The Planstrong Financial Forum: Saturday, August 10, 2024

Episode Transcript

Speaker 1 (00:07):
It's time for the Planned Strong Financial Forum, your weekly
hot topic update from a leading Boston area investment advisor.
It's smart investing simplified down Here's your host, Ken Carberry
with the president of plan Strong Investment Management, Paul.

Speaker 2 (00:23):
Parson and welcome to the plant Strong Financial Forum. I'm
your host, attorney Ken Carberry, along with financial planner Paul Parsons.
And Paul, you're the man of the week this week.
It's been a bit of a wild ride since last
I saw you a little.

Speaker 3 (00:37):
Chester, although can I tell you, yeah, you have to
really take all of this with a huge grain of salt,
considering where the market had been, right, I mean, we
were at all all all time highs market was a
fifty five hundred. What have we said for weeks now?
You know, this is very difficult to justify these elevated levels. Well,
guess what, there was an adjustment to them. What a shock.

(00:58):
And and by the way, it already came back substantially
after the drop down over the last couple of weeks.
Some of it already came back this week. So anyway,
but yes, it was not it was it was living
in interesting times, I guess is the best way to
put that. So first topic I wanted to talk about
today was what happened this week and specifically why did

(01:19):
markets quote unquote crash on Monday. And by the way,
the S and P, just so everybody can keep their
shirt on air, the S and P started trading on Monday,
actually ended trading last Friday, and then by the close
of business on Monday was down a whopping three percent. Okay,
that's the crash we're talking about here. That day We've well,

(01:40):
we sure have, especially when you get somebody like Jeremy
Siegel of Wharton professor who's saying, oh, stop the presses,
we should have an emergency rate cut by the FED,
and not just one recut, but like seventy five basis
point rate cut. Right now, my hair is on five okay,
And that's literally right. They work all for that they
ow was truly incredible. So this is one of the

(02:03):
reasons you probably want to hire a professional money manager
that actually has endured some of these things in the past.
And what I'm going to do today is actually talk
to you about what happened this week and not just
describe it numerically, but I'm also going to give you
the major causes for it, and then as a result
kind of how do I interpret it? Okay, So hopefully
that's going to be helpful to listeners. The next thing

(02:25):
is part of this week. A big part of why
emotions really got away with people was that was kind
of a trifecta of kind of bad news with Magnificent seven,
and so people said, oh, is this the beginning of
big problems? And what they pointed to not just that

(02:45):
the market was going down, not just that, you know,
we got some economic data that was a little softer
than it had been in the past, like the jobs report,
but we got three big pieces of news. And this
is actually good because at least the markets were paying
attention to three names that they should be paying attention to,
point which are Nvidia, Google, and Berkshire Hathway, which was Apple. Okay,

(03:11):
and so Nvidia announced some chip production problems. And I
have to tell you, I was actually on my bike
at night when this story first came out, and I
stopped my bike. Okay, what exactly? Because you know, Nvidia
is driving a huge amount of the profitability increase, and
if they can't make the stuff that people want to buy,

(03:32):
I would say that's an obstacle to earnings growth, right,
So that got my attention fast. Google lost an anti
trust government suit and it was a big sucker and
it didn't just impact Google, it also impacted Apple, okay.
And then finally, the third story that just concurrently happened
to be reported was this regulatory filing that showed by

(03:57):
the end of Q two and Buffett and Berkshire Hathaway
had sold a lot of their Apple stock in their
investment portfolio. And since Apple stock was a huge proportion
of the Berkshire investment portfolio to start with, you're talking
about a massive amount of wealth that got sold and
you say, oh no, what did that do to the

(04:18):
price of Apple? So he had those three things, all
of which did not really help. On top of this
more general concern that the mark was overpriced and all
the economy softening up and oh maybe we've got you know,
are we going into our recession? So that was a
lot of the background of this past week. But there
was good news amidst all that. I wanted to give

(04:39):
you at least one good news story. So I'm going
to talk to you about Lily, because Eli Lilly and
their weight loss drugs absolutely crushed expectations, so I have
to cover that as well, and then if we have
time today, I want to talk about this other subject
that we get asked about periodically, which is about annuities,
and people keep buying annuities, but the question is should

(05:02):
they keep buying annuities? So hopefully I'll have time to
talk about that either this week or next week, so good.
Once we will get into all of that. I know
a lot of people want to learn, mostly though, about
what happened this past week, because I think there was
a reasonable amount of tension, shall we say, in the air,
and I wanted to cover that. But before we do that,
I do want to talk about some and by the way,
I'm going to do this with several of the stories

(05:24):
we have this week, as it relates to non investment
related stories but still human interest stories that I think
you and I really enjoy talking about. Sure, and you know,
I want to talk about the Olympics obviously in Paris,
but I wanted to talk about two of the lesser
known American Olympians in Paris because last week we covered
a couple of superstars. Last week we talked about Simone
Biles and Katie Ledecian. You know, they were absolutely magnificent.

(05:47):
But I had a couple names this week that really
kind of got me by surprise that really to me
impue kind of the spirit of the Olympics. Okay, and
it's kind of like American Idol. You get somebody that
nobody knows about and they come out of nowhere and
you say, oh my god, that person is talented or
they have heart that I've never seen. You know, isn't
that magnificent to see in another human being?

Speaker 2 (06:08):
Right?

