Chit Chat Stocks - Investing Power Hour #40: $AMZN Fires 18,000 People, $MSFT and ChatGPT, $TSLA Delivery Numbers

Episode Date: January 8, 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/ Interested in more of Paul's work? Find it here: https://substack.com/profile/28187575-paul-cerro ****************************** 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/ ****************************** Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. 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 a recommendation. Now, please enjoy this episode. Welcome in, everybody. This is our Investing Power Hour that we do weekly. We've got a special guest this time, a recurring guest on the traditional podcast show, but for those on YouTube,

you may not have seen him. His name is Paul Cero. He's been on before. I guess maybe, do you want to give a little bit of an explainer on or like a welcome to me thing like who you are for the viewers yeah um sure so i'm paul starro i technically hold a couple roles um i'm the ceo of cedar grove capital holdings which is um the private side of small business acquisition slash investing um which also is the owner of uh cedar grove capital management where i'm the CIO, which is the Multi-Strategy Investment Fund, where we're focused on long-short M&A arbitrage and event-driven investments based out of New York. And I've been on Brett and Ryan's podcast a few times, had some good conversations. But yeah, that's a little bit about me.

And we just had a recent one talking about a small business, the first time you've purchased a small business outright. And we'll talk about that in a second, but I should have introduced Brett as well. We're joined by Brett again, as always. Brett, do you want to kind of introduce our sponsor, our presenting sponsor for the episode? Yeah, that's right. And that was okay because I was tweeting out the link. So hopefully some people will start joining. Yeah. So through the first three months of 2023, our presenting sponsor is Stratosphere, stratosphere.io. It is a great web-based Terminal for Fundamental Researchers. Like ourselves, we use it basically on every episode.

I mean, I've loaded up some stuff already this week for the Power Hour and our Not So Deep Dead that we're recording tomorrow. One thing that they're actually just updating on is the dashboard page. So that basically allows you to have multiple watch lists where I have our fund holdings on a certain watch list. Basically look at... You have the companies listed, like a standard watch list, but you can kind of toggle through the different columns and have what you want in there. So I have like daily change, what are the next earnings, what's the free cashflow multiple, and then actually below it, which I haven't seen on really any other kind of new software program for investors is they have this aggregator for SEC filings, investor activity, KPI reports,

and then you can change to different dashboards as well. So I also have my watch list, which will be just different companies than ones that we don't own. And then it also has a news aggregator so i can kind of look at each day okay i come to my watch list i check it out all right i'm scrolling through right now there's something about microsoft with chat gbt um there's something about india antitrust with google and android i'd probably read those so yeah and you can access all this stuff for free at stratosphere.io check them out in the show notes we'll be using them basically on every episode uh for the foreseeable future all right ryan let's get into it yeah um we've got a couple of news items but i figure since we've got paul on uh i kind of

want to know i've i we were talking about this before the show but last time you came on you talked about that small business that you purchased and i've been perusing that site you recommended just kind of envisioning all these small being a small business owner what has it's been what two months since you bought the business now a month and a half yeah month and a half all right how any findings to report how's it been so far yeah which is something that i always knew but again reiterating because i said it on my uh i said on your podcast is that uh it's not for everybody it might it might seem like you can do it it might seem like you could do it but there are a lot of things like once you once you're in it like you have that

that oh shit moment where you're like hey this is mine all the liability is mine everything that happens to this thing is on me and solely me unless you have partners i don't know but for me it's just me um so every decision that you make all the money that you spend all the money you invest all the people that you hire let you fire etc is all on you um so it's a very it's a very real um feeling as opposed to you know like you just owning a stock where you know your emotions are driven by it going up or down and you know you lose money on investment okay cool you walk away yeah you can't do that in a small business you can't just walk away unless you're usually just unless you're just going under so it's very nerve-wracking um that's

kind of like the biggest takeaway but uh it's like you learn a lot if you don't want to talk about You ever hear those people who are like, why go get an MBA when you can just go become an entrepreneur and learn it on hand's way? It's basically what I'm getting. I'm getting a crash course in business building. That's one step above just analyzing an SEC report. There's really no such thing as cutting your losses, I imagine. How about the actual operations of it? Has it been more than you expected, less than you expected?

or kind of i imagine came in this came into this with a bit of a clean slate in terms of expectations yeah i came in i came with a clean set of expectations but i was kind of like hoping for the best but you know there's obviously things that pop up you know um they're out of your control that like you just have to you know adapt to very quickly um so it's just you know it's just we just rolled up it's not rolled up since we just like bought it up um it's a lot of learning curves you need to reel in, but then also like, there's quite a lot of stuff that you have to learn, which is like kind of like every day or every other day, it seems to like be something new that you just have to address that, you know, you might've not been accustomed

to. How would you say, would you say it takes up more time than you were expecting? I think, I mean, yes, but I think it's like at first until I can kind of get a feel for exactly how things are going to be run and how I want them to be run. So I think there's just like that ramp up period that I just have to get used to. Yeah. Getting that new routine, all that good stuff. But it's definitely... It's the complete opposite of just buying a stock, which I guess that leads into some of the topics today. Ryan, you assigned yourself... And I guess for any new listeners, basically, we just come into here with a few topics, but we can also really talk about anything that comes to mind. But today, Ryan assigned himself maybe the hardest topic because

