In their latest episode of the VALUE: After Hours Podcast, Bill Brewster Jake Taylor, and Tobias Carlisle discuss:
- Musk Can’t Just Walk Away From Twitter
- Some Crazy Stats On The Biggest Hurdles To Clean Energy
- Will Buffett Take OXY Private?
- Waiting For Low Valuations And Buybacks
- The Fed’s Soft Landing
- Forget About Price Targets
- Will We Get A Lehman Moment?
- U.S Bonds Still Appealing
- Economy Likely To Be Murdered By The Fed
- Banks Are Pretty Safe
- Are We Talking Ourselves Into A Recession?
- PepsiCo – Sugar Is One Hell Of A Drug
- Vibe Momentum
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: Preparing to stream. We are live. It is 10:30 AM.
Jake: No.
Tobias: No. it’s not. It’s 11 AM on the West Coast, it’s 2 PM, on the East Coast. This is Value: After Hours. We’re back after taking July 4th off or July 5th, I guess, it was. Here with Jake Taylor and Bill Brewster as always, what’s happening, fellas?
Jake: It’s good to be back. Missed you, guys.
Bill: Yeah, we had a week off. Didn’t we?
Tobias: Haven’t done that for a little while?
Jake: Yeah.
Bill: I’m going to be gone, I think for the next two weeks. I’m pretty sure but I don’t know.
Jake: [laughs]
Bill: I’d be driving around. I don’t really know my schedule, but I will follow up. But I will miss you if that is the case. [crosstalk]
Tobias: Santa Monica, California, whoa locals, Chapel Hill. Brad Schultz, what’s up? So, how’s everybody’s portfolios? Everybody having a spectacular 2022?
Jake: [laughs]
Bill: Yeah. It’s not at zero yet. It’s going there, but it’s not there yet.
Tobias: [laughs] Ah, I’d checking on some of those positions.
Jake: Nowhere to hide.
Tobias: Everything’s getting cheaper. Oof.
Jake: It turns out cash wasn’t trash.
Jake: [laughs] You always say that.
Tobias: Oh, I’ve got Finland. Yeah.
Jake: Somehow.
Tobias: Well, the cash isn’t trash, but it buys 8.5% less than it did the year before.
Jake: True.
Bill: Oh, it buys lot more stocks.
Tobias: It’s relative information.
Jake: Yeah.
Bill: It buys a lot more stocks.
Jake: It buys 8.5% less of groceries, probably more, but it buys 22% more S&P 500 than it did.
Tobias: I think we’ve got someone just reminded– We’ve got a CPI print. Is it tomorrow or this afternoon or something like that? No. who cares, the White House is already saying, it’s going to be a bad one.
Jake: Really?
Tobias: Put on your crash helmets for tomorrow?
Jake: [laughs] Oh. I thought that commodities had all rolled over and we were heading back down.
Tobias: Versus June, I guess.
Jake: Oh, okay.
Tobias: They’re talking about maybe since the start of July.
Bill: Lagging.
Tobias: I don’t know.
Bill: Lagging data.
Jake: Got it.
Bill: Yeah.
Jake: Something I don’t look at that stuff that much. Otherwise, I’d be really confused. [laughs]
Tobias: I just had a look at the sector breakdown of what’s been working this year and–
Jake: It just shows like a bunch of [unintelligible [00:02:22].
Tobias: [laughs] Yeah, I think. Yeah, it was just big skull and crossbones.
Jake: Yeah.
Tobias: The only thing that was there that was working was Energy and how’s Energy doing last few weeks?
Jake: Not going to work.
[laughter]Tobias: Oh, this is a tough market.
Bill: Well, to all the people that said last year, the economy can be okay and the market can get screwed. I think that they are being proved pretty correct.
Jake: Mm. Did you say that? I think you might have said that.
Bill: Nah, I was not. People may have popped into my DMs and told me that. I may have ripped it from them, but I was– [crosstalk]
Tobias: Would you characterize the economy as being in good shape?
Bill: Fuck yes.
Tobias: Really?
Jake: [laughs]
Bill: Yes.
Tobias: I think we are going to find out.
Bill: Jobs, higher. Wages, higher for the first time.
Tobias: Nominal or real?
Jake: [laughs]
Bill: Dude, look, if people are employed and they’re making more money, I don’t know what people want. We’ll see in two to three years whether or not all these scares. I’ll tell you what, I’m still in team transitory. We’ll see.
Tobias: I think we’re going to find out that we’re already in a recession in a few. Whenever they look back, I don’t know how long the look back period is but–
Bill: But off what base?
Jake: [laughs]
Economy Likely To Be Murdered By The Fed
Bill: If you just shoot all that money into the economy and then the economy slows down or enters a technical recession, [crosstalk] is this really the end of the world here or is Wall Street just freaking out because their stocks are down? I don’t know. I think it’s probably close to the latter.
