Chit Chat Stocks - Investing Power Hour #62: Apple Vision Pro; Binance & Coinbase In the Doghouse

Episode Date: June 11, 2023

The CCM Investing Power Hour is a live-streamed show every Thursday. 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/ ****************************** 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. This is the Investing Power Hour, number 62 on chit-chat money. On these episodes, me, Brett Schaefer, and Ryan Henderson talk about anything within the finance world.

We do it every week. It goes live on Thursdays, typically at about 9.30 Pacific time, 12.30 Eastern Time. Again, that is on Thursdays. It goes live on YouTube. Ryan, how are we feeling today? What topics have you brought to the table? I can see you're very crypto heavy as this seemed to be a crazy week in, well, can we define it a securities industry? I guess that's going to be the big question. Yeah. I mean, I've got a lot of crypto stuff to talk about today, because I think it's a really important time for the industry as a whole. There was some big lawsuits from the SEC. So it seems like this is finally coming to, I don't know. It's a pivotal moment, I think, when they have to face off in court and determine

whether or not a lot of these cryptocurrencies are considered securities. So I'll go through kind of what the allegations are and some of the uh some of the commentary from other people around it the other stuff i find interesting um apple with the uh the ski masks potentially maybe more than the ski mask maybe i gotta yep that's my topic defining the future of computing who knows um we got a whole bunch of stuff messy i don't know can we talk about that i know that's sports Well, the Apple gave us a reason to talk about it. So I guess we could talk about that within the Apple segment, but we do not typically cover the business of sports, but this was an insane week all around for the business

of sports. So I don't have, I feel like we went to tech and streaming. I feel like we wouldn't do it justice, but maybe we can talk about sports rights versus Apple's vision, you know, unironically there for the future of their hardware devices. yeah what else was there um i talked about there was a hindenburg short report that got swept under the rug no one cares about that yeah i have that loaded up i have not read about it yet but again those are always spicy i have uh as my second topic oh the the viral charts that were going around about the manufacturing spending boom in the united states so i kind

wanted to talk about that and any investing applications whether yeah anything around anything around that all right should i kick things off go right ahead okay so as a lot of people may have heard this week the sec sued binance binance is the leading crypto exchange i guess i don't know if i'm allowed to use the word exchange um they're the leading crypto exchange and they also sued coinbase so there's some different allegations for binance specifically there's like some uh some around basically trying to evade the law in the u.s they may have taken customer funds and bought a yacht too but that's only a small it is genuinely it's it's a small person it's a small part of this just 11 million just 11 million dollars for a nice little

yacht well that's that's not the number one priority here it is so anyway there are some add-ons i guess to that lawsuit i believe there's 13 allegation uh yeah sec files 13 charges against binance and founder cz changpeng sao um but then they also sued coinbase the crux of both of these lawsuits are that the SEC thinks cryptos should be considered securities. Not all cryptos, but a number of cryptos that are available to be traded on both Coinbase and Binance's platforms. And so I guess let's get into it. Where's the best place to start? I mean, let's maybe talk about how Binance operates. Binance apparently was told they were restricted. They reportedly restricted trading for US investors, but actually they were just apparently

subverting them to different platforms that they still controlled. So there was one that was like Binance.us, which was, I mean, it was kind of this complicated structure, but essentially they had the ability to claim the customer assets as their own and use them, which apparently was used to buy a yacht. So there's those concerns. And by the way, that sounds an awful lot like FTX, I'm just saying in terms of the legal structure. That's not the end of the world. What is the main concern here is that they are operating as a securities exchange, and they don't have the license to be a securities exchange. And so that's kind of really the crux of the whole debate. Are Solano and not Bitcoin or Ethereum – I think those are deemed not securities.

Solano, I think it's Solano. Solano, maybe. There's too many. They all have strange names. Yeah, there's a number of different ones that they call out in the different lawsuits. What about Doge? Doge would not be considered one, I believe. And I'll get into it.

Let's start with this. How does the U.S. define a security? Okay. There was a 1946 case called something versus Howie where they determined basically what is considered a security. And so now they have something called the Howey test. And so the technical definition and the way they sort of test what is and isn't a security is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others makes something a security. I know that's a very, it makes sense when it's a business, but magic beans, I think, you know, maybe they can evade this just because they're strictly magic beans. Well, that's where it kind of becomes the debate, right? And so Dogecoin, it is explicitly stated that it's magic beans.

So, okay, when the Dogecoin creator goes on Twitter and says, this is a joke, and it's not to be taken serious, that is basically calling it not a security. Okay, so Dogecoin's off the hook. However, you look at something like Solana, and Matt Levine wrote a great piece on this, and he kind of broke down Solana independently. Solana is – there's people behind it. So there is a company behind it. It's a common enterprise. Yeah. So this is how Solana themselves kind of defines the common enterprise, if you want to call it that.

