VALUE: After Hours (S04 E36): Analysts Predicting Growth, Peter Leyden Futurism, Letter to the Fed

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

  • Investors Are Extremely Bearish But Still Holding Stocks
  • The Reason Analysts Systematically Overshoot On Earnings
  • Why Has The EV/EBIT Spread Blown Out?
  • Peter Leyden – The Next Big Long Tech Boom
  • Marketing Wiz Cathie Wood’s Letter To The Fed
  • California Is The Leading Indicator Of Future Trends
  • Energy Tech, Biotech, Second Wave Infotech
  • Government Spending On Innovation
  • AI And Robots To Replace Aging Workforce
  • The Problem of Carbon Dioxide
  • Nasty Earnings Season Ahead

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 livestream the meeting. We’re there.

Jake: Oh, man, we’re early.

Tobias: It’s Value: After Hours. It is 10:30 AM on the West Coast, 1:30 PM on the East Coast. Joined as always by Bill Brewster and Jake Taylor. What’s happening, fellas?

Bill: Jake apparently is at Elton John concert. I am under construction. I don’t know, I got this weird feeling about this Twitter thing. After last week’s episode, I wish that I could put out an amendment.

Tobias: Which Twitter thing? The takeover?

Bill: Well, isn’t it odd to write a letter that says, “I propose closing under the original terms of my agreement”? But couldn’t you just close if you were serious about closing?

Tobias: You’re trying to avoid the deposition there, right? You don’t want to go to court anymore.

Bill: Maybe. Maybe you just want to buy three weeks.

Jake: For what purpose?

Bill: Who the fuck knows?

Jake: Oh, okay.

Bill: A lot can happen in three weeks.

Tobias: Didn’t the judge come back and say-

Jake: Amen.

Tobias: -it’s stayed until this particular date-

Bill: Yeah.

Tobias: -which is when it’s supposed to close. And if they don’t, then–

Bill: Then, the suit is back on. Okay, what happens if they don’t close? What has actually gone on? A letter from somebody that no one trusts was sent proposing to potentially close as long as Twitter dropped the suit. Why? Why write that letter–? [crosstalk]

Tobias: Because it was that close? Doesn’t want to get to court.

Bill: Or he wants the suit to get dropped so that you can’t bring the claim again, so you have to go after some detrimental reliance claim. I don’t know, but I’m just saying, it doesn’t make sense. If you’re serious about closing, you can always close.

Tobias: There’s back and forth on closing, there’s stuff you need to do. They need help.

Bill: Okay. But it’s an odd letter. It’s odd to say to me, I propose closing so long as the company doesn’t continue to sue me when I’m going to end up taking over the company if I close and then I can just shut the suit down. It’s just odd.

Jake: [crosstalk] answer.

Bill: Something doesn’t smell right and everybody’s really convinced of the guy that not that long ago, the market traded this merger arb at 38 bucks. And now, people all of a sudden, myself included last week, take him at his word. The fish is not in the fridge. It’s on the counter and it’s getting smelly.

Jake: So, is your arb off then?

Bill: Yeah. Well, I never really had it in size, anyway.

Jake: Okay.

Tobias: What is it trading now? It’s like 50 plus, isn’t it?

Bill: It’s like 50. Yeah.

Tobias: 50. There’s not much arb left in it, is there? It’s like 4.20. And so, it’s like 8%– [crosstalk]

Bill: Yeah, for a while.

Tobias: Whenever.

Bill: Yeah. This is when merger arb gets a little bit weird to me, because that risk reward, I don’t know.

Jake: Yeah.

Bill: [crosstalk] Yeah, I don’t find that that intriguing. Wild left tail risk.

Jake: Where they are coming from?

Tobias: Shoutout to Altamonte Springs, Teslaville, Samson, how are you, Samson? Nashville, Dubai. Townsville, Goteberg. Sorry, I don’t know how to say that. Liechtenstein, Sweden, Finland. Wow. Peru, Halifax, Katmandu. That’s cool.

Jake: Unbelievable.

Tobias: Good spread.

Jake: That is a good spread. TC, what do you got on deck?

Tobias: What are you going–? [crosstalk] So, I got a few things today. The EBIT/EV spread that Alpha Architect tracks has blown out to the widest it has ever been. It’s like two times where it was.

Jake: You just keep saying that over and over again every show. [laughs] It’s bigger than last time.

Tobias: [laughs] Yes. That’s the truth. It’s an all-time high. It’s twice. Just eyeballing, it’s twice as high as it was in December and it’s twice as high as 2000 peak and 2009 trough. So, that’s interesting. Subsequent returns from those other two were astronomical for value. I don’t know what else to say about it. It keeps on blowing up.

Jake: [laughs]

Tobias: I’ve got the new Verdad piece and some stuff on– I don’t know how to articulate this. It’s a Callum Thomas chart showing sentiment against stock allocations. If you look at any of the sentiment charts, they’re very, very bad. They’re like through 2009 bottom, which would seem to indicate there’s some bounce coming. But then, the allocation is like a household allocation. Equities is at peaks.

Jake: So, they’re not walking the talk, you are saying.

Tobias: No, people feel bad that it’s still overallocated.

Bill: Well, that’s basically me.

Jake: Super bearish, but also long with the gills. [laughs]

Bill: Yeah, but what are you going to do?

Investors Are Extremely Bearish But Still Holding Stocks

Tobias: Let’s just jump into that one really quickly, because it’s interesting since we’re talking about it. It’s from Callum Thomas. He runs Topdown Charts in Queenstown, New Zealand. Great chart. I subscribed to it.

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Jake: All the charts are upside down though, that’s the problem.

Tobias: [laughs] It’d actually be helpful if they were.

Jake: Oh, okay.

Tobias: It’s either past performance or forward returns, that’s what it’s showing. He’s compared Michigan consumer sentiment. He’s charted it against the AAII, American Association of Independent Investors stock allocation. And so, he run it back to the 1990s and they track pretty closely together. So, how people feel is how they’re positioned for the most part. And it’s a pretty tight relationship. Other than at the bottom in 2000, people were much underallocated to how they felt. But these two lines track pretty closely. Except for now, there’s a wide, wide gap between them.

The sentiment line is through the floor in 2009, which is as low as it ever got in these 30 years of data that they’ve got. Whereas the allocation, it’s kind of close to a peak. It’s off the most recent peak, but it’s comparable to where it was in 2019, the very peak, and 2000 at the very peak. So, one of those two lines is going to join the other one. Either the people are going to get very happy or allocations are going to come way down.

Jake: Well, there could be a psychological bias at play here, where people will gamble to try to avoid a loss. So, let’s say that you have a known minus 9% real return on your cash. So, you can lock that in and take a known 9% hit or you can try to gamble and get away from that loss potentially with a TINA kind of an argument. And then, you get potentially bigger losses than that, but maybe you don’t. And so, people will definitely lean towards gambling if they have a shot at avoiding a loss.

