Investment Themes: The podcast discusses two primary investment opportunities: shorting the restaurant sector and a bullish outlook on oil, highlighting potential market inefficiencies and valuation discrepancies.
Restaurant Sector Insights: The conversation emphasizes the vulnerability of full-service restaurants to economic downturns, with a focus on shorting overvalued fast-casual chains like Chipotle and Cava due to their high valuations and declining sales.
Economic Outlook: The hosts discuss the pressure on consumer disposable incomes, particularly affecting lower-end consumers, which could negatively impact restaurant revenues and serve as a leading indicator of personal consumption trends.
Oil Market Perspective: A bullish case for oil is presented, focusing on the underappreciated demand potential from the Global South, particularly Africa and India, where energy consumption per capita is expected to rise significantly.
Global Demand Dynamics: The discussion highlights the potential for increased oil demand driven by affordable internal combustion vehicles in Africa, challenging the dominant narrative that future energy needs will be met solely by renewables.
Investment Strategy: The guest shares his approach of investing in long-dated crude contracts as a hedge against inflation and a bet on future oil demand, while also holding a diversified portfolio of Canadian oil stocks.
Key Takeaways: The podcast underscores the importance of considering both supply and demand factors in energy markets and highlights the potential for overlooked regions to drive future demand growth, offering unique investment opportunities.
Transcript
Hit it. >> Hi, it's Friday, um, August the 15th, um, 2025, episode 270. It's Robert Mitchell, the blind squirrel, filling in for a once again vacationing Patrick Serzna. >> And I'm Kevin Mure. We had a guest planned, but unfortunately, he couldn't make it. Lucky for us, we had recorded the second part with Rupert already, so we still have some great ideas to share. Here's a shortened version of the market huddle. And now back to your regularly scheduled program. And then this week there's no talking charts, but we have the good fortune to have Rupert here to chat about two trades that I think are outstanding opportunities. >> And folks, um Patrick's not here. Neither is Daniel. Um but I'm having a glass of pan Noir while I chat to Kev Friday here in >> Mel and it's awfully early for me. So it's even too early to drink beer even for Canadians. So, I will be drinking coffee at 6:00 in the morning here as we record this. Let me just do the uh side effects here. Nothing in this podcast should be viewed as investment advice. Listeners should consult an investment professional before taking any decisions regarding topics mentioned in this show. Side effects of too much hidle may include the jobs jitter disorder. Trouble get that one out. Liquidity loss anxiety disorder. And then finally, the Patrick signaling the top with an extravagant trip in Europe syndrome. I'm not very good in the morning, little Ripper. It's just too early for me. >> I I assure everyone it's 6 a.m. with Kev. He's on coffee and I'm the one on Pon Noir at 8:00 PM Melbourne time. >> Thanks again. Let's get >> the other way around. Kev, normally it's me with the coffee. >> All right, Rupert, let's um chat. And I just wanted to bring you on because we um talk often off, you know, behind the scenes and recently you had a couple trades or ideas, let's call them ideas that just really spoke to me and it was something that I was instantly when I heard the two of them, I'm like, "Oh, that's terrific. That's a great idea." Um, we're going to start, you know, the second one is going to be oil. We're going to talk about that, but before we do, let's talk about something that not a lot of folks often, you know, have on their radar, and it's restaurants. And uh one of the >> And and and are you going to are you willing to share that you're actually a little bit of a restaurant afficionado? Not just because No, no, no. It's it's And I actually I I told the whole story in my note last weekend. Um yeah, I grew up in the restaurant business. My my mother and stepfather ran a a really kind of, you know, it was it was kind of a a a mecca restaurant in the in the in the 80s, you know, where, you know, royals and celebs and everyone used to it used to be used to be a favored watering hole for them. And um that was in >> London in London. And I mean he opened it in 1980 um and then closed it in 2005. So by by which there was there would there would there's there's there there's almost zero sort of in internet existence of this restaurant because smartphones became available a couple of years later. Um fortune to have like Lady Dye there and like >> Yeah. Yeah. No. So so Lady Dy used to sneak there for dinners and um Sarah Ferguson had a hen knight there. >> Oh wow. >> Fergie had a hen knight there. Um, and you know, the the the the Daily Mail um gossip columnist Nigel Dempster used to sort of hold fort in the corner table of the conservatory every Friday lunchtime. And so, you know, yeah, it was it was it was it was that was that kind of place. Um, was a real institution. I tell you what, that those walls have some stories to tell. That's right. You know, it's it's funny because, you know, back in the 80s and 90s, we had real business cycles, right? And actually I I put a I put a chart in my notes of just UK um monthly GDP prints over over the life of the restaurant. And it's you know it's a real roller coaster. And the thing about um the thing about the restaurant business is >> you are super sensitive to any twitches or shifts in the business cycle or the economic cycle. It immediately shows up in weekly takings. Um, and um, you know, to put a bit of macro hat on for a second, I think that a lot of us have been sort of truly scarred recently by making sort of premature recession calls around the US economy. And, you know, we we blew up put premium at the beginning of 23. We reached for bonds too early. You know, even if we hate bonds, we occasionally got onto the long side and it was it was it was still too early. And I, you know, I'm not that guilty of it. I own some own some some of the front of the curve, but I'm still avowedly not a fan of the long bond, but the we've got this weird situation because of what's going on with the AI capex. the the headline GDP numbers might tell a slightly different story this time because when you include all of that activity relating to carpeting rural America with data centers, you've got a a situation whereby the other 99% of the 99% of the economy is sucking wind, right? Um I mean you know classic Atwaters Kshape and um it just struck me that the the the listed restaurant sector which has historically had been a really good leading indicator in terms of the stock prices of restaurants has been a really good leading um in indicator of personal consumption >> right >> and um so I I I put together a sort of basket of um restaurant shorts. Now, the way to look at this space, you've got three. You've got full service restaurants, you've got fast casual restaurants, and then you've got the the QSR, which are the the the fast food joints. Now, they all get slightly impacted in different ways. Um but really the full service guys um where they have a lot of fixed core costs about which they can do very little um are I to my mind um the most in danger of um you know seeing seeing or they're already seeing um negative comps in terms of say same store sales but and they're they're they're not they're not they're not cheap stocks. I mean, the full service restaurants are valued at a discount to the broader equity market, but they they they still don't feel