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On this episode of On The Tape Guy Adami and Danny Moses discuss SBF’s $250 million bail and David Teper’s bearish outlook going into 2023 (5:15). The Bank of Japan shook markets on Tuesday, what do we make of the dollar/yen trade (8:40)? Central bankers continue to take action, should we be buying gold as a hedge (10:30)? Micron will cut 10% of its workforce due to a lack of demand for computer chips, will the tech downturn leak into 2024 (14:15)? The Tesla sell-off continues, could we see a Friday Night Dirty? (19:35). CarMax is putting a hold on stock buy backs, citing a “used-vehicle recession” (24:45). The OG meme stock AMC is ticking off its loyal apes by attempting to raise capital and complete a reverse stock split (27:30). Danny dishes out his picks for Week 16 in the NFL (31:25). After the break, Guy & Dan interview Michael Mauboussin about his experience on Wall Street and how much it has evolved since his career began (37:00). Micheal also discusses his role at Columbia University, how does he blend academic knowledge with “street” knowledge (48:00). Michael gives us insight into what makes financial media so bad at predicting market futures (53:30). It wouldn’t be an episode of On The Tape if we didn’t discuss the Federal Reserve and interest rates (1:03:15). We wrap with a lesson on how to keep your convictions in check (1:09:00).

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Show Transcript:

Guy Adami: [00:01:21] In the summer of 1976. I was 12 years old. We go to the movies with my grandmother and we begged her to take us to a movie that was coming out because it was about Little League and all those things. And I will tell you, when we went and saw it, I laughed my stones off and we’re going to talk about the movie and why that’s relevant. But by the way, you’re listening to the I’m a Tape podcast. I’m Guy Adami. I’m always joined by the extraordinarily handsome Danny Moses and Dan Nathan. Dan will join us later for a conversation with the great Mike Mauboussin and I encourage you all to listen. Mike is an absolute legend in our business, but before we get to him, Danny, how are you? [00:02:04][42.6]

Danny Moses: [00:02:04] I’m good, buddy. How are you doing? How was your birthday? [00:02:06][1.3]

Guy Adami: [00:02:06] 59 December 18th. As you’ve mentioned a number of times, I share a birthday with the great Keith Richards, who’s obviously quite older than I. He’s 20 years older, but Brad Pitt is the same day. I believe that Steven Spielberg is on the 18th, Christina Aguilera. It is a laundry list of luminaries on December 18th. [00:02:26][20.2]

Danny Moses: [00:02:27] Wow look forward to next year’s celebration. [00:02:28][1.3]

Guy Adami: [00:02:30] 60. [00:02:30][0.0]

Danny Moses: [00:02:30] Yeah, we’ll get there. You’ll get there [00:02:31][1.0]

Guy Adami: [00:02:32] By the way, I mentioned in 1976 and the movie, of course, is The Bad News Bears. And there’s going to be a rhyme to my reason. So just bear with me here, Danny. The movie is fantastic. Obviously, the great Walter Matthau as butter maker. You obviously have Tatum O’Neal as Amanda Wurlitzer, the great Jackie Earle Haley as Kelly Leak, and then some other dignitaries as well. It was a great movie, but I mention the movie because the absurdities of it. But one of the absurdities is they need to get the team sponsored and all the good sponsors were gone. So Walter Matthau decides to go and get a company called Chico’s Bail Bonds to sponsor the team. And that’s the great line right there in the back of their jerseys, it’s Chico’s bail bond. So you say to yourself, what is Guy talking about? Well, here on this Thursday, as we’re talking, it was announced that the guy SBF 50 guy. Yeah, $250 million bond. I don’t think that’s ever happened in the history of the world Danny Moses. [00:03:37][64.8]

Danny Moses: [00:03:37] So one of my best friends is Ira Judelson. He’s a bail bondsman. He’s done Dominique Strauss-Kahn That’s a whole nother story. When we started our podcast was really based upon that. That was a local kind of state, city crime, so not on the federal level. Harvey Weinstein same type thing. Those wonderful people are who he normally bails out. So this is in federal jurisdiction. There is no, quote, bail bondsman that comes out. It’s bail. So I called him today when I saw the news and I said, Ira, explain this to me. I go, first of all, he doesn’t have $250 million. He goes, All right. So when it’s federal, normally you got to put up 10% of whatever that number is. So it’s probably 25 million. I go, Ira, his parents don’t have 25 million. He goes, Well, technically, they’re not named as conspirators yet in the process. So this was probably prearranged when he left the Bahamas, agreed to come to New York, knowing that he was going to be able to go to California to home and be able to leave to see a psychiatrist, to work out, because as you can tell from his image, he is big into working out and if you can tell from his physique. But also in there, there was some other unnamed person that cosigned. So I don’t know what’s going on, but the fact that he’s out and he’s probably on his way to California as we speak, I think he’s appearing tomorrow morning already in a California court. So, yes, he is out on $250 million bail, but he probably put up 25 million to get there. And I’m sure a lot of people are going to very upset that this guy’s even seeing the light of day. [00:04:51][73.9]

Guy Adami: [00:04:51] He’s going to California with an aching in his heart for you Led Zeppelin fans, out of their light of day, of course, is a song that Bruce Springsteen did and the great Joan Jett did as well. I’m sure there are other people that covered that, but I saw that headline and immediately, for some reason I thought of you. I think of you often as you know. But I also thought of this movie, by the way. I think like most now 59 year old, I had a huge Tatum O’Neal crush back in the day, and she won an Academy Award, I believe, for her portrayal in the movie Paper Moon with her father, the great Ryan O’Neal. Now I’m going down a rabbit hole. See, if Dan Nathan were here, he would be cutting me off. Never allow any of this. [00:05:30][38.4]

Danny Moses: [00:05:30] Never allow it in. So he is going to have an ankle bracelet so he’s allowed to leave. [00:05:33][3.0]

Guy Adami: [00:05:33] Dan or SBF 40. [00:05:35][1.3]

Danny Moses: [00:05:35] SBF 40 is going to be wearing an ankle bracelet. [00:05:37][1.9]

Guy Adami: [00:05:38] So, yeah, well, they got a fine one big enough to get around his ankle. He’s a little he’s a rotund little man, but we’ll see. So that’s the headline of the day. But the story that really caught me, it wasn’t really a story. It was an interview. Again, we’re taping this on Thursday. And this morning I was watching the network as this might want to do. And David Tepper was on it was probably on for about a half an hour. And Danny, I know you know this, but I’ve been bringing up David Tepper for quite some time. And one of the things that I’ve said and I know you echo this, you know, David would come on when the Federal Reserve was lowering rates, adding liquidity to the system, and it would come on television and say, listen, I’m not that smart. He’s very self-deprecating. But when you’re in this environment of easy money and low rates. If you’re bearish equities in this environment, you are fighting the Fed and I’m bullish and I’m long and that simplicity would make me crazy, but it proved to be correct. So one of the things that I know you’ve been saying and I’ve been saying since November of last year, that if you believe David Tepper on that front, in other words, if you’re bearish in a liquidity fueled market, you’re fighting the Fed. The same should be true on the other side. So when the Fed is taking away liquidity and raising rates. If you’re bullish in this environment, you’re fighting the Fed. And he said exactly that today. He also talked about, Danny, that in this environment, what are S&P earnings going to be and what’s the right multiple? And he actually said post the financial crisis and I didn’t realize this, but the multiple of the S&P went down to about 11 or so and he didn’t suggest that was getting there. My point is, all the things that he said for me at least galvanized in a certain way, a lot of the things that you and I have been saying and obviously today, this Thursday, the markets, I think, behaving in large part due to some of the things that he said, but also the inevitability of what’s going on. Danny. [00:07:27][108.9]

Danny Moses: [00:07:27] Listen, there’s an acronym KISS, right? Keep it simple, stupid. I mean, and Tepper kind of describes that. He’s like, don’t overthink this. You don’t fight the Fed on the way in. You don’t fight the Fed on the way out. So I think he says it in a way that’s a common sense. Obviously, a lot goes into that. He’s not just like you said, he’s looking at PE multiples, he’s looking at rates, and he’s probably seeing and sensing a lot of stocks struggling. Investors struggling to set up for next year is not pretty. So I wish I listen to more on kind of the don’t fight the Fed when they were printing an easing because you want to believe the fundamentals matter. But just keep in mind how much more fundamentals matter. We’re going to talk about some stocks today that are suffering from that. Obviously, when the tide is going out and when the Fed is pulling liquidity, it’s really that simple. He’s been around the block. He’s traded many types of markets, bull bear flat neutral, like whatever it might be. So he’s seen a lot. So you got to respect it. And when he goes on, he does it go on to be allowed to make those calls. So when he does, people should listen. [00:08:18][51.1]

