ve noticed, because I watched the 10-year pretty closely. It’s been–

Jake: Where’s it like 1.6 now? Six [crosstalk]?

Tobias: Yeah, a little bit over. But that’s right. That’s about where it is. I forget which big bank it was, but I watched the Bloomberg clips on YouTube late at night and a few weeks ago, a guy said like, “Structurally, we think it should be at 1.5. I think it should be 2 by the end of the year.” I don’t know, what their track record is, or how likely, or what they’re basing any of that on. I have heard before that 2 is like a magic number where above that– The Fed has control of it. My question is, when they say deflation, what are they talking about? They’re talking about the stock market falling over or house prices falling over. Are they talking about a slight decrease in the price of goods because it wouldn’t that be a good thing? Doesn’t that happen with the TV, and computers, and cars, and all that sort of stuff.

Jake: That’s [crosstalk].

Tobias: Your car gets better–

Jake: [laughs]

Tobias: Yeah. Well, a little bit. The inflation, when everybody talks about inflation, what they mean is, when I go to the supermarket and I go buy stuff, it’s more expensive than it was last summer. It’s smaller than it was last time. It’s got a little dimple in it now where it used to be x and now point nine times x. Yeah, because there’s a little dimple in the bottom where they’re hiding how much they’re actually giving you. Then, this argument comes in, what we should really should be worried about is deflation, and then what they’re talking about there is like the stock market going down. The two different things, it frustrates me a little bit that the conversations like that.

I think the thing that drives it inflation, high consumer prices however it runs, is the Fed just printing way too much money. They’ve just been going absolutely gangbusters globally, every central bank racing to see how much they can pump out there before everybody wakes up. Because when everybody wakes up, then, it’s 1970s style stagflation. Hyperinflation, I think, is more of a political phenomenon where there is something else going on. Weimar Germany is probably a stretch, I hope. I think the real issue is going to be a 70-star stagflation and then you pair that with an energy crunch, because the world has transitioned too quickly to renewables, and we haven’t spent enough time reinvesting in energy. That’s the thing that worries me. But as a value guy, it might be okay for me. But for humanity, it might be– [crosstalk]

Jake: Like everyone else.

Mike: We just all hold hands and decide to buy crypto? Is that what just happened on this Value: After Hours?

Tobias: The crypto guys make a very compelling argument, I’ve got to say.

Mike: [laughs] Please, don’t play it out.

Tobias: It seemed to be pretty right so far.

Mike: Yeah, that narrative just continues to push higher, doesn’t it? Bitcoin broke 60,000. So, it’s like everybody’s talking about trades working out working out, it just keeps pulling away. Yeah, I don’t know the answer to that question. If I knew the answer to that question, I’d be a lot wealthier than I am today. I don’t know. I think what I’m seeing people discuss is deflation in commodities, so energy deflation–

Tobias: That’s a good thing, surely?

Mike: Yeah, no, I don’t necessarily think it’s bad.

Tobias: Unless you are in lumber.

The Future For Lumber Prices

Mike: Yeah, well, lumber actually has some very unique dynamics to it. It is a global commodity, but it’s also expensive to move around. So, it ends up being for the most part reasonably local market. So, it really is about the supply and demand dynamics in North America. There’s a similar question. Is it going to be driven by supply? Is the price can be driven by suppliers or is the price can be driven by demand? That is a two very different outcomes. So, as somebody as long the commodity I would much rather the price be driven by demand than by supply. I think either way, I’ll be okay but the really good outcome is if it’s a demand-driven pricing dynamic, not supplier.

The Bear Case For Housing

Tobias: There’s been this underinvestment in housing, but why has everybody just woken up now? What is the catalyst for that, and why wasn’t it sort of more of a gradual thing? Why are house prices up 20% year over year?

Mike: Well, there’s two theories. There’s a bull case demand, structural demand theory, which is mine, and then there’s a pull forward one-time bump demand theory, which is what Zelman– who is very good by the way. The best I can figure the one bear on housing, and they’re basically making the point that trends have been moving a very specific way for 10 years, and when COVID happened, the trend changed. Their point is, it’s a onetime change driven by COVID, and we’re going right back to the prior trend. My view is that, if you look for every generation going back for 40 years, there isn’t a decelerating trend in household formation, there is a decelerating trend [unintelligible 00:28:15]. My son has some very strong views on–

Jake: Yeah.

