Chit Chat Stocks - Investing Power Hour #39: 2022 Year in Review, 2023 Bold Predictions

Episode Date: January 1, 2023

The CCM Investing Power Hour is a live-streamed show every Thursday at 4:00 PM PST. On the show, Ryan, Brett, and a rotating list of guests have an unscripted discussion on a variety of investing topics. You can watch the show on our YouTube channel here: https://www.youtube.com/c/ChitChatMoney Follow the show on Twitter: https://twitter.com/chitchatmoney Subscribe to our newsletter: https://chitchatmoney.substack.com/ ****************************** This episode is sponsored by Stratosphere.io, a web-based terminal for financial data, KPIs, and more. Try it out for FREE or use code “CCM” for 15% off any paid plan. Sign up here: https://www.stratosphere.io/ ****************************** Learn more about your ad choices. Visit megaphone.fm/adchoices

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 recommendation. Now, please enjoy this episode. This is the investing power hour number 39. It's almost been a full year now, and this is going to be our 2022 wrap up and lead in for 2023. We're going to be

doing bold predictions that will most likely not come true this year, along with a few other things and then our normal Power Hour format where you can come on, ask us questions. And just as a note, if you're listening on the podcast format, these go live on YouTube at 4 p.m. Pacific time every Thursday. So if you want to talk with us, if you want to ask us questions, if you want to heckle us in the YouTube chat, you can do that. But I'm here with Ryan Henderson, as always. Ryan, how are you doing today?

You made the format for the 2022 year in review and 2023 prediction. So exciting, exciting year. And maybe 2023 will be as well. Yeah, this is one of my favorite shows. Maybe my favorite show that we do each year because we've been so wrong on at times. I guess I didn't go through all of our previous predictions, although maybe I should have. Actually, I could probably pull that up. But I know when we did this for 2020, we were going into not only a new year, but a new decade, and we wanted to make new decade predictions.

And I said, we wouldn't see the indices by picking S&P 500. We wouldn't see a decline greater than, I think it was like 20% or 25%. And that lasted two months before I was wrong, because COVID hit shortly after. Um, so these takes use them as your contra the, they age poorly. So whatever we say, you know, uh, feel free to adjust your portfolios accordingly. Exactly. All right. Uh, I'm going to tweet out the link, uh, and then we're going to start talking about,

actually, why don't we talk about our advertiser first? And then I will tweet out the link this show to kick off our Q1. we have a new sponsor and that is stratosphere.io this is a website and a platform that we fully endorse we're actually going to be using it on the show because it's perfect for fundamental research and it's actually it really is the exact sort of thing that we were looking for so we were really excited to partner with them we're going to talk about that during the middle of the episode as well we're going to use it for some of our topics but it is a web-based research terminal for company specific metrics like KPIs, segment revenues. So for a lot of companies, and they're

only just starting, they're going to build this out continuously. They have different KPIs you're not going to be able to see on maybe an all SEC filing. So for example, you might have YouTube revenue for Google, just as an example, since we're on that topic right now. It has clean data and segment data that is triple checked for accuracy. It saves you time. I can attest to that. it saves us time while we're doing research for the shows. And it's also beautiful, fast, clean, and has really strong data visualizations. So if you want to get started today, you can actually go for free at stratosphere.io. Let us know on Twitter if you enjoy using that and start utilizing the powerful research terminal. Again, that is stratosphere.io. And if you want to upgrade

to their paid plans, you can use promo code CCM for 15% off. They're going to be our advertiser for the first three months of 2023. So we're going to talk about them some more. We're going to use them on a lot of... I mean, because we use them for shows anyways, we're going to be using them a lot on the Power Hours, Not So Deep Dives, interviews, et cetera. All right, Ryan, I'm going to tweet out the link. Why don't you intro the show? Yeah, and we also have a comment from Matthias

Houghton, who I did not realize that was Matt H. from before. Last show, I'm pretty sure it's Matt H. That is my assumption. It was always in the comments and always keeping the show going. It says one of the very few podcasts not taking this

week off. That is correct. No breaks for this team, although I will admit we We recorded a couple of our shows in advance so we could take Christmas off. So we're not totally perfect. But yeah, let's talk kind of about, because this show is a little different than our typical power hours, I want to give sort of the brass tacks in terms of what listeners should expect from Chit Chat Money as a whole in 2023.

So just kind of what's our schedule, what listeners should look for on a week-to-week basis. And then, you know, obviously stuff can change, stuff changed this year. So this is kind of, this is pending any unexpected changes, but we will have three shows a week. The occasional random show that we'll throw in there, if we feel like it would really add value to listeners, like a CEO interview or something like that. But three shows a week, generally one on Tuesday mornings, one on Thursday mornings, one on Sunday mornings, we typically schedule them to come out at like midnight.

So people have them on their commutes in the morning because it obviously depends on where they are, what time zone they're in. But anyway, yeah, continue. Ryan, you may not know this, but the reason we chose midnight Pacific time, which is where we're located, is because that's the perfect time throughout North America and Europe for those days. But yes, it is perfect for the morning commute as well. Yeah. And then anyway, so for Tuesdays, those are not so deep dives. And so the Not-So-Deep Dive is basically Brett and I's research and coverage of a business. Oftentimes, it's our first look at a business, and we'll cover a specific industry for each month.

