Chit Chat Stocks - Investing Power Hour #54: $AMZN Annual Letter; Mario Movie Pops; Buffett in Japan

Episode Date: April 16, 2023

The CCM Investing Power Hour is a live-streamed show every Thursday at 9:15 AM 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/ ****************************** 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 recommendation. Now, please enjoy this episode. This is the investing power hour number 54. Although I don't think any listeners care except us, we're on the road to 100, but everyone I think just listens every Sunday or live

on YouTube. My name is Brett Schaefer, and I am joined as always by my co-host, Ryan Henderson. Ryan, how are we doing today? We're going live at 12.30 p.m. Eastern Time. We do these every Thursday. We might be changing it up to a little later because of our schedules. But either way, these go live on YouTube every Thursday. You can watch the replays on Thursdays and then listen on your podcast player of choice every Sunday morning. But Ryan, how are you feeling today?

yeah i don't think most people are going to care what time we do it live because we get like a solid you know six live viewers or you know it ranges but uh to the people that do first of all really appreciate you and really appreciate all the questions um but yeah we we might be flexible on the time here in the near future so maybe just keep an eye out for any time changes and anyway we don't really care how people listen, listen on the podcast, watch the replay on YouTube, but it can be very fun to interact, heckle us, ask us questions. And we'll probably answer because there's only a few people on here when we do this live. But Ryan today, I mean, I guess we should say what this investing power hour is. We do random investing topics that we think are

timely. We'll be fun to talk about. We think other investors would be interested in discussing And we go with a loose format for about an hour. And that's really it. Looks like today you have Andy Jassy's shareholder letter that is the CEO of Amazon. So we'll be covering that. You have the Mario movie, some housing data. And I got a bunch of stuff like Buffett going to Japan, ride-hailing app, annual losses. I think that'll be a fun discussion.

Substack versus Twitter, NFT New York City. If we maybe want to talk about that. I don't know if that's actually going to be that fun. We might only have a minute there. But before we get started, let's talk about our sponsor, and that is Stratosphere.io. I just got a message today from one of our listeners, and someone without sharing who they actually are, is a guest on, or has been an interviewee on the show. And he said that he loves that Stratosphere offers a fantastic freemium offering where

you get tons of data on when Ryan's pulling it up here right now. He's looking at Amazon. You have all these KPIs. Now, this is part of the paid plan, but you get KPIs on their total square footage over time. But part of the free offering is you get not all of the historical financials, but at least a lot of cases, 10 years of historical financials for free, plus tons of other stuff. They have SEC file aggregation.

They have just all this different stuff, screeners, modeling, analyst coverage, ownership, Basically, what we like to use it for and why we use it every day is because it saves us time and frustration. That's the key thing when doing investing research, when trying to aggregate all the information together is you don't want to be wasting time. And that can happen a lot when going through SEC filings. So we absolutely love Stratosphere. We think you should check it out. Try it out for free, like a lot of our listeners have been doing. And if you want to upgrade to one of their paid plans and get all these custom KPIs, like the ones Ryan is showing right now with amazon uh use code ccm get 15 off they have various plans some for

individuals some for professionals all right ryan why don't you kick things off what topic do you want to start out with we can start with the andy jesse letter did you read it i did i didn't know it came out as we were discussing with someone the newsletter or whatever things that you can sign up for with companies are extremely unreliable. So it somehow didn't show up in my inbox, but I did see, you know, a lot of people were talking about it. So I was like, okay, cool. I'll read it this morning. I did give it a read. I didn't take any notes, but I'm curious what your thoughts were. Yeah. I'm not sure why the email alerts for companies, investor relations pages are so bad, but let's get them all. Yeah. Yeah. It's, it's rough. So yeah, Andy Jassy, CEO of

Amazon had his second shareholder letter. Last year was his first. Obviously, Jeff Bezos used to have sort of an iconic shareholder letter. Very well known. Very good writer. It's a product to follow, yeah. But it wasn't, I guess, nothing crazy stood out. He basically just went through all their business segments,

saw what or described what he was seeing, what sort of developments he thinks are promising and kind of the opportunity within each of them. He also talked about getting rid of 27,000 corporate roles, cutting a lot of the businesses or the experiments that they were trying. And he never said day one in this one. And he also did not say AI until the last page, which I did like that. Oh, what's wrong with some AI, Ryan? Come on.

That's going to print money for AWS. but we maybe can get to that later. Yeah, and I'll just touch on that right now is basically at the end, he goes into their AI initiatives and how, and every company loves now to be like, all the companies that have been around for a long time

who have probably been doing like fringe AI, it's more like, you know, like they've just been automating tasks. They're like, we've been doing AI for 25 years on like some of these new companies. Like, all right, who cares? Uh, but he did talk about how, how big this could be for AWS and talked about a lot of the different capabilities that they've, they've driven for developers.

And he says, one quote stood out. He said, we're delivering applications like AWS's CodeWhisperer, which revolutionizes developer productivity by generating code suggestions in real time. That feels like it could be a helpful product. And it's one too, where the monetization strategy is very clear. Like, you know, there's a lot of AI applications out right now that are like, you know, what's going to be the source of generated revenue? Like, how are they going to drive revenue? Maybe it'll be a subscription product, but no one knows how well it'll do.

