In their latest episode of the VALUE: After Hours Podcast, Bill Brewster, Jake Taylor, and Tobias Carlisle discuss:
- Do You Deserve Equity Returns?
- The Market’s Real Cheap
- 3-10 Prophecy Fulfilled
- How Did Apple Avoid Layoffs?
- Housing Crisis Porn
- Centralia Mine Fires Teach Us About Inflation
- Is 1970s-Style Inflation Coming Back?
- The Covid Market Darlings
- HR Company Deel, Now Valued At $12 Billion
- What Went Wrong At Qurate
- Post World War II Debt Levels
- Is Tesla The Market?
- Day In The Life TikTok Videos
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: And we are live.
Jake: It worked.
Tobias: It worked. It’s Value: After Hours.
3-10 Prophecy Fulfilled
It’s the eve of Cam Harvey’s prophecy being fulfilled. Billy’s gone. Billy’s dropped down. He couldn’t take it.
Jake: Yeah, I couldn’t take it. [laughs] Oh, boy.
Tobias: Are you aware, JT? Did you have that in your calendar?
Jake: No. This is, what, the first inversion or something? Is that where it would be in time?
Bill: You scared me. I had to leave.
Jake: [laughs]
Tobias: That’s what I said. Did you have your advent calendar for the countdown for–? Cam Harvey– [crosstalk]
Bill: [crosstalk] get out of here real quick. Yes, I’ve been eagerly awaiting. I love this kind of stuff.
Jake: I’m picturing that like Elmo and he’s got his arms up and there’s fire. Is that what we’re getting ready for?
Tobias: [laughs] Yeah. The prophecy is fulfilled, if we stay inverted through tomorrow, even though Cam Harvey has tried to distance himself from it.
Bill: Don’t do it, Cam. Lean in.
Tobias: I still believe. That’s what I think too. That’s what I think too.
Jake: Simple model. Tomorrow. Wow.
Bill: I wonder if Cam has ever faded his own model before.
Tobias: Yes, he has.
Bill: How’d that work out?
Jake: What year was that? [laughs]
Tobias: I don’t want to be too critical, because [crosstalk]
Bill: [crosstalk] We’re not being critical. We’re reminding Cam to stick to his religion when it’s tough.
Tobias: I did want to see how he thought about his own model. So, I went and dug up some of the– He’s got some PowerPoint slides on his academic page. And so, I found one from 2008 when he was delivering a presentation and he said, “Yeah, yeah, yeah, we’ve got an inversion, but likely to be just slower growth, not an actual decline.” So, that was not a good one to get wrong. I think that was a–
Jake: Housing prices are reasonable at a permanent plateau?
Tobias: So, that was score one for the simple model and none again for the experts.
Jake: Oh, it’s a route.
Tobias: So, he said this time again, slightly slower growth, lower growth, probably not a decline. I don’t know either. I’m just saying that the criteria are what they are and as of tomorrow, we’ll have fulfilled the criteria. That’s a quarter below-
Jake: Quarter inverted.
Tobias: 10:3 inversion. Yeah.
Jake: I don’t know what it means, but it’s provocative.
Tobias: Well, supposedly, on average, ten months, which I guess that’s a very specific pinpoint answer, but there’s probably a range of 3 to 12 months afterwards. There’s a recession declared probably looking backwards, probably to whenever it could be to now or late last year. And then, there tend to be worse outcomes in the stock market, which is my main interest in it. With no recession, you’re a 20% decline. In a recession, you’re a 40% decline. On average, we’re about 9% down, I think, from the peak or from about a year ago. Who knows?
Jake: Who knows?
—
Tobias: Let me give shoutouts to all the– [crosstalk]
Jake: Yeah, please do.
Tobias: Gothenburg, Toronto, what’s up? Richmond. Offshore Platform in Israel. Is that real?
Jake: Whoa.
Tobias: Edmonton (Canada, not Australia). London. What’s up, London too. Munich, Poland, Snake Valley, Nashville, Norberg, always in the house. Good to see you. Seattle, Bangalore. This is a good spread, man. Basingstoke.
Jake: That’s worldwide.
Tobias: Guildford? Wild. I love it.
Jake: Just think about that for a second. Let’s zoom out. You’re on the International Space Station, and you’re looking back at Earth, and there’s all these little dots all over the world, and they’re all listening to us right now.
Tobias: It’s crazy.
Jake: How stupid is that? [laughs]
Tobias: We got two from NZ, Auckland and Investing with Tom in Whangarei, what’s up? Sherwood, Oregon. Awesome.
Jake: Hey, Tom. What’s on tap for today? What do we got? Toby, what did you bring?
Tobias: I got a few intrinsic investing– [crosstalk]
Jake: Quantities, not quality.
Tobias: Stockton. Yeah, that’s what I bring.
Jake: [laughs]
Tobias: They had an interesting article saying that equity returns in the stock market are for enduring the stress of holding equity. They said volatility is like the manifestation of stress, but stress is the internal thing that you feel. I just thought it was an interesting idea. I was going to talk to you guys about it. I thought it was particularly germane given the 10:3 inversion means that there’s probably some short-term volatility. But at the same time, there’s also all those value indicators like the Gotham thing saying we’re in the 90th percentile, which means, what are you waiting for at this point? You’re waiting for–
Jake: Yeah. You have to– [crosstalk]
Tobias: There’s not many places to go.
Jake: You’d have to be a real greedy pig to-
Tobias: You have to be.
Jake: -go from 90 percentile to 100 percentile. [laughs]
Tobias: Yes, that’s going to be my topic. What do you got, JT?
Jake: I’ve got a little story about this place in Pennsylvania called Centralia that we will tie back to inflation, actually. So, that should be fun.
Bill: Nice. I’m going to listen and then I’ll comment accordingly.
Jake: Yeah, just leverage.
Bill: Somebody wanted me to talk about Qurate. I’m fine doing that.
Jake: All right. I could use a Qurate update.
Tobias: We had to– [crosstalk]
Bill: Can we though?
Jake: I didn’t own it. So, I’m fine. Just following along. [laughs]
Tobias: “That platform outside Israel is not a lie. Aussie engineering expat working on a gas platform.” What’s up, Josh? I don’t think we’ve ever had anybody quite as remote as that. Maybe we’ve had someone from Perth. I don’t know.
Jake: I feel like we’ve had some other offshore before, but I could be wrong. I’m still waiting for Antarctica. That’s when I know we’ll have made it.
Tobias: This is the favorite podcast of offshore drilling platforms.
Jake: [laughs]
Bill: It’s all. Yeah.
Jake: It’s the number one podcast in value-based offshore drilling.
[laughter]Tobias: Oil: After Hours.
Jake: Three-man edition.
Tobias: That’s it. That’s it.
Jake: [laughs] We couldn’t get– [crosstalk]
Tobias: On North America.
