Massive Stock Sell-Off: Tariffs, Oil Crash, and Interest Rates — What Now?
Summary
Market Volatility: The guests frame recent large index swings as bear market-style moves, creating both sharp declines and sharp rallies that can be used by patient investors.
Energy Opportunity: Oil’s sharp drop and shale pullbacks have pressured equities like OXY and CVX, which are framed as Buffett-type buys and relatively attractive given modest starting valuations.
Oil Dynamics: Discussion highlights break-evens, tariff-driven cost inflation, dollar moves, and the potential for producers to slow activity, setting up improving supply/demand later.
International Markets: The dollar’s prior strength and now-weakness, cheap yen, and better relative value abroad position international markets as more compelling than the U.S. in many cases.
Buffett/Japan Angle: Berkshire’s yen bond issuance aligns with buying more Japanese companies, reinforcing the theme of overseas opportunities funded in local currency.
Movie Theaters: Movie theaters are described as cheap with cyclic recovery potential; 2025 improving and 2026 stronger as film slates normalize.
Tariffs & Inflation: Tariffs are seen as inflationary to headline prices but ultimately demand-suppressing, with outsized impact on import-heavy consumer goods and supply chains.
Banks Context: Big banks (e.g., JPM) are solid businesses with improved profitability from higher rates, but the more compelling near-term setup appears in energy and select cyclicals.
Transcript
Welcome, welcome, welcome. How's everybody doing? Hope you are doing well. My name is Andrew with Focus Compounding on Air Live with Jeff Ganon. Jeff, how's it going today? It's going very well, Andrew. How's it going with you? It's going great. We hope it's going great with everybody else as well. If this is the first time you are tuning in with us, thank you so much for joining us. Be sure to check out all of our content that we push out into the investing universe. The best way to do that is to follow me on X at Focused Compound. If you want to get access to investment writeups from Jeff going all the way back to 2005, uh go to focuscompound.com, click that blog section, and you'll be able to search different topics and sift through a bunch of different topics on our website, focusedcompounding.com. If you're going to be in Omaha this year, Jeff and I are going to be there. If you're a prospective investor and you'd like to meet up uh learn about what we're doing at Focus Compounding or just meet up to talk about stocks, uh reach out to me at andrew focuscompounding.com. We will be there the week of uh the uh meeting in Omaha. So reach out to me, andrew focuscompounding.com. So Jeeoff, I don't even know where to start today. I mean, goodness, there's just been so much that's gone on in the market since we last recorded. Um, everyone listening is obviously very familiar with what has gone on. Uh, I guess you could say, are we in the middle of a a trade war, would you call it? Is this an embargo? Is this just a short-term thing? I mean, what's going on? I mean, you could see on the screen right now, Russell's down uh 17%, the NASDAQ is down 11%, the S&P 500, uh, 9%. Um, and then the Dow is also down a good amount as well. uh crude oil. Last time we probably talked on the podcast, uh we're probably down about 10 bucks since then to right around low 70s. Um I've been seeing and hearing reports of uh shale companies um laying off people or, you know, being very shaky about, you know, what's going to happen. uh drill baby drill. Interesting concept, but break evens for a lot of these oil companies is probably in the 70s, right? Slap on some inflation that's come from tariffs and I think maybe the uh those break evens are a little bit higher. But yeah, just want to get your opinion, right? There's so much going on right now both in the market, in commodities, with interest rates. It's been truly fascinating. So yeah, let's hear it. Jeeoff, what are your thoughts on everything going on? Um well so as we're recording this some things today is the 11th we should probably say yes the 11th of April. So you see a lot of things up on the screen. Um the you know uh in terms of the stock market and everything the the moves were like you have some when you have like a bare market or something right so they're similar to things that people saw to some extent 2008 but more than that.com um and so yeah I would expect large moves including large up moves your biggest up days usually happen in a bare market so that's you know that will be common to have days that are up a lot as well as some days that are down a lot too I guess although we already had a few of those to start with. Um and then some of the other ones uh I mean oil that's a little more complicated. So like for instance um uh not a lot of stocks are all that cheap compared to where they were you know a year or two ago or something but something like Oxy Chevron those things that you know are Buffett type buys are are down a lot from where they were before because some of these things were already not you know they they hadn't gone up recently at least and then things that were sensitive to recession were already down a lot before this and actually didn't drop necessarily as much as you would have expected versus other stocks many of the stocks that dropped recently are not so much economically sensitive. It's not so much pricing in recession as sensitive to like we talked about tariffs or just things that are higher risk or very expensive prices. Um some of the things in transport, travel things, all that stuff was already down 30% or something before and so it hasn't been down as much recently. So I wouldn't say there's so much pricing in of a recession right away except for what you talked about with oil. Yeah, accidental petroleum since uh all this uh started is down about looks like 27% 28%. Um so I imagine Chevron is uh very similar as well. We could look it up right now. I mean oil's down from like I said 70 to about 60 bucks. We were under 60 for a little bit there. Um let's see if I could pull this up. Yeah, 21%. So, interesting. And it was funny like the uh Treasury, I'm sorry, the uh let's see, US energy secretary, he said that the sell off in the oil market is overblown. He expects American crude uh producers to keep increasing production. And I'm like, yeah, I don't think that's the case at these uh prices. seeing lots of reports of people that are like, well, they're either slowing production or they're not going to go through with the project or something like that. Just kind of sit in wait mode. Um, things happen pretty quickly in there. So, yeah, very interesting. This this meme came out. I thought it was funny. The last stance, Buffett sitting there, you know, sitting on his 300 billion in cash. But yeah, do you have any thoughts on oil in general and everything else? I mean, are we pricing in a recession? Is this because of the tariffs on, you know, China and what could happen from there? Uh, what's going on? It's hard to know with the oil. I I don't think this is that expensive. Um, it's pretty cheap compared to where we were at the start of other recessions, you know, in the pa past. Um, when I talk about 2008 or something, in real terms, it would have been really expensive in 2006, 2007. Um, and then also the dollar declined against other currencies. It's probably down 10% or something this year. So, um, the oil prices that you see for that is, you know, like you have WTI there. So, that's pricing oil in the United States in US dollars. Um, so it's pretty big move in terms of oil, um, and what it actually costs around the world. So, that's big. Uh, this, you know, it's kind of like a tax cut for people when that happens, you know, in terms of consumers and stuff. So, um, you know, we'll see, but it wasn't very high going into this. um whereas it had been sometimes in the past. So it is different you know um from that from you know the 2008 experience but you know each one is a little different than the one before. So um obviously though not as cheap as like say co but there was actually a huge change in demand at least short term for that that everyone knew about. Mhm. What are your thoughts on the US dollar? You are right it has come down a bit. Expensive. Yeah, it was really really expensive coming into this. Some of it's crazy. I was looking at the Japan company handbook. I have the last edition they decided to stop publishing it. And um uh the the yen going into this was very very cheap versus the dollar. Like if you were an American taking your dollars going switching them over to yen in Japan, everything would have seemed really cheap to you. Um so yeah I mean we know that US stocks certainly um but just assets in the US were pretty expensive uh and that actually even added to people in other countries investors you know returns over time is both that US outperformed their home markets usually but also the dollar did fine too and now both of those things have reversed where um other countries foreign markets are doing better than the US and then the dollar isn't doing well either. So for people investing in other countries into the US, it's not good. Mhm. Do you have any thoughts on yields? I mean, the 10ear is basically, you know, kind of where we were when all this first started. A lot of people were speculating that, oh, they want to, you know, crash the economy or or, you know, have a recession or crash stocks to uh, you know, get yields lower so they could refinance a huge chunk of the debt that's coming due. in July, but yields have been going the opposite direction and even it was what was it Sunday night or maybe Monday night uh yields were basically kind of blowing out overnight and then Trump uh added that 90-day pause the next day. It was funny you had Bessant come out and say, "Oh no, you know, it wasn't because of the bond market why we're doing this 90-day pause." But then you had Trump come out and be like, "Yeah, I was watching the bomb market last night and it was a little bit queasy. people were a little bit queasy or whatever. Um, so you know, curious about all of that. So, usually when you have some sort of crisis, uh, everyone tries to get to their home currency and cash. So, if you have a lot of people investing in the United States, and that could be mort mortgage back securities, it could be all sorts of things other than just um, US treasuries, uh, then it would go from being investing in long-term things to investing in short-term things. and to investing it basically at home. Um, and that tends to happen regardless of their actual beliefs about where's the best place to put the money. It doesn't mean that they believe that home is the best place for the money or that um, short-term is, but that's what they do. In World War I, Europeans pulled money from the US, for instance, and it's clearly wasn't because they thought it was better to have it in Europe. that just want it in their currency and in a bank account basically, you know, and the equivalent of that here is like, you know, three month treasuries instead of 10 and 30 years. Um, so I wouldn't s be surprised if, you know, when you have that kind of thing happening, the the um yield curve changes that way where people are less inclined to to own long-term things. Yeah. You have price of gold um breaking out. If you want to talk about the yield curve, we have it um up here right now. Of course, Trump came out and you know, he was saying that the Fed needs to cut interest rates and JPL immediately was saying that we're not going to cut interest rates at least right now based on everything that we're seeing and that tariffs are inflationary and in in their minds basically inflationary inflation comes number one. Um, so yeah, I mean are you is the yield curve kind of signaling anything to you? Do you think uh you know yields are going to go higher? Do you think the curve will be steeper? What do you think? Well, depending on how things develop, steeper would be pretty normal. I mean, depending on where things are headed, but yeah. Um, but that's not hard to predict if we were saying that they're completely flat and for a surprisingly long period of time. So, um, yeah. Yeah. And then on ter in terms of the um the market has expectations for some cuts coming up and you know other than inflation expectations and inflation data to some extent but only things that change quickly in price um would they not cut rates? I mean by any other measure you would cut rates. So, um, and I mean, yeah, I I I don't Yeah, I also don't know how, you know, um, I mean, tariffs could be inflationary, I suppose, in some ways, but so could, you know, that's kind of like Japan introduced a um, like a consumption tax, like a sales tax at one point, and so that's inflationary. Yeah, it it is, but it's not the same thing as like what we saw during CO or something. I don't know that that would lead to sustained higher prices over time um because it's not very stimulative. It's exactly the opposite to the economy. So in the long run, I don't think that you know tariffs are why you have a lot of inflation or something. I think that you know having large deficits and having a lot of money uh growth over time is more what would cause inflation. Um and you know optimism people to spend that money and everything. But if they expect everything to cost more in the future, then theoretically that means that they have to spend the money now. Mhm. I mean, do you think this is I mean, so today, China, they uh they put another they raised their tariff on us, but then also said that they aren't going to raise it anymore because it's kind of a joke at this point and that, you know, there's basically no market for things at at this high of a price. So, I do wonder if that's sort of the ceiling and going forward, you're only going to get good news come out of uh Washington as it relates to, you know, tariffs and settling with countries and probably walking down China uh the tariffs there. So, I imagine, you know, my thinking of it was maybe we'll start to get a bounce because there'll be more certainty going forward. Um, and you're probably only due for better news. Of course, barring that, you know, Trump doesn't just wake up one day and tweet something else kind of on a whim, which is a big if, of course. But um yeah, I mean, China basically said they're not going to retaliate by raising the tariffs even if the United States continues to do it because at this point there's just there's no point in doing it. Um and like I said, they called it all a joke. Um so personally, I kind of think we're towards the end of this. casino you know markets are forwardlooking and I think if they have the certainty that tariffs aren't going to continue to go up supposedly there's 75 countries that are you know willing to negotiate with the white house um so I imagine you're only going to get positive news that comes out of that um so you know we'll see what happens but I guess you know the real question is Jeeoff what happens on you know going forward is this a new world or a new regime regime that we're going to be living in. Um, you know, Trump clearly wants, you know, manufacturing and US jobs and everything to come back on shore. He's been talking about that for 40 years, but I just don't know how much of a I don't know how much of that is realistic. You know, of course, this is just pretty obvious, but it's incredibly hard to open up a new factory and all that. You know, it could take five plus years to to bring all that back home. I don't even know if we live in that world anymore and what would that do to prices here and you know there's a lot of debate around that but I don't know I mean at this point how do like what happens with everything on the back end of all this or do we eventually just kind of get back to where we were and all this chaos was just chaos for nothing maybe I mean I don't know that if there'll be a lot of trade between the