The Pomp Podcast - #1400 Phil Rosen & Anthony Pompliano | Nvidia Earnings & Warren Buffett Hits $1 Trillion

Episode Date: August 28, 2024

Phil Rosen, the Co-Founder of Opening Bell Daily, and Anthony Pompliano, CEO of Professional Capital Management, discuss Nvidia, hype behind AI stocks, how to think about future earnings for these companies, Berkshire Hathaway hitting $1 trillion market value, potential recession, housing prices, inflation, CEO’s switching companies, and more.  ======================= CrossFi is the Apple Pay for Crypto. For the first time in history, anyone with a web 3 wallet like Metamask can spend crypto through a physical or virtual visa cards anywhere in the world where Visa is accepted. Be one of the first to get your hands on a CrossFi card and a prize pool of $3 Million Dollars by joining and participating in their testnet today: ⁠https://xfi.foundation/users⁠ ======================= Buy and sell cryptocurrency in a tax-advantaged crypto IRA with iTrustCapital. Enjoy 24/7 access, lowest fees in the industry, and tax benefits for your retirement. Open and fund an account today at ⁠⁠https://www.itrustcapital.com/pomp⁠⁠ to receive a $100 USD funding bonus. ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. What's up, guys? Today's conversation is with Phil Rosen, the co-founder and editor-in-chief of Opening Bell Daily. In this conversation, Phil tees up all kinds of great topics for us to discuss. We talk about NVIDIA,

the fast-growing darling of Wall Street. We talk about AI stocks, whether the hype is real or not, how to think about future earnings for these companies, and whether investors will continue pouring in trillions of dollars into all sorts of AI infrastructure businesses. We then jump and talk about Berkshire Hathaway and Warren Buffett, a new trillion dollar market cap, how we should think about the goat of investing. And then we get into lots and lots of details about a potential recession, housing prices, inflation, interest rates, unemployment, and much more. And then we end the conversation discussing why so many CEOs are jumping ship. People going from the Chipotle company all the way to Starbucks and whether a CEO can actually turn around a brand new company or

not. I enjoy these conversations with Phil. Hope you guys are learning a lot from them. And here is my latest episode with Phil Rosen. only as an expression of his personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by CrossFi. CrossFi is the Apple Pay for crypto. For the first time in history, anyone with a Web3 wallet like MetaMask can spend crypto through a physical or virtual Visa card

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However, if you do the same thing in your Roth IRA and you make a $20,000 profit, you don't need to pay any taxes. That's right. You get to keep all the profits and not have to pay taxes because it's in a tax advantaged account. So opening a tax advantaged IRA at iTrust Capital only takes a few minutes. You have 24-7 access to the markets with some of the lowest fees in the industry. The bull run has begun and people are starting to see their accounts go up. So start taking advantage of tax benefits with an IRA at iTrust Capital. You can start maximizing your crypto investment today. Go to itrustcapital.com. That's itrustcapital.com. NVIDIA has seen ridiculous gains over the last few years, but specifically since

ChatGPT launched in November 2022. Revenue's up fivefold and the stock's up 900%. How sustainable do you think this trajectory is for NVIDIA as a business? Well, I think you make a great point that NVIDIA has been the big winner from kind of the AI revolution. And a lot of times when there's a new technology development, there is some moment that's kind of like the shot heard around the world. And so if you go back all the way to the early internet days, the first time that people saw the mosaic browser and they said, oh my God, there's this, you know, thing that that's going to happen. If you think about the iPhone, the first time that people got that in their hands, they're like, wow, this is going to like revolutionize or

change the world. And I think that, you know, ChatGPT was that product specifically because it was a consumer AI product that when you played with it, you were just, your mind was blown and you started to kind of imagine what the future was going to look like. And so when you go from kind of no AI being thought about in the mainstream kind of consciousness. And maybe the most innovative technology people are thinking about are space, possibly robotics, maybe crypto, things like that, to all of a sudden people say, AI is going to revolutionize every industry. Of course, people are going to then say, well, how do I start using AI? And I think that's where NVIDIA kind of being the company selling the picks and shovels,

the infrastructure for this revolution has really benefited. And then if you look at, not just picks and shovels, it is probably the you know, kind of most needed infrastructure. And the reason why that becomes important is because ultimately, revenue at a company and the share price, if you boil it down to its most simplistic form, it's all about supply and demand. If a company has unlimited demand, which NVIDIA has, and they can only produce a certain amount from a supply standpoint then of course they have pricing power they're going to keep blowing out all of the revenue estimates and they're going to grow at these crazy rates and so i think that you know last quarter uh something i saw that you wrote nvidia's revenue was up i think 300 year

over year this quarter people expected to be up 200 percent year over year you don't get those types of growth numbers unless you have a line out the door of people who are willing to pay you whatever you want for your product or your service and i think that's the position that nvidia is in so the demand story is very interesting but i also think that because it's so correlated with the ai boom um there's a lot of concerns around that whether the stock price is just riding the trend um and right now nvidia accounts for six percent of the s p 500 uh at a three trillion dollar valuation. So because it's been so tied to sort of this broader tech trend, do you see any overvaluation in the stock? Well, it's always the valuation today is people trying to predict what

