1 00:00:12,960 --> 00:00:16,800 Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast. 2 00:00:17,040 --> 00:00:19,480 Speaker 1: My name is Mike Reagan. I'm a senior editor at 3 00:00:19,520 --> 00:00:22,079 Speaker 1: Bloomberg and this week on the show, Well, one of 4 00:00:22,120 --> 00:00:25,120 Speaker 1: the strongest sectors in the stock market this year has 5 00:00:25,160 --> 00:00:28,480 Speaker 1: been the banks. They're up thirty three as a group 6 00:00:28,560 --> 00:00:31,000 Speaker 1: year to date in the SMP five hundred, and they're 7 00:00:31,080 --> 00:00:34,320 Speaker 1: picking off their earning season. This week, we'll talk about 8 00:00:34,360 --> 00:00:36,920 Speaker 1: that with a veteran fund manager who has especialty in 9 00:00:36,960 --> 00:00:40,360 Speaker 1: banks about what he's looking for to sustain this rally. 10 00:00:40,760 --> 00:00:46,280 Speaker 1: What first, a special announcement from Charlie Pellett. Vill Donna 11 00:00:46,560 --> 00:00:49,600 Speaker 1: is off this week, So this week's mystery co host 12 00:00:49,760 --> 00:00:54,720 Speaker 1: is Police Morons. Felice is an editor for Bloomberg Markets 13 00:00:54,800 --> 00:00:58,680 Speaker 1: Live Blog. She's a native of Newark, New Jersey, a 14 00:00:58,760 --> 00:01:02,600 Speaker 1: graduate of Yale. I'm the founder of Bloomberg News is 15 00:01:02,720 --> 00:01:06,880 Speaker 1: first bureau in Israel in the nineteen nineties. That's back 16 00:01:06,920 --> 00:01:10,119 Speaker 1: when Reagan had hair so long he looked like a 17 00:01:10,160 --> 00:01:15,520 Speaker 1: member of the spin Doctors. Least, that's that is absolutely 18 00:01:15,560 --> 00:01:17,920 Speaker 1: true about my hair. I don't believe you started that 19 00:01:17,959 --> 00:01:20,319 Speaker 1: bureau in the nineties. You must have been a teenager 20 00:01:20,760 --> 00:01:25,880 Speaker 1: back then. Well, thank you, Mike. But what was that 21 00:01:26,000 --> 00:01:28,280 Speaker 1: like starting the bureau in Israel? That was that was 22 00:01:28,319 --> 00:01:30,400 Speaker 1: an exciting time to start a bureau in Israel. That 23 00:01:30,480 --> 00:01:32,640 Speaker 1: tell us a little bit a bit about that. It 24 00:01:32,680 --> 00:01:36,759 Speaker 1: was incredibly exciting. Bloomberg News had very few people, and 25 00:01:36,959 --> 00:01:40,959 Speaker 1: the what was then called the Peace Process was unfolding, 26 00:01:41,120 --> 00:01:44,199 Speaker 1: and Israel was becoming more of a focus both politically 27 00:01:44,280 --> 00:01:47,800 Speaker 1: and for businesses. The high tech boom was yet to come, 28 00:01:47,840 --> 00:01:51,280 Speaker 1: but it was just starting, and Bloomberg really wanted someone 29 00:01:51,400 --> 00:01:54,440 Speaker 1: on the ground in Israel, and I was lucky enough 30 00:01:54,480 --> 00:01:57,720 Speaker 1: to become that person and then to eventually open and 31 00:01:57,760 --> 00:02:00,560 Speaker 1: build the bureau. That's pretty fast s nating. Yeah, what 32 00:02:00,640 --> 00:02:03,440 Speaker 1: a pretty historic time, I guess, uh, to be starting 33 00:02:03,600 --> 00:02:06,960 Speaker 1: a bureau. But least also, I know something that excites 34 00:02:07,000 --> 00:02:10,160 Speaker 1: you as much as those glory days is uh bank 35 00:02:10,240 --> 00:02:14,079 Speaker 1: stocks earnings Week kicking off this week, and Uh, We've 36 00:02:14,120 --> 00:02:16,040 Speaker 1: got a great, great guest to help us break it 37 00:02:16,080 --> 00:02:18,880 Speaker 1: down what to expect, what to look for in bank earnings. 38 00:02:19,280 --> 00:02:24,200 Speaker 1: He is a portfolio manager and chairman of Davis Advisors. 39 00:02:24,280 --> 00:02:26,960 Speaker 1: His name is Chris Davis. Chris, welcome back to the show. 40 00:02:27,200 --> 00:02:29,800 Speaker 1: Thanks so much, Michael. It's good to be here. So 41 00:02:29,840 --> 00:02:32,400 Speaker 1: we're recording this on Wednesday, just so our listeners know 42 00:02:32,520 --> 00:02:35,000 Speaker 1: we won't have all the earnings in our hands to 43 00:02:35,000 --> 00:02:37,720 Speaker 1: to dissect. But we did get JP Morgan's earnings, which 44 00:02:37,760 --> 00:02:41,120 Speaker 1: are usually a pretty good indication of what to expect. 45 00:02:41,560 --> 00:02:44,040 Speaker 1: And I'm curious how you look at it from your perspective, 46 00:02:44,040 --> 00:02:47,000 Speaker 1: because you know, earnings in general can be noisy. The 47 00:02:47,080 --> 00:02:48,760 Speaker 1: last couple of years with all the you know, the 48 00:02:48,800 --> 00:02:51,639 Speaker 1: boom and bust from the pandemic, I feel like financials, 49 00:02:52,560 --> 00:02:55,840 Speaker 1: especially have a lot of noise in the numbers. You know, 50 00:02:56,000 --> 00:02:59,920 Speaker 1: JP Morgan had a huge release of loan loss reaeser 51 00:03:00,000 --> 00:03:02,959 Speaker 1: HERVs UH two point one billion dollars. They had a 52 00:03:03,000 --> 00:03:06,040 Speaker 1: strong m and a quarter really strong I p O quitter. 53 00:03:06,720 --> 00:03:09,160 Speaker 1: It seems like the stock market's a little disappointed, though 54 00:03:09,200 --> 00:03:11,799 Speaker 1: I guess it's it's focusing on the loan growth um. 55 00:03:12,080 --> 00:03:16,400 Speaker 1: But talk put specifically, Uh, you know about banks in general, 56 00:03:16,639 --> 00:03:18,760 Speaker 1: what you sort of look through for when you go 57 00:03:18,840 --> 00:03:21,679 Speaker 1: through these reports? Uh, given sort of you know, you 58 00:03:21,720 --> 00:03:24,560 Speaker 1: can have a booming trading quarter for a bank one 59 00:03:24,639 --> 00:03:26,920 Speaker 1: quarter and then it's back to you know, normal the 60 00:03:26,960 --> 00:03:29,200 Speaker 1: next quitter, What are sort of the underlying things you 61 00:03:29,280 --> 00:03:32,400 Speaker 1: look for as a long term buy and whole type 62 00:03:32,400 --> 00:03:37,040 Speaker 1: of investor. Well, the nature of bank stocks in particular 63 00:03:37,080 --> 00:03:40,520 Speaker 1: and financial stocks in general is that there is so 64 00:03:40,600 --> 00:03:44,440 Speaker 1: much noise in any one quarter that it really doesn't matter. 65 00:03:44,880 --> 00:03:48,880 Speaker 1: And it's part not just uh because of the long 66 00:03:49,000 --> 00:03:51,600 Speaker 1: term nature of the businesses, but it's because so much 67 00:03:51,760 --> 00:03:56,680 Speaker 1: of the earnings reflect estimates. So a nefarious management would 68 00:03:56,680 --> 00:04:00,000 Speaker 1: have lots of flexibility to goose short term earnings or 69 00:04:00,400 --> 00:04:04,080 Speaker 1: or a sandbagged them. You see it in insurance companies 70 00:04:04,120 --> 00:04:06,280 Speaker 1: with reserves, and of course in banks and so on. 71 00:04:06,680 --> 00:04:10,480 Speaker 1: So what really matters over time as a financial stock investor, 72 00:04:10,560 --> 00:04:13,920 Speaker 1: and I started our financial funds more than thirty years ago, 73 00:04:14,000 --> 00:04:16,800 Speaker 1: it's sort of hard to believe. And what's amazing is 74 00:04:17,080 --> 00:04:20,480 Speaker 1: that that that fund is is it's not just outperformed 75 00:04:20,480 --> 00:04:23,000 Speaker 1: the financial index, but it's outperformed the S and P 76 00:04:23,160 --> 00:04:27,599 Speaker 1: five hundred. Because within financial services there's such a range 77 00:04:27,640 --> 00:04:31,240 Speaker 1: of business models and positioning, and what we look for 78 00:04:31,360 --> 00:04:36,599 Speaker 1: in quarterly earnings are signs of culture, signs of culture, 79 00:04:36,600 --> 00:04:41,280 Speaker 1: because financial services is an industry where culture, a conservative 80 00:04:41,320 --> 00:04:47,760 Speaker 1: cultural culture is actually a sustainable competitive advantage. Right when 81 00:04:47,839 --> 00:04:51,880 Speaker 1: companies have made conservative decisions in the past, it gives 82 00:04:51,920 --> 00:04:55,560 Speaker 1: them more flexibility in the present, whereas when companies have 83 00:04:55,600 --> 00:04:58,359 Speaker 1: been aggressive in the past, they end up being really 84 00:04:58,480 --> 00:05:02,000 Speaker 1: strained in the present. So what you saw in JP Morgan, 85 00:05:02,160 --> 00:05:06,920 Speaker 1: for example, was a wonderful sign of a conservative culture. Right. 86 00:05:07,000 --> 00:05:10,320 Speaker 1: It was a company that had overreserved in the past, 87 00:05:10,400 --> 00:05:14,120 Speaker 1: they had been too conservative. That is a hallmark of 88 00:05:14,240 --> 00:05:17,440 Speaker 1: Jamie Diamond that goes back not just you know, one 89 00:05:17,600 --> 00:05:20,760 Speaker 1: quarter or one year, but goes back all the way 90 00:05:20,839 --> 00:05:24,159 Speaker 1: to his first and your report, which people should read 91 00:05:24,480 --> 00:05:27,720 Speaker 1: that he wrote when he became the CEO of Bank one. Uh. 92 00:05:28,720 --> 00:05:32,120 Speaker 1: It's a culture of we'd rather take the hits up front. 