This is a clear value add to a business that's already very profitable and huge. So it seems very just like, I don't know, perfect fit for them. Do you like how for AWS on the AI stuff, do you like how they are not trying to go for consumer-focused and really going for that infrastructure layer and doing what their bread and butter is? I feel like as someone who obviously is not an expert in this industry at all, I kind of like that they're not going for a big Alexa-type project. And they're like, okay, we're just going to stick with the cloud stuff and be the backbone for a lot of other companies. they did i think they did mention something about a consumer focused generative ai but that's not it's not like augment the shopping experience somehow which i don't know oh that's fine i mean well if they had a conversational thing within the amazon shopping experience that's not terrible

maybe some people like that but yeah seems completely irrelevant and unnecessary but whatever. I guess they have worse investments going on as well. I guess some of the highlights or maybe some of the most important takeaways, they do expect to slow down to AWS. Not really surprising. People are slowing. Companies are slowing their spend. Stocks are zero. They're not going to grow at 20% for a few quarters. Stocks are clear. Sorry, sorry. Keep going. Keep going. Yeah. The other thing they went into was basically a lot of the productivity and cost savings they're getting out of their own in-house chips i thought that was kind of interesting 40 percent more what was it cost savings on on their

i forget what generation it was but yeah i can't have a ton two or something chip yeah and look i can't remember exactly i don't have it in front of me but i believe they have three different chips now for various use cases too so that's that's quite interesting i really fascinated to see how the chip war for this kind of vertical integration versus the NVIDIA's and AMD shakes out. Because it seems like NVIDIA's always has the lead, but I wonder if Amazon will catch up with certain use cases or whether this pie is so big that, yeah, Amazon can have some efficiencies there, but they'll still use a ton of stuff from NVIDIA as well. Yeah. I mean, hopefully it just improves the unit economics at AWS. I mean, I'm sure that's one of the biggest costs of delivering

that product for them the other one would probably be like energy costs for their uh cloud or for their server bases which has probably come down a little bit so i would imagine i think they're doing or go ahead sorry margins might come back up this this next year even though revenue could potentially revenue growth could slow yeah and i think they invest they're investing a ton in their own energy generation, which is just kind of crazy that they're doing a lot of their own solar wind projects, stuff like that. And yeah, what I also thought was the most interesting, at least from an investor perspective, we already knew about AWS. We already knew. They talked about advertising and basically explained why they do it and what the value they provide is. And I kind of thought

that was a little bit of BS where they're a bit just juicing the search results there. However, I thought the most interesting part was the discussion around how there was multiple paragraphs on how they're trying to be way more efficient after the COVID boost in spending on their infrastructure, where he basically said, look, we had to double the footprint in two years. It was way faster than we thought, and it was at a much larger scale, so there was just a ton of inefficiency, but we didn't want to lose our customer value proposition during that time. And now that they're moving through that, they've realized tons of new efficiencies that they found across the warehouse network, like dividing the United States into smaller regions as they've scaled up so they don't have to crisscross and go across the country as fast. And I just think when they mentioned in the letter, we're again in 2023 going to increase our assortment and decrease delivery times yet again with their internal network. I kind of think if you're FedEx or UPS, and sure, I guess there's the Shopify power shops of the world. But you kind of look at that and just go, God, why did they have to choose us as competitors? Because they just keep wanting to invest in this business or invest in their infrastructure.

And they seem to have the mindset, at least on this part of the business, which is the physical infrastructure for the e-commerce network and retail stuff, where they're never going to stop trying to get better. Yeah, and they even called out UPS. They said we built a UPS and we built a fulfillment, not necessarily the footprint, but the delivery network, the size of UPS now, which it's really staggering to think about. But the other thing that I was thinking about, and we just went through Stratosphere really quickly, and I didn't even notice it until we just did it in the intro, but their total square footage, which I guess that's probably what you'd consider their footprint. Yeah, it doubled over the last two years, but it doubled the two years, three years prior. So I don't know, maybe saying that, because he always talks, Jesse always talks about, we doubled the footprint that we built 25 years prior in just two years. Like, okay, 2016 to 2019, they did the same thing. It went from 179 million square feet to 334. yeah but nominally i think it's a much larger and that doesn't include the last mile delivery which is less of just warehouse square footage so they basically and i'm i may be misremembering this but i think i have the general gist of it where they had the last mile stuff with those

blue vans that everyone sees that was a project that was supposed to take take six to eight years starting in 2019 but they accelerated it to two years uh because of covid so there was probably ton of inefficiency there and a lot of upfront costs they probably had to overpay people to high you know higher so quickly and they probably had a ton of inefficiencies there that hopefully fingers crossed we'll see how it ends up in margins over the next few years it leads to just a much better moat plus they actually can start generating uh consistent operating profits from this division regardless of even at that point i i don't think energy costs can be that maybe maybe uh i don't know never say never but there are these what am i trying to say

like i don't think it's just going to be as cyclical with these profitability with e-commerce but people have been saying that for the last 20 years so we'll see yeah and i still think the buy with prime having that integratable to other cms or e-commerce sites is like just a master stroke and wonderful way to leverage your footprint but we do have a question here in the slido um or not the slido sorry the the youtube comments here uh scotland says what's going on with bud dropped steep on high relative volume not a marijuana company that is but anhyzer bush for anyone any listeners is that um i don't know i think this is all i don't follow um there's some sort of yeah there was some sort of that political thing right with bud light

i did not follow closely there was some conservative celebrities doing stuff i can't remember yeah from what i understand there was uh a controversial advertisement and it didn't sit well with what seems like it would be their primary customer demographic. So that's kind of what doesn't make sense for me here is, and maybe I'm wrong, but when I think about if you're dividing it politically, the customer, the alcohol drinking customer basis, I would think Bud Light tends to trend more towards conservative. Maybe that's just like a misconception. No, I think that's a misconception.

