VALUE: After Hours (S05 E4): Value Beaten In January, Bears And Rate Cuts, Richard Hamming’s Research

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

  • Which Industries Will ChatGPT Disrupt?
  • Where Are All The Bankruptcies?
  • Soft Landing Or Big Flush Coming?
  • Who’s Winning The Streaming War?
  • Investing Lessons From Richard Hamming – You And Your Research
  • Animal Spirits Back In The Market
  • Stocks That Are Ripping
  • Who Decides What Goes In And Out Of An Index?
  • Retail Participation Levels Back To April 2022 Highs
  • Rate Cuts After Great U.S Bubbles
  • Options – How To Lose All Of Your Money Twice
  • Tesla Down Nearly 19% Since Joining S&P500
  • Disney Would Be A Better Business If It Was Private
  • Even Great Brands Don’t Travel Well
  • Office Occupancy Rate Rises Above 50% for First Time Since Pandemic

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

Bill: I don’t want to come on and speak fake news.

Tobias: All right, fellas. We’re off.

Jake: When’s that ever stopped us?

Bill: The mouse is running.

Tobias: So, this is a new computer, new rig. Jake’s on one too.

Jake: Oh, yeah.

Tobias: Maybe there’ll be fewer hiccups. I don’t know. Maybe more.

Bill: I’m on a guest computer.

Tobias: [laughs]

Jake: [laughs]

Tobias: This is Value: After Hours. I’m Tobias Carlisle.

Jake: Cheers.

Tobias: Got Bill Brewster and Jake Taylor here as always. What’s happening, fellas?

Jake: Hola, amigos.

Bill: We’re down here– [crosstalk]

Tobias: How’s it [crosstalk] everybody?

Bill: Livin’ la vida loca in Miami. Hotels on Collins Ave, I could have found a quieter place. Shoutout to Jason Buck for putting me in the noisiest hotel in the entire world. Thank you, Jason.

Jake: [laughs]

Bill: I bitched at him this morning and he’s like, “Well, look at the price you’re paying. What do you expect?” I said, “I probably would have paid more, to be honest.”

Jake: The hotels seem like they’ve gotten very expensive. Has anybody else noticed that?

Tobias: Everything. Everything is expensive.

Jake: Oh, shit. Okay. I missed that. Nobody told me.

Bill: Eggs. I understand you guys are buying Cal-Maine. Just don’t capitalize the earnings. That’s my only advice.

Tobias: There have been egg factory fires.

Jake: [laughs]

Bill: It’s not great.

Jake: That’s just called broiling a chicken. What are you talking about?

Tobias: That’s strange. Let me give some shoutouts. There’s a few here today. I’m sorry–

Bill: I got a shoutout I got to give. Let me find this dude.

Tobias: San Diego, Jamaica, Pakistan, Hamburg, Gothenburg, Sweden, Roseville, Vancouver, BC, Prince George, Denton, Texas, Gulf of Mexico, what’s up? The Platform in Israel, what’s up?

Jake: Oh, my God.

Tobias: Guten Abend from Berlin, Old York, [unintelligible [00:01:54] Nashville, Portland. This is a good spread. [crosstalk]

Bill: Hey, shoutout to Matt Commins, C-O-M-M-I-N-S. Guy’s going through a tough time. You know what’s getting them through it? Boom. Value: After Hours.


Tobias: That’s what we do.

Bill: Sorry your life has come to this. We appreciate you tuning in.

Tobias: We are experts at getting through bad times as value guys.

Bill: That’s right. Yes.

Jake: Everyone will be tested at some point.

Tobias: Actually, probably a good time would be the thing that would test us the most. I’ve never seen one. So, I don’t know what it would be like. It would be uncharted territory.

Jake: Yeah.

Bill: What? Good times?

Tobias: Yeah. Just value ripping for a few years.

Bill: Good times is going to be– [crosstalk]

Jake: Just imagine that– [crosstalk]

Tobias: He’s going to blow up and like, “God, I don’t know, nobody.”

Jake: [chuckles] Yeah.

Bill: Dude, it’s going to feel like the night we met, and we partied in that bar in Omaha late night.

Jake: [laughs]

Tobias: Yeah. [crosstalk]

Bill: It’s going to be great.

Tobias: Speaking of which, I’m going to be there this year. Jake is going to be there. You coming along, Billy?

Bill: This part of the year, I always tell myself no and then I always end up there and have a great time. So, the answer is that.

Tobias: But Future Billy a gift.

Jake: Yeah. Come on.

Bill: Yeah. I’m getting it though.

Tobias: And just forget about it and then be like, “Ah, good job.”

Jake: Stop teasing yourself. Just get it booked.

Tobias: Good job, [crosstalk] Billy.

Bill: I’ll be at the Harrows like I am every year because I [crosstalk] the last minute.

Jake: Oh.

Tobias: Nice. You’ve done that once and that was enough.

Bill: That’s where I go every time.

Tobias: I don’t know if I like that smoking in the early morning. Smoking [crosstalk] in the early morning.

Bill: Yeah. I like it because if I walk downstairs, I feel depression immediately and then the day can only get better.

Tobias: There you go.

Jake: Okay, the bar is low.

Bill: I like to hit my planned bottom quick.

Tobias: Losing money with friends, that’s us. What’s up?

Jake: [laughs]

Bill: I usually stay out of the Harrows, which is good. Although, last time me and scuttleblurb dropped down a couple of bets. It was pretty fun.

Jake: It’s always a good time.

Bill: [crosstalk] the hotel room bill.

Jake: Maybe this time, we’re like– Well, no, we’re not. I was going to say maybe we’ll plan ahead a little bit further for a get together. But let’s be real, we’re not going to plan ahead.

Tobias: That’s a pretty good turnout. That’s a fun turnout. I’ve got all my notes on my phone, which I left at my desk. I’ll be two seconds. What are you talking about this week?

Jake: Fill out the air. [laughs]

Bill: What are you going to talk about? Let’s hear what you talk about.

Jake: I’ve got a piece on a speech that was given in 1986 by this researcher named Richard Hamming, who I found very inspiring. It’s just talking about how do you find important problems to work on and who makes truly breakthrough discoveries and what do they have in common. I think it might be good. It might relate well to the investment research process. So, we’ll see.

Bill: Oh, I was thinking that it would relate to me finding meaning in my life, which would be nice if you can do that.

Jake: It might. We could do that too.

Bill: Yeah, why not?

Jake: Let’s do that. What do you do, Billy?

Bill: Toby, what do you got? Value spread, all-time high?

