Motley Fool Hidden Gems Investing - Debt Ceiling Drama, AI's Peak, and Expired Coffee

Episode Date: May 30, 2023

What kind of day has it been? (00:21) Bill Barker discusses: - The stock market reacting positively (or not) to the latest narrative around the debt ceiling debate - Nvidia's new all-time high and why we haven't reached "peak AI" yet - Listener feedback over the years and the concept of "playing to the back of the room" - A surprise guest (via audio) (20:28) Chris Hill wraps up his final episode hosting the show a salute to The Motley Fool's history and founders, the self-driven mentality of the audience, and advice from the late musician Kevin Gilbert. Companies discussed: NVDA Host: Chris Hill Guest: Bill Barker Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

When WestJet first took flight in 1996, the vibes were a bit different. People thought denim on denim was peak fashion, inline skates were everywhere, and two out of three women rocked the Rachel. While those things stayed in the 90s, one thing that hasn't is that fuzzy feeling you get when WestJet welcomes you on board. Here's to WestJetting since 96. Travel back in time with us and actually travel with us at westjet.com slash 30 years. Chris Hill. What kind of day has it been? Motley Fool Money starts now.

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Joining me in studio, Motley Fool senior analyst Bill Barker. I'm switching it up today. Just leading with the disclaimer, get that out of the way earlier. It's a very special episode. It is a very special episode. We're going to talk about the buzz phrase of the day of much of this month, and I would argue, what's driving the market today, and that is, of course, debt ceiling. It appears as though there is a deal on the table, in principle, for the debt ceiling.

They have to get it done by June 5th. At the moment, there is optimism. What's happening in the market is reflecting that optimism. Sort of. It's flat at this point. It was up in the morning, early morning. By the end of the day, it could be very different. We're recording this around lunchtime. It's going to visit a lot of different prices in between now and whenever this gets finalized. It's just too simple a story that the two sides get together, hash out a deal that satisfies the middle and neither of the ends of the political spectrum, both of which are voicing their displeasure with what they're hearing about this bill or what they're reading about

it at this point now that it's published. So, yeah, if the middle holds, then this all takes care of itself. And in between now and then, I think the political ends will get a crack at making headlines about what's wrong with it. Yeah, I think if history is any guide, I spent a little time this morning looking back through 2011 and the debt ceiling battle that went on for much of that summer. There were absolutely moments of great optimism and the market spiking, and then there were the opposite, where it's like, oh, a deal is not going to get done, and panic, and there's a market sell-off. Now, with the benefit of

hindsight, you can look back on that and say, oh, that was the time to buy. That was the time to be a net buyer of stocks. I think we always talk about, it's good to always be a net buyer of stocks. But it's not going to shock me if at some point later this week, as you said, the political extremes make headlines, the market sells off to the tune of 2% because a deal's not going to get done. Yeah, there can really only be a big drop down, if you're talking about a volatile move, more or less, as you described, priced in now, is optimism that at least two leaders of this negotiation have arrived at a deal and believe that they can get the votes from their parties. That's enough to price in an

optimistic scenario. And if a pessimistic scenario, or the wrong words, the wrong headlines crop up that this could crater, that will lead, if it's credible, to a big drop, even if it's just a number of hours or something. You raised the point when we were talking earlier this morning that, when this deal gets done, and just for the sake of this conversation, let's assume that it actually does get done as it has gotten done in the past. When this deal gets done, it's going to create a little bit of a vacuum in terms of the overarching narrative on financial television and in the media when it comes to investing, because we're not going to have the debt ceiling to kick around anymore.

No. The heavy rotation words, the word cloud of things that take up so much of the time of full-day coverage of the markets. But we're going to get back to Fed meeting, rate hike? AI bubble. Bank crisis is sort of receded, at least for the moment. Inflation, recession, I think those are the dangers that can be talked about. Of course, recession is now in, I think, year three of the, when are we going to get that recession that we keep talking about? Early, early in year three. I think that those are all going to get more airtime once this is finalized? You don't think we've reached the peak of the conversation around AI. We've talked before on this show about how this earnings season,

you can go back three or four years, and the word being thrown around by companies involved in blockchain and companies not really involved in blockchain, the word of the earnings season was blockchain. We've seen this movie before. This earnings season that we're coming to the tail end of, it's AI. I'm not saying, we're not going to hear much more about AI the rest of this year. We are. But I feel like, in terms of just the narrative, we've kind of hit the peak. You don't agree? No, no. The peak in the narrative is when Cyberdyne takes over, isn't it? Well, yes. Yes. No, but in terms of, are we in a bubble, that sort of talk, which makes sense.

