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What if I told you that the 
company's building the future of

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artificial intelligence, the 
ones that are supposedly, you 

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know, changing human history and
dominating the news cycle right 

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now? 
What if they're quietly getting 

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crushed by the exact same boring
math that dictates your monthly 

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credit card bill? 
Yeah, it's a completely 

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different narrative than what 
you see on TV, right? 

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Exactly. 
So today we're looking right 

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past all the AI hype. 
We're doing a deep dive into 

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this massive data dump from a 
recent market wrap by the 

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investor Steve Iseman. 
And this source material 

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outlines shifting market 
narratives, spiking debt yields,

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and just a whole slew of recent 
corporate earnings reports. 

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It really is a phenomenal 
collection of data, but you 

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know, raw data alone isn't 
enough for us. 

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Our goal today is to filter this
entire avalanche of information 

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for you through a very strict 
Benjamin Graham and Warren 

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Buffett style deep value lens. 
Right, because we don't care 

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about the shiny stories. 
Exactly. 

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We are stripping away those 
shiny narratives and hunting for

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the absolute truth about a 
company's owner earnings. 

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We really want to know how 
durable their business modes 

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actually are, how management is 
allocating capital, and maybe 

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most importantly, where the real
margin of safety lies in a 

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market that frankly feels 
increasingly disconnected from 

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reality. 
OK, let's unpack this. 

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Because if you're holding a 
broad S&P index fund right now, 

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you might be looking at some of 
these top line tech revenues and

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feeling pretty great about your 
retirement. 

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But as we get into this, you'll 
see why the biggest take away 

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from our source material isn't 
about what large language models

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can actually do. 
No, not at all, right? 

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It's about how the unforgiving 
math of the fixed income market 

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is quietly dismantling these 
high flying equity stories. 

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Yeah. 
So to understand any business's 

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intrinsic value, you always have
to start at the bedrock of its 

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capital structure. 
I mean, that means looking at 

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sovereign and corporate debt, 
because the cost of borrowing 

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money dictates a business's 
entire reality. 

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And the source actually starts 
by highlighting this fascinating

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divergent at the sovereign 
level, specifically between 

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French and US bonds. 
Yeah, Let's look at the numbers 

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there because they're wild. 
France's debt to GDP ratio has 

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hit 120%. 
And in the macroeconomic world, 

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I mean that is the danger zone 
big time. 

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So because of that massive debt 
load, the premium that investors

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demand just to hold French 10 
year bonds over safer German 

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bonds, it just spiked. 
It went up by 16 basis points to

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175 basis points, which is 
actually the highest level since

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the European sovereign debt 
crisis back in 2011. 

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All right, and for anyone not 
fluent in Bonn speak, a basis 

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point is just 100th of a 
percentage point. 

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So 175 basis points spread 
basically means France has to 

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pay 1.75% more in interest than 
Germany just to convince people 

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to lend the money. 
Which sounds small, but it's 

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really not. 
Oh, it's huge. 

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When you're rolling over 
billions of dollars of national 

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debt, that tiny fraction of a 
percent represents A 

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catastrophic drain on a 
country's budget. 

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But, and here is the critical 
value investing lesson about 

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what we'd call a macro mode. 
By pure numerical logic, the 

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United States should be in the 
exact same crisis. 

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The US debt to GDP ratio is also
sitting right around 120%. 

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Wait, so why isn't the bond 
market punishing the US the way 

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it's punishing France? 
Well, because the US dollar 

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enjoys A structural monopoly on 
global liquidity, it's the 

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global reserve currency, right? 
So the entire international 

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financial system, we're talking 
trade, cross-border banking, 

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commodity pricing, it all 
functions on U.S. 

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Treasuries. 
Wow, so they're kind of trapped 

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into using it. 
Exactly. 

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Major institutions worldwide are
practically forced to own U.S. 

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debt just to do business. 
Absolutely no one is forced to 

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own French sovereign bonds. 
So that right there that is a 

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macro mote. 
OK, so the US has this 

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incredible structural 
protection, but when we step 

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down from, you know, the luxury 
of sovereign debt into the 

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reality of corporate debt, 
specifically in the AI sector, 

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that structural protection just 
vanishes. 

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The math gets brutal really 
quickly. 

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Oh, it really does. 
Yeah, the source points to this 

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neocloud company called Cor 
Weave. 

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They're a major player in 
building out AI data centers, 

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and they just saw the cost of 
their debt climb dramatically 

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from a 9% yield up to a 15% 
yield. 

