The Compound and Friends - Zombieland

Episode Date: June 3, 2022

On episode 49 of The Compound and Friends, Jason Hsu, Michael Batnick and Downtown Josh Brown discuss inflation, unemployment, interest rates, corporate zombies, the Chinese economy, housing, and much more! This episode is sponsored by Direxion. Visit https://www.direxion.com/product/breakfast-commodities-strategy-etf to learn more about Direxion's new Breakfast Commodities Strategy ETF. Use promo code ONEYEAR for 25% off the latest in financial blogger fashion at: https://www.idontshop.com. Sale ends 6/5/22. 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/disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

It was the biggest art heist in American history. The Gardner Museum. What is it called? The Gardner? The Gardner Museum, yeah. I'm pretty sure it is, yeah. Right. Yeah, because someone just walked in,

cut out the paintings, and walked out. I think Thomas Cronenfeld was based on this. Yeah. I think it was somebody dressed in like a maintenance uniform or something. There's a whole documentary about this. There is? Yeah. But still, unsolved case, and they'll never solve it

because the last person connected to it died like last year. Wow. But what happens to the art? Doesn't... No one knows. It can never be... It can never be sold.

Right, right, right. Like literally, some guy has to be sitting at home and he's like, I have these but I can never ever tell anyone.

You have to believe it's some like drug lord or Bond villain. It's like on their living room wall and nobody ever sees it. It's in Bill Gross' arcade.

So I might buy T-Arc at the close. I might do it. Is that triple arc? No, it's only double. They don't have the triple. But it's T. Why don't you just use margin and do quadruple arc? Well, I actually might buy T-Arc on margin.

Why? What's your thesis? Mean reversion? It's going higher. It's not going higher well i'm i'm in it for like maybe like a week or stopped out after a day we'll say i might i might short your uh i might short your trade buy s arc so you're gonna be sark buy s arc i'll buy the t no i fundamentally don't believe in uh shorting individual managers well i believe in, I believe in buying them on margin. All right. What are we doing? Jason, headphones.

All right. The reason for the headphones is so you can hear what the show sounds like. So if you sound really low. Only challenge is I'm trying to figure out left versus right. Which side does it go? Left on the wire. All right. Left is the wire, I think.

Yes, left is the wire. Jason, where are you based out of these days? Boston. He's in Boston. Josh, I put 9 a.m. for the promo to start. And we got our team in the NBA final. Celtics are back. I'm excited about tonight's game.

All right, what do you think is going to happen tonight? It's in Golden State. It's in San Francisco. I think the Warriors are going to take game one. I think whoever scores more points is going to win. That's what I'm going with. That usually works. That's a good guess.

Most people are saying Golden State in five or six. I think I'm with that. I think I'm Golden State in six. This might be one of those situations where the conventional wisdom is conventional for a reason. Like on its face, it doesn't seem like it's going to be that close of a series. It's exciting for Boston, though.

I know. It's been a while. It's the same guys. It's Jalen and Tatum and people have been watching them get a little bit better every year. What's crazy is that team had Kyrie on it and they were a worse team. Were they worse? I would say.

Remember this squad when it was just like the babies, when it was Jalen and Tatum when they were really young? Oh, my God, I'm the Hornets. I'm drawing a blank on his name. They had Kemba from it. No, no, not Kemba. Before Kemba. No, but they did have Kemba one year.

The guy that they traded for Kemba. They had a good run against the Cavs when Tatum dunked in LeBron's face. What the hell does that guy's name? Oh, my God. Anyway. I think Kemba and Kyrie were the two guards running the show. Yeah. Oh, did you mean Thomas?

No, no, no. No, not Isaiah Thomas. Oh, Terry Rozier. Oh, okay. Yeah, so you still have the Hornets down. Who are you rooting for? Do you care who wins? Yeah.

I'm a New York fan, so, you know. So you're rooting for Golden State? Yeah. I'm rooting for Golden State just for Clay. Be nice to see, like... Same reason. I mean, boy, he's had some bad breaks, so I'd like to see him come back to the big stage.

Who's your real team? Were you, like, a Lakers guy when you were in L.A.? Long time ago. Not the current version. Not the current Lakers. Kobe Lakers probably? Yeah, when Kobe and Shaq were playing nice. I thought that was exciting.

Obviously, the Magic Johnson era. That was the funnest. It was true team basketball. What's the biggest difference between living in Boston versus living on the West Coast? I mean, besides the obvious. Besides the fact that I don't drive in Boston. It feels like a city in Boston, right? In LA, it's a massive city.

It doesn't feel like a city. Are you in Beacon Hill or what area are you in? So I'm right next to Common. So I'm not Beacon Hills, but very, very nearby. I love going to Boston. Between Chinatown and Boston. It's such a great city. It's a great city.

So walkable. Yeah. Very – His wife became the curator of the Boston Museum of Fine Art. Oh, wow. It's like a big deal. So Michael is a big art fan, but he buys fractional art. Well, I can't afford whole paintings.

You can't afford whole paintings yet. Neither can I. And thus, we need to NFT everything. I won't buy those. Hey, are you into art yourself? My wife's sort of teaching me, so I feel more educated. The kind of art I like is more pop art. Okay.

What is pop art? Like Warhol or more recent? No, even that. That's even more too high. Marvel Comics. Oh, no. Japanese anime art. Okay.

That's art. That's art. Okay. Very cool. I think John's in it. Are you an anime guy? Did we have that conversation? No.

No. Okay. You're a big Miyazazaki fan yeah you know who i like whoa you hear duncan dropping names art names i like uh i like that guy uh takashi uh six nine no who's the guy that did all the kanye west album covers murakami takashi murakami he did a huge show at the MFA. His shit is amazing. Yeah. The colorful flowers. Yeah, it's not quite anime, but it's like – There's a lot from it, right?

It's very pop art. Yeah. I follow him on Instagram, and he seems to be doing stuff all over the world now. So if I were to collect something, it would probably be something like that. But I'm not quite there yet. So all right, John, how are we looking? We're ready to go. Just one second.

Duncan, let me know where. Keep going. This way? Wait, wait, wait. Let me just make sure I'm okay. Hold on. All right. All right.

I feel like I'm okay now. What does that say? Oh, with Jason. What does that say? It says the compound of friends. No, no, no. What? With Jason.

My name's on there. With Jason Shue. How did you spell that? S-H-O-E? No, it says Jason. Okay. Oh, just Jason. All right.

The Compound and Friends. All right. Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our 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. Today's show is brought to you by Direction. Josh, are you a breakfast guy? Oh my God, I eat two breakfasts a day. Go on. We're here to talk about the Direction Breakfast Commodity Strategy. The ticker is BRKY. So this strategy gets you access to everything that's in your breakfast diet, the food wise. Everything? I mean, corn. Okay. Frosted flakes. Yeah. OJ. Okay. Wheat, lean hogs. Okay. Like bacon. Sugar and coffee. So you would, I mean, listen, obviously you can't invest in breakfast, but this strategy is done well. I'm bullish on breakfast. So it's a commodity strategy related directly to how the world eats in the morning?

Pretty much. Okay. It's done well. Why? Because of inflation? Yeah. All right. Now I'm hungry.

You know how much pork bellies are up a little last year? How much? I don't know. 20? You're just making up numbers? I mean, something like that. Okay. How do we find out more about the breakfast ETF?

Is it an ETF? It's an ETF. Go to direction.com. This is not leveraged, by the way. Not leveraged. Okay. Direction.com backslash lean hogs. I just make that up.

The ticker is BRKY. Go to direction.com to learn more. 49. I thought it was 50. Why. I thought it was 50. Why did I think it was 50? Because it's a year. We missed three weeks. Guys, for one year anniversary, before I introduce our illustrious guest, I want to just thank everybody for listening for the last year.

We started this show with the intention of seeing people that we like hanging out again in person. No more Zoom. No more Skype. No more conference call. Let's talk shop. Let's talk investing and markets and the economy with cool people who know things. Let's try to learn from them. Let's bring the audience into these conversations and let's have some fun.

And so far, Duncan, have we accomplished this? What would you say? I'd say so. Yeah. How many, what would you give us out of 10 on all of those things? I mean, I'm going to be optimistic. The answer is 10. Very good, Duncan. So in honor of our first year doing the show, we are doing a anniversary sale. Nicole, is that the right way to put it? Okay. The Compound Store, which you can find at ironshop.com. All of your favorite financial blogger merchandise is there. The Animal Spirits coffee mug. The Compound and Friends t-shirt and sweatshirt.

What else do we have? Oh, we have beach towels. I'm long T-arc. It's official. Go on. All right. We'll get into that in a second. Michael's day trading as I do this.

go on alright we'll get into that in a second Michael's day trading as I do this anyway 25% off through the weekend that starts Friday

at 9am until Sunday at 5pm buy whatever you want 25% off that's our gift to you guys for being such

amazing fans millions of downloads so many nice comments so many nice emails DMs we love you all okay now for the really exciting news.

We have Jason Hsu in the house. Jason, say hello to everybody. Hello, everyone. All right. When did we meet you? You were with Research Affiliates. It's got to be 2017, 20- Oh, no.

Earlier than that. 14? It must have been 14, yeah. Okay. I look younger now, though, would you say? Oh, yeah. Say that's accurate? And, though, would you say? Oh, yeah. Is that accurate? And hotter, for sure.

Way hotter. Thank you. Look at this guy. You went from being a money manager to a DJ. You're already winning. All right. Jason Hsu is the founder, CIO, and portfolio manager at Reliant Global Advisors and a professor of finance at the UCLA Anderson School of Management. How long have you been doing the professor of finance gig?

Wow, since 2017. Okay. I've been at UCLA since – oh, no, no, 2007. God, it's longer than that. It's a long time. And I've been at UCLA since 2009. What's your favorite part about teaching as opposed to managing money and being an analyst? You're going to like this word, no conflict.

This is one of those few jobs where you and the client have zero conflict at all. They're not worried about, hey, is my professor going to rip me off and tell me something wrong to help himself? And so it's an easy relationship. It's a great relationship. You feel like you're truly helping. Maybe a potential conflict if the parents don't like the grades that the kids are getting. I don't know.

No, but I'm with you on that. It's very pure versus almost everything to do with finance that is not very pure. As hard as we try and as much as we'd like it to be. Okay, that's cool. And when did you found Raylient? 2016. Okay. What was the idea behind doing your own firm?

