In their latest episode of the VALUE: After Hours Podcast, Mark Valdez, Jake Taylor, and Tobias Carlisle discuss:
- The Fed Is Hurting My Stocks
- Why is Berkshire Hathaway Buying More Oxy?
- Warren Buffett’s Superhuman Calculations
- Investing Lessons From Deep Forces That Shape The Universe
- Carlill v Carbolic Smoke Ball Co 1893
- Half-Year Predictions Update
- All Roads Lead To Tobacco Stocks
- ChatGPT Tracking Against NFTs
- Small-Caps Ready To Rip
- Lordstown Motors Files For Bankruptcy, Sues Foxconn
- AI Has The Animal Spirits Going Again
- Winnebago Sales Tank
- Here’s Why Homebuilders Are Doing Well
- Energy Still Cheap
- Zuck vs Musk
- Tech Caught A Break
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: This meeting is being livestreamed. This is Value: After Hours. I’m Tobias Carlisle, joined by Bill Brewster and Jake Taylor.
Jake: Yay.
Bill: Yay.
Tobias: Go the band back together.
Jake: What up to The 10.
Jake: [chuckles]
Tobias: There are dozens.
Jake: The prodigal son returns.
Bill: Indeed. Well, now that I’m back, the dozens are leaving.
Jake: [laughs] [crosstalk] checking out.
Bill: The OG 10 will stay. It’s just going to be us, Charlie Munger, and Ian Cassel.
Jake: I’ll ride or die with that.
Tobias: What’s been happening? Billy, you got to tell us about your exciting golf trip to Scotland. [crosstalk]
Jake: Yeah.
Bill: Yeah, that was neat. That was fun until I forgot how to play golf. But I was there for a week. I was in St. Andrews, and got to see a college town with incredible golf. Invited a chap to stay at my house for a year. We’ll see if he takes me up on it. If he’s serious about being pro, he will. If he’s not, then he won’t. I don’t know that I would, if I were him, because he’s got a really attractive girlfriend who’s studying military strategy. I have a feeling she’s probably got a pretty good career in front of her, but he wants to come live at the Casa Day Brewster. I told him, the only condition is he’s got to be willing to be a babysitter.
Jake: [laughs]
Bill: So, we will see.
Jake: That is a deal with the devil there.
Bill: Yes, it is. He does have to understand– [crosstalk]
Tobias: How did you find the Scottish accent?
Bill: The Scottish accent?
Tobias: Yeah.
Bill: I don’t know.
Tobias: Could you understand it?
Bill: Oh, how did I find it?
Tobias: Yeah.
Bill: No, I could not understand at all. I did much better in Australia than I did in Scotland. Some of them, I just looked at them, it’s like, “Is that English?”
[laughter]Bill: But it’s kind of hard to determine what’s an accent and what’s the alcohol speaking through.
Jake: Yeah, big time. It morphs towards Gaelic the more booze you apply.
Bill: Yeah. Pretty wild, man. We played the old course. We teed off at 06:00 PM and finished with plenty of daylight.
Jake: Ooh, northern latitude golf.
Bill: Yeah. Between that and being on a guy’s trip, I found the sleep very hard. It was bright at 04:30 AM in my room.
Jake: Yikes.
Tobias: So, I was like, “Oh.” Not even dark at midnight. Anyway, very cool town. Very cool town. The tourists were everywhere. And the pound was cheap.
Jake: That helps.
Bill: Yeah, better than when it was a $1.80 or whatever back in the day.
Tobias: Where are you, JT? You got a good green there.
Jake: Yeah. No, this is the original Mother Nature green screen. I’m up in a cabin type of thing, little family trip up outside of Lake Tahoe. It’s absolutely gorgeous up here right now. Very green. Snow is just on the side of melted. So, everything is very lush and green.
Jake: Snow?
Jake: Yeah, there’s still snow if you look hard enough places.
Bill: God, I wish there was snow in Florida. It is hot.
Jake: [laughs] Well, if it makes you feel any better, this weekend, we’re coming back down the hill, and I think it’s supposed to be 109 for all the baseball this weekend. My poor son is going to be wearing it.
Tobias: Is it a dry heat?
Jake: It ain’t that dry. Yeah, it is, but– [laughs]
Bill: How long are these baseball tourneys? These lacrosse things are all day long. These kids are out here in 91 degrees in humid.
Jake: A typical game is two to two and a half hours, and you’ll play like two in a day for a tournament.
Bill: It’s long day for the parents, especially if two kids.
Jake: Maybe three on championship Sunday, if you make a run, you could get three games in.
Bill: You ever find yourself rooting for them to lose even though you don’t want them to lose?
Jake: Never.
Bill: I don’t have a third–
Jake: I would never.
Bill: Oh.
Jake: Yeah, sometimes. When it’s super hot and also– You know what it is, it’s like, if they’re not winning and they’re getting blown out or something, you’re like, “Well, at least we’re going to go home soon.” That’s a consolation, is the getting out of the heat. [chuckles]
Bill: I felt the same. One thing that’s been going on in my life, I’ve been spending a lot of time with the kids. And Harry, the oldest, he’s determined that he’s going to be a lacrosse goalie. But his team was fine, but not good. Man, it’s tough to watch your kid get lit up and goal.
Jake: Oh, yeah.
Bill: It’s like everybody’s just pointing at him, and it’s like–
Tobias: [unintelligible [00:04:39]
Bill: Some of it was his fault, but it wasn’t his fault, you know?
Tobias: Once it gets to the goalie, it’s the team’s fault. Shouldn’t get to the goalie.
Bill: Yeah. Well, and these kids have it one on one against him. And then, the kids are bitching at him, so then the coach complains to them. So, I don’t know, it’s been an interesting time in the life of Brewster.
Tobias: Let me give some shoutouts, and then let’s talk markets.
Jake: Yeah.
Tobias: Bendigo, what’s up? Bendigo, CA? I don’t know where that is. That’s not Bendigo.
Jake: Canada?
Tobias: Yeah, maybe. Bendigo, Canada?
Jake: Oh.
Tobias: Dubai. Milton Keynes. Hope I’m saying that correctly. Nairobi. Raleigh Cromwell, New Zealand. Tallahassee.
Jake: Ooh. Sounds fancy.
Tobias: Groningen.
Bill: Tally-ho.
Tobias: Netherlands. Pittsburgh, what’s up? Julius Caesar at the Pinnacle of the Empire.
Jake: [laughs]
Tobias: Savonlinna, Finland. Scotland.
Jake: Whoa.
Bill: Hey, shoutout to you. Hope you’re having a Guinness. It’s like 06:35 over– [crosstalk]
Tobias: Santa Monica. Toronto. Amsterdam. Kansas City. Moose Jaw, Canada. Gulf of Mexico on the Big Rig.
Jake: [laughs]
Bill: Nice.
Jake: People actually doing real work.
—
Tech Caught A Break
Tobias: Les, what’s up? Yeah. You’ve always been following the markets at all? Has anything happened, quiet for summer?
Jake: kind of a quiet summer.
Bill: I don’t know.
Tobias: Although it does feel like there’s strong potential this week for some painting the tape coming into the into Q2 that you think.
Tobias: Oh, yeah, if you are in [crosstalk]
Jake: People are up a little bit. Like, you don’t want to give any of that away. [laughs]
Bill: It seems like techs caught a break, which is nice. They waited a long time.
