VALUE: After Hours (S04 E019): NYSE Opening Bell, The Iron Worm, Retail Apocalypse, Crash or Megabear?

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In their latest episode of the VALUE: After Hours Podcast, Bill Brewster Jake Taylor, and Tobias Carlisle discuss:

  • Cathie Wood: AI Could Lead To 50% GDP growth
  • Crash or Megabear?
  • Retail Apocalypse
  • Investing Lessons From The Iron Worm
  • Intangibles Meeting Atoms
  • Cash Is Trash
  • A Recession May Be Around The Corner
  • The Nostalgia Of Brands
  • We’ve Over-Extrapolated Every Trend Since We Climbed Out Of Trees
  • Does Zoom Have A Moat?
  • This Is What The Real Bottom Feels Like
  • Has The U.S Housing Market Peaked?
  • Ringing The NYSE Opening Bell
  • Rudy Officially Banned From Twitter

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:

Tobias: Says that we’re preparing to live stream. I guess that means that it’s live. Well, it’s 10:30 AM on the West Coast, 1:30 PM on the East Coast, 3:30 AM Australian Eastern Standard Time, probably. I got no idea. What’s happening, fellas? We’ve missed a few. We’re back.

Jake: We’re back baby.

Bill: I think we only missed one, didn’t we?

Tobias: And then one before that.

Bill: Oh. [crosstalk]

Jake: Has been a little spotty lately. [laughs]

Bill: People don’t come here to depend on us.

Jake: Thank God.

Bill: And if they do, they’ve come to the wrong place.

Jake: We got two out of the three of us out of our normal locations, huh?

Bill: Yes. I’m in an undisclosed location with crappy lighting.

Jake: [laughs]

Bill: There we go, now it’s better.

Jake: Whoa. Yeah, where are you, Bill?

Bill: I’m in the middle of the US. Dead in the middle.

Jake: [laughs] I’m too. Just about except I’m a little further south than you are. I’m in Dallas at the moment.

Tobias: Very secret squirrel, I’m where I always are.

Jake: Yeah. Toby’s– [crosstalk]

Ringing The NYSE Opening Bell

Bill: You’re not where you always are. Sometimes, you’re ringing the opening bell at the NYSE.

Tobias: That’s true. No, it was fun.

Jake: Yeah. How was that? Give us the full story.

Tobias: Yeah, that was cool. That’s going to be my topic for today.

Jake: Oh, okay.

Bill: You went ham on holding that button? I liked that.

Jake: [laughs]

Tobias: Well, tell you. They tell you. I rang the bell at the NYSE opening bell on Wednesday last week. That’s part of having a listed thing there that for compliance reasons I can’t discuss.

Jake: [laughs] That’s going to be 45 minutes’ worth of the show is just telling us.

Bill: That’s so stupid that you can’t mention it on here.

Tobias: Yeah, it is. It is.

Jake: Meanwhile, Cathie’s [crosstalk] 50% GDP numbers.

Tobias: Yeah, that’s what it is. I have a topic.

Bill: Literally, took the words out of my mouth.

Jake: Sorry.

Tobias: I do want to come back to Cathie. I read that down. I just saw somebody discussing it just then. Yeah, so, it was fun. As part of being listed, you get the opportunity to ring it, and we didn’t get it when we first listed, and then we’ve had two years of COVID. So, we finally got full access. I took the whole family, took the kids on the floor, it was cool. You get a historical tour and then get to walk on the floor of the NYSE which is cool.

Jake: Yeah.

Tobias: Lots of photographs and up into the little balcony where you ring the bell, and the instructions are you got to ring it for 10 seconds before the hour, and you got to hold it down all the way to the end and it is bad luck if you take your finger off and apparently, you get some jeers from the floor if you do that. So, I managed to hold down for the full 10 seconds.

Jake: That’s why do we have a bear market, because you pushed it for long enough.

Tobias: That day was the worst drawdown on the New York Stock Exchange.

Bill: Nice.

Jake: [laughs]

Tobias: Seems like June 2020 or something like that.

Bill: Nice.

Tobias: But the funny thing is that I think that’s what value needs to outperform. So, from my very selfish [unintelligible [00:03:21], it’s actually a pretty lucky [unintelligible [00:03:22].

Jake: Yeah, you just barely tapped it once. You’re like the cooler. Wasn’t there a movie about that? I was such bad luck, bring him into the table.

Tobias: Yeah, it was cool. It was fun and then we did New York touristy stuff like. Went and saw, took the kids to see Liberty, and the Brooklyn Bridge, and the Empire State Building. Got the special pass all the way at the very top of the Empire State Building. You know there’s a secret floor above, though?

Jake: Oh.

Tobias: There’s a tiny little very executive floor right at the very top.

Bill: Who got you that?

Tobias: Connections. Got a connection-

Bill: Nice.

Tobias: -who got us the superfast pass-

Bill: Nice.

Tobias: -and then the Met and the Natural History Museum. So, it was awesome. Had a great time.

Bill: [crosstalk]

Jake: Yes, living the dream.

Tobias: Now, I just got to recover and pay for it all.

Jake: [laughs] Yeah.

Bill: Well, when stocks go to zero that’ll be tough to do.

Jake: Is that what they’re doing right now?

Bill: It’s the only place that we can stop.

Tobias: Nah, we’re 20% of– We’re technically– [crosstalk]

Bill: We’re going to zero.

Jake: [laughs]

Tobias: There’re a few things I’ll buy if you go to zero. I’ll be hoovering up the Google if we go to zero.

Bill: I will have no money left.

Tobias: Hoovering after Amazon’s.

Bill: That’s actually a lie. Yeah.

Cash Is Trash

Jake: Cash is trash, though. Remember that.

Bill: That’s right.

Jake: They always say that.

Tobias: I still think that’s true-ish. The inflation running at whatever it is close to eight and what are you getting on your savings account like one.

Bill: Well, you can get two something on treasuries, but I’ll tell what, US dollar is not a bad asset lately.

Tobias: You could get three on the 10 year, but then you got a little bit of–

Bill: Yeah. You got to take the duration.

Tobias: Got a little bit of duration risk there. Yeah.

Bill: Yeah. I don’t know why you’d go out that far. I haven’t looked last time. I don’t know. Three or five years seems to make sense to me, but 10’s a little long,

Jake: Buffett’s not going over a year and a half. [laughs] He won’t.

Tobias: Yeah, you wouldn’t go out that far. Well, that’s what’s it backed up to three. I don’t know where it is now, but it was close to three.

Bill: That’ll lever it. Get that good return when rates go back again.

Jake: There you go.

Bill: What can go wrong?

Tobias: You don’t want to do that calculation about how much purchasing power you’re getting chewed up every year if you’re sitting in cash.