So obviously I came from Research Affiliates, a fabulous company. I started with Rob Arnott. Shout out to Rob. Yeah, shout out to Rob. Guy who taught me almost everything I know today. So, spinning out of Research Affiliates was about sort of seeing this opportunity, right? The rise of China, it's taking on a larger footprint with an MSCI. It's going to be as big as the US in terms of the economy and certainly maybe over time as big as a capital market. So I thought, hey, if there's a chapter two in this

career, that's where I like to sort of hang my shingle and ride that great wave. Explain to us exactly how you're capitalizing on that opportunity. What does Whaley and Global Advisors do? Who does it do it for? So, you know, our clients are still the same, right? We serve, you know, sort of global pension funds, you know, global investors. Now, the focus is more narrow,

right? Back in research affiliates, we're, you know, investing your money for kind of US large cap, global large cap. But here, it much more targeted, looking at China, emerging markets, of which China is almost half of that allocation. So very much kind of China, emerging Asia specialist. And we hope to be the guy you think about, the guy you want to go talk to and get guidance from and help you get access. When you think about accessing China, accessing sort of EM and making sure that your China allocation within EM makes sense.

Jason, are you doing macro stuff or micro or both? Both. So let's get into that. From a macro perspective, and we're going to do a whole lot on the US, but just like really quickly, from a macro perspective, the way that you think about getting exposure to China is via – or is based on things that are happening in the global economy or the Chinese economy. What are the important things that you guys consider when you're building portfolios? I mean we definitely look at the world when we look at China because, look, it's so connected with the world. You can't separate the two things.

You can't separate the two things, right? I mean, they're part of the global value chain. And also, there's just a lot of lessons you can learn from Japan, from Taiwan, South Korea, from even the U.S. during the days when there were lots of retail individuals in that market. So we try to learn from global markets and the history lessons from those markets and then applying it to China. Okay. from those markets and then applying it to China. Okay.

And then from a micro perspective, were there a lot of things that you learned at Research Affiliates about ranking stocks and trying to figure out like what areas of the market had more opportunity than others? I would imagine you're looking at valuation. How are you doing that? Yeah, so I mean, the one thing I learned from Research Affiliates is like, you know,

alpha is zero sum, right? We all know that. And the more inefficient a market is, the more likely alpha is larger and the more variety of sources of alpha. So it won't just be a value factor. Maybe a bunch of other stuff that also works. And that happens to hold well in China. It's a very inefficient market.

85% of all trades are from retail individuals who are gambling instead of investing. And so understanding the behavioral biases behind that is hugely important for creating alpha and then managing the portfolio. So it's value factor works really well, and then low vol factor works well, a bunch of different quality factors, and then like idiosyncratic funny factors as well. Are you competing with a lot of money managers who understand

or who employ those same lenses when they're looking at the market? Or do you still have a lot of room to yourself to do that kind of factor-based analysis? You know, the quant approach, a more academic approach, that's becoming more popular in the US. In China, it's very, very new, right? People are mostly sort of sharpshooters, stock pickers.

They got like six stocks in their portfolio. So I would say kind of, you know, greenfield for us there. So you can run up a killer like five-year track record doing that before anybody big moves in and takes those same factors you're looking for. Okay. All right, cool. Love it. I want to pivot to the US and I want to get into inflation. One of the things I read that you did recently was about stagflation.

And I actually think this is like the number one debate among investors right now, not even just professionals. I think like everyone who has money in the market is consumed by, is the inflation going to go away? Is it going to become stagflation? It just seems like, okay, in the recovery from the last recession, we were all obsessed with unemployment data. And it was like nonfarm payroll day was the biggest market – Remember, Wiesenthal used to tweet like eye twitches 30 seconds before. We were all on Twitter, 829, the first Friday morning of every month. And that was the big thing that told us is the recovery really happening.

Right. Now, I know it's silly, like in hindsight, but like every reporter, every economist, every trader, that was the thing. That stopped being relevant after a while. And then I think like you could do the same thing with COVID. Get the numbers every week or we would watch Governor Cuomo was like a leading indicator, whatever. Now it's CPI.

So we're going to get a CPI report next week on the 10th. I don't know what day of the week that is, maybe Friday of next week. But this is the thing now. So I wanted to ask you what your thoughts were about just the way markets seem to be tolerating the inflation and what your overall view is on the current situation.

Yeah, I mean, first of all, I mean, our markets are so driven by headlines, right? So, you know, everyone's writing about inflation. So market has only that headline to react to. so market has only that headline to react to. I imagine headline numbers are going to be intransigent for a long time because, sure, the printing of money has a long-term effect on inflation, but right now the shock rise in prices, right? It's disruption in China due to a COVID lockdown, right? It's the war in Ukraine that's causing energy and food prices to spike up.

That's not going to go away anytime soon, even though China's sort of easing. So that might happen a few quarters from now in terms of relieving inflation pressures. But in the meantime, whatever the Fed's sort of doing in the background, that's going to take quarters, maybe even longer for that to play out. So it's going to be intransigent. I think people are going to continue to be freaked out by it. You seem really pessimistic about the Fed's ability to even affect it. Yeah. I mean, look, I mean,

what does the rate hike do to the war in Ukraine? What does the rate hike do to the crazy COVID lockdown policy in Shanghai? Nothing. I guess they're thinking that they could maybe cool off demand. But is your point, like the case for stagflation,

is that we can have a slowdown, maybe contraction, but if crude oil keeps rising, that's it. Yeah. I mean, demand could fall, but if crude oil is trading at 120 bucks a barrel, right, like that's not going to fall just because our demand is weaker. The Fed can affect the labor market and housing.

I feel like those are the two primary things that they can do. So that's why they focus on core PCE, for example. But wait, what about stock prices? Because just with the Fed speaking, they've killed stock prices. And that is starting to impact the economy. We're seeing layoffs all over the place. Well, that's how I think they do it. So they can affect housing.

They can affect the labor market via what they do to financial conditions, which are stock prices, credit availability, and whatever else. And then Josh, you're right. But that, you mentioned, that's a really painful way to solve a problem. Ultimately, inflation is a problem, but it's a problem within the context of many other problems. You can say, okay, do I want to deal with higher prices or do I want to deal with my wealth being cut by a third? What if we could have both at the same time? You could have high prices and be poor by 30%. So that seems to be where the pessimists now think we're headed.

My guess is that stagflation is possible, but probably can't last for a long time. Because if people don't feel wealthy, they stop spending, which eventually is going to hit deflation part. Right? So how long could we live in stagflationary conditions? What does history say?

What's realistic? If that's in fact where we're headed. But it's all oil, no? Isn't that it? Well, I would say- Because you can't have consumer prices continue to rise with a recession. So, you know, it's a lot of the external stuff.

That's going to be sort of transitory. You know, oil prices, I mean, how long is the war going to stay on? And then, you know, what will the Middle East do? So those sort of external shocks are viewed as sort of transitory. And, of course, transitory could be two years, right? Yeah. But the stuff, like you say, Michael, that's caused by sort of wealth effect, easy money. That, as long as you sort of cool off the money supply and take away credit,

so that's going to fix itself. So like services, right? That's purely driven by wealth, by people spending. Correct. Like airlines, prices are not going to keep going up if people stop Booking vacations We're asking a lot of the Fed though We're asking them Cool off inflation but not too much Slow the economy but not to the point where It bothers anybody They're trying to thread the needle

And then let's buy ourselves enough time Until the Ukrainian thing Sorts itself out and Shanghai Completely reopens. And I don't know how much time those two things require. Nobody does. It's a hell of a tough dance that they got to make this work. So you're more in the camp that stagflation is inevitable.

But I'm in your camp as well. The minute we get into stagflation and the Fed gets sort of a new mandate, which is, look, sure, prices are high, but we understand there are a lot of things out of your control. Focus on growth. Make it a little easier. Then they can start to cut rates. So actually think we're going to go this. Where do they need inflation to be in order to make that shift and say, OK, now we're

back to being worried more about growth? make that shift and say, okay, now we're back to being worried more about growth? I think they will find an angle where it's either, oh, wait, the slope has flattened, right? So, you know, we got peak inflation rather than break-even inflation. Because right now, I think the target may be let's get the break-even inflation. But I think at some point, they're going to declare some kind of victory and say, it's under control. Let's focus on growth.

Let's focus on credit. So next week's CPI report, I know the Fed is, it looks at PC, but whatever. Let's assume they're correlated enough. Next week's consensus estimate is 8.1. That's versus I think 8.5 was the last reading. I think that's what Europe committed at 8.1 or 8.2. So let's say it's below 8.1. Doesn't that give them room to be like, okay, what we're doing is working. We're going to keep doing it, but this is not going to go on forever because eventually we're going to win.

I don't think they're going to say it that way. We keep getting upset surprises. That's because right now, there's really no correlation between what the Fed's doing and really these headline numbers. If it goes our way, it's dumb luck. But of course, the rest of the market doesn't think that way.

They hope there's some correlation. So when we're surprised to the wrong side, we kind of have the story, the Fed's lost control. And that freaks out the market when we really can't take any more freaking out. What's the point of view from emerging markets, from China, about Europe, the UK, and now the US Federal Reserve trying to fight inflation? They're on the outside looking in at all this. What do you think is going through their heads? Well, I think for them, because they are the manufacturers, right? You think of China as one of the biggest factories, but so are most Asian economies.

They're big exporters, right? So for them, this is great news, right? Because part of the solution of reducing prices is you got to trade more, right? You got to import more. And so, you know, stronger dollar, sort of, you know, weaker currency for the exporting country. That's a great outcome for them. There's stronger demand. Maybe the tariff for Chinese goods are going to come down.

So I think a lot of the Asian economies are looking at this as a really phenomenal opportunity. Right. So they're in a better position than we are. Their currency is weaker. They can export and make more money. And we are not going to complain about the trade deficit because we actually want these cheap goods to come in and help contain prices for us. But they're also big consumers of oil and energy. So that might be something that they're not so thrilled with. Yeah. So obviously, they something that they're not so thrilled with. Yeah. So obviously, they're going to pass through the cost, and they are in charge, right? Because if we aren't so fixated on inflation, their ability to pass through the extra cost might

be lower. But because we are, I think they're in a driver's seat, right? They can pass through all the costs, and they can probably expand on the margin a little bit. the cost, and they can probably expand on the margin a little bit. Joe Biden has some of the lowest approval ratings for a second-year president in the history maybe of them keeping records. He did an op-ed for The Wall Street Journal, which obviously is not friendly ground for most Democratic presidents. They turned the comment section off, by the way, for this. Yeah.

Like literally. Did they really? Yeah. Good idea. Okay. Now, what do you think about Joe Biden's policies? But any policy, is there anything that the president from the top down position can actually really do here other than just say, we're going to support the Fed, which is one of his, he's got like three things that he wants to do. He says he wants to improve infrastructure, which sounds pretty generic, but maybe do more onshoring and therefore have more supply available of things. That sounds like it's going to take a long time.

It's not going to fix our problem right now. OK, good. How about – but how about the housing supply action plan? Wait, wait. Reduce the federal deficit, which – I'm not really sure what that's about. I'm not sure what that has to do with inflation. But all right, this is Biden.

