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- [00:03]
Kyle Pauletta
You're listening to A Book with Legs, a podcast presented by Smead Capital Management. At Smead Capital Management, we advise investors.
- [00:11]
Cole Smead
That play the long game.
- [00:12]
Kyle Pauletta
You can learn more@smeedcap.com or by calling your financial advisor.
- [00:22]
Cole Smead
Welcome to A Book with Legs podcast. I'm Cole Smead, CEO and Portfolio Manager here at Smead Capital Management. At our firm, we are readers and we believe in the power of books to help shape informed investors. In this podcast, we speak to great authors about their writings the late, great Charlie Munger prescribed using multiple mental models and analysis. We analyze their work through the lens of business markets and people. Hosting this episode with me is our founder, chairman and Chief Investment officer, my dad, Bill Smead. Thanks for joining me.
- [00:52]
Bill Smead
Great to be here. Great book.
- [00:53]
Cole Smead
We're gonna have a lot of fun. In this episode, we are going to talk about the Southwest, its origins, the recent past, and really, in many respects, its future. The geographic area hasn't followed a uniform pattern, to say the least. We will discuss the why with Kyle Pauletta through his recently published book, American Finding the Future in the Cities of the Southwest. A little background on Kyle for our audience. He has worked at gq, Harper's Magazine, New York Magazine. He has also written for numerous other national publications and newspapers. Mr. Paoletta earned a Master's of Fine Arts in fiction from Columbia University in New York. Most importantly to the work we will discuss today, he grew up in Albuquerque, New Mexico. Kyle, thanks for joining Bill and I.
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Kyle Pauletta
Yeah, thanks so much for having me.
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Cole Smead
So, you know, we assume this has been something that's always been on your mind. You were kind of talking, you know, before we started on some of your thoughts, but love to learn why this was. I mean, this is your first published book. Why this story?
- [01:54]
Kyle Pauletta
Yeah, I mean, it's a pretty personal story, right, because it's about the five big cities of the Southwest. So Albuquerque, where I'm from, but then also Phoenix, Las Vegas, Tucson, and El Paso. And I think anyone who grew up in the Southwest and then, you know, goes back east for college or even, you know, places on the West Coast. I think you encounter this. This real blindness to the region. This real people just kind of associate it with the landscape, Right. Like, everyone I know from Phoenix is like, oh, everyone just asked, like, how often do you go to the Grand Canyon? Like, that's kind of the only touchstone people have. It's like, if you're in Phoenix, you're like, it's not like in our backyard, you know, like. And like, I've gotten You know, when I would talk about, like, winter in the Sandia Mountains, which is mostly where I grew up, like, right outside of Albuquerque, and, like, big snow drifts and not being able to get to school, and people would be like, wait, it snows in New Mexico? I'm like, yeah, it's the Rocky Mountains, like, where northern New Mexico is very mountainous. So, yeah, I think just I always had this real urge to kind of explain the Southwest to the rest of the country or to try and fill some of those gaps. And then in my work as a journalist, I got very interested, not only kind of culturally, the Southwest and its literature, its music and things I grew up on, but kind of the contemporary challenges that we face in the region around climate, extreme heat, water scarcity, as I've been doing a lot of reporting on those issues, and the kind of struggle to wrap our arms around them. And the book kind of became a really nice way for me to combine all of that to. To go back into the history, to explain. To explain to myself more the place I'm from and. And how it became integrated into the rest of America, and then also to kind of explain it to the rest of the country, to kind of see it with that, like, insider, outsider vision that hopefully, you know, helps people, wherever they are, kind of, like, understand where the region came from and. Yeah, like, what it kind of has to do. Teach us as everywhere deals with the conditions that the Southwest has always had.
- [04:21]
Cole Smead
Sure.
- [04:22]
Bill Smead
Yeah. Your book plays on this stereotype of nothingness. And as people that live here now, for example, was at the LPG golf tournament at Wild Horse Pass, and I was standing there thinking, well, how many years is it gonna be before there's houses contiguously from Phoenix to Tucson? In other words, no interruption. So talk a little bit about, you know, why does the public not realize what's going on down here?
- [04:52]
Kyle Pauletta
Yeah, well, what you're talking about is the Sun Corridor, which I remember before the Great Recession, that was the big. The big plan is we're going to fill in the space between these cities. It's going to be a megalopolis. Bigger than Chicago.
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Cole Smead
Yeah.
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Kyle Pauletta
So I think that that got pushed back a couple of decades, but in any case, yeah, I think there's just like. People really see it as, like, a destination, just like, for vacation or retirement, and don't really. You know, I think it feels like an appendage almost. It's sort of like this. This weird, like, auxiliary to the rest of the country. Even as. As you point out, Phoenix is the fastest growing city in the country has been for some time. Las Vegas is right there with it. Like, these cities are magnets for a lot of people. Maybe outside kind of the halls of academia or the really. The really halls of power, but, like, the fact that they're affordable, that there is some real kind of ability to, like, climb the social ladder, the economic ladder there that is, you know, really lacking in coastal California, New York, Boston, where I just had been living for the last seven years before I moved to California. Like. Like, there is a sense of opportunity in the Southwest. And I think in the book, I go back to kind of show that that's always been the case, starting in 1848 and the end of the Mexican American War, that that sense of possibility has always been kind of wrapped up with the region.
- [06:29]
Bill Smead
Yeah. And on top of that, the. The. The geography of the Southwest, you know, talk a little bit about how vast. Why people have these geographical stereotypes associated with the Southwest.
- [06:47]
Kyle Pauletta
Yeah, I mean, I think a lot of it comes from, you know, a lot of Americans, you know, are descended from, like, Europeans from Northern Europe or Western Europe that, like, the idea of just, like, what a landscape is, is green. And so anywhere that's not green is like, you know, and like, that go through the centuries. I think, in the Northeast, in the Midwest, that that's still kind of like where a farm can be, has to be kind of like green rolling hills. Whereas, you know, even thinking, not necessarily people from Latin America, but if you think about Spain or southern Italy or just the Mediterranean, like, there is much more comfort with this more arid landscape or this more kind of landscape that gives you more limited resources. And so I think there's just still this pervasive thing of just like desert means nothingness, rather than desert is its own ecology and an ecology that, you know, people can really thrive in. But, yeah, that. That kind of connotation of nothingness, which I write about going all the way back to the late 19th century. Like, there's this book called the Conquest of Arid America by a reporter named John Smyth that came out in 1900, where he really writes about, you know, we have this vast kind of emptiness. I think he calls it like a page in need of filling. That. That. That association with nothingness, like, kind of goes back to the beginning. And so, I mean, one of the kind of misconceptions that I was focused on in the book and why it's about the big cities is, like, this is the most urbanized region of the country. If you're from the Southwest, you're almost definitely from a big city and so saying, like, yes, the space is vast, these deserts are enormous. And also the population centers within that vastness are, you know, very vital and growing. And. And there's a lot of, like, understanding what it is to be an American. You kind of have to contend with these cities.
- [09:06]
Cole Smead
Yeah. So you start by giving. I mean, you're from Albuquerque originally, so you kind of start there, you storytelled to begin with, in your hometown. Teach us about the original inhabitants, what they were doing, you know, in their society at the time, versus, obviously, who showed up. And maybe just go up to Onye just as a. As a picture of kind of like the original history of Albuquerque, if you will.
