Chit Chat Stocks - Investing Power Hour #35: Why Isn't SBF In Jail? JPM State of the Cloud, Housing Impact on Inflation

Episode Date: December 4, 2022

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Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome in. This is the Chit Chat Money Investing Power Hour. I am Ryan Henderson. I am joined by Brett Schaefer. I feel like we never really introduce our names, but that's okay.

Oh, always have that happen. But yeah, the role of the show is we can talk about anything financial markets related we just had quite the little uh audio snafu so our mics might be broken that uh that could be big news for us which would be quite disappointing but is not relevant to the listeners although we may have lost a great recording on autodesk to tease that out we'll just have to re-record that but yeah ryan any any housekeeping any any highlights uh I guess subscribe to the newsletter again it'll be free along with a lot of episodes not the power hour

if you're watching or if you're listening to this on the podcast we do these live on Thursdays try to do it 4pm pacific time 7pm eastern although today we're late because of technical difficulties and besides that not our fault yeah it was all our fault but also

not our fault and besides that do you want to hit the advertiser yeah And then we'll get right into the show. Yeah, Stock7 Investing, our presenting sponsors, they dropped their new picks today. So their December picks are out, which is the last new REX before our code is no longer usable. So we've got a code, money, you get $100 off 7investing with your annual subscription. um so saves plenty of money and and today they had their seven recommendations for anyone that

doesn't know seven investing does seven stock recommendations each month they now have well over 200 recommendations in total did you have any uh what was your favorite recommendation from this batch it was a good batch by the way big fan of this batch that is uh correct i was a fan as well, although that is just our humble opinion. I liked Simon's. Don't want to spoil it, but it's something I have looked at before. We've looked at hundreds of stocks, so that doesn't give it away. But besides that, yes, I very enjoyed his pick. I haven't read the research report yet, but as someone who's interested in that stock, I am excited to read it because I know I'm probably going to pick up at least a few different tidbits that I hadn't before

to help with my understanding of the company. Yeah, that was probably up there for me as well. I liked Matt's. Matt had a new rec. Matt does, oftentimes, I've found that Matt does some re-recs where he recommends something that he's already talked about in the past, because frankly, that's a great way to invest is the businesses you really know well. But this one was a new one and, well, a new recommendation. I know he's owned it for a while, but also good. But I won't talk too much more about 7investing. Use our code money. You get $100 off the annual. News for the week. I've got something top of mind. I'm frustrated, flustered.

All right. Well, I'm going to tweet out the show links while you introduce this topic. I think it's the one we discussed beforehand, right? Yeah. So Sam Bankman Freed, SBF, the old CEO of FTX and a fraud, is getting airtime. A lot of platforms are interviewing him and talking about how things went wrong and how it was that he – how did it come to be that he lost so many people so much money? and it's definitely a criminal and basically they're letting him have his little his parade, his interview festivities and talk about how

things went so wrong and it's just really sad for me to see all these news companies shill out for clicks and give this fraud airtime

it's criminal He's literally a criminal. Yeah. Well, not proven yet. However, I think when they arrested Madoff, they hadn't exactly proven it yet. A lot of people that get arrested as potential murderers, potential drug dealers, kingpins that don't lose probably nearly as much money as SBF did over at FTX, they get put in prison for the time being until they go to trial.

Maybe the DOJ is working on something. However, I don't know why any of these news organizations are touching the topic. It's making me lose. I hate saying this, but I smell something. Something doesn't. Yeah, we're nobodies, but something doesn't feel right here. It doesn't make any sense why these organizations would do that when they introduced them at Dealbook. they were like give a round of applause for uh sam bankman freed what what is going on who on

earth would call well just to be fair i mean sometimes it can kind of just be memetic right where you're told to clap it to be fair i don't think that's a big deal but again asking the crowd to clap and not just having the most like you're interviewing remember that r kelly interview that was really really on point when he had uh what was it the rape allegations right yeah i think confirmed the shouldn't it be kind of like that right where it's like all right you're about to go to prison or get in trouble for something pretty serious let's hammer some legitimate questions here and i gotta say uh we're not body language readers but the man is lying out of his ass just watch any of the clips dude yeah absolutely no doubt there

i've never been like more disappointed because there's all this golden age of fraud stuff the fraud is discovered like this isn't like it's it's past time people lost their money already it's over and now he gets an interview parade and we applaud him he's literally going around and everyone's like thanking him for coming to this event like what are we doing yeah it turns out they're all remote pathetic yeah it is it is strangely pathetic and i i it seems to me that i think we're getting like punked or we're getting a joke played on us i i don't know what's going on uh matt h thank you loyal listener one of the few on the youtube chat uh thank you for tuning in every week was andrew ross sorkin respectable before this i don't want to talk i had a little