Jake: Where’s that yield curve at? [laughs]

Office Occupancy Rate Rises Above 50% for First Time Since Pandemic

Tobias: Fellas, coming, coming. So, I got a few interesting ones. These are just like short notes for general discussion, but I saw a tweet yesterday that I just can’t open for the life of me. Last week was the first time that we have gone back to 50% occupancy of office.

Jake: Back to work.

Tobias and Jake: Yeah.

Bill: Yeah.

Tobias: Since before the pandemic.

Bill: Yeah.

Tobias: Isn’t that amazing? Only back to 50% now.

Jake: What’s next? People have to wear suits to work?

Bill: No, no. [crosstalk]

Tobias: If it gets gnarly enough though.

Jake: Not sweatpants? [laughs]

Tobias: Yeah, I thought that was wild. That’s got to have some implications for commercial real estate.

Jake: Starbucks got to be back, right? Does that help them?

Tobias: Starbucks, yeah. That’s got to hurt everybody, right? It’s going to have massive knock-on effects. How’s that not turned up in any of the data yet?

Jake: I don’t know.

Bill: Well, that was part of why I avoided Starbucks, actually. I remember the Starbucks that I used to work on this corner in Chicago and it was BMO, the Bank of America was right next to us, the Northern Trust was right across the street from there, and then I think it was 5th– No, it wasn’t 5th, 3rd. I don’t know who it was. It was a private bank, I think. Anyway, we go into Starbucks the whole freaking day. [Jake laughs] I just thought with the potential for habit to be broken and the throughput in the store is going down, I was wrong. Imagine that.

Tobias: Well, I guess my question would be, does that just shift? Now, you need to get out of the house and now you go to your local rather than the one that’s downtown?

Bill: Yeah, and I think with the drive-thrus been what-

Jake: It’s drive-thrus. Sure.

Bill: -they’ve provided people somewhere to go when you couldn’t go anywhere else. So, I missed it. Whatever.

Tobias: Was it Dutch brothers? Are they doing the drive-thru coffee? They had the massive multiple for a while. I saw my first one summer last year.

Jake: Oh, yeah?

Bill: [crosstalk] Probably worth looking at now.

Jake: Yeah, it’s definitely gotten cheaper from what it IPOed at whatever like a year and a half ago or whatever.

Tobias: I like those businesses though. They’re good businesses. Coffee.

Jake: It’s a good business.

Tobias: For all the reasons that Buffett likes Coke.

Jake: Returns on capital are strong. It doesn’t take a ton to set one up.

Tobias: Huge margins.

Jake: Yeah, [crosstalk]

Bill: Actually, not down much.

Even Great Brands Don’t Travel Well

Jake: I know. I keep my eye on it, but thus far, it’s not really gotten– Here’s my issue, is that from here, you are betting on a lot of expansion from the West Coast. If See’s has taught us anything, it’s that even great brands don’t necessarily travel. And Coke, obviously, did just fine traveling all around the world, and for whatever reason, that worked, but See’s Candy didn’t. What travels and what doesn’t, I don’t think is all that easy to predict. And so, if you’re betting on it being able to go and push past east of the Mississippi, which you are basically and this entailed in today’s price, eh, I don’t know, that’s not a bet I find all that attractive. I would like to find out.

Bill: I don’t know that you need to look at See’s. Dunkin has been primarily an East Coast brand for a very long time. I know they’re successfully expanding. I do wonder, when you get a healthy valuation, the shareholder base is pushing to open quickly, because that’s how the math has to work.

Jake: Yeah.

Bill: To your point, do you have to force the opening in an unnatural and potentially unhealthy cadence?

Jake: Yes.

Disney Would Be A Better Business If It Was Private

Bill: It’s weird, man. I have these same thoughts about Disney. I’ve been bitching about this for over a year now. I just wonder, if that company wasn’t public and it didn’t have the shareholder base that I think it has, might the food in the parks be a little bit better? Might it be a little higher quality? And might you be able to actually give up a little bit of margin, but really give people, I don’t know, real experiences that they’ll pay for? I just feel like they’ve sucked the joy out of that park. I blame a lot of it for the incentives of being a public company.

Jake: There’s always that temptation to make the expedient short-term decision in any public company. I think the ones that don’t think that way kind of prove the exception to the rule, unfortunately, I think.

Bill: Yeah. We’ll see. Obviously, Iger is back and maybe he changes it, but Chapek was the parks guy right under Iger. So, I don’t know. It’s interesting. Where I’m from– [crosstalk]

Jake: It’s really hard to change the culture once that permeates as well, where you’re– Look at GE as sort of the pinnacle or [unintelligible 00:10:11] example of that in mid 2000s, where it seeps into the accounting, the entire operation becomes focused on hitting that next quarterly beat by a penny. And somehow, they’re able to keep doing it and they’re tap dancing to Wall Street’s tune.

Tobias: We need $20 million out of some of those acquisition reserves for this quarter.

Jake: Yeah.

Tobias: You just have to find it in there.

Bill: You just going to have to go find it somewhere. Boy, once they start that, I think it’s really hard to ring that out of a system. Yeah.

Tobias: Well, turns out it’s true, particularly for GE.

Bill: For Disney, specifically, I live in an area where we’re close enough that you get a lot of the regional people. There’s so many that I talk to that are now– Actually, SeaWorld comes up a lot as where they take their family, because it’s cheap relative to. And Universal has picked up just a ton of season passholders that used to be Disney passholders that now they go to Universal. I went there with the kids. I will follow up on my previous story. [Jake laughs] A lot different when you’re with the children than when you’re partying.

Jake: Oh. [laughs]

Bill: I thought to myself as I waited over an hour in that one line, would I be mad at me for skipping this line? I determined I would be mad, because I got mad at a grandma that was going after her lost grandchild but I still [Jake laughs] think that I’m okay in the karmatic universal– I’m not sure I need to find God like the person told me I needed to, but I will admit that certainly intoxication led to some potentially bad decision-making on my part the first trip. But boy, was that fun. It was fun with the kids too, man. Harry Potter Land is special.

Retail Participation Levels Back To April 2022 Highs

Tobias: Got another one. Retail participation is back to levels that we saw in about April last year. This is ZeroHedge. So, put your own spin on it, but the SPX retail by interest is back to where it was first quarter last year.

Bill: So, SPX, this is going to be a really stupid question but what are we measuring here?

Tobias: Volume.

Jake: Flows? Flows, is that what it is?

Bill: Is it options also? Because these daily options that have blown up, these things are fucking crazy.