there was no way I was going to try to figure out how this stuff actually works. And I'm sure we're going to miss something because this is an insanely complicated deal, but you have an update on the BRIT, B-R-E-I-T, Blackstone Real Estate and Income Trust. That's kind of in, I don't want to call it trouble, but there's some people complaining out there and they just raised money. But yeah, why don't you talk about that? Yeah, I gave myself plenty of notes here and I'm staring down on my iPad for people that are actually watching and they think, what am I looking at, but all my notes are down here. So Breit was the Blackstone Real Estate Income Trust. Last time, I think it was like four episodes ago, Brett, you talked about it and

they had, and it was announced that they were limiting, and this is a huge fund. This is one of Blackstone's biggest funds. I think it's marked at $68 billion. I'm not sure how exactly they're measuring that. I don't know if that's, I assume it's what they mark their assets at in total. So it's huge and it has probably some implications, but it's private. So it's got all private investors. There's no public marking for what their value is at. And basically what's been going on is that public REITs, I think on average dropped like 20% throughout 2022. And then at the time, BREIT, so the Blackstone one said that they were up, I believe it was 8.4% net return through the first 11 months of 2022. So I think a lot of their investors were

kind of calling maybe bullshit on the value of those assets because there's no public market quote. They can kind of value those assets at what they want or the value of the fund is kind of whatever the last round they raised at. And so a lot of investors were trying to withdraw And Breit limited the amount of withdrawals, which concerned a lot of people. But at the same time, there is some sense that it's real estate. They can't just get out of it automatically. If you own a literal toll bridge, it's hard. You can't just liquidate it automatically and give money back. So, you know, they sign in, they sign up for kind of lock-ins and the ability for them to withhold withdrawals if they want to. So, investors kind of knew what they were getting into. But anyway, this week, Breit announced a new $4 billion fundraising round from the University of California. However, they did it at the current – whatever they deemed the current price of their common stock in that REIT. However, Matt Levine did a really good job explaining this. You give the right headline valuation, but then you give them all these extra benefits that most investors don't get.

So in venture capital, they tend to call this structure. So you'll get certain liquidation preferences if things go poorly, that kind of thing. In this case, University of California received a guaranteed minimum annual net return of 11.25% over a six-year holding period. And that's no matter how poorly REIT does? Yeah, I think there were some like, it was a really complicated transaction, but basically they got a guarantee that a lot of other investors didn't get. Sounds pretty nice. Sounds like a good deal for them. Yeah. And it's literally Blackstone saying, we'll give you a billion, like they're putting $1 billion of their own money into it. If the fund comes down and the assets are marked down, that kind of thing, Blackstone will basically just pay them off. However, the headline is they raised money at the current valuation, validating that the assets are worth as much as they say. Blackstone's president, John Gray, said, the deal is a massive affirmation of the quality of the portfolio we have constructed of the values of the assets here and the performance outlook. I want to take – Matt Levine does a really good job explaining this whole thing.

And for anyone that wants to – anyone interested in financial markets, I recommend reading his writing. But he says, UC Investments is buying $4 billion of BRIT common stock at the same price as BRIT's other investors and with a six-ish year lockup. As a matter of headline valuation, UC is providing a massive affirmation of the value of the assets here, but Blackstone, which owns a bunch of BRIT shares itself, is effectively kicking in a billion dollars of those shares to guarantee UC returns. Essentially, it seems like they've done this all for optics to give the sense that the assets are okay. I guess, is there any way, do you buy what Blackstone's president is saying, that their assets are just higher quality and that they're worth more than all the public REITs assets? Paul, you want to go first or me? I mean, I can. i mean because like when it comes to this um like reeds aren't my bread and butter i mean i

understand i understand them conceptually and i understand like what's what's going on and like who's more or less got exposure where i will admit though ever since i i was familiar with even who blackstone was back when i was back in my college days they have a an amazing track record in the real estate game like i remember like i think i got i think i got turned on to uh blackstone real estate when I found out that, I forget exactly who it was. I think he's like the CEO of one of their arms now, but they bought like $5 billion worth of real estate in the great financial crisis. And then a few years later, I think it was like five years later, they could flip it for like 10 billion or something like that. And I was like, what? So if they say that

their, their, their, their rates of a higher quality without, without doing any other due diligence. I almost want to say that I kind of believe that just because their track record says it again, I'm not like, I'm not going to take it at face value, but I do think that there's some level of attribution you have to put on that level of, you know, expertise in that, in that area for them. So there's, there's that portion of that. Yeah. I think that's a good point.

And it's something that John Rotonti raised. He came on the podcast and pitched Blackstone recently. And these guys aren't idiots, the people that are running this, that are running Breit. They're probably really high-quality analysts, really good investors, yada, yada, yada. They know that falsely marking the value of their assets, though it might get them fees this year or whatever, Oh, yeah. You can't just keep doing that. This is the allegations against Trump and his deflating his assets to avoid taxes. You're giving investors money and you're charging them a fee. You can't just keep doing that. If you mark something up or you mark something down, I think in this world,

to get that level of capital, you better make damn sure that that is exactly where you're going be leaving it for a bit or yet you're confident in leaving it there for a bit because otherwise again it just hurts your track record digs your credibility you know this is the domino effect after that yeah and just for reference i don't think anyone said it so far they have 70 billion ish i believe maybe 60 billion in this one fund so that's why it's such a big deal what's yeah their track record is amazing and i think you have no reason not to trust them but one the incentives here are a little bit misaligned i think where they are kind of incentivized if someone wanted to be a little greedy wanted to be a little you know okay we