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What's fascinating here is that 
that is the exact number that 

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should stop every single 
investor in their tracks. 

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I mean a 15% cost of debt 
doesn't just like slow down 

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growth, it completely 
annihilates your future free 

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cash flow. 
How so? 

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Like, break that down for us. 
Well, in Dee value investing, 

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intrinsic value is basically 
just the discounted value of the

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cash that can be taken out of a 
business during its remaining 

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life O Let's look at the actual 
mechanism here. 

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If you borrow a billion dollars 
at a 15% interest rate to build 

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an AI data center, you have to 
generate $150 million in pure 

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bottom line cash profit every 
single year just to pay the 

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00:05:03,840 --> 00:05:04,800
interest. 
Just the interest. 

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00:05:04,800 --> 00:05:06,640
Just the interest. 
You haven't paid down a single 

100
00:05:06,640 --> 00:05:09,720
cent of the actual loan and you 
definitely haven't made a dime 

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00:05:09,720 --> 00:05:12,840
for your shareholders. 
So the returns you need to 

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generate just to break even, 
They become astronomical. 

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I do have to challenge that 
premise a bit though. 

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I mean, history shows us that in
technology it's basically a 

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winner take all game, right? 
If Core Weave stops building 

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because the debt is too 
expensive, won't Amazon or 

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Microsoft just crush them? 
Aren't these companies 

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essentially forced to take that 
15% debt just to survive the AI 

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arms race? 
Because equity investors seem to

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be happily buying that growth 
story regardless of the capital 

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intensity. 
Oh, they certainly are, but 

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you're highlighting the exact 
trap that value investors try to

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avoid. 
As the source brilliantly puts 

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it, equity investors love 
stories, but fixed income 

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investors care about math. 
Math doesn't lie. 

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Right. 
You cannot convince a bond 

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market to lend to you at a low 
rate just because you have this 

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terrifying story about your 
competitors beating you in the 

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AI race. 
The bond market is entirely 

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agnostic to your fear of missing
out. 

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You know it demands to see 
predictable cash flows. 

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Makes sense? 
So if a major player like Core 

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Weave is raising debt at 15%, 
that sets a benchmark for the 

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entire industry, Basically means
the underlying economics of 

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building AI infrastructure are 
deteriorating rapidly. 

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So that tension between a 
visionary story and harsh 

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financial reality, I mean, that 
brings us to the ultimate case 

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study in capital allocation. 
We have to talk about Elon 

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Musk's empire. 
Oh yeah, we definitely do. 

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If we're hunting for true owner 
earnings, the recent numbers 

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00:06:42,680 --> 00:06:46,040
from SpaceX and Tesla are just a
master class in why you really 

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have to read the fine print. 
So let's look at SpaceX first. 

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If you just glance at the top 
line, it's pretty mind blowing. 

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Total revenue was up 161% year 
over year. 

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00:06:55,520 --> 00:06:58,440
That's a massive jump. 
Massive the space division, hit 

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$1.8 billion. 
Starlink, their satellite 

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00:07:01,360 --> 00:07:05,320
Internet business, hit 5.2 
billion with a crazy 2.4 billion

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00:07:05,320 --> 00:07:07,680
in profit. 
And their superintelligence 

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00:07:07,680 --> 00:07:11,080
division, which houses things 
like the Grok AI, that jumped to

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over 7.6 billion in revenue with
a positive $431 million in 

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00:07:15,840 --> 00:07:16,640
profit. 
Sure. 

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00:07:16,640 --> 00:07:18,920
And on the surface, that looks 
like an unstoppable growth 

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engine, right? 
But when we apply that Warren 

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Buffett lens, we have to 
aggressively ignore the top line

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00:07:25,040 --> 00:07:27,960
and hunt for the capital 
expenditures, the CapEx. 

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Because CapEx is the money a 
company has to spend on physical

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assets just to like maintain or 
grow its business, right? 

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00:07:34,640 --> 00:07:37,840
Exactly. 
And CapEx eats free cash flow 

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for breakfast. 
So the source points out this 

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glaring red flag. 
Spacex's total CapEx for the 

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quarter was an unbelievable 
$29.6 billion. 

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00:07:48,760 --> 00:07:53,880
Wait, almost 30 billion in 1/4? 
Yeah, that is up 185% from the 

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previous quarter. 
And on top of that, there's star

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based facility down in Louisiana
has a projected $100 billion 

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budget. 
OK. 

