The Compound and Friends - Michael Cembalest Returns

Episode Date: February 9, 2024

On episode 129 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Michael Cembalest to discuss: antitrust and mag 7 stocks, the federal debt, the ultimate value trap, chip supply chains, the 2024 election, the long-term ramifications of Covid lockdowns, weight loss drugs, and much more! Thanks to Public for sponsoring this episode. Go to Public.com and activate options trading by March 31st to lock in your lifetime rebate. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Options are not suitable for all investors and carry significant risk. Certain complex options strategies carry additional risk. Options can be risky and are not suitable for all investors. See the Characteristics and Risks of Standardized Options to learn more. For each options transaction, Public Investing shares 50% of their order flow revenue as a rebate to help reduce your trading costs. This rebate will be displayed as a negative number in the “Additional Fees” column of your Trade Confirmation Statement and will be immediately reflected in the total dollars paid or received for the transaction. Order flow rebates are only issued for options trades and not for transactions involving other assets, including equities. For more information, refer to the Fee Schedule. All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, Inc., member FINRA & SIPC. See public.com/#disclosures-main for more information. Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Michael, are you a sports guy? Watching or playing? Watching. Watching. Yeah, sometimes. Well, you're a markets guy. Tell me this. Yeah.

Everyone that I know and listen to seems to think the same thing, that the Chiefs are going to win the game. Right. And yet, the Niners are favored by two and a half points. That's what the market is saying. You live on the East Coast. No, no, no. Well, I do live.

That's true. So everyone you know is in the Northeast. I'm giving the answer to your question. Sports radio. What does the coast have to do with anything? Kansas City's a no coast. My point is this. When everyone thinks one thing, which seems to be that the Chiefs are going to win and

the market is saying the opposite, I kind of like the market. And I don't really like the Niners in this game, but I like the market in this game. I don't have a view on the Super Bowl. What's J.P. Morgan's house view? J.P. Morgan's house view is, you know, no betting, no NCAA tournament. What does your chief gaming strategist say?

By the way, there is a chief gaming strategist in the investment bank who covers esports, which has turned out to be a real thing, kind of remarkably. My kid watches the esports stuff. I feel like that you don't hear about as much. There was a fever pitch in like 2011. No, I don't think he watches the esports. He watches like the streamers, which I guess they're amateurs, but they're pros. They're not like making money for playing playing they're making money for making the video

so wait forgive me so what is it when you watch people play video games streaming you're watching streamers they call themselves okay so what's esports esports is professional streamers they're so good that they're entering tournaments for money right Right. And that was a thing. I used to think that was crazy, but I watch people fish. So that's weird too, right? It's not, right. It's not that it's totally crazy. It's that I think the size

that that market was going to grow to was overstated by the presence of people like Bob Kraft and other sports billionaires buying and funding teams. I thought people thought that that meant it would grow to be the size of the NFL. I never believed that. It's a niche thing. If you turn on TV at the right time of day and the right channel, you could run into professional ping pong.

That doesn't mean it's economically a big deal. I was really bored one night, and I watched a professional cornhole tournament. And I was curious what the prize money was. Yeah, those guys are not kidding around either. No. And, like, every single one of the beanbags went in. And I was amazed. But then, you know, the first prize for the winner of the entire tournament was, like, dinner and a movie.

It was much—I was amazed. But they're very good at it. I think you can only play cornhole with a drink in one hand because it balances you. It's like the ultimate backyard sport. You know what I think should come back is bocce ball. You ever play bocce? I have. That's one of the most fun activities to do with a drink in your hand.

Is that like a bokeh sport? It's like an Italian grandfather sport. But if you have a drink in your hand, you're at your Italian friend's home who happens to have a bocce court, it is maybe the most fun thing in the world. You hear a lot of, oh! Yeah, a lot of, oh. But it's more fun than horseshoes because it's a little bit like bowling. You guys are veering increasingly far away from my areas of expertise. Yeah, sorry.

All right. far away from my area's expertise. Yeah, sorry. All right. So you put out, and a big topic of the conversation of the show today is your 2024 outlook, which you titled Pillow Talk. Very cute bears on this. And I just want to give you some respect that you deserve. In this, in the open, the CEO of JP Morgan Asset and Wealth Management, Mary Callahan Erdos, wrote the intro. She said, as we head into the new year, we want you to know what a privilege it is to serve as your advisor. We work very hard each day

to bring you the best of J.P. Morgan. No one, don't blush, no one exemplifies us better than Michael Sembelist, my investment partner, who guides all of us with his deeply researched and insightful perspectives. That is almost certainly AI general. So now it's true.

We have a Mary bot. That was written by Chat JPM. What a shame. It was so beautiful. It's true. So JP Morgan, assets under supervisory. It's a big number. It's $3 trillion. It's got a T. That's a lot of money. $3 trillion, yeah. it's a big number. It's $3 trillion.

It's got a T. That's a lot of money. That's a lot of money. I think it's one of the biggest pools of supervised assets in the world. Without creating a compliance issue, it's safe to say that's got to be a top 10, right? Right. Now, there's a lot of cash in there and things like that. And sovereign wealth funds, insurance companies, state and corporate pension plans.

It's a very diverse funding base. You could punt on this question, but if you want to suck up to your boss, Josh and I were talking about this, I don't know, a couple of months ago, just how dominant JP Morgan is relative to your peers. It is really remarkable. And I think I asked Josh, if Jamie Dimon went somewhere else, would he have had the same effect? Had he gone to Wells Fargo,

would Wells Fargo be JP Morgan? Wells Fargo didn't have the, you know, prime brokerage business, the heritage derivatives businesses, the investment banking franchise. I mean, it was kind of a marriage of a lot of good things all at once. But giant bank XYZ, would he have had the same impact? I think so.

I joined J.P. Morgan 37 years ago. Wow. And I've worked in and around and closely with every chairman we've had. He's that good? Yeah. No, it's almost hard to – it's almost embarrassing when I think about some of the people that used to run the Morgan Bank in the 90s and how they stack up to what Jamie did. I was going to say like also a lot of people don't have the context to remember the bank under his predecessor, Harrison. Well, Bill Harrison was from Chase. Okay, right.

But like JP Morgan now is considered like the Yankees. It wasn't always us. It was not. But a lot of people that have come into the industry in the last 10 years, 15 years, they just, they don't really understand that. Here's the way I always think about it, was at the time that J.P. Morgan and Chase merged,

J.P. Morgan probably, let's say, had 17 to 18 core businesses and had a leading market position in three of them. Right. Which would have been asset management, European M&A, and interest rate and credit derivatives. That's it. And okay on certain things, but we were nowhere in the equity market league tables and M&A league tables in the 90s. And it took a long time to build that. Some of that took place before Jamie joined, but most of it took place. And I can tell you, when people present in front of Jamie, they are preparing and sweating and analyzing more intensely than for any other chairman that has ever run the bank.

And that's over and above anything else. That's part of the value that he brings because he's smart enough to know when people are coming to present to him, he can figure out like this. Have you prepared? Is the information correct? Is this person saying something inconsistent from that person? Have you thought about the implications for the risk book? I'm sweating.

Are we compensating people? I remember seeing during the Packers-Cowboys game, playoff game a couple weeks ago. Yeah. At halftime, they showed Jimmy Johnson, and they asked him, would you give us an example of the halftime speech that you'd give to the Cowboys?

Now they're down 27-6 or something. And it was really intense, right? Yeah. That's kind of how people prepare for when they're meeting with Jamie. And that's how you have to run the, one of the largest banks in the world with 250,000. I tell this to,

I tell this to Michael and my partner, Chris, all the time. I'm rolling my eyes. They don't understand the intensity that I bring to certain situations. I feel like they under appreciate how important it is in that moment to come with that level of intensity. Chill out, Josh. Chill out, Josh, all the time.

It's not about the decibel level. It's about the concentration, the focus, and holding people accountable for what they do. Jamie would hold you accountable. No, Jamie would respect the way that I lead this organization is what I'm trying to, is what, what Michael Semblist and I are trying to tell you is one of the things that was really interesting that I heard being discussed this week in banking, just as an aside, but I just love to get a quick comment from you. where the only stocks in the market where the fundamentals can actually be altered by the share price are the, you know, backwards basically are the banks. So when you see New York community bank tumbling, it's not that it automatically guarantees that the fundamentals of the bank will get worse. It's that it can, it's hard to really make that case for like, so the share price is purely a function of the fact that it's a deposit taking institution. Right. And when the stock price goes down on

any other company, it doesn't necessarily mean that the customers of that company are in worse shape. Now, thank God such thing as a non-investment grade bank. That's right. So thank, so thank God, uh, New York community bank said they're not seeing anything going on with deposits, which is great because their depositors are not sitting on Twitter all day the way the SVB guys were. But it works in the reverse direction. The better your share price is or the more valuable your bank is, the better the fundamentals get also. The more valuable your bank is, the better the fundamentals get also. And from my perspective as a JP Morgan shareholder, that's what I feel Jamie Dimon has done at JPM that maybe the other CEOs of his era didn't do. So JP Morgan is now like the most valuable, most profitable, et cetera, et cetera.

That actually has an ameliorating effect on its fundamentals because more people want to do business there. So it works in both directions. Yeah. I mean, there's a lot of people that are accountable for the firm's success, right? Of course. But Jamie, over the last 18 months, was personally, from my perspective, very involved in a lot of the successful risk decisions that got made. And let's talk about Signature for a minute. Let's talk about First Republic. Let's talk about Silicon Valley Bank. Those banks were flooded with deposits in 2000, 2021, and basically bought the longest duration securities and loan portfolios they could possibly do

at 1% on a 10-year. Whoops. And it took discipline to say, we're not going to do that. And the people that run our investment bank, in concert with Jamie, basically held their dry powder and were patient until the yield curve kind of went back up. This is the first credit cycle I've ever seen in the banking industry driven by interest rate mismatch instead of bad loans. That's basically what did in Silicon Valley Bank was a massive interest rate mismatch instead of bad loans, right? That's basically what did in Silicon Valley Bank

was a massive interest rate mismatch. And it's all derived from that decision that you made. People don't understand. People say, they bought the longest duration asset. Why would they do that? Well, there's a reason. It's a self-interested reason. It's more profits if it doesn't blow up,

which means bigger bonus. Like everything comes back to incentives. And if you work at a mid-sized bank, you want to make more money. Yeah. I think there are some, I think there's some questions about OCC oversight. Of course. Some of the deals that were made exempted some of those medium-sized banks from some of the oversight provisions. I think that if you look back at the experience of some of the asset liability people put in charge at SVB, I don't think you would say that that experience level stacks up resume by resume with some people who do it at other banks. There are some questions there. There's a lot of legitimate questions to ask about it. Here's what I think is

interesting about SVB. By the way, just a quick comment on New York Community Bank. Let's kind of put that in a separate bucket. They had significant exposure to New York. We're going to do that later in the show, for sure. Which is different. But, you know, when you think about Silicon Valley Bank, in the long history of FDIC resolutions, uninsured depositors take a hit almost all the time. And we documented this. We were expecting some kind of loss sharing where the average account balance at SVB was a million dollars.