you know we want to make sure we look good they're they are incentivized i think well that's well to make this yeah that's not an isolated thing that's true that's true but this specific fund i think is like just compared to all the other public REITs i mean maybe they're much better maybe that's true but it'll be interesting to follow over the next few quarters or so because again i guess all of us aren't um real estate or go ahead yeah i think it's hard to think that the problem is they have so much and i don't know what all is in the the re like what their actual assets are but they have so much that i have a hard time thinking they have that big of a discrepancy between their asset value and public rates. Yeah. Eventually, no matter how

good of an investor you are in real estate, interest rates are going to give you a headwind, right? I would think so. All right. But I think some of the topic can get a little boring for investors. So I am going, or listeners, I'm going to give a more controversial topic, which is my second topic uh tesla delivery numbers you called it brett well you know well uh blind squirrel finds it out once i've been wrong on tesla for what three years now so i could be right for a little while we also we do have a comment in the chat happy new year's chaps quick snippet of each of your views on airbnb currently i'm hugely bullish and on the cusp of taking on a bigger position but fear of further regulation keeps stopping me right

Let's just, let's hit, I don't know, what do you want to hit first? I mean, I don't know, Tesla's, I guess we can talk Tesla, but it's a little boring. You know, they missed. Yeah. It was kind of a wide miss. I think, I'm pretty sure the number, like the estimates were 428,000 deliveries, which I don't know what deliveries means. That was the top of the range. That was the top of the range.

They also, yeah, they also massage it by telling kind of analysts what they're expecting. so they always get really close so this is kind of a surprise because it was the one time it was down so much farther than what they had kind of told the analysts what it was going to be yeah it came in I think it was like $405,000

came in at the bottom of the range I think it was either $409,000 or $411,000 that was the bottom of the range and so they were even below the bottom of the range yep damn it and And they had a $7,500 discount right at the end of the quarter.

So on their- Yeah, but did you see the problems with that though on the Tesla forums? No. Yeah, go ahead. So the thing is you only got that credit or that discount, quote unquote, is if that delivery was made before the end of the year. And I mean, I mean, like literally December 31st, 1159 p.m. because there was so many issues with deliveries, you know, with the weather chaos everywhere. There were so many Tesla purchasers who got the Tesla because of that discount. Right. But because through no fault of their own, they didn't get the delivery before the end of the year.

then tesla then reached out to them saying hey you didn't you didn't get the delivery for the end of the year you actually don't qualify for the 7500 discount we need you to basically put in additional cash to meet the um the foregone money that they would have they got capital called they got cap i mean but they're no fault of their own because i mean like until the truck drive truck driver to deliver their car it's just like they just couldn't so now so many of them in the forum was just like, did anyone else get reached out to by Tesla demanding more money in order for delivery? This is BS, blah, blah, blah. It's not my problem. How can they do this? I hate Tesla now, blah, blah, blah, blah, blah. But it was a shitstorm with that.

They have a habit of treating their customers poorly and they just keep coming back. I mean, this is not surprising. This is the type of move they do all the time, but the brand is... Oh, it's rapidly deteriorating. Yeah. It has been very bulletproof, whatever, Teflon, whatever you want to say. But yes, I agree with you, Paul, right now. Bulletproof. Yeah. I mean, don't get me wrong. Tesla was the first stock I ever bought in my life. Literally. I bought it in January of 2014. Yeah. January of 2014. And I think the pre... I'm sorry, the post-split price adjusted was like 11 or something like that no actually no it's even worse now because he did another split

i'm sorry it's even better now he didn't try like six bucks or something but reality catches up and you just keep seeing all that i didn't realize how bad the uh the um the repairs and aftermarket parts uh like the problem that was like that that's that's a cost fuck are you kidding i if any nobody actually i take that back people when they buy like fords and they buy like gms can expect to have a hassle with getting their cars fixed, but there's plenty of dealerships to go to to get them fixed. You can't do that with Tesla, right? Only Tesla or Tesla-approved places can actually fix Teslas.

And the customer service of addressing that is piss poor. And yet people still come back to them, but there are plenty of people who are just like, you know what, I'm out. Give me something else. It's going to be an interesting 2023 for them. I just saw they revised their contract with one of their, I think it was lithium, one of their commodity providers. And it was based on the... Instead of some... They had a fixed rate back

that they did in, I think, 2019, 2020, when the lithium price was about three times lower than it was today. Now it's going to be based on the rolling market price. So I just think their costs are going to go up a ton. But we don't have to talk about Tesla all day. We have this question from Mark. I believe that might be, it could be your pseudonym. Says he is hugely bullish on Airbnb. What are your thoughts on the company? Paul, do you follow this at all? I know we follow it fairly closely. It's on the watch list, but interested to hear your thoughts. Yeah, honestly, I use Airbnb. I actually managed for a time my parents' Airbnb when they were trying to make some extra money. It's a great service. The way that it evolved over time has been excellent. I'm not

going to lie to you. When 2020 rolled around, I'm like, oh God, these guys are dead. And then we were all pleasantly surprised because then everybody decided to just leave their home and then plant their flag elsewhere for the time being. Obviously, they're paying money for it. My issue with Airbnb is that if you look at the, I guess, housing supply issues going on in the country right now, the problem exacerbates itself because of all the people who are invested in real estate. not just like as a rental properties or second homes third homes like whatever um even from these big funds aka blackstone but you have people who have like bought these bought homes to rent specifically just on airbnb right and it's funny because i remember seeing one picture on twitter and it was i forget who it was from so i'm sorry if you're listening to this and i

didn't quote you but he showed a picture of the housing crisis and uh new orleans louisiana and how many homes deficit there was because there's just not enough homes for people. And then he shows a side-by-side of the exact same map of an area where it's on Zillow for sale. And then another map where it's the same location of Airbnb listings. And this thing just lights up.