Conservatives are generally richer. Okay. And I mean, I guess, yeah, maybe Bud Light's supposed to be not on the low end of drinks. But here's what I want to talk about, because I don't really want to talk about the political stuff. It's just super boring. The investing implications when something like this happens, where there's this news story that's just all over the news and people are like, I'm boycotting this. And this happens with products from time to time. Happened with Spotify.

When Joe Rogan was like, no one ever talks about that anymore. No one cares. It had no impact on the business. Churn may have like, maybe there was 10 people that churned. Well, yeah. And things like that happen from time to time. I guess Spotify is a good example. Here's typically, and maybe not all the time because it can be dangerous.

Typically, I think, and I don't really like the beer industry. I wish they had a little bit more. there's just kind of the craft brewers that are taking share and some people seem to not care about profitability and stuff like that. But regardless, in general, if you like an industry, if you like a company, and there are these sort of boycott things that happen, typically, I would say, reading historically and examples and business history, almost 100% of the time, you can fade these outrage things that happen. And it's not even just modern stuff with social media it has happened for years and years and years right for all the time and i think generally

fading it is the right is it can be smart as long as you like the business beforehand yeah i mean i think there's plenty of reasons not to like bud light as a beverage but this isn't the leading one for me the and what about or go ahead go ahead as i was you know So these things usually get overblown, and as you mentioned, boycotts on consumer products that have withstood the test of time usually don't last or have that drastic of an impact on sales. I did see some weekly figures that showed that Bud Light sales had dropped or whatever, but Anheuser-Busch has a vast portfolio. yeah and who knows this could be the one um exception to the rule of fading it however typically and i think we've already seen it this new cycle is already over right at least i guess i don't follow closely but yeah maybe uh yeah i'm not sure anyway yeah i do think

it's kind of interesting though and i i'm going to be reading their conference call i'll read it this quarter for sure i don't know maybe the next quarters but yeah it's interesting how beer companies kind of went they just haven't been very successful over the last five years or i i'm no expert on their stock performances maybe even a little bit longer like 10 or 15 and i think the issue is one a little bit of mismanagement where a bit you know they got a bit bit of ham sandwich action there and since 2009 it's up 67 so that's 14 years 16 67 really not great not good uh comment here from scotland says what do i mean by fading it good question thank you i i just not having not worrying about it where a lot of times you know we saw with

spotify last probably what like a year ago right where people said oh spotify's finished everyone's going where they're gonna lose all the artists and typically it's if the business does not change just because they're talking about it on the nightly news on twitter there's yeah i mean there's been countless incidents where this happened what was the remember when goya beans was like a big thing because i think that was i was like that was when i was off the grid oh well these things they last like weeks and i don't think they lead to any structural change for most of these businesses.

Yeah. Spotify's a good example, but. Yeah. Are there any other examples you can think of? There are tons,

but they're not coming to mind. It's usually nowadays with just political stuff, right? When someone says this is political.

Oh, we saw an article today. There's an activist talking about a software company called Autodesk, which we do own.

There are things to complain about with Autodesk, but they were saying that their software is used for fossil fuel markets and you had a great tweet of someone or a screenshot of someone responding to the bloomberg reporter who to be fair is not the activist that is reporting on the story which

is going to get a lot of clicks and is an interesting you know story to cover but they reported what they say i think al-qaeda is using microsoft word let's cancel them or something and it's just like these stories show up and it's usually fine i don't know yeah i mean i i have tons of gripes about... Okay, for one, Autodesk, yeah, it can be used by a number of different customers. Not only is it probably being used by the largest fossil fuel generators or producers in the world, but it's also probably being used by the largest solar energy businesses or wind farms or any any number of renewables so it's like it's going to be used by whatever customers they want um or whatever and i hate that yeah and i hate that i guarantee that guy that was

the activist with the photo had about 20 products on his clothes shoes whatever that were oil-based so you know i just once you learn about the oil industry you're like well you know i don't maybe we shouldn't just take him to the what do they call that thing um uh the day of the witch head or uh yeah the the the thing that chops off the heads during the french revolution what was that called uh metaphorically metaphorically the the guillotine we shouldn't take it to the guillotine yeah uh but other topics right let's i want to get through these yours is the mario movie which Oh, wait, we do have one more comment. Tony Shields says Equifax after the hack.

I'm not familiar with that one, but yeah. Yeah, a lot of security hacks. That can, yeah. Yeah, 100%. Well, yeah, let's talk about the Mario movie. I mean, the shareholder letter, it's good. Go ahead, read it if you're interested. I think Andy Jassy's a good thinker

and writes a good letter, so it's worth the read. But it'll bias you though. It'll get you bullish. So just fair warning, all the shareholder letters that people write, You got to go in because we fall prey to this, too. You got to go in and be like, damn, I should own this thing because they're going to talk their book a bit.

I mean, I kind of look at the letter and think like they are spending a lot of money. So, you know, it's like there's maybe some pessimism that could be taken away from it, too, if you're fixated on them expanding margins in the short term. But yeah, let's talk about the Mario movie. We're Nintendo shareholders. I went and saw the Mario movie. I thought it was great. Did you end up seeing it?