cheap here. >> Yeah. >> Um but the um so there's that category. And so in that you've got um sort of Gardens, which is the home of the Olive Garden. You've got um Brinkers, which owns Chili. You've got the Cheesecake Factory. You got Cracker Barrel. And um and you've got um >> It's so funny hearing a Brit talk about all these American Have you Have you ever stepped in any of those restaurants, Rupert? >> Not at all, but I I watched that sitcom where Penny Penny worked at the Cheesecake Factory. So I uh but um and then then the last one in the category, which the only one I've taken any action on so far, is Texas Roadhouse, which is um which which is extraordinary. I mean, and that's valued at um something like $14.5 million per restaurant, right? Wow. >> But where there is a real valuation crime is with fast casual. And um so by that I'm talking about the Chipotle which has haunted us all for years. Um and you've got restaurants um like Carver, Sweet Green, Shake Shack, all of those guys. And and this this is this is extraordinary. um just in terms of the you know some of the sort of valuation crimes that have taken place there. So um I um I managed to put positions on in in short positions in Carver and Starbucks on Monday. I published a note on Sunday. Um >> this was before by the way before Cava the bed and there's no other way to say it. >> Yeah. So so Cara Cara was valued pre- earnings at $25 million per restaurant. Right. I can tell you my stepfather didn't get that phase. Um 20 and and these these these guys sell overpriced hummus and pitterbread. Um anyway, the the the the the car went for a um for a for a sort of 20 22% haircut post earnings. Um but even after then it's still valued at $20 million um per restaurant. So I think this this this this trade's got plenty of runway. >> Yeah. And it's it's what's nice about this is that you're shooting something that's going down, right? And that yet is still expensive. Meaning you're not waiting for like, you know, you're not shooting something that's overvalued. Like recently, I saw Andrew Left or one of the short sellers talk about Palunteer and he talked about how stupid the pricing was and how expensive it was. and he's he's probably spot on correct and I'm sure in a year's time that um that it's going to be lower, but in the meantime, it just keeps going up and it's just a world of pain. Meanwhile, these are already rolling over. They're already agreeing with you. So, >> the the the charts are pretty I mean, so some of the f some of the the full service ones, the charts don't look too bad. So, so the the Olive Garden one, Dardens, is is is actually a stock that you wouldn't take on right now, right? >> But the other thing I I mean really, so the two things I looked at, one was the chart. I didn't want to I mean, I'm going to wait on Shake Shack Shack and Chipotle because they're just too oversold at the moment. >> Okay. >> Um and then there are some of them with elevated short interests that you really don't want to go too close to. Um and there are some where I'm just waiting for, you know, our favorite topic, Kev, the um the negative earnings revisions. >> Ah yes. >> Yes. And so so I sort of ranked all of these three sections by what what we were doing in terms of EPS revisions, where we were in the chart, what we were valued. I love I love putting valuations into real world metrics like >> right >> market cap per restaurant because you know when if you don't do that from time to time you kind of really lose track of reality sometimes >> for sure and and and as I said these things are already going your way they're they're turning that Could you talk a little bit about the bigger thesis though why do you think that um the consumer is under pressure and that this will be a problem going forward Well, I I think that I think that the disposable incomes are dramatically under pressure. So, if you think about if you think about the um the customers of these dining in the restaurants, the Olive Garden style restaurants, 70% of their customer base spends less than $200 a month in these types of outlets. Right. >> So, it's lower end. So, so but but the point is what what you always forget is that you know it's it's it's a it's a vast cohort of the of the of the of the population by number, right? And these guys if these guys are cutting back, it's going to show up in these guys weekly takings really quick. And and the comps are already rolling over. It's very clear what's happening. And and in the in the in the in the sort of more racially valued fast casual segment, you've got um you've got the the management teams focusing on psycho bababel KPIs like sort of wellness wellness quotients and things like that because they cannot they cannot talk about same store sales. >> Right. Got it. Okay. >> And so many of those guys were being valued on some kind of discing. You know, Cara, for example, has got just under it's got 380 stores right now, but they're constantly talking about a thousand stores by 2032. And I guess the sellside analysts are trying to sort of discount back a business that has 3x the footprint in seven years time. And that just doesn't work, right? >> They they are trying to do this sort of growth in an environment that in in an industry that's hugely cyclical. back to your original point and there's no doubt about it that the the low-end consumer is under pressure, right? Like this is we've just gone through this the low end. Yeah, definitely definitely but I actually think the low-end consumer so the low low-end consumer started um we in terms of um you know excess savings that that went that went that dipped into negative last year. Right. >> Right. >> And and these businesses are not growing that spectacularly. I I think you know the the fast casual revenues are kind of growing from here to fiscal 27 at about just over 8% on the top line and about 8 and a half% at the EBIT DAR line you know it's not spectacular right I mean I just don't understand I just don't understand why why why they'd rec why why would they would command sort of software multiples so the software se segment trades at 72 times forward earnings Yeah, to me it just feels like this big beautiful bill, very regressive. Um, and the regressive nature of it is actually meaning that the, you know, a tax cut for the wealthiest. And one of the t, you know, what do the wealthiest do? They go out and they put the money back into the market. And so there's no, it's easy for me to understand why we're having the mag seven/the the the dream stocks ripping higher. Um but meanwhile this progressive tax is actually putting pressure on the the low end of the economy and to when I heard your trade I was like this is the perfect way to express it. Don't worry about going and fighting you know the mag seven go you know sell the things >> also it's it's it may be a situation whereby you know even short-term interest rates are quite tough to get right right now right there. tough to see um you know huge positive expected value trades in either direction right now um >> because the because the front end keeps running ahead and so you need a lot of you need a real bad event to occur for you to make money at the front end. >> Yeah, exactly. Exactly. >> And this might just be this might be the drip lower that that >> this is what you dream of. So actually there was a little bit me that was a little bit disappointed by what happened on Carver. Yeah, it's it's it's a wonderful wonderful thing to sort of to to have an >> earn the market by complaining about that, Robert. >> No, no, no. But but the but the reality is is that you want these things to just grind down. >> Yeah. >> Right. Right. >> Um you just just I'd love to be able to sit in this for nine