Jake: Yeah. At the 10:30 AM Pacific time slot. All right. Toby, let’s get into some of your stuff. I want to hear what’s been on the desk of Tobias Carlisle.
Tobias: I’m trying to– [crosstalk]
Bill: How his book coming, by the way?
Tobias: Oh, dude. It’s brutal.
Jake: [laughs] We could talk that out if you need a little therapy session.
Tobias: Yeah, probably. That’s a good idea. I think the problem is that I used to be a blogger. And so, the discipline of writing all the time and that I had like 100,000 words written by the time I started writing, I got to write it from whole cloth. It’s rough. It’s rough as it gets.
Bill: Mm.
Tobias: There’s a lot of words there, it’s just none of them are very good.
Jake: Oh. Is it the reworking that’s the problem?
Tobias: Yeah.
Jake: Yeah. That could be actually the problem.
Tobias: Actually, reworking is easy. It’s just that when I go back and read it, I’m like, “Oh, this is trash. [Jake laughs] This is garbage. This is cringey. I got to get this out.” And I got other things going on. I got things to run, little kids. It’s tough dodging all of it.
Jake: Yeah. You got soccer to coach and all that good stuff.
Tobias: Soccer is over. It’s hip hop and tennis right now.
Jake: Okay.
Bill: Nice.
Jake: Hip hop. What’s that? Like a dance?
Bill: Dance? Yeah.
Tobias: My little man loves it.
Jake: Oh, I bet that’s so cute. I bet he’s just crushing it.
Bill: He will.
Tobias: He’s the only boy and 17 girls. I don’t think he’s aware, but that’s his– [crosstalk]
Jake: Genius.
Bill: Dude is smart.
Tobias: Mad. Diabolical. [laughs]
Bill: Yeah. Going to be sweet when he’s older.
—
Do You Deserve Equity Returns?
Tobias: Yeah, I think so too. The article from Intrinsic Investing, Sean Stannard-Stockton, those guys, I just thought it was an interesting idea. The idea is that there’s always this existential risk of equity going down. So, Buffett and Munger have said, “If you can’t endure a 50% drawdown, then you don’t belong in the market.”
Jake: With some equanimity, then you don’t deserve– [crosstalk]
Tobias: Yeah. Is that what he said?
Jake: Yeah. You don’t deserve equity returns.
Tobias: What if I can endure it, but I don’t have the equanimity?
Jake: Yeah. [laughs]
Tobias: What if I have like-
Jake: Tie yourself to the mast?
Tobias: Tie myself to the mast. Yes, exactly right.
Jake: That counts too, I think. As long as you didn’t sell, then I think you deserve it.
Tobias: Well, that’s a good point. We’ve talked about this a lot too that first two-thirds of the time of a drawdown, there’s not a lot of action and that’s the last third in terms of time that you see all the action. This is not to say that I think that we’re still in the bear market. This is not to say that I think we’re not in a new bull market. I have no idea whatsoever. I would just say that these conditions look like every other bear market ever. Particularly long bear markets, they have these big rallies. I remember writing about the 2000 bull market, the [unintelligible 00:09:13] bear market in one of my books and saying that it had almost rallied back to all-time highs 12 months after the peak. And it was there that you had– [crosstalk]
Jake: Then, it ran out of gas and then–?
Tobias: It crashed. Yeah. So, that could easily happen here. Nobody knows what’s going to happen. And there are lots of indicators that looks like we’re going into a recession. There’s been a lot of stimmy, hours worked rolling over all these things. So, there’s this constant drip of bad information, but that’s always the case. They say, “Bull markets climb a wall of worry.”
Jake: Yeah.
Tobias: Also, whatever that means, I have no idea. Maybe it’s exactly this. There’s always bad information hanging out there. The good returns are always most available when the bad information is out there. That’s why you get the discounts and that’s why you can buy stuff that– You’re not going to get Google at the peak on a good multiple. You get it close to the bottom on a good multiple.
Jake: I think that today’s world where there’s so much data, but there may only be the same amount of information that there was before, but this flood of data that’s available lets you support almost any narrative that you would ever want to draw. So, I think it’s a more dangerous world today now that it’s so easy to find supporting evidence to confirm any prior bias that you might have had.
—
Tobias: Yeah, that’s a good point. You’ve also got the-
Jake: We got to be careful about that.
Tobias: -leading and lagging indicators. So, I always quite hope the E, the employment indicator– [crosstalk]
Jake: [laughs] Housing, something, something.
[laughter]Tobias: Orders, profits, employment. The funny thing is, every time I say it, I know I get a whole lot of emails telling me what it is. I have learnt from the emails now what it is. Thanks, guys. I appreciate it.
Jake: I think it’s funnier when you play dumb myself. You should just keep going with that.
Tobias: I didn’t know what the O and the P. I couldn’t remember the O and the P, because as far as I’m concerned, when the H goes, get ready. And when the E goes– [crosstalk]
Jake: It’s too late.
Tobias: When the H goes, get ready to go down. When the E goes, get ready to go up. That’s how I’ve figured it. So, we got an E that hasn’t rolled over yet. E, well, depending on how you dig into it. So, there’s some [unintelligible 00:11:28] on his site, aggregate hours worked and they have an index, and then he digs down into the actual hours.
Jake: Where did they get that from? Like ADP or something?
—
How Did Apple Avoid Layoffs?
Tobias: I couldn’t tell you. I didn’t dig that deeply into it. I just saw it very quickly in a tweet and had a look at it. I thought it was interesting, but the hours topped out in late 2020, 2021, like 35 hours a week. And now, they’ve rolled off the tiniest bit. I don’t know, because there was only two or three years of data there, what is significant. But when you look at that, there’s an indexed version of it, which doesn’t have the actual hours. It just has it relative to 100 on an index. The amount that it’s come down is infinitesimal. You can hardly see it. So, it’s hardly budged at all. You would expect the E to go last. There’s a lot of reports about tech companies laying like tens of thousands of workers off. But at the same time, they hired that many last year.
Jake: Based on those Day in the Life videos, you’re only losing maybe one hour of work there per employee, it seemed like. [laughs]
Tobias: What were they thinking when they hired all those people?
Jake: That’s a really good question that I think is underdiscussed. If you’re going to be laying people off a year later– If you go back and look at the employee counts from 2016 to 2022, huge additions in workforce. That was probably the error. Now, it is just the correction of the error.
Tobias: It’s not even a full correction. They’re not cutting deeper than what they hired in 2022. They may end up doing that, but it’s not like the layoffs that are coming at now aren’t reducing total employment. They’re just reducing those– [crosstalk]
Jake: We’re rolling all the way back to 2021 levels.
Tobias: Yeah.
Jake: Yeah.
Bill: Yeah. I don’t know. The sales per employee on something like Google is up from– what is this, in millions? 1.2 million million to 1.67 million million?
Tobias: Over what period of time?