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00:08:01,880 --> 00:08:05,600
So they're pulling in billions 
in revenue, but they are 

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00:08:05,600 --> 00:08:08,400
shoveling 10s of billions out 
the door just to build the 

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physical infrastructure. 
Precisely. 

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And look at the underlying 
mechanics of what they're 

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actually building. 
Starlink was originally pitched 

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to investors as this ultimate 
cash cow, a high margin business

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that would basically fund the 
mission to Mars. 

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Right, that was always the 
story. 

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But now Starlink is pivoting to 
compete directly with major 

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mobile carriers like T-Mobile. 
Competing in global 

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telecommunications means putting
heavy hardware absolutely 

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everywhere. 
So it's transforming Starlink 

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from a cash generator into a 
massive cash drain. 

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To fund this, SpaceX is going to
have to raise billions in 

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capital. 
And as we just established with 

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Core Weave, raising capital for 
heavy infrastructure right now 

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is painfully expensive. 
Wow. 

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OK, so while SpaceX is burning 
through cash to build the 

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future, Tesla seems to be 
hitting a pretty hard wall in 

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the present. 
According to the source, Tesla's

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total revenue growth was exactly
0%. 

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00:09:02,640 --> 00:09:03,520
Ouch. 
Yeah. 

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The automotive business, which 
is what actually makes the cars,

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that was down 1% to $20.5 
billion. 

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Energy generation was down 16%. 
Earnings per share dropped 4% to

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$0.48. 
The only thing keeping the top 

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line completely flat was their 
services division, which grew 

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00:09:22,360 --> 00:09:26,560
33% to 4.6 billion. 
You know for a company that the 

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market prices as this hyper 
growth tech innovator, 0% 

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revenue growth is a structural 
crisis. 

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00:09:33,400 --> 00:09:36,280
I mean, the core automotive 
division is actively losing 

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00:09:36,280 --> 00:09:39,200
market share to really 
aggressive Chinese EV 

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manufacturers. 
Yeah, they're facing huge 

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competition there. 
And so, to justify its current 

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00:09:43,160 --> 00:09:46,400
stock price, Tesla's narrative 
entirely hinges on solving 

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00:09:46,400 --> 00:09:48,960
autonomous driving. 
But the source notes that 

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00:09:49,120 --> 00:09:52,480
despite all the promises, there 
is no real indication of 

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00:09:52,480 --> 00:09:54,720
imminent scalable success in 
that area. 

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00:09:54,880 --> 00:09:58,120
Which makes the recent news out 
of Elon Musk's camp absolutely 

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00:09:58,120 --> 00:10:00,160
wild to me. 
He just disclosed that a 

196
00:10:00,160 --> 00:10:03,400
committee was formed to discuss 
merging Tesla with SpaceX. 

197
00:10:03,800 --> 00:10:06,760
And from a value investing 
standpoint, I mean combining a 

198
00:10:06,760 --> 00:10:09,920
cash burning space company with 
a stalling automotive company. 

199
00:10:10,280 --> 00:10:12,760
It sounds like tying 2 heavy 
rocks together and just hoping 

200
00:10:12,760 --> 00:10:15,040
they float. 
How does merging 2 capital 

201
00:10:15,040 --> 00:10:16,680
intensive businesses solve 
anything? 

202
00:10:17,000 --> 00:10:20,520
Well, a disciplined value 
investor always has to steal man

203
00:10:20,520 --> 00:10:22,680
both sides of an argument, 
right? 

204
00:10:23,160 --> 00:10:25,200
So let's look at the bulk case 
for this merger. 

205
00:10:25,680 --> 00:10:29,000
The visionary story. 
The idea is that it creates an 

206
00:10:29,040 --> 00:10:32,040
unparalleled, vertically 
integrated compute and AI 

207
00:10:32,040 --> 00:10:36,560
infrastructure giant. 
You combine Tesla's AI hardware,

208
00:10:36,680 --> 00:10:40,400
battery tech and robotics with 
Spacex's massive data centres 

209
00:10:40,600 --> 00:10:42,240
and global satellite 
connectivity. 

210
00:10:42,520 --> 00:10:46,040
Basically you build this closed 
loop tech ecosystem. 

211
00:10:46,480 --> 00:10:49,960
OK, I see the story, but I'm 
guessing the deep value bear 

212
00:10:49,960 --> 00:10:51,800
case is far less romantic than 
that. 

213
00:10:52,080 --> 00:10:54,520
Oh, absolutely. 
The bear case is that this is 

214
00:10:54,520 --> 00:10:57,200
the ultimate example of what 
legendary investor Peter Lynch 

215
00:10:57,200 --> 00:11:00,280
called diversification. 
Diversification. 