Guy Adami: [00:08:19] And I think to a large extent, people were listening because I watched Twitter all day and I know a lot of people were commenting, but you always say something interesting. But you’re right, fundamentals clearly don’t matter in a time when liquidity is great, rates are low, nobody seems to care. But you’re right, the spotlight on valuation glares extraordinarily bright in the environment that we find ourselves in. And that’s the reason that a lot of the short ideas that you have really playing out right before our very eyes and we will talk about Tesla in a little while, but now when people are focused on valuation, it’s not coincidental, Danny, that so many of the stocks that we talk about and to a large extent the broader market all topped out around November or December of last year when this Fed finally did the right thing. And then, oh, by the way, which is my want to say, the fact that the Bank of Japan made the move that they made this week and now people aren’t making a big deal. But personally, I think it’s a huge deal. Bank of Japan, if you remember, a few months ago or so, they intervened in their currency. We hadn’t seen that in quite some time. But the move in rates that we just saw, that move that they just made is effectively another way to intervene in their currency. They’re clearly concerned about a weaker yen. And I got to tell you something, dollar yen was sort of on autopilot to the upside dollar strength and weakness. So something went on over there that they are concerned about. And I think we should be taking more notice. What are your thoughts on that? [00:09:47][87.8]

Danny Moses: [00:09:47] Yeah, I guess a widen the band of where the let the ten year trade over there and it’s currently hanging around about 39 basis points or 0.39% for those people out there. And it was kind of down between 0 and .25 and now its .25 to .5. They need to kind of protect the yen, obviously, to a degree, they need to do something. And I felt like they thought that just spending money, obviously, maybe selling U.S. Treasuries is what they were doing. Obviously, to strengthen the yen. This may be a more effective message, the way to send it this way. And so it’s effectively the same thing as they had been doing. But to actually change that policy and do a 180, from what they were just saying three or four months ago or five months ago, I think shocked the market. But I think it kind of came and went a little bit in the scheme of things, that is not a huge deal, but it is a big deal Guy I won’t go into it on this call, but this Japanese, this carry trade has been going on for years, kind of the dollar yen trade that has been a source for a lot of bullishness and a lot of leverage in the system was kind of shaken a little bit. And so, again, another central bank doing something that’s prudent. We talked about when the BOE had to do what they had to do. These are first world central banks. When they take this action, it’s now rattling the markets a little bit. And that tells you, I think, or portends an unshaken ground here going into next year for certain. [00:10:56][68.3]

Guy Adami: [00:10:56] That’s exactly right. You know, again, I’m glad you said that these are not developing nations. These are not third world countries. These are developed economies where central banks, again, I’m going to use this expression, I’m sure people would push back. But to a certain extent, they’re pushing the panic button we saw with the Bank of England, Bank of Japan prior to a certain extent, we’ve seen it with the Bank of China, but this move in rates is interesting. And I will tell you, although it’s not trading in kind today, I believe and you talked about it with me the other day over text message that the gold market seemingly is about to take off. And the chart, I think the technicals look really good, but the fundamentals that have been in place for quite some time, Danny, are still in place, in my opinion. [00:11:42][45.7]

Danny Moses: [00:11:43] Yeah. Let me close the book on the yen. I’m looking at it right now. It’s 132. It has strengthened a lot. I mean, that was up near the 150 level when they were intervening. So it’s working near-term right now. As it relates to gold. Let’s be clear. Crypto in its climax took a lot of thunder away from the gold trade. Right. If you think of gold kind of as a $10 trillion asset, I don’t know where it is right now around that level. Crypto had worked its way towards 3 trillion, right? So it stole some of its thunder. That was one. Two obviously a debasement of the dollar prior to the Fed raising rates was the whole idea again behind crypto and gold did benefit from that early on prior to the rate hike. So now where are we? Clearly the economy is slowing globally. Clearly the Fed is on the in the ninth inning, hopefully the bottom of the ninth in terms of raising rates. And at the same time, because we have a slowing economy, what asset are you going to kind of go into to kind of hide and remember people gold underperforms when rates move up or the Fed is raising because gold doesn’t, quote, yield anything. But I believe that for the first time in a very, very long time, every kind of stars aligned here and the risk reward. Yeah, it may be dead money, it may not be sexy, but you’re going to want to be there when gold does make its move because it factors in geopolitical risk. It factors in the Fed’s even hinting that they’re going to not only are going to stop that they may cut in the future. And I believe gold is headed well north of 2000. This is fun without Dan on talking about gold because you can’t say anything on the back end. But I think Guy is setting up the best setup that it’s had in a long time. And I think the worst you’re really looking at here is dead money and you want to be on that train when that thing goes because it will go quickly. [00:13:13][90.4]

Guy Adami: [00:13:14] And I think there’s an instrument that you’ve talked about before that you can get long that would illustrate or sort of talk about and enhance that strategy. I don’t think it’s nugget NUGT what is [00:13:25][11.3]

Danny Moses: [00:13:26] Well that’s if you really want I mean I do want a little bit of that. So just for full disclosure, that’s a 2X gold miner ETF, which is kind of, PHYS I would think the safest it’s been the most stable. It tracks gold, obviously. GLD does. Well, remember, GLD, you want an ETF that you want to think believes that it owns all that underlying it doesn’t physical gold the Sprott Securities PHYS which has all the physical supposedly backing it. So I like that. But again, if you really want to go hog wild, you got a lot of these ETFs out there, JNUG NUGT GDXJ, gold miners, but be in something because I really think it’s going to benefit to the upside. [00:14:00][34.4]

Guy Adami: [00:14:01] Yeah, I agree with you as well. And it’s interesting, we can do an entire series of podcasts on the GLD, the gold ETF, and I don’t want to make people’s eyes glaze over. And we’re going to get out of this in a second. But I’ve said this and I actually believe it. I could see a scenario where if the gold market works the way I think it should or could gold, the physical metal price would go up and GLD could actually go lower. And I know people are going to be scratching their head, but I think the gold is a flawed instrument. So as good as it was for the gold market when it initially came out, I think to a large extent it’s held it back. And if gold does work the way I think it will, watch what’s going to happen. I think it’s going to be really fascinating anyway will dovetail to the broader market because as we get towards the end of the year, you get a lot of 2023 prognostications that come out and it looks like for about 15 of the top strategists on Wall Street, Danny, the average S&P target is about 4150, 4147, to be exact. And obviously, as we sit here, that’s about 300 or so S&P handles higher, nothing that makes a difference. But again, I think it illustrates that people are still optimistic out there. I don’t think people fully realized or understand. And we’re going to talk about Micron and their lay offs. And it’s not necessarily just a micron story, but some of the headwinds these economies are facing. And again, listen to what David Tepper said today and understand that the amount that you’re willing to pay for dollar earnings goes down in a slowing environment. And I’m not looking for you to make forecasts for the S&P, but my premise says people are still optimistic. Your thoughts? [00:15:40][99.4]

Danny Moses: [00:15:41] Yeah. So, Guy, these analysts obviously prognosticate 2023. I think that’s a crazy number 4150. I don’t see us getting there. I see us breaking through this year’s lows. Listen, if you want to be bullish and you want to take what you think will be the revision to S&P estimates, let’s say the S&P earnings number, it gets down to 200 205 210 level. And you think that we’re going to trough at some point, obviously, in 2023, certainly you can have 15, 16, 17 multiple on that. I’m not even going to go that high probably. And what it’s going to be, I think the earnings will be lower and it’s going to feel much worse in the first half of the year. So I’ll be reasonable and say the S&P probably it down to the 33 – 3400 level, but it always tends to overshoot to the downside. So would it shock me if we broke 3000? No. But do I hope we inflect at some point on the Fed signals they’re going to start cutting rates and that kind of gets juices going again. But you’re talking about again, guy. I’ll say it again. This quantitative tightening is being underappreciated. You are taking out now $8 trillion is left to continue to unwind. Do they stop that at some point? There’s a real possibility that they halt quantitative tightening, but we shall see. But I expect a very rocky first half guy. [00:16:48][66.8]

Guy Adami: [00:16:49] Again, Tepper’s talking about trough valuations, 11 or 12. Again, he didn’t suggest was going there. But remember, the market has seen things like that in really weird circumstances. And I got to tell you something, the environment that we find ourselves in is anything but normal. And a lot of people, Danny, I think, feel that tech is what’s going to lead us out. And it’s interesting because Wells Fargo put out a note on the back of Micron orders, which I looked at initially and said, this is a disaster. Not only were the numbers bad, but they’re also having a huge layoff at Micron. And that does not suggest a rosy environment. When you see companies like that laying off, they’re not laying off because things are so great. And one of the things that analysts said is name is Aaron Rakers from Wells Fargo. There are a lot of people that think tech is going to lead us out. He sees the tech downturn leaking and his words not mine, leaking into 2024. And again, if that’s the case, it’s going to be very hard for the broader market to get off the mat without technology in 2023. [00:17:45][56.7]

