Why Intrepid's Travis Likes Leucadia

moving more towards specific company stories. Mark Travis knows this as well as anyone President chief executive officer of Intrepid Capital Funds with nearly one billion dollars under management based

in Jacksonville, Florida, and Mark, you know I'm wondering. I was looking through some of your top picks and the one that really caught my eye was Leucadia because this firm is an interesting bet on the boutique Jeffreys, which is at the heart of trading and a lot of people think of as a bell weather for the rest of Wall Street. Since the report earlier, given the fact that we are seeing lower trading results out of some

of the banks. Does that weigh on your decision to sell or buy Lucadia, Well, Lisa, it's a great example of value lating security for us and in trepic capital. When we bought it in the high teens, it was at a discount to tangible book and as you're aware, UM Jeffreys is a material part of that of it, and it had been knocked down by fixed income trading at Jeffreys and UM also National Beef. The spreads were tight between UM, you know, cost of cattle and what

they could sell them for. That's since widened out, and and UM Jeffreys is also reported improved fixed income trading UM. So you know we've done well in the time we've had it. I've followed Lukatia frankly since it was run by UM Mr Cummings and Steinberg back in the day. And it's really a kind of as some people refer to as a mini Berkshire Hathaway, which I've also been a shareholder, fortunately for a long period of time. So UM they used to own a winery too, I believe,

and you used to get a discount. I believe you were a stockholder. I mean, if the more you appeel the onion PIM, the more you find it. Lucadia owns um as. You know, it's got oil and gas, it's got timber, it's got auto dealerships, It's got you know, on and on. So UM, I think in a in a world where there's very few miss priced securities, I think it's not unreasonably priced, even at this point in

the you know, twenty six or seven dollar range. And um, you know, I think if if Mr Hadler continues to work as magic at Jeffreys, I think we'll improved share price, not to mention the other subcomponent parts, it will hopefully do well in addition to that. So Mark, I want to ask you about one particular company that you want

to focus on. This is Sintel. And the reason I want to do this is because I don't know whether you've obviously I'm sure paid attention to the back and forth between financial technology and the ability to test certain systems and so on. They've got a big market in banking capital markets as well as cards and payments. I also note that there's the new chief executive coming into Bank of New York, Mellon, who was formerly the chief executive at Visa. So these kinds of industries are no

longer strictly banks or or strictly payment systems. What if you could talk about sintell and how that caught your attention. Well, I think that there are three biggest customers are m X, State Street, and UM that acts and the way we became involved, I believe of him is a pre announced

revenue decline. They pre announced maybe fifty million dollars off the top, and it knocked the shares down, But I think it was really driven by costco firing m X and MX pulling back the throttle on discretionary I T spending. UM management has bought a big sluck of slug of shares. They owned a significant part of it already. I think the h one Visa issue with Trump now and the executive office is somewhat of a problematic for them, and UM some of the other parts of the you know,

technology space. UM uh, there's concerned that they haven't adapted to social media and whatever. But in the verticals where they are, I think they have very good margins, a lot of free cash flow, and UM, you know that's that's the position we're comfortable to wait until that cash bubbles forth and you get a price in the mid twenties versus six seventeen dollars today. Mark what's your time horizon when you're investing forever? All right? I wish we

all had forever? No, this is important because I feel like right now people are saying things are very highly valued. Perhaps they are, but you can't invest in nothing if your time horizons forever. Well. Our our premise, Lisa and Intrepid Capital Funds has always been somewhat different, as Pim can not has head or shake his head one way

or the other. But our our premises we want to find a material discount to a private market value using pretty high discount rates in our cash flow, and or we want to do an asset valuation break up again not making aggressive of assumptions about the current market values, and can we find a discount and if we can't find one, will default to cash. So the analogy I use for people is when prices are high, cash is high. When prices are low, cash is low. Alright, So how

high is your cash holding right now? It's about how is that compared to say a year ago. Well, I've had some inflows, I've had some bonds uh old and I've had some securities bought out. Um it's higher though, I'm guessing it's six eight percent higher than it was this time last year. And how is the distribution between bonds and stocks changed? Stocks have come down, bonds have held about the same. Really, is it? Is it government

or is it? It's always been kind of crossover paper alright, to like the double and triple B kind of Yeah, we dig around. The most interesting piece of paper on right now is a Primaro mining convert um. It trades about fifty eight since on the dollar. They have a single mind in Mexico and the Mexicans going strike until their wives tell them they have to go back to work and then the bondle rally and or whatever happens to goal prices. What's the biggest challenge right now to

get people interested in stocks? We keep hearing about e t FS, index funds, low cost so on. People still interested in actual companies, like investing in businesses. You know, it's interesting and you mentioned that PIM we helped sponsor,

in fact, we sponsor Bloomberg machine. At the University of North Florida, they have what they call the Osprey investment group, and I go every year and listen to these kids talk and they talk about the portfolio, and basically they bring him in in September October and they manage the money until April May and then they report he did air quotes, go on. Manage the money, yeah, and they you know, but it's a very trading centric philosophy and a lot of e t f s and what have you.