So these are typically 45-minute episodes. We're kind of basically trying to help speed up other people's research process if they're interested in looking at a company and they want, say, you know, we talked about the Hershey Company this year. If they want the general basics or the basics of the business, they can kind of just listen to our show. And then if they think, oh, that's interesting, maybe I'll dig a little deeper, they can kind of extend on from there. But anyway, that's every Tuesday. At the end of each month, we'll have an episode that replaces the Not So Deep Dive that's an Arch Capital episode. So that'll come out on Tuesdays as well, once a month. And it's basically either a holding that we actually own in our fund, which is called Arch Capital, or maybe a change that we made, something like that.

So kind of an Arch Capital-specific episode. Then on Thursdays, we have our deep dives. These are interviews with analysts where they're typically pitching a business that they own or they're interested in. It's not always a pitch, but a business that they know pretty well. And we're kind of asking questions. This is probably maybe the one that attracts – the show that attracts the most new listeners. I guess the Not So Deep Dives do that as well. But people that are looking for really thorough analysis on a company, Thursdays are really probably the place to get that.

And then Sundays are power hours. That's what we're doing right now. They're live on Thursdays on YouTube, but most people don't listen to that until the podcast on Sundays. That's probably how most people are listening to it right now. Basically, this is meant to just be us riffing on the financial markets. We started this year and got a bunch of positive feedback. Actually, a friend of the show, probably our most recurring guest, Matt Cochran, I met with him in Florida and we were talking and he said, I love the format of the Power Hours.

And he says, there just isn't enough shows where it feels like a casual kind of chat, just shooting the shit. That wasn't the term he used, but basically a super casual, relaxed conversation about financial markets feels like you're talking with your friends. That's the goal of these shows, and hopefully the live chat gives us that kind of interaction as well. And then we've got the newsletter, which is free. It's meant to be a useful supplement to people who enjoy the podcast, and it's got some visuals as well as Brett's riffing. yep and it's it's a great we do two uh posts a week on that as of this writing or excuse me as of this recording one we give the the show notes and the charts and all the research we've done

for the not so deep dive episodes which take a lot of work so that can be a great way to supplement it and then second we do a sunday recap um it's called the sunday finds but basically it's a sunday recap from the previous week links to all the newsletter uh excuse me the shows from the previous week and then yes uh just some current thoughts on anything um and i do that one so yeah that's really it power hours we're still hoping to you know continue to improve that um and yeah the i think we're we're going to try to get potentially some guests on the power hour but no promises there that uh we know that it's more fun with three to four people where you know We think we can keep up a conversation going, but when we used to have Ian on the show who did graduate to a real job in the investing world, that can be more fun with three people.

You have three different opinions coming through. Yeah, I think that's pretty much the basics. I know not everyone's going to listen to the show, but I think a lot of people listen to the show and have no idea what the cadence or the schedule is. So hopefully that provides some context. But let's move on. 2023, bold predictions. I've got three big ones. It looks like you've got two that are a little more company-specific.

That's right. Well, you stole one of mine, which I think the housing one. I'm pretty much in agreement with you on there. Not to spoil yours, but I definitely was going to do that one instead. But yeah, I think they're going to be all fun. So why don't you go ahead first? All right. First one, we will have a soft landing.

This might be controversial because a lot of people just are – I feel like a lot of people are rooting for inflation. It's kind of weird. They just want the Fed to be like super wrong. I'm not sure why. But basically, the Fed has been talking about this kind of soft landing, that they're not raising rates as high as they're seeing CPI increase because they believe that inflation is temporarily high and it will revert somewhat. I think they're going to be right. That's my bold prediction. I don't think the increase in CPI or the annual inflation rate, however you gauge it, will persist at the current rate. My bold prediction is that from Jan 1, 2023 to Jan 1, 2024, the inflation rate during that time will be below the current federal funds rate, which I think is 4.25% to 4.5%. Do you mean average or at one point it will go below?

The CPI for the full year. For the full year. The Fed funds rate at what time period will be below? The current one. The current one, this one. Okay. That makes sense. What's your reasoning?

Or is this just the gut feel? This is the gut feel. No, I mean, I don't think anyone has reasoning. I mean, well, maybe everyone thinks everyone seems to have reasoning, but it's like dead wrong, so it doesn't matter. I would just say I think that the Fed is not behind the game and that, I don't know, you really think prices – for me, prices increasing 8% a year just seems – like across the spectrum of what we spend on just seems really unlikely. yeah i think there's a few i'm not sure what's included in cpi to be honest i don't know every single factor yeah i mean a lot a lot of its housing and yeah there's the core which i think excludes a volatile stuff like energy and food which i think could be volatile month to month

but you look at core i forget what one's which but sometimes they separate out energy because it can be a lot more volatile but they do include that for one of them but housing is a huge portion of it. So I think you look at that and that's kind of a slow moving. I mean, we're not going to spoil your second prediction here, but those are kind of rolling over. Used car prices are rolling over. A lot of the commodity and energy stuff is rolling over. And I guess oil prices are a bit unpredictable. So that could throw a wrench into things. But you're seeing a lot of signs that right now inflation is most likely rolling over and less wages just totally accelerate and that causes everything to get hit. However, the tech industry, if you want to just broaden out

and call it that, where I know calling it the tech industry nowadays is kind of a misnomer, but you see companies that are laying off workers and those are not just the workers they lay off. There's a lot of other people that are affected by that because most of these tech salaries are quite high compared to the national average. Most of them are in the six figures and those type of people have the disposable income to go to a gym you know uh what are some other things that people do that there will be jobs out there uh you know a membership at a sweet golf course or going to sweet green a lot there's a lot of other jobs that are associated with it where the money is flowing through to the economy to other parts of the economy that are supporting other