Danny Moses: [00:17:47] The most striking quote from the CEO of Micron was, quote, This is the most severe industry imbalance in the last 13 years. Well, what a coincidence. 13 years, guy. 13 years was when QE started. Yeah. And again, I think obviously they’re doing what they can now. I think what they preannounced five times in a row or something, they kept lowering numbers here, but they’re not cutting their workforce, unfortunately, but they’re trying to right size the business. They suspended bonuses and so forth. So now at this point, after all the times where you’re trying to get it right now, they’re having their moment where they’re going to start laying people off. So that sends to me another signal that we’re going to have a prolonged slowdown and they see what’s happening. I mean, these are memory chips that are out there. This is kind of the commoditized product that’s out there in tech. They have a lot of competition that’s now currently saying the same thing. And so can a turn around. Sure, but it’s going to take a little while. And I think we talked about before, what does China, quote, reopening mean? It doesn’t mean that there’s immediate orders coming in. It doesn’t mean so they’re obviously seeing things go on their end and now they need to kind of ration their business. And so I think it spooked a lot of people today for sure. [00:18:45][58.5]

Guy Adami: [00:18:46] No question. Here’s some quotes, by the way. And again, this is not dogpile on the rabbit, but you heard what Wells Fargo said at a Credit Suisse gentleman name is Chris Caso. Quote, These are the most challenging conditions for the memory market since the financial crisis from Deutsche Bank. Micron’s results reflect an overall worsening of demand environment across most end markets, most notably data centers. Keep that in mind, folks. Data center, obviously a big thing in the chip world with weaker pricing trends. Is the primary driver to sequential revenue decline not good. Last one, I promise. From JPMorgan. In a rapidly deteriorating memory environment driven by inventory, corrections, demand weakness across nearly every end market pricing continues to be the biggest headwind. So think about that for a second. I mean, you said it when you think about Micron, a lot of things touch their world and not to get on Apple as well. But so many people think Apple’s sort of immune impervious to everything that’s going on. And right before our very eyes, since making an all time high almost a year ago, Apple is down probably now close to 30%. Again, nobody really seems to talk about it, but Apple’s not impervious either. And in this environment, a name like Apple is still expensive. So just keep that in mind, folks, because I do think all these things are really interesting. I will tell you and you are way ahead of this one. We’ve gone now 21 minutes without mentioning it, I think. But right before our very eyes yet again, Tesla stock is evaporating and seemingly making a new not 52 week low every day, multi-year low. We saw it on Thursday trading significant volume, no real bounces happening. And now a lot of people are coming to the realization, something you’ve said for a while, that even with the sell off, we’ve seen probably now close to I think 65% off its all time high. It’s still an expensive stock. And I think you would submit, Danny, that it’s actually a better short here than it might have been six months ago, which it’s completely counterintuitive, but I actually understand what you’re saying. [00:20:56][130.2]

Danny Moses: [00:20:57] Yes. So what is causing this sell off? Obviously, more sellers and buyers. The question is, are people speculating that maybe Morgan Stanley, who holds a lot of Musk shares, that he has went out, maybe margin calling him to make good on some of his Twitter credits? We don’t know that yet, but I would expect we may see a Thursday night or a spectacular Friday night dirty my favorite on about him selling more stock the. The one thing that’s scaring people the most is, like I said, when starts to trade on a fundamental basis, when it kind of gaps down from kind of this euphoric growth mode, the robotaxis and all this stuff really comes down to it. Guy you’re still looking at well north of a 300 billion company, I’ll say it again. I mean, Ford’s 45 billion, GM’s 47 billion. We run through all the math. Don’t tell me Tesla’s different. They’re going to face the same issues which are on the calendar. They have issues with economic cycles. They’ve issues with inflation. They’re not immune from any of that. But when you come out today, Tesla and offer 7500 hour discounts into year end a model three and model Y’s, when on January 1st, when the Inflation Reduction Act takes place, that’s 75% of our credit to the consumer buying it. They get it anyway. So we’re talking about a ten day difference of pulling this forward, which is should scare a lot of people. Right. And so you hear Musk complaining about the omnibus bill. You didn’t hear him complaining about the Inflation Reduction Act. Right. Which is subsidies for electric vehicles and so forth. So, again, I think it’s morphing into this fundamental story. And listen, whatever you want to believe on these adjusted earnings, if you want to call it $3, $4 annualized, what multiple are you kind of putting on that? So I think it’s a technical help. I think the discovery process and the reason I would like to talk about Carvana when I talk about companies that are better shorts that go down 40, 50, 60%, because once a bloom comes off the rose, how are you going to get new buyers other than people that are short, that are going to cover Tesla stock at some point? Those are obviously natural buyers of the stock. Who is the fundamental buyer of this on a bottom up valuation basis? I mean, again, all these investigations, I don’t want to belabor all the stuff that’s going on, but I mean, there’s no board at Twitter. There’s really no board Tesla. No one’s really going to call him out on this. So very unnerving. Obviously, if I were long, the stock would have sold it, but I’d be very upset. But again, what do you long for at this point? Because it’s going to snap back. What reason is it going to snap back? What? Because it’s going to go back and trade at a 25 PE of some. So we’re kind of caught here now. I think the proof is on the longs, not the shorts at this point. Guy, could it get a bounce? Absolutely. I mean, that’s a lot of market cap that’s left the building. And if it comes out that he has sold a ton of stock via Morgan Stanley or whatever, its come out and goes I promise you, I promise you this time I’m done. Maybe you get a lift, but the signs of desperation are out there so it’s not getting any better. [00:23:27][150.2]

Guy Adami: [00:23:27] Yeah, this is one where if you do get that bounce, if you’re playing for it, I think you sell it again. I mean, now the bulls are in the prove me zone. For a long time it was the Bears, now it’s up to the bulls and they can’t seem to really get their act together. So I think you’re right. And a lot of people, if you follow Twitter, if you watch CNBC, a lot of people coming around to the same thesis you had literally 18 or so months ago. [00:23:48][20.6]

Danny Moses: [00:23:49] The other thing guy with Tesla is obviously brand degradation, right? He is the brand. He is Tesla. And so you’re getting to a point now where maybe he’s turned some people off, maybe stirred some other consumers along, but he’s turned some people off. But I actually believe you’re going to get to the point now. Obviously, there’s a lot of competition and ev coming if you’re to watch next to each other and it’s BMW, Porsche, Tesla, three last things each other and you think to yourself I want to buy a car where I know it can be serviced, I know it’s reliable. Forget about not wanting to represent Elon Musk as you drive around. I’m not going to use that as a short thesis, but you’ve got insight and maybe people are starting to think in their head, you know what, I’m scared to buy the car because I don’t know what’s going to happen to this company. And so I think that’s another added element and that just adds fuel to the fire there. Guy. [00:24:29][39.9]

Guy Adami: [00:24:29] One thing we’re going to talk about, it’s not a stock thing necessarily, but CarMax at one point was 150 something dollar stock. As we sit here today, it’s trading either side of $57. And clearly you mentioned bloom coming off the rose. Well, it’s coming off the rose. And a lot of these companies as well. You talked about Carvana. But it’s a bigger story and it’s not, again, a stock specific story. It’s a story of what’s going on again in credit markets in basically the used car market and something you again have been on top of for quite some time. [00:25:02][32.5]

Danny Moses: [00:25:02] Yeah, this is a pretty good look into US consumer and certainly a product that people have been obsessed about, used cars we’ve talked about for the last three years. Obviously since COVID started and prices started shooting up, we knew that it would normalize. So from an inflation perspective out there, the one positive takeaway was obviously CarMax just told you that used cars we’re seeing it monthly anyway are falling off of a cliff. So great for inflation, bad for CarMax. But the one thing they did Guy not in their entire hour plus conference call that I actually listened to did they complain about the Fed. They didn’t say, oh, the Fed needs to stop. If you hear a company out there or an ETF or fund manager complaining about the Fed, I see you Cathie Wood, run and hide because you had it good. No one was complaining when the rates were zero. But guy, we won’t go down that rabbit hole. But anyway, so these guys have a lending part of their business, right, where they help facilitate people into their cars. And so rates are going up dramatically. I mean, year over year rates went up, the average cost of capital or cost of funds went up from 8.3% to kind of 9.8. You just think about that takes a lot of consumers out of play. And because it’s a wholesale business for CarMax, they’re also beholden to the banks that want to lend the money. So there are certain things they can control and certain things that they can’t. But what they can control is don’t lend too much into what they call the Tier two and Tier three consumer. Right. The more of subprime consumer cut that back they can reserve for what? They know it’s coming as far as losses, delinquencies. This company, I believe, is going out of business. So it’s nothing like that. They canceled or suspended a 2.4 or $5 billion share buyback. That was an authorization of two point. They halted it. That’s a smart thing to do. They cut their CapEx 500 million to 450 million. This is what companies need to do and this is what I’m talking about. Like if you go through this CarMax as a little bit of everything, it’s got the consumer it’s got credit, it’s got you getting a real time read and they’re making adjustments here, Guy. And some of the stocks actually recover from the lows today. It’s a great company in terms of what they do. So again, I would tell people, don’t worry about going long or short the stock, but look at it what it’s telling us. And so anyway, I think they’ll obviously get through this, but it sounds like they’re expecting things to get worse before they start to turn and get better. To me, that’s key. [00:27:03][120.9]