And I made a comment to somebody recently, I said, I think they're probably bright kids, but I'd have to detrain them before they could work for me. So I wish it was a free lunch in the capital markets. I haven't been able to find one, and I don't think e t s are not necessarily a free lunch. Um. I want to find a good business at a good price and hang onto it as long as I can. I want of thanks very much for coming in and

spending time with us. As always, Mark Travisy is the president chief executive of Intrepid Capital, based in Jacksonville, Florida. I want to turn our attention now to a topic of private equity and joining us as Eric Hershey is the vice chairman and the head of Strategic initiatives for Hamilton's Lane assets under management about forty billion dollars based in Philadelphia, Eric, thank you for being with us here in the studio. I just want to cast your mind

back to March one of this year. There were two I p O s that kind of priced on the same day. Right. One was Hamilton's Lane and the other was Snap. The shares of Hamilton's Lane are up thirty nine percent since the I p O and the shares of Snap are down twelve How did you guys do this? Well? I think this certly shows the interest in the alternative side, that it's perhaps not as disappearing as an asset classes

as I think perhaps other businesses. But it was funny we were kind of watching them along the way, and businesses have nothing to do with each other, and yet we were being kind of compared all the time because it's where investors same day. Well, I have to wonder, you know, last night Cowper's Board California Pension, the biggest pension plan public pension in the country, said that it was exploring direct investing in order to get around paying

private equity firm such high fees. Uh. Do you hear a lot about investors, clients hoping to reduce their fees, and do you expect this to be an ongoing pressure? I think, Look, we live in a world where everyone wants to get more for less, and it's whether it's in the restaurant business, or whether it's in the investment business, whether it's in the retail space. Every client consumer is focused on trying to get the most value for their dollar.

And the pension funds are not any different. Nobody loves to pay fees. But you gotta step back and ask the question of just because you don't like to pay fees, can you actually replicate the returns yourself with the resources you have at your disposal. That I think is the dilemma. I think we see it. We certainly hear a lot of institutions talking about trying to bypass this and bypass that.

But then you sort of nod and say, okay, well what does that mean for your own infrastructure, your own resources, and can you actually attract and get the people necessary to generate the performance that you're seeing across the asset class? Eric, you're recently closed a fund. This is the Hamilton Lanes Strategic Opportunities Fund designed to target private credit investments around the globe. Just tell us quickly about the fund and how much you raised and what was the target. Maybe

that tells people something about demand. Yeah, so we raised a significant amount over the target. And I think what it reflects is the fact that private credit is really the booming part of our overall industry. I think when you see as a kind of a yield starved overall environment, you're seeing investors just rapidly you kind of redeploy public fixed income assets into private fixed income assets, and so the market on the private side much more inefficient. Frankly,

it's growing in scale. A lot of the practitioners the banks have been kind of knocked out of the business, and so you're seeing more of the kind of the private market GPS kind of stepping in to fill that void. And so again, returns have been very good. The spreads against the public market have been very, very wide, and you're seeing people who are happy to trade liquidity today for higher returns, and I think that's been a real shift. So the investment grade corporate on market in the US

is about five point nine trillion dollars. The high yield public I'm talking about is one point three trillion dollars. How big in context? Just putting that into context, how big is this private debt market and how big has it grown? So it's tiny in context of that tiny, just like the entire private markets are tiny. We're looking

at fundraising statistics last year and total dollars deployed. If you look at the total dollars invested across the entire private equity landscape, it wasn't enough money deployed last year to go buy Apple. I mean, that's the thing that I think when you step back and put it in context of the private markets are small in any metric in comparison to the public markets, but they're growing. But they're growing, and there's a lot of money chasing them.