It's all those little pin drops. And my problem with it is that And it's making the housing crisis worse because everybody wants to like, it's not just people who are renting out the current place. It's people who just keep buying more places to rent out those places. I know years ago, urban cities like my city, New York City, fought back on Airbnb saying like, you know what, like, you know, you're a short stay. Like we would rethrive on hotels here, blah, blah, blah, blah, blah. If your Airbnb is less than 30 days, you can't do it. It has to be at least 30 days.

And that basically shut down like tons of people. I mean, illegal operations still pop up all the time, but my problem with them is like, I don't know if there's a point where government policy is just like, you got to fix this somehow because you're just making the problem worse. That's my biggest concern with them. As far as like pricing action right now or valuation, I don't really keep up with it that much. It's more so like the underlying problem of what business it's running and what type of situation the American housing system is in right now. Yeah, I agree with that. We had a comment here, another probably anecdote that a lot of people have where they were staying at a house and some of the other people that live there had been there for like over a year. I assume he's saying he's on Airbnb. The long term stays has been a big change. I think there is a dynamic there that it's on. It happened so quickly that I think some of the things coming out of that are it's TBD. and i really worry here's one thing i'm going to share my screen uh that has a again uh using stratosphere that has a great kpi that i think highlights this point over the last few years

um and it is the average daily rate on the platform can you guys see that yeah so if we look really the average daily rate is just what you know a night costs at a at an airbnb place on average so some are gonna be a lot more so i'm gonna be a lot less If we look at the 2015 to 2019 period, and right at the beginning of COVID, I guess, the average daily rate was stable at about 110 to 120. But the last two years, it has jumped up to $160, which has been a huge accelerant to Airbnb's revenue growth. And I just worry that if we normalize back, because I don't know why this happened, frankly and maybe it's some of the reasons you outlined paul but if that normalizes back

that's gonna really hurt their revenue in the short run so i think just from my view i like the business model i think they have a really great track record they have great brand value they have some key competitive advantages but right now it remains on the watch list just because i the near term i am very concerned about it should it long-term stays like hurt that more help it too because it'll be like a lower average daily rate yes good point they typically um as i've done longer term stays before the typically people will do a 20 30 discount for uh longer term stays having having been a manager of an airbnb listing we actually wanted the longer stays because when you think about it stable cash flow at that point and it's actually it's actually

really interesting because when my parents were doing it the people who mainly stayed at their listing which was their home um it was families who had just sold their homes and they were basically in the middle of transitioning to their new home that they purchased so they just needed a place to basically bridge that gap between hey we sold our home we haven't we can't we can't move into our home yet there's that and then you have a lot of people who came in were like hey i'm just like in town to see some family real quick or for a conference or like whatever and you're like those type of people when you look at the the kpi that you just showed on stratosphere it i think it's a factor of two things um one yeah i mean you just had to have the supply and demand just explode

like that's like honestly like one of the biggest things and if i know you guys have heard me tell about this a lot um but you know i'm thinking if there's a huge consumer slowdown back to pre-19 levels so i'm expecting things to renormalize back to pre-19 eventually after it overshoots to a downside. So if my hypothesis is correct, it's like, all right, well, that supply demand issue will normalize as people are like, okay, hey, I've traveled enough after COVID. I can cool it down now. I don't know when that's going to be, right? Because a lot of consumer spending has shifted from goods to services and travel experiences, which is Airbnb's domain. The other part of this, which I know you've probably seen is everybody getting angry

about the cleaning fees and again as a manager of one uh yes as soon as i found out that i could get basically better margins on my cleaning fee i charge it i would make it more expensive because i could get to capture more more margin for my parents um by charging that so it wasn't ridiculous don't get me wrong i'm not like charging a stupid amount of money but it was like hey i could actually squeeze out an extra like you know depending on the stay like 30 40 50 bucks per person like yeah you know um but then people have rioted because you know like they're saying like you know you search for an airbnb it says 200 a night but then you price everything out and it's like 400 because of cleaning fees and taxes you know um and um i think it's a combination

of those two things the ability to manipulate your listing to juice your sales and then also but just pure supply-demand shock. Yeah. At the same time, I do see a world where I think it's very easy to just envision a world where Airbnb is much bigger

in five to 10 years. I know it's kind of a boring thesis to go off of, but it seems like... I mean, it's not, because at that point, it's like, what multiple are you paying for then?

If you think you can just continuously grow, what multiple are you going to pay? What are you going to underwrite? Yeah, I just... The two things I'm looking at is one, that ADR, the average daily rate. I'm just very nervous about that. If I was looking at them, you could say, okay, maybe they're fairly cheap-ish on their current multiple versus the growth you expect over the long term.

