VALUE: After Hours (S05 E2): 2022 Year in Review, The Inner Game, Value Spreads And The 3/10 Inversion

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

  • 60% Forward Returns For Value
  • The Inner Game – Managing Your Negative Mindset
  • Biggest Surprises Of 2022
  • Big Decade For Commodities Ahead
  • Why Small-Caps Are So Cheap
  • Time To Short Consumer Staples
  • Your Talking Brain Annoys Your Silent Brain
  • Egg Cycles
  • Opendoor – House Flipping Gone Wrong
  • Volatility-Laundering
  • Redfin Down 81% Past 12 Months
  • 3:10 Record Inversion
  • Multi-Family Real Estate

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: There we go, fellas. Livestream.

Jake: We’re live.

Tobias: That means it’s probably just after 10:30 AM on the West Coast, 01:30 PM on the East Coast. It’s Value: After Hours. I’m Tobias Carlisle, joined as always by Bill Brewster and Jake Taylor. What’s happening, gentlemen?

Jake: Hola. Bill– [crosstalk]

Bill: Not much.

Tobias: He’s cold in Florida at 60 degrees.

Bill: That’s correct. It’s freezing. Told the kids to wear a sweater today. Got in an argument with why it was necessary. My Chicago self would be embarrassed.

Tobias: It’s the day after Tax Day. How’s everybody feeling?

Bill: Ah, fuck.


Tobias: Did you forget [unintelligible 00:00:48]?

Bill: Yes. Got to send in an estimated tax payment.

Tobias: Kathmandu. Yeah. Aussie in Switzerland, what’s up?

Jake: Yeah. Where are they all from, Toby?

Bill: Oh, that sucks, man.

Jake: Keep us updated.

Tobias: Austin, Texas. There we go.

Bill: Oh, well.

Tobias: This gentleman knows.

Jake: [laughs] Just ruined Bill’s day right out of the gates.

Tobias: Ah, dude– Well, the quarterly tax payment ruins my quarter too. Jesus.

Bill: Yeah. It’s just– Ugh.

Jake: I hope you’re not going to take care of that now while we’re in the middle of the show. [laughs]

Bill: [crosstalk] No, I’m not.

Tobias: Tallinn, Estonia. There we go. That’s a good one. Carlsbad, California. There we go. Hey, Value Stock Geek’s in the house, Samson’s in the house. What’s up? All right.

Jake: What do we got on tap for today, gentlemen?

Tobias: I got value spreads. I know everybody loves it when I give an update.

Jake: Okay.

Bill: My favorite.

Tobias: –value spreads.

Jake: [laughs]

Tobias: Forward value returns.

Jake: I was hoping you could move that to a daily segment, if you could, so we can really follow– [crosstalk]

Tobias: I’d love to.

Jake: [laughs]

3:10 Record Inversion

Tobias: Well, it’s either that or the inversion. We can do some inversion too.

Jake: Okay.

Tobias: Inversion got to a record on Thursday. It was 1.23 inverted for the 10:3.

Jake: Wow.

Tobias: Closed up at 1.18, which was the prior record the day before. It’s crazy.

Jake: Speaking of wow moments, I saw a chart that said that there are no longer any negative-yielding debt though.

Tobias: You are kidding.

Jake: Yeah. So, we went from none to, I think at one point it was upwards of $20 trillion or something that was negative yielding. And now, we’re back to none. [crosstalk] Japan finally got into the positive territory. So, that’s– [crosstalk]

Tobias: I saw a tweet today. So, I don’t know how accurate it is, but said that Japan central bank owns all of the JGB 10s and they’ve lent out most of those to the short sellers. What does that mean? There’s definitely more longs there–

Jake: They’re squeezing themselves. Is that–

Tobias: Well, they’re not squeezing themselves, they’re squeezing the shorts there. Gee, that’s nasty. Market manipulation.

Jake: That is old.

Tobias: But I don’t know. I read that tweet. Who knows if that’s true or not?

Jake: Yeah. What do you think history will say about this time period or that last decade of negative interest rates?

Bill: I think history will say, “Hey, that was the beginning of negative interest rates.”


Tobias: Well, we’ve had them before. They seem to come in and out. [crosstalk]

Jake: I don’t know. You’ve got a lot of boomers who are going to die, not a lot of people are going to take it. There’s a whole lot of money in the system. If rates are the price of money, I don’t see why they go up.

Jake: Mm. So, demographics is your–?

Bill: It’s part of it.

Jake: Sure.

Bill: I don’t know. I guess, the other thing that you could say is that central banks will get out of the market, but I don’t see why that would be the bet either. Which, I guess, you could say, “Well, they’re going to lose control of everything and rates are going to skyrocket and the world will crash,” which I would ask what’s your asset allocation and how much confidence do you have in that prediction?

Jake: Yeah. Once you get into the market, once the bank gets in there and starts saving things, it’s pretty hard to get out.

Tobias: [laughs]

Jake: Turns out. It’s a lot easier to get in than it is to get out.

Tobias: I think the currency just blows up, doesn’t it? That’s how you just start again with a brand-new bank, pretend like it never happened.

Bill: Yeah.

Tobias: We’ve done that a few times in the US alone. So, it’s not out of the realm of possibilities.

Tobias: That’s what happens. That’s how it happens, because all the really smart guys go into the central bank and know how to fix it. And then, once they blow it up, all the hubris catches up with them. We just start again like it didn’t happen, and we forget about it, go again.

Bill: I don’t know, we may land softly.

Tobias: I don’t know either. [crosstalk]

Jake: The good news is the productive wealth of society, which is not all these claim checks that are being printed but are the actual goods and services that are created doesn’t disappear in that situation. Just the ownership and the spread of who has the tickets can change. So, [crosstalk] very painful.

Bill: Yeah. [crosstalk] all these freaking boomers are going to want to be taken care of.

Tobias: That’s fair. I’d want to be taken care of too.

Jake: Sure.

Bill: Well, if you drive the system into problems and then you ask to be taken care of at the end, forgive me if I’m not too sympathetic to your request.

Tobias: But no individual has done that. It’s just– [crosstalk]

Bill: Okay, just collective abrogation of responsibility.

Tobias: Nah. Nobody’s done it. Nobody’s [crosstalk] guilty.

Bill: Oh, please. Please. Now, you’re sounding like a communist.

Tobias: Well, I’m saying nobody’s guilty.

Bill: Yeah, you’re right. They historically voted over and over and over again to kick the can down the road. So, now, it’s time to send– [crosstalk]

Tobias: We’ll be doing the same thing.

Bill: I guess and then we’re free.

Jake: It should be your turn, huh?


Bill: Yeah.

Tobias: I’m out of ball before we get there. Who knows if it’s something else?