How concerned are you about these UH securities becoming overvalued at this point? Yeah? So I think the private markets have gotten expensive like the rest of the markets have gotten expensive. I think if you put the private markets in context of the public side, there you actually see that the private is still trading at a material discount to the public markets, and it should. Again a real lack of liquidity, and so again investors are kind of

weighing that. I go back to my earlier comment. I think one of the things that's changing so much among the institutional investors how they think and value and price liquidity. I think, going into the financial crisis, most of them frankly overvalued liquidity. I think coming out of this, many of them are beginning to shift and say, we're pension We're gonna be around for decades, if not hundreds of years.

We can probably start to take the chan ants of putting a lot more assets in an ill liquid bucket and take the better longer term returns for that. So the pendulum is swinging back to h accepting a liquidity. Eric Hush, thank you so much for joining us. Eric Kush's vice chairman and head of strategic Initiatives at Hamilton Lane,

which oversees about forty billion dollars and it's based in Philadelphia. Well, Netflix shares are soaring, everyone's back in love with this video streaming service, and yet that cash burn just always is amazing. To Shara Ovid, who joins us now. Shara Ovida is a Bloomberg gad Fly columnist who has been talking a lot about this over the past two days, and I've been participating, so I thought, why don't we just talk to each other. Let's talk to each other.

We need Yeah, we have the same conversation over and over again, Shira. So what's going on here and why are stock investors dismissing the fact that this company just can't seem to make money? Well, look, everything is a trade off right in in how you run a company. And Netflix has made a concerted strategy to try to grow its subscriber base as quickly as it possibly can in the US and outside, and as a result of that, it is hemorrhaging cash that haven't been free cash flow

positive for three years. In the last twelve months, the free cash flow is negative two point one billion dollars, which, as I pointed out in my Gatfly column yesterday's bigger than the negative free cash flow at Tesla, which is sort of notorious for burning cash like there's no tomorrow. Sure,

you know we've heard this kind of story before. When you talk about subscriber growth, my mind turns back to a O L and the idea that every month you would wait for those subscriber numbers, and if they were positive or exceeded estimates, then stock moved higher, if not lower, and then eventually of course you sell the company to Time Warner. Uh. This has got a market cap of about seventy eight billion dollars, which I think equals maybe

what cash Apple has on its balance sheet. This is sticky money, though, this is different than this is like its own cable system, isn't it. Yeah, it's pretty sticky. I mean, look, you can. Yeah, it's not very expensive at least if you you know, for most households in the US, that's not very expensive. And it is pretty sticky. Although you can cancel Netflix at any time, right, It's it's not exactly a good luck trying to do that

if you've got a family, Yes, exactly. I mean, look, the fact is that a lot of Netflix subscribers really like it and feel like they get a lot of value out of that ten bucks a month. Well, they got all the content to they get. The House of Cards. Aren't just the new black, right, I mean, these are all hit programs that you're not going to watch anywhere else I'm not. I mean, look, Netflix has a hunt more than a hundred million subscribers globally, in fifty million

in the United States. That's roughly half of the households in the United States. With the broadband internet access. So by any measure, what they have done to build this company is incredibly impressive. They've changed the nature of entertainment. So, uh, you know, him was saying that they have a market cap of about seventy eight billion dollars, which makes them

a very expensive takeover target if someone were interested in that. However, you do have to wonder if a conglomerate like Amazon that has perhaps broader distribution and more diversified streams of revenue might do well to own a company like this rather than trying to go it alone and compete in the content game. Is there any talk of that? Over the years, Netflix has definitely been the subject of takeover speculation, rumors,

wish for thinking whatever you want to call it. A Disney and Apple or among the companies that are often

mentioned as potential acquirers of Netflix. But yeah, it is a billion dollar plus company, so with a takeover premium, that's a hundred billion dollars even for Apple, that's a very large acquisition, so it's no easy feet And also, look, if you look at Amazon, that's a company that has sort of built a mini Netflix on its own without having to buy Netflix, and um, Apple and Facebook both have uh web video ambitions of their own that they're doing in how so, it's not impossible to sort of

replicate Netflix or get close to replicating Netflix without buying Netflix. So Netflix expects to keep burning cash. What could they do that would change your mind about how damaging our not? Uh? Well, I I guess sustained subscriber growth would be helpful. And at some point, right and I don't know when that is, UM, they're gonna have to start showing that operating leverage right that where that that switch flips and they start they

go from burning cash to generating cash. But until I see that actually happening, I think it's just worthwhile to keep reminding people this is not a strategy without risks. And if you look at the stock market, it's pricing in that Netflix is going to be totally fine. And I'm just saying, look, this is a this is a risky strategy where they're burning cash in order to grow and maybe that'll turn out great or maybe it won't.