Tobias: I like that analysis. I think that TINA has turned into TARA, hasn’t it though? There are reasonable alternatives.

Jake: [laughs] There always were. [crosstalk]

Tobias: They always were reasonable alternatives. One of them is another topic of ours. But you had a good chart. You shared a chart with us about TreasuryDirect and NFTs.

Jake: Yeah. Well, there’s a tweet going around that showed the– It was just website hits to the TreasuryDirect, which is where you can go get 9% bonds if you’re a US citizen or comparing that to the NFT hits. It’s currently 2x now. People go into the treasury, then to the NFT.

Bill: It makes me think fade inflation.

Jake: Mm. It could be. Well, how do you do that? By long-duration assets?

Bill: No, if all of a sudden, everybody’s googling, “how do I get inflation linked bonds?”, and the presumption is, people are chasing heat on average, it seems to me that that’s a pretty good indicator that the public is now concerned about inflation. I think that’s probably a later in the inflation story. But I have been wrong the entire time. So, I don’t know, why you– [crosstalk]

Tobias: Do you think– [crosstalk]

Bill: But I don’t think we’re going to persist in an 8% inflation environment. And if we are, I think the underlying economy is going to fucking chug and that’s good for earnings.

Tobias: There’s no inflation on that website though? They are paying 9%. I think that’s the attraction– [crosstalk]

Bill: Well, it’s an inflation-linked security. It’s one year and then it resets. You’re not getting 9% government bond for 10 years. I’d put all my money in that.

Tobias: How do they determine the single year interest rate? Last time, it was like 7% or something.

Bill: I think it’s looking backwards at the end of the year. They calculate what it was and then they chew up your account.

Jake: I thought it was CPI plus [crosstalk] one year or something like that.

Tobias: CPI plus the one year.

Jake: I could be wrong on that, but I’m sure someone will chime in with the correct answer.

Tobias: It could be right. It’s like 4.5%, I think one year or four, something like that.

Bill: Yeah, I don’t know. I don’t know the formula.

Tobias: In any case, it’s a– [crosstalk]

Bill: The presumption is when they were searching for NFTs when it was a bubble and now, they’re searching for inflation, I don’t see how a similar logic can’t follow that maybe this is the wrong time to be thinking about inflation.

Jake: It could be. Is it actually reflexive though where when you worry about inflation, you actually bring about more inflation, because you’re going to ask for wage increases? There’s a lot of knock-on effects there that might actually perpetuate it.

Bill: Maybe.

Jake: I don’t know. I’m not so sure that it isn’t just automatically fade whatever the popular– It doesn’t necessarily just go away just because everyone believes that it’s here, right?

Bill: No, I think it would go away, because China stops zero COVID policy, Europe hits a recession, supply chains normalize, the Fed raised rates to 4.5%, the housing market slows, and your year over year data slows considerably.

Tobias: I got a couple of good comments from the hivemind here. From Brad ActuallyFinance. “Resets every 6 months, looks back at CPI + a fixed rate.” But then Kyle– [crosstalk]

Jake: All right, that’s the ballpark.

Tobias: Kyle has “Bad sentiment from inflation, but you stay allocated during inflation.” It could be right.

Bill: Yeah. Well, I don’t know. I just don’t know what you do. What’s the average household going to do? They’re going to dance in and out of the market based on their feelings? How many people are good at dancing in and out of a market?

Tobias: Very few.

Bill: Right. I think it’s actually very rational. I guess if the big crash comes, and then we reset, and then we go back up, we’ll say, “Wasn’t that obvious in hindsight?” I don’t know.

Nasty Earnings Season Ahead

Tobias: I think there’s going to be some nasty earnings coming through here from everything that I’ve read. I think we’re going to see some earnings. I don’t think that’s the consensus either. I think consensus seems to think that S&P 500 is like 203, I think last time I saw. And then in 2023, 238, which seems hard to get to.

Jake: Was that higher basically [crosstalk] in–? Okay.

Tobias: But then, some of the other ones that look at the S&P 500 earnings against various economic data seem to think that. Like Man Group one, they thought that 190 was the number, it’s a pretty– [crosstalk]

Jake: More than today.

Tobias: We’re 203. So, it’s almost a 10%.

Jake: Five.

Tobias: It’s 6, 7.5 off the top.

Jake: Mm.

Tobias: 6.5 off the top.

Bill: Yeah. What do they have for 2024 and 2025? I’m more interested in that.

Tobias: I don’t know. I got a Verdad piece, which is sort of on the accuracy of analysts predicting but I’ll save that for later. We haven’t done your– What’s your topic, JT? What do you got for today?

Jake: Yeah, I’ll tease it a little bit with– So, with all of this negativity that’s potentially flooding around, I think it would be strong of us to provide a counterbalance to that. And so– [crosstalk]

Tobias: Forward returns looking better and better.

Jake: Yeah, good point. This is a little bit of peace on optimism that comes from this guy, Peter Leyden, I believe is how he says his name, L-E-Y-D-E-N. And it’s called The Great Progression of 2025 to 2050. And so, I’ll tease with one of the quotes here. “The slow-moving pro progress story is being missed by most of the mainstream media chasing the minute-by-minute story of crisis and decline.” So, a little palate cleanser maybe. But let’s get into how bad analysts are at predicting. [laughs]

Bill: Yeah. Dude, you’re not going to get anyone to tune into your positivity.

Jake: [laughs] Everyone’s going to turn it off.

Bill: If the media industry has taught you anything, don’t come here and say anything positive. No one wants that.

Jake: I know. Well, maybe I’ll come next week with some real civilization collapse stuff.

Bill: Yeah, that’s good. That’s good.

Jake: Okay.

Bill: Earnings to 100, can’t ever own stocks.

Jake: Stocks to zero.

Bill: The world is collapsing. Global depression on the com with rip-roaring inflation guaranteed. How can anyone be long here?

Jake: [laughs]

Bill: Go to cash. But don’t go to cash because cash is trash. So, you have to own gold and bullets and guns.

Jake: Bitcoin. All right.

Tobias: Endorse.

Bill: The absolute return strategy.

Jake: [laughs]

The Reason Analysts Systematically Overshoot On Earnings

Tobias: I got a Verdad piece here. This is their most recent one. Sages of Wall Street. It’s called by Brian Chingono and Greg Obenshain. They looked at a 2001 paper, Chan et al. “Authors state that it is commonly suggested that one group of informed participants, security analysts may have some ability to predict growth over long time horizons. However, there’s little forecastability in earnings and analyst estimates tend to be overly optimistic.” So, they tested it themselves. They looked at 1997 to 2021, “Median analyst estimate for growth over two to three years across a range of metrics.” And then, they compared it to– this what I thought was kind of interesting. They looked at– [crosstalk]

Jake: GDP, right?