93 00:05:32,240 --> 00:05:34,800 Speaker 1: We want to be transparent, we'd be conservative. We don't 94 00:05:34,800 --> 00:05:37,359 Speaker 1: want to be playing catch up. So with all of 95 00:05:37,400 --> 00:05:41,440 Speaker 1: the noise around current quarter earnings, the real story is 96 00:05:41,480 --> 00:05:45,520 Speaker 1: this is that for more than a decade since the 97 00:05:45,520 --> 00:05:51,040 Speaker 1: financial crisis, everybody was terrified that banks are risky, risky businesses, 98 00:05:51,720 --> 00:05:54,960 Speaker 1: and people were unable to recognize that the financial crisis 99 00:05:55,279 --> 00:05:58,000 Speaker 1: wasn't a recession. It was the sort of thing that's 100 00:05:58,120 --> 00:06:02,760 Speaker 1: happened once every fifties, sixty years. It was a one 101 00:06:02,760 --> 00:06:07,080 Speaker 1: time reset and the companies that came through that were safer, 102 00:06:07,520 --> 00:06:12,520 Speaker 1: more regulated, better capitalized, more conservative than any time in 103 00:06:12,640 --> 00:06:16,120 Speaker 1: my career. And yet for the next decade, even though 104 00:06:16,160 --> 00:06:20,360 Speaker 1: these banks built their profits, you know, the bank percentage 105 00:06:20,360 --> 00:06:23,000 Speaker 1: of SMP earnings has grown for a decade, and yet 106 00:06:23,040 --> 00:06:25,880 Speaker 1: the market caps as a percentage of earnings have fallen 107 00:06:25,920 --> 00:06:30,280 Speaker 1: for a decade. Right, So nobody believed it, right that 108 00:06:30,320 --> 00:06:34,480 Speaker 1: nobody believed that they somehow they were stronger, that they 109 00:06:34,480 --> 00:06:38,440 Speaker 1: weren't risky. COVID was the ultimate test, and the banks 110 00:06:38,640 --> 00:06:41,640 Speaker 1: banking sector as a whole past it with flying colors. 111 00:06:41,680 --> 00:06:44,760 Speaker 1: They were part of the solution. They were providing liquidity, 112 00:06:44,800 --> 00:06:47,000 Speaker 1: they were working with customers. They were doing just what 113 00:06:47,080 --> 00:06:49,120 Speaker 1: banks are supposed to do and by the way, have 114 00:06:49,320 --> 00:06:51,880 Speaker 1: done for most of the last hundred years, just not 115 00:06:52,000 --> 00:06:54,920 Speaker 1: during the depression and not during the financial crisis. Those 116 00:06:54,920 --> 00:06:58,560 Speaker 1: were one time huge resets. So I think what we've 117 00:06:58,600 --> 00:07:03,279 Speaker 1: seen here is the beginning of a change in the 118 00:07:03,440 --> 00:07:07,719 Speaker 1: perception investors have towards this sector. So any noise around 119 00:07:07,760 --> 00:07:10,200 Speaker 1: the quarter is just going to be noise. The real 120 00:07:10,320 --> 00:07:13,760 Speaker 1: bottom line is that people are going to recognize these 121 00:07:13,880 --> 00:07:21,120 Speaker 1: are fortress institutions. Enormously resilient, enormously well capitalized, enormously profitable, 122 00:07:21,360 --> 00:07:28,000 Speaker 1: conservative in nature, and therefore dramatically undervalued relative to other 123 00:07:28,160 --> 00:07:32,840 Speaker 1: sectors where investors have that perception, like utilities or consumer 124 00:07:32,880 --> 00:07:35,440 Speaker 1: products or something like that. So I think we're gonna 125 00:07:35,480 --> 00:07:38,680 Speaker 1: have a decade of changing perception and we're only in 126 00:07:38,720 --> 00:07:42,440 Speaker 1: the second inning. I think Jamie Diamond would be really 127 00:07:42,800 --> 00:07:44,720 Speaker 1: happy to hear what you have to say that, Chris, 128 00:07:45,400 --> 00:07:52,240 Speaker 1: that was an excellent case for bank stock rallies, but 129 00:07:52,480 --> 00:07:55,880 Speaker 1: also for culture. And you know, I met Jamie when 130 00:07:56,000 --> 00:07:58,680 Speaker 1: you know, I started my career thirty two years ago. 131 00:07:59,320 --> 00:08:03,480 Speaker 1: I've invested with him all along the way, from commercial 132 00:08:03,520 --> 00:08:10,040 Speaker 1: credit to Primerica, Travelers to Travelers ATNA, Traveler Solomon Smith 133 00:08:10,080 --> 00:08:13,160 Speaker 1: Barney to Travelers Solomon Smith Barney City, you know, uh, 134 00:08:13,240 --> 00:08:17,160 Speaker 1: and then to to bank one. Um. He he really 135 00:08:17,240 --> 00:08:20,920 Speaker 1: embodies what I mean when I talk about culture as 136 00:08:20,960 --> 00:08:26,320 Speaker 1: a competitive advantage, because there's a whole culture in financial 137 00:08:26,360 --> 00:08:30,880 Speaker 1: services that can evolve based on one very simple fact, 138 00:08:31,120 --> 00:08:33,960 Speaker 1: which is you don't know your cost of good sold 139 00:08:34,040 --> 00:08:37,320 Speaker 1: when you sell your product, and therefore it's an estimate. 140 00:08:37,559 --> 00:08:39,840 Speaker 1: And therefore, if people want to make their numbers and 141 00:08:39,840 --> 00:08:42,079 Speaker 1: they want to look good. They can report whatever they can, 142 00:08:42,120 --> 00:08:45,280 Speaker 1: and that filters all the way through an organization. And 143 00:08:45,320 --> 00:08:48,400 Speaker 1: when you have somebody at the top that says we're 144 00:08:48,400 --> 00:08:51,680 Speaker 1: gonna do things the right way. I understand your business. 145 00:08:51,720 --> 00:08:54,320 Speaker 1: I'm getting into the weeds on it, it begins to 146 00:08:54,440 --> 00:08:57,679 Speaker 1: build a culture. You see the same thing at Bertuer Hathaway. 147 00:08:57,720 --> 00:09:00,240 Speaker 1: You see the same thing at places like but a 148 00:09:00,360 --> 00:09:05,320 Speaker 1: One where you have very defined cultures, where the people 149 00:09:05,360 --> 00:09:08,680 Speaker 1: at the top speak the same language as the people 150 00:09:08,679 --> 00:09:12,040 Speaker 1: in the trenches making those estimates, and therefore there's a 151 00:09:12,080 --> 00:09:16,760 Speaker 1: credibility and a thoughtfulness about how they approached the business. 152 00:09:16,800 --> 00:09:19,840 Speaker 1: And there's a deep understanding at the top that the 153 00:09:19,880 --> 00:09:24,040 Speaker 1: CEO must be must be the chief risk officer. Somebody 154 00:09:24,040 --> 00:09:27,640 Speaker 1: else might have that title, but you're in big trouble 155 00:09:27,760 --> 00:09:31,080 Speaker 1: if the CEO of a complex bank is not and 156 00:09:31,160 --> 00:09:34,200 Speaker 1: does not think of him or herself as the chief 157 00:09:34,320 --> 00:09:38,320 Speaker 1: risk officer and really understanding the nuance of risk, whether 158 00:09:38,360 --> 00:09:41,800 Speaker 1: it's in derivatives, whether it's in interest rate curves or 159 00:09:41,800 --> 00:09:46,400 Speaker 1: forward yield curves, or swaps, or or credit concentrations or 160 00:09:46,440 --> 00:09:49,920 Speaker 1: correlated risks. UH. If you don't have a CEO that 161 00:09:50,080 --> 00:09:52,520 Speaker 1: understands that, you're you're going to be in a world 162 00:09:52,520 --> 00:09:56,240 Speaker 1: of pain sooner or later. And so I love the 163 00:09:56,280 --> 00:09:59,200 Speaker 1: financial sector as a whole, but it's not a sector 164 00:09:59,240 --> 00:10:01,880 Speaker 1: I would want to in decks. It's one where you 165 00:10:02,000 --> 00:10:04,840 Speaker 1: really want to be looking for those companies where cultures 166 00:10:04,880 --> 00:10:07,880 Speaker 1: a defining advantage, where they're what we call growth stocks 167 00:10:07,920 --> 00:10:12,560 Speaker 1: in disguise. Lately I would say their utilities in disguise. Uh. 168 00:10:12,760 --> 00:10:14,640 Speaker 1: It used to be an insult to call a company 169 00:10:14,679 --> 00:10:17,240 Speaker 1: or utility, but last night, check the utility indexes at 170 00:10:17,240 --> 00:10:21,120 Speaker 1: twenty times earnings. The banking indexes at like twelve. And 171 00:10:21,160 --> 00:10:23,480 Speaker 1: I would much rather own the banks because for one thing, 172 00:10:23,520 --> 00:10:27,199 Speaker 1: many of them are still under earning based on interest rates. Uh, 173 00:10:27,200 --> 00:10:30,160 Speaker 1: they have huge excess capital, and their dividend payouts instead 174 00:10:30,160 --> 00:10:34,599 Speaker 1: of being sixty seventy fifty six as they are in 175 00:10:34,640 --> 00:10:36,560 Speaker 1: a lot of utilities that diffen in payouts, might be 176 00:10:36,640 --> 00:10:41,000 Speaker 1: thirty five. So it's it's it's a wonderful time to 177 00:10:41,080 --> 00:10:43,240 Speaker 1: be in this sector. But