is going to actually happen in the future. They're looking out and they're saying, hey, if I buy the stock today, is it going to be better off in the future? Because that means the stock price will rise. So it's this weird thing of every company technically is overvalued for its current performance because stock prices are forward-looking you're trying to predict what that future is which is kind of an important but uh definitely nuanced point and so the question to nvidia i would almost reframe it's not so much is it overvalued today of course every stock is it's is it overvalued compared to what they're going to be able to actually claim as revenue and profit over the next 6 12 18 24 months the hard part about something like nvidia is it's

growing so quickly, every time you think you know what that revenue is going to look like, they keep surprising to the upside, which obviously drives a higher stock price. And so in this specific case, I think part of this is the line out the door doesn't seem to be going away. If anything, it's getting longer. But if they can actually ramp up supply, does that hurt the pricing power? And if you hurt pricing power, you may have this weird kind of situation where volume is up, but actually the kind of like revenue per customer is flat because you've actually been able to create more supply. And so there's all these metrics that Wall Street tries to look at that they're really just trying to predict, hey, can this continue? And I think

that line out the door is probably the thing I have the most confidence in saying. People want the AI technology. They want the infrastructure. They're going to continue to line up and try to go do that. Now, one thing that I recently learned, which I do think is important is there are other places around the world that want to become a kind of semiconductor or chip manufacturing hubs. So I recently was in Saudi Arabia and one of the companies that I met while I was there is a company called Alat, A-L-A-T. And I'd never heard of it before, but somebody introduced me to an individual who works there. And at lunch, you know, we're talking and they said, oh yeah, the Saudi government has put $100 billion aside for this business. And their job is

to modernize manufacturing, industrial kind of businesses in Saudi Arabia. And the reason why they have $100 billion between now and I think 2030 is they are going to use capital and partnerships to go after a lot of these different sectors. One of their main focuses, I think it's one of like 13 sectors that they are focused on is semiconductors and chips. And what it appears based on their strategy is that they're going to try to partner with people, or maybe they try to buy existing businesses, right? And kind of go after these sectors. And so when you see that type of capital being invested, NVIDIA is also going to have a lot of competition because obviously this is something that is valuable to the world. And so supply doesn't have to just be

NVIDIA specific supply increase, it is a global supply increase. So if all of a sudden NVIDIA has got this line out the door and let's say they don't produce more, actually there is this imbalance that persists at NVIDIA, but 10 or 15 other competitors pop up plus the existing competition and they all start to produce more. On a global basis, there's more optionality for potential customers. And so what would have been NVIDIA revenue may go somewhere else. And so that's what makes investing so hard is trying to kind of look at these complex situations and predict not just what is NVIDIA gonna do,

not just what are the market dynamics and the demand kind of in balance and will that persist, but also what is potential competition doing? What is future competition that doesn't yet exist today? Is that gonna show up? And then also what about things like technology innovation? NVIDIA has got kind of the best product on the market today according to lots of people in AI world,

but if somebody shows up with something better and it renders NVIDIA's chipset obsolete, well, that would be pretty detrimental to the stock price. And so trying to predict something that is unknown is very difficult. And I think that's why a lot of smart people are attracted to investing is because it's kind of this intellectual stimulation

of trying to figure out a game that is impossible to actually predict the result of. Yeah, I think that's right. And that's crazy that the Saudi Arabia company is getting incentivized almost by the government because I think that's something we don't necessarily have in the U.S. Well, in the United States, it's interesting. And I'm definitely not an expert when it comes to kind of the exact, you know, U.S. plan here.

But if you look at the CHIPS Act, if you look at things like TSMC being incentivized to come and build a plant here in the United States, you know, there's a lot of debate. Are they on track? Are they not? Are they going to have to delay? You know, how much productivity can they actually get into these facilities? But I do think that the United States in general has realized, hey, it's a pretty big geopolitical risk for us not to be producing these chips here in the United States. How do we very quickly kind of correct that? But if the United States recognizes that, every other country in the

world probably recognizes that. It's just, you know, maybe there's a handful, 10, 15, maybe 20 max companies that actually can do something about it. There's so many small countries around the world, they may recognize, we wish that we had the next TSMC being built here. They're kind of behind the curve. They don't have the capital. They don't have the ability to attract the entrepreneur or the talent to do it. Saudi Arabia and many other Middle Eastern countries definitely have the capital. It seems like they have the appetite. The question is, are they going to be able to actually kind of get in the game and become a contender? That remains to be seen. So to change gears for a moment, I saw this morning Berkshire Hathaway hit a $1 trillion

market cap for the first time ever. When you read that, what was your reaction? I mean, this feels like the crowning achievement of Warren Buffett's entire investing career. What's so fascinating to me about Buffett is that Buffett actually started off as the equivalent of like a solo investor who was investing what I think many people today would consider, you know, kind of the venture capital structure. He created these partnerships. He went around, he raised capital. People put it into the fund. He charged some fees on those vehicles. I think at some point, actually, it was 0% management fee and he just took carry kind of on the profits. And he was investing and it was this great fund structure. And, you know, here we go.