Tobias: Somebody said that this is likely to be an economy that’s murdered by the Fed, because inflation is going to get away. There’re a few little charts going around that show that ordinarily the Fed would get to this point and start backing off, but they can’t because inflation is still so high. If it’s transitory if it comes back, then that might change that analysis.
Bill: We’ll all find out. I think we’ve been extremely shitty at predicting anything since COVID started and I continue to think we’re shitty.
Tobias: Not since COVID started.
Bill: Yeah, that’s right.
Tobias: [crosstalk] I think it runs back earlier than that.
Jake: I think everything is transitory.
Bill: Well, on a long enough time horizon, life is– [crosstalk] I agree.
Tobias: Oh, life is– [crosstalk] Yeah, heaped at the universe. Yeah.
Jake: All transitory, baby.
Tobias: That’s when value’s going to start working again.
Jake: That needs to be on a t-shirt.
Bill: I do think higher for longer after this. It does make some sense. So, maybe I don’t actually believe in transitory like I say I do, but– [crosstalk]
Jake: Higher what? Rates?
Bill: No, I think that there’s a reasonable argument to be made that when commodity companies on average were able to shore up their balance sheets like they were, there’s just less incentive to sell at prices at– [crosstalk]
Jake: You mean like all those gas station operators? [laughs]
Bill: Yeah, well, those has guys– [crosstalk].
Jake: Printing money. [laughs]
Bill: Yeah, those guys are.
Tobias: Where are the gas station owners’ yachts?
Jake: Oh.
Bill: I guess what I really think is I think if you look at surveys of how the economy is doing, no matter what, if a Democrats in office, Republicans bitch, if Republicans in office, Democrats bitch. It happens all the time. Wall Street, I would assume on average leans Republicans. So, by definition, I don’t think Wall Street is the person to ask about the economy. Then I think Democrats are like, “This guy might be senile.” So, they’re not super amped about things, plus, they probably don’t get enough liberal policies because they’re getting blocked. So, they’re probably set with that. And then, you got the independence that are reading about inflation all the time. They’re freaking out. So, I think– [crosstalk]
Are We Talking Ourselves Into A Recession?
Tobias: Dude, there seems to be this idea that I see circulating around Twitter that like, you just talk yourself in a recession. There’s no thing that happens– [crosstalk]
Jake: Nothing to fear, but fear itself.
Tobias: Yeah.
Bill: A vibe session is what it’s been referred to, I believe.
Tobias: Yeah.
Jake: Vibe session.
Tobias: What do you think of that?
Bill: I believe in reflexivity,
Tobias: It that, that mean, yes?
Bill: Well, yeah. I think yes. I think collective groupthink can create a recession.
Jake: Yeah, but it also pushes the other way, too. These are just natural things. It’s almost as if you should just let the system find its own equilibrium.
Tobias: [laughs] That kind of talk won’t get you elected to any-
Jake: No.
Tobias: -Federal Reserve boards, anyway? You never going to Davos thinking like that, mate.
Jake: No, that’s not a Davos kind of interventionist mentality.
Bill: Yeah.
Jake: Interventionista. [laughs]
Bill: I don’t know. I think they’re doing the right thing.
Tobias: [crosstalk]
Bill: [crosstalk] real rates. Real estate was going to fucking go nuts. You got to slow it down.
Jake: No, no.
Tobias: Going to. Yeah.
Jake: Yeah. [chuckles]
Bill: Well, that’s what I’m saying. So, I think they had to raise rates. I’m glad they did. So, now we get the joy of everybody discounting everything at 1% going to wherever people are discounting it now.
Jake: 1.5? I don’t know what’s that. [laughs] Three, what’s–
PepsiCO – Sugar Is One Hell Of A Drug
Bill: Pepsi, good results out of Pepsi, right? Top line up 11%. American Airlines, world’s shittiest air carrier.
Jake: [laughs] World?
Bill: Terrible at operation. Terrible.
Tobias: There’s a lot of competition there.
Bill: Yeah, but in the US, they take the cake.
Tobias: I saw Jim Shannon said about those Pepsi earnings that they’d sold 1% more unit volume and that was 11%, whatever the difference is price.
Jake: All price take.
Tobias: On a real basis that’s negative, something else.
Bill: I don’t know that maybe we’re at 12% inflation, but I think the point is, they can raise price 11% and not have volumes fall.
Tobias: I’ve got an interesting– [crosstalk]
Bill: I think that’s interesting.
Jake: It figures a hell of a drug.
Bill: [chuckles] Yeah, it is.
—
Tobias: Just to go back to the Energy as a part of the economy. In 2010, Exxon Mobil was still the biggest company by market cap in the States or in the world rather, sorry, in the States. And then, it just disappears from the list by 2020.
Bill: Got to go. Kramer said, you can’t buy oil.
Jake: Uninvestable.
Tobias: Oh, really? Still?
Jake: I don’t know.
Bill: No, no, he says, oil’s going to-
Jake: No, it’s hot– [crosstalk]
Tobias: Now, I want to go load the boat. I think he said he’s going to fall back and then take off, something like that. So, now, you know what’s not going to happen.
