0:05

At a time when investors are

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confronted with market volatility and a

0:10

variety of challenges fueled by the

0:12

uncertainty of inflation, unsettled

0:14

geopolitical tensions, and

0:17

economic pressures, Justin

0:19

Klein and Steve Peasley stand ready

0:21

to take your finance and investment

0:23

questions and share their unbiased answers.

0:27

This is Investalk. Independent

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thinking, shared success. Investalk

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is made possible by KPP

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Financial, a registered investment advisor

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firm serving clients throughout the

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United States. The

0:41

clarity for your path forward

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starts now. Here

0:45

is KPP Chief Executive Officer,

0:48

Financial Advisor, Justin Klein.

0:52

Good afternoon fellow investors and welcome back

0:55

to Investalk. This is our Monday, April

0:57

29, 2024 edition of Investalk. Happy

1:02

Fed Week to everyone out there. We

1:04

only have one more trading day left

1:06

in the month of April. To

1:09

celebrate all of that, we have Luke Guerrero

1:11

back with us. Thanks for being here, Luke.

1:14

Justin, I feel like it's been a while since we've done

1:16

this show together, so it's good to be back. Yeah.

1:19

In the same room, so to speak. It was good to

1:21

have the nice banter back and forth. Never

1:23

hurts, right? Well, I

1:26

know a lot of our listeners love that. Hopefully,

1:28

we have a great show today and I

1:30

do think we do. We have so

1:33

many great topics to cover. We

1:36

have tons of data

1:38

and perspective, developed over

1:40

20 plus years of investment experience

1:42

to help guide you through these

1:46

new markets, this different economic environment.

1:48

We have so many topics to

1:50

go over today that color this

1:53

new regime that we are in. Higher

1:56

rates. This is one thing I'm excited to talk about today.

1:59

We have a Fed meeting. Everyone's

2:01

clamoring for lower rates, but

2:03

will that actually be good for

2:06

the economy? We're going to talk about that. But

2:09

we're also going to run down the show topics,

2:11

the rest of them for the day, as well

2:13

as the market performance. But as usual, Luke, we're

2:15

going to hit our first caller question now. Hi,

2:18

I'm calling today about Caterpillar, ticker

2:20

symbol C-A-T. I own this

2:22

stock and I'm up a good amount. I was wondering if

2:24

you think it's time to trim a little bit or

2:27

how you feel about the sector, maybe

2:29

Caterpillar or both, Deere as

2:31

well. Caterpillar had its

2:33

earnings and the stock dropped a little bit.

2:35

Just want to see what your take was

2:37

and what you think about the future. Thank

2:39

you. Bye. All

2:42

right. Looking at Caterpillar, pretty

2:44

much the largest producer of

2:46

earth-moving construction mining equipment out there

2:48

in the world, $175 billion market

2:50

cap. Luke,

2:55

this has been up. The

2:57

caller said they're doing very well. But

3:01

I think people tend to trim

3:03

their winners a little too quickly. So

3:05

that's my first inclination here because this

3:08

is in a nice uptrend, relative strength is 91. And

3:11

that's after a recent pullback in

3:13

markets and earnings that disappointed, but

3:15

it's been rallying since that disappointment.

3:17

So the technical picture is fine.

3:20

So earnings growth is expected to slow this year

3:22

and next year, only 2% growth this year and

3:24

5% next year. But

3:27

amid the teens P ratio, that

3:29

seems pretty reasonable to me and a good business. What

3:31

do you think? No,

3:33

it's a great business. They recently beat on earnings.

3:35

Like you mentioned, their profitability has been improving, their

3:38

cash flow has been improving for the past couple

3:40

of years. I would say that

3:42

one thing that I would consider when holding

3:44

this company and not starting to trim a

3:46

little bit is, and it's something you and

3:48

I are going to talk about a little more in the show, a little later

3:50

in the show. And that is Where the

3:52

path of rates is going to be. And

3:55

So, you know, there is a non-zero chance

3:57

now, according to the market, that rates may

3:59

go higher. And so a company

4:01

like this is a grizzly capital intensive

4:03

and their customers are also companies. That

4:05

are great incredibly capital and has affected her revenue

4:08

even seat and projected revenue growth for this year

4:10

actually supposed make less in terms of revenue though

4:12

they're slightly better on the profit margins than last

4:14

year. Things like your growth really is slow is

4:17

slowing a little bit so that's early for me

4:19

to be concerned about. And lastly, I tend to

4:21

say it a lot. know I'm going broke take

4:23

a profit, so I think it's reason to sell

4:25

your whole position. But if you're up quite a

4:28

bit. Tobin. Yeah,

4:30

I think very are rebalance at

4:32

this point is not a bad

4:34

idea, especially considering we're probably heading

4:36

into a bit of that more

4:38

choppy of a market environments for

4:40

the balance of the year. But.

4:43

With that being said, I love the business.

4:46

Return on equity is sixty percent return of

4:48

us the capital, twenty percent. It

4:50

does have some Dallas bouncy, but not

4:52

nearly enough to to to. To.

4:54

Really worry about times it's just earned

4:56

his one hundred and seventeen. so you're

4:59

for perfectly fine their arm and then

5:01

it's business is I think in the

5:03

crosshairs of so many. Great.

