Schrödinger’s Equities

0:07Emily Peck: Hello, welcome to Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Bloomberg. I'm here with Elizabeth Spiers, New York Times. Hello. I'm here with Emily Peck of Axios.

0:20Felix Salmon: Hey Felix.

0:21Emily Peck: And we are in 2026. Finally, we have put 2525 behind us. We never need to think about it ever again. And wait, actually, we're going to spend the whole fucking episode talking about 2025. It was a really interesting year. A lot of important things happened. And we just want to talk about what happened in the stock market, which is kind of surprising. What happened in the dealmaking market? What's going on with Berkshire Hathaway? And yeah, maybe if we understand what happened last year, we'll have slightly clearer eyes going into this one. it's a meaty all-encompassing conversation and it is coming up

1:12Elizabeth Spiers: welcome to the new year

1:14Emily Peck: Emily can you can you sum up 2025 in like a noise in your lips I mean I believe the sound was

1:24Felix Salmon: so is that good are we on i feel like we are recording and i want to talk about

1:29Emily Peck: stonks and i want to talk about that take which is a take that i've seen quite a lot which is in any normal world a year where the s &p 500 went up by 19 or whatever it was would be like wow that's amazing this was a great year for the stock market and yet no one seems particularly happy about it. And I think there are two reasons, two main reasons, well, three, if you include Trump, but we don't like talking about Trump around his butt. So two main reasons, which is, number one, that stock market investors just want to make the most amount of money regardless. And it turns out that if you were invested anywhere else in the world, you would have made more.

2:16Emily Peck: So the European stock markets, the Asian stock markets, or even the Brazilian stock markets, They all outperformed America. So America, although it did well in absolute terms, feels like it underperformed the rest of the world. Well, it actually did underperform the rest of the world. And people are like, ooh. And then the other part of it, which we'll get to a little bit later, I'm sure, is the dollar. That, you know, if you're not a dollar-based investor, then most of those gains get wiped out by the decrease in the value of the dollar. So like the stocks go up in dollar terms, but then the dollar goes down in euro terms or in peso terms, whatever.

2:53Emily Peck: And then so like net net your gains in the US seem pretty meh.

2:59Elizabeth Spiers: Well, that and also I think people are a little nervous that the S &P's performance is so heavily dependent on AI.

3:05Felix Salmon: Yeah, I'd say that's another factor there. Everything I read is like, well, if not for AI, the economy would have been much worse last year. If not for AI, the stock market wouldn't have seen any gains. If you take the AI heavy companies out of the stock market, it doesn't look as impressive, et cetera, et cetera.

3:23Emily Peck: Well, I mean, yeah, but like in order to believe that story, you have to consider, you know, Google and Apple to be AI stocks, which I just don't think that they are. I mean, obviously, these companies are trying to move into AI and adopt AI with varying degrees of success. But I really don't think that someone going out there and buying shares of Apple is like, I'm making a bet on AI.

3:48Elizabeth Spiers: I think they are. I mean, not entirely, but all those stocks are very expensive right now. And I think they've gotten more expensive because they're making bets on AI. Not that they wouldn't have been dominating the index in the absence of AI, but I do think it's driven a lot more value for them than if they weren't doing that.

4:07Emily Peck: i think i mean when you're sure but you can elizabeth my point is you can say that about almost any stock right like every company on the in the s &p 500 is out there talking loudly about its ai strategy and how it's going to become much more efficient and productive and yada yada yada because of ai apple included and you can definitely make some kind of a counterfactual case that apple or any other stock would be less expensive were they not out there shouting so loudly about ai die. But that's true of everyone. Wouldn't things like the Russell 2000 would be up more than 12 %? That's why I said S &P 500 and not Russell 2000.

4:46Elizabeth Spiers: But also the Magnificent Seven account for about a third of the growth this year. So if you take them out and then look at the rest of the index, what's the growth level? And would that be normal?

4:56Emily Peck: No, you're absolutely right, Elizabeth. And this is exactly why I'm trying to make this distinction between AI stocks on the one hand and the Mag7 on the other, right? Is that it is true that there is a huge amount of capex in ai if you look at that 4.3 percent gdp figure that we just had a huge amount of that is ai the economy is reliant and the stock market and to some degree is reliant on the kind of optimism that is engendered by ai and yes there is a lot of concentration in the stock market and the mega cap tech stocks are a really large proportion of all market capitalization all of these things are true i'm just the only thing i'm pushing back on is this idea that the mega cap tech stocks are ipso facto ai stocks i think virtually all large cap stocks have an ai component to them but the number of actual ai stocks in the S &P 500 is basically one.

6:00Emily Peck: It's basically in video.

6:02Felix Salmon: It's really interesting, actually, now that you guys are sort of quibbling on this, to think about Google, which, especially towards the end of the year, the stock really started soaring because people saw it as an AI stock, which is interesting because when ChatGPT first came out and when AI first became clear it was going to be this big consumer product, it looked like Google was the big loser. It looked like, oh, Google, like AI is clearly going to displace search. That's where Google makes all its money. Therefore, AI is going to crush Google. And now here we are at 2026 and Google is perceived as an AI stock, an AI company, and no one is really saying that.

