The Compound and Friends - Warren Buffett vs American Capitalism

Episode Date: May 16, 2025

On episode 192 of The Compound and Friends, ⁠⁠Downtown Josh Brown⁠⁠ is joined by Chris Davis and John Authers to discuss: Warren Buffett's Legacy, the future of Berkshire Hathaway, 3 massive transitions happening in the market, the trade war, and much more! This episode is sponsored by Apex Fintech Solutions. Learn more at: ⁠https://apexfintechsolutions.com/augmented-advice⁠ Sign up for The Compound Newsletter and never miss out: ⁠⁠thecompoundnews.com/subscribe⁠⁠ Instagram: ⁠⁠instagram.com/thecompoundnews⁠⁠ Twitter: ⁠⁠twitter.com/thecompoundnews⁠⁠ LinkedIn: ⁠⁠linkedin.com/company/the-compound-media/⁠⁠ TikTok: ⁠⁠tiktok.com/@thecompoundnews⁠⁠ 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

So nobody has done the Warren and Charlie GPT yet that I'm aware of. Doesn't that seem obvious? It does rather. As soon as you mention it. I'm about to do this. What would Charlie say? The Rittholtz Warren check GPT. The problem is if you ask it certain questions, it would say I have nothing to add.

Yeah. And no one's looking for that. You'd be lucky if it didn't say asinine. All right. So, John, thank you so much for doing this and Chris, it's great to see you again. And this should be a lot of fun. There are going to be some sound effects in your ears. So yeah. Don't put these on.

So for example. Got it? I'm going to play those after my heavy intervention. Okay. So, for example. Excellent. Got it? All right. All right. I'm going to play those after my every intervention. Yes. Yeah. Yes.

All right. This is going to be awesome. I'm so excited to have you guys. How are we looking, everybody? Warren and Charlie, you ready? Yes. All right. John, this used to be a conference room.

And then in 2021, I said, we may never have an in-person meeting again. What else can we do with this room? True story. And Duncan and John transformed it into a full-fledged studio. I at one point actually felt the need to make myself a rule that I had to talk to another human being. In person. Out of the blue at least once a day. Yeah.

And obviously I only did that because if I didn't force myself to do that, I wouldn't. You could get through the day so easily without human contact. Yes, increasingly more so these days. Not good. Yeah, I agree. Although I did like, did you see Jamie sort of dialing back his rant about in-person being in-person? Yeah. And it went sort of viral.

And then somebody asked him about it. He said, well, I was emoting a little bit. Yeah. He said the greatest thing I've heard on the subject. He said, I work from home on Saturdays and Sundays. That one wasn't very popular. Jamie has more equity than most of the people that landed on.

So are we ready to go? Yep. All right. All right, coming in with three claps. Hey John, what episode number is this? Gosh, we are on the common friends episode 192. 192. Whoa, whoa, whoa. Stop the clock.

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Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnick, and their cast mates 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. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. My word. Do you believe we've done this 192 times, John?

We have. We have. We have. Maybe more. Some would say more. Were you working up a list or down a list? Yeah, yeah, yeah. All right. Guys, this is a real treat for me.

I'm so excited. Chris Davis is our returning champion. Chris is a chairman and portfolio manager for Davis Advisors, an investment management firm with over $20 billion in AUM. Chris is a portfolio manager for the Davis Large Cap and Financial Portfolios. Welcome back, my friends. Thank you so much.

A pleasure. Looking good. You're giving Peter O'Toole. Well, you know the thing about wearing a sweater vest is my wife said to me, I love seeing you go out to work every day in your sweater vest. And I said, why? And she said, you said you like the way it looks.

And she said, no, that way I know you're not having an affair. Oh, I love it. Love it. The real Santorini. And here with us for the first time, John Authors. John is a senior editor for Markets and for Bloomberg Opinion Columnist. John is a former chief for markets and for Bloomberg opinion columnist. John is a former chief markets commentator at the Financial Times and he is the author of the

fearful rise of markets. John, thank you so much for doing this. Thanks for having me. All right. Pretty good. Can I ask you, when did you move from the FT to Bloomberg opinion? Six and a half years ago now. 2018. Okay, six and a half years. Okay, your columns, I think you're every two weeks-ish or every week. How frequently are you publishing? Well, I publish every night. The newsletter. And now I'm doing a weekly column,

which is a new thing and I'm going weekly. Okay. And you cover the gamut, because I read your last 10 columns or so in preparation for this. And you hit on it. Yes, carry on. But that's your polymath. Is that too far? I like to think so. But if you want to boost my ego that way, I'm only too happy for you to do that. That's what I'm supposed to do. I'm supposed to cover the waterfront. That's the idea. You certainly do. And I appreciate all the stuff that you write and everything that you've done over the years. Guys, I want to start by playing a very short clip that I think

sets the table for what we're going to discuss very nicely. John, if you would. The time has arrived where Greg should become the chief executive officer of the company at year end, and I want to spring that on the directors effectively and give that as my recommendation. Let them have the time to think about what questions or what structures or anything they want. And then, as the meeting following that, which will come in a few months, will take action on whatever the view is of the 11 directors, I think they'll be unanimously in favor of it.

And that would mean that at year end, Greg would be the chief executive or officer of Berkshire. And I would still hang around and could conceivably be useful in a few cases, but the final word would be what Greg said in operations. Okay. Now, that of course was followed by probably 10 full minutes, would you say, of standing ovation at the Berkshire annual meeting. It was a pretty major milestone, I would say, for all investors. It's kind of feels like the end of an era. Warren Buffett is now 94

and he's been at it since 1965. Is that right? Is it a full? The Buffett partnerships might even have been before that. Yeah, the Buffett partnerships went into the 50s. I was going to say the tenure at Berkshire though. Berkshire is 60 years. Yeah, it's a full 60 years. Pretty incredible. Alright, first of all, I guess what I'd love to hear from you, John, is how that landed on you when you saw it.

As you said, I have known nothing. Berkshire Hathaway, or Warren Buffett's position at Berkshire Hathaway is slightly older than I am. Okay. Let alone in my professional life. So it's a very strange thought that he isn't going to be there as a constant. The second thought that occurred to me, which I think is one of the many candidates for smartest thing Warren Buffett ever said, is what he's looking for. I don't think Warren Buffett is a genius as normally

understood, but when it comes to EQ, emotional intelligence, he probably is. And when he was starting to look for people to take over managing the portfolio, again, Chris can correct me if I'm wrong, but I seem to recall that what he was asking for then was emotional intelligence. People who were in control of their own emotions, who knew their strengths and their weaknesses and who could live with admitting mistakes and so on.

And obviously we're still living in the shadow of the tragic error Joe Biden made in not recognizing that it was time for him to hang up. Yeah. I think he was fine. A lot of people forget their wife's name. But yeah, it's difficult to admit that it's time for you to stand down. It doesn't take a genius, but it does take somebody with fairly special qualities to realize and accept that now is probably the time it better go. My curveball isn't quite as good as it was, which in Warren Buffett's case after 60 years seems reasonable enough. So that was the other thing I thought. I say this to Barry Ritholtz all the time. So all right, but so there's something emblematic

though of that. He's not a boomer. He's greatest generation, I think, right? Born in the 30s. He was born, conceived, I think, right after the market crash in 29. Yes, he was born in 29. So, okay. So, he's of that generation. But I do think we are at a moment where the boomer generation, they are, I mean, these were our clients. So, we have these conversations with people.

There's a huge number of Americans right now and over the last few years and over the next few years to come that are being faced with that idea of I may not be fully aware of everything that's going on to the extent that I was. Yes. The admission doesn't have to go further than that.