Speaker 3 (06:09):
So there was one guy, Cole Hawker, who had a
man bun. So I'm already jealous of him because you know,
I could never do that anyway, He has a man bun.
He's a US middle distance runner, and he won one
of the premier track events, the fifteen hundred it's called
the metric mile, the fifteen hundred meter track event, over

(06:32):
too much better known rivals, one guy from Scotland and
the kind of the steeped in tradition Norway guy whose
family were all Olympians and magnificent athletes. Those guys were
supposed to take it and just absolutely kill that race.
But instead this guy, Cole Hawker, from the United States

(06:52):
came from behind for the win, and he actually surged
to victory in the home stretch to become only the
second American runner since nineteen oh eight to win the event.
So let's just say we don't dominate that this isn't
USA basketball pre okay, And then the other one, which
was I love this story because it reminded me a

(07:13):
lot of my daughter. Was this thirty one year old
female named Kristin Faulkner who won the gold medal in
women's cycling road race. But there were a bunch of
aspects to her win that made it extremely unlikely, starting
with the fact that until a few years ago, she
was a twenty something working in finance on Wall Street

(07:35):
after graduating from Harvard, and then she moved on to
Silicon Valley to work for a venture capital firm. So
you say, okay, you know what more background. How'd she get,
you know, into cycling? We don't know, because she grew
up in Alaska where her family owned a resort, and
she eventually rode crew in college at Harvard. Okay, so

(07:57):
nothing to do with cycling. But then she decides to
learn to ride a bike and eventually sets her sights
on going to the Olympics, but doesn't qualify for this
Olympics in the road race. Instead, she's supposed to compete
in just the track races in the velodrome. Okay, but
just before the road race, a US athlete who did

(08:20):
qualify decided they wanted to focus just on the triathlon,
so they actually gave their spot to Faulkner. And what
does she do. She sticks with the lead pack until
close to the end in the hills, and then near
Mont Matra, she actually attacked the leaders. They had no
idea this was coming, and the reason she did it

(08:41):
was because she knew her sprint couldn't possibly keep up
with the world's best, so she attacked them in the hills,
and she finished the final part of the race completely alone,
completely in front of everybody else, in front of the
Eiffel Tower, well ahead of the next best. And all
I can say to is not bad for somebody who
had never competed in a bike race until seven years ago. Okay,

(09:06):
And again this goes to now that's a talented person,
you know, went to Harvard, Uh, you know, could do
all this other stuff on Wall Street, and that says,
you know, I'm going to quit that I think I'll
do something. I'm gonna learn how to race a bike.
I'm want to be an Olympian and doesn't even qualify
and somehow wins the gold medal in one of the
most prestigious events in that sport.

Speaker 2 (09:24):
So that's that's a story.

Speaker 3 (09:25):
It was absolutely a glorious story, and I just enjoyed
the heck out of it.

Speaker 2 (09:29):
Yeah, great, well, that's great. I did not see that.
I did see the Cole Hawker Race because my daughter
was a mid distant runner, so we always watched the
mid distance events. Yes, and that was that was great
fun to watch.

Speaker 3 (09:40):
Improbable, Yeah, that's very improbable, and those are the fun ones.

Speaker 2 (09:44):
You're right, Yes, we expect so much from the American systry,
and so we expect the the you know, the basketball
team to win the gold, et cetera, et cetera.

Speaker 3 (09:52):
Gabby Thomas on track. You know, I mean they're so good,
you say, oh, yeah, no, I know, they're really talented.
I hope they do well. But these people were out
of nowhere, right, and it was winning a gold really
quite something.

Speaker 2 (10:04):
That's been fun. Yeah, and you know, we've got four
more years now to talk about it. For it again,
I suppose that's what why we like it so exactly.
If it happened every year, would be bored with it
as we are without two.

Speaker 3 (10:13):
Years until the winter eleveons, right, so it's only a
couple of years. But yeah, it's coming.

Speaker 2 (10:17):
So but let's move on to the most obvious topic. Okay,
So let's talk about what happened at the beginning of
this week to the markets. Right, a crash if you
watch TV and read the paper, and certainly there was
some movement in the downward direction.

Speaker 3 (10:29):
Yeah, it was talk about emergency. Actually, so what about that?
I mean, literally, my hair's on five one day stuff
in one day?

Speaker 2 (10:36):
Yeah, right, So how bad was it? What really happened?

Speaker 3 (10:39):
Well, let's let's give a little background here. You know,
really it felt like this market was only going in
one direction, mostly up for the past year and a half,
and then markets peaked in mid July and then started
to sell off a bit. But this was a different
kind of sell off than the other two selloffs that

(11:01):
have occurred during this extraordinary run of gains that began
at the beginning of twenty twenty three. Because prior selloffs
can were prompted by too good economic information, you know,
like too strong GDP growth that warranted higher rates for
longer in October of twenty three, or higher than expected

(11:22):
inflation data that required higher rates for longer in April
of twenty four. None of those suggested weakness in the economy.
They suggested the economy was too strong. Well, this was different, okay.
And the past few weeks have seen an increase in
market volatility as well as a decline in most global

(11:43):
and domestic equity markets. So they started to drop, and
the S and P five hundred dropped from an all
time high close of over fifty six hundred on in
mid July July fifteenth, and it dropped from fifty six
thirty all the way down to fifty one twenty at
the beginning of trading this past Monday morning, or down

(12:04):
nine percent. And the Friday close to Monday opening drop
was quite steep. It was down about four percent. The
Nasdaq that differential was down five and a half percent,
So people were really paying attention and getting nervous. Now,
when we come back, I want to talk about what
the primary drivers of all this activity was.

Speaker 2 (12:25):
All right, that's when we returned. It's the plan strong
Financial forum.