We need to keep reducing the federal deficit, which will help ease price pressures. How? Maybe because the government is buying way too much stuff. I don't know. All right, fine. Second, we need to take every practical step to make things more affordable for families. We can't let up our global effort to punish Mr. Putin for what he's done. Good luck with that. But he's talking about releasing oil reserves, the largest release from

global oil reserves in history. That's like- Dropping a bucket. Right. I was going to say a drop of water in an ocean. That's your read on that too? Yeah. I mean we probably would be better served by making a trip out to the Middle East and sweet-talking OPEC into helping out because OPEC is not playing ball. Yeah. And then the main thing is my predecessor demeaned the Fed. Past presidents have sought to influence its decisions inappropriately

during periods of elevated inflation. I think President Johnson pushed the guy up against the wall physically. I read. Okay, so he's like, I'm not going to do that. We've appointed highly qualified people. I'm going to let the Fed do what the Fed does.

That's probably the most realistic thing that he said. I think that's very sensible, right? If you hire smart people, let them do the job, right? It's a very hard job. It's hard enough without, you know, a lot of politics getting involved. I sometimes think of like what Trump would be doing in high inflation, like how he would be tweeting about this.

Prices are so beautiful. Beautiful, beautifully high prices. Bigly. All right. Prices have never been higher. There's not much though that any president really could do in this situation, right? Yeah. I mean, look, a lot of it is external shocks.

I mean, sure, we could reduce tariffs on imports, right? That's going to help a little bit. But beyond that, we can't lower oil prices, right? Because that's an international market. Now, we, again, could sweet-talk OPEC into helping out a little bit. But yeah, not a whole lot. Maybe we can improve our relationship with China and send them free vaccines. Okay.

That would help, you think? Oh, that might. Okay. Rather than complete lockdowns. Yeah. Okay. Would they take it or they would want to put a wrapper on it that says they were partly involved in developing it? For sure, we got to understand that face thing, right?

So it's got to be like we have this friendly scientific collaboration and the Chinese have contributed a lot of the IP into this better vaccine that's now co-developed. But again, whatever we do for humanity. So meanwhile, the job market is still red hot. Demand for workers, there's 11.4 million job openings in April. So here's a quote from the chief economist of ZipRecruiter. Employees continue to have unprecedented job security. Overall layoffs are down 37% from pre-pandemic. Unprecedented job security sounds good.

Why aren't people happier? And this is actually the funny stuff, right? Like, look, if inflation is because your wage has gone up and your wage going up makes costs of making everything higher, like you're kind of no worse off. So I think people focus on prices high as bad and whatever you do to reduce price as good, right? What if we go in and say we're going to cut minimum wage, we're going to put a cap on salaries, and that will reduce prices, right? I think that would be a really stupid solution. So I think people have got to be a little bit more multidimensional

when they think about prices being higher. The typical worker is like, hey, I'll take my job flexibility and my current wage of 2022, but I would like to transport them back to the environment of 2019. That would be a great situation. I heard a crazy stat

today. I think this came from LinkedIn. One in 20 jobs is from people returning to their previous employer. Remember the great resignation? I think we're on the other side of that. People are like, take me back, take me back. John, throw up this chart. So when I graduated in 2008, there was like, getting a job was no joke. Like it was really difficult, especially when you had the resume that I did, but that's neither here

nor there. Look at, look, look. Did you interview with Jason? Look where we are today. Look at this. So we're looking at the openings rate relative to the labor force. And the bottom line is there are just so many jobs. Wait. Can you explain to me what this – what is 7%? 7% what? Openings rate.

So job opportunity. So I guess that's 11.4 million divided by the labor force. So if you want a job, you can get a job. So this is 20 years and we are, looks like triple the average. What's the average? It's been, it's been between three and 4% basically forever. Wow. Yeah. If you're graduating right now, this is a great time. You're in a driver's seat. Are you having trouble finding people?

Oh yeah. You are. It is hard. How many people have you hired since you started the firm? We probably hired 20 plus people. How many people have you hired since you started the firm? We probably hired 20-plus people. How many in the United States all? Half of that at least. Half.

Okay. You're looking for PMs or analysts or – Yeah, across the board. Operations people, business people. So you've got to think that at some point soon, the power will shift from labor to employer. So I actually – It goes in a cycle. I think that's already happening.

Well, we're seeing layoffs. We just haven't seen the other side of this yet. Well, this data is April. April. So this morning we got ADP, and that's private payrolls. And there's usually a very high correlation between private payrolls and just the overall labor situation. And it was the weakest month of hiring since the start of the recovery from the pandemic. It was 128,000 new private payrolls added.

Not surprising, right? What's interesting is small businesses actually had net negative 90,000 jobs. So small businesses are- Great resignation. They're the great un-resignation. They're going back to Google. Dude, if you're a small business and Walmart is hiring,

how are you going to compete on benefits, hourly pay, flexibility? It's really, really hard. Also, information technology companies had net negative minus 2,000 jobs. It's about time. Three months in a row. So a lot of people are looking at the NASDAQ who manage technology companies and they're saying, oh, that's my cue.

We're playing defense now. But we said that for the first time in basically ever, labor is the upper hand. And it lasted – I mean maybe it's premature to call it the top, but it lasted for like six, eight months. Yeah, I mean, look, I mean, the big employers, the tech sector, right? Their currency for hiring people, you know, stock options,

stocks, that's not so attractive anymore, right? A lot of people are underwater. They got to go figure out how to recycle all that. But compare that to the subprime startups and it's looking pretty attractive. You would take Apple stock options relative to other choices that you might have. Is that an underreported phenomenon? How much money, paper money has disappeared in the form of stock-based compensation at startups?

It's got to be a lot of money that no longer is being paid now. I mean there's a lot of wealth that sort of disappeared or been destroyed, right? So when we're talking about you're fighting inflation by hiking up prices, but what they're not talking about is, of course, the mechanism is through hiking up rates, prices for all risky assets fall. So a lot of wealth's been destroyed. And again, if that's the medicine to bring prices down, you got to think about, do I want to take that medicine? I heard about a crazy down round today and we're going to start to see that like in droves. And what that does is it

definitely plays a part in cooling the economy because the wealth, in my opinion, the wealth effect, real estate and stocks really is a huge driver of the economy even in places that you wouldn't expect it. And it's hard to quantify this, but like you might have the personal trainer come an extra day a week if your stock price is at all-time highs. Forget about buying the second home or whatever. There are people buying second boats from like the stock market that we've experienced over the last few years. And then you have the average home price up 20 percent in two years. All of that feeds into the strength of the economy, and it's got to work in reverse. It can't only work in one direction.

Right. So that's the Fed getting what it wants though. I mean that's the proof that the Fed matters, right? It can create wealth and through creating wealth, get people to spend more money, drive consumer growth, drive inflation. It could do the other direction. But it can't magically do it, right? It's got to destroy wealth in the process. So you and I and Michael, we're all sitting in the middle of that mechanism that does that basically.

What, YouTube? Close. All right. in the middle of that mechanism that does that basically what youtube close uh all right so so i wanted to get into uh year to date um stock markets and what's working what's not before hold on before we get to all this can i just say is this strike anybody as maybe this is just you know a bounce or whatever but like we're only and i know it's the s&p and a lot of places are completely bombed out but the s&P is only 13% off the highs. I know. Why are we so bearish for down 13%?

Well, I think – Sentiment is horrendous right now. I think we're so bearish because we kind of feel like we're due. We're due for a correction. And we're thinking correction may be minus 25%, minus 30%. So when S&P is only down 13%, we feel like maybe there's 20 more to go. Yeah, it does feel that way. But don't we almost kind of know

that a recession is coming? Or am I being overly gloomy? Can we skirt a recession? Now, I think most everyone who's sort of in the know follows enough of news and gurus will go, yeah, it's coming. Don't point to me and say guru.

Well, the yield curve inversion was how long ago? Six weeks? Yeah. The two's tens. All right, so the countdown clock started historically. It's been right like 20 times in a row. So it's probably- It's coming.

Okay, it's coming. But so far this year, there've actually been some places to hide or at least some outperformance. I want to go through what usually works in high inflation kind of work this time. Like if you knew the playbook, you were sort of OK. If you could have looked at what worked in the 1940s and 1970s and run all the same plays

and you sort of would have been fine. So small cap value did better than large cap growth. Value minus growth overall was a home run. John, throw up JC's charts. Well, hold on. What is this? This is Russell. This is the total Russell 2000.

I don't love this chart because it starts in the – it's a three-year performance. So throw this out. Throw this out. Look at JC's charts. There we go. Small cap growth versus small cap value. So on the top is small cap growth divided by small cap value. Sorry, guys.

It's at a four-year low. Large cap growth divided by large cap value is at a two-year low. So it's more pronounced in small caps, like pretty dramatically so. Is that global or is that just happening in the US? That's been global. And I don't know how much of that is sort of value stock and their sensitivity to rates and inflation. But it's certainly been kind of growth sensitivity,

particularly small growth sensitivity to cost of capital and to kind of a generally optimistic forecast and sentiment. So a lot of small cap growth is purely story-driven. capital into kind of a generally optimistic forecast and sentiment, right? So a lot of small cap growth is purely story-driven, right? Once you take the optimism away, the story falls apart. Well, those got hammered. I think that fell 40% almost. At least.

So the challenge with stuff like this is how long can you stay in business as your value manager? Like how long can you tell your clients to calm down when they're comparing you to Microsoft, Amazon, Apple? You must have some great stories about meetings where people are watching three-year numbers and they just can't believe they're not participating more. Look, this is a good chart. So we're looking at percent off high.

The orange line are zero coupon bonds. And the purple line is a small cap growth. And it tracks. These are the longest duration stocks. So what are you telling people about asset allocation now? Does this have legs, this value versus growth thing? For a while. I mean, it's always cyclical, right?