And then second, I think these are... When you talk about the consumer stuff, you reminded me, Paul, I believe you've been tweeting about this or sharing stuff about them. and a lot of people have shared this chart, is the consumer savings rate went from 30% down to 2%. And we talked about this once on the show. And that doesn't mean people are going to have negative savings because they did pile up some stuff. But eventually, or I guess what the 2% means right now is that there is just a ton of, and I know everyone hates using this term, dry powder in consumers' pockets that is coming out right now. And I just wonder what that's going to look like i think that does play into your thesis i'm assuming paul for the consumer

slowdown in 2023 actually did you see the the one that i posted today actually let me pull it up um uh it was am i on mute no no okay um it was about um consumer spending but basically uh how how they've tapped into credit and it's on bloomberg if i can find it because my whole thing I've been reiterating and I probably have broken record at this point is that yes, the consumer saving rate went down

It's basically at zero right now, yeah It actually went up from October to November it went from like 2.4 to 2.5 marginally, it's like almost completely

irrelevant. But let me share my screen with you. And Paul, make sure to describe what you're looking at too, for people that are listening in the podcast format. Oh, right. Yes. So we're looking at a chart posted on Bloomberg and it's titled households are feeling pinched and that more Americans are relying on money outside of their regular income sources to meet spending needs in the past week. And it's basically a line chart of three different data series. One of them being a growth rate for the percent of credit cards or loans being used to spend money. And one is being used, one is that money is from savings or selling of assets. So the savings is, you know, obviously what people got during COVID, you know, since they weren't going anywhere.

And then the last line, the third line is being able to borrow from friends and family. And all of these lines are basically going up and to the right as of April 2021. However, what is recent is that the lines have started to diverge in 2022, in late 2022. And what I mean by diverging is that the rate or sorry, the line for consumer Americans using credit cards or loans has shot up. And the line for being able to use your money from your savings or selling of assets has gone down. It's actually, it's inverted. And pulling a quote from the article for people who are listening and can't see, it says, new data released Thursday in the U.S. Census Bureau's household poll survey found that more than 35% of households used credit cards or loans in December to cover spending needs in the past week. That's up from about 32% in November and just 21% in April of 2021. And that's when they

first started tracking the data. So this kind of fits into that narrative of, which I've been saying for so long one day americans are going to wake up and they're going to be like oh crap i've actually spent way too much this is not sustainable i need to dial it back and if you look at the savings rates that we all that we all reference from fred um which i can actually pull up right now actually it'd probably be beneficial is that if you look at um savings rate now. This is the one I was forgetting exactly which one it is. Yeah, it's this one. So again, describing it to you, if you look at what it is now, it is November was at 2.4%. October was at 2.2%. So that's what I meant by it went up marginally, 2.2 to 2.4. The only time it

was less than that was July of 2005, which is the lowest on record at 2.1%. Yeah. That's a tough comp there, July 2005. True. But what's interesting is that right now, we're looking at a slight uptick. Will this trend maintain? Who knows? But what's interesting is if you look at 2005, when it bottomed at 2.1, the savings rates started climbing and climbing and climbing just until 2008 when everything went to shit. And then savings rates spiked because everybody thought the world was going to collapse and they didn't want to spend any money on anything. So it's like, could we kind of see a reiteration of this

if it gets bad enough? Are people going to be like, okay, can't spend, dial it back, saving only, eggs are too expensive. You know what I'm saying? So it's a nice data point to reference. I don't know if it's going to be true or not, but it was interesting to me. Yeah, and just for anyone that, I don't know, can't see it

or just kind of doesn't know what the average savings rate is, in the United States is covered typically around five to 10%. And yeah, there's periods where it goes a little higher, a little lower, but during COVID it shot up to 30%, especially with the stimulus stuff and everyone, you know,

at home. And then it kind of trickled down and now it's way below the trend. So yeah, it's interesting. We do have a lot of comments. Farve says, Paul, you're an Airbnb baron.

Yeah. You're the masquerading the cleaning costs. It's the worst, but uh you gotta do it i guess it's called it's called capitalism okay i'm wall street of course i'm gonna find a way to make a buck like come on let's be real uh by john says or bijan says hey guys cloud episode that you just released with sean was great lots of good information yeah i thought i kind of actually listened back to that this morning and i don't really listen to every episode but that one i i think probably because i don't i have such a like kind of peripheral grasp

of cloud, it was so nice to get his takes and he explained it in such like a non-technical way that it was easy to digest. And not to mention, we've been looking at Microsoft all day because we're doing a not so deep dive on them. I can't help but think if you took Google Cloud, AWS, and Azure independently, they're going to be much bigger businesses in five years. I think I can say that was confidence. And you can just look at the backlogs and see that. At this point, maybe not Google, but for Microsoft and Amazon, I think that drives the performance of the overall businesses as well. 100%. And not to spoil the Microsoft one, but I was looking at future growth opportunities. I was like, LinkedIn, it's a lot bigger than I thought. But for the size of

microsoft it's still uh quite irrelevant um yeah all right any new topic the big thing this week that i had i didn't have any big like comprehensive thing like ryan mentioned but i got one here and it is amazon laying off 18 000 employees there was a letter from jassy i don't think there was really anything else besides they were just laying off 18 000 people actually let me confirm where it It's going to be in their people, experience, and technology organization, devices, and books, and I think physical stores, although I'm trying to read this in real time. Anyways, any thoughts on those guys? I think they basically doubled it from what people were rumored as in November. It's all corporate, right?

It's all retail. It's retail and something else. I think, yeah, retail. But yes, it's not warehouse workers, Brian, because those fluctuate all the time. I mean, they're going to decrease it by probably 100,000, 200,000 people after the holiday season. Yeah, I saw people quoting that. That's not unexpected. That's a part of doing business, right?