Tobias: Yeah. Their GDP number was quite high. I’m just trying to find how they justified that GDP number. Yeah, replaced the analysts forecasts with a naive estimate that corresponds with long-term GDP growth since 1947. So, I guess, that’s a good date to start. US GDP growth has averaged 6.3% per year on a nominal basis, including inflation of around 3.5%. Did you have any idea why it’s as high as that? That’s stock market returns.

Bill: Since when?

Tobias: ’47. That’s a good base.

Bill: Yeah. It helps to start when you bomb the entire competition.

Tobias: Just after World War II coming off a low base. Yeah. So, there’s probably a lot of front end loaded. But that’s a very high number. 6.3% and then inflation, 3.5% of that.

Bill: [crosstalk] you got the baby boom.

Tobias: Yeah. It’s much below that now. What are at now? 2% or something like that?

Bill: Yeah.

Tobias: Maybe 3%.

Bill: Ish. Sounds right.

Jake: Yeah. 3% real. I guess, that’s reasonable.

Tobias: You said 3% real?

Jake: That’s right.

Tobias: [crosstalk] 12%?

Jake: No, no, no. No, 6% nominal minus 3% inflation gets you to 3% real.

Tobias: Yeah, okay. Yes, sorry. Sorry.

Jake: Yeah.

Tobias: I thought it was 3% on top of the 9% inflation.

Jake: No, no, no, 3% real after.

Tobias: Basically, they run this. As you can imagine, the naive forecasting is by far and away the best– just using 6.3% is the best estimate. It’s still a little bit over optimistic there for that 1997 to this period. It’s missing by 4.6% over three years for EBIT. So, this is their conclusion. It turns out the naive estimate of GDP growth is much more accurate on average with a median error of being within a few percentage points of the actual outcome. On the other hand, analyst forecasts tend to overshoot the mark by 20% to 40% on average, when predicting earnings over two to three.

Jake: So, strong to quite strong? [laughs]

Tobias: When you’re doing your DCF, 6.3 whether it’s a coal company or a SaaS company.

Jake: Here’s a real question. I’m not trying to troll or anything, but do people spend a lot of time looking at analyst estimates?

Tobias: But I would have thought the analyst– I assume this is for people putting together– Yeah, this is for people putting together on estimates, I assumed. But yeah, analysts, I think so. People reads– [crosstalk]

Bill: Well, it’s a freaking consensus. It’s a sell side, right? Who gives a fuck what the sell side thinks? They have to pump their shit. I’d be more interested in– [crosstalk]

Jake: That’s what I was trying to ask– [crosstalk]

Bill: I’d be interested to see an aggregate buyside estimate. If firms would open up their books and let people actually see what they’re truly underwriting. I think that would be a more interesting study.

Jake: Ooh.

Bill: It never happened.

Tobias: You can see it employed in the prices that they pay, can you?

Bill: Oh, yeah. But I guess, you can back into it. It’d just be interesting. You might find a lot of firms don’t even estimate it.

Tobias: Yeah. So, you’re saying it’s sell side. Sell side is overestimating because they’re trying to get business on the other side.

Jake: Well, the individual companies, it’s happening at a micro level, where they are overpumping, to use Bill’s term, because they want to keep that relationship with management open and you don’t come in with a “This company sucks report,” right?

Bill: Yeah.

Jake: So, there’s just a systematic bias toward fluffing everything up to make it look better.

Bill: Yeah. And I was talking to somebody that was an ex-sell side guy. I actually liked the sell side quite a bit. But as far as the targets and the recommendations go, he was like, “That’s probably the fourth or fifth most important thing of the job.”

Jake: Oh, really? What’s more important?

Bill: Getting-

Jake: Fluffing.

Bill: -management teams to like you. I think what he would argue is the body of the report is much more important than the outcome of the report. Your [crosstalk] Yeah.

Jake: Ain’t nobody got time to read all that.

Bill: Yeah. Well, I think that said he would say. It’s more important to do that work well and then to create a good relationship on behalf of your bank.

Jake: [laughs] You guys seen that just a little picture, like meme of when someone has something really long and it just says like, “I don’t have time to read this. I’m happy for you or I’m sorry that happened.”

Bill: Yeah.


Bill: True.

Jake: Always makes me laugh. Toby, there’s probably more still in the Verdad piece, because then they break it up into deciles, if I remember from when I read it.

Tobias: Yeah. I was not going to go into that detail.

Jake: Okay.

Tobias: But it’s the ability for them to sort them into quintiles.

Jake: Quintiles, right.

Tobias: And basically, it’s chance. It’s not– [crosstalk]

Jake: I thought they did okay on the upper decile, actually.

Tobias: On revenue servicing.

Jake: Yeah. The further that they moved down the income statement, the less predictability that they ended up with. And the further that they look out in time, also, the less predictability they end up with. So, they’re better at revenue than they are net income and they’re better at next year’s estimate than they are five years out.

Tobias: Because presumably, they’re using some kind of model whether they’re projecting for the margins and things like that. What’s the average margin? Or they’re saying everything’s going to get much better over the next two years, three years.

Jake: Yeah.

Bill: So, what’s Dan really saying here? Is he really saying it’s better to buy levered companies that have to pay down debt so their equity goes up?

Jake: [laughs]

Bill: Is that the end state of the piece?

Tobias: This wasn’t Dan’s, but this just reflects– [crosstalk]

Bill: That’s got to be the firm view, right?

Jake: I think the firm view is don’t put too much into the forward predictability of these things. And maybe– [crosstalk]

Tobias: I think that’s right. That would be my view.

Bill: Yeah.

Jake: There’s not a lot of idiosyncratic talent when it comes to actually being able to make a lot of predictions about the future, I think. And I bet Dan would then say, “Therefore, a quant approach to using historical data will do better over a long period of time.”

Bill: Yeah.

Tobias: Yeah. Use things that are predictive and don’t use the things that aren’t predictive. And there’s not much that’s predictive.

Jake: Wow. That’s some Yogi Berra shit there.


Tobias: Well, the valuation seems to be– But internals of companies seem to be very hard to predict.

Jake: If it’s going to go up, buy it. But if it’s not going to go up, don’t buy it.

Tobias: And if it didn’t go up, you shouldn’t have bought it in the first place.

Jake: [laughs] Super helpful.

Tobias: All right, let’s– [crosstalk]

Bill: Send it all over to computers. A lot of people are talking about computers should do all the work.

Jake: Oh, yeah?

Bill: Well, this is the logical conclusion of most of these conversations.

Jake: The computers are coming for our jobs?

Bill: Yeah. It’s not predictable. So, turn it over to an algorithm. I don’t even think that’s wrong, especially if it’s an ETF wrapper and you’re not paying tax and things are traded in and out. It’s a massively advantaged structure.

Tobias: In a theoretical sense, that is true.

Jake: These are for taxable gains though, right? That’s where your– [crosstalk]

Tobias: [laughs]

Bill: Yeah.

Jake: [laughs]

Tobias: That’s where I– [crosstalk]

Jake: We’ve found the problem.