5:05

Long term trends that is you

5:07

know restoring a manufacturing that takes

5:10

a lot of earth moving equipment

5:12

in order to you know grade

5:14

that the lands and and build

5:16

the the the actual facilities and

5:18

then you're talking about mining in

5:21

our that that the he value

5:23

of rock bodies. It

5:25

in his go up you see

5:27

copper breaking out gold breaking out

5:29

on and them that that incentivise

5:32

is mining activity makes it more

5:34

profitable and therefore you're my need

5:36

more Caterpillar machinery south. I.

5:38

Think this is a solid name. I

5:40

wouldn't be quick to the cell much

5:43

if at all, but you know it

5:45

or of a prudent rebalance and never

5:47

hurt anybody. And explore.

5:50

The com. As go to. Teared.

5:53

Up in San Jose looking

5:55

at any the axes as

5:57

the Nasdaq index voucher looking

5:59

at. That. The corner. Of

6:03

a fellow Either choose looking at

6:05

my school corporation. M A S.

6:08

O M A S. Okay yeah, Moscow

6:10

of is the name we actually own

6:13

for clients are they make a variety

6:15

of home improvement, a building products and

6:17

you know the one of the reasons

6:20

we own this is not just because

6:22

it's great business, it's profitability or is.

6:25

Very. Solid Are Teresi capital about

6:27

thirty percent. I. Return equity is

6:29

extremely high here. How I want a

6:31

return at sunset: Seventeen percent so or

6:33

everything looks get there. But I like

6:36

the secular trends on. you know, just

6:38

think of the average homeowner. the has

6:40

those golden handcuffs. three percent mortgage. And

6:43

they can either trade in their home. And

6:45

their mortgage for a new one. Or.

6:48

They. Can keep their mortgage stay in their home.

6:51

And. Maybe remodel the current

6:54

home? Guy. And

6:56

so that's all we're saying is

6:58

is as a higher propensity for.

7:01

People. Going out there and India

7:03

in Edu didn't Yeah, why projects

7:06

remodel your home, etc. Or the

7:08

own brand like Delta Faucets eyes

7:10

and so they sell Showerhead. They

7:13

have a paint on the painting

7:15

toting under the bear and kills

7:18

brain cells. It's just a very

7:20

very quality, well diversified home improvement.

7:23

Business. I'm and so are the

7:25

three. Some pullback I think is an opportunity

7:27

to pick up shares. What Do you live?

7:30

The other really to add from the fundamentals I just

7:32

emphasize the point the you made which is. People

7:36

have been saying for some time that interest rates

7:38

are going to go down and mortgage going to

7:40

go down because Vivid Mortgage rates are picking that

7:42

up again south. The reason why this company does

7:44

well as early? Still going to be the case

7:46

for Seaworld. Moscow.

7:50

M A S is the symbol. Now

7:52

look, we have a lot of ground

7:54

to cover over the next forty minutes

7:56

or so and our main focus is

7:58

regards to the. I know fiduciary

8:01

rule and how it clarifies when financial

8:03

professionals must act in the best interest

8:05

of their client. Is is so important.

8:08

Because. So many people focus

8:10

on that, they focus on

8:12

a dividend. Fox's gives me

8:14

on on the. Role.

8:16

That a financial advisor is taking or when

8:19

the giving advice. So we're going to look

8:21

at that rule and like how that might

8:23

impact the markets were from other topics have

8:25

a higher it straight was actually impacts the

8:28

the overall economy. ah and how does ah

8:30

and if you others as well as a

8:32

voice been questions one isn't great go as

8:34

well as rolling a for a three be

8:37

to a Roth Ira and of course some

8:39

comments questions from our You Tube channel but

8:41

ultimately. This. Hours for

8:43

you. So. We're going to short

8:45

break. Bonus: I will talk about of whatever

8:47

is on your mind so give us a

8:49

call at Eight It Eight Ninety Nine! Sure.

9:00

When. Listener questions are played on

9:03

the Invest Talk Podcast how

9:05

do you guys determine a

9:07

valid stock? The color voices

9:09

are amplified many thousands of

9:11

times. Sunday Opinion on Jp

9:13

Morgan on be A see.

9:16

How do you see this and looking

9:18

for work and twenty five years old

9:20

and have a question about retirement funds

9:23

and the unbiased answers from just and

9:25

flying? That's why trading so cheap because

9:27

there's a lot of regulatory risk and

9:29

Steve easily. I kind of like it

9:32

here if I was gonna by Tyson

9:34

Foods as as worried by Benefit the

9:36

entire and best thought community. Thank you

9:38

for Wow you guys do. That's why

9:41

Twenty Four Seven, Rain or Shine No

9:43

matter how simple or how com floats

9:45

your questions. make a difference

9:47

symbol bk the what's your

9:49

outlook and invest talk is

9:51

made better by the power

9:54

of you so don't forget

9:56

to call eight eight eight

9:58

ninety nine chart The

10:08

rule of achieving financial

10:10

freedom requires unvised information,

10:13

strategic planning and determination.

10:16

Congratulations. You found

10:18

the podcast that is dedicated to

10:20

helping you succeed in VetsTalk. Let's

10:27

take a look at the market

10:29

for today. It was the

10:31

first day of Fed week. We

10:34

have the Fed meeting kicking off

10:36

tomorrow with an announcement on rates

10:38

on Wednesday. There is

10:40

a nearly 99% chance that

10:42

the Fed will do nothing on

10:44

Wednesday. But per usual,

10:46

it's not about what they do. It's

10:48

usually priced into markets. It's about what

10:50

they say about future path of policy.