jobs so i think that can be kind of a slow moving well i don't want to call it train wreck but it It also comes back when you go through all these different things, there's so many variables that it's very, very hard to make any sort of prediction, which again, my definition for the bold prediction for 2023 is that these are unlikely to come true, at least how I did it, but you can see a path to it becoming a reality. Because with all this macro stuff and the inflation stuff, it never really happens exactly how we're all expecting. But it's kind of, you know, it's always very unique just because there's so many variables at play. Yeah. Yeah. And it's like, even when you think about the layoffs, like so many companies are laying employees off. I saw a stat that most of those employees are getting rehired to a new company within a month. So maybe it doesn't have as big of an effect, but I would think just the looming concern of layoffs would tighten spending, both at the company level and probably at the employee level. So I don't know.

Yeah, my gut is saying that inflation will not be as high because unless energy is included and energy just kind of shoots up and there's just no – energy feels like the one unpredictable factor in that. But that's my first bold prediction, soft landing. Do you want to alternate here? You want to go with your first? No, you go with your three, and I'll go with mine, because I think mine would be perfect kind of in the midway of the show to do our embedded, not to spoil how we're going to do the advertisements for Stratosphere, but use Stratosphere to help with that, right?

Yeah, that makes sense. All right, second one. The average U.S. home price measured by Fred's, which is like the economic data. I forget what the, what is it? Do you know what the acronym stands for? I just know it is Fred,

but I'll look it up for you right now. US national home price index is what I'm using to, to measure average US home price will decline by more than 10% from current levels, which are already down from all time highs. So down slightly, but 10%, at least that is my expectation.

Here's my reasoning. And I've got a little more rationale for this one. First of all, we all know that rates rose this year, which means affordability is lower. So you kind of have to go down the home price to find a house that you can purchase if you're a wannabe home buyer. But when rates rise, there's also – and you can kind of – everyone probably has their own anecdotal experience with this where someone was buying or selling a home and they had their own kind of, I don't know, just encounter with how this works. But I think there's kind of a period where – and I've heard terms called the cap gap for real estate investors. But basically, it's a difference between seller's expectations and buyer's expectations where sellers are anchoring to the last price that they were quoted or the last bid, which was kind of higher. Maybe it wasn't exactly what they were looking for, but it was higher than the bids they're currently getting. And so they anchored that and they say, well, I got a bid four months ago for $400,000. Why would I give it to this person for $375,000?

That kind of thing. Whereas the buyers, on the other hand, simply can't afford as much because the rates have risen. So I think there's a resetting of expectations on the seller side where you don't see the prices starting to sell for less until they kind of accept reality of their home isn't worth as much as they thought. So that's kind of my first one. I think we're kind of in that in-between period where we're going to start to see some of the homes go for lower and lower prices. Second one, just in terms of data for home buying demand, Redfin kind of has this cool report. They actually, I find it funny because it's like not that, they're pretty candid in a

lot of their like real estate reports and it isn't advantageous to their business. Like they're basically saying like, you know, we're kind of screwed right now, but they're very direct about it. So anyway, they give a whole bunch of stats. So in the week ending December 21st, so most recent data that they produced, mortgage applications were down 36% from a year ago. Redfin's home buyer demand index, not sure exactly how they calculated it, was down 20% from a year ago. And Google searches for homes for sale were down 38%. So across the board, you're just seeing less demand.

Obviously, that's a function of mortgages rising and probably the prices not falling in line. And then additionally, we kind of talked about this, but we've seen layoffs from big tech companies across the board. I think that's having an effect on big metro areas. There was another report that said 17 of the 50 most populous metro areas saw home prices decline this year. I think that'll probably continue in some of those big cities where they have a lot of tech employees, maybe a lot of tech employees relocating, selling their houses, stuff like that. However, all that data would indicate that home prices would drop maybe a little more than 10%. I think the two reasons or the two like buoys or the things that would maybe keep home prices somewhat elevated would be that home equity is still at record high levels. So there's not going to be a bunch of forced sellers. People can wait because it's not like it's delinquencies. They can always reverse mortgage if they need to. And then I still think there's a shortage of homes.

It's hard to kind of put a pin on it because inventory is always at its lowest during the peak of the bubble, but it's kind of like an anecdote thing where people, you see affordability has just risen over the last 10 years. So at least you look at it now and affordability is rough. So I just think there'll be more homes that get produced over time. And there's just so much excess demand relative to the available homes out there that that'll keep a bit of a buoy. However, I still think prices will fall. So that's my second bold prediction, 10% home price decreases. I concur with this one that home prices will drop. I think there's a few factors that could keep it. I think 10% might be like a good floor of the decline because unless

interest rates from the Fed go down back to, what are we at, 4.5% right now? 2%, which I guess is never impossible, but seems unlikely. Mortgage rates are going to be... They're not going to be 3%. They're probably not going to be 4%. And that really affects that affordability number. But I think we're going to find out in 2023 whether there was a shortage of homes or a shortage of listings. Because if it was a shortage of listings, there could be potentially even more downside. There was the Airbnb stuff,

and not just Airbnb, but the short-term rentals. I think we've talked about that before on here, where that's potentially, we don't really know. It's kind of hard to see what one's there. The tech industry could have been that pocket, like you just mentioned, and the works-in-progress stuff, where there's record works-in-progress.