The average uninsured account balance at SVB was $4 million. If there was ever a time for the administration and the OCC and the Treasury and the FDIC to live up to Geithner's promise of no more bailouts, that was a poster child for where uninsured depositors should have taken some kind of hit. And A, they took zero hit. So now how can you not bail out any uninsured deposit on any other bank after you kind of build out the VC community who invested in, who were deposited at that bank? Second, remember what they did at the Fed. For the first time in the Fed's history,

they accepted collateral from banks where you could post collateral and borrow it and borrow more than its market value. They would allow you to post a bond, has par of 100, worth 80, they'll lend you 100. First time in the history of the Federal Reserve. So while there are risks in the regional banks and some of the community banks, I think the regulators and the administration have made it clear they're going to ring fence things as soon as they pop up. I said it at the time, no vote in Congress.

We just literally made FDIC insurance unlimited forever. Because what would ever be the reason why you would say these people aren't as worthy as the venture capitalists at Silicon Valley Bank? Right. It can't happen. I can't believe they boxed themselves in like that. Well, they would have had 2,000 banks go under. Yeah, they had to do that. Otherwise, there would be no more regional banks.

Unclear. We'll never know. Your bank would have 70% market share in the wake of that. I don't think that's what they wanted either. All right, we're going to start the show. Where's John? Oh, we got Daniel in the seat. All right, Daniel.

There we go. Look at this. Nicole, what show is it? Oh, John didn't set me up. Hang on. Time out. That's why we need John. Oh. I feel. Time out. That's why we need John.

I feel almost naked here. Josh is pressing the buttons and we're not hearing the sounds. Is the show starting now or did the show start 15 minutes ago? Starting officially. My team let me down, Michael. Thanks, Nicole. There will be a Jamie Dimon-esque. What was Jamie there? There will be a Jamie Dimon- what was Jamie there? there will be a

Jamie Diamond-esque meeting taking place after the show today welcome to The Compound and Friends all opinions expressed by Josh Brown

Michael Batnick and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management this podcast is for informational purposes only and should not be relied upon for any investment decisions.

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All right, hi guys. It's your boy, Downtown Josh Brown. I'm here with Michael Batnick, my co-host. And this is another all new edition of The Compound and Friends We have a very special guest today, returning champion Michael Semblist is the Chairman of Market and Investment Strategy For J.P. Morgan Asset Management And the author of Eye on the Market since 2005

Michael is also a member of the J.P. Morgan Asset Management Investment Committee. Michael has spent 37 years at J.P. Morgan, joining the firm in 1987. Michael Sembliss, welcome back to the show. We're so happy to have you. Thank you. It's truly a pleasure. We're so excited about this. We read all your stuff. I know you know that. How have things been? What's been your 2024 experience like so far? It's only February. I know, but you know.

You know, and the market's more of the same, you know. Yeah, that was surprising. Yeah. It was more of the same, but even more, even more so.

Yeah. So I would have thought that we would have had maybe a pause. Not yet. Well, let me take us back to the future. Michael was on last July. And since then, the S&P is up 13%. The Qs are up 16%. The 10-year was 3 on the day of taping. Hit a cycle high of almost 5%. Now we're back at 410 or so. You said that the market was pricing in 150 to 200 basis points of cuts, and that's where the market is offsides. Where are we now? I still think that's too much, right? But I mean, part of the rally in the fourth quarter wasn't the magnitude of the cuts, but that it was that the hikes weren't going to happen anymore, right? I mean, for how many months have we been reading about the metaphysical certainty of a recession based on one indicator of an inverted yield curve,

right? There was all of this other stuff going on that I wrote about right after I was on your show in August that was not suggestive of a recession. And then the outlook that we put out in January was all about all of the things that were directly non-recessionary. But I think the primary driver of this market rally has been the fact that the Fed is going to be easing rather than cutting. When that is and how many cuts, I don't know. that is and how many cuts i don't know uh but then secondly nothing is really being done to stop the kind of irrevocable margin expansion of those top seven to ten stocks with the exception of the buzz saw that tesla's running it's like the perfect combination so let me quote you on that and we'll do we'll do rate cut expectation stuff later you said the the MAG7 rally has been earnings-driven, not relying on

multiple expansion. Of the group's 28% return since 2019, 21% is attributable to sales growth, 6% from margin expansion, and 1% from multiple expansion. The 28% is what these stocks rallied

into or after, got killed in 2022. They had rallied a lot in 2021. Now they came all the way back. Right. I decided to kind of roll the clock back a bit. But over that broader time horizon, this is the anti-1999-2000 rally, which was all about PE expansion, nothing on margins, very little on sales growth. So here's your data. You got 14% sales growth in the MAC7 last quarter. That's versus the S&P 493, 2%.

Okay, so that explains some of the outperformance. It's not completely irrational. You got 23% profit margins for these companies. The S&P standard is like 9%. And going higher. And going higher. That explains some of the outperformance. And then PE multiple.

It's 30 versus 18. It's important to say it's not 30 versus 10. So everything is elevated relative to that golden 15, 16 everybody wants. But guess what? 30 seems fair for these companies. What should they trade at? One of the simple techniques that people use is to say, well, let me take the PEs and then I'm going to adjust each one of them by the long-term growth expectations. Once you do that, the multiples kind of look more similar to each other.

kind of look more similar to each other. What's really fascinating is in 99-2000, it was all about like, when are people going to wake up from this fever dream, right? And everybody knew that it was a fever dream, which is the question of how long it would last. This time, it's not that. It's not a fever dream at all. It's real. And now the question is, It's real. And now the question is, when is the DOJ, the FTC, and the politicians, when will they have had enough of this kind of power concentration that will drive them to aggressively? They have had enough. They don't have the backing. Lena Kahn has had enough.

She came into office having had enough. Yeah. But she doesn't have what she needs to get anything done here. I would say that we're pretty close on Google and Amazon. Hang on, before we get into the DOJ stuff, I just want to stick to what's going on today. Please do. Somebody showed me this great chart.

It's from Brent Donnelly on Twitter. It's the price-to-sales ratio going all the way back to the pre-dot-com era of information technology sector. And then it shows you the operating margins. And this was a lot of hope. And that's not what we're experiencing today. Right. These are some frighteningly profitable companies. And put it this way, one sign of how profitable they are, these tech companies are the ones paying $ to nine hundred dollars a ton to offset their carbon footprints because they because they don't care yeah because they can afford it yeah

right they're the ones doing direct air carbon capture enhanced weathering it doesn't matter their carbon footprints are small and they make tons of money yeah like no there it's not a proxy because no but no other company could afford to be doing that. But it's just an interesting sign of just how profitable- Why do you think we're getting close on? Because my understanding is that the challenge of winning anything in an antitrust debate

over Amazon, Google is that the other side just says, well, the consumer likes it this way. And there are a lot of arguments for why that's true. Amazon is de facto helping the consumer, which is probably why there's no energy behind any of these battles. And I don't think there's anybody that's a user of Gmail that says, man, I wish this were totally disconnected from my favorite search engine. Right. Well, at the end of last year, you guys probably know more about this than me. I got it. No, but it's, you know, Epic Games won a jury trial against Google.

Because Google, what Google had been doing, let's say you're playing Fortnite. And I learned this from my son. You can play Fortnite as Peter Griffin. Now, why anybody would want to do that and pay for the privilege of doing that is mysterious. Yes. Okay. But if you want to play Fortnite as Peter Griffin,

you have to pay an in-app purchase for that. That in-app purchase on an Android phone must go through the Google Play Store. That's right. There is absolutely no other venue or mechanism for making that payment to Epic. And Google Play Store takes 30%. They lost a jury trial on that. But Apple won in a judge trial. Now, if somebody is suing

just for a legal determination, it goes to a judge. But once damages are involved, then the jury's got to be there. So I think the tide's turning a little bit. With respect to Amazon, you want to sell, you want to get in front of prime sellers, you have to use Amazon fulfillment services. When the financial services industry does that, it's called tying. You can't do it. But the counter argument is Amazon says, we allowed this to go on without our fulfillment and logistics, and it was an absolute nightmare for customers. They didn't receive their stuff. They got the wrong stuff.

It showed up late. It showed up damaged. So actually, we have to force these third-party sellers to use our logistics because it's our customer that – it's our relationship with our customer. I understand all the arguments. Nothing grows forever. Sure. And the, the political dynamics start to come into play here too, right? There's, there's, there's a point where, and the same thing happened a couple of, in 1999, it happened in the late sixties. where, and the same thing happened a couple of, in 1999, it happened in the late sixties, you get to a point where a handful of companies represent such a dominant part of, of overall market power that all of a sudden things start to happen. So, but Apple invented this basically,

the app store started from nothing. Now this chart that you have there now, it's now pushing up on $90 billion in revenue, which is just kind of a hilarious number. So what would be a reasonable outcome for the courts if they were to rule against? Is it, hey, these 30% numbers are punitive. Take it down to 20%. Like, where does this go?

No, you have to provide, well, at least for the Android phones, you'd have to provide an open venue for other ways of making in-app purchases. Fortnite would have to have another way they could sell a skin to a user that circumvents the Google Play Store if they want to be able to. That's right. Okay. And then with respect to Amazon, it would be some kind of accommodation where everybody would not be forced to use Amazon fulfillment services just to get in front of the prime customer. So I'm really sympathetic to Amazon on this. Right.