10:54

What's interesting here is not

10:56

just about that future

10:59

path of interest rates, but it's also going to be

11:01

about QT and the

11:04

wind down of QT. What's

11:07

going to happen with the

11:10

Treasury quarterly refunding

11:12

announcement? That's going to be

11:14

big as well. They're going to issue

11:16

more notes or bills. They're going to

11:18

issue more notes that will pull liquidity

11:20

out of the market and precipitate a

11:22

broader market pullback. If you get

11:24

more bills,

11:27

shorter-term duration security is being issued,

11:29

that's not going to take

11:31

a lot of risk on the people's

11:34

or the corporation's balance sheets. Therefore,

11:36

that improves liquidity. A

11:39

lot of factors to look into

11:41

for this upcoming Wednesday. It'll be

11:43

very interesting to see the market

11:46

reaction. It'll probably take a couple days,

11:48

probably by the end of the week,

11:51

for this to all settle out. On

11:53

top of that, we have earnings season. We

11:55

still have, I think, Apple this week, if

11:58

I Remember correctly. So.

12:01

Ah, Be very it's and

12:03

to see how that plays out

12:05

elsewhere. Another voice paint question from

12:07

Elite Ninety Nine chart. A

12:10

as trying to reach just in a

12:12

loop. This is Andrew for the Lana

12:15

I'm calling about the bottle and ticker

12:17

symbol G G G that gray go

12:19

incorporated as hell This stop for a

12:21

while saw the it's just fallen on

12:24

it take a few more shares of

12:26

it. I'm curious that he to check

12:28

the fundamentals. On this other hand is

12:30

the start going forward. Big.

12:33

Fan of the show! Thanks guys! Have a great day!

12:36

All right looking at Draco and is

12:39

learning that we like and we are.

12:41

We just recently started buying it for

12:43

clients on this pullback. And

12:45

would they do they make may

12:48

they may actually quit using facing

12:50

fluid coding is he says. Ah

12:52

and they had. The. Other

12:55

applications for mainly industrial

12:57

processes. They're out of

12:59

Minnesota. At a mid cap

13:02

name fourteen billion dollar market cap. Very.

13:04

Little debt on his rounds you Nexus

13:07

net cash balance she was the turn.

13:09

Equity a twenty three percent return of

13:11

us to capitalise twenty two percent. So

13:13

definitely this is a good buying opportunity

13:15

on this pullback. And.

13:18

It is that to some support that

13:20

eighty two the major sports going to

13:22

be however down around seventy nine hundred

13:24

and eighty dollars. so they'll be major

13:26

major support see to get there by

13:28

eyes. Currently at some they support. Our

13:33

it. Ah. Luke. Let's a

13:35

pivot over to our main focus

13:37

point today, and that is in

13:39

regards to the fiduciary rule. And

13:42

this is a follow up from

13:44

the twenty one he. Rule

13:47

that governs are a

13:49

lot more. Bomb

13:52

or actions that that come out of

13:54

com A financial advice or this is

13:56

coming from the Department of Labor. Okay,

14:00

And. This. Is covering

14:02

mainly. It's going to cover mainly

14:04

two types of investors or help

14:06

to tax the best. Years one

14:08

will be the small retirement plans.

14:11

So. If you. Work. For

14:13

small business. You.

14:15

You're in a happy on the as a.

14:18

Handful. Of boys, they've a couple dozen

14:20

employees. Are. You don't have a lot

14:22

of participants in your four O K plan. I

14:25

typically those plans have high

14:27

seas and then. Those.

14:30

That will roll their retirement assets

14:32

in to fixed annuities. Now let

14:34

me back up before I dig

14:37

deeper on those two points, because

14:39

it's very important to. Understand

14:42

that. Not. Everybody who

14:44

call themselves a financial advisor.

14:46

Is acting in your best interests? And.

14:50

Often times. You.

14:52

Are speaking to somebody that's more of a

14:54

salesperson? Than Advisor. If

14:57

they are pitching you a mutual fund,

14:59

especially if it isn't a share mutual

15:02

fund. In. Asia Me to find

15:04

many have a mode of them time maybe a

15:06

seizure Me to find. Anything. That has

15:08

some sort of billowed. You're. Probably

15:11

talking to. A

15:13

salesperson you're not talking to Advise: Are you

15:15

talking to somebody that just knows how to.

15:17

Spew. The talking points. They.

15:19

Could not tell you. How

15:22

the portfolio was constructed. Why is

15:24

constructed a certain way? They. Are

15:27

simply. Selling.

15:30

You. This find with some

15:32

broad. What's

15:34

That's it. And

15:36

the Department of Labor's trying to crack down on. And

15:40

they're trying to. Really? Define

15:42

a who is wearing that fiduciary

15:45

happening Beating Those devices are acting

15:47

the best. It's the decline. versus.

15:50

Those that are acting as a salesperson.

15:53

So after the break, really dig into the

15:56

details a little bit more and help you

15:58

understand why this will affect certain. of

16:01

the investor class. Now we're

16:03

moving into a break. Still time on

16:06

this podcast to tackle your investment questions, so

16:08

I encourage you to give us a call

16:10

at 888-99-chart. You've

16:20

got two for the price of one. Justin

16:23

Klein and Luke Guerrero are here,

16:26

and they're taking your finance and

16:29

investment questions now. 888-99-chart. Now

16:35

before the break, I prefaced

16:37

the main focus point and that

16:40

is in regards to the new

16:42

Department of Labor fiduciary rule

16:44

that came down the pipe.