Bill: I’m really pissed. I’m really sad.
Jake: Fear long energy like, “Please, Kramer, no.” [laughs]
Vibe Momentum
Bill: I’m telling you there’s a clip. Unless my mind is really misremembering, but I do not think it is. There’s a clip where he said– I’m pretty sure I talked about it on Value: After Hours.” It was 2020 and we were just starting to reopen sports again and he was like, “You got to buy DraftKings. No one’s buying it, because of the earnings, you got to buy it.” It’s just like a blatant Momo trade and I actually loved the honesty of that comment. I think he said, “No one’s buying it because of fundamentals.” I think that was the actual quote. But whatever it is, if somebody has more time than me [unintelligible [00:09:45]to looking it up twice.
Tobias: He’s a momentum investor. That’s what he’s doing.
Bill: Certainly, seems so. I don’t know the results of his charitable trust.
Tobias: Not a factor momentum. Just-
Jake: Yeah, just.
Tobias: -vibe momentum.
Jake: Vibe.
Bill: Yeah, vibe. He is definitely doing a major vibing. Yes.
Jake: I don’t remember Buffett ever saying, buy, buy, buy.
Tobias: [laughs] Yeah, Buffet didn’t get TV show either there.
Jake: That’s true.
Bill: I’ll tell you what. He’s saying that right now at Occidental. How long before he takes it private?
Jake: He need to, I don’t know.
Bill: Oh, he’s going to. Dude he is buying it as if all he wants to do is own that company. Every time, every time it hits 55 to 59. Shoutout to Francisco for putting the thought in my head, but I think he’s right.
Jake: He’s quite the industrialist.
—
Musk Can’t Just Walk Away From Twitter
Tobias: The other weird one is, is Musk over with Twitter according to him?
Bill: Now you are making me upset.
Jake: [laughs]
Tobias: Why?
Bill: Because I have been a little bit emotionally heated about this whole situation. I think some of it is– [crosstalk]
Jake: Ooh, to share.
Bill: I know a couple people over there and the other part of it is, I’m a little bit perturbed by people making excuses for a guy who like, I think when you look at the facts that actually happened, it’s pretty obvious that him and his buddies thought that he was getting a steal. They all were like, “Oh, the Twitter board’s incompetent. You have to do this deal. How do you have the poison pill? You got to give it to Musk. These guys don’t even own shares.”
All these fucking guys out in Silicon Valley talking their shit, then they get the deal done, and then the market tanks, and then they realize that maybe they don’t understand valuation in today’s world, and then the bot thing comes out, and they’re like, “Oh, but the bots.” You’re going to tell me that Elon Musk, the world’s biggest power user of Twitter didn’t understand that there might be a bot issue?
Tobias: Yeah, that seems thin, doesn’t it?
Bill: He tweets like a crack fiend. He looks at his replies. He’s scrolling his replies. You look at his answers. He’s answering people. You’re going to tell me, he has no clue what he’s buying. He waives due diligence.
Tobias: Yeah.
Bill: He refers to it as the most seller friendly contract you can put together and now, he’s all of a sudden done? Fuck you.
Jake: You’re living by this unacquainted idea that the rule of law is still a thing. [chuckles]
Tobias: Is he trying to reach, right?
Jake: I think so.
Tobias: At a low price.
Bill: Yeah, I think so.
Jake: Sure.
Bill: That’s the only thing that makes sense to me unless– [crosstalk]
Tobias: The bid is $54.20 right now, because he’s got $4.20 in this. So, the next bids at $46.19 something like that.
Jake: $4.20.
Tobias: $42.69.
Bill: He like eight buys a company with a meme bid, because he thinks it’s funny.
Tobias: It would have been funny.
Bill: Yeah.
Tobias: I don’t know enough about the valuation, but I thought it was probably pretty good value where he got it. I thought you could run it a little bit more sensibly and it would do quite well. Monetized a little bit better. I thought it was an obvious [crosstalk].
Jake: What about the theory that–
Bill: I’ll tell you what, he’s still got a lot of chances too. Because there’s a specific performance part of that document and I would a 100% be asking for that to be enforced.
Jake: What about the theory that it was just he wanted to unload some Tesla shares?
Bill: Yeah, I don’t know.
Tobias: I see that too, but jeez, that’s a lot of effort to make it safe. Would you negotiate a bit harder?
Jake: Let’s get into this crazy deal.
Tobias: Would you negotiate that deal a bit harder and make it–? I think he’s got a billion-dollar breakthrough and he’s sold like billion dollars in Tesla stock.
Bill: Yeah, but the break fee, I’m pretty sure that was a billion dollars. I’m pretty sure that that was contingent upon financing, which has been fully secured. Now, what I don’t know and if a lawyer is listening, please hit me up, even though I know it won’t be legal advice. I don’t know if the funding commitments of the lenders, like, let’s say that this becomes a long litigation, which I don’t think it will, but let’s say it does. Does that get the lenders off the hook? If the lenders are off the hook, then is Elon off the hook?