Bill: If you’re purchasing stocks, you’re gaining a lot of purchasing power.

Tobias: [laughs] Theirs is no way to hide.

Jake: Yeah.

Bill: Yeah.

Tobias: There’s no good spot to be.

Jake: Yeah, we need the Zoom-Qurate checking account. Three-way competition. [laughs] Who’s [laughs]

Bill: Yeah. Well, that’s not– You bringing up old shit.

Jake: [laughs]

Tobias: Did that calculation include all of the stuff that’s been spun out of Qurate?

Bill: Qurate’s down now. It just is.

Jake: Yeah, it is.

Bill: Look, if I had first saw China pursuing a COVID zero policy, and supply chains remaining shut for two years, and inflation destroying purchasing power, then that clearly– [crosstalk]

Jake: But other than that-

Bill: Yeah.

Jake: -it’s a lay– [laughs]

Bill: That’s right. And a huge fire at their biggest fulfillment facility and product shortages that hit Zulily. Other than that, it’s been a fantastic set of cards.

Rudy Officially Banned From Twitter

Tobias: There have been a lot of fires at– Have you seen these fires at food processing plants? It’s a thing, if you Google that. I saw Rudy haven’t seen– Rudy has been banned from Twitter.

Jake: Officially, formally banned?

Tobias: Gone.

Jake: Or just temporary.

Tobias: Oh, I think it’s official this time. I think it’s a full-time ban. Too much criticism of the world that can– [crosstalk]

Jake: Go against that as a free speech advocate.

Tobias: You are not allowed let to criticize the World Economic Forum, just so you know. As particularly, when Davos is going on, they got to get Rudy away. Rudy in his whatever, it was 80,000 followers.

Jake: Oh, wow. That’s troubling to me from a societal standpoint.

Tobias: Absolute joke.

Jake: You can’t silence the jesters like that. That’s how you relieve pressure in the system.

Tobias: Evidently, you can. Anyway, so, he’s moved over the Substack. You got to hit Substack, if you want to get Rudy. I get them emailed to me now. I get his tweets. Email to me once a day.

Jake: [laughs] Hey, Rudy.

Tobias: That’s the way it goes now.

Jake: Shoutout.

Cathie Wood: AI Could Lead To 50% GDP growth

Tobias: Ah, what topics are we got today, gents? We got Cathie Woods predicting. So, I get how she’s going to do 30% to 50% a year. That’s what the GDP’s going to do.

Jake: That’s just GDP performance. That’s just in line with GDP. [laughs]

Bill: I need to read this tweet again.

Jake: Well, that wasn’t very long.

Bill: No, I read it the first time and I didn’t quite– I thought that she was saying 30% to 50% growth. But then I read it the second time and they said that it was like– I thought that I read that it was 30% to 50% improvement on AI or something which reduced from 30 years out to 16 years out, which last I checked doesn’t matter.

Tobias: So, I have– [crosstalk]

Bill: Oh, she actually did say could accelerate a growth in GDP from 3% to 5% a year to 30% to 50%. Wow, that’s pretty sweet. I’m down, unless, it’s just 30% to 50% inflation.

Jake: Oh, she didn’t say real.

Bill: No, she did not.

Tobias: [laughs]

Bill: That shit would suck.

Tobias: The thesis is, it took thousands of years for growth to increase from 0.03% to 0.3%.

Bill: Cool.

Tobias: But only a few hundred years for it to increase from 0.3% to 3%.

Jake: So, let’s just keep drawing a straight line and then–

Bill: It checks out.

Tobias: If you naively extrapolate this trend, you predict that growth will increase again from 3% to 30% within a few decades.

Bill: That’s so dope. This is going to be great.

Jake: Dope or dopey.

Bill: No, it’s going to be sweet.

Jake: Oh, okay.

Bill: Growing 30% to 50% a year, that’s going to be really cool. That’s about what my waistline is working on.

Jake: [laughs]

Tobias: The funny thing is though, it’s all sort of slowed down materially since 2000, isn’t it? I thought 2000 was our top-rated GDP growth and we’re slowing.

Bill: Yeah. I think that you’re using facts and stuff, which is frowned upon.

Tobias: It could just be a pause. We could just be pausing getting ready to ramp.

Bill: Yeah, dude. 100%. [crosstalk]

Tobias: What does the world look like if 50% increase in GDP on year-on-year basis?

Bill: Yeah, it’s going to be sweet. Because obviously, it’s all going to be real.

Tobias: That’s one way to do it I guess.

Jake: What is [crosstalk] per capita?

Bill: You want to know what the world’s going to look like? Let’s see. The high GDP growth is 1942 at 19%.

Jake: That was all tanks.

Bill: Let me see. If I recall, 1942 was a great time to be alive.

Jake: Yeah, that was airplanes, tanks, bombs.

Bill: Yeah, fun.

Jake: That’s not really where you want your GDP to go.

Bill: We’re going to have real GDP growth and when we go to war with China and Russia, it’s going to be amazing.

Jake: Please, no.

Tobias: I hope not.

Tobias: All right. What topics have you got? What do you got, JT? You got some veggies?

Jake: Yeah.

Bill: I was just going to go hide.

Jake: [laughs] I do have some veggies for the road that I prepared. It will be on the London tunnel, which is a little bit of a randomness, but–

Tobias: The Channel? The naming of the Channel?

Jake: No, it’s just a different thing than that.

Tobias: I remember the naming of the Channel Tunnel and I think they got paid a million pounds or £3 million or something like that. Come up with a name for the Channel Tunnel and they went Channel that will be £3 million, thanks. So, I want that job.

Jake: Yeah.

Bill: It’s pretty good one.

Tobias: It’s not a bad name.

Bill: No.

Jake: It’s still not my favorite British naming story, though, with Boaty McBoatface taking number one.

Tobias: Boaty McBoatfaces? Yeah, I agree.

Jake: [laughs]

Tobias: That was crowd sourced, wasn’t it?

Jake: Yeah, and won by a landslide. And then they took it away from us. They wouldn’t let us have that.

Tobias: Sounds pretty funny.

Bill: I don’t know what I’m going to talk about. We got Walmart, Target– [crosstalk]

Tobias: Well, the stock market crash going on. You can talk about that a little bit.

Retail Apocalypse

Bill: Yeah. Walmart and Target are kind of interesting.

Jake: Yeah. What’s going on retails?

Bill: Snapchat is kind of interesting.

Jake: Seems like it’s been retail Armageddon, apparently.

Bill: Yeah. Well, I don’t know. That seems fake news to me. Look, I think if you pull up Target stock, I just don’t know that we can pretend that this was trading at some depressed valuation and then cratered.

Jake: Say it was a little frothy to begin with.

Bill: I don’t know. I’m sure you could say it’s fair. I don’t know. It’s not we’re at some hyper depressed earnings base and some hyper depressed multiple here.