And it's less about how much time do you spend in value and growth. It's just how sharp are these movements. And look, I mean, value's got all of its sort of shortfalls back in a very short period of time. Is it going to persistently outperform growth? Probably not. The minute I think we officially hit recession and the Fed's got a new mandate to ease and help, you're going to see a growth cycle again. I didn't listen to this yet, but Demodaran was on Patrick O'Shaughnessy's podcast talking about how the old playbook of inflationary stocks, he's like, not that materials, energy stocks

aren't going to work, but he thinks the cash cows, the FANG stocks, excluding Netflix, are going to be the new inflation plays. Any firm that's got a strong cash flow and a lot of it right now, they aren't as impacted by discount rates, right? Because they got cash right now. They don't need to sell a story of, oh, 20 years from now, I'll be cash flow positive and pay you a dividend, right? Because they actually pay dividend now. They got a lot of cash. You can do buybacks. So I think a lot of the things, they're not really growth stocks anymore, right? They're just great businesses. The truth of the matter is, if we get an inflationary rack recession, all these stocks are going to get hammered, right? Maybe some less than others. But I guess I would think that Apple is such a discretionary

name that if we see, and we haven't really seen a slowdown in Apple since Samsung was threatening in 2013. It's been a long time of just uninterrupted expansion for Apple. I think Apple's biggest problem is China. Yeah, I agree. But you know way more than I do about that. Why do you think so? Well, consumption in China is slowing down. Now, it may be temporary, but sure, temporary in China could be a year, a year and a few quarters before it comes back due to the COVID lockdown and so on and so forth. And the pent-up demand might take a while to sort of

play out. So that's one risk. And the other one is if the U.S. continues to have this adversarial relationship with China, at some point, the U.S. brand will start to lose its luster. There's going to be some nationalism that creeps into the consumer thinking

and they might say, hey, I'm going to buy a Huawei, a local brand, or a Xiaomi or a Korean brand where they're a bit more friendly to sort of the Chinese culture. I was going to say, like, the American companies that have the most exposure to that kind of turn in public sentiment

toward U.S. brands, probably Apple number one. Absolutely. Nike number one. Absolutely. Nike number two. I'm thinking like Kentucky Fried Chicken. Kentucky Fried Chicken. Right. They're just so big there.

What's going on with lockdowns in China? And if that is lifted, is it not going to even put more pressure on crude oil? Yeah. So, I mean, once the factories go full on 100% capacity, the energy usage is going to come back on. So that's going to add pressure, right? So while it released some pressure in terms of goods coming from China to the shores of America, right? But the pressure on all the energy that's needed to run factories, that will be pushed up. So net-net, it's going to have a price reduction effect. But I think crude oil is going to continue to face sort of upward pressure.

The charts of the cost of freight from Shanghai to LA, has that eased up? Nah. I mean, it was what? A few years ago, it was like $2,000 to send a container back. Now it's close to $20,000. What is the thing that moves that? What is the fulcrum? Is it energy prices? Energy prices part, ports.

Ports are so jammed up. The cost of getting port workers to work both in Shanghai and in Long Beach, that's gone up a lot. So it's both. It's the people and the energy. What solves that? Just paying higher rates for people or just people wanting to work more than they do right now? You got to get a lot more people to want to take those jobs.

It's that simple. Why can't we just replace everybody with robots? We sure are trying. What's taking so long? What's taking so long? I want to ask you about interest rates. How much does the level of interest rates or how much do interest rate expectations factor into the way that you guys invest or how little do they factor in? It matters a lot. I mean, it's one of the biggest sort of macro variables that enter into asset

pricing. So everything we're trying to value, this discounted cash flow approach, is predicated on discount rate, which is predicated on interest rate. Did we underestimate, it sounds so obvious, I'm saying this out loud, but did we underestimate just how impactful free money was to everything? We did, because people like taking credits for things they don't do.

Stock market goes up, we're all amazing investors was to everything. We did, because people like taking credits for things they don't do, right? So stock market goes up, we're all amazing investors, when in fact it's just the Fed reducing discount rate. Okay, go on, go on. And so we don't want to fess up to, look, it's just sort of money illusion created by our government, right? We instead say it's amazing innovation,

it's just everything that's good and awesome about capitalism, about US economy. Now it's being taken away. We blame it. Oh, this is all discount rate. The Fed's messing with the economy. Although earnings for the largest US technology companies exploded higher in the last decade. Like that part is undeniable. And the other part is, the other part in terms of like, not just being complete maniacs

is that we had these companies go from zero to a billion dollars revenue faster than we ever had. And it wasn't like one or two companies. There was like a lot of them. Now we took it way too far with valuations, but there was like crazy innovation and earnings growth and, or sales growth. I mean, we do, we do, we do want to give credit where it's due, right? So if you look, if you decompose, you decompose stock price appreciation, a good 50% of that is really top-line and bottom-line growth. The other 50% was multiple expansion, right? So yes, there's definitely growth. And of course, some of that growth came from cheap money, right?

Like if you have low-cost capital and easy capital, you can take more risk, right? You can do more R&D, hire people. You can just take more risk. But Jason, if we deconstruct the areas in which that was happening, all of the expansion in non-profitable tech was obviously multiple expansion. But with the overall, like with the S&P, it was earnings growth. It wasn't all multiple expansion. It's not like, like earnings for multiples for large cap stocks were reasonable. Actually in 21, they spent the whole year coming

down. So in 21, you had 20% growth for the S&P 500. And I think multiple contracted all year. Yeah. So, I mean, I think 2021, you start to see a lot of smarter money in the market saying, look, if growth rate doesn't catch up, I'm not going to pay a higher multiple. And so you're sort of seeing that rolling over in 2022, which is now we're seeing some slowdown and people now forecasting multiple contraction and bam, right? That just cascaded. Yeah. So we're probably 18 times forward earnings now, which is obviously historically not cheap, but for the post-pandemic era, it's downright

inexpensive. But if we get inflation and a recession, that's still too high. That's right. Because obviously, P's come down, right? But there's a risk that E could come down over the next few quarters. When they both come down at the same time- 70s. That's where you get almost like it feels like a free fall in markets. Oh, yeah.

Because stocks are falling and yet not getting cheaper. That's right. And so now we've got the Fed starting in markets. Because stocks are falling and yet not getting cheaper. That's right. And so now we've got the Fed starting in June. They're going to allow $17.5 billion to mature every month without reinvesting. In September, it's going to be up to $35 billion. How do you think about the taper and the reduction in the Fed's balance sheet? What do you think that does globally? What do you think that does to U.S. stocks? Well, I mean, it's going to continue to take liquidity, take easy money away.

And so we know that's bad for risk assets. I just sold TRK. Yeah. Mike just sold the thing that he bought at the beginning of the podcast. How'd it go? Stop. This is a long-term trade.

This is like a three-day trade for me. Okay. Continue. So, you know, I think we're probably a little too early for, you know, buy on dips, right? You know, and any rally may be more like a relief rally than anything else because, look, you know, there's the risk of E falling, right? So when price fall and E's falling, it doesn't feel like it's a good deal yet. So all of that, I think, you know, hanging in the backdrop, you know, and the Fed is probably unlikely to deviate

from a committed path, right? If it sees, hey, it's working, inflation is coming down, then we keep doing the same, right? If it says, hey, inflation is going up, they might step it up a bit more. So there's not a lot of sort of good news on the horizon. Right. Well, I got a silver lining, silver lining.

All right, John, throw up this next chart. So what we're looking at is, all right, only 4% of high-yield bonds and loans mature in 2022 and 2023 because there was such a refinancing boom in 20 and 21, which is good. By the way, S&P Global, I think they suspended their guidance because there's such a lack of bonds to rate. Did you see that yesterday? Yeah, that's interesting. I didn't realize that was the reason why. S&P Global doesn't have enough bond issues to rate to make their numbers? Right. Okay. Because why would you sell bonds now if you sold a ton of bonds last year or the year before? You don't have to. More good news is the chart on the right, we're looking at short-term debt as a percentage of total debt, and it's come down dramatically. So it's not as if companies are going to be exposed to higher rates next year because they gorged, and a lot of it is long-term debt.

Okay, so short-term debt 20 years ago was about 20% of the debt market. It's a lot. Is that what you're saying? And now it's under 10%. So companies were much more sensitive to fluctuations in interest rates. Michael, you're right. Like this time, it's going to be very, very different versus, say, OA. OA was really a delivery crisis.

OA was a full-blown liquidity crisis. That's not what this is. This time, a lot of firms that had cash flow that could issue debt, they were strategic. They saw the Fed singling, and they went out and they fully immunized their capital structure, which is very smart. So I don't think we're going to have a liquidity-induced, bankruptcy-driven type of a market collapse. What we have here is just a revision because discount rates have gone up. Multiple has to shrink. It's sort of a mathematical relationship.

So hopefully it's just like a financial asset recession and not a deep mainstream recession. Right. Because if you have – first of all, can you even have an actual technical recession if there are 11 million open jobs? Is it even possible? If everybody who wants to work can work. Dude, things get weird. Things are weird. Things are weird.

Things are weird. So here's what S&P said. They said S&P Global is suspending financial guidance for the full year 2022. what S&P said. They said, S&P Global is suspending financial guidance for the full year 2022. Macroeconomic conditions have deteriorated since we last provided financial guidance on May 3rd, 2022, so that's a month ago, negatively

impacting the company's expectations for GDP growth and debt issuance volumes. Given the volatility on inserting the issuance environment, the company cannot affirm its previously issued guidance. No more debt. Bullish. Super bullish. Going back to Josh's's point right like we

could have this weird situation where you could find jobs right so you don't feel you know like poor because you're out of the job yeah but it's the other part is hitting you right it's not the income effect it's a wealth effect it's like i have my jobs but i'm gonna have to work really hard to replenish all my portfolio losses or i have my job thank god but i'm going to have to work really hard to replenish all my portfolio losses. Or I have my job, thank God, but I'm starting to put monthly expenses on a credit card because of how high my expenses are. And I never thought I would have to do that. But like my new lease for my apartment just jumped 5% for no reason.

Like things like that. You know what else this might impact? One of the biggest stories of last year was the ultra wealthy using margin, right? Because they didn't want to sell their stocks, pay all the gains. So now the loan-to-values were normal. They weren't stupid,

but still that might appear in the journal in a couple of months. Corporate zombies are a thing that's coming back. So this is, let's say, I think it's Bloomberg. They thing that's coming back. So this is – let's see. I think this is Bloomberg. They are America's corporate zombies, companies that aren't earning enough to cover their interest expenses, let alone turn a profit. From meme stock favorite AMC Entertainment to household names such as American Airlines and Carnival, their ranks have swelled in recent years, comprising roughly a fifth of the country's 3,000 largest publicly traded companies and accounting for about $900 billion of debt.

Is this a sideshow or is this something we should keep our eye on? This is a sideshow. Yeah, I sure hope so. I don't think we're going to go the way of the Japanese economy where like most of the firms are like an extension of the government, right? They're not profitable, but they can't go under because they hire so many people. So they're flooded with cheap debt to stay alive. I don't think we go that direction. This is temporary.

I saw a chart this week looking at interest rate coverage ratios, and I can't remember if it was – I think it was a total market, and we're fine, like more than fine. Companies are more than able to pay the debt that they carry. Jamie Dimon this week had entertained us a little bit. What did we say last week? Last week he's like, if there's a hurricane, I would tell you. Right now it's just storm clouds. And then this week he's like, oh no, it's a hurricane.