months. >> Right. I >> 12 months. >> Okay. Uh let's move on to the next trade. And uh as I mentioned, this was another one. When you started chatting, you started telling me this theory. I was like, "Oh, gez, that's just that's brilliant and not enough people are talking about it." And I was like, "Let's get you on the show." And it was this one specifically that I wanted to talk about. It's oil and we're going to present a bull argument. But before we do, just to show we're not idiots, why don't you tell everyone the bare argument that everybody knows? Like, let's just go over and let's just say, okay, we know this is the bare argument. tell us all the kind of the problems out there and why the the the majority of folks are bearish oil and then after that we'll kind of present the variant perception about what they might be missing. >> Well, there are there are there are number of reasons to sort of to to prop up a a bearish oil case. I mean there's you know the macro the the western the western macro picture a growth slowdown whatever you want to call it that's always there's there's there's the view that there's plenty of abundance people can turn on taps relieve you know the Saudis can pump more you know war can end Russian oil can come back on the market you know you can choose to ignore or not ignore Iranian oil any day of the um all the the brilliant reasons I but I think that and and let's be very clear I I do absolutely not have done very little at the front end of the crude curve for a long time now right I I'm really just not interested in in frankly the front 12 months um and so my my big thesis around this is that and this has been true of all of the big research teams um whether it's the IEA um and to obviously to a much lesser extent the the OPEC OPEC research team is that when it comes to estimating future demand potential demand from the global south I mean it's it's not even a footnote right >> and um so >> meaning that they work really hard talking about researching supply >> work really hard figuring out incremental barrels consumed in dry that is what the market is focused on. It's all supply, supply, supply. You go, you listen to Paul Sanki, brilliant analyst. He's only talking about supply. You very rarely hear the demand side of the equation discussed. >> And and the missing piece of the jigsaw is, you know, Africa that currently consumes less than a barrel per capita peranom. The whole continent of Africa right now, India population greater than the EU and the US combined, EU and North America combined, >> right? >> 1.4 barrels per capita peranom. Now, are you really going to paint a productivity energy productivity picture such that oh well they don't need to get to Africa doesn't need to get to even close to one and a half because of solar blah what ever right or are you saying that actually the fastest growing population on the planet right which is which is Africa is is going to be is is is is going to the net per per capita consuming less energy where they barely consume a a teacup right now. >> Um I just I just don't buy it. >> So and specifically it's like a lot of folks I think that the new age folks would say, "Oh, but that's all going to be electric." And you have a different theory about that. >> Yeah. No, I I I re I really do. So I um the week before last I wrote about an an African e-commerce business called Jumia, right? And it's I mean and I I' I've been on to this for for a while. I I think that Africa and African equities is a stealth China trade, right? um um Africa's resources and its potential to be a vast consumer in the in the future um is very much within the within within the within within the sniper site of of of of Chinese organizers and all of this tariff related breakdown of the you know acceleration of the multipolar world has suddenly ly made Jumia's as Jumia as a customer that buys cheap goods from China significantly more important right >> now Chinese exports have been accelerating as we all know over the last over the last over the last couple of years and the big ticket item of exports is is obviously cars now um China China makes 31 million cars a here, right? Just to put that in perspective. The US is at 10:11. Japan's at 8. Germany's at 4. >> Wow. >> Uh yeah, >> that wow. I didn't know it was like I knew it was a lot. Like you like if you made me guess, I would have guessed high, but I wouldn't have guessed that high. Wow. >> Yeah. Um I mean it's historically I mean it didn't start didn't start exporting cars in any meaningful number until two years ago. And this thing has just roofed right now. Right. >> You can't you I the BYDs um and the and and the Great Walls basically all of the Chinese brands are here in Australia now. They're all over Southeast Asia. They're all over Latan, but they're going to they're going to Africa as well. And it's yes, it's not it. Yeah, there are some EVs going and EVs are part of the story for polluted cities in India. I get all of that. But it's many more hybrids and internal combustion cars that are going >> and >> right >> and so the key part of this this this this energy thesis in in Africa is that if you can put an efficient internal combustion engine car on the ground in Nairobi for less than $5,000, >> right? >> What do you think that does to vehicle penetration numbers? Yeah. >> Um, you know, you know, you know, you're you're talking about a sticker price that's 30% of an entrylevel four four-wheeler historically. >> And for me, I always talked about the the the hockey stick of energy consumption, meaning that as a country got more prosperous, it eventually hit a point where the consumption per capita increased. And that was again not taking into account the fact that you could also have that consumption change because the price of the thing consuming the energy changes. And that was the big aha moment for me was like I was like, okay, I've always been waiting for Africa to get, you know, wealthy enough to be able to afford cars. But really, what's happened here with China bringing down the cost of cars to just absolutely low levels, we could increase the cap per capita energy usage because cars have become so cheap. >> And and guess and guess what? You know, yes, there's going to be an EV story, but you can't go to passenger transport by electric before you fixed air conditioning, right? >> You know, so they need to get through they need to get through, you know, if you think of, >> you know, the pyramid of needs, right? You know, it's ultimately, yes, the car is a little bit further down the queue, right? They got to prior prioritize heating and cooling. >> Completely agree. And so in >> so just just in terms of to your point so a really good example is like sort of the Asian tigers of Southeast Asia. So I mean I looked it up actually earlier today. So um in terms of per capita barrel consumption Thailand went from one barrel >> Yeah. >> to five barrels in eight years. >> Wow. >> Yeah. That's the hockey stick. It just goes chug ch and then just boom. >> Yeah. And so this is something and and I think the like as I mentioned the part that really clicked for me was I always assumed it was going to take them becoming wealthier and I didn't ever consider that it could be the efficiencies of building these things will come way down and that's the part that I think a lot of folks are missing and when people talk about oil nobody is talking about demand and zero >> so what I do Kev is I I for the last sort of year and two month two years now I've I've I've run something which is which I call the squirrels SPR right and so what it what it is is I own the at the moment the December 27 28 29 and Brent 27 crude contracts and right every every year I roll so this year I'll