216
00:11:00,320 --> 00:11:01,640
Right. 
Yeah, merging for the sake of 

217
00:11:01,640 --> 00:11:05,040
empire building rather than any 
real economic synergy. 

218
00:11:05,320 --> 00:11:08,200
You're taking a highly capital 
intensive space in AI business 

219
00:11:08,520 --> 00:11:12,000
that desperately needs cash and 
merging it with a 0 growth 

220
00:11:12,000 --> 00:11:14,480
automotive business that's 
struggling to defend its own 

221
00:11:14,480 --> 00:11:16,880
turf. 
So it just muddies the waters. 

222
00:11:17,160 --> 00:11:19,040
Exactly. 
For an investor trying to 

223
00:11:19,040 --> 00:11:22,600
calculate intrinsic value, this 
is a nightmare scenario. 

224
00:11:23,200 --> 00:11:25,160
It creates an incredibly opaque 
entity. 

225
00:11:25,520 --> 00:11:28,120
It completely destroys your 
margin of safety because it 

226
00:11:28,120 --> 00:11:31,240
ruins your visibility into the 
true free cash flow of the 

227
00:11:31,240 --> 00:11:33,880
underlying businesses. 
You can no longer tell which 

228
00:11:33,880 --> 00:11:36,880
division is subsidizing the 
massive losses of the other. 

229
00:11:37,040 --> 00:11:40,600
Yeah, that is a huge red flag. 
Well, let's shift from digital 

230
00:11:40,600 --> 00:11:43,960
empires in space to digital 
empires here on Earth, because 

231
00:11:43,960 --> 00:11:47,840
Meta is also bleeding cash to 
build an AI mode, and the sheer 

232
00:11:47,840 --> 00:11:50,840
scale of their spending is just 
hard to comprehend. 

233
00:11:50,920 --> 00:11:52,920
It really is. 
Here's where it gets really 

234
00:11:52,920 --> 00:11:55,440
interesting. 
On the surface, Meta had a 

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00:11:55,440 --> 00:11:59,480
blowout quarter. 
Revenue hit $64.6 billion, which

236
00:11:59,480 --> 00:12:03,320
is up 26% year over year. 
And crucially, their average 

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00:12:03,320 --> 00:12:06,280
price per ad was up 14%. 
Wow. 

238
00:12:06,440 --> 00:12:08,680
Yeah, that is incredible pricing
power, right? 

239
00:12:09,080 --> 00:12:11,880
Advertisers are willing to pay 
significantly more for the exact

240
00:12:11,880 --> 00:12:15,080
same inventory. 
And that pricing power, that is 

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00:12:15,080 --> 00:12:16,760
the hallmark of a truly great 
business. 

242
00:12:17,520 --> 00:12:20,400
But again, we have to follow the
math all the way down the income

243
00:12:20,400 --> 00:12:23,520
statement. 
While Meta's revenue grew 26%, 

244
00:12:23,960 --> 00:12:28,160
their costs increased by a 
staggering 68%. 

245
00:12:28,520 --> 00:12:31,200
Oh wow. 
Yeah, and the most jaw-dropping 

246
00:12:31,200 --> 00:12:34,120
figure from the source, the one 
that should honestly terrify any

247
00:12:34,120 --> 00:12:37,520
long term holder, is that Meta 
has formally agreed to spend 

248
00:12:37,560 --> 00:12:43,160
$825 billion in the future on 
leases and contracts, primarily 

249
00:12:43,160 --> 00:12:45,080
for AI infrastructure and 
computing power. 

250
00:12:45,760 --> 00:12:51,280
Wait, $825 billion? 
That's almost a trillion dollars

251
00:12:51,280 --> 00:12:55,240
in future liabilities just to 
try and stay relevant in the AI 

252
00:12:55,240 --> 00:12:56,240
race. 
Yep. 

253
00:12:57,040 --> 00:12:59,480
I mean it's like taking out a 
trillion dollar mortgage to buy 

254
00:12:59,480 --> 00:13:02,640
a massive fleet of delivery 
trucks, but knowing the trucks 

255
00:13:02,640 --> 00:13:05,680
will be completely obsolete in 
two years, and worse, knowing 

256
00:13:05,680 --> 00:13:08,160
that anyone else can just 
download the blueprints to build

257
00:13:08,160 --> 00:13:11,400
their own trucks for free. 
That is the perfect analogy, and

258
00:13:11,400 --> 00:13:14,360
that is exactly why the source 
concludes that Despite that 

259
00:13:14,360 --> 00:13:17,600
massive ad revenue, Meta 
effectively no longer has any 

260
00:13:17,600 --> 00:13:20,960
positive cash flow when you 
factor in these looming gigantic

261
00:13:20,960 --> 00:13:23,440
commitments. 
That's insane for a company that

262
00:13:23,440 --> 00:13:25,360
size. 
It is you have to ask the 

263
00:13:25,360 --> 00:13:29,120
fundamental Buffett question, is
this capital allocation actually

264
00:13:29,120 --> 00:13:31,120
building a durable economic 
mode? 