So it says, Solana Labs stated publicly that it would pool the proceeds from its private and public Solana sales, so SOL, in omnibus crypto asset wallets that it controlled. And that it would use those proceeds to fund the development, operations, and marketing efforts with respect to the Solana blockchain in order to attract more users to that blockchain, potentially increasing the demand for it and therefore the value of Solana itself, given the need for those who wish to interact with the Solana blockchain to tender SOL. Well, that is to say they are issuing, I don't know, you can't call it a stock, but they are issuing a security to raise money to have people in their organization develop on behalf of the blockchain. So under the kind of the, I guess, checklist of the Howey test, there's four things to look at. Did investors invest money in them? by the way i recommend reading the money stuff matt levine he does wonderful writing on this did investors invest money yes sol was sold for money to raise funding to build salon array i don't think that's debatable was there a common enterprise yes solana is an enterprise

it is a blockchain ecosystem and it tries to attract users third one and once again i am kind of regurgitating Matt Levine's stuff. So keep in mind, go ahead, read that, check it out. He's the primary source. At this point, everyone's heard of Matt Levine. He's probably got a million subscribers, but yes, it is more comprehensive to get the details. Okay. Third one, is there an expectation of profits? Now, this is maybe where Dogecoin doesn't pass the test, right? They've said, like, don't consider this an expectation for profits. With Solana, people bought SOL hoping that it would go up, and it did. And there was, in Solana's public statements, reason to believe that it could, right?

If you buy Solana today, they're going to invest in and develop the blockchain further, and more people would buy. So here's what I think is funny when they talk about developing the blockchain and stuff like that. You know, and when they made this in 1946, they said reasonable expectation of profits to be derived from the efforts of others. They, in fact, and I think everyone thinks of this, they think of, say, for example, General Motors making cars, selling them, earning a profit, distributing it back to the shareholders. In this case, the expectation of profits derived by others from the efforts of others is really – and this comes down to why we're in the crypto skeptic camp. And by definition, the only way to make money is to make a profit off of the effort of others to pump the token for you, right? That's the – so, I mean, it's completely different. it might be like even more on or not even more it might be strictly illegal because they're all

by definition pump and dump schemes but it is different because there actually isn't a enterprise that you're investing in you're investing in a magic bean no but the in i mean in this case there is an enterprise there are a lot of developers there's an organization i'm sure Do they have an office that- I know they have a business, like some of these people have businesses, but again, the reason you make money off of the token, not because there's profits, they make money since the price goes up. They're not selling a product. From what I understand, they're not selling a product, they're selling the token, which maybe one day builds out applications that are useful.

But here's the fourth part of the test. And so every, you know, I'll go through one more time. investors invest money yes obviously was there a common enterprise yes solana is an enterprise is there an expectation of profits i think you can easily say yes do the profits come from the efforts of others others yes solano went up because the money you put in they invested it into uh developers who built out the solana they made it a very they made it a very impressive twitter thread that's why yeah well i mean that's kind of the interesting stuff is you get like vcs who just bought a bunch and then they uh you know write a white paper and then yeah don't listen to that all in pot about solana trust me don't do not do not listen to that that will not expose them as

charlatans it is yeah can you retroactively go back and uh file suit against people for securities manipulation if it wasn't a security at the time interesting that is a loophole ryan well um i'm not a lawyer so i wouldn't be surprised if they were talking about salon a little less in today's world um okay so i get anyways when it's laid out like this i think i look at it and I think, okay, it has to be a security, right? They're raising it to build something out. If people say coffee beans aren't a security, it's a commodity. Right.

That's true. But Starbucks, the company that's building out or using the commodity, it's kind of like Solana in this case. I don't know if this is an apples to apples comparison. That is a security and it should be regulated as such. So here's kind of the reason I think this is important. And Matt Levine lays out five outcomes. He says, first of all, here's one outcome.

The SEC wins and crypto is more or less banned in the U.S., except for those that aren't considered securities. Example, Doge. Even Bitcoin. I think Ethereum. Yes, but example, Dogecoin. Second one, SEC wins and crypto flourishes abroad and the U.S. misses it. it's another option i guess um a third one and that's i would say the second option is probably the one that uh brian armstrong is the biggest kind of proponent of you know he he wants the

development to happen here in the us he's threatened to leave the us um which i don't it sounds like the us would be for that so it kind of feels like an empty threat but yeah that's that's what he's concerned about is like oh you know this is going to happen abroad and we're we're going to miss out. The third one, and this is maybe the one I find the most interesting. The SEC wins and then somebody, some combination of existing crypto firms, new crypto entrants, and legacy financial services firms finds a path forward for crypto to be traded in the US in compliance with US securities laws. Everyone buckles down and says, okay, Solana is going to start filing annual reports with audited financial statements.

Of what? Of what? Of what? The pump and dumps? Of what? There's no product. Sorry. The product is the token, right? So maybe what they are, that's where it would get super complicated, right? It's hard for these kind of organizations or enterprises to determine what's theirs versus what's other people on the blockchain, like what's their work versus what's just other existing people's work that aren't a part of the organization. You know what I mean? Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad. I get it.