It doesn't have to go into a place where, you know, I can't take care of myself or I can't think for myself or it's just I may not be what I was 10 years ago. And I think that a lot of people are faced with that right now all over the country. So I thought that was somewhat emblematic of this kind of changing of the guard that we're experiencing in the economy. It's the problem of life insurance developed because the problem then was that too many people didn't live long enough. Now it's all about pensions because the problem is too many people in many ways live too long or live longer than they were ever planning to. And it's very emblematic that the guy has done as much as he has for boosting the savings of many people also works out that he needs to, works out that

this is a good time to leave. Right. I think that's apropos. You are, Chris, you are a board director at Berkshire Hathaway. Tell people a little bit about from the inside when that came out. I know it was a surprise. It was like a not surprise surprise. People understood the succession, but maybe not the timing of the announcement.

Well, I'll give you first a big disclaimer. I've been going and attending Berkshire meetings since about 1989 and one of the first stocks I ever bought and I'm definitely a card-carrying member of the cult. So, everything I, everything I say, I should be, I'm talking as a long time investor and owner and deep fan of the company. However, it sounds like there's a however. Well, I just want to say that, you know, I just, I never want to ever be in a position

as if I'm speaking for Berkshire or speaking as a director. So, I'll give you that as sort of a caveat. You know, what I'd say is if you went to see, you know, Babe Ruth playing, you know, late in his career, and you know, if he was 44 years old and he'd won the World Series and he announced his retirement,

it would be both a surprise and not a surprise. So, you know, the funny thing is I was sitting next to my dad when he made the announcement and I was sitting next to my dad at my first Berkshire meeting. And it was shockingly emotional and surprisingly so because in some ways, as I say, it's not a surprise. This has been a transition.

I went back to that first meeting and realized that today I'm older today than Warren was at that meeting. And one of the questions I asked him at that meeting is what about succession? So. So. So.

So. Well, you got your answer. You had to wait, you had to wait a minute. You got your answer. All right. When you say it was emotional in the room, can you describe it? Well, I think there was this sense, I mean, in a funny way, it was, you know, when Charlie died, he was 99 and three quarters, right?

Who could be surprised to get the phone call? And yet he was also eternal, right? So there was something, he was so timeless and he had been so much a part of our sort of universe for so long that in that way it was like a parent being gone. It's natural in the order of things, but you also, your whole existence, they've been there. So it feels very unnatural. It's incredible that he went, made it to 99 and three quarters. Nobody asked for an autopsy after that one, to your point.

Although I did ask him what he wanted for his birthday, and he said, oh, I'd like a paternity suit. I want some young, good-looking woman to accuse me of impregnating her in a moment of passion. Right. And publicly accuse me. You can guess the way he was saying that when you're 1990s. And he said, I would wish for it to be in the LA Times

for all my friends to read. Well, he escaped that one. But people in the room, I thought I loved, it seemed like very impromptu. Like the standing ovation and they stayed up. And I can't read him because I don't know him personally, but he seemed like emotional about it. Yeah, it was, I mean, certainly... He didn't start crying, but he's...

The sense I felt in the room was this incredible gratitude and the sense of an entire 39,000 people wanting him to feel that sense of job well done. There's an old Episcopal hymn, Church of England hymn, Come Labor On. And the last line of the last verse is, you know, at the end of all of this laboring through the morning, through the heat of the noon, through the afternoon,

into the dusk, at the end of the last verse, it says you'll hear your master's voice saying, well done. And I think there was this enormous outpouring from this crowd of wanting that to be conveyed. It was one hell of a run. If the job well done, if the job itself was creating shareholder value and building a company, it would be impossible to envision a scenario where somebody could have done it better.

Well, but really it's not in a sense that the transition is even that will really Warren would say that would be his legacy. He's built Berkshire to last. And you can think of so many iconic CEOs from Jack Welch and Sandy Hank, you know, where that transition was really went out at a high and often left a success or something that was really stressed. And I think the culture at Berkshire is so much the opposite. I always said there are very few CEOs that want to make their successor's job easy, that feel a sense of duty to their successor nearly as much as Warren and Charlie have. John, these days they come back, like Howard Schultz had to come back,

Bob Iger had to come back. John Pepper a few years ago at Procter & Gamble. Yeah, United Health has a returning. Yeah, it's Chris's point. That's not easy to do with any type of organization, but something as sprawling and complex as this, it raises the stakes because how does any one person fill the shoes of a Warren Buffett? Well, I suspect they don't.

Yeah. My best guess, because this is what happens to conglomerates, is that it probably will be split up at some point in our lifetimes. Not swiftly, but it's just so difficult to make this thing work, and it's hard to think of anybody. I mean, again, Jack Welch, we've just mentioned mentioned Jack Welsh, that was an amazing conglomerate that ceased to function as harmoniously as it had been almost as soon as the great architect moved on. So I would imagine that what, not knowing, I've met Warren Buffett, but I can't say

I know him. But I would imagine that what he's looking for in success is people who will have the calmness and the judgment to see when it's actually in the best interests of their shareholders to begin to take that empire apart. I don't think they should be in a hurry for it. I certainly don't think they should take any less for them than they can, but there probably will become a point when it's not worth as much as the other parts. He did go out on top and the stock hit an all-time high in market capitalization the

same week that he made this announcement. I also think having, to your point, it's not one person. So having Ajit Jain stay on in insurance and having Greg as CEO, and then having the investment lieutenants running the portfolio, you don't need one person. And then having his son as the chairman. So you've got like the nucleus of something that could continue in its current state. Well, I'd only push back to say I don't think that it's in any way obvious that given the unusual structure of Berkshire that there's a scenario where it should be worth more separately.

There's enormous efficiencies to the structure that they have in the ability to allocate capital across the businesses. And Warren's made that case and I think it's unarguable. I think an interesting thing to think about is, one company I like to think about is Exxon. And so let's say Standard Oil. If I was to ask you to name the second or third CEO of Standard Oil, I bet you'd be hard pressed.

And yet, Standard Oil was among the most valuable companies on earth for 13 decades. And because it was built to last, and what I mean by built to last is you had two factors that the builder genius John D. Rockefeller did that are perfectly analogous. One, he built and put together incredibly long life to assets. So think of the executive compensation plan at Exxon, vest 10 years after the retirement of the CEO. That's unique in corporate America. And that ties to the second point about Exxon, is that it was also built with a very idiosyncratic culture

that resisted Wall Street. Remember the old saying at Exxon was governments come and go, but we're Exxon? It was a long-term engineering rational culture that resisted fads. And I would say those two things without any cult of personality after John D Rockefeller enabled to this very day Exxon to be one of the most valuable companies on earth for whatever it's been. It's like a belief system. It's like a belief system and I think in the case of Berkshire there's a pretty strong, you could call it a personality cult in some extent of of course, I mean, obviously, to some extent it is, but I also think it's a cult of ideas. And rationality, right? In other words, the ideas that it resists fad, it's hyper rational, it's high, you talked about emotional intelligence or thoughtfulness,

it's very long term oriented, and you have very long lived assets within that company. So I think, you know, in that sense, I always think of that as the sort of model that I can imagine. Yeah, Wall Street wrote a report, they said they need Greg Able to be 36% more folksy. That's the bulk case is they need him tossing newspapers at fake doorways and eating lollipops. So if there's any way he can do that.

It'll be interesting to see if and what changes. You both kind of sound like you don't expect any big changes anytime soon. I don't either. Well, he's sitting on an awful lot of cash. If some of the scenarios for a big market break come true, which I can certainly believe they might, then yeah, they might get the chance to make a big deal quite early on. They built up $300 billion worth of cash, which is in absolute terms a lot of money, but also in relative terms, it's one of the highest cash balances versus the rest of the

investment portfolio the company has ever had. So in both relative and absolute terms, a lot of money. And my idea was probably he wants to leave a clean slate for the succession and to yes, of course, there weren't huge opportunities in their mind. If there were, they probably would have jumped on it. But I also think a lot of the urgency wasn't there. And I want to quote you, John, something from the Wall Street Journal today. And I think this kind of feeds into that idea. A Wall Street Journal reporter got Buffett on the phone and asked him, you know, why now? And this is what he said, there was no magic moment. How do you know the day that you become old? I didn't really start getting old for some strange reason until I was about 90. I love him. But when you start getting old, it does become,

it's irreversible. He began to lose his balance occasionally and sometimes had trouble recalling a person's name. Suddenly, the newspapers he read looked like they were printed with too little ink." So why do an elephant gun size deal, I suppose, over the last four years if that's the way that you've been feeling? I mean it's possible that you can see... I don't think he's lost his emotional intelligence. The fact that he recognized his own, you know, those elements of his decline shows that. Yes, he probably has a higher bar. He needs to be even more convinced before he presses the button on a deal than he normally would be, which is a wonderful example of what it is to be in control of your emotions

and why that's what really matters. Just thinking of, I knew there was a quote I was trying to think of, that the worst succession plan I ever heard was when Sumner Redstone, who I think was late 80s when they asked him this, asked what his succession plan was, his reply was, I don't intend to die. Yes. How did that go? For the record. Yeah, not great.