Speaker 3 (12:28):
This is Paul Parsons, president of plan Strong Investment Management,
and you're listening to the plan Strong Financial Forum. If
you like what you hear on our show and want
me to take a look at your investments and retirement plan,
called my office at eight eighty eight nine seven two
seven five two six eight eighty nine seven to two
seven five two six. That's eight eighty eight nine seven

(12:48):
to two plan or go to planstrong dot com.

Speaker 2 (12:51):
Securities and advisory Services offers to Commonwealth Financial Network member
finer SIPC Origitional Investment Advisor for nine Eavy Washington Street.

Speaker 1 (12:58):
Dotaments from the plan Strong Broadcast Studios at the epicenter
of capitalism. This is the plan Strong Financial Forum with
Paul Parsons, president of plan Strong Investment Management, and welcome back.

Speaker 2 (13:11):
To the plan Strong Financial Forum. I'm your host, attorney
Ken Carberry, along with financial advisor Paul Parsons, and we'll
get back in a minute here Paul talking about the
causes of what was really a bit of a dip,
yes called by many a crash on Monday at the
beginning of this week. So we're talking about that in
a minute. But another Olympics story. I imagine you saw

(13:32):
Scotti Scheffler.

Speaker 3 (13:34):
That was incredible, absolutely incredible.

Speaker 2 (13:37):
Did you watch the I certainly did, and he really
What really amazed me, of course, was his reaction to
the gold medal. It was fantastic. He didn't win millions
of dollars as he usually does. I think it's whatever
thirty thousand or something for the gold medal. I didn't
even know they had a prize. There was.

Speaker 3 (13:52):
There was a stipend, which to Satti would be small, well,
probably the same as they give all exactly right, that's
that's what the US Olympic team gets for your gold medal.

Speaker 2 (14:01):
So he just got that.

Speaker 3 (14:02):
So basically for him nothing rounding didn't pay for his playing,
didn't play for half the triplet, right exactly.

Speaker 2 (14:10):
But he, boy, he was, He was great, and his
response to the gold medal was touching.

Speaker 3 (14:15):
Well, you know what hit me because I watched this closely.
In fact, I taped it and rewatched it because I
was wondering if I was kind of losing my mind.
But the way I remembered it was watching the coverage
of the event. I was actually hard pressed to find
any TV shots of his game during the first half
of the final round, right, he just wasn't. The TV

(14:36):
crew wasn't watching. They're like, nah, he's way back, don't
worry about him. And the reason was because he was.
He wasn't within six strokes of the lead with nine
holes to go. Okay, that's called an insurmountable lead. Okay,
not for Scotti on that day, apparently not, because what
happened was he shot a final round nine under sixty

(14:59):
three to win the tournament at minus nineteen, one stroke
better than Tommy Fleetwood of Great Britain. And until the
final round, another American, Xander Schoffley, was leading or close
to the lead in the final group of golfers, along
with Spain's John Rahm, right, but both of those guys
suffered mistakes on the back nine, and Scheffler was the opposite.

(15:21):
He played flawlessly and he blew by them. He was
actually six under on the last nine holes of the tournament.
He birdied six of the last nine holes of the tournament,
something that is just crazy on that difficulty golf course.
And as you said, Kenny, what struck me also was
at the metal ceremony. He literally broke down and cried

(15:43):
and he just well represented our country. It's also nice
to know that he's on track to be PGA Player
of the Year because he won Augusta, he won the
Players Championship, and now he's the gold medalist at the Olympics.
Pretty good year. Not a bad fear if you ignore
the year rest exactly, Val, That's exactly what.

Speaker 2 (16:05):
Yeah.

Speaker 3 (16:06):
Yeah, if you're the policeman that arrested him, you're probably request.

Speaker 2 (16:12):
So let's get back to the big story. Paul's talking
about the big dropping the market on Monday, and we've
bounced back a bit, so we're talking about.

Speaker 3 (16:20):
Some of the causes. We just caused something like that
to happen so quickly, Okay, So there were several things.
One of the most important ones was technology earnings. And
this makes sense, okay, because you know, over the past
couple of years we've received earnings releases from some of
the most important companies that we've said, you've got to
focus on these Apple and Microsoft and Alphabet, Google and

(16:43):
Amazon and Facebook slash Meta, right, And we've kind of
seen this whip sawing in the artificial intelligence narrative seemingly
from one day to the next. And the underlying debate
is whether incremental capital expenditures are going to actually drive
revenue and earnings growth. And if the evidence of future

(17:04):
return on investment remains scarce, then spending on AI may
decelerate and chip making beneficiaries like Nvidia and others may
not benefit as much as previously thought. And remember from
last week's show, technology companies account for a large proportion

(17:25):
of the earnings growth expected from the S and P
five hundred, so if they fail to deliver, it likely
means the S and P five hundred overall fails to
deliver on earnings growth and that is one of the
key pillars of support for the S and P five
hundreds elevated levels. So this was really important one cause,

(17:45):
one reason why we have kind of jitters around it. Okay,
what else next? One the Federal Reserve. Well, last Friday,
the payrolls and unemployment data for July was released and
we covered in our show last week, and it suggest
a very modestly deteriorating labor market, still growing, but just
not growing as much. And the concern is that the

(18:09):
directional move higher in unemployment may be signaling a future recession,
but frankly, the data remains mixed at this point. You know,
unemployment went from four point one to four point three percent.
That's not exactly you know, massive unemployment by any stretch
of the imagination. Okay. And then we had the fed's
decision announced on Wednesday, following the July FMC meeting to

(18:35):
defer any rate cuts and at least until the September meeting. Well,
that triggered some anxiety that their time frame might be
too far in the future, especially if the employment market
was closer to contraction. And again referring to our prior
shows another key pillar of support for the S and
P five hundred's elevated levels has been the expectation that

(18:59):
inflation and interstates are going to decline from the four
percent range to the two percent range. And you know,
the FED holding rates higher for longer, at least until September,
wasn't supportive of that pillar. And if rates eventually do
come down but for the wrong reason, say, economic contraction,

(19:20):
rather than the right reasons, which are moderating inflation amidst
a modestly expanding economy, well guess what, that won't help
stock values either, Okay, So it has to be for
the right reason that interest rates are coming down, and
they were staying high and they also, you know, concerns

(19:41):
were they may be eventually, when they do come down,
it won't be for the right reason.