16:46

And this is adding on to

16:49

the 2020 rule that

16:52

covers a much

16:55

broader array of actions,

17:02

such as advice

17:05

for traditional investments, variable

17:08

annuities, index-linked annuities.

17:12

And so this new rule really

17:15

only covers those two

17:17

sets of investors. Like I said, small

17:19

retirement plan investors, as well as those

17:21

are rolling money into fixed index annuities.

17:23

Now, mainly this is going to impact

17:25

those smaller retirement plans. The average cost

17:27

for workers covered by small plans would

17:30

drop probably to 75 basis points from

17:32

93 basis points before. And

17:37

mainly this is because think of your

17:39

average plan, small plan, small

17:42

company, 5-10 employees, and

17:46

there's not a lot of scrutiny on these plans.

17:49

And there's not a lot of

17:51

people holding the executive suite

17:53

to the fire on making these plans better.

17:56

So over 20 million

17:58

dollars, people are covered by this.

18:02

And it's shown that small

18:04

plans have a much higher range of fees,

18:07

which suggests many of them pay unnecessarily

18:09

high fees. They have mutual funds that

18:11

have expense ratios

18:14

well over 100 basis points on

18:16

average. And that's an issue

18:19

when you have these

18:23

plans that go into these

18:28

small investors, 401Ks,

18:30

they don't know any difference. Luke,

18:33

there are a lot of plans, not

18:36

a lot, 5%, about 5% of

18:38

plans whose average expense ratio is

18:40

over 200 basis points. What

18:44

do you say? That's incredible. I mean,

18:46

it's frankly incredible. I nailed

18:48

it when you mentioned the cost savings here. It looks

18:50

like the

18:54

new rules are expected to save retirement plan participants $55 billion in

18:56

fees over 10 years. And

18:58

that's because like you said, that 2% or whatever your

19:00

fee is, it compounds. So

19:02

that's money that's being taken out year

19:05

after year after year and doesn't have

19:07

the opportunity to have the effect of

19:09

compounding benefit investors. So generally, unfortunately,

19:12

I think most of the financial, not most,

19:14

but there's a section of the financial services

19:16

industry that tends to be a little predatory

19:18

on people that don't know as much as

19:20

they do about the products that those people

19:23

are selling to normal investors. So I think

19:25

this rule goes a step further to

19:27

help some of those smaller retail

19:29

investors protect themselves against the predatory

19:31

behavior that can lead to some

19:33

pretty terrible consequences in terms of

19:35

their long-term financial goals. Yeah.

19:38

And most of those

19:40

small plans, the ones that fall

19:43

prey to those predatory practices and

19:45

the new rule and requirements around

19:47

prohibited transaction will result

19:50

in a lot of these plan fiduciaries

19:52

examining those fund lineups and bringing those

19:54

fees down. Now, the other set of

19:56

investors that will be impacted are those

19:58

that roll their... retirement

20:00

plans into fixed

20:03

indexed annuities. And the main reason

20:06

this is going to help is

20:08

because there aren't explicit fees that

20:10

these annuity buyers pay. What they

20:12

do pay are what are

20:15

called credited interest rates, which

20:17

lower their overall returns. So

20:19

basically the fund company, the

20:21

insurance company, gets credited back

20:25

returns over time and that

20:27

is effectively a cost to the

20:30

investor. And so that's going to need to

20:32

be disclosed and a lot of those fees

20:34

will be surrendered. So overall

20:36

it's a good thing. Can't complain. Finally

20:40

came down the pipe and it's getting closer

20:43

and closer to most

20:45

advisors, quote-unquote advisors, are now going

20:48

to be fiduciaries and that's certainly

20:50

a good thing. Now

20:53

let's go check in on

20:56

our friends over on our YouTube channel

20:58

and every day we receive new

21:00

finance and investment questions from the comment in

21:03

the comment section of our YouTube channel. And

21:05

here's one that came in recently. Jim Lay

21:07

says, thoughts on

21:10

Vichy properties, V-I-C-I,

21:12

Vichy properties. And

21:14

Luke, this is a REIT

21:17

that operates mainly on

21:20

the Las Vegas strip. And

21:23

I believe they just made a recent

21:25

purchase. Was it of Caesars?

21:29

Remembering correctly? No, so the

21:32

company was formed from a spin-off of

21:34

Caesars. Okay. Caesars

21:36

Entertainment Corporation as part of the bankruptcy

21:38

reorganization. So they actually have 54 casinos,

21:40

hotels, and racetracks, four golf courses, and

21:43

38 bowling alleys around the US

21:45

and Canada. And you know looking

21:47

at the company they have relatively low debt especially

21:49

for a REIT and the price performance

21:51

has been where you'd expect REITs to

21:54

have been going over the past year, a

21:56

couple months, right? Because REITs tend to do well in

21:59

two situations. One is interest rate certainty,

22:01

you know the path of interest rates, and the

22:03

other is a decrease in interest rates. That

22:05

being said, I mean, we hold VCHE for clients

22:07

and one of our strategies, we like VCHE. I

22:10

like VCHE. Their time's interest earned is

22:12

four. They have a pretty good moat in terms of

22:14

the money that they're bringing in to pay off that

22:16

debt. And I think they have a lot

22:19

of room to run when things start to turn around

22:21

and there's more certainty within the market. Yeah.