Jake: Yeah, you want to– [crosstalk]
Tobias: Yeah, I like to see those guys win one every now and again.
Bill: Yeah, that’s good.
Tobias: Tesla’s been a beast. Tesla’s up like a 120% this year.
Bill: It’s been a while, right? You want to see him win.
—
Zuck vs Musk
Jake: Yeah. Well, anytime your CEO is distracted with wanting to fight other billionaires in the Octagon, you know, what is going on there?
Tobias: Zuck looks like he can actually grapple.
Bill: I would not fuck with Zuck.
Jake: That’s what a [unintelligible [00:06:40] T-shirt should say.
Tobias: Elon’s got– [crosstalk]
Bill: Yeah. I wouldn’t do it.
Tobias: -got a bit of weight on him though.
Jake: Yeah. But you know what? If Zuck makes it out of the first round, then he’s got to become the favorite, right?
Bill: Who?
Tobias: Elon’s a lot [crosstalk] I would say.
Bill: In the fight?
Jake: Yeah. Because Zuck’s got the [crosstalk] stamina, for sure on Elon in each?
Bill: Yeah. He said Ozempic is going to hit him right before the fight. He’ll shed 14 pounds tomorrow.
Jake: Oh, sick.
Tobias: Could go in. He won’t know what’s going on. His body is going to change too much.
Jake: Oh, my goodness.
Bill: He’s probably going to train and not eat enough, because his food is going to be disgusting to him. Then, his muscles aren’t going to form right. I don’t know. I’m taking Zuck.
Tobias: Is that what Ozempic does? Just changing the taste of the food?
Bill: Well, I’m basing all of my strong opinions on one article from the Independent. So, we know how that goes.
Jake: So, you know it’s good.
Bill: Yeah. But the people that I have spoken with that take it, they do say that their cravings are a lot lower. And then the specific article that I’m thinking of– A couple of people were quoted saying that the thought of the fourth bite or fifth bite of food that they used to enjoy is actually repulsive to them.
Jake: What is happening to your brain psychology to do that?
Bill: There’s actually an answer to this, and I don’t have it. But I don’t think it’s quite as bad as it may sound.
Jake: Actually, one of our listeners sent me a write up about that, and I haven’t read it yet, and I will, and I’ll report back next time on what the answer is.
Bill: I think it’s supposed to put you close to ketosis without the smell, like chemically. I think that’s what you’re close to. I don’t know. Look, I think it’s better than obesity, would be the way that I know how to say it. I don’t think it’s not going to be free. There’s going to be some side effects.
—
Tobias: I did a fasting mimicking diet a few weeks ago. Jake, and I have– Billy, you too. We have a friend who’s about 10 years older, but in phenomenal shape. shoutout to Lonnie.
Bill: Yeah. He looks like he drinks straight out of the Fountain of Youth.
Tobias: Ridiculous shape. He recommended this. It’s prolonged. They can sponsor the podcast now.
Jake: Oh, pay us. [laughs]
Tobias: Yeah, that’s $15.
Jake: Yeah. [laughs]
Tobias: So, I did that thing. It’s five days of this very restricted 800 calories a day.
Jake: Low calorie.
Bill: What do you do?
Tobias: You get packet soup, and little bars, and things like that.
Bill: Broth and whatnot?
Tobias: Not quite. It’s more like a packet soup, like a dried soup. It’s a fast. It’s not so much a weight loss thing as a you’re fasting for health. I don’t know, five days is a long time when you’re fasting on a fasting mimicking diet.
Jake: You were ready to be done.
Tobias: Well, you’ve been here on Friday night, having started on Monday. Late on Friday night, you’re still in this fast looking forward to Saturday morning-
Jake: Yeah.
Tobias: -so you can tee it off.
Jake: Blow it out.
Tobias: That’s a long fast.
Bill: My wife said that– [crosstalk]
Tobias: [crosstalk] always hungry.
—
The Fed Is Hurting My Stocks
Bill: My wife said that when I was in Scotland, the amount of leftovers that were in the house were like asinine. She was like, “Do you honestly eat this much?” “Yeah, I kind of do.”
Jake: [laughs] Oh, man.
Bill: “Also, don’t come at me.”
Jake: Yeah. It was revealed what was happening there.
Bill: Yes, that’s right. Oh, well.
Tobias: Let’s talk markets for a moment.
Bill: Let’s do it.
Jake: Yeah.
Tobias: What’s happening? You haven’t been on for a little while, Billy, but I imagine you’re still following all this stuff I see on Twitter.
Bill: Yeah.
Tobias: What happening?
Bill: I follow some.
Tobias: What’s going on?
Bill: I don’t know, I’m underperforming. That I know. So, I’m trying to find out what the Fed is doing to my stocks.
Jake: [laughs]
Tobias: Well, if you don’t hold the centered seven, then you’re underperforming. Are you holding them in the same weight as the market holds them as you are underperforming?
Bill: I even held them. I was overweight Microsoft, and my silly took us– I couldn’t handle having that much of my net worth in it. So, I sold half of it, maybe 30% ago now. So, that’s upsetting. I don’t know, man, strong bid. It looks like industrials have rolled over here a little bit. I guess, oil, I saw today, it’s within 5% of its five-year average, which I was watching a– [crosstalk]
Jake: Is that right? What, at $70?
Bill: $68.
Jake: Yeah.
Bill: $65 is the five-year.
Tobias: I would have thought the five-year was a little bit– I would have put it probably more at like $50, but interesting.
Tobias: The most amazing thing is that, we’ve hiked rates to where they are. Evidently, we could have supported much higher rates than we’ve had for the last 10 years.
Jake: Yeah, but– [crosstalk]
Bill: 1.6 million home starts. That’ll be interesting. I think it’s a blip.
Tobias: That’s a big number.
—
Here’s Why Homebuilders Are Doing Well
Bill: Yeah, it’s a blip off of one, three something for a little bit. But home builders are doing well. KB Homes said they’re going to start to build– KB Homes said they’re going to start to lean into spec homes a little bit more. So, that’s how much demand there is. That’s wild. [crosstalk]
Jake: I don’t know. Tell me that, are we really taking our medicine yet though when you have, whatever, trillion-dollar deficits you’re still running? That is going to be very stimulative.
Bill: I don’t know that we ever are going to take it.
Jake: You raise rates, but you don’t balance the budget at all. I’m not sure. Are we driving around with the parking brake on or what?
Bill: Possibly, but I don’t know what’s going to stop it. A crisis is the answer. Nothing’s going to change until it has to.
Tobias: Is the story that SVBs collapse, and FRC and all those other whatever they’ll– Did FRC actually– I can’t remember now. The Fed backed up, took off half of the quantitative tightening that it had done over preceding 12 months, and it sprayed it all out in a very short period of time. Is that the sequence of events that then caused the market to go to take off? Am I misremembering that or is that what happened?
Bill: I don’t know. It seems they’re tightening still on my stocks.
Jake: [laughs]
Bill: I’d like them to release my stocks, if that’s okay.
Jake: Yeah.
Tobias: Anything small and value has been hammered, but small value looks stupidly cheap to me at the moment.
—
AI Has The Animal Spirits Going Again
Bill: I think what’s closer to reality is that AI got some animal spirits going again.
Jake: Yeah, that’s true.