bit of i i respected him yeah this certainly stains his reputation for me no doubt yeah i We hate talking about that type of stuff, but this, I think, is very, very important. We really do not like talking about specific individuals or hating on specific things within the markets. The only time we really try to, and again, we're not a big show at all, but the only time we really try to call out individual stuff is when it is blatant fraud and we don't want people to lose more money. Or when people are getting hurt. Or people are getting hurt. We know we're getting hurt in this situation. They are. Yeah, I lost a lot of respect for him. I don't know what was going on. I'm a big fan of accountability. Yeah. And that's not going on here. He should be in jail. And it's like no one cares. It's like, well, but he was announced for the deal book. We got to have him. People are coming for that.

what about let me let me it's so sad yeah keep going keep going let me pull up even the

maybe the craziest part of this thing anything else no it just makes me sick it's like it's what

let's say someone else was found to do something criminal god forbid maybe one of the

people that we think has done criminal things before and has been convicted of crimes before However, if this happened to that person that I'm thinking of, now I know for sure he would get interviews and interviews and interviews, and it would not – there would be no prison.

Are you talking about one of the few richer people that we may have some suspect thoughts about? Yeah, and now SBF is giving me more respect for Elon. I mean, I'm thinking through the same thing. Like if Elon were convicted of, I mean, he's been convicted of not convicted, but securities manipulation, he's been convicted. Right, right, right. But a lot of things, bigger crime. Yeah. Well, what would happen?

An acquisition of a solar company from his family that was failing, that was owned by a family member that he did a potentially fraudulent presentation of that he admitted to in court that cost shareholders billions upon billions of dollars. that uh could be yeah what i'm saying is like no one no one would be held accountable in the situation it's just so like i don't know yeah okay here's off yeah here's uh again i i i don't know what's going on i really hope i have a lot of respect for michael lewis i really hope he does this justice and it does not put this... I really hope he tells the story straight because... I think he can. I think he's got the ability

to. I have hope. If he does, then I'll be really happy. Okay, here's the craziest part about it, I think. And that is Bill Sr. Ackman saying, call me crazy, but I think at SBF

is telling the truth. One of the wildest tweets in Fintwit history. One, his wife has a connection to sbf who got a donation from him at mit so he's clearly biased here the first response i see is um man the things got ugly in those replies uh the first response was you dumb mother then another word and another person uh the bit one of the best reply people because i believe it's a woman evit daddy uh said uh where is my homeboy mike pearson who was the if you don't know the ceo of valiant uh so quite the dig um svf responds to it and says i deeply

appreciate that i messed up i'm going to do everything i can to make it right even though i knew. This guy can't spell. Even though I knew it might never be enough. And then we get a quote tweet from Kevin O'Leary. I think I muted him, so it's going to be tough to find. Oh, yeah. He still got laser eyes. He quote tweeted this with maybe an even more insane tweet. He said, I lost millions as an investor in FTX and got sandblasted as a paid spokesperson for the firm. But after listening to that interview, I'm in the Bill Ackman camp about the kid, exclamation point. One, he is 30 years old. So not a kid. Can we stop glorifying like, oh, he's so young?

Yeah, that shouldn't matter. it doesn't matter he stole your money it's like all of the young kids that worked there they stole your money yeah exactly first up this is like saying man that

I'm using Brian here as just because of an example man that Ryan Henderson guy he had he had sex with my wife but I I still like the guy like I would I would be very upset with you. The guy lost millions of dollars.

What is going on with Mr. Wonderful here? I don't know. Maybe he's still getting paid. That is true. There's a lot of money missing. I love his profile picture though. Laser eyes. That guy.

When you watch Shark Tank as a younger person trying to go into the finance world, you kind of think that's a legitimate thing. You go, wow, that Kevin O'Leary guy is sharp. yeah find out

facade yeah he is a fool and well he tricked Mattel um the responses on that are

Matt H said after this circus what is the percentage chance that SBF gets a Newman 2.0 moment if he does

man we'll see what the criminal charges are I would like to see I would like to see people he'll vote

with his wallet like like people will vote with their wallets they're not gonna give this guy money again there's no way

newman just got 300 million dollars for honestly newman's not nearly as bad as a lot of these people i don't think he's as bad as musk i don't think he's obviously not as bad as elizabeth holmes not nearly as bad as spf not as malevolent yeah he was just just as delusional yes more delusional yes but he had a real business it was a bad business but real yeah the and it wasn't there wasn't no there wasn't fraud from what i remember no it was just really really good promotions the guy six five israeli long hair he walks into jamie diamonds office he says jamie what sort of valuation we putting on this retail rental startup huh 60 times sales what do you think well the man's convincing i i don't because i think the difference is the criminality so i

don't think he'll get money again um if criminal charges are presented the concern here and the messiness and the real frustration for me is all the money that he gave to politicians yeah both sides my concern is that that's if he somehow doesn't get convicted or he somehow is let go and they let them do a 2.0 and they maybe encourage a 2.0 because maybe it means more money in their pockets. That is when I go perma-bearer.