Why Has The EV/EBIT Spread Blown Out?

Bill: What’s the EV to EBIT spread? You said that blew out? It’s got to be cyclicals– the TTM cyclicals got to be influencing that, I think.

Jake: Yeah.

Tobias: I don’t know what the composition is, but that’s my guess that its energy overearning and not getting any recognition for it or the– [crosstalk]

Bill: Or, even lumber, right? Energy is–

Tobias: Commodities.

Bill: -invest some support. Yeah. But if you’re looking at the trailing 12 months on a lumber company, it’s going to look a lot different from the next 12.

Jake: Don’t forget that methodology that they’re using for this particular spread is– It’s basically, what the 75th stock compared to the 750th stock, I believe, of a 1500-stock universe.

Tobias: Yeah.

Jake: You’re taking the fundamentals off of one company and then comparing them off of one other company and then displaying that. So, to try to get to narrative driven as to what’s happening underneath there, it’s going to be one stock and granted like that. Where it ends up in there is going to be dictated a lot by– [crosstalk]

Bill: They do that with one stock?

Jake: Yeah.

Bill: They don’t take 10? Nobody thought, “Hey, we should do 10, not 1”?

Jake: I think it’s pretty sure that’s the methodology that’s used for Wes’ thing.

Bill: That’s crazy.

Tobias: Well, what would be the better way of doing it? Taking average?

Jake: Well, you are not cherry picking.

Bill: Well, look, Wes is super smart. So, I don’t understand something that’s going on. It seems to me– [crosstalk]

Tobias: [crosstalk] decile versus median of the universe. Median at the cheap decile versus median at the universe, because the average is skewed. I would guess the average is skewed one way or the other.

Bill: It’s just somewhat hard for me to understand– how you could do an enterprise value weighted average of the 10 around that 75. Or 75 to 65 and 750 to 760 enterprise value weighted and then have the earnings weighted whatever, it’s just odd to me to pick one. But there must be a reason. This guy has written statistical books– [crosstalk]

Tobias: You can take a range of it though. If you take a range of it, it’s going to be– it gets justified.

Jake: I’m going to guess it’s not statistically that different if you ran it over a longer period of time and it’s less work.

Bill: Yeah, that’s probably it.

Jake: But I think you’re right. I bet there is something to a heavy industry that is doing well last year and then no one believes that it will continue. So, it’s blown– [crosstalk]

Bill: Yeah. And I’m sure you also have the narrative of, “Okay, well, tech that was unprofitable is now laying off people, so those earnings should grow faster.” That would be my add–

Jake: For the [crosstalk]

Bill: Well, the 75th, right? The middle is probably an industrial, which is actually what I like the most right now.

Jake: It would be interesting to see what the actual stock is and different time periods too.

Bill: Yeah.

Jake: That would be a fun to see that overlaid on the chart.

Bill: Yeah, that would be fun.

Jake: Wes.

Tobias: They can probably generate that. I’ll ask them.

Jake: Yeah. Then, we can just tell our own stories about why it’s happening. [laughs]

Bill: Yeah. At 75, it’s got to be something sassy, don’t you think? Going for the higher?

Tobias: It’s the middle of the market. It’s the middle of the universe.

Jake: It’s 1,500 stocks.

Bill: Okay.

Jake: Order then from EV to EBIT. Take the dead middle of it, which is stock number 750.

Bill: Yep.

Jake: And then, take the cheapest decile, which is what, zero through-

Tobias: 150, I guess.

Jake: -150. And you take the middle of that, which is stock number 75.

Bill: Oh, oh.

Jake: 75 versus 750 and then compare those.

Bill: This makes sense. This makes sense.

Jake: Yeah.

Bill: Okay. Okay. I think I get it.

Tobias: And the ratio is wider than it has been at any other point in time. The thing is that’s not the only– That chart just follows the outcome of various other charts. Every other chart gives you the same answer. You don’t have AQR splits out in a different way, and they look globally– and they look by industry, they adjust by industry and do various other things. They come up with exactly the same answer. So, the simple version gives you the same answer as more complicated versions, which is just that– And you probably even recognize it now. Like, value’s just underperformed, value’s got to a wide differential between it and the market. Historically, when that’s happened, it’s led to good forward returns. And I think it’s too complicated.

Bill: I know you want to be long value on the other side. That I know.

Tobias: Yeah. Yeah.

Jake: If you can get there.

Bill: Yeah. [crosstalk] I just don’t know when the other side is coming and where we are. Outside of that, I’m certain.

Tobias: Well, it’s interesting. I don’t know exactly when it started to close in 2000 but I wonder if it’s when the market really does start to– When you see the carnage, so value’s already had the shit kicked out of it and then the rest of the market comes back to value, which is– [crosstalk]

Jake: I don’t think that you want to try to do wait– [crosstalk]

Tobias: Not ideal.

Jake: -and see– try to catch that.

Tobias: Oh, no. No.

Jake: Because I think that’s a very, very dangerous way to do it. I think you’ll end up missing it most likely.

Bill: Yeah. I don’t know. You might miss a lot of pain.

Jake: Oh, yeah.

Bill: Part of when I was all pissed off other than my family stuff going on and me getting all sidetracked on comments, but part of what was missing me off was, I was like, “Man, the stuff that’s getting the shit kicked out of it is in the value bucket. The rest of my portfolio was holding up okay.” It seemed to lead the downs–

Tobias: Yeah.

Bill: And then, I remember thinking like, “Here’s all these compounder bros. They are not even feeling any pain yet.” And I’m just hemorrhaging. Now, it’s nice. Misery loves company. So, if everybody’s losing, I don’t really care as much.

Jake: Welcome aboard.

Bill: That’s right.

Jake: Oh.

Tobias: JT, you want to hit us with the palate cleanser?

Peter Leyden – The Next Big Long Tech Boom

Jake: Yeah. Sure. As I teased before this, here’s some potential optimism that we might look towards. What’s interesting about this is that this guy, Peter Leyden, 25 years ago, he wrote this article as well as a book, I think, that was called The Long Boom. And 25 years ago, he described this introduction of infotech, so digital computers and the internet. It was fundamentally like this new technology that was going to take over the world. He described how it was going to create this long tech boom that was going to drive both an economic boom and a stock market boom.

Tobias: Good call.

Jake: Yeah.

Tobias: 1997?

Jake: Yeah, pretty reasonably good call.

Tobias: Did he make a lot of money and retire?

Jake: I don’t know.

Tobias: [laughs]

Energy Tech, Biotech, Second Wave Infotech

Jake: But he’s saying now that he sees a similar setup. And in fact, he thinks that this one is even more dramatic. It has to do with three fundamentally new technologies that are going to have historical impacts. One is energy tech, two is biotech, and the third one is the second wave of infotech that is around AI.

Tobias: Did this come out in 2015?