Jake: Yeah. Or, margin or any of the variables that matter.

Bill: Yeah. I don’t know. It seems to me that that call– Now, I’m doing it off memory, and it’s greater than a week, and I ruined my brain this weekend. So, please, pardon me. When I listen to that call, I heard an organization that is focused on all right things for the long term.

I didn’t hear an organization that was screaming the consumers in trouble. We bought a bunch of stuff, we had to pay a lot to get it where we needed it. Everybody’s consumption patterns are shifting in these waves and now, we were over inventory, and we’re doing what we need to do to get the store in the right condition for the next quarter rather than trying not to write down something today.

So, I don’t know. I think that all makes sense. It sucks. But there’s a lot of choppiness that’s COVID related.

If I recall correctly, I don’t think that Target broke out the customer segmentation. Walmart said that some of their customers were trading back to private label meats and stuff, which, I don’t know. That’s been a secular trend. But I think their takeaway was– Well, my perception of their takeaway, which is a bias perception, but is that the– [crosstalk]

Jake: It’s not just your take away? [laughs]

Bill: Well, I don’t know. They’re saying something, I’m listening to something, I’m then interpreting it. I don’t know. Either way, I think that the lower end consumer that shops at Walmart is being hurt by inflation.

Jake: Careful. You’re going to get kicked off Twitter if you say things like that. That’s what killed Rudy.

Bill: I don’t know. I’ll be fine with that if that’s what I have to go down for. But I think that a lot of their consumers are doing okay. And then some of this was a lot of inflationary pressures through the system. So, not great when you don’t have a huge margin for error and then stuff happens. Not great, Bob.

Jake: Not great Bob.

Bill: Not great, not great.

Tobias: I saw a statistic that 78% of folks have the $400. It could get hit with the $400 one-time expense that they weren’t expecting, which is like that’s unusually high. It’s not a public one.

Bill: Yeah. People are in good shape. Well, for now, fast forward a little while, but you know what was interesting about Walmart is, they said that they were– Hang on, I got to think about this. They said that they were overstaffed because they were expecting people to be out with COVID.

And then there were fewer people that were out with COVID than they expected. They were double stacked on their staffing expenses which, by the way, China, what the fuck are you doing? Stop the zero COVID policy. It’s totally junk unless you’re just waging economic warfare on us, which is bullshit and I do not trust it. My tinfoil hat is on.

Jake: Oh, we’re definitely demonetized at this point.

It’s Time To Play Time Arb

Bill: Anyway, I digress. I don’t care. Google’s in China’s pocket. I said it, anyway. So anyway, the overstaffing, now, you’ve got like these layoffs coming out of Silicon Valley, then you get the labor market gets a little more slack in it, then maybe people don’t have as much bargaining power, and then you don’t get the wage inflation, and then maybe the Fed doesn’t keep hiking, because they’re really worried about raises or inflation, wage pressures, then maybe you get them to ease, then what happens, I don’t know. This is an interesting time to play a time arbitrage game. It always is, but everybody said they were really long term at the top. Let’s see.

Jake: Yeah. That’s a good point. Definitely a lot of long-term at the top.

Bill: And one follow on thought to that is, I think that the next time that everybody is talking about being so long term, I think a good thing to really sit through and think about is, what has happened in the last 10 years in my life and am I really getting paid for taking 10 years of duration or 20 or 30? I think a lot of people made– Look at Charlie and BYD. Even Charlie got into never sell and isn’t a never sell, right? So, I don’t think it’s necessarily wrong. I just don’t think it’s necessarily right. There’s nuance in life.

Jake: Sure that.

Bill: Anyway, that’s my segment.

Has The U.S Housing Market Peaked?

Tobias: I think someone mentioned this in the comments. “One way to tame inflation is to get the prime rate.” And folks, you just have to remind me what the prime rate is. To get the prime rate over inflation, so, we’re seeing inflation is 8%, that would be 8%. I think the 30-year mortgage rates now, I think it was almost 5.9 last time I looked [crosstalk] 7 or something like that.

Jake: Really? Wow. That’s a big run from [crosstalk].

Tobias: January 2021, I think it was 2.9%. On the median house– I’ve stolen this from somebody’s tweet, I’m sorry, this is probably Charlie Bilello, actually. “Median house price in January 2021 was 430 at a 2.9% rate. Repayments were–” Off the top my head. I think he said it was $1,200 something with the 1,200 handle on a monthly basis. And now, the rate is 5.9 and the median house price is something like 530. And so, that’s a doubling of the monthly repayments to two and a half thousand something like that. At some point that’s going to [crosstalk] the house prices.

Bill: But your [crosstalk] Wait, your rent– [crosstalk]

Jake: The [crosstalk] head as it was before.

Bill: Yeah, what are you going to do? You’re going to go rent? Rent all the landlords are bumping rents like crazy.

Tobias: I don’t think anybody sells, because they have to.

Bill: Yeah. You’re just stuck. You better like where you live.

Tobias: I think what happens is people lose their jobs and can’t afford the payments. That’s how you get the tumble in house price. I think that’s why housing tends to take about a year longer than the stock market to bottom.

Bill: But I don’t know that you really see prices come in as much as you see velocity go down.

Tobias: Well, they do. If you look at any of those long run like the Shiller house price, Shiller came down about 40% last time, 2007 [crosstalk] that might be an unusual period.

Bill: Yeah, that was different though.

Tobias: That’s fair. That might be an unusual period. But the one before that, there’re few and far between, so, the one before that’s 1992, I can’t remember exactly, but it might have been half that number, it might have been coming back 20%. Now, I think house prices– [crosstalk]

Bill: Dude, if you pull up the Fred economic data and you look at the S&P case, Shiller, US National Home price index, that is a one way slope up X

Tobias: It doesn’t.

Bill: [crosstalk] 2006 to 2010, which is a pretty big EBITDA add back.

Tobias: [laughs]

Bill: If you just take away one huge financial crisis that ruined everything, it just goes up.

Tobias: Here’s the thing, though. Everything has round– If you look at tech stocks, a lot of stuff has round trip. It’s had this big bulge that when everybody was home speculating with low rates and there was money being pumped up, everything squirted up, and everything’s coming back down. If it just comes back down to trend, then why wouldn’t the same thing happen in real estate? I think that’s probably likely, that it’s a year delayed.

Bill: I think that the reason is that people don’t trade their house like they’re cocained out junkies and they do trade stocks like that.

Jake: [laughs]

Bill: You don’t have like momentum algos, and pod shops, and all kinds of idiots- [crosstalk]

Jake: Wasn’t that Zillow? [laughs]

Bill: -like aping in the fucking housing.

Tobias: You do. You’ve got Zillow and you’ve got that other SPAC of Chamath’s SPAC.