I think with Twitter responding yesterday and saying like, “No, we’re still going to seek specific performance, and neither you or your lenders are off the hook.” I assume you have to serve them properly, but I would imagine that it stays the commitments, but I don’t know.
Twitter Bots
Tobias: Corey Hoffstein’s got a good line here. He said, “I like Matt Levine’s take: the more bots there are, the more undervalued Twitter is, because the earnings per user are higher than expected and there is more room for penetration!”
Bill: [laughs]
Jake: There you go.
Bill: Then you get into this, well, what if he just doesn’t listen to the court? What world are we living in right now? If we’re living in a world where Elon Musk can honestly just disobey a court order with funds actually secured–
Jake: You mean Twitter center and all the other stuff that’s been disobeyed?
Bill: Look, I’m just saying, if the Delaware court says, you have to have specific performance here and he just says, no, and that’s okay, the entire stock market should rerate, I don’t know, 20%, 30% downwards. [crosstalk]
Tobias: He can’t ignore it, he can’t ignore it. It’s too much money. But that doesn’t discount some negotiated outcome. That’s probably more likely outcome.
Bill: Yeah, no doubt.
Tobias: If he does want it, then it gets done under lower price.
Bill: If I were them, I would not be in a real hurry to do that. A judge would really have to push me. It reminds me of– Now, I told this story on a Space. So, if you’re tuned into this Space, forgive me. But there was this woman when we were buying this house. My wife was pregnant and this tree falls on the house. The 70 grand of damage, okay? Now,
I’m out an oak tree, which is 100 years old and an integral part of the property and $70,000 damage. This woman says to me, “You’re going to have to close on the house” and the damage is immaterial. I was like, “Fuck that. We’re going to court.” We were negotiating over the escrow stuff. And her first settlement offer to me she’s like, “We’re going to keep 80% and you get 20% of the escrow money back, because you’re clearly in bad faith.”
The people around town were like, “I wouldn’t fight her, she’s got deep pockets, she has this building in San Fran that funds her whole life,” and she’s like, “This crazy woman that runs around town bitching at everybody.” She’s the type of person that she bought a ski vacation at the kids’ school at a fundraiser and then said that the accommodations were not nice enough, so, she put the ski vacation back to the school and didn’t pay for it. That’s the kind of woman that– [crosstalk]
Jake: No way.
Bill: Yeah. I was like, “All right, fine. Let’s go to court.” I sat there in front of the judge, and I showed him the pictures of the damage, and I showed him the picture of the house, and the guy that was married to her finally had to get on a plane, and come to the court, and start to actually incur pain in his life. I said the judge, I said, “I’m here for one day to actually get to a good face settlement. After that, we’re going to court.” I said, I want these people to actually argue to a jury that $70,000 is immaterial and I’ll take it the whole way.
I don’t care.” We ended up settling that day and I got 80% back and they got 20%. So, I just think you got to bury him in discovery and make him, you got to inflict as much pain as humanly possible on him, make it such a pain in his ass, and ultimately, with the specific performance clause, he’s only killing something that he may have to own. So, we’ll see. Those are my thoughts. Anyway, I’m very annoyed at the whole thing. He really bothers me and meanwhile, he’s having twins from some executive at his company like– I don’t know, I know this guy is God to some, fuck this guy.
Jake: [laughs]
Bill: Anyway, that’s how I really feel.
Jake: He’s doing his part to repopulate the earth.
Bill: Yeah.
Tobias: How many kids has he got?
Bill: Nine. If he was an NFL player, people would be making so much fun of them and they still are. But it’s just disgusting.
Tobias: Ah, he can afford it.
Bill: I guess.
Jake: [laughs]
Tobias: I’m tapped out at three.
Jake: Yeah. [laughs]
Bill: I don’t know. I don’t know him for real, but from the outside I don’t like what I see.
Tobias: Should do a little palate cleanser?
Bill: Yes, you are very worked up.
Tobias: Yeah. [laughs] You got some veggies for us?
—
Some Crazy Stats On The Biggest Hurdles To Clean Energy
Jake: I do. Well, I’ll try to move quickly since I know our time is of the essence. I started reading this book called How the World Really Works. It’s by Vaclav Smil, who is Bill Gates’ favorite author. This guy’s a professor and he writes just all of these kinds of material science, and just historical analyses of how did humans carve out the niche that they have? This one is like a layman’s version.
Some of the other ones are super down in the weeds. This one is as well, probably by most people’s standards, but there’re so many good little data points in there that I thought I would pull some out and share with you, and I might even actually turn this into a multiple segment type of thing.
Jake: But this first one is specifically on understanding energy. Given what’s been happening in the world, it’s an interesting to go back and look at the full sweep of energy and what it means for humanity.
Several 100,000 years ago, something resembling a human mastered the first use of what we called extrasomatic energy, which is basically external to one’s body and that was when we figured out fire. Basically, we took chemical energy from plants and wood, and turned it into light and thermal energy, and allowed us to digest food, and keep us warm, and scare off predators.