roll the the WTI 27 to WTI30 and pick up well it's quite volatile at the moment. It's only at the moment 75 cents of roll yield but back in April that would have been $3. >> Yeah. >> Which is crazy. >> Which is crazy, right? >> He used to used to trade the other way. And actually, you know, one of the one of the one of the big Paul Sanki was actually one of the key sort of germs for this idea because, you know, the we we should be, you know, when everyone's so obsessive about real assets, right? What's more real than a barrel of oil? >> Yeah. What's more important to the economy? Like we sit around trading gold, but it's actually kind of useless. Oil is in everything we have. It is the purest expression of wealth. Yeah. So I I so so you know I don't own bonds. So I have an allocation to these longdated crude project contracts. My SPR that's that's that's that's a a core allocation. >> Well that's actually brilliant. >> And then and then on the equities front I've just um I've just terminated an abusive relationship with the oil refiners. Um I that was that was this week. Finally, the the the the 321 crack spread um dipped through the 200 day and I said, "No mass." >> Oh, you're Paul Tudtor Jones would be proud of you. Paul Tudtor Jones would be proud of you. >> I I No. Well, I basically it was it was a hero trade last May 24. I absolutely It was May and then I roundt the entire thing and I was just about to go negative on the trade and then the crack spread dipped below the 200. I'm not going to take a loss on the trade anyway. So, so I'm out out of that. Um I also am a bag holder of offshore stocks, but I started in those so early that I'm still in the money even though I've worn a a nasty draw down. Um ignoring your words about earnings revisions. Um and then and then like like um like a like a a true fellow colonial, um I I have my my Canadian oil mafia basket. Oh, there you go. >> I I own a basket of seven of the the local favorites over there. >> Do you really favorites? Yeah. Oh, God. >> You want to share us the names? Can you share the names? >> Yeah. I mean, they'll be so familiar to all of your crew, but it's it's it's Meg, it's BEX, it's Suncor, um it's CNQ, but then I got two gassy names in the form of Arc and Tumaline. >> Nice. Jeez, you were gonna you were going to call you a Canadian with a portfolio like that. There you go. And I benchmark I bench I benchmark I benchmark myself against Eric Nutle. Well, listen, that makes I'm still laughing about that. That's that's like when people choose um they choose to bench themselves against uh uh what is it? The instead of using the S&P, they like to bench themselves against the Russell because the Russell's not as good at index. >> No, no, no, no. I I think I think I think Eric's the Eric's the Eric's the OG of >> you got to give him credit for sticking with it. It was there was for those who don't know, Eric Nadle is a Canadian uh oil um portfolio manager and I think at one point he was the only or maybe there was two funds left that were energy oil or energy funds in Canada and I think his mutual fund was down to like literally like 10 million bucks. Like it was just nothing like why they were keeping this thing alive and he was still coming on TV talking about his picks and now it's you know I don't know if it's a billion dollar fund but it's big like it's got Back in late 2021, I actually wrote about this when I initiated the port. Um, the Canadian oil mafia hashtagcom on Twitter in those days >> was a was a force to be reckoned with and Eric Nutle was the high priest of the Canadian oil mat soprano of the oil >> and they used to they used to sort of have sevenhour spaces calls >> where they talk about Eric's pits was something else. This all used to happen because I was in Hong Kong at the time and these late night spaces calls in eastern east coast time would be going on in the background as I was sort of making breakfast in the morning. >> Well, I'm glad we rubbed off on you in some way. >> Oh, Rupert, it's been a real pleasure having you. Um, let's just uh, you know, we're going to call it a day here. Uh why don't you tell people where they can find more about your great letter and uh you know your your your your you yourself. >> There we go. It's so easy, Kev. I'm I'm I'm I'm mimicking you. It's very easy. blindsquirremacro.com and it all leads from there. I'm I'm I'm I am I'm reasonably active on Twitter. I'm on on the blue sky. Um I sometimes stick my nose into LinkedIn. Um, but I'm squirrel macro um on on Twitter. >> All right, >> blindmacro.com gets you to all places >> and you guys know where you can find me at the macro tours.com. Bull market, bare market. We're just happy you guys are spend some time with us now. Stick around for the after show. So, you know what? I I've sprung that on you, Eric. Eric, >> Eric, >> Eric, you know, the new Eric Nutle. >> Yeah. Yeah, the new Eric Nutle. Um, Rupert. Um, but why don't we do a quick little after show? Why don't you um uh you got anything big planned now? It's winter for you, right? So you guys it's cold weather. What what's the weather like there at this time? >> It's actually I mean you know it's not even close to spring yet actually. It was it was pretty pretty I mean it's what it's it's singledigit centigra. It's not proper it's not Toronto cold but it you know Melbourne gets >> cold for you. >> Um I'm actually um I'm traveling a bit. I'm going up to Hong Kong in a couple of weeks um for a couple of days and then I'm going to the UK um for most of the month of September. >> Oh, okay. That's a nice month to be there. All the tourists are gone. >> Weather still. >> Well, maybe sometimes you can get lucky with an Indian summer, but um you know, expect leaves and rain. >> Really? Like so I've never been like when does it start raining? Like is it like in the fall? >> No, no, no. It it's it's London, so there's always a risk of a shower. Um but um yeah, know September's I I do like September. It's it's it's >> Yeah. >> Yeah. >> Do you miss, by the way, do you miss uh London? >> It's been such a long time since I lived there. I haven't lived there full-time since 2009. >> Oh, okay. Well, do you miss it? or like >> I saw Chris Arnod uh the the wandering, you know, >> he's in Australia. >> That's what I was gonna say. But the reason is for those subscriber I'm a subscriber. I'm hoping he has he said he might come is Melbourne's not on his route, but he said he might swing by Melbourne. I want I want to go for a walk with him. >> Right. For those who don't know, he's an ex Wall Street trader of some sort and he's, you know, he quit and he's gone on this journey. He's like photographed um you know rural America. He goes and he lives >> sits in McDonald's. He sits in McDonald's in chat. >> Yeah. He's almost he he lives almost like a hobo. Like he's like going on Greyhound buses all around the world and all around America. He's photographing and talking to people. It's a it's a wonderful um and he's a terrific writer. I think we >> Yeah, he's just absolutely terrific. So we should actually if we're going to talk about it, why don't we tell people what is the So what how do I say it? It's a R >> Arnode, right? Isn't it? Chris Arnold. >> Yeah. Uh, let me just see here. We'll tell people. But anyways, he's in um Yeah, here he is. American photographer. And it's Chris Arnod uh walks the world Substack. And uh he I I read a piece recently where he, you know, went to Australia. I think it's his first time. And this guy is well traveled. Like this is a fellow that has been around the world. And he said the Australians are the nicest people he's ever met. That was it. He was He was just like, >> "I I I have to agree. I live here. It's my home now." >> Yeah. And it was just like And when he said, >> "I'm married to one." >> Yeah. When he told when he said um that now he's in Sydney, I think he said when he said it was a mixture of California and London, I was like sold. I was like, I wanted to come. Like literally, this was the best tourist ad that he's ever done. If it wasn't for your terrible time zone, >> it's that he was deeply discomforted by that because he actually likes to live a little bit tougher. It was too comfortable for him. >> Yeah, that's right. The people were too nice. >> We and I were not like at all. >> Exactly. We're We're not looking for that gritty. >> Little bit too much grit. >> Yeah, that's right. Okay. Well, on that note, everyone, have a great week and we'll see you in a couple weeks. >> Take care. Thanks, Gab. >> Thanks,