I want to thank you very much, Sharra Overday Bloomberg Gadfly columnists when it comes to all things technology and uh, I encourage you to read her latest column at Bloomberg dot com. All right, let's visit them with our congressional reporter, Laura lit Then she joins us from Washington, and Laura, thanks very much for being with us. A long night or a short night for Senate Republicans, Well, last night was the long night for reporters trying to cover them.

But I don't expect tonight will be a late night now. I think they're trying to regroup. And the first thing that will happen today in the big moment, will be when Senate Republicans have a caucus meeting at two pm and try to figure out what they're going to do next. And um, yeah, you know there's gonna be a lot of feedback from McConnell from his rank and file. I'm sure that there will be. I mean, this is a

huge loss for him. This is really this is the first time ever that he's the leader of the Republicans while they're in a majority. And how much does this set back his agenda? It potentially causes some loss of momentum for other issues they really have in the Senate other than confirming Neil Gorssh which was an a plus

accomplishment for the Republicans of our President Trump. They have largely been simply doing confirmations of agencies and assistant secretaries and all kinds of positions after they moved from the cabinet and have not really been moving very much in policy wise. And this is a this is what they spent half a year on in the House, in the Senate. Uh And now they're going to have to try to see if they have lost momentum on other issues like the spending bills for next fiscal year, where they will

need some bipartisan support. It might give Democrats a little more edge and those kind of talks over agency funding. And there's also an effort by the Republicans to push through a big overhaul of the tax code. Now, is there some procedural issues that are affected by the fact that this does not look like it will pass Because I understand that the president has sixty days from the time that he takes office. I believe in order to let's say, undo legislation or executive orders that were passed

by a previous administration. That's not unusual. Well, that that time period, if you're talking about the Congressional Review Act, that that time perade passed us in May. That's what I mean. In other words, now they're going to have to put something together. Yes, and this is UH, you know, turning away from the regulatory agenda which that related to UM. They what will happen with healthcare is this vote is

likely to UM to fail. To the vote they're going to turn to now as an alternative, which is simply to repeal Obamacare and then replace it in two years. And then what we end to pay will happen with healthcare is that we will move into kind of like bipartisan mode, UH with Democrats to talk about things like hasse sharing, subsidies for insurers on the Obamacare exchanges, and other things that can get support in both parties. Laura,

how did this develop so quickly? Because there was a lot of back and forth and a lot of game playing and moving the needle in different directions, and and UH, Mitch McConnell had quite a bit of money he could kind of play with trying to get UH senators on board with him. And then all of a sudden overnight boom to senators parted way together with McConnell giving him UH to making it two votes short. Of the majority that he needed to pass this bill. How did this

develop so quickly? It was a big surprise. In fact, the President had just finished a meeting, probably about an hour before the two senators Mike Lee and Um Jerry Moran came out against the bill. Uh. He was meeting to talk with seven senators, including two members of the leadership, about strategy on the bill and about a path forward.

Lindsey Graham had just told me and other reporters that he got off a cell phone with John McCain UM heading into a Senate vote where McCain, whose surgery had had deprived McConnell of the votes to proceed right away over the weekend. H McCain was telling Graham. He said that he was just itching to get back to Washington

and be back here next week to resume things. No one was really expecting this, and what happened with the two senators they announced right at the same time, and it had the feeling of what we would call a pairing where the two of them had need to do this, then neither of them had to be the bad guy who is the final death Knell and Um big surprise enough so that at Bloomberg. We have people who monitor

social media. We had someone in Sydney, Australia who is on duty who noticed their pair of tweets go out at the same time and alerted us right away, and we were uh writing stories for many hours after that. Now, in the in the prospect of just repealing the Affordable Care Act, what happens to it, Well, what what will happen is they will fail to get the votes to repeal it. We'll widely expected only a small number will get the votes, so that after all this, they're not

even going to get some kind of uh pyr pyrate victory. Uh, it would appear on that front. No, Uh, we don't expect something to pass in the Senate. Uh. Paul Ryan, I think if he put a vote like that to the House, there's some question. Maybe something like that could go through, but it will it will effectively die. I believe after this voted, let's everybody be on record, um, and then they will move on to something else, which will be something that might get some more democratic support.

Laura Livin, thank you so much for joining us, and I hope you get some sleep tonight. Laura Litvin, Congressional reporter for Bloomberg who has been hard at work of burning the midnight oil to follow the quickly developing uh, I mean demise of this bill. Truly UH surprising. I woke up and was not um, I was not expecting this. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio