My banking expert friend's take on blockchain and banks; Performance of stocks added to and removed from the Dow; Inflation and Fed expectations; Bill Ackman on Lex Fridman's podcast; Scuba pictures

1) I just got back from a weekend in Cozumel, Mexico!

I went with a group of my former students from the brief period I was teaching Kase Learning investing seminars in 2018.

We're active on a WhatsApp group chat and occasionally get together for a meal – and even more occasionally go on a retreat like this past weekend.

As we were sitting around the pool on Saturday, one of the guys said he thinks that banks adopting blockchain technology will lead to lower costs and higher margins over time.

That's an interesting theory... so I immediately e-mailed my banking expert friend (about whom I wrote extensively recently – see my e-mails from January 30, January 31, February 1, February 2, February 6, February 7, and February 8) to ask for his opinion.

He was kind enough to allow me to share it – here's what he e-mailed back to me:

I'd say there can be modest benefits in terms of operational efficiencies with record keeping, compliance/fraud prevention, and potentially benefits with the speed and cost of certain types of payments.

There are some industries related to banking where blockchain could be a massive disruptor – take title insurance for example. This is a large cost in a home purchase that could be virtually eliminated with blockchain record keeping and tracking of historical data. Auto purchases (and associated title transfers) are another area that could be significantly improved.

However, at the end of the day, margins in the banking sector are going to be predominantly driven by interest rates, credit losses, and competition. The more efficient technology makes the banking sector, the more competitive it could get. For example, think how easy it is now to move money from one bank to the next – this has led to the massive increase in deposit competition which is likely to continue, causing bank funding costs to go higher.

As he concluded:

There are definitely some benefits of blockchain and related technologies, but I'm not sure it is a significant game changer for the banking sector given the competitive dynamics and other major factors (like interest rates) that will drive the sector's performance.

2) Following up on Friday's e-mail about the possible opportunity in Walgreens Boots Alliance (WBA)...

As I said, the stock is being replaced in the Dow Jones Industrial Average by Amazon (AMZN) after nearly six years of dreadful underperformance (down 58%).

For more on what has happened in the past in the aftermath of changes to stocks in the Dow, my friend and former colleague Enrique Abeyta found this information:

He also e-mailed me this data, encompassing the past 21 changes to the Dow components:

Since 1999, there have been 21 changes made to the Dow Jones Industrial Average, and stocks being added (removed) usually experience a pop (drop) from the time of the announcement to the time they're actually added.

One year after they [went] in, though, stocks added to the Dow experienced a median decline of 5.6% compared to a median gain of 5.1% for the Dow stocks that were removed. (Source: Bespoke)

3) This post by CNBC's Carl Quintanilla about a Goldman Sachs (GS) report is consistent with my views that inflation has been beaten:

Liz Ann Sonders, Charles Schwab's chief investment strategist, posted another data point along the same lines:

As a result of the benign inflation data, a continued strong economy, and a healthy jobs market, investors (who once thought the Federal Reserve was somewhat likely to cut rates during its May meeting and almost certain to cut rates by its June meeting) now think the Fed is highly likely to keep rates steady at those two meetings.

Again, that's in line with what I've been predicting. Here's another post from Sonders about these investor expectations:

4) I'm looking forward to listening to my college buddy Bill Ackman's three-and-a-half-hour marathon interview on Lex Fridman's podcast. You can watch it on YouTube here, listen to it here, and here's an outline:

(00:00) – Introduction
(08:55) – Investing basics
(13:47) – Investing in music
(22:08) – Process of researching companies
(26:47) – Investing in restaurants
(32:16) – Investing in Google
(37:58) – AI
(43:13) – Warren [Buffett]
(45:22) – Psychology of investing
(54:53) – Activist investing
(1:04:41) – General Growth Properties
(1:20:57) – Canadian Pacific Railway
(1:28:21) – OpenAI
(1:32:32) – Biggest loss and lowest point
(1:47:21) – Herbalife and Carl Icahn
(2:04:11) – Oct. 7
(2:10:42) – College campus protests
(2:29:09) – DEI in universities
(2:50:00) – Neri Oxman
(3:15:30) – X and free speech
(3:19:54) – Trump
(3:27:30) – Dean Phillips
(3:34:36) – Future

Puck's William Cohan wrote an in-depth column about the interview: The Measure of Ackman.

This is the most interesting revelation from the interview, a battle with another hedge-fund titan, which Bill had never discussed publicly:

Ackman also disclosed, for the first time he said, a battle he had around 2017 with another billionaire hedge fund manager, Paul Singer at Elliott Management, who was trying to force Bill out of business by striking him while he was down.

What happened, Ackman explained, was that Elliott took a "big position" in Pershing Square Holdings – the U.K.-based, publicly trading investment company that is Bill's version of Berkshire Hathaway. He said Elliott then shorted all the stocks in Bill's portfolio and went long on the stock he had shorted, "making a bet that we'd be forced to liquidate."

Bill said that Elliott then came to him and tried to "force" him to liquidate. It was a nightmare scenario. "I envisioned an end where the divorce takes all my resources," he said, "the permanent capital vehicle ends up getting liquidated, and another activist in my industry puts me out of business." And then he met Oxman "and I had fallen completely in love with her."

As the article continues, the "nightmare" went on:

[Ackman said] "I was envisioning a world where I was bankrupt, a judge found me guilty of whatever and he sends me off to jail... I find myself in this incredible mess. And I decided I didn't want things to end that way."

He then did something he pledged to himself that he would never do: borrow money. He went to JPMorgan Chase and, on "a handshake" with the bank, borrowed $300 million. ("I had been a good client over a long period of time," he said.)

He used the money to buy up enough blocks of stock in Pershing Square Holdings to thwart Elliott's strategy...

"I remember the day I bought a big block of stock in the market and I get a call from Gordon Singer, who's Paul Singer son who runs the London part of their business. He's like, 'Bill, was that you buying that block?' I said, 'Yes.' He said, 'F--k.' He knew that once I got that, they were not going to be able to succeed and they went away. And that was the bottom. And we've had an incredible run since then."

5) Circling back to my trip to Cozumel, the area is known as one of the best spots for scuba diving in the world – and it didn't disappoint!

I dove on Friday and Sunday (two one-tank dives each) – here are pictures from Friday:

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.