Bill: I think that there’s a story that you can tell yourself that the megacap tech and NVIDIA do win from AI. So, I think that’s not totally crazy.
Tobias: He didn’t report particularly great results. The revs were down year on year. It’s just that he came out and he said, “We’ve got this year ahead is from $7 billion to $11 billion.”
Bill: Oh, the NVIDIA guy?
Tobias: Yeah. Is it gentle [crosstalk] or something like that?
Bill: Oh, yeah.
Jake: Huang?
Bill: Yeah. Well, people that know better than I do say he’s not the least promotional person in the universe.
Tobias: That seems to be the case. I’m not disputing the number. What kicked that off? Was it AI?
Bill: Yeah.
Tobias: [crosstalk] enough times, the algorithm going to pick it up?
Jake: Yeah.
Bill: I hope so. Yeah, I think it is. I think it’s everybody investing. Something that was interesting, Accenture. I was listening to their call, and they said 97% of CEOs think that AI will be incorporated in their business. The question is like, “Well, what does that mean?” It will be interesting to see if tech accrues the benefits of AI, or if JPMorgan does. Maybe there’s a scenario where service centers get much more automated.
One of the guys around my town who’s worth a lot of money, because he made it in tech, he’s working on transportation and how AI can be applied to making transportation more efficient. So, I’m interested to see how it all shakes out. I don’t know, what the real answer is. For NVIDIA, my gut tells me, it’s a bunch of people saying estimates are too low, and they’re probably levered long NVIDIA, and they’re probably short some ShitCo and tech, and they’re leaning into that trade as it works. I don’t know that it’s a fundamental valuation necessarily, but I also don’t think it’s going to stop until it stops.
Jake: Yeah, it feels like you wouldn’t really want to be on the other side of it, huh?
Bill: Mm-mm. Not yet.
Tobias: I think that AI is going to be this massive boom, probably something like the internet. But how you pick a winner out of that? I don’t know. NVIDIA is, from a business level, probably not a bad place to because it’s selling the picks and shovels.
Jake: 60 times revenue.
Tobias: Not at this price. Yeah.
Bill: Yeah. Guys like us are never going to buy it. But if you were at a pod shop and you had alt data and you thought that the estimates were too low, I could see it. I don’t know.
Jake: Hard to imagine.
Bill: What’s the catalyst to not belong, if you’re thinking that way.
Jake: An understanding of historical technological revolutions?
Tobias: I think if you have– [crosstalk]
Bill: Yeah, they got tight stops. They’re not trying to own this forever.
Jake: [laughs]
Tobias: Have a look at Google searches for ChatGPT against other things that have come in the past.
Jake: They got to be blocking those and putting Bard in, right?
Bill: Hope so.
Jake: Hope so. [laughs]
—
ChatGPT Tracking Against NFTs
Tobias: I tracked NFTs for a while, but it just got too sad. I tracked the search term, NFT, but NFT, it’s just fallen off the bottom of the most.
Jake: What were those?
Bill: My Bored Apes.
Tobias: What was the name of the–? [crosstalk]
Bill: I still haven’t bought one yet. I’m going to.
Tobias: You’ll get one. Wait long enough, you’ll get one for 50 bucks.
Jake: I know you’ll get one, for sure.
Bill: I always said really cheaper, a whole lot. I’m not sure which one.
Tobias: Really cheap.
Jake: [laughs] Whatever the answer was that– Whatever the pay to price– [crosstalk]
Bill: Pictures has gone small real cheap.
Tobias: Check out ChatGPT tracking against NFT. I think it’s going to follow the same– [crosstalk] Yeah, it’s going to fall off a cliff, and then eventually all of the hype drains away, and it just goes away, we go back to normal. [crosstalk]
Jake: That’s the installation phase, when it actually becomes a useful platform and people figure out how to make it do things for humanity, and then it’s a toaster.
Tobias: Yeah. It’ll be like that thing where you just had to put out a press release saying you had dotcom in the name of your company and it took off.
Jake: Yeah.
Tobias: Then it just became table stakes. Yeah, everybody’s got a website. It’s meaning, everybody’s got AI. Yeah, it runs. Instead of having interns, we’ve got AI.
Bill: Yeah, it’ll be interesting to see if it’s democratized access or– [crosstalk]
Tobias: If it turned it into a way for people who can’t code to code, that’s what I think it’ll do. That’ll be very cool.
Bill: Yeah.
Tobias: I would love to do it.
Bill: It could give the little guy a shot in a utopian scenario.
Tobias: Ah, [Jake laughs] it’s never going to happen.
Bill: Probably not.
Tobias: The person who figures it out first and smartest, it’s winner take all of these things or not. Or, not winner take all. It’s not a monopoly. It’ll be an oligopoly.
Bill: Yeah. I’ve enabled it on Windows, but I haven’t found the way to use it yet. But I do think it’ll be interesting to see how it’s incorporated in office.
Jake: Yeah.
Bill: I can see a lot of the application, potentially. I just don’t know the economics of the application.
—
Energy Still Cheap
Tobias: How about energy, JT? How do you like energy here, if we just go back to the average–?
Jake: Well, the valuations are still pretty damn cheap right now. It feels like they’re being priced in with that there’s a recession imminent, and oil is going back to $10. But who knows? I don’t know. Maybe that’s even the best-case scenario is that it gets bombed out even more and they can buy back even cheaper like the good allocators. I think it was Larry Hamtil who said something like, “Wouldn’t you want it to actually just stay at a reasonable price for a long time, rather than have this giant run up that then everyone then dumps their money into Capex to try to chase it, and then causes a crash?” Like, “Wouldn’t you almost make more money over a longer period of time?” Like, “An area under a curve would look better if it just ran at 70 or 80 for five years, instead of 200 and then back down to 10?”
Tobias: Singing a song.
Jake: I think he might be right about that.
—
Tobias: I think it was funny that the housing stocks– That was a really weird time where lumber got super expensive, and so the housing stocks all got smashed. And then lumber came down, so the housing stocks all started earning. And then we’ve had this weird period where rates have trapped everybody in existing homes. So, there’s been this massive demand for new homes.
Jake: No inventory.
Tobias: Because there’s no inventory.
Bill: Yeah.
Tobias: The home builders have just been making absolute hay. Like, who would have picked that one?
Bill: I don’t think that one was that hard. I actually think that’s my biggest miss for the last 12 months. I’m pretty pissed that I miss that. Because I think we called the lack of moving. I think that’s on the tape. The fact that I didn’t connect to home builders– I think it’s hard to believe that having an investment in the lumber mill did not preclude. I got so caught up on the repair and remodel demand that I completely blocked out of my brain that there’s another really important dynamic, which is, there’s a housing shortage– Who’s going to solve the housing shortage if no one’s moving?
Jake: The government.
Bill: Correct.
Jake: Oh, sorry.
Bill: [laughs] So, that one, I was pretty pissed I missed.
Jake: It is very hard to make those second order observations though about anything. It’s not so hard to get the first one, but then two more layers down and it’s like, “Oh boy, missing all this important stuff.”
Bill: Yes. But I think the hard thing there is, I have an investment that’s tangentially related and hurt by the situation. So, to see what could be good about the situation was hard. Close my mind.
Jake: Yeah.
Tobias: Pisses me off. Oh, well, there will be more opportunities and more mistakes.
Tobias: There’s always something. What is it now?
Bill: I don’t know. I’ve been toying around for a while with deep cyclicals.