That was the first real energy capture where this book starts. And then, we had a long time where nothing really happened. Much later, you get the first inanimate prime mover. We got sails about 5,000 years ago, we got waterwheels about 2,000 years ago, and we got windmills about 1,000 years ago. And then nothing much happens until about the year 1,500. So, 500 years ago and at that point, 90% of all useful mechanical energy is provided by animate power basically humans and animals, and it’s split like 50/50.
Bill: So, power is the podcast.
Jake: Yeah.
Bill: They wrote it.
Tobias: [crosstalk] mouse.
[laughter]Jake: A little mouse on the thing. [laughs] At that point, all thermal energy came from the combustion of plant fuels, basically, wood and charcoal. And then in England in the 1600s, discovers coal. And by 1650, they’re burning fossil carbon, which is supplied about two-thirds of all of their heat, but it isn’t widespread at all. It’s only in England. But then fast forward 200 years, by 1850, coal in Europe and in North America is now supplying only about 7% of all the fuel energy and half of all the useful energy, kinetic energy still coming from animals like draught animals, and then 40% from human muscles. It’s almost as if the world of 1850 looks more like the world of 1600 than it does the year 2000 when it comes to energy usage.
Then the world really starts to catch on and by 1900, inanimate power, so non-animal, non-human, like steam engines, they’re supplying half of all of the mechanical energy. By 1950, now, fossil fuels are supplying three quarters of the primary energy. So, gasoline, just diesel internal combustion engines were basically at 80% of all mechanical energy. At this point, by the year 2000, pretty much only poor people in low-income countries are depending on biomass fuels like wooden straw, and animals and humans are supplying less than 5% of the mechanical energy that makes our modern world.
Smil’s calculations show that there was a 60% increase in the use of fossil fuels in the 19th century, and then 16 times gain during the 20th century. All total, it’s about a 1,500-fold increase in the last 220 years. Basically, modern civilization is built on fossil fuels. That’s the takeaway. It’s even more compelling when you look at it in per capita terms. The global population in 1800 was about a billion people, in 1900, it was about 1.6 billion in 2000, it was 6.1 billion. We had this huge population explosion. The supply of useful energy rose from basically five hundreds of a gigajoule per capita to in 1800 to then 2.72, to then 28 in year 2000, and now, it’s about 34.
Bill: Wait, can you do that once more? Sorry. I am listening. I got lost on the gigajoules.
Jake: Yeah. Almost like rounds to zero gigajoules in 1800 per capita, 2.7 in 1900, and then 28 in the year 2000, and now, it’s about 34. And the last 20 years, the reason it went from 28 to 34 was really China took off as far as energy usage per capita.
Tobias: [unintelligible [00:24:09] roadblocks.
Jake: [laughs] Yeah. The average inhabitant of Earth today has at their disposal nearly 700 times more useful energy than their ancestors had in 1800. What does 34 gigajoules per capita look like? That’s roughly the equivalent of per year of 800 kilograms of crude oil, which is about six barrels or one and a half tons of coal. Per person on Earth, that’s what the energy looks like.
When you look at it from the physical labor of an adult standpoint, the equivalent is about 60 adults working nonstop day and night for the average person now. And for a rich country where we live, the numbers are more like 200 to 240 adults worth of energy working nonstop for you.
So, that’s why our whole world is like– If you’re living in a relatively affluent society, it’s the energy that’s basically replaced 200 people working on your behalf nonstop. And so, this has this really nice quote. “Our civilization is so deeply reliant on fossil fuels that the next transition will take much longer than most people think.” I’m going to skip this.
Bill: This is why Buffett is going to buy Occidental, by the way.
Jake: I think is, Charlie knows this. I’ve heard it him talk about it and there’s quotes from him saying that it’s going to take a long time to transition and that’s okay. I think he totally knows this and I think that this is why he’s buying OXY hand over fist right now, I think. This is also why I get a little bit perturbed like you do about Elon with the super green like we have to get everyone off of fossil fuels. It’s untenable. The world today, how you live, it doesn’t work without fossil fuels at the moment. Even something like answering the question, could batteries replace jet fuel for instance. That’s a reasonable thing. Maybe someday, but we have so far to go and here’s why.
Jet fuel has an energy density of 46 megajoules per kilogram, which if you translate that it’s 12,000-watt hours per kilogram. The best lithium-ion batteries today supply less than 300. You’re looking at 12,000 versus 300. That’s a 40-fold difference. You’d have to have batteries get 40 times better, basically to have the same level of energy density as jet fuel does. That’s physically so far to get from point A to point B. In the last 30 years, battery densities tripled. So, even if it tripled again in the next 30 years, by 2050, we’re still not even close.
Bill: You are not thinking exponentially enough, dude. You got to triple it every year from here on out.
Jake: [laughs] That’s true. Even if we just look at the total mass of all the fossil fuels– By the way, it’s increased 45% over the last 20 years, mostly from China. The annual demand for fossil carbon, just all of it added up into a big pile is about 10 billion tons per year. That’s five times as much as the annual harvest of all the grains on Earth and it’s two times the mass of all the water that we as humans drink and use in a year.