So we'll see if that inventory can come online. What if that supply crunch that was really extending the lead times of get homes getting built turns into a supply glut? And then I think that could cause more to the downside. But I think it's plausible that 10% is kind of that nice little soft landing, right? Do you think those two are my first two bold predictions are at odds with each other, though? I don't think so, no. If inflation goes back to, let's say, 4%, do you think rates would come down enough to push prices on real estate higher again? Yeah, that's the big question. I think it's really tough because I wouldn't want to touch the housing industry right now because you're really betting on what the Fed's going to decide. But are they going to decide that that means they should lower rates or just keep them? Because they're not going to lower them back to zero if the economy is fine and we have a soft landing. and inflation goes back to say 2%, 3% or whatever, right? They'll probably keep it,

the Fed's runs at what, like 3%, 4%, right? That's kind of the long-term average. Long-term average is slightly higher, but I think it's a little bit biased because the 1980 period skews the data a bit. But I think maybe 3% to 4% makes sense. Then mortgages would be 5%, 6%, which also makes sense, right? Then the affordability is still bad. So I think it's a long shot that if inflation comes down, which is also a bold prediction, right, that it would also cause the Fed to go back to zero is what you have to bet on if home prices aren't going to come down. So I really like yours. I feel like the home prices going down isn't even a bold prediction at this point. No, it's probably not.

No, yeah, I think that's kind of consensus. I'm just prepping for my next, my third one here. But I don't know. Do you think we need to go any longer on that? I feel like we could probably sound like a broken record when it comes to home prices. And maybe- It's just super interesting. They've been very interesting this year, what that dynamic has been.

The affordability versus the mortgage rates. It's been pretty crazy. Yeah. Yeah. Do you think it does affect, do you think the wealth effect really exists there? Let's say home prices declined by 10%. Do you think people spend less? I think so.

Yeah. i'd say go with your gut on that one although people yeah yeah we're we're in the the the investor community the finance community that is so numbers driven majority of people are not like that where the majority of people are not budgeting they're going man my what and it's the same not even for homes it's the same for the crypto assets right they go man my or whatever or even just your retirement portfolio, they base it off that, credit card purchases, whatever.

I don't think it's a huge part of it, but I think it can, on the edges, impact something. If your home price, your Zestimate, or whatever you're using goes down by 20%, I think it'll... Wouldn't that scare you a bit? It would scare me. Yeah.

The one thing I keep seeing, though, is people will just like if the Zestimate is lower than they expect they just think something's wrong with Zillow but then they love to quote it when it shows a rising Zestimate

everyone should be required to read Daniel Kahneman right because all we're seeing is the anchoring whatever you just mentioned I forget the term is and then the endowment effect is also a play with home prices because I've never whenever it's someone that is like

home prices will be fine, whatever, right? They're defending that home prices will continue to go up. It's almost assuredly that they own a home, right? Yeah. All right. We do have a really interesting question, which, so Jay Harps says, is there any price you'd get interested in Tesla? We have been, and I don't know if the person asking the question in this case listens to us on a regular basis, but we've generally been Tesla skeptics. So, however, I can, I'm looking at the notes here and Brett is going to talk about Tesla in a little bit. So maybe we can wrap that question in there.

Yeah, I think I could answer that really quick. There's a couple of factors that like at this current, the state of the company currently, I think no, just because I don't want, I would not invest in a company where Elon Musk is the CEO. That's just my thing. um not a ceo i like and then second there would have to be a couple of things i would see with the business where they become that not just you know they expand beyond the automaker i like to

see the proof in the pudding first or right am i saying that right i don't like to you know yeah you know what i mean um and then maybe there'd be a price i would pay but yeah tesla is part of my bold prediction so we'll save it for that maybe a little bit more detailed discussion all right my third bold prediction the of the three major indexes and i'm calling the nasdaq 100 a major index i don't know is that the one people use most or is the nasdaq 1000 there's the yeah nasdaq 100 i think is a pretty good proxy it's qqq i think there's like almost 100 billion dollars in assets in that and you can look at the whole thing it's it's i'll look up the holdings for you while you're talking i mean i'm looking at them right now yeah it's just

more tech-heavy, right? Yeah, it's got all the fang. It's going to have... I think it's a very good proxy. I like to use it. Okay. Anyway, so three major indexes. It's called NASDAQ 100, S&P 500, and the Dow Jones Industrial Average. I think they will finish

in reverse order to how they did this year. And so, for reference, this year, the Dow Jones Industrial Average did the best of the three. It was down just under 9%. S&P was down just under 20%. This is not year-to-date, so it would be basically a two-day difference, so it doesn't really matter.

Then the NASDAQ was down 33%. NASDAQ did the worst, S&P was in the middle, and the Dow did the best. I think a lot of that is because the Dow has the most energy exposure and exposure to industrials, just less tech dependence. i think nasdaq will finish first sp second dow third that's interesting and i kind of like i kind of like it i think i could see it being plausible um yeah i know this is like famous last words but you're a little biased that we have a little bit more exposure to qqq i think than old man Dow but

okay this is going to sound like it's just bound to be wrong right as it comes out of my mouth I think the likelihood that Amazon and Google meta let's yeah

there's really four big ones now right Microsoft Apple Amazon Alphabet although Apple's done fairly well Microsoft's done fairly well this year, if I'm not mistaken. But Google and Amazon, I think it's pretty unlikely that they'll have as poor of a performance stock-wise as they did this last year.