22:24

And they aren't exposed to office. No,

22:27

yeah, that too. Exactly. And

22:29

consumers are still

22:32

heading to racetracks and casinos and golf

22:34

courses. You know, their properties will

22:36

continue to do well. So... Which

22:38

tend to be the things that people do regardless of if the

22:40

economy is doing well, right? Yeah,

22:42

it's true. So that's why in

22:45

the REIT space, definitely VCHE is one of the

22:47

best. Now next, invest stock,

22:49

we'll look into the story. Why it

22:51

matters that large growth stocks are overvalued.

22:53

Simply put, valuations are the best predictor.

22:56

We have a future returns and the

22:58

longer the investment horizon, the larger the

23:00

role in valuations. Best story

23:02

tomorrow, but for now, I'm Justin Klein with Luke Herrera

23:04

and we are ready to take your calls at 898-99 chart.

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25:04

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25:11

on many variables. The

25:13

more you learn about how the market

25:15

works, the better your chances. So

25:18

don't forget to call Invest Talk.

25:20

88899. And

25:49

one for her if we still

25:51

fall under that annual income. Again,

25:53

thank you so much and I

25:55

look forward to hearing your response

25:57

on the next podcast. Bye. Well,

26:01

the answer is very simple. Yes, you can roll

26:03

that 403b into a Roth

26:05

IRA. However, all of that amount that

26:07

you roll into a Roth IRA will

26:09

be taxable income to you in that

26:12

particular year. So what

26:15

I would encourage you to do

26:17

is probably roll it into a

26:19

traditional IRA, no tax consequences.

26:22

And then what you can do are Roth

26:24

conversions and do that piecemeal at a time.

26:26

That's something you probably want to plan

26:29

out with your CPA. Probably,

26:31

I don't know what the size of those

26:33

403b's are. Maybe they're small and maybe it's

26:35

not a big deal. But if they're hundreds

26:38

of thousands of dollars, hopefully, then that's a

26:40

big hit to your income, big increase in

26:42

your income for the year. It's going to

26:44

push you into a higher tax bracket, all

26:46

things you typically don't want. But you can

26:48

roll it into an IRA and piecemeal it

26:50

over time into that Roth. And

26:52

then, yes, you can open up a Roth

26:54

for you and your wife and contribute for

26:56

both of you, even if she's not working

26:58

and you both make over

27:01

the amount you're contributing, or

27:03

your income for the years over the amount

27:05

you're contributing. So I

27:07

think it's a good idea, but definitely talk to

27:10

a CPA before you do that so you're not

27:12

hit with a huge tax bill. Anything

27:14

to add, Luke? No, nothing to add.

27:16

I think that covers it. There you go. All

27:19

right, let's talk a bit about

27:21

interest rates. It is Fed week and

27:23

everyone is wondering when is the Fed

27:25

going to cut rates. But

27:29

there's a new line of thinking that

27:31

frankly I tend to agree with. I

27:34

know, Luke, you may have

27:36

a little bit different of a viewpoint

27:38

here, but everyone

27:41

thought that higher interest rates meant,

27:45

hey, the economy is going to slow, we're

27:47

going to go into a recession,

27:49

everything's going to go to hell in a handbasket, and

27:53

really the opposite's happened. The economy continues

27:56

to hum along. And

28:00

in fact, the economy is stronger

28:03

today than it was when the

28:05

Fed started to raise rates. And

28:08

so the new argument is that there's a

28:10

very simple reason why, is that Americans

28:13

are now earning a

28:15

large stream of income from

28:17

their savings, investing

28:19

that in money market accounts, treasuries,

28:21

etc. The highest level they've

28:24

seen in two decades. And

28:26

now because the treasury market has

28:28

effectively doubled in 10 years to

28:31

over $35 trillion, that

28:33

means that it translates into

28:36

higher debt payments that go

28:38

into the pockets of Americans and

28:41

investors. And

28:44

all of this goes into

28:46

stimulating more spending. And

28:50

on the flip side, when it comes to higher

28:52

interest rates, there's

28:55

a small amount of consumer debt. If

28:59

you exclude mortgages, which are typically fixed, there's

29:01

only about $5 trillion in consumer debt out

29:03

there. And yes,

29:05

that is impacted by higher

29:07

rates. But US

29:09

households receive income on more than

29:12

$13 trillion of short term interest

29:14

bearing assets. So

29:17

the variability of that is very high. Interests

29:20

go from zero to five people are earning 5% now in 13

29:22

trillion. And on that 5

29:24

trillion, yes, it's moving up. But net,

29:28

there's about a $400 billion

29:30

difference in total, in

29:33

positive total, in net total going

29:36

to US households. And so that's

29:38

where the consumer remains relatively

29:41

strong. So I

29:43

think this makes total sense. They

29:45

have fixed mortgages, the vast majority of people do.