Jake: Opendoor?

Bill: Oh, I wonder how Chamath’s SPAC portfolio’s doing. I bet it is so good right now.

Jake: Not great Bob.

Bill: [laughs]

Tobias: I forget the name of it now. Bridge broad points something like that. I’ve got that wrong. But they were the ones who are making offers on houses sight unseen. Zillow found the problem with that the people, they just take the best offer that they can get. So, your arrow is always in the same direction.

Bill: Yeah.

Jake: Hyperselection.

Tobias: Yeah.

Bill: B. Reid is a big buyer I think of single-family homes now. But maybe that’s wrong.

Tobias: Opendoor. Was it Opendoor? Thanks, fellas.

Bill: Yeah, I don’t know. Maybe. We’ll see.

Jake: Make it up a volume, though.

Tobias: When Opendoor first came out, you could go and have a look at what they had. I had a look at some of the houses in that row that the pricing wasn’t wrong on the sales side. It was aggressive on the sales side. [crosstalk] You can’t go into there, you need to download the app now. It’s not easy to get in there and look at what they’ve got to sell. I don’t know what that’s about.

Bill: He had a house in Vermont, that in 2018 I was told, no one would ever buy. We sold it for a healthy price in, I think it was 2021. Yeah, it was 2021 because that’s when my grandma came down to Florida. It was her second home her whole life. I remember my grandfather and his friends sitting around the table and they were just like, “Good luck selling these homes.” Somebody came in and hit the bid hard.

Jake: [laughs]

Bill: Whatever. It’s a nice piece of property. I hope they like it. But I do– [crosstalk]

Jake: Because they’re going to have to live there a long time.

Bill: You ain’t lying. So, we’ll see. But yeah, I guess, I wouldn’t be shocked. But where I live people are still– I would say what I’ve seen and anecdotally heard is, days on market are increasing a little bit. But if people are sticking to their price, they’re still getting it.

Jake: From three to four?

Bill: Yeah. Well, that’s part of the problem.

Jake: Yeah.

Bill: There’s no inventory. It is crazy.

Tobias: It’s definitely ticked up a little bit. It started ticking up now.

Bill: That’s good. I personally don’t really feel living through another housing. I would argue the last two years have been insane. I didn’t want that to continue. I don’t think that’s good for the system.

Crash or Megabear?

Tobias: No. My guess is that we’re going to get a little bit of everything. We’re going to get a stock market– This is a guess. We are going to get a stock market crash here. Probably, going to get [crosstalk] crash.

Bill: We’ve had it. The generalists just haven’t been shot. Everything else has been destroyed other than commodities.

Tobias: I wouldn’t say 20%– [crosstalk]

Bill: You are not. This is fake news.

Jake: [laughs]

Bill: You can’t go with the fucking index top line number, man. You got to look at the internals. The internals have been destroyed. I’ve been counting on that for six months.

Tobias: But you can’t have a stock market until the index crash. It’s not a stock market crash till the index crashes. And that’s always the way that in retrospect, it’s always well and truly flagged ahead of time by the– [crosstalk] other stuff.

Bill: It’s already happened.

Tobias: That’s true. Something happened in the early 2000s. That was big tech sell off full of– [crosstalk] index.

Jake: Half end implies that it’s over, I think is what Toby says.

Tobias: I don’t think it’s over.

Bill: Well, it can go a lot lower. But there’s some stuff, then again, you still have fricking billion dollar frauds out there. So, there’s a lot of excess around. Yeah, I don’t know. [crosstalk]

Jake: Just because something’s down 90%, it doesn’t necessarily mean it’s cheap either. I think that’s something that is probably a good thing to keep stapled to your computer at the moment.

Bill: Yeah. When I sold Qurate at 6 and everybody was like, “It’s cheap.” I was like, “Okay.” We’ll see.

Jake: Well, bragging on him.

Bill: No, it’s not what it is. I just think that sometimes your model doesn’t actually– [crosstalk]

Jake: Catches on fire. [laughs]

Bill: Yeah, it doesn’t fully capture. Yeah, I do think I knew that situation better than most people. So, when I was selling and they were buying I told people, “I don’t really think this is the time to buy.”

Tobias: Just someone asked, “What do I regard as a real stock market crash?” Yeah, I think 2000, 2002 and 2007, 2009, that’s a mega bet. That’s a real stock market crash. Everything else in between is just correction. Even 20% to correction. Having said that, I thought 2016, 2018, 2020, I thought they were all the real thing. So, don’t ask me. I’m going to tell you that it’s the real– [crosstalk]

Bill: This is the real thing.

Jake: One of these times, Toby.

Bill: No, this the real thing.

Tobias: I’m going to call four of them and get one right. [crosstalk]

Jake: Yes.

Tobias: I’m just going to keep on calling it.

Jake: Just make sure you milk that one hard when it does come in.

Tobias: Yeah [crosstalk].

Bill: I don’t know. I am holding cash in case Mike Green is correct. Because if people wake up and they start selling the index, I am very excited to see what happens. Maybe that’s wrong, maybe re-rip and my returns are not as strong as they could have been, but I’m pretty excited.

Tobias: It’s impossible to know– [crosstalk]

Jake: Wouldn’t be better express that as some tail risk product?

Bill: Yes, this is what I’ve been thinking about frigging asset allocation and CTAs for six months, and didn’t do anything, and got my face ripped off. Instead, it was real fun.

Jake: [laughs] The old sucking the thumb maneuver.

Bill: Yeah. So stupid. But asset allocation matters so much more than people talk about, especially people that are obsessed with equities all the time.

Tobias: That’s true. There’s really no good way to time the market. Asset allocation has a better response and that’s determined on your age, how much money you get in the market versus how much money you need for other things and so on. It’s not really a question of trying to timing the markets. It’s just a fool’s errand.

Bill: Well, unlike true portfolio construction, I think a lot of people are finding out that they had eight bets that were really one bet.

Jake: Yeah. Super correlated more than they thought.

Tobias: Well, that’s one of the problems.

Jake: Well, it might be that everyone just had one big rate bet on.

Tobias: That’s what I was going to– Yeah. When you pin rates really, really low.

Jake: [crosstalk] one bet for–

Tobias: 60:40.

Jake: One bet to rule them all. [chuckles]

Tobias: It turns out that just getting long the 30-year in 1982 was the right answer. That’s giving you the best risk adjusted returns all the way in.

Bill: Yeah.

Jake: And then if you levered in.

Bill: Yeah. [crosstalk] smart.

Tobias: Yeah. Now, you are talking my language.

Jake: Now, you’re cooking.

Bill: Yeah.

Tobias: But at some point, Lacy Hunt’s trade runs out. I don’t know where Lacy– We’re riding the 30-year all the way. We’re riding that wave to the beach. That’s over. It’s time pedal back up and find something else.