Bill: From 2015 to the TTM. [crosstalk] Yeah, the revenues have supported some of the employee growth. I know on a percentage basis, the hiring didn’t really move all that much. I just don’t know how you incorporate that many people into a culture and even know what the hell they’re doing. When I joined a team, it took probably a year before I knew what the hell was going on and they knew what was going on, what they could depend on me, and you got thousands and thousands of people.
Jake: Is that because you were down in the basement with your red stapler? [laughs]
Bill: Yes, more or less.
Jake: Okay.
Bill: That’s where I should have been. Yeah, I don’t know.
Jake: Like second order thinking on this too, boy, does this set you up for a lot more antitrust potential? As long as you’re hiring, as long as you’re being a decent steward of society in some ways–
Tobias: A good citizen.
Jake: Yeah, a good corporate citizen and now, you’re laying people off for the perception of more profits for Wall Street, is this opening the door for some regulator who wants to now use that against you and come after you for antitrust stuff? Maybe.
Bill: I don’t know how much to– Ben Thompson has written about this. I could buy it. I don’t know how much they were depending on natural attrition and now people just aren’t leaving.
Tobias: It’s pretty good in there.
Bill: Well, fuck– [crosstalk]
Tobias: This [crosstalk] videos didn’t– [crosstalk] [chuckles]
Jake: Why would you quit that kind of-?
Tobias: Someone just plays to your life, and you make TikTok videos, that sounds pretty good.
Bill: Yeah. I think a less, I don’t know, maybe rude way to say it is you’re making well into the six figures for, I think, a lot less stress than you would have at a startup or if you’re running your own thing.
Tobias: Christopher Hohn, he’s an activist who runs children’s TCI. I think it’s mostly philanthropic at this point. I don’t know, but then I saw a tweet today that said that he made $1.9 million a day. I don’t know if you guys saw that. He sent a note. I think it was to Google, but it could have been to Microsoft. Do you know–? [crosstalk]
Bill: Yeah, it was Google. Yeah.
Tobias: Google? Where he said, “The cuts are good. You’re going to have to cut a whole lot more.” And then, somebody put above that this guy’s made $1.9 million a day in 2022.
Jake: Running a charity. I’m joking.
Tobias: I don’t know. I don’t know if he personally made $1.9 million a day or if the whole organization. That’s what they’ve taken the top line and then– I just don’t know how it works. So, I’m not sure what– I don’t want to give him too much credit, if it’s not all being given to charity.
Bill: Sounds like a guy that knows how to cut and generate profit.
Tobias: It wasn’t well received in the Twitter sphere, but then you have the Twitter sphere- [crosstalk]
Bill: Yeah, bunch of– [crosstalk]
Tobias: -extent to [crosstalk] FinTwit.
Bill: Bunch of employees that don’t run anything and rely on rainmakers for their salaries, criticizing a guy, okay.
Tobias: Rainmakers still need the people who do the grunt work. You still need the operations.
Bill: No doubt. It is symbiotic, but I respect those that have made the rain, especially those that have run their own organizations quite a bit more than I respect those that collect the rain.
Tobias: That’s a tough letter to send. That’s not a good look to be sending a letter like that. I don’t think Buffett would be dumb enough to send a letter like that.
Bill: Well, maybe not a letter, but he would totally do stuff like that.
Tobias: In the backend– [crosstalk]
Bill: You’re talking about a guy that drew a line in a warehouse and said, “Get the inventory under here.” This guy used to buy companies and suck them dry in reality.
Tobias: I think he learned his lesson though. I think he learned his lesson.
Bill: Yeah, after he made millions and millions and millions of dollars.
Tobias: [laughs]
Bill: This guy is not some saint, his whole life. I love the Buff Dawg.
Tobias: No, that’s true.
Bill: But let’s not rewrite history.
Jake: Do you think that he’s been talking to Tim Cook, which– I think Apple conspicuously now hasn’t been doing layoffs. Is that true?
Tobias: Well, Tim Cook took 40%.
Jake: So, [crosstalk] Tim Cook takes some pay cut. They’re not doing layoffs. I wouldn’t be surprised to see them zig when everyone else is zagging. And maybe they lean into this, and they hire people. I could see Buffett going to Tim Cook and saying, “Hey, I don’t mind if we look a little less profitable for a few years, that’s fine. By the way, if the stock happens to tank because of that, back that buyback machine up, baby, and let’s just load up on this and concentrate my ownership. And five years from now, it’ll be all good.”
Tobias: Does that also help you avoid antitrust action or any kind of adverse regulatory actions?
Jake: This is your invincibility, Toby.
Tobias: I don’t think Buffett necessarily does it out of the goodness of his heart. I think that he’s just sensible to the public perception of very successful, wealthy men calling for layoffs in these kinds of companies.
Bill: Look, the other side of all this, okay, is pensions do need returns to generate what they need to pay the people that will benefit from the pension? And those pensions do own these big companies.
Tobias: That’s true.
Bill: These companies also give stock to employees which happen to be a key resource. You don’t want your stock to go down so far that your employees are disgruntled. There are more reasons to do this than just some hedge fund guy writing a letter.
Jake: The inversion at this– [crosstalk]
Bill: I know that this gets lost.
Jake: The inversion of this of not laying off looks like Japan over the last 30 years. You end up with ossified structures, you end up with low returns on equity, you end up with markets that are sideways for a really long time, and stasis, and just clogged toilet bowl of capitalism.
Tobias: Do you think that’s overvaluation as much as it is just the failure to renew underneath? I guess Japan has been very, very cheap. It was overvaluation initially that drove the decline, but now, it needs a reason to get up, right?
Jake: Well, if you’re earning anemic returns on equity, you should trade at a low price to book That is logical.
Tobias: Yeah, that’s right.
Bill: Facts. True facts.
—
Jake: I think that Buffett and Munger, I’m basing this on– they got a fair amount of heat in, I don’t know, call it the 2012, 2013, 2014 time range with their relationship with 3G and 3G right sizing companies. Right sizing.
Tobias: Yeah.
Bill: Oh, Munger used to wax poetic on 3G.
Jake: Yeah.
Bill: They’re doing God’s work.
Jake: I think they would still probably say that businesses should be right sized. We’re not all farmers like we would have been a hundred years ago. We have to keep making forward progress on what jobs are required in an economy. They would say that it’s unfortunate for the people who are on the wrong side of that and there should be safety nets for those people. I think that’s the part that’s sometimes missed in the conversation of what they bring up. But I don’t think that they think that capitalism should be this hammock.
—
Day In The Life TikTok Videos
Tobias: The TikTokers aren’t really doing themselves any favors with those.
Jake: That’s a bad look.
Bill: Yeah.
Tobias: It’s hard to see how much work they’re doing, and they just seem to eat for free.
Jake: [laughs]
Tobias: It looks like a pretty fun pad. It’s like they– [crosstalk]
Bill: Those are just the [crosstalk]. You get those in everywhere.