Just even if you’re thinking about, like, you look at the Earth and zoom out from space and look at it and say, “Oh, well, they’re using 10 billion tons of whatever X is.” How do you replace that? It’s a really, really difficult problem to solve. Anything that would be a rapid substitution is basically, totally goes against any engineering or economic reality. This is even– [crosstalk]
Tobias: What about nuclear?
Jake: Yeah, nuclear definitely should be a huge part of the equation. It has– [crosstalk]
Bill: But what about the meltdowns, dude?
Jake: Those almost never happened.
Tobias: They’ve solved their problem.
Bill: No. We’re arguing against the boogeyman. It’s like trying to disprove the recession’s not here.
Jake: Yeah. Look at France versus Germany like what’s happened? France has a lot of nuclear power and is in a much better shape than– Just to give you a sense of how reliable these things are. Nuclear energy is one of the most reliable producers. Its uptimes are 90% to 95%. When it’s on and it’s always on. For comparison, even the best offshore wind units, they are on about 45% of the time. The best photo voltaic is 25% of the time. And Germany with where they are like their latitude, their uptime is about 12…
Bill: Geez. Well, yeah, good news.
Tobias: I had to mute you, JT.
Bill: We don’t even what– He is still going on.
Tobias: His voice is gone.
Bill: He has no idea.
Tobias: He can’t yours.
Bill: Oh, JT, you got to sign off and come back on.
Tobias: There’s something happening with your audio, JT.
Bill: The fucking powers that be silenced him, man.
Tobias: [laughs]
Bill: That’s messed up.
Bill: It’s back.
Tobias: Oh, it’s still going.
Bill: Cut it, Jake…
Bill: Oh, my God, mute him. You got to kick him out of the room man and come back.
Tobias: Ah, something that wasn’t good.
Bill: Tell him to come back. That was good.
Bill: Did you see what Jamie Dimon said. Jake, if you’re listening, the issue is that it just keeps saying 12, 12, 12, 12, 12 over and over again.
Tobias: [laughs]
Bill: It’s really shitty DJ Khaled mix.
Tobias: [laughs]
Bill: Jamie Dimon was like, “The problem is, if you push the coal industry or if you push the oil industry to not invest at all, what you’re going to have is a lot of these emerging markets. They’re just going to go to coal.” They don’t have the luxury of saying, “Oh, we’ll just build out like a really high cost energy grid that is not reliable.” They need power.
Tobias: I think the other problem is that oil is used for other things besides electricity and power, too. It’s in everything.
Bill: Yeah.
Tobias: It’s in plastic. So, it’s in everything. I don’t know the solution– [crosstalk]
Bill: Plastic, Jamie. Ah, my buddy– [crosstalk]
Tobias: He was right.
Bill: Yeah, that’s right. My buddy who’s a gas blender, he said, what keeps him up at night is the government mandating higher mileage per gallon like just getting the whole fleet more efficient. He’s like, “I don’t worry too much about the transition to electric,” which I thought was an interesting take.
Tobias: There he is.
Jake: What happened? Did I get into the Matrix?
Tobias: Yeah.
Bill: Dude, the powers that be silenced you.
Jake: I know, she shut me down mid-sentence, huh?
Bill: From the ocean.
Tobias: How dare you?
Jake: Oh, man.
Bill: Yeah. How dare you.
[laughter]Jake: Right. Well, that’s okay. My diatribe was probably I lost half of it. I was probably talking for an hour before I knew I was cut off. That’s fine.
Bill: No, you did well. I think the TL couldn’t listen is, oil is pretty important.
Jake: It’s important. Yeah, that’s right.
—
Will Buffett Take OXY Private?
Tobias: Buffett is buying OXY hand over fist and he’s clearly a pretty good investor.
Jake: [laughs]
Tobias: And he’s been through a few of these before. He’s had some good experience with oil– Has he ever whiffed on it?
Bill: Yeah, he has. You ask why I think he would benefit from having it private or– I don’t know, if he can exert the same amount of control over production and capital allocation if it’s public and he’s a big-time shareholder. Whereas if he actually truly controls it– Charlie has been talking about for years. I wish that we would just slow production here and preserve our own barrels. If it’s private, you can actually do that.
Tobias: But that’s a national thing, isn’t it, rather than a company specific?
Bill: Yeah, but if you’re the one that owns the barrels at the end, make it rain, baby.
Tobias: I think Charlie’s idea was that we can send all the cash we want overseas. We can send them the paper and bring in the energy.
Bill: Yeah.
Tobias: And then, we’ll be the only ones with energy left at the end of the–
Bill: Then they’ll be holding worthless paper suckers.
[laughter]Tobias: It seems to be less–
Jake: It’s joke, but it’s kind of–
Bill: I know.
—
U.S Bonds Still Appealing
Tobias: I’m surprised there’s as much demand for the series, honestly.