265
00:13:31,800 --> 00:13:34,440
And the source makes a very 
compelling argument that large 

266
00:13:34,440 --> 00:13:38,400
language models and agentic AI 
applications currently have zero

267
00:13:38,400 --> 00:13:40,080
mode. 
Because it's all moving too 

268
00:13:40,080 --> 00:13:41,520
fast. 
Exactly. 

269
00:13:41,520 --> 00:13:44,640
The technology is advancing so 
rapidly and open source 

270
00:13:44,640 --> 00:13:48,080
alternatives are so abundant 
that any breakthrough you make 

271
00:13:48,080 --> 00:13:50,120
is commoditized almost 
instantly. 

272
00:13:50,960 --> 00:13:53,720
If you are committing hundreds 
of billions of dollars to lease 

273
00:13:54,000 --> 00:13:57,320
depreciating hardware for a 
moatless product, you are 

274
00:13:57,320 --> 00:13:59,880
systematically destroying owner 
earnings. 

275
00:14:00,480 --> 00:14:04,320
Man, it sounds a lot like the 
cautionary tale of IBM, which 

276
00:14:04,320 --> 00:14:06,080
our source also touches on 
briefly. 

277
00:14:06,720 --> 00:14:09,840
IBM reported a pretty paltry 5% 
revenue growth. 

278
00:14:10,040 --> 00:14:13,760
I mean, they still command a 
$240 billion market cap, but 

279
00:14:13,760 --> 00:14:16,560
they've essentially morphed into
just a software and tech 

280
00:14:16,560 --> 00:14:20,240
consulting firm, right? 
And they are at massive risk of 

281
00:14:20,240 --> 00:14:24,560
being entirely disintermediated 
by the very AI tools Meta is 

282
00:14:24,560 --> 00:14:26,280
building. 
They went from being the 

283
00:14:26,360 --> 00:14:29,800
absolute bedrock of the tech 
world to a company that 

284
00:14:30,200 --> 00:14:32,000
basically lost its Moat 
completely. 

285
00:14:32,520 --> 00:14:35,200
Yeah, IBM is the ghost of tech 
future for companies that 

286
00:14:35,200 --> 00:14:38,080
misallocate capital during a 
major technological shift. 

287
00:14:38,400 --> 00:14:40,440
But you know, it's not just the 
digital tech moats that are 

288
00:14:40,440 --> 00:14:42,840
under siege right now. 
We're seeing traditional 

289
00:14:42,840 --> 00:14:46,040
physical infrastructure modes 
bleeding cash just to survive 

290
00:14:46,040 --> 00:14:49,200
this new environment of high 
interest rates and bizarre new 

291
00:14:49,200 --> 00:14:51,760
competition. 
Yeah, the source playfully calls

292
00:14:51,760 --> 00:14:53,880
this the Telepocalypse, which I 
love. 

293
00:14:54,200 --> 00:14:57,080
Look at the telecom sector. 
AT&T actually posted pretty 

294
00:14:57,080 --> 00:15:00,160
decent numbers. 
Earnings per share were up 20% 

295
00:15:00,160 --> 00:15:03,320
to $0.65, and revenue grew by 
5.3%. 

296
00:15:03,840 --> 00:15:07,960
But the stock absolutely tanked,
dragging giants like T-Mobile 

297
00:15:07,960 --> 00:15:10,200
and Verizon right down with it. 
And why did that happen? 