- [09:28]
Kyle Pauletta
Totally. Yeah. So it's. This is sort of the middle Rio Grande Valley, which, you know, there were pueblos in first centuries before the Spanish came. I think the estimate is there are around a dozen pueblo villages in what is now contemporary Albuquerque. And. And those peoples were descended from, you know, the famous cliff dwellings in Chaco can, in Mesa Verde, that basically around 1,000. You know, there are some climactic changes that force people out of the cliff dwellings and into the river valleys. So when you have the conquistadors first arrive, and the first one there is Coronado, who comes in about 1560, if I'm remembering correctly. Yeah, there's like a dozen villages. And. And he writes about this kind of verdant farmland, this really rich agricultural area. And so that becomes kind of, you know, on this map of North America that the Spanish are starting to fill in, like, the Rio Grande becomes like a real focal point. And so this is why, when Juan de Onate comes out of Mexico into North America to settle the first colony of New Mexico in 1598, he follows the Rio Grande. And so the original colonial site is a short distance from Santa Fe, and then it eventually gets moved to Santa Fe. Albuquerque itself is founded in 1706. So you have this sort of this settlement pattern that the Spanish followed throughout Mexico that continues up north where basically wherever indigenous peoples were living and, you know, finding success with agriculture and being able to support themselves, that's where the Spanish built missions. That's where they, you know, decided to start their own colonies because they, of course, had this real, you know, part of the Spanish colonial project. Unlike the English or the French, it was very fixated on, you know, spreading Catholicism. And so, you know, in Albuquerque, you have, you know, the mission church is the first building, which is the same thing in Tucson. Father Sevio Aquino comes up around the Same time you have. El Paso starts as a mission church. All of these are kind of either a mission church or a military outpost, and usually both. But. Yeah, so you have that kind of first meeting of a European people and the indigenous people, which in New Mexico is predictably rocky. And it leads up to 1680, when there's a revolt of the Pueblo peoples where they actually besieged Santa Fe, burned down a bunch of churches throughout what's now New Mexico and Arizona, and kick the Spanish out for 12 years. It's only in 1692 that they come back and you get the more kind of permanent colony. But it's sort of a very different colonial story than what we're taught in school. If you're thinking about.
- [12:45]
Cole Smead
Well, yeah, when I hear the word colonial in the Southwest context, like, to your point, you use that term. And I was sitting there with a colleague. I was talking about my notes before we spoke today, and it's like this history is such a bizarre, you know, in the. In a typical, like, modeled history, that it's like, I heard that word. I was like, I don't think the word colonial really fits. It only considers it from the empire perspective, but not. It's like, such an intermingling of people that if you wake up, and I love this about your book, you come later and you're like, all right, what are you as a person? Be like, well, my grandmother was this, My uncle was this. Two generations ago were that. And it's just this total, like, put it in a box, shake it up, and congratulations, I was made.
- [13:26]
Kyle Pauletta
Yeah, yeah, yeah. And that's something I love about the Southwest is like, our identity is multicultural. Like, this idea of America as a multicultural place, like, melting potential. Yeah. Like, that's always been true of New Mexico. And it's. It doesn't have the same kind of, like, you know, political valence that I think the idea of multiculturalism does elsewhere. Where. Yeah. Something I. I love about New Mexico still is that there is that sense of, like, identity is so scrambled and mixed up and complicated that it becomes less sort of meaningful as like, a. You're this. That means this about you. Like, you just can't think that way when you grow up there.
- [14:10]
Cole Smead
So I want to bring up Onate, because you mentioned him.
- [14:13]
Kyle Pauletta
Yeah.
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Cole Smead
You know, he's a very controversial figure, as you lay out in your book, and you tell a wonderful history around that. But yet, at the same time, he was celebrated for a long time because, again, you have this unique Spanish history. Right. To your point about the Conquistadors and the missions that were set up. And yet there's festivals being thrown for, like, a hundred years. And it's like, well, is he to be celebrated or is he not? And so it's like. I think there's. I think another way of putting this, and I'd love to get your thoughts on this, but there's really kind of two histories of the Southwest. There's the Southwest from today forward, like, who are we as people groups in the Southwest? And I think that's vastly different than our debate about the past, if that makes sense.
- [14:54]
Kyle Pauletta
Yeah, yeah. I think the debate about how we remember the history of the Southwest really kind of is a microcosm of that broader debate that is happening all around the country. And, like, Onate, in many ways, is kind of like a Christopher Columbus type figure where for people of Spanish descent and, you know, even, you know, more recent arrivals from Mexico, like, he is definitely seen as sort of a foundational figure, a conquering hero, that sort of founding father. And there's still, you know, statues of. On your day, like, indigenous folks in New Mexico from the Pueblos will tell you about, you know, when he was founding the colony. He goes to Acoma Pueblo, and there's this, you know, even that history is contested, but it ends in basically a massacre. And all of the Acama men who kind of resisted colonial power, he has one of their feet chopped off. And so there's that. Like, there's that and there's other kind of abuses that were common throughout European colonization of the New World. Like, that. That is also part of his story. And, you know, Onate, though, he's remembered as a hero now in his own day, he was recalled back to Mexico City and put on trial because, like. Like, he violated the crown's laws about how you're supposed to treat these indigenous people who you're trying to convert to Catholicism. So that remains, like, a really robust debate about, you know, this kind of founding father. But I do think it's. It's important because. Helps us. I don't know. I think anytime you. You label someone a hero, it sort of flattens the history.
- [16:49]
Cole Smead
Sure.
- [16:50]
Kyle Pauletta
And so in the book, I think I'm. I'm not really interested in saying, like, this guy was a bad guy or a good guy, but I am interested in the ways in which, like, that conversation reflects ourselves and reflects sort of how we locate ourselves in this place.
- [17:05]
Bill Smead
Yeah, we're all sinners by nature and choice. The palace of Governors was built in 1610. Cole and I both grew up in the state of Washington. And as I read your book, I realized, wait a second. This place has got way longer and way more interesting.
- [17:24]
Cole Smead
I think it's way more historical than most of America.
- [17:26]
Bill Smead
Lewis and Clark landed in my hometown on their trip down the Columbia river in, like, 1804 or 1805.
- [17:32]
Kyle Pauletta
Right, right.
- [17:33]
Bill Smead
There was nothing. There was nothing there. And even though Arizona is a very Young State in 1912, older than the state of Washington, the truth of it is the Southwest has a much richer and original history. So people hadn't arrived at Plymouth yet. Why doesn't the Southwest get more credit? I mean, now it is. It's kind of. The Southwest is kind of kicking butt right now. I mean, let's just face it. It's like the place to be in the.
- [18:02]
Cole Smead
Yeah, but I mean, the original Europeans to really come into what we now know as North America happened in the Southwest. I mean, I think of, like, Patagonia and the San Rafael Valley in Southern Arizona. Those are originally Mexican land grants and Mexican cattle lands that had missions.
- [18:20]
Kyle Pauletta
Yeah. And those. Those. There's people who still, like, claim the title to those land grants. Right. Going back 400 years. Yeah. I'll. I'll give credit to. Let's see. Kerry Gibson, who wrote a great history book called El Norte, as well as Richard Grant, who wrote a book that just came out called the Crossing. And both of those books really make this argument that, like, American history needs to be understood not as something that progressed from the east to the west, but as something that starts in the Northeast and starts in the Southwest and then converges in 1848 with the Mexican American War. That. Yeah, that Santa FE is founded 20 years before Boston is. So you really have these two societies growing in parallel that then merge. And so that, again, is something I'm trying to contend with because to me, that is, like, foundational American history. And. And in El Paso, people will tell you about, like, for Mexican Americans, El Paso is the Ellis Island. Like, that is the place where most Mexican American families immigrated through. And, you know, folks in LA and San Diego almost all. Many people have stories about, like, oh, yeah, my family came to El Paso first and then rode the railroad out West. And again, it's just, there's. These parallels are really uncanny, but they. You kind of. I think by. By reading those two histories in parallel, you can understand kind of contemporary America a lot better.
- [19:55]
Cole Smead
Wayne, to your point, I miss the old names more. Like calling it El Rio del Norte or El Paso Del Norte. It's just more interesting shortening it's actually made it crud and less interesting to me. Total A hi, I'm Cole Smead, CEO and Portfolio Manager here at Smead Capital Management and host of this podcast. If you enjoy this podcast, I'd like to invite you to check out smeedcap.com at our firm. We are stock market investors. We advise investors who play the long game with a discipline that has proven success over long periods of time. Learn more about our funds@smeecap.com Past performance is not indicative of future results. Investing involves risks, including loss of principal. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges and expenses. Read and consider it carefully before investing. Smead Funds distributed by Smead Funds Distributors, llc Not affiliated Teach us about the Pueblo Revolt. You kind of touched on this earlier, but just to make sure we hit the nail on the head.