Tobias: This is a little bit more esoteric, but do you think that’s doing something to the vol, to the VIX? [crosstalk]

Bill: According to the guys that I talked to, the problem with the VIX is the construction is completely crap. They say there’s two VIX products. One is a three-month fixed product and they said that’s excellent. But that’s not the one that’s marketed, because it’s not the one that drives fees. Because if you have to trade 12 contracts a year, that’s better for CBOE than if you have to trade 4. But they said it’s a way the VIX is constructed. They said that the daily options don’t have enough theta decay in them really to influence the vol structure. This is the conversation I just had.

Tobias: Okay.

Bill: So, I’m only parroting somebody else and you’re only getting my interpretation of what they said.

Tobias: For those of us who are just tourists involuntary, that’s just not enough time. It’s a day– [crosstalk]

Bill: That’s correct.

Tobias: Yeah.

Bill: You are no tourist, sir.

Jake: [chuckles]

Tobias: Well, I never want to get caught by one of the guys who actually knows what he’s talking about.

Bill: Yeah, that’s fair.

Jake: The P&L says otherwise. [laughs]

Bill: Yeah. By the– [crosstalk]

Tobias: I lost a lot of money in vol.

Jake: [laughs]

Bill: As have I. A right of passage in finance.

Tobias: The thing is it’s got that payoff structure-

Jake: So obvious.

Tobias: -where you’re supposed to lose a little bit of money-

Tobias: Yeah, no problem.

Tobias: -every month, I’m good at that. So, I did lots of that for a long time. And then, you’re supposed to get this big payoff. I’ve had three big payoffs, because I’ve done it in different products. I’ve done it literally in the VIX, I’ve done it in SPY puts. I’ve done it in VIX-called SPY puts and the HYG puts as well. I’ve got paid three times and I’ve never collected on it, because in every instance– [crosstalk]

Jake: What? You’ve been in the money three times?

Tobias: I’ve been way in the money, like 30% of the portfolio in the money and then it’s run out by the time– [crosstalk]

Jake: It’s that Goddamn European options on those. That’s the problem.

Tobias: I could sell it out. I could get out. They’ve all been little moves. It’s all of the moves between here– Not last year, obviously. Probably the last one I did was 2018, something like that.

Bill: Yeah, they’re quick. You got to know when to cash it out.

Tobias: Well, here’s the thing though. When vol gets trending, the 30% of the portfolio becomes like 300% of the portfolio at some point.

Jake: Yeah. You can’t take it off too soon. This is your one shot.

Bill: That’s right.

Tobias: Finally get some coin– Yeah, anyway, it didn’t work.

Jake: [laughs]

Options – How To Lose All Of Your Money Twice

Bill: The story Jason Buck told yesterday about how he started to come up with his fund, he was in commercial real estate and that shit the bed in 2007, 2008. Because he was close to the industry, he put, basically, his remaining money on shorting in the options market, like the banks or whatever.

Tobias: Okay.

Bill: He was right, but he didn’t understand vol. Even though he was right on the direction, he lost everything again.

Tobias: Wow.

Bill: He’s like, “I went broke and then I went even more broke with the right vol.”

Tobias: [laughs] Broken.

Bill: That was my options education. I said, “Yeah, that sounds about right.” [laughs] I have a buddy. I always tell him– he thinks he can make directional calls and express it in options. And I’m like, “Dude, you’re going to get screwed, because you don’t understand vol and how data works.”

Tobias: If you hold it to expire, you should get paid, if you’re right.

Bill: Yeah.

Tobias: You can always do it. You can do it part in the money. So, it’s like a big leave it bet. I don’t want to encourage anybody to do that.

Jake: Yeah, this is not investment good advice.

Tobias: Theirs is smarter way to– That’s right. This is a way that you can really wax yourself.

Bill: I have a friend who made his– Well, I shouldn’t say he made his year, but a big contributing factor to his year last year was an out of the money calls on Maxar, but he had a view on a transaction. He thought the options were mispriced. I think, boy, you better have a good sense of why that option is mispriced, rather than I feel like this direction is going this way.

Tesla Down Nearly 19% Since Joining S&P500

Jake: Speaking of retail, I happened to look from when Tesla joined the S&P 500. Any guesses as to how it’s performed since then?

Tobias: Since it joined. Is it down since it joined?

Jake: I think November 2020 is when it joined.

Tobias: Okay. So, I think the peak was close to January 2021– Yeah, January 2022. Sorry. It’s probably down. How much is it down?

Jake: December 21st 2020 is when it joined. It’s down– well, this was as of a couple of days ago, but down 19% since joining S&P 500.

Bill: Oh, Salesforce?

Jake: No, Tesla.

Bill: Oh, Tesla. Sorry. My connection is unstable, and I went into the matrix for a second.

Jake: I bet Salesforce is probably a similar-looking thing for the Dow and swapping Exxon out for Salesforce.

Bill: Yeah.

Tobias: Oh.

Bill: Yeah.

Who Decides What Goes In And Out Of An Index?

Tobias: There’s a committee that makes those decisions about what goes in and what comes out. There are rules, but their rules are not necessarily quantitatively followed. Has anybody ever looked at what–? [crosstalk]

Jake: I don’t think they can be either with– If the size of the indexation of the market gets up to a level where you all of a sudden have to buy, let’s say, even a couple of percent for Tesla in this case, it was the biggest one, I think, so far, but if you have to put that much money to work that quickly to make it part of the index, you could just end up with these crazy market swings. So, they have to figure out ways around that to ease into it, who do they decide to pick or not. I think it’s a lot less quantitative and strict discipline than what we might imagine.

Tobias: But isn’t that two questions? Isn’t it one of them is how you trade a fund that matches that index? That’s what you’re talking about there.

Jake: Yeah.

Tobias: Then there’s just like managing the index. So, they just make decisions about what goes in and what comes out. They’ve done stuff like they didn’t include Google, because they thought it had run up for the first year or so, because they thought it had run up too far too fast. I forget what the problem with Tesla is. It was probably something similar. They thought it had run up too far, but it qualified and there was some debate over whether it would actually get added or not.

Jake: Mm. I don’t know. Has it worked out so far? Let’s just say that.

Tobias: But that’s been a good strategy for lots of people. Lots of people are aware that you buy the stuff that falls out of the index on the guess that it’ll be re added over the next few years. [crosstalk]

Jake: Well, I don’t know if it’s the re-addition as so much as the four sellers who are tied to that index product. If you get bumped out of an index, then there’s a bunch of holders who need to just puke it right away to stay on to meet their mandates. There’s probably a bunch that also do it just to stay closet indexing. [chuckles]

Tobias: Well, I used to do that. When stuff fell out of the Russell 2000– I don’t know how many people are watching the Russell 2000. Half a dozen blokes in the entire world. When stuff fell out, you could buy it, and then you just wait a year or two or three, and it gets re-added to the index. That’s your exit. I don’t know if anybody’s tested that strategy. I think it works pretty well, provided it’s undervalued when it comes out. Do you guys want to do some market prognosticating?