Jake: It does highlight the idea that perhaps, it’s better to have less of these knobs and levers to be pulled upon to make these kinds of changes. Perhaps, an argument for smaller government, if the idea is that people, when given the opportunity to affect change that benefits them and hurts a large anonymous population, will tend to have that outcome show up. So, if you give them lots of power to do that, then you end up with these kinds of disparities.

Tobias: From your lips.

Jake: To no one’s ears. [laughs]

Bill: Well, the problem is I don’t see the boomers voting for that and I don’t see the young people voting for that. So, who’s going to vote for it?

Jake: No.

Tobias: Yeah.

Jake: No one votes for it. You need some checks and balances, I think, is what I’m trying to say.

Bill: Yeah, but I think we have some but.

Jake: Yeah. California’s referendum ideas always, I thought was kind of bananas. “Well, we’re just going to vote on spending this money on whatever, de jure.”

Tobias: Macro is hard, just buy cheap. Let the cheaps fall where they may.

Jake: That is an interesting conversation that seems to be coming up a lot in the more endowment space and asset allocation. There’s been this shift towards a lot more private assets, because they don’t get marked to market as readily. That Illiquidity has turned out to be somewhat of a feature when it comes to reporting and not a bug. Everyone points backwards to looking at Yale and Swensen’s model. They were early into a lot of private stuff.

I think one of the key differences is that valuations were night and day difference for a lot of this stuff from what they’re paying today. What’s that old saying that, “What the smart or genius does in the beginning, the fool does in the end.” Losing track of valuations, I think, might lead to some pain here for a lot of these institutions that looked at past and are just going forward with it.


Tobias: Let me play devil’s advocate on the volatility-laundering argument. We are value guys.

Jake: Shoutout to Cliff. I’m sure he’s listening.

Tobias: I’m just playing devil’s advocate, Cliff.

Jake: Yeah.

Tobias: This is my devil’s advocate position. As value goes, we think that prices move around more than values move around. Like intrinsic value, pretty static from quarter to quarter and we’re looking forward. So, we’re not even moving it that much. We’re assuming there’s going to be some noise in that number and then we’re relying on the fact that people are going to overreact and underreact.

Jake: Yeah. I saw one study that said that, I think it was 17 times as much price movement as opposed to fundamental changes.

Tobias: Wow.

Jake: So, anyway.

Tobias: The fact that they’re looking at their valuations and saying, it’s not that bad or it’s not that good, that’s a good thing, isn’t it?

Jake: Were they slow to mark up?

Tobias: Probably not.

Jake: [laughs]

Tobias: But I don’t know. I don’t know.

Jake: It’s a one-way ratchet. I don’t know.

Tobias: [laughs] [crosstalk] I want to buy something undervalued.

Jake: Yeah.

Tobias: What the price does in the interim, I can’t worry about that too much.

Bill: No, it’s nice not to have a quote.

Jake: [laughs]

Tobias: If you were asked on a quarterly basis to value that, I don’t really know what the rules are. Are they required to take public comps as their valuation or are they allowed to do a DCF? I don’t know. I guess we don’t know.

Jake: Allowed by whom?

Tobias: I’m sure all of that reporting, it has to be [unintelligible [00:10:12] compliant or something like that, right? There’d be requirements for their reporting. There’d be rules for how they can report on those books. They’re not just picking a number out of the air. On the early-stage stuff, you probably are.

Jake: I was going to say, “What’s the agreed valuation that everyone says?”

Tobias: Latest round?

Jake: “Here’s how we do it.”

Tobias: Latest round? If you get a round in the last 12 months and it’s done at X, and you come to a report, like, on what basis are you writing down the price from that last round? I don’t know, maybe it’s more complicated than we public market folks know.

Jake: Yeah. Wait, you’re saying that there’s some nuance in the real world and-

Tobias: I don’t know. [laughs]

Jake: -glib sound bites. [laughs] Yeah.

Bill: As long as they’re not getting paid until you’re getting paid, who cares what the mark is? It’s all funny money, anyway.

Tobias: Yeah. How do they get paid? Yeah, I don’t know.

Multi-Family Real Estate

Bill: The multifamily deal that I’m in, they have to return an 8% cash pref cumulative, and then they get 80:20 on the waterfall after that up to like 12 and then I think we’re 50:50. But I haven’t read those docs in a while and maybe I’m wrong on it. I just know that I really like what they do. I’ve toured the sites, I understand what they do, I like how they invest in the– It’s like a wild– [crosstalk]

Jake: Is it real estate?

Bill: Yeah. Multifamilies, like mostly Austin, Denver, Seattle. There’s one property in Long Beach. I don’t know– [crosstalk]

Jake: Boise. Oh, wait, no, you were talking shit about Boise. [laughs]

Bill: No. But you buy something where the sales office is in the back of the building, and they move the sales office up front. Invest in like a gym that people might actually want. Put a business center in there, redo the pool, give a facelift. When you bump rents, start doing the math. It can work. LTV is no higher than 50%, which I like. So, it’s not aggressive, I don’t think. Watching me get waxed on it.

Jake: [laughs]

Tobias: Keith Smith says, “Do the latest round & trend co specific & market trending. This is how the mark is generated.” All right. Should be some impact from the falling market then. So, I got two things here. I got value spreads. Yeah, they’re wide. And small caps looking unusually good.

Jake: All right, moving on. [laughs]

Tobias: I got more details in that fit. That’s my intro. You can tune out now if you don’t want to hear the rest of it. What about you, JT? What do you got?

Jake: I have a little segment on this book called The Inner Game of Tennis that, although ostensibly about tennis and sports, it has a lot of other takeaways for us about mindset that I think will be fun to unpack.

Bill: There you go.

Jake: So, it might help your golf game, Billy. We’ll see.

Bill: Nothing can help that right now. No, I’m kidding. It’s actually quite good. Yeah, I didn’t bring anything because I don’t bring things.

Jake: [laughs]

Bill: But I did see a listener commented that they like European small cap. And I thought that was probably a better call than my US small cap call. But I’m interested to hear Toby’s small stuff because it confirms a bias that I have.

Jake: Yeah, let’s get our confirmation bias going. Fire that up.

Bill: Yeah. I don’t want to talk about things I disagree with.

Jake: [laughs]

60% Forward Returns For Value

Tobias: I just went through it. There’s a few sites to look at. AQR, Cliff had a post dated 31 December. They have market neutral, country neutral– sorry, industry-neutral, country-neutral assessments. They say, value in the 94th percentile as at the last time they looked, which is extraordinary given what’s happened since February 2021, everything collapsing. Still stayed that wide.

Jake: Yeah.

Tobias: Alpha Architect has it through to October 31 says EV/EBIT, which is my preferred metric, there’s only two dots that are wider than that and that’s the preceding dot and the one in June last year. So, we’ve only just started to close there. Greenblatt has a nice little thing on his site. If you just go through it, I think it’s Front page of it.