Jake: and Bill: I don’t know.

Bill: I can understand buying it here.

Tobias: The 30, where is it?

Jake: Deflation?

Bill: Yeah. I think there’s a real possibility for a deflationary bust. We’ve over extrapolated every trend since COVID started. The idea that inflation might not be over extrapolated is not that hard to figure in my head.

We’ve Over-Extrapolated Every Trend Since We Climbed Out Of Trees

Jake: I would say we’ve over extrapolated every trend since we climbed out of the trees.

Tobias: [laughs]

Bill: Yeah. That’s fair.

Why Is Inflation Rising?

Tobias: The inflation one has a funny one. It’s very, very complicated to unpack because you’ve got genuine supply chain issues and then you’ve got some fiscal stimulus that has made people going pull forward some demand. But then you’ve also got a whole lot of money printing going on, too, in the background that must– [crosstalk]

Bill: Well, now, you’ve actually got a lot of fiscal tightening through the tax receipts and stuff is being sent back into the government. There’s a lot of liquidity coming out of the system whether you want to talk about higher rates, it creates lower debt, which creates lower aggregate money supply, whether you want to talk about tax receipts now going into the government, especially on a rate of change basis from 2021. You’ve got inflation, which I would argue is a tightening condition. There’s a lot of tightening [crosstalk]

Tobias: Energy.

Bill: It’s not so bad if you don’t have to eat and fill up your car.

Tobias: [laughs] Or, live in a house.

Bill: Or, live. Yeah, that’s right. Other than that, it is fantastic.

Jake: Ish.

Investing Lessons From The Iron Worm

Tobias: You want to give us some veggies, JT, before we-

Jake: Yeah, before we forget.

Tobias: -get demonetized and– [crosstalk]

Bill: By the way, if this conversation hasn’t gotten people depressed, wait until the podcast. I just recorded drops in two weeks.

Tobias: [laughs] Who’s it?

Jake: Who’s it with?

Bill: It’s with Jim [unintelligible [00:30:36]. It’s not exciting.

Jake: I thought [crosstalk] work in.

Bill: Dude, when it ended, I just said to him, I was like, “Well, I think I’m going to go get a drink now. Thank you.”

Jake: [laughs] Not bad, huh?

Bill: It’s not. It’s not a happy one.

Jake: Oh, okay. Well, that’s why they come here is for all the rosy outlooks. All right, so, this week’s veggies segment is from this book called Built by this woman engineer whose name is Roma Agrawal and shoutout to friend and fan of the show, George, who sent me this book. This is about the London tunnel and it has this checkered history that is interesting to go through.

Let’s rewind. Back in London, early 1800s, and the only river crossing in all of London over the Thames was the London Bridge. If you know anything about that, that was a complete disaster waiting to happen at all times. It would catch on fire, it would collapse periodically, it was really slow and expensive to get across. Basically, the Thames was almost uncrossable for the most part. So, in 1805, this company– [crosstalk]

Bill: I’m holding my hand up.

Tobias: That inspired the song?

Bill: Yeah, that’s I was going to ask was this song, because it fell or was the song because it was so shitty?

Jake: No, the song is from because like it was so shitty, pieces of it would fall over periodically.

Bill: So, it was always falling so, they created this song.

Tobias: Is that bad?

Bill: Okay.

Jake: Yeah, that’s what the song came from. Okay. We’re done with nursery rhymes.

Bill: It’s like my whole education, Jake.

Jake: [laughs] So, 1805, this company was established that was to connect these two points that were only 365 meters apart. It seemed promising. Maybe we can span that distance. But it was still impractical to build a bridge of that length at that point with the engineering capabilities, the materials, plus that would have blocked a lot of ships that would be moving up and down there that went further upstream.

So, that was a big issue. The only remaining option was to create a tunnel under the river. But it was deemed impossible at that point by every engineer. Like, you can’t dig a tunnel that far, that deep, it’s just undoable.

Here’s this guy, this engineer named Marc Brunel, and he was sitting at the dock yard, and he was looking at this chunk of removed wood like a timber out of a ship from the hull of the ship. He observed this little worm working its way through the wood.

The worm had these two little sharp horns on its head. As it would wiggle around, it would basically gnaw at that wood, and turn it into powder, and then it would eat the powder. And then as the powder would go through, it gets mixed with these digestive enzymes and it would come out as this thin paste behind the worm as it’s working through. When that paste was exposed to air, it would harden and it would basically build– It was shoring up its own little tunnel.

This worm is working really slowly working its way through here. Brunel realized that, “Gosh, I think I could build a machine that would attempt to do something like what this worm is doing.” We got a little bit of some animal veggies going, which is always fun. But in Brunel’s vision of it, this iron worm was going to be twice as tall as a person.

He gets to building it and it’s basically this big iron cylinder that’s on its side with these blades on the front of it that are churning away at it. And men, because they didn’t have harnessed electricity to be able to do this yet in that way, basically, it was men that were just pushing these blades around to eat at the dirt really slowly and hydraulic jacks that would inch the cylinder a little bit forward, and then men clearing the dirt out behind it as it was going, and then bricklayers would come in behind them, and lay bricks around it.

So, it was basically recreating how this little worm was doing its thing. Brunel patented this invention and he called it the shield for some reason. I don’t know why. It seems like a dumb name. I definitely would have gone with iron worm or something.

Tobias: [laughs]

Jake: Around that time, they found financing to go after this project to tunnel under the Thames. In 1823, they found private investors including the Duke of Wellington and they created the Thames Tunnel Company. The project began in 1825. But it was really slow work. It was progressing eight to 12 feet a week to try to get through this thing. Many workers including Brunel himself, they fell ill, because basically, the Thames at that time and I don’t know if it’s still like this, but it might be.

But it was basically just a sewer. Everything went in there, garbage, waste, bodies, that was like you just whatever you’re done with as a human, you threw it in the river. It was seeping in the sewage laden water and making everyone sick, basically, who was working on this project. It also would give off methane gas that would basically blow up with the lamps, the oil miners or the lamps from the miners. [chuckles]

Then the other problem was that they also had periodic flooding to deal with. Part of the roof of that’s going under the river would just cave in, and just fill the whole thing up, and drown a bunch of guys. At one point, Brunel’s son, he lowered himself down in a diving bell–

There was a leak. I don’t know if you guys know what the diving bell is, but it’s picture it like a ticket cup and put it under water, and the air stays there, and you can get in there basically and do work. Divers would use these. He climbs into this diving bell and gets lowered down to the bottom from a boat basically and he’s repairing basically the bottom of the river by throwing these bags of clay to basically cover up the breach that’s in the tunnel. Just shenanigans, right? Can you imagine trying to do all this stuff? Like your dad’s working on this and he has you going down to the bottom of a bridge?

