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From The City Of Angels To The City Of Zombies...

Zero Hedge -

From The City Of Angels To The City Of Zombies...

Authored by James Howard Kunstler,

The Jungle Drums Speak!

"Love that the crack heads on Skid Row are up on the issues, know the candidates, and are able to Make Their Voices Heard in between hits of meth."

- Peachy Keenan on X

Whaddaya know? Looks like the charismatic Nithya Raman has overtaken maverick candidate Spencer Pratt in the Los Angeles mayoral “jungle” primary because. . . jungle reasons. That is, the denizens of LA’s vast homeless encampments — once known as “hobo jungles” — apparently voted overwhelmingly by mail for the Harvard-credentialed champion of street-junkies in the Silver Lake, Echo Park, Los Feliz, Atwater, and Hollywood neighborhoods (SELAH) she represents on the LA City Council.

LA Mayoral Candidate, Nithya Ramen, Champion of the Down-and-Out

So, it will be a November runoff between the super-duper “progressive” incumbent Karen Bass, and merely super-progressive Ms. Ramen. Better reserve your U-Haul trailer ASAP, as the City of Angels completes its transformation to the City of Zombies. And no complaining, please. This is what you voted for.

By the way, what does “progressive” actually mean these days? Progress towards. . . what? The culminating disintegration of a civil polity? The concerted failure to govern a large, urban organism? Unconditional surrender to the forces of entropy? One might suspect a soupçon of racial animus in the mix, too, something of a middle-finger to this thing called white supremacy we hear so much about. It must be rooted out at all costs, including the cost of a place that a productive population once loved — the very people renting all those U-Hauls, dispersing out into the USA gloaming.

Of course, this “progressive” Democratic Party has transformed itself in a decade or so into an out-and-out racketeering operation, that is, to a criminal enterprise dedicated to the misappropriation of taxpayer money among its rank and file, many of whom are not citizens. The model is not unlike more primitive early versions, such as Boss Tweed’s ring in 19th century New York, or the gang under mayor James Curley, the “Rascal King” of Boston. The system was known as “patronage.” Voters were the party’s patrons, and the patrons were on the payroll. Some had actual party jobs. Some just got free stuff in exchange for their votes. They called it a “machine” because its operations became automatic, self-fulfilling.

There was one big difference, though: these earlier Democratic Party grifters, for all their moneygrubbing shenanigans, were American patriots. They celebrated a country so ostentatiously “free,” so fervently dedicated to upward mobility, that it made room for their garish political corruption. The Democratic machine of Los Angeles today is quite the opposite: It’s a faction that loathes and detests the American system and seeks sedulously to destroy it, even while grabbing as much loot as it can in the process.

Mayor Karen Bass was trained for that mission in Cuba. Beginning at age 19, in 1973, Ms. Bass made eight trips there with the Venceremos Brigade (founded in 1969 by the Lefty-left SDS) to “show solidarity with the Cuban revolution,” which, you might remember, was a straight-up communist revolution. One might infer, then, that Mayor Bass is a straight-up communist, with ambitions to destroy the capitalist city of Los Angeles, so as to replace it with a communist utopia — where all production (if there is any) is owned and controlled by the government, which then dispenses the fruits-of-production to the people, according to their needs, as officers of the government see fit.

In such a system, history shows, the people enjoy no ability to make decisions for themselves about what sort of work to pursue for their own improvement and well-being — what we call economic liberty. That’s all left to the political office-holders, the kommisars, the decision-makers, who tell everybody else what to do (because, you see, they know better). It has not worked too well in practice, as the collapse of Soviet Russia demonstrated, and the imminent collapse now of Cuba, will validate.

This is also exactly what you see in the aftermath of the Los Angeles fires of 2025. There was the fiasco of the fire itself in which everything that could go wrong, did go wrong, in the way of prevention and mitigation. The incompetence of Los Angeles city officials was so total — from the mayor’s absence in Africa, the fire chief’s cluelessness, the empty reservoirs, the broken fire hydrants, etc. — that Pacific Palisades and Altadena across town got completely destroyed. In the eighteen months since, the city’s bureaucracy (with “help” from the state) has made sure that next-to-nothing can be rebuilt. Since a large number of people employed in the movie industry lived in these places, and were left financially ruined, Karen Bass’s government has also neatly helped destroy the city’s signature business. . . a home run for communists!

Marxian economic theory is appealing to those who hate and oppose the natural fact that not all outcomes in human life are equal, who resent with red-hot passion the human tendency to social hierarchy, and work fanatically to defeat it. They never do, of course. In communist revolutions hierarchy always reorganizes itself — only within the party structure itself, while all extra-party human effort is outlawed. In California, as in the other “blue” states and cities, Democratic Party leaders perch in the upper branches of the social hierarchy while they cream-off all available revenue streams.

If you suspect there’s something shady about the California election system, you might be onto to something. President Trump thinks this is the case, and said so pretty forcefully on Sunday in his confab with the argumentative Kirsten Welker of NBC’s Meet the Press show. “There’s no evidence!” Ms. Welker repeated strenuously, of voting irregularity, either in this month’s California jungle primary, or in the 2020 national election. You think? I guess we’ll see about that.

Remember: former president Nicolás Maduro of Venezuela — home of the Smartmatic vote tabulation system — has been in US custody for months.

Do you suppose he might be trying to cut a deal for himself to avoid a very long prison sentence by disclosing what he knows about Smartmatic?

Do you suppose that Mr. Trump might know something about these ongoing negotiations?

Do you wonder if any of that has occurred to Kirsten Welker of Meet the Press?

Tyler Durden Mon, 06/08/2026 - 16:20

'Chat Is Dead': OpenAI's Pre-IPO Makeover Into A "Superapp"

Zero Hedge -

'Chat Is Dead': OpenAI's Pre-IPO Makeover Into A "Superapp"

The year the private-AI complex finally has to show its work has arrived, and ChatGPT maker OpenAI is about to add some major garnishing to the prospectus before their upcoming IPO - in what FT is calling the "biggest overhaul of ChatGPT since launch."

"It will transcend the actual surface . . . what we’re building towards is where you have your own personal agent that is capable of helping you . . . across everything in your life, be it personally or at work," said Thibault Sottiaux, who previously ran Codex and now leads all of OpenAI’s core product and platform.

Context: Over the last three weeks, the three most valuable private companies in the space announced IPOs. SpaceX filed its S-1 in May, months after folding xAI into itself. Anthropic filed a confidential draft S-1 on June 1, reportedly targeting an October listing. And OpenAI filed its own confidential draft around May 22, aiming for a debut as soon as September at a private valuation of roughly $730 billion to $850 billion, with IPO chatter pushing toward $1 trillion. The back half of 2026 is now the first real test of whether public investors will pay the prices private rounds have set.

"Chat Is Dead"

"Chat is dead," one senior OpenAI employee told the FT - which is a crazy thing to hear given that ChatGPT is what brought us here, and still has nearly a billion users. The obvious interpretation: OpenAI is moving away from chat because chat does not pay, at least not quickly enough to support a near-trillion-dollar valuation.

Adoption was never the problem. ChatGPT has nearly a billion users, most of them on the free tier. The problem is that the flagship product remains a low-margin consumer chatbot while the company burns roughly $14 billion a year against revenue that crossed $20 billion by the end of 2025. Depending on how that revenue is annualized and what multiple investors apply, OpenAI's valuation range implies a price-to-sales multiple from the mid-30s to the low 60s. Walking into a roadshow near $1 trillion while presenting the golden goose as a beloved money-loser is not a viable option.

The company has also reorganized. ChatGPT, Codex, and other product teams have been consolidated under a single leader, Sottiaux, while several senior executives - including former product head Kevin Weil - have departed. Key-person churn in the weeks before an S-1 filing is, notable.

According to FT and other reporting, here's what's new:

  • ChatGPT is being redesigned from a standalone chatbot into a gateway for higher-value products. The website and mobile apps are expected to be reworked so users are pushed toward coding tools, image generation, AI agents, and partner-built applications rather than simply returning to a general-purpose chat interface.
     
  • OpenAI is adding prompts and interface features that steer users toward monetizable use cases. The company is expected to add new surfaces inside ChatGPT that direct users toward Codex, image tools, and apps from partners such as Canva and Booking.com. The partners themselves are not new; their more prominent placement inside the ChatGPT flow is.
     
  • The company plans to remove that scaffolding over time. The longer-term goal is for OpenAI’s models to infer what users want without requiring explicit prompts, buttons, or routing cues. That roadmap detail appears to be one of the more specific new elements in the report.
     
  • The “superapp” framing is being elevated as the new investor-facing story. OpenAI is increasingly presenting ChatGPT as a single interface that can absorb chat, coding, agents, search-like tasks, image generation, and third-party services. The underlying components have existed in pieces, but the report frames them as one consolidated product thesis.
     
  • Codex is being pushed closer to the center of ChatGPT. OpenAI’s coding product is receiving greater prominence and resources as the company shifts attention toward products with clearer paid usage and enterprise demand. The Codex push was already underway, but the report makes it central to the ChatGPT overhaul.
     
  • The personal-agent vision is being packaged as the next version of ChatGPT. OpenAI is positioning the product around a single assistant that can help across personal and work tasks, reachable through mobile, desktop, web, and voice. The company has been moving toward agents for some time; what is newly elevated is the idea that this agent becomes the primary ChatGPT experience.
     
  • The enterprise pivot is being tied directly to the ChatGPT redesign. OpenAI’s push toward business customers and competition with Anthropic is not new. What is newly emphasized is the way the consumer interface is being reshaped to support that shift, turning ChatGPT into a funnel for higher-value, work-oriented products.

The revamp is expected to begin rolling out in the coming weeks - right inside the IPO window, when every interface change, resource shift, and product decision doubles as investor messaging meant to burnish the prospectus.

One issue with a 'superapp': structural coherence. A consumer funnel that routes users to third-party apps like Canva and Booking.com, an enterprise business built around Codex, and a long-horizon AGI bet are three different businesses with three different margin profiles, customer-acquisition dynamics, and capital requirements. OpenAI is now trying to staple them together within an agentic ecosystem - something that was always going to happen.

So OpenAI is building the only story that can survive diligence: enterprise seats, Codex, and agents that perform billable work. Codex's weekly active users have grown sixfold to more than five million since the February desktop launch, with the majority of users paying. Enterprise already accounts for around 40 percent of revenue and is expected to reach 50 percent by year-end. That sequencing is, almost line for line, the "make money first" approach Anthropic has followed for years. The convergence is no longer subtle.

That said, the revamp does not amount to panic. Agents and coding tools really are where the technical and commercial frontier is moving anyway. Codex's growth trajectory is real, and a majority-paying user mix is what you want going into an IPO

Meanwhile, what's Dario gonna do? Anthropic also burns substantial cash and has told investors it may not reach break-even until 2028. Both companies are walking into the same public-market daylight this year. 

Tyler Durden Mon, 06/08/2026 - 15:40

Judge Blocks Trump's $100,000 Fee For H-1B Visas

Zero Hedge -

Judge Blocks Trump's $100,000 Fee For H-1B Visas

Authored by Zachary Stieber via The Epoch Times,

President Donald Trump's $100,000 fee for H-1B visas is not legal, a federal judge said on June 8.

President Donald Trump speaks before signing an executive order in the South Court Auditorium in the Eisenhower Executive Office Building in Washington on Aug. 5, 2025. Win McNamee/Getty Images

The fee for visas for specialty foreign workers "imposes a tax on H-1B petitions without the requisite delegation by Congress," U.S. District Judge Leo Sorokin said in a 42-page decision.

While the president is able to restrict noncitizen entry into the United States, Congress has the power to tax, and federal law does not delegate it, the judge said.

He also ruled that the fee violated a law called the Administrative Procedure Act because it was issued without allowing the public to comment before it took effect, and ordered officials to vacate the policy in its entirety.

The White House did not immediately respond to a request for comment.

The ruling came in response to a lawsuit filed by Massachusetts and 19 other states. They challenged the fee, which Trump announced in September as a way to reduce taxes and bring better people into the country.

A different judge in late 2025 had upheld the fee, finding that Trump had the authority to increase the fee from between $2,000 to $5,000 to the $100,000 level. An appeal is pending in that case.

This is a developing story that will be updated.

Tyler Durden Mon, 06/08/2026 - 15:20

UBS Warns America's Restaurants Locked In "Difficult Cycle" As Tax-Refund Sugar-High Fades

Zero Hedge -

UBS Warns America's Restaurants Locked In "Difficult Cycle" As Tax-Refund Sugar-High Fades

There is certainly a growing consensus on Wall Street that the tax-refund sugar high is fading just as consumers' financial profiles deteriorate. The latest read-through comes from UBS analyst Dennis Geiger, the bank's U.S. restaurants equity research analyst, who warns that a toxic cocktail of macro pressures is likely to crimp restaurant spending in the second half of the year.

Geiger warned in a note that elevated gas prices at the pump appear to be offsetting tax-rebate benefits, while lower-income, younger, and Hispanic consumers remain among some of the weakest demand cohorts.

"Challenged traffic and sales trends likely largely reflect depressed consumer sentiment across several cohorts, elevated gas prices, and other macro headwinds," the analyst said, adding, "We are more cautious on restaurant industry trends into 2H26, assuming near-term headwinds persist, rebate check benefits fade, and risk that gas prices stay elevated."

He said that margin pressure will likely persist for restaurants through summer and into fall as commodity inflation remains a problem.

Despite the negative backdrop, he pointed out valuations for restaurant stocks look attractive:

Despite challenged fundamentals, negative investor sentiment, and valuation pressure, we believe restaurants are in a difficult cycle currently, rather than a longer-term structurally challenged position. Valuations appear attractive relative to history, but with shares likely needing a positive inflection in sales / demand trajectory or favorable macro developments / headlines to realize notable upside.

His top picks are Dutch Bros, Brinker International, and Yum! Brands, while his least favorite restaurant stocks are Cheesecake Factory and Cracker Barrel Old Country Store.

Geiger's chartpack visualizing restaurant trends:

Sales Trends 

QSR Sales and Traffic Trends

Casual Dining Trends

Dismal Consumer Sentiment still a Problem 

The full chart pack can be viewed by Professional subscribers here at our new Marketdesk.ai portal.

Geiger's caution for the restaurant industry adds to our theme of emerging consumer stress (read the latest here).

Tyler Durden Mon, 06/08/2026 - 15:00

6.4 Magnitude Quake Rocks Western Cuba, Sends Tremors Into South Florida

Zero Hedge -

6.4 Magnitude Quake Rocks Western Cuba, Sends Tremors Into South Florida

The USGS reported that a magnitude 6.4 earthquake struck just off the coast of Cuba around 2 p.m. ET, with residents across parts of Florida reporting feeling the shaking.

The offshore quake was detected near Pinar del Río, located in western Cuba. Initial reports did not indicate major damage or a tsunami threat.

NWS Miami reported "shaking across Southwestern Florida within the past 30 minutes."

*Developing...

Tyler Durden Mon, 06/08/2026 - 14:46

DOJ Asks Courts To Strip 17 Criminals Of US Citizenship

Zero Hedge -

DOJ Asks Courts To Strip 17 Criminals Of US Citizenship

Authored by Zachary Stieber via The Epoch Times,

The Department of Justice (DOJ) on Monday announced it has asked courts across the country to strip more than a dozen people who have pleaded guilty or been convicted of crimes of their U.S. citizenship.

Acting Attorney General Todd Blanche speaks during a press conference in Washington on April 27, 2026. Madalina Kilroy/The Epoch Times

Filings in federal court requested judges revoke the naturalization of 17 individuals, including Jean Claude Alfred, a 68-year-old Haitian native who became a U.S. citizen in 1994.

Federal officials said that Alfred, who does not have a lawyer listed on the court docket, was convicted in 1996 of attempting sexual battery and indecent assault on his daughter, for conduct that began three years prior.

Alfred "concealed his crime throughout the naturalization process," DOJ lawyers told the federal court in Miami.

Another man, 39-year-old Armando Mendoza of Mexico, received sexually explicit images of minors as early as 2009 and pleaded guilty in 2013. Mendoza failed to disclose the crime in his 2011 citizenship application and interview, which means his citizenship should be revoked, officials said in a separate filing in federal court in California.

Mendoza has not hired an attorney, according to the court docket.

"When criminal aliens exploit the naturalization process by breaking the law, there are consequences," acting Attorney General Todd Blanche said in a statement. "Criminal aliens are lying about their past crimes, including drug dealers, sexual predators, and fraudsters."

Homeland Security Secretary Markwayne Mullin added that "American citizenship is a privilege, and it must be earned honestly."

He said, "If you come here break our laws, and lie in your immigration proceedings, you forfeit that privilege."

Developing...

Tyler Durden Mon, 06/08/2026 - 14:40

Pentagon Names Alibaba, Baidu, And BYD In Updated Chinese Military Companies List As DoD Contracting Bans Loom

Zero Hedge -

Pentagon Names Alibaba, Baidu, And BYD In Updated Chinese Military Companies List As DoD Contracting Bans Loom

The Department of Defense has filed a major update to its official list of "Chinese military companies" operating in the United States, formally naming or reaffirming high-profile firms including Alibaba, Baidu, BYD, BGI Group, and Autel as companies linked to Beijing's military-civil fusion strategy.

The notice, filed on Monday and scheduled for Federal Register publication on June 10, comes just weeks before new restrictions on Department of Defense contracting with listed entities take effect on June 30. The companies are alleged to have ownership or ties to SASAC (State-owned Assets Supervision and Administration Commission), affiliations with MIIT (Ministry of Industry and Information Technology), PLA connections, support from China's "Little Giant" industrial program, or a presence in military-civil fusion zones.

Section 1260H requires the Pentagon to identify Chinese companies that conduct commercial business while also supporting or being affiliated with the People's Liberation Army or China's defense-industrial base. The list has existed for years, but the consequences are now becoming more significant. Effective June 30, the DoD will be barred from entering into, renewing, or extending contracts directly with listed companies or entities they control. A broader indirect ban - covering goods or services that incorporate products from these firms - follows in June 2027. Additional rules restrict DoD contractors from working with entities that lobby on behalf of listed companies.

In short, the Pentagon is putting major Chinese companies on notice that it views them as potential extensions of China's military and defense ecosystem, even if those companies are better known globally for consumer products, cloud services, electric vehicles, drones, or biotech.

Key Companies Designated

Several globally significant names stand out in the update:

  • Alibaba Group Holding Limited: Indirectly affiliated with SASAC and flagged as a military-civil fusion contributor due to its MIIT ties. The company's dominance in e-commerce, cloud computing, and AI raises long-standing dual-use technology concerns.
  • Baidu, Inc.: Similarly linked to SASAC and cited for MIIT affiliation, reflecting U.S. concerns about its AI, search, and autonomous systems capabilities.
  • BYD Company Limited: Directly and indirectly tied to SASAC and MIIT. The world's largest electric vehicle maker is highlighted for its critical role in batteries and EVs - sectors with clear strategic and potential military applications.
  • BGI Group (including BGI Genomics and other subsidiaries): Noted for direct PLA affiliation and MIIT ties, along with government assistance tied to military planning objectives. The genomics firm has previously drawn scrutiny over data security and collection practices.
  • Autel entities (Autel Intelligent Technology and Autel Robotics): Designated for "Little Giant" status and MIIT connections, underscoring concerns around commercial drones and robotics with obvious military uses.

The broader list includes many other major players, including SMIC and memory chip firms (CXMT, YMTC), COMAC and AVIC aerospace entities, CATL and EVE Energy batteries, Huawei-related companies, DJI, Hikvision, Tencent, SenseTime, and various shipping and construction conglomerates. Some firms appear with extensive U.S. or international subsidiaries.

A handful of entities were removed from the previous January 2025 list, including certain CNOOC and COSCO subsidiaries.

Broader Context and Stakes

This update marks the latest step in years of escalating U.S. policy toward China's military-civil fusion strategy. Earlier Pentagon assessments and a February 2026 draft notice had already previewed many of these additions before being withdrawn. The move also fits into a wider U.S. effort that includes Entity List expansions, investment restrictions, export controls, and legislative pushes targeting Chinese biotech and technology supply chains.

Geopolitically, the list reflects Washington's view that key commercial sectors - AI, semiconductors, EVs and batteries, biotech/genomics, drones, and cloud infrastructure - cannot be cleanly separated from China's national security apparatus. It arrives amid intensifying competition over critical technologies and broader strategic tensions between Washington and Beijing.