Guy Adami: [00:27:04] I agree with you. And again, we’re not playing stock market with that name. It’s the read through you get on the state of the consumer and what’s going on out there. And I think it’s really important you can glean a lot from these things to do an obvious segway into the movie world. Since we mentioned Bad News Bears. I don’t know if I saw it in an AMC theater back in the day, but AMC and I got to tell you something, I think we’ve all called sort of bullshit on this, and I do hope that people listen. One of the biggest concerns I had about not only AMC, but all these meme stocks, there was this misguided belief that as long as the holders of the stock held the stock and didn’t sell it somehow, by definition it couldn’t go lower. And it’s just so patently false. But people were led to believe that. And these things like Tesla are evaporating right before our very eyes. And then when you see the old reverse split, I know you probably got a bit exercised because you’re not a fan of the CEO of that firm by any stretch of the imagination. [00:28:03][59.1]

Danny Moses: [00:28:04] No I mean, he issues these a prefers a while back and says, oh, I have no plans to raise capital and don’t worry about it. You’re getting basically free shares of the AMC in the API. What does he do today? They issue $110 million in preferreds on that API security. I think it’s $0.66. So yeah, that rallied but the preferred is obviously senior now to the common and just rob Peter to pay Paul. Yes it’s a lower rate than your debt would have been. But again again pull the wool over everyone’s eyes. Adam Aron is a consummate salesman, obviously here. I mean, one thing at least he did put money in a gold miner, or maybe that’ll be his best investment that he did. But still, we can wrap a bow on this one. Not spent a lot of time on it, but shame on anyone that is still owns this. AMC to your point Guy that holds it because they believe that they don’t lose money as long as they have it. It’s just I’m just laughing. I’m upset for people. And so, again, this thing’s done. AMC, There’s no reason to own it. I really wouldn’t short it here. [00:28:54][50.5]

Guy Adami: [00:28:55] But real quick, before we go into the league where they play for pay, there are a lot of things that are still, I think, interesting out there. There’s a real debate as to the energy trade where we are. I know we had some conversations about it and I know Dan is bearish and he’s been right to be bearish in the commodity, but the equities are hanging on for dear life. Fear is there’s still hope for the energy trade in the 2023. Personally, I think there absolutely is. What are your thoughts? [00:29:22][27.8]

Danny Moses: [00:29:23] I guess my thoughts on oil Guy is we’ve had oil trade from almost down to 70 bucks back up to 80. So a lot of unknowns. I think people are trying to weigh now US consumer weakness. What does that do to demand? We had the quote, reopening in China. They obviously have a lot of COVID cases right now, so that’s not taking off like it should. We don’t know what the resolution is going to be with Russia and this price caps. Right. So unknown. I still like the energy stocks here because as we move into the first quarter from a fundamental basis, it’s still very strong for them in terms of their balance sheets and their cash flows and what they’re doing. And I think you’re going to see a ton of M&A in the energy sector throughout 2023. And to me, that type of thing always puts a bottom. I mean, if you’re an investment banker right now and obviously you’re cutting your bonuses and telling your people the one sector where people are still very busy, I think is going to be energy. So if I run an investment bank, I’m getting my energy M&A team up and running because to me they all see a lot of deals in the space then and these companies are quietly, I would call it horizontal, integrating into alternative energy. Right, wind farms and things. You’re seeing Exxon and Chevron start to make acquisitions in the space. So I think the kind of morph into these multi Strat companies, if you will, and so I’m still a buyer of these things on weakness on a relative basis. [00:30:33][69.1]

Guy Adami: [00:30:33] I agree with you. I mean, and I’ve said this and I’ll say it again, for those who haven’t heard, I think the best thing that happened to energy stocks was a number of different things when if you remember the front month crude oil, when that went to -$40, I think that was a wake up call. We’re not going to talk about the reasons why, but that was one of them. ESG was a huge I think it’s subsequently a huge tailwind for so many of these companies because they got themselves compliant. And then the Biden administration. I think the best thing that happened, a lot of these energy companies or some of the policies out of that, they’re better run companies are better capitalized companies are more disciplined companies and they’re still reasonable on valuation. So I agree with you. I think if crude wanted need to go sideways in this environment, even if the market takes a leg lower, I think these stocks can hold in. So I definitely still like the energy space. There’s also another commodity out there outside of energy that you’ve trafficked in, for lack of a better phrase, demo. [00:31:25][51.5]

Danny Moses: [00:31:26] So Guy, as we end the year here, obviously the Safe Banking Act, which would have provided banks cover and protection to lend into the cannabis sector and specifically be able to help the people that need it most get into the cannabis sector and operate your business did not pass. I could argue whose fault it is, this and the other, but the fact of matter is, is that it will pass at some point in the future. And in the long term. I believe what’s happening behind the scenes is this rescheduling effort, and that is well underway. And so, remember, cannabis is a schedule one drug right there with heroin and LSD. That means you can’t bank it. That means you can’t get tax deductions, which is 280. If this drug gets rescheduled at some point in 2023, which I believe it will, maybe to a schedule three, it does its work for you on the bank act and everything falls into place. So again, the macro is still very strong for the sector. It’s disappointing that it didn’t happen, but enough work has been done and the groundwork has been laid to hopefully get Safe Banking Act into law in 2023. But if not, I believe the rescheduling creates much more bullishness for the sector anyway. [00:32:24][58.8]

Guy Adami: [00:32:25] So I know one of the things you’ve said is you would rather be right with your Tesla bet, which you’ve been extraordinarily right on than your NFL prognostications this year. Because as we get into week 16 with three games left in the regular season, a regular season which might find my New York football Giants making the playoffs, interestingly enough, and potentially playing Tampa Bay, who with a losing record still might win their division. You, Danny Moses, find yourself now a game below 500, which is effectively, if you think about it, next year. The Mets with the team that they have, if in their first 41 games they’re 20 and 21, heads are going to roll. Well heads are rolling here on the on the tape podcast demo. [00:33:12][47.0]

Danny Moses: [00:33:13] Yeah. So shout out to Franco Harris what a sad story. He was getting honored. The 50 year anniversary of the immaculate reception by the greatest play in NFL history that sent the Steelers on not just to Super Bowl that year, but years after he was going to be honored in Pittsburgh. Didn’t hear a negative word about that guy his entire life. Very sad. So I am taking the Steelers. I was going to take them anyway over the Raiders at home. They are going to be so fired up. And if you’ve never been to a Steeler game, you don’t understand Pittsburgh fans, the greatest fans in the world, period, go to a game even when they’re playing Baltimore, they’re nice to the Baltimore fans are great people and I think they rally and they put an end to this Raiders whatever has been up and down year for them Steelers minus two and a half. The second game I’m going to take the Titans over Houston. I mean, I got to figure that it’s a must win for them. Obviously, it’s now or never. Minus three at home against Houston. Houston’s been obviously showing a lot of mettle here, keeping up with some very good teams in the last couple of weeks. But I’ll take the Titans minus three. So, Guy, there’s only two picks this week because I want to get some momentum, get back above 500 as we head towards the playoffs here, my man. [00:34:12][59.5]

Guy Adami: [00:34:13] I like what you did. I hopefully will come back next week and you’ll be a 22 and 21 Danny Moses as opposed to God even help us a 20 and a 23 Danny Moses. When we come back then and I speak with the legend, Mike Mauboussin. [00:34:28][15.3]

Guy Adami: [00:35:58] Michael Mauboussin is head of consultant research at Counterpoint Global Morgan Stanley Investment Management. Previously, he was Director of research at Blue Mountain Capital, head of Global Financial Strategies at Credit Suisse and chief investment strategist at Legg Mason Capital Management. He is also the author of three books, including More Than You Know, Finding Financial Wisdom in Unconventional Places. Named in the 100 best business books of all time by 800 CEO Reed Michael has been an adjunct professor of finance at Columbia Business School since 1993 and received the Dean’s Award for Teaching Excellence in 2019 and 2016. He is also Chairman Emeritus of the Board of Trustees of the Santa Fe Institute, a leading center for multidisciplinary research in complex system theory. Michael, welcome to on the tape. So I meet a lot of people and they always ask me about Georgetown University. And Michael knows this because I’ve said it to him a number of times but I’ll share with the audience that class of 1986 is a pretty incredible class. I mean, we have politicians, congressmen and women, couple owners of some sports teams that are minority fashion, CEOs of companies. CEO of Gilead, for example, is a class member of 1986. But I tell people all the time that one of the if not the most impressive person from our class is Michael Mauboussin. And Michael, I mean this sincerely. Your career is epic, and it’s just an honor not only knowing you, but calling you my friend. So welcome to on the tape Michael. [00:38:15][137.5]