Tobias: They could be marketing. That’s what marketing does, I suppose. Let’s everybody know.
Bill: Yeah, they’re just stupid influencers.
Jake: They tend to be young also. I don’t know if you noticed that.
Tobias: When you first come in, it takes a long time to skill up. You’re essentially useless. There’s that old joke about the person who goes to hell and it’s great. It looks like one of those Day in the Life TikTok videos. And then they’re revised, and they come back to life, and they’re like, “Oh, hell is not that bad.” And then, they get sent down, they’re put in chains and thrashed. It’s really hot now like what happened to the other hell that I was in. That was the internship program. Now, you’re here full time.
Jake: [laughs] Now, you are here.
Bill: That’s right.
Jake: Yeah. I don’t see any 50-year-old overweight middle managers who are just grinding daily in the Day in the Life videos. [laughs] [crosstalk]
Bill: Yeah, it’s because they got kids they got put food on the table for– [crosstalk]
Jake: Yeah, especially like young, cute girls.
Tobias: Yeah.
Jake: Oh, whatever.
Tobias: Yeah. It’s good marketing.
Bill: Ye.
Tobias: I guess as a program to induce people to come and work at those companies, that’s doing a pretty good job. It makes me want to work there. I want to go and work as a first-year marketing associate.
Jake: [laughs] First year.
Tobias: I don’t know anything about marketing. I could probably learn TikTok.
Jake: It doesn’t matter. We’ll get you onboarded.
Tobias: I’ll figure it out. We got a little bit sidetracked, but the point that-
Jake: Yeah. [laughs]
—
The Market’s Real Cheap
Tobias: -I was trying to make was that there is always a reason to be scared in the market. And on the other hand, we’ve got AQR. Like we talked about last week, Gotham, the Alpha Architect website, all those guys have got– [crosstalk]
Jake: They all kind of point in the same direction, right?
Tobias: We’re in the 90th, 95th, whatever percentile of cheapness. And you can say, “Well, clearly, you can go to 100 percentile.” That’s happened in the past. You can go beyond the 100 percentile. There’s nothing to– [crosstalk]
Jake: Yeah. You can make a new 100th percentile. [laughs]
Tobias: Yeah. When you look at the Gotham side in particular, when you go beyond that 90th percentile, you look at all of those dates, it’s like 2000, 2009. There are dates that you’re like, “Yeah, I want that date, because the forward returns are 100% plus.” But to get there, it’s painful.
Jake: What weird about that though is that those dates also corresponded with other valuation of the market metrics that made it look historically much cheaper than today, which is a weird thing to square. You know what I mean?
Tobias: Don’t you think it’s like a 2000 type scenario, where the market itself can be quite– I don’t know. Maybe the market is not expensive, because the FAANG is a big chunk of it now, and maybe FAANG is more reasonably valued given where it is. But you can have the split where-
Jake: Yeah. The bifurcated market structure.
Tobias: -value’s undervalued. The market is overvalued. The market does nothing. There are lots of people out there saying the market is going to do nothing for a long time. Last time I looked at the estimate, which assumes mean reversion over a decade, I think it’s at 3% or 4% annually at the moment.
Jake: That’s all dividends.
Tobias: Dividends are less than 2%. Now, there is some top level– [crosstalk]
Jake: It might come back. Who knows?
Tobias: That’s before inflation, it could be negative on an inflation on a real basis.
Jake: Yeah. How many portfolios today are– structured or how many in financial plans for retirement, or pensions, or whatever that assume some rate of return in them have that as a permutation within the plan that you could be 10 years from now and have no price appreciation?
—
Is Tesla The Market?
Tobias: Judging from Twitter, there’s a lot of Tesla, like single-stock-owning people out there. Tesla.
Jake: Man, I saw, what, retail has really poured a ton of money into Tesla in the last [crosstalk] something.
Jake: Some of the websites that I go to quote Tesla up besides SPY. It’s S&P 500, Nasdaq, Dow, Tesla, because it’s one of the most heavily traded– For many people, it’s traded like it’s the market. It’s the only thing they look at. There’s a guy who had this really pretty house in Los Angeles. He sold it to go and stick it all in Tesla.
Bill: Probably equally as overvalued.
Jake: The house?
Bill: Yeah.
Tobias: Well, that’s fair.
Jake: [laughs]
Tobias: That might not be a bad trade on a relative value basis. That’s a good point.
Jake: They’re both taking some pretty big duration risk there, huh?
—
Housing Crisis Porn
Tobias: There’s some great housing crash porn on YouTube. You can go down a rabbit hole there. I’ve gone right down that rabbit hole. According to the housing crash porn, and so I try to call it that so I can– I know it’s ridiculous and I’m trying not to get too sucked into it.
Jake: What do they say? Is it rates? Is it demographics?
Tobias: Yeah.
Bill: Yes to all.
Tobias: The one who I follow, this guy’s current argument is that unlike in 2007 and 2008, where it was the low doc ninja speculation– Well, I guess, it’s the same thing. He says the lending standards are a lot tougher now than they were then. I’m not going to be in any of that kind of stuff. However, there is an enormous amount of speculation. There are lots of these robobuyers like OpenDoor and all those kinds of guys, plus there are lots of individuals who have pyramided up dead and speculated in there. He’s got some way of estimating. He says that for a period of time from late 2020 until late 2021, he thinks that the speculation of the house [unintelligible 00:27:26] was like 100% of some of these markets. There was very little residential– [crosstalk]
Jake: Like real person who’s going to live there.
Tobias: Yeah. And they push the prices up, and I like seeing the prices going up. They’re less sensitive to prices because they’re not planning to live in it. They’re planning to flip it as quickly as they possibly can.
Jake: Yes, different duration.
Tobias: Then, they can track that as they turn and resell these houses. They’re now starting to take quite serious losses in these things, which means that behavior goes away slowly. And then, he tracks various other metrics that precede the busts by periods of 9 months to 12 months and he says they’ve all rolled over in the way that they did in 2008. It’s just it’s too early for anything else to appear, but the guy is like, basically, it’s coming and essentially, it’s just about here. Kind of interesting.
Jake: Just anecdotally though, does it feel like–? I remember 2006, 2007, 2008 housing markets, especially in California. Exotic dancers owning six or seven houses. It doesn’t feel like it’s been that, does it? Or am I just not running in these circles, [laughs] which I’m not as a 40-something-year-old suburban dad?
Tobias: Yeah, I don’t know. Anecdotally, I don’t know. I don’t think anybody is–
Jake: Bill, what are they saying in the strip clubs these days? [laughs]
Bill: I don’t know.
Jake: Okay. [laughs]
Bill: I think the lending standards have been cleaned up quite a bit. So, I don’t know who ends up holding the bag and I don’t think it creates some systemic risk. If you get some non-bank financial lenders that go to zero or whatever, I’m not sure that’s a huge deal. It might be.