I did. Yeah. And got the recliner seats. So, you know, got those premium tickets to get a little better take rate. I love it. I think side note, you have to use the recliner seats unless they're just way more expensive. If you pay a little bit more for those recliner seats, the experience is just so much better. Yeah, significantly. Yeah, so finished the weekend with $377.5 million in first weekend box office sales. That is the biggest opening weekend ever for an animated movie. Now, granted, they had a five-day total versus, I think, Frozen 2 was like the second largest. Frozen 3? Oh, no, three days. Sorry, yeah. Oh, Frozen 2 was a three-day comparison, so not exactly apples to apples, but still, I mean, looks like this is going to be on pace for significant box office sales overall. People are saying that a billion dollars is basically locked in. Following the movie, game sales for Nintendo look like they jumped pretty quickly if you use the UK as an overall indicator. So you found this, and I'm glad you did. So Mario Kart 8 sales, which is their premier Mario Kart game, were up 13% week over week.

Super Mario Bros. U up 22%. Super Mario 3D World up 39%. All these week over week. This is exactly, I imagine, what Nintendo would have wanted. This was the goal. Obviously, it probably exceeded their best expectations. um not only could this and at first i wrote the movie off as like whatever it's like marketing basically like profitable marketing because you are you have a wonderful flywheel

effect you basically become very disney-like where the expenses for the movie end up being well worth it and then on top of it you can cross sell all your other uh products but um i mean i guess the movie will be probably will probably contribute a fair amount of money or profits to the business this year as well alone on top of all the game sales they're going to generate from this thing do you think yeah i was kind of uh running some numbers and it's tough with these box office estimates and for box office only given their trajectory if they hit a billion five i think they could clear at least 300 million in earnings which would be fairly significant. And that's just from the box office. And there'll be plenty more from

streaming deals, digital downloads on wherever the Amazon TV, Apple TV, wherever, stuff like that. And from what I was seeing, box office sales are usually around like 20 to 30% of overall sales that are generated from movies like this. The long tail is really in those streaming deals. And there's probably about 10 million, maybe. Well, you shouldn't probably and all of them won't buy it. But there's a good amount of hardcore Mario fans that really, really love Mario. They play all the games.

And I wonder how many of them are going to buy it for like 20 bucks when it comes out, just so they can own it forever. Yeah, I mean, this was a hit across the board. I guess it makes me think, well, for one, I think Nintendo stock reacted positively, although it never seems to trade that steeply in either direction.

Yeah, it's the meme where they say, come on, do something with that stick figure. that's that's nintendo stock they could do they could literally say wow we doubled our cash flow this quarter and people would be like well i don't know like that's one quarter what about next quarter everyone seems to fade them every time like every year it's it's it's quite interesting like but all the but are the consoles gonna stick like what if this isn't the next we it's like okay it's been around for like seven years and all in all serious that is the serious bear case so i can't it could it is it could happen but when every quarter it doesn't happen

people just go about it's so funny where they go well what about next quarter are sales going to slow down and then they don't and they go but what about next quarter it's funny well yeah it is probably the fair bear case um i don't know i i think this probably is a big eye opener for nintendo management team hopefully it means they're going to lean into this more and really kind of take this multi-form media strategy as the like a perpetual thing to do i do think i saw people basically saying you know like oh they're not going to have how else are how are they going to repeat this first of all they have lots of really solid brands um i think zelda would be a very successful movie as well might not be as successful as the mario movie who knows um they

could easily run a second mario situation they could base something off mario kart a racing movie they could do uh super smash bros they could do something that incorporates wario or waluigi i mean there's they have pokemon basically um and then pokemon does it themselves but yeah they already do that so many different directions they could go i think this is repeatable i also think it helps with the parks um so our even though this is like just confirming our biases to begin with i think it is becoming more disney-like yeah they're not gonna i mean and look they're not financing the movies all themselves so they're splitting the profits with elimination and universal and universal's capitalizing or excuse me investing i believe all the capital into the

theme park so it's not the same but they are going to earn a nice royalty stream from that i have three questions though hold on scotland says rotten tomatoes from mario movie was 57 from critics 97 from the audience yeah it just goes to show it's absolutely pointless rotten tomatoes are that's actually it's always wrong no no that's actually a great indicator where the critics fade something and the audience loves it it means it's going to be a really fun dumb movie and that's what it was 90 minutes kind of nonsensical but whatever kind of funny and fun but yeah okay i have three questions for you i'm gonna go through them myself actually i hope i remember all of them yeah okay all right i think i remember two at least first one what's your

prediction for box office my prediction is going to be 1.5 billion worldwide for the mario movie i think once we incorporate the japanese market which hasn't launched yet i don't know why but it's going to be coming out in a couple weeks second question what do you think the ideal cadence for the company in a shareholder perspective for movie releases i think one a year would be ideal but i would not expect them to do that i believe they'll probably hit a once every two years or once every three years yeah at least at the early on i would say that's accurate and you basically stole the words right out of my mouth i was gonna say 1.5 seem seems reasonable um and once every year would be great and it hopefully avoids and this gets to scotland's