What's interesting is the opposite of that, right? That was when FedEx actually said, hey, we're actually not going to be that busy this holiday season. But to the Amazon point, I think there's more to come. i mean um have you ever read howard schultz book on starbucks i have not but i i probably should this seems like a good one um i didn't like it but there was something that okay i thought it was he was just like it's basically an ad campaign for starbucks but exactly like bob eiger's huh just like yeah it sounds like bob eiger's book yeah oh yeah bob eiger him too he's gonna like stroke his own ego but the interesting part of howard schultz's book is like when when

starbucks was under pressure back in the housing crisis right they didn't want to lay off people but they knew they had to so they did one round of layoffs thinking that was enough but then later on they realized that it wasn't enough and they had to do another round of layoffs and his takeaway in that chapter was basically like hey if you're you're looking at if you're running or analyzing a company you got to make sure that when you do layoffs that you do them sizably hard at once so that you don't have to keep doing it and doing it and doing it because you just keep,

you get a bad taste in your employee's mouth. Morale goes straight to the ground. It's like all the consequences that go around with it. So when Amazon towards the end of last year was like, hey, no, we'll do 10,000 and now they're doubling it. I think it's because they came to the reality

like, hey, if we're going to do this again, we need to make sure that it's going to be like the last time or one of the last times in case it gets even worse because otherwise you got, you just keep getting lines of problems when um uh you know shit hits the fan and he didn't do enough you know yeah what would you guys or go ahead ryan well also the bill bill in the comment says considering they have one and a half million employees it's not much to them that figure that

you're quoting includes warehouse workers it's irrelevant yeah it's which these are significantly higher comp packages so it'll have a it'll have a bigger impact on operating expenses but it's also, I think it was like five, a little more than 5% of corporate employees. Yeah. I heard they have 300,000, I think, corporate employees, which I was kind of shocked at. But it raises a good point. And it raises the next point that you're going to talk about, which is at this, and so this was a tweet, someone said, Amazon's joining Salesforce today and laying off staff. Every single tech company has the air cover for layoffs. Even if they're not needed, it's a free pass to restructure and clear out bottom performers, expect layoffs to

accelerate. I think that's like, I guess Amazon's kind of in a precarious spot because of the cash flow in retail, but do they need this? No, maybe not, but it's like a perfect time to do it because you have the excuse to just say, well, it's recession. I mean, they're not like Uber or something like that where they were structurally unprofitable, but there's no reason to just hire people to hire people. And I just get really irked when companies are like, we need to hire to scale up. And it's like, no, you got to hire if you have jobs for it. Here's one question just so we can kind of do a little math here. What do you guys think the total cost, salary plus company expenses, plus office, plus whatever, plus transportation for each of these corporate

employees would average out to? To 300K a year, 250K a year? What do you guys think? At Amazon or- At Amazon. I'd probably go 300 I feel like yeah 300 okay well let's use 300 why can't I type in this calculator

salaries alone I mean I was seeing a stat yesterday I mean salaries alone are like what 200 250 you have to remember the options are I think Amazon does RSUs so it's they're just they're just given you know yeah i think yeah assuming you know there's all these variables um assuming it's 300 000 a year it's 5.4 billion dollars in saved compensation

so pretty meaningful i mean and and they i don't say definitely they have compensation but you still have to you still you still take a hit to your income statement on severance so it doesn't net out though you know i'm saying like because you pay like when i saw facebook severance package i was like oh my god i'll i'll go get there by i'll go get rid of my meta if that's the case i'll have to work for like two years so it depends on how well amazon severance packages if it's a good well one supersedes that yeah the uh i actually have a friend at amazon who said uh that they're offering i forget what it was just five months six months of sounds more It's more attractive to voluntarily quit than keep working.

Yeah, they offered five, six months, I think, of the same exact pay and benefits to voluntarily quit. But either way, over the long term, they should realize these savings. Yeah, next year, it's actually going to look probably just the same, or at least the next few quarters. But yeah. Matt H. asked about synergies of Microsoft with open AI. thoughts or insights on these developments i'm honestly not super familiar doing well here's everything here's before i moved to microsoft i had one i i came up with uh this chart on stratosphere that i wanted to show you guys do you guys think and this might be a leading

question so i don't know if you're gonna uh i'll hopefully keep it you know whatever you guys won't figure it out but do you guys think per year amazon's sgna expenses or r&d expenses are a higher nominal value. Then I'll share the chart after this. Wait, what was the beginning part? So on the annual expenses, I'm explaining this wrong. Do you think it's SG&A expenses

are a bigger dollar value or R&D expenses are a bigger dollar value? You mean historically? Last 12 months. But historically, this number, whatever one's higher has always been higher. Oh, SG&A, 100%. I would guess SG&A.

All right. I was hoping you guys would go with your gut there because it is not. I'm going to share. Let's look at this chart here. Look at that R&D spend. Look at that R&D spend. We got your screens are there. What is that?

70. Oh, wait, we can pop it up here. 68 billion in R&D spend per year and 51 billion in SG&A. They're working on some projects over there, guys. Well, I wonder if the ramp up is from Amazon Studios. yes yeah i wonder how that's classified yes yeah as as well but i mean what do they got they got a self-driving car division they got i mean they got all these rd divisions that just have so many employees and again that's at stratosphere.io you can look at uh the links in

the show notes check them out but yeah i was shocked when i saw that and i wanted to save it to have on this episode okay this might be a dumb question but what is open ai is that the ChatGPT shit? The language learning models, yeah. That was interesting. I thought Microsoft was basically was originally trying to do that with Cortana. Yeah, don't forget.