Tobias: Hold the torch.

Jake: Yeah, get– [crosstalk]

Tobias: Hold the torch steady.

Jake: Get in there, son. I got a job for you. The tunnel flooded again in 1828. And eventually, these financial issues caught up with a project. And then they took the passage, and walled it off, and it sat vacant for seven years. Nothing was happening. 1834, Brunel raises more money, gets the project going again, more floods occur in 1837, 1838, 1840, and also fires from leaking methane.

Many men died. I don’t even know if they have an accurate count. Finally, 1841 its completed like 19 years after the project was started. It gets fitted out with lighting, and roadways, and a spiral staircase. And although, at the time, it was a total triumph of civil engineering. Everyone said that this was impossible. This guy pulled it off through this miraculous perseverance and really ingenuity to come up using nature as a little– as an inspiration.

But the Thames tunnel, it was a total financial disaster. It ended up only being used by pedestrians. There was no real commerce that was going through it. It became a major tourist attraction actually attracting about 2 million people a year that wanted to just come see this oddity and they pay a little bit of money just to walk through. And then it became the haunt of prostitutes and tunnel thieves, who just lurked under its arches, and they would mug passersby.

So, basically, go down there and– It is tunnel people living down there that– Better be careful when you go down there. Then it gets purchased in 1865 by the East London Railway Company, who’s trying to build the underground, basically. 1869, they put tracks in there, and installed a steam engine that was chugging around, and then later that all got absorbed into the London Underground.

I think what it shows that the construction of this was that it was indeed possible to build underwater tunnels now. It showed that for the rest of the world like look what you could do. There were tons of skepticism by every engineer. And now, it functions basically as a museum. They’ll have little concerts down there, apparently, and occasionally bar festivities.

But I think to tie this back a little bit, maybe to some things today, we’ve talked, I think it was Season 2 Episode 21, we talked about subjective value. Eugene [unintelligible [00:39:31] and their best use, then that would dictate what the value of it was worth. This tunnel went from being like, “God, this is going to allow this commerce, it’s going to make a ton of money.” Because the bridge was really expensive.

They were charging a lot. But it never became that. There’s your number one thing you thought you’re going to make money, that doesn’t work. Then it becomes the next best use becomes like people coming to see it as an attraction and an oddity, which is not really worth that much. Then it becomes like a place for prostitutes and thieves to come hang out and that’s probably not really worth that much.

Bill: Could be worth a lot, actually.

Jake: Well, yeah, Rick’s, I guess, figure that one out. And then it finally, actually got bumped back up again in value based on the underground could run trains through there. When we think about all these different assets that we’re buying at different points and we think, “What’s the next best use of this asset if it’s not being put towards what it’s currently using?” Because the world changed.

Gosh, tangibles, I think allow some room for that. But I think it’s becoming increasingly obvious to me that are clear that the intangibles world, there is no second usage. So, it is just an absolute cliff, when it’s not being put to use for what the current use case is, which just makes it harder to underwrite a level of value to it really, to find an intrinsic value, I think. Anyway, I find this whole thing fascinating.

The other thing, too, that’s interesting is huge engineering success, perseverance, and yet, total financial disaster, total arrows in the backs of the pioneers. We have a lot of things right now that I don’t know if this is how you get to 50% GDP per year, projects like this, but it’s possible that there’s a lot of absolute, amazing engineering successes that become total financial disasters. And just because it’s a success, and actually gets over the finish line it doesn’t guarantee that you’re going to have a good investment outcome. So, it is just something to think about.

Tobias: It is boring company public yet. Can we– [crosstalk]

Jake: Well, I wasn’t naming names.


Jake: Criticize by category, Toby.

Intangibles Meeting Atoms

Bill: I saw something [crosstalk] that’s pretty cool. Why do you think that intangibles only have one way out?

Jake: What is a line of code for Facebook worth if not for running a social network?

Bill: I don’t know how it can morph, but I think that the ability– Yeah, I guess, if all of social networking went away, then Facebook would probably be gone. Yeah. But Google could shift a lot in the pandemic. It wasn’t necessarily one thing that it was serving, right?

Jake: True.

Bill: I think I associate the intangibles too are with the management teams.

Jake: Well, how about this one? Let’s talk about network effects. If your network effect goes the other direction and–

Bill: Yeah, you’re fucked.

Jake: It’s really hard to imagine that you can– It works that you can get it back and that you can pivot in some other way. I don’t know. I think you’re right. I think you said it better than I did. [chuckles]

Bill: Yeah. But I think the intangibles meeting atoms, probably– It’s interesting. Berkshire is a good example of intangibles than meeting atoms through the insurance operations and their brand than reinvesting in reality. Google’s probably some of the same, Microsoft’s some of the same, Amazon’s probably some of the same. Yeah, I don’t know.

The Nostalgia Of Brands

Tobias: It’s the little bit of nostalgia in brands. That Shinola, which was a boot polish in World War II has been turned into a watch company.

Bill: Yeah.

Jake: Oh, really?

Tobias: Yeah.

Bill: Abercrombie, was that?

Tobias: Abercrombie. A few of the– [crosstalk]

Bill: I’m interested to see if Levi’s comes back. I can see Levi’s being cool, again. If Crocs can be cool, why the fuck can’t Levi’s?

Tobias: Yeah, Crocs is a shocker. Crocs is in my screen all the time.

Jake: And has been for off and on for decades.

Tobias: It was a net-net at one point.

Jake: Yeah.

Bill: I’ll tell you good retail episode. I’m not trying to plug my own stuff today, but Simeon Siegel, when I had him on, that’s a cool episode. I like the way that guy thinks.

Tobias: What did he say?

Bill: You need to listen to it. But he explained like when he was actively short Peloton and I think he timed it really well. It had to do with the inventory buildup, when they added fixed costs into their business. He talked about like, he’s got this study that says, “DTC isn’t all it’s cracked up to be.” He did a lot of, I think the DTC brands peak at $3 billion in sales. I don’t remember what he said wholesale is. But he went back and he tried to figure out like, where do brands peak? That was it. But Nike is the anomaly and I said why and he was like, “I don’t know. I haven’t figured that out yet.”

Jake: Well, they’re not only DTC, though, too. I don’t know if that matters.

Bill: Yeah, that’s probably right because they had a lot wholesale.

Tobias: Big brand. There’s good comment here from– Sorry, I don’t want to catch up. Keep going.

Bill: No, I was just thinking about Jake’s intangible thing and then what Disney is going through right now. Man, I’ll tell you what. The amount of stuff you have to navigate to manage a brand for the long term is just really, really difficult. I was talking to a buddy about his perception of wokeness and how it’s getting into Disney.

