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It was really kind of hard to keep up with stories about Amazon today because they just kept coming and coming. Amazon out of course today talking about Black Friday and Cyber Monday, saying that customers around the world purchased over one billion billion items on Amazon and that shopping event, that extended event, if you will, breaking records.
Tim.
They also today Aws Amazon Web Services, and in Nvidia announcing an expansion of their strategic collaboration. And then Carol, there's.
This Amazon dot Com joining that chep Race announcing Amazon Q their own digital assistant for corporate customers to do lots of things like search for info, RTE, code review, business metrics.
So much.
How smart is it?
I don't know, So let's ask somebody who is super smart on all things Amazon. Bloomberg News Senior Executive editor of Global Tech Bradstone is in the house. He's written several books, including two on Amazon, The Everything's Store and also Amazon Unbound. And while he's based in San Francisca, as we said, he's here in New York. Hello, Hello, Hello. It's kind of crazy the amount of stories. Where to start when you think about this company. I don't know.
We have a flurry of headlines like this, like what I'm sad at you?
Well, today's a reminder of the breath and extent of Amazon's businesses and how it covers a lot of territory and it's you know, in large part succeeding in a lot of different ways. I mean, the e commerce information that they released is characteristically useless. You know, they throw out numbers that are foggy at best. But Adobe does a pretty good job of telling us what's happening in cyberscope in the US and in cybersecurity in the US overall.
And cyber Monday was up like nine point six percent over last year, Cyber Week seven point eight percent. And look, that's in an environment where we thought consumers were going to be really reluctant to spend one bright spot somewhat sort of ironically. We know Americans love credit. Is this whole buy now, pay later scheme? Yeah, and that's up like forty five percent over last year. And you look at the stock of a company like a firm, which jumped i think like fifteen percent yesterday, and so.
You know that's kind of scary.
Yeah, maybe a little bit.
But consumers are discovering it and they're taking advantage of the deals. And it's not just a day or two days, it's the whole week. Like even Thanksgiving sales were up five or six percent.
That's amazing, right, We really thought, Okay, it is the consumer slowing down, No signs of it.
I think we often talk about ecosystems, and we talk about Apple and Google and Microsoft and the way these companies sort of own parts of your digital life. But I was actually thinking over the weekend brat about Amazon's ecosystem. I said this earlier, but I just reupped my membership at one Medical and instead of doing it through one Medical this year, I did it through Amazon Prime. I saved one hundred bucks. We got a ring doorbell and
like we're getting the ring security year they got you. Yeah, and that's owned you know, Amazon bought that company.
So like, these are two companies enchanting Amazon the story.
But it's also and look seriously, we have Amazon like groceries being delivered Tonight's kind of.
Apple model, Like you're in the system.
But it's not books and it's not like, you know, just knick knacks that we're buying on Amazon. These are totally different businesses for Amazon. Not to mention Aws here, just talk about how you think about the Amazon and ecosystem in twenty twenty.
Things, because is ecosystem even the right word? I mean, when we think about iOS and Apple, all the different pieces and parts nurture each other. If you have an iPhone, you're more likely to get an Apple Watch or to use Apple software. Amazon's got a lot of these disword businesses. And you know this week they have their annual Reinvent conference in Las Vegas. Their big aws show Amazon is
the leader in cloud computing. But you know, one year ago Thursday was the introduction of chat GPT, and ever since, you know, there has been a narrative that Amazon is behind in generative AI, that it doesn't.
Have quite the story. And so today, as.
You guys mentioned, they were released this qu workplace chatbot. If you're gonna name it Q, you have to assume that's gonna be able to espouse conspiracy theories, I guess. But it's their bid to compete with chat GPT in the enterprise, and I think it's interesting.
We'll have to see how good it is. But it has nothing to do.
With one medical or the ring doorbell or so this is a company I mean, I remember, I remember one of the last quotes from Bezos in my first book, The Everything Store, was as him saying, we don't have a lot of advantages, so we have to weave a rope of smaller advantages like that. In some ways, back then that book was published in twenty thirteen, it was all connected. I don't think that's true anymore.