Tobias: I like cyclicals. They are cheap.
Jake: [laughs]
Bill: I played on a pontoon boat-
Jake: Oh, yeah?
Bill: -this weekend. Yeah, man, some of these things are nice now.
Jake: Yeah, they’re really nice.
—
Winnebago Sales Tank
Bill: Yeah. So, I was taking shots at Winnebago for adding– They have a, I don’t know what it is. It’s either Bennington or Barletta or something like that in their portfolio. But I was one of those. My buddy’s client left it for the summer and just told him like, “Run it if you want.” They are sweet. Thing does 45 miles an hour. We had two families, two dogs, everybody was there, plenty of room. I don’t know. I get it, and I think that outdoors is here to stay, and got a bunch of people like us that are– I think COVID was a real driver of outdoor activity, and I think a lot of people like us have families and are looking to spend money and spend time with them. I can get down with the RV and pontoon boat thesis. Obviously, got to put some numbers to the idea. But that’s where I’ve been spending some time.
Tobias: Winnebago.
Bill: I haven’t done anything.
Jake: Yeah, Punch Card, that was one of his right now, is Winnebago?
Bill: Oh, is it?
Jake: Yeah.
Bill: Super consolidated industry. They all are all from the same town Indiana.
Jake: Yeah. [crosstalk]
Tobias: It’s hard to know that, because I think a lot of people bought– Winnebagos bought those things through COVID and used them to travel around. When we drove back from our vacation in Yosemite, we drove past a few RV parks, and they are fall to the gills. Yeah, we couldn’t fit another RV in there.
Bill: Yeah.
Tobias: These are the ones for sale. Sorry. Not just where people are staying. These are the ones like the lot, the lots of full.
Bill: Yeah, there’s a ton of inventory right now.
Jake: Little remorse probably on, but couldn’t go to Hawaii, so you bought an RV instead, and then now what do I do with it, because I want to go back to Hawaii? [laughs]
Bill: This is why I haven’t done anything with the idea, but Winnebago announced– This is a really dangerous thought. You’re welcome, or me about to infect your brain. Winnebago announced, and their stock barely moved.
Jake: They’re switching to AI.
Bill: Yeah, right. Yeah, they’re Winnebago AI. I think units are down 50% year over year. I think that could be wrong. I’m trying to look it up real quick. But when I saw the results, I was like, “Jesus, these are terrible.” The stock didn’t move, and it makes me wonder what’s already priced in.
Jake: What operational leverage do you see with that kind of business? I have to imagine, there’s a fair amount.
Bill: Yeah, I don’t think it’s definitely not nothing. I don’t know, I’m trying to work through these questions.
—
Jake: Toby, where’s the 10:3 at? Are we still have doom impending?
Tobias: Say it again. The 10:3?
Jake: Yeah.
Tobias: Yeah, it’s still massively inverted. But I really only report it when it reaches a new all-time low or a new all-time high and spread, whoever– [crosstalk]
Jake: Yeah.
Tobias: It’s 1.78 this morning, which is negative 1.78. So, the lowest we’ve had is 1.89. So, it’s very, very close to the lowest, but it’s been bumping around there for a long time.
Jake: Is that good?
Bill: It doesn’t sound good.
Tobias: As far as we know, it doesn’t mean anything. I think it probably indicates something bad, but there’s no research to show whether the level of the inversion is meaningful. I find it funny how short-term everybody is when– We know that the average period of time for the declaration of a recession is 12 months after the inversion, which was October 25. So, you can’t get really too excited until you get nearer to the-
Jake: Next fall?
Tobias: -Q4.
Jake: Yeah.
Tobias: Yeah. So, I think we’ll see around that time. And then thereafter it could go out to January next year before you see anything like– I don’t know, what’s going to happen, but I wouldn’t be declaring it over before you’ve at least gone past the average.
Jake: No-
Tobias: Period of time.
Jake: -we got AI. We’re ready to rip.
Bill: The interesting thing is how strong the consumer, even at the lower end, is. All of my biases would say that the consumer at the lowest end is going to get the most hurt by inflation. By now that you’d already be seeing it. If anything, the lower end consumer–According to JPMorgan, Bank of America, and the Fed, so maybe it’s all conspiratorial– [crosstalk]
Jake: Bunch of rich people. [laughs]
Bill: Yeah, conspiratorial cabal.
Jake: You’re so rich down there?
Bill: No, actually, the lower end consumer has come through this all pretty strong. Maybe that’s going to end.
Tobias: What’s lower end consumer? That’s people with assets under $10 million? [laughs]
Jake: Yeah. [laughs]
Bill: No, this is by decile of deposits and stuff like that.
Jake: So, what happens when you stop forbearance on rent, and student loans, and all these other things?
Bill: Yeah, [crosstalk] we’ll see. I don’t know. Look, I think the one thing that’s helping them is labor tightness. So, we’ll see how it all shakes out. I too have my doubts on how long this can all go on. But so far–
Tobias: Very hard to tease anything out of economics. But just there’s so much– [crosstalk]
Jake: Just stop right there. Full stop.
—
Small-Caps Ready To Rip
Tobias: Yeah. It’s very, very hard to know. I don’t know, I think it looks pretty nasty, but there are plenty of people out there who feel the other way. I saw somebody say, today, I almost retweeted it, but I didn’t. But it was that, “The line of reasoning was small caps are primed to do very well in the second half of the year as people realize that the economy is not as bad as they thought it was, and it starts going well.” I was like, “Well, I agree with half of this, but not the other half.”
Jake: [laughs] Except for all.
Bill: Yeah. Except for the economy doing well part?
Jake: Yeah, right.
Tobias: I agree with the small caps are going to do well. But I don’t know. I think it’s just a valuation thing. I just think they’re so squashed. They really don’t have to do much to do pretty well here.
Jake: Are we back into that where bad news is good news again though? Where it’s like, well, the Fed is going to have to lower rates, so stocks are going to rip. So, let’s just– [crosstalk]
Bill: They’re not lowering rates.
Tobias: Yeah, it sounded like Powell’s pretty–
Jake: If things go bad enough.
Bill: They’re not lowering rates. They’re going high.
Tobias: Powell got asked a very direct question, and he basically said inflation is still too high. We’re brazing through the rest of the year, two more times.
Jake: Twice. Yeah, I think anybody that thinks that they’re going to lower rates is not listening.
Tobias: Do you think it was– [crosstalk]
Jake: We’ll see when.
Tobias: That’s true. I agree. You’re right, JT. It’s funny though, like, why skip then– If you’re so resolute, why skip or pause or whatever they did?
Jake: Yeah.
Tobias: Particularly, when you saw NVIDIA has gone absolute bananas.
Jake: Just raise [crosstalk] like that. Raise it today, if you’re that resolute about it and you really want to get it under control.
Bill: I don’t know. I actually like what he said. He said, “We’ve come a long way, very fast. We’re going to let it marinate for a little while, but we still think we have higher to go.” I don’t mind not crashing through a wall just for the sake of crashing through a wall. Anyway, real quick. I found my unit deliveries. Shoutout to Daloopa. Yes, 6,376 units were delivered versus 12,031. So, that’s a big drop. So, anyway, I tend to agree with you. I think it’s hard to parse through some of this stuff. I don’t know how to model the other side of a 50% unit decline. Anyone that does, please help.