those Buffett partnerships, at some point he decided this is not the path forward. And he then decided, well, why don't I go and I actually buy a company? And so he bought Berkshire Hathaway, which was this textile business. And, you know, he was able to kind of start growing it and he was buying businesses. He was investing capital. He was driving, you know, income off of dividends. Like he just became this capital allocator. That was decades ago. And so he continued to kind of build this thing up. And so, you know, one of the things that Warren Buffett probably, you know, ends up maybe in hindsight being really good at is actually just being a long-term thinker. And so, you know, he does

something that most investors can't do, which is Buffett is amazing at doing nothing for long periods of time. And so in a weird way, people who set out with this audacious goal of like, I want to build a trillion dollar company, they would immediately be like, urgency, action, What do I do? I got to get started. Buffett definitely probably had that in his earlier years and he definitely took action and was able to drive a return. But if you look throughout his career, this kind of urgency when needed, but also patience when needed is a pretty interesting paradox that I think many investors, including myself, aspire to be able to kind of employ that stuff. But I don't know how many people could sit around with it. He's got like over $150 billion

in cash right now and just chill and just wait for the fat pitch, it really is a skill that has helped him build a trillion-dollar company. Well, I think most people are already proving that they can't do that because a lot of what we're seeing in, let's say, NVIDIA, the stock price has gone so parabolic that that's probably just a lot of people wanting to capitalize on something very short-term. And NVIDIA, I think they went from something like half a billion market cap to $3 trillion in less than three years. And Buffett's taken, you know, however many decades to get to $1 trillion. Where do you stand on picking these growth names in tech versus maybe a more real economy business or a more boring business like a Berkshire Hathaway?

Well, I do think when you think of tech or growth and then, you know, call it an industrial manufacturing or kind of blue collar business, they have different properties or different attributes that people really are buying, right? A lot of times when you're buying a tech or a growth company, you are buying future growth, future profits, and you're trying to really acquire speed because that growth, that speed should equal enterprise value that's created over time. When you go and you buy, you know, John Deere stock or name your kind of favorite industrial manufacturing business, I would argue even maybe a Berkshire Hathaway is kind of in there as well. A Russell 2000 stock, if you will. A lot of times what you're buying is you're buying

security. They have physical assets. They have cash flows. They've got some predictability to their business. They've been around for a long time. You don't think that those companies could go to zero or lose 80% of their value, but they also don't have the kind of volatility on the upside either. They're not going to go and go from half a billion to three plus trillion dollars in three years. And so if you think about the investor set in the world, you can segment populations, right? It's just like anything. There are some people who say, you know, I just invest in the S&P 500 and that's good enough for me. And then there's people who say, you know, I'm a passive index or two, but the S&P that's a little too light. I'm going to be really creative. I'm

going to go to QQQ and I'm going to try to get a little bit better return. And then you just kind of extrapolate it out. And there's people who are literally buying the latest, greatest high flying tech stock. And they're heavily concentrated there. And they think that that's the best investment strategy. What I personally view kind of these things as is you got to ask yourself, what's your edge? Where's your advantage? And so if you sat me down with many of the great investors on Wall Street, they will run circles around me when it comes to very nuanced, you know, kind of elite financial analysis. If I am stuck trying to out-compete a great Wall Street investor in a spreadsheet, I might as well just pack it up and go home. They're better at it than I am.

I understand that they have an edge there that I don't have, but there are a number of things that I may be able to kind of identify with companies that they can't identify. And that's where I have an edge. That's where I have some advantage that I'm able to employ when deploying that capital. And so what that tends to lead to is I'm probably not the one who's going to go and figure out that John Deere stock is undervalued and I'm actually buying it for 20% less than all of its assets plus its tax credits and oh, they have this line of credit and here's this great advantage they have. I read the analysis that people do. And I'm like, man, you're really smart. Like, you know, congratulations for figuring all that out. I'm much more likely to figure something out where I say, look, you know, I'm able to understand that there's a secular or kind of technology trend that is changing. I don't know, I can't tell you how big it's going to be. But I think that

directionally, this is, you know, something that is not seen as valuable today, but it's going to be very valuable in the future. And so if you know that about yourself, you just go try to exploit your advantage or kind of the edge that you have. The mistake I see most investors make is they try to do everything, right? They want to, they say, look, I want to be, you know, able to spot the technology trend. And then I want to be elite at the spreadsheet. And then, oh, by the way, I'm also going to be an expert on fixed income and foreign currencies. And you just eventually are like, look, one person, it is very, very difficult to be able to do all of that. And so just understand, hey, where's your edge? Where's your advantage? And just go try to be even better

