VALUE: After Hours (S04 E020): Scouts vs Soldiers, $RH, Macro Crashes, Cheap Tech and Commodities

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

  • Why It’s So Difficult To Value Businesses Right Now
  • This Market Provides Opportunities To Buy Better Quality Stocks Cheap
  • Michael Burry Shorts $AAPL
  • Cheap Tech
  • China’s Zero-COVID Strategy
  • Gary Friedman’s Masstige Brand Strategy $RH
  • Spock’s Predictions Were Wrong 83% Of The Time
  • SEC Brings Fraud Charges Against EIA
  • The Equivalent Ball Test – Better Probabilistic Outcomes
  • Housing Market Completions
  • Outperforming On Bad Days
  • The Value Trick Sell Off
  • Best Bet – Macro & Micro
  • Chatting With Everything Money Podcast
  • Beaver Ass Flavored Drinks
  • We’ll Have Flying Cars Before Full Self Driving
  • New Soundboard Unlock
  • Diesel vs Gasoline

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: Do it.

Tobias: We are alive. It is Value: After Hours.

Bill: [crosstalk] hours.

Tobias: 10:30 AM on the West Coast, 1:30 PM on the East Coast. Joined as always by my cohosts, Jake Taylor, and Bill Brewster. What’s happening, gentlemen?

Jake: Good to be home, I think. Bill and I were on the road last week. So, it’s nice to be home.

Bill: True facts. While we were on the road, the tenure sold off and everything ripped. Why? Because we’re all just trading rates anyway.

Jake: [laughs]

Tobias: It does feel like that a little bit.

Jake: Too real.

Tobias: It does feel like that.

Bill: I have this great fundamental idea. Oh, really? What do rates do in that fundamental idea? Oh, I don’t know. I didn’t model that.

Tobias: Just break down for me, which way the 30 years is going? Is it going up or down? Up or down?

Bill: That’s right.

Jake: It’s all you need to know. Bill, that might be your best take. You might want to just shut it down now. [laughs]

Bill: Yeah. Well, there aren’t many good ones.

Jake: [laughs]

Tobias: I think that was a finding that either Wes or Meb looked at a few years ago, where—I think it feels like Wes, actually. For all of the wiggling around that the stock market has done since 1982, greatest bull run ever or something like that, you’d be better off on a risk adjusted basis just being long the 30-year.

Bill: Kind of want to get long the 30-year here.

Jake: Really?

Bill: Yeah. I think in order to think that the 30-year goes up in a sustainable manner for a long, long time.

Tobias: When you say goes up, what do you mean? The rate or the– ?

Bill: Yeah. No, the yield rises.

Tobias: Yeah.

Bill: Yeah.

Jake: Price down.

Bill: Correct.

Tobias: Yeah.

Bill: I think you got to have a more bullish outlook on GDP growth than I have. Now, I think you could have a bad mark to market in the interim, much like the stock market, actually, which is probably why the 60:40 portfolio is getting waxed.

Jake: Because it was the same bet, basically?

Bill: Yeah, more or less.

Jake: Do you guys see in Europe– I saw this a little tweet about the– It was the European CPI versus I think three months bank rate. CPI came in at 8.1% and the European rate came in at negative of a half percent.

Tobias: [laughs]

Jake: So, you got real negative, almost 9% yields right now in Europe.

Bill: Yeah.

Jake: What do you do there?

Tobias: What do the economics textbooks say about that?

Jake: [laughs] What did Kane say about that?

Tobias: Oh, God.

Bill: Yeah, I don’t know. They try to solve a supply issue.

Jake: You burn the book to stay warm this winter. That’s the answer.

Bill: Yeah.

Best Bet – Macro & Micro

Tobias: Who knows? So much going on. I don’t know. The more complicated the macro pitch gets, the more I see the reasons for just ignoring it or just trying to look micro. But even that’s hard. Every single little business you got to get has some macro influence on it. The rates being the main one.

Jake: Yeah. What a paradox that Bill’s best comment was about how everything’s been a rates bet. And your best comment was that you should ignore all that stuff and focus on the micro. And you’re both right somehow.

Tobias: We’re both true. Yeah.

Jake: [laughs]

Tobias: We’re still both true.

Jake: That’s what makes this game difficult, I think.

Bill: Yeah, I don’t know. It certainly seems those long duration names you basically just long rates, which makes sense.

Tobias: The more I do it, the more I think that just nobody knows anything, myself included.

Jake: Especially.

Tobias: I know that I know nothing. But I’m always surprised to learn that other people know nothing, too.

Jake: [laughs] Oh.

Tobias: This sell off at the start of this year, I don’t know whether it’s the worst ever or something like that. But it doesn’t feel nearly as bad as March 2020 did. But I still think it proceeds. I don’t really know. I’ll just preface that by saying, I don’t know, but I still feel like it’s—

Jake: I don’t know, but here’s what’s going to happen. [laughs]

Tobias: I do feel we’ve jumped off the top floor and we’re on about floor 50. This feels like, so far, there’s nothing wrong.

The Value Trick Sell Off

Bill: I just think that the difference between– March 2020 was faster, but everybody was looking at the same thing. I actually haven’t sold off much this year, because I got absolutely waxed on the back half of last year.

Tobias: It’s the value trick selloff first.

Bill: Yeah.

Tobias: I’ve already sold off.

Bill: That’s right. I’m not performing [crosstalk]

Jake: Can’t sell off to see what sold off.

Bill: Yeah.

Jake: You can’t lose if you already lost.

Tobias: Can’t lose it again.

Outperforming On Bad Days

Bill: To preach. That said, outperforming on down days. It’s not as if I’ve been going off.

Tobias: Oh, yeah.

Jake: Yeah.

Bill: That’s not the most fun thing [crosstalk]

Tobias: I have been getting a lot of that going recently. Lots of alpha on down days. It’s a 300-basis point down day with 25 basis points about performance.

Jake: [laughs]

Bill: Yeah.

Jake: Crushing it.

Tobias: Just compound that up, I don’t know how much that comes to. I think it’s a lot.

Jake: That’s as good as money, sir.

Tobias: [laughs] I heard that Li Lu, I’m not sure. I might not know. I’m big fan of Li Lu’s. That’s all I can say.

Bill: Is anybody not a fan of Li Lu? Does anybody like, “Ah, Li Lu doesn’t know what he is doing.”

Tobias: That’s fair. But in a forced ranking of all of the investors who are out there, I put Li Lu, he’s up there with Buff for me till he goes, but-

Bill: Wow.

Tobias: -I’m a fan.

Jake: Okay. I like that.

Bill: I don’t know anything about him.

Jake: What rumor were you going to spread?

Bill: Yeah. What are you going to spread?

Tobias: It might have been one of those things that was said not allowed to repeat. So, I don’t want to repeat.

Bill: Must be nice to be on the inside of the information [crosstalk]

Tobias: I wasn’t on the inside. I was—[crosstalk]

Bill: Give us all a peek, dawg.