Read the quote. So Jamie's doing weather now. Here's what he said. Quote, it's a hurricane. Everyone thinks the Fed can handle this. That hurricane is right out there, down the road, coming our way. We just don't know if it's a minor one or Superstorm Sandy. That's oddly specific.

You don't want to hear the CEO of America's largest bank talking about hurricanes, right? Just generally speaking. It's not just him. The CEO of Wells Fargo said, as the Fed raises interest rates to sell inflation, we do expect the consumer and ultimately businesses to weaken. Great.

Here's a quote from Ted Pick, Morgan Stanley's co-president. This paradigm shift at some point will bring in a new cycle because it's been so long since we've had to consider what a world is like with real interest rates, real cost of capital that will distinguish winning companies from

losing companies. If the banks are sounding the alarms, it's generally not what you want to say. Yeah, but wouldn't you say, holy shit, these guys are actually prepared for a financial crisis? Like they're actually talking about it before it happens. Much better than afterwards. Isn't that better? Yeah.

I would almost rather them be wrong, but just having it on their mind. Just think about those three days. What was Dick Foltz saying in 07? Oh, don't worry about it. Don't worry about it. But the guy from City was saying, when the music's playing, you have to dance.

That's right. None of these guys are talking like that now. Right. So they have the muscle memory from that experience. Thank goodness. 10 years, not too long for people to forget. You pay much attention to macro forecasts or things that corporate

chiefs have to say or not really as an investor. Oh, totally, right? Totally, because sometimes they're great contrarian indicators, right? If anything, it's a good measurement of sentiment, so I don't want to say contrarian. That's kind of mean, but it's a good measurement of sentiment. I don't think Jamie Diamond's listening to this, but okay.

Well, you know whose sentiment is completely washed out? Like, venture capitalists this week are, like, freaking the f*** out. They're like, cut everything, batten down the hatches, you better have three years of runway. That's true. And that's not contrarian, because they're the people giving out the money. So if they're telling you,

don't expect more money, there's nothing contrarian about that. You don't want to fade that. So I would say, I pay attention to what everyone else is saying, because it's a So if they're telling you, don't expect more money, there's nothing contrarian about that. You don't want to fade that. Yeah. So I would say I pay attention to what everyone else is saying because it just sort of tells you what is pricing the market right now. And it's just sort of good to know, is it fear pricing the market or is it greed pricing the market? If it's fear pricing the market, you kind of go, at least it you know, it could make sense that I want to start to reallocate and earn some risk premium, right? Because there's actually going to be some risk premium.

Sure, there's risk, but there's certainly risk premium. Yeah. If it's greed pricing the market, right? Like, like you mentioned- And the opportunities are shrinking. Yeah. Like when everyone says, it's just a dance, we're going to keep dancing, right? That's when, when you really want to be worried, right?

Because you're getting, you're buying at a price where people ignore risk, ignore bad things could happen. When you talk to the investment teams at big pension funds and big pools of assets, they all understand this. Like when you explain that to them, they all get that. They all get it. Okay.

And then they say, we get it. But we do have a layman board, a layman trustee board that don't get it. Communicate that to you. They're freaking out. This is not the time for us to take risks because they're reading scary headlines. So that's why it's so hard for a large pool of assets to act counter-cyclically. Like in other words, to look at the NASDAQ's 30% off its high.

That's like historically, that's a pretty good buying opportunity. It's not the bottom. But definitely better than last year. Way better than last year. But if you bring investment ideas related to that to a board of laymen, people that are trustees because their uncle started the company or something, it's really hard to get them to see it that way, right? Yeah, they're going to say, do you not read the paper? Do you not realize the Fed is going to hike and we're going to have a recession next year? How can you be thinking about buying right now? So theoretically, that should be an advantage for the retail

investor who's seen a few cycles and has nobody to answer to. And those people are probably out there. Oh, yeah. I mean, technically, you know, if you can make fast decisions, you have an advantage. Unfortunately, the data tells us most people who can make fast decisions, they make fast decisions that are wrong. So probably you should get at least an advisor to stop you from doing that. Fair enough. did this thing about COVID zero in China. And there's some wild numbers coming out of there. The change in industrial production in Shanghai, year over year, down 62%. It's insane, right? How is that possible? Not down 6%. It's like another zero.

It's crazy. How is that possible? Is that real? It's real because they literally say, all right, everyone stay home. Don't go to work. So how did that not already cause a global recession? Because didn't they say like when China sneezes, the world catches a cold?

I mean, the global logistics and the inventory management has been phenomenal. We got to give those folks a lot of credit like Amazon, handling inventory, predicting inventory, predicting supply chain. We've done a phenomenal job of sort of minimizing that impact, hitting us immediately. Okay. When you talk to people in China, what do they say about still doing lockdowns in 2022? Like, are people really adhering to what the government's telling them? Or is it like kind of half-assed? I would say a few weeks ago, it was really bad. But the government has now sort of started to shift its emphasis, right? Everything they're talking about is stabilized growth, stabilized GDP, be more pro-business, pro-growth. And they're willing to now find a new way to declare victory

on sort of COVID containment, right? And again- Declare victory when everybody has gotten it. Unfortunately, they're very far away from that. So they're now looking for a different angle, right? And it's, you know, right now, I think it's a lot more about saving face than the science of COVID containment. Yeah. Right now, they sort of found new scapegoats, right? And part of it is, look, you know, local governments were over reporting and over testing because the money was being paid out of central government, not the local treasury. Now they say, look, all the costs go on you. And what they're seeing is local governments are starting to change their behaviors. They're not mass testing of everyone. They also found that a lot of testing

kits had a high false positive rate. Right. You can kind of understand why manufacturers would want high false positive testing rate, right? Because then you just sell more testing kits. So they're sort of blaming this out-of-control COVID containment on those two faults, fault points. And I think they're finding a safe way to say, look, that's behind us.

We're going to fix that. And they're going to be on a path of opening. Look, test less and you'll have less COVID. I mean, that's what we did here. Let's all keep it real. There's probably as much COVID around now as there was last year. The difference is everyone's using take-home tests rather than reporting somewhere for a test. And when you have a take-home test and you're positive, you stay home for three days. You don't call it in to the hotline and report it. That's at least what I'm hearing and what I'm seeing. So that's kind of how the world is going to get past this.

Is this going to be an ongoing problem for the global economy, what's happening with China's attempt to fight this? Or have we probably seen the most severe version of it? I think we've seen the worst of it. Like China was like the one remaining stronghold of like zero COVID policy that really was slowing everyone down. I think we're now across a point where everyone realized it doesn't matter how you want to talk about it, you know, what safe face way of dealing with this is, we are going to live with COVID and all the future variants and say, it's a flu. You're going to catch it.

No big deal. Jason, do you cover Chinese tech stocks? Because I'm looking at Baidu and Baba and Tencent and I guess K-Web's the proxy that we look at. And is there just seller exhaustion? These things could get a nice squeeze going on. Oh, yeah. I mean, they are really, really cheap. So the only reason they're that cheap is you got to believe in two things, right?

One is they'll get delisted and can't find another venue to relist, right? And that's a dramatic outcome, right? Because a lot of them are already dual listed in Hong Kong. And the other one is the Chinese government has to be really insane and say, for whatever reason, I just want to sort of punish our most successful, most profitable companies. Can you walk us through why that had to be as severe as it seems to have been? Because these are arguably some of the most successful companies in the world. I thought China's stance toward those companies were like, look at our crown jewels. It's pretty aggressive.

Look at our brilliant innovators. And it's almost as though they wanted to see a third to half of the market cap of these companies come out. A whole bunch of US investors just kicked them out of their portfolio. Was this all by design or did one idea get out of control and just feed on itself? What's your take on why that happened? There were a bunch of unfortunate things that was happening at the same time. Part of it is a lot of these big techs have become outright monopolies, right? They were just so powerful, such a big part of the economy, such enormous employers.

And they were sort of making up their own rules. They got a little arrogant. They got a little arrogant. Okay. And a lot of them, just imagine, Uber had constant battles with local regulators on, are these employees, should you be paying their social security, are they contractors, and do you need to get a license? Yeah, we have that here.

Elon Musk didn't get invited to the White House with the other EV companies because no unions at Tesla. We have that here too. Yeah. And then so for China, those are just sort of bigger issues. Like, look, you're Meituan, you're the biggest delivery, you're Didi, you're the biggest sort of right-hailing. And look, you're not paying these people anything, right?

And then you're not paying into the system. So they tried to make an example out of these big firms. And obviously, Alibaba, like if you're a merchant on Alibaba, uh, you can't be a merchant on our digital platform. And so the government's like, like, that's, that's monopoly. Jack Ma talked shit about the banks. And, and of course, you know, like Jack Ma, I think, disappeared for a while. Uh, so he, he, he was put under house arrest, but part of it was, they were saying, look, we don't understand anything about like what you're doing. I, big data, uh, you know, the Big data, the value of the economy.

Explain it to us and help us regulate. And so in some ways, it was sort of a good deal for him. He got to be in the room explaining to people who are going to make up the rules about how it should be done. So that wasn't so scary. But Josh, you're right. If you're very, very outspoken in China, you're just going to draw unwanted attention, especially if you go hard at regulators. That seems crazy to me to be in that position and want to do that.

I guess he wants to be like Elon Musk. Yeah, it didn't go so well. Why was the Ant Group supposed to IPO? Oh, okay. So that is actually a great story. Like Ant Group, there you can't blame regulator, right? Like the Ant Group, like financial when you look through it, right? It was just always going to blow blame regulator, right? Like the Ant Group, like financial, when you look through it, right? It was just always going to blow up badly, right?

It was going to IPO at like $200 billion in market valuation. Today, they estimated like it's probably worth $20 billion. Let's back up. The Ant Group is like the fintech business that started within Alibaba. Is it like Square? It's payments. It's everything. It's a money market fund. It's payments. It's everything. It's a money market fund.

It's banking. It's everything. They were saying it was going to be the biggest IPO other than Saudi Aramco of all time. Totally, right? I can't believe that didn't happen. Was it New York Stock Exchange? Oh, yeah.

I mean, that was – I think it was going to be Hong Kong. Oh, I thought – all right. I thought it was going to be Hong Kong and eventually New York. That's right. It was going to be dual listed just because it was going to take so much capital. Yeah. And the thing was, then they realized, look, you're selling mutual funds. You're selling life insurance.

You're doing like all these things are heavily regulated everywhere in the world and especially heavily regulated in China. Just because you say you're an app, right, doesn't mean you can do all this without getting a license first. And then once you get the license, you got to demonstrate capital adequacy, right, because you're selling financial app, right? It doesn't mean you can do all this without getting a license first. And then once you get the license, you got to demonstrate capital adequacy, right? Because you're selling financial products, right? These all have huge, huge balance sheet requirements, and they didn't have any of that. And so regulators just, look, we can't let you go forth with this because once you sort of float yourself and a lot of retail individuals jump in the top range of valuation, and then we come in and say, look, there are all these unsettled issues, right? It's the buyers, right?