United States and China in the future ever again. Um, there might be, there might not be. Uh, it's a little tricky. China doesn't have really friendly relations with a lot of countries and they don't have a lot of support in the United States from either party and America's not very popular in China. So, uh, there's other issues as to why those two countries might not do much that way and it's not in a lot of other countries efforts not to try to take advantage of China during this time. So it it I mean it's not a huge huge item like I don't know if you know US imports and exports are maybe I don't know low double digits of GDP or something and of that you know I I don't know cuz there's probably data where you have to include Hong Kong and China as separate things but you know most of it 80% of it or something is probably with other countries so I I don't know that it's terribly consequential in the very long run you could see a world where the US and China don't trade with each other other countries all trading with the United States and with each other um is more of an issue and there hasn't been any sort of trade war looking that way I mean there hasn't been a lot of singling out of other countries except China and other countries haven't mostly singled out the United States except for China too so that seems to be the one that would be most likely to be the long-term consequence um how much of you think the reason why there hasn't been any sort of major world war in a very long time is because our economies have become so intertwined with each other where you could fiscally harm somebody or hurt their economy if you know they were a threat to you just by you know that's a theory tied to the hip right yeah that's that's been a common theory uh I I think you know uh it's unlikely just because on the eve of World War I the world was extraordinarily globalized and it took it a very very long time to get to similar levels again. So um it only is in the last I don't know 30 40 years or something that it would have exceeded those levels. Um so there was a ton of trade before World War I that changed everything. Um I think the two major factors for that are nuclear weapons and democracies. The number of democracies in the world went up a lot and they're not very likely to go to war with each other. It's pretty rare. And then uh countries with nuclear weapons tend not to go to war with each other. So the that combination um is a big factor. Um so there have been though smaller wars between countries one or more of which are not democracies and that don't have nuclear weapons or that are not you know both sides don't. So it's not impossible. It it has happened. Interesting. So let's talk about Buffett. So he's sitting on 300, you know, plus billion of uh cash. Saw this come out yesterday. Uh Bur Hathway raises 90 billion yen from bond sale. Um you know I don't know if you saw this come out. Um what do you think he's doing? I it's not a terrible amount of US dollars but it was interesting that he did do it. Well he's kept trying to borrow to buy more of the companies in Japan that he has and he's kept saying that he'd like to buy more of them. So you know he mentioned both of those in his letter that he wants to buy more of them and that he wants to finance it in yen. Mhm. With all this volatility, I mean, where are you seeing opportunity? Take people through it. What are you seeing currently? Well, mostly I'm not seeing a lot of opportunity because things were very expensive and then it's a question of what things dropped and what things did not. There was a day or two where some things were interesting in that they would drop by you had some things drop like 15%, 10% in some countries too, not just the United States. Um maybe because they were in an index or whatever. I mean, you know, you had three days with really big moves that things just had, you know, people may not have even known what they were buying and selling with particular stocks in that, you know, um so there are interesting things there. We talked about oil, you know, that's one that's interesting in terms of it was not that expensive going in and it'll be interesting to see what happens. um it's pricing in a scenario that if uh oil is that affected um then a lot of other stocks are too expensive relative to oil companies probably. So on a relative basis it's attracted that way. Um and then there were other things that were already pricing in recession type things whether that's you know consumer discretionary type stuff or airlines like we said you know travel related things stuff like that. Um, some of those things were already down quite a bit, but there's lots of others where it's, you know, this is not very uh enticing. You know, uh, Walmart imports a lot of things from all around the world and is, you know, probably 30 times record earnings or something after um, these declines. So, you know, there's a lot of stocks like that. We talked about the mag seven type things. I'm surprised that advertising things haven't fallen as much. Uh so you know that's the interesting thing with oil being affected so much and other ones. Yeah. I mean some of these are down but they just haven't been down by a huge amount. And they were down some of them I don't know how much they're down now versus the market versus what they were you know in the few months before. So I I would just think that they'd be particularly sensitive if people were pricing in a recession immediately. But Mhm. there were some days where you know banks were moving a lot. Lots of things are moving as if they were predicting um you know recessions certainly. Yeah. I mean advertising I don't feel like has dropped as much as things that are exposed to oil. I think you even saw that with like fear with Apple or something but not necessarily fear with some of the advertising supported tech things you know that make a lot of their money from advertising. So which is more your meta and stuff like that. Um so uh you know I mean we were predicting basically no growth before the tariffs happened you know and um some things were a little worried about a recession. We've talked about the yield curve and all those things. So it's not like you were in the middle of a boom at the time that this all happened. There was already concerns about that stuff that showed up in terms of what things were performing badly and what was doing well. Um, so I mean I don't know the numbers, but like Mag 7 type stuff probably was not performing that well relative to the market before the whole market started dropping. So yeah, I mean Tesla's been getting uh taken out to the woodshed as well. Yeah. I mean that that could be tied to con I mean we talked before about how there's issues with um electric cars in general like supply and demand but I think that the Tesla specific thing is brand concerns right because it relies so heavily on one brand. Yeah. Mhm. Yeah. I'm sure it's more protected with that. Yeah. It's more protected than other automakers in terms of um production and everything but yeah the brand would be a concern. Mhm. Yeah. Mhm. So I guess at at these levels, do you think uh looking for value in in oil related things could make a lot of sense or you know I I pulled this up as you were speaking the rig count came out today and uh down by total rigs down by seven um over the week. Like I said, I've been seeing a lot of reports of people just being like, "Yeah, I guess you know, I'm getting laid I follow a lot of people or whatever in in the energy space and and follow it and um I don't know how much they're going to be producing at these low oil prices. Yeah. So I mean I think there's some things that will turn faster than other things. So yeah, if you're right about you know being able to predict things about a recession when it would end and everything then yeah owning things like oil and airlines and things will do better initially than other stuff. um they'll they'll start going up when news is bad because they'll already be anticipating recovery and everything. Um so um yeah and but it does also depend on the financial situation of each company because if they own a lot of assets and don't have a lot of risks in terms of being able to service debt and everything then lower production over time you know will lead to higher prices and they'll be around for it. So Mhm. That's what's different though in the energy space. I feel like I I've come across names before where they look cheap, they scream cheap, but if the macro backdrop isn't pretty, these things can get cheaper than you could ever imagine. Yeah. And instead of being a company specific thing, but there's plenty of like I could name stocks in other things that are cheap, but there's a company specific reason that people are concerned about. So like um uh we talked about David Busters that's cheap but that's because I didn't like you know sort of the direction they were going. Now they replaced the CEO and the interim chairman interim CEO or whatever kind of said although well-meaning they made a lot of mistakes and we're going to change what they were doing and stuff even though they're probably their pick to be CEO. So that might mean that they're going to pivot that way. So that's not a macro thing. I mean, I think the stock's also down for macro reasons over in that most of those entertainment things are down, but it's down even more. Um, Sleep Number is another one, very cheap. Um, but that's one that also is partially macro. No one's going to buy a, you know, an air a very expensive air mattress in the middle. I don't think I've ever I don't think I've ever looked at the stock Sleep Number. Yeah. So, both Dave and Busters and Sleep Number have real credit risk though and everything. Ton of Look at that. a billion enterprise value, 109 million market cap. Yeah. Well, but they don't have a ton of debt versus what they were once making in operating income. They probably looked like a normal amount of debt. So, if you go back in the last 10 years, they probably had years, what's their high operating income years? They probably had years that were not that far from Yeah. Like they would give them the peak of 194 million. Yeah. Yeah. So, but you know, until recently they were making 75 to 150 million or whatever every year. They probably thought, "Oh, you can have a few, you know, I mean that's a lot of returns." Yeah. Of debt. Um, and the same thing with Dave Busters. They even borrowed money and bought back stock at the same time that they have, you know, leases. Um, and they they did sale lease backs too and stuff. So, they added financial leverage on top of a lot of operating leverage. And both of them have that where they have high gross margins, right? And then you have a lot of fixed costs and then you added financial leverage on top of that, right? Um so Cracker Barrel is cheap but that's one that is you know since co has been company specific issues because it hasn't been raising prices and all the things that people um consume at those restaurants are really expensive for them and then those going up. So they got real value conscious customers and then they've got, you know, they're basically serving eggs and and meat and stuff and that's where that's our place. I think we at Cracker Bro about 10 times when we're together on the road. Yeah. So look how before co they were doing 250 300 million a year in operating income. They have not done that for five years and the stock you know reflects that. But um if we look at revenue, gross profit, it's kind of the same size business that it was not that long ago. So all of those have those things, but unlike oil that you're talking about, since these aren't commodity things, there's a very specific story with each one about why it's not working. So it feels different that way. But if any of those things turn around, then the stocks would do really well, you know, and oil is just they don't need to turn anything around except have the price turn around for them, you know, for things to get better usually because it's a commodity. Yeah, I'm just looking up because we're talking about this company uh because I remember seeing a couple days ago that Bigalari he um made an offer to buy El Po Loco Pou Loco. Yeah. Less successful. Texas Place. You've been there, right? Mhm. Yeah. A lot less successful past history than Crocker Barrow, but yeah, it's been cheap at times. Yeah. What was his price for? Let's see. Yeah, I'm not finding it right here in this article, but I do remember seeing that. So, I thought that was interesting because he's done a lot of things in restaurants. Yeah, that was his big area. He's been a very successful restaurant industry historically, I'd say, before most of the things he diversified into, but he's also been a real activist in those things and they've mostly been able to stop him from doing much in that, you know. um received an unsolicited non-binding indication of interest from Mclari Capital Corp. to acquire all the companies issued an outstanding shares of common stock that it does not already own. Interesting. So, this AK doesn't have a price. Yeah. Entered in a confidentiality agreement that contains a customary standill. Okay. Got it. anywhere else you're seeing uh anything interesting? Well, the other issue is that the rest of the world things are cheaper than the United States. So, the problem is more that the US was kind of expensive versus other countries and not everything there. There are, you know, tech things and stuff can be expensive in the rest of the world. There's just less of them. Um, so I think there's more that was interesting in other countries that way. And then the main thing though is that we're just because we had such good last two years or so. If you look at charts, you're only for a lot of stocks that you would want to buy because it's good business. You're only back to where you were a matter of months ago basically. I mean, some of some things for a day or two there. We'll see how long this lasts. They're making 52- week lows, but they're not often making fiveyear lows. Yeah. Um Yeah. What about uh China? So, they're they're floating the idea of, you know, delisting or basically doing uh taking these these ADRs in these Chinese companies off our exchanges. Mhm. That's very scary if I owned any. I mean, we've looked at things in China before and we've never purchased anything. But let's say you owned some security that had, you know, was either listed there or had an ADR or exposure to China. Would you be uh is the the cat risk through the roof here with that? Well, it does happen in some countries. I mean, it's happened to a bunch of companies recently in the UK if they were listed on AIM because they've some companies have taken advantage of that situation to be able to basically take the company private without buying it out, just delisting it. And they know that given the shareholder base and everything that will basically get people to to um uh give up on the stock that way. So, they can basically just delisting. You could continue to hold your shares in those cases. But you know that's in like the micro sometimes almost borderline nano cap type stuff that wouldn't get reported on the same way. This would just be that kind of example but in giant companies but it's because of the relationship between the countries. So it it does happen in like those kinds of things. That's an alternate exchange thing. So it's not used to people ever seeing that happen on things that are listed on like NASDAQ or something. Yeah. the price usually collapses and people don't want to hold it. But and I don't know how easy it'll be to invest directly into China for people and Hong Kong has changed a bit from what it was before. So I mean if we looked at things in China in the past, we never looked at we looked at businesses that operate in China. We wouldn't be looking at something that was listed here that threw a variable interest entity or something and um stuff like that. It