Jake: [laughs] No, this is this year. So, he says this is a triple whammy of tech, as opposed to the other one, which was just an infotech. And he’s saying this is the long boom squared. And so, the first component– [crosstalk]

Tobias: Cubed, right?

Jake: Well, maybe, yeah. Good point.

Tobias: Sorry, dude. I’m not trying to derail you.

Jake: [laughs] So, energy, he’s talking about how we have to make this transition away from carbon. Solar and wind, is it going to be government or private sector? No one really knows the answers yet, but he believes that we’re going to figure it out and it’ll be this constant churn of innovation and trial and error. Small scale nuclear, probably a big component of the equation. He said the auto industry is clearly on its way with $350 billion in new private investment going into EVs in 2021 alone. I think if I was long, a particular EV company today, I’d be a little scared of how much money is pouring into that, if you believe in capital cycle theory at all. The next big breakthrough thing is biotechnology.

Actually, it has been pretty amazing. It took him 15 years to do this, but 20 years ago, and it cost $2 billion, we sequenced the human genome first. And now, you can get your genome sequence for $1,000. It takes no time at all. And he thinks in the next few years, it’ll be down to $100. And so, it’s been twice as fast as what Moore’s law would have predicted, if you’re using that as an equivalent doubling. Also, on top of that, we’ve got CRISPR as this thing that allows us to monkey around with the genetic code quite a bit more than we could before.

And so, he’s saying that this will allow us to apply it to all kinds of different things, including crops to be more resilient to a difficult climate. If the climate change thing does come as a lot of people are imagining, then we’re going to have to have crops that can handle maybe wider temperature variations, things like that. Cultured meat, he says. So, imagine starting with actual cow cells, like muscle fibers, and then basically growing them in a vat and then being able to turn that into meat that we’re all going to eat. That’s sounds horrific, but maybe there’s– [crosstalk]

Tobias: It might be better than the alternative though.

Jake: It might be better than whatever the alternatives are. And then also, actually, biology creeping into material science. Genetically engineered wood, and plastics out of different living things that will have characteristics about them that we wouldn’t have had previously. So, for instance, plastic bags, which we’re making with petroleum now, could be actually genetically engineered to break down when exposed to saltwater or sunlight in a period of time and they just disintegrate, as opposed to now where they just float around in the Pacific Ocean.

Tobias: I think we cleaning that up, aren’t we? This is some suggestion to get that cleaned up in the next few years.

Jake: I sure hope so, because that’s a pretty-

Tobias: Sad.

Jake: -bad stain on humanity. All right. And then the third one is infotech. Three billion more people are going to be connected to the internet for the first time in the next 10 years. Half the population in Asia, two-thirds of Africa, and 40% of Latin America still aren’t on the internet. It feels like it’s everywhere.

Tobias: Lucky bastards.

Jake: Yeah, they are so much happier. [laughs] By the end of this decade, the entire population of 8 billion people will be able to work and learn and shop online, and it’ll be transformative for them. And he also says this experience will be greatly enhanced by the build out of the metaverse. So, I don’t know whose metaverse it is, but we’ll see. Maybe Zuck is– I don’t know, everyone can debate on that one. I don’t have opinions. Also, a full digital transformation of government, which is lagging big time.

And then, he gets into AI and about how mechanical machines gave humanity the ability to dramatically enhance and extend our physical powers. AI is going to do a similar thing for our mental powers. And so, he says over the next 25 years, it’ll become increasingly simple, cheap, and ubiquitous to basically tap into a cloud-based AI and help solve your own problems.

He says long booms are often created– They create the conditions for progress and they’re driven by these introductions of new technologies that create new industries, create new kinds of jobs, create new wealth. And if they’re big enough and transformative enough, they actually take decades to scale and fully build out. And so, it’s hard for us to see the pace of change today. Especially if you’re following the market too closely along and just reading headlines, it definitely feels it could be dour. But if you’re looking out a little bit further and actually do have these longer time horizons, there’s actually a lot of stuff that you could be excited about.

Lack of affordable housing is a big problem right now, and a lot of it has to do with cars. The modern city devotes one-third of the real estate to cars, and they sit 95% of the time. So, maybe autonomous vehicles solve some of this problem and actually make it cheaper to house. Personalized medicine, using all this synthetic biology and AI hopefully lowers the cost of healthcare. It’s been a 60-year struggle going the other direction, but– [crosstalk]

Bill: We got to start killing old people, man.

Jake: That’s the answer? Soylent Green is the answer.

Tobias: Soylent Green.

Bill: I don’t know, but some sort of Jack Kevorkian shit I am in favor of. People live too damn long.

Jake: Could be.

Bill: I would want it. I’m watching it with my grandma. I love her very much, but she’s got to go.

Jake: [laughs]

Bill: Her and for us. I’m not saying that in a rude way. If I were her, I would want to go. I say that out of a loving way. But these drugs- her vitals are as good as possible, and our mind is going, and there’s nothing that can be done about it. At that point, I would want a compassionate– I’d kill my dog in the same situation. Somebody out here is like, “Oh, my God,” whatever. Anyway, I digress. But I do think a lot of healthcare costs go on in those years that are not maybe the best allocation of societal resource.

Jake: Yeah, I think you are– [crosstalk]

Bill: Look at me, I’m Obama.

Jake: Yeah. [laughs]

Bill: With my killing panels.

Jake: Death panels.

Bill: That’s right.

AI And Robots To Replace Aging Workforce

Jake: So, next thing, personalized learning, lowering the cost of higher education, which is another thing that has seen nothing but inflation. He says that the 2008 crash and the slow build out of the Great Recession has put everyone into a mindset of scarcity and that these long booms that we’re heading into are more suited to a mindset of abundance. I think that’s interesting. Aging demographics will mean that we need AI and robots to replace this aging workforce. So, everyone who’s worried about these robots taking our jobs– [crosstalk]

Bill: Samson going wild with the Tesla robot.

Jake: This is dedicated to him.

Tobias: [laughs]

Jake: We need them to take these jobs, because we don’t have the humans that are young enough to do it. I’m not saying this, by the way. This is Leyden. America– [crosstalk]

Bill: It’s facts. Go get a tile bid right now.

Jake: [laughs] Yeah, we did tile robots.

Bill: Yeah. Can’t do it.

California Is The Leading Indicator Of Future Trends

Jake: America should get back to opening their immigration borders. I think that one’s actually pretty smart. And then, this is where it gets a little bit off the rails for me, but maybe smart minds can disagree. Millennials and Gen Z are shifting– their mindset is much more towards progressivism than the boomers before them. And he says that California is actually the leading indicator of where the US is heading. And that it’s the early stages of figuring out how to solve these 21st century problems. He says it is far from perfect, but there’s a lot of trial and error. But California, more than any other state, is engaged in solving these future challenges– [crosstalk]

Bill: Where does this dude live?

Jake: Climate change, diversity of population. And California is the future when it comes to technology, the economy, society, and culture.