6:50Elizabeth Spiers: Isn't this like a little bit of Schrodinger's equities here? It sort of doesn't matter what the underlying revenues are. If people perceive it as an AI company, that's what's going to drive market valuation, I think.

7:01Emily Peck: You see, I'm going to push back a little bit on what Emily is saying here. I think undoubtedly Google had a good year in the stock market. But I'm not sure that there's anyone out there who considers Google to be an AI company where, you know, I want to buy the AI story. therefore I'm going to buy Google. I think you're absolutely right, Emily, that the AI risk to Google is very much on the downside rather than the upside. We have already seen AI in general, and ChatGPT in particular, eat a lot of the search market, and that number is going to go up, and Google's homegrown Gemini AI isn't cutting the mustard.

7:48Emily Peck: There are big problems to Google's revenue model insofar as you know we're entering this world of ai and they're struggling with that and i think that it is interesting to me that the stock did well in the face of those problems and i would just push back on the idea that it did well because suddenly everyone changed their mind and said oh now google is an ai company now i don't know anyone who said that well we had a

8:14Felix Salmon: piece in Axios, I believe, because people realize, I mean, Google could have released a product like ChatGPT back in 2022, but it didn't because it was just more cautious. The argument I've seen is that they have the technology, they have the expertise and the know-how to do AI, if not just as well as open AI, then perhaps even better. And they have the infrastructure and they have the cash flow. So I think there were people towards the end of the year being like, oh, hang on, wait a second. This company has a lot of the stuff that it needs to triumph ultimately over OpenAI.

8:54Emily Peck: Yeah, but if you think about it, if OpenAI is kind of the market leader in terms of valuation, right? And OpenAI is worth, who knows how much it's worth, but call it half a trillion dollars. And Google is worth what, like three trillion, something like that?

9:09Felix Salmon: Some bajillions.

9:11Emily Peck: You know, so like, even if you give Google's AI expertise, credit for being worth like as much as open AI or even more, most of Google's value is not AI.

9:24Elizabeth Spiers: True. But I don't think you have to go that far. I think, you know, if we look at the overall composition of the index, maybe it's useful to look at who the losers are, you know, and right now it's consumer staples, retail and managed care. And that's all because people have less money to spend. And they're a little bit pessimistic about the outlook, given weakening labor market and expectations about interest rates.

9:48Emily Peck: And also, just to be clear, like all of those companies are coming down from, if you rewind to a year ago, you know, where we were at the beginning of the year, which was a very healthy stock market. and one of the reasons why i continue to insist on being impressed by the performance of the u.s stock market all of these asterisks notwithstanding is because it had already been on such an amazing run the rising even further even in percentage terms but you know mostly just in absolute terms is kind of impressive you don't get like back to back years like that almost ever in the stock market it's very impressive and so yeah are there some stocks that went down rather than up yes i mean there always are but if you look at the level of those stocks that you're talking about most of them the consumer staples the fast food whatever you know you can pick out individual stocks that are doing really badly but the sectors in general they don't seem to be pricing in massive pessimism they're just not pricing in as much optimism as they were a year ago but like you said at the

11:00Felix Salmon: outset something feels wrong something feels not kosher right we have this ai bubble everyone's a little stressed about it we have like gold and silver doing super well because people are afraid maybe they're using it as a safe haven unclear yet we have crypto doing not well would you think it would be doing well because if people perceive it's a prime a prime prime example of what i'm

11:28Emily Peck: talking about right is that yeah again if you're looking directionally crypto is down rather than up from its highs i think it's still up for the year though right i think bitcoin is went up in 2025 rather than down we should check that emily is frowning saying i don't think so but we can

11:49Felix Salmon: look that up yeah it's down what did it do in the year overall uh it's down 6.6 for the year okay

11:57Emily Peck: Okay. All right. So like, you know, by Bitcoin standards, that's basically flat.

12:01Felix Salmon: Back in the fall, it was like 120K and now it's like 89.

12:04Emily Peck: Right. But, you know, Bitcoin is one of the most volatile asset classes in the world. If it's down 6 % for the year, that's within, you know, that's like a day's move. It's been on quite a journey. It goes up. Always. So exactly. My point is that if you compare these things to where they were at their all-time highs, there are things that are well below their all-time highs and bitcoin is definitely one of them but if you just take a step back and say like bitcoin is worth eighty thousand dollars that's like completely insane and ridiculously high well i think you know some of the pessimism outside of

12:41Elizabeth Spiers: you know things like bitcoin and this is leading into our next segment a little bit has to do with things like the you know juxtaposing the u.s markets against the global markets and looking at these countries who are trying to rebalance away from the U.S. because of tariff uncertainty, policy uncertainty, things like that. It's like, you know, how does that affect the companies in the index who are not primarily AI or perceived as being AI companies?