Chatting With Everything Money

Tobias: I got this second or third hand. I did an interview with Everything Money. I saw few guys have shouted that out. That was fun chatting with those guys. They’re good dudes.

Bill: Who’s Everything Money?

Tobias: Honestly, it’s not a channel that I was familiar with beforehand. But Paul is one of the gents in there. Very deepish value approach similar to mine. They’ve got a big audience, 150,000 or so.

Jake: Nice.

Tobias: It should– crosstalk]

Bill: Slightly bigger than ours.

Tobias: It is.

Bill: That’s a shame.

Jake: [laughs]

Bill: Shoutout to the ladies. What’s up?

Tobias: Lady.

Jake: Both of them.

Bill: No, no, there’re at least four.

Tobias: It’s two, it’s four.

Jake: Oh. They are multiplying.

Bill: I’ve spoken with them.

Jake: Do we have any actual topics today, besides wisdom of macro, where things are going?

Tobias: We’ve got lots of macro, lots of macro. Hot takes on the macro.

Bill: Yeah, I’m a pony up on Toby’s hot takes. Hot takes and the hotcakes.

Jake: [laughs] I have a little something.

Tobias: Yeah. What you got JT?

Bill: Come on. Jake. Bring us through.

Jake: I try not to do just book reports on the show, because I feel that’s kind of weak sauce. But this one is will be a bit of a book report from The Scout Mindset by Julia Galef. I believe that’s how you pronounce her last name. I really enjoyed it. So, we can get into that when it’s veggies time.

Tobias: The Scout Mindset?

Jake: Scout, correct.

Tobias: Cool.

Jake: Yeah.

Tobias: Why don’t we kick it off with that?

Bill: It’s a good idea.

The Scout Mindset

Jake: [laughs] Okay, let’s get that. So, first of all, shoutout to my man, Sleepwell Capital, who sent me this book and said, “I need to read it.” He was 100% right. After I read it, I thought, “God, how did I not read this one, yet?” This is like so in my wheelhouse. But the basic premise is that this book, just all these very practical counter measures, thought experiments, framing that you can do to counteract all these known behavioral decision-making biases that we’ve all know. But just because you know, it doesn’t mean you’re actually doing anything to control for it. I found this to be imminently approachable with great stories around it that help you remember some of the lessons.

Scout vs Soldier

But just to preface, like, what this Scout Mindset means. It’s like the scout versus the soldier and that’s the analogy that she uses. The scout is trying to basically be out there finding new information and updating their map of what reality really looks like. It’s not that you’re wrong necessarily about something. It’s just that you’re updating the map and it’s getting a better lay of the land. It’s trying to figure out what risks are worth taking on the board.

Whereas the soldier is about defending, protecting your cherished beliefs, fortifying what you believe by finding evidence. When you’re wrong about something, that’s defeat for you. It’s not that you’re updating the map, it’s that you lost. And so, you tie up identity with it.

All these different things you can see how it stacks up to prey on our worst shortcut or short circuits that we have from a behavioral decision-making perspective.

Spock’s Predictions Were Wrong 83% Of The Time

Jake: The first thing that was really funny in the book, she went through and looked at that. There were 23 different instances where Spock, who’s supposed to be this hyper rational-

Tobias: [laughs]

Jake: -cold, calculating Vulcan, where he made specific predictions, and then assign basically probabilities and confidence intervals to things as he was talking about it. I think she had 23 different instances that she measured and all the different iterations of Spock over the years. When Spock said something that was absolutely impossible, it happened 83% of the time.

Tobias: [laughs]

Jake: When he said, it was very unlikely, it was a coin flip. When he said, it was just regular unlikely, it was also a coin flip. When he said something was likely, it was 80%. So, that’s actually not bad. When he assigned a 99.5% chance of something that happened, it happened 17% of the time.

Tobias: [laughs]

Jake: It turns out that Spock was horribly calibrated when it comes to his predictions versus reality. His Brier score would be total shit, if you actually went through and calculated it. He’s not very accurate. That was funny.

The Equivalent Ball Test – Better Probabilistic Outcomes

Jake: And then the other thing that I got from this was that I think is a really useful exercise. And really what it does is it taps into humanity’s ability to be a comparative animal.

A lot of times we do better by reasoning through comparison of A versus B as opposed to, is A on its own good, is B its own good? She uses the example of self-driving. You might say like, “Well, let’s consider the proposition.” Will full self-driving be available within a year to the average buyer. Maybe your initial gut reaction is like, “That’s crazy. No way. The technology is not there, the government maybe won’t allow it until it’s up to a certain safety level.” There’re all kinds of reasons why you could just say, “No way, that’s insane.”

But what does that really do for you as understanding the world when you just say, it’s crazy? Not much. You don’t really actually learn that much. Instead, try to back into what would be your actual probabilistic expectation of that, so, the first thing you do is say like, “Okay, here’s a bet. For $10,000, would you say that self-driving will be on the road or not within one year and would you take that bet?” I don’t know. Let’s play along with that. What would you say, is full self-driving going to be available within a year?

Bill: I need to pay out structure, dawg. And also, no I would not.

Jake: It’s one year from now and you get $10,000.

Bill: Just binary, I get it or I don’t get it.

Jake: You get it or you don’t get it.

Bill: Or, you got to pay something if I make this bet, presumably, right?

Jake: Yeah, you pay $10,000, if you don’t.

Tobias: Straight up and down.

Jake: Yeah, it’s just straight up and down. What do you think? Do you take the bet? So, that’s the first one. It is like, it’s all 50% basically.

Bill: It all depends on the definitions, man. I know a guy that has a Tesla that drinks and he lets the Tesla drive him home.

Jake: [laughs]

Bill: And it works.

Jake: I know a guy.

Tobias: You could pay for.

Bill: I don’t have the Tesla.

Jake: [laughs] Okay. All right, let’s just move on since you guys aren’t—[crosstalk]

Tobias: Well, I wouldn’t take the bet. I don’t think it’s going to be on the market. But I do think you can pay for it and you can get it installed in your car, whether it works or not. I don’t know.

Jake: [laughs]

Bill: That’s what I’m saying.

Jake: No. This is actually–

Bill: Kind of like one of these Bill Clinton definition of ‘is’ questions here.

Jake: Okay. All right, fine.

Tobias: How long has it been coming? Just that–

Jake: Now, this is how I figured out I’m on a podcast with two lawyers.

Tobias: [laughs] What is the definition?

Bill: Yeah.

Jake: Yeah. Let’s reframe it then and let’s say that I could give you a box and it has four balls in it. One of the balls is white, the other three are black. If you pull the white ball, you get that $10,000 within one year, but if you pull one of the black balls, then you owe me $10,000, let’s say. Or, even let’s get rid of it. Let’s not say that you owe it, but you have to choose between full self-driving or the box. Which one of those would you prefer? Do you want to take a one in four poll on the box or do you want to take full self-driving?

Bill: I’m just going to say that I think people would argue that full self-driving is already here. So, I’m taking full self-driving.

Jake: Okay.

Tobias: Yeah, that is hard to compare that stuff.