Valuation Crimes (Guest: Rupert Mitchell)
Summary
Transcript
Hit it. >> Hi, it's Friday, um, August the 15th, um, 2025, episode 270. It's Robert Mitchell, the blind squirrel, filling in for a once again vacationing Patrick Serzna. >> And I'm Kevin Mure. We had a guest planned, but unfortunately, he couldn't make it. Lucky for us, we had recorded the second part with Rupert already, so we still have some great ideas to share. Here's a shortened version of the market huddle. And now back to your regularly scheduled program. And then this week there's no talking charts, but we have the good fortune to have Rupert here to chat about two trades that I think are outstanding opportunities. >> And folks, um Patrick's not here. Neither is Daniel. Um but I'm having a glass of pan Noir while I chat to Kev Friday here in >> Mel and it's awfully early for me. So it's even too early to drink beer even for Canadians. So, I will be drinking coffee at 6:00 in the morning here as we record this. Let me just do the uh side effects here. Nothing in this podcast should be viewed as investment advice. Listeners should consult an investment professional before taking any decisions regarding topics mentioned in this show. Side effects of too much hidle may include the jobs jitter disorder. Trouble get that one out. Liquidity loss anxiety disorder. And then finally, the Patrick signaling the top with an extravagant trip in Europe syndrome. I'm not very good in the morning, little Ripper. It's just too early for me. >> I I assure everyone it's 6 a.m. with Kev. He's on coffee and I'm the one on Pon Noir at 8:00 PM Melbourne time. >> Thanks again. Let's get >> the other way around. Kev, normally it's me with the coffee. >> All right, Rupert, let's um chat. And I just wanted to bring you on because we um talk often off, you know, behind the scenes and recently you had a couple trades or ideas, let's call them ideas that just really spoke to me and it was something that I was instantly when I heard the two of them, I'm like, "Oh, that's terrific. That's a great idea." Um, we're going to start, you know, the second one is going to be oil. We're going to talk about that, but before we do, let's talk about something that not a lot of folks often, you know, have on their radar, and it's restaurants. And uh one of the >> And and and are you going to are you willing to share that you're actually a little bit of a restaurant afficionado? Not just because No, no, no. It's it's And I actually I I told the whole story in my note last weekend. Um yeah, I grew up in the restaurant business. My my mother and stepfather ran a a really kind of, you know, it was it was kind of a a a mecca restaurant in the in the in the 80s, you know, where, you know, royals and celebs and everyone used to it used to be used to be a favored watering hole for them. And um that was in >> London in London. And I mean he opened it in 1980 um and then closed it in 2005. So by by which there was there would there would there's there's there there's almost zero sort of in internet existence of this restaurant because smartphones became available a couple of years later. Um fortune to have like Lady Dye there and like >> Yeah. Yeah. No. So so Lady Dy used to sneak there for dinners and um Sarah Ferguson had a hen knight there. >> Oh wow. >> Fergie had a hen knight there. Um, and you know, the the the the Daily Mail um gossip columnist Nigel Dempster used to sort of hold fort in the corner table of the conservatory every Friday lunchtime. And so, you know, yeah, it was it was it was it was that was that kind of place. Um, was a real institution. I tell you what, that those walls have some stories to tell. That's right. You know, it's it's funny because, you know, back in the 80s and 90s, we had real business cycles, right? And actually I I put a I put a chart in my notes of just UK um monthly GDP prints over over the life of the restaurant. And it's you know it's a real roller coaster. And the thing about um the thing about the restaurant business is >> you are super sensitive to any twitches or shifts in the business cycle or the economic cycle. It immediately shows up in weekly takings. Um, and um, you know, to put a bit of macro hat on for a second, I think that a lot of us have been sort of truly scarred recently by making sort of premature recession calls around the US economy. And, you know, we we blew up put premium at the beginning of 23. We reached for bonds too early. You know, even if we hate bonds, we occasionally got onto the long side and it was it was it was still too early. And I, you know, I'm not that guilty of it. I own some own some some of the front of the curve, but I'm still avowedly not a fan of the long bond, but the we've got this weird situation because of what's going on with the AI capex. the the headline GDP numbers might tell a slightly different story this time because when you include all of that activity relating to carpeting rural America with data centers, you've got a a situation whereby the other 99% of the 99% of the economy is sucking wind, right? Um I mean you know classic Atwaters Kshape and um it just struck me that the the the listed restaurant sector which has historically had been a really good leading indicator in terms of the stock prices of restaurants has been a really good leading um in indicator of personal consumption >> right >> and um so I I I put together a sort of basket of um restaurant shorts. Now, the way to look at this space, you've got three. You've got full service restaurants, you've got fast casual restaurants, and then you've got the the QSR, which are the the the fast food joints. Now, they all get slightly impacted in different ways. Um but really the full service guys um where they have a lot of fixed core costs about which they can do very little um are I to my mind um the most in danger of um you know seeing seeing or they're already seeing um negative comps in terms of say same store sales but and they're they're they're not they're not they're not cheap stocks. I mean, the full service restaurants are valued at a discount to the broader equity market, but they they they still don't feel cheap here. >> Yeah. >> Um but the um so there's that category. And so in that you've got um sort of Gardens, which is the home of the Olive Garden. You've got um Brinkers, which owns Chili. You've got the Cheesecake Factory. You got Cracker Barrel. And um and you've got um >> It's so funny hearing a Brit talk about all these American Have you Have you ever stepped in any of those restaurants, Rupert? >> Not at all, but I I watched that sitcom where Penny Penny worked at the Cheesecake Factory. So I uh but um and then then the last one in the category, which the only one I've taken any action on so far, is Texas Roadhouse, which is um which which is extraordinary. I mean, and that's valued at um something like $14.5 million per restaurant, right? Wow. >> But where there is a real valuation