Here's a way you don't have to use Amazon logistics. Buy from Walmart. Don't sell it in their store. Don't be a third-party seller on their platform. And by the way, good luck. I don't know. I feel like that's – they built it. But they're – shelf space payments have been legal forever. And by the way, good luck. I don't know. I feel like that's – they built it.

They're – shelf space payments have been legal forever. Yeah. Hostess can go in and do shelves payments. And the argument as to why that's okay is because go sell at some other supermarket. Yeah. What starts to happen is that the Sherman Act comes into play when there is nowhere else to go or when someone is such a dominant player in that marketplace. They're not. Look at Walmart's e-commerce business.

It's growing twice as fast as Amazon's. They are just not. And the analogy that this is John D. Rockefeller and he's buying up the railroads and he's jacking up the shipping costs to the smaller oil producers. I am, I am. We're, everyone in this world is long Amazon at this point.

Okay. To some extent. No, but percent of retail sales, Amazon's under 20, I think. They have dominant mind share in a lot of ways. That's definitely true. And no one's going to say that they're like a B player. Right. But they don't completely control

all e-commerce. And Shopify is the best example of why there already is an alternative. If you want to sell on your own, Shopify gives you as good or better tools than Amazon shipping and fulfillment gives you. I don't have a horse in the race. Yeah. I'm just looking at this. Totally. And saying, I don't see anything endogenous to those businesses that's going to slow down this machine.

Yeah. No, it's scary. I agree. So now here's another one. And I think this is well known, but NVIDIA recently switched all of its semiconductor production to TSMC and got rid of the little piece they had left with Samsung. And if you look at wafer production, one of the ways that you can evaluate wafer production is in a wafer productivity yield. It's 10% to 20% at Samsung. It's 80% to TSMC. What does that mean? It's essentially a capacity utilization measure of when you're producing – how much of the production is actually perfectly functional as built based on its original design. So TSMC was better than Samsung?

Like by a factor of four. Okay. NVIDIA, one of the issues that you have to keep in mind is that there is no, there's no backup plan for where they'd be sourcing their chips for their GPUs from if and when anything should ever happen. Well, the backup plan is they're building a $40 billion facility outside of Phoenix, Arizona. Okay. Those fabs are going to come on. Those fabs are going to come online. I get it. In three, four years, they're going to already be a generation behind when they come online. And they're going to cost three to five times more than the chips that are produced in Taiwan. And that comes from Morris Chang, who's the CFO.

Yeah. I mean, the concentration there, arguably, that could shut down the global economy. If we can't get chips out of that region, it's very, very problematic. can't get chips out of that region. It's very, very problematic. If you want, later in the show, we can kind of talk about some of the war game analysis that's been done on a Chinese invasion of Taiwan and whether the US gets involved and do they get helped out by the Japanese defense forces and all that kind of stuff. We'll get there. But before we do, I'd be curious to hear your take. We speak about concentration all the time. Forget about market breadth or anything like that, or maybe market

breadth, I guess. Are you nervous? So you have a chart showing that it's the highest stock market concentration since the early 1970s based on the Herff and Dahl, I forgot the name. It's just the sum of the squared weights. It's just, it's simple. So, so does that concern you when you think about just purely from the lens, forget about the economy or anti-competitive, from the lens of the S&P 500, does this worry you? I don't think it necessarily makes life more difficult for one of those S&P 493 companies. It doesn't affect their profitability in any way. I don't think it negatively affects their margins. But what it means is if something goes wrong with one of those big companies, it has a much bigger ripple effect on the market than it used to. And also all things being equal,

I would rather live in a world where the sum of these weights is not as high as it is right now. Here's a counterpoint. Tesla, and I know Tesla is its own animal. Tesla is in a really nasty drawdown right now. But even in 2022, so granted, it wasn't a great time for the market, but Amazon was down 50%. I think Google was down 45%. Meta was down 70%. Plus, that was Netflix. We had a period of time where the giant stocks got creamed.

And the S&P fell 25%. I don't mean to minimize it, but that's a garden variety bear market. And the S&P fell 25%. I don't mean to minimize it, but that's a garden variety bear market. You know, it's a kind of pothole-y garden variety bear market, right? I mean, to me, a garden variety bear market is 15% to 20%. You know, by the time you're talking 25%, I mean, if we look at the— Well, duration counts, too. It was in a 25% drawdown for 15 minutes.

Yeah. I mean, it's not like we suffered two years down 25%. Right. So it was another V. We all said this one won't be a V. Of course it was. Yeah. Right.

I wanted to ask you, in the early 1970s example, those companies were not doing as many things as these concentrated companies are. And does that count for something? So somebody would look at the nifty 50 example and say, okay, you had huge concentration. You had Coca-Cola, Kodak, Xerox, IBM, et cetera, et cetera. But wait, it was two stocks.

I think it was AT&T and GE. That's the 1950s. No, no, no. They were 14% of the market at that peak. Early 70s? Two of them. The two of them. Are you sure about that?

50-50. All right. And remember, part of the other reason that was taking place in. Early 70s? Two of them. The two of them. Are you sure about that? 50-50. All right. And remember, part of the other reason that was taking place in the early 70s is some of those companies were obviously not the consumer stocks, but some of the – like GE, some of the other companies were benefiting from the Vietnam War spending. So there were some – so that was a part of it. So I think our companies in the analog is we had a war on COVID. And it looks like when you look at the government spending and the mobilization, it looks like a war. We fought the war by making sure every kid had a brand new laptop. But functionally, like for the economy.

The question is, is this a key distinction or is it irrelevant? Is this a key distinction or is it irrelevant? Those companies that we were so concentrated in in the early 70s were not as dynamic as these. Profit margins nowhere near. And none of them were expanding horizontally the way that these companies that we're talking about. Like Amazon has eight Fortune 500 companies that it runs? Inside of it. So does that count for – does that mean it's really less concentrated? I think so. I mean, the margin dynamism of these stocks is remarkable.

They're extremely well run. Their labor to capital ratios are all really low. I mean, there's not a lot of arrows that you can throw here other than that their valuations are a little bit high relative to their earnings and cash flow dynamics. I think the risk for these companies are almost all exogenous to themselves. Meaning like some event? Whether it's, OK, antitrust, pillar two taxation in Europe, right? I mean, the Europeans are kind of getting closer and closer and closer to

this pillar two tax regime, where if they don't feel, where they can essentially do an arrest, like a tax arrest, and take money away from Amazon in Italy if they think that Amazon is not paying enough taxes in Germany, right? And the pillar two taxation thing is pretty scary because it creates all sorts of extraterritorial disadvantages for US companies. And I'm hoping that it doesn't go through. It's so funny. They'll pass that law and they'll be cheering in the streets as they go into year 40 of

their recession. It's so wonderful. I'm curious if you think a risk that maybe we're not thinking about in these companies is that they eat each other alive on AI and they go into like a US versus Soviet style arms race, Microsoft, Azure versus AWS versus Google Gemini and margins start to fall. We do know that the cloud companies are trying to get into the businesses of some of the other ones. And OpenAI has been talking about competing with NVIDIA and setting up chip fabs. They can't all win and have 23% profit margins, probably.

There's a lot of money being spent. The other thing I would say is, and we're still in the ascent of this AI arms race. We had a conference last week, and the CEO of NVIDIA was there. And it's an amazing company. And they have amazing people. But he was asked, in the next two to three years, how are our lives, practically speaking, going to be changed by generative AI and large language models? And I was kind of surprised at how noncommittal that answer was. And – What was the answer?

Well – I don't know. No, it was more than that. But it wasn't something that would rise to the level of importance of you know the interstate high the you know the the uh interstate highway system in the united states travel the internet electrification of u.s farming you know the three biggest productivity shifts in the united states over the last hundred years co-pilot right uh is the programming tool it's incredible at that and some crazy number whether it's 40 to 60% of all code now,

is used or edited through Copilot, which is this large language model tool. Is your team using all that stuff? We'll get to that. Customer service agents. Very helpful for customer service agents. Did you watch Curb this weekend? No.

I didn't see it yet. No spoilers. He's yelling at Siri. Then you've got banks using it for fraud detection. You've got people using it to generate kind of middle school level content for bad e-magazines, right? So, yeah, there's a lot of individual use cases. A friend of mine runs a law firm, one of the big New York law firms. They're using it to start, they've trained it on a law database and they can generate first draft interrogatory summer judgments and pleadings.

And then the associates clean it up after the fact. But as I start adding up all these little pieces, it's not, it's not forming into some kind of economy wide throw weight that lives up to a lot of the expectations. And so I'm waiting to see. LIDAR, self-driving cars, level five, nowhere. Relying on this stuff to do your radiology MRI interpretation, no thanks. No thanks.

We asked GPT-4 70 questions from the eye on the market on politics, finance, energy, and economics. Got half of them right. Got half of them completely wrong with all sorts of bizarre hallucinations. And since you don't know what questions it's going to get wrong, you have to double check the answer on everything. So you get to double the work. Yeah, that's what it was for us. So there are going to be some fantastic applications of this stuff, but I'm waiting to see how it comes to form.

And I'm just reminded, I know it's not the same, but three years ago, if I were here, you guys would have been asking me questions about the metaverse. And I would have been holding my nose. I would have also. Michael will tell you. I also would have been holding my nose. So, you know, we'll see.

By the way, then there's the other competitive issue that there are, you know, meta basically released a free language model. Hang on. My digital real estate is up 400%. I'm only willing to believe that if somebody gave it to you for nothing. So I want to go into that. big a deal economically because of the way that domain-specific tasks have been handled just as well by a very general LLM as they have by a domain-specific LLM. The example that you gave, maybe you can explain to the viewers, Bloomberg spent a lot of money building a finance-specific LLM, and then you said what? Well, what was it?

About a million hours, George? It was a million hours of GPU time to create this thing called Bloomberg GPT. How expensive is that? A million hours of training GPU chips. It's 1% of GDP. I mean, it's going to be hundreds of thousands of dollars, at least in just in power generation.