Bill: What, the dollars?
Tobias: Yeah. Well, the treasuries that although, I do think that China and Russia have stepped back a fair bit from that.
Bill: Yes, they seemed to be– [crosstalk]
Jake: If anytime that you can get paper with a 2% or 3% on it, when they’re running trillion dollar deficits, you got to pull the trigger. [laughs]
Tobias: 2% and an 8% inflation, well.
Jake: Yeah. Back up the truck.
Bill: Yeah, that’s right. Go for the century bond.
Jake: I don’t know why we didn’t do that when rates were at zero.
Bill: Yes. That is a little bit upsetting.
Jake: Totally [crosstalk] bot like fix the roads, build all the dams, whatever. We could have done a lot of productive stuff.
Bill: Yeah. With an administration that allegedly understood debt.
Jake: [laughs]
Tobias: Getting into it.
Bill: Yeah.
Jake: Not so much paying it off.
Bill: Yeah, but they’re good at restructuring.
Tobias: Restructuring is a big part of it. Yeah.
Jake: That’s as good as money, sir.
Bill: [laughs]
—
Waiting For Low Valuations And Buybacks
Tobias: This general stock market malaise that we’re in– You’re usually pretty optimistic.
Bill: Going to zero.
Tobias: This is my optimistic take.
Jake: [laughs] Yeah. That’s [unintelligible [00:34:01] take.
Tobias: My optimistic take is that we’re done by the end of Q3 beginning of Q4. That’s what I’ve been saying for a little while, because I thought from the February 2021 top, which is what I’m imagining actually occurred, not the January 2022 top. That would be roll forward 18 months gets us to end of Q3-
Jake: October.
Tobias: -beginning of Q4.
Jake: Always the dangerous time, right?
Tobias: Yeah, it’s not a good date, is it?
Bill: Hmm. I’m not optimistic.
Jake: [laughs]
Bill: I’m just not.
Jake: You think lower for longer?
Bill: I think if you want to be fairly confident in the companies that you own performing moderately well, you got to have low valuations of buybacks.
Jake: Ooh.
Bill: I think betting on liquidity support here is a tough bet. It will probably come back at some point and some of these beaten-up things will no doubt rip, but I don’t know how long it’s going to be.
Jake: You have been reading my July report before I wrote it?
Bill: I have not.
Jake: Oh, okay.
Tobias: Yeah, I like cheap and buybacks. I know that it’s very past. Maybe it’s becoming more fashionable. But all this long-term like Shiller Cape, whatever, it doesn’t matter which one you choose Tobin’s Q or Buffett’s one. They also are very, very valid.
Jake: Still?
Tobias: Yeah, still. The corollary to that overvaluation if you prefer not to have those terms is that it’s just a lower return like where you buy now, you have a return string that comes out at a market level analysis. It breaks down a little bit when you’ve got companies like Google, and Microsoft, and all those companies being top of the index, because they earn so much on so little assets.
Bill: Tell you what, FX is going to be a bitch this quarter. The dollar has been strong.
Tobias: So strong.
Jake: Yeah, I’ll be interested to see what–
Bill: I don’t know how it looks, but–
Jake: What looks like actual made profit margins in a way.
Bill: Yeah, I think I may be very surprised to see what comes back. I’d be like, “Oh, I knew multinationals are fun to own when things are stable, but now, not so much.”
Jake: The dollar sucks. I need to be earning another currencies.
Tobias: [laughs]
Bill: That’s right.
—
Will We Get A Lehman Moment?
Tobias: The weird thing has been that though, we’ve had this– Chinese water torture all year long that just dripped lower, but we still really haven’t seen any fear. We haven’t seen that. Value Stock Geek says, “Need the VIX over 30.” That’s what I think. There’s no panic. There’s been no blog. We’ve seen lots of crypto blow ups. Crypto–
Bill: You know Greed was real low for a minute. We were at extreme fear for a while.
Tobias: Yeah. We haven’t had that Lehman moment yet.
Jake: No.
Bill: I don’t know that we get there this time. Maybe.
Tobias: Call down the thunder mate.
Jake: Yeah. That’s the word.
Tobias: I think it’s inevitable. There’s just strain underneath that you don’t see until it blows up.
Bill: Yeah, maybe.
Tobias: But crypto hedge fund, three hours, the list goes missing.
Bill: No crypto.
Tobias: If you’ve got the keys to this–
Bill: What does Choffstein think. Choffstein knows more about crypto than we’ll ever know.
Tobias: [laughs] I don’t know. What is it that makes up something systemic? It’s weird to me that there’s some– The crypto seems to be quite a lot of money in there and there’ve been three very high-profile blobs and nothing sort of–
Jake: Wasn’t that always one of the question marks was how much cross correlation, and cross ownership, and cross leverage is baked into that whole pie?
Tobias: There must be some.
Jake: Well, I think we’re seeing that. That’s where contagion comes from is counterparties not coming up with liquidity when you demand it.