next question which is on the topic of movies marvel has been really underperforming for disney what's going on here i want them to avoid becoming marvel like where they just basically dilute the brand um well with nintendo there's a lot of things to worry about the one that you cannot worry about is them diluting the brand with too much quantity that is never say never with the current management team in place and the current culture which will last at least for a couple decades with miyamoto at like age 70 he'll probably be around for at least 10 more years unless he has a health scare no way they go the marvel route they just won't let that happen that's their whole dna yeah and i think one movie a year is enough to a be hopefully contributive to the bottom line

but also enough to keep fans engaged and keep them either buying new games that you release in sequence or in conjunction with a movie or as the parks continue to grow as they start to add more parks throughout the world um one movie a year should hopefully incentivize yeah when you've got one movie and five good games that come out on the switch every year that's enough to get people to go to the parks i'd say yeah we don't need to go through the whole litigate the whole bull case there's also the upgraded hardware stuff that people can go look at and read about themselves everyone has their own take on that but i think fingers crossed i don't expect them to happen this to happen but i would love for them to line up things really nicely with game releases along

with other content and ip they're doing because i believe disney does this and it's not obviously not like on the same day releasing something but say let's just use a character they do a spin-off with donkey kong that seems like people really love that donkey kong world or whatever it was called uh in the in the movie they do a spin-off donkey kong movie but at the same around the same time they release that they also release a donkey kong game or donkey kong focus game whatever you want to call it and you could probably see some really nice flywheels going there where you got some new fans for donkey kong you can buy the game they already have a switch and at the same time you have a donkey kong theme ride themed ride at your theme park which would just be fantastic but

But I would set my expectations low that they're going to optimize like that. They don't, look, sometimes they don't care too much about shareholders. And you just got to live with it with Nintendo. They focus on, and this might sound cheesy, making magical family content. That's their number one priority. And with Zelda, obviously, and other stuff, it's more for adults. But that's their number one priority. yeah it might make a few billion in profits but that's their that's just the the outcome that's

not their main focus all right let's uh we got a lot of stuff to talk about today so maybe dive through some of the real estate data um sure yeah i'm all i'm all over that this always seems to get controversial feedback um and it's always a nice nice video we can splice and uh hopefully get some clickbait in there. But anyway, Zillow updated homes data came out. I can't go through all the data because it's basically just this enormous spreadsheet, but it's got all the major metropolitan markets and the average home price changes basically month over month, year to date, down from peak and year over year. Year over year, this kind of surprised me. Very few markets are actually down relative to last year.

So you can see there, Miami is up 11%. The only ones that are really down anything sizable are San Francisco and, hey, Seattle's getting there. For anyone that doesn't know, Seattle home prices were up even more than San Francisco over like a 15-year period. So, yeah, we've had some painful years. and i think it's not yeah we might be the anomaly and austin too well yeah they kind of were the

same bubbly stuff there austin seattle sacramento and san francisco were the big ones that were down the rest of them grew home the average home price actually grew year over year and so the reason i say this is surprising to me is because every month we get new data that shows how, I don't know, unaffordable homes are today. Redfin just recently released a report, says mortgage applications are down 35% from a year earlier. Google searches for homes for sale were down 20% from a year earlier. Listings are down significantly as well. And maybe that's the reason. They've got a good quote here. It says, elevated mortgage rates are perhaps an even bigger deterrent for would-be sellers than for would-be buyers. Giving up a 3% mortgage rate for one in

the 6% range is a tough pill to swallow. And they go on and basically say, it's really hard to buy a home if people aren't willing to sell it so if maybe that how long can that last who knows i'd be very surprised if that continued like people have to sell i don't know people have to move for logistical reasons eventually yeah and i think what you have a note here i'm going to just share this quote because it's kind of what on my maybe evolving take on the housing market which again, I'm a total spectator here, no industry expert, but for modest proposal, the popular Twitter account on Fintwit said, not saying housing prices are not going to come down, but everyone should note that nominal GDP is up about 24% over the same time, which I think he's

referencing pre-pandemic. So maybe if housing prices stay flat or even grow a little bit, but inflation is still hot, then you're actually not, it's actually housing prices on a real basis are going down. So that can be painful, I think, for people who aren't seeing their wages rise as fast as keeping up with inflation. But I wonder what, say we've seen inflation come down a bit right? In recent months. And my next thought is, if housing prices don't come down and they just get inflated away, does that mean inflation is going to be a little bit more durable? It seems like it's all interconnected. If you're trying to get what I mean here, where is it possible for inflation to go down if housing prices don't go down?

but if they don't go down then they're just going to get inflated away and then they're technically going to go down on a real basis so it feels like the problem is going to solve itself unless we have a huge credit crisis or something like that but also might be talking out of my ass there yeah every time I see new data it always makes me well I keep thinking make it make sense

because you've got a huge disconnect between willing buyers and the current prices, which obviously, I mean, they can't be sustained. There has to be some sort of convergence over time or else the economy is going to have issues because if people are spending 50% of their income every month on their mortgage, there's less to spend elsewhere. But then on the other side of things, you'd think, I mean, that Redfin article brings up a good point, which is if I'm a seller and I've been paying down my mortgage for the last 20 years at 3% and I've refinanced it on the way down, I don't feel very encouraged to move and acquire a new mortgage at 6%. So it's probably a lot of people just waiting.