Amazing to relate to. Not great for him or the company. He, not great. Amazing to relate to. Not great for him or the company. He is the valedictorian of Boston Latin, but he was mortal. Yes. Well, I think he spent 20 years fighting in courts with his daughter. And I think at one point, his two caretaker nannies or nurses had control of the voting rights of the company.

He was a living ghost for about five years and the nannies were running the show. You might want to follow the Buffett example rather than the Sumner Redstone example. I think that is something you could extend to all sorts of aspects of life. Yes. Professional life. I like that. All right. So now let's look at the dark side of Warren Buffett because John wrote a column that stirred up a lot of emotions. I sort of, I understood the premise of what you're saying and I don't reject the premise out of hand. But I want to ask about the piece and then I want to ask about the reaction to the piece. First, let's start with the title. Warren Buffett versus American Capitalism. Is that the editor or is that you? I signed off on it. It's the editor.

But I'm given a choice. And that's aggressive. That was... You have to decide whether you're going to... You've got to get... I mean, it's with any matter of headline. Is this clickbait? You've got to get something that somebody will...

Well, yes, but I mean... Yes. We do actually want people to click on our posts. The answer is definitely... It's this profit bait. It's this revenue bait. You know, so anyway... Can I tell you a funny It's this profit bait. It's this revenue bait. So anyway, carry on. Can I tell you a funny story about this?

Yes. You wrote it on May 9th, 2025. Was that right before or right after the announcement? Right before the Berkshire Weekend? Oh, it was just after. Okay. I was asked to write a piece after it had happened. Okay.

And basically there were two million pieces stating correctly that Warren Buffett was wonderful. Yeah. No, I like that you went that way, but I want to tell you the story. What is the point of piling on with yet another... you just need to look at his investment returns to see the man was special. Let's at least see if there's something to discuss here. So before we get into the meat of it, the way I get my news, I'm off of Twitter, the way I get my news is Google News. So the algorithm knows me pretty well and it has a for you column and it tells me what, you know, gives me my opinions back to me, but in the words of other people. No, it tells me what I'm going to want to read about. And all I saw was Bloomberg opinion and the title, Warren Buffett versus American capitalism.

And I said, if Barry f***ing Ritholtz wrote this article at Bloomberg, I'm literally going to drive to his house and choke him. Thankfully, it was you. And not Barry. And you didn't drive to my house and choke me, which is... Not yet. Not yet. That I could survive. That I could survive.

Shout to Barry. All right. So, I want to read your intro to the article and then tell us what you're thinking. Warren Buffett, in the eyes of JP Morgan Chase's CEO, Jamie Dimon, represents, quote, everything that is good about American capitalism and America itself, investing in the growth of our nation and its businesses with integrity, optimism, and common sense. 99% of the people who hear that quote would say, yup. John said, does he really? Yeah.

All right. Give us the story. Now, let's be clear. I never at any point questioned the final three or four words of Jamie Dimon's piece that he did it with humor and integrity and whatever else it was. I think there are two points I wanted to make. The first is, I'm not sure he's an exemplar of what is great about American capitalism, because the mere fact that Warren Buffett's career happened, and that he existed, and that he could do what he did, shows that there's something fairly inadequate about the way the rest of

American capitalism is done. From a wealth concentration standpoint. Yes. Well, no, no, there is that. But I wasn't trying to get sociological about it. But the sociological about it. But the notion that if you look at the way most money is managed now, it tends to be done in a way that Warren Buffett shows you can do better than. Or at least if you're as good as Warren Buffett you can. The amount of money that Wall Street makes offering you quantitative models to take approaches which know for a fact they're not going to beat Warren Buffett, or that only offer you impressive returns by taking the kind of risks that Warren Buffett would never take. In many ways, I also have great respect for Jamie Dimon. I don't think he is an example of everything that's good about American capitalism

so much as showing up a large swathe of the rest of American capitalism. So he's very good at playing a game, but he's not an exemplar of something that you think overall is great? He's an exemplar of something that would be wonderful if all of American capitalism were like that. But he tends to demonstrate that in fact American capitalism isn't all that wonderful. The idea of an American capitalism where every CEO of every company was as good at their job as Warren Buffett. It's never going to happen. I would like to live in that country.

The second point I wanted to make, which is the one that really got people angry, was that Warren Buffett has this very, very famous concept of the wide economic moat. Which is, if there is any one key to his success, arguably that's it. That what he's most interested in is... Non-disruptible, difficult to compete with companies. Yes. Yeah, I think most people would agree with that. And obviously, it's not easy to find them because everybody can see that it's a good idea to find such companies and Warren Buffett has been better at finding them than anybody

else who's ever lived. So I'm not saying it's easy to do that. That's the part that you got the most blow back from. Simply because what that tends to mean... Besides from Chris, like other people. Oh, no, no. Chris is... I mean, I've got one of the rudest ones here, if you'd like me to read it. I would. Okay. So, Buffett vs. American Capitalism article.

Only... This probably sounds better in a British accent. I imagine the guy who wrote it necessary to write unsophisticated, passively aggressive drivel about Beauvets and his incredible success. Your bloviation is even more ironic considering you are a W2 junkie working for a billionaire who made his own moats by becoming the largest and arguably most watched financial news purveyor. So let's bring Mike Bloomberg into this while I'm allowed to say this word on this. Who the f*** are you, a writer, a craft with so much innovation and positive human impact, to judge businesses that employ hundreds and thousands of people

and purchase billions of dollars of inputs, are not good for America." In your insular, zero economic value, opinion writer world, you create nothing but hot, subjective air, and yet have the hubris and ignorance to denigrate the world's greatest asset manager and ultimately philanthropist, who has created massive lasting economic value for millions of people all over the world, including donating his billions to many charities. What a pathetic, insignificant little parasite you are. All right. Duncan, do you want to apologize?

He really needed to take a deep breath and tell us what he really thought. Hold on. Did this guy identify himself? Yes. I'm not going to do that. I don. Did this guy identify himself? Yes. Oh, okay. I'm not going to do that. I don't think... No, no, no. It's okay. Is it somebody that works in finance or a professional investor or just like a regular person? Seems to be just a regular person. Okay. Have you...

I have anger management issues. Yeah, well, yeah. I mean, I've had letters which were not, obviously, quite as over the top, outspoken as that, but I've had notes, this is on a similar tenor from people's corporate email addresses and from their Bloomberg addresses. Okay, I've been on TV for 14 years, you should see the shit people send to me. Oh yeah. If somebody owns a stock and you say the slightest thing that's not positive about that stock, Oh yeah. it just, you're opening up the floodgates. But how did you respond to that? Like, how did that land on you?

of the floodgates. How did you respond to that? Like, how did that land on you? To be honest with you, that particular one, I laughed uproariously, shared it with my daughter, my wife, my parents. What else could you do? Shared it around. I mean, there comes a point when you can't respond to something like that. Like, dear sir, I am not a worthless parasite. Yeah. And I am not. You can't respond to something like that. Like, dear sir, I am not a worthless parasite. Yeah, yeah, yeah. And I am not, you can't, you can't... I like what Bill Buckley used to do

when people would write an angry letter to him at the National Review, and they would say, and finally cancel my subscription. And he would send a postcard back that said, cancel your own damn subscription. No, in general, it was interesting. I should say I got quite a lot of very positive feedback as well. Almost all of it from people in the industry who are just delighted for anybody to say

anything negative at all about Warren Buffett. I did get it. I did get it. And by the way, you didn't get person... You didn't say anything negative personally. I think you were describing a system in which Buffett has been able to thrive. Oh, I was very careful to make clear. I said this at the end.