it's again not one that 178 00:10:43,280 --> 00:10:52,960 Speaker 1: you want to throw a dot, you know, Chris, I 179 00:10:53,080 --> 00:10:56,679 Speaker 1: think bank earnings are interesting regardless of what you're invested in, 180 00:10:56,720 --> 00:10:59,160 Speaker 1: just because they give you a good lens into sort 181 00:10:59,200 --> 00:11:02,160 Speaker 1: of a lot of macro trends, you know, and I wonder, 182 00:11:02,320 --> 00:11:05,000 Speaker 1: you know, are there any takeaways. Obviously it's early in 183 00:11:05,000 --> 00:11:07,400 Speaker 1: the season with with only really JP we're gonna look at, 184 00:11:07,440 --> 00:11:10,400 Speaker 1: but are there any takeaways from from you? And specifically 185 00:11:10,440 --> 00:11:13,520 Speaker 1: I wonder, you know, when you think about sort of 186 00:11:13,559 --> 00:11:17,280 Speaker 1: the health of the corporate and the consumer balance sheet 187 00:11:17,400 --> 00:11:20,440 Speaker 1: coming out of this recession, both are really strong. You know, 188 00:11:21,160 --> 00:11:24,000 Speaker 1: a lot of companies raised, you know, money to sort 189 00:11:24,000 --> 00:11:28,640 Speaker 1: of gird against the downturn. Consumer savings rate went through 190 00:11:28,679 --> 00:11:30,959 Speaker 1: the roof, so there's a lot of money just sitting 191 00:11:31,000 --> 00:11:34,240 Speaker 1: on deposit. I mean, does that in a way boat 192 00:11:34,320 --> 00:11:37,040 Speaker 1: ill for for the prospects for loan growth? You know, 193 00:11:37,080 --> 00:11:40,560 Speaker 1: if there's all this cash in people's accounts, is there 194 00:11:40,640 --> 00:11:42,480 Speaker 1: less of a need to borrow? And is that a 195 00:11:42,600 --> 00:11:45,560 Speaker 1: risk at all? In your opinion? Oh? Absolutely, I I 196 00:11:45,880 --> 00:11:49,640 Speaker 1: it's hard to see a lot of evidence of surging 197 00:11:50,200 --> 00:11:53,720 Speaker 1: UH loan demand. And you know, we can say, okay, 198 00:11:53,760 --> 00:11:56,880 Speaker 1: well that's a negative. If somebody is barishly inclined, they're 199 00:11:56,880 --> 00:11:59,839 Speaker 1: gonna beat that drum. And my feeling is, if you 200 00:12:00,000 --> 00:12:03,320 Speaker 1: own a company that's generating ten percent of its market 201 00:12:03,360 --> 00:12:06,920 Speaker 1: cap in distributable capital, every year you're going to get 202 00:12:06,920 --> 00:12:11,760 Speaker 1: a ten percent returned with zero growth. Now, zero growth 203 00:12:11,840 --> 00:12:15,199 Speaker 1: companies don't have zero profit growth simply because they don't 204 00:12:15,240 --> 00:12:18,800 Speaker 1: have loan growth. Right, they could have very slow roan growth, 205 00:12:19,040 --> 00:12:22,240 Speaker 1: and they could have much better profit growth because spreads 206 00:12:22,280 --> 00:12:26,079 Speaker 1: begin to widen after a decade of compression, for example, 207 00:12:26,520 --> 00:12:29,440 Speaker 1: they could have real earnings growth. And I think maybe 208 00:12:29,480 --> 00:12:32,200 Speaker 1: the most important topic we should spend some time on 209 00:12:32,320 --> 00:12:35,800 Speaker 1: is fintech, the risk of fintech to banks, what it 210 00:12:35,840 --> 00:12:37,960 Speaker 1: means for the big banks, where the risks are. But 211 00:12:38,320 --> 00:12:42,320 Speaker 1: what I would say is that my first takeaway is 212 00:12:42,400 --> 00:12:46,280 Speaker 1: that you can have an enormous amount of earnings growth 213 00:12:46,679 --> 00:12:50,040 Speaker 1: from a reduction in the cost structure that comes from 214 00:12:50,080 --> 00:12:54,400 Speaker 1: the intelligent application of technology. Now we could be crass 215 00:12:54,520 --> 00:12:58,200 Speaker 1: and say, oh, it's closing branches and reducing people with 216 00:12:58,280 --> 00:13:01,600 Speaker 1: computers and so on, but it's much more elegant than that. 217 00:13:01,800 --> 00:13:05,319 Speaker 1: You're providing a solution to a client or a customer 218 00:13:05,640 --> 00:13:08,839 Speaker 1: that is more satisfactory to them. It's more flexible and 219 00:13:09,240 --> 00:13:12,160 Speaker 1: cheaper to deliver. So I think you could have long 220 00:13:12,280 --> 00:13:15,720 Speaker 1: term growth from a reduction and a lot of operating expenses, 221 00:13:15,720 --> 00:13:19,760 Speaker 1: so you have interest rate spreads, you have a reduction 222 00:13:19,800 --> 00:13:23,560 Speaker 1: in operating expenses lots of different ways. But when you 223 00:13:23,559 --> 00:13:26,600 Speaker 1: start at a ten percent earnings yield, you don't need 224 00:13:26,640 --> 00:13:29,079 Speaker 1: a lot of growth, And I think that's what people 225 00:13:29,120 --> 00:13:31,480 Speaker 1: are going to begin to internalize. So we'll wait a minute. 226 00:13:31,480 --> 00:13:33,120 Speaker 1: When I own a utility, I don't have a lot 227 00:13:33,120 --> 00:13:36,720 Speaker 1: of growth. A lot of consumer products companies are you know, 228 00:13:36,960 --> 00:13:40,760 Speaker 1: trumpeting if they get four percent growth or three percent growth. 229 00:13:41,559 --> 00:13:44,080 Speaker 1: I mean, I think the banks have done much better 230 00:13:44,160 --> 00:13:48,240 Speaker 1: at half the multiple and a willingness to return that 231 00:13:48,440 --> 00:13:51,520 Speaker 1: capital to sheruld. So your per share growth is going 232 00:13:51,559 --> 00:13:54,560 Speaker 1: to be a lot greater even with no loan growth. 233 00:13:54,600 --> 00:13:58,040 Speaker 1: So you know, with bank investors there's always something to 234 00:13:58,040 --> 00:14:00,000 Speaker 1: worry about. But if you look at the big category 235 00:14:00,000 --> 00:14:04,960 Speaker 1: stories of risk, regulatory risk, liquidity risk, interest rate risk, 236 00:14:05,360 --> 00:14:09,080 Speaker 1: credit risk, regulatory risk, I mean, these are all about 237 00:14:09,120 --> 00:14:11,800 Speaker 1: as low as we've seen in the last decade or two. 238 00:14:12,559 --> 00:14:16,160 Speaker 1: So we have a lower risk profile with a gap 239 00:14:16,360 --> 00:14:19,320 Speaker 1: in the valuation of banks versus the SMP that's just 240 00:14:19,400 --> 00:14:22,240 Speaker 1: about as wide as it's ever been. Uh yeah, the 241 00:14:22,280 --> 00:14:24,240 Speaker 1: bank stocks are up a lot, buts over the earnings 242 00:14:24,280 --> 00:14:27,440 Speaker 1: because the earnings were so depressed last year. Uh, and 243 00:14:27,520 --> 00:14:30,760 Speaker 1: so I think that that, you know, if people want 244 00:14:30,760 --> 00:14:32,360 Speaker 1: to hate on them, they can hate on them, and 245 00:14:32,400 --> 00:14:36,840 Speaker 1: it doesn't matter because there can their valuation is sort 246 00:14:36,840 --> 00:14:40,680 Speaker 1: of with an advantage that gives them control of their 247 00:14:40,680 --> 00:14:44,120 Speaker 1: own destiny. The lower the valuation, the higher the return 248 00:14:44,160 --> 00:14:47,760 Speaker 1: on the share repurchase. For example, so banks are worth 249 00:14:47,840 --> 00:14:49,840 Speaker 1: more at twelve times earnings than they'd be worth it 250 00:14:49,920 --> 00:14:53,120 Speaker 1: fifteen times earnings. I do think that there are a 251 00:14:53,120 --> 00:14:57,680 Speaker 1: lot of very interesting macro takeaways in bank earnings. JP 252 00:14:57,880 --> 00:15:01,880 Speaker 1: Morgan was faced with a bunch of questions, including a 253 00:15:01,880 --> 00:15:07,840 Speaker 1: heated discussion about inflation, supply chain dynamics, and bank regulations 254 00:15:08,240 --> 00:15:12,960 Speaker 1: with the FEDS. Randall quarrels. Stepping down, I wondered if 255 00:15:13,240 --> 00:15:19,400 Speaker 1: you had any particular thoughts about any of those broader issues. Well, Pulice, 256 00:15:19,480 --> 00:15:24,400 Speaker 1: it's it's it's a good question. You certainly inflation in 257 00:15:24,440 --> 00:15:27,560 Speaker 1: the specter of inflation, and whether it's transitory or whether 258 00:15:27,560 --> 00:15:30,240 Speaker 1: it's is going to be an issue that's going to 259 00:15:30,320 --> 00:15:33,400 Speaker 1: occupy all investors for the next twenty four months or so. 260 00:15:34,360 --> 00:15:38,240 Speaker 1: We just will get more data. I I would saying 261 00:15:38,440 --> 00:15:44,400 Speaker 1: I am inherently a warrior that invests because I feel 262 00:15:44,440 --> 00:15:47,560 Speaker 1: that when I manifest all of those worries and I 263 00:15:47,600 --> 00:15:50,000 Speaker 1: think about what do I want to do, the answer 264 00:15:50,080 --> 00:15:54,560 Speaker 1: is not whole own cash or bonds with you know, 265 00:15:54,840 --> 00:15:58,400 Speaker 1: two percent yields and things like that. I want to 266 00:15:58,440 --> 00:16:01,840 Speaker 