Tobias: [laughs]

Jake: That sounded bearish to me. I don’t know.

Mike: He’s just back there.

Tobias: Disagrees.

Mike: He takes the other side of everything I do. So far, he’s pretty smart. But yeah, the question is, well, the last 10 years since the financial crisis, the housing crisis, those rates have been dramatic. Then, the one thing that we’ve been kind of saving us was immigration, but with Trump in 2016, immigration just went [dropping sound], and then with COVID, immigration has just been in the crapper. So, our population growth isn’t actually all that strong. So, the bear case is that we’re going to have this one-time pop of people exiting cities, and a lot of people buying second homes, because now with COVID, it’s like, “Well, I want a guaranteed spot for me to vacation. I don’t know what the availability is, I’m just going to go buy it.” So, there’s a lot of second-home buying and then a lot of exits from cities. That happens one time, and then the world normalizes, and we get right back on that trend.

So, what Zelman’s point is builders are going to go chase it, they’re going to overbuild over the next two or three years, and then we’re going to find ourselves back into a housing glut situation that we haven’t had. It’s a spicy take because if you go back anything more than 10 years, anything more than the last decade, you see a completely opposing picture, which is where my head is and then I sprinkle in some other little fun things around it to make it– really, it could be quite phenomenal.

Jake: It’s very interesting because we had this– Didn’t we talk about this last week, Toby, where, if you parse out the data of investing returns as well, you had pre-2010 to 2020 where it looked so different than what 2010 to 2020. People are like, “Which lesson do you want to learn as far as what works?” There’s so much like the world got weird in 2010 forward.

Tobias: Yeah, I think that’s right.

Mike: Got pretty weird in 2008 and 2009 too. That’s not a fun time. But yeah, so that…

The Bull Case For Housing

Mike: the bull case for housing demand, so the other side of that is that, you have a demographic shift where if you look at population by age cohort, the bulk of our population right now is 25 to 34. The average millennial is hitting 30 years of age. So, if you think in every generation prior what happens when you turn 30, you get married, you have a kid, you buy a house.

Tobias: You freak out.

Jake: Yeah. [laughs]

Jake: You get a minivan, like that sweet, sweet minivan that I got– [crosstalk]

Tobias: It’s the Cadillac of minivans, right?

Mike: It is the Cadillac of minivans. It has every bell and whistle you could possibly get. So, what happens is that people get married, and to get a house, and have kids, so that normally what I would have expected to see for at least the next four years is this migration to single family causing increased demand and all the while we haven’t really been building which nobody disputes, we haven’t been building that’s just number. So that you’re going to have a lot of people show up to build houses to buy houses, and people are staying in place longer. So, as people age through not going to senior centers as much anymore, so there’s not nearly as much inventory for these people to absorb.

The Future of Work Is Hybrid

Mike: Then, sprinkle on top of that, this work from home dynamic, it’s really fascinating to me, and I have a very strong view. We’re going to see if I’m right or not. But my view is that once you give– Munger always tell the story. He’s like, “I discovered this psychological tendency with my dog. I’ve the sweetest dog in the world. Dog is great, gentle, no problems.

But if you gave that dog a bone or a piece of meat, and then you try to take it back, that dog turned vicious, really, really fast.” My view is with work from home, once you give it to people and now that it’s ingrained in everybody, because we’ve been doing it for 18 months, it is really hard to take back. The evidence I have that it might never come back at least to where it used to be, because you’ve seen some really old-school companies, all-state PWC announcing that they’re letting tens of thousands of employees of a permanent work from home or hybrid structure.

Amazon just said they’re going to do that. I believe Apple is doing it, Facebook, but it’s happening to non-tech businesses. It’s happening in insurance. It’s happening in auditors. So, I’m looking at that I’m thinking well. So, what does it mean if I can work from home even three days a week? Well, I don’t have to live in San Francisco anymore. I can live– I think you could even live in like Davis, or you could live in Sacramento.