at that rather than you know kind of half-ass uh you know gain some other advantage that that you're probably actually not going to be the best at uh speaking of wall street researchers hindenburg research this week published a report against super microcomputer that and they announced they were shorting the stock and historically they've done this several times and they have a very good track record so right now i think super microcomputer has dropped 30 percent in a single day and uh the research report alleged that they had all these essentially governance issues and accounting issues and my thought when i saw this was okay i wonder how isolated this case will be as far as ai or chip stocks and you know will this be a trend essentially so it's interesting that uh

they positioned it as the AI sector, but they went after, I think Supermicro is the best performing stock since August 10th of 2020. It's up there. Because I think Michael Saylor posted a ranking and MicroStrategy was the second best performing stock during that time period. Supermicro was the only one that outperformed them, if I remember the timeline correct. And what a lot of people forgot already is that Supermicro actually had some regulatory troubles back in 2020. So the SEC, I can't remember if they went after the company or it was the company plus the CEO and CFO, but they were kind of regulatory scrutiny and I believe also charged with some accounting manipulation. Now, accounting

manipulation, again, I just said, you know, I'm not an expert in accounting, so I've got to kind of go off of the analysis that's done by others. But they claim that there was revenue that was getting pulled forward and recognized early, and that maybe expenses were being done the opposite. And so it was painting kind of a more attractive perspective of the company's financials. And so this could be something as simple as like, hey, rather than book the revenue in October, we're going to book it in June. It counts for Q2, not Q4 type stuff. I don't know. But obviously, the regulators, they did the jobs, they looked at something, they felt like they had a case and they went after the company. So the reason why that context is important is because when Hindenburg

came out with this report, one of the things that they kind of leaned on was recidivism. This is not the first time that they've done this. They're just a repeat offender. Now, again, are they actually a repeat offender? What's happening with the current accounting and is it manipulation? Is it not? We're going to figure all that stuff out. But I do know that the stock dropped almost 25%. And it's always hard to tell how much of that is because Hindenburg is seen right now kind of as the goat of short sellers. And so if they come out with a report, the stock's probably going to drop versus people are saying, hey, you know that there is quite a bit of trouble here and we actually agree with the report. It's unknown. I think we'll kind of

figure that out over the next couple of weeks. But I did see maybe the critique of the Hindenburg report came from a JP Morgan analyst and they came out and they said, well, you know, maybe this is true, maybe it's not, but you guys don't really have specific details in the report that can kind of back up these claims. So it's very vague. And so like, we don't know yet. Who knows, right? Like we're going to eventually find out because the regulators will probably go and take a look at this. And, you know, the regulators obviously went after Carl Icahn after Hindenburg had put for the report. And so short sellers, you know, on one hand, people don't like them. And on the other hand, people think that they do a necessary job in the market and, you know, kind of go and

seek out fraud or, you know, malicious, nefarious activities. But in this specific case with Super Micro, going after the AI company that's performed best over the last three or four years, Hindenburg, you know, they go after anybody, right? They, you know, they will go after anybody that they deem kind of a target that's doing things that they think should be exposed. It's a very bold move to do that the same week of NVIDIA earnings, because those two have been pretty tied together as far as their stock gains. You said that yesterday, and I was thinking about it actually last night, that I wonder if that's part of why it was done. Waiting to publish?

Well, you know, from what I read is it was a couple of months of investigation. It could be a coincidence that they just happened to finish the investigation and publish the report the day before the NVIDIA earnings. But that's a pretty big coincidence. Yeah. Well, usually Supermicro is one of the many stocks that goes up when NVIDIA goes up. So this is, I mean, coincidence is a... And look, this is part of, you know, I think from an investor's perspective, and again,

you know, I don't want to present myself as some great public market investor, but when I see the stock down 23% and people think that NVIDIA is going to beat to the upside with a big earnings report and knowing that they're tied together, it may be worth further investigation. You know, we're going to, this is going to publish after this has occurred, but maybe people should have gone and bought that stock. I don't know. Right. Maybe actually that's a horrible idea, but I do think, you know, if people want to peek inside of kind of how investors think because something is down may make it more attractive to go by then, oh, this thing is down. There's a short report out. Well, if it fell 23%, it could fall another 23% or it could have fall 23% and then NVIDIA

comes out and it just rips right back uh and you know there was kind of returns that were sitting there on the table again investing is hard because you can't predict the future so right now market concentration is at levels that we haven't seen since the dot-com era and uh tech and healthcare stocks in particular account for 45 of the entire global stock market and at the same time financials energy and materials have dropped below 25 percent and those two stats have not been seen since before the dot-com crash we've also seen warren buffett warren buffett and michael burry other prominent investors selling stocks i know you're an optimistic long-term investor does any of that concern you well again i think that there are um to analyze these situations you got to be able to

make the bull and the bear case, right? I think that the trouble people get in sometimes is you look at a situation, you come to a conclusion, and you really can't articulate the other side. So let me try to kind of outline both of them. On the maybe positive side, if you think of society, pretty much, unfortunately, we're fat and unhealthy. And so it would make sense that healthcare is booming because you have obesity, you have the opioid kind of crisis, you've got whole bunch of uh kind of rise of cancers and you know heart conditions and all these different things uh you also have a rise of people saying well hold on a second i want the preventative health care so you see the rise of wearables and you know kind of various testing facilities and