He’s the only African-American guy that I know I talk to about race relations, because we have that kind of relationship. He was like, “I’m telling you right now, if in this Obi-Wan show, they make the black lady end up helping Obi-Wan, I’m done.” He is like, “They need to make her badass and Obi-Wan needs to kill her in some horrific way and like that I will view as a quality.” He’s like, “If it’s some like you can’t kill her, I’m done with this stuff.” That just interesting managing that.

Jake: What happened?

Bill: I don’t know yet.

Jake: Oh, okay.

Bill: I haven’t watched. He was also really mad about Black Widow. It’s like, “Why are all these women badasses and then they’re controlled by some old white man? That’s messed up.” I was like, “Yeah, that is messed up.” But anyway, I digress and now I’ve totally derailed the show. Send hate mail to me, folks.

A Recession May Be Around The Corner

Tobias: Good comment from Solo Prosperity here, where he says or she says. Sorry, I don’t know who that is. “Is this a recession point? In my opinion, recession drawdowns average 40% excluding the Great Depression, average in a non-recession is 28%.” So, the problem with that, of course, is that all of the data is coincident and we don’t know whether we’re in a recession or not. You find out after the fact [crosstalk]

Jake: Also, how big is our end here really?

Tobias: Yeah, small. Yeah, that’s right. It’s not statistically significant. But I do think that it’s probably a fair point to make that you get these overvaluation corrections, where the market is just raced ahead too far and it comes back a little bit just slowly. Or, you get these things where there’s some real issues underneath, where there is a contraction and that’s when you get the big wipeouts. The intuition is right, even if it’s not statistically supported. What kind do you think we’re in now?

Bill: I don’t think we’re in a recession yet. Shoutout to the lady listeners, by the way.

Jake: [laughs]

Bill: But I think one of the things that’s tough about the recession stuff is like, “Okay, so, recession over 2021, when we flooded the system with money like okay.”

Jake: Yeah. Every same company has problems with these comps. Add it all up and– [crosstalk]

Bill: Yeah.

Tobias: So, you might get a technical recession that’s not really a recession. Yet, two quarters of contraction is meaningless.

Bill: Yeah. Unlike what year do you comp to? 2019? That was last year that the world was even close to normal.

Tobias: It was getting pretty loopy then, too. We did get a 10:2 inversion. Then we got a 10:3 inversion than 2. It actually predicted COVID crash? [crosstalk]

Jake: No way. [laughs]

Tobias: Yes, Michelle Marki, you are a lady listener and I met you in Omaha, I confirmed that you’re actually a lady. Sorry, that was a comment.

Bill: Yeah. Hello. I think I met her, too. It was nice to meet you. I think I saw her Markel, too. Yeah, I don’t know.

Jake: How’s Markel, by the way? We haven’t talked about it.

Tobias: I didn’t make it inside.

Bill: He is good.

Jake: No, no. Not that, Toby.

Tobias: Not the Omaha one. The actual meeting– [crosstalk]

Jake: Yeah.

Does Zoom Have A Moat?

Bill: Look, I think the general take is that quality businesses are priced at a point where you can get a return again. It’s not like a growthy crowd, but I think value in some of the growth names was a takeaway that I had. But it’s all a matter which ones, what you define as. Zoom is interesting right here. Zoom is pretty cheap stock on a peg basis. You got to have confidence in the asset duration. But you know, here we are recording on Zoom, and we’ve tried teams, and I don’t particularly like teams, and I’ve tried Google Meetings, and that sucks. I don’t know. I feel Zoom could stick.

Jake: Yeah, they all feel the same to me.

Bill: Oh, I don’t know. Zoom is so easy to use.

Tobias: I pay for it. So, yep.

Jake: [laughs] [crosstalk]

Bill: We haven’t had as many technical difficulties since we came over here, either, I don’t think. And yeah, we have a lot. So, they’re hard to forget.

Tobias: It’s probably more stable than Skype. But a lot of it’s related to the computer that I’m running it on. The mouse is down here going as hard as she can. Solo came back. Solo Prosperity says, “The n is 21.” So, it’s not quite statistically significant. But I still think that the intuition is right.

Bill: What do you use their? A T score?

Tobias: N, just the number of instances, I guess.

Bill: N, I know. But when you don’t have a full sample size, what do you use? Don’t say that you use a Z-square. Anyway.

Tobias: What’s the free cashflow yield on Zoom at the moment?

Bill: I think it’s pretty high. I don’t know how much is stock-based comp.

Tobias: Like $3 billion in revs, I thought. I’m like, it was at $30 billion Evie or $25 billion Evie, something like that?

Bill: Ah, I’m not sure if it’s that high anymore. It could be. Yeah, 28. Let’s see. Sorry.

Jake: That’s your finger on the pulse of this market. I love it.

Tobias: [laughs] Some interesting stuff out that. I think there’s a lot of interesting stuff. That’s always the difficulty. The bear market in the– We’re talking about the index and nobody really cares about what the index does other than just– It’s a shared pain, which is at one point, all the value guys were crying, all the growth guys were cheering, and then that flipped around. And that’s just broad-based pain, I think.

Jake: It’s pain for everybody.

Tobias: But some stuff that’s clearly undervalued.

Jake: Yeah. Hard to imagine the Buffett’s analogy of Washington Post in mid-70s when he said, “Everybody knew it was worth,” whatever, call it $800 million, at least. But nobody wanted to buy it at $200 million for fear that it would go to $100 million on them.

Tobias: Well, there’re a few things out there like US Steel, which I don’t own, but I may buy at some point. It’s a one times PE. It’s close to a one times PE.

Bill: Have you talked to Mike about lumber?

Tobias: Me, personally?

Bill: I’m just saying. There’s a lot of these commodities. Shipping stocks are crazy fucking cheap, if they can– [crosstalk]

Tobias: You can read about Icahn buying. I forget what it was. It could have been something like that. But it was at like one times. I think it was an energy company at one times. The reason is that nobody expects the one times to persist it’s easy enough to understand. Although, one times might be too cheap for something like that. One times is cheap. I understand you get your money back in one year. [crosstalk]

Bill: [crosstalk] back up.

Tobias: I’m a nervous investor, but even that seems like pretty conservative to me.

Bill: Yeah. Well, you should feel– [crosstalk]

Tobias: If it falls 50%, it comes back, well, yeah. I know if you’re shipping [chuckles]. My shipping context is don’t buy the equity, buy the steel.

Bill: Yeah. But the equity is outperformed most of these things. I was the guy that was like, “Don’t buy cheap cyclicals and that was pretty wrong.” But eventually, it will be right. But that maybe five years from now and people that did it may be really rich.

Tobias: “Berkowitz finally diversifying away from JOE to Citi and other cheap stuff. Mostly materials and energy.” Berkowitz’ back.