29:48

And their incomes are going

29:50

up because of inflation raises, as well as

29:52

the income coming from their savings. What,

29:55

say you Luke, do you buy this

29:57

as a reason for the economy remaining

29:59

strong? Yes. Okay. No,

30:03

I read it more to add there. But

30:06

yeah, no, I think oftentimes people say this time

30:08

is different. And I think this time truly

30:11

is a little bit different in that

30:13

you have a situation where a

30:16

generation and the generation after them that has most

30:18

of the wealth in this country is able to

30:20

buy homes at incredibly low interest rates, locking in

30:22

most of the debt burden at a

30:24

low rate, meaning interest rates affecting a rise

30:28

in interest rates will not affect them. You also

30:30

had a pandemic that forced some

30:32

of the largest companies on planet Earth to hoard a

30:34

bunch of cash, about $1 trillion

30:36

in cash from 13 non-financial companies

30:38

in the S&P 500 in

30:41

the wake of the pandemic. And so

30:43

when you have most of the debt

30:45

burden of consumers being not

30:47

affected by interest rates, you have corporations

30:49

that are hoarding cash that are now

30:52

paying higher interest rates, which allow them

30:54

to reinvest in their businesses using that.

30:56

And then consumer savings also

30:59

with interest rates rising, the

31:01

interest that's paid to them going up, you

31:03

have more spending. I think it's a unique confluence

31:06

of events that certainly did make this time a

31:08

little bit different. Yeah. And

31:11

that's clear that this time is definitely

31:13

different because of the amount of debt

31:16

at the sovereign level. But

31:19

if you look underneath the surface, there

31:21

are still issues that are arising when

31:23

it comes to higher interest rates. You

31:25

see delinquencies on credit cards rising, on

31:28

auto loans rising. But

31:30

job growth, while slowing, still

31:33

remains robust. And

31:36

what you are seeing on the low

31:38

end of the spectrum, income spectrum, that's

31:41

where the consumer is hurting. You see that

31:43

with the 99 cent stores. You'll

31:45

look at Dollar Tree and those

31:48

stocks and they're not doing very

31:50

well because those lowering consumers, they

31:52

don't have the fixed rates

31:56

mortgage that most of the middle and

31:58

upper income consumers have. And

32:02

they're paying rent and rental prices continue

32:04

to go up. So

32:08

this is a very different environment. And so

32:12

that's why I say, are higher

32:15

rates actually inflationary? Because the end of the day,

32:17

when interest rates go

32:19

up, when the Fed raises rates from zero

32:21

to five and the Fed or the Treasury

32:23

continues to issue on the short end, right,

32:26

that means every year interest payments

32:29

continue to rise and

32:31

those interest payments are government

32:33

spending. And if you have

32:35

GDP calculation, if you go to, you know,

32:37

econ 101 in college, the first thing you

32:39

pretty much learn is the calculation of

32:42

GDP. And in

32:44

there is government spending. And

32:46

so ultimately higher

32:48

rates are just driving more government

32:51

spending and not really impacting the

32:54

vast majority of Americans. Some Americans,

32:57

yes. And some parts of

32:59

the economy that are super interest rate sensitive,

33:01

but for the most part, it's just putting

33:04

more money in people's pockets. And so, you know,

33:07

will the Fed, my question is,

33:09

where is that tipping point? Because if they

33:11

have fixed mortgage rates, that's not going to

33:14

change, right? Most of these people right refinance

33:16

over the last 10 years. That means for

33:18

at least another 10, 20 years, they're going

33:20

to be locked into those rates. And

33:22

so I actually think

33:25

that the Fed's going to see rising

33:27

interest rates isn't going to solve

33:29

anything. And that's why maybe, just

33:31

maybe, Luke, the market's right that we

33:33

won't get any cuts this year. It will

33:35

just be an eventual resumption

33:37

of rate increases, which would

33:40

be definitely this time is different because

33:42

typically you get six to 12

33:44

months of a pause of the last rate hike

33:46

before, and then you get a series of cuts.

33:49

You might see six to 12 months

33:51

of a pause and then a resumption

33:53

of those rate increases. And that's why I think the

33:55

10 year continues to kind of march back towards that

33:58

5% rate because Ultimately,

34:02

no matter what way you look, you

34:04

kind of see inflation. Where

34:06

do you get a deflationary environment? I don't know

34:08

if you do, unless you

34:10

get the government to stop spending. That's

34:14

the only deflationary environment that I

34:16

could see manifesting. Can you see

34:18

another one? I

34:22

mean, certainly with what's going on on a

34:24

macro scale and geo politically, I don't think

34:26

without the government stopping propping

34:28

this up that you would

34:31

move to a situation where costs start

34:33

narrowing, where the gap starts narrowing. Now

34:36

let's swing back to the Invest Talk voice bank for

34:38

a question that came in earlier from a listener in

34:40

Ohio. Hello, Justin, Luke,

34:42

and Steve. This is

34:44

Bob from Ohio. I'm calling

34:46

about Amazon ticker AMZN. I'm

34:49

a long-term bull on Amazon and I think

34:51

they've created a huge business mode and

34:54

practically monopolized the shopping environment. Sent

34:57

them a long-term bull that was an overweight,

34:59

my initial position to about Now

35:02

with the recent run-up, it's climbing to about 18%

35:04

of my total portfolio. I know

35:06

I should sell, but my question is, should I

35:09

sell it back to the original 10% or

35:12

sell the whole portion of the whole position? Thanks for

35:14

what you guys do for hearing your answer on the

35:16

podcast. Well, definitely want to

35:18

sell it back to the 10% and frankly, I

35:20

would probably go lower, closer to 5%. I

35:23

wouldn't sell the entire thing. You know, Amazon

35:26

is still a good business. It

35:29

has clean balance sheet, but

35:31

look, it is trading at a pretty

35:34

high multiple. Would you say? Yeah,

35:36

it's trading at a really high price. It's multiple.