Yep. And then Tesla is also less important now. Yeah. So that's my... Let me go to the one year. Microsoft. Oh, Microsoft actually is down 31.5% over the last year. I think the likelihood that happens again is very slim. Really? That's famous last words, huh?

Well, I'm saying the same for Google, Amazon. So the chances that those three decline by more than 30% again, well, I think it's obviously less likely this year than it was last year. Yeah, I think everyone can come into agreement with that. How much is Apple down? Not that far away, 27%. The last few weeks, it's been tough for Apple. Apple's down 27% on the year?

Yeah, it was only 20%, but from the last two weeks, really, they've gotten hit hard. I don't really know why, but yeah. All right, anything else on that? No, that is it. That's my bold prediction. There is also a good chance that the Dow has another good year. I wonder how long it takes for, and I'm not sure exactly how much energy exposure the Dow has, but I wonder how long it takes for rebuild cycles when it comes to some of these energy markets.

yeah so i mean it's obviously not going to happen a year i've heard the time frames are obviously much longer than that it costs a ton of money to invest in you know the infrastructure required to harvest some of this energy or resources um but over five years wouldn't you think that if prices stay elevated that capex is going to rise and companies are going to come in and fill that if history is any indication yeah they won't be able to help themselves kind of just so the commodity cycle uh you know right i mean it's more complicated than that but over a long enough time period it seems like you know unless this time is different it's gonna it's gonna be like that and who knows maybe the government mandates will make it

different but yeah i mean the dow is just dare i say just annoying because it's so it's not enough companies you don't think so with enough diversification in terms of industry don't you think 30 companies is enough yeah but it's just more of okay you chose this company over this company why they're like similar size if they just went with the 30 companies at the end of the year that we're the largest market cap in the world, right? Or something like that. No, I think that's a bad idea.

Well, there's no good way to do it if it's just 30 then, because why not just do them all? I mean, the S&P is clearly a better index. I think Dow is... We don't need to go through that. The Dow would disagree this year.

Yeah, but it's not better in performance. The performance could be better, but it's not better in evaluating what the overall US stock market is doing. Yeah, that's true. All right. We do have a lot of comments here. Someone made it to the live show for the first time ever. Great. Definitely feel free to come back. We love getting comments. Always makes the shows a little more lively. And then obviously that Tesla question. So I don't know. Do you want to start with Tesla? we can do that one yeah why don't yeah do you want to pull up stratosphere for this one

you can share your screen kind of show while i'm just talking kind of scroll through some of the kpis maybe for tesla that i would be looking at um yeah so my first bold prediction is that and shocking it's bearish on tesla is that tesla finishes the year at a market cap below 200 billion dollars um oops once you share the screen i gotta exit from you okay uh and at a market cap of 200 billion dollars just for reference would be 50 percent down from today my reasoning i have five points one there's near-term demand and backlog indicators that are very pessimistic right now two um supply and commodity costs are going to fight there's you We've seen a lot of their commodity costs, lithium, what are the other ones?

Cobalt, nickel, forget them all. They have risen, right? And that takes a while to flow through to their contracts with their suppliers. I think that's going to continue to hurt them in 2023. Third, the more competitors have come out to the market, and they're only going to get worse each year. So 2023 is going to be worse for competition. Then 2022, 2024 is going to be worse. I think the market can be forward-looking in that regard. You have the F-150 Lightning,

you have Rivian scaling up. A lot of premium EVs are coming to market, which is where... When I mean premium, I mean just not the super cheap cars, but not luxury and where Tesla goes into play. There's a lot of supply coming out of the market. Fourth one, their used car prices are falling three times faster than the overall industry right now. It's just an aggregator of data. It's called car gurus, I think. So I'll say that again. Tesla used car prices are falling three times faster than the overall industry. I think that's an indicator on their forward demand, although not perfect whatsoever. And fifth, I think once you get this revenue deceleration and margin compression, that could lead to the stock falling even further than people are

expecting right now, simply because the stock is at a really... Well, how should I say? It's still at a very premium valuation versus its current earnings. A lot of investors are expecting growth here. I think the setup could be similar to what happened to NVIDIA in 2022, where you cannot underestimate how much investors are going to sell off a stock if, and this is an if, It's not a guarantee. Like I said, bold predictions, I say, I don't think are likely to come true, but I could see a path to them coming true. Don't underestimate what investors will do when revenue growth decelerates, even if it's only for a short time period compared to what their expectations were. All right, Ryan.

This is awesome. I didn't even realize they had this page, but insider trades. That's right. The trades, the SEC filings on there are great. And what Ryan's looking at right now is stratosphere um and you can use all this for free uh so go on and head over to stratosphere.io check it out um i don't check the kpi portal too that's the most important thing for a lot of the bigger companies and they're building this out over time because again they just launched you see the kpis things on the top left ryan yeah yeah so look at that yeah so they have for they'll break out for a lot of the larger companies that people might look at you know automotive sales revenue, automotive margin. And you can take these, you can turn them into a chart,

you can visualize them, you can download the data. It's really, really interesting. We're going to pull up probably for Amazon as well. Again, that's stratosphere.io. Yeah, I find that very fascinating. Again, this is the type of stuff I'd look at for Tesla. Any thoughts, Ryan, on the tesla prediction here why could it be wrong what's the upside here because i know the stock has fallen what 30 40 in the last month or two well what's the upside i mean judging from the investor community right now that new 7500 tax credit or whatever seems to be the the only buffer that people are clinging to people are saying well you know it'll people are going to buy more right before the end of q4

that's going to save them but doesn't that just kind of like push back the inevitable yeah i don't know if that saves through the whole year but if i don't know much about the this new this tax credit is it expire at the end of this year or yeah it's you you have to get it get the car you have to order the car before december 31 so that could help cash flow yeah that could help cash flow this quarter but margins will be low or no it's 7500 discount on the cars that'll be very helpful for their margins but no it's gonna hurt margins so it's i'm getting it wrong i don't think it's a tax credit i think they just offered a 7500 discount on their cars before the end of a year, which is a classic Tesla, I guess, to hit the deliveries number or the orders.