Okay, but so they built it. They built it. Okay. Then what they built it. They built it. Okay. Then what's fascinating is despite Microsoft's relationship with OpenAI, Microsoft took Meta's free large language model called Lama off the shelf, downloaded it, and spent what was reportedly $100 and trained it on some other raw data on finance, biomedicine, and law, and got the same exact performance results as Bloomberg GPT. So if that's the case, where's the moat, right? And there was this leaked memo from Google last summer saying, we don't have a moat,

and neither does OpenAI. This is what they're referring to. Now, OpenAI is posting a lot of sales gains, although Altman has kind of admitted in the press the expenses associated with earning those revenues, he said, are eye-wateringly high. I don't trust him anyway. Too adorable. He's never had any adversity in his life, that kid. I would say the interesting takeaway

from what you were saying reminds me a lot of Microsoft versus Linux or the browser wars, where like one day it was so important that Internet Explorer was bundled with Windows that it rose to the level of a Supreme Court case. And then like a month later, there's Firefox, there's Chrome,

there's Mozilla, nobody gives a shit. Like that happens really fast in tech and we forget about those cases. Right. I wrote about that in the note that I released this morning, which is that these open – That's what I'm referencing. So is that something for investors to be concerned with? I think so. That a lot of valuation is being built up on the premise that these companies have developed something really important.

When it turns out, it might be very easy to knock off. And if you get the same results, you don't care if it's a fake Louis Vuitton bag necessarily if everyone thinks it's real. There is a lot of real stuff going on. Some of the biomedical stuff that's taking place with generative AI and unsupervised models is completely transformational. But I think we have to be really vigilant as investors here every quarter to just really dig through the cash flow, income statements, R&D spending, et cetera, of companies that are deriving a lot of their revenues from large language models. Because over the next two to three years, we'll see what the real adoption rate, profitability, and throw weight of this stuff is.

NVIDIA gained $750 billion in market cap since January 1st. Yeah. Largely on the back of the earnings reports from Microsoft, Meta, and Apple. Wait, of this year? Yes. earnings reports from Microsoft, Meta, and Apple. Wait, of this year? Of this year?

Yes. Indicating their plans to CapEx the hell out of this AI opportunity. Yeah. Most of those CapEx dollars, I guess, are going right to NVIDIA. Yeah. One of the other things that's got to happen here. They haven't even reported yet, though. I know. One of the other things that has to happen here is if you start to project forward the

energy demands associated with this kind of stuff, it becomes untenable. And PJM, which is the ISO, the independent system operator for the mid-Atlantic part of the country, recently just released their energy demand forecasts just from data centers and AI. And it's going like this. And at a time when the country is decommissioning coal, natural gas, and nuclear and building more wind and solar, which are intermittent, and now you're adding a lot of demand from data centers. I mean you're asking for trouble here. We need that energy to mine ETH also.

It's very critical to the infrastructure of the country. Just one last point on one of the things that's going to have to happen is right now all these prompt windows and things are quadratic. So when you ask questions, it's quadratically complicated to solve them. What's going on at Stanford and MIT and a lot of the labs is, is there a way to make some of these models work on a linear instead of a quadratic basis? And it's called subquadratic scaling. For people that are really into this space, that's something you're going to be reading about. You can do it on a linear instead of a quadratic basis. And it's called sub-quadratic scaling. For people that are really into this space, that's something you're going to be reading about. You can do it on a laptop.

You don't need to have a cloud data center. Yes, because the models are going to be made to be less power consuming and less mathematically complex because they're going to bring it down to a sub-quadratic scaling. They're switching to proof of stake. We are at this amazing point in time where the S&P 500 is pushing up against 5,000. Maybe we'll be there tomorrow. Maybe we won't. Three years ago. What year is it?

Do you want to talk about the Armageddon? Yeah. It's a guilty pleasure. Everybody in life has had it. This is terrible. This is a terrible thing I did. Let him go. Let him cook. This is a terrible thing I did. Let him go. Let him cook. This is a terrible thing I did. What are we talking about here, Michael? Well, what's amazing is that there's this human negativity bias. And a lot of

social scientists have written about it. And in Europe, they did a couple of experiments where if a newspaper only publishes positive news, their newsstand sales drop by two-thirds. People aren't interested. And so we know that there's kind of this human negativity bias. And most of the financial media, whatever you want to call them,

will always search out people that will say that disaster is around the corner. people that will say that, you know, disaster is around the corner. And irrespective of the progeny track record or success rate of any of the people they're talking to, it almost seems at times unvetted. As long as somebody has heard of the guy, there he goes. And so we, in 2019, we looked back and we took the most Armageddon-y comments that we could find. You know, it's going to be the worst depression in my lifetime. There's, you know, it's going to be a disaster, a repeat of the 1930s, et cetera, et cetera. House of Cards. You have like 10 of those.

Michael and I could have supplied you with hundreds. This is our hobby also. Right. So what we did was at the date of those comments, we said, OK, let's assume that you got up that morning and you were unfortunate enough to listen to this on CNBC, for example. And now, so what I'm going to do is I'm going to sell my stocks and I'm going to put money into some combination of cash and bonds. And so by the end of 2019, how much money would you have lost doing that? And the answer was somewhere between 30% and 60%.

Then COVID hits. The funny part is it looks like these guys got temporarily bailed out by a global pandemic that they had no idea was coming. Yes. But after the COVID decline hit and after stocks were already down 20%, 30%, they all doubled down. Of course. So the red dots on the right chart are when they doubled down. Of course. So the red dots on the right chart

are when they doubled down and said, this is really it. This is the end of humanity. This, you know, no more human life on the planet. And in the piece, we kind of show each one of the quotes of what it was. And of course the markets have doubled since then. They're the financial whack pack,

which you know what's funny? Can I say? It's very unkind of me to do this. I got to tell you though, if you look at list, and I'm not going to read the names, this reads like a podcast's wish list of guests. And the reason why is if you put one of these f***ing guys on the show, everyone's going to listen. Yeah. Everyone.

And I think I write about this. You're right. It's human nature. I write about this less about them. That's right. It's more a reflection about us. That's right. It's human nature. I write about this less about them. That's right. It's more a reflection about us. That's right. And what we're responding to.

And, you know, similarly, there was a study that was done at a university in Indiana. In what year was that tweet? 2016. In 2016, somebody did something that said three million illegal immigrants voted in the 2016 election the bots immediately started to punt it around trump we you know mentions it of course and then it went completely viral um you know in a matter of moments and because people tend to kind of respond to stuff like that and whether or not the information is accurate. Well, first of all, we're genetically programmed to respond to that.

There were humans 100,000 years ago who the alarm went off that the barbarians are coming through the gates. They didn't respond. Well, they were killed. They didn't pass their genes on. We here in this room and everyone on earth today are the descendants of people whose ancestors responded to the alarm. That's what we do genetically. That's not – so we are already predisposed to pay close attention and click the link and watch the show where the guy is yelling fire.

Yeah, it's not that the news is supplying it for no reason. We demand it. Right. That's right. And that's why I said it's not that the news is supplying it for no reason. We demand it. Right, that's right. And that's why I said it's less of a reflection about the government. I've come across

a different phenomenon that I'm curious what your thoughts are. LinkedIn, interestingly, these are all people there ostensibly to build their careers.

They get so angry at anything positive about the economy. It's almost as if you made fun of their mothers. If you say GDP, Atlanta GDP now forecast is higher and look at this great jobs report, nobody is in your comments like, yeah, cool. People are furious. Somebody emailed me saying two years ago, you guys are so much more balanced. It's like two years. Think about where the market of the economy was two years ago.

It's not us. We're talking about the news. We're talking about the economy and the markets. I will say this for LinkedIn. When I started using it, it was terrible. Like my feed was full of people posting motivational cat pictures and, you know, raising money for the runs they were doing for the neighborhood library. And it really wasn't helpful to me at all as an investor. It's gotten good lately. I don't know how, but my feed is consistently really good now. Economics, energy. It's the hottest social network in the world. Is there a billion users? It works. A billion? We were just talking about this.

Microsoft is still reporting user growth there. Nobody's paying attention to it. What are you talking about? Microsoft is still reporting user growth there. What a steal. Nobody's paying attention to it. It is – first of all, it is crushing Twitter. What is? For financial content. LinkedIn.

Yeah. It really works for me. Now, is some of the commentary kind of off base? Yeah, but I've also met some fascinating people. I'm going to Toronto on Tuesday to meet someone I met on LinkedIn to talk – Is it Drake? Careful. Okay. Because it Drake? Careful. Okay.

Because it might be. God. Oh, boy. So I'm going to Toronto next Tuesday to meet someone to talk about this, the viability of a technology to essentially draw CO2 from the atmosphere using direct or carbon capture. It's definitely Drake.

Hold on. Combined with hydrogen via green electrolysis to make synthetic jet fuel. And he and I both think it's bogus, but we're going to go through the, you know, the math, like the physics and the chemical math on that, because there are certain things like military use of jet fuel that right now have no decarbonization options. And like, that's, that's the one that people put out there. I'm tempted to think it's not viable. So does he, but we're going to work through it.

And I met that guy on LinkedIn. I was going to say, where else could that really, it could have happened on Twitter, but these days it's more likely that an interaction like that happens on LinkedIn. Right. So I've met some very interesting people on LinkedIn. There's some good stuff there. It's on LinkedIn. Right.

So I've met some very interesting people on LinkedIn. Yeah. And there's some good stuff there. In terms of like the fact that people can't grasp complexity anymore, I don't think there's a better topic to talk about that than COVID. So do you want to spend a couple of minutes on that? Let's do it. 100%. Okay. So I've got this pile of thoughts in

my head about COVID. So on the one hand, the people that are angry, upset, skeptical, and suspicious, you have every right to be. Yeah. The lockdowns took 50 million children out of school. It's going to be the worst educational disaster in the history of the United States. be the worst educational disaster in the history of the United States. People are already now forecasting depressed lifetime earnings and alcoholism, loneliness, domestic abuse. The lockdowns, in retrospect, were a disaster. The school closings in particular, those children cohorts, a lot of them are- We lived through those. And the absenteeism rates in a lot of the parts of the country have doubled and haven't gone back down. So COVID shifted the absenteeism rates in a lot of places.

And there is this movie in the 1970s. Do you remember Logan's Run? Yes. So Logan's Run is the opposite. Logan's Run is this movie where resources are scarce. And as soon as you're 30, they kill you. That's right. Because they do everything to preserve resources for the younger generation at the expense of the older one. COVID was the anti-Logan's Run. Everything was done to preserve the oldest generation at the expense of the youngest ones.