35:38

It's at 40 right now, about 40. It'll

35:41

have some regulatory risks there, right? Like Amazon is

35:43

in a situation where there could be some pretty

35:46

adverse consequences on the horizon, but

35:48

regardless of what the company is.

35:52

10% is way too much of a use in

35:54

credit risk in your portfolio. That is way too

35:56

high a target weight for any company in your

35:59

portfolio. And

36:01

I would say the technicals are starting to

36:03

slow. MACD's rolled

36:05

over a momentum. It's certainly slowing and

36:07

it's happening across the tech space. If

36:10

you just look at like the XLK,

36:12

that's been underperforming the

36:15

broader market really since February. And

36:18

so you're definitely getting a drag

36:21

there and obviously Amazon is

36:24

caught up in that. So I

36:26

definitely would trim, like

36:29

Luke said, it's trading a high multiple. There's

36:31

a lot of regulatory risk with what

36:34

was happening at the Department

36:36

of, sorry, not

36:38

the Department, the FTC, Federal Trade

36:41

Commission. You see them suing

36:44

Apple, Google, and

36:47

I'm sure Amazon is certainly

36:50

next as well. I

36:52

think they, have they officially filed? Because

36:55

Amazon, I know they're talking about it. I can't remember.

36:57

I don't know if they've officially filed yet. Okay. Yeah,

37:00

there's definitely some NHS practices that need

37:02

to be cracked down on in Amazon

37:05

with using their data to undermine

37:07

their competition, those

37:09

that are posting on Amazon. So being

37:11

a seller and owning the platform, that's

37:13

causing a lot of conflicts. And so

37:16

certainly a lot of regulatory risk

37:18

on Amazon's front as well. So

37:21

I would trim to probably 5%

37:24

of your portfolio and this is a good time

37:26

to do it. Now here's another

37:29

question that came in from our Invest

37:31

Talk YouTube channel. Mike

37:33

McFadden says, what resources metrics can

37:35

investors use to evaluate money managers?

37:39

Would these tools have painted a

37:41

clearer picture from Arc management under

37:43

Kathy Wood? Well,

37:47

the first is the process. I

37:52

always go back to when it comes to

37:55

equity investing, the most important

37:57

factor is going to be... The

38:01

quality of businesses that they invest in. And

38:06

the question is, are they doing that? It can

38:08

be growth companies. It can be companies that are growing.

38:11

But are they profitable? Are they producing

38:13

good cash flow? Do they have

38:15

solid balance sheets, et cetera? And

38:19

I think that's the basis for all

38:21

good investment strategies. What

38:26

would you use, Luke? How would you answer this question? Yeah,

38:30

well, I think it depends, right? I

38:33

think you should be choosing money managers

38:35

whose philosophies align with your own. And

38:38

that philosophy shouldn't just be they had really good returns

38:40

that one year. Because

38:42

it's about consistency of

38:44

returns and risk-adjusted returns. What are the returns relative

38:46

to the volatility and risk they're taking on in

38:48

that portfolio? And so a lot of investors saw

38:50

how ARK did with some

38:53

pretty bad businesses that did well in

38:55

a very unique scenario. They said

38:57

those returns are great. And over a very short period of

38:59

time. For a very

39:01

short period of time. And that's another

39:03

thing. Length, track record, right? Pensions, for

39:05

example, won't even look at funds that

39:07

don't have more than three to five

39:09

years of performance. And so it

39:12

should be a longer track record. It should

39:14

be consistent. But more importantly, it

39:16

should align with your own investment philosophy.

39:20

Yeah. And if you look at ARK, it

39:22

did well for an extremely short period

39:24

of time. You're talking

39:27

about March of 2020, right, when the

39:29

pandemic hit. And then

39:31

it peaked out in February

39:33

of 2021. That

39:36

was less than a year. It was basically one year

39:38

where this bottomed at 32, hit a high of 158.

39:43

And now it's back down to 45. And

39:47

the vast majority of people got in near

39:49

the end of that move, right? Well, when

39:51

ARKK was, and what I'm looking at is

39:53

the ARK Innovation ETF. They're

39:55

kind of their most popular ETF. And

39:58

most people got in. kind of near the end of 2020, when

40:02

this was well over a hundred dollars per share.

40:05

And so it's

40:07

literally epitome of a flash in the pan.

40:12

And every strategy kind of

40:14

ebbs and flows, that's certainly true. Every

40:17

strategy is gonna have its

40:19

fantastic years and its sub-par

40:21

years, that's fine. If

40:25

you're looking in aggregate and they have one great

40:27

year and then a bunch of sub-par years, was

40:31

that luck or was that? Actually skill.

40:34

Was that luck or were they actually allocating

40:37

capital effectively,

40:40

consistently? And

40:43

ultimately that was the red flag with Cathie

40:45

Wood. Arc

40:48

was launched in 2014 and

40:50

outside of that time period, they've

40:53

had sub-par risk adjusted returns, as Luke said.

40:57

And that's what you wanna look at. Not just

40:59

total returns, but total returns in

41:02

relation to the sub-sector that

41:04

they're focusing on.