Meaning they don't have the iOS ecosystem or the Android operating systems.
They tried and fair or something.
Yeah, and there are a lot of these dissert businesses, and the extent that there are connections, they're very light. And maybe that's to the company's credit. It certainly would make will make it easier to break the parts, to break the pieces apart, if they have to do that one day, Hello Lena Khan.
Well, and it's also interesting, so they also did the announcement about making or an update to their own ships that they are making. At the same time, they are kind of extending their collaboration with Nvidia, like it does feel like they just kind of are everywhere.
Well, and that's something Google is doing as well. Keep your friends close and your enemies closer. And all these companies are totally dependent on Nvidia for these graphic processors that are so important to Center of AI, and yet the prices are extremely high and Nvidia can't supply the volume of chips that companies need to meet the demand.
And so with Graviton four and the announcement Amazon made this week, it's this more long term project of competing with Nvidia and putting its own chips and its data centers to meet customer demand.
How do you think about Amazon for the future, Like, I don't know what your next book is on this company, But having said that, is it going to be? Yeah, these businesses, but yeah, so much more?
Still, well, look, I mean it's it's there. They're very kind of strategically positioned in businesses that seem to show.
No signs of slowing down.
Yeah, I mean the Great e commerce revolution. We're twenty five years into it and as we just said, it's still growing ten percent every year.
Over oversight my default when I buy something.
They're finding great ways to get us to I mean Friday night football and the kinds of ads that they had and the experimentation they're doing with advertising that leads to purchases.
Is this is all like a green field for Amazon.
And then on the cloud side, we're in the very earliest days of companies moving their operations to the cloud bringing using these AI tools. We have no idea how it's going to go. We might look back and think all this was very over hyped one day. But certainly, Amazon, like a lot of the other big tech companies, are positioning themselves for another phase of growth.
But I think the fact is is increasingly people are finding increasing shares of their dollar are going to Amazon, whether it's for groceries, whether it's for medical care, security, whatever, or just you know sort of AWS stuff that they don't even know that they're using. I was joking about Lena Conn earlier, but from a regulatory perspective, and you were talking about potentially breaking this stuff up in the future. What should be on Amazon's radar when it comes to regulators.
Well, I mean there, I think the FTC and this case that has been filed, and they're fighting battles on multiple fronts, state ags, the European Union. It's almost an existential battle for Amazon, right They're they're having to explain, you know, what they do, how they do things for a company that's been incredibly cryptic and secretive over the span of its life, and then also maybe proving and it's increasingly hard that they're not a monopoly.
Now they can point to these.
Cyber week shopping numbers and say, look, this was not just Amazon, but Shopify had a great week.
Walmart dot com had a great week.
We yesterday heard news of Shean, this Chinese retailer quietly filing to go public. The Shean stories this incredible story of a retailer that has come out of nowhere over the past few years to compete in fast fashion in the West. So there are a lot of competitors. So I think first and foremost for Amazon is proving that while it is a wildly successful story, that it is not the only game in town.
Andy Jesse's really just taken the baton and run with it. How do you well?
Ways he was, Yeah, in some way he was.
He had to fix some of the problems of Bezos's final tenure where he may have taken his eye off the ball a little bit and hired too many people and created too many experiments, And I think Jesse did a good job of really narrowing it down and making the company more efficient, and then placing a couple of strategic bets healthcare is one, keeping the emphasis on the cloud and not doing all the crazy things that Jeff really, you know, initiated when he had an idea that Amazon
could be everything to everyone and compete in every single industry.
Just really quickly ten seconds. Is Jeff still very involved as a.
Board member that as an operator? Interesting?
Good stuff. Thank you. I know you're busy and you found time for us. Bradstone, we love, we love, Senior Executive editor of Global Technology here at Bloomberg.
Check out his books. He wrote the best books on Amazon to go check them out and more books.