And that's why listings are down like 20% year over year. No one wants to list their home and sell and then go have to buy a new one so maybe it's just less movement over time yeah and i want to talk about this another time but both our families are in that situation right we got parents that are kind of near the end of the mortgage and they're kind of like you know in that phase where they potentially could be looking to since they all their kids that believe uh generally in like their 20s and kind of out of the house and stuff like that the i don't know like they maybe maybe they yeah maybe they like to move but it's what do they do they're a little bit stuck i'd love to explore another topic on a different episode where we don't have as much

news news on what happens when all this home equity that the people who bought in the 70s 80s and 90s have built up get passed down to the other generations and how that shakes out throughout the housing market because it's one gonna have a lot more wealth for some of these younger people but i wonder what they're gonna do with it are they gonna sit on it are they gonna run it out what's the plan but i think we should talk about that another day anything else on housing before i want to talk taiwan semiconductor buffett in japan slash asia and apple now go for it do you want to start with the hbo max name change because i find this absolutely hilarious what's your take on the hbo max change to max well yeah just to give some context the hbo max is

They are merging the Paramount Plus and HBO Max brands, I believe, and converting it into Max. Here's kind of the irony in it. The last Succession episode, there was that time they were trying to release a statement, and everyone on the board and all the kids were like, well, I just think my name should be on it. I think it's important that I'm mentioned in there. And that's what it feels like Paramount Plus is here. Everyone resonates HBO with – HBO Max, not Paramount Plus. You said Paramount Plus. I think you meant Max.

No, well, they're merging the brands, right? Discovery Plus. Discovery Plus. Sorry, not Paramount. Discovery Plus. It's confusing. There's too many services. Yeah. Everyone resonates or probably thinks HBO quality production. Discovery Plus, most people probably don't know what it is, but I guarantee someone at Discovery is like, well, you can't just forget about us and lump us into HBO. I think it's important that we're a part of it or it's a neutral name. And that's essentially what you've got.

is you instead of going with high quality production everyone knows i mean hbo is synonymous with that they're picking a half and half name which is the stupidest way to go oh yeah they're mismanaged i i look again i'm sure they got a lot of smart people over there but they are dropping the ball so hard it's not it doesn't seem that difficult to manage hbo because such a good asset i feel like all you have to do because one their app is terrible it's so slow and the ui can't find stuff sometimes i'm like how do i find succession on here i search it doesn't even show up like what is going on i want to watch your number one show um so just let's get the tech just copy netflix come on but maybe that's impossible um either way get as close as

possible as you can do it too let's just separate the two apps you have hbo great brand very different people like you know a small portion of the population really likes it and they're willing to pay a good amount of money they'd probably pay 15 to 20 bucks a month forever especially if they keep up there and they'll have great margins because they don't have to produce that many shows they really just do one big one at a time and compared to you know an amazon prime or a Netflix who just has way higher content spend. And then just separate it out to the Discovery Plus one or whatever you want to call it

for kind of reality TV nature stuff, but then just offer a bundle, right? Or I would say just make it cleaner, add Discovery Plus's content to HBO. And if people want- No, I don't think that would work. I think the reason they're doing this, the reason they're pairing this

is because just Discovery Plus doesn't make sense on its own. It's not economically viable. That's fair. That could be the big issue here. I think what would be tough by putting Discovery content, which is just reality TV, I don't want to call it garbage, but reality TV, pretty laid back, casual watching of these shows like not, I don't think they have the Kardashians, but stuff like that, right?

I do not think that would be very beneficial to HBO's brand if it was within the HBO app. I just don't, if that's some of the stuff you're scrolling along through there, it just, over time, I would just be worried about that as a long-term risk because I think Netflix has been so successful regardless of this, but I think they did make a mistake by not separating out somehow their premium stuff. because they do make some stuff that's just as high quality as HBO. They don't have the same hit rate, but I really, and maybe this doesn't matter, but I get a little bit more hesitant starting a Netflix show

that's supposed to be like high quality drama or something like that compared to an HBO show. I trust them much more. And I think that's the only advantage HBO has. I do not want them to squander that or I wouldn't want, I would be so worried about it. That would be my biggest worry is squandering that as a company.

I mean, but it's worked, right? For Netflix. It doesn't matter. People say, oh, the quality's not there. The quality's not there. It's not HBO. That works for them. It works for them. It works for them. I don't know if it works for HBO Max. But people still subscribe to Netflix because A, they might get a quality show once every two months or something quality every two months. And there's that long tail of stuff that maybe it resonates with one audience. I don't think there's any harm in having like a – maybe treat it like Disney Plus where you have – Disney Plus has like that basically tabs where you could lock into Discovery or whatever their micro brands are. you could just put a Discovery Plus tab within the HBO segment and then it's not that big of a deal

maybe we solved it yeah where they have Max or whatever it's called and then within it you just can go to either HBO or

Discovery shows or however they want to divide it up to the different Discovery properties it seems like maybe it's not going to be as big

of a deal but I just don't think copying Netflix is going to work at all I don't think having separate

apps is I think that strategy would just suck you gotta if you are not if you have a subscale streaming platform

it's too costly to run it's just not gonna work you gotta you gotta make one one app

that's really valuable to customers and has enough users cause I mean maybe I'm the only one but I segment it as

how many apps do i pay for what apps can i get rid of so i don't know consolidate them i don't know i mean they are consolidating them but don't do it under the max brand um all right i don't whatever we can talk it's i maybe maybe it's impossible maybe there's just no way for them to get out of this without just having hbo being really subscale really maybe this is why it's such an advantage to just be the pure play streaming provider where you're starting from scratch and you're not having to please two different teams and having to basically retrofit linear content for the streaming market maybe maybe all right let's talk about some of these other ones okay uh buffett likes japan why don't okay let's do the shame he has on nintendo