I'm Siyaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll. So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. So, that's an interesting thing because it's like,

okay, investing in Solana, there's nothing fundamentally wrong with it if you believe it's the future. But because there aren't audited financial statements, there aren't annual reports, investors are not cognizant of all the risks associated with it other than some random white paper that some VC wrote or the creators who are obviously financially incentivized to sell this thing, what they wrote. So it's, you need kind of that audited financial report to, and that's the point, that's what the SEC is filing for, is to make sure the investors in America are aware of the risks, which I don't think that's there yet. And so- Yeah, nothing wrong with that either. Especially with stocks, anyone that doesn't really follow

maybe stocks closely or read sec filings when you read these things it's not like the risks are something that you look at and go oh my god there's risks i don't invest it's i look at these risks they're almost always lawyer boilerplate risks like if there are natural disasters our insurance company could be blank and and stuff like that it's just laying that out there for people to understand by the letter of the law, by whatever the SEC requires to make sure you are not trying to be biased to, you know, like, for example, it's the difference between how a company might hype themselves up on a conference call versus what is actually put in their 10Q and 10K, their annual report and their quarterly filing.

Yeah, I think it's very similar, right? Solana goes to, you know, development conferences and talks about all this stuff without having to really have anything audited or anything, I guess, legally binding to it. But it's interesting to think about this from kind of the SEC's point of view, which is like why it reminds me of the early 1900s, when a lot of these companies were not required to publish financial statements, they could put out BS numbers and people would speculate around them. And I think if you're looking back on that and you say, well, the introduction of the SEC was a pretty damn good thing because it helped people get relevant information and understand the actual risks. I think it's very similar to that. Yeah. Three things that drove the American

economy that were so simple, but just one, 30-year mortgage fixed rate, two, FDIC insurance, three, SEC. I mean, those are game changers and they all happened really after, I believe all three were after the Great Depression or during, after the, yeah, the depression of the 1930s. So things had to get really bad before we decided to do that. But before that, yeah, 1900s, 1910s, 1920s, it was the wild wild west of securities of stocks of bonds or bonds whatever but specifically of stocks these bucket shops pump and dumps uh what do they call them wash sales i forgot all the terms basically a lot of manipulation that the exact same things are happening on with these tokens what they say with binance like oh they were specifically using their own entities to

to do wash sales to pump up stuff or say that there was more trading than there actually was. Is that, am I remembering that correctly, Ryan? Do you remember seeing that? It's a long, it's a big lawsuit. And to be honest, we're not going to be reading all these documents. I will let other people do that for me, but I believe that was there. Yeah, I guess, let me go through the rest of the outcomes.

Number four, potentially here, the SEC loses and the courts just basically say these aren't securities. Things go on as normal. People can speculate in these assets, if you want to call them that, but I don't think you can call them assets. I guess you don't know what to call them. Tokens. Coins. That's the whole, that's the business models to make sure they're on the fight.

Yeah, exactly. The fifth one, Congress or a future SEC steps in to change the rules saying, well, sure, all this stuff is technically illegal under existing law, but it's crazy to stifle innovation like this. So we will make new rules to allow for regulated trading of crypto in the U S maybe there's something along those lines where they basically create a new structure for these to be regulated. It doesn't, you know, maybe it doesn't fit perfectly into the previous definition of a security because I mean, we've talked about, it's kind of, if you were Solana and you were trying to write an annual

report it's kind of bigger than just the developers you pay or like you know whoever's collecting the

money from the sale of Solana tokens like it's ecosystems larger than just that so it's kind of hard to file

an annual report or it's also financial statements you know what I mean yeah it's also larger like you

said it's more complicated but it's also smaller because again it's In the end, all this stuff is nothing. There's no product, I suppose. Yeah.

So I kind of go, I don't really care what's going to happen. I think it's a giant waste of time. But I still think the end game is that given that these provide no true value besides the fact that you can buy them and sell them at a higher price at this point. Hey, I could be wrong. They could start developing something interesting. I still see no path to... I just see crypto withering and withering away as the price pumps and stuff. I mean, if you don't hit another all-time high in five years with some of this stuff, I see the demand or the enthusiasm just continuing to go away. I mean, how does it get

more exciting than Bitcoin Miami 2021 or 2022, where there were so many people, there was so much money thrown around i mean can it get bigger than this they the enthusiasm again this is a whole nother topic but i i really don't care what the sec does it's gonna i feel like the end path here is either they succeed and actually create value and actually create a product which again hasn't happened or the end game is it's no matter what the sec does these things will be worthless yeah you can trade them kind of like gold whatever but there's still nothing value you know it's not providing any value to me so why should i care yeah and i mean i think the sec's goal here maybe it's to just kill crypto well they they need to protect investors i guess right that is their goal

right yeah and so defining the risks is obviously important if these entities are unable to do that then they shouldn't then americans shouldn't be able to um trade in them i think that's a fair that's the that's why the sec is in place now the kind of libertarian point of view is that everyone's their own uh everyone has their own responsibility to do what they want with their cash regardless of risks and live in the real world uh just yeah people need to live in the real world could you it'd be nice as casinos and not in the i'm not i'm actually i'm not no i mean you're right if it isn't securities isn't it speculation potentially gambling right it's kind of one or the other partner they should do it yeah they should have a partnership