Yeah, you're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app. Or wants us live on YouTube?
All right, everybody, Carol Master Tim Stenevik live here on Bloomberg Business Week. We're going to stay with what is certainly our top story, and as we've mentioned, we are talking about Charlie Munger, who, as many would say, new Nobo Hier writing in a Bloomberg story, the alter ego sidekick and foyle to Warren Buffett for almost sixty years as they transform Bert Berkshire Hathaway from a failing textile maker into an empire. Has died. He was ninety nine.
Let's talk a little bit more about it.
Yeah, an incredible life led. For more, we go to Bloomberg Intelligence Property and Casualty Insurance senior analyst Matthew Palazola, who joins us this afternoon. Matthew, good to have you with us. What was your first reaction, your first thought when you saw this news that Charlie Monker died at ninety nine.
Yeah, I mean, obviously very sad day. I was at the annual meeting this year. He's still incredibly sharp, you know, very much with it. You know, I have to look at it from the operations of Berkshire Hathaway, and clearly he has taken a reduced role over time. So my thought is, you know, very sad day. But for the company that they've built, you know, they talked about it actually being quote easy, you know, which is I guess
a very humble understatement. But I think they buy good companies, they let them run, and you know, this machine they've built will will go on for you know, all time.
Really, and yet they've allowed it to be tweaked with bringing in the next generation of investors and also listening to what they have to say. And it says something about their relationship. Monger and Warren Buffett's together to kind of maintain their core in terms of their investment strategy, but also be open to listening to kind of what's what's out there and how the world is changing.
Yeah, I think you know they've they've always been hands off with the company means they buy and you know, they've brought in investment managers. They've seeded a lot of power to Greg Abel and A G. Jane over time, which is just prudent. And you know, if if anything you could say is that they've been very prudent managers of Berkshire Hathaway's Capital over time.
Talk to me about this partnership between Munger and Buffett. What were the I haditate to call them characters, but you know they were certainly larger than life and h and they have been, I should say, talk to me about, you know, their interactions at the annual meeting and and sort of their partnership and how it was on display.
Yeah, I mean it's it was. It was really fun to watch. I mean they'd be sitting up there eating seas candy and drinking Coca Cola at the same time, you know, which which I find kind of crazy. But you know, they're they're doing that, and they're recalling individual meetings that they had, you know, forty fifty years ago, and Buffett is forgetting a couple of things, and Mongers were minding him of, well, this guy said that, and we said this, and we made this much money in
these meetings. I mean, it was, you know, truly a partnership for all of that time, and their interactions was just amazing. They would finish each other sentences. You know, it's it's just it's really sad to see that kind of broken up. But you know, on the other hand, when we go to these meetings, you know, it was the feeling like, you know, they're very old, maybe they'll retire, or maybe this would be the last time they'd be together.
So you know, it wasn't obviously something completely unexpected.
Well for sixty years though they worked together side by side. I want to bring in Katcha Kolinsky. She's Bloomberg News real estate team leader now, but she covered Berkshire, Hathaway and Warren Buffett went to the meetings, would report on it. We'd have her on for a long time and.
A lot of saturdays working on these earnings.
Kat So, how are you, how are you thinking about this today.
You know, it's really an end of an error. I mean, Munger was the foiled buffet for so many years, and it was a it was a funny partnership, you know. I think they really kind of drew out different ideas in each other and pushed each other.
You know.
Why do you say funny, Well, because they I mean they really had a good time.
Like if you know, going to those annual meetings you were like it was it was kind of a comedy show between the two of them. Like, yes, they'd offer investment and advice, but they really bantered back and forth and it was it was it was fun to cover for a long time.
Kat, Who is Warren Buffett without Charlie Monger, you know, Like I think.
I think Charlie pushed him on a lot of things. Like I think, you know, for example, in our obituary we talk a lot about Charlie was really interested in investing in China, and I think some of that mental flexibility, that sort of a desire to push Buffett into maybe maybe areas he'd be a little more skeptical to get into. I think that was a large part of Charlie.