Bill: I understand what you’re doing and I like how you’re going about this.

Jake: All right, let’s just keep going then. So, that would imply then– Let’s say that you think, “Boy, I like the box better.” I think I’d rather take the pull from the box then I would take the full self-driving, which then implies that you think that 25% is too high of a prediction, all right?

Tobias: Because if you reframed it as, like, do you think that there’s a chance that will come at one of the years in the next four.

Jake: No, that’s not the bet. It’s not a series bet. It’s only this one year take it or leave it.

Tobias: I understand, but I’m just saying that they’re just trying to make it more analogous to the one and four puller. You said, one out of for the next– Yeah, it doesn’t quite work. All right. Keep going. Ignore me.

Jake: Okay.

Bill: You have to say, out of the current parallel realities that are going on.

Tobias: Yeah.

Bill: And one of the four of them does it come about.

Jake: Yes. Okay. So, now, let’s say then that you’d rather take the box at that point. Now, we’re going to change it and the box we put in several more balls, and we’re up to 16 balls now, and then there’s one that is a winner in there. And now, which one do you want to take? The box or do you want to take full self-driving as your bet? What that implies then is that you’re actually a little bit below 6% confident that the full self-driving will happen. What we’re doing here is revealing your preferences and what you believe based on giving you an A or a B.

Most people probably would say like, “Wow, 1 out of 16, I look at that and I don’t really like the odds of that.” Then they would say like, “Okay, I’ll take the full self-driving bet, instead and then let’s try to finish it and dial it in” and let’s say that there’s nine balls in there. It can be whatever.

But what you want to do is find the number of balls that are the exact equivalent, where you’re totally ambivalent between, do I want to take full self-driving or do I want to take the box full of balls. And then, it’s called an equivalent bet test. And so, what we’re looking for is that equivalent bet, where you’re just totally ambiguous between those two propositions, which then reveals to you what you think the probability is actually of that thing happening. So, that’s the whole point of the—

In this case, on a nine-ball box that you’re in ambivalent, that gives you 11% sort of confidence interval that maybe the full self-driving would be on the road. The book is full of stuff like that where it’s like, “Oh, here’s a cool way to get at what I’m trying to think through.” I find that that equivalent ball test to be probably pretty helpful, if you really want to just dial in where are you on your probabilistic predictions, which is one of the hallmarks of good investors is making probabilistic predictions.

Tobias: I still probably take the box of one in 16.

Jake: Wow, okay. We can go even more.

Tobias: I don’t think—[crosstalk]

Jake: One in 50, I mean, how many balls we have to put in the box before you’re ambivalent between that thing?

Bill: Dude, homie, Samson’s in the chat right now saying, “It’s already here. Get long Tesla.”

Jake: [laughs] Well, that was predictable.

Tobias: Yeah. That is the problem. Are they calling it full self-driving at the moment?

Jake: Okay, let me reframe–

Bill: Well, he’ll call it whatever the hell he wants.

Jake: To reframe the whole thing, will you own a full self-driving car within a year?

Bill: Ah, no way.

Tobias: I’ll take that 160–

Bill: I’ll take the balls.

Jake: Okay.

Tobias: 160 [unintelligible [00:17:40] pull?

Bill: Yeah.

Jake: [laughs] Fair enough.

Bill: I’d be more likely to buy a tractor in the next year than I would have full self-driving car.

We’ll Have Flying Cars Before Full Self Driving

Tobias: I think we’ll have flying cars before we have full self-driving. We’ll have full self-flying cars before full self-driving cars.

Jake: Really?

Tobias: That’s a much simpler problem to solve, right?

Jake: Is it?

Bill: No idea.

Jake: Don’t you have a Z coordinate to deal with that?

Bill: It seems very difficult.

Tobias: Yeah, we don’t have as many obstacles.

Jake: I’ve seen the Jetson’s. Their stuff all over the place. How are we supposed to–

Bill: Yeah.

Tobias: You’ll have self-flying before you have all of those obstacles to negotiate.

Jake: Okay.

Tobias: That’ll be added later.

Bill: Hmm.

Jake: Fair enough. [laughs]

Bill: This is an interesting take, one I haven’t seen before.

Tobias: There are flying cars, but they’re not full self-flying cars. That’s what I’m saying. Self-flying cars take off.

Jake: Doesn’t a jumbo– a 737 basically fly itself for the most of the, like, 98% of the trip?

Tobias: I think it flies for almost all of it. I think it’s–

Bill: They have a big ass drone. I guess, I could see that.

Tobias: Yeah, that’s basically what it is.

Bill: Yeah.

Jake: All right.

Bill: I’m in. Go to [crosstalk].

Tobias: Where’s the long bets? We need to get the long bets on. Let people take the other sides of that. I like flying cars. Flying car not going to run into anything for the most part, if you do.

Jake: Except the earth.

Tobias: It’s over– [crosstalk]

Bill: Yeah, that’s right.

Tobias: [laughs]

Jake: [laughs]

Bill: Yeah.

Jake: Other than that.

Tobias: All right, let’s talk the markets.

Jake: Let’s move on. Yeah, please.

Tobias: I like this analogy.

New Soundboard Unlock

Bill: [soundboard playing] [laughter]

Jake: We’ve got a soundboard, everybody.

Bill: Hey, oh.

Jake: It’s a new unlock for Value: After Hours.

Bill: No, I like it. I like that. If Toby and I didn’t dissect the meaning of full self-driving, it could have been a great segment. But we ruined that for you.

Jake: Yeah, you really–

Tobias: I think it’s a good mind system.

Jake: [crosstalk] the Cheerios.

Bill: You are welcome.

Tobias: I thought it was like scouts as in boy scouts. But yes, scout versus soldier, I think it’s a good analogy. I agree with it. Trains. Yeah, full self-driving trains.

Jake: You’re smart and she’s right.

Tobias: [laughs]

Diesel vs Gasoline

Bill: Yeah, Greenwald never liked the, well, I shouldn’t he never liked, but he was always like, “Railroads are going to be disrupted by full self-driving semis that go down the road, and then break apart, and then they deliver stuff.”

Jake: At $8 diesel?

Bill: Well, ah-

Jake: Ooh, [crosstalk] homie.

Bill: -I don’t know.

Tobias: Is that just a California special or is that everywhere?

Bill: Oh, well, I think it’s going on a lot of places right now.

Tobias: Why do you take diesel over a regular gas car?

Bill: Diesel’s got better gas mileage.

Tobias: [crosstalk] doesn’t. But it’s very expensive.

Bill: Oh, yeah. The engines are also quite a bit more reliable unless I’m mistaken. Those old diesels, they run forever.

Jake: Mileage, yeah. Mileage, torque–

Tobias: Does every gas station have diesel?

Bill: No. Pain in the ass, because a lot do. The further south you get, the more that have it.

Tobias: When I was a kid, you had to put the diesel nozzle into the gas tank and vice versa.

Bill: Same now.