No value judgment, but that's what was done. When the schools were closed, the hospitalization rates for school-age children was one half a person per 100,000. So the schools were closed, and that's what the hospitalization rate was. Schools were closed, and that's what the hospitalization rate was. And I don't think the right cost-benefit lens was used in a lot of those lockdown decisions. Well, they thought you'd have immunity. Excuse me. They thought they would kill it off.

They didn't think that it would take place for six months, did they? I don't know what they knew. Okay. But in retrospect, the educational impact of those last come as disaster. Number two, in terms of how do you feel about the drug companies, a lot of big drugs have either been recalled or given a black box warning. And I wrote a piece recently that showed a long list of drugs where the FDA initially said, hey, this is fine, a long list of drugs where the FDA initially said, hey, this is fine, and then it changed. And my son took Singulair for years, and then after which it got a black box warning because of potential mental health side effects.

So that's frustrating. Even put aside Purdue Pharma, some of the biggest drug companies have paid billions of dollars in fines for off-label marketing, which basically means pushing their drugs to be used for conditions that they weren't suited for. So there's a lot of things to be frustrated about. But on the other hand, vaccine-preventable diseases are generally down like 98% to 99% over the last 40 years. And it used to be kind of a very scary world before those vaccines existed. And the problem with Twitter is you're only going to get one side of the picture, either one of those sides.

And you're not going to get, it's so hard to find a nuanced view. And vaccines in general, vaccinations has been one of the biggest, other than antibiotics, has been one of the biggest other than antibiotics has been one of the biggest public health successes in the history of humanity so you can simultaneously be angry about the lockdowns frustrated with the drug companies um supportive of of government efforts to fine them for their misdeeds, but also appreciate the benefits of vaccination. But nobody is that. Everybody is, I'm team A or I'm team B. And that's frustrating.

On team A, wear your mask still in 2024. And seriously though, this is what it's turned into. Wear your mask, vote Biden, use my pronouns, and how dare you call into question the vaccines. Team B is, you know, F your feelings and know that now they're pro measles. Yeah. Everyone's crazy. I agree with you.

Everyone's crazy. The Children's Health Defense, which is the RFK thing, they published a book a little over a year and a half ago. And it had a picture of a boy who had collapsed at football practice and died on the cover. And they expressly said, here's one of the byproducts of this COVID vaccine. They never reached out to the family to discuss using the photo.

He died of something completely different and had never been vaccinated against COVID. Are these the, you can have all the questions you want, right? Are these the people that you trust? If that's how they do the cover of the book, do you trust what's inside the book? Are these the people you trust?

If they're on your team, you trust them. Right. Well, that's the problem. This is the problem. Is that we've lost the ability to kind of have a nuanced picture and say life is complicated and a lot of these things can be true at the same time. So I don't want to move off if you're not done, but I want to talk about another complicated issue. Okay.

U.S. debt. This is a big one. This has been with us as long as time. It doesn't go away because the numbers keep growing. What are your overall thoughts on U.S. state sustainability? You started at J.P. Morgan in 1987. You must remember the deficit billboard where it was scrolling numbers and they would go 24 hours a day. It would say your share of the deficit is – I think the debt clock still exists. It's still there. Let me quote you and then you could riff.

The death clock still exists. It's still there. So let me quote you, and then you could riff. You wrote, by the early 2030s, the CBO projects that all federal government revenues will be consumed by entitlement payments and interest on the federal debt. Sometime before this happens, I expect a combination of market pressure and rating agency downgrades, which have already begun, to force the U.S. to make substantial changes to taxes and entitlement. Oh, yeah. Oh, yeah. How? What? Where? Well, here's how. So let's do part A and part B. Part A, let's do the first part of what you said,

because it went by fast. In the 2030s, early 2030s, all of federal government tax revenue is going to be needed to pay entitlements and interest on the debt. In other words, there's no money left for the judiciary, defense, non-defense discretionary spending, Pell grants, like you name it. So which entitlement gets whacked? What's going to have to happen, what I think will happen is somewhere, whether it's 2028, 2029, the rating agencies will say, look, we're going to give you a year to Congress. We're going to give you a year. And if you do nothing, we're going to downgrade you to single A. And you know what happens when they downgrade us to single A? The price of the treasury bond

goes up in value. That's what happened last time. But you do reach a point where collateral posting becomes an issue. And I think there is a point where the impact of that downgrade will then catalyze market actions. We owe the money to ourselves. Not entirely. The Chinese own a little over a trillion. They still own a lot. They own more than people think because they own some of it through Belgium custodians so they don't disclose. What would they do if they sold treasuries?

Like seriously, what would they do? What would they buy? They need something because this is involved with trade. This is trade-related FX. Yes, and they need, well, they may,

by the time this rolls along, they may not need to defend the R&B as much as they need to do that today. Okay. But I mean, look, I've been in the camp that it has been a mistake for investors to change their investment portfolios because of debt issues and geopolitics, right? Which we can talk about. The biggest distraction to investing.

Yeah. Worst, geopolitics, number one, debt, number two. But mathematically, you will reach a point where even if it's not affecting the markets directly, the two countries with the worst growth and productivity rates over the last 50 years, Italy and Japan. So you didn't have a debt crisis, but eventually the debt started to crowd out all other kinds of private sector activity. So that's my fear. We either have some kind of a debt crisis or you get this kind of malaise where growth settles at only one and a half percent because the magnitude of the debt financing is just crowding out. Your Armageddon-ness though will go much further than

you just did on what the negative effect of this is going to be. And they'll act as though it's much more urgent. Buy gold? If we lose our reserve currency status, is gold not the solution? Yeah, what's the portfolio answer? I mean, that's what they would say. Right. I would say, look, anybody that can afford to buy gold should own some, right? So in other words, if you have enough money, certainly if you have enough money that's going to outlive you, you should own some amount of gold. And by the way, you should own it.

If you really believe that, you should own unallocated gold. So let me ask you why. Why should you own gold? If the dollar, what would gold do in the event of a dollar? And what's unallocated gold? There's two ways to own gold.

One is you go to a bank and say, give me a structured note linked to the price of gold. But in that case, you're a creditor. You also have creditors. That's no good. That won't solve this. Right. So then you want unallocated gold, which is you actually are owning something. Backyard gold.

Backyard gold is directly linked to a specific amount of gold held in custody somewhere with your name on it. That's unallocated. Barry Redholz and I went to this guy's office, it's a true story, in 2010. And he was in the 50s, really nice guy. And he was selling an investment prop. Barry would get all these calls from,

Barry wrote Bailout Nation, so he would hear from every crank. And so we went up there, and the guy was pitching to high net worth investors. It's a vault. We hold your gold, but it's in Switzerland. So if, if the shit goes down in the United States,

you have to go, but, and you, you have to just make sure you have a way to get to Switzerland. Right. And your gold will be waiting for you. And the guy was like oversubscribed, meaning he had already allocated all the room in this vault that there was now. I doubt he's still in business today. If you go back, so one of the benefits being part

of JP Morgan, we can look back in the archives. And if we look back at how moderately and very wealthy family portfolios looked in the 20s and 30s. They had 20% to 30% in gold. It was the financialization of the post-Volcker rate decline. That financialization is what drove gold to the de minimis levels in a lot of portfolios that it is today. But kind of from the 20s to the 70s, wealthy families owned a lot of it. So talk about financialization and dollar status. Okay. What about Bitcoin? Like unironically. I don't want to go there yet. Okay. I don't want to go there yet. I want to save that for two years. But in terms of, I don't believe, I believe that's a crossover point where the government has no money left to do anything except pay interest on the debt and entitlements.

I don't think that is a viable form of government. So what would a solution be? It will create problems that the three of us can't anticipate right now. So what is a reasonable solution? Lower interest rates, monetize the debt. The Fed expands its balance sheet. That's the answer. Well, that's the answer.

That's one approach. That's an answer. That's an answer. The other answer involves a bunch of compromises. Nope. No, I wouldn't do that. I think you're underestimating the shock to the system in terms of growth and productivity. But it's politics. Do shocks to the system

typically lead to more or less cooperation? Bipartisan cooperation? In the history of the United States, let's look at the TARP bill. Okay. The TARP bill, there was the market riot. First attempt at the TARP bill fails.

I watched it from above. Markets riot again. I know. Then the TARP bill passes. So if there's some kind of market riot at some point linked to this, and I'm not – and I think there could be. Yeah. That's what will give politicians the out to say we have to do some of this. Now, I think a lot of the compromises are going to come on the back of the wealthy.

So can I at least take through some of them? I know you don't believe this will happen. No. But can I at least say what they would make? I would love to hear this. My question is what politician puts the gun to their head and pulls the trigger? No, they'll be forced to. You're not listening.

They don't want to do it. This is when their backs are against the wall like Tarp. There was a 900-point Dow sell-off, and this is when the Dow was at 9,000. And so they're going to go after— There were circuit breakers. They went back. They're going to go after their biggest donors? It's a tax hike and an entitlement cut all at once.

Everyone hates it and everyone loves it. Okay. At my income level, I still get- Not to brag. No, but I'm just saying at a high net worth income level, I still get to make tax exempt contributions to 401k. Yeah. You know, maybe I shouldn't be able to make tax exempt contributions to 401k. Yeah. You know,

maybe I shouldn't be able to do that. I could see that. Um, I, um, at some point, maybe my Medicare gets means tested, right? Because I, I know I've paid into the Medicare system and I deserve to get paid out, but if dollars are scarce, maybe that's gotta be means tested. Um, there's, there's a lot a lot of tax entitlements in the system. The mortgage one has been reduced, right, from $1.1 million to $750 million. But, you know, maybe that gets cut to $500 million, right? What's the price of a medium home in the United States? Does it need a $700 million? Yeah.