Jake: [laughs] In the teeth of a recession.
Bill: Yeah, I think.
Jake: All kinds of inequality. [laughs]
Tobias: Yeah. Is Powell Volcker?
Bill: I have no idea on these matters. Inflation reduction spending hasn’t even kicked in yet really.
Tobias: Inflation is down. It’s working.
Jake: [laughs]
Bill: We’ll see.
Jake: How’s a giant deficit in lower inflation?
Bill: I don’t think it does.
Tobias: This is why the economics is hard.
Jake: Okay. This is why I almost flunked out of macro, I think.
Bill: According to GMO, it does help corporate profit margins.
Jake: Yeah, that’s true. The dog did eat their homework on that one, right? That’s what money said.
Bill: So, profit margins may go higher.
Jake: Oh, my God.
—
Lordstown Motors Files For Bankruptcy, Sues Foxconn
Tobias: Did you guys know what Lordstown Motors is?
Jake: That’s EV, isn’t it?
Tobias: Not anymore.
Jake: [laughs] What happened?
Tobias: They bankrupt. They’re suing Foxconn for some reason.
Jake: Oh.
Tobias: Anyway, I didn’t know who they were. They had revenues of $198,000-
Jake: Whoa.
Tobias: -last year, but they sprayed some money. Spent some money.
Jake: What is that, like, one car they sold?
Tobias: Yeah.
Jake: How’s that work?
Tobias: Couple of cars, I guess.
Jake: What do you even sell?
Tobias: I don’t know. CEO got paid $4 million so he can afford to buy one.
Bill: Hey, good for him.
Jake: Yikes.
Tobias: So, that just leaves Rivian and Lucid, I guess. Which one of those goes first?
Bill: I don’t know. I hope not Rivian. We got one on order.
Tobias: Yes– [laughs] Haven’t bought it though.
Bill: Yeah, neither have I.
Tobias: Just put down the deposit.
Jake: How much was the deposit?
Bill: Like a grand, I think.
Tobias: $1,000 or $2,000.
Bill: Yeah.
Jake: Is it? Oh, okay.
Tobias: I figured it was 12 months to decide what we’re actually going to do while pretending to my wife that we’re going to buy one.
Jake: [laughs] She’s happy for a month or for a year?
Tobias: For a year.
Bill: They’re pretty sweet.
Jake: You’re going to need that small all cap value to fix this up a little bit before mama gets a Rivian. [laughs]
Tobias: I think electric is just a little bit aggressive at this moment, particularly electric from a company that might not be around. I think probably hybrid is the way to go.
Bill: My boy, Davy, got one, and he subscribes to a service that breaks down cars into their component cost, and he was like, “If the Rivian doesn’t work out, I can just break it down and sell it for more than I bought it.”
Tobias: Really?
Bill: Because apparently, it’s got stuff like McLaren brakes on it and stuff like that. It’s just absurd.
Tobias: I don’t need McLaren brakes.
Bill: Yes, you do. You just didn’t know you needed it.
Tobias: McLaren accelerator.
Bill: I think you’re going to get one. Those things are quick, man, and heavy.
Tobias: It’s a cool car. It’s a cool looking car.
Bill: You want some good brakes on it.
Tobias: It’s a premium price though.
—
Investing Lessons From Deep Forces That Shape The Universe
Bill: Jake, let’s do the veggies.
Jake: Yes, sir.
Bill: Hopefully, it’s about how all of the processing in electronic vehicles is in China and how we’re finding out our– [crosstalk]
Bill: No.
Bill: No? Okay.
Jake: We’re going bigger than that.
Bill: Nice.
Jake: We might be afraid to dream a little bigger, darling.
Bill: The universe?
Jake: This is the universe. We’re going to be talking about different zoom lenses that we can imagine about the universe. This was inspired by a book called Just Six Numbers by Martin Rees. It’s a weird book. It’s mostly about cosmology, but there’s some really interesting analogies about the size and scope of the universe, and also these weird tunings of how the universe is constructed in the sun.
For instance, if gravity was that much stronger than it is in the universe, then our sun would basically deflate and implode. If the nuclear energy release that happens was any stronger than it is, our sun would basically blow itself apart. And so, there’s this constant tension of gravity holding the sun tighter, and then it exploding itself apart, and it lives in this pretty perfect sphere at that point. If you tuned it just a little bit differently, basically the universe wouldn’t exist. And so, there’s these numbers that they point out that this physicist points out that really are like so– They’re down to the 10,000th of a decimal level. If they’re just a little bit different than what they are, we wouldn’t have the periodic table, it’s nonstarter stuff. Anyway.
So, this is a thought experiment that I think is fun for us. So, let’s imagine that you’re sitting on a blanket in a nice green lawn. If we were to zoom out a bit, say a few meters, we’d see you laying down, relaxing, maybe pondering the universe. And now, let’s imagine that same scene, but from successively more remote viewpoints, and each one is 10 times further away than the previous one, okay?
So, the second frame out would show that you’re in the middle of a patch of grass. And then the third one out would show that you’re in a public park. And now we do a fourth one out, and we see some tall buildings near you. And a fifth one out, and we see that it’s an entire city. And the next one out shows you’re almost at the Earth’s horizon, and it’s noticeably curved. And two more frames out, and then we see that quintessential image of the 1960s that’s like the pale blue dot, the entire Earth with its continents and oceans and clouds. Then three more leaps out, and you see our inner solar system with the Earth orbiting the sun, and Mercury, and Venus inside of it.
Four more frames out, and we’re already a few light years away, and our sun looks like a star among all of its neighbors. Three more frames out, and we see billions of stars in a flat disk that makes up our Milky Way. Three more leaps out from that, and it shows that the Milky Way is this spiral galaxy. The next leap out shows that our galaxy is just one of hundreds that make up the Virgo cluster. A further leap out, and the Virgo cluster itself is a rather modest cluster compared to all of the ones around it. In this series, we’ve taken 25 leaps outward. So, it’s basically 10 to the 25th, each by a factor of 10.
The next set of frames zoom in by a factor of 10 instead of out. Let’s call 1 meter. Less than 1 meter, we see your arm. The next one in, we see a few centimeters, and maybe it’s just a patch of skin, for instance. Next frame in takes us into the texture of your human tissue. After that, you have individual cells. Then after that, we’re at the limits of a powerful microscope, and that’s where we’d see individual molecules, these long, tangled strings of proteins. The next zoom in would reveal individual atoms. And then after that, inside the atoms, we have these swarms of electrons that are surrounding a positively charged nucleus. A few more frames, and now we’re only making educated guesses as to what’s in there, based on what happens when we accelerate particles, and ram them into each other, and we see what comes out when they’re going, the speed of light when they hit each other, or near the speed of light, I should say.
So, basically, there’s 60 frames that are 10X that we’ve covered between our entire universe, and all the way down into our subatomic particles. Our current measurement systems, the instruments that we have only cover about 43 frames of these 60 frames. The other ones are inferred from math, and our understandings. Our ordinary human experience is only 9 frames of the 60 frames. So, our senses, when we’re just going about our daily lives, we have 9X, 10 to the 9th.