Jake: Just Yeah.


Jake: It’s currently 90th percentile towards cheap of his dataset.

Tobias: Yeah, it’s amazing. What was the yield across the portfolio? It is 13% EBIT on EV.

Jake: Yeah, something like that. That’s a really interesting site to poke around on and just look at different datapoints, different months that he’s captured, and just to see what was his universe of cheapness looking like relative to other periods and then what did it go on to do two-year forward returns from there. It’s like this trip down memory lane of going through– You looking at the late 90s, looking at– [crosstalk]

Tobias: Does he have late 90s data in there?

Jake: Yeah.

Tobias: Okay.

Jake: We can solve all the way back to ’94, if I remember right.

Tobias: Okay.

Jake: Yeah, just poking around there these little floating data points to see like what does it show is actually a fun exercise. I’m not going to tell you how long I spent messing around with that. [laughs]

Tobias: So, two-year forward return. Yeah. I didn’t realize that he’d gone back as far as that. I didn’t see that. Hang on, I’m just trying to find the time period. 30-year research history. Okay, so that’s longish.

Jake: He’s putting up there a very Cathie-like number of saying based on their historical data set, when you bend in the 90th percentile like we are today, the forward return was, he’s saying like 58% positive, which is quite a bit. Maybe that’s not quite– [crosstalk]

Tobias: I think two-year forward return is 58.87.

Jake: Yeah. That’s a half Cathie. [crosstalk]

Tobias: To be fair, there’s plenty of dots below that line.

Jake: Yeah, grain of salt there.

Tobias: He puts a red best fit line through that scatterplot. There’s plenty of dots below that. There’s also plenty of dots above that. I don’t know. Do you want to have a guess? Do you want to have a prediction? Above or below?

Jake: Oh, boy.

Bill: Mm. That’s interesting.

Jake: Two years from now, I’ll probably take the under.

Tobias: Yeah, that seems aggressive, doesn’t it? 60%. What’s that like, 25 compound? Gee, that’d be good, but that seems high to me. Maybe in small and micro. Small and micro, I think, is super, super cheap. Actually, there are two takes in that. I think on a relative basis, it’s super cheap. I don’t know how. Do you want to discuss, Jake, the small cap manager? Are you allowed to say his name? Are we allowed to–?

Jake: Eric Cinnamond?

Tobias: Yeah.

Jake: Yeah, sure. What? No, we’re not– [laughs]

Tobias: Let’s call him Eric C. No, we’re going to do this. E Cinnamond.

Jake: Yeah. Eric C from Florida. His counterargument to that spread and how cheap things are is that there’s just such a sugar high in the numbers from 2020 and 2021, especially from-

Tobias: Oh, yeah.

Jake: -COVID stimmy and all kinds of just craziness that’s happened, that the reversion to the mean is so likely in a lot of those numbers that they’re overstating the value that’s there. Therefore, if it comes back to Earth, you’re pretty far overexpensive compared to what reality would probably look like. So, that’s his counterargument to the, “God, the spreads are super cheap right now.”

Bill: Well, the number one holding that Gotham 1000 value has is Valero. Valero has printed on average, just eyeballing it from 2010 to– I don’t know, call it 2020, I don’t think any big refineries were built over that time. Maybe $3 billion and its TTM cash flow is $9 billion?

Jake: Yeah.

Tobias: [laughs]

Jake: Oh, it’s a daddy. [laughs]

Bill: Its market cap is $52 billion versus an average market cap of what looks like $34-ish billion. You’ve got CF industries in there, you got Suncor. Look, if we’re in a commodity super cycle, this thing works. And if not, it’ll be something that screams cheap based on overearning cyclicals, which would not be the first time.

Jake: Yeah. Isn’t that always the case though for all these things, is it’s like, “God, this thing is over earning. Therefore, you got to fade it.” Then, the few that maintain that business momentum carry the portfolio?

Big Decade For Commodities Ahead

Tobias: If you look back the historical– So, late 1990s was tech and then first decade of the 2000s was value, which was probably mostly commodity type because of the Chinese commodity super cycle.

Jake: Lot of financials too.

Tobias: And financials. And then, everything blew up. So, it was a tech decade. Do you really want to bet on a big commodity decade here? Are you making that bet?

Jake: Mm, implicitly.

Tobias: You’re just trying to buy value, but really what you’re doing is you’re having a big commodity bet. Maybe that’s why value fell apart so much for the last ten years. It was just all commodity bets when there were cheaper businesses, cheaper compounders around.

Bill: This is a big-time commodities bet, it looks to me. Valero, Cheniere, CF Energy, Marathon Petroleum, ExxonMobil, Pfizer, Mueller, I don’t know, what they do. Suncor, [unintelligible 00:20:26], Chevron, Bungie or Bun-gee, ConocoPhillips, Imperial Oil, AIG, you get some insurance in there, Phillips 66, Canadian Natural Resources, Pilgrim’s Pride, [crosstalk]. Yeah, you got a lot of commodities in this thing.

Jake: I guess the question is like reversion to which mean are you betting on? Is this a reversion to the mean of these valuations have been beat up for ten years? Is it a reversion to the mean of, “This has worked for two years and now, we’re reverting back to quality businesses carrying the next decade”? I guess it’s not so easy to answer that question. I think it depends on, probably, however you have your position portfolio is an expression of which reversion you’re expecting.

Tobias: Yeah. I think when I read that story about Icahn buying– I can’t remember it. Whether it was U.S. Steel or it was one of the oil companies at one time’s earnings, and just thinking, “That’s crazy.” You never see an opportunity like that again. Clearly, you see them these days, everybody else thinks it’s over earning. I think it is such an overstatement of the true earning power that you should be trading at one time earnings. One time is– [crosstalk]

Bill: Yeah, these things aren’t at one time. That’s the problem.

Jake: Well, what was Valero? Five times?

Bill: Yeah, five current cash flow. Yeah, for sure. Maybe that continues.

Jake: That’s pretty cheap. I don’t know, if maybe my recency bias of the last bubble years, but that feels kind of cheap.

Bill: Well, yeah, if you think $3 billion is the normalized cash flow, it’s 16 times that, 17 times that– Well, you do have a $9 billion year, you’ve also got a negative $840 million a year within the last three years.

Jake: Sure.

Tobias: Oh, that was– Yeah.

Bill: [crosstalk] You got to own it when the outlook doesn’t look good again. At that time, you’re probably looking at a 30% drawdown and wondering whether or not your underwriting thesis was accurate.

Why Small-Caps Are So Cheap

Tobias: Let’s talk about smalls.

Jake: Yeah.

Tobias: Why is small so beaten up? Why is small is so cheap? Yeah, that’s countless potholes in the path ahead.