I guess if the stock is going to move on deliveries, more power to you. But I would look at long-term, multi-year time period. What are margins going to be? Are they actually expanding into these new markets like they say? And we all know that full self-driving is kind of a sham now. I think everyone's going to come to grips with that. And if not a sham, it was overhyped. Yeah. And back to the question if we would ever own Tesla. One, again, Elon Musk would have to be out. And two, the price had to be pretty low. I mean, at this point, probably $50 billion maybe market cap would be something I would get interested in if Musk was out. And they were executing really strongly on the stuff that they claim they're doing, the software stuff, the solar stuff, the energy stuff, because that, you know, you could get you could look at that and say maybe there's a defensible mode if they scaled all those up. The thing is, it's not there yet, and the governance issues are going to give you away. So the board of directors needs to be fixed. The proxy statement basically needs an overhaul before I'd be interested.

Yeah. To answer the question, there is, there's always a, I would say there's a price for any security where I'd get interested. Carvana? What, negative 20? I mean. Below liquidation, whatever Carvana's liquidation is, yeah. If Carvana's liquidation might be zero for equities, for equity holders, but yeah. Yeah. But the, so maybe I take that back. Maybe there isn't the right price for any security. But for Tesla, I think I share some of the same concerns with you. I don't want Kimball Musk getting awarded $9 million in stock just simply for being the brother.

I don't want… Cousin. Cousin. But yeah. Kimball? I think it's cousin, right? Or is it brother? Kimball's brother.

Who is the cousin? It doesn't matter. That was the SolarCity guy. I'm pretty sure Cousin was running SolarCity. Either way, Cousin or Brother, right? Still a problem. Yeah, I just don't want people getting given money for just like no reason. And I mean, people are like, well, it's board compensation.

$9 million would be absurd board compensation for any other company I'm looking at. So no, it's still ridiculous. yeah except maybe one of the big techs like Apple where they're doing 100 billion free cash flow a year and you know maybe the board's not even that big and you're very you're someone

it'd still be a stretch because if you're in that position you're super rich it's like you should just say I don't want any compensation or I'll pass on it right because if you're in that position you probably don't need the money but yeah I mean I do think Elon has to be out of the situation the other problem here

I have a hard time putting a number down because I do have some skepticism over the numbers they're reporting. I know that's maybe the cynic in me, but I heard one person mention that the idea of maybe since he shares engineers between some of his companies, he's able to masquerade some costs in his private businesses. My thought here is SpaceX. Because they saw no increase. If I remember correctly, it was no increase in one of their expense items, despite a much bigger production scale year over year, which just isn't humanly possible. One of their line items, there was just a negligible increase, despite obviously much higher production. So I don't think everyone just got 10 times more efficient. I think there's probably some costs. And maybe, you know, I know other people might do the same thing.

If you have two businesses, one's private and gets a lot of, and isn't necessarily, and can be paid for through Tesla share sales eventually. um i'd probably there's there's plenty of incentive to switch where you're it's uh it's illegal though um but yeah gray area because it's shared work the engineers are employed by multiple companies yeah didn't they they did that with twitter right where they said they're bringing in the tesla engineers right something like that which i don't know why like great they do cars why they're going to really work on this social media site it's going to be awesome yeah i don't so i don't know i think musk needs to be out but at the same time if musk is

out and you can't share costs anymore this might have a much different financial profile yeah musk would have to be out for a multiple year period and you're confident you have say a mercenary CEO who's not faking the numbers kind of like Peloton maybe they have McCarthy right it's similar to that right where McCarthy came in that's a positive for both of us

but we're going to need to see it for multiple years before we get interested because the problem might be too not fixable yeah I mean credit to them they do have a pretty really solid brand it's

It's getting shakier each day that he seems to mortgage his reputation, but yeah, there is a price. I just have no idea what it is, and it's not the current one. Yeah, it's lower. I think, yeah. All right, the 50% down. Yeah, we'll move on to the last one before we run out of time. We got 15 minutes left. um but matt h says i've had five non-finance friends ask me if i'm buying tesla this week usually not a buy signal that is yeah that's actually very true when i think is they're buying from elon well maybe not anymore but for a while when you're buying the dip you were buying from elon he was selling you his shares he's not going to sell anymore though ryan he said yeah he said that what twice this year i i was showing it i guess the podcast listeners weren't going to be able to see this, but I was showing it

on the YouTube feed here, the Insider Trades. And for those that don't know, Elon sold, I think it was 20 million shares in a two-day period in December. He is speaking with his actions

and no one's listening. People are listening now, I guess. Well, you know what? I can't remember if there was someone that told us, and I don't know if it was public, so I'm not going to say who it was, that said We were like, we don't short, but if someone was going to short Tesla, when would you start doing it? And they said, well, you start shorting it when Musk starts selling.

