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welcome back to Wall Street week we are joined today by Bill Miller and Bill you have plenty of ideas people want to know how you're allocating Capital what do you want to do if you're looking longterm five years out how do you want to allocate money in this market well we're we're value investors which means we're looking for things that traded a discount to what we believe their intrinsic value is and so our big positions right now are in uh things like Airlines uh housing financials and uh scattered Tech but there's a there's a wide a wide variety of names down it's more important I think in this kind of Market what you want to avoid and I think I'd want to avoid the kind of stuff I maybe mentioned earlier which would be utilities and Telecom and the stuff that are bond proxies that are perceived to be safe because we've had a 35-year bull market in in bonds which which succeeded a 35 year bare Market in bonds from 1946 to 1981 and I happen to believe we're probably at the end of that bull market in bonds and the and the trend of rates is going to be higher which will be very bad for those those perceived safe names one of your names that some of your friends like bu it don't necessarily like is they don't like technology as Amazon uh tell our viewers why you're such a big bowl on Amazon and you've been consistently right on this stuff yeah what probably the best investment decision I made was to buy Amazon on the IPO and the worst decision was ever to sell any Amazon when it came public at it a 400 million doll market cap and now it's got a $360 billion what a score that was so smart yeah well it wasn't smart to sell it because the Amazon fish would now be bigger than the entire fund bigger than the entire fund is and in fact with respect to with respect to Warren somebody I asked him the other a few weeks about this and he said he said I can't out Bezos Bezos in the sense they asking about Walmart versus versus Amazon and so I think I think Amazon is unique and that first of all people have misunderstood it for most of its history um claiming that it didn't make any money when it actually just didn't report Gap accounting profits which is a very different thing from not making any money but one of the things right now at Amazon compared to Great companies like Facebook and Google for example is that Amazon's addressable Market is so much larger I me Google and Facebook are fighting over the global ad Market about $500 billion and Amazon is attacking the the global retail Market which is trillions and trillions of dollars as well as then the corporate and the Enterprise computation market and the cloud where the by far the dominant uh company so even with a $360 billion market cap we think that's a company that can double or triple over the next 5 to 10 years what is the most unique thing about Jeff bezos's management style that enabled him to execute this plan um I'd say that he is relentlessly rational uh everything is data driven in there and and most importantly he's got his the the thing focus on the right thing which is delivering value to the customers and one of the things that Jeff did even with something like Amazon Prime is start out with Amazon Prime and then you keep G giving more and more things to the the prime uh customers and then you raise the price after you after you deliver a lot of value and so Maria you're an Amazon user yeah I am yeah but but what you say is really important that it's this huge addressable Market that's the reason Walmart acquired jet.com they're all you know scrambling to compete with Amazon which as far as I can tell is a terrible deal but okay but my question really is a lot of the things that you're invested in are economically sensitive right you're talking about the airlines you're talking about Amazon and that's a retail play among other plays does that change if in fact the economy does take a downturn what if we do say a recession does that dictate how you're going to invest not not really because we're not we're looking to say we believe the economy is going to grow we're not going to grow and so we're not reasoning from the macro to the micro part of what we like to do is Ian we think the airlines right now are already discounting uh a recession uh we think that industry is fundamentally uh and and permanently changed now that's a that's a minority opinion right now but uh clearly the evidence supports the fact that the company's economics are radically different from what they used to be so we happen to believe if you had a recession equal to the recession that we had last time around the Delta Airlines for example would still be profitable which never happened before in history so so what they do what was the cons uh two things consolidation yeah so prior to the prior to the uh the early consolidation of Delta and Northwest the largest market share that a domestic carrier had was around 12% and now the top four carriers have 85% of the uh of the business and so in a in a commod an Airlines were the worst industry probably in the history of the world to ever try and invest in because they're Capital intensive right they're unionized they're they're they're fuel intensive heavily regulated they're heavily regulated ated they have high operational and financial leverage and so when you have in a commodity business so when you have that and you have very small market shares it it's a it's a recipe for serial bankruptcies and price warwards what we had but now you had that consolidation and second the the compensation uh systems for all the major airlines are focused on return on invested Capital that's never happened before either so you see much more discipline in capital than you ever used to see what about financials let's talk financials for a moment because we know that they've been hammered regulatory environment's going to get worse how how do you make the case to buy a financial right now well first of all financials are a very very broad category okay let's talk Banks okay so take the Big B we we own JP Morgan we own City we own Bank of America so we own the big three Banks and they've been laggers in this market they've been laggers for several years for the reasons that you the reasons that you mentioned but on a valuation basis they now they are now as cheap relative to the market as they've been and and 90% of the time then they've outperformed from those levels of valuation and maybe even more importantly if you look if you take something like a a JP Morgan what what Banks can do is they can adapt they can use technology they can they can cut their costs so they are already the capital positions are the strongest they've ever been and I think I expect JP Morgan will probably continue to cut cost by about a billion dollars a year for the next several years and then flipping that over if rates ever do go up because of the new requirements and liquidity requirements a federal funds rate of 1 uh perc would be would generate four to five billion dollars of new pre-tax profits for JP Morgan and Bank America that's incredible it's a it's doesn't happen they'll they'll raise the dividends in buyback stock every year that's incredible
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