would be a more normal sort of situation out of Hong Kong. But even that has changed. So I guess I mean what are you looking at Jeff? That's what people want to want to know. Any anything interesting you've come across? No, like I said, I've I'm looking at lots of things, but the the changes that we're talking about. I mean, we talk regularly about I mean, what's a high quality company that's come down a lot in price and was not a really expensive price to begin with is the issue. If it was 30 or 40 times its earnings, stocks are down a lot, but that's still not really a very cheap stock, you know. US Lime's come down a bunch this year. Yep. But it is also many many times still pretty uh in terms of the multiple of what it was at any time in the past. I mean, that's the issue. So this is a stock that now having come down is 16 times DVD when probably it was routinely under eight all the time that you could buy it six seven times all the time for years and years. Um and I'm not saying that it'll necessarily be bad but they are tied to you know activity in Texas and and other places potentially. you know that eventually construction activity and other things some of the stuff will stay the same but there's a part of their portfolio that the volume will drop a lot even if the price doesn't um yeah I mean volume was huge drops for these companies in um the great recession I wouldn't expect something like that to happen as much to this kind of thing because I don't think you would have as much an effect on actual construction activity or something like that um it might be hard to sell houses and home builders might have problems and things like that, but there's just not been a huge amount of new activity lately in the last few years the way that there was right before the the um housing bust before. So there's not this like buildup of over supply the same way. Yeah, because like we mentioned uh um at one point we had talked about there was a company that made um things for flattening for mainly for warehouses and things like that for making um flap flooring basically through machinery. It was actually I believe aim listed stock but but it would have gotten much of its business in in China and stuff but um that drop those orders drop to like nothing when something like this happens but then they make a lot of money at other times. So, you know, those kinds of activities do drop off. Um, so you have less warehouses and things being built. Now, there's roads that are still being built and whatever, but uh you probably see a big volume decline at some point in something like this, but not a big price decline. It's just, you know, uh I don't know, years and years ago, Buffett was talking about insurance things. He's probably said the same thing before. And he said, you know, we price to exposure. We don't price to recent experience. And that's the issue with a lot of these things. Yeah, I mean it's it is down a lot, sure, but if you wrote it up before COVID or something, people wouldn't believe you that it would get to 16 times even. Now, some of that is also is smaller and then once a stock gets bigger and it just takes on a life of its own. That way you kind of get rid of the discount of a high quality really small companies sometimes trade kind of cheap and high quality medium-sized companies don't just in in terms of being really easy for people to invest in it. It it quality eventually gets high multiple if it gets big enough you know. Mhm. Yeah. the the peak EV to Ebida looks like it was 30 times and I don't even remember when it was 30 times even the you know people I know that owned it were like why is it becoming so expensive I mean it would just it was very richly do you know what it looked like before the uh oh yeah it was always like nothing yeah I mean let's see we could go back I mean it was always this has always been one of those uh see cheaper companies we could go back to 2020 and Looks like the peak evid ibida before then was 10 times. Yeah, if you look at right here, looks like in 2017 it hit 10 times. In 2019, end of 2019 like 10 to 11 and then yeah, it just shot up. You got more than double from multiple expansion. Yeah. So, I don't know if people are predicting a recession right now, but they're probably not predicting that the economy is better than it was before COVID happened. You know, 2019. people weren't that optimistic on the economy, but they're probably not thinking we're materially better than that. And it's, you know, what is it 50% 60% more expensive than that on the multiple now after I assume coming down a bit? Um, yeah, actually you can see it came down a lot. What about financials through all of this? Banks specifically. [Music] Yeah. Well, are there banks that people are interested in that are the right uh sort of um multiples on that? So, I mean, the ones that I know people like a lot are the very big ones. You know, JP Morgan, I guess, will be reporting earnings or has, you know, basically did this morning. They did today. Yeah. Okay. So, um and I'm sure and I know his letter came out and everything. So, they do all that around the same time, right? Um, so I'm sure there's probably news things about him saying something or people at the company at least talking about the future. Um, yeah. I mean, for a giant bank, it's a good business. Yeah. And it's very detailed the information he gives in the letter that you can learn about comparing each segment to the quality of those businesses and other um each of his segments to kind of standalone businesses in each one. And you could also look at the peers for that, you know. So if he says Northern Trust is the best that we compete with in that area, then you can go and you can look at that one or whatever. Um yeah, so on a earnings basis and you know some of the banks look attractive. Sure. On a price to book basis, you know, they're doing better now than they were before. So this is why sometimes you want to buy ahead of that because, you know, I don't know that return on assets will necessarily go up as much at these places as they used to. uh I mean as as they are now at sorry so like um you know you might only get a move from 1% return assets to 1.5 or something like one time you're you're probably not going to keep benefiting from that um I I haven't seen a lot of things about financial conditions tightening a lot or a lot of banks right now so um there was maybe a day where they were declining by large amounts but that was about it I didn't see like super dramatic selling in banks that you wouldn't expect. Some riskier banks, yeah, you did see some things, but I don't know if that's just more everyone was dumping everything that was kind of risky and stuff, you know, so we won't single out what those are, but just like in general um things that are not the JP Morgans and stuff of the world. Yeah, there was a little bit more on those or at least tied more to economic activity do really well in a boom and not as well in a bust. Say that. Mhm. I do wonder how much, you know, of the moves recently have just been the deleveraging of a lot of these pod shops and funds that run 10 to one levered or or or more than that, quite frankly. So then you get this outsized move and then their chief risk officer is just cutting it all, right? Just just selling it and and just massacring the the stock. Um yeah, there were some odd moves and things. Uh the things that's most noticeable to me like I said was index related things. But that's too complicated for me to even understand in that like when your moves are that big are there movements in underlying stocks just purely because of what's happening with indexes that everything in the index has to move like that. So occasionally you had things like we were huge upday. There were a few stocks that went up to levels that was higher than they had been before all this happened. And that's just because presumably they're in the index. It can't be that anyone actually really wanted to buy that stock that day. And there were probably lots of short covering and stuff at that time. But even if people were short individual stocks, they probably weren't picking those individual stocks to be short for that reason. We mentioned ones like Sleep Number and stuff. People are probably short that specifically because that company or the investors, whatever, they would be short that for that reason. There's other things where they probably just short a bunch of stocks as some sort of hedge across different things. And some of them might be betting on one economic outcome versus another, too. I mean, I guess like you said, um I mean, I don't know. It depends on It's hard to tell from just like reading news reports of guesses about this, but I would guess that professional investors were more optimistic um about things going into it and more pessimistic during the declines, whereas individuals probably buying during the declines. They were I saw reports on that. Was it Friday was was a huge flush and and retail basically bought the dip. So there's been no capitulation by retailer yet uh retail yet through all of this. Mhm. Which sometimes makes me wonder, right? Like we don't bottom until they capitulate. Um but yeah, I mean all the reports show that they've been buying all along this entire move. Yeah. Well, it's worked for a I mean very long time. uh for the I mean and it's more the issue I think of time than the size of the moves. I I've never seen situations where huge down moves or something just causes people to go okay I'm out I'm out of the market and stuff. it's that a bare market takes a year to a couple years or whatever and it's that experience you know um you know probably I don't know probably was eight nine years of multiple expansion after the the 2008 period like every year probably would have been like the multiple getting kind of better and stuff you know on average for a lot of things so that it's that feeling that builds up a lot of confidence over time and on the reverse it's multiples contracting for a few years in a row that caused that. So, um I think it's usually that that was my experience in com time and also 2008 just talking to people and everything. It's just the experience of not going up for a long period of time. And I mean, I shouldn't say not going up. You actually have lots of really big up days and then really big down days, but on average, you're not moving in an upward direction for a long time. And that's more what gets people to give up on the market or something and focus on other things. Mhm. Mhm. I guess the the the question to ask is I mean is there a particular industry or sector or anything that you know you're you're kind of excited about and then is there one that you're like oh no I would definitely stay away uh from that during this like through this environment. Uh well so there's a few different things happening at the same time. Um, one you have tariffs which change things a lot for certain companies in certain businesses and if those things continue um would be really negative for those companies. That doesn't necessarily affect a lot of other companies though. On top of that, you then have what that means for say shorter term recession and all that. I would probably focus more on that personally on what things are down because there is more of an expectation for things happening in the economy overall over the next however long that's harming them more so than trying to pick um stocks that depend in part on a kind of um which two countries that they they're trading with that way. So, I mean, here's the thing. The thing with the tariff thing, the really big reason why you don't why this production isn't in the United States is that it earns poor returns on capital. Um, so when you talk about things like contract manufacturing type stuff, it's not impossible to have build that up in the United States and do it instead. If you want to make iPhones in the United States instead of making them on the other side of the world, you could do it. Uh, it would cost more. Um, but that's not necessarily a huge problem. I mean, people will give up other things before their iPhone first, so they could pay, you know, that a few thousand dollars for an iPhone that's not going to bother them. Um, the the bigger issue is that we would then have a bunch of companies in the United States that would have returns that look more like they did decades ago instead of the kinds of giant businesses that people love, which have no assets. People don't like companies having these assets. So, these companies outsource their assets to the rest of the world. So you could have vertically integrated Nike, right? And it would be a good business, but it wouldn't be the business that investors like that actually has someone else doing all the work and it's a marketing company or, you know, Apple and it's not actually assembling anything. Yeah. It wouldn't be a Well, I guess this is only 20 times earnings, but Well, Nike, there are other ones that are like, oh, this wouldn't be a 40 times earnings company, right? Yeah. Um and and some of them depend very much on where they're the the places that they're um like Nike is a good example where all their production for the most part is in really poor countries and all their sales into really rich countries. Um so they're not generally producing things that are being sold in the same country to the same sorts of consumers and everything. So that does happen. And that would be the same thing if you're exporting to you know uh whatever other things where you depend on one you know watch company is a classic example of that where they're really just producing everything in say Switz you know luxury wash things in Switzerland or something and then they're making a ton of profits in Asia and to some extent profits in Europe and a bit less in the United States and everything but they're very dependent on producing in one place and then u making all their sales based on their reputation in another place. Those are the ones that are more sensitive over time because would these exist in this form if the world didn't look the way it does in terms of there being no, you know, like really really low tariffs between places and also lots of other not being restricted things. No. Um I think that they wouldn't look that way, but it's fairly easy to obviously pick other things that are completely domestically based if that's what you're interested in. Um, but some of those also would be negatively impacted if there's a recession or something. And the problem is more the price that they went into this at. The reason why I mentioned oil was that they the stocks oil stocks in general weren't, you know, terribly expensive or anything. And oil wasn't terribly expensive to start with. So that was why it was more attractive. And it was one of the few areas where you saw Buffett buying some things not that long ago. Mhm. He's been buying accidental, right? I I don't think No, no, he had been buying it as high as like 50 to 60 normally, right? Anytime under 50 he was buying. Yeah, under 50. Yeah. So, um Yeah. But so, but I mean, so it hasn't drastically changed things. I said before like look, if I was managing just my own money and stuff, I would be holding more cash, be short things, whatever. And I said, I don't know where people will do well. you'll get a result that you want unless you are say short mag seven type stuffs or something like that if things go badly because what how else are you a lot of things will go down a bit over time because everything's pretty expensive. We've talked about supermarkets. We've talked about movie theaters, things like that. They're not affected by it. They're okay. they were their earnings this year and next year and the year after that will probably be the same to slightly up or whatever depending on the company and their multiples are normal for like their long-term history. So it's not like they're, you know, they're one of the few areas, each of those things in the United States, both supermarkets and movie theaters, they're probably not that different since COVID, they've average these kinds of multiples for a while and their earnings probably aren't abnormally high this previous year. Whereas some other things, you know, will have their earnings, some companies will predict their earnings will go down a bit or they'll at least change guidance and do things like that, whereas these things are mostly not affected. Um, and they're mostly, you know, okay, so I'm not saying they're great businesses, but like the market often the way that people make 10% a year in in stocks long term is they own things like this where, you know, the multiple was what did we have here? EV seven or something or, you know, we have a EV to sales low ones and then them with that historical margin that's, you know, 10 times pre-tax profits or something, right? So that's what Buffett probably bought a lot of companies at. Both companies he bought the entire thing and the stock, you know. So I'm I'm all for looking at other industries that would be interesting. I'm not um all doom and gloom about what their future will be versus their current earnings. It's just there's not a lot of things cheap at Yeah. Not. It's not even cheap going into this. There weren't at a normal level for them. Most things were elevated, whether it was one and a half times or more, but most things were kind of elevated. And you know, um, I mean, we don't talk about like junk bond things or even businesses that are or companies that are in those kinds of businesses, but the yields on those things and everything are really competitive with um, you know, investing in those things would be really competitive with with a lot of stocks if you really thought, yeah, there won't be a terrible recession or something. And I mean it's it's hard for some to think that stocks would have better returns that you're getting a lot more for taking more risk I guess is my way of putting it. Um so I can totally understand it when they trade at huge levels for Nvidia and stuff because it's a rapidly growing company. It's more just across the board that stocks that aren't grow. I mean what Walmart's probably grown 3% a year for 10 years and we said it's at 30 times earnings. So that's those are the ones that are hard to figure you know. Yeah you're right. 