It's the people who jump in IPO who are going to get screwed. But Jack Ma was being very flippant in the face of that. Those things all happen at the same time. Yeah, he drew attention of the regulators. And of course, you know, again, the regulators didn't always know what they're trying to approve but when he drew extra attention right then you got the top people looking at okay so let's you know let's take a look okay another company that that should have listened and didn't um was dd yeah probably the most disastrous chinese uh high profile chinese tech ipo of the last few years.

Oh, yeah. So they're told not to go public in the US. Like Ant Financial, they were told not to go public. But then they say, we're doing it anyway. They do a roadshow and they do it. The stock, what a disaster. And from filing to listing, it took them like seven days.

Yeah. Unheard of. Yeah, because they were just like, let's get it out the door and it'll be fine. And you kind of think about like, what management team thinks about, hey, let me float shares immediately

and get liquidity. And that's their country of domicile, not the US. Yeah. They do business in China. Yeah, is this bad? Down 88% in the hottest?

So wait, so what happened to this? So they came public and the next day, like China banned their app. Yeah. And basically said, you can't even operate here? Yeah, because so- Look at the day after the like China banned their app. Basically said, you can't even operate here.

Yeah, because so- Look at the day after the IPO, look at this. This story behind it is hilarious, right? Like this actually all happened. Again, everything ties back to Elon Musk. We don't really know the story behind it. Yeah, so this actually goes back to a Tesla crash in China that got investigated, like all crashes.

And they discovered, wait, a Tesla records everything inside the car and everything around the car and then streams it back to the US for analysis right to help with autonomous driving and all that and they go

wait a lot of Chinese people it's surveillance and so immediately there's like this this announcement from the Chinese government Chinese officials

are not allowed to ride in a Tesla right because everything you're doing in the car around the car gets recorded and then they go

wait DD does the same thing right and Because everything you're doing in the car, around the car gets recorded. And then they go, wait, DD does the same thing, right? And that's like the biggest, you know, right hailing. Now, if DD is Chinese and only the Chinese government

has access to data, they don't really care. But what if it lists in the US, most of the shares are owned by American public pensions? Does it become an American company? Do Americans now have full access to 600 million records

on Chinese citizens? Then they go, wait, before we let you do this, we got to make up rules around who owns that data. And then Didi freaked out and said, well, we're going to gun it. We're going to list ourselves. So Jason, this thing came public at $75 billion market cap. Now it's under 10.

I mean, it's breathtaking. So look, it makes sense that there'd be some sensitivity. We don't just allow our stuff to happen overseas and let's see what happens. But what I wanted to ask you was like from a U S investors perspective, and I know you talk to us investors every day, when we see something like that, we're not thinking about it from the Chinese side, obviously we're thinking of it it like, what if I bought that thing and lost 80% of my money? So as somebody who's investing money in Chinese companies, how do you talk to investors about like, that, yeah, that is a real risk, but that risk is worth taking because of what the opportunity is. So how do you do that?

So Josh, that's a huge part, which is obviously China is risky, right? Like no one is telling you China is as safe as the US, right? Like no one's saying that. It's risky. So it's a matter of are you being paid enough to take that risk? And you certainly don't want to be concentrated in making one big bet into one company because the fact it's risky means one company could fall 80% because of policy interruption. And so you got to broadly diversify because you're not betting on one Chinese company. Policy interruption is like a euphemism

for a CEO running afoul of Beijing or something like that. Yeah, something unlucky could happen. By the way, close at the highest, highest close in the month. Super bullish. Okay, go on. And so you want to be diversified because I think what you're betting on is you're betting on, okay, that market's going to improve in quality.

So the valuation multiple might increase as it becomes more liquid, more international, as it becomes a bigger part of the MSCI index. And you're betting on, hey, look, it's got a GDP growth that's 5%, 6% on average, at least for a few more years. And that's got to translate into corporate earnings growth. So you're betting on that. So instead of like trying to pick the one winner and financial or DD, right? You want to be broadly diversified. So you're participating everywhere. The funny thing is we think of growth stocks in the US as tech companies. And that's true, right? Because everyone, everything else is kind of brick and mortar, kind of boring. But in China, like everything's a growth stock, right?

I mean, you're growing out. Even a brick and mortar business is growing because of the speed that the economy is growing. Yeah, like you're selling air conditioner, right? A lot of people are buying air conditioners for the first time. That's a really boring thing in the U.S., but it's a fast-growing household appliance in China. What do you say to people who say, I'm getting all the China exposure I need via the S&P 500, given like most US companies, global companies,

are getting a lot of future growth from China, or at least are planning to? You're definitely getting some, but only some, right? Like, sure, Apple, right? But like, so the, like China mints a lot of new billionaires, richest dude in China.

They're not all tech guys, right? Like theaires richest dude in China they're not all tech guys right like the current richest dude in China is the guy who sells water really yeah what's his name

what's his company it's a utility no they sell beverage bottled water that's the wealthiest man in China

right now and the last guy was the guy who sold hot pot so it's a restaurant chain it's got like 4,000 chain stores. So these are like growth areas you don't think about, and they're certainly not represented by sort of the S&P 500.

These are like really, really sort of local stuff. And if you want to participate in that, you're going to have to take some risk and go onshore. Okay. You're not going to get enough of that exposure from a U.S. portfolio, in other words. Yeah. Coca-Cola is not going to capture enough of that exposure from a U.S. portfolio, in other words. Yeah, Coca-Cola is not going to capture enough of that.

What's your read on the housing market? U.S., U.S. What do you think is going on there? Obviously, it peaked. It definitely peaked. I think right now you're experiencing like stage number one, which is things are going to get really slow, right? You want to sell. Michael's a landlord, so don't make him too nervous, but go on.

Great. If you rent that your stuff, inflation is on your side, right? But if you somehow are too geared up and you got to sell your properties because you didn't refinance at a lower rate, then it's going to be hard to sell. Let's run through some charts. So Bill McBride did this thing. The Housing Affordability Price Index, X the housing bubble, it's as high as it's been since the early 90s. This is a combination of obviously interest rates,

just general home prices. But we're starting to see finally that, you know how like there was a house on the market and there was 50 bids added and above? Cash bids. So now it's starting to come in a little bit. I forget who this is from, but we're seeing 23% of new listings went into contract immediately, which is, by the way, still insane. One out of five houses gets sold immediately, but that's down from a peak of like 30-something percent in early December.

And finally, finally, finally, we're starting to see more price drops than any time since 2019. 5% of listings on a four-week rolling average are dropping. Josh, I'm seeing this all over our town. Yeah, Michael and I live in the same town, and the real estate market looked like every other suburban real estate market. It was absolutely on fire. Everything was a bidding war. Cash bids, people's parents, the buyer's parents paying. Now I'm seeing a listing and then two weeks later I'm seeing an automatic

price drop. Down 50 grand immediately. That can't be surprising. Your cost of financing has gone up. The Fed is still very powerful and can make things change really quickly. Oh, yeah. Because I feel like the mortgage rate was the first thing to respond in the real economy to the Fed's rhetoric, even before the stock market.

Yep. And so I think there's no question that the Fed is powerful, just that we don't realize that what it gives, it can take away. We love it when it's giving sort of subsidized cheap cost of capital to us. But when it's taking that away, now we got issues. Here's Mark Zandi. I think he's from Moody's. Yeah, Moody's Analytics Chief Economist, Mark Zandi. Quote, the housing market has peaked.

Everything points to a rolling over of the housing market. In terms of home sales, they're falling sharply. Housing demand is coming down fast. Home price growth will go flat here pretty quickly. We will see price declines in a significant number of markets. But how significant will the price declines be? I don't think they're going to fall that much. I was going to ask you, given the tailwind of demography and given it's doubtful the Fed is like trying to cause a recession, is there enough push and pull that we can have home prices come down, become more affordable, but not repeat the crash of the mid-2000s?

There's no crash. I mean because most people, like Michael, like yourself, you refinance. You're locked in cheap rate. There's no carrying costs, right? It's not like you're on this no money down floating rating. That's not happening. And credit scores are still super high. I was going to say the buyers have been highly qualified.

So I don't think there is a sort of deleveraging crisis there. All you're going to have is, look, things are going to get a little less liquid. A little bit less. It's harder to sell. You're not going to have people overbidding, and the price is going to come down as a result of that. But there's still so many people my age that are trying to buy their first house

that were priced out. There's still so many of them lined up to come in. So yeah, prices will cool off, but I don't think they're going to drop dramatically. I don't think there's going to be this sort of speculative deleveraging that we saw in 2008. Nobody panic sells their house, right?

These are not vacation properties. Speak for yourself. Yeah, I kind of, right. I kind of feel like it's actually on balance. It's a good thing if the value of the boomers' houses drops by 10%, but the millennials can actually buy them. It's a great thing. So it'll be 10% off the highs

and still up 30% from 2019. You know, so we're just cooling off a little bit. All right, let's talk EM broadly and earnings per share growth in emerging markets. So this is you and I'll let you react to yourself. Emerging markets have been underperforming developed markets for some time now. I mostly blame you. Everything that guy just said is bullshit.

Yeah, meaningfully over the last five years and even more so versus US stocks, which have been on fire. That put EM at much more attractive valuations going into 2022. As developed markets economic growth slows, investors are likely to look to EM as one place you might still find fast growth. One of the interesting things we found in our research is that the EM growth story really depends on how you define growth and not all countries give you access

to the growth that matters to investors. Explain what you mean by that. Yeah, so the big mystery for people who's, you know, overweight EM was the GDP growth never translated into stock market returns. Like the last 15 years, EM grew, grew faster than the US from a GDP perspective. What was the guy with the bricks, O'Neill? Jim O'Neill? Is that because companies weren't IPOing?

That's right. It's because you can't buy a slice of Brazil. You can't buy a slice of Peru. You can't buy GDP. Yeah, you can't buy GDP slice of Brazil. You can't buy a slice of Peru. You can't buy GDP. Yeah, you can't buy GDP. What you can buy is you can buy listed companies. And what we discover is the average company in emerging markets, right? You take out like China, the average company in the emerging market actually has declining earnings per share growth when the GDP is growing. per share growth when the GDP is growing.

Why? And it's because those markets, it's only like the gigantic state-owned enterprise, the resource-based state-owned enterprises that list, right? So you're talking about Petrobras in Brazil, right? You're talking about Luke Oil in Russia. And those are not terribly efficient, a lot of political intervention, and all sorts of problems. And they dominate the EM indices. They dominate their-

Because of how big they are. That's indices. They dominate their- Because of how big they are. That's right. They dominate their local market indices. And they don't have like a vibrant VC sort of ecosystem to incubate companies so they become unicorns and list, right? So most firms just can't list in EM. So Jason, there are EM small cap funds though. It's not as though those have outperformed.