Tobias: Yeah. Nick Fisher says Airbnb. There’s a lot of Airbnb.
Jake: Ooh.
Tobias: STR, short-term rentals.
Bill: Yeah, but that’s a legitimate way. I don’t know why that would change going forward. I think that’s a legitimate way for people to get yields.
Tobias: But if you get that, that assumes you’re getting yield out of it. If nobody’s renting your place and you’re levered on it and you’re missing payments because– that [crosstalk] pretty quickly.
Bill: We’re going to talk about a scenario where people, all of a sudden, start valuing travel less. I think you’re fighting a 20-year structural preference shown-
Jake: Agreed.
Bill: -among people, which is fine.
Jake: I think you also had an acceleration of that though when work from home was in full bloom.
Bill: Oh, for sure.
Jake: If there’s more back to office, you’re not going to hang out in the Appalachian Mountains or whatever when the firm wants you back in the city.
Bill: Yeah. Look, I’m sure some people will lose. It’s a cycle and it’s a long.
Jake: If you’re financed aggressively to get into that, then I could see having some cash flow issues.
Bill: But I don’t know how many lenders are aggressively financing out there. Banks aren’t. So, it’s got to be something non-bank related.
Jake: Yeah, I don’t know.
Bill: I’m sure it will cycle down.
Jake: We’ll find out together. [laughs]
Bill: But I’m happily long when I’m long.
Tobias: I’ve got a good comment here. [laughs]
Bill: I’m not losing any sleep over it.
Tobias: It’s a JFDVV4. “A as a connoisseur of housing porn, interest rates are pricing out a bunch of people from owning. I don’t expect a crash but conceivably 30% nominal price drop? Yeah.” So, that’s my definition of a crash. My definition of a crash kicks in around 20%. I think below 20%, 30%, that’s a crash.
Bill: We’ll see.
Tobias: Yeah, I don’t know. Nobody knows this stuff. I just like watching the tealeaves. Maybe I’m too– [crosstalk]
Bill: You’d probably still be above 2020.
Jake: Yeah, possibly. Possibly.
Bill: I don’t know how to time things. I’m not great at timing tops and picking bottoms. So, I don’t know. It could go up, it could go down. I think over time, you own good housing assets, you’re probably not going to lose. Nominally, of course, you’re going to have to pay. And I think housing generally that you live in is a shit investment. But it’s not an investment. It’s a luxury purchase.
Tobias: Well, you can lever it.
Bill: Yeah, but you got taxes and you got all the repairs that nobody ever talks about when they said, “I bought this house for this and sold it for– [crosstalk]
Jake: Yeah. All my profits up on the roof.
Bill: You got raped just like the rest of us.
Tobias: I bought it in 1989. That’s the secret. Buy it 30 something years ago.
Jake: Yeah. Step one, build a time machine.
Bill: Yeah, and I’m excluding–
Jake: Step two–
[laughter]Bill: Well, I’m excluding my $20,000 roof that I had to replace or my AC or the taxes that I had to pay. But it makes my wife happy and it’s better than renting, I guess.
Jake: Sometimes.
Bill: Not always.
Jake: I don’t know.
Bill: Yeah, not always.
Jake: Yes.
Tobias: Yeah.
Jake: Should we bang out some-
Bill: Yes to all.
—
Centralia Mine Fires Teach Us About Inflation
Jake: -vegetables?
Tobias: Let’s do some veggies.
Jake: All right. So, there’s this little town in rural Pennsylvania called Centralia. And apparently, there has been a mine fire in a coal seam that is underneath the town that’s been burning in this labyrinth of abandoned coalmines that are underneath this borough in Pennsylvania. And it’s been burning since, at least, May of 1962.
Tobias: [laughs] [crosstalk] like May of 1962. What day? What time of day?
Jake: May 27th, possibly.
Tobias: [unintelligible [00:33:12]
Jake: Yeah. People don’t actually know what the original cause is. It’s likely that it started from a planned burn of this dump site. They just had a dump out in the middle of nowhere and decided to burn whatever the hell was in the dump. And it probably fell down into this coal seam and then spread through these caverns underneath the town, basically. The estimates are at the current rate that it’s burning that it could continue to burn for another 250 years. And so, what’s happened is that basically, there are holes around this town that are just belching out carbon monoxide.
Tobias: Oh.
Jake: It’s hot, the ground is hot like a filling station will have an underground tank to store gasoline in it. It was like 170 degrees on that tank [laughs] when they measure things. So, basically, the town has been abandoned at this point. Most of the buildings have been razzed and it’s just like, “Okay, we had to shut this whole thing down.”
Tobias: Is it cheap? How much for a house?
Jake: Yeah, we’re going to buy our own house.
Tobias: Flip. We’ll flip. We’ll flip something.
Jake: Yeah, let’s flip it. Apparently, the video game series, Silent Hill is drawn on the events of this Centralia mine fire, which is an interesting little tidbit. All right. Fun enough story, but I actually learned about this from reading a recent interview with Jim Grant. And what he said was that inflation is such a system that resembles one of these inextinguishable long burning underground coalmine fires. In Pennsylvania, there’s been such a fire that’s been going on for around 50 years. You don’t always see it, but it flares to the surface from time to time. It’s always there and it’s always latent, leaking smoke, warming the soles of your shoes. To me, this is a good analogy for inflation in a free spending and paper currency issuing social democracy.
So, I thought that was pretty powerful to think through of like, how much fuel do we have in our current underground latent inflation potential, like how long would the fire be burning? The reason I bring this up is that I stumbled across this chart that talked about CPI in the 1970s. If you go year by year looking at it– We all think like, “Oh, you sort of take this big blob of, oh, there was inflation in the 1970s.” But try to separate yourself from that and live within each one of those years. What would you have been thinking from year to year, and where’s the federal funds rate, what’s the market doing? It’s all the stuff that we’re trying to figure out right now. Let’s look back at a year-by-year slicing of this to have that lived experience and see if we can learn anything from it.
What ended up happening was like, CPI in 1973 was 6.2% and then 1974, it’s 11.1%. It’s like, “Oh man, this is accelerating away from us. It’s getting out of hand.” 1975, 9.1%, and then 5.7. And so, now you’re like, “Oh, okay, maybe we’ve gotten to the other side of this. Maybe we’re solved it.” And we had a big market crash, the Fed funds rates pushed up. There’s been enough recession here in 1973, 1974 to calm this coalmine fire. But then it flares back up. And now, we’re at 6.5%, we’re at 10%, 14%. Sorry, 6.5%, 7.6%, 11.3%, 13.5%, it’s accelerating away from us.