298
00:15:10,920 --> 00:15:13,880
The catalyst was that Elon Musk 
reaffirmed his intentions to 

299
00:15:13,880 --> 00:15:17,280
establish Starlink as a fourth 
major mobile operator in the US,

300
00:15:17,800 --> 00:15:20,600
and even traditional cable 
monopolies like Comcast are 

301
00:15:20,600 --> 00:15:24,000
feeling the heat. 
They lost 144,000 broadband 

302
00:15:24,000 --> 00:15:26,640
subscribers in the quarter. 
What you're witnessing there is 

303
00:15:26,640 --> 00:15:30,000
a narrative shift violently 
attacking a traditional 

304
00:15:30,000 --> 00:15:32,560
oligopoly. 
I mean, for decades telecoms 

305
00:15:32,560 --> 00:15:35,040
were the ultimate dividend 
paying value stocks because 

306
00:15:35,520 --> 00:15:38,440
their moats, the physical wires 
in the ground and the cellular 

307
00:15:38,440 --> 00:15:41,320
towers we're just too 
unbelievably expensive for any 

308
00:15:41,320 --> 00:15:44,400
new competitor to replicate. 
You couldn't just build a new 

309
00:15:44,400 --> 00:15:46,160
AT&T. 
Exactly. 

310
00:15:46,640 --> 00:15:49,000
But the market is now pricing in
the reality that AT&T and 

311
00:15:49,000 --> 00:15:51,600
Verizon are going to have to 
massively increase their own 

312
00:15:51,600 --> 00:15:54,680
capital expenditures just to 
defend their existing turf 

313
00:15:55,040 --> 00:15:57,520
against a competitor who is 
beaming Internet down from 

314
00:15:57,520 --> 00:15:58,640
space. 
Right. 

315
00:15:58,880 --> 00:16:02,400
Speaking of oligopolies tethered
to Macromath, the source also 

316
00:16:02,400 --> 00:16:05,240
dissects the financial 
gatekeepers, specifically 

317
00:16:05,240 --> 00:16:08,200
Moody's and Equifax. 
Moody's operates one of the 

318
00:16:08,200 --> 00:16:12,040
widest, most impenetrable moats 
in the entire global financial 

319
00:16:12,040 --> 00:16:13,360
system. 
Unquestionably. 

320
00:16:13,400 --> 00:16:17,440
Yet their earnings per share of 
$4.14 actually missed Wall 

321
00:16:17,440 --> 00:16:19,800
Street estimates. 
I mean, it was technically up 

322
00:16:19,800 --> 00:16:24,000
from $3.60 last year, but their 
core ratings business revenue 

323
00:16:24,000 --> 00:16:27,880
actually declined by 1%. 
How does a literal monopoly lose

324
00:16:27,880 --> 00:16:29,680
revenue? 
Well, it comes right back to the

325
00:16:29,680 --> 00:16:31,840
interest rate mechanism we 
discussed at the very beginning 

326
00:16:31,840 --> 00:16:34,720
of this deep dive. 
Moody's business model is 

327
00:16:34,960 --> 00:16:38,000
brilliantly simple. 
They get paid a fee every single

328
00:16:38,000 --> 00:16:39,960
time a corporation issues a 
bond. 

329
00:16:40,080 --> 00:16:43,280
OK, but when the Federal Reserve
raises interest rates, money 

330
00:16:43,280 --> 00:16:45,280
becomes very expensive to 
borrow. 

331
00:16:45,840 --> 00:16:48,320
Consequently, corporations delay
issuing new debt. 

332
00:16:48,800 --> 00:16:52,040
Fewer bonds issued means Moody's
rates fewer bonds, which means 

333
00:16:52,040 --> 00:16:55,080
their revenue drops. 
So their Moat is completely 

334
00:16:55,080 --> 00:16:56,760
intact. 
I mean, no one is launching a 

335
00:16:56,760 --> 00:16:59,680
start up in their garage to 
compete with Moody's, but their 

336
00:16:59,680 --> 00:17:02,800
owner earnings are entirely 
tethered to the reality of the 

337
00:17:02,800 --> 00:17:05,280
interest rate cycle. 
That makes total sense. 

338
00:17:06,040 --> 00:17:09,599
And Equifax is facing kind of a 
different structural threat, 

339
00:17:09,599 --> 00:17:11,760
right? 
They posted a decent quarter 

340
00:17:11,839 --> 00:17:16,440
with US mortgage revenue up 15% 
and overall revenue up 10%. 

341
00:17:16,800 --> 00:17:19,720
But their stock is struggling 
because federal regulators are 

342
00:17:19,800 --> 00:17:22,200
actively targeting the credit 
scoring system. 

343
00:17:22,440 --> 00:17:24,560
Yeah, they're trying to 
dismantle Equifax's pricing 

344
00:17:24,560 --> 00:17:28,000
power by mandate, which is a 
huge external risk you always 

345
00:17:28,000 --> 00:17:29,760
have to factor into intrinsic 
value. 