Bill: You lost me here.

Jake: And it’s long played the role of prefacing America’s future. But he does have something that I think is– he says, “Never bet against human ingenuity,” which I think is actually a smart– I agree with that. Human beings are incredible problem solvers and we’ve gotten particularly good at problem solving over the last couple centuries, and the pace of innovation has been building, and our tools keep getting better and better. We will have the capabilities that we need to pull off another great leap forward in progress. And then, if we have time, he has 10 possible things that would derail the progress. So, let me jam those through real quick.

Bill: Why don’t we just do that next week? We can go negative next week, man.

Jake: All right.

Bill: This is all positivity.

Jake: Good point.

Bill: No, you can do it.

Jake: No, let’s save it– [crosstalk]

Tobias: I want to hear the 10.

Jake: No, we’re going to tease it, because I’ve got another book that I read recently that will dovetail in with these possible.

Bill: Have you seen an analysis of the Inflation Reduction Act?

Jake: No. As far as it just being a green energy ploy or what?

Government Spending On Innovation

Bill: The amount of money and incentives that the government is going to give industry to innovate, I think it is– Look, do I think it’s going to reduce inflation? No, I don’t. But do I think it is possible that we’re in the middle of our generation’s space race and that we figure out the leading technology for a sustainable energy planet and the US exports that technology for 50 years to follow? Yeah, I do think that’s possible.

I actually think I would not sleep on the Midwest and some of these– Maybe even Texas to have some real innovation come out of it. There’s a lot of incentives that are in that bill that I think could make things a lot better. I got love for California. You all have the best typography in the world and crazy good weather. And I think people are always going to want to live there. But I wouldn’t sleep on the rest of US. I think there’s going to be a lot of really cool innovation, that we’re– Now, how we’re going to pay for it whether or not it’s the right way to incentivize it, people can disagree, but I’m excited.

Jake: I’m not sure where I fall on the argument of government spending for innovation and whether it’s actually an effective mechanism or not.

Bill: Yeah.

Jake: When so much of the innovation has seemed to be accidental over time, if you read Matt Ridley’s work on innovation, it’s usually like somebody’s tinkering and it had nothing to do with the government. It specifically talks about the Wright Brothers and how they were the just these guys that were bicycle repairmen that were messing around in their shop. And there was another guy that was fully funded by the US government, tons of money poured in and he was famous. He couldn’t get anything off the ground and these guys did. I think I’m not sure that that’s the best use of–

Bill: Well, it depends how you’re doing it. I think if you’re incentivizing the tinkerers, that’s fine. I think if you’re saying, “This will be the winning tinker,” and backing that, I wouldn’t agree.

Jake: But how do you allocate money without backing who you think is going to be the winning tinkerer?

Bill: Well, I need to figure out how the proceeds are dispersed. But people can write– [crosstalk]

Jake: So, we can get that stimi?

Bill: Well, yes, I am thinking about which companies are going to win from this and one of them is Papa Buffett. He’s going to reap so many fucking government subsidies, it’s going to be ridiculous. But that’s what he’s good at. That and not paying taxes. And I love him, but-

Jake: Oof, Spicy.

Bill: -let’s be real about what it is.

Jake: He’s not the ultimate government subsidy truffle hound though, right? [laughs]

Bill: Berkshire Hathaway is going to get a lot of them, man.

Jake: Yeah.

Bill: A lot. And I’m happy. They are doing as much for a sustainable clean future, especially in Iowa, as any company. And if we’re going to want to incentivize that, then great. But give me that money and then let’s buy in the shares, because you trade like a financial and you’ve got some brands behind you– So, I don’t know. That’s what I’m trying to spend some time learning about.

Jake: Yeah, that is interesting. I think you’re not wrong to– [crosstalk]

Bill: I like your biotech stuff. I’ve heard a lot of people talk about biotech, the innovation that’s going on there. I don’t know anything about it though. I wish I did.

The Problem of Carbon Dioxide

Tobias: That book sounds like, “Therefore, the next step should be going by Ark.” Doesn’t that sound like a Cathie Wood type? They should get this guy to be their in-house futurist.

Bill: Well, the valuations still matter. Cathie Wood could be correct-

Jake: Just write a letter to Fed about–

Bill: -on where the world is going.

Jake: Yeah. I think that actually there’s a big lesson there that you can be right about it, but that doesn’t mean that you necessarily win as an investor.

Tobias: Well, let’s flip it on its head then. So, Buffett says, “You couldn’t have picked out of the 200 or 300 car companies which ones were going to be GM and Ford. But you knew that you wanted to be short the horse.” Because at the turn of the century-

Jake: Wise.

Tobias: -there was so much horse manure in cities that they were going to declare horse manure bankruptcy. They couldn’t find a way to get rid of it. And so, the car, of course, solves that problem. What’s the horse that needs to be shorted if all of that is the case? It’s not obvious, is it?

Jake: No.

Tobias: I thought the issue in biotech was that we’ve found all of the simple molecules and now, we’ve got to find increasingly more complicated molecules in there. We’ve been less successful in doing that.

Bill: Well, what’s the big innovation? This is going to sound so stupid. I’m supposed to read a book, but is it CRISPR?

Tobias: CRISPR.

Bill: I know nothing what I’m talking about right now. So, I should just shut up. Usually, it doesn’t stop me. But when I really know I know nothing, I don’t talk.

Jake: You could pull back a little. [laughs]

Bill: Yeah. I don’t know what you want to short.

Tobias: What if the future of energy’s small nuclear power plants?

Bill: Well, I think the question is, what does that mean? Something that one of the research that I saw, like carbon capture is something that you want exposure to. Okay, cool. One of the things that I was reading is a lot of the assets along the Gulf of Mexico can be repurposed for carbon capture. I think– [crosstalk]

Tobias: We’re going to put the oil back in the ground.

Bill: Well, no, I don’t exactly know. But there’s a company, GFL. I think it’s called Acadia. They’re a carbon capture play, I’m pretty sure. GFL has talked about carbon capture on their earnings calls from what I understand. I don’t know. Trees, imagine this, if you have freehold land that has trees on it, could be an incentive to plant more or whatever.

Jake: That’s one of the arguments for that synthetic biology and using more– actually, growing trees for other material uses as we figure out how to make them more of whatever use case that we want is that you then also get that carbon capture as a bonus while it’s growing.

Bill: Yeah. I’ve seen plants for wood buildings that actually absorb carbon as they– I don’t know how much of this stuff is real and how much of it is promises, but I do think we’re going to try a lot.

Tobias: [crosstalk] We call it carbon capture for shorthand, but the issue is not carbon. It’s not carbon, full stop. It’s carbon dioxide.

Bill: Yeah. it sounds right.

Tobias: I think that’s [crosstalk] weird things. The whole discussion is around carbon, but carbon doesn’t do anything to the climate. It’s carbon dioxide. That is the claim.