10 year keer 3% EPS 3.7. Yeah. So it's it's at 37 times uh today. Where were we before? We're down probably a bit. I mean yeah 20 times. Evid Ebida. So I'm not negative on it. But if you're asking me could a supermarket or movie theater also have 3% a year for 10 years. Yeah. That sounds like 43 times earnings. That's crazy. I mean, what sectors are there? What or I should say, what industries are there that are cheap right now? Um, energy. Yep. And some and in general, I mean, when we talked about energy, some of those things and I mean that's oil, that's natural gases, all those things. Um, yeah, the the commodity itself is not super expensive compared to the past and the the um the uh stocks are not that expensive. When we talked about banks, that's a little different because before they were pretty reasonably priced and it seemed like rates could be higher in the f, you know, rates were lower than normal. Now that's not the case anymore. So it kind of comparing them as a commodity thing. It's as if they're commodity isn't that attractive. You know, it's pretty normal priced. Let's say that the price of money right now is pretty normal. Whereas before you kind of thought, oh, their earnings will get better and they're kind of cheap. Now you're more just like, well, they're not too expensive. Um. Mhm. No, movie theaters are cheap. You just had a good week uh at the box office, right? Yes. Yeah. And this year won't be that good. We talked about that. But, you know, next year will be better probably and better than We've said that for like the past couple of years for like, oh, next year's the year. Oh, next year's the year. Saying 2025. Yeah. They they were always saying that the theaters are always saying they need to make it to 2025. Looking at the schedule, I'd say it looks more like 2026 to me, but 2025 should be better than 2024, but 2024 was really bad. There was strikes and there there was just lack of product and everything, but um yeah, when the product's there, it doesn't seem like it's uh doing badly. No. Um and you know, in the much wider thing, look, if you had really high tariffs across all sorts of things, there is everything competes with everything else. So the less attractive things are for actual stuff, um the more attractive it is for things that don't have those tariffs on it for other experiences and things like that for people um in general. So it's, you know, that's the thing that I think is most misunderstood in the reporting that I see is like, oh, this is a price increase on this thing and this it'll be, you know, they estimate here's how much more a year consumers will pay on this and this is what it'll cost. And for a bunch of the things they're talking about, people will just buy a lot less of them. Um, but the ones I'm surprised by are like, do you have Hamilton Beach brands for instance? So there's a ton of companies like this where everything would be imported. Now all their competitors would be importing it too. But the business, a world in which there's even some tariffs changes things a bit and very large tariffs from some places changes a lot in that there's no way people are going to buy as many things uh that these companies sell unless they're incredibly cheap. It's not like the iPhone. If you double the price of an air fryer, you're not going to kind of sample and be like, "No, no one is." Yeah. All right. I don't need a $100 air fryer or whatever. Yeah. And people have three of them and they're under the, you know, they come out with the new one, they forget they had this one, they switch and get into this one and say, "Oh, I'm going to do this forever." No. Then that goes under the right and they pile up a lot of this junk over time for something super durable that people are going to buy and keep forever and all that. It tariffs don't necessarily affect it to the point that the quantity would permanently be impaired, but there's just a lot of stuff where the quantity would be so much lower. Um and and so when people talk about things like whether it's I saw things about toy things and whatever it's it's if that was the long term that those are where tariffs will be it shifts things in a lot of ways. People would buy fewer of them. They would be more expensive. They would also be designed to be better in certain ways in terms of the markers of quality because you wouldn't be trying to have the lowest price things that way and you'd have to focus on something else and reconfigure your business on the expectation of lower quantities of that. But it's not just price that would move. you would have lower quantities of real stuff consumed if it is something that depends a lot on price. If it's an as seen on TV type thing, it's very important that that price look good. You know, that's how you sell it. And you can't ask people to to try a product at a premium price for the first time, you know. So, the the Hamilton Beach brands of the world, the ninjas, the whatever, those kinds of things, you know, they're just people will have less of that in their kitchen if there were tariffs everywhere all the time. It's because there isn't that people, you know, buy those things. [Music] Can you think of any other uh situations similar to HBB? Well, we already covered like Nike and O toy things. Um those would be drastically affected by some of this because people have gotten so used to very low prices for some of those things and they would just the business would be completely different. Um then there's other things that are complicated in terms of the whole supply chain, the kinds of um points around which they built a lot of suppliers and things. So that's where you get into things that are complicated with like cars. Even in cases where the car is made in someplace where you know it's being made, uh the actual making of it isn't is really an assembly type job. It's a lot of labor cost then, but there's a lot of other things going into it that are all there because it makes sense to situate them there. Um, in the long run, the toy industry, fashion things, whatever, wouldn't all be located in this focal point except that there's some things about labor and stuff for some of the businesses that are there. And so, you're there because your customers are there and you built it all around that kind of like Detroit with with autos in the past. You know, that's the center of the world for that kind of thing. And so toy things, fashion things, whatever, they're these places where it's all of that going on. And you wouldn't necessarily situate your business there, except you're there because your suppliers are there, your customers are there, you're all doing that together, but they're there because of the the um price for them. And so they would change which countries, you know, would benefit and everything from that. Um and and you would just over time not focus so much on that. Um, but I just think the a big underestimate for some of the things that we talk about with these companies is just people won't buy as much of it. I it, you know, Buffett's talked about that all the time, but I mean, it's hugely different whether it costs a lot more for an iPhone or costs a lot more for a um, you know, a rice cooker or something. Do you have any thoughts on coal? Trump's very pro coal. Is it exactly route? got to do more produce more coal, mine more coal. Yeah, I I mean I it depends. Uh if you're in the business of doing things that uh are new plants and new whatever things and stuff, then I guess that's great compared to having like can I just find an AMR again in 2020? Yeah. Um I mean the thing with the with coal and oil and all these ones we're talking about is like it's not necessarily a good thing if there's a lot of activity, right? Like you have to analyze the business. In a lot of cases, you're better off if there's a lack of supply, but you have what people need. That's my favorite setup. Yeah. And so macro backdrop, demand, you know, staying constant or or increasing and supply is very limited. I think the best returns, at least on like a short-term view, you could print money when you find that set up. Yeah. Which is what we talked about with US Slime or something. Those businesses have that, so they benefit a lot in their area when there's demand. Um now when their returns are not that great when there isn't demand um but as long as they can survive that period and earn a decent return then they just make these huge profits in the times where where it's short but in a commodity business you're basic I mean there's not a lot of commodity businesses where you basically you're going to be investing on the expectation that you're going to make a lot of money when the commodity is in short supply basically like there's not enough of it and um so I don't know that a lot of these things that the industry likes are necessarily good for the investors. It's not a great news if you know it's great for for passengers if they're going to open up a lot of um new routes for for planes and things, but it's it's fine for the company if they just make sure that they're running at nearly 100% of their seats full. You know, that's that's what they need to do. And so, it's just different depending on that. And as an investor, what you care about is the high returns on capital and all that and not necessarily lots of opportunities to expand and definitely not that you expand the real amount of stuff that you're doing. Um the coal stuff is like yeah some of it is what you talked about with government things because especially environmental regulations on that everything can be very costly um for the plans. So that changes it. But the big thing is there's a substitution possibility and if natural gas is is affordable for people then that's always a problem. Um and that it's true either way. It's true the reverse way. It's you know you have other ways with energy of if there's a cheaper way of getting energy then it's going to be a problem for your energy commodity whatever it is if it can be substituted in some way. Got it. Any uh final thoughts of everything going around Jeff? any uh you know any uh acts of you know what's funny every time there's massive volatility in the market people always sent me this podcast that we did I think back in 2020 let's see um let's see somebody sent it and then I guess resent it again this guy um using volatility to your advantage I think we did this back in 2020 okay uh he said a friend just sent me this 5-year-old podcast and the quote was, "You're thinking about volatility differently when you're fully invested." Yes. And every time there every time there's a lot of volatility in the market, this podcast resurfaces. So, I think it was a positive message we gave where, you know, there was some uh calmness or wisdom of how to think about things, you know, when when things are going crazy. So yeah, any any final thoughts or anything that you could leave our listeners with? Any acts of, you know, any sort of encouragement? Well, there's a few possible uh things of encouragement. One, if you have cash or if you own other things, uh bonds, other things that we talked about, then you can take advantage of volatility and it's great. So, we didn't talk about that really of just that whether there's negatives, that's fine. But prices moving a lot up and down is to your advantage as an investor. That's a good thing for you to have happen. Now, what I don't love is the corey letters that come out and say, "We took advantage of this to load up on this thing." When they meant we sold another stock to do that, obviously. So, it, you know, it can't help if you sold some Walmart to buy some Target or whatever. Usually, you were, you know, invested in one of them. But the you get but the opportunity to take advantage of um price changes uh to suddenly have something that you didn't see before that you could invest in now. And also honestly if something you know if you own some relatively expensive things that can be a source of funds for for things that are relatively cheaper. So although we talked about as if it's like it has to be absolutely cheap to move from one thing into another, it might not because you could be in things where you could sell them because you think that they are expensive now and exposed in some way to stuff that you're worried about whereas you can now invest in things that you have a clear idea of the value of it. Um the the volatility thing is a plus. No, I mean if you could create a world in which it would be easy enough for you to predict things in the economy and everything, but there was a ton of volatility, that would be great. You know, it's usually just that people are in the same boat with other people. So, when it's very volatile, they also are feeling like they have a lot of uncertainty and can't make predictions about the future. But I don't think that's true for some stocks. Like, we just went over some things. I don't think that you should be there should still be tons of industries out there where it you haven't suddenly changed radically what you think they'll earn a few years from now. Well, with that said, I want to thank everybody so much for tuning in with the both of us on the Focus Compounding podcast. Be sure to hit the subscribe button wherever you're listening or watching us here today. If you're going to be in Omaha and you'd like to meet up with Jeff and myself, reach out to me at andrew@focuscompounding.com. If you're interested in learning about our money management services, you can also reach out to me, andrew focuscompounding.com. I thank everybody so much for all the support and we will see you in the next podcast. Take care.