Jake: No.

Bill: I like the idea of buying into up list.

Tobias: [laughs]

Tobias: Do you have something to add then, JT?

Jake: No, I don’t. I was just joking. We can prognosticate if you want.

Rate Cuts After Great U.S Bubbles

Tobias: So, this is from GMO. This is from Grantham’s latest bit. Rate cuts after Great US bubbles. So, again, Grantham said everybody who discounts him can immediately discount him.

Jake: Yeah, just tune out now.

Tobias: He’s got the date of the first rate cut for December 1929, subsequent drawdowns in US stock market, 79% after that rate cut. And the date of the market trough was three years later, June 1932.

Jake: So, let’s back up a little bit. What he’s talking about here is that historically, 1929, 1999, 2007-

Tobias: 2007. Yeah.

Jake: -all of those time periods where everyone thought, “Oh, the Fed is going to come to the rescue with a rate cut,” basically, the Fed wasn’t able to stop anything from happening, is effectively what he’s saying there, right? But then– Continue, go ahead.

Tobias: No, I just have the chart. That’s the entire point. When the rate cuts come– I think that’s one of the things that many of the bulls are hanging their hats on here that lower rates in housing and in the stock market mean that the market turns around and rallies again. But that’s not been the case historically, particularly in these big bear markets, the rate cuts happened closer to the top.

Jake: Except for one instance of 1973, where it didn’t– It actually bottomed right as the first rate cut was happening.

Tobias: There’s an argument this market is like those early 70 ones than those other ones too.

Jake: Lest we think that there’s complete precision in these historical analogies. There is not.

Tobias: True. All we got to do now is we’ve got to fill for 10 months while we see whether the yield curve inversion worked or not.

Jake: Well, I don’t know. Does it feel like to anyone else that the upside versus downside seems to be skewed in ways that aren’t as attractive necessarily? How much can you make from here versus how much might you lose from here? Try to answer that question.

Bill: I don’t know.

Jake: What do you think? Put a couple of numbers to that, like your thoughts right now.

Stocks That Are Ripping

Bill: Well, this is a natural thought of anyone that likes the idea of stock picking. I was going through Manual of Ideas, their best ideas. Shoutout to John and them. I think there’s some good pitches out there. Roku, Jesus, that thing has ripped 43% in a fucking month.

Tobias: Yeah, all that stuff’s up. Amazing. Carvana is up 100%.

Bill: Yeah. Warner Bros. I don’t know where I think the opportunity is, but I know that I think there is still opportunity. Now, something like Microsoft, the probability that it’s a better short over the next year than a long, I think, is pretty high. When I say pretty high, call it 60:40. I don’t actually have any strong beliefs on that stuff.

Jake: Yeah.

Bill: But medium term, if their disclosures were real, that business is getting more and more relevant in people’s lives even now. If you need to trade down in your total aggregate spend, having an E5 product, or whatever the hell they call it versus individual products, I could see the strong being stronger coming out of this with really good businesses, where three to five years out, you look at it and you say, “Okay, that was actually a pretty good time to buy.” But in the next 12 months, who the hell knows?

Tobias: That’s right. That’s roughly where I get to too. I think that if you look at Greenblatt’s little Gotham website, where he’s got the forward two-year return, we’ve ticked down a little bit from the 90th percentile to the 89th percentile, but he’s still saying your returns are– [crosstalk]

Jake: What [crosstalk] coming in at? 50% or something?

Tobias: Yeah, 58.7%, something like that. 58.8%. Last week, it was the 90th percentile at 60%. This week, it’s the 89th percentile at 59%. So, it’s still forward returns look really good, even though evidently, we rallied a little bit over the last week in that portfolio. I think that’s right. I think that the longer-term returns, like as we’ve discussed, the two-year returns and longer three-year returns, five-year returns are pretty good here, but the path that you take to get there could be gnarly. But then, every single man and his dog thinks that, so there’s no insight in that.

Which Industries Will ChatGPT Disrupt?

Bill: A short idea I saw on Twitter, somebody just threw it out and I think it’s pretty interesting to think on is Chegg. They’re basically like the cheat sheet for colleges. What does ChatGPT do to that business?

Tobias: I had shorted that thing when I was doing a little bit of shorting. I haven’t looked at it for a while. It’s short. It was pretty gnarly when I looked at it. A few of those things– [crosstalk]

Bill: That’s actually the type of thing that I could see ChatGPT not just disrupting but disposing of.

Tobias: Is that what Chegg is? Is it cheating?

Bill: More or less.

Jake: [laughs]

Tobias: I thought they were like–

Bill: It’s got all the answers and stuff. So, if you’re a college student, you pay and then you get the answers.

Tobias: I hadn’t quite understood that part.

Bill: [crosstalk] I’m sure there’s more– [crosstalk]

Jake: The real world’s all about– [crosstalk]

Bill: Pitch. But come on, how are people actually using it?

Jake: Isn’t that what you would want in a businessperson though, is find the cheapest way to find the answers? [laughs]

Tobias: I like the line about ChatGPT. Someone said, it’s like a newly minted MBA. It’s very, very confident and it’s often right, but there’s also lots of little mistakes in there.

Bill: Yeah.

Tobias: No disrespect to the newly minted MBAs.

Bill: Nah, plenty of disrespect–

Jake: Or CFAs, apparently. That’s a hot topic right now.

Tobias: Yeah. [crosstalk]

Bill: Why are you going at the CFA?

Jake: I don’t know.

Tobias: The exams are coming. Everybody’s studying for them.

Jake: Oh, okay. Has ChatGPT passed that one yet?

Tobias: That’s a good question actually, because the thing that makes it hard is it’s a closed book test, not that the questions are really that difficult, just that you have to memorize it all.

Jake: Yeah.

Bill: Yeah, I had to learn how to do it. I couldn’t memorize my way through that test, which is what I thought was benefit of the closed book. I had to learn how to think about the problems, not memorize.

Tobias: I just think memorizing formulas is a waste of time. I think that you got to know which formula to use, because you got to go so fast that you can’t be looking everything up. You couldn’t take in the six textbooks and look everything up as you went through it. You have to know what you’re looking for. And then, you’re just going to find where’s the bracket? That’s all I would have liked it for.

Bill: Yeah. I enjoyed the process a lot. I understand the merit of open book text. That’s how law school was.

Tobias: That’s live too.

Bill: Is that the law school was in Australia?

Tobias: Yeah. You can read notes.

Bill: Having notes, that’s a good way to test.