So, the takeaway is that the universe is this vast range of scales, most of which– they stretch larger and far smaller than the dimensions of our everyday sensations. So, what I thought it’d be fun to do was to bring this back to our world is, let’s look at all the different scales that Berkshire operates at. We’ll use dollars instead of meters as our measuring stick, and let’s just see what comes out of it. We’re not going to learn anything, but it’s just fun. So, no doubt, there’s got to be some pennies in a cash register somewhere at one of the Berkshire companies. So, the first one that we have is one 100th of a dollar as our smallest data point. Two frames zoomed out from that, and we see See’s Candy selling at a sucker for a dollar. Or, at least maybe you can go into the See’s Candy and smell some chocolate for a dollar at this point. I think that’s–
[laughter]Jake: One more frame out, and we have Pampered Chef that’s selling a nice-looking spatula for $10. Another frame after that, and you can buy $150 pair of Brooks shoes. Another frame from that, and maybe it’s $2,000 of customer lifetime value for a GEICO policyholder. Another frame after that, and you have a Clayton home that you can buy for $70,000. Next one up is Warren’s famous salary of $100,000. Revenue per employee is almost a million dollars for Berkshire. One after that, or we could use Todd and Ted’s salary of $1 million if we wanted for that data point. There’s $40 million worth of Mondelez in the portfolio. Two more frames, and we find Charlie Munger with his $2 billion worth of Berkshire stock. Two more frames after that, and we have Berkshire’s cash pile of $130 billion. Maybe one last frame is $950 billion in assets that will round up to $1 trillion.
So, that gets us from our range from a penny all the way up to a trillion dollars for Berkshire. And so, that’s 15 frames of a 10X scale compared to our standard observations of 9, and what we can observe in the universe of 43.
Tobias: Well done.
Jake: If we wanted to get cute, we could probably add a couple more frames of like, “Oh, Berkshire operates in a $23 trillion US economy or $100 trillion-dollar global economy,” but I think we’re already starting to stretch it at this point, so let’s just quit while we’re way behind.
Tobias: [laughs] Good job, JT. That was wild. I actually thought you were going to go in a slightly different direction there. I thought you’re going to say this scale– [crosstalk]
Jake: I probably should have.
—
Warren Buffett’s Superhuman Calculations
Tobias: Well, there was a little video doing the rounds yesterday on Twitter of this lady saying– Sorry, I didn’t catch who it was, but she said, she had spent some time with Warren. It could have been– [crosstalk]
Bill: Oh, yeah.
Jake: Oh. All right.
Tobias: But she said she walked with him through a carpet, one of the carpet stores. I don’t know if it was the– [crosstalk]
Jake: Shaw?
Bill: No. It was–
Jake and Bill: Nebraska Furniture Market.
Tobias: Was it?
Bill: Yeah. He was talking about Mrs. B, like how they sell each piece. This is a good story.
Tobias: He knows the price of each piece of carpet in there. He knows the margin on each piece of carpet. He knows what they can discount to, so they can still sell it. He said Mrs. B didn’t like to discount. He said he persuaded her that they would make more money if she discounted to get the stuff that didn’t sell off the floor. And then, she just went through all of the things that– The level of granular detail that he has about every single business is just unbelievable.
Jake: Wow.
Tobias: Unmatched.
Bill: That’s why when he says, you don’t need to model, he might mean I don’t need to model.
Jake: Yeah, that’s very true. I don’t do a discounted cash flow, but I pretty much am running that in my head already.
Bill: That’s right. Yeah, I can pretty much do all the discount rates out to 15 years in a second.
Tobias: “Alice Schroeder.” Thank you.
Jake: Well, it’s so interesting to hear him. Oh, yeah, that makes sense.
Bill: Oh, was that Alice Schroeder? Interesting.
Jake: At the meetings, you’ll hear him talking. There’s sometimes where you can see him pause to do a little bit of math in his head for something, and it’s lightning quick. He’s very, very good. It’s very impressive.
Bill: Yeah.
Tobias: Maybe it’s a trick. Maybe figures it out before anyone–
Jake: Oh, I’m sure he’s got all kinds of heuristic shorthand, like, little math rule of 72 type of stuff. So what? He’s in the ballpark, and he knows all the dimensions of the ballpark.
Bill: Dude, I’ll tell you the other thing that’s crazy is, you get me– I’m not a math savant by any stretch, but I am moderately competent. But you get me on a mic, and I’m starting to do it when people are listening or on the fly, I’m terrible. And for him to do that in that arena with that complex of math, he’s got it just on autopilot. It’s just like there. It’s incredible.
Jake: Yeah. Some of them are compounding series too that he’s talking about. Some of the math problems are like opportunity cost calculations of something that he didn’t do, and he’ll figuring out what it costs to not buy Walmart or something. He’s running it through his head real quick of, “Oh, that would have been worth $10 billion.”
Bill: Yeah.
Jake: It’s amazing. Carry the one. [laughs]
Tobias: Didn’t you say he would have bought a little town at one point there in Ohio?
Jake: I think he tried to.
Tobias: He said that it would have worked out pretty well too.
Bill: Yeah, he’s one of a kind.
Jake: He is.
—
All Roads Lead To Tobacco Stocks
Bill: My big idea lately is I’m back tobacco. All roads lead me back to cigs.
Jake: Oh, full circle. [laughs]
Tobias: In terms of investing or in terms of combustibles?
Bill: No, like the investment. I don’t know. There’s something about it that I’m just comfortable with. Out of everything– [crosstalk]
Jake: Is it the money?
Bill: That has something to do with it.
Jake: [laughs]
Bill: You watch people with these ZYN pouches. I think a lot of the stink on nicotine is going to go away here over the next 20 years.
Jake: Really?
Bill: Oh, yeah. Because I think that the issue is not nicotine. It’s the delivery mechanism. If you can reduce the harm– Look, it’s a drug. I’m not going to discount it, and it’s highly addictive. I’m not sure CELSIUS isn’t the same. So, if you can just put a pouch in your lips– [crosstalk]
Jake: Starbucks.
Bill: [crosstalk] give you cancer. Yeah, that’s right. I think humans like vices. I don’t think that’s a new thought.
Jake: [laughs]
Bill: I think there is enough evidence there that there’s a transition. It’s a long way away. It’s not going to make up the majority of the revenue for a while.
Tobias: There’s definitely some- [crosstalk]
Bill: But it’ll come.
Tobias: [crosstalk] -is that a nicotine, right? There’s definitely some Alzheimer’s or mental performance type positives– [crosstalk]
Jake: Focus or something?
Tobias: If you smoke a pipe, you got throat cancer. If you had the pouch, you got mouth cancer. If you smoked it in a cigarette, you got lung cancer. I don’t know, the delivery mechanism needs some work.
Bill: Yeah.
Tobias: Caffeine is out there. Caffeine is basically a free hit, I think.
Bill: ZYN, man. ZYN was the shit. That was the stock I wanted to own. Swedish Match, I wanted to own that forever. But it was taken from me, so I’ve taken it back.
Tobias: Is tobacco ESG?
Bill: At this point, if you’re smoking sticks, do I really feel that bad for you? It’s freedom. It’s like some of these guys that I live around.
—
Here’s a fun story about Florida. I tried to turn in a gun, okay? Found a gun in my grandma’s house, whatever. I was like, “I don’t need a gun.” If I had one, I’d get a Glock. So, anyway, it was like a sick shooter.
Tobias: You needed to exchange it.
Bill: I bring it– [crosstalk]
Jake: “I’d like to upgrade this?”