1: own businesses that have a proven record of resiliency and 267 00:16:01,880 --> 00:16:06,840 Speaker 1: of adapting to different macro economic environments. I would say, 268 00:16:06,880 --> 00:16:12,280 Speaker 1: without getting overly promotional about banks, that I can imagine 269 00:16:12,400 --> 00:16:16,480 Speaker 1: a scenario where investors, short term investors, start saying, wait 270 00:16:16,520 --> 00:16:20,040 Speaker 1: a minute, banks are one of the few sectors where 271 00:16:20,080 --> 00:16:23,560 Speaker 1: we don't have to worry about supply constraints, Like we 272 00:16:23,600 --> 00:16:25,760 Speaker 1: don't have to worry about you know, oh my god, 273 00:16:25,800 --> 00:16:28,080 Speaker 1: they couldn't get parts, so they're gonna have to ship 274 00:16:28,160 --> 00:16:32,080 Speaker 1: fewer cars or fewer iPhones. Uh, they're gonna have to 275 00:16:32,120 --> 00:16:35,840 Speaker 1: cancel flights, or they can't get labor. Right. So I 276 00:16:35,880 --> 00:16:39,000 Speaker 1: actually can imagine a scenario where people say, wait a minute, 277 00:16:39,000 --> 00:16:42,280 Speaker 1: banks are kind of in a suite spot where we 278 00:16:42,360 --> 00:16:45,720 Speaker 1: don't really have to worry about their earnings. The way 279 00:16:45,760 --> 00:16:49,680 Speaker 1: we suddenly have a lot more unpredictability in the earnings 280 00:16:49,760 --> 00:16:52,600 Speaker 1: even of companies that had been viewed as very reliable 281 00:16:52,960 --> 00:16:57,080 Speaker 1: like Apple. Uh, because of some of these supply constraints. 282 00:16:57,080 --> 00:17:00,280 Speaker 1: So I actually think that the macro question that they 283 00:17:00,320 --> 00:17:03,360 Speaker 1: were tussling about, that JP Morgan are going to be 284 00:17:03,440 --> 00:17:06,600 Speaker 1: with us for a long time. Because it's a parlor game. 285 00:17:06,600 --> 00:17:09,640 Speaker 1: It's like predicting who's gonna win the Super Bowl. I'm 286 00:17:09,640 --> 00:17:13,159 Speaker 1: not a sports fan, so I couldn't even name likely contenders. 287 00:17:13,200 --> 00:17:15,840 Speaker 1: But but what I would say is nobody knows, and 288 00:17:15,920 --> 00:17:17,640 Speaker 1: yet a lot of time is going to be spent 289 00:17:17,720 --> 00:17:21,120 Speaker 1: discussing it, and then you know, we'll flip the coin 290 00:17:21,200 --> 00:17:23,080 Speaker 1: in some time down the road. Somebody's gonna say I 291 00:17:23,119 --> 00:17:26,320 Speaker 1: was a genius. I knew all along. Nobody knows, nobody. 292 00:17:26,400 --> 00:17:29,480 Speaker 1: There's no period in history we can look at for 293 00:17:30,320 --> 00:17:37,440 Speaker 1: what will be the outcomes of this incredibly aggressive monetary policies. 294 00:17:37,840 --> 00:17:41,159 Speaker 1: You know, as I say, I'm by nature conservative. I 295 00:17:41,200 --> 00:17:44,320 Speaker 1: don't like people borrowing beyond their means. I don't like 296 00:17:44,440 --> 00:17:48,080 Speaker 1: governments spending our grandchildren's money. I don't think it's a 297 00:17:48,119 --> 00:17:52,440 Speaker 1: sensible idea. It may work out fine, Uh, I don't know. 298 00:17:52,800 --> 00:17:56,919 Speaker 1: But what I know is that no matter what, in 299 00:17:57,000 --> 00:18:00,679 Speaker 1: an uncertain world, I want to own a folio of 300 00:18:00,800 --> 00:18:05,879 Speaker 1: businesses that can adapt our own businesses that adapted to stagflation, 301 00:18:06,440 --> 00:18:11,719 Speaker 1: businesses that adapted to recessions, businesses that adapted to you know, 302 00:18:11,800 --> 00:18:18,840 Speaker 1: the geopolitical chaos of the sixties and seventies. Uh. So, 303 00:18:19,320 --> 00:18:22,359 Speaker 1: resiliency and adaptability is I think what should be at 304 00:18:22,440 --> 00:18:25,800 Speaker 1: top of mind for investors and as they start thinking 305 00:18:25,800 --> 00:18:29,639 Speaker 1: of those characteristics. Of course they're wonderful businesses like applied 306 00:18:29,680 --> 00:18:34,600 Speaker 1: Materials or Intel or uh. But businesses like Raytheon. It's 307 00:18:34,640 --> 00:18:37,119 Speaker 1: hard to imagine a world where Raytheon doesn't have a 308 00:18:37,119 --> 00:18:39,400 Speaker 1: lot of value. I don't I don't care if they're 309 00:18:39,440 --> 00:18:43,120 Speaker 1: if we're buying you know, missile defense systems and seashells 310 00:18:43,240 --> 00:18:47,440 Speaker 1: or bitcoin or uh. There's huge value for what they sell, 311 00:18:47,880 --> 00:18:51,200 Speaker 1: and it is going to be resilient as a business model. 312 00:18:51,359 --> 00:18:53,439 Speaker 1: And I think what people are coming to realize is 313 00:18:53,600 --> 00:18:56,000 Speaker 1: really the same as true of banks. You know, a 314 00:18:56,040 --> 00:18:58,560 Speaker 1: lot of our banks are in their second century, some 315 00:18:58,680 --> 00:19:02,880 Speaker 1: of them are even in their third entry. Uh, basically 316 00:19:03,320 --> 00:19:07,000 Speaker 1: providing the same service, selling the same product, with the 317 00:19:07,040 --> 00:19:10,000 Speaker 1: same business model. You'd be hard pressed to name any 318 00:19:10,000 --> 00:19:13,440 Speaker 1: other companies with that record of longevity, and yet here 319 00:19:13,480 --> 00:19:15,560 Speaker 1: they are is the cheapest sector in the SMP fun 320 00:19:16,280 --> 00:19:18,400 Speaker 1: you know, Chris as far as predicting the Super Bowl, 321 00:19:18,600 --> 00:19:20,880 Speaker 1: I will predict it probably won't be the Jets, I'll 322 00:19:20,880 --> 00:19:24,760 Speaker 1: go that far as tell you. But but I wanted to, 323 00:19:24,920 --> 00:19:26,960 Speaker 1: you know, get back to as you said, Uh, you 324 00:19:26,960 --> 00:19:30,640 Speaker 1: know your funds are actively managed. You you don't believe, uh, 325 00:19:30,720 --> 00:19:34,600 Speaker 1: financials is a space the place to get passive. I 326 00:19:34,640 --> 00:19:37,879 Speaker 1: did notice a Capital One a big holding in both 327 00:19:37,960 --> 00:19:41,159 Speaker 1: the David's Financial Fund and the h and the Davis 328 00:19:41,160 --> 00:19:43,239 Speaker 1: New York Venture Fund, which I believe is your your 329 00:19:43,240 --> 00:19:46,679 Speaker 1: biggest fund right um and I know part of that 330 00:19:46,800 --> 00:19:50,080 Speaker 1: is obviously just because Capital One has been appreciating in value, 331 00:19:50,160 --> 00:19:53,480 Speaker 1: like outperforming everything in the space. You know, on the 332 00:19:53,480 --> 00:19:56,480 Speaker 1: other hand, you're clearly not reducing the steak or removing 333 00:19:56,480 --> 00:19:58,720 Speaker 1: it as your as your top weight. So so what's 334 00:19:58,720 --> 00:20:02,000 Speaker 1: it doing so well for such hot performance and what 335 00:20:02,280 --> 00:20:05,119 Speaker 1: what has you comfortable enough about that company to to 336 00:20:05,200 --> 00:20:07,240 Speaker 1: keep it with a pretty heavy weight in both funds. 337 00:20:07,280 --> 00:20:09,439 Speaker 1: It's funny I spent a day with the co founder 338 00:20:09,480 --> 00:20:13,200 Speaker 1: who has since retired of Capital One just last week. 339 00:20:13,840 --> 00:20:16,800 Speaker 1: Um well, Capital one is one of the only major 340 00:20:16,840 --> 00:20:19,800 Speaker 1: banks in the US that's still run by the founder. 341 00:20:20,640 --> 00:20:25,000 Speaker 1: Now we talked early about culture, but what's really extraordinary 342 00:20:25,000 --> 00:20:29,080 Speaker 1: about Capital One is from its very beginning, Capital one 343 00:20:29,240 --> 00:20:31,560 Speaker 1: was not a bank. It was a data science company. 344 00:20:32,440 --> 00:20:35,640 Speaker 1: It always has been. It had no branches, it had 345 00:20:35,680 --> 00:20:39,159 Speaker 1: no customers, and yet somehow managed to become one of 346 00:20:39,160 --> 00:20:43,560 Speaker 1: the largest credit card companies in the country. No branches, 347 00:20:43,680 --> 00:20:48,520 Speaker 1: no customers. How well they used data, They target marketed, 348 00:20:48,720 --> 00:20:53,960 Speaker 1: They customized offers to consumers based on characteristics that they 349 00:20:53,960 --> 00:20:58,480 Speaker 1: were able to surmise about consumers based on their occupation 350 00:20:58,720 --> 00:21:00,959 Speaker 1: or their zip code. And they would say, you know, 351 00:21:01,400 --> 00:21:04,320 Speaker 1: why on Earth the banks offer one credit card for 352 00:21:04,359 --> 00:21:07,960 Speaker 1: all their customers. Some customers are very interested in revolving, 353 00:21:08,000 --> 00:21:11,000 Speaker 1: some are very interested in points, some are very interested 354 00:21:11,000 --> 00:21:15,760 Speaker 1: in prestige or affinity. People have all different considerations, and 355 00:21:15,840 --> 00:21:18,640 Speaker 1: yet every bank had a one size fits all credit card. 356 00:21:19,000 --> 00:21:22,199 Speaker 1: So Rich Fairbanks and Nigel Morris come along. Uh. They 357 00:21:22,280 --> 00:21:25,760 Speaker 1: launched Capital when I was early in my career. Uh. 358 00:21:25,800 --> 00:21:28,880 Speaker 1: They were a division of another bank. Then they were 359 00:21:28,920 --> 00:21:33,880 Speaker 1: spun out. Uh, and they were still a data science 360 00:21:33,920 --> 00:21:38,560 Speaker 1: company when they started buying buying branches. Uh. Not all 361 00:21:38,640 --> 00:21:41,280 Speaker 1: that long ago relative to their history. And they did 362 00:21:41,280 --> 00:21:45,400 Speaker 1: it because they realized that core funding had a huge advantage. 