Yeah, he's a little bit older, right, just a few years older.
Yeah, he's just shy of his one hundredth birthday.
So yeah, now, but I was thinking older than Buffett, right, just years older. Now, talk to us a little bit about in terms of your coverage. I mean, like, as you said, they were funny together, but the company did evolve,
right in terms of their investments. There's some things that I feel like they've they've held on to forever, but they also then kind of moved into some of we talked about Apple as an investment, and that was you know, indicative of I guess some of the new folks that they brought in as well.
Yeah, it has evolved like it was mostly for the longest time Buffetted and Charlie kind of leading it, and it still remained that way until the very last day. But you know, they did bring in new people. Ted and Todd are key on their investments, and I think, you know, there was a moment a couple of years ago when Agit Jane and Greg Abil were both promoted to vice chairman alongside Charlie, and I think that was a really big sign that they were preparing the future
generation of this company. But I think Buffett and Munger had such a good time running it that they didn't want to stop until they sort of until the very end.
And they've always been the face of the company, no doubt about it.
Yeah.
And I think they were a huge draw for investors for so many years because you're not only getting a big, you know, industrial behemoth with insurance companies and all these different businesses, but are also getting this huge stock portfolio that they can bet on Apple, they can bet on all these different companies with.
So, you know, I pulled up the list of companies like these candies. We always talk about what we talk We used to talk about Brooks as sneakers. Of course, Geico looking at the Brown shoe company. There's Dime, you know, jewelry like he just they were in so many different things.
Yeah, and I think I think the way Berkshire got built up was really part of that partnership is them pushing each other to try different companies, to look at different industries, to say, hey, what do you think about this business and how it works? And they would talk a lot, you know, even though Charlie was often in California and Buffett lived in Omaha. You know, I think sort of the weird mixture of Berkshire is things in part a lot to Monger.
Yeah, and Matthew Palozola from Bloomberg Intelligence, come on back in here and talk a little bit about what this means for Berkshire Hathaway without a Charlie Munger there.
Yeah, I mean, like I said, I mean, I do think his role was clearly it's taken a step back. They have seeded a lot of power. I don't I hate to say I don't. I don't think it's a huge deficiency on the operations going forward. I mean, many of these businesses that they have, I call it kind of an all weather portfolio. The earnings power of the company is I think, you know, going to be totally intact.
You know, they've been on the hunt for a big deal for a while and Buffett's really they've been really shy on valuations, so you know, I don't think I don't think it really much changes from the operations of the company. I probably think they don't maybe pull Buffett doesn't pull that trigger on a big deal anytime soon, and if he does, it's probably gonna be something we never heard of.
Honestly, Cat Saved twenty seconds for your last thoughts here.
Yeah, I mean I think it's it's really a huge loss today. I think Charlie Munger was an interesting individual who made us laugh, but also you know, taught us a lot about different investments, and you know, I think it's really, yeah, the end of an era for.
Berkshire, absolutely right in terms of companies, the investment world, and just kind of someone there to kind of write the ship like when there was crisis or so on, the two of them together. Keatchiklinski, thank you so much. Matthew Palizola, thank you as well. You're listening to Bloomberg Radio.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
As you know, Charlie Munger, who has worked side by side with Warren Buffett to build out Berkshire Hathaway for the past sixty years, has passed away at the age of ninety nine. Berkshire Hathaway could not have been built to its present status without Charlie's inspiration, wisdom and participation. This is coming from Warren Buffett on that news. We want to talk a little bit about this a little
bit more. Bloomberg News reporter No Bouhier is with us in Seattle, and Bill Smeed, chief investment officer of SMEE Capital Manager, back with us, was on with us prior to this news. You mentioned Warren Buffett in our discussion earlier. This is someone that you have followed very closely for a long time. First of all, I'm sorry because I know you know these individuals, Charlie, Charlie Munger and Warren Buffett just together built something so iconic in the investment world.