13:07Emily Peck: Or more to the point, how does that affect, a little bit earlier, we were talking about should we be looking at the Russell 2000 or the S &P 500, and I was saying, like, I'm looking at the S &P 500. If you look at the Russell 2000, you get many, many more sort of purely domestic American companies in there. In the S &P 500, it's nearly all global companies. And if, you know, Germany starts making big domestic investments because they want to reduce their reliance on the United States, that's fine for like a big American company that has a lot of operations in Germany, right? They can just keep on keeping on there.

13:42Emily Peck: And globally speaking, companies are doing pretty well. And actually, I do think that one of the reasons why the S &P 500 is doing relatively well is precisely that all of those foreign revenues for S &P 500 companies are looking much more valuable now that the dollar has declined by 10%.

14:00Felix Salmon: Yeah, I think that's why people feel bad and everyone is writing this story about the US stocks underperforming international stocks because it's the first time that's happened since 2009, apparently.

14:11Emily Peck: Yeah, but you have to like, it has to happen sometimes. I mean, like, I'm not...

14:16Elizabeth Spiers: It's funny because I know, you know, we don't really want to mention Trump here. But, you know, the two biggest targets of Trump's trade war were supposed to be Mexico and China. And they've both come out winners, kind of. The MCSI China Index is up 29 % versus the S &P. Mexico has made out really well in the trade war.

14:38Emily Peck: Yeah, Mexican stocks aren't doing that well. Chinese stocks are largely uninvestable. honestly like the smart move and if you're making the trump play my colleague john others has this you know what he calls hindsight capital column every year where he's like you know with hindsight this is what i reckoned was going to happen and it did no but the smart move was to basically say jd vance is going to piss off all of the europeans and basically say that the united states doesn't give a shit about nato anymore this is going to cause the europeans to massively increase their defense expenditure and this is going to cause european stocks in general but european defense stocks in particular to go through the roof.

15:15Emily Peck: And that definitely happened.

15:17Elizabeth Spiers: Yeah, that's true.

15:19Emily Peck: And, you know, again, like I think of Chinese stocks in contrast as being, you know, a little bit more like Bitcoin, to be honest, like number one, it's hard to invest in the number two, they just move around all over the place for a whole bunch of reasons. I don't think that, you know, Chinese stocks go up is a sign of enormous health in the Chinese economy, so much is it's a sign of they had gone down so much that you know it feels like dead cat bouncy there's still a huge amount of bad debt in that country yeah although there's some ai enthusiasm there too yeah i mean china china has a strong amount but again that's the whole thing right chinese companies there are very few if any they're like pure play chinese ai companies it's all what I was talking about earlier, which is like AI is this sort of magic potion that you put into your P &L of whatever industry you're in, and then it makes you more productive and more profitable.

16:18Emily Peck: And we, you know, you can see that kind of optimism in China and you can see that kind of optimism in a bunch of different companies like my former employer, Thomson Reuters, its stock is through the roof, you know, because something, something, AI, something that no one can really explain, but everyone's like, AI is great.

16:37Elizabeth Spiers: Is there a little bit of a chicken-egg issue there? If you're a hyperscaler, you're one of the few companies that have the resources to really build up AI assets and infrastructure in a way that pure-play AI companies that are starting from scratch can't. And that would be probably similarly the case in China. So are the hyperscalers primarily AI companies? Maybe not, but they are probably the only companies that have the resources to actually excel in the space.

17:07Emily Peck: Well, I mean, hyperscalers, you know, in a weird way, they're the sort of pick and shovel stock of the AI boom.

17:13Felix Salmon: What's a hyperscaler?

17:15Emily Peck: People building data centers, basically.

17:18Elizabeth Spiers: People who can buy because they have incredible cash flow and they can just spend the money.

17:22Emily Peck: So if you want to buy a bunch of compute, you're going to, in one way or another, be spending a bunch of money on these hyperscalers. And so, yeah, they definitely count as a pure play AI stock along with NVIDIA, but there aren't any trillion dollar hyperscalers.

17:36Felix Salmon: Is that like Oracle?

17:37Emily Peck: Well, so Oracle is interesting, right? Because it's spending on hyperscalers, but it's also trying to build its own. And Oracle is also interesting because, you know, we've had this conversation in the past in terms of, should we be worrying about a bubble? And that's like, you know, the front cover of Business Week is like an AI bubble, bubble, bubble. You know, so much bubble talk these days. But like, for me, the point at which you start really becoming worried about bubbles is when there's leverage, when there's like excessive leverage in the system. And certainly if you're looking at NVIDIA, Apple, Google, Amazon, Microsoft, those companies have nothing.

18:21Emily Peck: There's no real leverage in those companies. Oracle is the big exception. Oracle is the one that is actually going out there and borrowing hundreds of billions of dollars to try and invest precisely because it doesn't have the kind of balance sheets that those other companies do. And most of its big AI-related revenues are in the future. It's not really making the massive money right now. But yeah, I do think that even if you count Oracle, Hyperscalers, Palantir, you know maybe a few others as relatively pure play ai stocks and even oracle like oracle has a massive legacy business that anyway but yeah even if you count it as an ai stock i think it's hard to make the case that the stock market as a whole is rising on the strength of ai stocks you really need to stretch and start making the case the companies like google and apple and amazon AI stocks.