Bill: So, I bring it to the cops. The guy looks at me and he’s like, “This is in pretty good shape.” I was like, “Yeah.” He’s like– [crosstalk]
Jake: How much you want for?
Bill: Yeah. He was like, “Well, I’m not going to tell you what to do, but as a gun enthusiast, I would just encourage you to take it to the pawn shop.” And I was like, “Okay.” And then I got this feeling that if I turned the gun in and if I ever needed him, he would come to the house and be like, “Remember when I told you to keep the gun?” I feel– [crosstalk]
Jake: You’re trying to take it out of circulation, and he was like, “What are you doing?”
Bill: Yeah, that’s right. Don’t be rude to gun lovers. I don’t think it’s the same thing, but I think it’s the same thing at this point with cigarettes. If they’re out there and people are still smoking them, I don’t think that’s ESG issue anymore. Maybe in the 1990s, I would have bought it. I don’t buy it anymore.
Jake: What did it fall under social? Is it second hand smoke?
Bill: Yeah, I don’t know.
Jake: What’s the problem?
Bill: It falls into things that, if I could wave a wand to make them disappear, I would but I can’t and it doesn’t seem like people care, so I might as well make money on it.
Jake: [laughs]
Tobias: Those ESG ratings are very hard to-
Jake: Untangle.
Tobias: -understand.
Jake: Yeah.
Tobias: How they rate one over another, it doesn’t really make a great deal of sense, but whatever.
Jake: It doesn’t matter.
Bill: I think it does. It probably matters who’s buying the rating, and who’s getting paid off, and who wants to go up what.
Jake: Yes.
Tobias: Not on the label. The label doesn’t make sense.
Bill: That’s correct.
Tobias: What is inside the can doesn’t match what’s on the label.
Bill: No. Much like financial product distribution.
Jake: [laughs]
Tobias: True.
Jake: No comment.
Bill: [laughs]
Jake: [laughs]
—
Half-Year Predictions Update
Tobias: What’s everybody like for the second half of the year? Do you guys want to pick–? We should do it. We should do an update of our annual predictions.
Jake: Oh, boy.
Bill: I don’t even remember what they were. I’d have to go back and [crosstalk] see them.
Jake: Oh, we do? We do have those.
Bill: Yeah.
Jake: I could pull them up if you want me to try to find– [crosstalk]
Tobias: Yeah, let’s do it. Let’s find out where we are.
Jake: All right. Why don’t you take a question, and I’ll look for it, and I’ll see what I can–
Bill: I was thinking about that yesterday, actually. I was like, “I wonder how those are playing out.” Bound to be wrong.
Jake: [laughs] Okay. It’s the Annual Bias Buster Quiz.
Bill: Here we go.
Jake: That’s what we called it.
Tobias: We’re at the half year. This is June 27th– [crosstalk] going still at the halfway.
Jake: Yeah. No, it’s still way, way too early to call it. You guys need to look up what the numbers are for these things. But closing value of the Dow Jones in one year. This was from January, obviously. Toby came in at 36,000. Bill at 31,033.
Bill: Ooh, 33,964 as of today, Toby is closer.
Jake: Okay,
Bill: But he was over– [crosstalk]
Tobias: [crosstalk] said that.
Bill: Which means according to Price is Right, you lost.
Jake: [laughs]
Tobias: Ah, that’s only halfway though.
Jake: Yeah, that’s how it works.
Bill: I should have picked a dollar.
Jake: Yeah. Let’s see. Total return of the S&P 500 over the next year. Toby, plus 9%. Bill, minus 7%.
Bill: Mm, that’s a dumb prediction. Who does such a thing.
Jake: [laughs] Yield on the 10-year– [crosstalk]
Tobias: Well, we’re down over the last year. Yeah, we’re at 14, year to date. 14 and a half. Wow.
Bill: Stupid me.
Jake: Yeah, you had a rough year coming into it. All right, yield on the 10-year– [crosstalk]
Bill: Silly to bet against the averages.
Jake: Bill, 2.5.
Bill: Oof, that wasn’t going to right.
Jake: Toby, 6.
Tobias: For the 10-year?
Jake: Yeah.
Bill: Bill is going to be closer. 3.76.
Jake: All right. Annual rate of inflation in one year.
Bill: I guess, I have 3.6– Yeah, 3.76. Sorry.
Jake: Bill, 3.2. Toby, basically flat. He said, minus one-tenth of a percent.
Tobias: I said down?
Jake: Yeah, you did. [laughs]
Bill: CBI currently year over year at 4.
Jake: Okay.
Tobias: I must have been having some sort of– I must have just been fading myself.
Jake: Seizure or something.
Tobias: I was just fading everything, I think.
Jake: Yeah, that’s probably what it was.
Tobias: Because it stands it at–
Jake: Yeah.
Bill: Smart.
Tobias: All right. Price of bitcoin in one year.
Tobias and Bill: Ooh.
Tobias: Where’s it got? There’s a good one.
Jake: Bill, $25,000. Toby, $2,000. [laughs]
Tobias: Did I say $2000?
Jake: Yeah.
Bill: $30,660.
Tobias: Yeah.
Jake: This is why it’s so important to write this stuff down, by the way.
Tobias: This is going to be a hard one to hit.
Jake: Price of gold in one year.
Bill: Ooh.
Jake: Bill, $1,300 per ounce.
Bill: Eh, it’s going to be low.
Tobias: Toby, $3,750.
Bill: $1,912. Again, Toby goes too high. I went with a dollar.
Tobias: We are only halfway there. We are only halfway there.
Jake: That’s halfway.
Bill: It’s fair.
Jake: But also, how are you doing inflation at zero, but then gold at $3,750? Those are just nonsensical– [crosstalk]
Bill: it’s called hedging.
Jake: Yeah, it is.
Bill: He’s running long short.
Jake: Price of crude oil in one year. [laughs] Bill, $75. Pretty good. Toby, $200. Not as good.
Bill: $68, as of today. Eh, it could go higher.
Jake: Best performing major financial asset over the next year. Bill, US small cap, junk debt. And Toby, EM small value. [makes a buzzer sound] [laughs]
Tobias: Yes. [crosstalk]
Bill: NVIDIA, Toby. The correct answer is always back.
Jake: NVIDIA was the correct answer? The SS Minnow–
Bill: The answer is always tech.
Tobias: How did you get out of not making any predictions, JT?
Bill: Because he asked.
Jake: I’m the host. Yeah, I present them.
Tobias: That’s smart.
Bill: Nice.
Jake: I did all the work to prep for it. So, you guys are the ones who have to.
Tobias: That was a good one.
—
Bill: Oh, well. Do you guys listen to the electric car podcast that Drew Dickson linked to a little while ago?
Jake: I did not, but shoutout to Drew.
Tobias: No.
Bill: I’ll send it in the chat machine.
Jake: Okay.
Bill: It’s really interesting stuff. It’s the guy from Ford that created the F150 lightning. The way he talks about it, and the way he talks about where we are in the EV cycle and how similar he thinks that was to the Model T. When that came out, that’s really interesting. I don’t know. Tesla opening their charging station to everybody. I guess, if you’re a Tesla bull, you say, “Well, now we own all the gas stations,” or whatever. I don’t know how I’d feel about that if I owned a Tesla. But maybe they don’t care. They got little bit taxes– [crosstalk]
Jake: Now, you got to wait in line behind all these F150s and Lucids and everything else. I’d be angry if I purchased that package already, wouldn’t I?