I wrote a letter to Buffett probably five years ago, just thanking him for how incredibly generous that him and Munger have been with all of us. I mean, it literally changed our lives.
What do you mean by that?
Yeah?
Oh, by communicating the discipline that they practiced. They shared why they were doing what they're doing all these years in the writing, in the annual meetings, sitting there and taking questions for six hours, all the way up way up into their nineties it's like a gold mine of wisdom. I used to get irritated because I kind of wish they would restrict the questions to better questions, because as the years went by, there were a lot of goofy questions that came up.
Because sometimes they got some goofy answers, which were fun.
Yeah, but here was this incredible resource, right Charlie Munger was the Solomon of our era. He was the wisest man in the investment business.
He was the what he was.
A cal Tech grad, Harvard law educated, started a law firm in Los Angeles, had a successful career in real estate, successful career in making common stock choices, and a right hand guide to the most successful investment selector and asset allocator of all time. I mean he is, he is. You know, we just admired him so much. And then, of course we admired him immensely because he'd say exactly what he was thinking and didn't really care very much bill who he might offended the process.
You mentioned that you've been doing this for over forty years. What are some lessons that you've incorporated from Charlie Munger over these decades into the way that you manage portfolios and you allocate assets.
Yeah, we when we're talking to people. I'm here in New York talking to some possible new customers, and we tell them when it comes to value people, we hold our winners to a fault because compounding is the eighth wonder of the world. So if you can find a business, let's just right off the top of our head, pick Occidental Petroleum, who Munger and Buffett started buying in the last year and a half or two years there entering massive free cash flow. They're paying down debt with it,
but then they're also buying backstock. So, like Buffett says, over the years, if it's a company generating high returns on equity, high free cash flow buying back their stock, he ends up owning a larger and larger and larger part of the business as the years go by. That's what he did with Coke, That's what he did in the Iraq Express, That's you know what he did with a lot of different companies. And holding your winners the
fault is a key component of alpha. As I explain to people, you buy a stock at thirty and pay cash, the worst thing happen is it goes to zero. You lose thirty points of alpha. If you buy a stock at thirty and it goes to ninety, and you sell it and goes to two ten, you lose one hundred and twenty points. And Buffett Monger taught that to people
as a powerful thing. It's it's much better to get a less spectacular company that you can hold all the way through a ten or fifteen times your money than it is a spectacular company that you might make five times in five years. But you've got to be smart enough to sell it and go to another project.
Well, and you're you're you know something. I want to ask you a little bit more too, about what what Charlie Munger was to Warren Buffett, what what he brought out? And Warren Buffett having said that, I want to bring Noah Bouhier into this because you know, Noah, it's one of those things where you think, as we're hearing from Bill, you know, these are both brilliant men, successful men, and would have been on their own, but something about them together brought out even so much more.
Yeah, I think that's a that's a critical point here. Is there the combination of talents that they they they brought to bear really was was deeply important in the evolution of Berkshire. The other thing, just just speaking as a journalist. The thing that I always found so incredibly amazing about Charlie Munger was his directness and his willingness to speak his mind, even if his opinion wasn't necessarily
a popular one. You know, as a as a as a business reporter and someone writing about investing, you always knew that Charlie was not just going to give you the piffy quote, but something that actually had some real substance behind it. And I think that's, you know, in large part what has resonated with a lot of investors
over time. I mean, people would go One of the things that's underappreciated about Charlie Munger is is that deep into his nineties, people would go to Los Angeles to hear him speak at the annual meeting of a small publishing company called The Daily Journal. This was Buffett had nothing to do with this thing. They would just go
to hear Munger alone. And I remember the first time I went to this thing, that were maybe one hundred or two hundred people, and you know, three or four years later, word had gotten out and a couple thousand were going. I mean, you have to understand Charlie Munger was respected in his own right. It wasn't you know. He's often known for his affiliation with Buffett, but he really did have his own loyal following.
To back up Noah on that, one of our favorite things is when it comes to climate change, he just said, why don't we just build a sea wall?