19:18Emily Peck: And certainly in the case of Google and Apple, I just, I can't do it.

19:22Felix Salmon: Okay. I think the bottom line is that the stock market went up a lot more than people thought it was going to go up, especially if you go back to April.

19:30Emily Peck: Oh, for sure. When the stock market was down 20 % and everyone's like, tariffs are going to kill the world.

19:35Felix Salmon: Right. And instead of everyone being excited about this, everyone's like, oh, this isn't good, especially because look what happened around the world. Everyone did better than America and America's number one. And this is disturbing. Blah, blah, blah. You know who's doing well?

19:48Emily Peck: And we do need to talk about this. The one magnificent seven stock that we haven't mentioned, bless him, is Tesla. And we just had another release on Friday of Tesla's quarterly vehicle delivery numbers, and they underperformed again. And they've been falling steadily for over two years now and i can't remember who said this but like it's pretty clear at this point that elon is bored with cars he's just moving on from cars and tesla is an automaker and so you'll be like if the number of cars that it's selling is going down rather than up and elon is bored with cars and no one thinks the cars of the future obviously tesla stock will be going down but tesla's all-time highs and the company's worth 1.7 trillion dollars or something

20:38Elizabeth Spiers: My theory is that Tesla is partly a meme stock at this point, and the meme aspect of it is Elon. My argument is not just that he's bored with cars. I think he's always been less competent than people perceive him to be. And now that Tesla's kind of hitting a wall and they have some problems that are a little bit trickier to fix, it's clear that he's not going to be able to come in and save everything.

21:02Emily Peck: It's not clear, Elizabeth. with$1.6 trillion of investors are saying the opposite. Like, it might be clear to you and it might be clear to me. But meme stocks are worth like$100 million. They're not worth$1.6 trillion. I think the same dynamic can apply. These are big institutional investors who are buying Tesla and who are owning Tesla. It's not retail.

21:25Elizabeth Spiers: That would not be the first time institutional investors bet on Elon and not really the fundamentals of the company. There are people that helped them buy Twitter, which made no sense that deal made no sense from an economic perspective correct but that was that's

21:39Emily Peck: what exactly what i'm saying like there's just such a huge difference between a 40 billion dollar purchase of twitter and a 1.6 trillion dollar market cap for tesla i feel like these distinctions these orders of magnitude differences are important and we should take them really seriously because yes you can always find like a kathy wood or something who'll be like yay elon's great i'm going to buy the stock but i don't think there are enough kathy woods out there in the institutional investor world to really explain this kind of valuation for tesla i think it's a major variable that said i'm i don't have like a better explanation well it's obviously elon that

22:18Felix Salmon: makes test stock go up price right that's the explanation i want to say one more thing which is i was listening to an episode of decoder ring which is a slate podcast that's very good and they were talking about like, what should we cover next year? What are some ideas? Their whole thing is like, they talk about like mysteries that are right in front of you that you never thought about. Like they had a great episode once on like, why is everyone drink bottled water now? Like, how did that come to be? Because when we were growing up, no one drank bottled water. It was just like, you drank from a water fountain or you waited till your meal and you had a drink.

22:52Felix Salmon: Anyway, one of the ideas that Willa had in this episode, she was like, we should do something on how like money doesn't mean anything anymore? Like stocks, they just keep going up now and people just keep putting money into the stock market. And like it doesn't even mean anything. And there's all these cryptocurrencies. And like I just think something big is happening now with money and valuations and enthusiasm about the stock market. And we thought 2025 was going to kind of like quash that, especially after April and Liberation Day. But then stocks just kept going up. So there's even more enthusiasm and there's even or like government policy, trying to get everyone to put their money into stocks.

23:29Felix Salmon: And then there's like even more like enthusiasm and energy behind things that you think like shouldn't be worth anything or only worth like crypto. The story of what it is keeps changing. Like it's a hedge against the dollar. No, it's a counterweight to the dollar. No, it's a store of value. You know, like you're just making up narratives to fit whatever you want to throw the money at. It's like nothing means anything anymore.