Animal Spirits Back In The Market

Tobias: Last Tuesday while we’re recording this, that was the biggest short covering since June 2022. Who gives a shit? June 2022, six months ago.

Jake: Whoa.

Tobias: [laughs]

Jake: [laughs]

Tobias: Yeah.

Jake: So, what does that mean?

Tobias: Well, I guess, there was a lot of short covering over a short period of time. So, I thought it was a bit longer than that when I started reading it.

Bill: It feels like some animal spirits are back, at least in the trading world.

Tobias: What do you think caused that?

Bill: January.

Jake: [laughs]

Tobias: Yeah. I think what happens is, you get the short start covering at some point, and then people misinterpret that as the bull run has begun and people pile in. But then, I could be wrong. Maybe the bull run has begun. Maybe October was the way.

Bill: Yeah.

Tobias: Who knows? [crosstalk]

Bill: I think you get a combination of January and FOMO, and you can get a lot of rips. I also think a lot of stuff is arguably cheap. I don’t know. We’ll all see how the path looks going forward. If anyone knows, let me know. I’d love to know the answer.

Jake: It’s been a fair amount of skinner box type of conditioning of pigeons in the “buy the dip” mentality for the last [laughs] 12 plus years.

Tobias: Yeah.

Who’s Winning The Streaming War?

Bill: On something like Warner Brothers, it’s not the type of thing I want to own anymore. I’m not that interested in that. But I get why people bought it down, certainly below 10. I even get why they buy it here.

Tobias: When you say that type of thing, that sounds like there’s been some evolution in your investing strategy. What are you trying to get to?

Bill: I can’t get comfortable with a business with that much leverage that has its core cash generation coming from something that’s losing video consumers 10%.

Jake: Wait, are we talking about Qurate now or?

Bill: But that’s the thing. With Qurate, the argument was that the cohort would remain stable, and that customer decline would be a lot lower than your cord cutting, because they skew older.

Jake: Right.

Bill: Their disclosures of minutes watched are going up. I don’t know, man, legacy media with that much debt scares me. It’s also why I cut the cord quick. What a pun, but it’s why I didn’t have a whole lot of– I’m not sticking around in Qurate to find out what the end looks like. I had one thing that I wasn’t willing to bend on and it would have forced me to bend. So, I don’t know. I just think it’s a very hard–

An interesting dynamic is I think when Warner Bros comes out and says, “I’m going to license,” and then the shares respond like they have, I actually think it really solidifies Netflix’s competitive position, because now the incentive is like, “Okay, well, license to Netflix. Paramount has got the same issue. They have the service debt.” I don’t think their shareholder bases are particularly patient. It’s just an interesting thing to watch.

Jake: I don’t know how you guys wrap your mind around media. I find it really hard to imagine what the world of that looks like in 10 years.

Bill: Yeah, I don’t know that I’m any good at it.

Jake: I know I’m not. So, I just stay away, but I’m jealous of all these other people, because it seems like when you figure it out, there could be very, very good businesses inside of there when you understand it. But I don’t know, too hard for me.

Bill: [crosstalk] It’s nice to have subscription.

Tobias: Yeah.

Jake: What did you say, Billy?

Bill: It’s nice to have subscription revenue, right? It’s a nice business model but it’s a cost issue right now. So, we’ll see.

Tobias: They’ve allowed people to share passwords forever and they’re cracking down on that a little bit, that shouldn’t be that hard to do. You just have one device using one password at a time. You could turn that on at any time. What’s their thesis there? When we’re in that high growth, it didn’t matter. And now that they want to switch it to profitability a little bit, but they can’t imagine that everybody who’s sharing is going to start buying a new subscription, right?

Jake: Oh, maybe enough to– When your sub numbers stall out, you got to figure out how to keep them going, right?

Tobias: That’s a good point. Yeah.

Bill: Yeah, and you might be able to say, $3 more a month, and you can keep your profile on your parents’ account, and you get a couple more bucks. I think the thing that is so shocking about Netflix to me is I, for the longest time watching that business, didn’t understand at all what they were doing. Watching the debt markets fund that I thought was so stupid. And now, when you see what they built– Maybe this was just like the 10% chance that worked out. But from an allocation of equity perspective, for them to build that business and to have debt finance that risk, that is fucking impressive. That is an amazing business story to me. Obviously, it carries the valuation it does because of that, but that’s not something a younger me ever could have seen.

Jake: Is there a matching to that though of the production of the asset, let’s call it a piece of content, you pick whatever favorite show. And then using debt to finance it, and then the duration of the cash flow to match the liquidation of the debt, is that work? Because I feel like this stuff is like it ages like lettuce out on the kitchen counter. Is there a longer tail to this than I’m giving it credit for?

Bill: Well, I think now the machine is able to continue to spit out content. You’re not counting on previous movies to retire your debt. But they’re super underlevered. They’re only three times levered on a cash flow basis at this stage, from a debt perspective. If you’re an equity guy, you can say, “Oh, well, how much of that share-based comp?” The debt market doesn’t care about share-based comp. It’s true cash to debt. So, that business is very conservatively financed at this point.

Jake: I guess that debt Hail Mary landed in a way.

Bill: Yeah. I don’t know. Was it Hail Mary that landed or was it something I didn’t see for a long time? I’m not sure what the answer is there, but it’s a hell of– [crosstalk]

Tobias: They must have pretty good analytics in the backend that they can see. They can direct their investment to the stuff that pays off. So, you get season after season of like Emily in Paris. The other things get chopped pretty quickly.

Bill: Yeah. I suspect they’re better at having an idea of what an existing syndicated sitcom could do as opposed to creating something new. I’m not sure that they’re that good at creating new stuff.

Tobias: Have any of the Netflix shows gone into syndication on cable?

Bill: No.

Tobias: They do that?

Bill: Not yet. But I wouldn’t be shocked if some go to Roku. Roku is desperate for content on their channel. Warner Bros just had a release that they’re given, I think like 2,000 hours or something to the Roku channel. Roku needs that.

Tobias: JT, do you want to do your veggies?

Investing Lessons From Richard Hamming – You And Your Research

Jake: Sure. I can do that. So, this is from a 1986 talk by this researcher, really a giant in the field of computer science and mathematics, named Richard Hamming. It’s called You and Your Research. This guy’s background is very unique in that he worked on the Manhattan Project at Los Alamos in 1945, and then he joined Bell Labs in 1946, and he worked there for 30 years. He was involved with almost all of their prominent achievements. And then at the end of his career, he taught at the Naval Postgraduate School for the rest of his life.