with doordash where they send you free drinks if you're on the on the site um no it's actually a point where it could be regulated as a casino or like a gambling thing here's just i don't know it's interesting to see how this plays out because i i am curious like whether these things are deemed legal if you look at it on the howie test based on kind of what i'm reading about salon it seems like these are securities yeah here's my last question for you are you buying the i stand with crypto nft oh uh no no and it is funny like what do you so i kind of like i don't know in my head i maybe make fun of brian armstrong a little bit for the way he reacts to some of these cases well the strategies might be a bit unique let's put it

that way yeah but then i start to think like okay if i were running coinbase what else would i do The only thing you can possibly do is try to get people to rally around your cause. The other thing that I should mention here is Coinbase has said on a number of occasions that they tried to go through the process of filing as a securities exchange. And the SEC was apparently very inaccessible, not very communicative. According to Coinbase, they did a press release where someone wrote a letter that basically said that. Let me see. There's actually a quote from a Coinbase press release that I have. I should be able to find here.

Come on, where are you at? Yeah. So in a March blog post, March 2023, so what, four months ago, three months ago, Coinbase says, the bottom line remains, Coinbase does not list securities or offer products to our customers that are securities. Then in a March interview between Yahoo Finance and Coinbase's chief policy officer, they said, when we ask specific questions to the SEC, how do we get to a path to registration? There's never an answer. so i'm sure that would be frustrating but at the same time if you're trying to register as an exchange security exchange then like what why are you trying to register if they're not securities i guess i know i know i mean i guess they i mean they're trapped they feel trapped and that makes

sense well you're trapped because you created these magic beans and you're doing something illegal and yeah here's what's funny i think is they basically admit they're doing something illegal and then coinbase goes in a blog post uh yeah we're doing something illegal but actually we're just going to go on as business as usual that's our plan great plan guys really great plan it's going to work out here's the thing let's put let's put it back to investing what is the thesis of buying coinbase stock today because this seems like why would you touch this thing i see it seems crazy well and then on top of everything else that you know they're losing money right now um it feels very dangerous to touch them

to touch the stock at all because i'm sure a lot of the trading that happens is not just bitcoin and ethereum and i'm pretty sure bitcoin and ethereum were not called out in this in these suits so right maybe they survive on just being a bitcoin ethereum exchange um it's also dumb it's so dumb it's but then they're basically just a commodities exchange right because that's the determination are these commodities or are these kind of so i don't know it's so tiring at this point can we just figure it out i'm not don't you get so tired of this stuff uh now let me grab a quote from binance's chief compliance officer um he wrote that is that is a job right there yes he wrote in a message to a colleague and this was because um uh cz directed binance

to conceal many of their high value u.s customers and they gave them continued access on uh binance dot com the binance cco or chief compliance officer said to a colleague we are operating as an effing unlicensed securities exchange in the usa bro so it's not it's not that they don't know it was probably that if they try to do this it kills their business like if they try to if they have to delist a whole bunch of the tokens traded on their platform Have these guys heard of Telegram? Come on, guys. Get some secure messages here. It is. And the SEC put that as like the photo on the lawsuit, like that quote. And I'm sure he had a rough day at the company. You're supposed to be a crypto exchange. Your whole point is decentralized, untracking, or whatever the stuff is. I get confused every time.

It's easy. yeah you're going to use email you're not going to use telegram isn't that your brand come on we need some encrypted messages here guys i thought that was the whole point anonymized but keep going cz has said stuff uh that he's had like emails that said don't don't ever put anything in writing kind of thing which sounds like the kind of thing you'd say if you were running a perfectly legal entity i was gonna say yeah that's the things you say when you are not uh trafficking money for iran and north korea um but let's go to the next topic apple vision pro i think many people have heard of this but i'll go through the details uh first question though

i think maybe it's a fun one do you think this is a good a good name because like apple with everything they do i think this is a fantastic name yeah it's a good name all right it's a good name are you buying it no that's the question at the end let me go through the details of what it is first in case anyone didn't watch the announcement it's pretty easy to understand uh so after like years of research could have been a decade apple finally announced its mixed reality product um it is allows you to translate from augmented reality which for anyone that doesn't know that allows you to see the outside world as well with some screens kind of in front of your face and then it allows you to go to vr as well which closes you out fully from the outside

world it has multiple cameras a new spatial audio technology to kind of you know position virtually where someone is speaking a custom computer chip that they designed it has 12 cameras five sensors and screens that apparently look like 4k tvs for both your eyes so super advanced um it also has a lot of different futuristic tech that i think we'll see kind to come out when people get these products in 2024 for example that one of the features i saw was quote predicting what a user will do based on their eye movements i when i think i said that weird eye movement so where your eye is going predicting what you want to do and unlike the meta quest ones they don't have these controllers you control everything with your eyes hand motion