23:53Emily Peck: I think the money doesn't mean anything like that we are beginning to hear much more just over the past couple of months at least in my experience about the k-shaped economy like that meme kind of went away for a while and now it's coming back and on the sort of upper leg of the k-shaped economy you not only have tesla stock and elon being the richest man in the world and all of that kind of stuff but you also have one of the things that i've been doing in my new job at bloomberg is writing quite a bit about auction results at the Sotheby's and Christie's or Phillips for instance where there was a 10 million dollar watch that just got sold which was like incredibly ugly or Christie's where they sold a 30 million dollar drinks cabinet in the shape of a binoceros or you know this kind of thing like there's a bunch of just silly money being thrown around in the world of the ultra rich in a way that feels

24:45Elizabeth Spiers: kind of money doesn't mean it off topic but what was the ugly watch because now I need to google

24:50Emily Peck: it see how ugly it is google fp jaune ffc what it was sold by francis ford coppola who was like the sort of co-designer of the watch and it tells the time with this like it looks like an armored hand with fingers and depending on which fingers are pointing up like that's the hours it's a very silly watch but the retail price is a million dollars if you want to buy that from fp jaune which you're not allowed to and then if you want to buy it on the secondary market it's even more and then the you know the number one first prototype version sold for 10.8 million rich people man

25:43we should just also touch on the sort of real economy rather than the financial economy

25:49Emily Peck: because i feel like the big sort of hidden surprise of 2025 in the face of like all of these headlines about donald trump imposing massive tariffs on mexico and canada and the world but especially mexico and canada is that he kind of didn't like in his first time he signed this thing called USMCA, which was the, you know, rebranded version of NAFTA. And all of these tariffs that he's announced have been on the minority of trade with those two countries that don't fall under USMCA. And since the overwhelming majority of trade in North America is USMCA compliant, what that means is, we wind up having effectively free trade between these three countries in most things most of the times.

26:47Emily Peck: And this has been a big boom for Mexico because now compared to the rest of the world, Mexican blended tariff rates like 4 % compared to everyone else's like 15 % or whatever it is. And so Mexico feels like it has this incredible comparative advantage in terms of exporting to the United States compared to everywhere else in the world. And this has been wonderful for Mexico.

27:09Elizabeth Spiers: I think Claudia Scheinbaum gets the award for the world leader who has best managed Trump in terms of getting him to pull back some of his policies that would have been detrimental to Mexico. But also there's this stat that says Mexico captured 25 % of the U.S. trade deficit with China, which also seems kind of funny. The Chinese tariffs are actually benefiting Mexico.

27:33Felix Salmon: That's what happened in Trump's first term. And since Trump's first term, Mexico has become the U.S.'s number one trading partner because, yeah, it's cheaper. I think the piece we read in the Wall Street Journal said the effective tariff rate on Mexican stuff coming into the U.S. is like 4 % right now compared with 37 % for China. So a lot of U.S. companies are moving manufacturing to Mexico. They have a lot of manufacturers set up on the border to make it really easy to make stuff there. And to Elizabeth's point, Scheinbaum just announced that Mexico is doing tariffs on Chinese goods too, just to please, I think, the United States and just like to get on Team USA.

28:15Emily Peck: Mexico would be importing a lot more Chinese cars if it was left to its own devices because they want a bunch of Chinese EVs and it's obviously good for the Mexican economy. And the Mexican consumer in terms of wealth and income is really quite close to the Chinese consumer. And it makes sense. And it doesn't have a huge domestic auto industry in the way that China does. But they're not importing those cars precisely because they're trying to stay on the good side of Trump. But yeah, do you remember a million years ago when people would talk about friend-shoring? Like we're in the post-globalization society and we're just like bringing all of our trade to our friends.

28:55Elizabeth Spiers: That's what's happening.

28:56Emily Peck: North America is this trading block. It still is a trading bloc. USMCA is still in place. And that's good for Mexico. And I have to say it's also good for Canada. Like the Canadians are furious at Trump for various tariffs that Trump has imposed on Canadian exports. But the big picture is the overwhelming majority of Canadian exports remain exempt from all of those tariffs because the USMCA is kind of interesting.

29:23Felix Salmon: I mean, lurking over 2026, is Trump going to pull out of USMCA? He has talked about it, and it is a worry for a lot of U.S. businesses who have all rushed to Mexico as this safe haven and now are worried that the rug will be pulled out. I think it won't happen.

29:39Elizabeth Spiers: I think this is a taco situation.

29:41Felix Salmon: Yeah, and the story of this year really has been taco. I know people don't talk about taco anymore, but he's chickening out all the time. Like on New Year's Eve, he delayed for a year tariffs on furniture and lumber. As I was logging in to the chat today to talk to you guys, there was talk about pulling back on the pasta tariffs. Like no one wants the pasta tariffs.

30:04Emily Peck: The pasta tariffs never made any sense.

30:06Felix Salmon: Who would do that? Who would make pasta?

30:08Emily Peck: What was it, like 39 % tariffs on pasta? Like 150 % tariffs on pasta? We're all going to have to have Ranzoni?

30:14Felix Salmon: Like what are you doing? What? One of the stories also of 2025 of last year is just that tariffs weren't as bad. And most of the reason they weren't as bad is because of Trump, you know, chickening out.

30:27Emily Peck: Even the Swiss tariffs, like the 39 % tariffs on Switzerland, they got cut like more than in half. They're down to like 15%.

30:33Elizabeth Spiers: So all of those Swiss watch companies can breathe again.

30:36Emily Peck: Oh, phew. I know you're worried about them.

30:39Felix Salmon: I was very worried about the watches.