Listed entities can request reconsideration by submitting evidence to a designated Pentagon email address.

Tyler Durden Mon, 06/08/2026 - 14:00

Trump Admin Provided No Defensive Action For Israel Amid Iranian Missile Salvo

Zero Hedge -

Trump Admin Provided No Defensive Action For Israel Amid Iranian Missile Salvo

We've been documenting the apparent immense strain in the US-Israel relationship related to Iran policy and strategy. In this latest round of trading major blows, President Trump reportedly not only told Israel to immediately halt its response and to not retaliate, but gave no order for US forces to protect Israel, for example by manning and operating crucial anti-air defenses.

While Iranian ballistic missiles were inbound, "The US military didn't take part in the Israeli attacks against Iran, the first since the ceasefire, and the Trump admin didn't order any US defensive action to shield Israel from incoming Iranian missiles, per a US official" - according to CBS White House correspondent Jennifer Jacobs.

If accurate, this marks a major change in US priorities and the Pentagon's posture in the region. Going back to last year's 11-day June war, as well as from the start of Operation Epic Fury, Washington has previously provided consistent cover and protection for Israel, especially on the anti-air defense front.

Source: picture alliance/CFOTO

The notable change and shift is also being reported by NBC, which writes Monday morning, "The U.S. military did not conduct any strikes against Iran with Israel, according to a U.S. official."

"The U.S. did not shoot down or intercept any incoming Iranian missiles or projectiles during this recent volley between Israel and Iran," the report continues. "And the current U.S. assessment is that Iran was not targeting any U.S. personnel, assets, or locations during the strikes directed at Israel, the official said."

US Central Command (CENTCOM) has however, affirmed it has been in contact with senior Israeli military officials, presumably to receive updates and briefings on the Iranian attacks of the prior 24 hours, as well as related to the latest on Israeli offensive actions.

While Washington is creating distance between itself and this renewed round of fighting, Iranian officials aren't buying the narrative.

In a fresh message from Iranian foreign ministry spokesman Esmaeil Baqaei, Tehran says that "Without a doubt ... the actions of the Zionist regime in the region cannot be separated from U.S. policies." Tehran is rejecting the US insistence that it is not behind Israel's actions: "No one believes that the Zionist regime would carry out any action without prior coordination and cooperation with the United States," Baqaei added.

Meanwhile, President Trump declared in a Financial Times interview published on Sunday - "I call the shots" regarding actions against Iran, and not Israel.

Prime Minister Benjamin Netanyahu "won't have any choice" but to accept an impending agreement between the US and Iran, Trump stated.

Mark Levin rages over lack of US defense for Israel:

At the same time, a US official told Axios on Sunday that Trump was "pretty adamant that we are close to a deal with Iran," urging space to give diplomacy a chance.

Though Israel ultimately went ahead with a strike on Iranian territory following Sunday's missile barrage, the situation is showing signs of a temporary pause on Monday. Iran's military announced it had halted its operations, claiming it had successfully sent its intended message, even as Trump continued to publicly insist that both nations are actively looking to agree on an "immediate CEASEFIRE" (on Truth Social).

Tyler Durden Mon, 06/08/2026 - 13:40

Netanyahu Confirms Israel 'Holding Fire, For Now' - Rejects Iran Red Line To Not Attack Lebanon

Zero Hedge -

Netanyahu Confirms Israel 'Holding Fire, For Now' - Rejects Iran Red Line To Not Attack Lebanon Summary
  • Israel has rejected Iran's warning not to attack Lebanon, though aerial operations appear paused.
  • Israeli officials say strikes on Iran being halted at President Trump's request to 'stop shooting'. Netanyahu confirms attacks halted 'for now'.
  • Iran FM accuses US of cooperating with Washington: "No one believes that the Zionist regime would carry out any action without prior coordination and cooperation with the United States" (Foreign Ministry spox).
  • Iran's sprawling Bandar Imam Petrochemical Complex bombed by Israeli Air Force.
  • Houthis seek to close/threaten Bab-el-Mandeb Strait for Israeli-linked passage: We declare a complete and total ban on maritime navigation for the Israeli enemy in the Red Sea.
//--> //--> US x Iran permanent peace deal by June 30, 2026?
Yes 17% · No 84%
View full market & trade on Polymarket

*  *  *

Israel Rejects Iran Attempt to Assert Red Line on Not Attacking Lebanon

The Lebanon crisis remains a tug-of-war flashpoint between Tehran and Tel Aviv. The Iranians want to force a situation where any broader peace deal with the US is linked directly to achieving permanent truce in Lebanon. However, the US and Israel have consistently sought to thwart these attempts. According to Bloomberg:

Israel will strike Hezbollah in Beirut in retaliation for any further cross-border attacks by the Iranian-backed Lebanese faction, Israel’s defense minister says in a statement, rejecting a threat by Tehran to resume missile salvos in solidarity with Lebanon.

“Any Iranian attempt to link Lebanon to Iran in attacking Israel will be met with a forcible response, as happened yesterday,” Defense Minister Israel Katz says, referring to an air strike in the Lebanese capital which prompted Iranian missile fire against Israeli targets. If Hezbollah attacks Israel’s northern communities “it will lead to an attack on the Dahieh,” he says, referring to a Beirut suburb where support for Hezbollah is strong.

Still, Israel has by late Monday (local) made clear it is halting attacks on Iran and Lebanon 'for now' after President Trump called for immediate restraint.

Israel Halts Iran Attacks 'For Now'

"After Iran attacked Israel, I instructed the IDF to strike military and economic targets throughout Iran," Netanyahu said in a fresh Monday statement. "For now, the fire has been contained, because after we struck the terrorist regime in Tehran, it ceased attacking us. If the terrorist regime in Iran makes the mistake of attacking us again, we will respond with force." The key lines from Netanyahu:

Israeli Prime Minister Benjamin Netanyahu said Monday that Israel had stopped its attacks on both Iran and Hezbollah in Lebanon, after the Iranian military announced it was halting operations.

In a brief statement Monday, Netanyahu said "Iran and Hezbollah are weaker than ever, and we are stronger than ever - but our struggle with them is not over yet."

Having bombarded both adversaries, he added, "right now, the fire has been halted."

Iran's military headquarters responds: "Should aggression and hostile actions continue—including in southern Lebanon—far more severe and forceful measures than before will follow," it said, according to Iranian state media.

And in a clear sign of the exchange of strikes having ceased:

Iran says flight restrictions have been lifted with airspace returning to normal conditions: state media

Israel Pauses Iran Strikes At Trump's Request

Israel's N12 News is reporting that Israel is halting strike on Iran at President Trump's request. There are widespread initial reports that Israeli forces are indeed pausing the attacks, which persisted overnight through Monday morning, and included attack on a major petrochemical complex. However, the latest Israeli messaging has included a warning on the Lebanon front, per Bloomberg:

Senior Israeli official says Israel is stopping strikes in Iran at Donald Trump’s request, but confirms operations in southern Lebanon will continue at full intensity in the coming days. The official also warns that Dahieh in Beirut could be targeted if attacks on Israeli settlements and civilians continue.

There are also emerging reports (via CBS) that Trump did not order any US defensive efforts to protect Israel from the latest Iranian ballistic missile attacks - which were the first against Israel since the early April ceasefire.

Meanwhile, in a fresh message from Iranian foreign ministry spokesman Esmaeil Baqaei, Iran says "Without a doubt ... the actions of the Zionist regime in the region cannot be separated from U.S. policies." Tehran is rejecting the attempts of the Trump administration to distance the US from Israeli actions: "No one believes that the Zionist regime would carry out any action without prior coordination and cooperation with the United States," Baqaei added.

Trump: 'Stop Shooting'

A big question remains is if this flare-up in major fighting, which has featured the first direct attacks between Iran and Israel since the April ceasefire took effect, will be short-lived or whether it will endure and escalate into sustained war.

So far the situation is showing signs it could be short-lived, after early Monday morning President Trump urged Israel and Iran to immediately stop "shooting" in a Truth Social post. He also expressed that this musts be done "quickly" and is still talking up a "final" peace deal - which at this moment looks as distant as ever. Iran is signaling it is ready to get back to ceasefire, but Israel is again threatening the Beirut suburbs.

Here's what Trump wrote in a couple of brief Monday posts:

Israel and Iran must immediately stop “shooting.” ...and:

Both sides, Israel and Iran, are looking to do an immediate CEASEFIRE! Final negotiations on “Peace” are proceeding, subject to ignorance or stupidity getting in its way. The Blockade will remain in place, and in full force and effect, until a “Final Deal” is reached. Things should move quickly. Thank you for your attention to this matter!

Big Round of Israeli Retaliation Airstrikes on Iran

Videos of Israel's further daytime attacks on sites across Iran have emerged, after Iran sent ballistic missile waves on Israel on Sunday, in response for the IDF renewing airstrikes on Beirut.

For now, Tehran is claiming the current round is over, with Iran's armed forces having announced the end of military operations against Israel while warning of "harsher" attacks if Israel resumes strikes on Lebanon, according to the semi-official Fars news agency.

The Khatam al-Anbiya Central Headquarters spelled out the Islamic Republic's latest justification: "Following the aggressions and acts of mischief by the brutal Zionist regime in southern Lebanon and the Dahieh area, carried out with the support of criminal America, the powerful armed forces of the Islamic Republic of Iran, in support of the oppressed people of Lebanon, delivered a painful response to this regime." And there's a new message from Iranian President Pezeshkian, saying:

"Diplomacy and defense are the two wings of national power; we have neither left the field nor the negotiating table... We will defend the rights of the nation with authority and will not retreat in the face of any threat."

Massive Iranian Petrochemical Complex Hit

Israel, however, made sure to leave a massive mark before any cooling off. The Israeli military confirmed it attacked Iran's sprawling Mahshahr petrochemical complex on Monday, marking its first strike on the critical asset since the April 7 ceasefire agreement.

The Bandar Imam Petrochemical Complex, as it is formally known, is widely seen as one of the crown jewels of Iran's energy sector. Tucked near the southern city of Mahshahr and Bandar Imam Khomeini - a vital industrial port on the Persian Gulf - the sprawling complex consists of more than 50 separate petrochemical plants producing roughly 72 million tons of products annually, according to Iran’s oil ministry.

Iranian state media reported that one specific installation, the Karun petrochemical plant, was hit twice Monday morning. While a local official told Fars that no casualties were reported, the facility sustained notable structural damage.

IRGC: 'Dangerous Game'

The response from Iran's elite military branch was immediate and ominous. The Islamic Revolutionary Guards Corps condemned the precise strike as a "dangerous game" - openly threatening to expand the scope of how it retaliates against Israel, explicitly noting that future targets will include energy-related sites.

Israel already compiled a visual strike map showing targets it hit in Iran overnight into Monday:

With both sides testing the absolute limits of the April truce, the macro risk to regional energy infrastructure has officially rocketed back to the forefront, as Trump desperately tries - or is at least appearing to - walk the two sides back from the ledge.

Vital Bab-el-Mandeb Strait (Red Sea) Under Threat: Houthis Declare "Total Ban" On Israeli Ships

On the maritime chokepoint front, Iran-backed Houthis declared a full ban on Israeli vessels in the southern Red Sea, warning that any Israeli ship (or linked ship) will be seen as a military target:

"First: We declare a complete and total ban on maritime navigation for the Israeli enemy in the Red Sea, and we consider all enemy movements to be military targets for our Armed Forces from the moment this statement is issued."

The statement continued, "Second: We affirm that we will meet escalation with escalation, and that our military operations will escalate in line with events, the battle, and in conjunction with the axis of Jihad and Resistance."

The announcement is similar to the Houthis' late-2023 campaign, when rebel forces attacked ships linked to Israel or bound for Israeli ports in or around the Bab-el-Mandeb Strait. They framed the attacks as retaliation for the Gaza war. Potential disruption of the Bab-el-Mandeb Strait in the southern Red Sea will only add to the headaches for global maritime trade, as it is a critical sea route for Asia-to-Europe commerce and Gulf energy exports.

At its narrowest point, the strait is about 18 miles wide, making commercial vessels extraordinarily vulnerable to suicide drones, missiles, mines, and small boats.

More Headlines/Latest Developments

via Newsquawk...

WEEKEND MIDDLE EAST RECAP

  • Israel conducted airstrikes on a couple of apartment buildings in Beirut’s Dahiya district on Sunday, in what the military described as targeting a Hezbollah command centre.
  • Iran launched four waves of strikes against Israel on Sunday evening in retaliation for an Israeli strike on Beirut, which it stated ‘crossed all red lines’, while it threatened devastating blows if Israel expands Lebanon operations. Iran signalled a halt to attacks if Israel refrains from strikes, but vowed stronger retaliation if Israel strikes back, and it closed its western airspace until further notice.
  • IRGC said that the Ramat David Airbase was hit by ballistic missiles and that future attacks are to target US-Israel regional assets, while Tehran Times noted reports of missiles being fired at a US airbase in Jordan.
  • Israeli PM Netanyahu was reported to be holding security consultations following the latest developments, while the Israeli military said the missiles launched by Iran were intercepted, although Iran claimed a successful strike on northern Israel.
  • US President Trump said he was supposed to announce that a deal with Iran would be signed this week, and now this is happening, while he called for Iran to end the missile fire and return to talks. Trump also stated that he was not happy about Israel striking Beirut and that Israel’s attacks were not coordinated with the US. Furthermore, Trump said he would call Israeli PM Netanyahu to tell him not to attack Iran in response, and noted that they are close to a final deal, which he doesn’t want to blow up.
  • US attacked Iranian coastal surveillance sites on Saturday after shooting down drones launched towards the Strait of Hormuz. US military said that Iran had fired missiles and drones towards Kuwait and Bahrain, while drones were also fired towards 4 commercial ships in the Strait of Hormuz.
  • Iran Supreme Leader’s military adviser Rezaei said Iran’s attack on Israel on Sunday serves as a warning to Israel to cease strikes on Beirut, while he warned of a further response to aggression.

EUROPEAN MORNING IRAN CONFLICT UPDATES

  • US President Trump posted "Israel and Iran must immediately stop shooting."
  • US President Trump said Israeli PM Netanyahu will have no choice but to accept whatever deal the US negotiates with Iran because he calls the shots. Trump stated that Iran's strikes had not changed his desire to conclude US-Iran negotiations and he thinks the deal is going on, but we will see what happens, and he would consider a commando raid on Iran if a deal failed, according to FT.
  • US told Israel to hold off for a few days to allow space for a deal, with a joint action plan to proceed if talks fail. It was separately reported by Tasnim, citing Israel's Channel 12, that Israeli PM Netanyahu tried to object to US President Trump's request not to react to Iran during a phone call, but in the end accepted it.
  • Iranian Foreign Ministry Spokesperson said Washington is responsible for the current situation because it is a party to the ceasefire agreement, and the ceasefire has been continuously and repeatedly violated by the opposing sides. Action is to be taken whenever deemed necessary to defend the country's interests. On the ceasefire agreement, the spokesperson said that ending the war in Lebanon was part of the ceasefire agreement, and when this clause is violated, the diplomatic track is also affected. Furthermore, he said the message exchange is ongoing with the US and Pakistan's Interior Minister visited Tehran to push negotiations. Lastly, he said they are not talking about the issues of enriched uranium or enrichment at this stage.
  • Iran's IRGC said that by taking action against civilian targets and targeting oil industries, Israel has targeted a dangerous game which will encompass all energy targets in the region and consequences for the global economy belong to the US. Iran's IRGC further said that we are ready to carry out operations on all fronts, and our response has been planned based on various enemy scenarios.
  • An Iranian source said that "Iran is prepared for a long-term war... The coming days will show that the calculations of the Israelis and Americans are always wrong", Tasnim reported.
  • Iranian Supreme Leader senior adviser said on Sunday that Tehran threatened to block the Bab-al Mandab if Israel escalates its attack, according to CNN citing IRIB.
  • Yemen's Houthis announce a complete and total ban on Israeli maritime navigation in the Red Sea. The Houthis also claimed responsibility for a missile attack in Israel and said banning navigation to the enemy is a preliminary step and the group is prepared for additional steps against any escalation.
  • Israeli projectile hit an Iranian petrochemical plant, with the Karun petrochemical plant damaged in Khuzestan province.
  • Israel's army expects the exchange of strikes with Iran to continue for several days, Al Hadath reported.
  • Israeli Minister Smotrich is expected to propose at the next Security Cabinet meeting that Israel should respond to every Iranian missile launched at Israel by striking 20-30 buildings in Beirut's Dehaya district, journalist Stein reported.
  • Israeli military said the Israeli Air Force struck military targets belonging to the Iranian regime in western and central Iran.
  • Throughout Monday in Iran, there have been reports of loud explosions in Tehran, Tabriz, Isfahan, Kermanshah and Karaj, while explosions were reportedly heard in southern Lebanon. Additionally, there were some arab sources reporting explosions at the Prince Sultan Air Base in central Saudi Arabia, however involvement was denied by Iran.
  • Drone attack reported from Yemen towards Israeli targets, according to Tasnim.
Tyler Durden Mon, 06/08/2026 - 13:25

India Rescues 24 Crewmembers From Stricken Tanker Off Oman After US Airstrike

Zero Hedge -

India Rescues 24 Crewmembers From Stricken Tanker Off Oman After US Airstrike

Update(1315ET): US Navy forces have announced a new Monday direction action operation in the Gulf of Oman. The US has cited that the vessel refused to respond to orders related to the blockade of Iranian naval ports.

The ship attempted to sail to an Iranian port, in violation of the ongoing blockade. A CENTCOM statement indicated that the military "disabled Palau-flagged M/T Marivex as it transited international waters in the Gulf of Oman toward Iran."

"An F/A-18 Super Hornet from USS Abraham Lincoln (CVN 72) fired a precision munition into the ship's engineering and steering spaces after the crew failed to comply with directions from U.S. forces," the statement continued. "Marivex is no longer sailing to Iran," it said. The Pentagon has also reviewed the following since initiating the blockade on April 13.

  • CENTCOM forces have disabled seven non-compliant vessels
  • it has redirected 134 ships that complied
  • allowed 42 vessels supporting humanitarian aid to pass

This is the same vessel which took on US military fire:

Indian navy helicopters airlifted 24 sailors off a tanker on fire off the coast of Oman on Monday, New Delhi officials said, without saying what caused the blaze.

India’s Ministry of Ports, Shipping and Waterways said a fire was reported at around 1:30 p.m. (0800 GMT) on the MT Marivex, a Palau-flagged tanker.

“There has been a fire reported on a vessel, MT Marivex, on which there were 24 Indian seafarers... all Indian seafarers are safe,” ministry director Opesh Kumar Sharma told reporters.

And more from the same report:

Images posted on social media by the Forward Seamen’s Union of India showed crew members being winched from the vessel by helicopter as thick black smoke billowed from its bridge and accommodation cabins.

The tanker’s position was shown by ship-tracking service MarineTraffic as being off the coast of Oman, south of the capital Muscat.

*  *  *

Brent crude futures jumped as much as 5% to $97.83 a barrel, while WTI traded around $95 a barrel, as renewed Iran-Israel fighting threatened to unravel a fragile US-Iran ceasefire and further disrupt energy flows.

On the maritime chokepoint front, Iran-backed Houthis declared a full ban on Israeli vessels in the southern Red Sea, warning that any Israeli ship (or linked ship) will be seen as a military target.

"First: We declare a complete and total ban on maritime navigation for the Israeli enemy in the Red Sea, and we consider all enemy movements to be military targets for our Armed Forces from the moment this statement is issued," the terror group said Monday in a statement.

The statement continued, "Second: We affirm that we will meet escalation with escalation, and that our military operations will escalate in line with events, the battle, and in conjunction with the axis of Jihad and Resistance."

"Third: We affirm the right of our people and the peoples of our free nation to confront American-Israeli aggression, and that we will not stand idly by in the face of the unjust siege imposed on our people and the peoples of the axis of Jihad and Resistance in Palestine, Gaza, Iran, Lebanon, and Iraq. All enemy attempts will fail, God willing, and our operations will continue as long as the aggression and siege against us and the axis of Jihad and Resistance continue," the statement concluded.