One of the most remarkable... There are so many remarkable things about Warren Buffett. To have made that amount of money over that period of time, and I could count maybe two or three intimations of impropriety in the whole time he was making that kind of money. I mean, it's extraordinary that you can make that kind of money while still... And not even personal impropriety. Like, uh...

Yeah. Uh... Stayed married to his wife until she passed away. Yeah. The guy from Precision Cast Parts was not great, but that had... Buffett got rid of him. Uh, the Solomon Brothers episodecision Cast Parts was not great, but that had... Buffett got rid of him. The Solomon Brothers episode, he bought the company.

The American Express salad oil thing very early in his career. Right, these are so minor compared to... He had to get out of that. I agree. Yeah, so I... Certainly, if I tried to make some sort of scape-less attack on the man's character, that would have been seriously... Here's where I took it.

I didn't. Here's where I took it, she'd love to hear what you guys think. It's true that he likes to invest in businesses with white economic moats, to which I would say, A, who doesn't? And B, let's not act like for every Coke, there's not a Pepsi. For every American Express, there's not a Visa. For every, uh, Burlington Northern, there's not a, I don't know the names of the other railroads. In the case of American Express, bear in mind that he also has Visa and MasterCard. Okay, fine.

Fine, fair. It's only a triopoly, but he does have all three of them. Fair. But I do think that there are countries, and there are companies in countries, specifically in the emerging world, where there are true economic monopolies, they're government mandated, they don't even try to hide it or pretend it's not that way. specifically in the emerging world, where there are true economic monopolies, they're government mandated, they don't even try to hide it or pretend it's not that way.

In the case of the Berkshire businesses, if you name one, and I know there are 400 businesses he owns, 300, give or take, if you name one, I could probably, without a Google search, tell you what their competitor is? That's fair enough. Okay. Obviously the word you can get into, you can get into, you can get into sort of very nitpicking about the language. You can, you can, a monopoly really does require just the one company. You can refer to monopolistic factors when there's more than one company. You could, You can change the word to oligopolistic, or you can just continue to say monopolistic. But it's the same.

It's only a somewhat watered down version of the same thing. So in terms of where the moats come from, I should also say I'm fascinated by this because I actually covered, when I was at the Financial Times, I was the Mexico bureau chief for four years, at the point when Carlos Slim took over as the world's richest man. And he basically had the most, the deepest, most impregnable, alligator-filled moat you could possibly imagine built for him.

He ran the cell phone company and... Yes. But the thing that was interesting was that he successfully bid for the landline monopoly, and then stayed so far ahead of the regulators and the lawyers that he parlayed that into the cell phone monopoly. And he got the money to do that in the first place by doing, he, like Warren Buffett, recognized the importance of cash. He owned more or less every cigarette distributorship

in Mexico. And the way that tax collection for cigarettes works in Mexico is that you, the company, collect the tax when you sell the cigarettes to the punta. And you only pay them over to Hacienda, the treasury, once a year. So you've got an even better version of a carry, a float that you can invest

than Warren Buffett got with Geico. Before you pay your taxes, you can earn money on that money. But anyway, so I am fascinated by monopolies and how they stay on. But in the case of Slim, he was gifted a monopoly, almost literally gifted. He didn't even pay enough for it when they sold it. And then stayed ahead of the law to make it a far bigger monopoly in far more areas over 20, 30 years. Now, for a Buffett-relevant example of something which is not a monopoly in the sense that there's no competitor, but where it's behaving in a way

that isn't really what we like to think of as capitalism, creative destruction, building the world. There is Coca-Cola, which is the biggest, it's far more dominant over Pepsi than in Mexico than it is in the US. Mexico is its second biggest market total. Maybe that's out of date by now, but Vicente Fox was the head of Coke in Mexico and parlayed that into becoming the president. The Mexican equivalent of 7-Eleven, OXO, belongs to Coke. So they stock the shelves with what they want. They have vertical integration.

Yeah. You don't get any Pepsi there. You get plenty of stuff that isn't Coke in terms of brands for products that they don't have a competitor to. Go to any tiny, pathetic, poor pueblo out in the countryside. There will be a beautiful table outside the restaurant with the Coca-Cola logo on it. All the umbrellas have Coca-Cola written on them, et cetera.

It's not a monopoly in the sense that nobody can compete with them. It's very hard. But in terms of they have built verticals from it to make themselves impossible to compete against in huge swathes of the economy and to make it very much easier for them to set their own price in many contexts. Now, that is monopolistic behavior, or it's totally rational behavior for a capitalist to do. And if you've got a relatively weak government like Mexico, which will let you do it, why shouldn't you do it? And they obey the law.

But as somebody who cared about living in this middle-income country that is forever trying to break through to becoming a wealthy country and failing to do so, I would have preferred a kind of capitalism that actually disrupted and creatively disrupted. And as Coca-Cola is one of his most famous holdings, I think that's a good example. I'm not a socialist, but there are varieties of capitalism, and that's not necessarily the one I'm happiest with, even if it's one that makes a lot of money. I guess I get the idea that that's an emblematic investment for Berkshire. It's one of the stocks they've made the most money on.

It's also at an all-time high right now, which I think would surprise people. What's always struck me as so funny about Coca-Cola is that for most people, you sit in a restaurant and you say, I'll have a Coke, I'll have a Diet Coke. We don't have Coke, we have Pepsi, who cares? Sure. Like, I always, I don't know,

I always thought of those two things as being interchangeable and- Speak for yourself. Okay, all right, go on. But no, I'd say first, I read everything that John writes. I think he's one of the most informed, thoughtful columnists. And when you talked about, you know,

if Barry had written it, you were gonna go over and strangle him. I was gonna go over and strangle John on this one. And the reason is, I think that the language of using a term like monopoly is provocative. And it's provocative in a way that the less you know, so unlike the points that you're raising, the less you know, the more you think of it as something illegal, right? A monopoly bad. And so to say, now...

I think my readers are probably reading it to the level where that may not be, but I do take your point. But it's also, and then when I look at, you know, if I look at the portfolio of any successful large cap investor, let's just start with that. You know, you're looking at a couple of hundred companies that almost by definition exist in what you would call an oligopoly because three or four companies have a

big position. This is a power law though. This dominates everything. It's a power law. And so, you know, you think about the history of Berkshire, a huge investment in Wells Fargo, they had a huge investment in, in, uh, uh, Cap City's ABC. Uh, you know, these, so I think when you think about a moat as being inherently monopolistic versus, uh, the idea of a, a, uh, for example, Costco is a Berkshire doesn't own Costco, but we own Costco for a long time.

And you could argue Costco has no boat whatsoever But I feel by the way you were writing you might argue that oh, it's another oligopolistic Advantage wide moat business and yet it's fiercely competitive and it's competitive because it's low-cost Geico is competitive motor. I motes are not a negative thing. So if you open a Walmart next to a Costco, you're probably going to take 20% of its sales away. But you're not going to take 100% of its sales away because the shopper at Costco is paying a membership fee.

And that is the mote that they have built so that they still exist and Sears doesn't. Kmart doesn't. Gillette razors, once you've got the razor, you then pay for their blades. This is my handle, therefore I buy the blades. But do you want a cool Charlie Costco story, just because I'm looking at it here,

but if you wanted to think of something extraordinary, because you could look at that membership fee and say if instead of, there's certain people that will not pay a membership fee, right? Just, they are against it in principle principle or they're disorganized. So there are customers that do not go to a Costco that would go to a Costco if they didn't have to pay a membership fee. Yes. And if Costco raised their prices, the membership fee, I think represents about 2% of revenue.