Jake: [laughs]

Bill: There’s countless potholes everywhere, right? So, I’m just making the argument against it. Why is small beaten up? Because nobody wants to own it when you’re going into a recession. You’ve got to be an idiot to own small.

Tobias: Yeah.

Bill: Don’t you know the yield curve converted?

Tobias: It is.

Jake: Why is that? More fragile businesses, is that the argument?

Tobias: Yeah.

Jake: Like less momentum to them?

Bill: Yeah, I think they’re on average, less diversified sales bases [crosstalk] something you got.

Jake: Less well run.

Bill: Banks aren’t going to step up to support them as much. I think they’re a little less resilient on average.

Tobias: I think Sarbanes-Oxley too. Yeah.

Bill: Was it [crosstalk] liquidity problems?

Tobias: It used to have good companies that were going to grow to be big companies, and I think a lot of them skipped that. Now, they stay private.

Jake: Oh, okay.

Tobias: They do a whole lot of later, bigger VC rounds and come out–

Jake: Come out public later?

Tobias: Yeah, come out with an objective of being in the S&P 500 in the short term.

Jake: Yeah.

Bill: I don’t know, man.

Jake: Less [crosstalk]

Bill: It seems more and more they come out not knowing how to make money and then hit a wall and say, “We’re going to figure out how to make money.”

Opendoor – House Flipping Gone Wrong

Tobias: Has Opendoor completely changed its model? Is it now not a flipper? It’s going to be some data analytics firm?

Bill: Oh, that would be so fucking funny.

Tobias: It is funny.

Jake: Yeah. That guy that said he knew more about real estate than anything and telling the– [crosstalk]

Tobias: Is that like 90 something–? [crosstalk]

Bill: They are really successful VCs. People that herald those guys, be very careful who you worship. This last interest rate cycle may have solve– Look, I’m happy for them for making all the money, but I’m not sure that I’d take investing lessons from a lot of them.

Jake: Yeah. [crosstalk] a bit hubris, sometimes, huh?

Tobias: That model that they had, which was to buy houses, I don’t think that they do much to them and then flip them on the other side, so to make them easy to sell and then easy to buy. Evidently, in a rising market, you can easily make money that way. [crosstalk]

Bill: Toby, let me just take a step back. When has anyone ever gotten in trouble with an asset-liability duration mismatch?

Jake: [laughs]

Tobias: Right. Exactly right. I would agree with you 100%.

Bill: Yeah. When is that ever not gone right?

Tobias: But that’s so obvious, right? Everybody– [crosstalk]

Bill: No, you and I don’t understand. That’s the problem. We’ve transcended that with technology.

Tobias: They’ve got AI.

Jake: In fairness, if you can flip it to the Fed, there is no real risk there.

Tobias: Well, I saw a video last night that said that in an effort to gain market share, they’ve pushed so aggressively into some of these markets, of course, then they become the market and they push it up and then there are other house flipping types from mom and pop to bigger enterprises who see the market moving and come in and try and do the same thing in the market. Now, they own something like 10% or 15% of these markets.

Jake: Whoopsie.

Tobias: And the markets are now reversing course. So, I don’t know how you get out of that. You’re toast. Isn’t that what happens to every single flipper every single time? Isn’t that how it works?

Bill: It has historically, but this time is different.

Tobias: This time is different. You just pyramid up until you get to the top and then you blow up. It’s how it works.

Jake: As long as you blow down before you blow-up, that’s fine.

Tobias: That’s true. You’ve got to remember to do that.

Jake: Yeah.

Tobias: The blow-up doesn’t want to be so bad that you are bankrupt and in jail.

Jake: I don’t know. You get big enough and you become systemic.

Tobias: It just seemed to happen.

Jake: Yeah, no problem.

Tobias: Lots of people end up in jail on the way though. Not everybody gets there.

Redfin Down 81% Past 12 Months

Bill: Redfin’s had a pretty decent bounce, which sucks. Yeah, boy, what a darling Redfin was. Now, it’s down here at $6, down from $96, $95 to $6.

Tobias: When all that–? [crosstalk]

Bill: Was it $3? Was it $3?

Jake: If he loved it at $96-

Bill: Then you were not correct.

Jake: -you’re going to love it.

Tobias: Tesla’s had a big bounce into the start of the year. I see it’s up 21% since the start of the year.

Jake: Wow.

Bill: Good for Samson. Shoutout to you.

Tobias: Yeah, it’s amazing the volatility in those stocks both ways. That’s one of the biggest stocks around.

Jake: Ah, huge. Huge volumes. Just incredible amounts of– [crosstalk]

Tobias: There’s more volume in it than SPY some days. There was last year. That’s crazy. More traded than the market.

Bill: I did see that SpaceX launch. That thing was sweet. To the extent that Elon’s general popularity correlates with Tesla, that had to have helped. What’s wild is watching the rockets return to Kennedy Space Center. It’s fucking cool. They just stay in the air, and then you just start seeing them move back, and then they land. It’s crazy. Anyway, I digress.

Tobias: JT, you want to hit us in a mental game for tennis?

Jake: Absolutely. So, this– [crosstalk]

Bill: Hang on, hang on. Wait. Before we move on from small, what’s the tangible takeaway here? Do we have any spread? A small, big spread?

Tobias: Well, I just said that’s very wide.

Jake: No numbers to that. [laughs]

Tobias: Are the small big spread? I don’t know.

Jake: It’s strong to quite strong?

Tobias: It’s as wide as it has ever been. But on a relative basis, it’s very, very wide. On an absolute basis, I don’t know.

Time To Short Consumer Staples

Bill: If I had balls, which I do not have, I would short like consumer staples and I would get long small. Because I think a lot of people are hiding out in consumer staples. If you look at those multiples, how much growth can they really do? How much can the multiple really expand from there versus what small can do? I bet that does okay.

Jake: Yeah.

Tobias: It’s been a big consumer discretionary start to the year. A lot of that stuff has run up. I don’t know if that’s– When it happens to my stocks, it’s because fundamental– [crosstalk]

Jake: Because you are a genius.

Tobias: –your stocks, because it’s a short squeeze.

Jake: [laughs]

Bill: Yeah, a lot of things have bounced, generally. But I don’t know. Coke is actually down year to date. It had a huge run from September or October to December for it. Yeah, I mean for it. I don’t know. My general theory of the case, unsupported by any data, is that people were hanging out in big and safe, and sold anything that was risky, and now you just have this massive spread between the two of them.

Jake: Yeah.

Bill: On the other end, they pile back in.