The announcement is similar to the Houthis' late-2023 campaign, when rebel forces attacked ships linked to Israel or bound for Israeli ports in or around the Bab-el-Mandeb Strait. They framed the attacks as retaliation for the Gaza war.

Potential disruption of the Bab-el-Mandeb Strait in the southern Red Sea will only add to the headaches for global maritime trade, as it is a critical sea route for Asia-to-Europe commerce and Gulf energy exports.

At its narrowest point, the strait is about 18 miles wide, making commercial vessels extraordinarily vulnerable to suicide drones, missiles, mines, and small boats.

The previous disruption of the Bab-el-Mandeb Strait led to ships rerouting around the Cape of Good Hope, adding time, fuel, insurance costs, and higher shipping costs. The IMF has previously said that the Red Sea attacks halved Suez Canal trade in early 2024, while shipping traffic via the Cape of Good Hope surged.

Related:

Readers were brefied in mid-April on the threat other critical straits could be disrupted. Read the note here

The big risk here is a simultaneous disruption of both maritime chokepoints. Bab-el-Mandeb would hit the world's trade artery, while Hormuz has already disrupted the world's energy artery. Combined, the clogging of both maritime chokepoints would be viewed as a major escalation, likely raising the risk of additional supply chain stress, higher freight and insurance costs, and another inflationary wave.

Tyler Durden Mon, 06/08/2026 - 13:15

Trump Weighs Plan To Buy Chagos Islands, Home To Diego Garcia Military Base

Zero Hedge -

Trump Weighs Plan To Buy Chagos Islands, Home To Diego Garcia Military Base

The White House is actively considering a plan to purchase the Chagos Islands, potentially undermining the UK's agreement to transfer sovereignty of the strategically vital territory to Mauritius, according to reports.

An undated photograph shows an aerial view of Diego Garcia. U.S. Navy via AP

US officials have prepared proposals to bypass Britain and negotiate directly for control of Diego Garcia, the key Indian Ocean atoll that hosts a major joint US-UK military base. The idea forms part of broader options being developed by the Trump administration as alternatives to Prime Minister Keir Starmer's plan to cede the islands to Mauritius, which has close ties to China and Iran.

Strategic Importance

Diego Garcia's location makes it critical for long-range operations. It enables round-the-clock bomber missions, including potential strikes on Iran using B-2 Spirit stealth bombers, and places key areas within striking range. Amid ongoing conflicts involving Iran and China's expanding naval presence, US and UK officials stress the need to maintain a robust chain of global military bases.

Senior Trump administration officials worry that transferring control to Mauritius could expose the base to espionage or interference. One former adviser to UK Foreign Secretary David Lammy, Ben Judah, told the Telegraph that the base has "super secret, super sensitive facilities" that are vital to British and allied capabilities, noting they would be difficult to replicate elsewhere.

Background on the UK-Mauritius Deal

The UK had agreed to hand sovereignty of the Chagos Islands to Mauritius while securing a long-term lease for the military base, reportedly involving around £35 billion ($46.7 billion) over 99 years. However, the deal requires US consent due to longstanding agreements governing the base, and Britain has since placed it on hold.

President Trump initially appeared open to the arrangement but later strongly opposed it, particularly after the UK reportedly declined to allow strikes on Iran from Diego Garcia in the early stages of the Iran war. He publicly denounced the deal as "great stupidity" and criticized Starmer for weakening the special relationship, calling him "no Winston Churchill."

US Position and Ongoing Talks

A US official told Reuters:

"President Trump has been consistent in his position that the United Kingdom should not give away the British Indian Ocean Territory, which includes our joint U.S.-UK military facility on the Diego Garcia atoll. Diego Garcia's strategic location in the Indian Ocean makes it a vital and indispensable military installation of significant importance to the national security of the United States."

The US continues regular discussions with Britain to preserve the base's viability.

Purchasing the islands outright would likely involve waiting for the UK-Mauritius sovereignty transfer before negotiating with Mauritius. No specific price has been discussed, according to sources.

In February, Trump said that he had retained the right to "militarily secure" the Diego Garcia air base after calling the UK's decision an "act of total weakness."

UK Response

A UK government spokesperson defended the original agreement, stating it was necessary to protect long-term interests and prevent adversaries from gaining a foothold:

"Diego Garcia is a key strategic military asset for both the UK and the US, which has protected our shared security for nearly 60 years. Maintaining long-term operational control and security of Diego Garcia is the entire basis for the UK-Mauritius agreement."

In May, UK minister Hamish Falconer stated there was "no scenario" in which Washington could purchase the islands, reaffirming commitment to the deal. Downing Street has not commented on the latest US proposals.

People protest outside the High Court where Chagossian campaigners are challenging the British government's deal to transfer sovereignty of the Chagos Islands to Mauritius, in London, Britain, October 28, 2025. Tyler Durden Mon, 06/08/2026 - 13:00

Flying Car Industry Turns To Solid-State Batteries For Commercial Takeoff

Zero Hedge -

Flying Car Industry Turns To Solid-State Batteries For Commercial Takeoff

Authored by Bojan Stojkovski via Interesting Engineering,

Solid-state battery advances could accelerate flying car adoption. GAC

As the flying car industry moves from prototype development toward commercial deployment, attention is increasingly shifting to the technologies needed to support safe and scalable operations.

Su Qingpeng, founder and CEO of GAC Govy, a low-altitude mobility company incubated by GAC, recently described solid-state batteries as the "essential path" for the future of flying cars, highlighting their potential to deliver the energy density and safety required for aerial mobility.

At the same time, investor expectations are evolving. Rather than focusing primarily on technical specifications and performance claims, capital markets are placing greater emphasis on practical indicators of commercial success, including vehicle deliveries, profitability, production readiness, and the timeline for obtaining airworthiness certification.

Flying Cars Follow a Path Similar to Early EVs

Su compared the current stage of the flying car industry to the position electric vehicles occupied roughly a decade ago, when the market was still transitioning from early adoption to large-scale growth. He argued that aviation mobility could advance even more rapidly than the EV sector once adoption reaches a critical threshold.

According to his outlook, the industry is expected to establish a sustainable commercial ecosystem by 2030, supported by technological progress, regulatory approvals, and the gradual rollout of low-altitude transportation services, CarNewsChina reported.

After entering the market with its first production model, GAC Govy has been advancing toward regulatory approval and commercial deployment. Its flagship aircraft, the Govy AirCab, opened for pre-orders in 2025 and officially entered production in May 2026.

The Chinese company aims to complete airworthiness testing and secure Type Certification (TC) by the end of 2026, while Production Certification (PC) is targeted for the first half of 2027, paving the way for larger-scale manufacturing and commercial operations.

Safer, Longer-Range Flying Cars Depend on Solid-State Batteries

In the long run, battery technology is emerging as one of the most important factors shaping the future of aerial mobility. Su noted that solid-state batteries will play a central role in enabling the next generation of flying cars by delivering both the energy density required for longer flight ranges and the safety standards needed for commercial operations.

Furthermore, the business case for solid-state batteries is markedly different in aviation than in the automotive sector. Whereas carmakers are pursuing the technology largely to lower costs and improve competitiveness in high-volume markets, flying car manufacturers can absorb significantly higher battery costs due to the economics of aircraft production. Su noted that conventional aircraft are far more expensive to build than automobiles, giving eVTOL developers greater flexibility to adopt advanced battery technologies.

As a result, solid-state batteries can already be deployed in limited production runs for aerial vehicles. Over time, broader adoption across the automotive industry is expected to drive down battery costs, making flying cars more economical to operate and opening the door to wider commercial use.

However, Su also warned that flying car production is likely to scale more slowly than traditional automobiles. Extensive design iterations, airworthiness certification, and manufacturing validation requirements make the path to mass production longer and more complex, resulting in a gradual ramp-up in deliveries.

Tyler Durden Mon, 06/08/2026 - 12:40

Transcript: Chris Davis of Davis Funds

The Big Picture -

 

 

The transcript from this week’s MiB: Beating the S&P For Generations with Chris Davis of Davis Funds, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