and what was the other one it's your eyes your hands like you swipe and you look at stuff i forgot what the other way to control it is there's three things though and it's not like i've never used it so camera yeah we don't know okay uh and they also say that they're reducing the motion sickness problem which i that's another worry i have there's two big worries i have one of them is that uh i don't know if that makes me confident in buying one the price as many people probably saw as it went a little bit viral is 3 500 now first yes you already tried to ask this would you buy one ryan what do you think uh no no no not well i mean the okay the the price is pretty hefty i'm not even buying the meta quest at like 200 or whatever it's discounted

at today so no i'm not gonna buy the vision pro and there's no telling i mean there's a bunch of people that are probably very passionate apple customers that'll maybe just like splurge all their money into whatever the next product is but the reason i think a lot of people were willing to pay up for things like the iphone was the utility and like the actual functionality and using it um it was very different really helps you clearly yeah i'm not sure it's like the the utility here is that clear like why would i need this in my life there i mean there's a lot of people that really i think needed an iphone they wanted an ongoing internet connection um didn't want the android for whatever reason chose the iphone

yada yada yada so that's more just a smartphone thing in general when we're talking about adoption of these mixed reality devices yeah i don't want to touch it no i'm not gonna buy it for 3500 okay okay all right all right that's an easy question now yeah yeah i think yeah there's no way i'm touching this thing first off it seems weird that they're like tracking your movements and stuff and predicting like how your your moods and stuff based on your eye movements and your blood pressure and stuff i don't need a company doing that to me it seems a bit invasive i gotta say but we're apple we're private whatever that's just my gripes i'm i'm a little indifferent about that part but the fact i mean it's just a lot of predicted yeah i don't know having them track my

mood and serve me ads i don't i don't particularly like that uh here's a better question though for an investing podcast will this product be successful i'm gonna lean actually towards yes i think i think they could sell a million a million of these things which is not much but that given the price point that gives them pretty good breathing room to again try to go further over the next decade yeah i don't want to have a steve ballmer moment where i'm like where i laugh it off and say no one's ever gonna buy this and then it's like some next generation of computing but it i've always had this problem that they look hilarious yeah i think that was my two problems are the motion sickness and then the other one is you look like a dunce

yeah like i i asked my friends like what would you if you just saw someone walking around with this thing on what would you think and they'd be like it'd be kind of hilarious to be honest to like watch somebody like like roaming around with this i don't think no one i don't think looking at stuff yeah but no one's roaming around with their souped up mac computer it's more of i think an at-home device that you're using privately here are the people though ryan that you're going up against and this was a viral tweet from some finch okay keep going keep going keep going if it's some at-home competing device how is it that much better than a mac yeah we'll see yeah that's that's the question how what are the improvements um on the mac yeah so we got a comment here what

about the meta quest pro uh that is around 1k pixels and i think was higher when it was first launched yeah i think from what i read is that apple's resolution is going to be better for your eyes which is a very important thing because unlike a tv which can be six to eight feet away this is going to be two inches away from your eyes so there has to be many the resolution has to be much much higher just because it's so much closer to your face um okay other thoughts it's hilarious to me that like i don't know meta spent all this money they've probably developed like a much more useful actual platform but no one cares they're just waiting for apple to launch something themselves like oh it's apple like i'll buy that yeah okay so you here's what has me confident

not confident but maybe leaning towards the side that this is going to be success is that the apple diehards are how do i say it they're diehards and they're a bit psychotic so So this is what Mads Capital, which is an anonymous account on here, he said, this is what you're going up against for the people that if you think this is going to be successful. And it was a Reddit post of saying basically my fiance and I, wait, that's an age gap right there. Okay, we don't need to discuss that. Regardless, our lover of all things Apple. We have all Mac, laptops, blah, blah, blah, iPhone since 2007. We're wanting to get married in an Apple store somewhere near us, closest being Chicago.

Does anyone know how much it would cost to rent out an entire Apple store for the entire weekend? We'd have the rehearsal, rehearsal dinner, and then wedding ceremony and wedding reception in the store. We were thinking a full three-course meal served by the geniuses themselves. These are the people that are going to be buying these things, Ryan. Meta doesn't have anywhere near this. I think that may be a one-off case. but no it's there i mean there's obviously a cult-like following for apple and its products there has been since cult-like cult cult-like maybe just straight up cult the

yeah that is the only reason i think apple can do it but it's just still like if it's just gimmicky if it's not like a like the iphone wasn't gimmicky at the start you know what i mean it was like people were using it on a regular basis first you're using it as a phone you're using it to get internet connection you're i mean i just don't see that happen i don't think there's a market here vr was like yeah talked about a lot 20 years ago yeah just wait five years from now the tech's gonna be so much better guys like it's not even about the tech like i just i don't want to walk around with one of these things on yeah here's years was interesting maybe from an apple investing perspective. And actually, a little teaser, we are interviewing someone who has

followed Apple for a long time as an investor, Anirban Mahanty from 7investing coming out in the next few weeks. I'm sure we're going to cover this. Here's what I guess would concern me as an investor is unless this goes mainstream, it's not going to be meaningful to Apple's bottom line. So I don't know how much, you know, how relevant it can be. I'm sure they probably spent $50 billion in R and D so far on this. What, like, where's the ROI? Did you see the video of when they like announced this at first, like Tim Cook was up on stage. He's like, next we have our vision pro and it like showed up and they're like, Whoa.