Never forget Cortana. Never forget Cortana, yeah. ChatGPT is run on Azure, right? That's the only thing I know. Yep, and I believe Microsoft has invested a billion dollars in the company OpenAI that runs it. general thoughts on chat gpt does it kill google paul you go first we already talked we already

talked about this no i've played around i played around with it i mean it's cool i think the biggest takeaway is that it makes you sound smart without actually providing the exact details that you need to actually be correct that's why fin twit loves it yeah it's a great response i imagine to like uh like unnecessary emails or i know a lot of people were doing it for school assignments that seems like the perfect market to go after yeah i just read an article like i think like some some high school in new york city or college in new york city or something something in new york city now blocks it on their computers on the school's computers so if you try to go on you can't it doesn't work yeah what's yeah yeah it makes life difficult for teachers that's what

bill said yeah i i've heard some serious complaints they're like i mean i there was one teacher on i can't remember before him and he's like this is yeah he's like this i mean this is ridiculous this student's been underperforming all semester and he just turned in a perfect essay with with like grammar that he hasn't used all semester and i ran it through the plagiarism whatever detector and it's not coming up yeah yeah it's uh yeah but that's not that has nothing to do with google it's just you know i don't know why people always go on google i remember uh this week and i wasn't there on twitter at all or really in you know the investing world hard at this point but during the voice technology i want to call it hype cycle not really a bubble

maybe a hype cycle 2016 everyone said that alexa was going to kill google and i think that kill amazon yeah it might kill amazon out of those r&d expense chart we just saw um but here's here's a another good tweet i saw is that open ai thing if it's a some some someone on twitter said it reminds them of the 3d printing craze which i remember people i would be on some like road trip or something and someone's like have you heard of 3d printing it's going to take over the world you're going to print all your materials in your house and i think this kind of reminds me of this sort of same sort of hype cycle where it's just that's with a lot of new things that didn't take the feel like 3d printing totally understand where that guy's coming from the

cannabis craze totally get where they're coming from ai totally get where they're coming from all this web three i don't even know what the hell web three is but people craze is web three look what's happened i think um all that stuff and if you look at um one thing i've always loved about these speculative like calls on like do you think you should acquire them or whatever it's can you yourself even think about what they're going to use it for because i can't the the the language learning model excuse me models yeah i have all the all of the trillions or jillions of data that google has you really don't think that they could just do that themselves if they actually wanted to yeah i i see this similar to voice technology it's kind of a commodity for big tech and what's

going to matter is the distribution to consumers and google has dominated with one of the best moats in existence for that and we have a comment here yeah we didn't really they the the rumor was that chat gpt is going to get embedded into bing which i think people were worried about i wouldn't be worried about that because google could already embed theirs into google and they're choosing not to just because of the computational costs i don't see how it's really concerned unless microsoft wants to get some better azure numbers out it is yeah it is great for azure everything leads back to, you know, all these consumer

conversations are very difficult. And then if you just say, all right, well, in the end, it's just going to benefit Azure, GCP, and AWS, and they're going to be fine. I saw a stat or something this week, and this is totally random, but I could, I might

be botching this, but who do you think AWS's biggest customer is? I would say Netflix. I'm pretty sure it's Axon. oh you know I think you're right I actually think

you're right yeah I thought they I thought they went to I thought I used to follow that company I thought they

transitioned to Azure or did they transition to AWS they transitioned to one when I was reading it they had a big expense for that

I can't remember but I remember seeing that whoever it was was whichever cloud provider it was Axon

required more compute or storage or paid AWS or Azure more than Netflix which shocked me okay yeah let me try to find it the uh i guess it's all that evidence.com and you know what

that honestly makes me a little more uh optimistic about like axon yeah if they didn't have that crazy spc stuff stock based comp um yeah i'd be very interested i read the read the most recent proxy and they are fixing that to some extent good but it was so bad we don't need to get the details here but it was it was terrible yeah i can't find the details but that does sound correct i mean they spend a lot on the cloud yeah all right anyway uh any other yeah you see the made off documentary on netflix anyone no oh i want to see that it's uh it came out yesterday i watched the first episode pretty good i think i'd recommend it for any financial person they had some pretty funny things in there too where one it reminds me a lot of the frauds that are

going on today but there's just these examples of they were talking about who worked there and all the connections of who worked at whatever made off securities and i i laughed so hard when they said and you have his compliance officer his brother pd and i was like okay yeah that makes sense yeah yeah your brother is the compliance officer i mean if anything if you had a board of directors if you got compliance anything regulatory right and that's their specific role is that's their job for especially a big a big company right that has thousands of or i don't know dozens of employees the one rule is don't make it a family member because people are going to get suspicious what even if they're honest right you just don't make it a family member

you can't do that i think i remember watching one of the there was a made-off movie either it was on HBO or Wizard of Lies HBO yeah and they made it seem like Madoff did this all on his own in the documentary

he kept it away from his brothers or excuse me because he had his brother and his sons and he was just like do you think what were their sons

were they doing? No, there's two different companies. There was a legit company and the illegal one. They were on different floors of the building. He basically kept them just, you're not allowed at all to come in this other floor. And he just has his real sketchy

people down on that other floor doing his dirty work with the fraud. There's also someone that apparently... It would have been celebrated in 2022. too oh yeah well he reminds me exactly like the the tactics the whatever is happening like on the kind of what the public saw reminds me exactly of tether of what's going on with them right now the same sort of stuff but that's that's a whole nother topic who do you think's the if you had to pick

someone to run your fraud between Madoff, SBF Oh Madoff, Madoff, Madoff he lasted 60 years SBF lasted 3 He did not last 60 He ran the thing

for 60 years? It was a fraud for 60 years today 45 years I was going to today That's crazy It started in, at least according to the documentary, that it started in, I think, 1970, something like that. Maybe earlier.