Is that true? Yeah. But it drives the rest. Well, it's their net margin is 2%. Their average markup is 10%. Now, I think I could be wrong. I think Walmart's average markup is about 28%. But here's the interesting thing that Charlie said to me once is,

is he said, if you were to look at the difference in shrink, which is the fancy word for theft, shoplifting, stealing between Costco and the average big box retailer, that would be a hundred percent of their profit margin. So people steal less. And remember, theft is half employees and half shoplifters. And that's an incredible thing. And of course, part of that is the membership fee. Right?

If you're giving somebody a- It's very unlikely you're going to register as a Costco member and then try to loot the place. Well, in the same way that if you're a government employee, you are likely to be a safer driver. So they give employees a- If you were USAA, you're more, an army officer is less likely to commit fraud against an insurance company.

So you were intelligently choosing who you wanted as customers, but using a separate variable. And so it's an interesting part of Costco's model that I admire. But anyway, so I just felt that monopoly was a bit provocative because it, whereas moats I think isn't,

and I don't think they're the same thing. I think they are different things because of, you know, a culture can create a moat. Well in the middle ages, many moats were taken. Well, did you quote Elon Musk in your article or did I read that after? I quoted, no, I quoted Elon Musk. Yes.

And made it fairly clear that I thought he'd been proved wrong. Yeah, but. He said, what was it, moats and meat? He said, moats are a really, really shitty way to defend a castle, you know, sooner or later. Given what's happened to his. Moats are lame, Elon Musk, moats are lame.

Moats are lame. And I then made the point after what has happened to Tesla's sales in the last few months. Yeah. Turns out he could use a moat. He might be looking for a moat. All right. His brand doesn't give him the moat.

Let's close the chapter on the Berkshire stuff. I think the big story right now in the markets is, obviously, we just had this huge burst of volatility that came and went just as quickly. It's one of the most remarkable things I've ever seen. One of the stats that Sean put up, I forget, I think it's the second best 27 day return for the S&P 500 ever from the lows of April 8th to now. I forget if that's the actual stat, but it's something crazy like that. Yeah. I've played around with the numbers.

It's up there with the four or five biggest rallies ever. Yeah. I think we had, I think there was a post COVID there was a big one. Yes. I think there was a 15 day stretch of all gains consecutive. a 15 day stretch of all gains consecutive. It's just the NASDAQ 100 is up 25% from the low in under four weeks. So in other words, the largest technology companies added back a quarter of their market cap in like a month. And they were the best understood, best known companies on the planet.

So that's how efficient the market is. Yeah. All right. Chris, Chris, you added some notes here about the disruption of the turbulence in the markets. I'd love to get your take on this. Well, I think one of the most peculiar tensions in the market is that there are three massive transitions happening at the same time right now. So there's this monetary transition, right? We were, we had 15 years of functionally free money, no inflation, magical thinking, made up theories that deficits don't matter, you know, that interest rates are free, earnings 20 years from now are worth as much as earnings today,

crazy optimistic growth rates. So obviously that began resetting about two, two and a half years ago. We saw some UK pension plans have a blip. We saw, you know, a few, ago. We saw some UK pension plans have a blip. We saw, you know, a few, you know, First Republic Silicon Valley Bank have a blip. We've seen some commercial real estate. The SPAC boom came and went.

But I would say we're in the early innings of the implications of that transition. That is good. That has a long way to go. The return of real interest rates. Real interest rates and debt rolling over that was at 4% that's going to be at 10 or 11. And so there'll be big changes there. So there's a lot of hidden leverage in the system. Transition one.

So that's one. Transition two is this geopolitical transition, right? My whole life has been the story of globalization. I just finished a beautiful biography on Keynes, you know, and, and- Just in time. Yeah, exactly. Now I understand this. Now I'll back. And, and you know, everything about globalization

versus national, you know, it, all of that is becoming unwound in a way that we don't know how it will play out, but it is a massive shift and it will shift supply chains, it'll shift margins, productivity, inventories, all sorts of things, returns on capital. Third transition is of course we are in what will be the greatest transition price since the industrial revolution, of course, with AI and we are in the, not even the first inning of a math. The foothills. it, we are in the, not even the first inning of a match. The foothills.

Yeah. So think of those three big transitions on one side. And then on the other side, you have the market at not an all time high valuation, but at high valuations. Elevated. Elevated valuations. Top decile for sure. High concentrations, very optimistic growth rates, and essentially a belief that momentum is

a good way to invest, which the idea of momentum means that what happened in the past is going to continue. For a short time at least. So you have massive disruption. And only just after I've got out. Yeah, coupled with complacency. And that rubber band is very, very taught. And so if you were to ask me if, you know, I think we've seen the end of volatility, I definitely don't think so. And I do think that,

you know, the indexing wave has been a feedback loop, like a momentum trade, the more that works, the more it tends to work. The US versus the rest of the world was a momentum trade that's worked for 20 years. Growth versus value, momentum wave that's worked has it. So I think that we are in a period of huge transition and yet we have complacency and valuations. So I was going to say, that makes it pretty interesting. This is what's so hard about being an investor now, John. I'd love for you to weigh in on this. You've got to hold two opposing thoughts in your head or else you will lose your career.

So everything that you just said makes perfect sense. Then I look at the top stocks over the last two weeks or three weeks and I could have blindfolded myself and recited them by heart. It's Tesla, Apple, Microsoft, Meta, NVIDIA. So the more things change, the more they don't change. And for the investor class, at this point, this is all they know. They know it works. They know it works every time. And the experts keep telling them, this is unnatural. It's not going to continue. And then they're like, holy shit, for the 20th time in a row, it just continued. Compitulation works at both sides.

What that reminds me of is my first stink covering Wall Street, when I first met Chris, 97 or 98, was in the late 90s. And as you probably remember, there was a succession of really quite scary market breaks. 9789, irrational exuberance, speech, LTCM, Hong Kong, the Asia crisis. And every time you were right to buy the dip, and every time it was retail at that point, the army of Schwab and Fidelity would e-trade then. And just every time they were proved right, and every time they were, they gained in confidence to keep doing it the next time. And then finally, it didn't work. Well, the multiples eventually became irrelevant because what's the difference? Who cares what

price I'm paying? It's going up. Yeah, which to be fair to Keynes is his definition, has a very valuable definition of speculation is that when you don't, when all you are concerned about is whether the price will rise rather than with it. And you plainly had reached that point. Counterpoint. That period you described is a very... I was there for it.

It was my formative years. It's a very compact three-year period time, from 97 through the end of 99. You're absolutely right, the way people were acting by the time it ended, it was in ludicrous mode. This has now been going on for 10 years. The cloud computing era kicked off in 2015. Yeah, but 72 had a lot of this characteristic to it. 72 was a culmination of something that really started in the early 60s.

You know, when Larry Tisch famously said, get me a kid. Like, I can't keep up with this market. I need a kid. And you had a whole generation of investors that had gone through the crash of 29. And then you had a huge age gap. And then you had the kids who had never seen anything. The Jerry size. Yeah.

So I think the real question is that, are we approaching something that's more like 72 or something that's more like 2000? And the difference between those two is that in 2000, the market went down 9%, the NASDAQ went down a hell of a lot more, but investors like us and investors that were sort of active stock because we're up like 10%, 15%.

So you didn't outperform by 300 basis points, you outperformed by 2000, 3000. And that was, whereas when 72, and there wasn't much of a trigger in 2000, right? I mean, of course there was 9-11. That was later. That was later. And that had the psychological effect, but you didn't have sort of economic calamity. You had psychological reset and bubbles being burst.