Jake: There’s an unfortunate cap on Coke in some ways. If you think about Buffett’s KPI for that, which is cases sold per share outstanding, if the valuation runs up to such a place where you feel like you’re a genius, you put a cap on how much they can buy back and lower that denominator. The sales on top part is going to be whatever it’s going to be, like GDP plus a tiny bit maybe, and maybe even not that, I don’t know. Who on Earth hasn’t heard of Coke yet? So, imagine high prices now are limiting your lever that you had to really increase that KPI. Yeah, I don’t know. It’s a tough game.

Bill: Yeah. You’re getting this weird thing too where, to your point, your buybacks don’t go as far. I’ve been looking at Microsoft. They spent a ton of money to barely budge the shares outstanding. Then, it’s like– [crosstalk]

Tobias: Because [crosstalk] so many through options?

Bill: Yeah. Their performance, options on average, it happens because the stock worked.

Jake: Yeah.

Bill: But if the stock starts to not work, are they not going to rebase some of those options? I think the probability is pretty low in a people industry. So, at what point, as a minority shareholder, do you say, this wave has been nice to ride? I’m not sure what the answer is.

Jake: Hard to sell. It’s such an amazing business too, though.

Bill: Yeah. Well, it’s like saying, “You no longer want to date the pretty girl at the dance,” but she might have just gotten gonorrhea. Anyway, I digressed.

Jake: [laughs]

Bill: You can cure it. It’s no big deal.

Jake: Too far.

Bill: Sorry to those that listen to words- [crosstalk]

Tobias: [crosstalk] to Bill.

Bill: -think I’m not safe for work. And sorry to the ladies. I’m a sick human.

Jake: Ladies. All right, let’s– [crosstalk]

Bill: There’s at least three.

The Inner Game – Managing Your Negative Mindset

Jake: Okay. Let’s change gears now and talk about the Inner Game of Tennis. This is W Timothy Gallwey’s book. And it’s the classic guide to the mental side of peak performance. If there’s anything you want to be a peak performance, I think it’s interesting to look at books like this. Basically, this is just trying to talk about mindset. The inner game is one of the mind, right? It’s played against obstacles like lapses in concentration, nervousness, self-doubt, and self-condemnation, which is one that’s really painful. I think a lot of people have negative self-talk like that.

We’re all trying to overcome all these habits of mind which inhibit excellence in performance. He has this quote in here that– People would say, “I’m my own worst enemy. I usually beat myself.” That sounds very Ben Graham to me, doesn’t it, like, “Investors are their own worst enemies.” The more that I learn about this entire game, the more that I think that is true. And it really is you against yourself in this and that just managing your own mind is the hardest thing of it, and also the place where there’s the most advantage to be had.

When you hear about a player who is playing near their peak, they’re often described as being in the zone, playing out of their mind, in the groove, unconscious. There’s all these ideas about the mind somehow not being very active when it comes to this. You’re not over trying. I wonder if we can think about doing the same thing when it comes to investing. Inside all of us, there exists this relationship between the self-one, which is the conscious teller like you saying like, “Okay, get your back hand, get your arm up here.” You’re giving yourself this self-talk and then the self, two, which is the actual doer inside the body that’s making the body move.

There’s this dialogue that exists. Mastering the inner game is really about improving that relationship between the self-one, the talker, and the self-two, which is the doer. Children are actually great at learning, maybe largely because they don’t have this developed negative judgmental inner critic that a lot of us have developed over time that probably inhibits our ability to learn and grow. That beginner’s mindset, part of that is that lack of a self-critic, which is a powerful idea to think about. Really the end goal is about achieving the art of relaxed concentration, which I think is actually a really interesting term. Quieting the mind, less thinking, calculating, judging, worrying, fearing, hoping, trying, regretting, controlling, jittering, distraction, all those things are the things that are going to hold you back.

Letting go of judgment doesn’t mean ignoring the errors that you make. It just means seeing the events as they really are and not attaching emotions to them. I think what happens a lot of times is maybe the market goes against us and we’re like, “Ah, I’m such an idiot. Why did I do that? I knew better.” That’s being very judgmental and it’s inhibiting your ability to actually learn.

So, here’s an actual instance. Gallwey was helping a student with his backhand and this guy was taking his racket too high on his backhand swing. I don’t really even know what that really means, whatever. But over and over again he was doing that. He was trying to tell him to like, “You’re doing this,” and the guy’s like, he doesn’t know he’s doing it and it’s just like he’s unaware of it. So, Gallwey got him to hit like do an air backhand into a mirror a few times. Right away, it fixed it for him like it corrected it, that self-awareness. It was a non-judgmental awareness about what was actually happening. His mind was able to see it now and it fixed it right away.

So, this is actually explains why I’m kind of a maniac when it comes to wanting to uncover all the metadata about my own investment process is that I really view that as looking in the mirror as much as I can to just see, where could I be going wrong, what am I doing right? Just having that nonjudgmental awareness and generating as much awareness as I can about myself, I think is a real advantage to this.

So, interestingly enough, all this is in the tennis world is happening at the biophysics level. When you try to control muscles to perform a particular task like say, you’re trying to hit a hard serve. You inevitably use muscles that aren’t needed as part of that trying to control it. In fact, not only does that waste energy, but it also even can tighten muscles that interfere with the muscles that are trying to perform the task. And so, impeding the force of the swing at the end of the day, you’re actually less powerful because there’s muscles that are inhibiting the action that the muscles are trying to take. That’s why you could say that you feel like you’re playing tight is actual literally biophysically your muscles are counteracting each other. And I think we do that all the time mentally when we’re learning. Exploring our own inner game, we often are playing tight. So, he breaks the inner game. [crosstalk]

Bill: Do you ever worry that being so into the metadata might actually create that tightness in your own mind?

Jake: That’s a good question. I think it could, if I assign too much judgment to it. But as long as it’s more of just being non-judgmental, and less emotional about it, and just being observational, I think lessens the chances of that happening.

He breaks down the inner game of learning into four steps. Number one, observe your existing behavior nonjudgmentally, which we just talked about. Number two, picture the desired outcome. Number three, let it happen and trust that self to the doer. Number four, non-judgmental calm observation of the results leading to continuing observation and learning. So, this is just a process like we’re just trying to get better all the time. And then he goes into a lot of the mindset about, like the best way to quiet the mind isn’t to tell it to shut up, or argue with it, or criticize it for criticizing you. It’s to learn to focus it and that’s when it gets quiet.

Being in the present is what brings calmness and focusing on the here and now is where that calmness can come from. A lot of the stuff is like, you see it in Buddhism or really any religion which is, I think comes out in humanity as a bit of an OS hack that lets you to actually accomplish things. There’s an underappreciated aspect, I think often to religion. Well, it actually solves a lot of problems and that’s why it’s probably stuck around for so long. Anyway, so this natural focus is where it can happen most, where the mind is interested. So, I think that’s one of the things that makes it such an advantage to have a passion for whatever it is that you’re going after is that that helps you to focus more naturally and not have to force it so much. That is like such a key advantage, especially the focus over a longer duration, that’s what passion really is, I think.