crime is with fast casual. And um so by that I'm talking about the Chipotle which has haunted us all for years. Um and you've got restaurants um like Carver, Sweet Green, Shake Shack, all of those guys. And and this this is this is extraordinary. um just in terms of the you know some of the sort of valuation crimes that have taken place there. So um I um I managed to put positions on in in short positions in Carver and Starbucks on Monday. I published a note on Sunday. Um >> this was before by the way before Cava the bed and there's no other way to say it. >> Yeah. So so Cara Cara was valued pre- earnings at $25 million per restaurant. Right. I can tell you my stepfather didn't get that phase. Um 20 and and these these these guys sell overpriced hummus and pitterbread. Um anyway, the the the the the car went for a um for a for a sort of 20 22% haircut post earnings. Um but even after then it's still valued at $20 million um per restaurant. So I think this this this this trade's got plenty of runway. >> Yeah. And it's it's what's nice about this is that you're shooting something that's going down, right? And that yet is still expensive. Meaning you're not waiting for like, you know, you're not shooting something that's overvalued. Like recently, I saw Andrew Left or one of the short sellers talk about Palunteer and he talked about how stupid the pricing was and how expensive it was. and he's he's probably spot on correct and I'm sure in a year's time that um that it's going to be lower, but in the meantime, it just keeps going up and it's just a world of pain. Meanwhile, these are already rolling over. They're already agreeing with you. So, >> the the the charts are pretty I mean, so some of the f some of the the full service ones, the charts don't look too bad. So, so the the Olive Garden one, Dardens, is is is actually a stock that you wouldn't take on right now, right? >> But the other thing I I mean really, so the two things I looked at, one was the chart. I didn't want to I mean, I'm going to wait on Shake Shack Shack and Chipotle because they're just too oversold at the moment. >> Okay. >> Um and then there are some of them with elevated short interests that you really don't want to go too close to. Um and there are some where I'm just waiting for, you know, our favorite topic, Kev, the um the negative earnings revisions. >> Ah yes. >> Yes. And so so I sort of ranked all of these three sections by what what we were doing in terms of EPS revisions, where we were in the chart, what we were valued. I love I love putting valuations into real world metrics like >> right >> market cap per restaurant because you know when if you don't do that from time to time you kind of really lose track of reality sometimes >> for sure and and and as I said these things are already going your way they're they're turning that Could you talk a little bit about the bigger thesis though why do you think that um the consumer is under pressure and that this will be a problem going forward Well, I I think that I think that the disposable incomes are dramatically under pressure. So, if you think about if you think about the um the customers of these dining in the restaurants, the Olive Garden style restaurants, 70% of their customer base spends less than $200 a month in these types of outlets. Right. >> So, it's lower end. So, so but but the point is what what you always forget is that you know it's it's it's a it's a vast cohort of the of the of the of the population by number, right? And these guys if these guys are cutting back, it's going to show up in these guys weekly takings really quick. And and the comps are already rolling over. It's very clear what's happening. And and in the in the in the in the sort of more racially valued fast casual segment, you've got um you've got the the management teams focusing on psycho bababel KPIs like sort of wellness wellness quotients and things like that because they cannot they cannot talk about same store sales. >> Right. Got it. Okay. >> And so many of those guys were being valued on some kind of discing. You know, Cara, for example, has got just under it's got 380 stores right now, but they're constantly talking about a thousand stores by 2032. And I guess the sellside analysts are trying to sort of discount back a business that has 3x the footprint in seven years time. And that just doesn't work, right? >> They they are trying to do this sort of growth in an environment that in in an industry that's hugely cyclical. back to your original point and there's no doubt about it that the the low-end consumer is under pressure, right? Like this is we've just gone through this the low end. Yeah, definitely definitely but I actually think the low-end consumer so the low low-end consumer started um we in terms of um you know excess savings that that went that went that dipped into negative last year. Right. >> Right. >> And and these businesses are not growing that spectacularly. I I think you know the the fast casual revenues are kind of growing from here to fiscal 27 at about just over 8% on the top line and about 8 and a half% at the EBIT DAR line you know it's not spectacular right I mean I just don't understand I just don't understand why why why they'd rec why why would they would command sort of software multiples so the software se segment trades at 72 times forward earnings Yeah, to me it just feels like this big beautiful bill, very regressive. Um, and the regressive nature of it is actually meaning that the, you know, a tax cut for the wealthiest. And one of the t, you know, what do the wealthiest do? They go out and they put the money back into the market. And so there's no, it's easy for me to understand why we're having the mag seven/the the the dream stocks ripping higher. Um but meanwhile this progressive tax is actually putting pressure on the the low end of the economy and to when I heard your trade I was like this is the perfect way to express it. Don't worry about going and fighting you know the mag seven go you know sell the things >> also it's it's it may be a situation whereby you know even short-term interest rates are quite tough to get right right now right there. tough to see um you know huge positive expected value trades in either direction right now um >> because the because the front end keeps running ahead and so you need a lot of you need a real bad event to occur for you to make money at the front end. >> Yeah, exactly. Exactly. >> And this might just be this might be the drip lower that that >> this is what you dream of. So actually there was a little bit me that was a little bit disappointed by what happened on Carver. Yeah, it's it's it's a wonderful wonderful thing to sort of to to have an >> earn the market by complaining about that, Robert. >> No, no, no. But but the but the reality is is that you want these things to just grind down. >> Yeah. >> Right. Right. >> Um you just just I'd love to be able to sit in this for nine months. >> Right. I >> 12 months. >> Okay. Uh let's move on to the next trade. And uh as I mentioned, this was another one. When you started chatting, you started telling me this theory. I was like, "Oh, gez, that's just that's brilliant and not enough people are talking about it." And I was like, "Let's get you on the show." And it was this one specifically that I wanted to talk about. It's oil and we're going to present a bull argument. But before we do, just to show we're not idiots, why don't you tell everyone the bare argument that everybody knows? Like, let's just go over and let's just say, okay, we know this is the bare argument. tell us all the kind of the problems out there and why the the the majority of folks are bearish oil and then after that we'll kind of present the variant