In 1986, he was invited to give this talk and it was called You and Your Research. It really centered around this one question. Why do so few scientists make significant contributions and so many are forgotten in the long run? He’s trying to untangle this. Hamming worked with the who’s who of scientists in the 20th century. He worked with Fermi, Feynman, Teller, Oppenheimer, Beth while he was in Los Alamos and then he shared an office with Claude Shannon while he was at Bell. So, he gets to see up close all of these people who had truly breakthrough research and what do they have in common. And so, that’s what he’s sharing in this talk.

So, he starts off with this common belief that it’s all about luck. It’s the right person or they’re the right place at the right time. Whoever was there would have figured out how to do whatever it was that was done. He said, based on his observations, that luck is part of it, but it’s not that at all and it’s really that there’s more having that prepared mind. Sooner or later, it finds something important and then it does something with it. He said one of the characteristics you see is that many people is that they usually, when they’re young, they have these independent thoughts and that they have the courage to pursue them.

So, a lot of times, the younger people are the ones who make these breakthroughs, because they don’t get stuck in the old guard of doing things. He said, maybe it’s about having a lot of brains. Obviously, there’s a minimum level of genius to be in those hollowed grounds that he was walking in, but he said that’s not enough. Actually, there’s a lot more to it. A lot of it is actually just about them having courage to go after things and work on important problems. He said a lot of times that the working conditions were sometimes, they appeared to be like a hindrance, but they were actually what helped you unlock, like there was these constraints that inspired creativity. So, he was talking about how some researchers in his department, when he was at Bell Labs, they’re given these small underpowered for the day computers and they wanted to find ways to make those machines, actually, get good work done, and they came up with a system to do it, and that’s actually what Unix was born. That’s been used ever since in all kinds of applications.

So, he says what appears to be a fault often by a change of viewpoint turns out to be one of the greatest assets you can have. So, if you look carefully, you’ll see that often the great scientists, by turning the problem around a bit, changed a defect to an asset. So, he also says that the great scientists all had tremendous drive, like they were just always working. He said that knowledge and productivity act like compound interest. Given two people of approximately the same ability and one person who works 10% more than the other, the latter will be twice as he’ll out produce the former by 2x. He says the more that you know, the more that you learn, the more that you learn, the more you can do, and the more you can do, the more the opportunity. It’s very much like compound interest.

So, he’s starting to sound a lot like Buffett and Munger, that all of these things compound together. The one person who manages day in and day out to get in one more hour of thinking will be tremendously more productive over a lifetime. So, he said that one thing that existed between all these people is that they were able tolerate ambiguity more than others. Most people believe that something is or is not true. But he said the great scientists will tolerate ambiguity, like they’ll believe a theory enough to go ahead, but they doubt it enough to notice the errors and faults, so that they can step forward and create the replacement theory to it. So, if you believe too much, you’ll never notice the flaws. And if you doubt too much, you won’t ever get started. And so, it requires this balance. He has this great line that, “Great contributions are rarely done by adding another decimal place,” which I think is-

Tobias: [laughs]

Jake: He believed in harnessing the subconscious is if you’re doing a deeply immersed and committed to a topic day after day, you’re just thinking about it. He said, your subconscious will have nothing to do but answer it in the morning for free. So, he adopted what he called Great Thoughts Time. And so, after lunch every Friday, he would dedicate that time period to only discussing these big, great thoughts. It wasn’t going to be small stuff. So, dedicating 10% of his time to these big ideas was important for him to unlocking these big breakthroughs.

Tobias: That’s how he invented shoes with zippers?

Jake: [laughs] Is that what it was? So, how about working with your door open versus closed? This is an interesting observation. He noticed that, if you have your door closed to your office, you get more work done today and tomorrow, and you’re more productive than most over a shorter period. But 10 years later, somehow you don’t quite know what the important problems are to work on. And after all that hard work, you end up in a tangential to importance. So, the people who had their doors open, they had all kinds of interruptions they had to deal with, but they occasionally get clues as to what the world is and what might be important to work on next.

So, there’s this trade off to it that’s kind of interesting. He said that he’s a very egotistical person and he used that to his own advantage. He said, most people, when they look to take a sabbatical to write a book, they don’t finish it on time. Before he left to do his, he told everybody, all of his friends that he was going to come back and that book was going to be done, it was going to be great. And he knew that he’d be ashamed to then come back without it. He used his ego to force himself to believe, to act in the way that he wanted to act. So, he found out many times that he was like a cornered rat in a trap and he was surprisingly capable when he set these kinds of things. I don’t know, if that’s going to help you, TC, with your book.

Tobias: Thanks, JT. [laughs]

Jake: [laughs] So, he said, “If you’re going to be a first-class scientist, you need to know yourself, your weaknesses, your strengths, and your bad faults, and be able to counteract them.” How often do we talk about that in the investment world? Interestingly enough, how much should you read? You hear Buffett say like, reading all day– Munger– Hamming said that, if you read all the time what other people have done, you’ll think the way that they thought. If you want to think new thoughts that are different, you have to get the problem reasonably clear and then refuse to look at any answers until you thought the problem through carefully for yourself and how you would do it, and then you could slightly change the problem then to be the correct one often. Whereas if you’re only reading everyone else’s versions of it, you’re never going to really think of what’s truly possible. You’re just going to have everyone else’s thoughts in your head.

Then the last thing– He had this interesting– He advised that you should change what you’re working on, like, the significant things every seven years. You need a complete shift in your field. That doesn’t mean like going from theoretical physics to English literature or something. In his instance, he went from numerical analysis, he was a mathematician, to then hardware in the computer space to then software. But he said, “When you go to a new field, you have to start over as if you were a baby and you’re no longer this big muckety-muck who knows everything about a field. And starting back over, you get to start planting those acorns, which will then become giant oaks in that field later.”

So, just like looking to shift your focus every seven years, he thought was important for, because he saw guys. And actually, he said this happened with Shannon, where they had some huge breakthrough in their field and then they were stagnant after that, because how do you top that ever? You have to go somewhere else and maybe bring the tools that you learn there into the new field and then make new unlocks. So, I think the investment research side of all of this is obvious and we don’t really need to plow through it, but just fascinating. The insights from somebody who saw all of these successful people up close, working with them on a day-to-day basis, what were the commonalities between them, and then what can we do to be closer to the most important things that we can work on?

Tobias: What’s the name of the talk or the book?

Jake: You and Your Research is the name of the talk. It’s available for free online. You could just google it. I think the University of Virginia has it hosted and written up.

Tobias: And what’s the gentleman’s name?

Jake: Richard Hamming. H-A-M-M-I-N-G.

Tobias: That’s cool. That’s good stuff. That’s very Buffett like.