 

~~~

 

Masters in Business  · Bloomberg Radio
Barry Ritholtz in conversation with Chris Davis, Chairman & Portfolio Manager, Davis Advisors

 

[00:00:02] Announcer: Bloomberg Audio Studios, podcasts, radio News. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

[00:00:17] Barry Ritholtz: This week on the podcast. Strap yourself in for another banger. Chris Davis chews up the scenery. He is the portfolio manager of Davis Advisors. They’ve been kicking the S&P’s butt for the past, I don’t know, since 1969. $20 billion in client assets. Fascinating conversation. Charlie Munger was his mentor. He sits on the board of Koch and on Berkshire Hathaway. I thought this conversation was spectacular. I think you will also, with no further ado, my sit down with Chris Davis.

[00:00:53] Chris Davis: It’s so always good to be with you. Thank you so much.

[00:00:56] Barry Ritholtz: So before we get into your career — master’s degree with honors from the University of St. Andrews in Scotland — like how did that come about?

[00:01:08] Chris Davis: Well, one of the things that confuses people is I actually don’t have an undergraduate degree. I only have the master’s degree. Wait, how — I sort of skipped that middle step.

[00:01:18] Barry Ritholtz: So did you go to an undergraduate college?

[00:01:21] Chris Davis: Well, what happened is I went to St. Andrews. I had originally only intended to go for a year. I wanted to be a veterinarian. That’s a long side story. And I had worked at the Bronx Zoo. I had worked at the —

[00:01:33] Barry Ritholtz: Wait, wait, wait —

[00:01:33] Chris Davis: Humane Society.

[00:01:34] Barry Ritholtz: So the original plan wasn’t “dad’s a fund manager, grandfather’s a fund manager, I guess I’m gonna go into the family business.” That was not the —

[00:01:44] Chris Davis: Plan. Definitely not. But I give both of them credit. They felt that all of their kids should be financially literate. And so every kid worked for my father or for my grandfather at some point and learned, because they just felt like, look, you’ll have money over time. It’s not taught in schools, just the basic fundamentals of investing. And God help you, if you turn on the TV, you’re gonna get a totally distorted view of what investing is.

[00:02:15] Barry Ritholtz: Fire hose of nonsense.

[00:02:17] Chris Davis: Exactly. And so we all had this grounding. But for example, my smartest sibling without question is my younger sister, but she’s a small town doctor. But boy, does she understand investing. She’s very thoughtful in how she’s managed her financial affairs. So we owed that route, but we all thought we were going different paths. She was interested in medicine. I was interested in veterinary medicine. And so I was gonna go to Cornell, and I was very young for my high school class, and I was very late hitting puberty. I mean, I was five feet tall my senior year in high school. That’s when I broke five feet. So you can imagine what this looked like, but my scores and grades were okay. And so Cornell took me into their pre-vet program, but the woman that ran it said, look, this is a seven year program, it’s intense. Why don’t you take a year off, like a gap year? So I proposed that to my father. He said, we don’t do that in our family. You could go study, but there’s no year off, like to go ski or find yourself.

[00:03:27] Barry Ritholtz: Did you skip a grade, or — like me — were you born in October, November, December, so you’re young relative to the rest of —

[00:03:33] Chris Davis: No, I had skipped a grade sort of early because, bizarrely — nobody in my family believes this now — but I didn’t talk until quite late. So they had sort of, and then when I started talking, they jumped me ahead —

[00:03:47] Barry Ritholtz: Making up for —

[00:03:48] Chris Davis: Exactly. It never stopped since then. But anyway, so I had this year, and it was the first year that the University of St. Andrews was interested in taking direct applications from students where they dropped the requirement to have A levels or O levels, the British entry exams, mostly because they wanted the Yankee dollar. Of course, you’ve gotta remember Thatcher had just become prime minister. She was slashing the public support of the Scottish universities. So I applied. There were, I think, eight of us Americans that came in that first year. And they had a program where after two years you could apply into the honors program, which would allow you to concentrate on just one subject. And I ended up picking two. But needless to say —

[00:04:41] Barry Ritholtz: What were the —

[00:04:42] Chris Davis: Two? It was philosophy and theology.

[00:04:44] Barry Ritholtz: Very —

[00:04:45] Chris Davis: Interesting. I picked them my freshman year thinking, well, when I go back to Cornell, I’m gonna be filled up with organic chemistry and biology and anatomy and so on. So I may as well pick things that I’ll never get to study again. So I picked things like medieval history, philosophy, theology, and —

[00:05:03] Barry Ritholtz: I love that. That’s something I always, in hindsight, wish I did. I started out physics and math and switched to political science and philosophy. So I got to study some stuff that was fun. But medieval history sounds like that would be a delightful semester.

[00:05:22] Chris Davis: You used the perfect word — fun. I mean, I became a good student in high school. I wasn’t a good student before. In fact, recently I found my eighth grade final report card. I went to a school here in New York, and it was a pretty strict, wear-a-uniform sort of boys school. And the headmaster would review each report card before it went to the parents and then make a comment on the bottom. And the headmaster’s comment on my final elementary school report card was: “Yet another semester of squandered potential.”

[00:05:57] Barry Ritholtz: Not living up to his potential. That’s —

[00:06:00] Chris Davis: Oh my god, my —

[00:06:00] Barry Ritholtz: That’s a classic.

[00:06:01] Chris Davis: My children found that — my mother gave it to my children, which was a big problem. You can imagine. But anyway, so I thought I’ll just be in Scotland for a year. I picked subjects I would never study again. They were so fun. It was just —

[00:06:15] Barry Ritholtz: Especially in Scotland, studying medieval history.

[00:06:18] Chris Davis: A medieval university, where Hume had been a professor. I mean, it was just amazing. And of course it’s also a Presbyterian seminary — St. Mary’s, which is one of the colleges there. So I thought, well — and it wasn’t that I was a deeply faithful sort of person. I more thought of theology from the point of view of: people organize their lives around religion. People die for it. I should study this. But there was also a secondary reason I was interested, which is, if you look at communities that have a religious institution at their center — whether they’re rural, urban, suburban — almost all outcomes are better. Intact families, crime rates, graduation rates, all of these sorts of statistics tend to go better. So to me, I was lucky that I never had one of those childhoods where it was beaten into me or something. So it was more this curiosity about how it seemed to serve communities to have a shared value system. Anyway, I picked those subjects, I applied into this honors program, so I was able to get the master’s at the end, but there was no undergraduate degree along the way.

[00:07:34] Barry Ritholtz: And there was no going back to Cornell to become a vet. Although the ardor for that faded.

[00:07:40] Chris Davis: Although because I deferred my admission freshman year, I still get mailings from their alumni department because I matriculated, but then deferred. And I’d like to think the development department has nothing to do with them sending me these mailings. But I lived on a sheep farm in Scotland, and of course that was when I realized I was confusing loving animals with wanting to be a vet. And those are very different things.

[00:08:06] Barry Ritholtz: Yeah. Very much so. We used to foster dogs and get them adopted. And anytime I meet someone who’s like, “oh, I really don’t care for dogs,” it’s like —

[00:08:19] Chris Davis: Oh, that’s a big X. Done. We weren’t allowed to have dogs when I was a kid, but I grew up right in the city, on East 84th Street. But my parents, from the time I was in maybe third grade or so — probably eight or nine years old, something like that — they said I could walk dogs, I could be a dog walker, provided I didn’t cross any streets. So I’d put up a notice in the elevator in our building if anybody needed their dog walked. And then I would just walk the dogs around the block before school and after school. I can still remember the name of every dog I walked. Which is amazing. And I loved it. And of course it actually became seed capital, which is unexpected. But the reason was, I could probably charge 50 cents a walk back then. So it was nothing. But I got to be with dogs and I enjoyed it. It was like a paper route.

[00:09:11] Barry Ritholtz: And you’re running a small business. I had a paper route, and it was just so formative.

[00:09:16] Chris Davis: So formative. And this was like a paper route for city kids, because you couldn’t have a paper route in New York. But then an amazing thing happened. New York City, around — it’d have to be around 1977 or ’78 — passed the pooper scooper —

[00:09:32] Barry Ritholtz: Law, I remember.

[00:09:33] Chris Davis: And everything changed, because people had these dogs and nobody even knew what to do. Nobody had ever imagined cleaning up after a dog. There were all sorts of inventions —

[00:09:47] Barry Ritholtz: Just the bag. It’s not that complicated.

[00:09:49] Chris Davis: But people didn’t — people were so grossed out, they had to carry shovels with them.

[00:09:52] Barry Ritholtz: You change the diaper on the baby — this is just processed food. There’s no big deal.

[00:09:58] Chris Davis: Well, for me, it meant that my rates could go from 50 cents to $5, and people were glad to pay it. And instead of one or two dogs, I had four or five. It was real money. Because what it meant was I was suddenly making $50 a week in —

[00:10:16] Barry Ritholtz: As a 10-year-old. That’s good.

[00:10:17] Chris Davis: That’s good. And so you start thinking about — holy cow, I’m making $250 a month, I’m making thousands of dollars a year. And it was just fantastic. So I’ve loved dogs ever since.

[00:10:32] Barry Ritholtz: So let’s talk a little bit about the early days of the career. You start as an accountant at State Street Bank and ultimately end up as an unglamorous research analyst at Tanaka Capital Management. These are very much bottom rung on the Wall Street ladder. What’d you learn in those days?

[00:10:53] Chris Davis: Well, it wasn’t really my first job. My first job was, I became a pastoral assistant at the American Cathedral in Paris. So I moved from rural Scotland to Paris. Well, that was like landing in Oz. Honest to God, my eyes lit up. But again, in the same way that living on the sheep farm convinced me I was confusing loving animals with wanting to be a vet, working for the American Cathedral convinced me I was confusing loving people with wanting to be a priest or something. So I moved from there to Boston and I thought about teaching. I actually even applied to the CIA, because I was very interested in research and international affairs. I’d lived abroad five years then. And I thought it would be an amazing thing to be the greatest expert on, let’s say, Czechoslovakia — to learn the language, the history, the people, the economics, the business, the military, the topography. And so I didn’t wanna be a spy, but I wanted to be an analyst. And the CIA wisely turned me down, having briefly had a stint in the Workers’ Revolutionary Party. And —

[00:12:09] Barry Ritholtz: So they looked at your history and said, this guy’s —

[00:12:12] Chris Davis: They were like, this needs to ripen a little more.

[00:12:15] Barry Ritholtz: We don’t know if you have the ethical malleability that we’re looking for.

[00:12:19] Chris Davis: But so I started thinking about the summers that I had spent working with my dad and my grandfather, both of whom loved their jobs. They loved investing, they loved their career. And of course that was infectious. Even as kids, I thought the idea of investing was so interesting, because they didn’t highlight the math to begin with. They highlighted the stories, the people, the ideas. But I realized that even though I’d had this study of the idea of businesses being made up of people and ideas, I had no grounding in the rigor of it. And so what I like to say is, my father and grandfather let us live in a foreign country — like live in France for some time, hear French spoken, see this new culture — before we had to learn the grammar and read the textbooks and so on. So they got the order right for setting the hook of curiosity. But I knew enough to know that I couldn’t go into investing without a real grounding. And of course, a bank is perfect. I interviewed a lot of places. George Putnam himself turned me down for a job at Putnam. So I had a lot of rejects before. And State Street Bank had a program for entry level accountants. They had a wonderful training program. I had an operation center in Quincy, Massachusetts, and I would take the red line down there, and I could do my day job, but they would also pay for any schooling you wanted. They had something called the State Street Institute, and you could take courses in anything to do with economics, accounting, business. And — you took advantage of that? — I took advantage of that, although I will say I was fooled by one course. They had a course in their catalog that was called “The Rules of Rhythmic Touch.” Now I —

[00:14:28] Barry Ritholtz: Thought that sounds like massage. That —

[00:14:30] Chris Davis: Sounds pretty good, right? I circled that one in the little course catalog. It was only a two-night course, and I showed up, and it was how to use a 10-key punch tape calculator without looking at your hands. So when you’re summing up a column — a skill for an accountant. It’s the rules of rhythmic touch. And I would say, if you put one on this table now, I would bet you a large sum of money I could run a column of numbers faster than you.

[00:15:01] Barry Ritholtz: I’m gonna defer on that one.

[00:15:03] Chris Davis: So that’s how I got the grounding there. Graham Tanaka was somebody I had met during my summer jobs. He was a very talented analyst at Fiduciary Trust. He’d been at JP Morgan before, and we’d stayed in touch. And I learned that he was hanging out his own shingle and starting his own firm. He’s Japanese American, really a very driven, talented guy. And he said he wanted an apprentice — I would be his first hire and we would go from there. And that was a terrific experience.

[00:15:44] Barry Ritholtz: How long did you stay at Tanaka?

[00:15:46] Chris Davis: I stayed there about two years. Because what happened after the first stretch is, my grandfather, who I was close with — when I went to work for Tanaka, my grandfather opened up an account at Tanaka, because he had big investments in Japanese firms. He had a lot of admiration for Japanese culture and values. And he admired — this is —

[00:16:13] Barry Ritholtz: Late seventies, early eighties.

[00:16:15] Chris Davis: This was late eighties now. So we’re probably in ’89, something like ’88. But Graham was a growth investor primarily in the US, and he just happened to have Japanese heritage. So my grandfather opened an account, and as the time there progressed, my grandfather was worried about his health failing. He loved the business, and he wanted to die at his desk. And so he started asking if I would come in on the weekends and go through his accounts with him. And Graham, of course, was so respectful of that. So it was a very gradual transition out. There wasn’t an end date of my time with Graham so much as there was a start date of my time working with my dad and grandfather.

[00:17:04] Barry Ritholtz: So your father launched Davis Advisors in 1969. And your grandfather was still running his Davis investing shop in parallel. Did they ever end up merging? What happened when you decided, all right, it’s time?

[00:17:25] Chris Davis: Well, my father was my grandfather’s only son. And as often happens, they had a very complicated relationship, I’m sure. And so they never worked together. My father grew up with this famous name, because the numbers were right in the beginning. It was a hundred thousand dollars that he borrowed from his wife’s family. It was 800 million when he died. And it was 2.2 billion when his wife died. And she was the successor trustee. And then it all went to charity after that. He didn’t believe in inheritance, but it was in trust for her. And she lived to be 106. Although, I will tell you, I managed her account, and in 2008, of course, I had to go see her. And we had a lot of financial stocks, and we had a really bad mark at the bottom, probably down 40 or 50%. And I went to see her in Florida, and I said, grand, I just want you to know the businesses are sound, we took some body blows, but in the long run it’s going to be fine. And she said, “You idiot, I’m 98 years old. What do I care?” She said, “I don’t buy green bananas. And you’re telling me I’m down 50%? Go get back to work.” So she teased me, because of course she lived long enough to see it all come back. And she would always tease me about not buying green bananas, and my telling her she just had to have a little bit of a longer term perspective. But anyway, my grandfather built his firm, which was called Shelby Cullom Davis & Company. My father built his, which in the beginning was called Davis, Palmer and Biggs. And then the New York Venture Fund was a fund managed by Davis, Palmer and Biggs. And when I was working at Tanaka, I went to a meeting — it was Chubb Insurance, an analyst day sort of thing. And there weren’t that many analysts then, so it was held around a big boardroom table. And the CEO was Dean O’Hare. And I looked around the table, and both my father and grandfather were at the same meeting by chance. And I thought, this seems a little nuts. And so I spoke to them both, because I was very close with them both. One of the things my father was very clear on is, he wanted out at age 60. He said, hard stop. And here was my grandfather at the time, and he was probably in his late eighties, early eighties then. And he said, I wanna die at my desk. I mean, he was the one that called investing “the best game in town.” He would say, this is the best game in town. He loved his firm — and now his firm, most of it was his own capital. So in a way he was just managing his own, but he loved being in the flow. In a way, my grandfather loved being a great man. He had served as an ambassador. He was a co-founder of the Heritage Foundation, chairman for a long time, had very conservative political views — although that was a slightly different organization, very different 25 years ago than it is now. But he was a passionate Reagan Republican, sort of a Hoover Institute Republican. And his namesake, Shelby Cullom, was a Republican senator and governor under Lincoln. So it was in him deep. And so he loved the game, and it wouldn’t have occurred to him to stop working. My father loved investing, but he did not like the responsibility of the business. He didn’t like boards and clients and employees. That was not his thing. He was a much more — wonderful human being, but very different than my grandfather. So he wanted out before he turned 60, my grandfather wanted to die at his desk. And I thought, well, here I am. I don’t know what I am at the time, 26 or something. And I was like, here’s a great idea: why don’t we merge the companies, and then I’ll come in, and I’ll learn from both of you. And I was an S&L and a banking analyst then. And of course this was going right into the teeth of the S&L crisis. So it was an exciting time to invest. And then we’ll figure out a way for the three of us to do this.

[00:22:15] Barry Ritholtz: And how long did it take for that to all come together?

[00:22:18] Chris Davis: My father turned 60 in 1997, 1998, somewhere like that. And my grandfather died —

[00:22:29] Barry Ritholtz: He’s 86, 88 —

[00:22:32] Chris Davis: Something like that. Don’t quiz me. My grandfather died in, let’s see, 1994. So I’d have to say he was 86 or 87 when he died. And so, in a way, the timing all sort of overlapped beautifully. My grandfather worked almost to the end. My father helped coach me through that transition, and then he walked out the door in 1998. And that was that. He’s been an incredible mentor. He’s always available to talk, but as he said, I’m here to give you advice, I’m not giving any orders. And he didn’t sit on our boards. He just walked out, and just like my grandfather, started giving his money away. He created and oversees the largest international scholarship program on Earth.

[00:23:34] Barry Ritholtz: And I know there’s a foundation. I haven’t read the book, but there’s John Rothchild, who was, I think, Peter Lynch’s co-author. He’s a lovely man. “The Davis Dynasty.” How odd is it to have — hey, the story, the game isn’t over, and you are writing this book. How odd is it to be part of a book like that?

[00:24:02] Chris Davis: Well, first, it’s probably a book read by dozens of people nationwide. Because remember, it is the riveting biography of the Dean of Insurance Stocks. So that’s a pretty narrow pool. Not —

[00:24:15] Barry Ritholtz: Not a hot seller, you’re saying.

[00:24:17] Chris Davis: And I do think I experienced the writing of that book as sort of terrifying.

[00:24:28] Barry Ritholtz: A lot to live up to. It was a lot —

[00:24:30] Chris Davis: Your dad and your grandfather. It was a lot to live up to. Sure. And I will say it’s something that I’m just profoundly grateful to my dad for — well, really to both of them. But my dad is a very humble person. And in that book, it is 90% about my grandfather, and my dad was sort of what I would call a quiet doer. He loved investing, he loved research, but he was very low profile. And so his view was very much that, despite the graphic title, this is really a book about his father. And I think that’s true. In fact, at our firm, we made slimmed-down versions of that book and called it “The Davis Discipline” instead, which was much more consistent with our view of life. Because “dynasty” implies dynastic wealth, it implies inheritance —

[00:25:32] Barry Ritholtz: And there’s no inheritance.

[00:25:33] Chris Davis: There’s none of that. Which —

[00:25:35] Barry Ritholtz: I would imagine people would be surprised to learn.

[00:25:39] Chris Davis: Yeah. And it’s funny, it’s not something I’m quite as fanatic about.

[00:25:46] Barry Ritholtz: Well, Warren Buffett is a big believer in — hey, you should give your kids enough. I know I’m gonna mangle this — give them enough money so they could do anything, but not so much money that they can do nothing.

[00:26:00] Chris Davis: You didn’t mangle it. You stuck the landing. That is exactly the right philosophy. And I would say my father and grandfather sort of believed that. I mean, I have siblings that were helped out. And I had an aunt that my grandfather left some money to, to ensure that she and her kids would be all right and so on. So it wasn’t ruthless. But I think it came from a place of compassion — this view that there’s something dignified about earning your way in the world. And, well, look, Barry, if you look at the greater world, there’s a lot of fear. And fear can be a motivator. But God, is it a weight. People live one operation away from bankruptcy, a layoff away from being foreclosed on. If you as a parent can put a safety net there, if our society doesn’t — if you as a parent can do that for your kids, and my grandfather did that, and my father did that — there was, I don’t think we ever grew up with a feeling that there wasn’t a safety net. And so the freedom from that fear is a huge gift you give your kids. It was a huge gift that was given to me. And that’s what gives you the confidence to be able to try anything. Because you’re not worried — especially when you start having kids and you think, my God, I can’t take this risk, I can’t leave State Street. It never occurred to me that I couldn’t leave. But I think their view was, the fortunate thing was both my dad and my grandfather were very frugal. So we didn’t live in hardship, but we certainly didn’t go to Southampton and Palm Beach and Aspen. They had a very puritanical sense of that. We went out to Fire Island, and we had a house on stilts — I still have a house out there, and it’s in a swamp. It’s one storm away from the end, and there’s no cars. You take a little ferry out there. I always think of it as the anti-Hamptons.

[00:27:30] Barry Ritholtz: Oh, very much is.

[00:28:00] Chris Davis: And that’s what I love. My parents had a place in Maine, but it was not a fancy deal. Like a little cabin. Not Kennebunkport. Well, they had a nice house, but it wasn’t a Newport mansion. And they had it because — they used to call them, in the twenties, people like my grandparents were called “rustics.” Isn’t that a funny word? It was people that were wealthy, but would go and live very simply in the summer. It’s very much a Scandinavian ethic. And I think it developed especially in the late 19th century — there was a movement called the Chautauqua movement, that I’m still a supporter of, which basically said: as the bourgeoisie and wealth were being created, there was this one branch of wealth creators that decided they wanted to be English aristocrats. And they built mansions in Newport, and they had yachts. And then there was another branch that said, that’s not the American way. Rockefeller in many ways embodied a certain amount of that sense of stewardship. Some were even more extreme in terms of restraint. But the Chautauqua movement sprung up — they created these places, there’s still one left, it’s in upstate New York, where you would go with your family for self-improvement. And you would live simply, and there would be lectures. You would improve your mind, you’d improve your soul, you’d improve your health. And you’d bring your kids. There would be a sort of day camp for the kids, and there’d be church on Sunday. But it was a non-denominational church that was about service. And then there were lectures. It’s where Salman Rushdie was stabbed, if you remember, a couple of years ago. He was in Chautauqua, lecturing at this place that still exists, and people go for a week or two weeks every year. So the place I go on Fire Island was part of that Chautauqua movement. But the ethos of it, I think, is something my parents and grandparents really subscribed to.

[00:30:49] Barry Ritholtz: Really, really fascinating. Coming up, we continue our conversation with Chris Davis, chairman and portfolio manager at Davis Advisors, discussing how he developed his philosophy and investment process at Davis. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. — I am Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. Chris Davis is my extra special guest. He is the chairman of Davis Advisors. In 2005, he was named Morningstar’s Portfolio Manager of the Year. He helps to oversee $20 billion in client assets, a healthy chunk of which is he and his colleagues. We briefly mentioned Buffett earlier — later on I get to ask people who their mentors were, but I have to bring this to this part of the conversation. Warren Buffett and Charlie Munger were your mentors? Is this remotely true? It just seems insane.

[00:32:13] Chris Davis: Oh, it started in — I wanna say it was 1990. So —

[00:32:23] Barry Ritholtz: He’s already a well-known investing rockstar at that point.

[00:32:28] Chris Davis: The way it really started was with Charlie. I met Charlie long before Warren. The reason was, I was trying to sell a business. My grandfather, as I started going through his accounts and going in there on the weekends — he had a business called securities lending. And I don’t know how well you know that business —

[00:32:48] Barry Ritholtz: Anytime you’re gonna short a stock, you gotta borrow it from somebody, and that’s gonna cost you a little —

[00:32:52] Chris Davis: It’s gonna cost you a little margin. So my grandfather’s view was, he had a portfolio of appreciated stocks that he was never gonna sell. And he said, if somebody wants to short the stock and pay me to borrow it, fine. And the number one borrowed stock in those days was Berkshire — Berkshire Hathaway, of course, because you couldn’t borrow it anywhere, because everybody had the certificates. They weren’t —

[00:33:17] Barry Ritholtz: Literally had the paper certs.

[00:33:19] Chris Davis: Yeah. There was very little Berkshire that was in street name. It was in individual people, and therefore you couldn’t borrow it.

[00:33:25] Barry Ritholtz: It was locked away and safe.

[00:33:27] Chris Davis: So he had a big holding, and he had a broker dealer — Shelby Cullom Davis was a registered broker dealer. And so he could lend out the shares and make a couple hundred basis points a year extra return on top of the Berkshire return. So that’s how he started in the securities lending business. But gradually, the guy who was doing it for him and administering it said, well, we can also help — we’ve got all these people that wanna short all sorts of different securities, and we can act as what was called a broker finder. We’ll go out and find the securities for these people to short, and we’ll make a little spread as they go through. Well, this business grew and grew and grew, and soon there were 17 employees in the securities lending business. And it was a big operation. And my grandfather by then was probably in his eighties and was nervous, because as I went through the list of counterparties with him, there were firms we had never heard of. There was this one called LTCM. And I said, what is this LTCM? We’ve got, like, $500, $800 million lent out to them. “Oh, that’s Long-Term Capital Management.” So we talked about it. He said, yeah, I think we gotta get rid of this thing.