Just imagine every year, it’s getting worse like that and you’re living through it. And the Fed funds rate, it was 5.9% in 1976, then it’s 6.5%, then it’s 10%, then it’s 14%, then it’s 18$. These are huge moves compared to anything that we’ve looked at for 2021, 2022. Just night and day differences. What I’m just trying to get at is that we probably can never really know how much coal there is that could be burning from all this. It could retreat over the next couple of years like 2022, 2023, 2024. Maybe it retreats and maybe then it comes back with a vengeance. I don’t know. But just to mentally prepare yourself for that is a possibility. It’s happened before.
I think the good news is, if you want your confirmation bias, value stocks over that time period– I don’t know how it was defined in this particular chart that I’m looking at. But they ended up doing pretty well over that time period. The S&P did not do very well, especially on an inflation adjusted basis. You were down 75% from peak to trough in the true 1970 real return basis on the market, which is missed. I think it came in at 48 nominal, but it was like 75 loss of real purchasing power.
Tobias: Which is worse than 29 on a real basis.
Jake: Well, it end up being– I don’t think it is worse than– Well, is it? I don’t know. Okay. You got it.
Tobias: That’s my understanding. 70s crash was worse on a real basis than 29.
Jake: Is that because you had actual deflation within the CPI for the 30s crash? So, you gained a little bit back, even though nominally it was a bigger crash?
Tobias: Yeah, I’m not sure how. I just remember that being a true fact that I learned a long, long time ago.
Jake: Okay. [laughs] Well, let’s finish that one then. The Fed had to raise rates, like we said, to 18% in 1980. That was probably this big giant dumping of a cold-water bucket to extinguish this underwater or underground coal fire that was burning. But to do that, you had to get the 10-year dramatically, dramatically above CPI to tame inflation. Today, right now, CPI is at 7.1 and the 10- years at like 3.5. We’re pretty far below. Are you ready for the world, where if the CPI is at 7 and we have to get the 10-year to 10 to calm this inflation? What does it even look like? Can we even do it? I don’t know the answer to that, but it’s– [crosstalk]
Tobias: Not in the short-term.
Jake: It’s pretty hard to imagine.
Tobias: Yeah. Can you even do it with government debt?
Jake: That’s the problem. All these debt levels are so much higher than they were in the 70s when they were– [crosstalk]
Tobias: The Fed is independent.
Jake: [laughs]
Tobias: It’s not concerned about those sorts of things. That’s the federal government’s problem.
Jake: Yeah, good point.
Tobias: Like the BAJ. The BAJ is completely independent. Not [unintelligible [00:39:59].
Jake: And to give you guys a little sense of, where is this on the radar for a lot of people? I don’t think that people are thinking about this right now that inflation could come back. As evidence of that, yesterday, Wall Street Journal had a little detailed note about, “Treasury notes that are maturing in one-year are at roughly a 4.7% yield. But inflation protected securities like TIPS for that same month yield about 2.7%.” So, that’s suggesting that the market is anticipating a 2% headline CPI, basically, in January of next year.
So, the market is saying that this is going to fix itself. It’s possible that it might. The market might have come up with the right answer. But what I’m saying is just be careful that you could very well be off sides on that, if you believe it too much. And just to recognize that if that ends up not being true, that it could be very painful to move rates up high enough to get this underground burning coalmine under control.
Tobias: What’s the source of the coal in the inflation example?
Jake: I tried to think about what would that– Is that like the Fred’s balance sheet? Is that the equivalent of how much coal there is? I’m not sure if that actually holds up very well. So, I didn’t say that.
Tobias: Let me ask you this. If raising interest rates kills inflation, what does lowering interest rates do?
Jake: That’s a trap. [laughs]
Tobias: And then if you lower them for a really long time, what would you expect to see?
Jake: Yeah. And how [crosstalk] you are running QV up into [crosstalk]
Bill: I don’t know that I agree to raising interest rates. Stop infla– Or I don’t know that I agree with the premise.
Tobias: Isn’t that what Volcker did? Raise interest rates to kill the inflation?
Bill: I don’t know that I believe that the Fed is what killed– I don’t know that Volcker killed inflation.
Tobias: What killed it?
Bill: I think that’s what people tell themselves. I don’t know. Ask Jim Carson or Bill Wabuffo. But both of them disagree with this and they’re both way smarter than me on this.
Tobias: What do they say?
Bill: I can’t recall it off the top of my head, because I’m an idiot.
Tobias: I don’t Bill Wabuffo in the comments to this. So, I don’t know if he’s listening.
Bill: Yeah. I don’t know. I think there’s a theory of the case that you could say that decreasing interest rates incentivized people to look so far out with their investment horizons, VCs in particular, that there was so much consumer surplus that no one needed current return that it actually had a deflationary effect on some of the things that we use. I think it would be impossible to argue that the rich didn’t get richer and that didn’t result in some sort of inflation on the goods that they spend money on, which ultimately ends up in popular lexicon. Well, and restaurants and travel and stuff like that.
Tobias: Christian Calderon says that, “M2 money supply grew 37% since February 2020.” That’s a lot.
Bill: Yeah. Well, we had a global pandemic and then we flooded the system.
Jake: Yeah.
Tobias: How does flooding the system with money solve the pandemic?
Bill: Well, I think that when the stock market was crashing and we thought that you were supposed to keep everybody inside, stabilizing the market was a smart decision from a policy standpoint. You do have elected officials that are there not for the purpose of just markets. It’s also to keep people safe. And at the time, they thought people going out was going to be a risk. And I think that if you have the market completely collapse, the probability that people watch their 401(k)s go to zero while they stay inside is very, very low. I think when you can’t spot a Treasury, it makes sense to come in and stabilize the market.
Now, I don’t know how the fuck they did the numbers. I wasn’t in the rooms. They were throwing darts. But I don’t think any of us would have done any better. And I don’t think not doing anything was the answer at all.
Tobias: I don’t like these counterfactuals, because–
Jake: Yeah.
Tobias: I don’t know if propping up the stock market is the right thing to do in any case.
Bill: Well, I thought it at the time. So, I think it now.
Jake: Well, my issue is that there’s always the question in every economics, “And then what?” And that has to be answered. I think oftentimes we don’t. My other issue is that the, okay, we need to give the patient methadone to help them. But the problem was is that you’re giving them heroin for so long before that you got them strung out on it.
Bill: Yes. Well, this is my beef with the entire Trump budget. Republicans, all they do is bitch and bitch and bitch. I am a registered one, so don’t turn it into something that it’s not. But then, Trump gets in and, what, we’re six years or seven years into a recovery and we blow the budget deficit out. Okay, so then what?
Now that Biden’s in, we don’t like how he spends. So, we’re going to say, you got to rein it in? It’s just a problem. But I don’t think 2020 was the problem. I think it was all the other– [crosstalk]
Tobias: How much influence do presidents actually have on the spending? Because it seems to me, it just doesn’t matter who comes in, it goes up. And it’s not funded-
Bill: Yeah, I think that’s part of the problem.