Right?
That was his opinion. It's like, Okay, if it's real, let's do what they did in Amsterdam and just build a sea wall in California and New York. And that's so simple and logical and less expensive. But that's Charlie Munger. It was always common sense always won. The difference between the two men is Warren. Warren wants to die without any enemies. He has more of an urge to be liked.
It's a wonderful man and he wants to be liked, whereas Charlie could care less if he's liked, right, He just he wants to share wisdom, share truth.
What was it like from the different meetings you went to and just kind of seeing them up on stage, things that kind of stood out.
For you, Well, there's hardly any better comedy routine that's ever been done, the back and forth. Of course, Munger had lots of the singers, but Buffett had plenty himself. And yeah, they played off fantastically. It was I had a next door neighbor that was four years ahead of me in school, and I had no brothers, three sisters, and he was one of four brothers. And here and
I are extremely close friends. But he's four years older than me in the same way that Munger was six or seven years older than six years older than Warren. But yet, you know, we met and we were finishing each other sentences. And that's the way these guys were. They were finishing each other sentences. They'd say the first part of the sentence and they didn't have to continue because the other guy already knew what the rest of the sentence was going to be.
It's just that kind of relationship we knew.
A boohire, I'm so glad you're with us because we've
been reading from your obituary NonStop for the last hour. Here, you know, to to Bill's point about this this idea of common sense and not you know, not always needing to be liked, you mentioned this some of his donations, and this one's this one's at the top of mind from him because it's it's relatively recent, forty five hundred person dorm on UCSB's campus, which actually got a lot of people interested in dormitory architecture who didn't think that
they would actually be interested in dormitory architecture. But you know, here Munger is trying to solve this problem of student housing, and he got a lot of blowback to this idea, and ultimately they canceled it.
What happened, Yeah, I mean, look, in his later years, Munger used these donations that he gave the universities to play architect I mean, he was deeply, deeply interested in architecture, and you know, he had some pretty unconventional ideas that I think really bothered people, and it became its own, you know, subplot, it's own right. But like you have to understand, for Munger, he was a incredibly wide, widely read person. He wasn't as narrowly interested in investing and
you know, how to make money. Obviously he spent a lot of time doing that, but he had an interest outside of it. The other thing I wanted to add, and the stakes was in a slightly different action. But like you know, for all that Munger would you know, sit up on stage and sort of act as the
skold and the curmudgeon next to Buffet. He he did have a you know, a generous heart and you know, when you talk to people who spent time with Charlie, you know he was he was a deeply nice and caring person and you know, on some level this sort of heurmudgeon stance he would take on stage and in public sometimes was was a bit of an act, but like you know, it to help them make his points.
So, Bill, how do you think about you know, Berkshire Hathaway going forward. They've obviously thought about succession and there's aug Jane and Greg Gable, But I do think about you know, Warren without Charlie, yes, and what the impact that might be.
Yeah, So Charlie and Warren have set a team together to to kind of come in. They've got two talented stock pickers in the wings. I'm guessing that this will be when when they begin to emerge at the annual meeting. Greg Abel runs the operating businesses and Todd Combs and Ted Westlers are running about thirty billion dollars other important that's who we think bought the home builders, for example, because it was smaller quantities than buff advice, and so
that will cause their emergence. But Charlie's cerbic, common sense and sensibility, there's just not going to be any replacing that talent. He was a genius in that his he he he would look at the situation and hit it only with the best logic right, each situation, regardless of who might be offended by the logic of it. So he'd quote scripture and and then he'd support abortion rights right. So but logically, you know, he was trying to solve
a problem with money. And the architecture thing just brings back to mind that he graduated from Harvard Law School and cal Tech and was an architect and and he was the most he was the renaissance.
Man, kind of different sides.
The brain. Oh, just unbelievable mixture of mental model talent, just amazing.
Uh.
He his family called him a book of with legs because he's always reading. Our podcast is called a book with legs because my son Cole is a gigantic Charlie Munger fan. And that's what that's what we call the podcast we interview authors of books, so we call it a book with legs.