Can't trust the system. You turn into Zero Hedge. I see how people end up down that rabbit hole after events like this. I usually think Zero Hedge is bad. We don't swear. Bad.

whatever crazy but they're probably right in this situation all right what uh any other headlines i don't i don't want to give spf too much my brain time yeah i'm sure we'll be talking about them for weeks to come if there's more uh news here um leo let's see there's a lot of things i kind of saw on uh across the news this week in the finance world a lot of interesting things so i think we can hit a lot of small stuff but the first thing i saw was this uh the information which is a i believe a silicon valley research or not research reporting they're like really i don't really know exactly what their deal is but they do great reporting in the valley and they found um so a chart where that outlines the gain in google's or alphabets

Alphabet slash Google's headcount since 2019, because they're not that, the company's not that, they give out as limited information as they need to when talking to investors. So they're a bit of a mystery sometimes. And they found this, say, internal document that showed where all these employees are coming from. And I think it was a bit surprising. So the number one was cloud at 50,000 new employees. Second, sales and partnerships, 30,000. Maybe that's where we go for the cuts, if I'm going to be fair. 10,000 were in hardware. So Pixel, Nest, Fitbit, that seems pretty legitimate. 10,000 in Android and Chrome, pretty legitimate. Ads product around 12 000 search and assistant 10 000 and about eight seven thousand in youtube um i don't know

well you're not in the document right now but you can go look at that in the power hour document i haven't posted if you want to look at it ryan but any surprises from what you saw there i think for me the biggest surprise is one how little search um and they they probably already had the most employees before 2019, but how little search gained employees while still growing revenue. So I think that was a very positive sign for me for the operating leverage of that segment. And second, just the sheer number in the cloud division, which to be fair, has been putting up very strong growth numbers at a huge scale, but just that number, the 50,000 number. Definitely stood out to me.

Yeah. It makes the growth feel a little less impressive, I guess. Not that, I mean, it's still, it's an improving business and I think it's at, on pace at what? $25 billion in recurring revenue? I think higher, but- Slightly higher? I think 30, but I don't have the numbers in front of me. Yeah.

I mean, it's cool that they built a $25 billion recurring revenue business and getting to the point where it's operating income nearly, it's getting to the point where it'd be operating income positive. But when you got to hire 50,000 employees to do it, it just makes it feel less like an achievement. Yeah. It's like a brute force kind of. But if that's what you have to do, I guess, I mean, it is, you know, cloud's a wonderful business and it's not like those employees have to stick around.

Or they can, you know, scale up as maybe. Okay. You know what? That's how it always sounds. I know. Thinking optimistically, they can scale up and they're planning for the future and building out all these products. but pessimistically they love to continue to hire so my uh my pet theory here and what i thought was how businesses worked and got to profitability was they invested for growth and those costs or those investments became a fraction of the revenue that they generate over the lifetime value of their users but what i'm finding out is that all these businesses invest for growth fire all the employees

and then have their customers and there are the profits well or they just hire employees because they can yeah maybe the

what was the second one there sales and partnerships yeah I'm not sure exactly what the definition was there I don't know what that is yeah sales

I mean if it's I would think like the biggest sales the apple partnership i don't know how many people need to work there because i would assume that's just a legal team um i i don't i don't know where's their sales staff like who are they selling to it's what product do they have to sell that doesn't sell itself search cloud cloud is but that's within cloud is that's what i mean outbound sales uh yeah i do not know the definition of sales and partnerships but what about the other ones over the other ones there

Oh, I find it impressive that YouTube's so small. Although it might just be the fact that they have a lot of employees to begin with. Yeah, but it seems like they're doing well without needing too many. And that's kind of the theory that a lot of people had. I like that Android and Chrome kind of get a lot of work because that's really important for the moat. And I like that they're, I honestly like that they're investing in hardware. Nest and the smart home stuff I could really forget about but I think

the Pixel could be a nice gross driver for them so yeah I like that I have my gripes about the Nest I don't think that's going to be too successful

yeah it's smart homes were a bit of a bit overblown I think we can conclude now I'm glad I'm not seeing uh whatchamacallit on here their gaming platform stadia stadia whatever it's called yeah glad i don't see that on there yes uh yes uh not and at least they included search and google assistant in the same one so unlike amazon who spent probably the same amount added the same amount of employees just for Alexa

that Alphabet did for Search and Assistant. You can see why they have the margins that one person doesn't. Alphabet has one set of operating margins and Amazon has another. Yeah.