[00:34:58] Barry Ritholtz: So wait, did he hold on to that business, or did they spin it —

[00:35:01] Chris Davis: So I said to him, we gotta get rid of this thing. And he said, fine, well, see if you can find somebody to take it over, because we do have 17 employees, and they made their careers here. We’re not gonna fire everybody. And so we started calling around, and I thought, what characteristics do we need? We need a lot of excess capital, ideally an appreciated portfolio of securities, a sort of AAA type balance sheet, and somebody that can understand it. So I thought, well, Berkshire. So a wonderful friend in those days named Bob Lenzner, who was a reporter at Forbes —

[00:35:42] Barry Ritholtz: I recall — I had lunch with him at, I wanna say, the Harvard Club. I think he was an alum. Is that right?

[00:35:49] Chris Davis: Could have been his kids. Our kids were —

[00:35:51] Barry Ritholtz: I could be wrong, but —

[00:35:52] Chris Davis: Our kids were in the same elementary school. And I got to know him just watching basketball games with third graders or something. And he mentioned casually in conversation that he had met this brilliant guy, Charlie Munger. And I said, well, I know who Charlie is, but I’m dying to meet him. And so Bob arranged for us to have breakfast. Charlie was in New York, and I went down — it was at the Millennium Hotel down by the World Trade Center. And I sat down and introduced myself: Mr. Munger, pleased to meet you, I’m Chris Davis. And I said, I’m working with my grandfather at Shelby Cullom Davis & Company, and have I got a business for you. And I pitched our securities lending business, and Charlie put up his hand after about four minutes, and he said, “I have no intention of buying a business run by seven guys named Vinny and Barry.” It was the perfect description. I mean, we had Vinny, Tony, Mikey, Nicky. And so we did end up finding a buyer eventually, just not Berkshire. And it wasn’t really a buyer — we just did a sort of earn-out. We just wanted everybody to have jobs. And so they all got a job at a broker dealer.

[00:37:14] Barry Ritholtz: So beyond the pitch to Munger, how did your relationship —

[00:37:17] Chris Davis: Go? Well, so the pitch ended in four and a half minutes. And so I said, well, I’m sorry I wasted your time. And I got up to leave, and he said, where are you going? And I said, well — just don’t leave, I’m only just getting to know you. I’m not interested in your business, but tell me about you. And we got talking about a few things. But what really happened was, I started listening. And as you can tell, I like to talk — around Charlie, I just listened as much as I could. And we sat at that table till lunchtime. And Charlie said, I have to go to a lunch, but if you find yourself in Los Angeles, give me a call and I’ll make time for you. And so, of course, I started going to Los Angeles pretty regularly. And so that was a huge gift in my life. It was a gift professionally, but thank God it was a gift personally. He helped me through some hard times in my personal life. He was just a wonderful mentor in every dimension.

[00:38:23] Barry Ritholtz: So there are a lot of things that all of us have learned from Warren and Charlie — through the letters, through the annual meetings, through all sorts of stuff. I’m curious, what did you learn from Charlie that none of us can find in the public materials?

[00:38:46] Chris Davis: Well —

[00:38:48] Barry Ritholtz: Good question.

[00:38:49] Chris Davis: Right. I think, most deeply, I learned about integrity in the traditional sense, meaning wholeness. Charlie was a whole person. The alignment — what he thought, what he said, what he did — they were all the same thing. His sense of his own code of being was so disciplined, but was filled with this — his reputation as a curmudgeon may have been cultivated. I never saw it. He was a truth speaker, but he was also, in a very profound way, a very loving person — very cheerful, very committed, profoundly loyal. So I used to joke that if I did a Venn diagram of the things I admire about my father and the things I admire about Charlie Munger, there’s surprisingly little overlap. They were both frugal. But Charlie was an incredibly broad thinker. My father was just single-minded about investing. Charlie was curious about everything. Charlie was very committed to relationship, continuity, breadth. My father is very specialized, very narrow. My father is incredibly physically fit and remains, to this day, very vigorous. Charlie was willfully sedentary. My father is very nomadic. And Charlie went to the same island in Minnesota and lived in the same house his whole life. He was very much a creature of habit. And so they were very different that way.

[00:40:46] Barry Ritholtz: Just imagine if Charlie exercised, how much longer he could have lived.

[00:40:50] Chris Davis: I don’t know, 99 and three quarters is pretty good. That’s one of the things he said — he said, I’m not sure I see the alignment.

[00:40:58] Barry Ritholtz: So let’s talk a little bit about the returns and about the philosophy. Back of the envelope, I calculated Davis Advisors has been compounding shareholder wealth at greater than 10% annually since 1969. Does that sound remotely accurate?

[00:41:17] Chris Davis: That sounds right. We’re still ahead of the market from the beginning.

[00:41:21] Barry Ritholtz: Starting out in 1969 — early days of a horrific bear market. You have managed money through — well, you were in grad school, but your dad — during the ’87 crash, you’re involved during the dot-com implosion, during the financial crisis, during the pandemic. I mean, you have seen lots and lots of cycles across all of these decades and all of these different environments. What key investment principles stand out as absolutely core, non-negotiable — this is the heart of what we do?

[00:41:58] Chris Davis: Well, the entire investment process boils down to these two questions: what sort of businesses do we wanna own, and how much do we pay for them? I should say, before I go on, that the interplay between those two is part of the nuance of investing. You may own a slightly lower quality business because the price is so extreme. But the characteristics that we look for in every business have to do with durability. Because we buy businesses thinking our goal is to own them forever. Our goal is for the return to be driven by the earnings yield on the business over time, not by some change in the valuation and finding an exit strategy. And so those characteristics are exactly the characteristics you would look for if I said, you’ve gotta put a business away for your kids or your grandkids. So the nature of the business, the returns on capital, the competitive moats, the nature of the balance sheet, the risk — and very importantly, the character of the people running it. We spend a lot of time on management evaluation. In this land of AI — I just came back from the Markel annual meeting — character will not show up efficiently, I don’t think, in the AI world. And boy does it matter when you think about navigating an unpredictable future — just that ability to be resilient, to adapt, but always to be investing the money as if it’s your own. And there are CEOs that do that. So that’s the nature of the business. And then the valuation discipline is the securities analysis part of what we do. If the first part is business research, then this is the securities analysis. It’s adjusting the income statement — that’s where the accounting training comes in. It’s understanding the incremental returns on capital, and it’s adjusting the balance sheet, every account on the balance sheet, because of course GAAP earnings is a convention, but it may or may not reflect reality. So you put those two things together and we build an IRR, an internal rate of return forecast. We work on this concept of owner earnings in each business. And then we focus on the quality and the durability of the business.

[00:44:26] Barry Ritholtz: I can’t help but point out that you talk about buying or owning businesses, not buying stocks. That seems to be a very fundamental distinction compared to most fund managers.

[00:44:42] Chris Davis: It’s so profoundly important. We view ourselves as business owners. We view the management as our partners in most cases. We view the signs of short-termism as dangerous. It’s one of the reasons we feel that the activist movement has completely lost the thread and should be greatly resisted — whereas it was very useful when it started. We could talk about that later. But absolutely, we’re owning businesses, and we’re trying to own businesses that are compounding machines. I watched what it meant for my grandfather to own businesses for 20, 30, 40 years. I look at our own portfolio. I look at companies like American Express or Wells Fargo or JP Morgan in the financial world. I look more recently at companies like Amazon, Texas Instruments. You look at what a business can compound over 20, 30 years. I mentioned Markel — when I first met the now-CEO of Markel, we met in Omaha at the Orpheum Theater at a Berkshire annual meeting in, like, 1990. The stock was at like 19 or 20, and it’s at 2000 now. And by the way, they have an activist idiotically saying they should split up the company. The company’s doing fine. It’s a company that is being built to last. And the idea of getting a quick sugar fix — because you can sell some part to private equity at a premium — that doesn’t serve capitalism, and it really won’t serve the long-term shareholders of that business.

[00:46:17] Barry Ritholtz: You mentioned a number of financials in that list. I’m kind of curious, because financials have had some pretty good years. They’ve had some pretty rough years. Obviously the financial crisis was devastating. Although my pet theory about JP Morgan Chase is, when they had their subprime problem, it predated everybody by five years. And there was still a bid when they had to get out. So they got a little lucky. And they happen to have a particularly talented CEO. But this concentration of financials — I’m curious what led to it. And I’m curious about the relationship between what some people describe as high conviction investing and concentration in a particular sector like financials.

[00:47:11] Chris Davis: Well, I think high conviction investing is exactly the right description. And if we end up with a focus on a particular sector, it’s not necessarily because of a view of the sector — it’s because of the individual companies. Financials is one of the most misleading sectors there is. Because to me, what creates correlation risk is when businesses are tied to the same macroeconomic variables. Financials is a massively broad category. There are financials that have risk if the wind blows in certain parts of the world; there are financials that have risk if interest rates change; financials that have risks that have to do with recession, some to capital markets — they’re all different. And I’ll give you a really powerful example. I started our financial fund, I don’t know, in something like 1990. That fund from then to today has outperformed the S&P 500. And it has outperformed the S&P 500 quite meaningfully when you compound it out. At the time we started it, I didn’t even know there was a financials index. But it was founded with this belief — and my grandfather of course specialized in financials, I started as a financials analyst — he had a phrase that he loved, which is, in financials you can find growth stocks in disguise. And he said the reason is that you have industries that are huge, where companies can grow for a long period of time by simply growing. Just this year, Progressive finally passed State Farm. Progressive has probably compounded in the high teens for 30 years. And it just became maybe the largest insurance company in personal auto. So these massive industries where you can compound for a long time without outgrowing your sector. Second advantage: the business model doesn’t really go obsolete. Making a spread on money is about the oldest business there is — maybe the second oldest.

[00:49:14] Barry Ritholtz: Thank you.

[00:49:16] Chris Davis: What else? It’s an industry where you have huge dispersion of outcomes, but relatively homogenous valuations. So — I mentioned Progressive. You have companies that have grown. Capital One — you look at Capital One’s growth record from 1987 to today, and yet it’s trading at nine or 10 times earnings, because it’s a financial. I’m like, it looks like a growth stock to me. It’s still run by the founder. It’s a fintech company, it’s a data science company. It’s in the top 10 of all holders of AI and machine learning patents. But it trades at 9.8 times earnings and 1.2 times book value, with a mid-teens return on equity. It seems just nuts to me, but whatever, we love it. So that’s the idea of growth stocks in disguise. And the last advantage of financials is that culture is a defining and sustainable difference.

[00:50:12] Barry Ritholtz: This is a theme I have heard from so many really savvy executors — CEOs as well as investors. How do you, as an investor, wrap your arms around culture? It feels like you almost have to be in it to see it. Is it something that, as an outside investor, you get access to? How do you identify quality culture?

[00:50:39] Chris Davis: Well, it’s a perfect question, but I’ll give you the punchline for the differentiation. Last year, our financial fund, which is 95% in large cap financials, outperformed the S&P financials index and the XLF, the largest financials ETF, by 1200 basis points.

[00:51:01] Barry Ritholtz: Touché, right?

[00:51:02] Chris Davis: It was a great year for us. But the point is, they’re in large cap financials, we’re in large cap financials. How can you get such dispersion? But the same is —

[00:51:13] Barry Ritholtz: So because they own everything, and you own the better companies.

[00:51:16] Chris Davis: Well, they’re very concentrated — they’re concentrated in the mega cap banks by and large, and Visa and MasterCard. But we’re fairly concentrated too. We only have 20, 25 names. And 20 or 25 names are probably 80% of the index.

[00:51:33] Barry Ritholtz: Does the gap come from the stock selection or the screening out of what you don’t like?

[00:51:40] Chris Davis: Well, it really goes back to the culture question. So to bring it full circle — within financials, we are looking for the companies that we feel can be compounding machines. And we’re looking for the companies where their culture creates a durable advantage. The reason culture can create an advantage in financials is because, in most cases, your cost of goods sold is an estimate. And if you have an aggressive management, they can use accounting to front-load earnings that you’ll pay the piper for — three, five, excuse me, 10 years from now. So they can look good for a long time. Whereas if you do the opposite, if you have a good culture, you’re understating the near term, but you’re building cushion for the long term. And so when the times go rough, when the tide goes out and you see who’s swimming without a bathing suit, that’s where the culture really matters. Now, you mentioned all the crises that I’ve seen over my career. I’ve seen a lot of these management teams and these companies go through crises, and you see who’s wearing a bathing suit. So we just went through an interest rate crisis, right?

[00:52:55] Barry Ritholtz: 2022, 500 basis points.

[00:52:57] Chris Davis: And we used to get questions from clients all the time: why don’t you own First Republic? In October, my colleague Pierce Crosby wrote a research report — just internal, just for himself — saying he’s just startled by the amount of risk Silicon Valley and First Republic are taking. He said it’s sort of amazing. Look at the duration on their assets. They’re assuming their liabilities, their deposits, are gonna be with them for 8, 10, 12 years, and that they’re uncorrelated. So we used to get questions, why don’t you own them? They’ve had such great growth records. And our view was, well, it’s been a mistake not to own them in the sense that they’ve outperformed, but we are not gonna own the companies that are optimized to the upcycle. And that’s a different culture. They had a growth culture, but it blew them up. And so we instead looked at companies like — well, JP Morgan was an outstanding example. Wells Fargo, Capital One — where they didn’t reach for the easy money of taking that extra risk on the interest rates. They could have. Jamie Dimon stood up at an analyst meeting and said, I could add a billion or $2 billion to my profits with a phone call, and I’m not gonna do it —

[00:54:13] Barry Ritholtz: Because of the risk.

[00:54:14] Chris Davis: Because of the risk. He said, I could put out my money for five, seven years, and he didn’t do it. So you could see that. So some of it’s quantitative. You identify culture by accounting choices. Look at how accident year reserves develop at insurance companies. Look at how credit losses develop. Look at the duration in the asset portfolio of a bank. Look at the mark-to-market risks that an investment bank is taking, and so on. So you can identify culture quantitatively in financials — that’s a big advantage. But then the next part is qualitative. And there, I think Warren put it best: in a complex financial, the CEO has to be the chief risk officer. You can have somebody with that title, but if the CEO doesn’t understand the nature and the complexity of the risks, they should not be the CEO of a financial company.

[00:55:03] Barry Ritholtz: So not only am I hearing a lot of Warren’s voice in things you say, I’m also hearing a lot of similar companies — Coca-Cola, Amex, Wells Fargo. Coincidence?

[00:55:18] Chris Davis: Well, it would be strange if we ended up different. Of course, I always like it when we owned it first. So for example, we were, I think, the largest shareholder of General Re before Berkshire bought it. And by the way, our research was not so good on that one.

[00:56:00] Barry Ritholtz: Oh, really? Not his favorite pick, over the —

[00:56:01] Chris Davis: As you saw subsequently, Gen Re did not perform very well for many years. And I think Warren would say — I think he has said publicly, I won’t put words in his mouth — I’ll put it this way: well, I’ll tell you what. Charlie came to visit us, and we have a wall of mistakes where we frame the stock certificate —

[00:56:08] Barry Ritholtz: A good temple of — yes, is that what that is?

[00:56:10] Chris Davis: And Charlie was looking through it, and he said, where the hell’s your Gen Re? And I said, Gen Re wasn’t a mistake. We got Berkshire stock for Gen Re. That was fantastic.

[00:56:21] Barry Ritholtz: Did you have anything to do with the transaction? Or they just went out and bought it? And you happen to be a big holder?

[00:56:26] Chris Davis: No. We were big GEICO shareholders, so — no, it was, and we overlapped in Amex, but no, I mean, we’re much more diversified. We never owned Apple. There’s huge differences. I mean, starting with the fact that Warren has outperformed all investment advisors for 50 years. But you’d be crazy not to study when Warren owns something, or to study Berkshire itself.

[00:57:00] Barry Ritholtz: That makes a lot of sense. There’s another distinction between the two of you. You say that you are neither deep value nor go-go growth. So what does that leave you? Growth at a reasonable price, somewhere, something adjacent —

[00:57:20] Chris Davis: We love growth at a reasonable price. Because what are the other —

[00:57:23] Barry Ritholtz: Who doesn’t want growth —

[00:57:23] Chris Davis: Growth at unreasonable prices, that turns —

[00:57:26] Barry Ritholtz: Out, or unreasonable —

[00:57:27] Chris Davis: Non-growth at silly prices.

[00:57:28] Barry Ritholtz: Yeah. Growth at a —

[00:57:29] Chris Davis: Reasonable price. I think what we would say is, it’s obvious to us that growth is a component of value, right?

[00:57:36] Barry Ritholtz: Growth is a component of value. So take —

[00:57:39] Chris Davis: A company that grows profitably is more valuable than one that doesn’t grow, right? Think of the business. A business that grows profitably is more valuable. A business that can redeploy its capital at high incremental rates of return is way more valuable than one that can’t, or one that’s capital intensive and shrinking and so on. So growth is a component of value. And the difference between us and a typical growth manager is, we tend to believe more deeply, based on experience, that high rates of growth attract competition. Competition lowers returns. And so we believe in capitalism, and we believe that growth is hard, and maintaining growth is hard. So we tend to be more skeptical than the average go-go growth investor, but we tend to be more open to paying a fair price for a company that can grow profitably than the typical value investor. So much of our research is about the durability of the growth, the competitive advantages that a business has. So our portfolio currently trades in aggregate — if you took all of our companies — at something like 14 times earnings. The market as a whole is at 20 or 21. The value index is at 19 times. And yet we have a portfolio of companies that has grown their earnings over the last five years something like 14% a year. So we feel we have what my dad used to call the value investor’s dream.

[00:59:21] Barry Ritholtz: Low cost, fast growth.

[00:59:22] Chris Davis: Low valuation, and durable, sustainable growth.

[00:59:26] Barry Ritholtz: Really, really fascinating. So before we jump too deep into the current state of affairs, I have to ask you about a quote of yours that I really like: “As human beings, we don’t welcome fear and panic, but as investors, we welcome the bargain prices that those emotions tend to produce.” Discuss.

[00:59:50] Chris Davis: Well, obviously the market is, of course, a voting machine in the short term — it reflects psychology — and in the long term, a weighing machine. And that —

[01:00:01] Barry Ritholtz: Hold on. That’s a great quote. I’m gonna write that down.

[01:00:06] Chris Davis: And so psychology helps shape prices. And what we find is that there’s always risk. What varies is people’s perception of it. And I think today we’re in a time when people are underestimating risks, and therefore prices are generally high. It’s one of the reasons I find it so amazing that our portfolio is trading at 14 times earnings. The market scares me at 21, 22 times earnings, but our portfolio feels like it’s below long-time averages. So I feel this disconnect where I’m simultaneously pessimistic about the market because of the euphoria — there’s no skepticism, there’s no fear in prices — and at the same time, feel very comfortable with our portfolio.

[01:01:03] Barry Ritholtz: So let me push back a little bit, just to hear your reaction. We keep hearing artificial intelligence and Nvidia and all the semis being compared to the dot-com era. And every time I hear that — aside from the fact that many of those companies, forget profits, didn’t even have revenues, and this is a giant-revenue, giant-profit era. Markets today are trading at 20, 22 times. We finished the nineties at 32 times. Theoretically, there’s a ton of upside from here, especially if earnings growth continues. Is it the contrarian take that, hey, this market could go another five or 10 years before things get really stupid?

[01:01:54] Chris Davis: Well, what I’d say is, as I look out there, I see two types of end investor. One is this sort of belief that we’re on a plateau of permanent prosperity. This time is different —

[01:02:07] Barry Ritholtz: A permanently high plateau. Yes.

[01:02:10] Chris Davis: Yes. And they are all in on the momentum trade, which has worked so well. Now, I believe that momentum investing, even though it’s worked so well, to me is crazy, because it’s not common sense.

[01:02:30] Barry Ritholtz: It works until it stops.

[01:02:32] Chris Davis: It works until it stops. And when it stops, you really feel foolish that the fact that you were paying an ever higher price, you thought, was a good thing.

[01:02:40] Barry Ritholtz: Why does price matter? If it’s going up, buy it; if it stops going up, sell.

[01:02:45] Chris Davis: Exactly. And so that’s one group of investors, and they’re taking a lot of risk, because they tend to be in the highest multiple parts of the market, and the parts of the market where there is the most presumption that high margins and high growth rates are sustainable — and the data is over. I think fewer than 3% of companies can maintain a growth rate in revenue of 20% for more than a decade. Like, fewer than 3%.

[01:03:17] Barry Ritholtz: I mean, that’s a huge growth rate for a long —

[01:03:19] Chris Davis: Period of time. And there are a lot of valuations today that have that baked in. You get these analyst reports, and there’s even fewer — less than, I think it’s five-tenths of 1%, but you could check me, it might be three-tenths — but it’s a fraction of a percent that are able to maintain 50% margins for more than a decade. Those are very high margins. But again, they’re in a lot of models right now. So I think there’s risk on that. Now, the other side of people taking risk are the ones that are huddled in cash saying it’s the end of the world. Everything that’s happening — AI’s gonna swallow our children, the world is falling apart, everything that’s happening in Washington — and they’re sitting in cash, which —

[01:04:05] Barry Ritholtz: Is risky as well.

[01:04:06] Chris Davis: Really risky. I mean, just since 2000, the purchasing power of a dollar is down something like 55%. In my grandmother’s lifetime, I think the purchasing power of a dollar fell like 94, 95%.

[01:04:21] Barry Ritholtz: They’re taking — what is it, $7 over 90 years.

[01:04:24] Chris Davis: Right. So I think these huge crowded sides of the market — the people sitting in cash, and the people assuming the extreme growth — are both taking a lot of risk.

[01:04:34] Barry Ritholtz: That’s a terrible barbell you’ve just described. The extremes are either inflation’s gonna kill them, or speculation is gonna get them.

[01:04:42] Chris Davis: Yeah. And where we land in the middle is with this idea that there are durable, overlooked businesses right now. As I say, we have a portfolio of 25 companies trading at an aggregate of 14 and a half times. By the way, that includes owning some Amazon, it includes owning some Google, but also owning some Capital One, owning some Tyson Foods, some MGM —

[01:05:09] Barry Ritholtz: Which portfolio is this?

[01:05:10] Chris Davis: This is our flagship portfolio. So this is the Davis New York Venture Fund. But really, the way people are finding us increasingly — 10 years ago, Barry, we launched our ETFs. We were alone for nine years. We are the only true active manager running a value ETF. I think our value ETF, which is called DUSA, is the number one active-for-passive value ETF for three years. But nobody really cares. That’s all right.

[01:05:40] Barry Ritholtz: Although the past year or two we have seen a lot of flows — hey, most of the money is going to the passive indexes, but the third or quarter that’s not going there is going active.

[01:05:54] Chris Davis: Exactly. So they’re finding our way. And I’m proud that we are so early. I don’t mind being early. But what I’d say is, the optimistic case you lay out — I think the three elements of change in the civilization that are increasing risk today are: we certainly have a change in the monetary world order. You and I had spent our entire careers in a world of falling interest rates approaching zero, falling inflation, all of the things that fed into that — low wage pressure, de-unionization, globalization. All of that has stunningly and permanently, I believe, come to an end. We are in a state where we are printing so much money relative to what the interest rates are. I think there’s a lot of risk, but certainly we’re not going back to zero, probably, ever again. That was a once-in-history phenomenon, free money. The second big change is geopolitics. There’s no question that for our entire career, we were in a world of globalization. We were in a world of functional peace. We were in a world of stability. We were in a world where the wall fell and markets doubled. All of those things have also absolutely come to an end, and that increases risk. So those first two things increase risk. And what’s the third? AI. There’s this massive technological change that increases risk — it increases the risk of all different types of businesses, and it increases opportunity, but it increases risk. So when you have three fundamental shifts going on, all of which have unpredictable outcomes, and yet you have valuations — not at all-time highs, but elevated — certainly relative to the direction of travel of interest rates over time, then I’d say, I like where we are: with our 14 yield, solid growth rate in the business, durability, AI as a lens, globalization as a lens, inflation as a lens. Put those things together, we sit with 25 companies with these great characteristics, in our ETF or in our funds or SMA, or however the advisor finds us.

[01:08:13] Barry Ritholtz: Really interesting. Coming up, we continue our conversation with Chris Davis, portfolio manager at Davis Advisors, discussing the current market environment. I’m Barry Ritholtz, you are listening to Masters in Business on Bloomberg Radio. — I am Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. Chris Davis is my extra special guest. He is the chairman and portfolio manager of Davis Advisors. So I’m glad you mentioned artificial intelligence as one of those three big shifts that are taking place. How do you, as an analyst and a fund manager, separate what is a transformative technology — and potentially a transformative source of value creation — from just the rampant speculative excess that rears its head on a regular basis?