And then they're like, and the price is $3,500. dollars and i was like oh yeah to be honest that's how much computers cost in the 70s and 80s so i don't think it's a giant leap um i think we're just just giving the deflation of the industry people are not you know going to be a little bit shocked by that price but for a new tech i don't think that's a crazy price for something this advanced i mean it really does seem advanced the thing is like you mentioned ryan i think this is they're ugly and they're bulky and they're the they hurt your head and what like what value is it going to provide that's the that's the question i don't think there has has there been like what value is it going to provide like when

i said like meta is a joke on or excuse me meta quest is kind of a joke on twitter they're trying to sell these things for 200 bucks now some guy said have you played beat saber and i was like first off i thought that was a porn bot but i was like he's like it's the best game on there and i was like great it probably sucks i looked it up it's like this thing where you you know i'm doing virtual reality yeah they have it in those commercials um that's not value like the other video games are always already significantly better and you don't feel like you have to puke afterwards it's like it's like they're trying to force an addressable market like they are trying to for like will product market fit themselves more meta i would say and then apple just came

and kind of like walked right into their gold mine potentially one day that'll like because like meta is doing all this marketing like okay it just feels like such a waste but i don't know The, when I think about Apple products, it's always been kind of signaling, right? Like the phone looked pretty cool. Yeah. The watch isn't really that expensive. The watch looks cool. The AirPods kind of, you look cool potentially.

I don't think so. I think they, I think they made everyone think they look cool, but yeah. That's the point is it makes you feel like you look cool. Yeah. I don't think this is there or close. Like you said, I think it makes you look like a dunce. But if you're just doing this in private in your own little room, maybe, you know, maybe there's a use case there. I just think it's, you know, kind of not that big of a step up from what you get with a Mac.

Well, you can say, oh, well, it's immersive. Okay. It's so much like the voice tech. where they're like huge like it's it's it's exactly like the voice tech where everyone goes you can turn off uh lights with alexa and you go okay cool i save about one second and i go like that it's the value the value spread of uh like how much more useful it is has to be i think just has to be much higher than it seems like right now yeah what is it in order to replace an existing product you have to have a 10x a product 10x better or something that's like but that's the

same yeah no i just don't think this is that but smartphone was that and people talk about the apple watch or the ipad the ipad was more of an adjacent product to the smartphone at the time i believe they were on the same operating system until they separated it out the watch again i will say this time and time again it has some sort of health value that people might look at but strictly it is a fashion device that is out of all the apple products it's mainly just for like how it looks maybe we just sound like haters and maybe we're going to be the steve bombers of 2020 without the relevant or without any sort of the reputation to lose but i would love for someone to interview bomber on what he thinks on the vr stuff right now yeah that would

be funny uh here's yeah again totally could be right here's what's i think people in this industry or investors that kind of get caught up into this stuff what's the saying i'm going to use another cliche cliched saying again if you do the same thing over and over again and expect different results it is the definition of insanity insanity and i feel like this is kind of what's happened over the last two decades is people keep releasing vr products the tech is always revolutionary but no one does mainstream adoption because there's a core motion sickness problem and a core um self-esteem problem because you people don't like the way they look when they have them on yeah who knows you know maybe there's enough people that want to get married in apple stores

to buy these things maybe if every apple shareholder buys one there there you go you've got your address yeah yeah okay okay yeah we'll close yeah we'll go to some other exciting stuff well here's i want to caveat though as we go to another topic if anyone's going to win it will be apple if there's going to be a market it will apple will win but yeah let's do another one here's what's the manufacturer i want to talk manufacturing maybe let me let me share the screen here and talk about this because there was a very interesting chart actually multiple charts that were going out this week uh i'll describe them for everyone oops so if you look at just basically it's a chart either by fred actually yeah i'll use this one first it is total construction spending

indexed to the year two, I believe it'd be 2000. So they kind of have, you know, it's basically a dollar spending. I believe it's probably in the billions of dollars, either way, the exact numbers don't matter. Things were kind of chugging along and kind of coming out of the 08 crisis. There's a little bit of an uptick kind of coming out of the, I believe this is probably the 2014 to 2016 U.S. fracking and shale boom, there was an uptick. Then it kind of flatlined for a few years until late 2022, early 20, yeah, kind of mid to late 2022, total construction spending in the U.S. has skyrocketed. And if we look at an even deeper chart, it is almost all coming from manufacturing.