Tobias: I think different shapes. I was looking, now, you got to make sure you’re choosing the three choices of gas and none of them diesel.

Bill: Yeah, it’ll still mess your car up.

Tobias: Do the three different classes of gas make a difference to the way the car operates, does anybody know?

Bill: 93 for sure does. That’s no ethanol.

Tobias: That’s the best one. That’s the most expensive– [crosstalk]

Bill: I don’t know it’s the best. I just know it has no ethanol in it.

Tobias: Is it better for the car or does it make you go faster or something?

Bill: Some cars require that you use 93. But I don’t think it actually–

Tobias: I thought you could just—[crosstalk]

Bill: I don’t think there’s any difference between 87 and 89. I think that’s fake news.

Tobias: It’s like the difference between a sparkling white wine and a champagne.

Bill: My gas blending buddy, they make the 93. So, he’s always pushing that on me.


Jake: Motivated reasoning bet.

Bill: Yeah, for sure. But he’s got me convinced there is some difference between that and the rest of the stuff.

Jake: This is like The Simpsons thing, where they showed that in the brewery where it was like, Duff dry, Duff lite, Duff regular,” and it was all coming off with the same pipe.

Bill: Yeah. Once upon a time–

Tobias: Isn’t just that more dawg, because the dawgs are suing– [laughs]

Jake: Yeah. [laughs]

Bill: Once upon a time I was at a Christmas party. My mom and her ex were really sloshed. Her friends are over and one of the people couldn’t take caffeine. The guy, the ex was going around and he’s like, “Caffeinated or decaf with one pot.”

Tobias: [laughs]

Bill: I don’t know it was decaf or caffeinated. I was a young kid, but I remember that. Ah, growing up, it was fun. Anyway, next.

Tobias: We’re in trouble for if– [crosstalk]

Bill: Did I make you weird?

Jake: Yeah. You made it weird.

Tobias: We need to talk about these markets, we need to talk about this crash.

Bill: [laughs] The crash is coming. I feel I was bearish. You could definitely listen last week and say that I’m bearish. But I’ve remained pretty long. Unless you’re in my head.

Jake: Just like back to bearish? [laughs]

Bill: No.

Jake: Okay.

Bill: I just think about to deploy more capital into the market, I would need to see real pain. I do think there’s a scenario where we could get it. I think that it’s a fairly realistic one. You asked about the balls? I don’t know. Maybe—[crosstalk]

Jake: How many balls we got to put in the hopper before you take them all?

Bill: I think maybe four.

Jake: Okay. 24%, 25% chance of rain.

Housing Market Completions

Bill: Yeah-ish. It’s just a lot of crosscurrents right now. But the one thing that I do think is going to be just like for at least a year or two is going to help is, there’re so many houses that have been started and not completed that there’re just a lot of jobs that are going to continue because you’re going to need to complete the houses. But man, completing them is a pain in the ass right now for a number of reasons.

Tobias: Getting the supplies, getting the people?

Weird Shortages Everywhere

Bill: Yeah. Where I am right now, there’s just no concrete. You can’t get it.

Jake: Really?

Bill: Yeah. For a while, I guess, there’s some rock that makes it form or whatever and helps it go down the chute. I don’t know there’s stuff. But that rock was out and then it was the sand that makes it come like glue, that was out. My friends and I are like, “You are telling me this not—” [crosstalk]

Jake: The Earth is out of sand? [laughs]

Bill: Yeah. Anywhere in Florida, we can’t get the freaking sand. Okay. This doesn’t make sense.

Jake: [laughs] The whole thing is sand?

Bill: Yeah, that’s right. But apparently, you need a different kind of sand.

Jake: Oh.

Bill: So, this is just [crosstalk] everywhere.

Tobias: I don’t know. A lot of weird– [crosstalk]

Jake: Like 93 Octane sand? [laughs]

Bill: No, that’s different. Different sand.

Tobias: There are a lot of weird shortages still. I don’t know how that gets resolved. I’m surprised it still hasn’t been– I guess, the ships are still backed up out here until mid-2023 was the last guess that I had. Late 2023, which to me just sounds like we don’t know, hopefully, by this time.

Bill: Yeah, I think that’s right. I think that the labor in the ports just started negotiations or something. So, that’s not going to get done.

China’s Zero-COVID Strategy

Tobias: What about the fact that China’s got this zero COVID thing? That’s not going to help either.

Bill: No. No, it’s not. I had had Craig Fuller on and then the comments, I got notice today that somebody put up a YouTube comment on the episode, and they told me not to attack a country, and that China was being responsible, and that America was not. I have news for them. They’re wrong.

Tobias: [laughs] From YouTube or it was from?

Bill: No, it was from a commenter and they were like, “You guys are so you’re irresponsible. You’ve lost a million people.” I’m like, “Yo, y’all are messing with the entire world economy here.” But anyway, demonetized.

Tobias: Demonetized. There’re a lot of fingers on the scales behind the scenes, I think.

Bill: Yeah.

Tobias: What’s the long-term plan? Are they going to keep it locked down until they get to literally zero? Are they going to pop it open and–? Is the idea that just before the third people symposium or whatever they call it, they’re going to open everything up and there’s going to be this massive boom like we had over here?

Bill: This is legit turned into a Rogan episode.

Tobias: Do you think so?

Bill: Well, I think it’s two people that don’t know anything opining on stuff that we don’t know about. So, yes. I think so.

Tobias: All of my [crosstalk] can form the questions, though.

Bill: Yeah, well, that’s like a Rogan episode.

Tobias: That makes it a Rogan episode.

Bill: Yeah. I don’t know what the goal is, man. I saw that they were opening up, I think it was Shanghai or something. I don’t know. COVID gotten into North Korea, I think. And if it got in there, I don’t think you can dodge it. But that’s just me.

Gary Friedman’s Masstige Brand Strategy $RH

Jake: It’d be interesting. Any thoughts on Restoration Hardware reporting here, I think it’s this week. I was looking at an unnamed home goods retailer. I just don’t know. One of my checklist items when I’m researching is, if I was made CEO there tomorrow, how hard is the gig, what does it look like, am I excited or am I bummed?

If it’s that bumming then that might not be a great place to want to have put your money, if that seems a really hard job. I was looking at this and like, “I just don’t know what levers they have to pull here.” They’re getting squeezed by labor and transportation costs. They bought back a bunch of shares at 2x, where the price is today and now, there’s not that much cash around, the revolvers tapped a little bit. There’s little inventory swollen. I don’t know where–

Bill: Oh, you’re talking about Restoration Hardware?

Jake: No, no, this is another company.

Bill: Okay. I was going to say.

Jake: It a two like restoration and reporting soon, I thought it might be. I’d like to get to hear what you think.

Bill: I would probably buy our house instead without really looking at the financials too closely. That’s my gut. Look, I don’t like– if people talk about the ROIC, okay, well, how does the ROIC get there? You trade ownership for leases. Okay, well, that works when it works, but it seems you’re adding a little bit of fragility to the system.

Jake: That’s a onetime bite at the apple, too, isn’t it really?