So they do stuff like that. And then there's the big one, which Democrats have been pushing for a long time. And, you know, this is going to drive people nuts. The Social Security system is a savings plan. You pay in, you get out. Yeah. And there's a cap on the taxation, on the payroll tax. There's a cap on income on which they collect Social Security taxes in the neighborhood

of $125,000. Obama was proposing for years this thing called the donut hole, which is from $125,000 to $250,000, no tax. From $250,000 up, you start paying the payroll tax again. But your Social Security benefits do not rise commensurately with that increased payroll tax. Now, Social Security is not a savings plan. It's another entitlement plan. It's a radical change. But, like, that's one of the grab

bags that is, that could happen here. So I think that some of this, I don't, I, I think some of this will have to happen. Thinking out loud, the donor class could live with that more so than they could live with, uh, just a, a higher bracket, like a, like a higher, right? Like they would prefer something like that because they're not funding their retirements with their income or their social security. None of that shit really matters. What really matters is investment-related tax

here in New York, carry. Like these are the things that people care about. The other one on the list is a 5% to 7% federal tax on municipal bonds for people with adjusted gross income above a certain level. What about 1035 exchanges? That is arguably the most. I mean, it's so much. Or capital gains treatment. Capital gains tax treatment. In private equity. But those numbers are too small. So the ones I list are the ones that have

material amounts of dollars associated with them when the CBO does this analysis of what are the things that could change? What do the Democrats give up in that scenario? So that's one side of the compromise. What does the other side look like? Higher co-pays for Medicare, right? Okay. So – and probably a restriction in treatments. And we're seeing a little preview of it.

In a lot of states and cities, there's unfunded pensions. Can't do anything about those. But there's also this thing called OPEB. I don't know if you've heard of it. It's for other post-employment benefits. Basically, we're in retirement health care. Okay. If you roll back the clock five to seven years, a lot of states and cities had massive projected unfunded retiree healthcare obligations to government employees.

Those numbers have come down a lot. And the way that those have come down is higher co-pays, less coverage of certain conditions, and other adjustments to the plan that make them less valuable. And so that's probably a big part of this. And remember, a lot of the entitlement system that was built in the late 60s, early 70s, life expectancy has gone up 10 to 15 years since. Sure. And so some of the insolvency in all of this is simply a function of demographics. And the country's going to have to make some difficult choices.

So the last thing on this, and then we'll move on. But I was going to say you have people in their 70s now living the way their parents lived in their 50s, spending a lot more money than prior generations had. So arguably, yes, it might be straining the healthcare system to keep these people alive longer. However, they are continuing to be a productive part of the economy. They may not be working, but they are definitely living. And it's, I'm not saying one is like,

I'm not saying it's 100% financial trade-off. I'm just saying it's like a quality of life trade-off to have this last 30 years tacked onto the end of your life that nobody could have envisioned 100 years ago. All right. So we've already kept for an hour. We'll do five minutes on China, and then we have two more quick topics, and then we'll let you go. I'm here. How cheap is China? So you wrote, China has, and this is music to my ears, I think. I just bought

China. I just bought FXI. We'll see. China has become the ultimate value trap in recent years. In my experience, most value traps eventually come to an end. What do you mean by that? Come to an end. It sounds ominous. Yeah. I'm not, am I, should I, should I be excited or should I sell? You know, what, what I wrote in retrospect was, was, you know, kind of a fatuous thing

to say, because as a value traps only have two ways of ending, either bankruptcy, or in the case of countries, you become like Argentina, Pakistan, or Zimbabwe, and you get ejected from the emerging market index and put it to some bucket called the frontier index, which means nobody wants to invest in you. You know, for example, Pakistan, Russia, places like that traded a 3PE. What it's meant to say is if that's not what's going to happen in China, at some point selling will be exhausted and there'll be some kind of a bottoming forming. So I just feel like we've reached such a crescendo of China is uninvestable. Yes. They threw out the head of securities regulation.

They did. So that out the head of securities regulation. They did. So that's the bottom. Well, the last two times they did that, the markets rallied a lot. Yeah. But that was 2016, 2018. The market's worse. I think the risk-return proposition for investing in China now is better than it's been in a long time. Because like you said, everybody hates it.

Everybody's convinced it's going nowhere. But please don't use any leverage. You need to be prepared to lose another 30% before it goes up. Do they care that foreigners no longer are interested in investing in Chinese equities? I doubt it. They don't seem to care. I don't think so. Okay, but they want a homegrown constituency of investors for some reason.

But do they really want that? I think they want it. homegrown constituency of investors for some reason. But do they really want that? I think they want it, but China doesn't have the kind of regulatory capture you have in the United States. Like when equities are crashing here, you know, there's a lot of linkages between the private sector and the government that are going to put pressure on the Congress to do something to stop it. You know, and by the way, you also have a lot of equities, not just in defined contribution plans, but in defined benefit plans.

And so the system is designed to do something to help the equity market. And it was no secret in the wake of 2009 that the people, the Fed got up every day and looked at the stock market, not the credit market. They were looking at the stock market to see whether or not that was worth it.

That China consumer confidence, that's some hell of a chart. Oh my God. It just absolutely fell off a cliff. Is it possible, and maybe I'm being too cute here, but is it possible that China is, not that it's uninvestable, but it's only catastrophic? And the difference between that is enough to lead to a global rally if it's merely catastrophic and not uninvestable? I don't think it's that connected to global markets. Let me just say, give you a couple of thoughts

on how we're looking at this. First of all, a 10 PE is cheap for China. There's a lot of markets trading at a 10 PE. Turkey, Brazil, Israel, Greece, Austria, S&P Banks. We have a chart in today's eye on the market that you want something below a 10 PE. You don't have to go there. You got a lot of place to go.

Secondly, you know, in China, anything can bounce 10 or 15 percent, right? And firing securities, strong arming domestic investors into the market, jailing short sellers, you know, all that kind of stuff. That's not going to work for long. Make telebrokerages from now on, no sell button. Take the sell button out. Here's what would make me really bullish. In 2008, if you remember this, before the TARP came along, there was a plan floated that they were going to buy the bad loans of the banks and do a bad bank scheme. Market didn't like it.

And I found this piece from the IMF showing that historically, when governments buy bad loans, GDP and equities kind of don't do much. But when they buy bank debts and recapitalize the banks, the equity goes up a lot and the GDP goes up much more quickly. So when the TARP got announced on October, I looked at the archives yesterday. On October 14th, 2008, I had a piece saying we're bullish because the historical track record is when the government recapitalizes the banking system, they're addressing the core issues.

You were five months early. You were still five months early. Well, but it was a sign. I know less stocks were going down, even though we made an ultimate lower low. If you had the ability to kind of wade through March 2009, you did fine in retrospect by buying in October. So I think you're punting in China. But I would argue that you could be holding and not just a punt if we actually got a policy in China that was going to recapitalize the banks that hold all this bad real estate. They're not going to have civil unrest there

over this, though. They don't have the same pressure. What are you talking about? No, overstocks, overstocks. No, I know. In China, the people that are upset about what's happening, the only place that's safe for them to post about it is on the U.S. embassy website. That's right. There's no other venue where they can safely do that anymore because of the pervasiveness of how people are following. That's right. So this can be like a tempest in a teapot in China. It's not directly affecting anyone really. That's right. I think it is. I think you're, you know, it's an interesting thing in and of itself by itself that has limited contagion impacts anywhere else. But it's interesting to look at. And they don't take any pride in

like their companies being these juggernauts, the technology companies. They see them as threats, the government. They see them more as threats than as signs that their economy is prosperous. It's weird because I would have always guessed that they would go the other way with that. Put it this way. The risk return of being a Chinese CEO is... Go to Singapore. If you want to be a Chinese CEO, be an expat.

One of the trust banks that failed last year, the CEOs are missing. Yeah. They may be hanging out with all those Russian guys that keeps falling out of windows. Michael's listening to Chinese e-commerce company conference calls right now. He's listening for the CEO's voice

to see how confident they are. Mark is still there. I'd be curious to hear your take on what... So these GLP-1 drugs have had just a miraculous run. Eli Lilly is up 116% over the last year alone. It's the eighth largest company in America now. Really? And no AI.

Do you think that maybe... So you could say that that's reasonable, it's warranted given everything that it's doing. Do you think the other side of it, like the selling of alcohol and soda and chips, is that part of it overdone? What's your take on that? That was a knee-jerk reaction over the summer. And then I think people started doing the math. And it's another example of two things

being possibly true at the same time. Is there a huge opportunity, market opportunity for Lilly and some of the other companies? Yes. Is the aggregate impact of that on insulin manufacturers and producers of crappy food large enough to dent their margins? That's less clear. I mean, look what happened to the insulin pumps. Do you know? But again, look what happened to them in the fourth quarter. So the markets have maybe we got ahead of ourselves. Yeah.

And I think there's still a lot of digestion of information. To me, here's the big question about weight loss drugs. You're going to lose 15% to 18% of your body weight if you take them on average. If you stop taking them, you're going to gain most of the weight back, and all of the other benefits you had are going to go back to the baseline. So you have to take it forever, right? For now. For now.

In its current formulation. In its current form. Yeah. And with a needle. Yes. And there's a lot of companies obviously working on pill form. Part of the issue is the pill form has to last longer. You have to use more of the active ingredients.

So the side effects are more intense. So that's part of what they're still working through. The real question is, if it's just weight loss, a lot of companies are going to struggle to cover that. And Medicare is not allowed to cover that, right? Right now, it's not on the books that Medicare can cover that. So what the whole industry is banking on is how effective are these drugs at reducing other comorbidities? Heart attacks. And can they get these drugs rebranded as cardiovascular drugs?

Right. So in a classic Wall Street moment last year, there was this big Wigovie semaglutide study. And after 30 or 36 months, there were two reports that came out on the same day. One of them was from Wall Street. 20% decline in cardiovascular risk, you know, from these drugs. And a guy that I read a lot named Eric Topol at Scripps, which is the Biomedical Institute of California, was like, I think the title was MEH, M-E-H. One and a half percent decline. Both numbers were right. The end point after 36 months in the placebo group, 8% of the people had cardiovascular events.

The Wachowi patients, 6.5% of them had cardiovascular events. Wall Street said, that's a 20% decline. 1.5 divided by 8 is 20. The medical community was like, three years of injections and 1.5% decline in cardiovascular risk, meh. And so that's the battlefield now is can the FDA and the CBO be convinced that that number, whether it's one and a half or 20, is big enough to justify rebranding these drugs for osteoporosis, sleep apnea, knee osteoarthritis, heart failure, cardiovascular events, and things like that. That's the big problem. The 20% number is such bullshit. Of course, Wall Street did it. When the 10-year goes from 4% down to 3.5%, that's not a whatever percent drop. It's a 50 basis point drop. It's 0.5%. It's not a percent of a percent.