Work three days a week in the office or two days a week in the office, it’s a heck of a commute but if you only had to go two times a week, why don’t you pay half for real estate? If that dynamic persists, what I think will happen is it won’t necessarily create a new household, but it will create the need for a new housing as people decide to sprawl. It just gets cheaper cost of living, better schools, lower taxes, lots of reasons for people to move. I think you’re going to create structurally demand for new housing units over the next few years as people decide they can just live anywhere. So, I remember– [crosstalk]

Jake: It sounds like a lot of demand for energy then to facilitate that kind of sprawling.

Mike: Yeah.

Tobias: Self-driving cars, work from home, flying cars, it all sounds great.

Jake: What do you think about the statement? What if the demand for all that housing is sitting in Harvard’s endowment right now? Student loan, basically, crushing– [crosstalk]

Mike: I thought you were going to go in a different direction, and I was going to actually even push on that a little bit farther. Let’s put it on the student lending path. There is a scenario where even though balance sheets look pretty good that 25-year-olds to 30-year-olds decide, “Look, I can’t afford to buy a house because I’ve got to repay my student loans.”

That’s part of the Zelman case of like, “I’m not sure for 10 years, people didn’t get aggressive when they’re 20s buying homes.” My thinking is that now that they’re hitting their 30s. I tried to raise a kid in an apartment in New York City, it was really unpleasant. I was very happy when we had a second child and moved out. My theory is everybody else is going to think the same way. So, I’m projecting. We’ll see if that ends up being true or not, it could be totally wrong.

Zelman’s point is that they’ll go right back into that like, “I’ve got too much debt. I’m just going to rent. I’m going to stay multifamily,” so they’re not going to need in a single-family housing unit. That could be right. That absolutely could be the case where people just feel like they’re too levered. My thinking is, it’s an interesting dynamic is that the millennials saw the housing crisis and it was the first time at least in my life and I think in the history that I studied, where housing really took a digger. It was believed up to that point that if you bought a house, it was almost impossible to lose money.

Tobias: It was not true though, right? It wasn’t true.

Mike: It wasn’t true. It was just a belief.

Tobias: That was a belief.

Mike: It’s just like everybody believes in stocks. It’s impossible lose money, and of course, we know that’s not true. But it’s [crosstalk]

Tobias: Hasn’t been true for a long time.

Jake: You’re breaking up.


Mike: Sorry, you’re breaking up. I can’t here. What was that?

Tobias: There’s a good comment here from Mike Bartlett in the comments. Fed purchased a total $580 billion in mortgage-backed securities during March–April 2020, and has since averaged $114 billion per month. That’s got to have some impact, right?

Mike: Sure, keeps rates really low. That’s the idea. That’s why you can go get out and get a 15-year mortgage right now for 2.15. I can get a 30-year for 3.2. That’s happening because the government’s letting it happen. It’s not happening because the banks really want you to buy that cheaply. That’s why I say, the risk in my mind is interest rates spike and it becomes less important. It’s actually very affordable to buy a home now [unintelligible [00:35:58] on top of my head, go look at any inflation-adjusted mortgage payment, because interest rates are so low, even with prices so high, it’s actually very affordable to buy a house. I think it’s more affordable to buy house than is to renting. [crosstalk]

Tobias: I think the deposit is the issue, right? The deposit is the issue because the deposit goes up with the house price.

Mike: Yeah, that’s right. There is a funny tweet that I’ve been saving up for a 20% down payment for 10 years and meanwhile the price almost got triple.

Jake: Never caught up.

Mike: [laughs] But I also think that creates a dynamic too where as the price goes up– If it happens really quickly for anything, a house, a commodity, people get a shock. They’re like, “Whoa,” and then if it comes down at all, it’s like, “Okay, now it’s recent. Even if it’s more expensive than it ever was, and the one I’m thinking of a very specific commodity right now that I get a lot of attention to.” [crosstalk]

Tobias: They all look that way. It’s not unique to one– [crosstalk]

Mike: Yeah, and everybody’s like, “Oh, it’s cheap,” and I’m like, “Yeah, the current price is 10% above the prior peak before COVID.” That used to be considered like, “Holy hell, why would anybody ever pay that price?” Now, everybody’s like, “Yeah, that price makes sense.” I’m like, “That’s what I want to hear.”

Jake: Total recency bias.