Speaker 2 (19:44):
Right, so until another cause could be the FED just
be a little slow here perhaps.

Speaker 3 (19:49):
Yep, yeah, what else? Okay? So there's a third one
that a lot of people talked about, and it got
an awful lot of press, and it's really quite a
simple concept. And it's called the yen dollar exchange rate
or the carry tree. Okay. And here's the deal. The
exchange rate between the Japanese yen and the US dollar
is widely followed because historically, a weaker yen drives investment

(20:13):
flows from Japan into the United States markets. Okay, And
the yen has been weakening since the beginning of twenty
twenty three, as the US Central Bank raised borrowing rates
to cool inflation, while the Japanese Central Bank kept borrowing
rates historically low to try to stimulate their economic growth.

(20:34):
So they were doing the exact opposite of what we
were doing. They were weakening their situation while our bonds
were looking more and more attractive. Right, So guess what,
lots of people wanted to buy us things and not
own Japanese things, and they wanted to essentially get the
benefit of that. But over the past three weeks, the
Bank of Japan has started to normalize or raise rates,

(20:58):
while the US Central Bank has been poised to actually
go the other direction to finally reduce rates a little bit,
and that has led to a rapid reversal in the
exchange rate trend and with it some of the investment
support from buying those US stocks, and the rapid unwind
of these trades or just the anticipation of them, created

(21:20):
incremental selling pressure on US stock markets. It makes sense,
it does.

Speaker 2 (21:25):
You have another reason?

Speaker 3 (21:26):
I got one more? You're ready, Warren Buffet. He sold
a big bite of the apple. Okay. Over last weekend,
it was reported that Berkshire Hathaway trimmed a number of
its equity holdings, notably its position in Apple, which was
first its largest holding of any stock in its investment
portfolio by far, and two one of the most successful

(21:50):
investments ever for the portfolio. And it wasn't a trimming
of Apple. Saying it got trimmed is an understatement of
the century. You know, they sold thirteen percent of their
position in Q one. Well, they sold half of their
remaining holding in Q two, and so their overall holding
has declined from one hundred and seventy billion to about

(22:13):
eighty billion dollars between the end of last year and
the end of Q two. So in six months times
they've cut the whole thing more than in half. Wow, okay,
And without knowing a bit more about the rationale behind
those decisions, some market participants interpreted the actions as an
incremental lack of confidence by Buffett in US stock markets.

(22:37):
They said, Oh, he's going to risk off. He's selling
right now, and he wants to have all that cash,
and he's worried about the economy. He knows something we
don't know. And as a result they saw that also
as another if you will sell indicator all right?

Speaker 2 (22:52):
Anything else?

Speaker 1 (22:53):
Well.

Speaker 3 (22:54):
I think the thing that it's really important for everybody
to keep in mind is the broader context of this
overall recent quote unquote weakness in markets.

Speaker 2 (23:04):
You know.

Speaker 3 (23:04):
The weakness follows a period during which the S and
P five hundred had advanced thirty eight percent almost forty
percent in less than three quarters of a year, from
October of twenty three to July of twenty four, and
at the same time, the forward earnings multiple got stretched
all the way up to almost twenty two times forward earnings,

(23:25):
its highest level and a healthy economy. Get ready for
this since the dot com bubble. Okay, it was higher
than twenty two during the COVID crisis, but that was
because earnings were temporarily suppressed and emergency monetary support inflated
all assets. But for it's the highest the earnings multiple
has been in what I would call a normal economy

(23:47):
and off a long time, and that means it's it
could be by many considered to be overpriced or overvalued,
and as a result, pullbacks and corrections makes sense in
this kind of circumstance, especially when you consider they have
regularly occurred in the past, and especially given its elevated valuation.

Speaker 2 (24:07):
This market was certainly poised for one right now. Now,
what's happened since Paul?

Speaker 3 (24:12):
Okay, So the S and P five hundred increased a
bit from the close on Monday of fifty one to
ninety call it to recover to over fifty three hundred
later in the week. It's now trading at twenty times
next twelve months earnings. Now, by the way, that over
fifty three hundred is essentially where we where the market
started are ended last Friday, so we're almost all the

(24:36):
way back to where we were last Friday with the
S and P five hundred, Okay. And you know we're
still trading at an elevated multiple at twenty times next
twelve months earnings, but we're not trading at twenty two
times next twelve months a part. Okay. And the market
is still six percent below the all time high. But
in spite of all of this, it's still up greater

(24:57):
than twelve percent year to date, not add for half
a year.

Speaker 2 (25:01):
Ken all Right, Paul, when we come back, I'll ask
if there are any lessons learned from this job in
the market and what they may be, and more to
talk about as well when we return as the plan
Strong Financial Forum.