Michael Mauboussin: [00:38:15] Thank you Guy that’s that’s over the top. [00:38:18][2.8]

Guy Adami: [00:38:19] It’s true. You know it’s true. I mean, I know you’re humble. You never get over that. You happen to know that it’s true. And I’ve been a huge fan of your work over the years. So maybe briefly tell people sort of your odyssey on Wall Street, because it’s not a typical Wall Street career. There have been so many twists and turns, all, by the way, incredibly fortuitous, as it turns out, and incredibly timely as well. [00:38:42][23.6]

Michael Mauboussin: [00:38:43] Well, thanks, Guy, and thanks, Dan. Great to be with you guys. I started guide. I don’t if you know all this. I started at Drexel Burnham in 1986. Did you know that? [00:38:51][8.1]

Guy Adami: [00:38:53] And so what’s interesting is I did as well. And you were in a different group. Obviously, I was part of Drexel trading, but we both, I think, worked at 60 Broad Street. [00:39:00][7.4]

Michael Mauboussin: [00:39:00] 60 Broad Street. So I was in a training program that was a year and a half long intensive sales training, and it was perfect for me. I was a liberal arts guy. I studied government and economics at Georgetown, six months, basically training. So remedial for me, right. Income statement, balance sheet. How did this and how did stocks work? All this kind of stuff. Then we rotated through, I think literally 20 different departments in the bank. What was fabulous about that, by the way, is if you were a young person who did not know what you wanted to do with your life, which was certainly a perfect description of me, you got to expose everything. So if you know the day you go to Options Trading desk and you’re excited, that tells you you want to be an option trader. You know, you go to investment banking, go to research. I find myself most comfortable in equity research. That job ended up being a retail financial advisory column now, but a broker basically that started in early 1988. And just to set the table right, the stock market crash of 87 happened a few months before that. Drexel got into hot water around that time. So between no one wanted to talk about the stock market and Drexel as well as it was a difficult time to be a financial advisor. I was horrible at that job and I didn’t get fired but basically got walked out the door. Right. So that’s the first lesson I tell young people is my first job I was is the training was great. I was an abject failure. But that led me into this equity research, which I find I want to do, parlayed that into some junior analyst jobs and that eventually was went to first Boston in 92 as their food analyst was very interested in stuff around valuation. So I was doing on the one hand I come in and tell people about Kellogg and General Mills and Campbell’s Soup and next minute talk about valuation. And that parlayed a job into being equity product manager for all CSFB at the time, then chief investment strategist. And then I went to the buy side to work on investment process. So basically and that’s led to where I am now, head of Consulting Research at Counterpoint Global, which is part of Morgan Stanley Investment Management thinking about investment process. So guy the way, I would probably say it for the last really 30 years, I spent almost all my my days and nights thinking about investment process. So it’s been it’s been as you said, it’s been incredible for me because I’ve had great sponsors and mentors along the way and I’ve continued to, I think, migrate toward where I am certainly happy doing what I’m doing, where I hopefully can add some other value. So it was a very nontraditional path, started with failure, but meandered into something that I really enjoy and hopefully I can add some value out there. [00:41:21][140.2]

Guy Adami: [00:41:21] Well, failures. A strong word I would submit. I think you were too cerebral for that job. I mean, and I’m not diminishing the role of financial advisors out there, but I think the more thoughtful you are, the harder that job is to sort of get your arms around. But that’s probably another conversation for another time. I’ll say this as well. There are a lot of people that think they have a book inside them, yet very few people pen such book. You’ve done a number of books. Talk to me about your prolific writing and being an author, not only an author, but an award winning author. [00:41:52][30.9]

Michael Mauboussin: [00:41:52] Yeah, I mean, I think that I’m really of the view that the two things that have been most powerful for me to consolidate my thinking have been writing and teaching. By the way, I teach at Columbia Business School, which I started doing in 1993, and I guess people would to do the math on how long we were out of college before I started doing that. And teaching is incredible. And we could talk about that for just a moment. Back up a little bit. I went to Drexel. I’m a liberal arts guy and know nothing about what’s going on. I remain very confused today, but I was especially confused when I was 22 years old. And I read this book by Al Rapaport called Creating Shareholder Value was published in 1986. So this is probably about a year after it was out, and for me it was like the two by four hitting my forehead, a complete professional epiphany. And he talked about, I guess, three things that I would say that that remained sort of the cornerstone of everything I do. One is it’s not about accounting numbers, but about cash. You guys know that very well. The second is to be thoughtful about valuation. You have to combine competitive strategy analysis with finance. Right. So you guys talk about this, for example, even on on the show, you’ll say something like, oh, this, you know, Nike’s got, you know, high multiple. Why would you justify that? And the answer is it’s got a great franchise and good return on capital sort of way or so you can justify for some business, whereas other businesses are more cyclical or low returns. You’re just not going to pay up for it. Right. And then the third thing he said was that this is aimed at corporate executives but super relevant for investors. While he said, you know, stock prices reflect speculations about the future and oh, you know, Mr. CEO, it’s really important for you to understand what the expectations are and to take actions that are in that context. So that for me was a really professional epiphany. I got to know Rappaport a little bit. So in the late 1990s, he said, Why don’t we get together and write a book about these ideas as applied to investors? That was the first book, Expectations Investing. And then from there, my editor there said, you know, we’re writing a little bit of and I was doing a lot studying the late 1980s got really into decision making stuff. My editor there said, hey, you know, I see your stuff you’re doing. Want to write a book about decision making? So I did a deep dive on that. That should be in the book, Think Twice. The last book was a book called The Success Equation. There’s one other one in the middle there. So the book called The Success Equation. And interestingly, this is like Happy Days and, you know, a spin off from Happy Days. And one of the chapters is about luck and skill. And I submit the book and it’s chapter two. And my editor says to me, Oh, this is kind of interesting, but, you know, no one’s going to care that much about it. I’ll let you keep it, but put it in the back so I’m like alright whatever. So it’s the last chapter if dies. So I publish, you know, book goes out and I send it to my buddies and people send me notes back and they go, Oh, I really like, you know, they’re being nice. I like the book and I like right. But that’s still luck stuff. Now that was really interesting. So I was like, Man, right? And Taleb had just run, just written in A Fool by randomness. So I’m like, So people know this is really important. It’s on the radar. But there really has been I’ve not seen a ton on actually documenting how you think about the contributions of luck and skill in various domains. I’d also been very inspired by Michael Lewis and Moneyball and sort of like got a little bit into the whole sabermetrics sports analytics where their whole job is predicting based on luck and skill, right? That’s what those guys do. So I learned a lot from that sports analytics community and put that together into a success equation. So these are all things that, you know, so, so and by skill luck, perfect. Great. Because if you’re a sports fan, which I am and as an athlete loved it, you’re into markets, right? Huge. And if you’re into business, understanding how businesses work. So it’s like all these things that we’re interested in. I speak all three of us are certainly in for these things like this is an incredibly important central set of concepts that we just don’t talk enough about or think enough about or doesn’t inform our decision making as much as it should. [00:45:25][213.0]

Dan Nathan: [00:45:26] Little known fact Guy enjoyed Johnny Loves Chachi more than Happy Days. So for talking about spinoffs good. Yeah, they were pretty good and I appreciated it a little bit. Also say that your writing and you do it not only just the books that you just detailed, but you’re prolific with constant. And when these things come out, they get passed around. Wall Street is like a must read. And so it’s interesting, Guy gave you a really nice introduction here and you were blushing. I think our listener can’t really see that. But in the investment community, among the people who kind of matter, your work is really important. And I’ll just say this for our listeners who are not familiar with Michael, the first 100. Okay, the first 100 to leave a review of the podcast in the Apple Podcasts or copy it, send us an email. You know how to do it. Contact@riskreversal and we will send you a copy of Michael second edition of Expectations Investing. Okay, so please do that. And that’s a must read. All right. Now, let me go back to the point that you made when you left Georgetown and you got to Drexel and you were a liberal arts guy, right? I was also that guy. I graduated in 1995 and I thought I wanted to go to Wall Street. And it’s really funny. My career was born into a mania, and you guys were kind of also in that I think in the mid to late eighties. And so it was all about gut and it was about passion and it was about instinct. And those are things that are not valued any more in the markets. I mean, we have fits and starts like we saw in late 2020 and 2021. Talk to us a little bit about that Michael call it the sorts of people that you see that are attracted to this business relative to when you came into it in the mid to late eighties or when I came into it in the mid-to-late nineties? [00:47:06][100.8]