There are some stocks that have moved up quite dramatically, some on actual business accomplishments and projections of additional accomplishments in the very, very near future and that have profitability. and this is a reference to Nvidia. But I think peak bubble is going to be when companies you haven't heard of that have short operating histories, venture cap-backed things, are going public in the midst of enthusiasm for anything that calls itself AI. I think that That is to come. I would predict that we are going to see some things rushing to IPO before the end of the year that are not profitable, not very big, but that is part of the story. Getting on the ground floor, this could be the next Nvidia, the next Microsoft fill-in-the-blank

with what you want, hopefully not the next Cyberdyne. Hopefully not. NVIDIA shares hitting another all-time high today. Shares of NVIDIA year-to-date are up 180%. You're giggling like a shareholder. I have a small position in NVIDIA. It is a larger position than it was in January. Look, I'm happy that the stock is doing what it's doing, but it's hard for me to look at NVIDIA and think, this seems rational. $1 trillion, maybe $3 trillion by the end of the year. And there are people that are coming into the story right now,

seeing how well NVIDIA is doing and projecting. If $11 billion is the next quarter's guidance, call that a $44 billion run rate for sales, throw a 20-25 multiple on that and you're getting around $1 trillion. That's a big multiple on sales. Now, everybody's talking about them. The share price is reflecting what might happen. But, boy, there's a lot of success priced into that stock today. There is. But to go back to the point you made earlier, as expensive as shares of Nvidia may look right now, probably a better place to invest $1,000 than the companies you refer to. You're right, those companies are coming public. The companies that nobody's really heard of, the companies that may in

fact be touted as the next Nvidia, that sort of thing, a short record in the private markets and probably a rush to the public markets. Look, when you're in the business of trying to take advantage of a hot IPO market, it's hard to blame a company for doing that. If that's what your incentive is. To take the benign view of this company that is just hypothetical right now. Why is this company going public right now? Why? Growth. They're going to take the money from the IPO, it's going to fuel growth. They want the money. They want the money. And maybe they need the money. This company needs the money. And so, there's a good reason for them to go public and to collect

a lot of money. And that's kind of what a company has every right to do, present the actual facts about the company to the market. If the market's going to overprice it, take that money and use it to benefit the longer-term ambitions of the company. But definitely, Nvidia is a better buy, I would say, than the theoretical company, which we're already positing isn't very good and shouldn't be going public. Was there anything else related to investing you wanted to talk about? Way back in the day of MarketFoolery, for the dozens of listeners who remember that, often would be the time when you and I were in the studio, and I would alert listeners, the investing

portion of this episode is about to come to an end, and we're going to talk about some tangents. And I have a few comments. A list of tangents? I don't know about a list of tangents. They're not really tangents if you're planning on talking about them, are they? I'm just wondering, I had one non-investing thing that I wanted to get to. I have many. Oh, OK. Well, we're going to limit the time, so why don't you go ahead and hit yours? Do you have any prediction on what is going to join the word cloud of usual suspects for a hot-button topic that's going to last some period of time and come back again and again?

Some of the ones that have come and gone in the last year or two, as I said, the bank crisis is in the background right now, although it may get some more air. Ukraine, Russia, China, COVID, gas prices, SPACs. These are all things that had their moments. Obviously, we have to talk about that right now. That's controlling the narrative of the entire market. All those things, I would say, are in the background right now. Anything you think might come up? Of that group, gas prices, I'd give that a much better shot than SPACs. Gas prices a topic that comes around every year or so. Maybe it doesn't last very long. Look, SPACs had their moment in the sun. I'm not saying that companies won't go public via SPAC in

the future. They will. But I think the en masse rush that we saw from SPACs a couple of years ago, I'd be surprised if we saw that again. Yeah. My prediction is, commercial real estate is going to have a big moment, where something finally cracks. I was going to say, I'm betting you're not predicting a really awesome moment for commercial real estate. No, no. Just as the bank quickly evolved into getting crisis in the headline there, Whether there was a crisis, or a few specific banks could have developed into a crisis, but commercial real estate, I think, is going to have a moment where there's a lot of doubt

about how past investments are going to be paid off and debt loads and things like that. I bet our colleague Matt Argersinger would probably agree with you on that. Well, we look around where we work, and the ghost town that it now is, and the amount of available commercial real estate within one, two, three, four, five, however many blocks you want to go out, there continues to be plenty of commercial real estate right here. You're living, I don't know, a few more blocks away than that, but that's the area that is doing very well. Places where people live, and there are stores, coffee shops, people who are working at home, as so many people are, and places like Georgetown or Old Town,