things like that so that kind of makes sense on the technology side like we have transitioned from a physical economy into somewhat of a digital economy some people argue it's not a you know complete one to zero, you know, kind of change, but it definitely is a widening part of this economy is this kind of digital transformation. And so that makes sense, right. And we probably are lessening our dependence on, you know, traditional banks, lessening our dependence on energy, lessening our dependence on certain things doesn't mean that energy in general, it just means that the really big energy companies may not be nearly as important as they once were for the overall economy. And so as a percentage, they're shrinking, but maybe their revenue is

actually growing. So, you know, there's kind of all these nuances to it. So that's kind of like the bull cases, the changes in concentration somewhat match like what's happening in society in general. Now, the bear case is, you know, 40 something percent is in healthcare and tech. Well, those are the hot, sexy things that everyone wants to go invest in. And maybe they're overvalued and actually things like energy, which are still incredibly important for the economy are undervalued and so capital has kind of gotten off sides uh and there will be some reckoning there will be some change i don't think that concentrations in certain sectors is the thing i would point to uh for the bull or bear case though if you said to me to think about kind of

the current economy and you know is it a positive is it a negative um the things i would look at is things like unemployment now unemployment is in a weird spot because it looked pretty good you know until recently and then all of a sudden i think we jumped to 4.8 percent is the current unemployment rate. And so if you go back, I think it was Larry Summers said early on in kind of the Fed tightening cycle that he thought we needed unemployment at more than 5% for at least five years in order to get inflation under control. Now, we've gotten inflation closer to under control. It's still not under control, but it's at least closer than it was. And we hadn't breached 5% yet, but we're almost there. So it's kind of interesting that that 5% number in his head

what was really important. But if the labor market continues to cool, unemployment continues to rise, that would be a pretty strong argument of, hey, there is this economic slowdown occurring. On top of that, if you start to see earnings of companies softening and kind of slowing down, right? We just said NVIDIA 300% growth last quarter. If all of a sudden it's 200%, still it's 200%, but that is not 300%. And so is that going down, right? And you can go look at many other companies that people are claiming are softening. I think it's important. Home prices, super important. And so if you kind of see affordability, if you see kind of the wealth inequality gap, all these things changing, a big percentage of the economy is falling behind.

They don't have the capital to participate in the same way that they historically had. That would be a major problem. And so there's kind of these data points that are outside of, let's say, sector concentration that are probably better indicators of what's the current state of the US economy. The challenge is how do you trust the numbers? The labor market is like the prime example, right? If we wipe out 850,000 jobs after a year of being told that they're there, all of the analysis that you did gets wrecked because the government basically says, oh, sorry, we gave you the wrong data, right? Now, again, is it nefarious or malicious or not? probably not, but still 850,000 jobs that were there are gone. Unemployment jumps to 4.8%.

Literally overnight, people say, oh my God, what's going on here? Maybe the economy is in a worse position than we thought. And so if that's true in the labor market, what makes it not true in inflation or in home prices or in name your favorite economic metric? When you start to question the efficacy and accuracy of the metrics that you are doing the analysis on, it just jumps to bad data in, bad decision-making out. And I think that is probably the biggest concern that a lot of investors have is, am I actually looking at good, accurate data? Because if I'm not, I'm literally wasting my time. If I have bad data, there's no analysis that's going to get me the right answer and so you know at what point do you breach over the

threshold from uh the data is like directionally correct you know maybe it's not perfect but like i can still use it to let's just all go home and you know try something else um each investor i think is a little bit different there well i wonder based on the bad data or good data how much insight does the federal reserve have into the efficacy of the data because they're making decisions that impact everyone with interest rates but if they're seeing the same exact data that gets revised months later that could be very bad i think um well one of my favorite things on this topic is uh jerome powell at one point talked about the unofficial inflation uh reading and when i heard that i said well hold on a second if we have an official and an

unofficial and the fed is looking at both what's the difference what do we look at right yeah like like just why is it unofficial? Like, why don't we just make it, you know, Hey, there's two calculations or methodologies, or like, maybe we should throw out the official and use the unofficial. Like it introduces this like complex, you know, spider web of decision-making that comes from it. But, uh, we would almost be better off even if it wasn't accurate or the federal reserve, just saying like, there is the inflation metric. We are unaware of any other inflation metric that we may look at. But when I saw him start talking about the unofficial inflation metric, I was like, oh my God, like now we're just going to open up Pandora's box here. And, uh, he wasn't like

saying, Hey, this is stupid. He was like, basically insinuating, like, I know the unofficial metric is higher. And so that was like, so what do you think? Like, do you think that the official metric is true or the unofficial one is? And I know you're not going to answer that. So now we're all left to think like, well, maybe it's in between, like, do we just like take an average? right do we do we uh kind of just split in half like i i don't know well there's a lot of room i think for tinfoil hat thinking right now um so we we know the fed is cutting in september jerome powell said it in jackson hole essentially um what he didn't say was the pace of rate cuts and you know some people think it'll be aggressive some people think moderate