41:08

For example, Arc is looking at growth stocks. How

41:11

is Arc done now compared to the

41:13

NASDAQ, for example? It's done horribly. And

41:17

so you wanna look at it

41:19

compared to similar types of

41:22

strategies. Now this is the

41:24

best stock. I'm Justin Klein with Luke Guerrero

41:26

and we have one goal here each and every weekday

41:28

and that's help you achieve your own version of financial

41:30

freedom. And our work continues after this final break. So

41:32

get your questions in now at 88899. Share

41:35

it. Today's

41:52

work. More than ever,

41:54

you need unbiased investing guidance

41:56

because it can help you

41:58

achieve financial freedom. This

42:01

is Investalk and you've come to

42:03

the right place. Justin Klein is

42:05

here now taking your calls live.

42:08

So step up with your questions. 888-99 chart.

42:13

Hello, Investalk. My name is Brian. I'm

42:15

from Ohio. I've been a listener since

42:17

about 2017. I love the show. I

42:21

was wanting to know if you could

42:23

review Pfizer. Ticker symbol is

42:25

P-F-E. Just wanted to know, I wanted

42:27

you guys to review it to see

42:30

what you guys thought of this stock

42:32

going heading into the future. Thank

42:34

you. This

42:36

is the name that we keep getting calls on

42:38

consistently over the past year plus and it continues

42:40

to go lower and I keep saying run away

42:42

from it. Mainly because the

42:44

vaccines and the boosters, they don't work

42:46

very well and they have

42:49

poor safety records. And

42:51

so people are opting out of them. It's pretty clear.

42:55

And while we gave them

42:57

blanket immunity here, are they going to get that

42:59

in places like Europe? I think

43:01

there's some risks there. MRNA

43:04

platform just frankly, it doesn't have

43:06

good safety records. And the more

43:08

data comes in, the more that

43:10

is supported. So Pfizer's

43:13

earnings continue to drop and

43:15

I think they will continue to do so. Last

43:17

quarter, revenue is down 41%, earnings down 90%. Run

43:22

for the hills. Stay far,

43:25

far away. Now, Luke,

43:27

let's pivot over and talk about

43:29

the housing bills that

43:32

are moving through different

43:35

legislative bodies across various states.

43:38

And the goal here is

43:41

to prevent companies

43:43

like Invitation Homes from buying

43:46

more and more single-family

43:48

homes to rent across America. And

43:51

pricing out the first-time home

43:53

buyer. So

43:56

the question is, this is popular. Probably even

43:59

more popular. about an equal number of Democrats

44:01

and Republicans support a measure that

44:04

would block these Washington firms from buying these homes. And

44:07

then the question would be will they get passed

44:10

and will it have an impact? What do you think? Well,

44:13

it's funny to me because California being one of the states

44:16

that's trying to There's

44:18

some lobbying effort to get legislation like

44:20

this when I used to live in Santa Monica,

44:22

for example And in the city of Santa

44:24

Monica, you can't build homes

44:27

that are higher than the home behind them

44:30

to obstruct views and so

44:32

the cost of property in Santa Monica is

44:34

exorbitant the cost of renting anything that isn't

44:36

a trash can in Santa Monica is exorbitant

44:38

and So it seems to

44:40

me like this is kind of a boogeyman for what

44:43

the real issue is Which is mortgage

44:45

rates are high and we aren't building homes and so

44:47

people don't want to sell their home And there's not

44:49

a lot of inventory yet. We're going out there and

44:51

we're saying oh, no, no, it's the big bad Wall

44:53

Street firms Are these are the ones

44:55

causing this problem? So even if there's a word of pests I

44:58

don't think it solves the root of the issue, which is we just have not

45:00

been building homes for nearly two decades. I

45:04

agree with that however The

45:08

value the price of homes are priced at

45:10

the margin right and Research

45:12

estimates that these companies Wall Street companies

45:14

own about three to five percent of

45:16

American rental homes from homes that

45:18

are single-family homes that are being rented and In

45:22

some cities, it's very large in Atlanta

45:24

nearly 11 percent of all rental homes

45:26

in the five county area are now

45:29

owned by some by one

45:31

of them three major real estate companies and A

45:34

2022 analysis so that 21 percent

45:37

of Atlanta rental homes were owned by

45:40

some large Institution, that's

45:42

a big chunk so

45:46

you know will them

45:49

divesting Actually way on home

45:51

prices. I think absolutely will if it forces

45:53

them to sell them in a short period

45:55

of time, right? I think

45:57

that will be the ultimate question is I

46:00

think this will eventually pass in

46:03

some states, maybe not nationally. There's

46:05

a lot of lobbyists, obviously, within the

46:07

industry. But the question

46:10

will be, is how quickly do they need to

46:12

divest them? They own thousands of homes and

46:15

they go and have to dump those and sell them within

46:17

a year. That's going to have

46:19

a very strong adverse effect on prices in that

46:21

particular area. But

46:24

if they have a decade to do it and

46:27

get down to a reasonable number, then

46:30

I could see this not really having

46:32

much of an impact, or at least

46:34

a major impact. Some of these

46:36

bills are limiting ownership to 50 homes per

46:39

company. That would basically put invitation

46:42

homes, they would no longer be public. I

46:48

agree with you that there is a problem

46:50

with just lack of homes being built. But

46:54

when you have a large swath

46:56

of areas being owned by companies

46:59

that have higher access to capital,

47:01

better access to capital, I think that certainly

47:03

has an outside impact on prices. Now

47:07

I'm Justin Klein, along with Luke Guerrero,

47:09

and this completes another Invest Talk program we thank

47:11

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47:13

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