Anything else on that? No, not really. Any other headlines? You're going to have to carry the weight here this time around because I don't have my computer up in front of me. Yeah, we had the technical difficulties made it tough for research this week, but I think there's a lot of stuff here. Okay.

There was a tweet from Mads Capital. There's a lot of information here, but I think it'll be fun to talk about. So here's the tweet, public cloud update from JP Morgan. I love when people share screenshots from the proprietary stuff that the bank sent to clients. It's very great. AWS record backlog of $104 billion, AWS, Azure, and GCP. GCP is Google Cloud, Azure is Microsoft, equal approximately 75% of the global market. Current inflationary macro environment has driven customers to optimize cost, slow spending, and trade down instances and storage. That just means trade down how much they're kind of spending.

They're a little bit more conservative on how much they're spending in the cloud. that's what he means if we look at I guess there's some more information in some of the slides he laid because that's just information from the tweet anything surprising there or is that kind of what you assumed things would look like

75% numbers generally what I thought it was or at least that's like what I kind of heard last the AWS backlog is astounding it's nice they got the launch and we just did that show on Autodesk

which again no one's ever going to hear we're going to have to re-record it I think but thinking through that episode I was like man they're going to be spending a lot of money on AWS

yeah I guess everyone is I'm looking at the stats right now 7 year head start and in 2022 is 1.5 times the size of Azure. I guess that's a testament to Azure.

Three times the size of GCP, but the gap is tightening. Yep, and they outlined here revenue growth percent at AWS, 30%, Azure, 37%, GCP, 37%. Yeah, it's pretty... Yeah, I really don't see how all three don't win,

but I kind of like AWS and Google Cloud more. just because Microsoft seems to be more tailored to the old economy companies. And AWS has really a lot of presence in the startup ecosystem. And GCP seems to have a lot of presence in AI, machine learning, stuff like that. But again, that's a bird's eye view from a non-expert. And I think all three will likely do well. I don't know.

With the revenge of the old economy as of late, Azure might be the better one to bet on. And I would be more concerned about the companies that are hyper-focused on AI and stuff right now because it felt like that was a lot of the companies that got easy capital. Yeah. I mean, AWS has the biggest, most exposure to the startup ecosystem, so they can be hurt the most if there's a downturn there. Here's the next slide. So they say America's remained the largest opportunity. I don't think that's a surprise since I guess that's where most of the tech industry is.

And the projection is for global, and this is for what they call IaaS and PaaS, which is infrastructure and platform as a service. Again, you can tell we're not cloud experts here. In 2021, total spend is expected to be $160 billion. In 2025, they're projecting $419 billion. If market share stays the same, that is what are we looking at here? Over $300 billion? No. Just south of $260 billion in revenue opportunity for the big three.

Oh, actually, divide that by 0.75%, say $200 billion revenue opportunity for those three companies. That is, without knowing anything about the cloud, well, okay, with knowing maybe minimal amounts about the cloud and how it really works, those are some numbers that will make you perk up. i stand by we okay we talked about this before that it might they might be the best businesses ever and the only ones you could argue and the only ones you could argue i think are the ones that they already i think the only one you could argue is google search and that's already owned by one of the other companies um just from the size perspective yeah yeah i think i agree but capital intensive so maybe not the best but at the scale i mean the scale is just unbelievable makes me optimistic uh and anyone that's interested check out our two-part series

we did what's his name joe firmanski from non-zero sum capital ncs capital on cloudflare again that business i really do not understand however he did help me help us understand it more they think they can be the fourth horseman and the opportunity for them just seems really really strong they seem like someone that could grow at high rate for a long time

not investing advice I do not know anything about Cloudflare besides what we've talked about really with Joe Fremanski but I liked okay I had Joe is obviously an expert and I that was a fun interview and Cloudflare probably has the best pure

opportunity because it's not like, you know, when you buy Google, you're not just buying GCP, but you're getting the cloud businesses at the, at the big tech companies cheaper because they're a part of those bigger companies. Right. Cause Cloudflare, I mean, it's still kind of expensive from what I remember. Yeah. Let me pull it up. You can get AWS for really cheap because right now the e-commerce business is a drag.