Massive Stock Sell-Off: Tariffs, Oil Crash, and Interest Rates — What Now?
Summary
Transcript
Welcome, welcome, welcome. How's everybody doing? Hope you are doing well. My name is Andrew with Focus Compounding on Air Live with Jeff Ganon. Jeff, how's it going today? It's going very well, Andrew. How's it going with you? It's going great. We hope it's going great with everybody else as well. If this is the first time you are tuning in with us, thank you so much for joining us. Be sure to check out all of our content that we push out into the investing universe. The best way to do that is to follow me on X at Focused Compound. If you want to get access to investment writeups from Jeff going all the way back to 2005, uh go to focuscompound.com, click that blog section, and you'll be able to search different topics and sift through a bunch of different topics on our website, focusedcompounding.com. If you're going to be in Omaha this year, Jeff and I are going to be there. If you're a prospective investor and you'd like to meet up uh learn about what we're doing at Focus Compounding or just meet up to talk about stocks, uh reach out to me at andrew focuscompounding.com. We will be there the week of uh the uh meeting in Omaha. So reach out to me, andrew focuscompounding.com. So Jeeoff, I don't even know where to start today. I mean, goodness, there's just been so much that's gone on in the market since we last recorded. Um, everyone listening is obviously very familiar with what has gone on. Uh, I guess you could say, are we in the middle of a a trade war, would you call it? Is this an embargo? Is this just a short-term thing? I mean, what's going on? I mean, you could see on the screen right now, Russell's down uh 17%, the NASDAQ is down 11%, the S&P 500, uh, 9%. Um, and then the Dow is also down a good amount as well. uh crude oil. Last time we probably talked on the podcast, uh we're probably down about 10 bucks since then to right around low 70s. Um I've been seeing and hearing reports of uh shale companies um laying off people or, you know, being very shaky about, you know, what's going to happen. uh drill baby drill. Interesting concept, but break evens for a lot of these oil companies is probably in the 70s, right? Slap on some inflation that's come from tariffs and I think maybe the uh those break evens are a little bit higher. But yeah, just want to get your opinion, right? There's so much going on right now both in the market, in commodities, with interest rates. It's been truly fascinating. So yeah, let's hear it. Jeeoff, what are your thoughts on everything going on? Um well so as we're recording this some things today is the 11th we should probably say yes the 11th of April. So you see a lot of things up on the screen. Um the you know uh in terms of the stock market and everything the the moves were like you have some when you have like a bare market or something right so they're similar to things that people saw to some extent 2008 but more than that.com um and so yeah I would expect large moves including large up moves your biggest up days usually happen in a bare market so that's you know that will be common to have days that are up a lot as well as some days that are down a lot too I guess although we already had a few of those to start with. Um and then some of the other ones uh I mean oil that's a little more complicated. So like for instance um uh not a lot of stocks are all that cheap compared to where they were you know a year or two ago or something but something like Oxy Chevron those things that you know are Buffett type buys are are down a lot from where they were before because some of these things were already not you know they they hadn't gone up recently at least and then things that were sensitive to recession were already down a lot before this and actually didn't drop necessarily as much as you would have expected versus other stocks many of the stocks that dropped recently are not so much economically sensitive. It's not so much pricing in recession as sensitive to like we talked about tariffs or just things that are higher risk or very expensive prices. Um some of the things in transport, travel things, all that stuff was already down 30% or something before and so it hasn't been down as much recently. So I wouldn't say there's so much pricing in of a recession right away except for what you talked about with oil. Yeah, accidental petroleum since uh all this uh started is down about looks like 27% 28%. Um so I imagine Chevron is uh very similar as well. We could look it up right now. I mean oil's down from like I said 70 to about 60 bucks. We were under 60 for a little bit there. Um let's see if I could pull this up. Yeah, 21%. So, interesting. And it was funny like the uh Treasury, I'm sorry, the uh let's see, US energy secretary, he said that the sell off in the oil market is overblown. He expects American crude uh producers to keep increasing production. And I'm like, yeah, I don't think that's the case at these uh prices. seeing lots of reports of people that are like, well, they're either slowing production or they're not going to go through with the project or something like that. Just kind of sit in wait mode. Um, things happen pretty quickly in there. So, yeah, very interesting. This this meme came out. I thought it was funny. The last stance, Buffett sitting there, you know, sitting on his 300 billion in cash. But yeah, do you have any thoughts on oil in general and everything else? I mean, are we pricing in a recession? Is this because of the tariffs on, you know, China and what could happen from there? Uh, what's going on? It's hard to know with the oil. I I don't think this is that expensive. Um, it's pretty cheap compared to where we were at the start of other recessions, you know, in the pa past. Um, when I talk about 2008 or something, in real terms, it would have been really expensive in 2006, 2007. Um, and then also the dollar declined against other currencies. It's probably down 10% or something this year. So, um, the oil prices that you see for that is, you know, like you have WTI there. So, that's pricing oil in the United States in US dollars. Um, so it's pretty big move in terms of oil, um, and what it actually costs around the world. So, that's big. Uh, this, you know, it's kind of like a tax cut for people when that happens, you know, in terms of consumers and stuff. So, um, you know, we'll see, but it wasn't very high going into this. um whereas it had been sometimes in the past. So it is different you know um from that from you know the 2008 experience but you know each one is a little different than the one before. So um obviously though not as cheap as like say co but there was actually a huge change in demand at least short term for that that everyone knew about. Mhm. What are your thoughts on the US dollar? You are right it has come down a bit. Expensive. Yeah, it was really really expensive coming into this. Some of it's crazy. I was looking at the Japan company handbook. I have the last edition they decided to stop publishing it. And um uh the the yen going into this was very very cheap versus the dollar. Like if you were an American taking your dollars going switching them over to yen in Japan, everything would have seemed really cheap to you. Um so yeah I mean we know that US stocks certainly um but just assets in the US were pretty expensive uh and that actually even added to people in other countries investors you know returns over time is both that US outperformed their home markets usually but also the dollar did fine too and now both of those things have reversed where um other countries foreign markets are doing better than the US and then the dollar isn't doing well either. So for people investing in other countries into the US, it's not good. Mhm. Do you have any thoughts on yields? I mean, the 10ear is basically, you know, kind of where we were when all this first started. A lot of people were speculating that, oh, they want to, you know, crash the economy or or, you know, have a recession or crash stocks to uh, you know, get yields lower so they could refinance a huge chunk of the debt that's coming due. in July, but yields have been going the opposite direction and even it was what was it Sunday night or maybe Monday night uh yields were basically kind of blowing out overnight and then Trump uh added that 90-day pause the next day. It was funny you had Bessant come out and say, "Oh no, you know, it wasn't because of the bond market why we're doing this 90-day pause." But then you had Trump come out and be like, "Yeah, I was watching the bomb market last night and it was a little bit queasy. people were a little bit queasy or whatever. Um, so you know, curious about all of that. So, usually when you have some sort of crisis, uh, everyone tries to get to their home currency and cash. So, if you have a lot of people investing in the United States, and that could be mort mortgage back securities, it could be all sorts of things other than just um, US treasuries, uh, then it would go from being investing in long-term things to investing in short-term things. and to investing it basically at home. Um, and that tends to happen regardless of their actual beliefs about where's the best place to put the money. It doesn't mean that they believe that home is the best place for the money or that um, short-term is, but that's what they do. In World War I, Europeans pulled money from the US, for instance, and it's clearly wasn't because they thought it was better to have it in Europe. that just want it in their currency and in a bank account basically, you know, and the equivalent of that here is like, you know, three month treasuries instead of 10 and 30 years. Um, so I wouldn't s be surprised if, you know, when you have that kind of thing happening, the the um yield curve changes that way where people are less inclined to to own long-term things. Yeah. You have price of gold um breaking out. If you want to talk about the yield curve, we have it um up here right now. Of course, Trump came out and you know, he was saying that the Fed needs to cut interest rates and JPL immediately was saying that we're not going to cut interest rates at least right now based on everything that we're seeing and that tariffs are inflationary and in in their minds basically inflationary inflation comes number one. Um, so yeah, I mean are you is the yield curve kind of signaling anything to you? Do you think uh you know yields are going to go higher? Do you think the curve will be steeper? What do you think? Well, depending on how things develop, steeper would be pretty normal. I mean, depending on where things are headed, but yeah. Um, but that's not hard to predict if we were saying that they're completely flat and for a surprisingly long period of time. So, um, yeah. Yeah. And then on ter in terms of the um the market has expectations for some cuts coming up and you know other than inflation expectations and inflation data to some extent but only things that change quickly in price um would they not cut rates? I mean by any other measure you would cut rates. So, um, and I mean, yeah, I I I don't Yeah, I also don't know how, you know, um, I mean, tariffs could be inflationary, I suppose, in some ways, but so could, you know, that's kind of like Japan introduced a um, like a consumption tax, like a sales tax at one point, and so that's inflationary. Yeah, it it is, but it's not the same thing as like what we saw during CO or something. I don't know that that would lead to sustained higher prices over time um because it's not very stimulative. It's exactly the opposite to the economy. So in the long run, I don't think that you know tariffs are why you have a lot of inflation or something. I think that you know having large deficits and having a lot of money uh growth over time is more what would cause inflation. Um and you know optimism people to spend that money and everything. But if they expect everything to cost more in the future, then theoretically that means that they have to spend the money now. Mhm. I mean, do you think this is I mean, so today, China, they uh they put another they raised their tariff on us, but then also said that they aren't going to raise it anymore because it's kind of a joke at this point and that, you know, there's basically no market for things at at this high of a price. So, I do wonder if that's sort of the ceiling and going forward, you're only going to get good news come out of uh Washington as it relates to, you know, tariffs and settling with countries and probably walking down China uh the tariffs there. So, I imagine, you know, my thinking of it was maybe we'll start to get a bounce because there'll be more certainty going forward. Um, and you're probably only due for better news. Of course, barring that, you know, Trump doesn't just wake up one day and tweet something else kind of on a whim, which is a big if, of course. But um yeah, I mean, China basically said they're not going to retaliate by raising the tariffs even if the United States continues to do it because at this point there's just there's no point in doing it. Um and like I said, they called it all a joke. Um so personally, I kind of think we're towards the end of this. casino you know markets are forwardlooking and I think if they have the certainty that tariffs aren't going to continue to go up supposedly there's 75 countries that are you know willing to negotiate with the white house um so I imagine you're only going to get positive news that comes out of that um so you know we'll see what happens but I guess you know the real question is Jeeoff what happens on you know going forward is this a new world or a new regime regime that we're going to be living in. Um, you know, Trump clearly wants, you know, manufacturing and US jobs and everything to come back on shore. He's been talking about that for 40 years, but I just don't know how much of a I don't know how much of that is realistic. You know, of course, this is just pretty obvious, but it's incredibly hard to open up a new factory and all that. You know, it could take five plus years to to bring all that back home. I don't even know if we live in that world anymore and what would that do to prices here and you know there's a lot of debate around that but I don't know I mean at this point how do like what happens with everything on the back end of all this or do we eventually just kind of get back to where we were and all this chaos was just chaos for nothing maybe I mean I don't know that if there'll be a lot of trade between the United States and China in the future ever again. Um, there might be, there might not be. Uh, it's a little tricky. China doesn't have really friendly relations with a lot of countries and they don't have a lot of support in the United States from either party and America's not very popular in China. So, uh, there's other issues as to why those two countries might not do much that way and it's not in a lot of other countries efforts not to try to take advantage of China during this time. So it it I mean it's not a huge huge item like I don't know if you know US imports and exports are maybe I don't know low double digits of GDP or something and of that you know I I don't know cuz there's probably data where you have to include Hong Kong and China as separate things but you know most of it 80% of it or something is probably with other countries so I I don't know that it's terribly consequential in the very long run you could see a world where the US and China don't trade with each other other countries all trading with the United States and with each other