Alexandria, are doing very well because there's a density of things to do there in walking distance of a lot of people's houses. I like this niche you're starting to carve out for yourself as a minor league Dr. Doom. You're not coming out and predicting a crash of commercial real estate, but you're hinting at it. I'm excited to be now in the minor leagues, rather than just in the amateur level. This gets at something. I've gotten a lot of e-mail from listeners lately. over the years, and a couple of emails recently with your return to the show have echoed emails in the past, and only from a few people, but a few people noting our dynamic on mic in

the studio. The emails go a little something like this. Boy, Bill really seems angry at Chris. Why is Bill being hostile towards Chris? This is something we wanted to just pull back the curtain on a little bit. This was an Apropos of Nothing episode we did entitled Affectionate Hostility. Sort of our dynamic, but also something that we've done over the years, which is playing to the back of the room. I always associate the phrase, playing to the back of the room, with the world of stand-up comedy. For anyone who's ever been in a comedy club, you got the performer on stage, the audience is right there, surrounding the stage in the club. And then, in the back of the room, that's where the other comedians

hang out. Most of the time, the comic on stage is trying to get laughs from the audience, as he or she should, because that's their job. But every once in a while, the comic on stage will try and get laughs from the back of the room, from the other comedians. And sometimes it's at the expense of the overwhelming majority of people in the audience. This is a joke they might not get. It might go over their heads. And that's something that we've done every once in a while. We'll just make a reference to something. You did it earlier in this episode with Cyberdawn. Not everyone necessarily knows Cyberdawn, but they can Google that.

The other one that comes to mind over the years is your use of the phrase, top men, which is a reference to the end of Raiders of the Lost Ark. That's a phrase you've used, which I find humorous. But we did get a couple of emails over the years where it's like, that seems sexist. You hadn't shared those with me. I'm not going to share all the emails with you. No, please, please. Yeah, the affection and hostility is something worth remembering. And you came up with about, while you were going through that rather elaborate description of the whole thing, three or four hostile things came to mind. And that's on me, that

I would weight the hostility a little heavier than the affection at times in terms of going for the laugh. You were always working the whole room, the front and the back of the room. When you're really working the back of the room on something like this, you're really only trying to make the people who are in the room with you laugh. That's a really far back of the room. But, no, there was always some level of affection, sure. Yeah. That's why it's affectionate hostility. Speaking of which... Not straight-out hostility. I've brought you something today.

It's coffee. It's a pound of Starbucks coffee. The expiration date is from last year. The office used to have a coffee machine which ground beans, and now it's got a different, not exactly a K-cup, but it's kind of the K-cup thing. It's got several pounds of coffee that they're just going to throw away. I've seen them do this. I know how much it must hurt you to hear about throwing away coffee. Wait a minute. Just to be clear, this is expired coffee that you got out of a cabinet in our office because the coffee machine that this coffee would have gone in, presumably two or three years ago, doesn't exist anymore? It could have gone. No, last year or earlier this year, we had that coffee machine

that would still grind beans. We've got the new thing right now. It's perfectly drinkable coffee. I've stolen one of those and brought it home. This is so touching. Thank you so much! I genuinely appreciate this! Where'd you get me? I think I'm going to invite you over to my home for a cup of expired coffee. I'm the one who's stuck here on this podcast after you go. I don't think you're going to be stuck. I think you're going to be just fine. So, what else have you got? That was it. I have some comments I'm going to share after I kick you out of the studio.

So, you're really going, huh? I brought a clip. Wonderful! Yeah. Best movie set in your home state of Maine. Shawshank Redemption. This is a clip from your favorite movie. To set it up, it's toward the end, but Morgan Freeman's doing the narration, and he's got the same initials, Morgan Freeman, Motley Fool. I think he captured something. Dan, could you roll that clip? sometimes it makes me sad though and being gone i have to remind myself that some birds aren't meant to be caged their feathers are just too bright and when they fly away

the part of you that knows it was a sin to lock them up does rejoice but still the place you live in is that much more drab and empty that they're gone I guess I just miss my friend. Thank you for that. All the more reason for us to get together for some expired coffee. Alright, I'm not going to lie, I didn't know Bill Barker was going to do that. That was more than a little nice, but completely unexpected. I've been thinking about this day for a while now, and I'm not sure I'm going to say anything that is particularly memorable, but I'm not going to let that stop me from sharing a few