You lose muscle with the fat. And when you're over 50 years old, it's really dangerous to lose muscle mass. This is one of the things that we won't know for a really long time. But when you read scientists or medical people talk about this subject, they're like, this is not an asterisk. Losing muscle mass, if you think you're getting rid of all these comorbidities because somebody is down weight, think of all the comorbidities you're now adding. Right. Because you have frail adults. Like a lot of other drugs.

Right. These drugs were developed for people with extremely risky conditions. 400-pound people. Yes. Where the downstream risks were vastly outweighed by the benefits. Yes. To have mostly healthy people taking these in perpetuity to kind of keep their weight down,

I think has unexplored medical consequences. I refuse to. I'm actually eating more to show my solidarity. You're going to offset those. That's right. Yeah, you're going to offset the Slim Jims. I'm going to have all the morbidities. So, Michael, in honor of the late, great Byron Ween, who did his top 10 surprises,

how long did he do it for? Forever. I don't remember not reading them. Put it this way. One of his surprises, the union wins the civil war. Josh nailed it. So, all right, I'm going to, I'm going to read through your top 10. If you delete that, I resign from the podcast. I just want to, we'll stay on the spiciest one. All right, we'll go through this quickly and then we'll circle back to the spiciest one. Top 10 surprises from Michael Sambalas. The US dollar remains stable.

The DOJ FTC wins a big antitrust case. I'm going to skip the spicy one. We'll return to that. The driverless car backlash is coming. Broadly syndicated loan losses rise above private credit losses for the first time. Argentine dollarization will fail if implemented. Russian invasion of Ukraine drags on with no ceasefire in 2024.

Despite storm clouds over U.S. regional banks, their stocks will do well in 2024 with stable rising price-to-book values. Due to retirement of dispatchable power generation and underinvestment in pipelines, gas storage, and winterization, major U.S. cities will face electricity outages or natural gas outages. Researchers will complete work on inhaled COVID vaccine that will sharply reduce transmission. And the one that I skipped, the one that we're going to talk about briefly,

President Biden withdraws sometime between Super Tuesday and the November election, citing health reasons. If this happens, you will be world famous forever. These, you know, Byron did these forever. I think, was my mic cut or am I still on? Byron wrote these forever. Am I cut or am I still on? Byron wrote these forever. I never read any of the articles that kept score because the purpose of this exercise is to think about the things that could happen and how you prepare for them, what the downstream

impacts are. I am not predicting Biden's going to drop out, but I think it's a possibility. Both he and Trump are older than male life expectancy, and the two of them combined are the second oldest pair of people ever to run for president adjusted for life expectancy. And the two of them combined are the second oldest pair of people ever to run for president adjusted for life expectancy. So in 1848, two guys ran in their 60s, which was around the same as today because people only lived to 50 then. But they're the second oldest pair of people ever to run for president.

So thinking that one of them could drop out at this point is not the demographic leap that you might think it is. So that's point number one. Point number two, when you run for president, presumably your supporters and advisors and your family aren't just evaluating your current condition, but are you fit to handle the responsibilities of being the commander-in- chief for the next four years? And I think when you look at Biden, I'm not the first person to ask this question. David Axelrod in the Democratic Party was one of the first people to ask these questions out loud. So I wanted to kind of understand what the process would be and what the implications would be if Biden were to drop out.

And so that was the purpose of having this discussion, starting this analysis. And I wrote about the no labels movement today, which we should talk about for two minutes. Please, what is that? What is the no labels movement? So the no labels movement is a bunch of people that have gotten together. They're already on the ballot in 13 states and they're trying to get ballot access in 15 more states. On the blockchain? No, the actual ballot. I'm not going.

I'm not going there. This kid has like fucking Bitcoin Tourette's. Nobody wants to hear about Bitcoin on the planet right now. He's – well, yeah. You know the bankless guys? Call them. They'll have you as a guest on the show. You can do that for 45 minutes with them.

Right. show you can do that for 45 minutes with them right by the way the australian stock exchange like spent 250 or 300 million dollars to try to convert their back office systems to blockchain the whole thing ended up as a disaster they fired everybody involved did it go as well as el salvador or better about the same yeah okay so no no labels movement says look even though these two candidates are winning the primaries, in the general electorate, they're both deeply unpopular. We're going to run a unity ticket. And I'm throwing out names, right? But let's say Manchin and John Kasich, right? Let's say there's a Manchin-Kasich ticket. They're going to run as a no-labels movement in the general election. They're not going to have any kind of a primary because they're just going to create this party. They'll get ballot access, and they're on the general election in November.

The last time an independent candidate won electoral votes and not just some votes was 1968. It was George Wallace, 68, right? He won some states, didn't he? He did. Yeah, he did. That's wild. So, well, that's when the South was kind of- No, it was bad.

You know, a lot of, there was a lot of political transition. It's when kind of the Southern Democrats had become extinct and it was becoming Republican and there was this interim period. So, look, you're, I mean, Bill Clinton, Paul Simon, I mean, the guys that used to be Chuck Robb, members of the Democratic leadership, they're now completely centrist. They were seen as being super progressive for their time. Things have shifted a lot. So let's assume that this mansion, made-up mansion Kasich ticket wins five states, and they win 25 presidential electors. But because of that, Trump's at 262, Biden's at 258.

Nobody gets to 270. Nobody gets to 270. Yeah. The no-labels people are saying, don't worry. We'll kind of figure it out and form a unity government. So by the time the January 6th joint session rolls along, we'll have a unity government. Not so fast. Two-thirds of the states in the United States have something called elector binding rules.

So if that no-labels ticket wins electors in a whole bunch of states, they can't switch. They can't be faithless electors. They cannot be faithless electors. Okay. He's very well-read. What the hell? So, so that's a good pull. Yeah. Right. So that's a faithless elector, right? And there have to be rules against that because otherwise what would prevent any elector from saying I was attached to this candidate. I'll throw my votes to the other guy. Yeah. For money

or a position in the cabinet or stuff like that. So there are elector binding rules in most states that prevent this. And a lot of your audience probably knows right now, if nobody gets past 270, you end up with the election goes to the House. It's a 12th Amendment contingent election. And every state delegation gets one vote. Okay. So that's messy. The other problem is, of course, a unity government sounds like dealmaking.

It is. Nobody likes this incentive there. Well, not only that. There are federal and state bribery laws that prevent you from trading political favors. What does that look like? Make my son-in-law the chief of staff and I'll give you these 10 electoral votes? No, it's a little less crude than that. It's probably we are this kind of moderate centrist ticket. It's probably we are this kind of moderate centrist ticket.

We want this administration to support more transmission buildout, oil and gas pipelines, support for this and that kind of policy. And then we'll move our – try to convince our electors to support you instead. If you had to guess, does the person that votes no label, assuming they're on the ballot, where? 13 states? So far. What's the most popular state they're on the ballot for? I don't know. It's okay. I don't know. Is that person more left-leaning or more right-leaning? We don't know yet. It's very interesting because even if they don't win any electors- Who do they pull from? If they pull 4% to 5% of the vote, that could be enough in states like Michigan, Ohio, Pennsylvania, and Nevada. So it's de facto, it's a spoiler. It's a Ross Perot.

I sent them eye on the market this morning. Yeah. An hour later, the head of the no-labels movement contacted me. Wow. I want to present my case to why we're not just in this as spoilers. I want to present my case to why we're not just in this as spoilers. We believe that we can win a majority of electors because everyone is so dissatisfied with the two candidates that are going to be running. We think we can win this election. Here's what they don't know or maybe they know but they wish it weren't true.

The majority of voters are single-issue voters. I won't say which issue. Some are abortion. Some are guns, right? But generally speaking, most people, they have that one thing. And if you disagree with that one thing, there's no way you can convince them that this is a good candidate for any other reason. So no label doesn't work in that world. Right.

But this – it's going to be interesting because Robert Kennedy is also polling and he's running it as an independent too. Did he draft Andrew Yang? Is that in progress? Did you hear that? That I haven't seen. Okay. That's really interesting. Put it this way.

Given how crazy this year has been, maybe it's Bowen Yang from SNL. Anything is possible. I saw Andrew Yang in an airport, and he was signing autographs, and I guess he was waiting for a flight. But he has something. I'm not saying he's electable. Robert Kennedy is a charming guy. He's no younger than Biden and Trump, but he actually presents older.

Who? Robert Kennedy? Kennedy presents older than Biden when you hear him talk. Yes. I've seen him do shirtless pushups. He's got pecs. I know, but how old is he? You know, when-

75, he's not 78? When I was six or seven years old and his father was assassinated, I was like a weird kid. And I wrote a condolence letter, like in crayon to Ethel, his wife. And I got a handwritten response. That's amazing.

And I don't know. I mean, I think I choose to believe it was from Eth response. That's amazing. And, and, and I don't, I mean, I think I, I, I choose to believe it was from Ethel could have been from anybody, right. But I choose to believe it was from Ethel and it would hung on my wall until I went to college. You know, so that's your single issue vote. You're voting for Kennedy because no letter. So I have this weird attachment to the guy where I want to believe him. Some of the stuff he talks about on Ukraine is very interesting, you know, because he's kind of tied in with John Mearsheimer at the University of Chicago, who was kind of talking about, you know, NATO pushed its luck. And at the end of the 1990s, there were a lot of people that were kind of telling the Clinton administration,

if you keep moving the NATO barrier closer and closer to Russia, there's going to be a price to pay. And a lot of that stuff turned out to be right. So some of the stuff now, he loses me completely on the vaccine stuff. That's what I was going to say. I don't know if he can get over that hump

with independents who lean left. The taint of being a vaccine truther might be too tough for him to pull votes from those people. He's interesting. There are some days when he poses it as questions, and I have a lot of the same questions. My son has a peanut allergy. Why have peanut allergies increased by a factor of four or five over 30 years? What's going on in the food supply? There are legitimate questions to ask, but there really aren't any legitimate questions to ask about general vaccine safety. The numbers are very clear,

and there's a lot of disingenuous science that's being floated by the Children's Health Defense to argue against that. So he loses me there, but I have a soft spot for the guy. I ask you from an investing standpoint on the election. We're not getting questions from clients right now. I think clients are like politicsed out. Well, not just that. The last time we had a filibuster-approved majority in the Senate was when the Affordable Care Act was passed. There's no way I could imagine a 60-vote filibuster-approved majority in the Senate for either party happening anytime soon. So you can't get the kind of transformational policies that would radically change. So that's my answer to anyone that would say like, is this a risk for the market? Yeah, of course it is. Everything's a risk to the market, but this is two lame duck

presidents running against each other. Yeah. And, and, and, you know, the, the degree of freedom around what actual policies are going to result from this or from investors are marginal. Go ahead. Jake Sherman just tweeted, the special counsel report says that, let me just read this. In his interview with our office, Mr. Biden's memory was worse. He did not remember when he was vice president, forgetting on the first day of the interview when his term ended. If it was 2013, when did I stop being vice president, is a quote, and forgetting on the second day of the interview when his term began. He did not remember even within several years when his son Beau died. Where is this coming from? This is a special counsel.