Bill: Well, it’s kind of the business strategy. I don’t know. I was upset with myself for not holding that when it was bombed out. But zero was a legit possibility in my mind, even though, it obviously wasn’t. I was wrong. But you don’t have stimulus, and things could be a lot different, and I think that their consumer is probably going to be fine. So, maybe it continues to work. I don’t know. It’s in my too hard pile. I’m sure it can work. I don’t understand the jets, and the yachts, and the lifestyle brand, and entering hotels. Gary is either a genius or a madman and we’ll all find out together. It’s a lot of issues convertible—[crosstalk]

Jake: How many balls to issue [crosstalk] into the bag for you to feel good about that bet of genius versus madman?

Bill: I would ask to see to the end of time, and then look back, and then I’ll say, “I knew the answer.”

Jake: Oh, Jesus. Cop out.

Bill: I don’t know. Three, maybe.

Jake: Hmm. Okay.

Bill: Or, four out of 10. I think it’s reasonably possible that he’s retail genius. I don’t know if that translates into, we can have a G550 or G650 that can fly you to Paris to have caviar looking at the Eiffel Tower. I just don’t fundamentally trust that it’s luxury and I think that it’s disrespectful the luxury to call it luxury. I think it is cheap furniture made at scale marked up really high and I think it’s Starbucks. I think they have a great like–

Tobias: Masstige.

Bill: Yeah. That’s what I think it is. I went into the New York showroom and the doors on some of the stuff are crooked and stuff like, “Don’t tell me that you are air-maze and then come out with that shit.”

Jake: Yeah.

Bill: It seems to me to be more like Wall Street puffery and investors buying a story than it does reality. But there is certainly enough reality to make that story go, right?

Jake: Look real on a–

Bill: Yeah.

Tobias: The audit is to get the consumers to buy the story right rather than the investors.

Bill: Well, dude, they obviously are. If I was a bull, I’d be like, “Well, look at how many more they’re going to roll out, and do the unit economics on the stores, and all that stuff.” I get it, but I don’t know.

Tobias: I like the idea. I think some of those ideas are really clever. I think clubs are really clever idea. 650, I want to see how often the execs travelling on that versus customers.

Bill: Well, you know, and they got the yacht like the RH Three. I think it looks like a tugboat, but it’s yacht.

Jake: [laughs]

Tobias: Unless you’re scamsters, it’s unconventional to have yachts and 650s. Actually, owned by the company available to be used.

Bill: Look, they’re trying to make it like a lifestyle brand, right? Which I understand, but then there’s the part of me that’s like, “Whoa, why?” If your furniture business is so good, why do you need to be a lifestyle brand, too?

Jake: Is anyone buying a Restoration Hardware t-shirt to be part of a lifestyle?

Tobias: No.

Bill: Soon enough. You just haven’t seen it yet.

Tobias: I see them as maybe like J. Crew, where they might see themselves as, I don’t know, Ralph Lauren or something like that.

Bill: Yeah.

Tobias: I think Ralph Lauren’s like the pinnacle of masstige. It might be true luxury. There’s enough stuff in that that’s luxury, whereas J. Crew is just underneath. Is that fair? Don’t know enough.

Bill: Yeah, I think what Gary would say is like, “In your–” [crosstalk]

Jake: I don’t know. I wear Garanimals.

Tobias: [laughs]

Bill: I tell you what. I was looking at Carter’s, the baby clothing maker?

Jake: Yeah.

Bill: That’s trading at a 10 P/E, which I know is a very flawed metric but the story of millennials creating houses and household formation, Carter’s– [crosstalk]

Jake: If babies have been there.

Bill: Yeah, I could see there being 10 years of earnings roughly around where we are. I think what Gary would say is like, “The legacy brand perception is part of the problem in the US.” When they’re going to foreign markets, they’re not going to have that perception. When they open up in London, they’re going to be a fresh brand. I just don’t know that I buy that Europe is going to be super amped about an American furniture maker. I don’t know that Americans export luxury that often.

Jake: Yeah.

Tobias: Ralph Lauren?

Bill: Yeah, he was a G for sure.

Jake: I feel it goes the other direction more, doesn’t it, luxury from Europe to America?

Bill: Yeah.

Tobias: I think that quality brand Mittelstand.

Bill: I don’t know where Williams-Sonoma trades but if they trade roughly where Restoration Hardware does, I’d probably prefer Williams-Sonoma.

Tobias: It was cheap and it popped on its last earnings. Had a good run-

Bill: Yeah.

Tobias: -of the day and the night. I own Ironwood. It’s not quite like William-Sonoma.

Bill: Yeah.

Tobias: I think Restoration Hardware was getting into my hitting zone, too. I don’t own it, but I just noticed it was flooding around there. Probably, needs to–

Bill: Very heroic.

Tobias: It needs to stumble in this next earnings probably for me to have a look at it.

Jake: That could happen.

Tobias: I think in this market, one of the– [crosstalk]

Jake: Soft consumer, that’d be, I don’t know, could get rough for them.


This Market Provides Opportunities To Buy Better Quality Stocks Cheap

Tobias: One of the things I like about these kinds of markets if we get a little sell off here is that it does give you that opportunity to buy better quality stuff whenever it’ll get squashed up with the deep value stuff. I think we’re going to get a chance this time around. I hope we get a chance this time around. I don’t have any view one way or the other. I hope, I hope, I hope.

Bill: The downside, man, is rates may have peaked. And if they peaked, everything goes burr.

Jake: Oh.

Tobias: But here’s the thing. Let’s do some macro bullshitting.

Jake: [laughs]

Tobias: Inflation is running at 8%, interest rates are well, well south of that. It’s a political conundrum for the Fed, whether they step on the inflation or whether they step on the stock market. Stepping on the inflation steps on the stock market. And then Biden’s going into complain to them about inflation. So, maybe that’s the way it goes. I have to step on the inflation.

Bill: I don’t think Biden is actually complaining about inflation behind closed doors. I think he’d have to be crazy to be doing that.

Jake: What do you think he’s–

Tobias: No, just got to be seem to be doing it. [crosstalk] immediate that inflation.

Bill: Look, I think if you’re complaining to the Fed about inflation, what you’re saying is that I want rates to go materially higher. That scenario to me screams recession. So, I would say, “Let’s let inflation run hot for two to three years and see where we are-

Tobias: Yeah. It’s as a– [crosstalk]

Bill: -as a politician.”

Jake: I feel this still all assigns way more power than the Fed actually has to this whole thing.

Tobias: I think that they’ve already committed. They’ve created the conditions, they have created the inflation. I think that they have the power to do that. I think that now whether we’re talking about whether they crash the stock market or the other things they can do, we’re talking about problems that they’ve created over the last five years. And so, like, how they navigate their way out like–

Jake: You mispronounced hundred years.

Tobias: Well, that’s true. That’s true. It has been–

Bill: Well, a lot of it was stimulus though, too, right?

Jake: Yeah.