Speaker 3 (25:11):
This is Paul Parsons, president of plan Strong Investment Management,
and you're listening to the plan Strong Financial Forum. If
you like what you hear on our show and want
me to take a look at your investments in retirement,
plan called my office at eight eighty nine seven two
seven five two six eight eighty nine seven to two
seven five two six. That's eight eighty nine seven to

(25:31):
two plan or go to plan Strong dot com.

Speaker 2 (25:34):
Securities and advisory services offered to Commonwealth Financial Network member
funeral at SIPC oridgitional investment advisor n Navy Washington Street.

Speaker 1 (25:41):
Detments who says financial talk can't be exciting and informative, Well,
at least it's informative. It's the Plan Strong Financial Forum
with Paul Parson's, president of Plan Strong Investment Management.

Speaker 2 (25:58):
And welcome back to the Plan Strong form. I'm your host,
Attorney Ken carr Very along with financial advisor Paul Parsons,
and of course we're talking about what's happened over this
past week in the markets. Kind of a busy week,
but a roller coaster absolutely, and we've also been talking
a bit about the Olympics of course, just wrapping up
now and involved in positive stories. But I have to

(26:19):
ask this one question, what's that? Why Snoop Dog?

Speaker 3 (26:23):
I don't understand. So I saw him on a couple
of features and I said, well, that's nice, you know,
nice of him to show up and show his support
for the athletes, and that in my naivete I read
in an article that he's getting paid half a million
bucks a day by NBC to be there, Okay, plus
expenses of course, absolutely, and it's, as I would say,

(26:45):
not bad work if you can get it. Although I
still remember him twenty years ago when he was in
that movie Old School with Will Ferrell Do you remember that?
And Will Ferrell was was playing a part as one
of the buddies of this guy Mixed whose first party
at the at a fraternity house that they had created
right and the best part of it was he had

(27:09):
Snoop Dogg come and perform at this party for his
friend Mitch, and Will Ferrell decided it was a good
idea to go streaking and got up in front of
Snoop Dogg and wanted to take Snoop Doggs streaking with him,
and Snoop Dogg elected not to participate, which was probably
a good show of a common sense in this part.

(27:29):
But funny movie nonetheless, and I always enjoyed that. So
I don't have a lot of exposure to him other
than some funny roles in the movies which are fun
to see. But you know, I have a piece of
trivia for you about the Olympics for this one. Do
you know that there was an Olympic actually a couple
of Olympic events that were held very far away from Paris, France.

Speaker 2 (27:51):
Well, I suppose one of them that you're talking about
is surfing.

Speaker 3 (27:55):
It's exactly right. But it's not just like out on
the French coast or something, because there aren't a lot
of waves in downtown Paris, right unless a boat goes
by and assent, right, But you never want to know
what's going to float by at the same time. Right.
So no, you think, well, they go out to the
northwest coast or something and there are good waves out
there or something, right. No, no, no, they didn't do that.

(28:15):
They actually held the surfing in French Polynesia, in Tahiti
on the other side of the globe. And you know
what's the reason they did this because they have truly
one of the most unbelievable places in the world to
go surfing, and some very big waves crest at this place.
And they're actually at a spot called Tiahupoh, which the

(28:39):
translation this is your first hint that it's probably not
for you and me, the place of skulls, okay. So,
and and by the way, they have big waves and
they crash on extremely shallow oofs, so falling is not suggested, okay.
And they're very heavy and also very fast waves. Okay,

(29:01):
so are you ready to sign up for this year?
It's kind of like go hard or go home, and
one way or another, you're gonna go home. Just what
shape you go home is the question. But what was
great about it checked us out. A twenty two year
old American woman named Caroline Marx who was born in
Florida and I think she's from California now. She won

(29:22):
the gold medal for women, and guess what, a local
Frenchman won the men's side. So he literally rode these
waves for the first time when he was eight years old,
which tells me you are fearless when you're eight years old,
because no sane person would do that otherwise. And one
last piece of trivia checked us out. This is the
furthest away from the host venue an Olympic event has

(29:46):
been held since the nineteen fifty six Melbourne Games held
the equestrian events in Stockholm due to horse quarantine restrictions. Okay,
think of that, how far up part that was? That
was ninety seven hundred miles and how part this was, yeah,
ninety eight hundred Okay, absolutely stunning. How far this was

(30:09):
from Paris? Very interesting, but you know, good for Caroline
Marx that the United States, what a fantastic and I
saw her winning or a couple of our rnning runs
and oh my goodness, was she good. Just incredibly talented.

Speaker 2 (30:23):
All right, Paul, So let's talk a little bit more
about what happened over this past week. It's the big
story we talked about the crash that maybe wasn't a crash,
certainly a dip though, and we've bounced back mostly from it. Yes,
but let's are there any lessons we can take out
of this so we don't worry you next time this happens,
or perhaps to make sure it doesn't happen again.

Speaker 3 (30:41):
Or perhaps just not listen as closely when somebody says, oh,
we need an emergency, you know, rate reduction by the
FED of three quarters of a percent. Yeah, So let
me let me tell you what I think investors should
take away from what happened this week. First of all,
always look at the fundamentals to determine your longer term strategy.
And earnings continue to be on track for their growth forecast,

(31:05):
and that's something we've said is absolutely critical here. In fact,
earnings growth, economic growth, which underlies those earnings growth, continues
to be modestly positive, while at the same time inflation
continues to slowly reced closer to target. So that means
it's receding for the right reasons, not because of impending
economic contraction, and as a result, interest rate reductions should

(31:29):
follow for the right reasons, and the fundamentals continue to
be in place for two key pillars of elevated market
levels to continue, including Ernie's growth and lower interest rates
for the right reasons as a result. Okay, that's the
first thing I took away from this second thing, Investors
should ignore hysterical calls to action like Wharton's Jeremy Siegel's