Jake: Yeah. It’s all very, very Buffett like, which speaks to I think something we talk about is, there are often these fundamental truths that reemerge in different contexts, different people touching the same elephant, but that they exist in an absolute sense of like, “Yes, this is a fundamental truth about the way the world works.” We see it show up again and again in different forms of greatness. I think Hamming had his finger on the pulse of that in a pretty serious way.

Tobias: Did he have any great insights? Did he?

Jake: Oh, tons. He was a prolific researcher. There’s all kinds of Hamming code, Hamming… [chuckles] You might find this kind of funny. You get attribution for being the first in somewhere. And he said, “If your name is capitalized in the thing, then it’s actually not as big of a find. But when your name gets lowercase and then becomes part of that, then that’s when you’ve really made a big discovery.” So, like amperes, like hertz, for instance. All of these, they become units of measurement that we all use today in a lower-case sense, but it was a capital case person who came up with it. So, if you ever get to lower-case status, you know you’re the real shit then, at that point.

Tobias: [laughs] Yeah. That’s cool.

Jake: So, there is actually hamming code that’s lowercase h, I think.

Tobias: Any idea what it does?

Jake: No idea. [laughs] That’s your idea.

Tobias: Yeah. That’s good stuff. I’m going to have trouble relating it directly to anything that we’re doing. What do we do for a segway?

Jake: Could be getting that book over the finish linem, my friend.

Tobias: Well, I’d love to do that. Yeah.

Jake: Let’s get a public commitment right here.

Bill: Yeah, that’s right. Tell us when.

Jake: I am to the mast.

Tobias: Yeah. I don’t know. Close.

Jake: Oh. [laughs]

Tobias: I’ll get it done for Berkshire. How’s that? I’ll get it done by May. I’ll say that.

Jake: Wow. All right. That’s a strong– [crosstalk]

Bill: Progressive.

Jake: I like it.

Tobias: Yeah, that should be achievable.

Jake: Go ahead. I was going to say we should dip into some Q&A while we’re stalling– [crosstalk]


Where Are All The Bankruptcies?

Tobias: Yeah, that’s a good idea. Well, I was going to say I saw Chanos– Chanos said that the market had never bottomed this high before. Are there any companies that will go bankrupt this year? [crosstalk]

Jake: Permanent new high plateau. No bankruptcy.

Tobias: Bed Bath & Beyond

Bill: Yeah, they are– I don’t know who they are.

Jake: How do you have record debt and then– ripping corporate debt, let’s say, and increasing interest rates, and not somehow get closer to the edge of more bankruptcies?

Bill: Yeah, [crosstalk] should be some.

Jake: I would say, capitalism is not working if bankruptcies are too low.

Bill: Yeah.

Tobias: Yeah, Bed Bath & Beyond looks like it’s in a little bit of trouble.

Jake: Probably ripping on [laughs] some bankruptcy.

Tobias: It’s down today. Well, I think it did. I think it did have a big rally. It’s up January. Remember when Hertz got its cue and hit the big rally? What’s the thesis on that stuff?

Jake: I have no idea. I’m not that smart.

Bill: Yeah. I don’t know either. It’s not a game I’m trying to play.

Tobias: That everybody has been scared of. Yeah, frontrunning that stuff. Did you guys take a look at the Hindenburg piece on Adani?

Jake: No.

Tobias: It’s too long. I couldn’t look at it either.

Jake: [laughs] Yeah.

Tobias: It’s hard to know. I don’t know. I saw their response.

Jake: Claiming fraud, that’s usually what Hindenburg is doing, right?

Tobias: They say that there’s some hidden accounts and there’s some trading between the hidden accounts and some other stuff like that. I don’t know. I just thought it was very long and I saw the Adani response have a little bit of like an attack on India. Attack on Adani is an attack on India. I don’t know. Do you need to do that? If you’re confident, you just buy back stock.

Jake: Yeah. Doth protest too much.

Tobias: Yeah, a little bit. What about Beyond, Carvana? I don’t know enough about how close they are.

Bill: Yeah, I don’t know either. There are smart people that think they’re going bankrupt. I have no idea.

Tobias: Carvana is funny because I think it’s– [crosstalk]

Jake: What do you do with that information?

Tobias: It’s quite an interesting business.

Jake: You’re going to short it to zero?

Bill: Yeah.

Tobias: That’s an awful lot. Yeah.

Jake: Oof.

Tobias: It’s had a big rally. It’s had a big rally over the last–

Jake: Yeah.

Tobias: It’s crazy, the rally that we’ve seen. Hats off to Cathie Wood. She’s had a blockbuster January. I think she’s up nearly 30% for January.

Jake: Is that right? Wow.

Tobias: Carvana is up 113% year to date.

Bill: There you go.

Jake: And it’s only January 31st. [laughs] What’s the IRR on that?

Tobias: It’s up to almost 10 bucks. It’s crazy. It’s up 50% over the last four days.

Jake: Ooh. So, you’re going to short that to zero?

Tobias: Not me.

Jake: This is a difficult game.

Tobias: Yeah, it is. Yeah. “Hindenburg were right on Nikola. Likely right on Adani.” I don’t know, but–

Jake: These all seem like eight-foot bars to me. Not one-foot bars.

Tobias: Yeah, they are hard, aren’t they? Yeah. The richest man in the world is the LVMH, as they call him Emily in Paris. I’m sorry I know so much about this show.

Jake: [laughs]

Tobias: JVMH. It’s getting sad– [laughs]

Jake: Yeah. [laughs]

Tobias: As you can imagine, we’re watching that for my benefit.

Jake: Yeah, I’m sure.

Bill: Beyond’s financials do not look inspiring.

Jake: Which one?

Tobias: Which one? Beyond’s? Yeah.

Bill: Beyond. Even if you don’t account for the inventory growth, this is not a company that generates much free cash flow at all.

Jake: You need to think beyond the financials, Bill.

Bill: I guess.

Jake: [laughs]

Tobias: “Uber still doesn’t make money.” Yeah.

Jake: Just got to get scale.

Tobias: [laughs] Yeah. I think Uber is one of those things that should be a good business, but it’s still not. You can’t take a swing at it yet.

Jake: Well, I don’t know. Is there pricing power? I’m not sure. How do you get pricing–? Well, I guess if you have two competitors, Lyft and Uber, with some implicit- [crosstalk]

Tobias: How often do you use Lyft?

Jake: I own a vehicle. So, I don’t use either one of them all that often. [laughs] But when I’m traveling, I tend to Uber.

Tobias: Yeah, I try to use both to keep them honest, but there are just not as many cars using Lyft in the areas that I use. So, it’s hard to find a Lyft at that time.