30:53Emily Peck: but the other big story of the year which we really should mention was deal making which was 4.5 trillion dollars of deals a huge amount of m &a happening globally roughly half of which was in america so like america was a major part of this but it was everywhere in the world it was I definitely related to the broader stock market exuberance that we saw around the world. People are like, I have a valuable currency now in my corporate stock. I'm going to go out and spend it. I need to do big strategic things. Often those big strategic things are mergers. But interestingly, we are also seeing a record trillion dollars of divestments, right?

31:36Emily Peck: These companies are doing big strategic selling off massive subsidiaries. again partly because those subsidiaries can probably get decent valuations in the market or from buyers or whatever so after many years in which the profit engine for the investment banks was very much trading it is now you know the the deal makers and the m &a stuff is a much much bigger

32:03Elizabeth Spiers: deal than it has been in a long time isn't this in europe it's partially a response to trump policy because there's a perception that, you know, antitrust is not going to prevent any M &A activity here, but it's also strategic consolidation, you know, abroad to compete better with U.S. companies.

32:19Emily Peck: I mean, I feel like European companies are always going to want to compete better with U.S. companies regardless of the antitrust situation in the United States. So, like, if it makes sense to do it on a competitive level, you know, just to compete with the Americans, then it would make sense to do it regardless of what the FCC and the DOJ were thinking.

32:38Elizabeth Spiers: Yeah, but isn't there like a little bit of a cultural difference where in the US M &A is like an integral part of growth strategy? And then in Europe, it's more of a last resort? Or am I imagining that?

32:48Emily Peck: i haven't heard that i'm not gonna say it's false i do think that for the big you know again if you think about how like netflix has put in this big bid for warner brothers but that's the only real acquisition that's ever made in its history apple has basically never acquired anyone yeah there are definitely companies in america that have grown via acquisition berkshire hathaway being exhibit a Back during the dot-com boom, you'd have like Cisco buying a new company every three weeks. But I'm not sure that the sort of conglomerate model of like, we're just going to keep on buying things and rolling them up and finding synergies feels very contemporary US capitalism.

33:31Emily Peck: I feel that was much more of a 70s thing, really.

33:33Felix Salmon: So let's talk about Berkshire Hathaway because, yeah, they're still really big.

33:38Emily Peck: They're a trillion dollar company. Like, it's not just the mega cap tech stocks. there's also now a mega cap conglomerate in Berkshire Cathoen.

33:45Felix Salmon: They're super conglomeratory. I just made that up. Thank you. They're old school mega conglom. They own a bunch of weird different things. And their CEO, Warren Buffett, heard of him. He finally stepped down at the age of 95. He thought, perhaps it's time for me to step aside and let the young blood take over. So there's a new guy.

34:07Emily Peck: 65 year old Greg Abel.

34:09Felix Salmon: Super young guy, 65. No problem. Greg Abel, will he be able to steward Berkshire Hathaway through this next chapter? If deal making was like, so hot last year, why is Berkshire Hathaway sitting on a mound of cash, like a record amount of cash? It hasn't done.

34:27Emily Peck: $380 billion, I think, at last count.

34:29Felix Salmon: And then I was thinking like, okay, well, maybe they didn't want to buy anything because things are expensive. But what about they could sell stuff, they could get rid of parts.

34:37Emily Peck: Well, they could, but then they'd have even more cash. And in fact, that's what they've been doing. Remember that, roughly speaking, Berkshire Hathaway is 50 % companies it owns and 50 % a pile of stocks. And it has been a net seller of stocks every year for the past three years. And that's one of the reasons why it has so much cash. It's precisely because they're like, this stock looks expensive, I'm selling. This stock looks expensive, I'm selling. And they keep on selling it. And then it just all goes into the pile of cash. Now, we should say that you know interest rates were relatively high for most of the year bonds returned like a pretty healthy seven percent domestically so like if you have cash it's not like it's doing nothing it's still making money it's not making stock market returns but it's making decent returns but everyone kind of expects interest rates to fall over the course of 2026 that's going to not only weaken the dollar but it's also going to weaken returns on cash and so that's going to increase the demands on greg able to like can you please do something with this cash rather than just keep it in cash there is definitely a vibe out there in the ether that he's kind of waiting for another 2008 style crash like a lot of berkshire's most successful investments happened in 2008 when he came in with like a huge amount of liquidity and rescued banks and did all these wonderful things and bought up you know got warrants and everything he made an absolute fortune by having a bunch of dry powder when things went to shit.

36:04Emily Peck: And, you know, if there was a stock market crash tomorrow, you can be sure that Greg Abel would be out there saying, I have cash, I'll buy. But I feel like wait for a stock market crash is not like a sufficient strategy, really.

36:18Elizabeth Spiers: I think there are two questions with regard to Abel. One is that he's typically not been the person doing all the capital allocation. He's an experienced operator who's run several of the companies that Berkshire Hathaway has bought. And that could be a big advantage because he might be able to spot opportunities that other people might not apart from whether the companies are technically cheap or not. And then the second question is just that Buffett's whole investment shtick forever has been that he's a Benjamin Graham style value investor. So it is really the sort of buy cheap, sell high kind of stuff.