[01:09:27] Chris Davis: Well, what we’re seeing is Amara’s Law in full bloom. And Amara’s Law states that transformative technologies are overestimated in the short term and underestimated in the long term. We’re in the overestimation, hype phase. And what I would say we do is, we recognize it as a transformative technology — that is absolutely a baseline assumption. Our other baseline assumption at this stage is that we don’t see it as winner-take-all. So we see it a little bit more like railroads, or the telephone, or electricity, where the users maybe end up making more money than the builders. And so we’ll talk about hedging that bet, but we do think it increases the risk environment. It increases the risk of obsolescence in certain businesses. So we start with this idea that it’s real. Then what we do is, as we do our research, we found every company we look at falls into one of five categories. There’s the emerging winners — that’s where all the heat is, all the speculation. And there’s real danger. You and I started very early talking about Cisco. Remember, the three obvious winners of the internet were AOL, Yahoo, and Cisco. Two don’t exist, and one’s a fraction of what it was. And so picking the emerging winners in the early hype phase is risky. But we’d say, if you wanna look in that space, focus on the businesses that have a real shot at being emerging winners but do not have to constantly raise capital — have proven business models, proven leaders, and businesses that are accretive by the investments that they’re making, so that they earn more money by making these investments, even if it takes longer than —

[01:11:11] Barry Ritholtz: So not the hyperscalers.

[01:11:13] Chris Davis: Not the hyperscalers. So for us, that’s where we’ve sat with a little bit of Google. We still have Meta and Amazon. We’ve trimmed the first two because they were huge holdings for us — we bought them when they were so out of favor. But if you’re gonna play in the emerging winners — that’s the first. The second category is, okay, who are the enablers of this technology? That’s the picks-and-shovels mindset. They’re the ones that are gonna benefit from the spending wave, but will not be penalized if the return on the spending is very low.

[01:11:45] Barry Ritholtz: Semiconductors.

[01:11:46] Chris Davis: So yeah, I would say there, for us, it’s been analog chips — Texas Instruments. It’s been semiconductor capital equipment. We are a big shareholder of Samsung, which did nothing, nothing, nothing, and then exploded fourfold in a year.

[01:12:00] Barry Ritholtz: They’re driving the entire inquiry of returns.

[01:12:05] Chris Davis: It’s amazing. So, but again, we viewed those as enablers. But in enablers, I would also include things like natural gas and copper. They are big, big beneficiaries. So we own Coterra, which is now Devon, ConocoPhillips, Tourmaline — our focus is on natural gas and copper. So those are the enablers. Then the users, who are gonna be the beneficiaries. Well, you’ve gotta think — financials is a great example. Anything where you have a big amount of laptop class workers. It’s what Elon called the laptop class. It’s likely that AI will do to the laptop class what globalization did to blue collar workers.

[01:12:49] Barry Ritholtz: Meaning very much hollow it out.

[01:12:51] Chris Davis: Hollow it out. The best will still have work, the best will be more valuable, they’ll be more productive. But there’s gonna be a lot of unemployed second-year lawyers and things like that. And so healthcare — claims processing, compliance functions, things like that. So there we focus on the banks that have the scale, the tech stack, and the management to do it. So Capital One, number one. I’d keep Wells Fargo on that list. I think US Bank crosses that chasm. So those, but also —

[01:13:25] Barry Ritholtz: JP Morgan Chase is part of the group.

[01:13:26] Chris Davis: JP Morgan Chase has done such a great job, but the valuation has gotten —

[01:13:30] Barry Ritholtz: So high. And how do you put the Amexes and the MasterCard, Visas of the world?

[01:13:33] Chris Davis: We don’t own Visa or MasterCard. And we have a very small position in Amex. And essentially the reason is, we just think that is an area where there is a big spread. They may be on the other side, but boy, there are a lot of people — especially merchants — that would like to figure out some way to bypass that.

[01:13:52] Barry Ritholtz: That 3% is a big number.

[01:13:55] Chris Davis: A big number.

[01:13:56] Barry Ritholtz: This is the first time in my lifetime I have started noticing cash and credit card prices on restaurant menus. This was never a thing before.

[01:14:06] Chris Davis: No, and you really see it when you travel. And again, those are so highly valued — at 30 times earnings for Visa. It just seems to us there’s too much risk there. I’ll own the Capital One at nine times. So those are the users. Then the next category is what Jeff Bezos — we call them the indifferent, or the protected. Jeff Bezos, when he said, people ask me what’s gonna change; they all ask me — what’s not gonna change? That’s a very important question. So there, Tyson Foods. Chicken’s not gonna change, right?

[01:14:38] Barry Ritholtz: And wait — chickens aren’t gonna lose their jobs to AI.

[01:14:40] Chris Davis: Chickens are in good shape. But here you have to be careful, because you don’t have high growth rates, so you don’t wanna overpay, and they’re cyclical businesses, so you don’t wanna pay at the top of a cycle. So Tyson, I think, has a low multiple on cyclically depressed earnings. What else? MGM — I think owning 50% of the Las Vegas strip, 20 or 30% of Macau, and a hundred percent of the only legal gambling in Japan, in Osaka, when it opens in 2029 — that’s very valuable. I don’t think that gets disintermediated by AI. So call those the protected, the what-won’t-change. The last category is the Walking Dead. And there, you mentioned Visa and MasterCard — I don’t know, title insurance, I don’t know. There are all sorts of things where it is really amazing how much money is made for something that you should be able to get around. We’ve seen some of the pressure in the SaaS companies. And so that’s the lens that we look at for all of our companies. We put them through this lens of this fast-changing world. We wanna stay nimble. And Barry, one of the things I think is really important is, I think this is a world where taking liquidity risk is really dangerous, because there’s so much flux. So I think that’s some of the pressure we’re seeing in private equity, private credit. People are saying, why did I lock up my money for —

[01:15:59] Barry Ritholtz: Seven years?

[01:16:00] Chris Davis: For seven years? If you’re lucky. It’s gonna be longer, I think. So I think the wheels are coming off that. And indexes — remember Kodak? You ready for a number? 10 million digital cameras had been sold when Kodak was still in the top third of the S&P 500. That’s amazing.

[01:16:18] Barry Ritholtz: Isn’t —

[01:16:18] Chris Davis: That amazing? It’s like, 10 million people knew they would never buy a roll of film again. It was dead. And so the advantage — when Japan peaked in the eighties, every active manager in international investing who was underweight Japan outperformed for the next 10 years just by saying, oh, Japan’s going down, I’m out. And so the index got killed, because it had to sort of go down with the ship. So I think nimbleness, liquidity, flexibility, and this sort of research lens are gonna actually become more valuable. So I think we could see some of the time-tested things that worked in the last decade — dividend darlings, momentum, private equity, indexing — I think all of those things could be challenged given this fast-changing world.

[01:17:05] Barry Ritholtz: I’m glad you brought up a few things there, because when you look at some of the fallout from low-cost indexing — the Vanguard effect, BlackRock, whatever you wanna call it — they have all put the fund industry under a lot of pressure. There’s fee compression. There’s been a move to not just indexing, but to ETFs generally. So when your own business — you’re looking at businesses with moats, businesses with defendable processes, and a good culture. You are running a business with a lot of employees and a lot of clients. How do you respond to this external pressure? How do you manage, not the investments, but the business of investing, when it’s just becoming more competitive and more challenging than ever?

[01:17:58] Chris Davis: Well, we’re lucky, because, one, we charge low fees. If you charge two and 20 —

[01:18:09] Barry Ritholtz: If only I could.

[01:18:10] Chris Davis: I know, I know —

[01:18:11] Barry Ritholtz: I mean, intellectually, I have a problem with that. But part of me is like, nice work if you can get it.

[01:18:18] Chris Davis: I know. I spoke to a guy that charged two and 20 years ago, and I said, why two and 20? What’s the business model? He said, I can’t get three and 30. So that’s hilarious. We’ve always just run with this idea — Charlie once said to me, Charlie Munger: what’s wrong with giving people a bargain?

[01:18:36] Barry Ritholtz: Or at least a fair price.

[01:18:37] Chris Davis: And it makes it easier for you to outperform over time. So, one, I feel — two, we’re a frugal place. I work with seven colleagues. We’ve been together on average 20 years, 25 years average experience. And we would do this with no outside money, because of the inside money. So we run it with what I would call a real family office mindset, with our own money alongside, in a very low cost operation. And the last thing, Barry, is, we are in a lasting game. What I can tell you is, if 90% of the market was passive, the remaining 10% of active would make a fortune.

[01:19:19] Barry Ritholtz: I’ve said that exact thing. If indexing is taking over, doesn’t that create all sorts of inefficiencies for a savvy active manager?

[01:19:29] Chris Davis: Absolutely. And I don’t think it’s a coincidence that we started outperforming. I mean, we’ve outperformed the value index for all periods, but we lagged the S&P in this momentum market — and that changed about four years ago, and nobody’s talking about it.

[01:19:45] Barry Ritholtz: Coming out of the pandemic.

[01:19:46] Chris Davis: Basically, yeah, we’ve been grinding an advantage over the S&P for the last three, three and a half years. And this is with less than half the weight in technology that the index has. So we are underweight the hottest sector, but yet we’ve been grinding out an advantage for three or four years. Why? And I think it’s just because there’s way more money indexed than is thought of. There’s way more money in momentum than is thought, and when I say there’s more in indexing, it’s because there’s so much closet indexing. So I don’t think it’s impossible that we’re already at 70% functionally indexed. Really? So that will really help us. So we’re in a lasting game, we’ve got the balance sheet to do it, and we’re gonna be on the other side.

[01:20:33] Barry Ritholtz: That’s really fascinating. You mentioned you guys would just do this without outside money, but let’s put some flesh on those bones. Davis Advisors, the company, the family foundation, you and your partners, the employees — you collectively have more than a few billion dollars in the funds. So you are not only aligned with your clients. I almost feel like “skin in the game” has become a cliche. But the question I want to ask is, being invested that way alongside the clients, how does that affect your decision-making process? And what does that do when you are going through one of those periodic crises that we’ve seen so much over the past 25 years — dot-coms, GFC, pandemic? How does having skin in the game affect your decisions?

[01:21:29] Chris Davis: Well, I think it makes us much more rational and much more long term. I once had a colleague that we had to part ways with, because he said that he was so unimpressed by things like momentum, even if they worked. He said, look, if I had a blind monkey in my office pointing to the newspaper every day at a stock, and every single day whatever stock it pointed to went up — he said, you could watch that monkey for six months, you could watch it for a year, you could watch it for two years, and you still wouldn’t invest with the monkey. And I said, of course I wouldn’t. It’s a blind monkey. This is my money, this is my client’s life savings. You think I’m gonna say, oh, the blind monkey pointed at the paper? So when we are in an environment where the market is on a tear and people are saying, oh, you’re dinosaurs — we’re able to hold our discipline. In 2007, our financial fund had lagged most other financial funds, because we were underweighted in real estate, and we didn’t own any Fannie, we didn’t own any Freddie, we didn’t own any Countrywide, we didn’t own Bear Stearns, we didn’t own WaMu. And people would say, what, you’re like a dinosaur? And it’s because it’s our money. And so we don’t mind if it takes a while for that weighing machine to work. We look at every year — did the companies get stronger? Did they get heavier, did they get more valuable? And if so, we view our research as working. And sometimes the stocks don’t go up, sometimes they do, but we’re focused on the businesses.

[01:23:07] Barry Ritholtz: On the process, and not just what’s going up that day. The blind monkey reminds me of a fascinating quote from Ken French of Dartmouth. Michael Mauboussin has written a lot about the separation between skill and luck. And French, of Fama-French, had said, it’s very challenging to tell the difference between skill and luck with fund managers. And to really have a data set where you can make an informed decision takes about 20 years. So if you’re gonna wait for that blind monkey, you gotta wait 20 years. And you’re starting out with a blind monkey. I think we have to assume that it’s luck and not skill.

[01:23:51] Chris Davis: Well, and look, Barry, your clients come to you — you could say it’s because of your performance, and performance matters. But —

[01:24:00] Barry Ritholtz: I don’t think my clients come to —

[01:24:01] Chris Davis: Well, what I was gonna say is, what really matters is trust, right? And conviction. And so one of the things — we have clients that say, hey, you went through a period of underperformance, you were out of sync with the market, we weren’t worried. You were building wealth for us every year. We don’t care, oh, this index went here, or the index went there. We’re with you because we have conviction that you’ll get us to our retirement, you’ll get us to our kids’ college funding, you’ll help us achieve our goals. And maintaining that is something you do with your own money. You don’t chase the hot dot. But if you are an investment manager and all of your value comes from the assets under management, you have to chase the hot dot. So trust is an undervalued part of the promise and the value that an investment manager can give to their clients. If your clients trust you, they will get a better return even if you underperform an index — if their trust is able to keep them invested through the ups and downs.

[01:25:02] Barry Ritholtz: Really, really fascinating. All right, last question before I get to my favorites that I ask all my guests. What do you think investors are not generally talking about, thinking about, but perhaps should be? Could be a topic, a geography, an asset class. What important issue is kind of getting overlooked these days?

[01:25:27] Chris Davis: Well, I think these three big transitions in the economy are going to turn a lot of what’s become conventional wisdom about investing upside down for a while. So I think — what hasn’t worked? Active management hasn’t worked. Value, price discipline hasn’t worked. What has worked? Oh, alternatives, illiquidity, that’s been great. What has worked that I think is dangerous? Dividend aristocrats.

[01:26:07] Barry Ritholtz: You think dividend aristocrats are dangerous because —

[01:26:10] Chris Davis: Because they’re looking in the rearview mirror, and they’re not factoring in these big three changes that we talked about.

[01:26:17] Barry Ritholtz: Well, isn’t that the problem with all models?

[01:26:20] Chris Davis: Kodak was a dividend aristocrat. Xerox was a dividend aristocrat. Polaroid was a dividend aristocrat. And that’s fine, unless there is systemic change. And when you have a big change like you had coming out of the seventies, and the change into the eighties, nineties — you have these big changes, and then everything that worked, everything that helped you survive the crash and the depression — in 1948 you could say, I’m not greedy, I just wanna own bonds, stocks are too dangerous — and you are wiped out in a generation, and bonds became certificates of confiscation. So I think people are underestimating how much these conventional strategies — alternatives, the backward-looking models, including even momentum, indexing versus active. And I would even maybe add international. International had underperformed for so long, and —

[01:27:18] Barry Ritholtz: Just the past two years starting to look pretty good.

[01:27:20] Chris Davis: Just starting to look pretty good.

[01:27:22] Barry Ritholtz: And so you like international?

[01:27:23] Chris Davis: I like international. We run an international ETF, DINT, and it’s just like us, it’s all stock picking. It’s run by my partner Danton. In our family, we always keep probably 15, 20% of assets in international. And that looked really stupid until two years ago, and it’s looking a little better. So I think those conventional things are likely to turn upside down.

[01:27:47] Barry Ritholtz: What’s the old joke? Being diversified means there’s always something to apologize for in your portfolio. That’s so true. All right, so let me jump to my favorite questions I ask all my guests, even though I would love to stay here and keep you chatting for another three hours. I know you have places to go and people to see. The first question I always ask — I kind of know the answer, but I’m gonna give you another swing at it. Who were your mentors who helped shape your career? And I kind of see four people already.

[01:28:22] Chris Davis: Well, you certainly got my dad, my grandfather, and Charlie. I think if I was gonna add another one, I would add Tom Gayner, the CEO of Markel. I just think — that sort of principled stewardship leadership, that servant leadership, a company that is built with an enormous durability and culture of stewardship in mind. We’ve served on boards together. He’s helped me through difficult times. I’ve done my best to help him through difficult times. It’s a great thing to go through life surrounded by people you admire. And of course, I get to work with people I admire. And that’s a big plus.

[01:29:00] Barry Ritholtz: Really, really interesting. Let’s talk about — I know you’re a fellow reader. What are some of your favorite books? What are you reading currently?

[01:29:10] Chris Davis: Well, I have too many favorite books to list, but I’ll give you three. I was, by the —

[01:29:14] Barry Ritholtz: By the way, people always tell me, oh, that’s my favorite question. I’m always looking for something new.

[01:29:18] Chris Davis: Well, I’ll give you the most recent one I read that I think is a good antidote to the AI phenomenon, or the AI hysteria, or the AI obsession — that’s a better word. It’s a book called “Alchemy.” The author is Rory Sutherland. I think that’s a very useful book to read right now.

[01:29:40] Barry Ritholtz: On marketing and advertising.

[01:29:43] Chris Davis: It’s really on the ways in which we maybe fetishize, if I said that right, rationality. When you look at human behavior, it’s very irrational, but it’s often irrational in predictable ways. And the more we say “what’s the rational solution to a problem” and expect people to obey that, the more we’re gonna keep getting crazy outcomes. People react to placebos, but we don’t study placebos. That’s the example he gives that I love: if you wanted to create a really spectacular competitor to Coca-Cola and you hired McKinsey, they would say, well, you should make something that tastes good, sell it a little cheaper, and make it ubiquitous. What you wouldn’t say is, make it more expensive, make it taste bad, and put it in a smaller can. And that’s Red Bull. And so there’s a lot to study in a case like that — how has that worked so well? So I think “Alchemy” is a useful one. Now, I think everybody should read, and then have their kids read, Morgan Housel’s two best books, which should be read as a single book: “The Psychology of Money” and “The Art of Spending.” They go together. I said, one is like the sequel to The Godfather — it’s Godfather Two. It’s not a different movie, it’s just —

[01:31:07] Barry Ritholtz: Continuation.

[01:31:09] Chris Davis: The culmination, in a way. And you —

[01:31:11] Barry Ritholtz: Could skip three.

[01:31:12] Chris Davis: Okay, that’s a —

[01:31:13] Barry Ritholtz: My father — three just doesn’t —

[01:31:15] Chris Davis: I agree. Not as good as the first two. I agree, I agree. And then for a third book — just the one that immediately comes to mind at the moment is “Americana.” It’s a book by — there are two books by the same name, I know, because Charlie had told me —

[01:31:34] Barry Ritholtz: 400 years —

[01:31:35] Chris Davis: Of American capitalism.

[01:31:36] Barry Ritholtz: I love that book. I had him on the podcast years ago.

[01:31:39] Chris Davis: Bhu Srinivasan. Yeah.

[01:31:40] Barry Ritholtz: Yes. Spectacular.

[01:31:41] Chris Davis: Spectacular. And it’s just really —

[01:31:43] Barry Ritholtz: I think people are just so unaware of the history of American capitalism. And that book just does a fantastic job laying out the success.

[01:31:54] Chris Davis: And it will help you as an investor if you think in chapters of that book. If you think about, okay, AI is unfolding — he talks about the interstate highways being built. Well, when the interstate highways were built, who made money? McDonald’s, Wendy’s. The railroads were built — who made money? It wasn’t the railroads. It was the factories, the ability to distribute. And who were the dead men walking? When the car was developed, there were 3,000 car companies. There were 371 publicly traded internet companies. That’s why picking the emerging winners in the early stages is tricky. Always hard. But think of the chapter, think of that whole arc — that’s a terrific book.

[01:32:42] Barry Ritholtz: What are you streaming these days? What’s keeping you entertained — Netflix, podcasts, whatever?

[01:32:48] Chris Davis: Well, anybody who knows me — I watch almost nothing. And I particularly don’t watch sports. I don’t know a lot about sports, with one exception. I love ice hockey. And I love ice hockey in part because we had a lot of family history. My mom’s family helped start the NHL and founded the Boston Bruins.

[01:33:13] Barry Ritholtz: Wait, what? Your mom’s family helped start —

[01:33:15] Chris Davis: The NHL, and founded the Bruins. And we owned the Bruins through my childhood. Can you imagine? My father, who’s probably been to eight hockey games in his life, has his name carved on the Stanley Cup twice, because Shelby Davis was the treasurer of the Boston Bruins. And so they won the cup twice. He got his day with the cup. But one of the things I love about it is that my grandfather, in explaining his love for it to me, said: every sport handicaps the athletes — you can’t use your hands, you can’t use your feet, you have to dribble, whatever it is. He said, hockey accentuates every human ability.

[01:34:01] Barry Ritholtz: Between the skates and the stick —

[01:34:02] Chris Davis: The skates, the stick, the pads, the oval rink, the ice. I mean, it’s just an amazing accelerator of human ability. And I guess the reason I think of it right at this moment — of course, we’re moving into the Stanley Cup playoffs, you were in the last two rounds — but it’s also because I think there’s a way to look at AI as accentuating human ability.

[01:34:26] Barry Ritholtz: It’s an accelerator, for sure.

[01:34:28] Chris Davis: It’s an accelerator. And what that could mean for healthcare — for healthcare inflation going negative. I mean, there are all sorts of —

[01:34:35] Barry Ritholtz: We’re already finding so many new molecules. If anything’s going to find a cure to a lot of cancers, it’s gonna be this.

[01:34:44] Chris Davis: And again, we have to recognize that, of course, like every technology, there are going to be negatives. There are gonna be delays. And as people get disillusioned, we could get a big swing the other way. So, equanimity. But again, going back to “Americana” and tying it to ice hockey — think of those long chapters.

[01:35:03] Barry Ritholtz: All right, our final two questions. What sort of advice would you give to a recent college grad interested in a career in investing?

[01:35:12] Chris Davis: Well, I would say learn everything you can about business, and ideally work in business. I met a guy down at Markel — they had their reunion just yesterday, I just flew back from Richmond yesterday. Their reunion is a great event. I recommend everybody go — just buy a share of Markel, go to the reunion. You’ll see something a lot like Berkshire. I love the value system there. But I met a guy who was an engineer at Altria, which is headquartered in Richmond. He owned a lot of Altria, he owned a lot of PMI, but he started investing for himself about 20, 25 years ago. He showed me his portfolio, including his cost basis. He’s built a wonderful record as an investor. And so, I don’t love all these kids going to Goldman Sachs and to private equity. I think private equity — it was a wonderful business to begin with, and I think it has absolutely lost the thread.

[01:36:16] Barry Ritholtz: And the size. It’s just ramped up and —

[01:36:18] Chris Davis: Got so big, and they’re all selling to themselves. And they’re trying to get the widows and orphans in there so that they can unload, have some final sale — just like they did with MLPs and the oil and gas partnerships in the eighties. And I really hate it. There are people within the world of private equity that I admire, that have built stunning records, but most of what’s happening at this scale is just stealing money from pension plans —

[01:36:49] Barry Ritholtz: 401(k)s, endowments —

[01:36:50] Chris Davis: 401(k)s, and it’s going into penthouses and Ferraris. Where are the customers’ yachts? Look at the returns over the last 10 years of the average state pension plan. Then look at the breakdown of assets, and you realize that all of the drag on their returns is alternatives.

[01:37:08] Barry Ritholtz: Amazing. Final question. What do you know about the world of investing today that might have been useful back in the late eighties, early nineties, when you were first getting started?

[01:37:21] Chris Davis: Every investor, if they’re honest, will say that their biggest mistakes were what they sold. And so I would say that I’ve always put all my money in the funds, and I think that’s the right alignment. But I realize now, which I didn’t realize then, that there are some real differences — which is that, in the funds, we have to really think about diversification. If each time I bought a stock in the funds I had bought it in my own name, instead of putting my money in the funds and buying, I probably would’ve just left it alone for the last 30 years, and it would’ve done very well. So — I first bought Amazon in 2002.

[01:38:05] Barry Ritholtz: Good timing.

[01:38:06] Chris Davis: Yeah. But I sold it in 2004.

[01:38:08] Barry Ritholtz: Bad sale.

[01:38:09] Chris Davis: Thank you.

[01:38:10] Barry Ritholtz: I could tell you the same story with —

[01:38:12] Chris Davis: Apple.

[01:38:13] Barry Ritholtz: It was $15, with 13 in cash. Tripled my money. I was a genius. That was like 10,000% ago.

[01:38:21] Chris Davis: I know. We did the same thing in Apple. We viewed it as a real estate play. We said, if you mark the real estate to market and add it to the cash, it was free. It was an 80-cent dollar. And then when it went to $2, we were like, whoa, too rich for our blood. So I do think that I’m trying to really learn and think about how I can improve results over the next 20 years by being more willing to hold. And what does that mean in terms of position size? What does it mean in terms of volatility? What does it mean in terms of client expectation? Would I feel the same if a client has $25,000 with us as I would if it was just my own money? Because I can absorb a bigger loss, and I can absorb more volatility. So that’s something I’m still trying to process. But God, I love the business. And, like my grandfather, if I could die at my desk at a very old age — I do have the best job on earth. I get to study success. I get to work with people I admire. I go and visit companies to focus on that elusive idea of culture. I get to meet the incredible people that have built our society, that have built businesses. And we have a country that loves to tear down the heroes. We admire the guy on the way up, but once they succeed, we somehow decide they’re a villain. I don’t think that’s constructive. I think it’s a strange thing for us to admire athletes and not admire Jeff Bezos for what he created and how it has served all of us every day. We all use Amazon and it serves us. Every day we delight in seeing our kids on Instagram or using Google Maps. And the idea that we continue to vilify our heroes, instead of judging people by their biggest accomplishment, not their weakest moment.

[01:40:15] Barry Ritholtz: Chris, thank you so much for being so generous with your time. This has been absolutely delightful. We have been speaking with Chris Davis. He is the chairman and portfolio manager at Davis Advisors. If you enjoy this conversation, well, check out any of the 641 we’ve done over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you get your favorite podcast. I would be remiss if I didn’t thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

 