Tobias: -when the deficit is funded through–
Bill: That said, I don’t believe that you’re ever going to pay it down to zero. That’s stupid. We run a levered equity strategy here in America.
—
Post World War II Debt Levels
Tobias: The problem is it removes your flexibility. The last time we had debt levels like this was after World War II and it was because we fought a World War. This time, we just got a lot there. I hope we don’t have to fight a World War.
Bill: Yeah. Look, we may have to default.
Tobias: [laughs]
Jake: [laughs]
Bill: I don’t know why that’s shocking to say out loud. It might have to happen.
Tobias: It did wonders for Russia. They’ve got a lot of government debt too.
Bill: Yeah. Well, look, it’s maybe not roses in the future, but I don’t know what to say.
Tobias: Fortunately, I have a deep value strategy. So, I’m going to be in the crash position and bounce free of the wreckage.
Jake: [laughs] Roll quickly to the side.
Tobias: [laughs] I’ve put my head on the back of the seat with my arms over the top of my head, which I understand is how you survived the crash. All those other people, I don’t know what they were doing.
Jake: [laughs]
Tobias: I just–
Bill: Yeah, I don’t know. It’s going to be interesting to watch. I’d rather be here than anywhere else.
Jake: That’s a good point.
Tobias: Your mic has gone a bit funny, JT. Did you get your mic out?
Jake: Yeah, it died for a second. I’m resetting it. Our crack audio-video team here.
Tobias: I can’t be blamed for that one.
Jake: Yeah. [laughs] Is that better now?
—
Is 1970s-Style Inflation Coming Back?
Tobias: If we go into a 70s-style high inflationary environment, that has typically been good for value. This is a value podcast after all. Do you feel like the scenario is good for value now? It seems to be. We’re in those 90th percentile, but all of those numbers seem to– Well, Greenblatt’s numbers only run back 20 years or so.
Jake: Ah, yeah, that’s a difficult part as– Okay. He’s going back to the early 90s and has a dataset. When his basket looks this cheap, his Gotham earnings yield is at this level. The two-year forward returns have been very attractive. The thing I wonder about that is that there’s been a one-way interest rate bet roughly for that whole time period. It’s been call– it high to mid, at least, for Treasuries, the 10-year, in that time starting out and going to zero and negative in a lot of cases.
If you’re doing a sampling, which you have to assume that it covers enough of the dataset where all of those one-way things have had multiple cycles to get incorporated and counted. It’s currently sort of an exogenous variable. It’s another independent variable at that point that if it’s only a one-way thing. So, I don’t know if you can draw much inference on what the two-year projected returns look like, if you enter a new environment, which would be an increasing rates environment.
Tobias: We definitely have equity returns for increasing rate environments though. We’ve definitely got equity returns for the 70s.
Jake: Well, that’s what I’m saying, is Greenblatt’s data set doesn’t go back that far. So, I can’t hang my hat on– His number of saying 60% return from two years from now, which is what his dataset says, I don’t know. I feel like you could probably say pretty well you’re going to outperform probably based if you’re starting on the 90th percentile, but the absolute return level, I don’t know if that’s even like an apples to apples comparison when you have different rate environments.
Tobias: Yeah, I’ve definitely seen data that The Acquirer’s Multiple, which we’ve tested through various different environments, I had a look at it specifically in relation to 70s-type environments and it did work. But then, that doesn’t talk about– I don’t think I would have looked at the starting valuations that was just seeing whether it worked over that period of time. I’m sure we did it by decade in the book. One second. Let me have a quick look.
Jake: [laughs]
Tobias: Talk amongst yourselves.
Jake: Yeah.
—
What Went Wrong At Qurate?
Bill: Roger dodger. I get tagged in a lot of these Qurate threads. The only thing that I would say is, you could buy the debt and get 13%. And you can buy the preferred and get a 20% current yield and have two and a half times upside. So, I just don’t understand you guys that are still jerking off over the equity.
Jake: But if it works, what’s it going to do in the equity?
Jake: Well, that’s the thing. I guess you can argue that you could get a whole lot more, but I think you’ve got to define what work is. Obviously, if it becomes a growth asset again, then yeah, it could rip. But on a risk-adjusted basis, I don’t know.
Jake: Do you believe that the cap structure is such that it’s a binary bet for each one of those securities?
Bill: I think the market thinks so. I think that’s how you get a preferred that yields 20% current with two and a half upside. [crosstalk]
Jake: Yeah. It’s telling you– they’re calling bullshit on that, huh? [laughs]
Bill: Yeah. So, I don’t know.
Tobias: What’s the Qurate’s– [crosstalk] When does your Qurate bet run out?
Bill: In March. It’s the two just pathetic pits.
Jake: [laughs]
Tobias: It’s pretty funny, they’re both just demolished.
Jake: Both just.
Bill: Yeah, it was destroyed.
Jake: Oh, man.
Bill: It’s a shame. Oh, well. Tough– [crosstalk]
Tobias: Are you ahead? Do you know?
Jake: Yeah. Where are you at? What’s the–?
Bill: I don’t know. Recently, junk is bounced. I don’t know where Zoom is. I haven’t looked in a while. It’s best to just hide from these things.
Jake: [laughs]
Tobias: You got some cash back there, didn’t you?
Bill: Yeah.
Tobias: Got some cash and securities. Even a basket of cash and securities is underperforming.
Bill: It’s been a disaster objectively.
Jake: Oh.
Bill: It’d be nice to say it’s not, but it has been.
Tobias: What’s the main problem? Is it the financial engineering knackered them or just the underlying businesses is so–?
Bill: Oh, man, they had a lot of stuff. They had a major fire at their main fulfillment center. They had a CEO change. It’s a mess. But we’ll see. [crosstalk]
Tobias: Was there any COVID month in their data? There were a whole lot of people when they were home, they’re doing a whole lot of home shopping– [crosstalk]
Bill: Oh, yeah, that was the whole theory is that if you look historically at the cohorts, it’s very predictable behavior. Those cohorts are not performing like I would have expected them.
Jake: The power grandmas falling of the– [crosstalk]
Bill: Therefore, I was wrong. Yeah. It was odd in the beginning, they said that they didn’t see any difference in the behavior. So, I thought the addiction would stick. But if you go around the grandma Facebook groups, I think that some of these fulfillment issues have really upset people. According to David, David’s the new CEO, they messed up the merchandising. So, he’s trying to fix that a little bit.
Jake: The wrong cat sweater?
Bill: No, they got into a habit of– The whole purpose is a daily special value or today’s special value. They got a little bit lazy on defining the word today. So, they might offer today’s special value three times in a month and then you stop–
Jake: Use your– [crosstalk]
Bill: The psychological aspect. Yeah, and the psychological aspect of like, “I need it now/ Otherwise, I’ll never see it again.” You start to see the same items, then you get less urgency, and then you’re not getting them delivered as timely as you were, and then there’s a fire.