And it was right because Musk top ticked it in late 2021, right? Yeah. And I'm sure he also accounts, well, this might be wrong, but I imagine he moves a lot of volume in terms of shares. So like him selling may actually have some influence on the pricing. Possibly, yeah. It's also like the most traded company. It's so heavily traded. That turnover is just insane.

All right, though, let's move to Amazon. Do you want to share the screen and pull up maybe the AWS numbers? Because that is a nice thing you can look at on Stratosphere as well with the KPIs. So my second bold prediction for 2023, I think this is a more fun one, is that Amazon ends the year for 2023. So ends 2023 as the largest company in the world by market cap. I'm excluding Saudi Aramco here, not counting it, fake monarchy company. So this will, I think, happen from some stock price appreciation and then competitors depreciating in value. If we look at my reasoning here, I have five reasons again. First, the cloud transition continues and fears

over a slowdown do not materialize. I think there's so much spending already baked in for AWS growth, and there's such a long runway left to go. See the example this week with Southwest Airlines and their antiquated systems this holiday season. People are not going to put up with this forever and the cloud is clearly better. So I think the transition still has a long runway to go. Second, the non-AWS part of the business gets back to profitability. We have advertising, normalization of the e-commerce market, and then cutting the fat with the layoffs they just did. Third one, and this is important because they had to catch up to Apple because Apple is about double their market cap right now, I think, or even more.

I think Apple continues to fall for multiple reasons due to a down year for the hardware market. And then we have the China exposure that's really affecting their supply right now. And I think the chickens finally come home to roost on anti-competitive behavior. And that could impact... This is no way to invest. But I think just speculating, it could impact what... If you kind of get what I mean there, Ryan, right? Or if that stuff finally starts happening, then I think investors will get forward-looking. They could get a little nervous about that.

I think that's less likely to happen. The more important thing is if Apple's hardware business, which is the most important for them, takes a hit in 2023, I could see the stock falling. Again, that's a tough one. Fourth, though, is I think Microsoft slightly falls due to a revenue growth decel. I know that Azure is very important to them, but I could see them... I don't know. That one's harder.

I think Microsoft is going to be the toughest one for Amazon to blow by because it is almost twice the market cap. And then if we look at the fourth giant, there's Alphabet and Google, slash Google, same company. I think they will do fine. They're kind of a similar market cap

to Amazon right now, but slightly higher. But I think they have less upside than Amazon just because search may have a down year. So what do you think, Ryan? And you're seeing here at the chart, we have the AWS revenue, which is closing in at $80 billion, and then AWS operating income, which is closing in on $25, $30 billion. It's the most important part of Amazon's business. But if we also look at the- This is the revenue growth rate. Yeah. And I mean, it's gone down, right? To what? 20, 25%. Yeah. Not surprisingly, considering that it was growing 60% in five years. That's going to happen. But nominally, revenue growth is probably accelerating. Well, yeah, look at that chart. Yeah. I mean, it's still growing. And the backlog numbers are so strong. And this is not thinking long-term for AWS. There could be some problems about the growth rate long-term. I think there could be some good arguments for that. For 2023, I think a lot of it's already baked in.

And then if you look at the non-AWS revenue, that's still hundreds of billions of dollars. And if they finally show some margins there, which they might, they might not. I think that's a little bit riskier. And again, this is a bold prediction I don't think is going to come true, or I wouldn't have a 90% confidence rating is going to come true. But I think it's possible that the margins are higher than people think on that non-AWS. So just combined advertising, e-commerce, whatever, streaming video, all that stuff. i don't know what do you think what do you think on that yeah i think there's a chance you're right

the only one that what's microsoft at today i pulled up the market cap table so apple's 2 trillion microsoft's 1.8 trillion amazon is 860 billion so it's hard yeah like you said it's hard to see microsoft falling that much but i think that upset at amazon would be quite high If they can show they can get to consolidate it, there's a clear path to, say, $50 billion plus in operating income with these long runways ahead of it. I think the market could value that at at least $1.5 trillion if that materializes. Again, I think that's a low likelihood, but the path is there. So, yeah, you think everyone else will kind of have a down year except for Google? No, I think Google will have a down year, or maybe they're not going to have a great year.

Cloud and YouTube should help them a bit, but search is, I think, going to have a muted year, just because it's a little bit cyclical with the economy. I think it'll do fine. It might just grow a little bit slower, but I don't know. And chat GPT. Well, yes, that's going to destroy. We don't need to get into that again. but the just

Alphabet seems like the if you have kind of your scenario planning what was going to happen to 2023 with Alphabet it seems like the range of outcomes is a little bit narrower right Amazon seems pretty wide both downside if the margins

don't if the because of the margins don't show up I think there could be even more downside right I don't know I have a hard time saying that they will value the entire enterprise at less than 500 billion. If AWS is anywhere near these numbers again. Yeah,

that's fair. All right. We've got a couple more. We've got, we've only got seven minutes more. So a couple of things we wanted to do. We do this every year, best podcast episode,

best TV show and best book you read in 2022. I'll kick things off. best podcast episode. And it was a little difficult because I don't have one spot that shows all the podcasts I listen to because I don't download them all. But I remember actually two that were really good. There was one, which was Good Investing Talks with Tilman Versch. He's the host. And Dev Kantasaria was the guest. And the title was, What is Your Formula for quality investing. Dev's one of the portfolio managers at Valley Forge Capital. And that's kind of, I think, I speak for both of us when I say that's sort of what we try to model our own