Mike: But it’s also, I think, extends to housing for Millennials. It’s like you see the people who bought homes, I bought my home in Colorado 2018. I remember thinking like, I’m probably overpaying for it. I think I did overpay, but it was a house that hadn’t traded in 50 years. It was a one and one, my wife and I were like, “You know what? This is our forever home. We’ll just do it.” Now, that’s looking like we got the steel of the century, and my sense is that if I’m right about demand and we just can’t structurally build the homes fast enough that people are buying homes are going to look pretty smart two or three years from now too.

So, I think that perception– I do think in the United States, people want to own homes. It’s a fundamental belief of mine, and I think it’s been different for 10 years, because millennials watched the housing crisis. But I also think it’s just a fundamental thing to us, I think we all kind of want to own– It’s interesting if you talk to immigrants that come from places where people mostly don’t own their homes, everybody’s like, “This is a cool feature of the United States where it’s just expected that you will.” So, my guess is, it’ll– I fade the Zelman thing, but I would say, and if I didn’t say this strongly enough before, she’s really good, and I’m kind of a dope. So, we’ll see if my [unintelligible [00:38:17] ends up being right or wrong.

Tobias: One of the interesting things about the work from home phenomenon, which we’ve talked about before, and JT had this chart that he tweeted out earlier today. Basically, there’s many fewer people working from home, even at the peak of the pandemic, whenever the peak was, March 2020 or whenever most people were working from home, but I think the absolute peak was 40% or something like that. Then, currently, it’s about 12% or 13%. Those numbers might be wrong. It’s off the top of my head. But JT had this percent teleworking because of the pandemic by occupation in month. And really, mostly, the biggest area is secondary school teachers, elementary, and middle school teachers, post-secondary teachers, this is by order of working from home at the peak of the pandemic.

Jake: Percentage of who are working from home.

Tobias: Of the profession, yes, proportionate profession. Then, software developers, lawyers, education administrators, teaching assistants, so it sounded to me like it was mostly– there’s a lot of teaching in there, but most of the rest of the folks were in the office. What’s the impact on– If it does in fact, turn out this way, what’s the impact on real estate prices, commercial real estate?

2019/2020 Is Not The Baseline For The Next Decade

Mike: Yeah, again, this is a guess. I have a guess, but it’s just a guess. Somebody said this the other day and it’s exactly right. It’s a better or smarter way of saying something that I’ve been thinking and saying for a while, which is 2019 is not the right baseline. 2020 is also not the right baseline for what the next 10 years are going to look like. I have no idea what the right baseline is, but I know, it’s either one of those two. I know. So, it’s like I was saying with the board engagement creating a comp plan, like we were starting from scratch a little bit here, like we’re all making guesses about what we think, but the world in my mind, it’s definitely going to be different. It’s just a question of, to what degree what’s going to be different, and to what degree, is it going to be different? So, there’s a little bit of a guess.

I wonder on that study is it– what I’m more referencing in the housing stuff is a hybrid work from home. So, if that’s just a pure telework, then yeah, I agree. Pure telework, I struggle with because even for me, I’m happy to do these meetings, board calls, and things virtually, but there’s a board meeting, an annual meeting coming up on December 6th. If you’re in the North Carolina area, come to Charlotte 5 PM on December 6th. I think it’s five minutes– [crosstalk]

Tobias: Is it a shareholder meeting or the board meeting?

Mike: Yeah. shareholder meeting, I think. I think we’re going to do it in a fun[?] venue. I will be there in person– [crosstalk]

Tobias: Chuck E. Cheese.

Jake: [laughs]

Mike: Can you imagine? Fun venue is a Chick-fil-A. So, everybody knows it. All the nuggets you can eat on me. So, it’s pretty–

Jake: Like 5% of them are on you.

Mike: Yeah, 5% of them [unintelligible [00:41:08] exactly.

Hybrid Work Means Urban Sprawl

But some of the stuff I think will need to be done in person. But the hybrid work environment, particularly for white-collar employees, creates the ability– It increases the radius in which you can live from center, because it allows you to commute farther, but since you’re doing it less, it actually seems to be reasonable. So, my guess is that type of hybrid environment is probably the new normal, where you’re not expected to be in the office from 8 AM until 6 PM Monday through Friday.