Jake: It’s lost there.
Bill: Yeah. It affects the shoulder programming. It was a psychology bet. From what I see, the psychology has not stuck and that was the one thing I was not willing to compromise on.
—
The Covid Market Darlings
Tobias: Zoom got smoked because it was just one of a bunch of those–
Jake: Bubble basket.
Bill: Yeah, beta basket. More or less.
Tobias: What’s the emblematic stock out of that entire runup and rundown beyond–? We got Carvana. Zoom?
Bill: Zoom was pretty poster child of COVID.
Tobias: Yeah.
Jake: Now, is this Zoom or the ZM or a ticker?
Tobias: All of those stories– [crosstalk]
Bill: People bought both? [laughs]
Bill: Yeah.
Tobias: It’s a bummer that Michael Lewis, he’s going to be on crypto, because I feel like somebody needs to write, somebody needs to go through all of those bubble stocks that blew up.
Jake: I would like to read a bad blood equivalent for Carvana, potentially. That might be interesting.
Tobias: Peloton? Yeah, that’s a good suggestion. [crosstalk]
Bill: Fastly was one. They were all going to get taken out. Everybody’s like, “Ah, it’ll get taken out [unintelligible 00:54:58].” Okay.
Jake: Apple will buy it.
Bill: Yeah.
Tobias: Did you say Apple?
Bill: They said the Apple needs the CDN.
Jake: [laughs]
Tobias: GameStop? Yeah. Gee, there are lots of good stories in there, isn’t there? Blackberry.
Jake: The history books will be rich for this time period.
Tobias: I want to read one, because I don’t think I’ve lived through one before. I sort of caught the tail end of 2007, but I didn’t see the speculative excess beforehand. Yeah, car vending machines. That’s not a bad idea. Maybe it works. I don’t know. Maybe it doesn’t work.
I don’t understand why you can’t customize your car. The set up for the car dealerships makes Tesla’s approach so much smarter. You look for a car that you want, and then you go to the lot, and it’s just not there in the configuration that you want, and they try and sell it to you, and, “Ah, it’s got the sports package. It’s $459. It’s already bolted in. We can’t take it out. You can take it or leave it.” Like, “Ah, I don’t want it. I don’t need it.” I get bigger mudguards and some mats to put my feet on for $450. Why can’t they just have one car you come in and drive on the lot, and then you go home and configure it, and they deliver that? How hard can that be? That’s hard.
Bill: Said like a true Australian. How are you supposed to get upsold and then sold into financing and sold into your [crosstalk] protection film.
Jake: You are going to need that undercover spray.
Tobias: Full self-drive.
Bill: Yeah.
Jake: Self-drive.
Tobias: What’s the spray that they put on?
Jake: Yeah. You’re undercoating the carriage. [laughs]
Tobias: The undercoating. There’s always some security system that they can just turn off.
Jake: Oh, yeah.
Tobias: But you got to pay for the security system too.
Jake: We got to keep your muffler bearings lubed and your– [laughs]
Tobias: Because you spend the first four hours just negotiating with the dude on the floor. You think that you’ve defeated the final boss when you come to an end. And then they walk you into a room with the closer, with the finance guy, and he’s been there forever, and he just knows how to extract that last $1,200 out of you.
Jake: [laughs] And that’s all their profit.
Tobias: That’s what he does every day. Yeah, that’s right. He makes their margin. One dude in a room. He’s selling you the undercut and the security system and the financing. Yeah.
Bill: I got to give credit to the Teladoc call. That stock is down from– it looks like $290 to $28. That’s pretty good poof.
Jake: Oof.
Tobias: Virgin Galactic, Robinhood, Docusign.
Bill: Oh, yeah. Robinhood. [crosstalk]
Tobias: There’s quite a few in there. The COVID stocks.
Jake: [laughs]
Bill: Yeah, there were a lot of them.
Jake: There was a little bit of euphoria. I think we could safely throw that flag now, right?
Tobias: How’s Beyond Meat doing, not as a stock, as a business? Are they still growing?
Bill: Hopefully not.
Jake: Hopefully not. [laughs]
Bill: No, they’re not.
Tobias: What about Oatly?
Bill: Look, if you were a 2019 company and you had $300 million in revenue, and I told you in 2022, you’d have $440 million in revenue, that’s not terrible top line.
Tobias: 50%?
Jake and Bill: Yeah.
Tobias: Is that Beyond?
Bill: Yeah. Oatly. Let’s see what Oatly is doing. My wife loves oak creamer. It drives me nuts.
Tobias: Yeah. I’ve noticed that a lot of people order that.
Bill: Yeah.
Tobias: I don’t think that’s going away.
Bill: Assuming the data that I’m looking at is correct. Revenue in 2019 was $204 million. This year, it’s $713 million.
Jake: Whoa.
Tobias: That’s good revenue.
Bill: Yeah.
Jake: This is that something about buying those- [crosstalk]
Tobias: Hopefully, it seems to be [crosstalk] in Beyond.
Jake: -because there’s sugar in it? [laughs]
Bill: God, this gross profit sucks though. What a shit business.
Jake: You just have to get to scale, Bill. [crosstalk]
Bill: Yeah. I’m sure.
Jake: Bill, it’s just right around the corner.
Bill: If this thing could eke out 20% gross margins, I bet they’d be happy. God, what a miserable way to live.
Jake: [laughs]
Bill: It’s fine if you can issue a bunch of stock and get paid but get out of that thing. I wouldn’t want to own it.
Tobias: SBC.
Bill: Yes.
Tobias: Fellas, we made it.
Jake: We did it.
Bill: I tell you what, forget about SBC. I’d be taking stuff in cash and restricted shares.
Tobias: Yeah.
Jake: [laughs]
Bill: I wouldn’t want any options or anything like that.
Jake: Yeah. You’d be J.G. Wentworthing here.
Bill: Yes, [crosstalk]
Jake: Give me the cash now. I don’t care.
Bill: That’s exactly right.
—
HR Company Deel, Now Valued At $12 Billion
Tobias: I saw there’s some guy. It’s called Deel, D-E-E-L. It’s like some sort of HR hiring thing. But they’ve done around $12 billion with $300 million in revenue. They can do a $30 million cap raise and a $20 million sell down. I was like, “Yeah, good.”
Bill: Good for them.
Tobias: You guys know how it works? Good to see the golden goose isn’t dead yet.
Bill: You tip your cap to stuff like that.
Jake: That’s a new Singleton type of stuff issuing hand over fist when they’re giving.
Tobias: When they’ll take it.
Jake: When they’ll take it.
Tobias: $12 billion on $300 million in revs.
Jake: If the ducks are quacking, you got to feed your ducks.
Tobias: How much do you want?
Jake: Yeah. [laughs]
Tobias: All right. That was good. Thanks, fellas. See you.
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