36:52Emily Peck: Well, it's buy cheap and never sell is what he does.

36:55Elizabeth Spiers: Yeah, to a certain extent, yes. Is Apple going to continue that?

37:00Felix Salmon: They own so many companies. I was Googling while Felix was talking. No offense, Felix. They own NetJets. They own Seize Candies. They own BNSF, the railroad.

37:11Emily Peck: BNSF is the big one, along with Geico.

37:13Felix Salmon: Uh-huh, Geico. They own Fruit of the Loom, Duracell. Like, it's crazy. This is like very 1970s style situation. Like, are there other big conglomerates like this?

37:24Emily Peck: around there's no there's nothing else compares to it is it is a very very much an outlier to answer elizabeth's question like greg abel has said over and over again yes i will continue that style of investing like no one expects him to be a change agent he is not coming in with a mandate to change anything he's coming in with a mandate to just you know what would warren do basically

37:46Felix Salmon: very like tim cook at apple kind of thing like just keep doing it i mean well tim cook is

37:51Emily Peck: interesting because he came in as an operator like you know and the idea was that steve jobs was good at inventing things and bad at scaling things and that like tim's job was to do like maybe less inventing and more scaling and he did that extremely well in this case everyone's just like just do exactly what warren would do and to the point to elizabeth's point that even includes investing in the stock market which historically has not been his remit at berkshire but this guy uh todd combs who just went to jp morgan was you know he's like no you i'll go to jp morgan you take over you do it warren has been like if you know how to value a company for m &a purposes you know how to value a company for stock market investing purposes it's the same skill he has said like that abel is really in charge of all that so we will see but also like one of the other things is that an absolutely enormous chunk of berkshire it like you've mentioned girassol and fruit of the loom and all the rest of it is apple apple is like the biggest company they own they have this absolutely enormous chunk of apple stock which has done incredibly well for them and there's definitely been quarters where like their entire fucking return has just been like apple stock goes up and so like he's gonna have to start getting comfortable with that kind of thing of just being so exposed to the vagaries of the stock market but the other thing is that Berkshire, it doesn't pay a dividend, right?

39:16Emily Peck: Even Facebook is paying a dividend now. Everyone is paying a dividend. Berkshire's the last company in the world to not pay a dividend. They did it once, and nobody liked it. In 1967. So basically, the standard thing that happens with companies that are throwing off massive amounts of cash is they use it on dividends and buybacks, right? Berkshire has done a few buybacks over the years, but it hasn't done any buybacks for the past five quarters because it thinks that stock is too expensive. And so all of that money that would normally go to dividends is just piling up in the cash, which is the other main reason why they have so much cash.

39:52Emily Peck: And so they need... The whole point of Berkshire is that it has all of this kind of quasi-dividend income that it needs to put to work, and it has all of this income from insurance policyholders who are spending money on insurance premiums every month or every year. And that money needs to be invested as well. And so Berkshire needs to be a good investor. It needs to be constantly investing billions and billions of dollars. And the big problem with Berkshire over the past couple of years is that it just hasn't been able to find anywhere to put that money. And, you know, to the first segment, I think the ultimate answer is going to have to be that Berkshire stops being quite as American as it is.

40:42Emily Peck: And it's going to have to start looking internationally to make acquisitions, which is one thing that Warren Buffett was never particularly comfortable doing.

40:49Felix Salmon: Or it's just waiting for the big crash. And everyone should see this as a leading indicator if Berkshire Hathaway has so much cash and its whole strategy is waiting to spend the cash in a recession or a stock market plunge, then maybe that's the signal. And maybe once the crash comes, they'll invest in all the companies, AI and otherwise.

41:21Emily Peck: We should have a numbers round. Emily, do you have a number?

41:25Felix Salmon: Yes, Felix, I have a number. It is 480. That is the number of colors in the board game Hues and Cues, which I played over vacation, And is really fun. And I want to talk about it and tell you the good news about hues and cues. Because I know we talked about board games and how they're difficult to learn. And I heard about this board game on another Slate podcast, the Culture Gap Fest, I think a few years ago from Julia Turner. And it is a delightful game. It's so fun. It's super easy. There are these 480 colors on the board. And all you have to do is describe the color using a word that's not a color.

42:03Felix Salmon: You know, so you say like stop sign or something like that to describe a red or I said domino sugar to describe a certain yellow, things like that. And it's so fun and it gets you thinking and it's not too complicated and it's not based on luck really at all and easy to understand. And I recommend it for next year for all of you who will be at home.

42:24Elizabeth Spiers: I like this game too. And it's particularly fun to play if you happen to partake in edibles.

42:32Felix Salmon: Good note. Great note. So, yeah, 480 different colors. You can't play for too long because you're like, it's another yellow. You're in NWords. I don't know.

42:40Emily Peck: So, wait, do you have to say the name of the color?

42:43Felix Salmon: You can't say the name of the color. It's prohibited. You have to describe the color using other words.