thoughts on investing and this show, and you. I'll get to the investing in a minute. I've thanked a lot of people privately. There are three people I want to thank publicly. The first two are David and Tom Gardner, the co-founders of The Motley Fool. In July, The Motley Fool is going to celebrate its 30th anniversary. I've been here for 26 of those years. I could talk at great length about the history of this company. But for today, I'm just going to say this. The investing world of 2023 is so much better for people like you and me than the investing world of 1993. There was so much more transparency. Fees are so much lower for individual investors. The playing field in 1993 was skewed so heavily

towards Wall Street and the institutions on Wall Street, and it is so much more level now. That is due in no small part to the Gardner Brothers and the company they founded. The Motley Fool has been a champion for individual investors since it started. Just one example of that was the passage of regulation fair disclosure in 2001, a rule that proposed the, at the time, radical idea that individuals like you and me should have access to the same information on public companies at the same time as Wall Street firms. Now, that's been a given for the past 20 years. Of course, investors should get the same information at the same time. But in 2001, this was actually a very heated debate. This was a close vote.

Under the leadership of Tom and David Gardner, The Motley Fool took a very public stance and rallied individuals to share their opinions. Arthur Levitt, who was chairman of the SEC at the time, publicly gave The Motley Fool credit for the passage of Reg FD. He said they'd never gotten so many comments from individuals. That's just one example of how we are better off today than we were 30 years ago. I thank the Gardeners as an individual investor, and I thank them as someone who has worked here for so long and had the opportunity to help create a show like this in 2009 and host

it for all these years. The third person that I want to publicly thank is you. As I said earlier in the show, I've been hearing over the past couple of weeks from so many investors from across the country and around the world. I said this to someone the other day, I think that all of us, to some degree, are shaped by where we grew up. For some of us, it has a huge bearing on who we become as adults, other people maybe less so. But I think we're all shaped by that experience, to some degree. I grew up in Maine, which is not a big state, in a town of 17,000 people, which is actually on the larger side for a state like Maine, but that's not a particularly big town. That helped shape who I am today. One of the ways is,

from early 2009, when we started doing this show, right through to earlier this morning, I've just been blown away by the e-mail that you all sent, in part because so many of you include where you're listening. Part of the guy that grew up in Maine thinks, Holy cow! People are listening in New York City, L.A., San Francisco, Seattle. And not just big cities, it's small towns in states across America and countries around the world. People are listening in Dubai, in the Czech Republic, Singapore, Australia, Ireland, Denmark, and 150 other countries. It's really incredible to me. And I think it says so much more about you than it says about me.

That's because investing, the way that we invest, it's largely a solitary endeavor. As much as things have improved for us as investors over the past 30 years, there's still this pervasive narrative in the financial world that investing in the stock market should not be done by individuals like you and me. Don't do this on your own. The fact that you've taken it upon yourself to invest on your own, to find a show like this and spend part of your waking hours listening to try and gain more knowledge and experience and exposure to ideas and investing strategies and the stocks that you want to learn more about, that you have this kind of mentality, there is no doubt in my mind that you are going

to succeed as an investor. Everyone is different. Everyone has different life situations, different investing priorities. But the through line to all these emails and messages is people sharing their experience with this show as a part of their investing journey. The best part about that, for me, is the fact that you are on an investing journey in the first place. Not everybody is. We all know people who don't want to do this, or maybe they tried it once and gave up because they didn't have the patience or they had a bad experience and realized they didn't have the stomach for it. And it's not for everyone. That's OK. As I have said before, this is the business that we have chosen.

We are on the path. Let's stay on the path. Some people have asked what I'm doing next, and the short answer is, I don't know. The longer answer is, I really don't know. But I'm going to take a little time to clear my head, because batteries are no good unless they're charged. And then I'm going to see if I can find another adventure somewhere in the world of audio, and if I do, and you happen to encounter it, I hope you'll be as patient with whatever that next chapter is as you've been with me on this one. Until then, I do know this, I am going to keep investing, and I hope you're going to do the same. Keep investing in your portfolio. Keep investing in yourself.

Invest in your family, your friendships, your community. Never stop investing. I'm going to close with the lyrics of a song by the brilliant and talented Kevin Gilbert, who, like too many people, left this earth too quickly. People sometimes ask me for the secret of success. I tell them what I know. Believe in what you're doing, remember who you are, and who knows where you'll go. I'm Chris Hill from the bottom of my heart. Thank you so much for listening.