(31:54):
call on Monday for the FED to cut rates by
seventy five basis points in an emergency session when they're
based on very few data points. And remember, there would
be a significant risk of lowering rates. So just jumping
to that is, oh, we've got to go do that
right away. That's not an automatic fix, because don't forget
that could reignite inflation and then we'd be reliving an

(32:18):
extended period of inflation like the nineteen seventies. Remember Ben
Bernanke said let's not repeat the errors of the past. Okay,
So let's not just jump to something like that right away,
certainly based on just a few data points that aren't
quite as robust as you hoped they might be. Okay, Okay.
Third one, you should expect volatility, Why, well, it should

(32:40):
increase when virtually all the good news is priced into
current stock prices. And missing extremely elevated expectations is not
the same as not meeting critical deliverables. Okay, So one
thing is, you know, I expected an A plus plus
and I only got an A plus. That's not the
same as Okay, you're still killing it, you just didn't

(33:03):
kill it quite as well. And the market was just
ahead of actual revenue and profit results and continues to
stay ahead of actual revenue and profit results. And incorporating
what I would suggest investors is to incorporate some downside
protection in a portfolio, especially you know, in these circumstances

(33:25):
where you've got elevated conditions and like perfection priced into
the market at this point, and.

Speaker 2 (33:29):
For folks who listen to this program, that's something you've
been suggesting for a little while.

Speaker 3 (33:33):
Correct. And then fourth learning, if you will, was that
recognize that some external factors may impact demand for some assets,
like the unwinding of the Japanese yen carry train. But
they don't change the business case for the longer term
attractiveness of stocks just because of what's happening between our

(33:54):
two central banks right now. Okay, okay. And another one
is to understand and the causes of certain actions before
assuming the worst and making changes. And what I would
go to exhibit a on that would be, you know, Buffet,
he may be unloading Apple stock for reasons completely unrelated

(34:14):
to the long term prospects of the company. For example,
perhaps his action is related to risks associated with future
tax policy on a security with an extremely low cost basis.
We just don't know, good point. And you know one
other thing about Buffett and this move. Don't forget those
sales happen in Q one and Q two, not last

(34:36):
week as a result of him seeing things weaken. Okay,
And so I still don't understand why people might take
that and run with it. But if you say to me, well, okay, Paul,
I get it. Be rational, look at these things, make
sure the underlying patient is healthy. All of that, I
get all that. What are you going to be watching? Well,
I'll tell you what we're watching. We're going to be
watching the most current economic growth metrics. We're going to

(34:59):
be watching progress towards towards earnings targets, and we're going
to be watching inflation readings and that we want to
make sure that they allow interest rates to decline meaningfully
over time for the right reason. That's what we're going
to be watching.

Speaker 2 (35:14):
Things to watch from Paul. Well, we were also watching
some pretty important stories this week, impacting a few of
them Meg seven stocks. Right, these weren't good stories, No,
they weren't.

Speaker 3 (35:25):
And again this really poured gas on the fire already
of an overvalued market. Well then you've got three stories
that come out and you know, people say, oh my goodness,
this is you know, armageddon, and it's all happening at
one time.

Speaker 2 (35:38):
Yeah, okay, let's talk about those. What did happen and
what might it mean?

Speaker 3 (35:41):
Okay, So, first of all, these are important because each
of these stocks that we're going to talk about were
part of the key earnings drivers, the earnings growth drivers
that we talked about in the last week's show, and
so it really matters if these guys have a problem
or not. And sure enough, this week and Vidia announced

(36:03):
that customers who have ordered their new second generation Blackwell
chips are facing delays as the company grapples with design flaws.
These B two hundred ships were expected to be delivered
to customers later this year, but the delay could actually
impact some shipments to be pushed out to twenty twenty

(36:23):
five and without getting two technicals. The manufacturer company, which
is TSMC Taiwan Semiconductor, discovered a design flaw which affects
the die, which is this basic silicon wafer slice that
connects the two GPUs on a single board, and Nvidia
has to rework the design before conducting further production tests

(36:47):
and then move on to mass production. Now, the Blackwell
chips are extremely important to Nvidia and their customers since
Meta and Microsoft and Google have spent billions to get
the new chips, and they're going to spend billions more
on this next generation and they can run massive The

(37:08):
reason they like these this generation chips especially is they
can run massive artificial intelligence models at twenty five times
lower costs than previous Nvidia chips, and Nvidia plans as
a result of all this, to extend the life of
their Gen one chips, their Hopper chips and will also

(37:29):
offer a new Blackwell version two chip that works on
the current dye system for a subset of their clients.
Their Nvidia's down substantially from all time highs, down about
twenty three percent from all time highs. They most recently
hit those all time highso just a month ago. Right now,
they're trading at about one hundred and five bucks a share,

(37:50):
down from a high of one hundred and thirty six
bucks a share. So far, though, there have been no
meaningful reductions in earnings estimate for the company for twenty
two twenty four, and that's really important.

Speaker 2 (38:01):
All right, Paul, we're going over some details of some
of the bad stories affecting many of the Magnificent sevens.
Talks will address more than when we return. It's the
plan Strong Financial Forum.

Speaker 3 (38:11):
This is Paul Parsons, president of plan Strong Investment Management,
and you're listening to the plan Strong Financial Forum. If
you like what you hear on our show and want
me to take a look at your investments in retirement,
plan called my office at eight eighty nine seven two
seven five two six eight eighty nine seven two seven
five two six. That's eight eighty nine seven to two

(38:32):
plan or go to plan Strong dot com.