And he's quoted in Noah's story Noah, we'll obviously be talking this all week and then some another thought. You know, as you were putting together Charlie's story, you know, for for Bloomberg, what jumps out for you here?
Well, I think you know, to your point of what's next for berkshirret the fundamentally bigger, different place than you know where he and Buffett started. So while you know, a mini levels manger is not replaceable, there are a lot of things that he and Buffett pioneered together that you know, there's a lot of there's a lot of that's been written, there's a lot that has been passed on based in the way that these guys did thing. And you know, again Berkshire is a huge company now
with different needs. But a lot of the ways that Munger and Buffett think about the company are you know, certainly going to live.
On right exactly that Munger said in late twenty twenty one that this was the largest financial euphori episode in his career, which was seventy five years and then at the annual meeting this year. He said, I really don't think stocks are going to do very well the next ten years. And then Buffett, I love this. Buffett chimes in, He goes, well, if I was running smaller amounts of money, I think I still think I could do really well, which was heartening to us because our five billion dollars
is smaller amounts of money. So you're like, okay, okay, we got a chance.
Priceless and thank you for coming back. Bill Smead. We've talked to you over the years. We've heard you talk about Berkshire, Warren Buffett and Charlie Munger. So great to get you Towagh and be well. Bill Smeaed of Smee Cappel Investment and of course our no Boo Hire. Read his story on Charlie Munger. It's on the terminal and at Bloomberg dot com. Noah, thank you so much at Bloomberg News. This is Bloomberg Radio.
Um bromuco.
A journal.
How about you let me drive?
Oh no, no, no, no, who's going to drive?
Honey?
Please?
I want to drive.
It's good question.
This is the drive to the Globe. Think well by Around Feldn on Bloomberg Radio.
All right, it's been in just about eighteen minutes left in today's trading session. Time for the drive to the closed bill. Smeed is in the house. He's founder in CIO at SMED Capital Management Speed Value Fund. They've got roughly four and a half billion in assets under management. Continues to be a top performer in the ninety fourth percentile based on Bloomberg data over the past five years,
with an average annual return of nearly twelve percent. The fun just a reminder, invests in some twenty five to thirty large cap US companies.
Hello.
Hello, how are you terrific? Well, it's good to have you here. Tell us about you know, I don't always love to talk macro with you because I like to get to your whole life.
Hold on, He's leaving warm weather in Arizona to come to this here in New York.
Why are you doing that?
What are you doing here?
Well?
New York is the center of the investment industry, okay, and we need to come about once every ninety days.
Well, the people that you talk to your clients, investors, what's their tone right now? What are they interested? What do they want to know about? And are they ready to put more money to work.
You know, I'm forty three years in the business, and this is one of the most bizarre chairs. We believe that we've entered the third major commodity supercycle of my time on Earth, the first one being seventy one to eighty one, the second one being the brick trade ninety nine through twenty eleven, and this is the third one.
Too many people baby boomers forming households in the sixties and seventies, with too much Vietnam War and Johnson's Great Society, indebtedness, monetized chasing too few goods, one point two billion Chinese people who had never practiced capitalism chasing too few goods. It's the brick trade. And this is now ninety two million millennials and one hundred and eighty million people under forty with eleven trillion dollars in monetized debt, chasing too few goods.
Or apart from houses that are too few and far between, what are we chasing as millennials.
Well, they just reported that house prices up again. Car prices have on up.
Our story yesterday from Reid Picker right that talked about specifically why basically Americans hate the US economy is that yep. Inflation's down over the past year, but prices are still higher than their pre pandemic levels.
In my chart deck right now, I've got the chart of inflation from nineteen sixty to nineteen eighty two. There were two big pullbacks in inflation, from six percent in nineteen seventy down to three in a recession and bear market, and then it went to like twelve and then it pulled back to five. And both of those times that it pulled back, they thought they had it licked, and then it went to fourteen before they ultimately just completely clobbered the economy.