363 00:21:45,760 --> 00:21:49,560 Speaker 1: They had relied in their historic history on securitizations to 364 00:21:49,680 --> 00:21:52,840 Speaker 1: finance growth. But what they learned in some of the 365 00:21:52,880 --> 00:21:57,439 Speaker 1: securitization crises is that that market can be fickle, so 366 00:21:57,520 --> 00:22:01,919 Speaker 1: they went the other way. They went into branches. So 367 00:22:02,080 --> 00:22:04,360 Speaker 1: we think of Capital One, A lot of consumers think 368 00:22:04,400 --> 00:22:08,320 Speaker 1: of Capital One because they see the the bank branch 369 00:22:08,400 --> 00:22:12,000 Speaker 1: on the corner. But that's an accident of history. It 370 00:22:12,160 --> 00:22:15,440 Speaker 1: is fundamentally a data science company. And the analogy I 371 00:22:15,480 --> 00:22:19,800 Speaker 1: would give you as Progressive in auto insurance, right, Progressive 372 00:22:19,840 --> 00:22:22,879 Speaker 1: sells a commodity product that they have to file for 373 00:22:22,920 --> 00:22:26,119 Speaker 1: the rates in states by and large historically through the 374 00:22:26,160 --> 00:22:30,640 Speaker 1: same distribution channel as many other companies. In fact, I'll 375 00:22:30,720 --> 00:22:33,080 Speaker 1: pick on one which was always a very high quality company, 376 00:22:33,119 --> 00:22:36,320 Speaker 1: Ohio Casualty, because they were headquartered just about in the 377 00:22:36,359 --> 00:22:38,439 Speaker 1: same town, selling a lot of the same products through 378 00:22:38,480 --> 00:22:41,399 Speaker 1: the same distribution channels, and over a twenty year period, 379 00:22:41,440 --> 00:22:46,520 Speaker 1: one compounded at one compounded at six is that possible? Well? 380 00:22:46,560 --> 00:22:50,680 Speaker 1: Culture culture, and it wasn't just a culture of conservatism. 381 00:22:50,720 --> 00:22:53,520 Speaker 1: It was a culture of innovation and using data and 382 00:22:53,640 --> 00:22:57,000 Speaker 1: using science and how can we predict what is the 383 00:22:57,040 --> 00:22:59,679 Speaker 1: likelihood of you having a car accident based on the 384 00:22:59,720 --> 00:23:02,399 Speaker 1: type of car, your occupation, or your credit or all 385 00:23:02,440 --> 00:23:04,240 Speaker 1: sorts of other things, and how can we give you 386 00:23:04,280 --> 00:23:06,600 Speaker 1: a better deal, how can we customize So we're a 387 00:23:06,680 --> 00:23:10,199 Speaker 1: data rich company. First, that's Capital One. So when I 388 00:23:10,280 --> 00:23:14,120 Speaker 1: talked about all of the traditional risks facing banks, liquidity, 389 00:23:14,480 --> 00:23:21,439 Speaker 1: credit regulation, UH, interest rates UH and so on, UH, 390 00:23:21,520 --> 00:23:23,720 Speaker 1: I would say all of those risks are as low 391 00:23:23,760 --> 00:23:26,439 Speaker 1: as I've seen in most of my career, but certainly 392 00:23:26,480 --> 00:23:29,879 Speaker 1: in the last fifteen years. The one risk that is 393 00:23:29,880 --> 00:23:35,680 Speaker 1: the most important risk is disruption. It's technological disruption. So 394 00:23:35,800 --> 00:23:38,760 Speaker 1: as you invest and you think about risk and reward, 395 00:23:39,600 --> 00:23:42,400 Speaker 1: part of Capital ones model is that they are a 396 00:23:42,520 --> 00:23:47,440 Speaker 1: very profitable institution because they are wonderful at generating high 397 00:23:47,520 --> 00:23:51,240 Speaker 1: yielding assets in a way that is difficult for others 398 00:23:51,280 --> 00:23:54,639 Speaker 1: to imitate. And they have low cost core funds, so 399 00:23:55,000 --> 00:23:57,720 Speaker 1: they have a good core business. But then that's the 400 00:23:57,800 --> 00:24:01,199 Speaker 1: opportunity the risk. If banks have the biggest risk is 401 00:24:01,200 --> 00:24:05,760 Speaker 1: financial UH is technological disruption, then I would say among 402 00:24:05,840 --> 00:24:08,880 Speaker 1: the major banks, Capital one is one of the lowest 403 00:24:09,320 --> 00:24:12,960 Speaker 1: because it's baked into their DNA to innovative. If they 404 00:24:12,960 --> 00:24:15,120 Speaker 1: said tomorrow, you know what, we're gonna have no branches. 405 00:24:15,119 --> 00:24:19,719 Speaker 1: We're gonna be entirely in the Internet bank, uh Internet, 406 00:24:20,600 --> 00:24:24,320 Speaker 1: using media and data to market to come. That would 407 00:24:24,359 --> 00:24:28,320 Speaker 1: be perfectly consistent with their culture. So that mindset, I 408 00:24:28,359 --> 00:24:30,800 Speaker 1: think is another reason that I think Capital One is 409 00:24:30,800 --> 00:24:33,760 Speaker 1: a good one. Now, in full disclosure, we have trimmed 410 00:24:33,760 --> 00:24:36,560 Speaker 1: some Capital One in part because while it's always been 411 00:24:36,560 --> 00:24:40,600 Speaker 1: a core holding, we bought so much during the COVID 412 00:24:40,680 --> 00:24:44,240 Speaker 1: crisis that the appreciation. We think it's important to run 413 00:24:44,240 --> 00:24:46,720 Speaker 1: a diversified portfolio. You know, one of the dangers about 414 00:24:46,760 --> 00:24:50,120 Speaker 1: the Financial Index that people don't realize is the index 415 00:24:50,200 --> 00:24:55,400 Speaker 1: is like forty percent in like four stocks. People when 416 00:24:55,400 --> 00:24:58,159 Speaker 1: they buy an index think, well, at least I'm getting diversification. 417 00:24:58,680 --> 00:25:02,440 Speaker 1: You're not. In the financial index. You're getting more concentration 418 00:25:02,440 --> 00:25:05,720 Speaker 1: than in our financial sector fund. So I think that's 419 00:25:05,760 --> 00:25:08,399 Speaker 1: a little too much risk from my blood. So we 420 00:25:08,480 --> 00:25:11,360 Speaker 1: do tend to tamp things back as as they get 421 00:25:11,480 --> 00:25:14,200 Speaker 1: very large, and we have a little bit of Capital One, although, 422 00:25:14,240 --> 00:25:16,080 Speaker 1: as I say, still being run by the founder with 423 00:25:16,119 --> 00:25:19,560 Speaker 1: that mindset is an extraordinary band. Plus they have a 424 00:25:19,600 --> 00:25:22,480 Speaker 1: pretty funny TV commercials. I'll give them that, Chris, I 425 00:25:22,520 --> 00:25:25,000 Speaker 1: don't know if that plays in your thinking. You know 426 00:25:25,080 --> 00:25:28,000 Speaker 1: those data scientists. What's impressive is they didn't vet the 427 00:25:28,040 --> 00:25:30,840 Speaker 1: commercials for their humor. They vetted them based on this 428 00:25:30,920 --> 00:25:33,680 Speaker 1: is what works for and that they're very much inn 429 00:25:33,680 --> 00:25:37,000 Speaker 1: a b testing mindset. I know a number of people 430 00:25:37,040 --> 00:25:39,600 Speaker 1: even in the mid level ranks there, and they are 431 00:25:39,760 --> 00:25:43,920 Speaker 1: math geeks and analytically inclined. It's a very different thing 432 00:25:43,960 --> 00:25:48,960 Speaker 1: than the cigar chomping you know, three piece shuit banker 433 00:25:49,600 --> 00:26:08,439 Speaker 1: uh mindset. So it is a very different culture. Please, 434 00:26:08,520 --> 00:26:10,879 Speaker 1: you got one more good question for Chris before we 435 00:26:10,920 --> 00:26:16,200 Speaker 1: go to crazy things. Sure, your emphasis on fintech reminded 436 00:26:16,240 --> 00:26:19,359 Speaker 1: me that Jamie Diamond had said the bank was willing 437 00:26:19,400 --> 00:26:22,639 Speaker 1: to spend whatever it takes to compete. Do you think 438 00:26:22,920 --> 00:26:28,320 Speaker 1: that JP Morgan can actually be more agile, more nimble, 439 00:26:28,400 --> 00:26:33,439 Speaker 1: throw more money at fintech and really uh dominate or 440 00:26:34,040 --> 00:26:37,600 Speaker 1: do you see a different kind of disruptor coming to 441 00:26:37,920 --> 00:26:42,359 Speaker 1: really shift the whole financial system, including with defy and 442 00:26:43,160 --> 00:26:47,680 Speaker 1: other sorts of technologies. Well, it's the right area of 443 00:26:47,840 --> 00:26:52,199 Speaker 1: focus on police. I think it is amazing though, to 444 00:26:52,440 --> 00:26:55,760 Speaker 1: think about the amount of disruption that has been thrown 445 00:26:55,800 --> 00:26:58,520 Speaker 1: at the banking sector in the last thirty or forty years. Now, 446 00:26:58,560 --> 00:27:01,280 Speaker 1: let me just give you a good example. The money 447 00:27:01,280 --> 00:27:05,560 Speaker 1: market fund was invented. Now, if you can imagine a 448 00:27:05,680 --> 00:27:09,960 Speaker 1: more dangerous innovation, then the money market fund to the 449 00:27:09,960 --> 00:27:14,080 Speaker 1: banking sector. Wait a minute, I can offer customers higher 450 00:27:14,119 --> 00:27:17,840 Speaker 1: interest rates with no risk because I'm only in government bonds. 