72 marked sort of the beginning of a calamitous change in inflation. So stocks collapsed. We had stagflation all the way through the rest of the 70s. So you're saying you see this as more potentially akin to the 72 ushering in the 70s versus the 2000s? I would say those are two models that people should keep in their head. God, let's hope it's neither. Well, but when you think of the inflationary pressures that could be unleashed, when you think of just some of what we went through in the last month in terms of geopolitical chaos, the loss of American hegemony, huge currency fluctuations,

a lot unfolded very quickly. And remember, just think of the oil embargo, like something that had this huge change. And so you could see things like that and you go back farther. But I think those are the sort of two models that I think people can toggle between. But either way, it seems like a hell of a good time to focus on durability, valuation, cash that you're getting upfront. That gives you a much more convexity, a much more ability to adapt. Even Mark Zuckerberg wrote that fabulous memo about four years ago where he said, you know, the great thing about cutting costs

and having more money now is it allows us to adapt to a changing world. Well, that was like a ringing the bell that the end of free money was over. And I think that's where, you know, moving your portfolio, I think our portfolio is, I don't know, 14 times earnings, but yeah, we your portfolio, I think our portfolio is, I don't know, 14 times earnings,

but yeah, we've got companies like Meta in there. And so I think that, I just think the stuff that's got to grow 20% a year for another decade or two and have 50% margins for another decade, there's a lot of optimism in some of those. John, what do you think? I can't disagree. I've been banging the drum for value for God knows how long.

And every so often I'm proved right. But mostly I'm not. But I think carrying on from what Chris just said, I certainly agree that there is a distinct element. There is a vibe of Richard Nixon ending Bretton Woods, the end of the gold peg in 71. There is a sense of a bunch of different trends coming to a conclusion that in many ways what Nixon was doing then was recognizing that this couldn't last.

It wasn't some immense shock. That the dollar was exchangeable for its equivalent value in gold. He said, forget that, we're doing something different now. And the Liberation Day tariffs, it's fascinating to work out exactly how, well, we still need to see exactly where the tariffs end up. But in terms of a final, clear recognition... Oh no, we know. It's 30% but everything is exempt. If they're that cynical... That's what the stock market decided.

That's what the stock market decided. I'm prepared to leave some money on the table if necessary and let other people make that bet if they want to. But there is something very... There is something very similar, there is a similarity of the moment in terms of the old way of doing things isn't working and we're giving up on it, which is the gold peg and fixed currencies for Nixon, which is ultra globalization. So you and Chris share that insight about the end of globalization. We don't know what it means, we just know it's coming to an end. Yeah. And it's changing direction. I mean, it's not suddenly moving to no trade at all tomorrow, but new patterns and new shapes will form in the same way that we went through some very interesting gyrations before we settled on a sort of Reagan-Thatcher model that worked very nicely

after Nixon. But boy, was that a messy decade before we settled on Reagan and Thatcher model that worked very nicely after Nixon. But boy, was that a messy decade before we worked out, before we settled on Reagan and Thatcher. And what's interesting about what you said about value and beating the value drum, the one caveat I give is that with all of these transitions, there are a lot of models, business models, that have been carved in stone that are not going to work. So if I describe this chaotic world that we've been in,

and I told you that if your portfolio was Diageo, Estee Lauder, Nike, Starbucks, like safe, reliable, you know, Anheuser-Busch, Kraft, you know, that's a nice, safe, secure portfolio. That portfolio is probably down 50, 60, 70%. Yeah, Yeah. And that's- It's such a great point. You thought those were blue chips.

Those are the most susceptible companies to the disintegration of globalization. Well, globalization and digitization and the AI stuff, all of, because, you know, it used to be, if you could buy a 30-second TV spot, you, you, it was, it became, I won't say monopoly, but it became, the bigger companies tended to get bigger because they could buy the ad space. It became less competitive. Yeah. You know, so all beers collapsed to three beers, right? Now how many beers are there?

Well, I could start a brewery, start an Instagram account, a YouTube channel, and I could be doing a level of sales completely outside of the traditional system of paying supermarkets for shelf space, paying NBC and CBS for NFL commercial time. That's a, I would argue that's a great thing. Well, you got fragmentation. But the fragmentation was driven by a change

in the way technology, the way people consume information. And that changed fragmented brands that you can't imagine. Can you imagine going into a popular supermarket and they don't sell Crest, they don't sell Colgate, they don't sell Coke, they don't sell Pepsi, they don't sell Budweiser. Allow me to introduce you to Trader Joe's. Exactly. Exactly.

Or Whole Foods. Yeah. So that was technology disrupted brands. Now, nobody thought of that when the internet came around like, oh boy, I have to worry about Budweiser. And I think AI will be like that. So I think the value trade of, oh, I'm just going to swing from growth to value is going to be from growth to value

is going to be overly simplistic this time. I think it's really going to have to be, you're really going to want this active overlay, I believe. And of course I'm talking my book, but that it is going to be the ability to have both a reasonable valuation, durable growth, and the ability to adapt to changing times. That's a tiny fringe of

companies. So I floated this theory on TV today. And of course, nobody likes it, which is probably why it's true. I think the stock market is the least cyclical it's ever been. The economy will always be cyclical. Yeah. It's probably less cyclical than it was in the 70s because it's less reliant on bank funding and factory output. But I think the stock market has effectively become, at the high end, collections of companies whose businesses are predominantly subscription based.

And because they're not transactional companies, it's less likely that a weakening economy will have the same effect as it would have on the stock market even 10 years ago. So think about the largest market cap companies. Netflix, is anyone canceling Netflix in an economic downturn? Probably not. I would argue Starbucks has turned itself into a subscription service with the app.

It's 30 million app users and your order is waiting for you. It's one button. I would argue that looks more like a subscription than a transaction. This is where all the market cap is. It's in Amazon, which is prime subscriptions, Spotify, which is music. And I guess my point is we're definitely susceptible to an economic downturn in the stock market without a doubt.

But we used to look at companies like Alcoa and Caterpillar as bellwethers. I couldn't tell you when they report, what they had to say, or if anybody even reported on it. Now Alcoa doesn't go first. What have they even caught these days? It's embarrassing. They could report every week.

I don't think anyone would notice. So that observation is only important insofar as you remember that when we invest in the stock market, we're not investing in economic conditions. We're investing in corporate cash flows. We have companies that have made themselves more recession resilient by means of converting their business model from, I need you to buy something today to, you've already committed to buying this thing and you're probably too busy to cancel it unless things get really bad. Yeah. And that's a different stock market than we've had through prior economic downturns.

How crackpot of a theory is that to explain modern valuations? So in terms of... John hates it. No, no, I'm fascinated by it. I'm just trying to think in terms of the Warren Buffett theory of... Do you believe in inertia? Do you believe in inertia? Like the power of inertia? This is what the whole stock market is now based on. People not cancelling things.

My bank account is still with HSBC. The reason I opened my bank account with HSBC was they had a special offer for students. I got four TDK cassette tapes. Free! With my HSBC. Lord knows how much money they've made out of me at this point. But there is an inertia effect. How bad would the economy have to get for people to turn off the services they're paying

Apple for? Or turn off their Amazon Prime membership? Like really, really, really bad. An ordinary one of the mill blip like 2022. That's why the stock market recovered so quickly, because it never happened. It never happened. I don't know what you do with that information,

but if this were an economy based on choosing to buy a pair of Nikes or not, we would have a more cyclical stock market. Yeah, it's an explanation or a Justification I'm thinking the just the buffets the the the buffett metric of Market cap is a proportion of GDP. Yeah, the one he never that would be a justification for the stock market being a higher share of the economy than usual because of the economy than usual because so much money making capacities is tied up in a way that makes it safe that you can. I'm thinking it through and I will know.

All right. But I think- In about a month's time, you'll see my column once I've- And it's not an anti-value argument. No, no, no, but I think- You know what it's an argument for? We used to argue, do I want to invest in growth companies? Or do I want to defensive or cyclical? That used to be the paradigm. It's a bullshit paradigm now.