And then if we look at an even deeper chart of subset of manufacturing, almost all the growth is in computer, electronic, and electrical, which again, I believe is going to be mainly semiconductors. So, do you think, so far, it looks like the CHIPS Act has been a huge success in that the reshoring here, we kind of looked at, there's another article today from High One Semiconductor, I'll stop the sharing, that they are now going to double their investment, I believe, or actually maybe even more. Or yeah, they're increasing their investment in Arizona from $12 billion to $40 billion. It seems like this reshoring manufacturing boom, U.S., Mexico, is just, it's so far people, we've kind of been on this train, but other people have been way more enthusiastic about it. Seems like it's kind of, it's been completely right so far. Yeah. Long Autodesk. I hope, well, hopefully.

Yeah, we are, I should say. we are long on a desk but yeah that's there are probably a lot of i think software providers that in this space will will obviously benefit um engineering software construction software manufacturing software 100 yeah yeah good uh i guess remember when we were doing that engineering software month and the uh i think for every single one we were like future growth opportunity the new infrastructure bill or whatever. Maybe that's coming to fruition. It's the chips act.

It's coming. Yeah, it's interesting to see. And I think what's, again, we're no experts on China, but China used to subsidize a lot of this stuff. They would give a lot of government incentives for the manufacturing companies, whatever it would be. I don't know if it was tax breaks, direct money, whatever it is, they would use their government money

to make it cheaper versus other people to manufacture this stuff. And that's why it went there. So I think the fact that the US government is doing this now kind of you know trying to make it cheaper trying to get all the tax breaks is probably the reason why all these companies are committing so much uh you know manufacturing capex what do you think are the general are there are there any general investment implications besides engineering software and construction software is going to be a good hunting ground

in this decade maybe the contractors the public GC's yeah those feel like bad businesses though yeah somewhat maybe

I only know of one that I've looked at before and it does okay but i feel like this will be a there'll be a big demand for immigration um to try to get people who want to you know work either from mexico and it's really not just mexico uh all over the world that want to come to the u.s uh and work in a lot of these jobs because the spending is going to require jobs it's not you know we're not entirely robotic manufacturing yet yeah potentially it's a boom

to labor it's about time labor had a win they've been having yeah it's been a nice two two years or so uh with that hopefully continues yeah it's been because it's been a very tough 40 years for that part of the um i don't want to call it the economy that part of the well yeah just that part of the economy um you know what else i saw okay i was gonna say this is maybe unrelated but i saw something this week that was like people under the age of 30 don't want to work hard and i know people say that all the time but i'm like do you think that's do you think that is true relative to past generations or do you think that's just like i feel like that's just everyone that's old complains about the young people and they've been doing it don't people give out

examples of that happening in greece of this sort of narrative going on in greece roman ancient times right i wonder if they even all the way back in egypt uh the what was that the the tigris river whatever whatever even the most ancient civilizations they were probably talking about this and i feel like that's that's every time or every generation they say oh the next one's soft oh they don't want to work but in reality it's probably no different than anyone else the interesting thing with labor for me especially some of these manufacturing jobs i have a number of friends that are in that you know we're working construction for some time and it it makes sense to me why there's such a big labor shortage in manufacturing because

the injuries there like are so frequent well yeah and a lot of the time you know some of the construction jobs you can just kind of pick up and go right or anyone can go work it but a lot of these are skilled manufacturing jobs especially within aerospace especially within semiconductors electrical whatever i think there could be a shortage of that just because a lot of it was transferred over to asia the demand for that was much lower in the united states and now we might need a yeah an increase here's the last question i have though hold on i have to change my microphone so sorry if my audio quality gets bad for like five minutes but uh yeah talk for a little bit while i do that ryan is in a uh tough he's in a pickle with his audio right now um but we're

making it work the question i have is this inflationary and the reason i say this is because you have a really big increase in, say, CapEx for a lot of the stuff, just say manufacturing in general. We don't have to say what it is. First off, that's going to be inflationary from a commodities and energy standpoint because to build something, it requires energy and it requires materials. So commodity prices are going to go up, all else equal. And then second, the cost per, say, output of something

is going to be more expensive in the United States versus, for example, not picking on them, but Vietnam. To make a profit for these companies to stay viable, all else equal, you're going to have to charge higher prices. I kind of think this is something that could drive inflation to be higher over the long term, if that makes sense. Obviously, this growth in manufacturing would have to continue, But I feel like all else equal, growth in manufacturing spend in the United States is going to be inflationary.

Now, whether that's a good thing or a bad thing, because inflation is not necessarily bad if the economy is growing. But what are your thoughts there? Well, I missed about half your thoughts, but I guess maybe. But yeah, like you said, I don't think it's the end of the world if the economy is growing. I don't know. What's it looked like over the last 20 years? Of what? Inflate of the spending?

Yeah. I mean, look at the charts. It was basically flat, all flat to down since 2000. Not really any big bumps outside of the oil boom. I believe. And also it might not even have been the oil boom,

but yeah, it's basically gone vertical this year. Yeah. Well, inflation has come down. Yeah, yeah. And that is – I mean, there's lag times on this type of stuff. But on a more of a – no, not a quarter-by-quarter basis, but on more of a this-decade thing, if this continues, I feel like it's likely that inflation might not be 10%, but it could be a driver of – or not even a driver. There could be some counteracting forces that bring inflation down.