um is more of an issue and there hasn't been any sort of trade war looking that way I mean there hasn't been a lot of singling out of other countries except China and other countries haven't mostly singled out the United States except for China too so that seems to be the one that would be most likely to be the long-term consequence um how much of you think the reason why there hasn't been any sort of major world war in a very long time is because our economies have become so intertwined with each other where you could fiscally harm somebody or hurt their economy if you know they were a threat to you just by you know that's a theory tied to the hip right yeah that's that's been a common theory uh I I think you know uh it's unlikely just because on the eve of World War I the world was extraordinarily globalized and it took it a very very long time to get to similar levels again. So um it only is in the last I don't know 30 40 years or something that it would have exceeded those levels. Um so there was a ton of trade before World War I that changed everything. Um I think the two major factors for that are nuclear weapons and democracies. The number of democracies in the world went up a lot and they're not very likely to go to war with each other. It's pretty rare. And then uh countries with nuclear weapons tend not to go to war with each other. So the that combination um is a big factor. Um so there have been though smaller wars between countries one or more of which are not democracies and that don't have nuclear weapons or that are not you know both sides don't. So it's not impossible. It it has happened. Interesting. So let's talk about Buffett. So he's sitting on 300, you know, plus billion of uh cash. Saw this come out yesterday. Uh Bur Hathway raises 90 billion yen from bond sale. Um you know I don't know if you saw this come out. Um what do you think he's doing? I it's not a terrible amount of US dollars but it was interesting that he did do it. Well he's kept trying to borrow to buy more of the companies in Japan that he has and he's kept saying that he'd like to buy more of them. So you know he mentioned both of those in his letter that he wants to buy more of them and that he wants to finance it in yen. Mhm. With all this volatility, I mean, where are you seeing opportunity? Take people through it. What are you seeing currently? Well, mostly I'm not seeing a lot of opportunity because things were very expensive and then it's a question of what things dropped and what things did not. There was a day or two where some things were interesting in that they would drop by you had some things drop like 15%, 10% in some countries too, not just the United States. Um maybe because they were in an index or whatever. I mean, you know, you had three days with really big moves that things just had, you know, people may not have even known what they were buying and selling with particular stocks in that, you know, um so there are interesting things there. We talked about oil, you know, that's one that's interesting in terms of it was not that expensive going in and it'll be interesting to see what happens. um it's pricing in a scenario that if uh oil is that affected um then a lot of other stocks are too expensive relative to oil companies probably. So on a relative basis it's attracted that way. Um and then there were other things that were already pricing in recession type things whether that's you know consumer discretionary type stuff or airlines like we said you know travel related things stuff like that. Um, some of those things were already down quite a bit, but there's lots of others where it's, you know, this is not very uh enticing. You know, uh, Walmart imports a lot of things from all around the world and is, you know, probably 30 times record earnings or something after um, these declines. So, you know, there's a lot of stocks like that. We talked about the mag seven type things. I'm surprised that advertising things haven't fallen as much. Uh so you know that's the interesting thing with oil being affected so much and other ones. Yeah. I mean some of these are down but they just haven't been down by a huge amount. And they were down some of them I don't know how much they're down now versus the market versus what they were you know in the few months before. So I I would just think that they'd be particularly sensitive if people were pricing in a recession immediately. But Mhm. there were some days where you know banks were moving a lot. Lots of things are moving as if they were predicting um you know recessions certainly. Yeah. I mean advertising I don't feel like has dropped as much as things that are exposed to oil. I think you even saw that with like fear with Apple or something but not necessarily fear with some of the advertising supported tech things you know that make a lot of their money from advertising. So which is more your meta and stuff like that. Um so uh you know I mean we were predicting basically no growth before the tariffs happened you know and um some things were a little worried about a recession. We've talked about the yield curve and all those things. So it's not like you were in the middle of a boom at the time that this all happened. There was already concerns about that stuff that showed up in terms of what things were performing badly and what was doing well. Um, so I mean I don't know the numbers, but like Mag 7 type stuff probably was not performing that well relative to the market before the whole market started dropping. So yeah, I mean Tesla's been getting uh taken out to the woodshed as well. Yeah. I mean that that could be tied to con I mean we talked before about how there's issues with um electric cars in general like supply and demand but I think that the Tesla specific thing is brand concerns right because it relies so heavily on one brand. Yeah. Mhm. Yeah. I'm sure it's more protected with that. Yeah. It's more protected than other automakers in terms of um production and everything but yeah the brand would be a concern. Mhm. Yeah. Mhm. So I guess at at these levels, do you think uh looking for value in in oil related things could make a lot of sense or you know I I pulled this up as you were speaking the rig count came out today and uh down by total rigs down by seven um over the week. Like I said, I've been seeing a lot of reports of people just being like, "Yeah, I guess you know, I'm getting laid I follow a lot of people or whatever in in the energy space and and follow it and um I don't know how much they're going to be producing at these low oil prices. Yeah. So I mean I think there's some things that will turn faster than other things. So yeah, if you're right about you know being able to predict things about a recession when it would end and everything then yeah owning things like oil and airlines and things will do better initially than other stuff. um they'll they'll start going up when news is bad because they'll already be anticipating recovery and everything. Um so um yeah and but it does also depend on the financial situation of each company because if they own a lot of assets and don't have a lot of risks in terms of being able to service debt and everything then lower production over time you know will lead to higher prices and they'll be around for it. So Mhm. That's what's different though in the energy space. I feel like I I've come across names before where they look cheap, they scream cheap, but if the macro backdrop isn't pretty, these things can get cheaper than you could ever imagine. Yeah. And instead of being a company specific thing, but there's plenty of like I could name stocks in other things that are cheap, but there's a company specific reason that people are concerned about. So like um uh we talked about David Busters that's cheap but that's because I didn't like you know sort of the direction they were going. Now they replaced the CEO and the interim chairman interim CEO or whatever kind of said although well-meaning they made a lot of mistakes and we're going to change what they were doing and stuff even though they're probably their pick to be CEO. So that might mean that they're going to pivot that way. So that's not a macro thing. I mean, I think the stock's also down for macro reasons over in that most of those entertainment things are down, but it's down even more. Um, Sleep Number is another one, very cheap. Um, but that's one that also is partially macro. No one's going to buy a, you know, an air a very expensive air mattress in the middle. I don't think I've ever I don't think I've ever looked at the stock Sleep Number. Yeah. So, both Dave and Busters and Sleep Number have real credit risk though and everything. Ton of Look at that. a billion enterprise value, 109 million market cap. Yeah. Well, but they don't have a ton of debt versus what they were once making in operating income. They probably looked like a normal amount of debt. So, if you go back in the last 10 years, they probably had years, what's their high operating income years? They probably had years that were not that far from Yeah. Like they would give them the peak of 194 million. Yeah. Yeah. So, but you know, until recently they were making 75 to 150 million or whatever every year. They probably thought, "Oh, you can have a few, you know, I mean that's a lot of returns." Yeah. Of debt. Um, and the same thing with Dave Busters. They even borrowed money and bought back stock at the same time that they have, you know, leases. Um, and they they did sale lease backs too and stuff. So, they added financial leverage on top of a lot of operating leverage. And both of them have that where they have high gross margins, right? And then you have a lot of fixed costs and then you added financial leverage on top of that, right? Um so Cracker Barrel is cheap but that's one that is you know since co has been company specific issues because it hasn't been raising prices and all the things that people um consume at those restaurants are really expensive for them and then those going up. So they got real value conscious customers and then they've got, you know, they're basically serving eggs and and meat and stuff and that's where that's our place. I think we at Cracker Bro about 10 times when we're together on the road. Yeah. So look how before co they were doing 250 300 million a year in operating income. They have not done that for five years and the stock you know reflects that. But um if we look at revenue, gross profit, it's kind of the same size business that it was not that long ago. So all of those have those things, but unlike oil that you're talking about, since these aren't commodity things, there's a very specific story with each one about why it's not working. So it feels different that way. But if any of those things turn around, then the stocks would do really well, you know, and oil is just they don't need to turn anything around except have the price turn around for them, you know, for things to get better usually because it's a commodity. Yeah, I'm just looking up because we're talking about this company uh because I remember seeing a couple days ago that Bigalari he um made an offer to buy El Po Loco Pou Loco. Yeah. Less successful. Texas Place. You've been there, right? Mhm. Yeah. A lot less successful past history than Crocker Barrow, but yeah, it's been cheap at times. Yeah. What was his price for? Let's see. Yeah, I'm not finding it right here in this article, but I do remember seeing that. So, I thought that was interesting because he's done a lot of things in restaurants. Yeah, that was his big area. He's been a very successful restaurant industry historically, I'd say, before most of the things he diversified into, but he's also been a real activist in those things and they've mostly been able to stop him from doing much in that, you know. um received an unsolicited non-binding indication of interest from Mclari Capital Corp. to acquire all the companies issued an outstanding shares of common stock that it does not already own. Interesting. So, this AK doesn't have a price. Yeah. Entered in a confidentiality agreement that contains a customary standill. Okay. Got it. anywhere else you're seeing uh anything interesting? Well, the other issue is that the rest of the world things are cheaper than the United States. So, the problem is more that the US was kind of expensive versus other countries and not everything there. There are, you know, tech things and stuff can be expensive in the rest of the world. There's just less of them. Um, so I think there's more that was interesting in other countries that way. And then the main thing though is that we're just because we had such good last two years or so. If you look at charts, you're only for a lot of stocks that you would want to buy because it's good business. You're only back to where you were a matter of months ago basically. I mean, some of some things for a day or two there. We'll see how long this lasts. They're making 52- week lows, but they're not often making fiveyear lows. Yeah. Um Yeah. What about uh China? So, they're they're floating the idea of, you know, delisting or basically doing uh taking these these ADRs in these Chinese companies off our exchanges. Mhm. That's very scary if I owned any. I mean, we've looked at things in China before and we've never purchased anything. But let's say you owned some security that had, you know, was either listed there or had an ADR or exposure to China. Would you be uh is the the cat risk through the roof here with that? Well, it does happen in some countries. I mean, it's happened to a bunch of companies recently in the UK if they were listed on AIM because they've some companies have taken advantage of that situation to be able to basically take the company private without buying it out, just delisting it. And they know that given the shareholder base and everything that will basically get people to to um uh give up on the stock that way. So, they can basically just delisting. You could continue to hold your shares in those cases. But you know that's in like the micro sometimes almost borderline nano cap type stuff that wouldn't get reported on the same way. This would just be that kind of example but in giant companies but it's because of the relationship between the countries. So it it does happen in like those kinds of things. That's an alternate exchange thing. So it's not used to people ever seeing that happen on things that are listed on like NASDAQ or something. Yeah. the price usually collapses and people don't want to hold it. But and I don't know how easy it'll be to invest directly into China for people and Hong Kong has changed a bit from what it was before. So I mean if we looked at things in China in the past, we never looked at we looked at businesses that operate in China. We wouldn't be looking at something that was listed here that threw a variable interest entity or something and um stuff like that. It would be a more normal sort of situation out of Hong Kong. But even that has changed. So I guess I mean what are you looking at Jeff? That's what people want to want to know. Any anything interesting you've come across? No, like I said, I've I'm looking at lots of things, but the the changes that we're talking about. I mean, we talk regularly about I mean, what's a high quality company that's come down a lot in price and was not a really expensive price to begin with is the issue. If it was 30 or 40 times its earnings, stocks are down a lot, but that's still not really a very cheap stock, you know. US Lime's come down a bunch this year. Yep. But it is also many many times still pretty uh in terms of the