No, because again, it's really hard and expensive to list. So most of the mom and pop companies that stay private don't list because it's not worth their time. Not of liquidity. So they are the recipients of the growth of those markets and outside investors just can't access them. That's right. And so when you think about EM, right, you just can't buy EM growth. And so when you think about EM, right, you just can't buy EM growth. China happens to be a bit of a weird outlier because China, I think, got lucky in that the VC from the US all went over to China, right?

They got a taste of the Alibaba. And then before you know it, right, they're funding everything, right? They really built Tencent, right? Meituan and all these great companies. The book by Sebastian Malaby about venture does a whole thing on China, on the venture guys going to China. This chart is freaking weird. It really is.

I don't know if everybody's seen anything like it. We're looking at, on one axis, you've got mean real per capita GDP growth, mostly positive, all positive, and real earnings per share growth, mostly negative. It's crazy, right? So hold on. So India has mean real earnings per share growth of less than 5% while its GDP growth is like 5%.

Yeah. So that's – it's almost like a stock market failure. But look at South Korea. Do these companies just suck at governance or capital allocation? What is this? Both. South Korea had almost 4% real capital GDP growth and negative 6% EPS growth. Literally, how is that possible? These are governance failures, right? Governance failures.

Okay, so do these management teams get better? John Malone needs to go to South Korea. No, but what has to happen for this to change? Like what are you telling people is the opportunity then if that's the state of EM stocks? So like if you're a global investor, obviously you can't go to South Korea and just change governance there. It is what it is. Then you kind of go,

okay, I got to focus on growth metrics that matters to me. GDP growth doesn't matter. So what does? You got to look at EPS growth. Markets where listed corporations actually grow, it means they have good governance. They face sensible cost of capital.

The market does enough to differentiate good companies from bad companies. So bad companies can't stay around forever and destroy shareholder values. So you want to start your universe that way. Rather than looking at GDP growth, you look at EPS, right? So you're not weighting a portfolio by how fast the country is growing or how large it is. You're trying to weight a portfolio by adding companies with real earnings per share growth. That's a huge departure from the MSCI indices right off the bat. Jason, let me ask you this. So this chart goes from 96 to 2019. So this is spanning a long time. So South Korea, for example, I'm guessing the market's up quite a bit since 1996. Does that mean that they're so top heavy that just the giant companies are contributing all of the market cap growth?

So it's a few companies that dominate their indexes and that's driving. But that's driving sort of the stock market appreciation. A lot of it is valuation. They've experienced – What's South Korea? It's like electronics and automobiles. You got Samsung and you got Kia, Daiyu, these big tables

that sort of dominate their economy. Yeah. But most of the average firms in that economy suffer. They can't get fair cost of capital. Didn't all the CEOs and CFOs of these companies go- Samsung went to jail.

No, no, no. Well, yeah, no. I know we have our share of scandals too, but just broadly speaking globally, didn't all these people go to Harvard, business school no, no. Well, yeah, no, I know we have our share of scandals too, but like just broadly speaking globally, didn't all these people go to Harvard business school and Wharton and like go back to their countries and say, okay, here's how it's done. Or was it not quite like that? I mean, it is like that. Right. But what they learned is, yeah, it's much better to be a CEO at a company with poor governance than a CEO at a company with great governance, right?

Because if you're a CEO- Oh, for a personal comp. Yeah, conflict of interest, right? Got it. Okay. Is that changing? Is it getting better? Or is it still where it's been for a long time?

For most of EM, it doesn't change. Governance- So that's the opportunity for you though, because you can build investment products that are looking for the right thing. Yeah, I mean, ESG in EM is hugely valuable, especially the G part. That's interesting.

You get that right, it will add returns to your portfolio. Now, when you have a few superstar companies that are doing things the right way and have high ESG scores and start to outperform the local market, don't the other companies look at that and say, let's get our shit together? Look how much money they're making?

Again, back to your example, right? People think about what's best for me, not always what's best for my company. And if you aren't incentivized by stock options and stock shares, you kind of go, hey, look, if my company sort of is a zombie company, but I get to fly in fancy private jets, pay myself, I don't really care. Okay. It's interesting how, all right, so can you find enough stocks to buy? Yes.

Okay. In every country or only in some countries or how does that work? Only in some countries, right? Like if you – I mean obviously there are going to be a few companies in India and South Korea that are printing positive EPS growth. But that's the outlier, not the norm. And you don't want to be in a market where the norm is against you, right? Because you're swimming upstream in that case, right? Your people told me that you guys are building indices or your own index products. Tell us about what you're doing there. Yeah. So we struck up a partnership with

Wilshire with their index arm. And what we're trying to help them do is take all these new insights and build the next generation of factor indices. The traditional factor indices like, do some value, some low vol, some small cap. Stuff that comes out of MBA textbooks. And we really know a lot more today.

What works in which markets? Why? And so the next generation is sort of taking a lot of what we've been talking about, right? Like the things that really matter in investing, stuff that are behavioral. So like an earnings growth index, for example, or an ESG index? Yep. Okay. All right. And then you're going to build investment products based on those? Are you going to license them? What's your plan? Yeah. So we love the index chassis, right? Because it's transparent. It leads to cheap product, ETF, index tracker funds.

So we're going to sort of jam all the IP into an index chassis, make them available. So ETF providers, index fund houses can produce fairly transparent and cost-effective products. The existing indices, I don't want you to bash anybody, but like the MSCI EM, it's not useful really to anybody because it's very one size fits all. All of these countries are different and it's very top heavy and there's a lot of state-owned enterprises or in name only state-owned enterprises. Right. So you're just saying like this asset class does have value, but you have to know how to weight it or you won't capture it. Yeah, I think you want to put a little more thinking,

a little more IP into index design. The fact that index should be dumb, I think that's an oversold thing. That might be true for S&P 500 because market's pretty efficient. So even if you sort of just price weight cap weight, you're going to be all right. But in markets like EM where, look,

the average company destroys value, right? You can't just sort of price way and say that's going to work. Insider trading and NFTs this week. What'd you think about this? Can you commit securities fraud in something that's not a security? Well, this was a big deal in the NFT community. Not that I'm part of the community, but at the time. Right.

This was headlines all over the place. Last September is when it first came to life. The story is that one of the senior employees at OpenSea was buying NFTs before they listed them on the homepage, which is not legal. Front running. Well, he was the guy that was responsible for listing it on the homepage. Actually, I don't know the legality of this. Let's just say it's unethical. Now we're learning that it's illegal because they are-

It's illegal because it's wire fraud, meaning he's conducting a fraud utilizing the internet or the telephone. What's racketeering? Not this. Is that mobster stuff? Racketeering is like I go up and down what are we on, 40th Street?

I walk into Chipotle. I say $500 a month every month on the first or I'm worried something terrible might happen. We should do that. That's called a protection racket, one example of racketeering. What this is is it's not a security, but it doesn't need to be. There's no such law against insider trading. That's not a law on the books the law is against um committing either securities fraud or wire fraud wire fraud

is any fraud that you pull off by means of using the telephone and the internet okay so they did so he was he was front running the customers so right so he had the power to make an nft worth two to three x what it was worth the day before by putting it on the homepage of OpenSea, which is the biggest marketplace for NFTs. That doesn't necessarily mean that these are securities. It could – Securities are not relevant. They're calling it a fraud. A fraud is a fraud and it's not – it doesn't matter if it's a security.

They're saying that he committed fraud against the buyers by buying it before them. Or again, excuse me. He committed fraud against the buyers by buying it before them. Right. So – or again, excuse me. He committed fraud against the seller because if you are the person – He bought it cheaper. Right. If you're the person that sells him that NFT on Tuesday and then on Wednesday, he makes the value go up by triple because he puts it on the homepage, you were defrauded as the – right? So it doesn't matter if it's a security or not. You were defrauded, right? So it doesn't matter if it's security or not.

It's interesting, though, to see regulators very quickly figure out that these aren't new scams. They're just old scams with new products or new techniques. Digital scams. Digital scams. So with that being said, how many NFTs can I put you down for? Are you in this market as an anime fan? Does any of this stuff interest you or not really? From an art perspective. I've been trying to convince my wife in the museum she works at,

the Boston Museum of Fine Arts, to do NFTs of their vast collection. To sell NFTs on the market for people that are fans of the art. They literally could say, hey look, you could own a limited, you know, 100 limited edition of Monet they have, right? And so, you know, museums are underfunded.

They need the money. What's the most priceless, what's the most valuable piece of art at the Boston Museum of Fine Art? Wow. I wouldn't know, but I got to guess. It's either one of the Van Goghs or one of the Monets. So, Jason, this is one of the, like, big NFT collections. It's called Az of the Van Goghs or one of the Monets. So, Jason, this is one of the big NFT collections. It's called Azuki. Have you ever heard of this one?

The floor is 12 ETH. So it's not inexpensive. So what's that, like $20,000? $2,500 times 12. Well, it's $2,000 now. So almost $25,000 for the cheapest one. That's 10,000 of them. Okay.

I thought this was interesting. I think we're going to see so many more cases where the regulators or the state's attorneys general will get involved. It's going to be a feeding frenzy because there's so much money here. Like people have made billions of dollars and they have done it in a way that's not fully transparent. And so I think if you're a law enforcement in any way or a regulator, you have to be looking at this as like, this is where I'm going to really make the biggest impact. There's been a lot of crazy scams. Just token drops and even like the brokerage firms, what tokens or coins they choose to list,

who knew about it beforehand, what did they do? It doesn't matter that they're not securities. What matters is that people that had information took advantage of it and they maybe should not have. And it's up to a jury to decide. Does it matter if it's a security or not? So we saw today this is like tangential. But according to the CFTC, these are just allegations, of course. Gemini lied to regulators by giving market makers rebates.

So definitely much more to come on that over the next couple of weeks. Right. So it's another example of like something that in regular securities market is supposed to be transparent. Who even knows if it has to be in that market? But if they decide that it does. By definition, maybe not with this stuff, but just generally speaking, the trouble only seems to unearth, be unearthed during bear markets. Yeah.