Tobias: It makes so much more sense from a business perspective too. Because rent’s expensive, getting everybody into the office is expensive, there’s an enormous amount of wasted time commuting and getting ready in the morning and commuting. I think that people discovered that last year when they were working from home. All of a sudden, there’s no commute. You just sit down at the computer, and so you’re getting another hour or two of work in every day. That’s not necessarily a good thing. I think people are probably burned out from working so hard over the last 18 months. But that’s a pretty compelling argument from the business perspective too. Maybe you buy a computer for the home, maybe most people have already got a computer at home, cuts your cost down.

Mike: Well, one area that I think– so on commercial office space, I go back and forth. I think if you own like Class A plus, plus, plus, plus in San Francisco and New York, I just have to think there’s always going to be– I would wonder about what the rent inflation looks like over the next 10 or 20 years, but I guess we’re going to be leased. I would also guess that it’s the Serendipities, the WeWorks,

I know what they have everywhere. Here, they’re all Serendipity Lab. Those little communal spaces, my guess is those are going to be fine. I would think that those actually get full because you’re working from home for a hundred bucks a month, I can go get a desk in a Serendipity Lab and actually just go somewhere to get away from kids, and noise, and just have a space, and that’s not really an unreasonable amount of money to spend, have a place to go. So, my guess is those are fine.

T&E Budgets Will Be Trimmed

The one area that I think if I had to guess, what’s really going to take it on the chin, my guess is T&E budgets for people who used to travel an awful lot for work, like, I’d be really worried about the business class fare sales, that stuff where American Express T&E budget, their T&E spend, I’d be really surprised if that came back and was a strong. I would guess structurally that over the next 5 to 10 years, you’re just going to see that number be lower because so, I don’t have to be in the office more than three days a week. I can do a lot of sales calls initially over Zoom. It’s just normal that I’m going to do a sales call over Zoom.

There was an anecdote I heard too, and I forget, there was a sell-side lunch, and they were trying to organize everybody to come into the city, and they got all this blowback. They’re like, “Just do it on Zoom, dude. I’m in Connecticut. I don’t want to come in just for a lunch.” Five years ago, there’s no scenario that would have been done on Zoom. Now, it gets done on Zoom. You get the option. You can be there in person or you could do it online. I think that just takes a permanent hit on T&E spent. It’s just a guess.

The Wu Wei Investing Strategy

Tobias: JT, you want to do your veggies? We’re sort of quarter past the hour.

Jake: Oh, yeah, let’s do it. Yeah, let’s get deep in some Eastern philosophy to close out the hour. This concept of Wu Wei, which if you want to look it up, it’s not– It’s spelled W-U and then W-E-I. I’m going to start out by reading a little passage from Tao of Pooh, which is like this book about Winnie the Pooh.

Tobias: [laughs]

Jake: But it explains Eastern philosophy because that’s where I have to start, [laughs] paint by numbers. So, here’s what it says. When we learn to work with our own inner nature, and with the natural laws operating around us, we reached the level of Wu Wei. Then, we work with the natural order of things and operate on the principle of minimal effort. Since the natural world follows that principle, it does not make mistakes. Mistakes are made or imagined by man, the creature with the overloaded brain who separates himself with the supporting network of natural laws by interfering and trying too hard.

So, first of all, that’s a really nice little passage, but it’s very hard to explain Wu Wei. Because you can take so many different angles on it, but I’m going to read some of them and see if any of these resonate. One definition might be the alignment with the rhythms of the elements. Effortless surrender to natural cycles of the world, ultimate energy of the universe, that the drift of nature, others kind of put it more as like nonaction, which kind of sounds like laziness on one level, but I think it’s more that like you work hard when you’re in the flow, but you don’t fight it if you’re not.

There’s this Lao Tzu quote that says, “Nature never hurries, yet everything is accomplished.” There’s also I think some elements of authenticity to it. Don’t try so hard not to be yourself. So, that to me is represented– I watched The Big Lebowski again recently, and just the idea of like, the Dude abides. I love that. It’s so pithy and good. But really, this is why I often look to nature for some of the bigger truths, because there is an energy to it, there are cycles to it, and I think there’s a lot that we can learn and try to sync ourselves up with that. Anything you guys that you want to add at this point before I go into what I think maybe some of the implications are of this?