And they're spending $12 billion a year on Alexa. Yeah, let me pull up Cloudflare trading at EBITDA sales last 12 months of 18. Yikes. Well, everyone else is optimistic about the business. Amazon entirely. Amazon isn't like if you the entire enterprise value is probably

what mid-teens sales mid-teens AWS's sales yeah yeah maybe okay hold on go ahead continue what would you pay for AWS today

just AWS sales multiple yeah Okay. Margin is about 30%. So if we're looking at 10, I'm trying to think of what 10 times earnings would be on a sales multiple. Why can't you do the math right now? What, three roughly? No, 10 times would be three. Yeah. Duh. That should be easy math. So 30 times would be about 10. 30 times earnings. Yeah. It's about 10 times sales. i think i would inch up to 12 time sales for aws really i think that's the ceiling say that's the

ceiling of where i think is interesting giving how given that growth over the next couple given that that revenue is pretty much guaranteed to grow or at least the next couple years okay wait let me double check something would you buy Amazon's entire retail business for zero dollars I know

well I've looked we've talked about this before it's on the watch list we need to do finish up the work on it oh geez

I mean it'd be negative it's probably negative value but the if you mark yeah if you mark AWS at 12 times the retail business is a negative value

but That's kind of where I think a fair value is. So I don't know if it's maybe expecting that great of returns going forward. So maybe where I would actually buy it as an investment would be lower. But the international losses and the other bets investments. If I were at an investment bank, I think that would be what my DCF looks like. AWS, $1 trillion. Retail, zero.

Zero, yeah. Okay, so we talked about AWS's record backlog is $104 billion. What do you think the growth was percentage year-over-year? From when to when? Year-over-year, so whatever they last quarter versus a year ago, what was the percentage growth? I'm not sure, 28%. 57%.

AWS? Yeah. What? Oh, the backlog. The backlog, yeah. Oh, that's even better. Jeez. That's why that CapEx is going up.

And everyone thinks it's Alexa investments. Yeah. Let's see. Last slide. Well, just a lot of charts going on to the left. They stay still early innings in secular shift. Public cloud spend should more than double by 2025 with only mid-teens percent of workloads and 5 to 15 percent of IT spending in the cloud today. Current inflationary environment has driven customers to optimize costs, slowing spending in the near term could pressure growth.

Yeah, nothing new there. Got a question or a comment here. Are you guys doing this one later today? yes uh and if you typically thank you for the question we want to talk to i guess the listeners on the podcast don't care but for the few people that like to watch on youtube or replay on youtube we started a little late today because of technical difficulties it happens uh it's a three-man shop over here and we think our mics might be broken uh and second we did move to 4 p.m pacific time in the afternoon not noon anymore 4 p.m is just better for our schedules

and we think better for people getting home from work around dinner time stuff like that all right i got a i got a question for you slash uh kind of marketing for seven investing here so they recently did an episode with our friend alex morris they did a podcast episode and turned it into like a kind of free article i mean the the podcast is free so feel free to go listen to it but they have they do this fun show called wreck or rebound and they named a bunch of companies and so i will name the company for you we're gonna do we're gonna do the same damn same game really quick yeah and i don't listen to the podcast i don't i don't know what they've said but um i don't know if you'll know all the companies but

you tell me whether this is the current price decline is the beginning of a wreck or it's time for a rebound Ally Financial alright and none of these are going to be stuff we own so to be fair do not listen this is from

the top of the head Ally I will say rebound it looks cheap famous last words but looks cheap Domino's Pizza that's difficult rebound

oh wow it is down like 40% from its highs 20% 30% not that bad service now do you know what service now does no clue but I know they have a lot of charts

that go up and to the right I will say I'm going to look at the sales multiple and that will determine my answer. I will say sideways for a decade. Let's look at the sales multiple and if it's below 10, I will say 12.

I'm going to say rec. Sorry. Five below. Rebound. No one likes the model. No one likes the concept, but they put up great results. yeah they are probably the fastest

growing retail concept I've ever seen would you would you agree with that well we don't we haven't maybe maybe maybe great that's really definitive answer alright Amazon.com

emphasis on the .com alright rebound Tesla wreck sorry everyone I know half the people out there like Tesla. I'm sorry. I'm still a hater.

Stock's too expensive. Last one, Netflix. That is tough. I want to say I'm leaning rebound, but I'm nervous about uneconomical spending at Apple TV, Amazon, and yeah. That's it. Those companies continue to invest heavily. oh also you i worry about youtube as well taking market share and ctv

i would say that's a rebound for me we uh we got a nice comment all right yeah yeah the if you're watching on youtube ignore that person thank you for that not a player h says the chat about to get boss with that tesla mention yeah you know that is a possibility maybe we should moderate our tesla oh i forgot is that is tesla political now i forgot no no no but it's uh it's got its bots uh right they have a that's where all the r&d you have the automatic youtube live filter that's good a lot of listens tesla buffett bitcoin gold that's how you get listens so yeah maybe not the listeners were striving