346
00:17:29,920 --> 00:17:33,280
Right, which brings us perfectly
to the ultimate traditional 

347
00:17:33,280 --> 00:17:36,480
asset, the one most heavily 
impacted by interest rates, 

348
00:17:36,800 --> 00:17:38,440
housing. 
Oh boy, yeah. 

349
00:17:39,280 --> 00:17:42,440
The Home Builder NVR is widely 
considered a bellwether for the 

350
00:17:42,440 --> 00:17:45,000
real estate market. 
They just saw their earnings per

351
00:17:45,000 --> 00:17:50,440
share drop 20% to $89.45, but 
more importantly, their new 

352
00:17:50,440 --> 00:17:54,080
orders are dropping fast. 
They brought in just under 4400 

353
00:17:54,080 --> 00:17:58,600
orders, missing the estimates of
around 5000 by a wide margin. 

354
00:17:58,840 --> 00:18:00,640
Which is very telling. 
Very. 

355
00:18:01,200 --> 00:18:03,800
So what does this all mean for 
the average person looking at 

356
00:18:03,800 --> 00:18:07,160
real estate as an investment? 
Because the source is incredibly

357
00:18:07,160 --> 00:18:10,280
blunt about what this means for 
housing as a store of value. 

358
00:18:10,640 --> 00:18:14,040
If we connect this to the bigger
picture, it is a pure math 

359
00:18:14,040 --> 00:18:16,680
problem that is entirely broken 
the housing market. 

360
00:18:17,480 --> 00:18:21,080
Mortgage rates are trapped over 
7% During the pandemic. 

361
00:18:21,440 --> 00:18:24,480
You know millions of homeowners 
refinanced into these 3% 

362
00:18:24,480 --> 00:18:27,680
mortgages. 
For a new buyer today to have 

363
00:18:27,680 --> 00:18:31,520
the exact same monthly payment 
as an existing homeowner, the 

364
00:18:31,520 --> 00:18:33,920
actual purchase price of the 
house would have to drop by 

365
00:18:33,920 --> 00:18:35,440
almost half. 
Half. 

366
00:18:36,040 --> 00:18:37,800
That's incredible. 
Yeah. 

367
00:18:38,280 --> 00:18:40,720
And because sellers absolutely 
refuse to take that kind of 

368
00:18:41,000 --> 00:18:44,400
massive loss on the purchase 
price, the market is completely 

369
00:18:44,400 --> 00:18:46,560
frozen. 
Existing home sales are sitting 

370
00:18:46,560 --> 00:18:49,280
at multi decade lows. 
And meanwhile, the carrying 

371
00:18:49,280 --> 00:18:51,600
costs for holding that real 
estate are skyrocketing. 

372
00:18:51,960 --> 00:18:55,200
Insurance premiums are soaring, 
property taxes are way up. 

373
00:18:55,560 --> 00:18:58,560
The source states point blank 
that the days of buying a home 

374
00:18:58,560 --> 00:19:01,040
to build wealth are over, at 
least for the foreseeable 

375
00:19:01,040 --> 00:19:02,800
future. 
It's a harsh reality. 

376
00:19:03,320 --> 00:19:06,480
Their verdict is that housing 
prices will likely fall, and 

377
00:19:06,480 --> 00:19:08,920
buying a house right now is a 
terrible misallocation of 

378
00:19:08,920 --> 00:19:11,920
capital compared to renting. 
Yeah, when the cost of capital, 

379
00:19:12,120 --> 00:19:15,240
meaning your 7% mortgage rate, 
exceeds the realistic 

380
00:19:15,240 --> 00:19:18,720
appreciation of the house, your 
equity is actively being eroded 

381
00:19:18,720 --> 00:19:21,480
every month. 
For a value investor, an asset 

382
00:19:21,480 --> 00:19:23,080
is only worth the cash it 
produces. 

383
00:19:23,480 --> 00:19:26,560
Right now, buying a house at 
peak prices with a 7% mortgage 

384
00:19:26,840 --> 00:19:30,080
while paying soaring insurance 
and taxes, it just produces 

385
00:19:30,080 --> 00:19:32,480
deeply negative owner earnings 
for the buyer. 

386
00:19:32,840 --> 00:19:35,480
Well, we have covered a massive 
landscape today. 

387
00:19:35,480 --> 00:19:38,720
We've gone from the mechanics of
French sovereign debt to Elon 

388
00:19:38,720 --> 00:19:42,720
Musk's huge capital 
expenditures, Meta's $825 

389
00:19:42,720 --> 00:19:46,200
billion AI gamble, and the 
frozen housing market. 