- [20:58]
Kyle Pauletta
Yeah, sure. So this is it's a really fascinating story of sort of indigenous resistance to colonization that you have this kind of whisper network of pueblos in the 1670s of there's, you know, there's these sort of some Pueblo peoples are happy to have the mission in their midst, and there's like some amount of food that's being provided and some benefits to it. But at the same time, there's this big drought that happens. So suddenly, you know, these missionaries came saying, like, if you accept our God, like, you'll have food, you'll have all these opportunities. And then the climate changes, and so they can't make good on those promises.
- [21:48]
Cole Smead
Yeah.
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Kyle Pauletta
So you you have the pueblos meeting in secret. And why this is amazing is that the pueblos, though there is a sort of common set of historical ancestors. They're speaking five or six different languages, so they're meeting using translators, and they work together. And credit is given to a figure known as Popey, who is from the Pueblo of OK Owing, which is quite close to Santa Fe, for kind of organizing this uprising where they decide on a certain date when everyone is going to kind of revolt at the same time. And the way that they communicate that is they make these cords out of like, native fibers where these go out to all the pueblos and you, like, remove a cord basically every day until there's none left. And then, you know, the day has come for that strike. And so everyone kind of revolts at the same time. And the Spanish are taken completely unawares. They're, you know, this is this sort of coordinated attack is not something that they had dealt with since, you know, the first, the first kind of foothold of Cortez. It's Mexico. Yeah. And so, yeah, they very swiftly kind of like kill a bunch of priests and then descend on Santa Fe and there's a long siege where they're starving out the Spanish. And you know, it kind of culminates in the governor at the time kind of making a like last ditch charge out of the gates to surprise them and like repel the Puebloans just long enough to then like escape the city. And that actually becomes the founding of El Paso, because that's where they go, that's where they escape to. And so before that, El Paso is just like a mission church, but it becomes like the place where they retreat to and Fortify. And then 12 years later, when they reconquer New Mexico, they come out of El Paso. But yeah, it's a. It's kind of one of the few examples of colonization really being like, not just like, not just people fighting colonization, but like fully ejecting colonizers from their lands totally. And. And to this day, I think there's a lot of pride in the pueblos about that. And that history meant that after the Spanish came back, they mostly left the pueblos alone. Like, it was a much more, you know, they still were like trying to convert them and everything, but it was much more restrained and it allowed the pueblos to continue. You know, these are some of the few indigenous peoples who are still living in the same lands that their ancestors lived in centuries ago. I mean, if you think of Deb Haaland, who is interior secretary under Biden, is now running for governor of New Mexico. She says she's a 25th generation New Mexican because she's from Laguna Pueblo and she can like confidently say, like, my people have been here that long.
- [25:01]
Cole Smead
You had a great quote from her, like when they were talking about Onate is like statue and the different representations, what that was going to be. I think her quote really touched at like the pulse of what I'll call New Mexico or really the Southwest today, which is like, I think she said we're all New Mexicans. So it's not a question of like, whether we have, you know, commonalities or not. We do. The question is how do we want to address this past? And I think that was a wonderful quote that you pulled out from her. And again, I think that shows really good leadership on her part on that subject particularly.
- [25:34]
Kyle Pauletta
Yeah, yeah. And just say again, like, because people have that pride and have that sense of like, place, like, there's a lot of confidence that comes with that. That like every. Everyone should have and that kind of confidence that, like, sure, I belong here. I'm a part of this society. And like, how do we build it together? How do we address our problems together?
- [25:57]
Cole Smead
Yeah. So Albuquerque didn't become. It wasn't established till 1706. Spain wasn't super interested in Nueva Mexico. Mexico, as you said, they had problems closer to the home. They had, obviously had more, you know, war type issues in Europe itself. You know, how do you look at. I think you commented on this, but like the Comanches in some respects and other parts of, I'll call it, you know, Spanish territory. Wasn't that a bigger issue for parts of alcohol, Spain or Mexico at times?
- [26:28]
Kyle Pauletta
Yeah, yeah. I mean, basically, you know, in the book, I'm. I'm slightly poking fun at the. The idea of kind of this like, continuous grand Spanish culture of these, like, you know, noblemen that really is this kind of like, romantic idea that. Yeah, that comes from books. And like, the reality was, like, this was a very hard scrabble place under almost constant threat from the Comanche and the Apach a little further south. And, you know, this is a time where all the European powers have carved up North America on maps, but the actual sphere of influence kind of ends pretty swiftly once you leave one of these colonial cities. So, yeah, the Comanche for most of the 18th century are the dominant superpower in the region. Where they're raiding from these, you know, towns like Santa Fe and Albuquerque and also from, you know, San Antonio and Texas and also from Louisiana and also the first kind of American colonies, like, west of the Mississippi. And like, they have a huge sphere of influence that's almost all of the Southern Great Plains. That, you know, very much informs this history too, because this is why you don't have Albuquerque developing or even Santa Fe developing, like Boston or Philadelphia or like becoming these huge commercial powers. You have, like over a century of constant struggle and warfare.
- [28:06]
Cole Smead
Yeah, they would hang back. I mean, I think you said, like, you didn't really leave these cities.
- [28:11]
Kyle Pauletta
Yeah.
- [28:11]
Cole Smead
Because of just that fact.
- [28:13]
Bill Smead
I grew up in the 60s watching cowboy and Indian movies and TV shows. And the Comanches and the Apaches were always. That's who they were always fighting with. Right. That was. And they were. It portrayed them as fierce and successful warriors. And your book does a pretty good job of portraying that.
- [28:32]
Kyle Pauletta
Yeah, yeah. There's a great study of the Comanche empire by an academic named Pekka Hemelainen that kind of details not just the incredible military success of the Comanche, but also the kind of the political organization that was very different from you know, a European style government, but was nonetheless, you know, basically you have these different bands that all are coordinating with each other but also operating independently. Which meant that you would often have, you know, this, the Spanish negotiating with one person who they thought was the chief of like all the Comanche, but really was just in charge of this one band. And then you know, another band would have some other ideas. It was just like very destabilizing and is part of why, you know, Spain eventually basically just says we're not going to keep colonizing, like we're not going to keep building towns because we are already overextended defending what we already have.
- [29:38]
Bill Smead
Yeah, so. So explain how the Atchison, Topeka and Santa Fe railroad arriving in Albuquerque affected the town, but also how the railroad eventually attempted to market the town to folks like Einstein at a later date.
- [29:52]
Kyle Pauletta
Oh yeah, so the, the, yeah, the railroad is really kind of the thing that allows Albuquerque to become a full city. I mean it's, you know, before it again is this kind of agricultural village. And when the railroad arrives, they actually were first going to build the railroad a little ways north in a town that's called Bernalillo. And when they went there, there was this kind of, you know, old Spanish gentryman who was known as Don Paria. And when they are trying to negotiate for land to build the railroad depot, he quotes them, you know, a couple hundred dollars per acre which, you know, this is 1879. So this is a, it's sizable sum. And the railroad like packs up and just heads south and Albuquerque is the next town south. And there there was like a set of Anglo merchants who had moved there. And, and I mostly write about Franz Hunting who was a German immigrant who like many had come after the California gold rush and tried to get to California but run out of money and so ended up in Santa Fe running like a dry goods store. But him and two other Anglos had, had acquired a fair amount of land kind of outside the village of Albuquerque. And they make a deal with the ATNSF where they're basically sign over this huge tract of land for $1 in exchange whatever the railroad doesn't use then they, you know, will see a return on the back end from it. So they very savile are like once the railroad is here, this land is going to be enormously more valuable than it is now. Whereas Perea up north had gotten rich running wagon trains. And so he recognized like part of why he Wanted so much money, was like, the railroad's going to ruin me. Once the railroad's here, the wagon train isn't going to be profitable anymore. But, but anyway, so you have this really interesting thing where there's actually the original Via de Albuquerque, which is now Old Town, and then there's New Albuquerque one mile east where the train station is. And very swiftly, New Albuquerque outgrows Old Albuquerque. And you know, that question about Einstein, like where I mentioned him in the book is like, so the ATNSF, like all of these railroads in the 1880s, is spending a tremendous amount of money to, you know, build this infrastructure, but now they need people to actually ride the railroad.
- [32:36]
Cole Smead
Yeah, they got to have commercial passengers.