Michael Mauboussin: [00:47:07] Yeah. I mean, I think there’s been just a tremendous transformation. I recently got together with Charley Ellis, the great Charley Ellis, Right. Who’s another prolific author, founded Greenwich Associates in 1972, a long time observer of our industry. And now I was just talking to Charley about the radical changes he’s seen in the 50 or 60 years he’s been doing this. And I think that, you know, going back to the mid 1980s, there’s just been an extraordinary change in what we do. I was actually saying this to one of our younger people and they they literally, I think, did not believe me. But when I went to Drexel, we rotated through the equity research department. The guy I was working with, you know, had computers. One of the people my training program worked with, an analyst who literally did not have a computer. 1986. Okay, literally. So the guy would do earnings estimates on a spreadsheet and I mean by paper and he would write out his notes longhand and have his assistant type it up. This is a guy in our lifetimes, right? Like our our business lifetime, which is remarkable. So, yeah, I think that we’ve just got the tools at our disposal, computing power, access to information, obviously, you know, things like rig fd ao this has to be uniformly distributed. These are all things, all things for the better. That said, Dan, I would just say that the one thing that has not changed is human nature. So we have social media. We can trade faster. We can trade cheaper. But humans are humans. That’s why reading like these classic books from even hundreds of years ago remain incredibly relevant today. Because human beings are human beings. When you put them together, interact. Those basic things come out greed, fear, so on and so forth. So notwithstanding, I do think people are much more sophisticated. We obviously can do things much better by like broadly speaking, businesses better investing is better, much more sophisticated disclosures are better. Humans are human still. And that I don’t think is going to go away any time soon. So obviously taking advantage of that is very difficult. But I think that’s one thing that remains consistent and remains consistent throughout. [00:49:03][115.8]

Guy Adami: [00:49:05] Human behavior. Behavioral analysis. Yeah. When I listen to you, when I read your tweets, when I read you, I mean it clearly. That’s a theme that continues to come out. But you mentioned earlier your time at Columbia, which I think is now 30 years, if I’m not mistaken, which is in and of itself incredible. You’ve probably had some amazing students come through. I’d love to hear some stories, but my sense is the impact on you has been profound. I’m sure you have learned so many things from your students and from teaching over the years. Can you speak to that? [00:49:38][32.8]

Michael Mauboussin: [00:49:38] Yeah, I mean, thanks, Guy. And I’m sure you probably have those same feelings as well. I was first approached to do this in 1993. So you’re right, I’ve taught it. I’ve taught this course 30 years in a row. And I thought to myself, like, this is going to be that hard. It’s going to I mean, by the way, there is no PowerPoint, right overhead slides, but I’m going to sit around, just examine myself like I’m an analyst, like what do I do all day and just tell other people about what I do all day? And so my reaction was not too hard. So then I started to sit down and write down like, What am I doing? And that’s when it struck me. Like I’m like, Why am I doing it this way? Are there other ways to do it? Are there better ways to do it? And I think that process, that journey became really, really central to informing how I think just this this imposed introspection, I guess I would say. The second thing I’ll say is I’ve always been of the belief that academics and practitioners don’t really see as much eye to eye as they probably could. What you want to do is take the best of what the academics do and avoid the bad stuff of academia. And there’s a lot of bad stuff. And what you want to do is take the best of what practitioners do and avoid the bad stuff. And there’s a lot of bad stuff, right? So I think that’s also been an opportunity for me to try to glean from both a practitioner and academic communities. Hopefully what’s what’s best. The course is broken into four parts. One, we talk about markets and market efficiency. So why do markets become inefficient? How are those opportunities presented? How hard is it to beat the market over time? Just sort of level setting people. We spend a lot of time on valuation. We spend a lot of time on competitive strategy. So what is a good business? How do we think about that? How do we be rigorous about that? And then, guy, to your point, where we started to comment was we finished with a discussion about decision making. If you said what’s new about this course over the last 30 years or what’s changed, a lot of it is is acknowledging that being skillful analytically is anti to the game. Right. Everybody’s got that. Everybody’s got the computers in the information, the smart people around them. What distinguishes the good from the great is their ability to make good decisions, especially under some sort of duress or stress. Right. And so how do you weave into your investment process? Like really build it in like almost like waypoints to make sure that you’re thinking about things properly or making proper decisions. And I think there’s some natural some people are naturally better at this than other people, but there are certainly lots of tools and techniques that we can impart and teach and learn and an embrace to become better at it. So you guys know the feeling. You walk around on college campuses, super fun just because they’re young people. There’s a lot of energy. People can complain all they want about the younger generations. And that’s I think every generation complains about the generation that follows them. That’s an age old thing. I think it’s fabulous to be with these young people. By the way, probably my most famous, the student who who’s in my class is probably most famous now is Todd Combs, who is now works with Warren Buffett at Berkshire Hathaway. Yeah, Todd is fabulous. And, you know, I encourage all my students to stay in touch with me. He was actually a guy that did that, so I’ve been in touch with him. So when he got the job at Berkshire Hathaway, I’m like, wait, is this the same guy? And so I contacted he happened to live in the same town, so we had breakfast. He told me the whole story about how it all went down was really fabulous. So that is pretty cool that, you know, Warren Buffett graduated in 1951 and for generations, people try to, you know, he Warren Buffett, by the way, I want to work with Ben Graham. He finally got that opportunity. And then many generations want to work with Warren Buffett. And Todd Combs. Happened to be a guy who was in my class who actually got to work with Warren Buffett. That’s a pretty cool like legacy and by with a course I teach a security analysis was first taught by Ben Graham and some version of in 1927. So that’s been around for a long time as well, which is super cool. [00:53:08][209.3]

Guy Adami: [00:53:08] Inner turmoil is something that I deal with and I am not suggesting, by the way, that I’m one of the enlightened people. But there’s a quote from Bertrand Russell that always just sort of resonates with me. The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people are always fold doubts. And I think one of the reasons you personally probably struggled with that career path early on at Drexel is exactly that. You’re the constant give and take, like you look at a problem and you can come up with a number of different outcomes. Yet the fanatics and the fools are immediately certain of things. You must watch our show and be like throwing things at the screen for some of the things you hear. But speak to that because I constantly, you know, I’m struggling constantly with this and I don’t consider myself all that enlightened. But you understand what I’m saying, 100%. [00:53:59][51.4]

Michael Mauboussin: [00:54:00] This is a time of year, obviously, like the strategists are rolling out through 2023 for you guys are having people on telling you about where the world’s going to go. And by the way, the most interesting people are the ones that are like super bullish or super bearish. Right. Because they’re you know, you don’t want people who are equivocal. That’s not particularly interesting viewing. But what I tell everybody, my students, my colleagues, everybody that’s around me, I’m like, the best way to think about this is you’re drawing from a distribution. The mean is something like ten or 11, then standard deviations around 20. And so if you just do basic statistics and I know not markets are not normal distribution, so it will be just basic statistics. You’re going to have a 60% probability of being up 32, down ten. That’s basically the reality of it. And then you got a 95%, probably be up 50, down 30, right. And so that’s how I would think about it. And you know, Phil Tetlock wrote a fabulous book in 2005. That should be you have to know the right to read the book, but get the basic gist of it. It’s called Expert Political Judgment. He took 400 experts, masters, PhD level people ask them to make specific predictions in economic, social and political outcomes. And then he kept track. He realized that those people are just barely better than chance right. Now, now, there are two things that were really interesting about this, and it goes right back to your question, guy. The first was he found the more media mentions a pundit had, the worse his or her predictions. So literally, the people you see most frequently on TV are the ones that typically, if you keep track of them, statistically are not. Why is that? Because if you’re a producer, you don’t want someone saying, oh, mark, it might go up, might go down. I never like what I just told you is not very fun TV viewing, right? Not not particularly inspirational. The second thing they found was it did not matter where you were on the political spectrum or what your gender was or whatever it was your way of thinking. And they distinguish between hedgehogs and foxes. Hedgehogs are those people that know one big thing. And you guys know we have them on Wall Street, the boosters or the doomsters. Right. And those people always get their 15 minutes of fame, but they’re just not great forecasters. And then the other one is the foxes. People know a little bit about a lot of different things. They tend to be they don’t they’re not wedded to views very strongly. It goes back to your Bertrand Russell thing. Right. The hedgehogs tend to be very confident. Foxes tend to be, again, much more equivocal. But foxes are consistently actually better predictors over time. I think those I think just ingesting that lesson is so important that it’s epistemic humility is the fancy word, for it is just I don’t know what’s going to happen in the world. I want to prepare myself for all the potential outcomes. By the way, I do watch your show every day. I do enjoy watching it. I don’t take it too seriously in terms of like what I’m going to do with my personal, you know, trading or doing that. But but I think it’s fun to listen to because it gives me a sense of kind of what people are thinking about what’s on people’s minds, where people might be too optimistic, where they may be too pessimistic. And by the way, it’s good for news like earnings releases, what it means, how to ingest it and all that kind of stuff. [00:56:53][173.3]

Dan Nathan: [00:56:54] Well, it’s funny, Michael, before I was ever on CNBC, I started in 2009. Guy was already, what, 26 years into it. So here I’m cable television. [00:57:05][10.6]