perception about what they might be missing. >> Well, there are there are there are number of reasons to sort of to to prop up a a bearish oil case. I mean there's you know the macro the the western the western macro picture a growth slowdown whatever you want to call it that's always there's there's there's the view that there's plenty of abundance people can turn on taps relieve you know the Saudis can pump more you know war can end Russian oil can come back on the market you know you can choose to ignore or not ignore Iranian oil any day of the um all the the brilliant reasons I but I think that and and let's be very clear I I do absolutely not have done very little at the front end of the crude curve for a long time now right I I'm really just not interested in in frankly the front 12 months um and so my my big thesis around this is that and this has been true of all of the big research teams um whether it's the IEA um and to obviously to a much lesser extent the the OPEC OPEC research team is that when it comes to estimating future demand potential demand from the global south I mean it's it's not even a footnote right >> and um so >> meaning that they work really hard talking about researching supply >> work really hard figuring out incremental barrels consumed in dry that is what the market is focused on. It's all supply, supply, supply. You go, you listen to Paul Sanki, brilliant analyst. He's only talking about supply. You very rarely hear the demand side of the equation discussed. >> And and the missing piece of the jigsaw is, you know, Africa that currently consumes less than a barrel per capita peranom. The whole continent of Africa right now, India population greater than the EU and the US combined, EU and North America combined, >> right? >> 1.4 barrels per capita peranom. Now, are you really going to paint a productivity energy productivity picture such that oh well they don't need to get to Africa doesn't need to get to even close to one and a half because of solar blah what ever right or are you saying that actually the fastest growing population on the planet right which is which is Africa is is going to be is is is is going to the net per per capita consuming less energy where they barely consume a a teacup right now. >> Um I just I just don't buy it. >> So and specifically it's like a lot of folks I think that the new age folks would say, "Oh, but that's all going to be electric." And you have a different theory about that. >> Yeah. No, I I I re I really do. So I um the week before last I wrote about an an African e-commerce business called Jumia, right? And it's I mean and I I' I've been on to this for for a while. I I think that Africa and African equities is a stealth China trade, right? um um Africa's resources and its potential to be a vast consumer in the in the future um is very much within the within within the within within the sniper site of of of of Chinese organizers and all of this tariff related breakdown of the you know acceleration of the multipolar world has suddenly ly made Jumia's as Jumia as a customer that buys cheap goods from China significantly more important right >> now Chinese exports have been accelerating as we all know over the last over the last over the last couple of years and the big ticket item of exports is is obviously cars now um China China makes 31 million cars a here, right? Just to put that in perspective. The US is at 10:11. Japan's at 8. Germany's at 4. >> Wow. >> Uh yeah, >> that wow. I didn't know it was like I knew it was a lot. Like you like if you made me guess, I would have guessed high, but I wouldn't have guessed that high. Wow. >> Yeah. Um I mean it's historically I mean it didn't start didn't start exporting cars in any meaningful number until two years ago. And this thing has just roofed right now. Right. >> You can't you I the BYDs um and the and and the Great Walls basically all of the Chinese brands are here in Australia now. They're all over Southeast Asia. They're all over Latan, but they're going to they're going to Africa as well. And it's yes, it's not it. Yeah, there are some EVs going and EVs are part of the story for polluted cities in India. I get all of that. But it's many more hybrids and internal combustion cars that are going >> and >> right >> and so the key part of this this this this energy thesis in in Africa is that if you can put an efficient internal combustion engine car on the ground in Nairobi for less than $5,000, >> right? >> What do you think that does to vehicle penetration numbers? Yeah. >> Um, you know, you know, you know, you're you're talking about a sticker price that's 30% of an entrylevel four four-wheeler historically. >> And for me, I always talked about the the the hockey stick of energy consumption, meaning that as a country got more prosperous, it eventually hit a point where the consumption per capita increased. And that was again not taking into account the fact that you could also have that consumption change because the price of the thing consuming the energy changes. And that was the big aha moment for me was like I was like, okay, I've always been waiting for Africa to get, you know, wealthy enough to be able to afford cars. But really, what's happened here with China bringing down the cost of cars to just absolutely low levels, we could increase the cap per capita energy usage because cars have become so cheap. >> And and guess and guess what? You know, yes, there's going to be an EV story, but you can't go to passenger transport by electric before you fixed air conditioning, right? >> You know, so they need to get through they need to get through, you know, if you think of, >> you know, the pyramid of needs, right? You know, it's ultimately, yes, the car is a little bit further down the queue, right? They got to prior prioritize heating and cooling. >> Completely agree. And so in >> so just just in terms of to your point so a really good example is like sort of the Asian tigers of Southeast Asia. So I mean I looked it up actually earlier today. So um in terms of per capita barrel consumption Thailand went from one barrel >> Yeah. >> to five barrels in eight years. >> Wow. >> Yeah. That's the hockey stick. It just goes chug ch and then just boom. >> Yeah. And so this is something and and I think the like as I mentioned the part that really clicked for me was I always assumed it was going to take them becoming wealthier and I didn't ever consider that it could be the efficiencies of building these things will come way down and that's the part that I think a lot of folks are missing and when people talk about oil nobody is talking about demand and zero >> so what I do Kev is I I for the last sort of year and two month two years now I've I've I've run something which is which I call the squirrels SPR right and so what it what it is is I own the at the moment the December 27 28 29 and Brent 27 crude contracts and right every every year I roll so this year I'll roll the the WTI 27 to WTI30 and pick up well it's quite volatile at the moment. It's only at the moment 75 cents of roll yield but back in April that would have been $3. >> Yeah. >> Which is crazy. >> Which is crazy, right? >> He used to used to trade the other way. And actually, you know, one of the one of the one of the big Paul Sanki was actually one of the key sort of germs for this idea because, you know, the we we should be, you know, when everyone's so obsessive about real assets, right? What's more real than a barrel of oil? >> Yeah. What's more important to the economy? Like we sit around trading gold, but it's actually kind of useless. Oil is in everything we have. It is the purest expression of wealth. Yeah. So I I so so you know I don't own bonds. So I have an allocation to these