Anyway, I think you could take all this stuff for you improving your tennis game, or your golf swing, or swinging up a pitch, if you’re a baseball player. I think it also can help in the investment world of keeping some of these same concepts in mind to improve your inner game and your inner dialogue.

Tobias: Interesting, JT.

Bill: I listen to this podcast, Chasing Scratch. It’s a golf podcast, and I just shared two episodes with a buddy. One is called Safety First and the other is Gaining Strokes with Mark Brody. They’re in Season 4, I think, 2021. Anyway, what I found interesting and what may sort of be a decent tangent to what you’re saying is, the mindset that those guys have had to approach getting better at golf and talking about avoiding double bogey, you’re not going to go out on the golf course and make a nine and think you’re going to make it up with four birdies.

Jake: Right.

Bill: You play well by not having huge errors.

Jake: Yeah.

Bill: I’ve thought that has a lot to do with investing. It’s interesting. Part of I think what makes their podcast great is they have a self-deprecating humor, which I can totally relate to, but I wonder if them saying it out loud, like put something in their mind that they think that they’re not as good at– They’re the ones that I got this thought. Tiger Woods, when he was going through swing changes, he’d always say, “I’m close.” He’d never be like, “Boy, my game’s gone.” I think the way that you talk to yourself matters a lot.

So, yeah, I think that’s all true. I think it is really interesting how when you’re playing well– When I’m playing my best golf, I’m just thinking about what I need to go do and then I’m doing it. It is like a flow state. It’s not worrying about the process. It is the process to get yourself to the position where you don’t have to think about it. But when you’re executing, it just happens.

Yeah. So, I don’t know, creating some sort of a pre-shot or a pre-investment routine, if only there was a software product that might be able to help people do such a thing, Jake.

Jake: Yeah, true enough.

Bill: It can get you in that zone, and working through, and let your subconscious creativity take over.

Jake: I think we can actually trigger some of this stuff with our environment. And so, being very mindful about your environment and where you maybe even have carved out a place, if you can, that is for your deep work, for like, “Here’s where I go and I do my investment stuff, where I’m going to focus.” And maybe even tapping into a particular smell like a candle or something I think could even trigger that. Give yourself these clues like, “Hey, now is the time to do the serious work.” I think that the body follows along to those type of environmental cues.

Bill: I’m going to call you Jake Robbins from now on. Tony’s younger– [crosstalk].

Jake: Make a move. Say yes.

Bill: That’s right. That’s exactly right. Yeah. But I think there’s merit in that. One of the things that I think he’s really good at is repackaging really good ideas. I don’t think Tony came up with that much, but I think he’s really good at selling smart stuff.

Jake: I don’t think he would take umbrage with that either. I think he’s fine with it. Whatever works for somebody is what he’s interested in.

Bill: Yeah. The make a move thing really is. Walk into the office. All right, whatever. Whatever gets you ready.

Jake: [laughs]

Tobias: You do that?

Bill: No, I don’t do that. No. But that’s [crosstalk] terrible investor.

Tobias: So, he do that?

Bill: He does some move before he goes on stage all the time. That’s my version of it, but it may not even be anything close to that.

Tobias: Buffett’s got the sign, “Invest like a champion today.” Do you think that’s why he’s putting up the big numbers?

Bill: It’s got to be. I can’t see any other reason. What are you doing?

Jake: [laughs]

Tobias: I need to get one of those signs.

Jake: I have one.

Bill: Sorry that when I called– [crosstalk]

Tobias: Do you have one?

Jake: Oh, yeah. I have a– [crosstalk]

Bill: Bloomstran gave him out.

Jake: Yeah. I have a smaller one that’s in one office and I had a bigger one at another office. [laughs]

Tobias: I need to get one.

Jake: Hey, man.

Your Talking Brain Annoys Your Silent Brain

Tobias: I read a book called The Master and His Emissary by Iain McGilchrist. Kind of hard to read, honestly. I can’t really recommend it to everybody, but the idea in it is pretty interesting. Well, it’s just is. It’s really hard to read.

Bill: Yeah.

Tobias: If anybody can read it and get through it, tell me what the punchline is. Awesome. I didn’t get all the way through it. Just going to admit that upfront.

Jake: [laughs]

Tobias: But the idea in it was interesting. He says, there are two parts of the brain. You have this silent part that is the one that does a lot of thinking and then you have a talking part. So, the silent part comes up with the ideas and it says to the talking part, “This is what we’re going to say.” The talking part repeats it back to the silent part and that’s the first time you hear yourself talking. And then, when you hear that talking inside your own mind, the silent part says, “That’s correct. Send that message out there.” But the talking part can talk all the time and it makes it hard for the silent part to do any thinking. So, the trick is in getting the talking part, which doesn’t really do much thinking.

Jake: Shut up.

Tobias: Yeah. To be quiet. Let the silent part do its thinking. That’s why, if you have an idea that you feel like it came from the universe, came from the unconscious, it’s come from the silent part. It’s just given it to you fully formed without any debate with the talking part.

Bill: It’s probably why Dalio speaks so highly of meditation. You’re requiring your talking part to go away.

Tobias: Yeah.

Bill: I know you have to acknowledge what comes into your head. But it’s like developing the ability to be silent.

Tobias: [crosstalk] to make it go quiet.

Bill: Yeah. I understand. I’ve never been able to get my talking parts quiet.

Tobias: I don’t know how you make it go quiet either. When you hear something talking to you, when you’re playing tennis, when you’re doing something else and it’s telling you what to do, that’s the talking part. It’s trying to tell the silent part, which controls everything, what to do. [crosstalk]

Bill: That’s interesting.

Tobias: I don’t know where the fear comes from. I don’t know where the emotion comes from. I don’t know if that’s the talking part or the silent part.

Jake: You might be foreshadowing an upcoming veggie segment on how emotions are created.

Tobias: There we go.

Bill: I can tell you that my fear comes from inheriting stuff and not knowing that I could ever make it for myself and being totally terrified that if I lost it, I’d be a worthless bag of shit. But we don’t have to get that deep on me.

Jake: Yeah, that’s a lot.

Bill: I don’t know. It’s just the beginning of a deep iceberg-

Jake: [laughs]

Bill: -and then feeling unworthy of having it. Yeah, it’s fantastic. Anyway– [crosstalk] I’ll tell you–

Tobias: I’ve got a good line. Jinwing Bu says, “Remind me of that old joke. If you talk to God, you are pious. If God talks back to you, you are crazy.”