Tobias: The way that I have understood it is just that there is an objective reality and there is a way that things are going to unfold. The better you are able to understand it and to align yourself with the way that things are going to unfold, the easier everything is. I think that the analogy that I like is just, if you’re at the beach and there’s a tide, you can float in the water and go with the tide, and you go a long way down the beach, and you can swim against that tide and stay where you are and put out a huge amount of effort. Provided the tide is going in the direction that you want to go, it might be easier just to sit in the tide. If you swim with it, you go even faster. But the idea is that you figure out what has happened, what is likely to happen, and you just sort of go with it.

Jake: Yeah. From a business standpoint, I think finding the businesses that are operating with a win-win mentality with all of their counterparties are going with the tide of recognizing this universal principle of reciprocity, and that is one of the ways in which to be in WU Wei. I think capital cycle theory makes sense to me from a Wu Wei standpoint of there are natural ebbs and flows as capitalism moves from glut to not enough, and works its way around and through equilibrium and just understanding that that’s going to happen and not drawing straight lines and projecting them off will give you quite a bit of an advantage. Even just trend following to me sounds like it’s sort of Wu Wei. I know a lot of value guys will turn their nose up to that kind of thing, and I personally do not engage in trend following. However, that doesn’t mean that there’s not one way to think it works and it probably– [crosstalk]

Tobias: Well, momentum, right? Momentum is a pretty well-documented quantitative phenomenon that seems to be more robust than value. I saw Corey Hoffstein was here.

Jake: How dare you, Toby?

Tobias: Corey might be able to shed some more light on it, but I forget who said this but it was a pretty great point that they made that if you’re in a market where tech is trending and that’s going to go on for a decade and you’re in momentum riding the tech, and then the market breaks down and it turns into lumber, oil, and gas, those become a momentum. This is what’s happened over the last 12 months as value has slowly gradually started to become momentum. The momentum guys haven’t had to make any great switch to their strategy. No, they’re already in the thing that started working again and they’re going to be okay.

Jake: Yeah.

Mike: [crosstalk] ones. Structural talent is true to [unintelligible 00:49:29].

Jake: Yeah. You think about like how Munger runs Daily Journals portfolio and just how opportunistic he is. He is not forcing it. One, he just waits until there’s something very obvious to do and otherwise he’s not swimming against any tide there.

Tobias: It’s a difficulty ride. It’s separating out things that are very obvious from the things that aren’t because everybody sees those very obvious traits once every five years or so. You just see something but you’re like, “Well, it’s everything that I understand, and it’s way too cheap. I don’t know how this is going to work out.” But there’s a lot of ones that feel like that don’t quite get there.

Jake: It’s the nonaction that’s harder than the action.

Tobias: [laughs]

Jake: I think another thing is that your investment style has to match your inner nature, and you have to be congruent with that, and really understand yourself and where your strengths are, and your personality type and the EQ side of this whole game has to be at one. Sometimes, if we don’t match ourselves with the external energies, then you’re just going to be forcing it. I think it’s a good exercise for all of us really to ask, where in my life am I rowing against the current where if I was to think of it instead of putting up the sail and going with the flow, it would be so much easier? So, that wraps up a little bit of Wu Wei.

Knowing Your Investing Personality

Mike: I like it. I totally agree. I agree with both tailwinds, I also agree with– I think one of the biggest mistakes you can make as an investor is investing in such a way it does not fit your psychology and your personality. It just opens up so many opportunities for mistakes. If you’re doing something that makes sense to you and you can stick with it, if you want to be right or even more importantly, if you can keep your head on a swivel and change when you know changes come in, having an investment style that fits your personality, I strongly believe it. I always get weirded out when I see people on Twitter saying like, “Well, this is the strategy and then everybody else should just passively invest.” It’s like, “Well, that’s the strategy for you and you should definitely do it, and other people, passive might be exactly what they should do.”