for, but that's okay. Anyway, yeah, if you want to check out 7investing, I wonder, there's probably a little more analysis than what Brett just did for some of those record rebounds. I believe I saw it was like 30 or 40 minutes. So

check out their free stuff, podcast and use code money. You get $100 off your annual subscription. All right. Any other topics? Let me scroll scroll through the twitter uh swedish match update oh don't don't don't don't i know it was the perfect business here's here's here's what i want to talk about interest in philip morris because it's swedish match okay here's what they said uh as a press release swedish

match said yesterday that it was expanding distribution of zin a tobacco-free nicotine pouch throughout the western us it is now being made available for the purchase in more than 4,000 stores in Arizona, California. They list all the Western states. So 4,000 more. That was already their biggest market. Does Philip Morris International supercharge growth for them

because of the regulatory expertise? Does Zinn supercharge it for... No, no. Does PMI, Philip Morris International supercharge, even... Excuse me, not supercharge. It was already doing well. accelerate Zin's unit volume growth

because, again, the regulatory stuff that can get them into more countries faster and two, the distribution advantage by being a larger company, able to negotiate to more convenient stores and wherever people buy nicotine products. Probably. Which is why they should have paid.

Maybe it's my West Coast bias and it's already so prominent here, but I feel like Zin's already in the district like every convenience store I go to. Apparently they weren't. Apparently there was 4,000 more. Does this make PMI attractive? I kind of feel like it could be fun to,

maybe not, or interesting to look at them. I do not know much about that business. But yeah. I mean, cigarettes are pretty easy. To understand it, you're guessing it's like other cigarette businesses

around the world yeah i'm guessing they make them for five cents sell them for a dollar and their customer base is slowly dwindling but they have uh now have this hidden gem in their portfolio in zen i would uh i think it would depend on how much what percentage of sales of pmi sales would come from zen i'm willing to pay quite a premium to buy the zen business independently, which you almost were getting with Swedish Match. Yeah, somewhat. Somewhat.

Say Zin plus Cigars. Yeah, or even just not even Zin, the Snus. The pouches, the non-invasive pouches. Oral tobacco or whatever.

Yeah, whatever they call it. Modern oral. It's always strange to call it modern oral. So no one's brain going to the gutter there. All right. Here's another topic that as renters we might like. And this could be fun to talk about compared to inflation. I haven't read the article yet, but this is a tweet from I believe this person is a Bill McBride. I recognize the name, but good at this type of stuff, says rents are falling faster than, quote, seasonality alone. Since rents are falling and will likely continue to fall, it probably makes sense to look at inflation ex-shelter for monetary policy over the next several months. If you look at the chart here, rent prices, if we look at, okay, what am I seeing here? so in january 20 from february 2020 they dipped a little bit and then in starting in early 2021

they went up by a ton that's peaking at 17 year-over-year growth and now it is rolled over kind of like a classic just asymptote back to five percent growth and are falling quickly uh thoughts there good for rent prices i think we've kind of seen that the crazy the crazy rent hikes in uh at least our area i'm not looking i'm not looking at this chart that you're talking about but you basically your rent prices are still growing let me send it in the zoom chat but no they're still growing but it's going to start if the trend continues they're going to start declining within the next few months so it's declining not know they were still growing that is a bummer yeah but some of that's uh how correlated are though are rent

prices to the housing market i believe fairly correlated but also not an expert here's another one that's interesting so if you look at housing services on the i believe that is for personal consumption expenditures under i think it's the fed's definition it's still showing since it's on a trailing basis i sent the chat so maybe you can look at it now um yeah so that uh is growing still shows it's growing but all the forward-looking indicators apartment lists zillow have rolled over and it seems like that since it's a big driver of inflation, you can kind of see how that might decline or

lead to inflation to drop in early 2023. Yeah, but I also think consumer spending drops if inflation drops. Isn't that tight at the hip? well i'm saying you uh if you're saying that inflation drops because of shelter costs yeah i think it is going to i think the wealth effect will come into play oh yeah good point i also got a lot of people are going to think they're just poorer because of the the thing

the worst part about Zillow is it's given everyone a mark to market on their house that is correct it's given them a daily quote they can check it's like

it makes your house a stock yeah which is like my Zestimates is 900k let's take out that loan they used to treat it

like a real asset now they treat it like a trading sardine yeah well maybe not a trading sardine they don't actually treat it like that but

But it just feels so much more monetizable now, I think, or liquid. Liquid, yeah. And here's what's interesting. So I throw out a thing about how a tweet to try to see if there's anyone that knew more about this stuff than me, about how if mortgage rates stay about where they are, prices are going to continue to drop for a little more, maybe 15%, something like that. Who knows the exact number? And if that happens, the wealth effect and affordability will impact consumer discretionary spending.