But I feel like this is, by definition, going to be an inflationary force. I think you're possibly right. Are you going to be getting the new Amazon mobile plan? I would definitely get it if they had good international roaming once I get out of my AT&T contract. Because if they're going to make it cheap, they're talking about making it free for Prime subscribers, which would be ambitious. I feel like if they just made it $20 a month and you had a way to have international roaming that AT&T and Verizon are terrible with and YT Mobile's winning, I would 100% switch to that if it could be managed through my Prime account. Yeah, I guess for context for any listeners who haven't heard, apparently Amazon is a leak came out this week that they're planning to offer a $10 mobile phone plan. how expensive do you think it would be for them to provide

similar coverage to the big providers? They'd have to hop on one of the networks. Is that how it would work? Yeah, just like Xfinity slash Comcast and just like Charter slash Spectrum. They hop on, I believe it's Verizon, but either way, the only people that have their own networks are the actual infrastructure AT&T, Verizon, T-Mobile

so they'd have to hop on one of those and basically be a white labeled solution again not a telecom expert but this part I do believe I understand so they would pay a fee to Verizon or whoever for each subscriber

and they'd have to so the thing with Amazon is they could make up the difference between you know production and people spending on e-commerce and stuff like that so I wonder how they make the economics work but feels like a good product for them to go after

if they go for seems like they're trying to do this wireless internet stuff I would like them to do this instead of Alexa because there's a clear value proposition here where Alexa is it's moonshot science project

Alexa hater this whole episode I'm the number one Alexa hater. They're going to crown me. What is the Chappelle show thing? Hater of the Year? I am the Alexa hater of the year. Every year since 2017.

All right. Other news. God, there was a lot this week. Okay. So apparently, for those that keep up with kind of the sports world, Lionel Messi is going to Miami Club Football, Miami CF. It's the MLS club in Miami. Um, and there is, I don't think the terms of the, the specific terms of the deal are

completely public, but, or maybe even not, uh, solidified yet, but Apple's apparently giving out a cut of MLS. See, you can on Apple TV, they got all the rights to the MLS games, I think for like the next 10 years or something like that, like a long-term deal. and you have there's like a season pass essentially for all the mls games that i think is 15 bucks a month um cheaper if you're a season ticket holder but the apparently messy is getting a cut of all the mls season subscriptions do you think first of all what do you think of that deal but do you think that sets a precedent for other streaming services to potentially do something like this

the only one i could ever think i could think of is maybe like anyone who gets like f1 rights or golf potentially i think um oh man i don't know if the value the the negotiating rights of any other athlete works like that except maybe yeah f1 could be tennis could be golf when tiger was there could be but probably not now i just don't see in any of the other big sports leagues there's not a single name versus like yeah if lebron went to play basketball in spain or china sure but that's kind of the same what's happening here so yeah it's an interesting deal though and i wonder for apple's perspective it probably seems smart because they can lose money on this for a long

time but if it drives more hardware sales then we're golden you know what else i saw this kind reminds me of a recent the probably the one league where they have blundered streaming the most your favorite the major league of baseball um well my second favorite pack 12 football too so both of them i have gripes with they uh i saw alex morris tweeted it out like this this week they uh there was a four game series between i can't remember who it was um it was a four game series and each game was played on a different provider and like you unless you had cable there was no way to like get to them all yeah it's so it's so interesting because they're sacrificing long-term fans by basically saying anyone that doesn't have cable so basically all young people are not going to

be able to access your service or if they want to go to a virtual provider you're gonna have to go this one specific one and pay 90 bucks a month to do it which is a huge hurdle rate for these local sports fans and to do that you're just getting a little bit of a cash cow for maybe the next what three years until the cable bundle falls apart when disney decides to break it uh yeah it's a it's a they got to make some moves here they got to sacrifice a little bit of short term profitability and all their partners for local uh what do they call them rsn's regional sports networks they're all going out of business so it's not like remember i think i just saw earlier this week the san diego padres are not getting paid by their partner because they just

filed chapter 11 so it's not like it's actually working out from a cash cow perspective you're losing in both ends you're not making money and uh you're you're uh driving away a lot of your young fans who don't know how to watch you yeah the uh it's and i remember another part of that tweet was like for an nfl game people will go to they will figure out how to get the game it's different though yeah to watch because they're 16 games um people aren't going to do that for the mlb mlb hockey regular season basketball regular season mls even um and basically every sport besides football yeah so i don't know i think you got to get onto some sort of a streaming service and make it uniform

throughout, there's some terminal value risk here with the MLB. Can you just wait? Can you just wait until everyone's on smart TVs and then hop over? I think you'd probably lose a lot of fans in the process. You'd lose a lot of fans that you would have

built up some fan equity over the last 10 years. That's a good thought to end on. This was the Investing Power Hour. Again, these go live on Thursdays. You can watch the replays on YouTube or listen on your favorite podcast player of choice. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. We are general partners at Arch Capital and clients may hold securities discussed in this podcast. Thank you.