~~~

 

 

 

The post Transcript: Chris Davis of Davis Funds appeared first on The Big Picture.

US Bankruptcy Filings Surge 7% YoY In May

Zero Hedge -

US Bankruptcy Filings Surge 7% YoY In May

Authored by Naveen Athrappully via The Epoch Times,

Total U.S. bankruptcy filings, which include filings made by both businesses and individuals, rose by 7 percent in May on a year-to-year basis.

A hiring sign at the Fashion Centre at Pentagon City shopping mall in Arlington, Va., on Jan 3, 2024. Madalina Vasiliu/The Epoch Times

Individual bankruptcy filings rose by 8 percent during the one-year period. While overall commercial filings were down marginally by 0.1 percent, bankruptcy filings made by small businesses jumped 36 percent, according to a June 5 statement from the American Bankruptcy Institute (ABI).

"The May data reflects a continued but measured uptick in bankruptcy activity, particularly among small businesses," said Michael Hunter, vice president of Epiq AACER, the company that provided the bankruptcy data.

"The trend highlights the cumulative impact of elevated interest rates, persistent inflation, and higher operating costs. As access to affordable credit remains constrained, more businesses and consumers are turning to restructuring tools to stabilize and reset financially."

The 12-month inflation rate has consistently remained above the 2 percent level over the past few years. In recent months, the rate has shot up since the Iran conflict after remaining subdued for some time.

In February, the inflation rate was 2.4 percent, which surged to 3.3 percent in March and 3.8 percent in April, according to data from the Bureau of Labor Statistics. Higher prices pose a challenge to business activities and consumer spending.

Meanwhile, the Federal Reserve's benchmark interest rate has remained elevated at 3.5 to 3.75 percent in recent months, with the central bank refusing to cut rates further. This contributes to keeping loan rates high, making credit expensive for businesses and individuals.

In May, commercial chapter 11 filings fell 7 percent from last year, ABI said in its latest statement. A Chapter 11 bankruptcy seeks to reorganize a company's debts, aiming to keep the business operational and, eventually, turn it solvent. This is the most common type of bankruptcy filing made by businesses.

The May decline in such filings bucks the persistent increase in such cases since the beginning of the year. In April, Chapter 11 filings rose 42 percent from a year ago. And during the first quarter of 2026, these filings rose 37 percent year over year.

Among companies that filed for bankruptcy last month is specialty material solutions provider Trinseo PLC. On May 26, the company announced it would commence Chapter 11 filings as part of a restructuring plan. The company said it expects the plan to cut down its debt by roughly $2 billion.

Earlier on May 6, pet food ingredient company Integrated Proteins, LLC, filed a voluntary petition for bankruptcy, citing estimated assets of $50 million to $100 million and liabilities of $100 million to $500 million.

US Business Situation

In a May 14 report, S&P Global warned that the trajectory of bankruptcy filings could increase over the coming months, citing "inflationary pressures, elevated fuel prices and other macroeconomic uncertainties, largely related to the Middle East war."

Andrew Glenn, managing partner at Glenn Agre Bergman & Fuentes, said the existing macroeconomic factors have "still not resulted in the next wave of big filings." The current period is the "calm before the storm" ahead of a potential barrage of commercial bankruptcy filings.

Meanwhile, sentiment among small business owners remains positive, with optimism in this group rising marginally in April, the National Federation of Independent Business said in a May 12 statement.

Financial services company ShareBuilder 401k said in a May 11 statement that, while owners are weighed down by inflation and labor shortages, they are adopting new strategies to grow their businesses.

A survey from the ShareBuilder 401k showed that 88 percent of owners took "decisive action" to counter inflation and labor challenges over the past year.

"Half of all small businesses (50 percent) have increased prices to protect margins, while others have turned to lower-cost vendors (23 percent)," the company said.

According to a June 3 report from S&P Global, four out of seven U.S. sectors reported an upturn in their business activity in May - healthcare, consumer goods, basic materials, and industrials. Financials, tech, and consumer services sectors registered declines.

On the employment front, the U.S. economy added 172,000 jobs in May, exceeding economists' expectations. The unemployment rate remains steady at 4.3 percent. However, the number of Americans filing for unemployment benefits hit a four-month high for the week ending May 30.

Meanwhile, the Dow Jones, which opened at around 49,832 on May 1, closed at about 51,032 on May 29, a jump of roughly 1,200 points.

The Trump administration has taken actions to help businesses acquire credit.

In March, the Small Business Administration (SBA) announced that small manufacturers will be eligible to secure loans with a 90 percent federal guarantee. This is expected to help such businesses get access to "long-term, affordable financing."

Last month, SBA announced that it will allow eligible borrowers to get up to $10 million in combined financing from 7(a) and 504 loan programs for businesses, double the earlier limit of $5 million.

"By decoupling 7(a) loan balances from the 504 program, the SBA is giving capital-intensive small businesses - including those in construction, logistics, energy, food production, and related industries - greater flexibility to pair long-term financing for real estate and equipment with working capital to support operations and expansion," the agency said.

Tyler Durden Mon, 06/08/2026 - 12:00

Wix Tumbles After Cutting 20% Of Workforce, Warns Of Deeper Growth Slowdown

Zero Hedge -

Wix Tumbles After Cutting 20% Of Workforce, Warns Of Deeper Growth Slowdown

Website builder Wix announced an "organizational realignment" on Monday that will cut roughly 20% of its workforce, as the company warned of a sharper-than-expected slowdown in its Partners business.

The restructuring is designed to streamline operations, discontinue lower-priority initiatives, and reallocate resources toward Wix's core growth areas.

"The organizational realignment to streamline operations and reallocate resources to support the Company's top strategic priorities. This includes the scaling down and/or discontinuation of certain activities, initiatives, products, and subsidiaries," Wix wrote in a Form 6k filing earlier this morning.

As of 1Q26, Wix had 5,277 employees, so a 20% cut would represent about 1,055 layoffs.

Wix is a SaaS website builder that competes with platforms such as Shopify, Squarespace, GoDaddy, and WordPress-related services. There was no mention of whether AI-related efficiencies contributed to the white-collar layoffs.

The 6k filing noted that it expects 2026 free cash flow, excluding acquisition and restructuring costs, of about $420 million, roughly $20 million above its prior plan. This restructuring is a move to support profitability.

"While Wix Harmony and Base44 continue to perform as we expected when we issued guidance as part of the first quarter 2026 earnings release, the Company expects an approximately $50 million reduction in bookings and an approximately $25 million reduction in revenue in FY 2026 as a result of our organizational realignment as well as a more pronounced slowdown, beyond our previous expectations, in the growth of our Partners business during the second half of May and early June," the filing stated.

The company lowered its 2026 bookings growth outlook to the low-teens range from mid-teens, while revenue growth is now expected in the low- to mid-teens range, also down from mid-teens.

Cost savings from the labor restructuring are expected to offset the revenue hit. Wix sees about $70 million in incremental non-GAAP cost-of-revenue and operating-expense savings this year, with a full-year run-rate savings target of about $150 million, driven mainly by lower payroll and overhead.

Wix expects $30 million to $35 million in pre-tax restructuring charges, mostly related to cash severance and benefits, with most charges booked in the second quarter and cash payments made later this year.

Shares of Wix tumbled 10% in premarket trading. The stock is trading near 2017 lows.

Most Wall Street analysts are bullish on the stock. There are 12 "Buy" ratings, 8 "Neutral" ratings, and 1 "Sell."

The average 12-month price target for the stock is $84 per share.

Tyler Durden Mon, 06/08/2026 - 11:45

Inflation Expectations Dip, Driven By Lower Gas Prices, While Labor Market Prospects Worsen: NY Fed Survey

Zero Hedge -

Inflation Expectations Dip, Driven By Lower Gas Prices, While Labor Market Prospects Worsen: NY Fed Survey

Ahead of Wednesday's CPI report which is expected to show a substantial rise in consumer prices, moments ago we got an early look into how consumers view inflation after the NY Fed's latest monthly survey of consumer expectations reported that inflation expectations at the one-year horizon dipped to 3.46% in May from 3.64% in April, easing from the highest print since September 2023. Inflation expectations were unchanged at 3.1% for the three-year-ahead horizon and also unchanged at 3.0% at the five-year-ahead horizon in May.

Median inflation uncertainty, or the uncertainty expressed regarding future inflation outcomes, increased at the one-year and three-year-ahead horizons and decreased at the five-year-ahead horizon. 

The drop in year-ahead expectations took place as 1-year gas inflation expectations extended its recent decline, sliding to 4.96% in May from 5.11% in April and from 9.42% in March, which had been the highest reading since March 2022.

Among other prices, home price growth expectations increased to highest since July 2022.

Food and rent price outlooks also increased while medical care and college eased (good luck).

Turning to the labor market, sentiment continued to deteriorate with job-loss fears rising and probability of quitting at a three-year high despite unemployment rate seen edging lower and expected earnings growth steady.

Respondents said the mean perceived probability of finding a job if one’s current job was lost decreased by 2.3% to 43.7%, remaining below its 12-month trailing average of 46.8% and marking the lowest reading since December 2025.

The mean perceived probability of losing one’s job in the next twelve months increased by 0.5% to 15.1%, above the series’ 12-month trailing average of 14.4%. Despite that, the expected quit rate - the probability of leaving one’s job voluntarily in the next year, usually a sign of confidence in the labor market - rose in May to the highest since February of 2023. The increase was broad-based across age, education and income groups, the report said. 

The report followed an unexpectedly strong employment report for May with job gains beating expectations. For Fed officials, the report put to rest for now concerns that the US labor market remained fragile and stoked worries over inflation. Policymakers’ preferred measure of inflation hit 3.8% in April, amid a spike in energy prices.

The New York Fed survey also reinforced other reports showing consumer sentiment is at record lows: the share of households who said their financial situation was worse than last year reached its highest level since January of 2023. More consumers also expected a deterioration in their finances in the year ahead.


Household finances outlook fell to lowest since Oct. 2022, with spending growth expected to moderate amid worsening credit access and delinquencies

The perceived probability of missing a minimum debt payment over the next three months rose by 1.2% points to 12.6%, staying below its 12-month trailing average of 12.9%. This increase was mostly driven by those with at most a high school degree and with annual household incomes below $100,000. 

Here are some more details from the report:

Inflation

  • Median home price growth expectations increased by 0.5% point to 3.5%. This is the highest reading since July 2022. The increase was most pronounced for the West and Midwest Census regions. 
  • Median year-ahead gas price growth expectations dropped by 0.1% point to 5.0%. Other commodity price change expectations increased by 0.6 percentage point for food to 5.8% and by 1.4 percentage points for rent to 7.4%, while they decreased by 0.7 percentage point for the cost of medical care to 8.9% and by 0.8 percentage point for the cost of a college education to 8.0%. 

Labor Market

  • Median one-year-ahead earnings growth expectations remained stable at 7% in May, remaining slightly above their 12-month trailing average of 2.6%. 
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 0.4 percentage point to 43.2%, remaining above their 12-month trailing average of 41.1%. 
  • The mean perceived probability of losing one’s job in the next 12 months increased by 0.5 percentage point to 15.1%, above the series’ 12-month trailing average of 14.4%. The mean probability of leaving one’s job voluntarily, or the expected quit rate, in the next 12 months increased by 2.6 percentage points to 20.8%, its highest level since February 2023. The increase was broad-based across age, education, and income groups. 
  • The mean perceived probability of finding a job if one’s current job was lost decreased by 2.3 percentage points to 43.7%, remaining below its 12-month trailing average of 46.8% and marking the lowest reading since December 2025. 

Household Finance

  • The median expected growth in household income remained unchanged at 2.8% in May 2026. 
  • Median one-year-ahead nominal household spending growth expectations decreased by 0.4 percentage point to 5.0%, standing slightly above their trailing 12-month average of 4.9%. The decline was driven by respondents above age 60 and those with at most a high school degree and annual household incomes less than $50,000. 
  • Perceptions of credit access compared to a year ago remained largely unchanged, with a greater share of households reporting that credit availability was equally easy or difficult. Expectations for future credit availability deteriorated, with a lower share of respondents expecting it will be easier to obtain credit in the year ahead. 
  • The average perceived probability of missing a minimum debt payment over the next three months rose by 1.2 percentage points to 12.6%, staying below its 12-month trailing average of 12.9%. This increase was mostly driven by those with at most a high school degree and with annual household incomes below $100,000. 
  • The median expectation regarding a year-ahead change in taxes at current income level decreased by 0.3 percentage point to 3.1%. 
  • Median year-ahead expected growth in government debt decreased by 0.1 percentage point to 9.9%. 
  • The mean perceived probability that the average interest rate on savings accounts will be higher in 12 months decreased by 2.1 percentage points to 24.6%. 
  • Perceptions about households’ current financial situation compared to a year ago deteriorated, with a larger share of households reporting a worse financial situation, marking the highest reading since January 2023, and a slightly smaller share of households reporting a better financial situation. Year-ahead expectations about households’ financial situation also deteriorated, with an increase in the net share of households expecting a worse financial situation. The net share of households expecting a better versus worse financial situation in one year is at its lowest level since October 2022. 
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 0.4 percentage points to 38.0%. 

Source: NY Fed

Tyler Durden Mon, 06/08/2026 - 11:33

We Are Being Warned That A "Godzilla El Niño" Could Absolutely Devastate Global Food Production

Zero Hedge -

We Are Being Warned That A "Godzilla El Niño" Could Absolutely Devastate Global Food Production

Authored by Michael Snyder via The End of The American Dream blog,

The waters of the Pacific Ocean are getting extremely warm, and that could provide fuel for an immensely destructive climate event that is unlike anything we have ever seen before. Even the United Nations has issued an ominous warning about the El Niño event that is in the long-term forecast, because it will have a dramatic impact on every man, woman, and child on the entire planet.

We are being told that there is more than an 80 percent chance that El Niño conditions will arrive by the end of next month due to rapidly warming equatorial waters in the Pacific. Meanwhile, an unprecedented "9,000-mile marine heatwave" has developed in the North Pacific. Many experts are concerned that the confluence of those two factors could produce a "Godzilla El Niño"...

The chance of an El Niño event emerging by July is now over 80 percent, which will likely make 2026 one of the hottest years on record. At the same time, an exceptionally large 9,000-mile marine heatwave has been forming in the North Pacific since the end of 2025. These extreme warming events are now evolving together across the Pacific. Scientists are increasingly concerned that the warm water will fuel a "super" or "Godzilla" El Niño, potentially prolonging marine heatwaves, disrupting fisheries and ecosystems, and intensifying global climate impacts well into 2027.

The "9,000-mile marine heatwave" in the North Pacific is absolutely astounding climate scientists.

At the same time, the warming in the equatorial waters where El Niño events normally develop is at a level that we haven't seen since at least 1877...

The temperature of the ocean in the equatorial waters where these El Niños form was predicted to be 3 degrees Celsius above average. Experts are saying that this is a level of heat in the Pacific Ocean that hasn't been recorded since 1877.

I have written about the "Super El Niño" that started in 1877 before.

That "Super El Niño" was one of the primary reasons why 50 million people starved during the Great Famine that stretched from 1876 to 1878...

This El Niño, they say, could rival the intense event of the late 19th century that triggered "the Great Famine" on a global scale, killing millions of people. And its scythe sliced through southern Africa.

"The 1876-78 Great Famine impacted multiple regions across the globe, including parts of Asia, Nordeste [Northeast] Brazil, and northern and southern Africa, with total human fatalities exceeding 50 million people, arguably the worst environmental disaster to befall humanity," a team of scientists said a decade ago in a ground-breaking paper presented at a meeting of the American Geophysical Union.

3 percent of the entire population of the world starved to death during those years.

Today, 3 percent of the entire population of the world would be 240,000,000 people.

In 1982 and 1983, we experienced the most severe "Super El Niño" of the 20th century...

In 1982-83, the most intense El Niño of the 20th century caused extreme weather events throughout the world, including floods in the American Pacific and in the southern United States, and droughts in north-eastern Brazil and Indonesia. It also caused a very mild winter in the mid-latitudes of Europe, Asia and North America.

That "Super El Niño" sparked a horrific famine in eastern Africa that wiped out a very large proportion of the population...

A widespread famine affected Ethiopia from 1983 to 1985. The worst famine to hit the country in a century, it affected 7.75 million people out of Ethiopia's 38-40 million and left approximately 300,000 to 1.2 million dead. 2.5 million people were internally displaced whereas 400,000 refugees left Ethiopia. Almost 200,000 children were orphaned.

Now we are being warned that the most powerful "Super El Niño" of all time could potentially be ahead of us.

We could see insanely hot temperatures all over the world this summer, and we are being told that we are likely to see severe drought conditions "in southern Africa, Australia, India, the Indochina Peninsula and Oceania"...

Easterly trade winds across the equator, meanwhile, are replaced by bursts of westerly surface winds. Those pile warm waters against the western shores of South America. That suppresses cool ocean upwelling from below, which is needed to bring nutrient-rich waters closer to the surface. That starves baitfish and means poor fish harvests for dependent countries in Central America and the Pacific coast of South America.

Drought, meanwhile, is likely in southern Africa, Australia, India, the Indochina Peninsula and Oceania. Southeast Asia, meanwhile, could see above-average rainfall and more flooding.

Here in the United States, we could see a lot less rain than normal in the Midwest, and temperatures in the heartland could be 3 to 6 degrees above normal.

In other words, it would be horrible growing weather.

Our farmers are already facing much higher diesel prices, much higher fertilizer prices, and a multi-year drought that never seems to end. Now a "Godzilla El Niño" could be on the way, and the World Meteorological Organization is telling us to brace for the worst...

The World Meteorological Organization is warning that this summer's El Nino event could be the worst yet. Compounded by fertiliser shortages, inflation and rising oil prices, these shocks threaten to push an already fragile food industry to the brink, and the impact will land squarely in consumers' shopping baskets.