All the defenses really weren't that it wouldn't impact consumer discretionary spending. They were not, in my opinion, a full loop. How am I trying to describe this idea? Because some people were talking about how wages would outgrow the affordability crisis for homeowners, right? Yes, but at first I thought that was interesting. But if wage increases are that high, that means inflation is going to stay high, which means that the Fed is going to raise rates even more, which makes affordability in houses even worse. I want to say wage growth is exactly parallel to inflation growth. i might be wrong but no you could be right but the way that everyone in the united states spends money where there's no savings or even negative savings

i suppose what would happen today if mr jerome powell decided we're going back to two percent like what like what do you think would actually happen not the 10 year but the Fed funds yeah but the Fed funds

doesn't that dictate the 10 year sort of the 10 year will be slightly higher yeah Fed funds goes to two

well do we party again do we throw a major party home building stocks would go off would go crazy but

affordability why not keep rates at zero forever aside from hyperinflation causing like the demise of economies yeah I think asset bubbles as well

but theoretically doesn't low rates inspire entrepreneurialism inspire people to take chances and borrow money. That's what I thought, but now we're in the golden age.

And build and innovate. But the truth is, there's just no innovation that was going on. Yeah, we didn't get innovation. We got the golden age of fraud. Okay, here's a good chart tweeted from Tobias Carlisle,

but from Lance Lambert from Fortune Magazine. Here's a nice one that ties into that. It looks a lot like a housing bubble. And they have a chart where it's house price to income ratio.

I don't know if that takes into account mortgages. And if you look at... It starts from 1982. And say the baseline is about 90. Will you send the tweet in the chat? Sure, yeah, so you can see it. Maybe start dropping it in the YouTube chat. Is that possible so everyone can see it if they want to?

Yeah, we need to start working on how to do the share screen, but I don't want to do it live. We need to prep that beforehand. But yeah, I think the share screen could be very helpful for people in the future. Okay. Sent to you. Here we go. So say the baseline is say a 90 on this index and it falls to about 80 in the late 90s.

So it doesn't change very much. And then if we look at the bubble in the early 2000s, it goes up to 100. So the house price to income ratio. So that means it's getting more and more expensive. Then it falls after the housing bust in the early 2010s. It kind of just goes up a slight amount as the housing recovers. And then this year, as mortgage rates increased by a really fast amount and housing prices stayed high, it zoomed up past the bubble peak in 2006. Yeah, I don't see how this does not end poorly.

Something has to give, which that comes back to what you talked about, the Fed rates. Something has to give there. The Fed could lower and fix this. I take that back. I said, I don't know how this doesn't end poorly. Home prices coming down does not mean. Yeah, it's not a bad thing. That is not things are ending poorly.

That means homes are becoming more affordable. If anything, you probably want it stable around its historical average or even lower. theoretically you want this as affordable for people as possible, right? Yes. Yes. I agree. That was a socialist response.

Maybe. Maybe. That was my test. Hey, if capitalism worked like it was supposed to, shouldn't prices go down over time through competition? but build your own home

yeah let's see let's see anything comments from I saw the daily journal stuff Charlie gave like the most motivational quote ever not really but he's like the world's

driven by envy not greed that's kind of interesting it's so true like the world's my life is like so much better than if i were born 100 years ago yet i'm constantly looking around at how whoa how it's not as good as other people's yeah reading a bit of history can really help with that yeah just read as many books from the great depression as possible you have a new perspective

on life any anything before world war ii anything you'll be like oh geez like uh the comments are unbelievably funny too here's one i won't say who the people are because i don't think anyone known but don't want to call it any individuals it's so funny but here's one a billionaire chalking up the various struggles of many to whose struggles he can't relate his envy and bragging that he's not envious changed how you view the world and again they're referencing him as a billionaire and that's just so funny because it's envy yeah there's one person that said it's Greed. This has created a massive wealth gap, shrinking the middle class to the point where upward mobility is far less likely. Some people, I'm sure, are envious, but others are angry because the opportunity no longer exists. For people without privilege, some can only work to survive. And some comments said, you sound envious. Great, great response there. Let's see, any other real topics? Layoffs apparently aren't as bad as people think.