yeah he hey he likes it's saying it's disney but i don't think i don't think he if he would have bought it he would have bought it already um okay this is from walter bloomberg trustworthy source no walter's trusty trustworthy great service on fintwit here's the headline buffett says apple incorporated berkshire's largest stock investment is a wonderful company run by a great CEO oh okay but before that the other one was they sold Taiwan Semiconductor because of geopolitical risk right now I I try to tweet out kind of because I get confused about that because I think the companies are so intertwined and maybe he was just trying to save face or you know sometimes he just is like he doesn't want to say look I just sold it um but I get confused on why

there's geopolitical risk for Taiwan Semiconductor, but not with Apple and how that's not a bigger deal for them. And I want to hit that. But first, let me show you a nice chart for the listeners on stratosphere from Taiwan Semiconductor. This can maybe hit on a general topic as well. Let's load it up. And it is conversion of operating income to free cash flow. So here's a nice, and look, if you look on here, you can do, this is some of the great charting tools we have lined up for any of the listeners, operating income versus free cashflow for Taiwan Semiconductor Manufacturing since the year 2000. So you can chart it both really easily and you can go back really far.

And yeah, you can do a lot with all the other tools on there. They have KPIs with this company as well, which I thought was cool to look at. But the question I have is, and this is maybe what I'm hitting at where Buffett might not of like this business as well as other ones because he does like when companies turn earnings into cashflow. I think I'm saying it correctly on here. Every year since 2008, yeah, they have generated less in free cashflow than operating income. So they're perpetually reinvesting. And there's just not that much available to send back out to the shareholders, even though this revenue base on this company is just ballooning. So I'm curious your thoughts on that, and then maybe we can talk the geopolitical stuff, which, as we know, we're the key geopolitical strategists here.

But maybe we can share some personal investing perspective there. Well, it is still a lot of cash flow. I will say that. It's still $20 billion and still growing. I guess in terms of them versus Apple obviously there's geopolitical risk with Apple but I would say

less so I mean it would obviously slow them and be a huge hindrance my argument is the same my argument is they have the same Taiwan is Taiwan though yeah but look if they go

it's like if what's the thing if i go we all go isn't that what it's like i think that's from elf like that's that guy from elf saying if i go we all go i think that's that's apple goes down with them and it's not you know the brand survives clearly but it's not yeah it would suck obviously for probably the whole world but yeah which is why i'm guessing it won't happen so i agree but i think it would be a slow return to normal for apple probably a very slow return but i think the world would adapt somehow outside of taiwan um it might be the taiwan semi one they're already building in america and europe

that's my question it's like they're gonna get a lot of manufacturing capacity and this is my argument because a lot of people are on the side of you and apple or ed buffett It seems like where they think TSMC is higher. And my thing is, they're already investing so much in the United States and Europe, right? Or maybe even Korea and stuff like that. Japan, places that aren't as susceptible to invasion. Yeah, it's a lot less efficient because Taiwan is just the best place to manufacture chips in the world. But that's, I think, given how important this industry is to the global economy,

If push comes to shove The governments are just going to give them money Because they're the only ones That can do the cutting edge Right now And yeah it'll be more expensive In the United States But they're going to make it

They're not going to let Nvidia go to zero They're not going to let Apple go to zero They're not going to let all big tech Just collapse their growth rates They're going to try to fix this I don't think it's purely a matter of investment Why so? Maybe you can invest to build out manufacturing capacity or capability that Taiwan has, but it would take years, right? You think it's purely

just the dollars, they don't have enough dollars to replicate it or- No, it's going to be- The systems, the processes. Yeah. Why can't the people move here if they get invaded? Do you think the Department of Defense doesn't have a contingency plan with with a bunch of 747s to get the engineers and the ASML machines with some F-18s going across the Pacific Ocean. So they'll get there, but they don't. I think the engineers are probably a big part of it. After reading that chip war book.

And they're going to leave. I don't understand. I mean, maybe China could force them. I guess we're going to ask weird rabbit holes here. but it's not like, yeah, it'll be less efficient in Arizona, but so what?

So, so what, in terms of like the business, that's the pitch for me and, and Apple, I guess. Yeah. So their costs are going to Apple's costs are going to go up because TSMC is

not going to, they're going to have margin because even if it's subsidized costs, I think getting everyone, getting all the engineers to America and restarting your footprint is probably pretty costly, too. Yeah, of course.

It's unsolvable. Who knows? I mean, it's a big who knows. I guess, I don't know. I just think Apple... I think Apple has the same risk because think about they would get banned from China, right? China would.

I honestly think Apple might have more risk. Apple has $100 billion in cash flow every year that it pays out to its shareholders. Yeah, well, that cash flow would turn to, the current cost basis would turn negative if

they have a lot of these. Taiwan, TSMC, throughout that time, let's say the next five years are a very risky period. Nothing changes, but it's the same sort of tension-filled relationships. Narratives, yeah. Narratives and stocking, yeah. At least throughout that time.

all the cash Apple generates is going to get paid back to its shareholders. Yeah. TSMCs is going to probably get plowed back into either. They have a, they have a,

to yield right now is 2.6% dividend. Yes, it's not that far off from Apple. Apple probably has, what, 4%

if you combine buybacks and dividends? Yeah, don't know exactly right now, maybe 5%. I don't have the calculation in front of me. I don't know.