The largest, highest multiple companies also these days tend to have incredibly defensive characteristics in terms of how their cash flows come in. I agree with you, although I think you underestimate the cyclicality or sensitivity of advertising revenue, which is of course a huge driver of earnings at those companies, right? When you think of Metta,

when you think of Amazon. About this though, here's my answer to that. I've heard this. Tell me what you think. The portion of the advertising that is now moving to Google and YouTube and Amazon's the third largest advertising platform in the world. Do you know Walmart said their advertising business was up 50% year-over-year? Yeah. Five-oh. Okay. The

percentage of advertising moving to those corporations, even if the overall pie is shrinking, is good enough for the stock market. You know where it's leaving? Mainstream media. Comcast, newspapers. But there's not much left there. Not much left. Sorry, not much left to take. Okay, fair. Unless they sell Bloomberg time.

But I mean, you could look back at what happened to Metta's revenue in the last sort of swoon, and that caused the stock went down 70%. And now- Was that revenue or was that spending on the metaverse? Well, it was both. It's that their revenue disappointed. So people saw slowing revenue and I think-

Huge spending. I think they actually had, they may have had negative revenue at one, but and then there was the belief TikTok was rising and so on. But you've also got in those big companies, you have Tesla, you have Nvidia. And of course, when you add up all their earnings,

relative to the earnings of the S&P 500, what you would say is, well, we got, those earnings might not be as sensitive, but what amount of the market is vulnerable? And I agree with you that the Nifty 50 is a good analogy because the view was, you know, it was Coke, Procter, Disney, Xerox, Polaroid. And out of all those companies,

it ended up things like Xerox and Polaroid had huge risks. Very disruptible, it turns out. Yeah, and then there were growth companies in there that were 10-year-old race horses, Tootsie Roll, Kodak, it turns out. Yeah. And then there were growth companies in there that were 10-year-old racehorses, Tootsie Roll, Kodak, and so on. But there was also Philip Morris and Coke and some others that if you bought them and held on to them, even if you went down 50% for a couple of years, you did great. And I think the adjustment that needs to be made with the tech investors is just recognizing

that these have become stalwarts, exactly like you say, but stalwarts don't grow 20%. And so having to figure out what is in the valuation expectations for these businesses, is it that they are high growth, you know, 20% year over the year, or is it no, they're growth stalwarts, they're the Procter and Gambles of this generation. So this year, when I read the Netflix earnings report for this quarter and the Spotify report, I said it's both. Yeah. I said, Spotify, think of this, 700 million users.

How many companies in history have ever even had 700,000? 700 million? Yeah. So from my perspective, will they be able to get away with another price increase this year? Maybe not. So maybe that limits the revenue growth.

But just think of the size of that. That sounds defensive to me. Yeah. Unless everyone cancels all at once. I want to ask you guys about inflation. We got a year over year CPI that was up 2.3% in April. It was the lowest CPI reading since February of 2021. I have a chart here. John, let's put up headline and core inflation trends.

Yeah, John wrote a good article about this. Thank you. Okay. Is this the last of the Tame Inflation Reports? This seems really calm. This was... Remarkably, right? By all the criteria, obviously, we all know a bit more about inflation now that we've had some big wave for the last few. By all the sensible criteria, this was as good an inflation report as you could possibly hope for.

Coming into it, if you looked at the median, if you looked at the trimmed mean where you remove the outliers, if you looked at sticky prices, which Atlanta looks at the ones that are very difficult to cut. Everything was gently trending downwards. And the one that they were most worried about, services excluding shelter, came down really quite sharply, down to 2.7%. So there was nothing wrong with this. I mean, it's still a bit too high for the Fed's liking. There's no trade war stuff in it.

It's April. So what happens in May? That's the problem we have with so much data, because people knew that they didn't know what the tariffs were going to be, but they knew they were probably coming. So obviously first quarter GDP, you don't really know what to do with that. PPI, which we've had remarkably fell. Yeah. PPI was today, that was down. My best guess is that the next month we're going to see a bump because we can only see

a bump because that's when the that's when the tariffs really were in effect. If most of them if we if we know that that embargo is over and we can probably look through it. So that's the question. Do you think you think investors will look through an aberrant CPI print a month from a month from this week? Probably. Okay. I mean, again, I've been doing this too long to be certain about anything. Sure. Probably. Okay. I think the balance...

I think that the, like you were saying earlier, I think the consensus on the market is too bullish. The overwhelming consensus on the market thinks tariffs are a bad idea, and the lower they are, the happier the market is. I think my most likely final scenario for tariffs is a little higher than is currently implicitly being bet on by the markets. You know, it's so funny they said 30% tariffs at the start of the year. The stock market was rallying into February, everybody was fine with it. And they said 145% tariffs. We had a 20% lightning fast sell off. Now they're back at 30, which is what we assumed. And the stock market has gained back everything it lost. By which you can conclude, the stock

market never believed the fairy tale where we would get rid of income tax because tariffs would take care of it. Okay, that's not true. We also can conclude there's hardball and there's talking about playing hardball. And in this case, we were just talking about playing hardball. But it really did look for a few days. Yeah, I agree. Peter Navarro coming out and saying, there were a few days until the first reversal, or what was it, the day of April 9th, right after the low in April, when you really did begin to think, hang on, have I been wrong about this? My column on Liberation Day channeling John McEnroe's headline was, you cannot be serious.

And it turned out that was right. And you said first takes are dangerous. Yes. You should not go with your first instinct. I'm happy to report to you that Peter Navarro has been spotted. Oh really? Yes, he is on planet Neptune negotiating trade. They've sent him to the outer rim.

You may never see him again. Hey, John, give me that second inflation chart. You guys are going to kick out of this. Who's going to look, who's going to look, who's going to look stupider? This is inflation expectations by political party. According to University of Michigan, Democrats think 5% independence think 4% and Republicans think 1%. But one year inflation, Republicans think it's actually going to be negative. Yes, Republicans think there will be negative inflation because of the beautiful trade war. The independents are going with the Democrats. That tells you a lot about the popularity of these policies.

I mean, I think with these numbers, which are hilarious. Hilarious. I do think the independent line is the important one. It shows that roughly two thirds of the population, half each on the left and the right, have got to the point where they're allowing their political lens to so completely obscure their judgment that they're saying things that are stupid. So the average Democrat said that he was expecting inflation of 7% over the next year. Right, insane.

And Republicans expected deflation. Right, both insane. Equally insane. Equally stupid. Like, come on, guys, think this one through. The fact that the independents seem to be getting that much into the bearish getting that much into the bearish vibe of tariffs means inflation is probably one of the many good reasons why the White House is retreating from where it was. Over the last week, in addition to retreating from the tariffs, the Trump administration has been on a new tack, and I think Wall Street likes this one. He took 40 CEOs with him to the Middle East.

I want to read you something. Stock investors are much happier. This is Ed Yardeni. Stock investors are much happier now that President Donald Trump seems to be pivoting from pushing prohibitive tariffs to pushing American semiconductors and Boeing jets in the Middle East. So he said he went from tariff man to salesman. Trump used a state visit to Qatar today to announce a large purchase of Boeing jets, 160 airplanes, MBS in Saudi Arabia is talking about multi-hundred billion dollar AI investments and investments in the United States.

Stock market loves this. And then as the capper, Nvidia's CEO Jensen Wang announced that the company will sell more than 18,000 of those chips go for a lot. 18,000 of its latest AI chips to Humane, which I guess is their big tech concern. Also announced Concern also announced partnerships with AMD, AWS, and GROK during the president's visit to Saudi Arabia. So this is, I guess, Trump said, all right, tariff thing's not great. Let's go sell some product in the Middle East. And I think Wall Street absolutely loved it.

He's a transactional guy. He is good at transactions. He's good at this, though. There's just no... What did you think? What did you think about that? Well, who was the president who said America's business is business? Coolidge?

Was it Coolidge? It's Coolidgey. Right before the end. Right before the end. But I... The business of America is business. Yeah. I think it all comes down to if you're posturing for the headline or what really happens.