Coming into this year, the number of people around the world experiencing acute food insecurity was already at the highest level ever recorded.

And now a "Godzilla El Niño" could absolutely devastate food production in many of the areas around the world that grow the four crops that account for 60 percent of all global calories...

Global food security relies heavily on a highly concentrated supply chain. Just four crops, wheat, rice, maize and soybeans, account for over 60% of global calories. While localised regional shortages are typically balanced by other markets, a global El Nino triggers teleconnections: simultaneous weather anomalies across different continents that cause correlated crop failures. And this systemic drop in supply leads to direct price increases at supermarket tills.

In this country, where do we grow most of our wheat, rice, corn, and soybeans?

Everyone knows that it is in the heartland, and the heartland of this country is about to get hit by a climate sledgehammer.

Of course, we all still have to eat, and so demand for food is not going to go down.

Since there won't be as much food produced, that means that prices are likely to spike...

Because demand for basic staples is inelastic - consumers must eat regardless of cost - even small supply deficits cause disproportionate price surges. Scenarios for this El Nino indicate price shocks of 10% to 50% across core commodities, with highly exposed crops, including rice, palm oil, sugarcane and coffee, potentially experiencing surges of 50% to 100%, or more.

In the past, price shocks struck one commodity at a time. A simultaneous, cross-category surge means consumers will be hit harder and broader than ever before.

If you think that food prices at your local supermarket are high now, just wait until you see what they are like in the future.

What will struggling American families do if basic staples that they purchase on a regular basis suddenly go up by 50 percent or more?

Of course, conditions will be much worse in many impoverished nations around the globe.

In some cases, there simply won't be nearly enough food to feed everyone.

We really are facing a nightmare scenario, and the vast majority of the global population is completely and utterly unprepared for it.

Michael Snyder’s new book entitled “10 Prophetic Events That Are Coming Next” is available in paperback and for the Kindle on Amazon.com.

Tyler Durden Mon, 06/08/2026 - 11:25

Saylor's Strategy Buys The Dip As Bitcoin Nears Mining Cost Floor

Zero Hedge -

Saylor's Strategy Buys The Dip As Bitcoin Nears Mining Cost Floor

A week after SELLING 32 Bitcoin - and (in part) triggering a waterfall decline in crypto - Bitcoin treasury company Strategy just BOUGHT an additional 1,550 BTC for approximately $101.3 million at an average price of $65,332 per bitcoin between June 1 and June 7, according to an 8-K filing with the SEC on Monday.

Strategy now holds a total of 845,256 BTC - worth around $53.5 billion - bought at an average price of $75,680 per bitcoin for a total cost of around $64 billion, including fees and expenses, according to the company's co-founder and executive chairman, Michael Saylor.

This means Saylor's horde represents 4% of bitcoin's 21 million supply cap.

Was Saylor's 'sale' last week designed to lower the price for this big purchase?

Bitcoin had been trading for around $73,700 before the sale announcement.

However, the news, despite increasingly being flagged by the company as a possibility in recent weeks, saw the market subsequently drop around 20% to a low of roughly $59,300 on Friday, before recovering back above the $63,000 level over the weekend.

Last week, JPMorgan analysts said Strategy's recent decision to sell 32 BTC "spooked" markets even if the sale was "symbolic and voluntary," intended to demonstrate the company's commitment and flexibility to preferred stockholders. 

As TheBlock.co reportsSaylor posted another Strategy bitcoin acquisition tracker chart on Sunday with the caption "A good time to add more dots," a commonly-understood signal that the largest corporate bitcoin holder may disclose fresh bitcoin purchases this week.

The framing this time went further than the usual nod toward another buy, in that it explicitly positioned current price levels as attractive, with bitcoin trading in the low $60,000 range.

Following bitcoin's worst week in two years, Strategy(MSTR) Executive Chairman Michael Saylor published a framework on X, arguing that the Bitcoin community is evolving into four distinct ideological camps.

As CoinDesk reports, rather than viewing these groups as competitors, he presents them as complementary forces that will collectively shape bitcoin’s future.

  • The first group, Bitcoin Maximalists, sees Bitcoin as the ultimate monetary breakthrough. They believe bitcoin has already solved the problem of digital scarcity and offers superior property rights, protection from inflation, and economic empowerment. Their focus is conviction: bitcoin is not one crypto asset among many, but the dominant digital monetary network.

  • The second group, Bitcoin Capitalists, views Bitcoin as a form of digital capital that should be integrated into the global economy. They support corporate treasury adoption, institutional custody, bitcoin-backed securities, lending markets, and broader financial infrastructure. Their goal is to expand bitcoin's reach by embedding it into existing economic systems rather than replacing them.

  • The third group, Bitcoin Technologists, focuses on improving the protocol. They argue that Bitcoin must continue to evolve to address challenges in scalability, privacy, usability, security, and future threats such as quantum computing. While they support innovation, Saylor notes that changes to bitcoin's base layer must be approached cautiously to avoid unintended consequences.

  • The fourth group, Bitcoin Fundamentalists, prioritize protecting bitcoin's original principles: decentralization, self-custody, immutability, censorship resistance, and individual sovereignty. They are wary of excessive institutional influence, financialization, and protocol changes that could compromise Bitcoin's core characteristics.

Saylor's central argument is that Bitcoin needs all four perspectives. Maximalists provide conviction, Capitalists drive adoption, Technologists ensure long-term resilience, and Fundamentalists safeguard the protocol's integrity.

Saylor argues that Bitcoin's most successful path lies in a balance among these four forces.

The piece was published as observers debated whether Strategy's June 1 disclosure had itself contributed to the latest leg lower.

That bitcoin is in a bear market is not in dispute, but as BitcoinMagazine.com reports, Jim Ferraioli, Director of Digital Currencies Research and Strategy at Charles Schwab, argued last week on Bloomberg that this selloff has a measurable cost floor, and that floor is built not from sentiment or chart patterns, but from the physics of energy consumption.

The numbers frame the drawdown in context. Bitcoin peaked at $126,000 in the fall before collapsing to roughly $60,000 in February — a 50% correction that, while brutal for recent buyers, falls far short of the 75%-plus implosions that defined prior Bitcoin bear markets.

Ferraioli’s core analytical framework centers on one question: what does it cost to manufacture Bitcoin? The answer creates a natural gravitational floor that has held across multiple cycles. 

For the most efficient miners — those operating at scale with next-generation ASIC hardware and access to the cheapest wholesale energy — the cost to produce one Bitcoin sits at approximately $60,000, Ferraioli said.

That figure is not arbitrary. It represents the all-in expense of powering a facility at roughly $0.07 per kilowatt-hour with the most advanced semiconductor fleets available.

The less efficient miners — those with older ASIC hardware, higher energy costs, and thinner operational margins — carry a production cost of approximately $95,000 per BTC, according to Glassnode data cited in Schwab’s May 2026 research report. That gap between $60,000 and $95,000 defines Bitcoin’s current valuation range. 

Bitcoin’s energy floor: Why $60,000 may mark the bottom

Ferraioli argues that in deep bear markets, the cost of production for the best miners has historically served as the bottom. February’s low near $60,000 aligns almost precisely with that level, as well as BTC’s 200-week moving average.

The BTC selling pressure is not random. It is demographically specific. The investors driving forced liquidations are those who acquired Bitcoin during the past 18 months — buyers who rode the asset from sub-$80,000 up to $126,000 and then watched gains evaporate in full. 

Schwab tracks two cost-basis metrics to quantify this pressure: the average acquisition cost for U.S. spot ETF and ETP holders, which stands near $83,000, and the active investor cost basis — excluding coins rewarded to miners — which sits near $78,000. 

Both figures sit well above current spot prices, putting the majority of recent entrants into unrealized loss positions and reinforcing $83,000 as a ceiling of overhead supply rather than a floor of support.

Glassnode’s on-chain data corroborates this dynamic. Bitcoin’s latest attempted rally stalled at the aggregate ETF cost basis near $83,000, with total realized losses spiking to $1.35 billion per day and long-term holders capitulating from cycle-top positions. Hedge funds represent roughly 30% of spot ETP ownership but are operating market-neutral, executing basis trades rather than taking directional views — meaning they provide no natural bid when prices fall.

Here is where Ferraioli’s analysis turns constructive. Every major publicly traded Bitcoin miner has announced a pivot toward high-performance computing (HPC) for AI inference workloads. The economics on their face appear to favor abandoning mining: inference generates higher net revenue per megawatt-hour than Bitcoin mining during peak demand windows. 

But demand for AI inference is not uniform across 24 hours. Models run hard during business hours and sit idle overnight and on weekends.

That creates a structural opportunity that does not displace BTC mining — it layers on top of it. Schwab’s analysis models Bitcoin as the optimal baseload monetization of power during off-peak hours, with inference overlaid during peak business-hour demand. 

A data center operating this hybrid model maximizes utilization across the full 24-hour cycle rather than leaving capacity dark when inference demand falls away. For miners, this translates to more stable revenue, reduced forced BTC sales to cover operating costs, and lower structural risk across bear market cycles.

Bitcoin is backed by energy 

The underlying thesis is one of energy economics. Bitcoin has no earnings, no free cash flow, and no CEO issuing guidance. Its value, in Ferraioli’s framework, derives from the energy cost required to produce it — a cost that is transparent, verifiable, and historically durable. 

In commodity markets, price cannot sustainably trade below cost of production. Producers shut down, supply contracts, and equilibrium resets higher. 

Bitcoin follows this same logic: when spot prices fall toward $60,000, the least efficient miners shut down operations, the network’s hash rate adjusts through Bitcoin’s difficulty mechanism, and the cost to produce each new coin falls.

As of May 2026, the average mining cost across all Bitcoin miners sits near $85,604, with the Bitcoin price trading in the mid-$60,000s — meaning the network as a whole is operating at a loss, a configuration that has historically preceded recoveries, not further collapse.

Tyler Durden Mon, 06/08/2026 - 11:05

Equity Supply Surge: What Historically Comes Next

Zero Hedge -

Equity Supply Surge: What Historically Comes Next

Authored by Lance Roberts via RealInvestmentAdvice.com,

This past week, the market hit an all-time high. At the same time, Alphabet (GOOG) told investors it would raise $80 billion by selling stock to fund its AI buildout, and the shares fell about 4% on the news. Within days, SpaceX is reportedly set to price one of the largest IPOs ever attempted. If you want a live picture of an equity supply surge meeting a market priced for perfection, you’re looking at it. The question isn’t whether the equity supply is coming. It’s what happens after it lands.

A reader sent me two charts this week. The first, below, shows U.S. equity issuance climbing since 2023. The second chart below matters more, and we’ll get to it momentarily. The reader’s instinct was that these equity supply waves tend to either precede or coincide with market downturns. He’s right, for the most part, but history needs one important correction, and the current setup deserves a closer look than the cheerleading it’s getting.

The Setup: An Equity Supply Wave Meets a Record Market

Let’s start with the mechanics, because they’re what make 2026 different from a normal IPO year. New equity supply will hit the market in two waves, not one. First comes the offering itself. Then, 90 to 180 days later, the lockup expires and insiders, employees, and pre-IPO investors are free to sell. That second wave of equity supply is usually far larger than the IPO, and it arrives after the headlines have faded.

The second chart my reader sent captures exactly this. It stacks IPO gross proceeds against the value of shares freed from expiring lockups, and the 2026 estimate towers over every prior year back to 1998, with the combined figure pushing past $700 billion. The IPO proceeds are a small part, but the lockup overhang is the rest. Make no mistake, that is a wall of supply.

The pipeline backs up the picture. Goldman Sachs has projected that U.S. IPO proceeds could reach a record near $160 billion in 2026 if the marquee names go public. SpaceX, reportedly targeting a valuation north of $1.5 trillion, may price as soon as June 12. Behind it sit OpenAI, Anthropic, Databricks, and Stripe at roughly $134 billion. One pipeline tracker estimates AI-adjacent names account for more than 90% of the projected listing value. That concentration is its own risk, and we’ll return to it.

What History Says About an Equity Supply Surge

The cleanest academic version of my reader’s instinct comes from Malcolm Baker and Jeffrey Wurgler. In the Journal of Finance, using data back to 1928, they found that the share of equity in total new issuance of equity and debt is a strong predictor of stock market returns. Their key finding: firms issue relatively more equity than debt right before periods of low market returns. Managers and insiders, in other words, are decent market timers. They sell stock when the price is right for the seller, not the buyer.

The chart record fits. The 2000 dot-com mania saw issuance advance into the March 2000 market peak. The S&P then fell roughly 49% into its October 2002 low, and the Nasdaq lost about 78%. The 2020 to 2021 boom was even larger in raw dollars, fueled by more than 600 SPAC listings and a record IPO calendar. The S&P peaked in early January 2022 and dropped about 25% over the next nine months.

Here’s where it gets interesting, and where the history needs its correction. The second-largest issuance spike on the long-run chart sits in 2008, dead in the middle of the recession. That one was not insider timing a market top; it was banks raising emergency capital to survive, much of it through government-funded recapitalization. The crash caused the issuance, not the other way around. So when you test the “supply leads the market” idea, 2008 is a false positive. However, even when you strip that period out, the two genuine euphoric supply surges both led to pain.

The valuation backdrop is what raises the stakes. As of early June 2026, the Shiller CAPE sits around 42. That’s roughly 28% above its own long-term average and within a few points of the all-time record set at the 2000 peak. This is not a cheap market by any means, especially when absorbing new equity supply. In other words, investors are faced with the second-most-expensive market in history, being asked to digest the heaviest issuance calendar on record.

Look at that bottom row. The broad index drawdowns were bad. The damage to the newly issued securities was far worse. As of late 2022, the SPAC class that merged between mid-2020 and the end of 2021 had fallen more than 60% from its reference price and underperformed the Nasdaq by 44%. The primary market itself seized up, global IPO value dropped 72% in 2022, and the Americas hit a 13-year low by volume. The people who bought the supply at the top paid the heaviest price.

Heavy equity supply doesn’t sink markets through mechanics. It shows up precisely when valuations are richest and buyers are most willing to pay any price. The supply is the tell, not the cause.

The Counterargument: Why This Time Could Be Different

Could this time be different? Sure, and the argument isn’t entirely without merit, and three points deserve a fair hearing.

  1. The Fed is easing rather than tightening, which is the opposite of the 2000 and 2022 backdrops.
  2. The companies in this pipeline are real businesses with real revenue, not the cash-shell SPACs and clickless dot-coms of prior bubbles. Databricks alone reported a revenue run rate of over $4.8 billion, growing 55% year over year. 
  3. And the sheer size of names like SpaceX means index funds may become forced buyers once they’re added, providing a steady passive bid the 2021 micro-caps never had.

We discussed that third point recently in the #BullBearReport:

“The Nasdaq 100 is tracked by more than 200 investment products with over $600 billion in assets. If SpaceX fast-tracks into the index 15 trading days after pricing, every passive Nasdaq 100 fund becomes a forced buyer. When Tesla joined the S&P 500 in 2020, forced index demand drove the stock from $400 to $700 in three weeks before fundamentals entered the conversation. Index funds had no choice. Their mandate is to track the benchmark, not to price-discover the new constituent.

The S&P 500 is the bigger story. Current rules require 12 months of public trading and four straight quarters of GAAP profitability, neither of which SpaceX satisfies. But in late April, S&P Dow Jones Indices launched a formal consultation on rule changes tailored to the SpaceX IPO, along with subsequent blockbusters coming like Anthropic and OpenAI. The proposal cuts the listing requirement to six months and waives the profitability test entirely for megacap names. The new rules could be in place before SpaceX’s IPO in June. Why is this so important? As noted above, the passive index problem is magnified by the S&P 500, which is benchmarked to roughly $24 trillion and is roughly 40 times the size of the Nasdaq 100. If S&P adopts before SpaceX trades, the forced-buying problem isn’t a Nasdaq problem. It’s the whole index complex.”

Those are valid. Here’s the problem with leaning on them too hard. Quality doesn’t repeal supply and demand. A great company sold at the wrong price is still a bad investment, and the dot-com leaders weren’t all frauds. Cisco was a fantastic business in 2000. It still fell about 80% and took 17 years to reclaim its high. The AI buildout is REAL. The question, as always, is what price you pay for it. As Bob Farrell’s Rule #9 reminds us, when everyone agrees on the outcome, something else usually happens. Right now, nearly everyone agrees 2026 is a layup for new issues.

Then there’s the concentration. With AI-adjacent names making up the overwhelming share of the pipeline, a single bad print on AI capex economics could compress every one of these deals at once. In 2021, the supply was spread across hundreds of unrelated shells. This time, it’s a handful of correlated bets riding the same narrative. That’s not obviously safer. It may be the opposite.

What It Means for Investors

So what do you actually do with this?

First, don’t confuse a warning sign with a sell signal. Farrell’s Rule #4 cuts the other way: exponential markets usually run further than anyone expects before they break. The supply surge is a late-cycle marker, not a timing tool. Markets at records with nine straight up weeks can stay irrational longer than most portfolios can stay short.

Second, separate the index from the issue. The clearest historical lesson is that the freshly issued paper, not the S&P, takes the worst of it. Chasing the IPO pop has been a losing trade for 25 years. The better setup tends to come later, after the lockup wave forces motivated sellers into the tape and prices reset. Patience with the new names usually pays.

Third, treat this as a reason to raise quality and trim the most speculative AI exposure back toward its target weight, rather than abandoning equities altogether. The reality is that risk management means acting before the catalyst, not after. When the equity supply finally clears and the marginal buyer is exhausted, the move tends to be fast. You want to have made your adjustments while the tape was still calm.

My reader’s instinct holds up. Voluntary equity supply surges have marked the last two major tops, and the one forming now is the largest on record by a wide margin. Whether 2026 rhymes with the slow grind of 2000 or just delivers a sharp 2022-style air pocket, the setup rewards discipline over FOMO. The supply is coming. The only open question is who’s left holding it when the music stops.

Tyler Durden Mon, 06/08/2026 - 10:50

Former Biden J6 Prosecutor's ActBlue-Funded Firm Sues To Stop Trump's UFC White House Event

Zero Hedge -

Former Biden J6 Prosecutor's ActBlue-Funded Firm Sues To Stop Trump's UFC White House Event

A federal lawsuit filed over the weekend seeks to halt the UFC "Freedom 250" event scheduled for June 14 on the White House South Lawn. The suit was brought by the Public Integrity Project - which is funded in part by ActBlue - on behalf of two Virginia residents and targets the Department of the Interior and National Park Service.

Brendan Ballou, founder and CEO of the Public Integrity Project - and is perhaps most notably a former federal prosecutor who served in the Department of Justice during the Biden administration. He worked in the Antitrust Division as Special Counsel for Private Equity and was detailed for two years to the team prosecuting January 6 Capitol rioters. He resigned from DOJ after President Trump issued pardons for many January 6 defendants in January 2025.

The complaint alleges the event violates federal regulations by staging a private sporting event on federal parkland (generally prohibited by National Park Service rules), constructing a large temporary structure ("the claw") without required congressional approval, and failing to conduct an environmental review under the National Environmental Policy Act (NEPA), ESPN reports.

The plaintiffs argue the event is a private commercial venture benefiting UFC, Dana White, and President Trump (including through sponsorship packages reportedly priced at $1–1.5 million and potential promotional value), rather than a legitimate government-sponsored semiquincentennial celebration. They are seeking an emergency preliminary injunction.

Ballou has described the event as "a profound misuse of our sacred national monuments for private gain" and a "deeply corrupt scheme."

Also Biden folks...

PIP

The Public Integrity Project is a relatively new public-interest law firm Ballou founded in January 2026 after leaving government. It describes its mission as raising the legal and reputational cost of corruption. The organization has far-left affiliations (including figures such as former Sen. Russ Feingold) and solicits donations through ActBlue. It has filed other lawsuits challenging Trump administration actions since its formation.

The legal claims rest on standard administrative and environmental law arguments about permitting, construction on federal land, and procedural requirements. Similar procedural challenges to events or construction on federal property have been filed against multiple administrations. Whether this suit succeeds will depend on the court's rulings on standing and the merits of the regulatory claims.

The UFC event is set for June 14, coinciding with President Trump's 80th birthday and America 250 commemorations. A ruling on the emergency injunction request is expected this week.

President Camacho wouldn't stand for this... 

Tyler Durden Mon, 06/08/2026 - 10:35

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