Tobias: Usually, there’d some bank by now going down, but I guess, the banks have– Because they were unable to get into it, they’ve avoided it all.
Jake: Yeah.
Banks Are Pretty Safe
Bill: Yeah, I think the banks are pretty safe.
Tobias: So, where does it come from?
Jake: The leverage.
Tobias: Keith Harmon says, “Tether would be systemic.” Yeah, the leverage, just general leverage.
Jake: Let’s say, you’re the average person and you didn’t get into crypto, which probably, I don’t know what the percentage penetration is for the average populace pf that bought some crypto. But let’s say it really all wiped out. Let’s say tether win. Does the average person even notice in their day-to-day life that went away?
Bill: No.
Tobias: Does the average person notice what the stock market, does they?
Bill: Probably not.
Jake: No, but they notice [crosstalk] housing.
Bill: [crosstalk]
Jake: Everyone noticed that one.
Tobias: Housing for sure. Yeah.
Bill: Yeah.
Tobias: On that basis everybody’s feeling pretty good, it’s been a good 18 months for housing, at least.
Bill: Yeah, I don’t think you’ll see as many refies like he locks to spend. Spending will slow. So, I can talk myself into the recession thing. I just don’t know how bad it is. We’ll see.
Jake: You just told me the economy’s ripping.
Bill: I said it’s pretty good.
Jake: 40 minutes ago. [laughs]
Bill: Said, it’s pretty good.
Jake: Pretty, pretty, pretty good.
Bill: I’m not going to say–
—
The Fed’s Soft Landing
Tobias: We got a technical recession, didn’t we? Two quarters of negative growth or whatever–
Bill: I don’t think we did yet.
Tobias: Oh, we haven’t seen that. I thought we did get that.
Bill: No, I don’t think we have yet. I think we’re working on it.
[laughter]Tobias: We’ve got our best minds out.
Jake: Yeah.
Bill: Yeah.
Jake: We’re going to figure out how to get it.
Tobias: All the dudes at the Fed trying to figure it out. Can’t find a bubble.
Jake: They’re just googling soft landing.
Tobias: [laughs] Yeah, always links go back to the Fed.
Jake: Yeah, what does this mean?
Tobias: It’s coming from inside the building.
Jake: Yeah.
Bill: [laughs] Circular reference, sir.
Jake: Yeah.
Tobias: “No recession in 2022.”
Jake: What about earnings recession? Was that going to mean for your stock market?
Tobias: I think there’s probably some earnings recession coming, either from the dollar or from– You think it’s here?
Bill: I think the stock market is telling you it’s coming.
Tobias: Yeah.
Bill: People are going to be like, “Why estimates haven’t come down?” Well, I think we’ve all been around long enough to know the sell sides later than the stock market.
Jake: Yeah. Those guys have a tendency to change their price targets a little after the horse has left the barn.
Bill: Yeah.
—
Forget About Price Targets
Tobias: His price targets are funny, aren’t they? I don’t–
Bill: Can’t look at the price target.
Jake: Is that anyone drive off of that or is that literally just a total societal waste?
Tobias: I think it’s for people who are retail who aren’t paying any attention at all. When they call their broker, “Why am I in this thing” that he can send them the price target written by the research, the egg heads in the back of the bank.
Jake: Okay.
Tobias: This is what the smart guys think.
Jake: They just cover for sales material.
Bill: Yeah. And the higher it is relative to current price, the stronger the buyers who actually cares if the price target is accurate.
Tobias: The more likely you are to get underwriting.
Bill: Yeah.
Tobias: I might be a little bit cynical about that. I know lots of guys sell side, who do a really good job.
Bill: Well, I think they do fantastic work when they’re talking about describing the company, and describing what’s going on, and all that. I think the price target stuff is– I don’t know. Simeon Siegel, he was on my pod and I think what he would argue is, he’s taking a longer view and price target’s a short-term thing. So, I think you would maybe argue that it’s a duration mismatch between the information he’s trying to convey and what a price target may force him to do.
Jake: Gotcha. Makes sense.
Bill: it’s a charitable interpretation.
Jake: [laughs]
Tobias: We have to finish early today folks, unfortunately. [laughs] I’ve got to get my kids from school. [laughs]
Bill: Unfortunately for you. [laughs]
Jake: Yeah. [crosstalk]
Tobias: Because I started a little bit late. But I think we’re back on time at the same time next week. Sounds like Billy is off for a couple of weeks. So, we’ll have a third somebody-
Jake: Player to be named later. [laughs]
Tobias: -in loco parentis for Billy.
Bill: A draft pick.
Tobias: A locum.
Jake: Yep.
Bill: Trrrr. That’s the bird call for somebody.
Jake: [laughs]
Tobias: That was fun. See you next week. We’ll be back at our usual time on Tuesday. Hit the button.
Jake: Oh, Billy.
Bill: Did I not? I did, right? Did it play? I don’t know how to work this thing.
Jake: We are so bad.
[laughter]Tobias: Come back for more high-quality production next week.
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