Bill: The cost structure in these businesses is nuts. I don’t know why SG&A just doesn’t go down. There’s like no leverage.

Jake: Yeah. We’d never get any learning curve efficiencies on this, despite your own growth.

Bill: Yeah. And R&D in a lot of these things just seems like a hamster wheel that just continues to spin and get bigger and bigger.

Tobias: Matt Commins just gave us $100. Thanks, Matt. We’ll [crosstalk]

Bill: Yeah. Fuck yeah, Matt.

Jake: [laughs]

Bill: That’s what I’m talking about.

Tobias: You can come along.

Bill: Jeez. We might actually plan something and invite you. The rest of you guys can figure out where the hell we are.

Jake: [laughs] Oh, man, we are a cheap date.

Bill: Yeah, that’s right.

Tobias: All right, we’ve got– [crosstalk]

Jake: Right. Hit us with the Q&A.

Bill: I think they’ve been trying, Jake. The problem is we just don’t know anything.

Jake: It’s just Q. It’s no A. [laughs]

Bill: Yeah.

Jake: All Q, no A. That should go on a t-shirt.

Tobias: When the Adani response came out about Hindenburg, somebody said, “You should have a look at Reed Hastings response to Whitney Tilson’s–

Jake: Short Netflix?

Tobias: Yeah. So, that’s a few years ago now. It was like 2010 or something like that.

Jake: How’d that work out?

Tobias: Yeah, he had this pretty classy response and he said something like, “We’re both supporters of these Charter schools. So, I want you to keep your money so I don’t want you to be short this, which will mean that you’ll lose money.” Then, he answered all of the questions. One of the questions that he posed was, “Why has your CFO left?” He had a pretty good explanation for why the CFO left. The CFO wanted to become a CEO at some point, but he realized that he was working for guys who were younger than he was. And so, it’s unlikely that’s your path there. Do you know where’s the Netflix CFO now?

Bill: Roku?

Tobias: He’s the CEO of Peloton.

Bill: Oh, yeah, that makes sense. McCarthy, yeah. Right? Isn’t that Barry McCarthy?

Tobias: I think that’s right. Yeah.

Jake: Fair play to him.

Tobias: Yeah. How do you feel about Peloton as a going concern?

Bill: I haven’t looked in a little while. Simeon Siegel had a note out today. I think that they might be pursuing a freemium model, which is–

Jake: It’s called a bicycle that you just ride outside? [laughs]

Bill: I think you get five classes for free is what they’re experimenting with.

Jake: What about the bike?

Bill: Yeah, I think you need the bike.

Jake: They’ll have to buy the bike and then you get– [crosstalk]

Bill: No, you don’t have to buy the bike. But it’s a better experience if you have the bike.

Tobias: Why is that? Because the analytics go into the computer?

Bill: I think so. That would be my–

Tobias: Do you still ride yours or is it [crosstalk]?

Bill: I sold mine a long time ago.

Tobias: You sold it?

Bill: Yeah. But I got love for Peloton. They got me through the pandemic. I like their stuff. The problem is it’s just not the best workout in the world.

Tobias: What’s the better workout? Kettlebells?

Jake: Kettlebells.

Bill: You knew it. You knew it.

Tobias: It is a pretty great workout.

Jake: You’re still in love with it, TC?

Tobias: Almost every day.

Jake: Oof, beast mode.

Tobias: There wouldn’t be many days to go by that I don’t grab one. I like them. I just think they’re fun.

Bill: They are fun.

Tobias: I like doing snatches and cleans when I was a kid, when I was at school. So, I like doing those things.

Bill: Yeah, I don’t know. Peloton, not looking hot.

Jake: The business or the stock price?

Bill: No, the business.

Jake: Okay.

Bill: But I don’t know. It’s hard to see when you’re looking at– I don’t know what’s going on under the hood here. I’m not going to spend much time on it. So, I won’t have good answers.

Soft Landing Or Big Flush Coming?

Tobias: I don’t want to misquote Chanos here, but he said something like he never seen a market bottom as high as this one is. Yeah, “bear market is doing something unheard of in my career. I’ve been on the street since 1980 and not one bear market has ever traded above 9 times to 14 times the previous peak earnings. Things are not cheap.”

Bill: Soft landing would crush a lot of souls. So many people wanted to want the final flush. Soft landing would just absolutely crush so many people to see everything not implode. It would be funny. That’s what I’m rooting for.

Tobias: I think that if there’s a soft landing, I will become the Fed’s biggest cheerleader, because I will have been 100% wrong and I’ll own that. If there’s a hard landing, I’m going to go the other way.

Jake: [laughs]

Bill: What’s a hard landing now?

Tobias: A crash, a flush. Honestly, it’s not their fault. I think these things are like natural occurrences. I think there have been business cycles going from ancient times.

Jake: Toby, no, come on– [crosstalk]

Tobias: But I think that they’ve just exacerbated it. They’ve made it much, much worse– [crosstalk]

Jake: We had QE into last year still. These guys were fighting the last war always.

Tobias: I think you can delay it. I think you can push it out and you can make the bubble worse, but I don’t think you can eliminate the cycle. But so far, it does look like we’ve eliminated the cycle.

Bill: Things are going up and things are going down. There’s a cycle. It’s just like quality assets are trading at pretty high prices still.

Tobias: I have to [crosstalk] soft landing– [crosstalk]

Bill: I fail to see a reason why that should not be true.

Jake: Who has on their bingo card, a soft landing economically, but the market still pukes?

Bill: Yeah, that could happen.

Tobias: Or the other way around. The underlying is terrible and somehow the market just levitates through it. That’s more likely, isn’t it?

Jake: Is this that bad news is good news again that we live through for five years of hell?

Tobias: I think we did. Yeah.

Jake: [laughs] More fed intervention. Bad news is good.

Tobias: The question that I always get, and somebody raised this here, “Could go modestly lower and just grind sideways with chop for a long time. That’s probably more painful for non-business pickers.” [crosstalk] I don’t think that’s ever happened in the past though. People get tired of it. People get bored and disappear. I think that the boredom is the thing that created all of the really highflyers through– Boredom created that stock market bubble and then boredom kind of killed it as well, because there just wasn’t as much action.

Bill: I’d have more action than 2020. That was action packed.

Tobias: That was an action year.

Jake: 2021 had a lot of action too. There was some crazy stuff happening.

Tobias: 2022 was kind of sleepy even though it was down 20% or almost 10%.

Jake: The market quiet quit. [laughs]

Tobias: Yeah. “The VIX went to bed.” Don’t think it’s woken up yet either. That’s time, fellas.

Jake: We made it.

Tobias: We made it. Thanks to everybody.

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