I just think they're the same company. Yeah, let's hit another topic before we go on. But I look at the earnings multiples. And yeah, maybe Apple's a better brand. Buffett loves that. Cash flow multiples aren't that far off from each other. Yeah, that's true. That's fair.

That's fair. Yeah. And there's probably a big chunk of maintenance CapEx that's required there. Not just growth CapEx. Yeah. Yeah. let's talk Buffett in Japan

okay let's see what did he say I think he's always so vague and there's some comments here or do you have any comments I thought I saw some pop up someone asked about Yellen's speech from the other day I didn't really say

anything and to be honest I watch very little of those yeah I didn't watch it either I think those speeches like Yellen, Powell, and stuff lead me to be more confused than getting any insights. But here, I got it up here. Here's what Buffett said. And they always have the same picture of him going like, you know that one where he's going like this? He's talking. They always have

that still shot. Here's what he said about Japan. At the moment, we only own the five trading companies. There's always a few I'm thinking about. And he's considering increasing his stock investments in japan i think there's been a lot of interesting dynamics in that country one you know their demographics aren't the best but it seems like they're getting a little bit more shareholder friendly yeah and they're cheap and he raises the he raises the idea that interest rates were so low and some of these companies were had earnings yields of 14 or 15 percent so you got zero interest rates and 14 or 15% earnings yields with potentially management teams that are more shareholder friendly and will grow. And I think he said dividends since they

started investing in those companies have grown 70% in total. So yeah, I mean, it makes reasonable sense, but I guess having owned a Japanese company for a long time, There are certainly the pitfalls. There is a lot of earnings, multiple compression, although Nintendo is a different case. And here's also what he said about the companies and why he likes them. He says, here's the direct quote. We feel that these five companies are a cross-section of not only Japan, but of the world. They are really so much similar to Berkshire.

They own a lot of different things. So I think he's just saying, look, this is a perfect way. And it's not, I don't think it's harder than this. Japanese market is cheap. So these companies are a cross-section of the Japanese market. I'm going to take a chunk of that and bet that Japan is cheap. They're going to earn. That's that.

Yeah, I think it is probably that simple. And these are, what are the businesses again? They're basically just like conglomerates. Yeah, I think you'll recognize like Mitsubishi. I believe they run similar-ish to Berkshire, but not obviously the same track record of phenomenal performance where they own a lot of stakes and stuff and they're just trading companies and they're diversified conglomerates in a way. Although any experts on those, I know I'm probably missing something.

So don't complain. All right. And before we close out, I want to hit this one. Would you download this app? I wonder if you saw this. Someone was tweeting out things that A16Z has invested in and they get a little bit, they're not afraid of investing in some strange stuff, some strange social, digital social stuff.

Curious if you saw this. it's in A16's new investment portfolio. It's called New New, which is the cringiest name I've ever seen. A project described by the BBC as, quote, the app that lets you pay to control another person's life. Indeed, the app invites you to, quote, sign up to become a creator

and have people pay to vote and bid on your life choices. Now, Ryan, how much do you want to control the investment decisions of someone and watch them do the... I would just absolutely love to find the stodgiest deep value guy that only buys stuff with PEs in the single digits

and loves cyclicals and just force them to buy something at 30 times sales. Obviously, if you did like it, that's pretty cruel, but I think that I would never actually want to do that to someone, but that just seems so comical to me.

But this app, these things that ASICs continue to invest in seem batshit insane. Uh, yeah, I'm sure it seems a little dystopian. It's basically that movie. It's like the plot of that movie. I can't remember what it's called. The black one. Is it a black mirror episode maybe? Or do you think it's something else? No, it's something else. But yeah, maybe that's our new, uh, our new business idea. New, new for finance. Yeah. You can force people to buy. You can force, uh, force us to go log Bitcoin, but you have to pay us for it. Would you ever

In your most down bad days Would you ever sign up for the new new And let people just control your life decisions No no no no No never Do we need to like Do we need to have an intervention With A16Z as an investing industry

Just say like guys I know you're just raking in fees from these pension funds But let's get real here Let's just There needs to be an intervention I think They're hanging out with MBS in saudi i mean come on guys let's let's get a little let's rate it in let's rate it in also it seems some of that web3 talk from a year ago has not aged too well yeah did you see their slides

where they just basically highlighted every non-web3 company as like a success and then talked about how it's good for web3 it's like just the most confusing i don't know oh i i can't uh Yeah. I did not see that. Although what's crushing to me is, and I should check this. I believe they are a huge investor in Substack. So all these are going to fail and then Substack is just going to mint them a billion dollars. They're going to make out like bandits again. All right. I think that's going to do it for this episode. This was a really fun one. Thank you for the people in the comments. Come back Thursdays. I think we're going to go a little later because of our schedules, but TBD, we'll figure it out. And it doesn't matter really,

because if you don't join us live, you can watch the replays on YouTube. You can listen to the shows on Spotify, Apple, or wherever you get your podcasts every Sunday. Give us a review on either Apple or Spotify. A positive one would be greatly appreciated. And let's see, disclosure, we are not financial advisors.

Anything we say on the show is not formal advice or recommendation. We are general partners in our capital and clients may hold securities discussed in this podcast. Make sure to check out Stratosphere. Use our code CCM. Great partners. We know a lot of listeners have been trying them out.

Thank you for tuning in everyone. We'll see you next week.