- [32:38]
Kyle Pauletta
Yeah, they were all basically real estate companies. So they needed ridership, they needed these cities to grow in order for all that real estate that was associated with the railroad to be worth enough that then they'd be able to pay back their investors in New York. And so what the ATNSF does is it really taps into like the indigenous history and the indigenous culture of New Mexico. And it's, and this is, they renamed their trains, you know, this, they have like the Big Chief that is the name of one of the trains. They run these so called Indian tours where when you're laying over in Albuquerque or Flagstaff, they'll take you up to a pueblo, take you to the Grand Canyon, take you to the Hopi. And so it becomes this kind of voyeuristic tourist experience for people from the east who, you know, may not have had any interaction with Native Americans to go to the west. And on their way to California, you know, they'll stop for a night or two and then go visit a village. And it's something that Einstein does this thing, Eleanor Roosevelt does many, many of the kind of leading lights of the turn of century America. They do these Indian detours because it's just kind of part of the, part of the vacation when you're, when you're heading west on the railroad. And why I'm kind of fascinated by this is that it very much feeds this idea of New Mexico especially, but also Arizona as this sort of like place of the past or place of this kind of sort of foreign version of America. And the railroad is partially why you get these art colonies in Taos and Santa Fe. And a lot of those early artists are hired by the railroad to make calendars that they can then advertise the railroad with. And I'm sure we'll get into talking about the history of Arizona a Little bit more. But it's also, you know, this is a time when people are first starting to see images of the Grand Canyon, first starting to see images of Monument Valley. And first kind of realizing, like, oh, after the Mexican American War, this region was thought of as basically just kind of the land bridge to California. And in the 1890s, 1900s, they're really waking up to like, oh, there's like, this whole world here that, like, doesn't quite is. It doesn't quite sync up with their ideas of America.
- [35:16]
Cole Smead
Yeah, yeah. So the other. The other thing that. And this shares in common with a lot of other major cities is Post World War II, suburbanization explodes across America. And every social history in every city, you can literally track with suburbanization, it causes major social upheaval because we started to say, hey, our cities are getting a lot bigger geographically. How do we plan those? And then the thing that comes in on the back end of that is the interstate system. And in every city, I've yet to see a social history where this went. Well, for the record, I mean, I just got to put that up there. But could you maybe explain how some of those issues the idea of suburbanization and then also interstate highways, because we had to take our cities, we had to literally cut a route in the middle of these cities to fulfill a federal mandate. In some respects, that was planned and deemed. And we used imminent domain for, you know. Can you kind of teach us about, say, in Albuquerque, how suburbanization, the interstate highway, changed the city?
- [36:15]
Kyle Pauletta
Yeah, yeah. Well, I think it. All of these cities, the interstate highways very much follow the railroads. So in Albuquerque, the, you know, it's I25 follows the route of the old ATNSF railroad in Tucson. It parallels that in Las Vegas, it parallels it just in Phoenix, I 10 mirrors exactly where the Southern Pacific Railroad came through, which was. And basically, you get this real pattern of basically segregation, where that old idea of like, the wrong side of the tracks. Yeah, like.
- [37:01]
Cole Smead
Like the south side of Chicago kind of idea.
- [37:04]
Kyle Pauletta
Exactly. And like, it. I'll put that, like, in Phoenix terms, like, south of the railroad tracks was where all the farm workers lived at the time when Phoenix was very agricultural. And you have this huge explosion of the cotton is industry. And all the farm workers live south of the tracks. So that when the interstate comes in, it kind of like rafies that line again. And that again remains like the part of the city with the least investment. And in Phoenix, you have through the 1960s, there's houses don't have running water. In Las Vegas There's a very similar history where it's running more north, south, but what's now west Las Vegas was on the wrong side of the track from downtown Las Vegas where the original casinos were. And there there's no paved streets. There's again very little plumbing. And it's actually the interstate highway system. Part of the deal to route that interstate of 15 where it is right next to the railroad tracks, was that some of the money from that project would go to paved streets on the west side of Las Vegas. So these, the interstates very much follow the railroad. But by doing that, they kind of, you know, reinforce this pattern of segregation that's felt, which again is not just a southwest problem, as you say. This is true in Chicago, in Boston and Atlanta, like, you name it. This is just like American urban history is like when you have these neighborhoods that are mostly black or mostly Hispanic. Was very intentional.
- [38:44]
Cole Smead
We hope you're enjoying the podcast. You know, we work hard putting together this show, but we work even harder for our investors at Smead Capital Management. At Smead, we believe in disciplined investing, which is why the SMEAD funds have a proven track record of long term outperformance. If you're an investor who plays the long game and want to invest in wonderful companies to build wealth, we invite you to visit smeadcap.com Past performance is not indicative of future results. Investing involves risks, including loss of principal. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges and expenses. Read and consider it carefully before investing. SMEAD funds distributed by Smead Funds Distributors llc. Not affiliated.
- [39:29]
Bill Smead
Let's talk about the origins of Phoenix. I hadn't thought of this just till he reminded me. I was in the grocery store. We were in the grocery store. This is a number of years ago and I was with a friend and I said, In 1960 there was 100,000 people in Phoenix and by 1970 there was 400,000 people in Phoenix. The window mounted air conditioner was adopted and allowed people to live year round here in the heat, which by the.
- [40:04]
Cole Smead
Way, used to be an add on to a vehicle. It wasn't standard, but I think it was. By 1980, 90% of the vehicles in the Southwest had air conditioning in them.
- [40:13]
Bill Smead
Yeah, so let's go back. Who was here along the banks of the Salt river originally?
- [40:20]
Kyle Pauletta
Yeah, so there's people that have been called like the Hohokam culture, also known as the ancestral Sonoran peoples, that from about like 400 to 1500 had this kind of vast agricultural society along The Salt River. And you know, archeologists now think that it was the largest agricultural society of North America. You're 30, 40, 50,000 people living in the area, which, you know, at a time when most indigenous peoples lived a little more nomadically, was a lot to be concentrated in one place. There's again some kind of climactic changes where most of those people go to the Gila river in the Santa Cruz. And then basically after Mexican American war and the gas and purchase, you have Anglo starting to come out to Arizona. And so you have that kind of first generation finding these canals that were left behind by the ancestral peoples and saying like, aha, like we can farm here because look at these, these ancient canals. And I think Phoenix often has this story of kind of this like, vanished people. One thing I write about in the book is that at the same time these canals are being found and first kind of being put to use again, just south along the Gila river, you have a U.S. army captain who's visiting the Tohano at Autumn Farms there and, and describes them as kind of the most verdant farms he had seen west of the Mississippi. So there was sort of still plenty of agriculture happening with Native Americans in Arizona.
- [42:07]
Bill Smead
Was that where they started cotton? Is that. Wasn't cotton a big crop?
- [42:12]
Kyle Pauletta
Yeah, so. So that was basically the early years of agriculture in the Salt River Valley. It's a little bit of a mix at first, but around World War I, almost all of the fields get turned over to cotton. Because during the war, at that time, the only source of cotton globally is really Egypt. But suddenly the world is at war. You can't get Egyptian cotton. So there's this huge cotton boom where I don't have the stats in front of me, but Basically there's a 400% growth in the amount of cotton that's produced in Arizona.
- [42:52]
Cole Smead
Pima cotton.
- [42:53]
Kyle Pauletta
Pima cotton, yes. Which is a form of Egyptian cotton that's kind of been genetically engineered for, for Arizona. But there's a huge bust after the war because in 1919, World War ends. Suddenly you can get Egyptian cotton again. And so there is all of these farmers completely lost their shirt because they had planted only this thing. They thought they were going to get like $1.50 per bail for it. They end up getting about like $0.20, $0.30. And so this is one of the, to me, one of the precipitating events that's like, oh, we need a less boom and bust economy here.
- [43:34]
Cole Smead
We've said that a few times here in Arizona before.
- [43:37]
Kyle Pauletta
Yeah, right.
- [43:41]
Bill Smead
It's funny you mentioned this, because I know water and making good use of water is what we'll talk about, I'm sure, later in the book. But when you convert cotton farm into residential area, I'm told the homes use less water than.
- [43:57]
Cole Smead
Well, yeah, that's in the. But we'll get that later.