once those cuts start what do you think the odds are of inflation rebounding um it's a very good question. I think the rate cuts have some impact on kind of inflationary pressures, obviously, but I don't know if the rate cuts are the thing that is most likely to determine whether inflation occurs or not. If you said to me, okay, over the next 12 months, what is the biggest input to whether inflation returns or not? I don't think that it's monetary policy. I think it's fiscal policy. And if you said to me that the politicians all woke up one day, shook hands, and agreed we're not going to spend, then it's a very low probability that inflation is going to continue to rage on. But if the politicians continue to do what they're

basically doing now, which is spend like crazy people under both Republican and Democrat presidencies, then yeah, inflation is probably going to be a little bit higher than we want it to be because you are literally printing money and putting it into the economy. It's an inflationary pressure. And so to me, that is really important. I think the Fed can contribute, obviously, if they flood the market with cheap capital and, you know, suppress interest rates, things like that. But they've been pretty, I think, reactive. And so I don't have a fear that, you know, they're going to start cut, like they're going to come with 100 basis point cut, because Jerome Powell wants to like pump his portfolio or something. To me, like if you said to me, you

know, kind of make a choice, he's probably going to be slower and less severe with the cuts than hyper aggressive. And so that lends itself that it's unlikely we are going to see monetary policy be the sole major contributor to inflation. Now, one thing I will say is the wild card is who becomes president. And it's a very interesting dynamic where one of the critiques of Trump is that he is going to spend. He's going to build the wall. He's going to do all these different things. Harris now seems to, in a weird way, agree with some of these policies. and so like the wall is the most recent one where she's saying hey we should build a southern border wall and if you kind of strip out all the political you know uh kind of uh you know

positioning and and campaigning it's just like okay the two leading presidential candidates for the white house are both saying they're going to build a southern wall how much is that going to cost like there's going to be spending and so maybe it's a little maybe it's a lot i i don't know what the latest estimation is on building this wall and how long it is and you know is it a big, beautiful wall, or is it one that, you know, people can kind of slide through like whatever. But when you think about that, that spending is obviously going to contribute to kind of inflationary pressure. And so you just go through all the policies. And I wonder, like, maybe the president doesn't actually matter as much as we think it will for government

spending, because we are arriving on both sides of the political aisle on some of the same kind of conclusions. And, you know, people who had the idea previously, they're going to say, oh, you know, I'm right. I'm so smart. Now you agree with me. People on the other side are going to say, hey, the facts changed. I'm changing my mind. But spending, spending. And, you know, if we think about it, like we have been excellent. We are the world champions at spending trillions of dollars in the economy. And so it's hard to see a world where like inflation goes back under 2% if they're doing that stuff. What do you think? I think there is a risk that it comes back, but I don't think it's as in focus, at least in the politician's view or even in the press's view.

I haven't seen much covered about, okay, inflation is going to come back once Fed cuts begin. Pretty much everyone's worried about the labor market much more and making sure unemployment It doesn't spike. So everyone wants these cuts, of course. And at least among other financial reporters, no one is really talking about inflation is coming back. So maybe that in itself is a signal like a maybe. Maybe it's a good signal as far as the data reacting to the consumers.

And to that point, you said this on CNBC. The more people that talk about a recession, the less likely it is to happen. Can you explain that? Yeah. And people disagree with me for sure on this, but pain comes from surprise in financial markets. So if everyone thinks a recession is coming, they'll sell all of their assets, move to cash and wait. And then when the recession happens, they'll buy back everything that they'd sold. Duh, right? You're going to move based on what you think is going to happen. Markets are forward looking. But if everyone is saying a recession is

going to happen, that means people are not the drunken sailor, highly leveraged, speculating in the market. And so you can't really have the conditions for a recession if everyone is preparing for the recession. You know, it's kind of like if you're driving down the road, maybe, and I think that there's going to be a car accident, I'm not going to go 90 miles an hour. I go 90 miles an hour when I think there's absolutely zero chance I'm gonna get in a car accident, right? Because if I think I'm gonna get in a car accident, I'm gonna go one mile an hour, I may even just hit the brakes and just stop. And so that same idea of like, are you speeding? Or are you, you know, kind of moving forward at a crawl is investors saying, I'm speculating, I'm way out on the risk

curve, I'm over leveraged, I'm like, no, nothing can stop me. And then that's when the recession occurs and really punishes people. Versus right now, everyone is speculating that a recession is coming. My base case is a recession is not coming because all of these people are bracing for the recession. And instead, they're going to keep getting surprised to the upside. You're going to see stocks continue to kind of move forward. And at some point, they're all going to capitulate. And then maybe that's when we should worry about the recession is when all the people calling for the recession finally say, ah, the recession is not going to happen. And then that's when, you know, kind of the surprise, you know, kind of really wrecks financial markets.