Bill: Yeah.

Jake: [crosstalk] department.

Bill: In theory, eat less cows. A lot of methane. That’s not great.

Tobias: Got to go for some reason.

Bill: Dude, I had some methane coming out of me yesterday and my kids are ripping on me.

Jake: [laughs]

Bill: I said to my one kid, I was like, “I eat too fast.” And he was like, “Is that what your farts smell so bad?” I said, “Oh, geez.”

Jake: [crosstalk].

Bill: So, yes.

Jake: [laughs] Oh, yeah.

Tobias: There’s some good comments here.

Jake: When they hold the mirror up to you, it’s the worst, huh? [laughs]

Bill: Yeah, that’s right.

Tobias: “Emerson robotics. Tactile manipulation, specifically, the problem is, I can rent your robot with human level general intelligence and manipulation abilities for $15 an hour.”

Jake: Say what?

Bill: Yeah. Can they be my financial analyst?

Jake: [laughs]

Bill: That’s pretty cheap.

Jake: Are they systematically overoptimistic about forecasts as well? [laughs]

Tobias: Oh, boy.

Tobias: Yeah.

Jake: Hit us with the questions.

Tobias: Yeah, that’s a good idea. Hit us with the questions.

Bill: That’s a good segment, Jake. It’s nice to be optimistic. It’s very easy to say the world is going to end. It may.

Jake: Next week.

Bill: It may.

Jake: [laughs] We’ll get to why it’s going to end.

Tobias: The only problem with those sort of things, I love science fiction as much as the next guy and I can go and read science fiction about a future where we’ve got flying cars.

Jake: Yeah.

Tobias: And everything’s powered by a tiny little nuclear device that sneakily sits inside your car and it’s all easy to– But the connection between here and there– Evidently flying cars is a pretty hard problem to solve. So, we’ve been trying to do that for a long time. Lots of people trying to do it now including the Google guy has just shut down his flying car.

Bill: I’m going to mourn the loss of rumbling engine. I went to Atlanta with my dad and I did the Porsche Driving Experience.

Jake: Yeah, how was that?

Bill: Dude, it was sick. We drove a Turbo S 911 and GT3. And then in the showroom, they started up this Macan turbo and it was rumbling. And then, they drove an electric one past me, I barely even heard it.

Jake: [laughs]

Bill: I was like, “Fuck.” They’re going to pipe in the sound? What garbage. I don’t know, I’m such a boomer when it comes to this.

Jake: Yeah, you are.

Bill: But just engine noise and rumbling, I don’t know, it gets my– [crosstalk]

Jake: It gets [crosstalk] flowing a little down there?

Bill: Yeah, man. I get it. They go fast. I’ve driven a Tesla. They’re super fun or whatever, but I don’t know. The world is going to be missing something.

Jake: Yeah. You know what movie was surprisingly good about that, was Demolition Man. You guys seen that one lately?

Bill: Unh-uh.

Jake: Oh, man, go back and watch that.

Bill: Yeah?

Jake: The underground society that doesn’t want to be managed and he’s got an old hot rod, because he wants to burn fuel and everyone else’s on electric, and being fined for saying the wrong thing, like social credits, basically for saying swear words. [laughs] [crosstalk]

Bill: Uh-oh, I’d get fined a lot.

Tobias: Did you work out how the shells work?

Jake: No, I’ve been reverse-engineering that for two decades now. I still haven’t gotten it. It’s a very messy work. [laughs] Some real inside baseball there, TC.

Tobias: How’s everybody feel about the market at the moment?

Bill: Going lower. 70%, 80%, no telling when it stops.

Jake: But everybody’s long in the gills?

Bill: Got to be long.

Tobias: Yeah. How do you interpret that? People are waiting for the dip to come. Are they just holding for the bounce?

Bill: I’m bearish. I’m long. What am I going to do? I don’t have any demonstrable facts that I have ever been very smart at what the market is going to do outside of the melt-up.

Jake: What innings are we in? [crosstalk]

Bill: So, what am I going to do?

Tobias: The thing is though, other times in the market, people have sold down their holdings. So, it’s one of two things. Either Michael Green’s thesis that the flows are all that matters is the thing that’s keeping it elevated, in which case, it doesn’t– [crosstalk]

Jake: Elevate? It’s going down every day. What are you talking about, elevate?

Tobias: Yeah, it’s a good point. The allocation-

Jake: Oh, okay.

Tobias: -rather than the actual market itself. Yeah, the market is– it’s a long way from it going to be.

Jake: I was told that was going to melt up to infinity. What happened?

Tobias: It’s long way from infinity here.

Jake: [laughs]

Tobias: Cathie Wood’s Ark has continued to see a lot of flows through this. It’s not negative flows yet. It’s still quite–

Bill: Yeah.

Jake: Can you bottom if that’s the case? I don’t know. That’s a good point.

Bill: Maybe. This is so naive. But maybe retail is actually getting smarter, and they’re just dollar cost averaging over, and they actually have the right time horizon, which is not a year. And it actually is still they’re retired– I don’t know. I’m sure that’s a stupid thought and I’m sure it’s going to look really dumb when we crash, and people are going to be like, “How stupid are you? And I’ll say, “I’ve always said I’m stupid. Go fuck yourself.”

Jake: [laughs]

Jake: But I think maybe it’s rational to stay long. And the other thing is, man, there’s stuff that’s cheap. I don’t know. I don’t really want to talk names that much anymore.

Jake: [laughs]

Bill: But there just is. Is Google cheap? Probably not. Can that get cut 20%, 30%? Can Microsoft? Sure. But there are things that are just obliterated. So, I don’t know. What do you do? Do you sit there and you say, “Oh, well, everybody’s too allocated. So, I got to go to cash,” or do you just go do something?

Tobias: I’ve got a good quote from, I think, it was Bill Nygren today on my Twitter. He said– Sorry– [crosstalk]

Jake: What did he tell you?

Tobias: Just about that allocate, just on that point. He’s talking about a stock pickers market. “A meaningless phrase used when the market is high to say their favorite stocks will be spared when the market declines. We don’t use that term, but we’ve also been guilty of thinking our favorite stocks could withstand a market decline.”

Bill: Yeah. But what do you do? How many people not named Druckenmiller and Tepper and a few other guys have ever demonstrated the ability to dance in and out of the market?

Jake: Three-ish, maybe.

Tobias: Probably, Buffett. Buffett, he’s got a very strict [crosstalk] rate.

Bill: Sure. He’s a savant.

Tobias: But he’s doing it on an ad hoc basis. Yeah, he’s not trying to– Although maybe shut down the hedge fund in the late 60s.

Jake: Market cap to GDP talk in the ’99 on value. [laughs]

Tobias: Do you think that’s what it was?


Jake: He said it.

Tobias: He was saying that it was expensive.

Jake: I didn’t say it. He said it. Yeah.

Tobias: But was it market cap to GDP– He said that in ’99. Yeah, that’s right. That’s right.