- [43:59]
Bill Smead
We'll get that later. Okay, so teach our listeners about the Arizona highway magazine. How big was the publication and how important was it to the mind of the person that might come to this?
- [44:08]
Cole Smead
This might be the, like, the best part of your book, because this is like a social history I never heard, Kyle. So I think this is, like, major kudos to you because it totally. As soon as you wrote it, I was like, this makes sense. Like, no wonder people have been kind of dying to come here for years.
- [44:23]
Kyle Pauletta
Yeah, yeah. I mean, one of my huge questions, like, just growing up in Albuquerque is like, why is Phenix so much bigger? Right? And like, in the book I write about, before World War II, all of these cities have around the same amount of people. Like Phoenix, Albuquerque, Tucson, El Paso, all have around 100,000 people in them. But you just said it, like, after World War II, there's this explosion in Phoenix, and it grows much more rapidly than the other cities. So I was really trying to answer, how did that happen? What explains Phoenix's relative success, especially over cities like Albuquerque and Tucson that were much older and had a much more kind of established urban pattern? And I think Arizona Highways is sort of part of the key to the answer, that this is a magazine owned by the state Department of Transportation that was initially founded basically just to say, like, okay, we're building a new county road out in La Paz County. It's going to connect to this, like, very kind of schematic, very boring engineering. But there's a guy named Raymond Carlson who, you know, he grows up in Arizona and that goes to Stanford, comes back, is working as a journalist, and that when the Great Depression hits, he's out of work, but he has the great luck that his wife's uncle is elected governor. And so he gets this direct line to basically, like, a state job running this magazine. And in that role, he kind of reinvents it as a tourism magazine and says it's not just going to be kind of for road engineers. It's going to be for anyone who uses Arizona's highways, hence the name Arizona Highways. And so in pretty short order, this magazine goes from having a circulation of like, a couple thousand people in the transportation industry to Over a half million people, over 90% of them, live outside of Arizona. And the way he does that is mostly through photography that he's publishing, color photography on the COVID of Arizona Highways long before any other magazine. They have a color, color cover before National Geographic does. And these photographs are of the Grand Canyon Lake Havasu, of, you know, blooming ocotillo cactus, sedona, the Petrified forest. Sedona. Exactly. And it's. And the photographers he's getting are like Ansel Adams, Esther Henderson, like, very, very talented, famous photographers. And it sort of helps the rest of the country see Arizona through new eyes. Where before there was that stereotype we started with of, like, nothingness, vacancy, sand. And now there's these places that people may have heard about or seen kind of like an old, you know, I don't know, black and white photograph of. But now they're seeing it in color. They're seeing these kind of panoramic shots. And then Carlson writes in this very evocative style and has other writers do the same. That kind of really taps into that, like, Zane Gray Western novel, like, Romance of the West. Yeah, yeah, yeah. And. And at the same time that he's really kind of showing the rest of the country how beautiful Arizona is, there's also these features about water infrastructure, about dams being built, and about Phoenix and very much sort of these embedded advertisements for Phoenix as a city and as a destination where, you know, I think I quote one ad that literally says, like, get twice the house for half the money. Like, so. Like, this is the same thing you hear today that's happening in the. Yeah, it is still true.
- [48:27]
Cole Smead
So. So I want to. I want to pivot a little bit because. Yeah, you make a. So. And by the way, like, as a side discussion, I think a whole. There could be a whole department of study at a university around this. But you touched on something that I think is a very important. You talk about, like, Mesopotamia, for example, was an arid land, and there's a lot more history in arid lands than people claim to. And so as you were talking about, like, the east coast and the Southwest, I would argue, as you said, that I was like, oh, the Southwest is going to win this game because you look at the movement of people, you look at the development of capitalism, things like that. The Southwest is the best form of that in America today. I would say, now I'm biased, you know. You know, I live here. But I say that because I was thinking a lot about that paradigm. I want to shift a little bit, though, because Again, another paradigm that you said you were telling kind of the history of planting here and developing the agriculture and the canals. And you quote a line that they used at the time, which was rainfall follows the plow. Okay. Which by the way, if I was going to give you a theme of what I've seen in Arizona, like you mentioned, that was an ADOT publication, Arizona Highways. Rainfall follows the plow. So what are they plowing? They're plowing pictures and storytelling of Arizona. What happens rainfall is people show up eventually. And when you said that, I mean that is such a true paradigm for what we witnessed here where this isn't just like, oh, it randomly happened. No, there was plowing going on in advance of this. And I would say, you know, is that something you think of as you think across the Southwest or what I took away from your writing is that's more dominantly true from what we've seen in Las Vegas and Phoenix, hence why the growth has been so much stronger?
- [50:10]
Kyle Pauletta
Yeah, absolutely. And I love you taking that quote and kind of thinking of it beyond agriculture because it's absolutely the case that at the same time that Carlson is editing Arizona Highways, he's buddies with the Goldwater family, with Dwight Heard, with Del Webb. This whole.
- [50:29]
Cole Smead
Bimson was in there too.
- [50:31]
Kyle Pauletta
Yeah, Walter Bimson, the chairman of Valley national bank, that like all of these businessmen who are basically making the land fertile for development by offering tax breaks, by recruiting companies to come, like mostly aerospace and technology. And so like they out competed the rest of the region and El Paso actually, you know, El Paso once upon a time was sort of the leading economic center of the Southwest, mostly because of the railroads and its proximity to Mexico. And they, in the 70s, they commission a study that's basically like, wait, how did Phoenix surpass us? Like how did we, how did we lose? And I think it's, it is very much that they didn't have that kind of forward thinking vision and this idea that we can kind of fill this valley up if we like orient ourselves. Right. And I think Las Vegas does the exact same thing. I mean Las Vegas is the, the only one of these cities where there's no real indigenous history and people's like, you know, were nomadic and would stop there for, for water from the like springs, but there's no kind of settlement there. When the, the Mormons are first coming to the west, they send a party to settle and they abandon the Las Vegas Valley after a year and they call it the land the Lord has forgotten. Yeah, it was like so, so Sort of hostile. But with Las Vegas, between the railroad coming in and then especially the Hoover Dam being built, and suddenly you have the largest reservoir in the country next door. There was that opportunity again to kind of build something out of nothing, which to me is like the definitive Southwest act. And they just follow the blueprint of Phoenix, except replacement, you know, agriculture and aerospace with gambling. But it's the exact same playbook. Yeah, yeah. And entertainment.
- [52:31]
Bill Smead
So. So that leads us right into teaching our audience about the agreement struck in the 1920s on the Colorado River.
- [52:37]
Cole Smead
Because this is just so important. I mean, like that debate is going on right now.
- [52:41]
Bill Smead
Yeah. Vegas and Phoenix are very much connected by that. That agreement.
- [52:47]
Kyle Pauletta
Yeah. So this is the Colorado River. As probably a lot of your listeners know, this is the main water source for 40 million people between California and the rest of the Southwest. And so it all. Yeah, it starts in 1920, which is a period when again, these cities are starting to first grow. There's a lot of agricultural development happening in like the Imperial Valley of California and around Yuma and Arizona. And there's this recognition like California is bigger than the rest of the states that Colorado flows through combined. We have to come up with some kind of plan to manage how the water is going to be shared because otherwise California is just going to use it up.
- [53:31]
Cole Smead
Yeah.