Michael Mauboussin: [00:57:06] You’re throwing shade on me, by the way, we’re the same age. Happy birthday. Happy birthday Guy. [00:57:12][5.3]

Guy Adami: [00:57:12] Thank you. [00:57:13][0.4]

Dan Nathan: [00:57:13] Dec 18. It’s a big day, people. I always found it really interesting for the very reasons that you’re talking about, like from a sentiment standpoint and also to see the people that are on most frequently, how convicted they are in what they’re saying and all that stuff is really interesting. I also think it’s something that, you know, Guy and I have really gotten a good feel for this is that there’s a lot of people who think of it as their sport. They don’t follow the NFL. They don’t care. They’re not part of the Bills Mafia. They’re part of the Tesla mafia or the Apple Mafia or the tech stock or whatever it is. That’s their tribe. That’s how they identify. That’s how they enjoy themselves. And it’s really funny when you think about people’s hobbies. Some people spend thousands of dollars a year kite surfing and buying equipment and travel, and then some people invest most of their money probably fairly conservatively, but they have a certain amount of money that they like to think about as a hobby. And so I think Guy and I, you know, we’ve been in the business a long time. We started that at serious places, also recognized that that, you know, again, like we can be on there and have fun and kind of give our $0.02 and but also be very serious and sometimes have conviction and sometimes literally put our hands up and be like, we don’t know. We have lots of very smart friends who do far more serious things than we do who watch it. And so we appreciate that. But here’s my question for you, Michael. You just mentioned you teach a class called Securities Analysis, and you just mentioned that Ben Graham’s book came out in 1940. Okay. So that’s like 80 years ago. And when you think about it, not much has changed since that book was out. I’m sure a lot of the stuff that you teach is examples on that, more modern day examples. Why is it that we have periods like we just had the end of 2020 and into 2021 where everybody who’s got a brain in their head knows it’s an absolute bubble. They know that everything that they’ve read about securities analysis has been thrown out the window. And how can that happen? Because usually, you know, these bubbles inflate to the biggest things that we’ve ever seen. And then not only do they overshoot to the upside, but they almost always do the opposite way to the downside. [00:59:15][121.1]

Michael Mauboussin: [00:59:15] Great question, by the way, there, the original secure analysis came out in 1934 and 1940 was the second edition. It’s considered to be the most famous edition. My understanding is there’ll be a seventh edition being put together by Seth Klarman about post for 2023, so look for that at some point next year. So Dan, it’s a great question and I think that there are a couple of things and I know this is something guys talked a ton about, but there are two things. Number one is, look, COVID was really hard. You know, it’s really hard on executives. It was really hard on investors. It was just really hard. And so, you know, I heard this guy gave this great stat. I didn’t check it, but it seems it’s so good. I’ll just repeat it. You guys said there, you know, there are 325 million Americans or whatever the. Numbers, he said. COVID increased the demand for goods by as if it was dropping 75 million Americans in new people into the economy. Just like a stunning numbers, the guy goes look supply chain for joint we forget about it like there’s no supply chain is going to be able accommodate a 75 million increase in it’s such a short period of time. Companies then had to react. Some of them just got shut down. Others just had to increase their response to this demand. And that’s going to lead to very inefficient spending right across the board. Obviously, the digital guys that were the initial beneficiaries and so forth, so hard for them. I’ll just say like, I don’t want to give anybody a pass. But COVID was really hard and we’re still working through that stuff. You know, companies you see this in technology comes over hire, they’re working through all that stuff. So that’s just the first thing. Acknowledging the second, though, is what’s happened with rates and that’s something we could probably talk about and sort of expect the returns and interest rates in general. And look, in March of 2020 was interesting. I happened to be on a call with a group that included Charlie Munger, which was cool. And Munger, you know, is a sort of legendary guy. So this is March of 2020. It’s like when it’s going down, one of the guys there had been a guy who had worked on during the financial crisis and the guy goes, Look, we had a playbook. We laid it all out. It’s all written down. And all these guys have to do. Now in the central, the Federal Reserve is open the playbook and hit execute right. And he goes now before and 08 09 07 It was difficult because there was a bad guy called Wall Street and so it was politically difficult to do all the things that they thought that they had to do to sort of heal. You know, do you really want to put out the fire when the when of the arsonist? Right. Because there’s no bad guy now. Right. It’s a virus. Right. And so there’s going to be much less reticence. So when you flood the markets, I mean, the combination of monetary and fiscal stimulus was really epic. Right. And so that’s going to almost naturally lead to distortions. Now, I’ll just mention there’s a book that came out the summer by Edward Chancellor. Do you guys know this book called The Price of Time? And Edward, you know, he wrote The Devil Take the Hindmost, which is a famous book on behavioral finance. He worked at GMO with Jeremy Grantham for a bunch of years as well. This is about the history of interest rates and what he basically argues to make a long story short, is going back again, centuries, forget about decades, centuries. It has been the case that very low imposed low rates have led to distortions in markets, booms, poor capital allocation, rise of inequality and so forth. Right. So I think that’s the other thing, Dan. And you know, when I look at 2022, here’s the way I would characterize it. I’m friends with and I’m an admirer of as what the motor and as a professor of finance at New York University, he every month publishes an estimate of the market risk premium. So you can figure out using the ten year and the market risk premium to expect a return of equities. January 1st of 2022. Right. So we’re almost lapping that now. That number was five and three quarters. Okay. So let’s just stop for a second, 5.75%. The expected inflation number, by the way, which hasn’t changed that much during the year, was a little over 2%. 2.3, 2.4 it. Right. So you’re talking about three, three and a half percent real. Historically, equity markets have been 6 to 7% real. So you’re talking about half the expected returns starting January 1st, 2022. Now, we’ve gone through, as you guys know, real rates up a lot, inflation expectations getting mostly checked, but risk premia across the board, market risk premiums up, credit spreads, triple BS, high yield. I mean, they’re off their highs, but they’re still up for the year. And now we’re back to the normal range. We’re not we’re not cheap, but we’re not egregiously overvalued either. So to me, I think, Dan, I think that’s a long winded answer to saying that those that was that was stuff that was put in by now. The other think I’ll just say we just wrote a big piece about capital allocation, about how companies spend money. One of the truest things, again, you can’t this is not true for any one company, so please don’t. It’s not for any company. You can’t make any comment. Broadly speaking, when companies issue equity, you don’t want to be on the other side of the trade. And when companies buyback stock, you don’t want to be on the side of that trade either, right? Because companies actually tend to be pretty good at buying stock when when it’s undervalued. Not always, but often in the aggregate. And by the way, it’s asymmetric. They’re better at selling. They are buying. Right. So when you saw in 2020 and 2021, it’s by 21. Like, you know, you saw the whole thing with the IPOs cranking the SPAC thing. That was a bell ringing. I mean, the SPAC thing was a bell rang partly because the economics for the sponsors and so forth, right. Those are the kinds of things where you say maybe, maybe that’s not a precursor to this deflating. But those are the things are worrisome. So inflation end up being something that got the Federal Reserve to get us and they’re determined to do it, obviously, to get us back to the more normal range. That’s a long winded answer to a really important question, but I think we are now back in that more normal channel. So if you told me at any point in my career, you know, the first 25 or 30 years of my career that we would get a ten year yield below 1%. I would have been a lot of money against that. Right. I would think that was insane. And here we are. Right. [01:04:49][333.5]

Guy Adami: [01:04:49] So let me throw this out there and give me a minute to set it up. So you both you and Dan played lacrosse, and I’ll use lacrosse as sort of my analogy or metaphor. Or if you’re a long stick defenseman, your job is effectively to stop the attackman on the other team from scoring a goal. That’s your job. That’s your mandate. When you see your attackman suck, your inclination is shit. You know what? I’m just going to try to score goal. I got to stop them from scoring and I’m going to try to score a goal on my own, and that doesn’t do anybody any good. Here’s my point again. You know, people I’m a big critic of the Federal Reserve and people will say, well, they’re handling monetary policy because on the fiscal side of things, government can’t get their ass their shit together, which is true. But, you know, if they were just do their job and don’t worry about the fiscal side, I think we’d be better off. Let me ask you this question. Is a recession by definition a bad thing? [01:05:40][51.0]

Michael Mauboussin: [01:05:41] Wait you set that up as a lacrosse question? [01:05:41][0.0]

Guy Adami: [01:05:44] You know, I think the central bankers have decided, you know what, we’re not going to do our job, but we’re going to try to do the job on the fiscal side of things. And we’re going to alchemy out the recession part of the equation in the business cycle. And it just it might work for a short period of time. But over the course of long duration nature, as a way of catching up the same way, if you try to do the job of an attackman, it might work for a couple of minutes of the game, but over the course of a season, it ain’t going to work. Thoughts? [01:06:13][29.2]