Jake: [laughs] Yes. I think it’s important to find what your thing is though that is your way of calming that inner chimp mind that just is chattering. Whether it’s nature walks or meditation or time with your family or whatever it is, but something– although often that feels pretty stressful, but– [laughs] Whatever it is, just figure-

Bill: I tell you what though, man– [crosstalk]

Jake: – what that out and leaning into that I think is helpful.

Bill: Something that I’ve been way more into over the past two months than investing is I got two friends that are going through a divorce and I’m like dealing with my grandma’s shit. I would say put marriage deposits above investing deposits, because if your wife leaves you, it’s going to be really hard to focus on anything else. I don’t care how much money you have, 50% of it’s going away, plus lawyer’s fees.

Tobias: After the tax too.

Bill: Yeah, it’s been brutal to watch him go through it. It’s an addiction issue that I don’t think he could have had any control over. But boy, whatever you can do to avoid that in your life, take the time to do it. It’s my two cents.

Tobias: I think, sometimes, it’s stressful talking to family members, sometimes, your function is to be the one who’s listening to– just absorbing it, let them do some talking. I sit down with my kids– [crosstalk] Just before my kids go to bed, I sit down and have a little chat like, “What’s happening?” They tell me. It’s just nonsense, but at least, I feel like if I collect enough of that nonsense, then eventually, they’ll just tell me something that is important, because they’re just used to telling me stuff all the time. That’s my plan, anyway.

Jake: Keep the channel open.

Tobias: I’m starting to say– [crosstalk]

Bill: Well, dude, and more than that, I think that they know that you love them enough to listen to them, right? I think that a lot of parenting young children is like showing them that what they say matters. I think if you can do that, even if it’s something ridiculous, when the big stuff comes up, they’ll come to you.

Tobias: Yeah, that’s the plan.

Bill: [crosstalk]

Tobias: This podcast has gone a long way off the rails. [laughs]

Bill: This is way more important than investing. This is stuff that matters.

Jake: On a very special Value: After Hours. [laughs]

Bill: That’s right. We go deep into therapy sesh.

Jake: Oh, man.

Bill: Like with my grandma, one more thing, real quick. This is real talk. Get your documents in order and be explicit with whoever is going to be the executor of your trust, should you have one? What you want done with it? She left a big mess. One conversation that I wish I had a lot earlier, thank God, we were able to have it, but I finally said, because I called hospice in and she was none too pleased. But I said, “Look, we’re at the point of your life where my strategy here is going to be symptom management, not life extension. Are you okay with that?” Thank God, she was lucid and said yes. These are like really important conversations. I swear to God, that week, I almost had an anxiety attack. I don’t have anxiety on average, and I just think that they’re important conversations that people hide from a lot and they’re really, really important. I know they’re not fun to have, but go out and have them, people. It’ll be a lot better later on.

Tobias: That’s good advice.

Bill: Back to small caps.

Jake: Yeah. [laughs]

Biggest Surprises Of 2022

Tobias: Let’s change directions a little bit. Good one from Samson. “What surprised you the most in 2022??” I think that’s a good one. We probably should have done something like this at the end of last year, but for a variety of reasons– [crosstalk]

Bill: Nothing. We all predicted it all.

Jake: [crosstalk] preparation.

Tobias: That’s a good one, because it’s worth looking back to what did we think was going to happen and what didn’t happen. I thought we were going to sell off. I thought we’re going to sell off a lot harder. I’ll be the first to cop to that. I think that early on, I was saying even before the start of last year, because I did a podcast with– name’s just escaping now, sorry, where I said I think that– this is like Q4 2021 when I said if you start from February 2021 peak in Ark as representative of the tech complex and then you wind that forward 18 or 20 months, that gets you to Q3 or Q4 last year, when I thought we’d see all the fireworks. And that didn’t happen.

Bill: Ark inflows.

Tobias: Ark inflows.

Bill: That surprised me.

Tobias: Yeah.

Bill: The fact that we still talk about Cathie, that also surprises me.

Tobias: What’s still one of the biggest complexes around? She’s still very– [crosstalk]

Bill: How long did Janus take?

Tobias: [crosstalk] physical investor.

Jake: Wealthy?

Tobias: I don’t know. I was a value guy by that point.

Bill: I’m just hiding in value. It’s a good place to hide, by the way.

Tobias: It was. Yeah.

Jake: Yeah. I think you’re probably right. Probably, the timing taking a little longer for that. Although I felt like 2022 was finally a little bit of a return to reality, which felt nice. I don’t know. TC, how many Thursday afternoon conversations that you and I have about like, “What the hell is going on around here? Are we losing our minds or is this just [crosstalk] lost their minds?”

Tobias: 2019, 2020, I felt a little bit crazy.

Jake: Yeah. Just mutually talk each other off the ledge. Just make sure that– “Wait, cash flows still matter or are we just totally off base here?”

Tobias: Evidently, it does. We should have had more faith that ultimately was going to turn around. I think we did have faith that it was going to turn around, but I think that it was also a weird, weird time. I wasn’t certain. I was worried.

Jake: Well, there were these very interesting, compelling arguments, and there always are in these situations. I think Graham has said that you can get in a lot more trouble with a good premise than you can with a bad premise, because a good premise starts out and is very powerful and can push you too far very easily.

Tobias: Yeah, that’s a good point. That’s the problem with a lot of those investment thesis is that the idea underlying is a good idea, the business is good. Look how fast it’s growing. Look how much money it is making.

Jake: Yeah. Return to scale, winner-take-all economics. These are all very powerful forces that seemed unconquerable at periods during that time.

Bill: A lot of them still may be right. It still may be early.

Jake: They very may well could be.

Bill: Just like it went too high, it may have gone too low.

Jake: I think there are less of those than what people thought a year and a half ago.

Bill: Yes, I think [crosstalk] with that.

Tobias: I think it’s a little bit like Dotcom 1.0. Of course, there were many more overestimated on the way up and then there were many fewer underestimated on the way down. But there were certainly some, and some of them became absolute monster winners like Amazon and so on. But remember, Microsoft was sideways for 15 years.

Jake: 14 years.

Tobias: Yeah. Microsoft was growing rapidly through most of that, although it did step back. 2010, 2011, I think it had a down year and was under [unintelligible 00:52:25].

Jake: But what are we talking about? It was like a tiny revenue miss.

Tobias: No, it’s nothing. If you’re in it because it’s a growth company and it starts shrinking, then that’s a problem.

Jake: Right.

Bill: Yeah. The guy that I recently interviewed, that’s Tom Rickett’s interview that I had, if somebody is interested in a thoughtful take on innovation, I might listen to that. That was an interesting– But I did think he had an interesting insight. He was like, “You got to get out before maturity.” I asked him why and he’s like, “Well, basically, have you ever seen what happens to grow stocks and they hit pockets?” It’s like, “Yes, I have,” and it’s not pretty.

Tobias: What about inflation? How does everybody feel about their inflation prediction last year?