Speaker 2 (38:34):
Securities and advisory services offer to Commonwealth Financial Network member
Finer SIPC, a redditional investment advisor, NI Navy Washington Street.

Speaker 1 (38:41):
Detaments Ground zero for your financial news and economic commentary.
This is the Plan Strong Financial Forum with Paul Parson's,
President of Plan Strong Investment Management.

Speaker 2 (38:56):
And welcome back to the Plan Strong Financial Forum. I'm
your host, Attorney Ken Carberry, along with financial advisor Paul
Parsons and Paul. I have to imagine that you paid
a lot of attention to the tennis at the during
the Olympics, golf and.

Speaker 3 (39:10):
Tennis, I mean, along with a lot of other stuff.

Speaker 2 (39:12):
We did see the best in the world and probably
no surprise in the tennis department.

Speaker 3 (39:19):
Yes, yeah, in the finals and the mens, that was
absolutely incredible that Djokovic of Serbia and al Karaz of Spain,
you know, sued it up and went after it again.
But you know what was different about this tournament than
any other tournament that you'll see is this is two
out of three sets, not three out of five. And
it's literally the difference between you know, a middle distance

(39:40):
runner and a marathon or somebody that can you know,
just absolutely optimize their performance at fifteen hundred meters may
not be that good at a marathon or and vice versa. Right,
same thing with tennis, and especially for an aging tennis
star like Djokovic, because here he is thirty seven and
he's got to beat this young guy who's all of

(40:00):
twenty one. And when is he has, he struggled with him,
especially in the later sets, right when he's had these
three out of five sets. But you know what, Djokovic
probably played the best I've ever seen him play against
al karaz and he beat him in two straight sets,
in two straight tiebreakers, and it was some of truly

(40:20):
the best tennis I've ever seen in my life. So
that's how good it was. And Djokovic, a lot like Scheffler,
broke down in tears when he won and said, he
you know, this guy's won twenty four majors. It's a
lot of majors, okay, and so the most majors of
any man in tennis ever, right, and this guy, you know,

(40:41):
he broke down and cried at winning this, and you
know why because he had never won a medal at
the Olympics before, and he'd certainly never won a gold
medal before. At the Olympics, and that allowed him to
become one of the fifth person that is the owner
what's called the Golden Slam. So you didn't just win
the four major Grand Slam events in your tour, but

(41:03):
you also win the gold medal in the Olympics. And
the other four people men or women that have done
it include Andrea Agassi and Nadal of course, and then
stephie Graff and Serena Williams. That's it. It's a short list.

Speaker 2 (41:16):
Is a very sure.

Speaker 3 (41:17):
You don't need a lot of chairs for all the
people that have done that is truly rare air. And
the guy was not only was he proud that he
had won the Golden Slam, he was very proud he
did it for Serbia. And you know, the way he
sang his national anthem, the way his wife was singing
the national anthem was just absolutely patriotic. It was fun
to watch again and I thought Alcaraz handled it beautifully

(41:40):
as always, and what a mature twenty one year old
that Yet something else is incredible, absolutely incredible, right, Aulso
we're talking.

Speaker 2 (41:47):
About some of the stories that affected the magnificent seven
Stalks of Us last week. None of them good and
started with Nvidia.

Speaker 3 (41:54):
We did with having manufacturing problems with their next generation chip,
which he might say, does that get in the way
a revenue growth? It was just a little bit. Yeah.

Speaker 2 (42:02):
There was another story having to do with Nvideo though.

Speaker 1 (42:04):
Well.

Speaker 3 (42:05):
Yeah, as if their week wasn't bad enough, then Elliott Management,
which is one of the largest headgshut funds in the
world with about seventy billion dollars in assets, they sent
out a letter to their investors about Nvidia, saying it
was quote unquote in a bubble, with AI technology driving
the chip maker's share price to become overhyped. And furthermore,

(42:27):
they were skeptical that big tech companies would keep buying
Nvidia's chips in such high volumes, with many artificial intelligence
applications quote unquote not ready for prime time, not cost effiction,
take up too much energy, and prove to be untrustworthy
unquote interesting, So that doesn't sound that good about those

(42:49):
AI applications, doesn't andcific They also said that AI had
failed to deliver the promised huge uplifting productivity and there
were few real uses so far, something you and I've
talked about, concluding that the software had not yet delivered
value commensurate with the hype, and you know that that

(43:09):
really is not a not a big endorsement. It's something
we've been thinking about that we need these quote unquote
killer apps, and they're pointing out the obvious there aren't
that many killer apps yet. But my question is whether
or not they're shorting the stock and that's one of
the reasons they decided to write the level really, and
so you want about that also, but you know, these

(43:30):
are they are rational points at least.

Speaker 2 (43:33):
Okay, okay. I think another very big story we really
have to talk about is the the Google lawsuit. This
was this was this was big federal judge said, yeah,
you're you're violating anti trust Sherman Sherman.

Speaker 3 (43:46):
Yeah, right, So basically this is bad yeah for Google. Anyway,
it was a stunning.

Speaker 2 (43:51):
With right, and this has specifically with Google and the
contract with Apple.