451 00:27:18,280 --> 00:27:20,879 Speaker 1: I don't need any branches. All of a sudden, you 452 00:27:20,920 --> 00:27:23,280 Speaker 1: would have thought a vast sucking sound out of the 453 00:27:23,280 --> 00:27:26,159 Speaker 1: banking sector. Of all of their liabilities, all of their deposits. 454 00:27:26,640 --> 00:27:31,400 Speaker 1: Now you know these you know, cigar chomping uh, pizza 455 00:27:31,880 --> 00:27:35,399 Speaker 1: eating bulligans at Solomon Brothers. You know, gin up the 456 00:27:35,440 --> 00:27:38,879 Speaker 1: mortgage backed security, right, and so all of a sudden 457 00:27:38,880 --> 00:27:42,840 Speaker 1: you've got the mortgage backed security. Asset back securities are invented. Well, 458 00:27:42,880 --> 00:27:47,040 Speaker 1: there go all my assets. Another huge innovation, you know 459 00:27:47,160 --> 00:27:49,680 Speaker 1: Mike Milken and Bosky, you know they dream up the 460 00:27:49,760 --> 00:27:52,600 Speaker 1: high yield market. You know, there goes a lot of 461 00:27:52,600 --> 00:27:55,679 Speaker 1: my corporate business. You know. Then you get the A 462 00:27:55,840 --> 00:27:59,200 Speaker 1: T M. I don't even need branches. Customers can come anywhere, 463 00:27:59,240 --> 00:28:03,520 Speaker 1: and non bank financials you know, uh G E and 464 00:28:03,560 --> 00:28:06,600 Speaker 1: so on. So you've had a massive amount uh the 465 00:28:06,760 --> 00:28:09,720 Speaker 1: credit card banks we mentioned Capital One, you know these 466 00:28:09,920 --> 00:28:12,400 Speaker 1: from the standing start. These three or four companies take 467 00:28:13,240 --> 00:28:15,960 Speaker 1: the entire credit card industry, and yet here is the 468 00:28:16,000 --> 00:28:18,359 Speaker 1: banking sector earning more money than it ever has in 469 00:28:18,400 --> 00:28:20,960 Speaker 1: the past, and by the way, with as big or 470 00:28:21,000 --> 00:28:24,400 Speaker 1: a bigger market ship. So they have been amazing at 471 00:28:24,600 --> 00:28:29,240 Speaker 1: sucking innovation into their core. Now they do it partly 472 00:28:29,560 --> 00:28:31,520 Speaker 1: by adapting. And I think Jamie is one of the 473 00:28:31,560 --> 00:28:34,159 Speaker 1: best examples of somebody who has his eyes over. Brian 474 00:28:34,200 --> 00:28:38,479 Speaker 1: moynihan has been amazingly masterful Bank American rolling out their 475 00:28:38,520 --> 00:28:42,560 Speaker 1: digital products. Venmo is a great technology. We all love Venmo. 476 00:28:43,320 --> 00:28:46,560 Speaker 1: Zel comes along, well, you know, in technology, we think, 477 00:28:46,600 --> 00:28:48,920 Speaker 1: oh it should be winner take all. Venmo should win. 478 00:28:49,680 --> 00:28:54,360 Speaker 1: Zell's bigger than Venmo today, right, So banking has not 479 00:28:54,520 --> 00:28:58,360 Speaker 1: been that sort of winner take all Google model. They've 480 00:28:58,400 --> 00:29:01,120 Speaker 1: been amazing. Now, if you wanted to be cynical, you'd 481 00:29:01,160 --> 00:29:04,520 Speaker 1: say they also use regulation, right. Certainly, we saw that 482 00:29:04,600 --> 00:29:08,880 Speaker 1: in China with aunt financial Right, regulators get a little 483 00:29:08,920 --> 00:29:13,400 Speaker 1: touchy when the financial system gets too unregulated and people 484 00:29:13,440 --> 00:29:15,640 Speaker 1: start going cowboy. We saw it ad ap peer to 485 00:29:15,800 --> 00:29:19,440 Speaker 1: peer lending, for example. So there have been a lot 486 00:29:19,520 --> 00:29:23,360 Speaker 1: of cases in financial services history where that innovation is 487 00:29:23,400 --> 00:29:27,320 Speaker 1: absorbed in I would say the biggest thing that banks 488 00:29:27,600 --> 00:29:32,240 Speaker 1: UH that positions banks well for withstanding the onslaught of fintech, 489 00:29:32,680 --> 00:29:37,760 Speaker 1: is this. In the classic innovator's dilemma, the large, lumbering 490 00:29:37,800 --> 00:29:42,440 Speaker 1: incumbent faces some innovation, and the trouble is to compete, 491 00:29:42,680 --> 00:29:45,520 Speaker 1: they have to screw up their existing business, and they 492 00:29:45,520 --> 00:29:47,240 Speaker 1: don't want to do that. That's why it's called the 493 00:29:47,240 --> 00:29:50,040 Speaker 1: innovator's dilemma. What do I do if I'd have to 494 00:29:50,040 --> 00:29:53,520 Speaker 1: cut my prices, I'd have to change. In the case 495 00:29:53,600 --> 00:29:57,280 Speaker 1: of banking and Bank America, there's no institution that can 496 00:29:57,360 --> 00:30:01,440 Speaker 1: demonstrate this better than Bank America. Pulling their customers onto 497 00:30:01,480 --> 00:30:08,440 Speaker 1: a digital experience is significantly reduces costs and enhances the 498 00:30:08,520 --> 00:30:15,000 Speaker 1: customer experience and enhances customer stickiness, which reduces UH turn 499 00:30:15,280 --> 00:30:19,880 Speaker 1: which further reduces costs. So unlike the typical innovator's dilemma, 500 00:30:20,080 --> 00:30:25,520 Speaker 1: the incumbents are economically incentivized to jump right into the innovation. Meanwhile, 501 00:30:25,560 --> 00:30:27,320 Speaker 1: when I look at the valuation of a lot of 502 00:30:27,320 --> 00:30:29,160 Speaker 1: fintech companies, I think a lot of them are gonna 503 00:30:29,200 --> 00:30:31,600 Speaker 1: end up selling to banks because there's no way they 504 00:30:31,600 --> 00:30:34,400 Speaker 1: can earn their way into their valuations. So a lot 505 00:30:34,480 --> 00:30:38,880 Speaker 1: of them are now providing their services to the banking sector. Uh, 506 00:30:38,920 --> 00:30:41,880 Speaker 1: they're becoming back engines for them, or they're helping them 507 00:30:41,880 --> 00:30:45,080 Speaker 1: work their customer targeting mechanisms. And the banks have been 508 00:30:45,160 --> 00:30:48,320 Speaker 1: very open to bringing it in, so we're watching it closely. 509 00:30:48,440 --> 00:30:51,920 Speaker 1: You could see disruption. Schwab obviously lead with a single 510 00:30:51,960 --> 00:30:54,400 Speaker 1: product of discount brokerage back in the day and has 511 00:30:54,400 --> 00:30:57,920 Speaker 1: become a financial juggernaut that was a disruptor becoming a 512 00:30:57,920 --> 00:31:01,560 Speaker 1: blue chip. Uh. It's possible some of these single product 513 00:31:01,560 --> 00:31:05,400 Speaker 1: companies Chime Rocket, uh, some of the by now, pay later, 514 00:31:05,760 --> 00:31:09,280 Speaker 1: Affirm and so on, that they'll be able to parlay 515 00:31:09,320 --> 00:31:13,440 Speaker 1: that single product focus into a broad customer relationship. Uh. 516 00:31:13,520 --> 00:31:15,640 Speaker 1: We're gonna watch it closely because it's a big risk. 517 00:31:15,680 --> 00:31:19,280 Speaker 1: But I will tell you the spending and the effectiveness 518 00:31:19,320 --> 00:31:22,440 Speaker 1: of the spending by by JP Morgan Chase in Bank 519 00:31:22,480 --> 00:31:25,800 Speaker 1: America in particular, I think Wells is trying hard to 520 00:31:25,840 --> 00:31:30,160 Speaker 1: get catch up. Um it has been. Uh, it's been 521 00:31:30,240 --> 00:31:33,240 Speaker 1: really impressive to see and and the customers are using 522 00:31:33,240 --> 00:31:35,880 Speaker 1: the products and they're all happy with them, and so 523 00:31:36,360 --> 00:31:38,920 Speaker 1: I think it is a little overhyped at the moment, 524 00:31:39,000 --> 00:31:41,520 Speaker 1: but it is the area to watch. But the incumbent 525 00:31:41,640 --> 00:31:45,160 Speaker 1: success in the economic models give me some confidence that 526 00:31:45,240 --> 00:31:48,959 Speaker 1: it's not the classic innovator's dilemma of the incumbents facing 527 00:31:48,960 --> 00:31:51,760 Speaker 1: a Hobson's choice of to compete, we have to give 528 00:31:51,840 --> 00:31:55,560 Speaker 1: up our core stand clear of the craziest things we 529 00:31:55,640 --> 00:32:00,440 Speaker 1: saw in markets this week, Police speaking of big umbering 530 00:32:00,560 --> 00:32:04,280 Speaker 1: incumbents and new actile disruptors, I think I'm the I'm 531 00:32:04,320 --> 00:32:07,840 Speaker 1: the big lumbering income incumbent on this podcast, and you're 532 00:32:07,880 --> 00:32:10,320 Speaker 1: the new innovative disruptor. So let's see if you can 533 00:32:10,320 --> 00:32:12,840 Speaker 1: disrupt me with your craziest thing. What's the craziest thing 534 00:32:12,880 --> 00:32:16,640 Speaker 1: you saw in markets this week? Well, my craziest thing 535 00:32:17,080 --> 00:32:23,120 Speaker 1: actually parallels that in terms of Jamie Diamond calling bitcoin worthless. 