390
00:19:46,920 --> 00:19:51,440
Let's pull all of this together.
If you are a patient deep value 

391
00:19:51,440 --> 00:19:54,800
investor listening to this, what
is the practical take away from 

392
00:19:54,800 --> 00:19:57,880
Steve Josem's Market Wrap? 
The overriding synthesis here is

393
00:19:57,880 --> 00:20:01,200
that we are firmly transitioning
from an equity market driven by 

394
00:20:01,200 --> 00:20:04,520
visionary narratives. 
Back to a market governed by 

395
00:20:04,520 --> 00:20:07,840
fixed income math. 
The math always wins. 

396
00:20:08,160 --> 00:20:11,320
It always does. 
The era of 0 interest free money

397
00:20:11,320 --> 00:20:14,440
is officially over. 
So for the discipline value 

398
00:20:14,440 --> 00:20:18,200
investor, this means you must 
demand a rigorous, undeniable 

399
00:20:18,200 --> 00:20:20,800
margin of safety. 
You really need to avoid 

400
00:20:20,800 --> 00:20:24,920
companies with massive moatless 
capital expenditures, like these

401
00:20:24,920 --> 00:20:28,440
speculative AI data center build
outs that require 15% debt 

402
00:20:28,440 --> 00:20:31,320
yields. 
And you must avoid companies 

403
00:20:31,320 --> 00:20:34,400
with 0 growth models 
masquerading as tech innovators.

404
00:20:34,920 --> 00:20:37,640
So what do you look for instead?
You look for businesses with 

405
00:20:37,640 --> 00:20:40,960
durable, predictable free cash 
flow that isn't being entirely 

406
00:20:40,960 --> 00:20:44,720
consumed just to keep the lights
on and fend off the competition.

407
00:20:45,320 --> 00:20:47,560
And if you want to run these 
numbers and check the math on 

408
00:20:47,560 --> 00:20:50,560
owner earnings and intrinsic 
value yourself, you can grab the

409
00:20:50,560 --> 00:20:53,920
free Deep Values app for iOS. 
You could also check if the 

410
00:20:53,920 --> 00:20:56,880
broader market is overpriced 
using the Buffett Indicator app 

411
00:20:56,880 --> 00:20:59,760
on iOS or the Bubble Watch app 
on Android. 

412
00:20:59,880 --> 00:21:01,240
Highly recommend checking those 
out. 

413
00:21:01,600 --> 00:21:03,360
Yeah. 
And if you want to dive into 

414
00:21:03,440 --> 00:21:07,200
full research reports from our 
multi agent AI analyst, Deep 

415
00:21:07,200 --> 00:21:10,480
Value Intelligence, head over to
Deep values dot AI. 

416
00:21:10,840 --> 00:21:13,200
We've put all those links right 
in the show description for you.

417
00:21:13,440 --> 00:21:16,320
Before we sign off, I want to 
leave you with one final thought

418
00:21:16,320 --> 00:21:19,200
to Mull over, kind of building 
on everything we've discussed 

419
00:21:19,200 --> 00:21:21,480
today about capital allocation 
and moats. 

420
00:21:22,080 --> 00:21:25,040
If the world's biggest tech 
giants are now being forced to 

421
00:21:25,040 --> 00:21:27,920
spend hundreds of billions of 
dollars on physical 

422
00:21:27,920 --> 00:21:30,640
infrastructure and energy just 
to maintain their existing 

423
00:21:30,640 --> 00:21:34,200
market share against each other,
should we stop valuing them as 

424
00:21:34,320 --> 00:21:37,640
high margin software disruptors 
and start pricing them like 

425
00:21:37,720 --> 00:21:39,240
capital heavy utilities? 
Wow. 

426
00:21:40,000 --> 00:21:43,000
That is a phenomenal question 
about the future of tech 

427
00:21:43,000 --> 00:21:46,680
valuations because as we saw 
today, you can build beautiful 

428
00:21:46,680 --> 00:21:49,840
financial castles in the sky 
with a good story, but 

429
00:21:49,840 --> 00:21:53,240
eventually the gravity of fixed 
income math always brings things

430
00:21:53,240 --> 00:21:56,120
back down to earth. 
Thank you for joining us on this

431
00:21:56,120 --> 00:21:58,040
deep dive. 
Keep weighing the numbers. 

432
00:21:58,040 --> 00:22:00,680
Always look for that margin of 
safety and we'll see you next 

433
00:22:00,680 --> 00:22:00,960
time.