multiple of what it was at any time in the past. I mean, that's the issue. So this is a stock that now having come down is 16 times DVD when probably it was routinely under eight all the time that you could buy it six seven times all the time for years and years. Um and I'm not saying that it'll necessarily be bad but they are tied to you know activity in Texas and and other places potentially. you know that eventually construction activity and other things some of the stuff will stay the same but there's a part of their portfolio that the volume will drop a lot even if the price doesn't um yeah I mean volume was huge drops for these companies in um the great recession I wouldn't expect something like that to happen as much to this kind of thing because I don't think you would have as much an effect on actual construction activity or something like that um it might be hard to sell houses and home builders might have problems and things like that, but there's just not been a huge amount of new activity lately in the last few years the way that there was right before the the um housing bust before. So there's not this like buildup of over supply the same way. Yeah, because like we mentioned uh um at one point we had talked about there was a company that made um things for flattening for mainly for warehouses and things like that for making um flap flooring basically through machinery. It was actually I believe aim listed stock but but it would have gotten much of its business in in China and stuff but um that drop those orders drop to like nothing when something like this happens but then they make a lot of money at other times. So, you know, those kinds of activities do drop off. Um, so you have less warehouses and things being built. Now, there's roads that are still being built and whatever, but uh you probably see a big volume decline at some point in something like this, but not a big price decline. It's just, you know, uh I don't know, years and years ago, Buffett was talking about insurance things. He's probably said the same thing before. And he said, you know, we price to exposure. We don't price to recent experience. And that's the issue with a lot of these things. Yeah, I mean it's it is down a lot, sure, but if you wrote it up before COVID or something, people wouldn't believe you that it would get to 16 times even. Now, some of that is also is smaller and then once a stock gets bigger and it just takes on a life of its own. That way you kind of get rid of the discount of a high quality really small companies sometimes trade kind of cheap and high quality medium-sized companies don't just in in terms of being really easy for people to invest in it. It it quality eventually gets high multiple if it gets big enough you know. Mhm. Yeah. the the peak EV to Ebida looks like it was 30 times and I don't even remember when it was 30 times even the you know people I know that owned it were like why is it becoming so expensive I mean it would just it was very richly do you know what it looked like before the uh oh yeah it was always like nothing yeah I mean let's see we could go back I mean it was always this has always been one of those uh see cheaper companies we could go back to 2020 and Looks like the peak evid ibida before then was 10 times. Yeah, if you look at right here, looks like in 2017 it hit 10 times. In 2019, end of 2019 like 10 to 11 and then yeah, it just shot up. You got more than double from multiple expansion. Yeah. So, I don't know if people are predicting a recession right now, but they're probably not predicting that the economy is better than it was before COVID happened. You know, 2019. people weren't that optimistic on the economy, but they're probably not thinking we're materially better than that. And it's, you know, what is it 50% 60% more expensive than that on the multiple now after I assume coming down a bit? Um, yeah, actually you can see it came down a lot. What about financials through all of this? Banks specifically. [Music] Yeah. Well, are there banks that people are interested in that are the right uh sort of um multiples on that? So, I mean, the ones that I know people like a lot are the very big ones. You know, JP Morgan, I guess, will be reporting earnings or has, you know, basically did this morning. They did today. Yeah. Okay. So, um and I'm sure and I know his letter came out and everything. So, they do all that around the same time, right? Um, so I'm sure there's probably news things about him saying something or people at the company at least talking about the future. Um, yeah. I mean, for a giant bank, it's a good business. Yeah. And it's very detailed the information he gives in the letter that you can learn about comparing each segment to the quality of those businesses and other um each of his segments to kind of standalone businesses in each one. And you could also look at the peers for that, you know. So if he says Northern Trust is the best that we compete with in that area, then you can go and you can look at that one or whatever. Um yeah, so on a earnings basis and you know some of the banks look attractive. Sure. On a price to book basis, you know, they're doing better now than they were before. So this is why sometimes you want to buy ahead of that because, you know, I don't know that return on assets will necessarily go up as much at these places as they used to. uh I mean as as they are now at sorry so like um you know you might only get a move from 1% return assets to 1.5 or something like one time you're you're probably not going to keep benefiting from that um I I haven't seen a lot of things about financial conditions tightening a lot or a lot of banks right now so um there was maybe a day where they were declining by large amounts but that was about it I didn't see like super dramatic selling in banks that you wouldn't expect. Some riskier banks, yeah, you did see some things, but I don't know if that's just more everyone was dumping everything that was kind of risky and stuff, you know, so we won't single out what those are, but just like in general um things that are not the JP Morgans and stuff of the world. Yeah, there was a little bit more on those or at least tied more to economic activity do really well in a boom and not as well in a bust. Say that. Mhm. I do wonder how much, you know, of the moves recently have just been the deleveraging of a lot of these pod shops and funds that run 10 to one levered or or or more than that, quite frankly. So then you get this outsized move and then their chief risk officer is just cutting it all, right? Just just selling it and and just massacring the the stock. Um yeah, there were some odd moves and things. Uh the things that's most noticeable to me like I said was index related things. But that's too complicated for me to even understand in that like when your moves are that big are there movements in underlying stocks just purely because of what's happening with indexes that everything in the index has to move like that. So occasionally you had things like we were huge upday. There were a few stocks that went up to levels that was higher than they had been before all this happened. And that's just because presumably they're in the index. It can't be that anyone actually really wanted to buy that stock that day. And there were probably lots of short covering and stuff at that time. But even if people were short individual stocks, they probably weren't picking those individual stocks to be short for that reason. We mentioned ones like Sleep Number and stuff. People are probably short that specifically because that company or the investors, whatever, they would be short that for that reason. There's other things where they probably just short a bunch of stocks as some sort of hedge across different things. And some of them might be betting on one economic outcome versus another, too. I mean, I guess like you said, um I mean, I don't know. It depends on It's hard to tell from just like reading news reports of guesses about this, but I would guess that professional investors were more optimistic um about things going into it and more pessimistic during the declines, whereas individuals probably buying during the declines. They were I saw reports on that. Was it Friday was was a huge flush and and retail basically bought the dip. So there's been no capitulation by retailer yet uh retail yet through all of this. Mhm. Which sometimes makes me wonder, right? Like we don't bottom until they capitulate. Um but yeah, I mean all the reports show that they've been buying all along this entire move. Yeah. Well, it's worked for a I mean very long time. uh for the I mean and it's more the issue I think of time than the size of the moves. I I've never seen situations where huge down moves or something just causes people to go okay I'm out I'm out of the market and stuff. it's that a bare market takes a year to a couple years or whatever and it's that experience you know um you know probably I don't know probably was eight nine years of multiple expansion after the the 2008 period like every year probably would have been like the multiple getting kind of better and stuff you know on average for a lot of things so that it's that feeling that builds up a lot of confidence over time and on the reverse it's multiples contracting for a few years in a row that caused that. So, um I think it's usually that that was my experience in com time and also 2008 just talking to people and everything. It's just the experience of not going up for a long period of time. And I mean, I shouldn't say not going up. You actually have lots of really big up days and then really big down days, but on average, you're not moving in an upward direction for a long time. And that's more what gets people to give up on the market or something and focus on other things. Mhm. Mhm. I guess the the the question to ask is I mean is there a particular industry or sector or anything that you know you're you're kind of excited about and then is there one that you're like oh no I would definitely stay away uh from that during this like through this environment. Uh well so there's a few different things happening at the same time. Um, one you have tariffs which change things a lot for certain companies in certain businesses and if those things continue um would be really negative for those companies. That doesn't necessarily affect a lot of other companies though. On top of that, you then have what that means for say shorter term recession and all that. I would probably focus more on that personally on what things are down because there is more of an expectation for things happening in the economy overall over the next however long that's harming them more so than trying to pick um stocks that depend in part on a kind of um which two countries that they they're trading with that way. So, I mean, here's the thing. The thing with the tariff thing, the really big reason why you don't why this production isn't in the United States is that it earns poor returns on capital. Um, so when you talk about things like contract manufacturing type stuff, it's not impossible to have build that up in the United States and do it instead. If you want to make iPhones in the United States instead of making them on the other side of the world, you could do it. Uh, it would cost more. Um, but that's not necessarily a huge problem. I mean, people will give up other things before their iPhone first, so they could pay, you know, that a few thousand dollars for an iPhone that's not going to bother them. Um, the the bigger issue is that we would then have a bunch of companies in the United States that would have returns that look more like they did decades ago instead of the kinds of giant businesses that people love, which have no assets. People don't like companies having these assets. So, these companies outsource their assets to the rest of the world. So you could have vertically integrated Nike, right? And it would be a good business, but it wouldn't be the business that investors like that actually has someone else doing all the work and it's a marketing company or, you know, Apple and it's not actually assembling anything. Yeah. It wouldn't be a Well, I guess this is only 20 times earnings, but Well, Nike, there are other ones that are like, oh, this wouldn't be a 40 times earnings company, right? Yeah. Um and and some of them depend very much on where they're the the places that they're um like Nike is a good example where all their production for the most part is in really poor countries and all their sales into really rich countries. Um so they're not generally producing things that are being sold in the same country to the same sorts of consumers and everything. So that does happen. And that would be the same thing if you're exporting to you know uh whatever other things where you depend on one you know watch company is a classic example of that where they're really just producing everything in say Switz you know luxury wash things in Switzerland or something and then they're making a ton of profits in Asia and to some extent profits in Europe and a bit less in the United States and everything but they're very dependent on producing in one place and then u making all their sales based on their reputation in another place. Those are the ones that are more sensitive over time because would these exist in this form if the world didn't look the way it does in terms of there being no, you know, like really really low tariffs between places and also lots of other not being restricted things. No. Um I think that they wouldn't look that way, but it's fairly easy to obviously pick other things that are completely domestically based if that's what you're interested in. Um, but some of those also would be negatively impacted if there's a recession or something. And the problem is more the price that they went into this at. The reason why I mentioned oil was that they the stocks oil stocks in general weren't, you know, terribly expensive or anything. And oil wasn't terribly expensive to start with. So that was why it was more attractive. And it was one of the few areas where you saw Buffett buying some things not that long ago. Mhm. He's been buying accidental, right? I I don't think No, no, he had been buying it as high as like 50 to 60 normally, right? Anytime under 50 he was buying. Yeah, under 50. Yeah. So, um Yeah. But so, but I mean, so it hasn't drastically changed things. I said before like look, if I was managing just my own money and stuff, I would be holding more cash, be short things, whatever. And I said, I don't know where people will do well. you'll get a result that you want unless you are say short mag seven type stuffs or something like that if things go badly because what how else are you a lot of things will go down a bit over time because everything's pretty expensive. We've talked about supermarkets. We've talked about movie theaters, things like that. They're not affected by it. They're okay. they were their earnings this year and next year and the year after that will probably be the same to slightly up or whatever depending on the company and their multiples are normal for like their long-term history. So it's not like they're, you know, they're one of the few areas, each of those things in the United States, both supermarkets and movie theaters, they're probably not that different since COVID, they've average these kinds of multiples for a while and their earnings probably aren't abnormally high this previous year. Whereas some other things, you know, will have their earnings, some companies will predict their earnings will go down a bit or they'll at least change guidance and do things like that, whereas these things are mostly not affected. Um, and they're mostly, you know, okay, so I'm not saying they're great businesses, but like the market often the way that people make 10% a year in in stocks long term is they own things like this where, you know, the multiple was what did we have here? EV seven or something or, you know, we have a EV to sales low ones and then them with that historical margin that's, you know, 10 times pre-tax profits or something, right? So that's what Buffett probably bought a lot of companies at. Both companies he bought the entire thing and the stock, you know. So I'm I'm all for looking at other industries that would be interesting. I'm not um all doom and gloom about what their future will be versus their current earnings. It's just there's not a lot of things cheap at Yeah. Not. It's not even cheap going into this. There weren't at a normal level for them. Most things were elevated, whether it was one and a half times or more, but most things were kind of elevated. And you know, um, I mean, we don't talk about like junk bond things or even businesses that are or companies that are in those kinds of businesses, but the yields on those things and everything are really competitive with um, you know, investing in those things would be really competitive with with a lot of stocks if you really thought, yeah, there won't be a terrible recession or something. And I mean it's it's hard for some to think that stocks would have better returns that you're getting a lot more for taking more risk I guess is my way of putting it. Um so I can totally understand it when they trade at huge levels for Nvidia and stuff because it's a rapidly growing company. It's more just across the board that stocks that aren't grow. I mean what Walmart's probably grown 3% a year for 10 years and we said it's at 30 times earnings. So that's those are the ones that are hard to figure you know. Yeah you're right. 