Jake: Berk, well, what have you done for me lately? Morningstar, manager of the decade.

Bill: Somebody pitched me on Seritage, could be worth looking at. I don’t know. I haven’t looked. So, you’re welcome for that, hot analysis. I don’t know. Zoom’s real free cashflows like a billion. So, it’s not that cheap anymore, but oh, well.

Jake: But if you liked it at 500, you got to love it today.

Tobias: I guess, the question for Zoom is, how moaty is it? I don’t know. Does it have those network effects? If everybody gets [crosstalk] everybody?

Bill: Who, Zoom?

Tobias: Yeah.

Bill: Their strategy reminded me a lot of like Henry Schein. I don’t disagree that it feels like it’s much easier to switch. Kevin’s at Lugol, he reached out to me in the beginning of pandemic and he said that they just gotten into schools, and they were where everybody was learning on Zoom. If you start to adopt people’s behavior, I could see remaining culturally relevant. They don’t need 100% market share. That’s not what you need to have that work. I don’t know.

Tobias: But then everybody’s trying to get inside that. Everybody wants to do Teams these days. I have Google stuff. I don’t mind using the Google stuff. But I’ve noticed that Teams to be coming– Everybody wants to jump on Teams these days.

Jake: Yeah.

Bill: Look, I don’t own this stuff for a reason but I can see why people would buy it here.

Jake: It might work.

Bill: Yeah. It will work a lot better than it did at 400.

Tobias: What are you looking for a bottom here? I think everybody’s trying to call it, but I– [crosstalk]

Bill: I’m looking for people to stop asking when the bottoms in.

Tobias: That’s why I’m trying to keep it going.

Bill: So annoying.

Tobias: [laughs]

This Is What The Real Bottom Feels Like

Bill: I’m looking for Spaces at FinTwit to be like, [crosstalk] “I’ve lost everything. What do I do to get stuff back?” I’m not looking for everybody to keep being like, “So, when are we going back to highs?” Like no. I want people to talk about we’re not going back to highs for 10 years and I want that to be conventional wisdom.

Jake: That’s what capitulation looks like. This is in it.

Bill: Every fucking bounce. “Oh, we bought them? No, we haven’t.” Shut up.

Tobias: It does take that 2007, 2009 like 14 bounces, or the 17 bounces, or whatever. 17 lower lows, that’s the thing that really gets it out of here.

Bill: I definitely miss this, but I think I’ve listened to enough people that got it right to understand. Somebody said it to me, the Shrubbery Stagflation Capital on the Twitter machine said, at least he’s who is in my head. He is just like, “The hardest thing to do in a bear market is not buy.”

Tobias: I think you want to be buying all the way down, don’t you? Because you just– [crosstalk]

Bill: Well, then you run out of powder.

Tobias: Here’s the thing. It could be 2016, it could be 2018, it could be 2020.

Bill: It’s not.

Jake: [laughs]

Bill: I was crying. When I was crying and talking about macro being so hard, this is not 2016 and 2018. No fucking way. This is way harder, way harder

Tobias: They look pretty real at the time, though. Here’s the thing.

Bill: No, they are not. Not like this.

Tobias: I thought that they are pretty real.

Jake: Do you have a journal entry we can read about it?

Bill: Well, food was not–Dude, food wasn’t ripping people’s faces off in their pocket. And oil, even though, it’s still only 110 bucks to fill up your car. My buddy that works in oil or gas blending, he’s like, “We’re going higher.” It’s not that expensive yet. This is different. Anyone that thinks it’s not different, I think isn’t paying attention.

Tobias: I don’t disagree with you, but I just think you got to keep on considering all the other possibilities all the time. You got to keep on considering– If you’re considering those other things and you got to be betting a little bit that way too, you got to be assuming that this is not the– We don’t know. At any point, we could bounce. I personally don’t think it’s over until the index is cheap on a cape basis. I know problems with that. But that’s the way I feel.

Jake: That’s a lot way from here.

Tobias: It’s a lot way from here. I forget on the index. Last time, I looked at it, it’s 2,000, something. It’s a number that would scare people if I set it out bad. But it’s something like that, It’s 2,200 or something.

Bill: Yeah, I think we bottomed when people stopped citing trailing multiples and saying things are cheap, and they realized that the multiple is saying that your previous earnings are way too high.

Tobias: Yeah.

Bill: I don’t know that you’re bottoming with Apple around $2 trillion or whatever it’s at. It’s still a decent way to go down from $2 trillion.

Tobias: The thing is, those big ones have never really got– They never got really, really egregious. They get expensive every now and again, but they’ve all grown pretty consistently. When Snaps had a bad print yesterday, I noticed that Facebook, and Google, and everything else sold off in tandem with it. So, clearly, somebody’s– [crosstalk]

Bill: it’s Snap.

Tobias: Snap. Sorry, Snaps. Everybody thought it was predicting that the advertising base company is going to have a bad time through here, which is probably true.

Bill: Yeah. I still own them. I’m not going to sell them, but I’m expecting to get punched in the face.

Tobias: “Grantham said 2.5–” So, two and a half thousand on the SPY. That’s about what I calculated to be. That’s fair value, that’s the long run. That’s Cape at 16, 17 on the last 10 years of earnings. That’s where the number is, whether that’s realistic or not. I don’t know with interest rates. I got no idea. Cape doesn’t seem to work very well since it was invented in 1996.

Jake: [laughs]

Tobias: That’s what it says.

Jake: But before that, it looked great.

Tobias: [laughs] I don’t think it’s ever really worked.

Bill: I really do think there’s too much bottom calling to be a bottom. I think that bear markets exist to grind people down to get to the point where they’re just devastated. We’re not there yet. I got rumors from the FinTwit conference. People are not depressed.

Tobias: It takes a little while. I reckon–

Bill: It takes a lot of bounces that people want to buy into, then they’re down 20% and they’re like, “God, this sucks.”

Jake: But I going to buy that neck dip for sure, can we?

Tobias: Yeah. The Ken Fisher one third of the move takes two thirds of the time, two thirds of the move takes one third of the time. I think that’s about right.

Jake: Where are we at on that?

Tobias: I’m guessing but I think we’re coming to the end of the first two thirds of time and we’re about to see the last third and two thirds of the action.

Bill: That would be bias, too.

Jake: That’s puts you over 50%, wouldn’t it, drawdown?

Tobias: That roughly might not. I think that that’s the number.

Bill: I think you got to own real companies that can buy back shares. I think if you own Aer, you’re screwed. Now, we’ll find out who owns them who doesn’t. I may own Aer. That would suck.

Tobias: Ah, you’re going to have a little bit of everything. All right, dudes, that’s time. We made it. Thanks, amigos. Good seeing everybody. We’ll be back next week, same bat channel.

Bill: Indeed.

Jake: Cheers.

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