536 00:32:23,600 --> 00:32:26,960 Speaker 1: I thought that was completely crazy. With bitcoin trading at 537 00:32:27,280 --> 00:32:30,880 Speaker 1: fifty five dollars, it's clearly not worthless, and there's an 538 00:32:31,040 --> 00:32:35,880 Speaker 1: enormous infrastructure being built and everybody's using it and thinking 539 00:32:35,880 --> 00:32:39,560 Speaker 1: about it. So I found that to be quite uh. 540 00:32:39,920 --> 00:32:45,040 Speaker 1: The the the lumbering incumbent dilemma right there, that's a that's 541 00:32:45,080 --> 00:32:47,200 Speaker 1: a good way of saying it. I'm gonna pile on 542 00:32:47,360 --> 00:32:51,000 Speaker 1: yours your crazy thing, because my my crazy thing is related. 543 00:32:51,040 --> 00:32:52,640 Speaker 1: And then we'll see what Chris thinks about all this. 544 00:32:52,760 --> 00:32:56,200 Speaker 1: But Back of England came out with a report pointing 545 00:32:56,200 --> 00:33:01,640 Speaker 1: out UH cryptocurrency assets are now worth two point three 546 00:33:01,720 --> 00:33:05,840 Speaker 1: trillion dollars UH, growth of more than two since the 547 00:33:05,880 --> 00:33:08,920 Speaker 1: start of the year. That makes them twice as big 548 00:33:08,960 --> 00:33:13,080 Speaker 1: as the subprime market UH before the financial crisis, which 549 00:33:13,120 --> 00:33:16,640 Speaker 1: is kind of mind blowing. Um knock on wood. We 550 00:33:16,680 --> 00:33:20,360 Speaker 1: don't have a similar a similar resolution, but Chris, at 551 00:33:20,440 --> 00:33:22,800 Speaker 1: least it makes me wonder, what do you think about 552 00:33:22,840 --> 00:33:27,840 Speaker 1: this whole crypto economy and the potential disruption to centralized finance. Um, 553 00:33:27,920 --> 00:33:30,480 Speaker 1: is it's something you're you know, you think a lot 554 00:33:30,480 --> 00:33:32,200 Speaker 1: about or is it a fad? You know? How are 555 00:33:32,240 --> 00:33:34,680 Speaker 1: you thinking about it? Oh? No, he studied it closely. 556 00:33:34,760 --> 00:33:39,040 Speaker 1: And in fact, I've had a long term close friendship 557 00:33:39,120 --> 00:33:41,840 Speaker 1: of somebody I admire greatly with Bill Miller, going all 558 00:33:41,840 --> 00:33:43,480 Speaker 1: the way back to the start of my career, and 559 00:33:44,200 --> 00:33:46,840 Speaker 1: we hosted an event together at the Santa Fe Institute 560 00:33:46,880 --> 00:33:50,360 Speaker 1: about six years ago on the nature of cryptography and 561 00:33:50,600 --> 00:33:54,560 Speaker 1: the nature of currency and stores of value and so on. Uh. 562 00:33:54,680 --> 00:33:57,440 Speaker 1: So it's an area that I'm very familiar with, and 563 00:33:57,440 --> 00:34:02,520 Speaker 1: I think it's perfectly plausible that these currencies replace gold. Uh. 564 00:34:02,560 --> 00:34:07,440 Speaker 1: They digitize gold for example. Um, but I will take 565 00:34:07,480 --> 00:34:10,000 Speaker 1: the other side just to pick a fight with police, 566 00:34:10,040 --> 00:34:13,120 Speaker 1: which I think is a dangerous idea, but which is 567 00:34:13,160 --> 00:34:16,279 Speaker 1: just to say that Jamie could be absolutely right that 568 00:34:16,360 --> 00:34:20,839 Speaker 1: it's worthless and that it has no intrinsic value. You 569 00:34:20,840 --> 00:34:23,480 Speaker 1: could say virtually you could say the same about gold. 570 00:34:23,560 --> 00:34:27,239 Speaker 1: Now gold has some industrial value, but beyond its industrial value, 571 00:34:27,280 --> 00:34:30,920 Speaker 1: you could argue it has an esthetic value, but it's 572 00:34:31,000 --> 00:34:36,120 Speaker 1: really worthless. It has value because values subscribes ascribe to it. 573 00:34:36,440 --> 00:34:40,280 Speaker 1: So I think Jamie is right that the the value 574 00:34:40,680 --> 00:34:44,880 Speaker 1: there is no value. It is worthless. Uh, it doesn't 575 00:34:44,880 --> 00:34:48,600 Speaker 1: have it intrinsic worth. But yet it could be very useful, 576 00:34:49,120 --> 00:34:52,280 Speaker 1: and it could be useful as a digitized store or value, 577 00:34:52,400 --> 00:34:55,960 Speaker 1: or it could create a better transaction system. So I 578 00:34:56,000 --> 00:34:59,080 Speaker 1: think in a sense both can be right. And it's dangerous. 579 00:34:59,120 --> 00:35:01,680 Speaker 1: When anybody clothes is their mind off. But I think 580 00:35:01,719 --> 00:35:05,520 Speaker 1: in this case maybe the word choice matters a little bit. Uh, 581 00:35:05,560 --> 00:35:08,239 Speaker 1: but I'm not certain so, but I do think it's 582 00:35:08,280 --> 00:35:11,319 Speaker 1: an area that people should want. Now when people say, oh, 583 00:35:11,360 --> 00:35:13,440 Speaker 1: how can you own bank in New York? I mean, 584 00:35:13,719 --> 00:35:16,880 Speaker 1: all of that custody business could be done with blockchain. 585 00:35:17,440 --> 00:35:20,560 Speaker 1: Do you know what Bank of New York charges for 586 00:35:20,680 --> 00:35:24,880 Speaker 1: their massive trillions and trillions of dollars of assets under custody, 587 00:35:25,480 --> 00:35:28,000 Speaker 1: their bonds, stocks, all that stuff. And you know what 588 00:35:28,040 --> 00:35:31,640 Speaker 1: they charge for that less than one basis point. So 589 00:35:32,440 --> 00:35:35,399 Speaker 1: you know, for less than one basis point, I get 590 00:35:35,440 --> 00:35:40,239 Speaker 1: all their systems, their regulation, their assurance. That's not a 591 00:35:40,280 --> 00:35:43,840 Speaker 1: big fat disruptible pool. Now. Visa, on the other hand, 592 00:35:44,400 --> 00:35:47,800 Speaker 1: I think should worry, and I think I think mortgage 593 00:35:48,360 --> 00:35:50,880 Speaker 1: you know, I think real estate brokers should worry. There 594 00:35:50,920 --> 00:35:53,400 Speaker 1: are lots of title insurance, so lots of things that 595 00:35:53,440 --> 00:35:58,240 Speaker 1: have big fat spreads. Uh that probably should be competed away. 596 00:35:58,280 --> 00:36:01,360 Speaker 1: But you know, in my lifetime I started a commission. 597 00:36:01,960 --> 00:36:04,800 Speaker 1: Uh the year I started was ten or twelve cents 598 00:36:04,800 --> 00:36:07,960 Speaker 1: a share for an institutional investor. Now it's about, you know, 599 00:36:08,080 --> 00:36:10,720 Speaker 1: round to zero. And yet somehow a lot of broker 600 00:36:10,880 --> 00:36:14,600 Speaker 1: dealers are doing just fine. So you know, the financial 601 00:36:14,640 --> 00:36:18,240 Speaker 1: system tends to adapt, and uh, I think Jamie Diamond 602 00:36:18,239 --> 00:36:22,279 Speaker 1: will adapt, uh to if if if Bitcoin ends up 603 00:36:22,520 --> 00:36:25,759 Speaker 1: digitizing gold, which after all Gold's market cappus something like 604 00:36:25,960 --> 00:36:28,880 Speaker 1: ten trillion. I think, so there's a lot of shift 605 00:36:29,040 --> 00:36:32,680 Speaker 1: as that ten trillion moves and uh and I think 606 00:36:32,719 --> 00:36:35,640 Speaker 1: that's what sort of underway. That's a great point about 607 00:36:35,640 --> 00:36:38,279 Speaker 1: Bill Miller, talk about someone who made the you know, 608 00:36:38,480 --> 00:36:40,480 Speaker 1: caught on early at the right time, and you know 609 00:36:40,520 --> 00:36:41,960 Speaker 1: a lot of a lot back when a lot of 610 00:36:42,000 --> 00:36:45,120 Speaker 1: people were still very skeptical and he he didn't catch generally, 611 00:36:45,160 --> 00:36:48,480 Speaker 1: he would be the first to say, like we walked together, 612 00:36:48,560 --> 00:36:50,920 Speaker 1: go from thirty to three hundred, and then it went 613 00:36:50,920 --> 00:36:53,040 Speaker 1: to five hundred, and then it fell back to three 614 00:36:53,080 --> 00:36:55,279 Speaker 1: hundred and and I think he would say that's when 615 00:36:55,280 --> 00:36:58,160 Speaker 1: he did. Really all of his buying was right after 616 00:36:58,200 --> 00:37:02,239 Speaker 1: that conference that I mentioned. And uh So it is 617 00:37:02,280 --> 00:37:06,799 Speaker 1: amazing how one of Bill's great gifts is his flexibility. 