- [53:32]
Kyle Pauletta
And so there's. There's a series of negotiations that kind of culminate in Santa Fe where all of. There's a delegate selected by each governor of the seven states and is overseen by Herbert Hoover at the time, who's like a secretary in that presidential administration. And they hash out the Colorado River Compact, which basically divides the basin into a so called upper basin and lower basin. Where the lower basin is California, Arizona and Nevada. Upper basin is the state of Colorado, Wyoming, New Mexico and utah, where the two basins split the river 50, 50, maybe a little extra goes to the lower basin because it is a more. A larger existing population. And it kind of. That's sort of the basic framework for how the river is shared. And then within the state, it's like each state from its half, then they kind of negotiate with each other about who gets what. But that's sort of the, that is the founding document. The problem with the Colorado River Compact is it was signed after a relatively wet period in the basin. So all of the estimates from the Bureau of Reclamation about the annual flow were off and off by a lot. And so they were starting by the 50s. Everyone knew, like, oh, we on paper there is more water than there is in Reality, but it's not a huge deal really until the 80s and 90s because the region just isn't big enough yet. But it's only in the 80s and 90s when Phoenix crosses the million mark, then the 2 million mark, Las Vegas begins growing really, really rapidly. And then you still have this, this huge amount of agriculture. And then in 2000, so 2000 is the last time that Lake Mead was full and the other big reservoir like Powell was full. 2000 starts what's been called like a mega drought, which really since then we have seen the level of these reservoirs drop and drop and drop. And so for the past couple years, we really are reaching, we have reached the limit of how much water is in the river to be shared. And so I write about in the book, kind of the negotiations that are now going where, going off this 1920 document, like, how do you use this sort of imperfect agreement to adjust to the current conditions where, you know, as the basin is drying out because of climate change, there's just less and less water available. How do you, how do you share in that time of scarcity? There's like a huge question overhanging all of us.
- [56:36]
Cole Smead
So Kyle, like as you were, you're, you're telling all these histories and you talk about some of the former sports that were played by the indigenous people and Native Americans that were here. And so like I was like, if the Martians came back like 10,000 years from now, they look down at Arizona or I even say like Nevadans, they say what was their favorite sport they played? And they'd be like, it was obviously California bashing because they were really good. But here's why I say it, because, and again, I think this says something about the lack of, you know, we've always lived in places of scarcity as southwesterners, so it's like scarcity doesn't bother us because we live in light of scarcities, to your point, versus like California, because it was the original settlement in many respects to benefit from the Colorado River. It grew up in abundance. Right? It did grow up in scarcity. And so I point that out because as I read your book, I thought, gosh, New Mexico, even Utah, Nevada and Arizona, I don't worry about those places because we have to plan. Like Bill said, I think if you like, you know, we use less water here in Phoenix today than we did in the 50s because as you talk about in your book, agriculture is coming down, which means as you replace agriculture with single family houses, the use per home is just far less than the same acre of agricultural use. But even down to you, you told. I want you to touch on this because I have this later in my notes, but I want to put it together with this. You talk about how Vegas use their water resources differently. They use conservation as the main pact, if you will, versus in a classic, like, you know, rainfall follows the plow in a classic free market way. Phoenix just says, you want to use water, you're going to pay the toll for it. And yet they still have been highly efficient.
- [58:19]
Kyle Pauletta
Yeah, this is. I mean, to me, these are kind of the two paths towards using less water. Where in Phoenix, it's just starting in 1990, they started charging more for water in the summer.
- [58:31]
Cole Smead
Correct.
- [58:32]
Kyle Pauletta
That's a really, really simple reform that has had a tremendous price.
- [58:36]
Cole Smead
Right.
- [58:37]
Bill Smead
The ultimate regulator.
- [58:38]
Kyle Pauletta
Yeah, yeah. Whereas in Las Vegas, it's been a little bit more of the stick. It's. I mean, there's a little bit of.
- [58:45]
Cole Smead
Carrot where supply side, like, take out your grass and we'll pay you. So it's kind of a supply side.
- [58:51]
Bill Smead
By the way, it's so ironic. So Cole and I are members at Phoenix Country Club, which, of course you got mentioned in the book, which is great. I love walking in there and looking at the original Phoenix Open.
- [59:01]
Cole Smead
History is wonderful.
- [59:03]
Bill Smead
And. And so there'll be an event at the golf course and you have to sign up the moment it opens because it fills up, they're rationing it.
- [59:12]
Cole Smead
Versus just saying, hey, let's pay a market price. We're going to like, hey, constantly tell.
- [59:16]
Bill Smead
Them, the guys in the, in the pro shop and the member committee, you gotta charge a lot more for these events because if somebody wants to play, they should have to pay more.
- [59:26]
Cole Smead
And you were tugging at my heartstrings because, just so you know, like, we come from the Northwest. We moved here five years ago. I actually graduated high school here in the state of Arizona, so we'd spent some time here before. But I love grass. I will be the first one to tell you, you do not want my water bills in the summer. But you know what? I'm really proud to be able to have the economics to pay those water bills. And you know what, what does that mean? We're going to invest that extra profit I'm giving them into the supply of the future. For water. It's all about charging prices to invest for the future. Which I find, again, it's rainfall follows the plow.
- [59:58]
Kyle Pauletta
Yeah, well. And I think the thing that drives me crazy as a journalist who covers this stuff all the time is Every time there's a story about the Colorado river or water scarcity, including stories I've written, the art is usually of a subdivision. Right. And often.
- [60:15]
Cole Smead
Yeah, it's a division thing with.
- [60:17]
Kyle Pauletta
Yeah, yeah. And 80% of the water in the region goes to agriculture.
- [60:22]
Cole Smead
I know, I know.
- [60:23]
Kyle Pauletta
And it's just like, if you're it, like the. I just think you need to be looking at an alfalfa field in the Imperial Valley.
- [60:31]
Cole Smead
Well, yeah, that's owned by the Saudis that people would tell you about here in Arizona, where the Saudis are the alpha field. And it's like, oh, it's a national security and a water crisis. Yeah, it's everything wrapped into one. And it's coming from a journalist in Manhattan. And you're like, right. I don't know if this adds up, but okay, well, you know, and like.
- [60:46]
Kyle Pauletta
So, like, the Imperial Valley uses more watering or is entitled to more Colorado water than the entire state of Arizona. And. And I don't, you know, I don't want to, you know, pick a fight with the farmers, but.
- [61:01]
Cole Smead
Go ahead.
- [61:01]
Kyle Pauletta
But. But it's. There is, to me, if you want to talk about, like, rational water uses, and I have the. The head of Las Vegas Water Authority, John Entsminger in the book saying, like, we are not going to get into a situation where 40 million people don't have water so that we can keep growing alfalfa, keep growing cotton in the desert. Like, it's. It's just fundamentally irrational. And so to me, like, yes, residential users should be using less water if they can. But to me, there is actually plenty of water to go around in the region. It is just used really inefficiently. It's allocated really inefficiently. And so when people, you know, when I'm talking about the future, I'm not worried about water, actually. Like, water is a problem we can for sure solve. Like, Las Vegas recycles 40% of its wastewater LA spending $8 billion to do its own version of that program. Phoenix is in an earlier stage of having a water recycling program. Like, we will. There will be water for people who.
- [62:16]
Bill Smead
Need water in Las Vegas. They want you to drink alcohol anyway.
- [62:20]
Cole Smead
Yeah.
- [62:22]
Bill Smead
They don't want people to sit down to dinner and have a glass of water.
- [62:26]
Cole Smead
Hey, I want to give a big shout out to everyone who's been working so hard on this show. You know, we recently hit the top 10 in investing podcasts on Apple Podcasts, and even number one in the business category in several countries. As you may know. This show is brought to you by SMEAD Capital Management. Smead Capital Management understands how frustrating and illogical the stock market can be. If you are searching for funds with a proven track record, give the SMEAD funds a look. Or better yet, reach out@smeedcap.com and don't forget to mention you're a fan of the the podcast. Past performance is not indicative of future results. Investing involves risks, including loss of principal. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges and expenses. Read and consider it carefully before investing. Smead Funds distributed by Smead Funds Distributors llc. Not affiliated. You point out one of the most understated facts. When you get a single family housing permit here in the state of Arizona, you have to have rights to 100 years of water to get a permit. Doesn't mean the house is built. So we've already taken out of the water allocation houses that have never been built yet. And again, why? Because when you're desert people, you plan. And I think that's so underwhelmed by a lot. I want to pivot, actually, because I want to come back to El Paso del Norte, as I, as I like to think of. Originally, it was a Spanish mission, but it was torn into two. And I love this. Like, you talk a lot about the history of it being torn torn into, into two by the, the Treaty of Guadalupe Hidalgo. Okay, but yet that divides the town by the, by the Rio Grande. But it doesn't really divide the town yet.