Michael Mauboussin: [01:06:14] Yeah. No, I’m. I’m at least partially with you. I would just say, Guy, that I’m much more circumspect about the Fed. I think those jobs are really hard. I think those people are I think they are well intentioned. I think they have a lot of information that we don’t have. I’m more circumspect than you are about that. So I think it’s easy to poke holes at it. But I I’m I think it’s hardened by what I think I’ll just say, which I say over and over that investors always lament, the Fed is doing this. The Fed is doing that. As an investor, your job is to generate returns, period. Like I said, I’m like, you know, you’ve been dealt cards. Those are cards you’re playing. So wishing you had different cards is not going to do much for you. So don’t complain so much about what you wish or think should be happening. Just focus on what is happening, what that means. You know, one of the points the Chancellor makes in this book is that sometimes recessions are almost like this notion of forest fires. Right? Like forest fires to some degree are they’re obviously destructive. But by the same token, they clear out this underbrush that allow for new growth rate. So you don’t want it. You don’t want and recession, I mean, desiring that, but in some ways it may have a cleansing effect. And that’s the question you have to ask. Even post the financial crisis. These are difficult things, but do you let more businesses fail? So you take the real lump in the short term that you hope allows you to to regenerate or rejuvenate in the future. So I don’t know the answer to that. Oh, I will say the other thing that’s interesting is that you guys do talk about this, but it’s a dual thing, right? There’s a Fed funds rate and then there’s this, you know, quite what’s going on with quantitative easing or tightening. And so the you guys probably seen this, but San Francisco Federal Reserve’s got this paper out where they’re talking about this idea called the proxy Fed funds rate. And so the proxy Fed funds takes into consideration both the Fed’s funds and the effect of of loosening or tightening. And that number. Now, I think it’s six and a half or 7%. I mean, it’s way above I think I know where the Fed funds like for a quarter supposed to go to five and it’s way over that already. So in effect, we are very, very tight. I don’t know what the probability of a recession is. It’s I suspect it’s very high going into 2023. And again, we’ll see what the repercussions are of this now. And look, I mean, I think the inflation this is me again, I’m not a macro guy about inflation. I think getting it down to 4% is going to be a pretty straight shot. And we’ve already got like most of things in place in housing and and, you know, all the shipping commodities, all those numbers seem to be pointing that direction. The wild card to me, which I don’t understand about, is the labor market. Right. So the labor market has been remarkably robust, both in terms of the numbers and in the wage growth. That seems to be the variable that’s hard. So so tamping from four to 4 to 2 might be the real, real hard work. We’ll see. And like you said, you’re saying 5%. Yeah, I think your thing is 5%. Unemployment’s where the Fed finally is off. We’re far away from that now. Right. So that would be a lot of pain from here to there. [01:08:47][153.1]

Dan Nathan: [01:08:47] We’re far away from the last piece of the puzzle. And I agree with you on the inflation front, it seems like we’re going to be a straight shot back to four, every major input other than labor has kind of given it up and they’re on the other side of this. And so when I think about the stock market as as kind of a lens in which I process a lot of this other stuff through, right? And so for the first ten years of my career, I mean, interest rates other than valuations for individual securities wasn’t really a thing. It wasn’t something that we kind of had to worry about in a way. But if you think about ten year yield or the Fed funds, it’s been upper left, bottom right to that point where you never thought we’d see a ten year below 1% and it got to zero right over the last 25 years. So my question to you is, like the stock market right now, we have about a week left in the year and it was probably one of the most volatile year across all major risk assets that I can remember take out the first half of 2020 Black Swan of then and probably one of the weirdest kind of market periods that we could all remember. But the S&P 500 is down less than 20% on the year. The average decline for the S&P 500 during a recession the last 60 years, about 35%, I think it our lows were maybe down 30%, but it wasn’t there for that long. Nasdaq was down a little more than that, given everything that we know in the likelihood of a recession in 2023, China really being in this kind of fits and starts phase of kind of restarting. Europe is going to be in a recessionary environment, rates staying high, and then some of the inflationary inputs going back to wages staying high, being a drag on corporate profits. Doesn’t it feel like we have more to go in the stock market before we can kind of get out of this period? [01:10:27][100.1]

Michael Mauboussin: [01:10:28] Dan, I know you’re trying to get me to say that, but I just don’t. The answer is I really don’t know. And the market is a discounting mechanism. We have to keep that in mind. There’s almost nothing you just said that’s not basically consensus, right? In other words, you could walk up to anybody on Wall Street and say what you just said. Who’s not going to agree with you? [01:10:47][19.4]

Dan Nathan: [01:10:48] You know what? It’s people that are only geared towards buying stocks. And there are a lot of them. I mean, the fact that the S&P is only down 19%, given what I’m pretty certain happens to the economy globally in the first half of next year, something doesn’t add up. So it’s either speaking to the fact that the Fed is about to pivot in a big, big way, which is basically putting support under stock valuations. Right. Or we’re whistling past the graveyard right now. [01:11:17][29.0]

Michael Mauboussin: [01:11:17] I just I just don’t know the answer to that. And there’s been notwithstanding the markets are down 20 them, Nasdaq down a lot more handful of big technology companies have held in there. What worries me would be the magnitude of a recession. I think people should be penciling out what that means. I also worry a lot about geopolitical stuff. Our relationship with China, something I try to pay a lot of attention to. That also gives me a lot of concern. By the way, there’s a great book. Have you guys read the book Chip War? Do you know this book by Chris Miller? If you don’t know it, I would highly recommend it. It’s just it’s a quick read. It’s it’s extremely helpful. It’s about the history of semiconductor industry. And it puts into context a lot of what’s happened with us in China. And the whole semiconductor thing in the last year, you know, really picked up a lot of momentum the last six months. So Dan, the answer is I really don’t know. And every time I think I know, no, I just don’t know. [01:12:01][44.1]

Dan Nathan: [01:12:02] Do you ever get emotional in your own investing when you think you’re very convicted about something that’s going to happen? No, you don’t. You just kind of stay the course. [01:12:09][7.7]

Michael Mauboussin: [01:12:09] You know, in this day. I think. So talking about Graham and all this stuff, Ben Graham, I mean, I really do believe this, that I really don’t believe I can time anything. Again, if we had talked a year ago and with a five and three quarters expected return for equities, I would have said to you like, this is not good, like this is not healthy. I did look at this the last 20 years, the increase in ten year, the real rate on the ten year has been it was a record, the fastest change, six months change and rise in real rates that we’ve ever seen will last two decades. Across the spectrum, risk premium are up right, which is good equity risk premiums up, triple B spreads are up, B spreads are up, high yield spreads are up. So and by the way, how do you interpret like the VIX is back down to the low twenties. That’s really interesting. There’s like the credit markets are healthier, but they’re not freaked out. So it’s really interesting. So I don’t know. The answer is I don’t I don’t have a strong view one way or another. [01:12:59][49.1]

Guy Adami: [01:12:59] So I think you finished Chip Wars in October because I remember your tweet, if memory serves, but I’ll say this and this this quote speaks to dogma. And one of the biggest problems I believe in this country is the polarization and dogmatic beliefs. People have beliefs. Our hypothesis is to be tested, not treasures to be protected. [01:13:20][20.9]

Michael Mauboussin: [01:13:21] That quote comes directly from Phil Tetlock and Dan Gardner’s book Super Forecasting. And I love that quote. I love it to Death Hounds. Like Guy were probably in a similar boat when I was 18. I became a registered Republican back in the Reagan, you know, Reagan thing. And I was I would consider myself a Reagan Republican. And then in the middle of the prior administration, I just said, I can’t do this anymore because of all the stuff that’s going on. So I became an independent. So I’m down the middle. I find myself struggling. There are some things the prior administration did that were good and a lot of things that were not good. There are some things occur administration doing that are good, some that are not good. This polarization I find to be really difficult. I think that this goes back to a Dan, even Dan’s question about how you think about people having convictions on things, beliefs or hypotheses be tested, not treasuries to be protected. In other words, the right mindset as an investor in is extremely difficult to do, is everything you believe should be essentially tentative. And as new information comes in that presents itself to show that you’re right or wrong, you should change your view in the right direction and the right amount. Easy to say, extremely difficult to do. One of the ways you can help yourself do this, by the way, is to write stuff down and say, here’s what I believe. Here’s what I believe about Bitcoin and write it all down and then say, if I am right, this is what’s going to happen with some probability if you want and write it down on a piece of paper. And then if that doesn’t happen, you have to say yourself, I’m going to be intellectually honest and say what I thought has not come to pass. Hence, I have to change my view to something alternative. [01:14:50][89.0]

Guy Adami: [01:14:51] Columbia University’s Lucky to have you. Georgetown is lucky to have you as one of their alumni, Dan and I and Danny are lucky to. Have you on our podcast. We could do this for another hour, but we want to be respectful of your time. So, Michael Mobile and thank you so much for joining us. [01:15:03][12.8]

Michael Mauboussin: [01:15:04] Thanks, Guy. Thanks Dan, was a real pleasure talking to you guys. [01:15:04][0.0]

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