618 00:37:07,120 --> 00:37:09,160 Speaker 1: For a lot of us. If you've missed a ten bagger, 619 00:37:09,239 --> 00:37:12,080 Speaker 1: you don't want to look anymore. It's too unpleasant. It's 620 00:37:12,080 --> 00:37:15,000 Speaker 1: an enormous gift to be able to look at you know, 621 00:37:15,200 --> 00:37:17,440 Speaker 1: Amazon at e D after it's gone from eight to 622 00:37:17,520 --> 00:37:20,759 Speaker 1: eighty and still see it as a value. Uh. And 623 00:37:20,960 --> 00:37:24,280 Speaker 1: sometimes that's uh, you know, people confuse price and value. 624 00:37:24,560 --> 00:37:27,120 Speaker 1: They think if something's gone up a lot, it's more expensive, 625 00:37:27,280 --> 00:37:29,359 Speaker 1: or sometimes they think it's more attractive because it's gone 626 00:37:29,400 --> 00:37:32,760 Speaker 1: up a lot. The price has nothing to do the past, 627 00:37:32,800 --> 00:37:36,000 Speaker 1: has nothing to do with the future of that. Very 628 00:37:36,280 --> 00:37:38,760 Speaker 1: very interesting. All right, chrisy, have you seen anything crazy 629 00:37:38,800 --> 00:37:40,960 Speaker 1: this week? Do you want to share? All right, I'm 630 00:37:40,960 --> 00:37:45,080 Speaker 1: gonna give you one that that is it's not really 631 00:37:45,120 --> 00:37:47,839 Speaker 1: this week, but I'm just gonna give it to you. 632 00:37:47,880 --> 00:37:52,000 Speaker 1: When we think about, uh, how the idea of price 633 00:37:52,080 --> 00:37:55,000 Speaker 1: discipline has eroded. So I think the craziest thing in 634 00:37:55,000 --> 00:37:57,920 Speaker 1: the market over the last several years has been dispersion. 635 00:37:58,360 --> 00:38:01,840 Speaker 1: When you just get is crazy. See disparity and assets 636 00:38:01,880 --> 00:38:05,520 Speaker 1: where you could you think there's rough comparability or visibility 637 00:38:05,520 --> 00:38:08,560 Speaker 1: into their value, but they traded wildly different prices, so 638 00:38:09,160 --> 00:38:13,280 Speaker 1: international versus domestic growth versus value. So here's my crazy 639 00:38:13,320 --> 00:38:17,080 Speaker 1: one for you. If I was to take Tesla, Squares, Shopify, Spotify, 640 00:38:17,160 --> 00:38:20,200 Speaker 1: and Zoom their market cap today's around one point three trillion, 641 00:38:20,640 --> 00:38:23,439 Speaker 1: for the same one point three trillion, I could buy 642 00:38:23,760 --> 00:38:26,680 Speaker 1: a big lion share of our core portfolio. So I 643 00:38:26,680 --> 00:38:29,680 Speaker 1: could buy a hundred percent of Capital One, Applied Materials, 644 00:38:29,719 --> 00:38:32,640 Speaker 1: Intel Rate, Yeon JP Morgan, Chase, Chub Banking, or Melon 645 00:38:32,680 --> 00:38:35,399 Speaker 1: in American Express one point three trillion, one point three 646 00:38:35,400 --> 00:38:39,960 Speaker 1: trillion equal price. The first companies earning nine billion. The 647 00:38:40,000 --> 00:38:44,879 Speaker 1: second group of companies are earning nine Now you say yes, 648 00:38:44,960 --> 00:38:47,880 Speaker 1: but those first group of companies, they're growing. This is 649 00:38:47,920 --> 00:38:51,160 Speaker 1: the crazy part. Let's do a little thought experiment. Let's 650 00:38:51,160 --> 00:38:54,520 Speaker 1: take that group of companies, tell us a square, Shoppify, Spotify, Zoom. 651 00:38:54,560 --> 00:38:58,280 Speaker 1: In the next ten years, they grow as fast as Apple, Amazon, 652 00:38:58,600 --> 00:39:01,359 Speaker 1: and Google grew in the last ten years. I think 653 00:39:01,360 --> 00:39:04,320 Speaker 1: we'd all agree that's that's pretty good outcome. A decade 654 00:39:04,320 --> 00:39:06,919 Speaker 1: of growth as fast as those three. And then let's 655 00:39:06,920 --> 00:39:08,799 Speaker 1: say at the end of that, instead of having these 656 00:39:09,000 --> 00:39:12,160 Speaker 1: crappy profit margins that inaggregate they have, they end up 657 00:39:12,160 --> 00:39:14,960 Speaker 1: with the highest profit margins of any of those companies, 658 00:39:15,000 --> 00:39:17,720 Speaker 1: which is Google. So they end up with Google's profit 659 00:39:17,760 --> 00:39:21,120 Speaker 1: margins ten years of growth as high as Apple, Amazon, 660 00:39:21,120 --> 00:39:24,040 Speaker 1: and Google. Now are boring group of companies. In the 661 00:39:24,040 --> 00:39:26,920 Speaker 1: next ten years, they grow about They grow earnings about 662 00:39:26,960 --> 00:39:28,799 Speaker 1: half as fast as they have in the last ten 663 00:39:28,880 --> 00:39:31,000 Speaker 1: I think that would be a terrible outcome, but possible. 664 00:39:31,320 --> 00:39:33,920 Speaker 1: So they only grow five percent, They only grow profits 665 00:39:33,960 --> 00:39:36,719 Speaker 1: five percent a year for the next decade. Play that 666 00:39:36,800 --> 00:39:40,520 Speaker 1: out over decade. In twenty thirty two, ten years from now, 667 00:39:41,120 --> 00:39:44,000 Speaker 1: in our group of companies, you will have earned one 668 00:39:44,040 --> 00:39:47,200 Speaker 1: point three trillion dollars. You will have earned the entire 669 00:39:47,239 --> 00:39:51,520 Speaker 1: market cap group too, even with those crazy assumptions of 670 00:39:51,600 --> 00:39:54,640 Speaker 1: high growth, high margins, You'll have only earned six d billion, 671 00:39:54,680 --> 00:39:58,319 Speaker 1: half as much. And in twenty thirty two they will 672 00:39:58,360 --> 00:40:03,160 Speaker 1: still be earning less annually. They will still earn less annually. 673 00:40:03,600 --> 00:40:08,799 Speaker 1: So to me, that's crazy. And it's not this week crazy, 674 00:40:08,920 --> 00:40:11,960 Speaker 1: but it's this time of the market crazy. And I 675 00:40:11,960 --> 00:40:14,080 Speaker 1: don't know when that gap is going to close. But 676 00:40:14,200 --> 00:40:17,279 Speaker 1: I sure love what we own versus where the where 677 00:40:17,320 --> 00:40:20,960 Speaker 1: those crazy valuations are. Chris, that is the most thought out, 678 00:40:21,000 --> 00:40:23,200 Speaker 1: crazy thing I think we've ever had. Fleece. You gotta 679 00:40:23,280 --> 00:40:28,640 Speaker 1: check his math on all that, all right, Absolutely, I'll 680 00:40:28,719 --> 00:40:30,719 Speaker 1: send it to you. By the way, they are group 681 00:40:30,719 --> 00:40:32,759 Speaker 1: would be earning a hundred and fifty four billion, and 682 00:40:33,120 --> 00:40:35,080 Speaker 1: that Group one would be a hundred and thirty billion. 683 00:40:35,480 --> 00:40:37,360 Speaker 1: And I'm, by the way, giving some of them a 684 00:40:37,400 --> 00:40:41,600 Speaker 1: little generous credit for uh, some of their more aggressive accounting, 685 00:40:41,640 --> 00:40:45,400 Speaker 1: but I'll leave that aside. That's fascinating. I was I 686 00:40:45,480 --> 00:40:47,319 Speaker 1: was wondering if Chris was going to say he could 687 00:40:47,320 --> 00:40:54,279 Speaker 1: buy a whole lot of bitcoin and bitcoin will still 688 00:40:54,280 --> 00:40:57,760 Speaker 1: be earning zero and it will still be worth the less. 689 00:40:59,560 --> 00:41:01,200 Speaker 1: Let's say, right, Well, we're gonna have to get Chris 690 00:41:01,200 --> 00:41:05,600 Speaker 1: back in two and see how that turned out, see 691 00:41:05,600 --> 00:41:07,839 Speaker 1: if his math was right. I'm guessing he's probably right though, 692 00:41:08,440 --> 00:41:10,839 Speaker 1: Chris Davis, Police Brands, thank you so much for your time. 693 00:41:10,920 --> 00:41:12,920 Speaker 1: Really enjoyed it and hopefully we can do it again. 694 00:41:13,160 --> 00:41:15,600 Speaker 1: Thank you. That's great. Thank you guys. I enjoyed it. 695 00:41:24,760 --> 00:41:26,960 Speaker 1: What Goes Up. We'll be back next week. Until then, 696 00:41:26,960 --> 00:41:29,800 Speaker 1: you can find us on the Bloomberg Terminal, website and app, 697 00:41:30,040 --> 00:41:33,160 Speaker 1: or wherever you get your podcasts. We love it if 698 00:41:33,160 --> 00:41:34,960 Speaker 1: you took the time to rate and review the show 699 00:41:34,960 --> 00:41:38,360 Speaker 1: on Apple Podcasts. Similar listeners can find us, and you 700 00:41:38,360 --> 00:41:41,520 Speaker 1: can find us on Twitter follow me at Reaganonymous. You 701 00:41:41,560 --> 00:41:45,279 Speaker 1: can also follow Bloomberg Podcasts at podcasts. I thank you 702 00:41:45,320 --> 00:41:47,200 Speaker 1: to Charlie Pell, to Bloomberg Radio and the voice of 703 00:41:47,239 --> 00:41:49,920 Speaker 1: the New York City Subway System. What Goes Up is 704 00:41:49,920 --> 00:41:52,839 Speaker 1: produced by Too for Fourheads. The head of Bloomberg Podcasts 705 00:41:52,920 --> 00:41:55,799 Speaker 1: is Francesco Levie, thanks for listening. See you next time 706 00:41:58,239 --> 00:42:08,440 Speaker 1: than before.