- [64:06]
Kyle Pauletta
Yeah, yeah. And that, you know, so you have that treaty assigned. And basically immediately Americans rush in to settle the north side of the river, which is today's American El Paso. Whereas, of course, Juarez is on the other side. And that's the original kind of city of El Paso. And they, it really is like, you know, one city. I mean, I would compare it to like Budapest in Hungary or, you know, one of these, these classic kind of river cities that has two sides that are in constant conversation. And you know, I write a little bit about like during Prohibition, El Paso becomes a huge magnet because everyone can just go across the river to get their booze in Juarez. And you know, during the, the early railroad era, part of why El Paso becomes so synonymous with the Southwest is it's where all these like, Hollywood stars are stopping when they're taking the train between California and New York because they want to go to Juarez, because Juarez has nightlife. It's very kind of like a real destination.
- [65:15]
Bill Smead
Yeah, my wife and I just watched a movie with A couple of famous actors where they're across the border and there's all kinds of evil being put on them. So how did reigning in vice ultimately change advantages the town had in the earliest?
- [65:31]
Cole Smead
When you talked about it being the capital of the Southwest originally, I thought to myself, if the Great Depression had not come about and prohibition had not come about, Vegas would not be a town today.
- [65:43]
Kyle Pauletta
Yeah. Oh, I think that's very possible. I mean, like, El Paso was the original Las Vegas. Like, and I think you're right, that is the Great Depression as a Prohibition. I think it also, there was a little bit of, I don't know what I'd call kind of like Texas Puritanism that. That really became influential. And in many ways, El Paso is the least Texas part of Texas. But it is part of Texas. But, you know, even after Prohibition, Texas still outlaws hard liquor for a really long time.
- [66:20]
Cole Smead
Yeah.
- [66:21]
Kyle Pauletta
And so I think it lost that. If you want to think of that as kind of a competitive edge, it loses that competitive edge.
- [66:28]
Cole Smead
Sure. Well, even. Even out to like the story of the Texas Western basketball team, again, it's still the least part of Texas.
- [66:33]
Kyle Pauletta
Yeah, yeah, yeah. Which is. I mean, it was a fascinating.
- [66:37]
Bill Smead
Great story.
- [66:37]
Kyle Pauletta
Great story.
- [66:38]
Cole Smead
Yeah, yeah, yeah.
- [66:39]
Kyle Pauletta
That I wish I could have included more in the book. But then the other big thing in El Paso, that is of course, like the history of free trade. And I have, I talked to a journalist down there, Bob Moore, who's covered the city for a long time, and what he told me is like, El Paso basically made the wrong bet coming out of World War II, where when Phoenix and Tucson and Albuquerque were all betting on high tech aerospace, El Paso was betting on manufacturing and betting on especially clothes manufacturing.
- [67:14]
Bill Smead
Cheap labor.
- [67:15]
Kyle Pauletta
Cheap labor. And built, you know, Tony Llama boots and Levi jeans. And like, it is the. One of the largest garment manufacturing centers in the US for a long time. But what happens in the 1980s when we start having the maquiladoras in Mexico and then we get nafta, like all of that manufacturing, like, this is a story everyone associates with the Midwest. Right. But El Paso is one of those cities that got hollowed out by those trade agreements, especially because the job was right there. Yeah, yeah, yeah. Like, it was so easy to move those factories. And so it's a city that, you know, part of that twin personality of El Paso and Juarez is this is sort of like the. The side of it that wasn't good.
- [68:06]
Cole Smead
For El Paso or like congenital twins and one ate the other.
- [68:11]
Kyle Pauletta
Exactly. Yeah. And like, economically, I Think you can really argue that Juarez ate El Paso.
- [68:17]
Bill Smead
Yeah, yeah.
- [68:18]
Kyle Pauletta
And in more recent years, like, there's a military, cartel wars, and the. Yeah. Like, it gets. It gets more and more complicated and then with kind of the militarization of the border, like, it's a fascinating, fascinating place that. Yeah, I, I have, like, a real love for El Paso, having spent a lot of time.
- [68:36]
Cole Smead
Oh, by the way. So it's the only city, I think, in the Southwest that I have not been to yet. And so I, As I was reading your book, I was like, oh, man, I got a road trip coming. I got to.
- [68:46]
Bill Smead
And I've been to Las Cruces because my sister lives in La Cruces. But people that live in Las Cruces aren't very anxious to go to El Paso.
- [68:54]
Cole Smead
Yeah, right.
- [68:55]
Bill Smead
It's 45 minutes.
- [68:57]
Cole Smead
Let me. The last city I want to touch on briefly. Another great quote. I mean, you had so many good one liners. I think you touched the pulse of these cities. And I love this.
- [69:06]
Bill Smead
We love your book. Everybody should buy the book and read it.
- [69:09]
Cole Smead
Yeah, yeah. So Bruce. I'm probably gonna mispronounce the name, but Bruce is it. Bruce Bigot is the philosopher Bruce Bigot?
- [69:17]
Kyle Pauletta
Oh, yeah, the French philosopher Bruce Bigot.
- [69:20]
Cole Smead
He said Las Ve is born to radiate, to flash, to explode. Okay. And I thought your story of the Kim sisters explains that. I think of the nuclear testing going on, you know, where literally people would stand in Vegas in like a deck, you know, awning area and watch a nuclear bomb explode. And then you think of like Super Bowl Sunday in Vegas. That is Vegas. That is the most defining history and issue of Vegas.
- [69:49]
Bill Smead
That's where you go to explode.
- [69:51]
Kyle Pauletta
Yeah. Right.
- [69:52]
Cole Smead
So, but then. So you talk about the Kim sisters, which I know we don't have time to go into, but I do want to mention that. But then you also talk about the connection, the most befuddling thing. I could not believe this. But explain briefly the connection between the Mormons and Steve Wynn, who is, you know, he. I think of Steve Wynn is kind of like he wasn't Bucky Siegel, but in the legacy of what Bugsy tried to do in Vegas. Steve Wynn perfected that in many ways.
- [70:15]
Kyle Pauletta
Yeah, yeah. And in the book, I try to kind of tell the history of like, how Las Vegas went straight, like how it went from this mobbed up town to a place where all these companies are traded on the stock exchange.
- [70:28]
Cole Smead
Yeah.
- [70:28]
Kyle Pauletta
And Steve Wynn to me, is kind of the, like, pivot point. And he's the personality who catalyzes that. But yeah, I. It's the influence of Mormon money on Las Vegas can just like, not be overstated. That from the very beginning there were all of these, you know, harebrained schemes to build a casino out in the desert at a time when that was an unproven thing. And it was the banks in Salt Lake City were the only ones who were willing to do that. And that continues. So, like Bugsy Siegel gets money from the Salt Lake City banks. The other kind of early establishers of these casinos do. And I write that there's a period where there's a plane departing from Las Vegas to Salt Lake City every Monday with millions of dollars that is like these mobbed up casinos paying back their creditors.
- [71:25]
Bill Smead
Yeah, well, just to give you a little background. So the Circus Circus Enterprises, which was William Bennett and William Pennington, actually preceded Wynn. And they started with inexpensive room, inexpensive food, circus acts bring the kids, et cetera. And then they built the Excalibur, the Luxor and the Mandalay Bay, which actually they were a little bit ahead of Wynn, but Wynn took it, said, heck with these kids. Let's just take these adults to a level of decadence they've never even thought of before.
- [72:05]
Kyle Pauletta
Yeah, absolutely. Yeah. And the way that he gets established in Vegas. So he himself just has like a fascinating story of his father ran kind of small time casinos in upstate New York. And he has, he talked about, like, first going to Las Vegas when he was a kid and being kind of like overwhelmed by it, but he kind of gets connected with another one of these bankers whose name was Perry Thomas, who was, you know, connected to this, like, legacy of investment in Vegas. And when would later describe Thomas as like a sort of a second father? And Thomas helps him buy into, you know, his first kind of investments that then eventually get into, you know, Treasure island and then the win and the like. Like, he sort of. When not only did he kind of recognize, he was very good at kind of figuring out, like, here's how this city works when he decided he wanted to move there. And that includes where the money comes from. But I think why he's so remarkable is it also he has such a sense for the like, like the visitor experience, because he had had that kind of first just like was blown away.
- [73:26]
Bill Smead
By his audacious experience.
- [73:28]
Kyle Pauletta
Yeah. And that's why he's like, you know, he's swimming with dolphins and he's wearing these crazy suits and, and like, you know, not necessarily a guy I would like to spend any time with eventually.