investing style off of. Basically, they've built at Valley Forge. I'm sure a lot of people do too, but I thought it was just a really, really good episode all around. The other one that I thought was kind of interesting was um it was a motley fool money one where nick seipel interviewed doomberg and he basically just gave sort of a succinct explanation on kind of what's happening with energy i thought let me guess let me guess he was negative was he pessimistic no i know they did good work they do i think i left some pessimism in there it's always good to have that No, but I think it's just funny because the name implies they might be a little

biased on that, but I think I listened to that as well. It was pretty good. Best TV show? There's three that I like. Succession, season three. You're cheating on all these. I know, I know. Whatever. But that came out this year, didn't it? Succession?

I don't think so. Season three. No, it would be season four. If not, House of the Dragons uh i thought was good some people had conflicting opinions on that but i thought it was good um and then andor i thought andor was pretty good recently too obi-wan kenobi was solid but andor yeah the best book um found one called the great depression a diary it's basically just this diary of someone who was a lawyer. And he just journaled. It wasn't every night, but journaled pretty frequently

throughout the Great Depression. And I thought it was, for one, it gave me sort of more inspiration to journal more or at least have sort of an investing journal. And he had sort of an investing mind, which was pretty interesting, but also just kind of really helps, I think, set perspective on markets today and how bad things can get and how fortunate we are that times aren't that bad. So I don't know, just kind of a refreshing read. And then the other one was, there's always something to do by Peter Kundell. He was a Canadian investor who did really, really well. I think he averaged like 15% or something over 30 years, sort of a famous value investor and basically kind of demonstrated what it's like to be

what hard work looks like in investing because it isn't always clear. So kind of just the mantra that there's always something to do. I thought both those books were really good. What were your favorites? All right. Yeah, that Peter Cundo one I have to check out.

I haven't heard of that one. I am not going to cheat like you did, Ryan, but no, those are good. Matt H says, White Lotus season two for TV shows. I agree. That's great stuff. Pretty good on HBO.

Although, whatever, whatever. We don't need to go to Warner Brothers Discovery. We don't have time left. But my podcast episode, I try to keep it niche because everyone knows the big finance shows, Invest Like the Best, Odd Lots, and all the others. Everyone knows about those. And there's tons of good stuff on all those episodes. But I had one with Liberty Highlights, who is a nice... Does great work with his own sub stack and just on Twitter and stuff. Just a really great part of the internet finance community. He did a two-part series called Going deep on nuclear power with Mark

Nelson. I will say they were I think they will both admit that they were biased for nuclear power. So if you want to kind of see the pitch of what nuclear power could do to help decarbonize the world, I think it's very interesting as

I think a lot of our listeners would be interested in that stuff as well. If we go TV show, this one is not on, I think, everyone's radar but was definitely the best thing I've watched this year. I think I might, I don't know if I'd put it better than succession now because i know it's both of our favorite shows but it's because it's only been one season so we'll see gotta have multiple seasons but it's called severance

on apple tv plus really really good i'd recommend it to anyone really and then book i like what's it about it's really it's say it's complicated so it's almost like if people like lost it's sort of like that i say it's even better it's i guess the premise is that there's a corporation that figured out how to separate your work mind from your home mind so you could go to work and not forget about and forget about everything so it's like two separate people um and then all the implications from that as they try to sell it and yeah it that the premise sounds strange but again the show is just really really well done uh the second the book i liked is when mckinsey comes to town it goes through a history of mckinsey how important it is it's

It's really infiltrated so many different companies around the world, so many different organizations. I think it could be really helpful to learn because it's just nice. The book was biased against McKinsey, but I think it's kind of fair as they work with a lot of things that turned out to be or organizations or companies that turned out to be a bit evil, potentially. So, yeah, I thought that was great too as well. And then we're going to go through our favorite shows from Chit Chat and Money, but why don't we just tease that and say... you gotta subscribe to the sub stack because I'll put it on

I'll put it on the the weekly recap I'll probably tweet it out as well yeah it's also yeah it's you can throw some links in there

so it's hard to just talk about them it's much better I think to write them down and have links so people can click on them and listen to them

if they want but yeah that's why the newsletter that's why you subscribe to if you listen to the show subscribe to the newsletter because again anything we talk about

like links wise stuff we've read stuff we topics we've talked about or recaps for the year we're going to be putting on the newsletter just because it's an easier way to distribute written stuff yeah maybe maybe name one what was your favorite interview from the whole year i'm gonna do a little tease the joint corp with ed chang that was a good one that was my tease what about your tease i thought sub c7 with bob

of a buddy. It was good. I didn't know that he was sort of like a legendary investor. Maybe not. I didn't know he was so well-renowned when we spoke to him, and maybe that's a good thing. Maybe I would have been more nervous doing that interview, but it shows how good he is during that

interview. And I was listening to he was on the Business Brew, too, and talking about his investing career, the fact that we were able to get sort of like a current pitch on a company from him made it So I think I got to go back and listen to that again. He is comprehensive.

All right. We're running up on time. That's going to do it. I'm going to hit the end of the live stream. But before I do that, let's hit the disclosure. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. We are general partners at Arch Capital and clients may hold securities discussed in this

podcast. Thank you, everyone, for listening. We'll see you next week. you