So I agree with you. I think that a recession is not the base case. But I do think there are a lot of warning signs that are pointing in that direction. We have corporate bankruptcies, defaults, shaky consumer spending. Those things are showing signs of trouble, I think. If you had to make the case for why a recession is coming, where would you start? 5% of employees in the labor market are unemployed. I think that bankruptcies is a huge one. I think that there's been some inverted yield curves. The SOM rule got triggered. I think

that you could even go as far as to say the credit card debt, car loan debt, student loan debt, all that stuff is spiking to all-time highs. Consumer spending is, depending on which way you kind of measure it. It is not completely weak, but it's not incredibly strong. But there's a good argument that a lot of it is just debt driven versus kind of, hey, I've got money in my bank account and I'm spending that. And so I think that you can put together some pieces where really what you're doing is you're trying to point to metrics or data points that have kind of preceded a recession and say, hey, if I kind of knock enough of these off the checklist, then the odds have increase that a recession is coming. One of the challenges, I think, to a recession actually being

painful is the Federal Reserve has perfected a playbook. They have a very quick trigger finger now, and they reloaded all their ammunition. And so if you actually look at recessions, I think it was like something crazy. And I don't want to misquote this, but I'm going to go out on a limb and say the analysis that I saw, I think it was like 80% of the time in the early 1900s, there were recessions happening each year, right? Because it was just, it was always happening. There was so much volatility. There was no central bank that had the ability to use monetary policy the way that we can today to kind of steady the economy. And so there was boom and bust cycles, and it happened very rapidly. So again, whether it was, you know, 50% of the time, 80% of the time,

it happened much more often and there was much more severe boom and bust. And so kind of think of it as just like way more volatile times in the early 1900s. Today, recessions happen more infrequently and they also, from a severity standpoint, are not nearly as bad as they used to be. So in a weird way, although we all rail against the central banks, they have gotten better at dealing with these situations. Now they perfected the playbook in 2008, 2009. And so now they've got all the tools at their disposal. And when I say that the Fed kind of reloaded their ammunition, remember in 2021, they had interest rates at zero and we had something like $9 trillion on the Fed balance sheet, which was a 10X. They had a 10 bagger from 08, 09 crisis to

kind of COVID recession. Well, fast forward to today, now they got rates at over 5% and they've been able to sell $2 trillion or so off of their balance sheet. So now what we're talking about is a Fed that's got a lot of ammunition, a lot of tools. And so if there is a market downturn, if we start to head towards a recession, they can just start firing again, right? They can cut rates. They can cut rates 300 basis points and still be above 2%. They can go and they can put another $2 trillion on their balance sheet and they'll still be right back to where we were in 2021. And so that ammunition is something that you got to pay attention to. And then maybe the last thing that I'll say is for all the people yelling and screaming about

recessions, one of the things I try to remind them of is we've had two recessions in the last five years. Now, controversial because everyone recognizes the 2020 recession of, okay, obviously we saw a massive liquidity crisis. People sold all their assets. There was no consumer spending. We were all locked in our homes. Massive issue. Government steps in. They print money, suppress interest rates, and we go right back up. So it was a recession, but it was very kind of quick. and the recovery gave people amnesia that like, oh, remember that thing that happened back in March? Like, no, we're at all-time highs, right?

But there was a recession in 2020. The one that should have been the national scandal is in 2022. In Q1 and Q2 of 2022, there was two consecutive quarters of negative GDP growth. By all definitions of a recession, that would qualify. For those that don't know, there is a little-known nonprofit

which they do claim to be nonpartisan as well, or bipartisan, I guess. But it's a nonprofit called the National Bureau for Economic Research. And NBER, they essentially have claimed the monopoly on who gets to determine whether it's a recession or not. So we got the two consecutive quarters of negative GDP growth, but they said, nah, it's not a recession. We say, why not? They said, because we said so. And so I was talking to somebody on the internet earlier today, and I said, Well, if you have an economic metric that is not repeatable, that is not scalable, and it is not objective, then you simply have people who are just making decisions on a whim. The whole idea of a metric is that you should be able to apply it in every single situation. One plus one equals two, right?

It's math. Like there is a metric to evaluate. It's objective. NBER is subjective in determining whether it's a recession or not. So my point was, if a random nonprofit gets to determine what's a recession and what's not, they should all quit their jobs and become palm readers and tarot card kind of enthusiasts, because it's basically like, well, I said, so you trust me. And so if you kind of put the nonsense aside and say, okay, there was two negative GDP quarters, and we had in 2020, that means there's two recessions in five years. Could we get a third one? Sure. But that would be pretty crazy compared to the, you know, kind of recent modern history of recessions. to get three in five or six years, that would be the most rapid or most frequent number of recessions in a decade in probably 50 plus years. Again, could it happen? Yes. But probability

tells you that would be very, very rare. I remember when the two back-to-back negative quarters happened and I was a financial reporter still. I was planning to write the stories about this oh we're in a recession etc and um all my pitches for those ideas were essentially shot down because we saw what other outlets were writing cnbc bloomberg everyone um essentially going by the word of nber which said we are not in recession which made the press financial press react and parrot the same thing and i don't know if it was the press wanted to or that's just the role for us to listen to this organization, but we were not allowed to say that. It's a weird thing, right? Like if you're a journalist and you work at an organization,