Speaker 3 (43:55):
Correct. So it's their search business, and it's it's Google's
oldest and most important business. And why well, they've spent
tens of billions of dollars on these exclusive contracts to
secure a dominant position as the world's default search provider
on smartphones and web browsers. And these contracts have allowed

(44:19):
Google to block out would be rivals like Microsoft's bing
and you know it's funny. The judge recognized Google as
the Internet's best search engine, but he also found that
they used monopolistic behavior to maintain it. And there will
now be, you know, a phase in which the court
will decide what penalties Google will face, and including an

(44:43):
impending appeal. It could take years to play out, but
the ruling could ultimately upend how Google makes its search
engine available to users by impacting its ability to make
pricy deals with device makers like app and online service providers.
And there are those who argue that the biggest winner

(45:06):
will not be the consumers but instead Microsoft. Why well,
because it's going to hurt Google, and it's going to
help Microsoft when it comes to their search engine. And
it's going to certainly hurt Apple because they received twenty
billion dollars just in twenty twenty two a loan for
having Google be the default search engine app on the

(45:26):
iPhone Safari browser. There goes twenty billion dollars down the
drain unless another arrangement can be reached that complies with
whatever ruling this judge ultimately orders. So it's really going
to be interesting to see how this thing plays out.
It's going to take a while to sort out. But

(45:47):
it isn't good news for Google, and it's not good
news for Apple, and it likely was good news for
Microsoft and maybe also for open ai or to come
on this kidding.

Speaker 2 (45:57):
You mentioned Apple. Of course, that's the other big story
because in terms of a lot of Apple shares being
sold by Warren Buffett. Yes, as you mentioned just before
the break that happened in Q one and Q two,
which is learning about it now, right.

Speaker 3 (46:12):
But it's a lot. It is you know, when Buffett sells,
you know, he sells this position going from one hundred
and seventy billion to eighty billion. Well, you know that's
real money. Okay, that's a big position. And you know,
we talked about some of the stuff that happened, but
the question is why did he do it? And this
is why it's really important for investors not to jump

(46:33):
ahead and say, oh, he's going risk off. That's not
necessarily the case. Instead, several articles were written about this,
and here's some of the conjecture based on other comments
that Buffett has made, certainly over the last year or so,
starting with Apple, was starting to have too big an
impact on Berkshire's results, their own share price results, and

(46:55):
it would have represented over twenty percent of Berkshire's market. Wow,
okay if he hadn't sold some so it's almost a rebalance.
It is exactly right. It's just becoming too big a
proportion of the overall portfolio and that increases risk. Okay,
So that's one. Another one is that Apple's valuation went

(47:16):
from ten times next twelve months earnings when Buffett started
buying it twenty sixteen to thirty times forward earnings today. Okay. Now,
given how huge Apple has become, growing earnings at a
rate that can justify that kind of elevated multiple is
almost impossible, certainly much more difficult than it was in

(47:38):
twenty sixteen, for example. Okay. The third thing that maybe
going along here, and I alluded to this earlier, is
that Buffett historically has noted the tax rates for longer
term capital gains have been much higher in the past
than they are today, and frankly he expects the rates
to increase in the future because of aren't fiscal deficits.

(48:01):
So paying taxes at twenty one percent today is much
better than for example, thirty five percent in twenty sixteen
or as high as fifty two percent in some years
before that, they actually paid, and given the gains incurred
with Applestock, he actually may be recognizing some of those
gains now at known preferred rates. Okay, so that could

(48:26):
be at play here too. And then finally, past lessons
with another stock with the high multiple may also play
a role as well, because in the late eighties Buffaleot
Buffett bought Coca Cola and he saw its price skyrocket
to a forty times forward multiple by the end of
the nineties. So in a ten year period of time,

(48:47):
saw this thing literally saw the value ascribed to it
really go up dramatically. And the problem was he couldn't
sell at the end of the nineties because he was
on the Koch's board of directors. So his partner, Charlie
Munger said, hey, Buffett, get off the board because this
is a big position and you know, I'm worried that

(49:08):
we can't sustain this value. Well, he didn't go off
the board, and from the late nineties until the end
of twenty ten, more than a decade, Coca Cola stock
essentially went nowhere on a stock on a price basis
and made twenty eight percent cumulatively including dividends over ten years. Okay,

(49:28):
so the high multiple of the late nineties acted like
an anchor on the stock's performance, and Buffett learned a
hard lesson as a result of that, and that may
play here as well. So you know, my guest, Kenny. Overall,
the selling done over the past two quarters likely had
little to do with Buffett losing confidence and equities or risk. Instead,

(49:51):
there seemed to be some plausible rational reasons for cutting
the position without necessarily losing confidence in either the company
or the overall economy.

Speaker 2 (50:01):
Paul still free number eight eight eight nine seven two
seven five two six eight eight eight nine seven to
two plan or you can go online to planstrong dot com. Paul,
thanks so much for coming in. We'll see you next week.

Speaker 3 (50:13):
I can't wait to talk to you next week about
the good news, which is certainly Lily was a good
story this last week as well as maybe next week
we can get to that a nobody's story.

Speaker 2 (50:22):
All right, some good news coming up for next week's program.
It's a plan Strong Financial four. Plan Strong Investment Management
is located at nine eighty Washington Street, Deta, mass two
O two six and can be reached at eight eight
eight nine seven two seven five two six. Securities and
advisory services offered through Commonwealth Financial Network member Finra SIPC,
a registered investment advisor Paul Parsons Representative. This radio show

(50:43):
is for informational purposes only and is not a solicitation
or recommendation that any particular investors should purchase or sell
any particular security. The information contained here in is obtained
from sources believed to be reliable, but it's accuracy and
completeness are not guaranteed. Either Commonwealth Financial Network nor your
representative provides time advice. Indexes are not managed and do
not occur management fees, cost or expenses, and cannot be

(51:05):
invested indirectly. Past performance of an index does not guarantee
future results