I mean, the thing is, I bet you the regulators were terrified, even though they know they should look at this, they're terrified that, well, you know, a lot of people are making money in this. Maybe there's something to it we don't understand. I don't want to go out there and embarrass myself and stop a good thing. So it's only when prices fall and things blow up, they go, okay, well, I knew that was a problem. Now I can go

look at it. I think some of that is the regulators also sort of reacting to the price collapse and sort of taking some solace that they actually might know what they're doing and stepping in now. Enough money has been lost

that they'll have the public on their side. That's right. Because before that, people are going to say, hey, you're stopping innovation. You don't know what you're talking about. Now it's harder to say that. Now it's like, hey, you scammed me. And that's, I think it's almost going to become

an easy way to get the public on your side, given how much money has been lost. So I think that's exactly right just just like you know i think what two years ago maybe a year and a half ago when the chinese government came out and say look there's there's no more sort of you know bitcoin or cryptocurrency transaction everyone was against that right it's like ah you know the central planning this against innovation people who don't know what the hell they're talking about trying to regulate and of course now you go okay all right maybe they know what they're talking about trying to regulate. And of course, now you go, okay, all right, maybe they know what they're talking about. How much money did the Chinese government save the Chinese people

by opting out of crypto? Huge. Bitcoin was like, what, like 70% of all the mining and everything and the transactions was in China. Yeah. Do you have a strong Bitcoin opinion or not really? Not really. I know there's no way to really value it

from the way that you typically look at markets. Hey, it's a store of value, right? I think of it as more collectible art. Store of values are like that, right? Like gold. Gold doesn't pay a dividend. It has no cash flow for you to discount. But it's belief-based.

It's got value because we all decide it's got value. And I think Bitcoin's got that status. So it could hang around as an alternative store of value, another gold. The other lesser currencies, I don't think they'll make it through this one. Okay. Yeah, it's going to be tough to make the case that there needs to be 50 versions of Bitcoin. And like, sure, Bitcoin, you can't print

more, right? But if you can print like Bitcoin 2, Bitcoin 3, like a bunch of other crypto, that doesn't help. That's always been my argument against it is like, I understand there's only 21 million coins, but then like there could be 21 million of another coin. Yeah, that's that bullshit argument. Well, so far, so good.

I mean, there's way too many coins now. Well, that's true. Okay, so. All right, let's do favorites and then we'll let everybody get out of here. It looks like it's about to pour. I don't know how far you have to go, but the sky is now black outside.

I'm going to start. Did you watch the Norm Nothing Special yet? Not yet. Don't ruin it for me. So good. He's probably. Norm MacDonald, the comedian who just passed.

So he's one of the, I can't even think of who else could talk into a zoom camera for an hour and keep your attention. So it was, it was great seeing Norm. I don't think it was hilarious. It's so hard without an audience. You know what I mean?

But also he's dying. Well, no, but that part – You're watching it and you know he just died. So it's hard to laugh. I'm just judging it on the content itself. It's impossible to make people laugh when you're just talking to a camera, right? But there was some really funny stuff. But anyway, the interesting thing was that after the show, Letterman, Chappelle, Molly Shannon, Conan, Sandler, and Spade

were sitting on the couches talking about him. And that was really neat to see. Is that part of the special? That was like the 20 minutes after the special was over. They sat around for 20 minutes just talking about him, talking about the special. And Sandler is just he's just, he's so

Adam Sandler, just seeing him in his element, like he just is a caricature of himself. It was pretty awesome. Anyway, uh, I would, I would, if you're, if you're a Norm fan, you got to watch it. I'm going to, I'm going to get, I'm going to get to it. Uh, what are you reading? What are you watching? Any favorites, uh, that the audience should be aware of? Last week I saw, uh, everything everywhere all at once. Oh. Oh, I heard such good things about that. Tell me about it. It was fantastic, right? Is that from Korea?

No, it was, I think, like three independent producers. I think they may have been European. I've heard amazing things. Tell us. Super creative, right? It's about this Chinese lady who runs a laundromat, right?

Bit of a loser in her life, right? Like, you know, loveless marriage. Her laundromat, right? You know, bit of a loser in her life, right? Like, you know, loveless marriage. Her daughter hates her, right? Yeah. But then, you know, she was chosen to sort of travel the multiverse and connect with all different versions of herself. And basically, in that process, right, you're able to live through, had she made a different choice in her life, she could become this. And then, so that was sort of fascinating way to, to get one to think about

sort of making different choices in life. What could that lead to? Oh, there are so many versions of me that are probably better than this one in the multiverse. I'm with that. No, this is about as good as it could have gotten. This is the best case. This will be your old, the alpha verse, according to their language. Michael thinks this is as good as it could have gotten. This is your ceiling.

Come on. Fine. Who are you kidding? Did you see this movie yet? It seems like it would be up your alley. I've heard of it, but I haven't seen it. It's pretty awesome. I saw the trailer for it.

It looks pretty cool. Oh, wait a minute. Obviously, my favorite thing to see was Top Gun. Oh, my God. Oh, we didn't even get it. Oh, my f***ing God. Yeah. You seen it?

It's incredible. I saw it, too. Did you see it yet? I've been dying. Did you love the 80s one? Like the original? I did. I saw it when I was 12. I mean, I've been dying. Did you love the 80s one? Like the original? I saw it when I was 12.

I mean, I almost want to join the Navy, okay? You have to go to the theater. It was so loud. It was so effective. The last third, like the climax, was so good. I thought it was one of the best movies I've ever seen in a theater. And we sat right in front of the speakers, and our seats were

like rumbling when the planes were flying and uh i loved all the acting in it was really good so they made that movie two years ago and sat on it yeah you believe that when i when we left i said to my friend i was like was that like one of the best movies you've ever seen like am i am i going nuts i feel like that was incredible i was incredible. I think it was a better movie than the first one. Yes, by a lot. Because technically, they could do so much more now than they could have back then. Yeah, it's not a fair comparison, but it was a lot better. They had cameras in the real jet fighter planes, cameras in the cockpits.

All right, now I got to go see it tonight. It was so good. It was sick. The Val Kilmer stuff was a little tough to watch. Yeah. I'm surprised he was in it. Do you know the story? What's going on with him?

He's dying, right? He basically lost his life. Yes, they dubbed him. They write that into the movie. No, no. That's his voice, no? No. He had to type onto a screen for Maverick to be able to communicate with him.

But he's a very highly placed admiral in the Navy, but they have him dying. And then at the end of the scene, they have him try to talk, but it's not really his voice because he really can't. That was tough. The reason that was so tough for me, not just Top Gun. Willa? One of my earliest memories of seeing a movie was a movie called Real Genius. You know it? Yeah, yeah, yeah.

Okay. He's like a teenager in that movie. I didn't know he was in that film. It's a high school for the gifted. And he's one of the main characters in the movie. Because I saw that movie. I didn't connect. That's him.

Okay. So like I just think about him being 16 and me being seven or 8 and watching that movie and it's hard for me to accept that we're that old it's also crazy to see the juxtaposition

of Val Kilmer like you know dying and Tom Cruise on top of the world this is crazy right because back then they were the same age

right they're all two most handsome guys in the world and now Tom Cruise still looks the same right and there's Val

it's sick how good Tom Cruise looks we looked at how he's 59 years old Speaking of Willow, I think Disney is remaking it That was my favorite movie of his childhood They're doing it for Disney Plus The kid in Top Gun 2

Miles Teller, outstanding Jennifer Connelly is outstanding It was great, it was so good I loved every second of it Alright, I have two Do you know about the Museum of American Finance? They got a museum? It's downtown.

It's in Manhattan. Oh, we've never been. We spoke about that years ago. I was there like once in my life and I don't even know if it's open because of COVID or whatever. Anyway, they do a monthly magazine and they hire amazing writers,

mostly professors, to do a feature article. The new issue came out this morning. It's free. You can just subscribe to it online. It's like museumofamericanfinance.org or something. The new issue, the feature story is a professor from Harvard writing about how capitalism came to be and how informed it's been by religion. And it's just so outstanding, so well done.

So for people that are interested in economics. Yeah, digital. Oh, that's awesome. It's a PDF. You can read the whole issue digitally. The feature article, though, is just about like why we believe in what we believe, about how to invest, how to run a company, and how much of that actually came from religion and not really from economics. Religion. Yeah, it's really cool.

It's great. So I highly recommend that. And then I was going to throw out We Own This Town on HBO. City. We Own This City. Holy shit, is that good. Great, great. So if you're a fan of The Wire, it's David Simon and George Pelicanos.

And a lot of the actors from The Wire come back as different characters. But it's the same thing. It's Baltimore. It's drug dealing. It's police corruption. It's John Bernthal throwing 97,000 miles an hour. He was so good. Yeah, it's incredible.

Have you watched that yet, Duncan? No, I haven't I've lived in Baltimore I never watched The Wire You can't revisit? It's six episodes, it's a miniseries It's only six It was so, so good

I watched Stranger Things Season 4? I didn't see season 3, do I have to? I didn't care for season 3 that much, but the new season is pretty good. But could I just start it? I think so. But could I skip from 1 to 4? I mean, you would be pretty confused, but I think it could work.

All right. I have one for you. Can I skip? I never watched the original Top Gun. Can I just watch the new one? Skip it. Don't worry about it. Skip Top Gun.

Go to Maverick. Don't worry about it. Go straight to the new one. But go in theaters. Okay. All right. Let's wrap up. You guys did a great job about it. Skip Top Gun. Go to Maverick. Don't worry about it. Go straight to the new one. But go in theaters. Okay. All right. Let's wrap up. You guys did a great job this week.

Thanks, John, Nicole, Duncan. Jason. Jason. Jason, congratulations on one full year of the Compounded Friends. We will be back next week. Yeah, Jason, you killed it. Thank you so much for coming. Thanks for having me.

Really, really appreciate all your insights. Where can people follow you if they want to hear more? I read your stuff on LinkedIn. LinkedIn's the place. LinkedIn's the place, right? I haven't quite figured out how to use Twitter. I am just very verbose. I can't make Twitter work for me.

All right. It's Jason Hsu, H-S-U, on LinkedIn. His stuff is great. I read everything that he puts out. Thank you so much because you have fun. Yeah, no, this is great. You want to do this again sometime? Yeah.

Okay, how's next Wednesday? No? We'll let you come up with some new insights first and then we'll have you come back. Is that good? Yeah. All right.

Jason, you're the man. We appreciate it. Congratulations on Rayliant. Thank you, thank you. And good luck with the new indices that you're launching and keep us posted. Absolutely.

We definitely want to hear more. Okay, make sure that you write us a review, for God's sake. If you love the show and you want more of the show, the best way that you can help us is to write a review. iTunes, Spotify. And Financial.

Yelp. Yelp? And Financial. I don't know. Just please write us. And share with your friends. Share with your friends. Share with your friends. Write us a good review.

Thank you guys for listening all year. We'll be back next week. Like and subscribe. And remember, idontshop.com 25% off through Sunday night. We'll see you next week. Bye.

You ready to do it? You ready to do the show? All right. Woo-hoo! Feels much better bye bye bye bye

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