This is an interview. This is from Teen Vogue. This is what we're dealing with. Two very elderly men. And it's not ageist. It's not ageist to point out that we know empirically cognitive abilities decline. Look, one of the reasons that I keep working, I'm 61.

When I've seen personally that when people retire in their 60s and kind of do nothing, their cognitive skills, mental recall, all sorts of stuff declines, right? And like most men in my age, the last thing my wife wants me to do is to be around the house. See, Michael doesn't believe me. I tell him when I hit my number, I'm gone. I don't care about my cognitive abilities. I'm going to disappear into the wind.

He says no way. I think there are some really important discussions that have to take place with the president and his family in terms of whether or not he can handle the rigors, not just of the campaign, but of the election that follows. This is stressful for a 50-year-old man. Remember how public opinion changed on Ruth Bader Ginsburg, right? She was idolized her entire life.

She made a choice at the end. And some of the people in her own party kind of look at her differently now because they see that choice as having been made. Meaning at the end of Obama's term, she could have raised her hand and said, replace me. Yes. And she didn't. Right. It might not have mattered.

Obama tried to replace a different justice. Merrick Garland, yeah. And they said no. And he said, oh, OK. Biden runs and doesn't win. You can imagine an enormous amount of recrimination based on whatever the exit polling might be about why didn't he give somebody else a chance. So let's just wrap it up. I don't know whether he's going to drop out or not. I have absolutely no idea who would win this matchup.

It's really early. Anything could happen. But in terms of the rules and how the rules work, up until and through the convention, if Biden were to withdraw, the DNC would be able to say, you know, at the convention, here are the new rules. Any delegates that have been won are unbound. So Marianne Williamson, Dean Phillips, sorry, but if you want any delegates, they don't count. They're all being unbound and freed up and can be voted at the convention for people that meet the following characteristics. For example, you have to have been a sitting senator or governor. So that's how they would narrow it down.

Oh, so you don't get crazy candidates from all over the place. They would establish the rules about who those delegates could vote for. Okay. After the convention, it becomes a papal puff of smoke. So after the convention this summer, if Biden were to drop out for health reasons, the DNC would meet in a room and make a decision

that if Biden drops out, he's now being replaced by- Dwayne Johnson. No. Or Murphy or Pritzker or whomever. Yeah. And that's how, so the process changes pretty substantially once you get past the convention.

It's going to have to be somebody that can raise money really quickly like a – I hate – Gavin Newsom. Somebody that's just like, I don't want to do this. I said I wasn't going to do it. But for the good of the party and the country, I have to do it. And somebody that can immediately start raising money. And that narrows the list down even smaller. I agree. So that's-

Anything else on the list? On my great list. RFK Jr. is 70, by the way. He's 70. All right, so- He's a man. So- He's a spring chicken.

Did you have fun today on the show? I did. If we had sound effects right now, I'd be playing like 80 rounds of applause in a row. You are so incredible. You always are. We appreciate you so much. This is only the second appearance I've ever made on a televised thing.

I'd like for you to sign an exclusivity contract when we've completed recording. Don't you want to ask me? Do you listen to any other podcasts? What did we miss? What did you want to ask me? Oh, I thought you were going to ask me about, like, movies. Yeah. Don't you ask about that?

We do favorites. Let's do it. What do you got? We want to hear your favorites. What are you watching? I'm not, you know, super normal when it comes to this kind of thing. I have some peculiar tastes. I like to watch documentaries.

Hold on. Yeah. Be careful. How peculiar? Well, I like to watch documentaries. I can't, I can't, I tried to watch Slow Horses. It was really well acted. Duncan loves it.

Love Gary Oldman. But like you get to a point where the action that's taking place is unbelievable. Like two people with pea shooters are, you know, killing all of these guys armed with automatic weapons. So once it veers into stuff that's not believable for purposes of the dramatic narrative, I drop out. Okay. So I love watching really – the strangest things in life are true. So there are some documentaries I've seen recently, which are kind of amazing. What's your favorite?

And are all – I like to watch people who are trying to find their parents or they're trying to find out their family history because it was cut off from them in some way. So there's this documentary called Sam Now, and it's on Criterion Channel, which is an app that you can get and watch movies. And it's about these two brothers that videotaped everything when they were kids. So they have all the footage. And their mother just left when the kids were like 15 and 17. She disappeared. Several years later, they go to try to find her. Like she's gone for over a decade. They try to find her and they find her. And they try to, on camera,

get her to explain what she did and why she did it. She was stuck in an ice cube, like in True Detective. No, not at all. What happened? And well, I don't want to spoil it.

So, but it's fascinating. And they think they're unaffected by it. And then as the movie goes on, you can see the effect it had on them. It's amazing. And then another one was called My Architect about the architect Louis Kahn, which is another one, a son that didn't know his father. And then kind of after he died, penniless in Grand Central Station, worked backwards to learn his story.

What did he build, the architect? He was one of the most famous architects of the 20th century. He did the Jonas Salk facility in California. He did the state house of Bangladesh, the one that's floating on the water, some pretty amazing stuff. I have to say, that is very niche. Yeah, I know. But that's the stuff I really enjoy.

You got a favorite for us? I have to say, that is very niche. Yeah, I know. But that's the stuff I really enjoy. You got a favorite for us? I have two. I binge-watched Band of Brothers this week. Told you. Told you. Is that one of the best things you've ever seen in your life? Do you remember this from 2001? 2001.

So this came out two days before 9-11. Band of Brothers. It's the true story of Easy Company in World War II. I didn't see this one. But it's made by Spielberg and Hanks, so it's just incredible. I was saying to Ben, the production quality. There's a scene where there's

bullets whizzing by in the night in one of the episodes. I can't remember which one. And it seems so real. I have no idea how they made that. I watched the first episode of Griselda. You see that? Not yet.

So Griselda Blanca was a gigantic drug dealer in Miami. And one of my favorite documentaries ever, Cocaine Cowboys, she is a prime character in that documentary. This is like a dramatization of it. Yeah. And so, what's her name? Sofia Vergara? Yeah. She plays Griselda and she was she's very good very convincing

yeah and most people think of her more for her looks than her acting so I'm really excited to see that she acted her you know what

she was great so I watched the Grammys Sunday night with my whole family so there's two teenage kids myself my wife my wife doesn't care

at all about music my daughter only listens to rap my son only listens to rap. My son only listens to whatever my daughter tells him is cool. And then I'm like a music polymath. I listen to literally everything. I feel like it's like one of the better award shows, the Grammys relative to the Oscars. And I ended up talking to like middle-aged friends of mine and randomly it came up. A group of five of us, we play tennis.

Randomly it came up. Every single one of them watched it. I don't know why, because it's not like me and it's not like them. But I feel like music is now bigger than movies for most people in America, maybe around the world, bigger than TV shows. It's like probably the biggest form of pop culture

that we still all share as Americans. And as a testament to that, every act that went on stage was from a different genre or a different generation. And the ratings were great. The Tracy Chapman thing went nuts. So Tracy Chapman had a Grammy award-winning album and song in like 1986 or something.

Whatever it is, a guy remade it last year. It was the number one song again. And he duetted with her. He's a country artist. It was so cool to see. And then that song, her recording, became the number one song on Apple Music and Spotify the next day. I listened to it on Spotify the next day.

Yeah. So I wanted to just point out, like we talk about how fractionalized everything's become and there's like no shared culture anymore. This is a counterexample that I hope we see more of. It really felt like everybody was watching and everybody had something to root for or to like during the show. Even if you wanted to root against Taylor Swift, who was there, of course. Like you had something to root for or to like during the show. Even if you wanted to root against Taylor Swift,

who was there, of course. Like you had something to root for and against, but you still watched it and your neighbors watched it. And I thought that was kind of a cool moment. Amen. One thing before we get out of here. Did you watch the most recent episode of True Detective? Yes.

What the hell is going on? Dude, they're going too- They're veering too supernatural for me, I feel like. I wanted to love it and they just... I mean, there's only two episodes left. I'll watch it, but it's... They turned it into like a... It turned it into like a ghost story. I don't know. I might be out. It's weird. Well, it's two episodes.

There's only six episodes. Alright. Let's... Michael, thank you. Let's let Michael get out of here. Let's tell people you're active on Twitter or you're just like lurking. You don't talk on Twitter, do you? No. No, but I'm active on- LinkedIn. LinkedIn.

I post all my turns in LinkedIn. Okay. And I- No OnlyFans. I have an Instagram account, but that's just my fishing adventures. Is it like, can anybody follow you? Yes. Your fishing stuff?

Yes. Do you have other fishing people like following you on there? Yes, I think. Let me back up. You do real fishing trips this is not like you off the dock in your backyard you go places no no for instance i in last october uh i went kayak fishing for sturgeon in british columbia we got some like six and eight foot sturgeon uh i have i go kayak fishing for tarpon and trinidad okay yellowtail and la jolla do a lot of fishing on

long island so i'm really into it so the anglers that listen to our podcast would probably love i have some great pictures and videos that they would like to see okay uh everybody follow michael semblist on linkedin michael we want to thank you so much for your time it's just been such an honor and a pleasure and i hope we can do this again and on behalf of all of your readers out there and i know there are many, thank you for all the work that you do each month. It's incredible. And we all get so much out of it.

Thank you. Thank you. Thank you very much. Good to see you guys again. All right, we're going to wrap it up. Hey, Compounders, make sure you do the ratings and the reviews on all the platforms, do all the things. Thank you so much for listening.

Thank you for watching out in YouTube land. We will see you soon. All right, so that was the warm-up i just wanted you to get a sense of like the give and take sorry