Bill: Yeah, I would. But then again, you’re just going to be leasing your car out and making so much money that you don’t know what to do with it.
Jake: When you’re robotaxiing it.
Bill: Yeah.
Jake: Oh, boy.
Bill: It’s possible.
—
Carlill v Carbolic Smoke Ball Co 1893
Jake: When was the timeline on that one, by the way? When did they say that was–? Well, I guess, when did Elon say and then when did Cathie say? Those are probably the two datapoints.
Bill: Yeah, who knows?
Jake: Three years ago?
Bill: It’s mere puffery, my friend.
Jake: Okay.
Tobias: Is that a carbolic smoke ball?
Jake: Or, the physics?
Tobias: Did you know carbolic smoke ball?
Bill: It’s about the vibes.
Tobias: Did you learn carbolic smoke ball, Carlill and carbolic smokeball?
Bill: No idea.
Jake: I don’t even know what language you are talking right now.
Bill: What is that?
Tobias: Ah, it’s an old case in contract. I think it’s most advertising is regarded as mere puffery and not a contract that you can–
Bill: Oh, yeah.
Tobias: This guy, different spelling to my Carlisle, sued the Carbolic Smoke Ball Company, because he bought one of their carbolic smoke balls and they had said, whatever, it’ll cure your cold or whatever. He used this carbolic smoke ball on himself, and it didn’t cure his cold, so he sued them. The question was, is this mere puffery or is this a contract? I think the way they had worded it, he had done everything that he needed to complete the contract. It’s been a long time since I studied contract law. I thought it was a pretty famous case. It’s a really old case. So, it’s possible it made it to US case– [crosstalk]
Bill: Yeah, we definitely studied something similar. But puffery goes a long way. Apparently, you’re allowed to do it when you cite investment fund returns, which I did not know until not too recently.
Tobias: Say it again.
Bill: I said, apparently, you’re allowed to do it when you’re citing forward investment fund returns.
Tobias: Forward returns. Yeah.
Bill: Yeah, 40%. per year, right? It’s puffery.
Jake: The models say 50%.
Bill: Oh.
Tobias: JT– [crosstalk]
Bill: Oh, they put them into the matrix.
Tobias: [laughs]
Bill: We got too honest and they canceled him.
Tobias: There you go. They did teach that in Canada.
Jake: That’s probably good. Kept me from getting sued, probably. It’s a good thing it dropped.
Bill: Yeah.
Tobias: You get Wagon Wheel? They teach you Wagon? It’s too old, too long ago.
Bill: I think I did.
Tobias: There’s association with the US lawyers before, there’s some crossover. Anyway, sorry, guys, moving on.
Bill: Well, it all goes back. It’s all common law, right, the very early things that you study.
Tobias: Which goes– [crosstalk]
Bill: Probably, we all get along, us, the English, and the Aussies.
Tobias: It’s that old common law.
Bill: That’s right. Who’s got questions? Is our man Samson in the audience. What’s he up to?
Tobias: He is.
Bill: Just making so much money on Tesla, he doesn’t know what to do with.
Tobias: He listened to the podcast, on the Drew Dixon podcast.
Bill: Oh. What’s his takeaway? He’s probably got a different one than I do. It’s very interesting. Drew came away a little less bearish on Tesla. I came away as confused as ever.
Tobias: Don’t have to win it every game though.
Jake: [laughs]
Tobias: It’s too hard.
Bill: That’s right. Too hard.
—
Tobias: Meta is a good example of something that– I tweeted this out a few weeks ago. Meta’s now got a higher EV/EBIT than Google. It wasn’t that long ago. Seven months ago, it was trading on six times. Now, it’s on 25 times. And at six times, it was poisonous. Nobody wanted to touch it. And at 25 times, a lot of people are making arguments for why it could be an AI leader, why it could be a VR leader, and so on and so on. It’s just too hard at this point. I don’t know. It could be. Just easy to buy them when they’re cheap, I think. Not worry about it too much.
Bill: Yeah. Always easier in hindsight. What a run.
Tobias: But you don’t necessarily know that’s going to run, but you can see that it’s too cheap.
Jake: Nothing changes [distorted audio] price.
Tobias: I think that’s true of the home builders too.
Bill: Yeah, Builders FirstSource. I don’t know. I remember with Builders FirstSource. I didn’t believe that $1.3 billion would be their trough. It reminds me of in March of 2020 or April, I was talking to Restoration Hardware’s investor relations and I was like, “How are you guys going to make this payment?” I think they had debt due and they were like, “We’re going to make it,” and I should have just listened. It turns out they know more than I do.
Tobias: You thought it had some distress risk at that point?
Bill: Oh, yeah. With that kind of leverage and the world shut down, I thought that could be a risk. But oh, well– [crosstalk]
Tobias: Stimmy saved us all.
Bill: Yeah, and locked at home.
—
Why is Berkshire Hathaway Buying More Oxy?
Tobias: Berkshire still seems to be buying Oxy? Recently, I saw-
Bill: Buff Dawg loves it.
Tobias: -last seven days or so.
Bill: Anytime, it’s under $58, right?
Jake: He’s pretty relentless.
Bill: Yeah.
Tobias: He seems a bit.
Jake: Just hitting the bid.
Bill: He’s probably buying today.
Tobias: What do you think thesis is there?
Bill: The energy thesis, right? It’s too cheap, and it could go parabolic.
Jake: I think it’s a capital allocation thesis that buybacks are going to be– The ability to retire shares and the appetite for it with that company and his holding them to it publicly, I think is a pretty powerful combination.
Bill: One thing that’s a little odd is, he did that M&A transaction with them, and then he also talks about the reason that he stayed in Bank of America is– What? He approached them or they approached him or something like that. I don’t know. Sometimes, I wonder if he’s doing things like– I wonder if he picked Oxy, because he feels like honor bound in a way.
Jake: Maybe, but you don’t have to keep buying-
Tobias: It changed his mind.
Jake: -either.
Bill: Yeah, I don’t know. It’s just a thought I had.
Jake: You don’t have to dump your Chevron stock either and buy more Oxy, which I think is an interesting difference.
Bill: Yeah.
Jake: Weight the different valuations on those two companies too.
Bill: Yeah.
—
Tobias: We made it to time.
Jake: [sighs]
Tobias: Thanks, Bill.
Bill: Yew. Yeah, man, thanks for having me, guys.
Tobias: Go to see you, guys.
Bill: Yeah, it’s nice seeing you.
Tobias: It’s July 4th next week, so we’ll be off. Everybody go and celebrate, those in America. Everybody else, go about your business as you normally do.
Jake: But we’ll be back after that?
Tobias: We’ll be back right after that.
Bill: We’re going to wear a thong.
Tobias: We’ll be back with the– I think we got the Seawolf boys coming up week after that. So, get your crash helmets on. Should be some- [crosstalk]
Jake: [laughs] Get the boys–
Tobias: -good bear porn.
Jake: Get them riled up.
Bill: Who’s coming on? The guys from Seawolf?
Tobias: Seawolf.
Jake: Yeah.
Bill: Oh, yeah. Nice.
Tobias: Hard fellas.
Bill: That’s always a good conversation to cry in a corner after.
Jake: [laughs]
Tobias: All right, fellas.
Jake: Cheers, everybody.
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