And there are a lot of announcements. It's like when companies announce share repurchase, then you look a couple years later, you're like, what happened to that $10 billion? But I certainly think that we have been at, I'm a free marketeer, global believer in globalization, but you know, we had an enormous disconnect in our system. And, you know, part of the anger is so obvious when you think about the fact that, you know,

if you have a college degree in our country, you live seven years longer. Like that is deeply, profoundly unethical. We've had this sort of hollowing out, it's been good for the world, it's been bad for the US. Finding some balance in there is certainly rational. And I think the trouble is we have such a polarized debate that your chart showed perfectly that you just, you know, Charlie Munger said to me,

one of our last conversations, he said, there are two true statements that none of my friends can believe both of them. And one is that, you know, Trump has seriously profound character flaws, right? So he said, he said, my Republican friends just don't want to acknowledge that. And then my Democratic friends don't want to acknowledge

that just because Trump says it doesn't mean it's wrong. Yeah, that's true. And so- And Buffett repeated that as well. Yeah, he did very nicely. Yeah. And I think that's, you know, that's, it's a hard thing, you know, in this world where

we try hard to be rational, we're in a world that's so intensely politicized and polarized that even the good thing of getting a big contract for Boeing out of the Middle East, you know, will have people interested in putting a negative spin on that one. Obviously that's a wonderful thing for... I would agree. And I think if this were the version of Trump's economic

agenda going forward, I think the political rhetoric from the other side would be significantly lessened. Yeah. Whilst we don't know if we're going to get factories I think the political rhetoric from the other side would be significantly lessened. We don't know if we're going to get factories out of this. Or what type of factories. We are now getting mergers and acquisitions though. We have our first tariff era M&A.

Dick Sporting Goods, which is hugely reliant on sneakers, is acquiring Foot Locker, which is completely reliant on sneakers. All of those sneakers come from Vietnam and China, Nike, Adidas, you name it. Dick Sporting Goods announced they were going to buy Foot Locker for 2.4 billion. So this is the first of the tariff era M&A. I don't know if this matters to voters

or investors particularly, but I thought it was an interesting sign of the times. It's hard to know what to make of that. I mean, it also, you know, I don't know Footlocker's business in terms of the value of their location or their leases. They make the people that work there dress like the referees. I do not. All right.

That's that one. But you know, maybe the sense of being able to put more through those footprints than just shoes and you know, who knows? But yeah, I agree with you. The tariffs create that sort of pressure. And I think we'll see a lot of M&A. I think that, you know, the Justice Department under Biden had a mindset that they were going to oppose everything, even if they thought it would eventually get through just to slow the world down. And maybe it had gotten out of control in the other way. I'm sort of apolitical that way. But, uh, well, this will be a slight change. Now we're going to have mergers, but you have to be nice to the White House. I mean, I'm not, I'm not saying,

I'm not saying that's good or it's bad. That's the reality. Shari Redstone is not getting her deal done with Ellison, uh, until unless and until he's satisfied that the news outlets are going to cover him differently. Like these are just, this is the reality on the ground. So now you have M&A, but there are a few conditions attached to it. Maybe, and maybe that's better, maybe that's worse. I want to ask you guys for just parting thoughts on the second half of this year. Hard to believe.

We're already, it's May 15th. We're already heading into that conversation. Okay, now we know how the first half went. What do we think in the second half? Don't give me an S&P year end target, but like, what do you think we will be struggling with or excited about or what do you think is the next shoe to drop? I'd love to hear what you think, Jon. Short term, for the next, we're thinking in Warren Buffett time, so six months to a year to 18 months is short term. I think the chances, we have something very much like Trump 1.0 now, and we're probably going to get something pretty similar to the Trump 1.0 market that

stock market did pretty nicely. Then people were surprised that the tax cuts went through, then we overheated. And eventually there was a revolt. 2018. Yes, in 2018. And that I think is a fairly good template that there is, just don't deny it, there is momentum behind stocks and that will be difficult to stop for a while. And the thing that is most likely to stop it would be the bond market getting back above, if you get, if yields break significantly above 5%, that will, whether it should, but that, I think, will cause enough concern.

I think 5% is the ceiling for stocks. I can imagine if, and now we need to see exactly how inflationary, how fiscally loose the Trump administration turns out to be. Obviously Doge... Mission accomplished. Well, with Doge you can have plenty of problems about how they went around doing some of their things. These are honest people who they were firing in a way that robbed them of their dignity, which isn't okay. That said, what they were trying to do was, broadly speaking, the right thing, which is, yes, the government is spending more money than it can afford. We have to make some cuts from somewhere. Maybe the Musk approach of moving fast and breaking things might be the best way to break

the logjam. So at one point, you did look as though we were looking at some fiscal tightness. At this point, there's a worryingly big consensus that we're bound to get an even wider deficit by the end of this year. You now have a much more interesting competition from German bunts. They're going to be issuing more of them. They have much less debt outstanding, so they're a pretty safe bet. So you'll probably find they make more of a competition for treasuries. If you do get the European defense bonds off the ground, again, they're not the same as treasuries, but they are a really interesting value to alternative. To new entrant.

Yeah. So the risks that the bear market in bonds continues and ultimately is what checks the stock market, I think that's the dynamic to get used to for the next year. If there was any one factor that caused the turn around, the walk back on tariffs when it happened, it was the bond market. The yippee bond market, which is one way to describe it, but boy that man has a way with words. And I think we're probably now in a different era where it looks like we're getting fiscal

looseness and stimulus. And again, the question will be, is it, when is the bond market going to call time on it? Okay. I think anything that Trump can control going into the midterms, he will try his best. He will want the market high. You think tax reform goes through by the end of this year? It's, you know, things are so tight in terms of majorities. I would say I am always short-term, very pessimistic.

When the market's optimistic, I'm worried that we are, the belief that somehow they can control the markets. I think John's exactly right. There's a hubris in that. And the moment the market loses faith in the ability for them to control it, you could get things going badly the other way. So I always say I'm short-term pessimistic and long-term optimistic.

And my short-term pessimism has been wrong for a long time. And I'm always pretty much fully invested. But I just think the focus on resilience and durability is where people have to get away from the magical thinking that just because it's gone up, it'll keep going up and, and really think about what do they want to own, uh, that we'll get them through to the other side. Guys, that was so, that was so fantastic. I just want to thank you on behalf of the viewers, the listeners for sharing your insights

with us. We really appreciate it. Um, I want to mention that Michael Batnick will be back next week. Uh, and, and we missed Michael on the show today. Michael is out west on business, but we'll see him soon. I want to tell people where they can follow both of you guys so that if they want to read more of what you have to say or listen to more of what you have to say. John, your column at Bloomberg Opinion, they could just look for John Authors and they'll

find it pretty easily. Okay Do you are you on social media anywhere? I'm at John Tweedin. I'm at yeah I'm I had it. I actually had my accounts taken over by a troll for a few weeks Okay, I was I I was sending out some you know, sort of racy AI generated soft porn for a while that sort of racy AI-generated soft porn for a while. That was good. I renewed my subscription. There was this scam, apparently,

where I was inviting people to interview. And in the process of being interviewed by me, they would give me all the details I needed to put spyware on their computer. Oh, my God. I came out of that episode not wanting to ever turn on a computer again. Anyway, at John Authors, J-O-H-N-A-U-T-H-E-R-S. And if that account at John Authors offers you crypto or soft core porn, just just say no.

Chris, where can people follow you? I think Davis Funds has a website that they put up all sorts of useful stuff. Awesome. You guys are incredible. Thank you so much for joining me today. Huge shout out to the team this week, Daniel, John, Duncan, Nicole, Rob, Graham, Keith, Sean, ChartKid, Matt. You guys did incredible work for us.

We appreciate it. That's it from us this week. Thank you so much for listening and for watching. See you next time on the show. Sharp Kid Matt. You guys did incredible work for us. We appreciate it. That's it from us this week. Thank you so much for listening and for watching. See you next time on The Compound.