42:47Emily Peck: So, you say, and then I have a bunch of cards which have colors on them, and I need to, like, pull out the card that's closest to the color that I was thinking of.

42:53Felix Salmon: It's like the colors, the 480 colors are on a grid, like a map. So, you pull a card, and it'll have the picture of the color, but then it'll have its location on the grid, like A18. 18 okay it's that special yellow right there.

43:06Elizabeth Spiers: And you get little pegs that you can put where your guesses are. Yeah. And you start sort of triangulating on where the specific hue is.

43:13Felix Salmon: It's fun because sometimes like you'll give your clue and you think it's like a really good clue and then everyone puts their peg like so far away from the color you're like oh I really fucked that up. It's kind of like writing where you're like I made my point and then everyone takes away a completely different point from what you wrote and you're like damn it I fucked that up. It's kind of like a real time version of that in a way. It's really fun.

43:34Emily Peck: I'm just going to do the obvious one. I apologize to all of the listeners for this one. But my number is one trillion, which is a dollar number. It's a trillion dollars, which is basically the minimum amount that the United States is going to pay on in interest on its debt in 2026. For the first time ever, we're going to have over a trillion dollars in interest payments on Treasury bonds, which is you know a lot of money and i do think this also you know going back to the k-shaped economy thing like the people who own treasury bonds who are receiving this trillion dollars of income every year this is a flow this isn't a stock normally when you talk about trillion dollars like berkshire hathaway is worth a trillion dollars that's a stock that's not a flow this is a trillion dollars per year and rising where's that money going well a lot of It's going to China and other big foreign holders of treasuries.

44:27Emily Peck: But insofar as it's staying in America, it's going to, well, it's probably just going to go to like stable coin owners. Yay.

44:35Felix Salmon: What even is money?

44:36Emily Peck: Elizabeth, what's your number?

44:37Elizabeth Spiers: My number is eight, and that's ours. And that's the amount of time an entrepreneur named Wing Tan Wong, who runs a smartphone mindfulness app, sitting in a plastic stool, leaning against a door, doing nothing.

44:50Emily Peck: Was he raw-dogging the sitting on the stool?

44:53Elizabeth Spiers: He was raw-dogging boredom.

44:57Emily Peck: Can't you just do that by sitting in a plane seat looking at the map? Isn't that what people have been doing like all year? Yes, then you're raw-dogging your flight.

45:04Elizabeth Spiers: Raw-dogging is a usually vulgar term that means doing something with no aids or protections. And so really, other people do this and they just call it meditation. But for the super online set, this is raw-dogging boredom.

45:18Felix Salmon: So he just sat there?

45:19Elizabeth Spiers: Yes. No screens, no entertainment. You just have to think and daydream and maybe meditate.

45:25Felix Salmon: That's tough. Can't read a book?

45:27Emily Peck: The bros are very into Stoics.

45:29Felix Salmon: There's just not a lot going on up there.

45:32Elizabeth Spiers: I think people are not used to, in the absence of screens, having to sit still for a minute and not do things.

45:39Felix Salmon: Could you do that for eight hours?

45:40Elizabeth Spiers: Not for eight hours, but I did a meditation workshop at Esalen years ago because I was going to write about meditation and neuroplasticity. plasticity. And after doing it for four days, I went from being able to like sit still for five minutes to an hour and the hour went by pretty fast. So I think it's like a acquired skill in a way.

45:59Felix Salmon: We'll just sit here now for an hour.

46:00Emily Peck: But is it a valuable skill?

46:02Felix Salmon: It could be if the world ends.

46:04Elizabeth Spiers: Neurologically, it apparently is because it helps you focus and stay calm.

46:08Emily Peck: So guys, Yeah, that's it for Slate Money this week. You guys were doing the wrong thing. Instead of listening to three different people talking about their business and finance news of the week, what you should have done is just put on some noise-canceling headphones and listen to nothing for 55 minutes because that would have been just much better for your neuroplasticity. It would have had fewer ads, though, and it would have made less money for us, so we can't really encourage this too much. It's anti-capitalist, clearly. But I'm sure this, what's his name? Wing guy has some kind of a startup where you can pay him money to do this somehow.

46:44Elizabeth Spiers: Oh, he does. Well, he has a smartphone mindfulness app.

46:47Emily Peck: There you go.

46:48Felix Salmon: So he's making money from people doing literally nothing. Yes. What a scam.

46:53Emily Peck: I approve. I approve. But yeah, thanks for tuning in. Now it's 2026. We appreciate you. Thanks to Shana Roth and Jessamyn Molly and Micah Phillips for producing. and stay tuned if you're a Slate Plus member, you're amazing. And we're going to talk about, Emily?

47:11Felix Salmon: We are going to talk about Saks, Fifth Avenue mulling bankruptcy and the future of luxury department stores. But also we are going to talk about Food 52 because we like that website and it's also going bankrupt.

47:24Emily Peck: Thanks for tuning in and we'll be back next week with more Slate.

47:34Thank you.