So inflation, is it licked now?
No, it's a temper, it's a timeout. It's a resting period in between the next thank very conjuring in view. No, it's too many people with too much money chasing too few goods. More people got married last year and this year than any single year for the prior ten. You get wedding invitations all the time, the babies will start rolling, and it's necessity spending. That's what drives inflation, is too many people with too many necessities to buy, chasing too
few goods. And I've been here for a couple of days in New York, I went to Roxy's Delhi. They had one waiter waiting on twenty five people because they can't find people. The hire at twenty bucks an hour for unskilled labor. And that is a sign that we're not out of this yet. It's just it ebbs and flows. Everything ebbs and flows in the investment business. And so the oil and gas industry, which is our heaviest exposure, is ebbing right now after a nice run on the
first leg. But we matched it up with the two prior supercycles and we're tracking almost exactly.
So talk to U about your holdings. I mean, I feel like you know, we've talked to you for a few years now to say, and a lot of names stay in the portfolio. I mean, Occidental is in the petroleum, right. Is that you're thinking because of it in terms of the energy trade.
Yeah. I'm a huge Buffet fan, and for years I was following him around and stuff like American Express divorced Costco as the branded Costco credit card and the stock plummeted. That's when we bought American Express and that was that's one of his holdings. So I've been following him around for three decades, and in the last two or three years his underlings have bought the three home builders we own, Horton, Lenar, and MVR. You've loved home building, and he's followed us into Oxy'.
You're gonna get mad at me, Carroll, because I'm gonna just ask about the FED real quick. Okay, Well go ahead.
Well what's your top holding first?
Oxy?
Okay, So tell me about the Northern Institutional Treasury portfolio?
What is that?
That's just our money market fund.
Just your money market fund. How much is in there?
About three point two?
So not much? Or is that normal?
Let higher than two to three is normal? It always keep enough that we can start a position.
Meaning more percentage of your overall portfolios in cash right now three point two. So the question that I have is if indeed inflation is not under control, now, does that mean the FED is not cutting next year and they're gonna actually have to raise more because if you I mean, if you listen to FED speakers right now in the conversation, I mean convention wisdom right now, Hey, the FED read hikes are behind.
US market's pricing in four rate No, that's that's what happened in this That's exactly what happened in the seventies. The two Fed governors before Paul Volker both thought they had it licked when they got in a recession in nineteen seventy seventy one and it dropped back to three. They thought they had it locked. And then as soon as they let their foot off the neck of it,
it spiked again. And then they tightened again and it went down to five, and they couldn't get any lower than that, and then it spiked because all this time labor is going to demand more money. We're only at the beginning of labor asserting itself. See in the world tech stocks success and the economy of the last twenty twenty five years, it's been a nightmare for labor. Labor was a loser in that, and now things are going to get reversed in an inflationary environment. There's two ways
the average households can defend themselves. They can own a home which locks in their rent, and they they can negotiate for better pay. And you're starting to see unions assert themselves. And that's typical what happened in the seventies.
Also, So having said that, for publicly held companies. That sounds like it's going to be problematic, especially in terms of if you're paying more wages.
Yes, we believe that the S and P five hundred will not make money nominally over the next ten years.
Wow, So why do you want equity exposure?
Then? Oh, because during the seventies, oil and gas did great, and lots of real estate did great because if you're appreciating with inflation, right, and so home builders did great because baby boomers needed a home, and now we've got millennials that need a home, and the existing home stock won't move because if you've got a three percent mortgage, you're not going anywhere. And the homes are old now,
they're way over forty five years old on average. And we own home depot because you got to take care of them along the way. So it we're dealing with very simple economic positive forces in our portfolio while everybody else has to get Dreamland to continue. And when the history books are written, they will talk about this era that we've been going through the last four or five years as the combination of two financial euphori episodes basedly Tulips.
And the other we got to run Bill speed Wow, Sobert Bill smeaed here in studio.
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