that's good and bad right yeah if we're talking society it's good let's see October yeah so they might quit layoffs are steady at 0.9%

job openings are down to 10.3 million although that's a weird indicator since people just post on LinkedIn now here's an interesting one we all live better than John D Rockefeller in 1922 who was the richest man alive having read titan i don't know if i 100 agree yeah i think he had a pretty good yeah especially during that time of his life because he just golfed all day but no air

conditioning so oh true nah wait are you sure air conditioning was uh i think the first air condition building was 1905 in new york new york stock exchange so if he spent some time there well maybe i mean i don't know uh it was maybe he got it since he was the richest man in the world but yeah he was in a nice temperate florida right before the the housing bubble of the 20s yeah all right let's talk yeah here's a topic that i think we can hit on for a while what time did we start we're going to a little bit before 5 30 so we got about 15 minutes left no started streaming 54 minutes ago. Oh, so it was 6 minutes, so it was

4.18. Okay. Alright, here's the last topic. DoorDash announces layoffs. 1,200 people. 1,200 people. I think you can see it coming, but if we look at Jim Chanos,

who, let's pull up his, he tweets a lot, so hopefully I can find it. No, but did you read the letter to employees? No, you you tell me about it what do you think of it it was fine but the my biggest thing is if you're a ceo writing this letter to your employees announcing that they're all getting laid off limit the word i as much as you can because no one cares that this is a pain for you

that's true when they say yeah when he leads with this is the hardest thing i've ever had to do that's tough no one sympathizes so be direct don't try to beg for people's sympathy and try to give the best benefits you can to the people that you have to lay off yeah yeah it's a tough that's a tough sentence to start out with okay well they needed to do this because as jim chanos pointed out in a lovely looking chart uh revenue growth is stagnating and operating income per order is moving in the wrong direction. So if we look at operating income per order

in Q1 2021, which wouldn't you say is probably the ideal environment for DoorDash, right? Yeah. They lost 30 cents per order. Today, they lose 76 cents per order.

They got to... Is that operating income per share per order? no no no just operating income per order they gotta they gotta fix this and I think they

they gotta hit those layoffs things are not moving in the right direction you think that's a business that can actually be profitable yeah but not

not pretty low margins and they need they need a lot less employees that or they can keep jacking up their rates um yeah all right we're about people pay ridiculous amounts for their doordash orders

yeah it doesn't make much sense to me it's not make much sense and uh yeah unless you're really rich but also the food's way worse if you order on doordash it's the same exact food because people never handle it correctly also they make you tip before the order is brought to you you they're like do you want to tip the driver which is just odd dynamics and i've heard a lot of i think there's a lot of uh bad stories about people that didn't get tipped yeah spitting and the food? Yeah. A lot of bad stuff.

I would not. I don't use DoorDash. The only time I would use it was when they gave me the 50% discounts, which, again, though, on one hand, they're not making money

when people are paying absurd fees. But on the other hand, there's so much volume flowing through their platform that I wonder if they kind of rationalize whether at least they could break even.

Yeah. All right. What were you going to say? I was going to say that we're almost on time. Any sort of teasers for the listeners, shows coming out, we'll have the Autodesk one where we kind of go through our thesis on the company. We're going to lay that out, not as a buy recommendation, but basically our monthly Arch Capital episodes are going to be just a public way to give any sort of insights on how we think about a stock, what we're looking at as a potential investment and how we look at

something today. That Autodesk one will be optimistic. Sometimes it'll be more pessimistic about some of our holdings. We try to honestly, as objectively as possible, and share that with people. That'll be coming out soon. We might have to rerecord that. And we're starting up the e-commerce and website software month. We're going to be hitting MercadoLibre. We're going to be hitting Squarespace, Wix.com, GoDaddy, Adobe. It's going to be a fun month. Yeah, it will. Other ones that I think will be fun, Ian Bezic interview. I think that's coming out next week. It's on Pacifico Airports. It's basically this Mexican airport chain. And I've got to say, wonderful business, just an absolutely wonderful business. More exciting than you'd think. yeah and more liquid too which was nice to see so it you know the typical person could buy it

said dude do coupon please we might have to bang maybe yeah that's one that we have on the watch list um could that fit into the eco it could but we'll have to do that another month uh we're running through the companies we actually own right now so but that's definitely one that's been on our watch list that we we've had that's been it is on our watch list so we could uh we it will definitely we're going to run out of holdings to go through soon so yeah the other other one that's maybe worth visiting uh we we had an interview with paul sero it'll be pretty interesting he bought a small pet grooming business um outright just just bought it so uh kind of going through what it is like very different episode than what we've previously

done so what it's like to actually be like an owner operator and how it's different than investing in public companies. That one was pretty entertaining, but we started streaming 60 minutes ago. So that's going to do it. Thank you for everyone in the chat. Matt H, you really make this thing run, man. Appreciate all the questions. And we should probably throw a disclosure on this. Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital. So clients may have positions in the securities discussed in this podcast. Thank you all for listening. Thank you all for tuning in. We'll see you next time.