Bill: Well, it was way off.

Tobias: Has it been transitory or not? What have we decided?

Bill: I’ll let you know in five years.

Tobias: Yeah.

Egg Cycles

Bill: I think a lot of things are coming back in a big way, but I didn’t think eggs would be 5 bucks a carton and I definitely don’t think you should go out and buy Cal-Maine right now, by the way. I know that there’s some people that like it.

Tobias: Eggs. Yeah.

Bill: I’ve seen egg cycles before. We used to bank an egg company.

Tobias: [laughs]

Bill: Egg cycles are rough. You better know what you’re signing up for, if you’re getting that equity.

Tobias: [laughs] That’s so weird. Why? Why would there be egg cycles?

Bill: Because they just lay so many of them that– Sometimes, there’s so many eggs, they just spike them on the ground to break them.

Tobias: Oh, not kidding. That flood them like a– [crosstalk]

Bill: Yeah.

Jake: I think it kind of a satisfying job. I’m an egg breaker. [laughs]

Bill: If you want to be a bull, you say, “Well, Cal-Maine rolled up so much that they can control the supply.” I would need to see Informa data on that is what I would need to see. Informa is a trusted source.

Jake: You know what? I don’t know what the answer is where we’re going with inflation. I see strong arguments for both. Technology wanting to do more with less, bringing inflation down. Perhaps, a trend back towards less globalization pushing it back up as we reconfigure supply chains. Government’s kind of over the barrel a little bit with how high can they let rates go. Therefore, they have to print more to plug these deficits. That’s got to be inflationary, I would expect.

All these really large forces pushing things back and forth, really hard to know where it ends up. What is troubling though is I found some data on the 70s that looked at CPI on a yearly basis, S&P 500 on a yearly basis, value stocks, US Treasuries, and some other things. What’s troubling is, when you look at that and you try to put yourself into that year, live in that year, I think as I’ve gotten older and done this for longer, it’s really easy to just look back and go, “Oh, 2008 and 2009, 1973, 1974, 1998, 1999, 2000.” You just like call them these little periods. But when you’re actually living inside of them, they’re like– [crosstalk]

Tobias: Yeah, it’s a long time.

Jake: They are long time.

Tobias: Geez, it’s a long time.

Bill: So, put yourself in the 70s and you look at how the CPI is changing year to year. Inflation came out pretty hot early in 70s, and then it receded in the mid-70s, and then it came back with a vengeance in the late 70s. The idea of like, boy, you thought probably the worst was behind you. You probably called everything transitory at that point. We’ve turned the corner on this, we’ve solved it, we’re moving forward, and then it gets into the double digits at that point. And then, you have to bring the Fed funds rate up to 17% or whatever to finally break it. I don’t know– What I’m trying to say is that it could look better over the next year or two. It doesn’t mean that we’re completely out of the woods for the decade.

Tobias: Yeah. Every single chart now has that big bump in it that seems to be coming back down, but it’s not come back all the way down to pre-COVID levels in many instances. It sort of found this new plateau, where now everything is twice as expensive as it was two or three years ago. But it’s not four times as expensive. So, it’s not as bad. Or it’s not six times expensive.

Jake: Not accelerating from 7% to 8% a year away from us?

Tobias: It’s still expensive. Housing’s still very expensive. There’s still supply shortages in a lot of things. A lot of weird things. Like eggs, it’s another weird one. I don’t know if the price is where it is because of a shortage. I think somebody said some avian flu strain. [unintelligible [00:56:50]

Bill: Normal chicken shit. This always happens.

Jake: [laughs] Chickens be dying?

Bill: [laughs] Yeah. They can breed really quick. Chicken is very cyclical.

Jake: [laughs]

Bill: Although it is pretty concentrated now. A lot of it’s been rolled up. Most of your chicken comes from four or five people that are private and just raking money. I was surprised at how resilient the economy was. I think the labor force did a lot better than I thought it would do if housing came to a stop.

Tobias: That’s at the end of the cycle? It’s the last domino to fall?

Jake: I hope you are right about that.

Bill: I guess. Yeah, we’ll see. I’m glad because there’s finally servers and restaurants though not enough.

Tobias: Yeah. Actually, I saw a chart that said as asset prices go down, people go back into the economy.”

Jake: Oh, yeah.

Bill: It makes some sense.

Jake: Yeah. Back to work, can’t just all be Robinhood day traders.

Tobias: Or bitcoin billionaires. David Wilson said, “It felt like a long year with no bargain basement sale yet.” That’s what I think too. I haven’t seen a 2008 Q4, 2009 Q1 bargain basement fire sale or even a March 2020 fire sale.

Bill: I don’t know, man. There’s some stuff that’s gotten crap kicked out of it.

Tobias: But you get to that point– [crosstalk]

Bill: Small cap valuations are pretty close to global financial crisis. If we’re not going to call the global financial crisis a fire sale– [crosstalk]

Jake: What you got down to like median level on some measurements. [laughs]

Bill: Yeah. But this goes back to like– I just don’t know that we’re going back to– These are famous last words. We’ll all crash. Everything is [crosstalk] zero-

Tobias: Anything’s possible.

Bill: -and three people will be like, “See, Brewster, you said this and you’re a dumbass, and now you got no money.” And I’ll be like, “Hey, right.” Except I was positioned defensively from an asset allocation standpoint.

Jake: Suck it.

Bill: No, I think I’m going to allocate the junk bonds. That’s my call of the Q1.

Jake: That’s interesting. I did see Verdad out with a new little mini research piece on high yield spreads not being blown out to the point suggesting that recession is imminent like they have in previous time periods. So, it’s bit of a little counterfactual–

Bill: Some would argue that high yield companies are better managed than they were in the past.

Tobias: Cam Harvey is out there fading his own 10:3 inversion.

Jake: Yeah. There’s no clean macro data that tells you– [crosstalk]

Bill: I will be giving it to a manager, to be clear. I’m not buying a junk index. That’s asinine to me and I don’t know enough to do it. But that’s what I will be doing.

Jake: Who’s your junkyard dog?

Tobias: That’s a good name for a fund.

Bill: I don’t know that I feel comfortable given that I run a podcast and I feel like I have to be Switzerland on managers.

Tobias: [laughs]

Jake: Tell me– [crosstalk]

Tobias: All right, fellows. We made it.

Jake: We did it.

Bill: It was fun. Good therapy sesh, boys.

Jake: Yeah. [crosstalk]

Bill: Sorry, the dog was making the noise.

Tobias: No, that’s fine.

Bill: I’m sorry. I didn’t mute myself when I called her in. I was convinced I was on mute and then Jake went silent. I was like, “Oh, shit.”

Jake: [crosstalk] therapy dog.

Tobias: I’ll see you guys, next week. Peace.

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