Tobias: Yeah, that’s fair. All those charts that have got those wild runs up and runs back down. I think we’re probably getting close to back being down trend for a lot of those things. So, it’d be interesting like whether we stop a trend or not. I don’t know.

Bill: I think it’s funny when people are like, “Well, tech valuations are lower than they’ve been.” It’s like, “Well, yeah, but it’s not 2018 and 2019 it was screamingly cheap valuations.” I think you make the argument that there’s a lot of stuff out there that is fair or cheap right now. But to say, well, when things were growing like crazy and people promised flowers at the end of the road, and now people are questioning whether or not those flowers exist, no wonder the valuation has come in. That’s part of what valuation represents, right?

Tobias: I think it’s a little bit cheap, but I agree with you. I don’t see a lot of obvious value there. I don’t think there’s any easy decisions there.

Bill: Yeah. Look, this is stuff that I don’t know and I don’t really know.

Tobias: It’s what the podcast is for, sir.

Bill: Yeah.

Jake: [laughs]

Bill: I bet like Texas Instruments is something you could get a reasonable real return out of here. I think people like, “How does Coke trade, where it trades?” Well, if you are really worried about inflation, it makes sense to hold something like that.

Tobias: What’s the Coke thesis for inflation–? [crosstalk]

Bill: Well, I just think historically, they’ve been able to show pricing power and God forbid, you actually think inflation is transitory. The probability that they’re going to give back the price takes, there’s no way. So, if their input costs come down, you could see some margin expansion on the backend of this that maybe surprises people that they’re not looking at today.

Tobias: Did the same thing happen to Coke that happened to the macro beer brands? It’s just so much easier to get micro off brand colas, and different kind of waters, and things like that. Whereas previously it was like, you had to have all the shelf space and all the advertising. Now, people don’t care, because you’re getting a different kind of access to different stuff through Instagram. Instagram pitches me nonalcoholic everything these days.

Bill: Yeah.

Tobias: Nonalcoholic beer.

Bill: Speaking of which, a mocktail for you, guys, get yourself some Topo Chico, a little bit of apple cider vinegar, just a cap or two full, pour that in, squeeze some lemon, boom.

Tobias: What is it?

Bill: It is delicious nonalcoholic beverage.

Tobias: What do you call it?

Bill: I don’t know. I’m just telling you.

Jake: Oh, the Brewster.

Bill: No, no, no. It’s not.

Tobias: That’s Brewster. There you go.

Bill: My boy, Adam Brown told me that.

Jake: Busy Brewster.

Bill: No, it’s not me. But I’ve been drinking the shit out of them. It’s great. But Topo Chico, I’m almost certain is owned by Coke now.

Jake: They bought it for a couple hundred million dollars I don’t know three or four years ago, I thought was a genius move.

Bill: Very effervescent.

Tobias: LaCroix still out there. It does have the big bubbles.

Bill: Yeah, it’s like [sound.]

Tobias: LaCroix out there independent.

Bill: Yeah.

Tobias: LaCroix, Heileman LaCroix.

Bill: I’m an ass, I haven’t read that guy’s letter in a minute. I need to read that guy’s letter. I bet he is fucking devastated with Democrats in the White House and inflation out of control, I bet that guy’s letters are insane.

Tobias: Is he political?

Bill: Oh, yeah.

Tobias: LaCroix?

Bill: Oh yeah.

Tobias: Oh, I haven’t read them.

Bill: Yeah, you got to. It’s great

Jake: You see full InfoWars type of stuff or where is he at?

Bill: I mean, I don’t think it’s InfoWars. Pick up some letters and read them.

Jake: [laughs]

Tobias: That’s frightening.

Bill: No, no, it’s just very pro-America, but I think he definitely– We’ll see. That’s my hypothesis.

Beaver Ass Flavored Drinks

Tobias: I’ll give it to LaCroix. When you go into supermarkets now, they’re not hard to find. They’re always right at the front and stacked. They’re everywhere easy to get. They’re everywhere.

Bill: I love that business.

Tobias: Good plus point for the most part.

Bill: Release a new flavor, just change the color of the can. You know marketing.

Tobias: [laughs] That’s right.

Bill: It’s insane.

Jake: Yeah. Oh, I got a try this one.

Tobias: Yeah, they just insane. [laughs]

Jake: Pomegranate-blueberry. All right. Oh, shit. I guess, better try that one.

Bill: Yeah, I’m a pamplemousse, dude.

Jake: Are you?

Bill: Yeah.

Tobias: Yeah. Pamplemousse is all there is.

Bill: But sometimes, you’ll open a can, it’ll be super pungent, the tastes will be off. Their quality– [crosstalk]

Jake: That’s because the natural flavors are random stuff. There’s vanilla, I think. There’s a natural flavor that’s vanilla. It’s the beaver anal gland expression.

Tobias: [laughs]

Bill: Oh.

Jake: They are really– [crosstalk]

Bill: Well, I think the beaver was happy that day, when it was expressing its anal gland.

Jake: They will milk a beaver’s ass for vanilla natural flavoring.

Bill: This one tastes sour, this anal gland must have been real tight. Anyway.

Jake: Yeah. He must have been eating something that wasn’t– [crosstalk]

Tobias: Is that true? Is that how they get vanilla? Because I thought they just get it from vanilla beans, right? No? Too expensive that way.

Jake: The way cheaper to go after beaver ass. [laughs]

Tobias: No [crosstalk].

Bill: [laughs] It doesn’t look like a little beaver ass to drive your margins up.

Jake: Yeah.

Bill: [laughs]

Tobias: Well, I tried their passionfruit one over the weekend. It did taste like beaver ass. [laughs]

Jake: [laughs] The beaver ass.

Bill: And how, sir, do you know about the taste of a beaver ass?

Tobias: Well, it tastes like the vanilla one.


Bill: Oh, we have fully derailed.

Tobias: To be fair, I own Fizz. This is all sick.

Jake: Talk in your book.

Tobias: Yeah. Talk in the book.

Jake: Okay, good.

Bill: That’s fair. I’m looking for a squirrel ass myself.

Jake: Hmm.

Bill: That’s where the real margin is.

Jake: [laughs]

Tobias: Gregory doesn’t think it’s funny. Okay. Thanks, Gregory.

Bill: Sorry, dude.

Jake: Doesn’t think beaver ass is funny? Okay.

Bill: I mean, we enjoyed it.

Jake: You’re just objectively wrong, sir. I’m sorry.

Bill: Yeah.

Jake: Because this is hilarious.

Bill: Well, then, I’ll tell you what came out was interesting, well, interesting to me, some people may not have known about it, but– [crosstalk]

Jake: Top Gun? [laughs]

Bill: Well, I want to see that bad. But dude.

SEC Brings Fraud Charges Against EIA

Bill: I featured on the pod, Naufal Sanaullah. Work firm called EIA.

Tobias: Yeah.