longdated crude project contracts. My SPR that's that's that's that's a a core allocation. >> Well that's actually brilliant. >> And then and then on the equities front I've just um I've just terminated an abusive relationship with the oil refiners. Um I that was that was this week. Finally, the the the the 321 crack spread um dipped through the 200 day and I said, "No mass." >> Oh, you're Paul Tudtor Jones would be proud of you. Paul Tudtor Jones would be proud of you. >> I I No. Well, I basically it was it was a hero trade last May 24. I absolutely It was May and then I roundt the entire thing and I was just about to go negative on the trade and then the crack spread dipped below the 200. I'm not going to take a loss on the trade anyway. So, so I'm out out of that. Um I also am a bag holder of offshore stocks, but I started in those so early that I'm still in the money even though I've worn a a nasty draw down. Um ignoring your words about earnings revisions. Um and then and then like like um like a like a a true fellow colonial, um I I have my my Canadian oil mafia basket. Oh, there you go. >> I I own a basket of seven of the the local favorites over there. >> Do you really favorites? Yeah. Oh, God. >> You want to share us the names? Can you share the names? >> Yeah. I mean, they'll be so familiar to all of your crew, but it's it's it's Meg, it's BEX, it's Suncor, um it's CNQ, but then I got two gassy names in the form of Arc and Tumaline. >> Nice. Jeez, you were gonna you were going to call you a Canadian with a portfolio like that. There you go. And I benchmark I bench I benchmark I benchmark myself against Eric Nutle. Well, listen, that makes I'm still laughing about that. That's that's like when people choose um they choose to bench themselves against uh uh what is it? The instead of using the S&P, they like to bench themselves against the Russell because the Russell's not as good at index. >> No, no, no, no. I I think I think I think Eric's the Eric's the Eric's the OG of >> you got to give him credit for sticking with it. It was there was for those who don't know, Eric Nadle is a Canadian uh oil um portfolio manager and I think at one point he was the only or maybe there was two funds left that were energy oil or energy funds in Canada and I think his mutual fund was down to like literally like 10 million bucks. Like it was just nothing like why they were keeping this thing alive and he was still coming on TV talking about his picks and now it's you know I don't know if it's a billion dollar fund but it's big like it's got Back in late 2021, I actually wrote about this when I initiated the port. Um, the Canadian oil mafia hashtagcom on Twitter in those days >> was a was a force to be reckoned with and Eric Nutle was the high priest of the Canadian oil mat soprano of the oil >> and they used to they used to sort of have sevenhour spaces calls >> where they talk about Eric's pits was something else. This all used to happen because I was in Hong Kong at the time and these late night spaces calls in eastern east coast time would be going on in the background as I was sort of making breakfast in the morning. >> Well, I'm glad we rubbed off on you in some way. >> Oh, Rupert, it's been a real pleasure having you. Um, let's just uh, you know, we're going to call it a day here. Uh why don't you tell people where they can find more about your great letter and uh you know your your your your you yourself. >> There we go. It's so easy, Kev. I'm I'm I'm I'm mimicking you. It's very easy. blindsquirremacro.com and it all leads from there. I'm I'm I'm I am I'm reasonably active on Twitter. I'm on on the blue sky. Um I sometimes stick my nose into LinkedIn. Um, but I'm squirrel macro um on on Twitter. >> All right, >> blindmacro.com gets you to all places >> and you guys know where you can find me at the macro tours.com. Bull market, bare market. We're just happy you guys are spend some time with us now. Stick around for the after show. So, you know what? I I've sprung that on you, Eric. Eric, >> Eric, >> Eric, you know, the new Eric Nutle. >> Yeah. Yeah, the new Eric Nutle. Um, Rupert. Um, but why don't we do a quick little after show? Why don't you um uh you got anything big planned now? It's winter for you, right? So you guys it's cold weather. What what's the weather like there at this time? >> It's actually I mean you know it's not even close to spring yet actually. It was it was pretty pretty I mean it's what it's it's singledigit centigra. It's not proper it's not Toronto cold but it you know Melbourne gets >> cold for you. >> Um I'm actually um I'm traveling a bit. I'm going up to Hong Kong in a couple of weeks um for a couple of days and then I'm going to the UK um for most of the month of September. >> Oh, okay. That's a nice month to be there. All the tourists are gone. >> Weather still. >> Well, maybe sometimes you can get lucky with an Indian summer, but um you know, expect leaves and rain. >> Really? Like so I've never been like when does it start raining? Like is it like in the fall? >> No, no, no. It it's it's London, so there's always a risk of a shower. Um but um yeah, know September's I I do like September. It's it's it's >> Yeah. >> Yeah. >> Do you miss, by the way, do you miss uh London? >> It's been such a long time since I lived there. I haven't lived there full-time since 2009. >> Oh, okay. Well, do you miss it? or like >> I saw Chris Arnod uh the the wandering, you know, >> he's in Australia. >> That's what I was gonna say. But the reason is for those subscriber I'm a subscriber. I'm hoping he has he said he might come is Melbourne's not on his route, but he said he might swing by Melbourne. I want I want to go for a walk with him. >> Right. For those who don't know, he's an ex Wall Street trader of some sort and he's, you know, he quit and he's gone on this journey. He's like photographed um you know rural America. He goes and he lives >> sits in McDonald's. He sits in McDonald's in chat. >> Yeah. He's almost he he lives almost like a hobo. Like he's like going on Greyhound buses all around the world and all around America. He's photographing and talking to people. It's a it's a wonderful um and he's a terrific writer. I think we >> Yeah, he's just absolutely terrific. So we should actually if we're going to talk about it, why don't we tell people what is the So what how do I say it? It's a R >> Arnode, right? Isn't it? Chris Arnold. >> Yeah. Uh, let me just see here. We'll tell people. But anyways, he's in um Yeah, here he is. American photographer. And it's Chris Arnod uh walks the world Substack. And uh he I I read a piece recently where he, you know, went to Australia. I think it's his first time. And this guy is well traveled. Like this is a fellow that has been around the world. And he said the Australians are the nicest people he's ever met. That was it. He was He was just like, >> "I I I have to agree. I live here. It's my home now." >> Yeah. And it was just like And when he said, >> "I'm married to one." >> Yeah. When he told when he said um that now he's in Sydney, I think he said when he said it was a mixture of California and London, I was like sold. I was like, I wanted to come. Like literally, this was the best tourist ad that he's ever done. If it wasn't for your terrible time zone, >> it's that he was deeply discomforted by that because he actually likes to live a little bit tougher. It was too comfortable for him. >> Yeah, that's right. The people were too nice. >> We and I were not like at all. >> Exactly. We're We're not looking for that gritty. >> Little bit too much grit. >> Yeah, that's right. Okay. Well, on that note, everyone, have a great week and we'll see you in a couple weeks. >> Take care. Thanks, Gab. >> Thanks,