Wow. But it started really small. Really, really small. That's crazy. Do you think it started as like a genuine operation or do you think it started as a fraud? It was a genuine operation. Yeah, the market making was genuine. and then he had this thing that no one knew about but him but him and his other jabronis that he

would never share about his uh investment fund or his hedge fund and it would be uh it started out with a little bit of money and it was a fraud and it was actually founded as a penny stock brokerage or manager management yeah that was that was their um that was their legitimate business right it was a legitimate one yeah what's the uh what's the documentary called i think it's just called made off on netflix something like that you'll find it all right i know what i will be watching tonight any uh any other uh topics bro let's see i hope i didn't wait i said tiktok's losing market share yeah let's let's hit that one let's see what this tweet says okay here's the tweet gavin baker one time spent for almost every

major social network has accelerated through November from a summer trough, and most are now growing faster than TikTok. TikTok time spent has been negative year over year for five months this year, including November. Thoughts on this,

guys? I don't know if it's a huge deal. Look what you're comping against, though. Yeah. I think we'd have to see it for multiple quarters, at least. Just anecdotally, I am seeing a lot of like friends migrate to reels and YouTube shorts and

spending more time on there. And I mean, we've seen numbers from YouTube. I think was it reels or YouTube shorts where they gave commentary on the call? I know Zuckerberg said there, they were seeing a lot of time spent on reels, but I want to be surprised if at least at the margins, some of those other competing offerings are carving into market share for TikTok?

Yeah, there's also an interesting chart from what is it? Morgan Stanley. It's TikTok estimated total time spent in the US in billions of minutes. And it shot up basically like a rocket into really

like Q4 of 2021. And since then, it's been flat. which isn't like bad for them but it's just not the same if they're not growing anymore matt h in the comment says i mean i'm a millennial but i judge anyone who actively uses tiktok with great prejudice i i couldn't agree more i i just it is a brain melter it is it's one of those remember we talked about this theory before of how the better the apps are addicting you the shorter the lifespan is because it just gets you uh burned out quicker yeah i think that's got to be look i've never used it but i think that's good that could be

the case although i've been just wasting an absurd amount of time on twitter for a while now i haven't really i need to cut back myself yeah i think i i don't have it on the phone anymore just uh but desktop only while i'm working uh but i think there is some validity to that like it's it's the the worry of addiction like i i hear people are trying to i i know people that try to go cold turkey on tiktok they're like nope i'm not doing like i'm not limiting myself for an hour a day i'm just like i gotta delete the app gotta get completely off it because it's kind of it's just like a make or break like they're either on it or they have to like get off it entirely so i i do think some people kind of treat it like an addiction where if you make your product too

too sticky it's kind of a double-edged sword yeah anyway we got it's impossible yeah it's it's i i think it's an impossible question to answer all right closing thoughts paul what's your bold financial prediction for 2023 soft landing um i don't think it's soft landing um i actually made some predictions actually i put it i put it in the quarterly letter one of them was that bank bed bath and beyond was going go bankrupt so i guess i can talk that one there we go five days into the new year um i was i was thinking it could go bankrupt by like the end of the year so i'm like oh it'll just go bankrupt sometime in this year and then there you go um i have bitcoin is going to be breaking below i'm not

a crypto enthusiast just for the record anybody listening to this i have never bought it but i think bitcoin is actually going to be breaking um uh 12 000 this year and that's just basically a run on a run on any other crypto assets less not only to avoid all these bankruptcies that are happening but then also to like shore up their cash reserves because of the looming recession is there any any factors going into that number or just picked a random number uh well i mean when i when i posted the investor letter it was like it was just hovering below 17 000 so i mean thinking about like a third over 30 ish percent haircut what is that it's like 4000 yeah over 30 ish percent haircut like 32 33 it's like that seems meaningful in a year you know

especially since it's been kind of like flat for a bit you know i think for then we're running up on time smooth and close it out after this but i think for crypto enthusiasts it isn't necessarily the magnitude of the drawdown that impacts them as much as the duration of the drawdown. If it's just like the slow grind down for two or three years,

I imagine it's going to deter a lot more investors than just a sharp decline. Or do you think I'm wrong on that? I like that take. It's all about enthusiasm. so just boredom

maybe just like it's just I mean it's so it's impossible you can only buy the dip for so long

it's yeah it's hard to I think enthusiasm is a big thing right yeah Silvergate Capital

which I think is like a crypto bank I don't know a whole lot about them apparently they are in trouble today down like 30 something percent pre-market

in one quarter they were FTX's FTX was their customer In one quarter, they went from $12 billion in customer deposits to $4 billion. So a little bit of a run on the bank there. All right. It's been an hour. So let's close this thing out.

Someone asked, what is your schedule for this live chit-chat show? 4 o'clock Pacific time on Thursday. So 7 o'clock Eastern time. We do it live on YouTube. And then we publish the episode via basically a podcast recording on our podcast channel on wherever you get your podcasts on Sundays. So if you want to listen to it that way, you can listen there as well. But we love getting questions.

So we got plenty today. Thanks for everyone for throwing stuff in the chat. Appreciate it. Let's throw a disclosure on this. Brett and I are not financial advisors. Anything we say or discuss, and I'll throw Paul in this as well. Anything we say or discuss, it's not financial advice or recommendation. Brett and I are general partners at Arch Capital, though, so clients may have positions in the securities discussed in this podcast.

Thank you all for listening.