Bill: And EIA has been accused to be in a straight up Ponzi scheme. I had a call with them because I was going to feature Andrew, if I could get comfortable with it. I remember, after the call, I hung up and Naufal call me after and he is like, “What are your thoughts?” I was like, “Dude, I don’t know what you guys do. I can’t articulate what you do here.” And then, we never followed up. But I think that was an interesting example of, if something is too hard or outside your circle, maybe just say no. I would have felt like a real dummy if I had featured both of them.

Jake: Well, I remember that episode and I remember thinking like, “Gosh, I don’t feel I know what’s going on here, but I’m not really a macro guy.” So, I guess, that’s to be expected. But it felt it was either next level or that I was– I don’t know. I didn’t feel it felt phony to me.

Bill: No. I think the thing that surprised a fair amount of people was like, I don’t know. A lot of people that, well, not a lot but a decent amount of people that I respected his opinions on things. That plus likeability, that’s how the seeds of fraud could be made. I don’t know. We’ll see what all ends up.

Jake: It never starts out intentionally, either. You always read these and they’re like start cheating a little bit in one way and then it just sort of spirals.

Bill: I’ll tell you what. I was defending him out of the gate, and I’m not trying to throw him under the bus, and I’m a big-time believer in the presumption of innocence. But if you read the complaint according to the SEC, they’ve been losing since day one. That hurt because I was hoping to your point that maybe things were okay, and then something slipped, and maybe they tried to make it up. But the complaint doesn’t look good.

Tobias: I thought it also said that they claimed $100 million in assets and they had 580,000.

Bill: I think they claimed $190 million or something like that. Yeah, it was crazy. Made up everything. I looked at the tear sheet and it look legit, but that’s what, I guess, Bernie Madoff looked legit for a while, too. So, wild.

Tobias: Is that the claim that it was a Ponzi scheme?

Bill: Yeah. That is exactly the claim.

Jake: Well, isn’t that, now we’ve got Luna 2.0 out there as well? The first one I just saw this morning, I don’t know why I even saw it, but that’s backed out. It’s like, “Hey, if you liked it the first time around that it went to zero, here’s your chance to not miss out.”

Bill: To be fair, is 2.0? 2.0 is not a scam anymore. Everybody knows.

Jake: Now, it’s the real one.

Bill: Yeah. Well, if you get scammed on 2.0, 1.0 was a scam. I don’t know if you got scammed or if you’re just dumb.

Jake: I’m waiting for 3.0.

Bill: But I’ll tell you what. I’m not trying to throw her under the bus, because I really love her. But my mom is the type of person that falls for some of these emails and stuff. I get really upset when I see some of this stuff. Because you give her macro bear porn, and then hit her with some, and this guy predicted this, and is shilling this.

Jake: Yeah.

Bill: The amount of times I just have to be like, “Turn all that off, it’s crazy.”

Jake: Well, that’s the thing that’s terrible about these is, it hits the people who can generally least afford to take the hit.

Bill: Yeah. No doubt. But those guys of EIA, I think they had some institutional stuff.

Tobias: I mean not much. It’s $580,000 in assets.

Bill: Yeah, I guess. I don’t know. It’s a shame. I saw somebody’s DMs and the guy was like, “I was friends with these guys.” I don’t know. It’s a shame. Anyway, long story short,

Jake: It won’t be the last one. That’s the other thing. These are the times where those things get uncovered.

Bill: Well, I think this stuff goes on in companies, too. If you don’t know how a company makes money, just say no. There’ll be another pitch. That doesn’t mean it’s a fraud. It just means it doesn’t have to be the thing that you vouch for or bet on or any of that stuff. Just move on. Now– sorry.

Tobias: I was just going to say it feels there’s been quite a few embezzlements of fraud revealed through this period where I still don’t think we haven’t had the flush yet. There’s been no Lehman moment yet.

Bill: Well, Chanos has been saying this for a while. He’s been like, “It’s the golden age of fraud.”

Tobias: Yeah. But we haven’t had anything really collapse yet that nobody saw it coming.

Bill: Yet.

Jake: That’s fringe.

Tobias: Yeah, it’s fringe. That’s what I’m trying to say. It’s not front and center that everybody’s in.

Cheap Tech

Bill: Yeah. I don’t know. We’ll see, man. I guess part of what I was saying last week about how much downside I think there could be, actually, I don’t think there’s that much in on average in industrial company. I am really curious to see where some of these tech valuations settle, and where we look back, and which ones are real. I think it’s funny that everybody’s like, “Oh, no. Now’s the time to create a real business. You’ve got to generate cash.” It’s like, “Oh.” I don’t know. See a deck and you’re like, “You were chasing revenue. Now, you have to generate cash.”

Jake: Yeah.

Bill: It used to be that the whole purpose of a business was to generate cash, but for a while there was just to generate shares.

Tobias: Yeah. I guess, the point was that they are saying that there’s only one winner in some of these verticals. You get there, and you win, and then you charge whatever you want. I don’t know. I guess they’re pointing to Amazon as an example of that.

Bill: Yeah.

Jake: You mean that one in 500,000 business?

Tobias: I thought that the reason that it was run the way that it was run was that Bezos knows what he’s doing. He’s trying to run it as a high growth business, where he wasn’t necessarily trying to dominate the entire niche. Obviously, it was, but the whole strategy wasn’t predicated on being the biggest or the first, was it?

Bill: Well, I think with Bezos, I don’t think you ever had to tell him generate cash. From day one, the cashflow statement was upfront. That dude understood working capital usage, he understood cash. Now, his method of attack was maybe new and something that people haven’t seen before. But he was not one of these burn a ton of cash, and issue a ton of shares, and call that cashflow.

Tobias: I think it’s been funny how so fast, which is run by a guy from Brisbane, whereas I’m from Australia that fell over. They raised $100 million and then they collapsed a year later. That was one of that one click checkout things. Then there’s the other one bolt guy, who’s another unusual dude like multibillionaire on paper and made of these employees to get recourse loans to take the options up and now they are all underwater and getting waxed. And so, that was—[crosstalk]

Bill: [crosstalk] attempt, please.

Tobias: Well, at the time– [crosstalk]

Jake: I don’t think made them, I think I’ll let them if they want to.

Tobias: Didn’t made them.

Jake: Yeah.

Tobias: It didn’t make. I’m sorry. I shouldn’t say made them, but made it available to them, which they then used another underwater on them. I think that that’s the case. I don’t want to say that too cavalierly, but I think I understand that’s the case. I understood that whole one click idea. Lots of bigger enterprises have tried it and just given up because they can’t make any money out. So, I don’t know about all these. Maybe these other guys, we’re going to solve that problem, but it doesn’t seem so.

Bill: Well, I think you rebase the people you want to keep, you let the rest that didn’t get rebased figured out that you don’t want them, make them leave. Be kind of interesting to see where people put their options.

Tobias: Well, I think they’ve done that.

Bill: Yeah.

Jake: That’s good for culture.

Bill: Yeah. [laughs] Well, stock market crashes aren’t. [laughs] I don’t think so. Yeah. I’m very excited. It’s going to be an interesting three years. Can’t wait to see the proxy statements that come out. So, it’s going to be very interesting.