the way that the kind of traditional mainstream press operates is it's not about your opinion, right? It is about I'm covering what other people are saying. And so if other people are saying it's not a recession and they're the expert, we'll have to cover what they're saying. And if they're the ones saying it and i can't find anyone else who is in a similar position to counterclaim it i kind of have to write what they're writing the difference in the market and maybe on you know twitter i'm not a journalist right i can say what i personally think and so i also say what i personally think because i'm wagering my money in the market and there is upside if i'm right and there's downside if i'm wrong there's risk involved and so i think that was the big

disparity was like the people on twitter the self-directed investors were like what are you guys talking about like there's two negative quarters of gdp i literally don't care what nber says and they're like they don't get to like bless you know some uh talking point and then all of a sudden we all have to believe it but the press they're kind of in a like a catch-22 is if they they go out on a limb and they start offering their opinion, they take away the quote unquote objectivity of journalism. And so the solution to that whole problem, I think, is that we need other organizations that kind of rival the NBERs of the world, et cetera, to be able to come out and say, listen, I get what they're saying. We're saying something else. Now you as a journalist

have choice to present both opinions or both perspectives, and then let the readers kind of decide that is not how it works right now there's a you know there's kind of one dare i say state talking point but really just talking point um and uh if you don't write the talking point there's questions right i think that's probably what you know you guys were facing internally for sure yeah there was a lot of internal debate um i think one interesting point here is that if you ask investors they will say something else because they have skin in the game but the academics and PhDs at the NBER. I don't know who's there, but I do not think they're deploying capital near levels of what investors are doing. Something I wanted to ask you about was

in the last few weeks, we have seen a ton of high profile CEO hires and Starbucks got Chipotle CEO, Red Lobster got the ex-CEO of P.F. Chang's. But you, as someone who has founded multiple companies, leader of organizations, do you think that a new CEO can actually reshape a legacy business and company? Think of it like a sports team. When a new coach comes in, they can revamp an entire organization under two conditions. And their bosses have given them the latitude and permission to go and revamp. And two, they have the fortitude, you know, kind of appetite to go do the hard work to revamp an organization.

There's a lot of people who go into a new job as a head coach of a sporting team, and they're just told, don't rock the boat, right? oh, I know you might not like that person that we got at running back, but they're not going to go anywhere. I know you might not like that assistant coach, but that's our guy, right? He's going to stay here. So learn to deal with them. That is obviously very hard. So it's not just about, can the CEO do it? It's what is, who is the CEO and what is the environment that they're going into? Now, one of my favorite books is The Score Takes Care of Itself, which covers, you know, San Francisco 49ers kind of in their heyday. And one of the things that's really interesting about

it is, you know, they have this new coach, he comes in. And one of the first things he does is he goes to the receptionist. And he says, how do you answer the phone? And the receptionist is like, what are you doing here? Why are you talking to me? Right type thing. And he goes, here's how we're going to answer the phone. And he teaches the receptionist how to answer the phone at the organization. And in the book, he says, because that's the first touch point that people have with our organization. So when they call the San Francisco 49ers, I want them to know we're professionals, that we pursue excellence, that we are going to be attentive, responsive, we're going to be kind, all these different things that he lays out. And so if you care how the receptionist

answers the phone when you step into the building, the thing that can go wrong is you cared on day but you don't care on day 472. And so what he used to do is you sit in his office and at random points in the week, he would call the front desk and see how they answered the phone. It was quality checking. And he would instruct them, hey, that's not how we answered the phone, right? And so if you care about that level of detail in how the receptionist answers the phone, you probably care whether the receiver runs six yards, not eight and not five, but six. And so it's this precision, it's this pursuit of excellence, it's kind of this whole, you know, changing culture, etc. That, in a sports analogy, is very clear that the head coach can significantly change an

organization. I don't think there's that big of a difference between sports and business from that perspective. The biggest thing, in my opinion, is take the guy who's going from Chipotle to Starbucks. If he gets there, and he says, hey, you know, I actually think our CMO is not doing a good job. I want to fire them. If the board doesn't give him that power, or for some reason, there's some sort of institutional bureaucracy or whatever, well, who cares who the CEO is? Because actually, the CEO is not running the company, the board is, or the bureaucracy is. And so I think that is really the question, is less about the specific CEO. The first question is, does the CEO have the power to make changes if they want to? The answer is yes. Then who is

the CEO, but the CEO doesn't matter if they are kind of controlled by, dare I say, the deep state of a corporation. Pump on that note. Thank you so much for your time. Thanks for having me. All right, guys, I hope you enjoyed that episode. That was one of my favorites. Now we got a lot of things to talk about because I spent a lot of time making this podcast or these videos, and now I need your help. There's a couple of things you can do to help the show get bigger, get in front of more people. The first, if you're watching on YouTube, go ahead and hit the like button. The more likes there are per video, the more people that see it. It's pretty simple. Now, if you're an audio listener, you don't like video, you don't like seeing my beautiful face, then you can go to

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