But the truth is, there’s a lot of ways to go about this business, and I’m not sure– The Psychology of Money, that book where– It’s a good book. Everybody should read it. The whole discussion about two people can look at a situation and come to wildly different investment conclusions and both be right depending on how they approach it. So, I’m looking at this for 30 days, and I think the same-store sales comp is going to be terrible. So, I’m fading it. Then, another guy looks at and is like, “Dude, I want to own this for 10 years. I don’t even care.” The truth is maybe you’re both right. So, it’s the psychology thing [crosstalk] 100%

Tobias: It’s Morgan Housel’s book.

Jake: Yeah.

Tobias: Shoutout to Morgan there.

Mike: Yeah, Morgan did a good job.

Jake: Hey, Morgan. Yeah, the timelines can make a huge difference. You can both be right, but over different timelines.

Mike: Yeah, duration matters. I’m just knowing that about yourself that like, if I buy– I had lunch with a guy who’s had some really good returns, and he’s a young guy, and his entire strategy, he’s like, “I’m a macro guy. I really don’t know what most of my businesses do,” and so, he was at lunch, he was trying to figure out what was like, “What does that mean?”

Tobias: Zoom’s breaking up.

Jake: Yeah.

Mike: Zoom is breaking– His point was, he was like, “Look, I just tried to find these factor bets, and then I have these really short stop losses,” and he’s like, “My returns are great. They’re very tax efficient, but they’re very good.” I’m like, “Dude, that is awesome.” and he’s actually very self-aware. He’s like, “This isn’t going to last forever, but right now, it’s just been great, the last three years.” I’m like, “Good for you.” He’s very self-aware and he was like, “That would not work for me.” But I think for him, it’s obviously working and I was like, “Dude, more power to you. That’s awesome. Go about it anyway that makes sense.”

Tobias: The challenge for me has been something like value, which if you talk to enough value guys, they’d all say value’s evergreen. The idea of buying something for less than it’s worth, how can that not work? But clearly, there are different definitions of value. All of the software as a service tech guys would also say, “Look, we’re doing DCF, doing fundamental analysis, looking long way into the future,” which is what you should do. When I discount back those very high growth rates, I come up with a very big number, we’re trading at a much smaller number than that very big number. So, not all of it has to go right for me to get really great returns.

Then maybe, Jake and I would look at that and say, “Well, those growth rates have base rates that are not supportable for that period of time,” and the rejoinder would be, “Well, we’re in a brand-new world, it’s a networked world.” Those are all very good arguments. I honestly don’t know what the correct answer to that is. I don’t know which side of the fence I want to be on. I’ve made my bet, and I’m confident in my bet, but equally, I can sit on my own shoulder and see there are plenty of other arguments the other way.

Jake: That’s a great assessment of where we find ourselves.

Mike: Yeah. That’s right. In that case, it works for you. You understand it, you know what you’re doing, you know the bet you’re making, you’re intelligent, you’re a big boy. If it works, and my belief is that it will, we’ll see if I’m right about that, but if it works, it’s great. If it doesn’t, it’s like, “Well, that was how you went about it.” You made your choice and you did it intelligently and rationally, and it might work and it might not.

Tobias: The only problem is I felt the same way in 2010, and I also felt the same way in 2015, and I was wrong on both of those occasions. I think Jake and I have diagnosed the 2015 problem, but we’ll see. If it comes around again, we’ll let everybody know. [crosstalk]

Mike: Is the diagnosis even a blind squirrel– Does it start with even a blind squirrel finds a nut? Is that the–? [laughs]

Jake: Well, that was 2008.

Mike: [laughs]

Tobias: Spread is the big– yeah. Well, that was yeah. I think the spread is a big driver of returns to value. When the very best companies are trading as if they’re the junky companies, then you are paid to be buying those very best companies. When the spread gets very wide, then it’s still a handicapper-type market you want to be on the things that– I think the reason that a lot of companies worked really well from 2015 to date is the good stuff got way too cheap, and you’re basically taking a free hit on whatever happened. And then, that has happened, and you can look at now that the multiples are very different to where they were in 2015. Microsoft is a great example. It went from like 11% free cash flow yield to like wherever it is now, 3%.

Mike: It was hated. It was amazing how the narrative has changed on that one. It’s almost like you’re suggesting that price matters, and I’m not sure I agree with that, Toby– [crosstalk]

Tobias: There’s has been no evidence that’s the case for almost [crosstalk]

Mike: I’m going to need to see some data that price matters [unintelligible 00:56:26] before I agree.