- [73:42]
Bill Smead
Eventually he got money from Milken, as they all did.
- [73:45]
Kyle Pauletta
Yeah, right.
- [73:46]
Cole Smead
But.
- [73:47]
Kyle Pauletta
But very much just like someone who. His finger was on the pulse of like what America wanted.
- [73:52]
Bill Smead
Yeah.
- [73:53]
Kyle Pauletta
And like he knew how to monetize that.
- [73:56]
Cole Smead
Well, the other thing you mentioned too is Bimson from Phenix here. You know, he was also taking capital, obviously, you know, the other people that had some ties, you know, I think Del Webb had some land up there too. So the other, the other current that I, I don't think we've seen, but I think we will see more of is that idea of like. So for example, we own a bank here locally, a piece of a bank called Western alliance bank, originally started in Vegas, moved to Phoenix. I think we're going to see a lot more cross connection of the Southwest because as capital builds, wealth builds, people builds. It will be less resources from the outside and in more. I'll call it intra region investment, which again has been historic but not as more prevalent I would say in the recent past.
- [74:39]
Bill Smead
Yeah, the Boyd's. The Boyd started that.
- [74:41]
Kyle Pauletta
Yeah, yeah. Well, and just to touch on Bimson, like he was a real again this idea of like the bankers who are willing to fund this stuff, no one else. Well, Bimson survives the Great Depression because he's willing to make these kind of smaller loans to individuals to buy cars or you know, these kind of smaller purchases, which he was a real pioneer on that kind of lending. And it allowed him to build this huge, you know, bank which then goes on to make like a $600,000 loan to Bugsy Siegel to finish the Flamingo in Vegas. Yeah, but, but I think you're totally right that like there is, there is a little bit of that history of the kind of like regional banking and those, those things happening within the region. And I totally agree. It's only going to continue.
- [75:33]
Cole Smead
Yeah.
- [75:33]
Bill Smead
In 99 we saw Frankie Valli and the Four Seasons at the Desert Inn and played golf at the Desert Inn. And soon that, that golf course disappeared and that casino disappeared to build another, you know, gargantuan.
- [75:50]
Cole Smead
I was kind of leave you as a last question on this, Kyle, but again this might be what you could answer to is like, you know, again you touch it and by the way, it's like tongue in cheek when I say this. I think of the term that I think of Vegas and Phoenix is like white canvas. And it's kind of a double entendre. Right. Because there is truly a quote unquote white canvas to those cities versus what I'll call The eastern part of the Southwest doesn't have that same white canvas. There's more of a story that was entrenched and could kind of like a bigger picture question being like, the people that just didn't have a story or didn't care about their story has seen a lot more economic progress versus to your point, the investment, the feeling of ownership of a story has kind of shown more of a lack of willingness to test new theories, if that's fair.
- [76:40]
Kyle Pauletta
Yeah, I mean, I think there's a real deep split between Phoenix and Las Vegas as kind of the new version of the Southwest, and Tucson, Albuquerque and El Paso as kind of the older part of the Southwest. And I think a lot of it does have to do with that kind of. Because there was not an existing, you know, Mexican or Spanish speaking population. It just was more easier for people, for namely white people from other parts of the country to kind of see themselves in and to kind of of whatever their dream was. Say, like, yes, I can truly use this, like, white canvas. Whereas if you were trying to make the same kind of investment in Albuquerque, you know, going back to Dom Perea and Bernalillo, like there were, you know, wealthy people who came from the Spanish colonial tradition or were Mexican businessmen. Even in El Paso, a lot of that history after the city gets split is Anglo businessmen moving, marrying the daughters of the Mexican businessmen who are very successful in order to kind of like get into what were very insular societies.
- [77:54]
Cole Smead
Sure.
- [77:55]
Kyle Pauletta
And so I think that's part of the story of why Phoenix and Las Vegas have outgrown them. And it also explains why Albuquerque, like, never really recovered from the Great Recession the way Phoenix and Las Vegas did.
- [78:08]
Bill Smead
You didn't mention the guy with the. The chicken restaurants, right?
- [78:13]
Cole Smead
Well, because your point, I find it very interesting. So, like, you can find flights to tourist destinations in New Mexico, but not really business districts in Mexico, which is very interesting to me because it's like we're so close and yet commercially, you know, San Antonio is closer commercially than Phoenix is. So I still see those lines where it doesn't make any sense. I mean, all the way out to like, I was befriended with someone, he works with a very wealthy Mexican family, and those relationships are plausibly there. But you, again, in this part of the Southwest, it's not as close as you'd expect, even though geographically it is.
- [78:52]
Kyle Pauletta
Yeah. And so I think there should be five flights a day between Phoenix and Monterey.
- [78:57]
Cole Smead
I think there's like one or two max. And it might even be like part of the Year. Kyle, where can people follow you? We're going for. Because this is your first book. You don't look like an old man. I assume you're a young man. You got a lot to write and I love your storytelling. And so where can people follow you? Where are you at in social media and things like that?
- [79:15]
Kyle Pauletta
Thank you. Yeah. So you can across social media. It's just my first initial last name, K. Paletta on, you know, X Instagram Blue Sky. I have a substack that I like when I write stuff for magazines or have a new piece coming out or if I'm doing like an appearance about the book. Like I was just at the LA Times Festival of Books. Like that. Usually my, my newsletter is like the best way to, to keep up with all that stuff. So. Yeah. Or just go to cloudpilada.com where all.
- [79:47]
Cole Smead
My stuff is cool. And we also did mention that obviously two back, which was the original settlement, you know, south of Tucson is where also the Tubac resorts where Tin cup was also. I wanted to make sure to give all the golf aficionados a little flair.
- [80:04]
Kyle Pauletta
I'm sorry to my Tucson people. We didn't talk nearly enough about. About Tucson, which is.
- [80:09]
Cole Smead
I agree we didn't. But I will say this, and I think the original cattle ranches down near Tubac or down near Nogales are some of the most beautiful lands in all of Arizona or maybe the Southwest. So yeah, I have a true, I have a true hankering at some point to wake up as an old man sitting out on like a few hundred acres of parcel and enjoying my life.
- [80:33]
Bill Smead
That one Flintstone street in Tucson doesn't do Tucson justice. It's a beautiful place with just incredible place. But they got that one road that runs and it's like being in a Flintstones where the same scenery passes you every four or five.
- [80:48]
Kyle Pauletta
You mean like Speedway Boulevard?
- [80:49]
Cole Smead
Gas station?
- [80:50]
Kyle Pauletta
Gas station.
- [80:50]
Cole Smead
Gas station. It could be the same street for miles.
- [80:53]
Bill Smead
Yeah.
- [80:53]
Cole Smead
There's no way to skip it.
- [80:54]
Bill Smead
There's no way to skip it.
- [80:55]
Kyle Pauletta
You have to drive.
- [80:57]
Cole Smead
Kyle, thanks for your time. Your book makes me want to go on a road trip like I said earlier and want to do a lot more adventuring here in the Southwest. And I also think the other thing your book brings to light is it still sits as a frontier that I would argue is misunderstood. Our listeners should go buy a copy of American Oasis today. I'm not worried about people that have had to deal with like we talked about earlier scarcities before. It's the people that have only seen abundance that may not be ready for the next crisis or what I would argue is just the unknown future. If you enjoyed this podcast, go to Apple, Spotify, YouTube or wherever you listen to A Book With Legs, give us a review. Tell others about the great books and the authors like Kyle Pauletta that we get to have the opportunity to study and understand the world with and through for our tribe. If you have a great book that you'd like to recommend, email podcastmeedcap.com that's podcastmeedcap.com you can also send your suggestions to us on X. Our handle is meedcap. Thank you for joining us for A Book With Legs podcast. We look forward to the next episode.
- [81:59]
Bill Smead
Thanks everybody.
- [82:00]
Kyle Pauletta
Thank you for listening to A Book With Legs, a podcast brought to you by Smead Capital Management. The material provided in this podcast is for informational use only and should not be construed as investment advice. You can learn more about Smead Capital Management and its products@smeedcap.com or by calling your financial advisor.