Tobias: I don’t think it’s going to take three years. I think this is going to be over pretty quickly. I think we’re going to go into a– If it gets nasty, it gets nasty soon and fast. But if it doesn’t, then we’re just back to muddle through.

Bill: Yeah. Well, rates down, stocks go up. All this is a moot point.

Jake: How many zombie companies are there to take out a call out of the herd here?

Bill: I think a fair amount. But I actually think this is the time that we’re going to do it, which will be nice.

Jake: [crosstalk].

Bill: Yeah. I think that’d be good.

Tobias: I saw it mentioned in the comments before. “But Evergrande seem to be a thing and then it’s just no longer an issue or it’s not in the news anymore.”

Jake: China problem. We’ve got our own problems to focus on now here.

Why It’s So Difficult To Value Businesses Right Now

Tobias: Well and truly. I don’t know. Well, there’s still that big sugar rush coming through the system. It’s hard when you’re looking at companies right now. There are things out there that look cheap that they’re either beneficiary of COVID or they’re just a beneficiary of all the stimulus that got paid through. So, it’s hard to take that out of the financial statements because I don’t know. I don’t know whether these are permanent winners or whether they are short term is.

Jake: Yeah. How do you normalize or comp anything right now?

Tobias: It’s very hard.

Jake: Really hard.

Bill: Yeah. It is.

Tobias: Just going to make mistakes, I think is the answer.

Jake: All of which would say that if it’s that hard to normalize and comp that you should probably demand a little bit margin of safety and the price that you pay, right?

Bill: Yeah.

Jake: And yet, maybe, it hasn’t quite moved as much as you could argue it should relative to how hard it is.

Bill: Yeah.

Tobias: To play devil’s advocate, though, I think the argument that and we’ve talked about it before. The big tech companies, probably, I guess, there’s also an advertising component to them. But they don’t look to me to be egregious. I think you could just about by half of them. I think he could buy Facebook, I think he could buy Google, I think he could buy Netflix. I don’t know about Microsoft. I haven’t looked at it. But Amazon is probably getting there as well. They probably are getting close and that’s a big, big chunk of the market.

Bill: Somebody’s screaming, “Netflix is a big media company, not a tech company, Toby.” Didn’t you get the memo? I’m letting you know that we hear you.

Tobias: I think that’s a fair enough point to make that all of those companies, they’re all thrown under tech at the moment and they really the vast–crosstalk]

Bill: Sort of all media. Well, Google, Facebook, Netflix– [crosstalk]

Tobias: Microsoft’s not–

Bill: Yeah. [crosstalk]

Tobias: That’s true. What’s Microsoft really leveraged to? Is it the business? Are people going to get rid of it Excel licenses when the market dips?

Bill: No, Microsoft is arguably my favorite business. Mostly because I think– [crosstalk] Well, no, well, that too. How many enterprises can you really tear Microsoft out of? I think they’re pretty ingrained in a lot of people’s workflows.

Tobias: [crosstalk]

Jake: Microsoft is really good at selling to corporate America.

Bill: Yeah. Oh, yeah.

Jake: That’s not to be underestimated.

Bill: I’ll tell you what Monster and Microsoft is LinkedIn.

Jake: Yeah.

Bill: Why, I have no idea? But it is a beast. Though, make no sense.

Michael Burry Shorts $AAPL

Tobias: Burry’s Short Apple?

Bill: Who is?

Tobias: Mike Burry.

Bill: Oh. Got to be an easier short out there than Apple.

Tobias: Yeah, I don’t know if I’d be. I don’t know it’s going to be shorting.

Bill: Fine. I get it. Smart, fine.

Tobias: To hedge the rest of your book?

Bill: Yeah, I don’t know. It just seems like–

Jake: That’s got to be cheaper and easier to just like short the S&P 500– [crosstalk]

Tobias: Yeah.

Bill: Write or something. I don’t know.

Jake: What if he is really long Berkshire and then that’s a little stuff–? [crosstalk]

Tobias: Just hedging out the Apple.

Jake: Maybe.

Bill: Yeah.

Jake: That might make some sense.

Bill: That would make a little bit of sense to me. I could dig that, but just straight up saying, this is the company to short seems that one’s tough for me.

Jake: Yeah.

Tobias: When I look at the big tech names or the big names in the index, then that’s the one thing that makes me think that the– [crosstalk]

Jake: Oh, no.

Bill: Yeah.

Tobias: Oh, let’s give it away.

Jake: Peek behind the curtain.

Bill: [laughs]

Jake: Like the telescope.

Tobias: Yeah. The telescope still back there. Makes me think that maybe the index isn’t that expensive. I don’t know. Every other long run indicator of the index is the index is really expensive until I drill down into those top five, or six, or 10 names and I don’t think it’s too bad. But then the problem was doing– [crosstalk]

Jake: But this is the story of history, though. It’s always been businesses that were working really well-

Tobias: That’s true.

Jake: -that were indomitable, that were– [crosstalk]

Tobias: To be fair, though, it has been like Exxon. Exxon stretched to the top, whereas these are better businesses than Exxon.

Bill: Yeah. My bias is to say the index does fine. I think it’s the internals of the NASDAQ that could cause some snap.

Jake: Does that mean it’s a stock pickers market?

Tobias: [laughs]

Bill: I don’t know. I’ve been saying it forever. The index been kicking my ass. So, it’s probably just an indexers market is probably the answer.

Jake: [laughs] Oh, man.

Bill: It wins again.

Jake: [laughs]

Bill: But I don’t know. It’s probably, an ETF out there that people could find that’s better than the index. I have no idea where they would find such a thing.

Tobias: I think that those things exist. I just don’t know that it’s mattered that much. Mike Green flows thing seems to have been– I don’t personally agree with Mike’s thesis, but I do think that it is explaining what is occurring. I know that doesn’t make any sense, but I do think it’s going to be right until everybody decides no longer to flood the spy or smash the bid on the spy.

Jake: Flows before bros.

Tobias: It flows before bros, yeah.

Bill: Well, his thesis gets interesting when people stop flooding the spy. That’s when you want to have cash if you believe that stocks are actually fractional ownerships and businesses.

Tobias: That’s ongoing, right?

Jake: If it that’s a bet?

Bill: [Laughs] Yeah. Obviously, it’s all just arrayed straight. I get that.

Tobias: Well, there’s a flow. Well, the flows are to the index. It still things that are making lots of money that aren’t in the index. You don’t have to be buying them because the stock price goes up. You can’t buy them for the underlying business qualities they have. That’s still about–

Bill: That is an interesting concept. One that we should double click in next week.

Tobias: We should get into that. All right, we made it, fellas.

Jake: Oof. Drop something, Bill.

Tobias: Slid in over the line.

Bill: Oh, wait. No. No, I don’t know what we are looking at. [applause] There we go.

Jake: Yay, there it is. We got some work to do on our starboard.

Bill: I’ll have to label these.

Jake: [laughs]

Bill: Yeah, my bad.

Tobias: We did it. Thanks, amigos. We’ll see you next week.

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