Tobias: JT, what are you doing in St. Louis? You tell everybody why you’re in St. Louis for?

Jake: That’s none of their business.

Tobias: [laughs]

Mike: [laughs]

Jake: I’m here for an investor conference. That should be pretty good. A lot of smart people showing up. Well, it should be fun. I’m excited, it starts today. I don’t even know exactly what we’re doing, but it’s going to be good.

When’s The Next Crash?

Tobias: I’ve got a question here. When’s the next crash? I’ve predicted 15 of the last 2. So, I’m prepared to have a swing at it. I don’t know, honestly. But I do think it’s funny that for all of the ARKK, A-R-K-K-style companies, I just put that– it doesn’t necessarily have to be in the portfolio. But a lot of them seems to top out in February this year, and it’s been a much better run for the junk, that little turd balls that I prefer since then. So, I think sometimes, the crashes seem to be about– they take about 12 months from the peak. You just sort of bump sideways and then you really see some fireworks. So, if I had to have a guess, I’d say Q2 next year with a straight face.

Jake: Ooh, bold.

Mike: Do you think so? That’s a big statement. Yeah, it’s going to [crosstalk]

Jake: Spicy take.

Mike: The only thing I know for sure to answer that question is, it’s definitely coming. That’s the one answer I have.

Jake: We have reached a new permanent high plateau.

Tobias: There you go. Inducing and calling down the thunder. I have no idea, by the way.

Mike: 16% compound returns for the next 10 years. You better wait for it.

Tobias: It’s not at all predictable. I’m just speculating for fun, not for profit.

Mike: Too hard.

Tobias: Yeah, I think so.

Jake: So hard.

Labor Has More Bargaining Power

Tobias: Could a difference in the price increases of goods we import vs goods we mostly produce shed some light on whether inflation is more driven by supply or demand? When you have some equilibrium, there’s stuff that the locals can charge more for it now, can’t they?

Mike: I don’t have the questions open. So, what was the– [crosstalk]

Tobias: Could a difference in the price increases of goods we import, so import vs goods we mostly produce shed some light on whether inflation is more driven by supply or demand?

Mike: Well, there’s so much that we don’t make at home. That’s the problem. A lot of it, we have to import. So, I think [crosstalk]

Tobias: Or a component of it.

Mike: Yeah, or a component of it to complete the finished goods. So, I do think the domestically produced goods have a reasonable shot of having a different path than imports. But the problem we have in the United States right now is that we just don’t have labor. One of the things I’m worried– where my head is now is I’m kind of worried about rolling labor issues. Meaning, you get– [crosstalk]

Jake: More unionization talk right now.

Mike: No, I don’t mean– Unionization may come back in force, but right now, labor has such power, and so much negotiating power, that I’d be shocked if unions became more of a force. That’s usually when you don’t have the power of labor where unions become an issue. But right now, if you’re an able-bodied US citizen and you want to go get a job, there’s plenty of jobs for you, and everybody’s– I’m worried that everybody right now is doing X, and then they go– and I’m talking about just normal trades. I’m not talking about really skilled labor. They just shift from one job to the next job, and that just creates these– As wages start to rise in one area, you get these shifts and then you have it down and– [crosstalk]

Tobias: It equilibrates over time though, surely finds its [crosstalk].

Mike: Yeah. We certainly have enough bodies, so you’d like to think that we have enough population, so you’d like to think that these people will go back to work and all this will normalize, which feeds into that deflation of goods and services prices in 2022 assuming they all go back to work, and you don’t have to pay the higher wages because we do have plenty of labor but there’s no guarantee that will happen, but very well it might. [crosstalk]

Tobias: Folks, we come up on time.

Mike: I didn’t answer the question [crosstalk]

Tobias: I think you killed it. I think you did a great job. Thanks so much for joining us this week, Mike. Love having you here.

Jake: Yeah, thanks, Mike.

Mike: Yeah, I appreciate it. I appreciate it, guys.

Jake: I always learn something, which I like.

Mike: Hopefully, it’s useful. But yeah, dude, I enjoyed it. I love this, guys. So, anytime you guys need me, just let me know.

Tobias: Thanks, folks.

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