10 year keer 3% EPS 3.7. Yeah. So it's it's at 37 times uh today. Where were we before? We're down probably a bit. I mean yeah 20 times. Evid Ebida. So I'm not negative on it. But if you're asking me could a supermarket or movie theater also have 3% a year for 10 years. Yeah. That sounds like 43 times earnings. That's crazy. I mean, what sectors are there? What or I should say, what industries are there that are cheap right now? Um, energy. Yep. And some and in general, I mean, when we talked about energy, some of those things and I mean that's oil, that's natural gases, all those things. Um, yeah, the the commodity itself is not super expensive compared to the past and the the um the uh stocks are not that expensive. When we talked about banks, that's a little different because before they were pretty reasonably priced and it seemed like rates could be higher in the f, you know, rates were lower than normal. Now that's not the case anymore. So it kind of comparing them as a commodity thing. It's as if they're commodity isn't that attractive. You know, it's pretty normal priced. Let's say that the price of money right now is pretty normal. Whereas before you kind of thought, oh, their earnings will get better and they're kind of cheap. Now you're more just like, well, they're not too expensive. Um. Mhm. No, movie theaters are cheap. You just had a good week uh at the box office, right? Yes. Yeah. And this year won't be that good. We talked about that. But, you know, next year will be better probably and better than We've said that for like the past couple of years for like, oh, next year's the year. Oh, next year's the year. Saying 2025. Yeah. They they were always saying that the theaters are always saying they need to make it to 2025. Looking at the schedule, I'd say it looks more like 2026 to me, but 2025 should be better than 2024, but 2024 was really bad. There was strikes and there there was just lack of product and everything, but um yeah, when the product's there, it doesn't seem like it's uh doing badly. No. Um and you know, in the much wider thing, look, if you had really high tariffs across all sorts of things, there is everything competes with everything else. So the less attractive things are for actual stuff, um the more attractive it is for things that don't have those tariffs on it for other experiences and things like that for people um in general. So it's, you know, that's the thing that I think is most misunderstood in the reporting that I see is like, oh, this is a price increase on this thing and this it'll be, you know, they estimate here's how much more a year consumers will pay on this and this is what it'll cost. And for a bunch of the things they're talking about, people will just buy a lot less of them. Um, but the ones I'm surprised by are like, do you have Hamilton Beach brands for instance? So there's a ton of companies like this where everything would be imported. Now all their competitors would be importing it too. But the business, a world in which there's even some tariffs changes things a bit and very large tariffs from some places changes a lot in that there's no way people are going to buy as many things uh that these companies sell unless they're incredibly cheap. It's not like the iPhone. If you double the price of an air fryer, you're not going to kind of sample and be like, "No, no one is." Yeah. All right. I don't need a $100 air fryer or whatever. Yeah. And people have three of them and they're under the, you know, they come out with the new one, they forget they had this one, they switch and get into this one and say, "Oh, I'm going to do this forever." No. Then that goes under the right and they pile up a lot of this junk over time for something super durable that people are going to buy and keep forever and all that. It tariffs don't necessarily affect it to the point that the quantity would permanently be impaired, but there's just a lot of stuff where the quantity would be so much lower. Um and and so when people talk about things like whether it's I saw things about toy things and whatever it's it's if that was the long term that those are where tariffs will be it shifts things in a lot of ways. People would buy fewer of them. They would be more expensive. They would also be designed to be better in certain ways in terms of the markers of quality because you wouldn't be trying to have the lowest price things that way and you'd have to focus on something else and reconfigure your business on the expectation of lower quantities of that. But it's not just price that would move. you would have lower quantities of real stuff consumed if it is something that depends a lot on price. If it's an as seen on TV type thing, it's very important that that price look good. You know, that's how you sell it. And you can't ask people to to try a product at a premium price for the first time, you know. So, the the Hamilton Beach brands of the world, the ninjas, the whatever, those kinds of things, you know, they're just people will have less of that in their kitchen if there were tariffs everywhere all the time. It's because there isn't that people, you know, buy those things. [Music] Can you think of any other uh situations similar to HBB? Well, we already covered like Nike and O toy things. Um those would be drastically affected by some of this because people have gotten so used to very low prices for some of those things and they would just the business would be completely different. Um then there's other things that are complicated in terms of the whole supply chain, the kinds of um points around which they built a lot of suppliers and things. So that's where you get into things that are complicated with like cars. Even in cases where the car is made in someplace where you know it's being made, uh the actual making of it isn't is really an assembly type job. It's a lot of labor cost then, but there's a lot of other things going into it that are all there because it makes sense to situate them there. Um, in the long run, the toy industry, fashion things, whatever, wouldn't all be located in this focal point except that there's some things about labor and stuff for some of the businesses that are there. And so, you're there because your customers are there and you built it all around that kind of like Detroit with with autos in the past. You know, that's the center of the world for that kind of thing. And so toy things, fashion things, whatever, they're these places where it's all of that going on. And you wouldn't necessarily situate your business there, except you're there because your suppliers are there, your customers are there, you're all doing that together, but they're there because of the the um price for them. And so they would change which countries, you know, would benefit and everything from that. Um and and you would just over time not focus so much on that. Um, but I just think the a big underestimate for some of the things that we talk about with these companies is just people won't buy as much of it. I it, you know, Buffett's talked about that all the time, but I mean, it's hugely different whether it costs a lot more for an iPhone or costs a lot more for a um, you know, a rice cooker or something. Do you have any thoughts on coal? Trump's very pro coal. Is it exactly route? got to do more produce more coal, mine more coal. Yeah, I I mean I it depends. Uh if you're in the business of doing things that uh are new plants and new whatever things and stuff, then I guess that's great compared to having like can I just find an AMR again in 2020? Yeah. Um I mean the thing with the with coal and oil and all these ones we're talking about is like it's not necessarily a good thing if there's a lot of activity, right? Like you have to analyze the business. In a lot of cases, you're better off if there's a lack of supply, but you have what people need. That's my favorite setup. Yeah. And so macro backdrop, demand, you know, staying constant or or increasing and supply is very limited. I think the best returns, at least on like a short-term view, you could print money when you find that set up. Yeah. Which is what we talked about with US Slime or something. Those businesses have that, so they benefit a lot in their area when there's demand. Um now when their returns are not that great when there isn't demand um but as long as they can survive that period and earn a decent return then they just make these huge profits in the times where where it's short but in a commodity business you're basic I mean there's not a lot of commodity businesses where you basically you're going to be investing on the expectation that you're going to make a lot of money when the commodity is in short supply basically like there's not enough of it and um so I don't know that a lot of these things that the industry likes are necessarily good for the investors. It's not a great news if you know it's great for for passengers if they're going to open up a lot of um new routes for for planes and things, but it's it's fine for the company if they just make sure that they're running at nearly 100% of their seats full. You know, that's that's what they need to do. And so, it's just different depending on that. And as an investor, what you care about is the high returns on capital and all that and not necessarily lots of opportunities to expand and definitely not that you expand the real amount of stuff that you're doing. Um the coal stuff is like yeah some of it is what you talked about with government things because especially environmental regulations on that everything can be very costly um for the plans. So that changes it. But the big thing is there's a substitution possibility and if natural gas is is affordable for people then that's always a problem. Um and that it's true either way. It's true the reverse way. It's you know you have other ways with energy of if there's a cheaper way of getting energy then it's going to be a problem for your energy commodity whatever it is if it can be substituted in some way. Got it. Any uh final thoughts of everything going around Jeff? any uh you know any uh acts of you know what's funny every time there's massive volatility in the market people always sent me this podcast that we did I think back in 2020 let's see um let's see somebody sent it and then I guess resent it again this guy um using volatility to your advantage I think we did this back in 2020 okay uh he said a friend just sent me this 5-year-old podcast and the quote was, "You're thinking about volatility differently when you're fully invested." Yes. And every time there every time there's a lot of volatility in the market, this podcast resurfaces. So, I think it was a positive message we gave where, you know, there was some uh calmness or wisdom of how to think about things, you know, when when things are going crazy. So yeah, any any final thoughts or anything that you could leave our listeners with? Any acts of, you know, any sort of encouragement? Well, there's a few possible uh things of encouragement. One, if you have cash or if you own other things, uh bonds, other things that we talked about, then you can take advantage of volatility and it's great. So, we didn't talk about that really of just that whether there's negatives, that's fine. But prices moving a lot up and down is to your advantage as an investor. That's a good thing for you to have happen. Now, what I don't love is the corey letters that come out and say, "We took advantage of this to load up on this thing." When they meant we sold another stock to do that, obviously. So, it, you know, it can't help if you sold some Walmart to buy some Target or whatever. Usually, you were, you know, invested in one of them. But the you get but the opportunity to take advantage of um price changes uh to suddenly have something that you didn't see before that you could invest in now. And also honestly if something you know if you own some relatively expensive things that can be a source of funds for for things that are relatively cheaper. So although we talked about as if it's like it has to be absolutely cheap to move from one thing into another, it might not because you could be in things where you could sell them because you think that they are expensive now and exposed in some way to stuff that you're worried about whereas you can now invest in things that you have a clear idea of the value of it. Um the the volatility thing is a plus. No, I mean if you could create a world in which it would be easy enough for you to predict things in the economy and everything, but there was a ton of volatility, that would be great. You know, it's usually just that people are in the same boat with other people. So, when it's very volatile, they also are feeling like they have a lot of uncertainty and can't make predictions about the future. But I don't think that's true for some stocks. Like, we just went over some things. I don't think that you should be there should still be tons of industries out there where it you haven't suddenly changed radically what you think they'll earn a few years from now. Well, with that said, I want to thank everybody so much for tuning in with the both of us on the Focus Compounding podcast. Be sure to hit the subscribe button wherever you're listening or watching us here today. If you're going to be in Omaha and you'd like to meet up with Jeff and myself, reach out to me at andrew@focuscompounding.com. If you're interested in learning about our money management services, you can also reach out to me, andrew focuscompounding.com. I thank everybody so much for all the support and we will see you in the next podcast. Take care.