Bill: But they’ve also recently said stuff is not nearly as nutty as it’s been in the past.

Tobias: Well, that’s true. We’re down 25% from start of the year.

Bill: But even at the start of the year, he’s buying stuff like Apple. They were buying Amazon in May. I don’t know, I saw somebody was like, “How can you possibly have Apple as your best idea here?”, whatever. And I just think with thoughts like that, maybe it’s much more interesting to ask, why might somebody see that rather than how– [crosstalk]

Tobias: An interesting question is why Apple over Google? Because I would have thought Google is a comparably good business, and it seems to be a bit cheaper.

Bill: I own Apple through Berkshire.

Jake: Ah, capital allocation, I think, is the answer.

Tobias: Capital allocation? Yeah.

Jake: Buybacks on one and not on the other for Buffett.

Bill: [crosstalk] No, they’ve started. They’ve started, but–

Jake: But look at compared to– [crosstalk]

Bill: It’s not nearly what Apple is.

Jake: Nothing.

Bill: The problem with buybacks, man, is the higher stock goes, the lower the juice from the buyback is.

Tobias: Yeah. So, you want it down.

Bill: Yeah, but then you got to live it down when everybody’s telling you it’s a shitty company that deserves to trade at a PE of 10 and it’s going out of business, because T-Mobil’s coming after it. And then, everybody says, “Oh, well, if you just owned AutoZone for the 10 years,” I’m sure that AutoZone had no bears that entire time and it traded that multiple for that long, because it was easy to own.

Jake: Yeah, it was an easy hold at seven times earnings for a decade.

Tobias: It’s been a pretty good performer though. It’s been pretty consistently a good performer.

Bill: It’s been incredible. But I’m saying– [crosstalk]

Tobias: When you’re being paid– [crosstalk]

Bill: Yeah. That business doesn’t trade at that multiple and allow it to retire that much stock, because it’s a sleep-at-night story.

Jake: Yeah.

Bill: You got to really do your work– [crosstalk]

Jake: You know which one might even be more extreme is Dillard’s?

Bill: Yeah.

Jake: So, looking at that stock price chart and what they did from a capital allocation, and then it just unhinged from-

Tobias: That was amazing, right?

Jake: -50 to 500 in a year. [laughs]

Marketing Wiz Cathie Wood’s Letter To The Fed

Tobias: What do you think about Cathie’s open letter to the Fed?

Jake: Can we all agree that you need to stop expressing things in percentages when it moves from zero to– [crosstalk]

Tobias: [unintelligible [00:57:25] 13-fold increase?

Jake: Come on. You can’t compare that with something that went from 4% to 20% and say that it’s more of a move.

Tobias: Do you think that she knows that it’ll get attention and so, she’s sticks it in there as the last paragraph?

Bill: Yeah, I was just going to say–

Jake: Come on.

Bill: I respect her as a marketer. We are three guys on a value pod talking about her letter to the Fed. Who the fuck cares what Cathie Wood thinks what the Fed should do? She’s incredibly good at getting attention, and that is why she has inflow. She’s an incredible businessperson. That’s what I think.

Tobias: It’s a little bit anti the rest of the thesis– [crosstalk]

Jake: Marketer? Yes. Businessperson, I’m not sure about that.

Bill: Dude, her business is doing better than mine.

Jake: Well, all right, I’m not going to– That’s fine.

Bill: Look, am I running the same game? Do I have the same incentives? No, I don’t. But she built a business. Didn’t she sell out of it?

Jake: And levered up to buy it back?

Bill: Well, that’s not great. [crosstalk] I’d like to see her personal balance sheet. I think she’s probably doing okay. I think she’s probably got $30, $40 million bucks somewhere. And if she blows up and goes away and no one ever talks about her, I bet she lives a pretty good life from here on out.

Jake: I hope so.

Tobias: Do you think it’s anti her message though-

Bill: I don’t know, by the way.

Tobias: -to be sending a note to the Fed?

Bill: No, she needs rates down, because she owns a bunch of pixie dust.

Jake: [laughs]

Tobias: Is not a little bit of a tell? Wouldn’t you just avoid the stuff like that?

Bill: Yes, it’s a tell.

Jake: [laughs]

Bill: She’s not Ackman.

Jake: No crying though. I mean, Ackman no cry. Like that–

Bill: Still will defend Ackman on that call.

Jake: Crying though? Come on.

Tobias: Which one?

Bill: The one at the bottom. I don’t think people listened to that call and actually listened to it.

Tobias: What about Target? He cried at the Target meeting too.

Bill: Oh, well, I don’t know about that.

Jake: Herbalife, I think he cried at that one, right?

Tobias: He’s just [unintelligible [00:59:22]. He’s tired.

Bill: He did a lot of work on Herbalife. Not a lot of great work, I guess, but a lot of work. I respect what he did. The guy believed him.

Tobias: They’re are all probabilistic.

Bill: Yeah. It’s hard to be loud and short.

Tobias: I think he can be right about the general thesis that it was probably not– Selling weight loss milkshakes to people who are low income, maybe that’s not the best business to be in. And using that MOM-type method to distribute them. And then the other side can be right too, that there are people who are buying at the end and using them and they seem to be getting some results or at least, they’re still consuming them. So, I don’t know.

Jake: Yeah, I know that people don’t love our enforcement agencies. But they were investigated, then they were cleared. So, I don’t know that you can still say it’s a total fraud, if that’s the case.

Tobias: Not a fraud. I thought that the argument was the business model was a bit–

Jake: Slimy.

Tobias: Yeah. [crosstalk] But there’s– [crosstalk]

Bill: I think the argument was a little bit more direct than the business model was unsightly or makes me feel bad.

Jake: No, it was criminal. I think he–

Bill: Yeah. And it wasn’t criminal.

Jake: I think that this game should be played with a little bit less attachment mentally, where you shouldn’t be crying over things.

Bill: Well, I’ll defend him on this. With Herbalife, if he actually– And I don’t see how you would dedicate that much time in your life to that idea if you didn’t believe it. And to dedicate the time and resources to exposing a story that you thought was real, I commend that. I think people should do that if they have that kind of power. And if it was a fraud, it would be a different story. Problem is it doesn’t appear like it is and that’s where the game is– [crosstalk]

Jake: Someone would go back and watch that great Icahn versus Ackman debate that was– [crosstalk]

Tobias: Dude–

Jake: [laughs]

Bill: You see that Icahn documentary on HBO, I think, it was?

Jake: No, I didn’t watch that one. Yeah, it’s a good– [crosstalk]

Bill: Icahn is a savage. Savage.

Tobias: Fellas, that’s time. We made it.

Bill: Have a good one.

Tobias: Good job.

Bill: Shoutout to the ladies.

Tobias: Pandering, pandering.

Jake: Oh, boy.

Bill: That’s right. Tell your friends.

Tobias: All right, fellas–

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