The Fagan Financial Report

July 30th, 2023

Episode Transcript

(00:00):
Good morning, Welcome to the CapitolDistrict's Money and Investment program. You're listening
to the Fagan Financial Report on DennisFagan sitting here with my son Aaron,
as we do every Sunday right herein New stout Gate ten on one O
three one WGY. If you wantto join in the conversation, please so
if you DA calls at one eighthundred talk WGY. That's one hundred eight
two five five nine four nine oneeight hundred eight two five five nine four

(00:22):
nine. Good week for the market. All the major industries were up this
past week to down June. Utilityaverage down a little bit disc past week,
and that's been a laggered for quitesome time. Now. FED raises
rates by a quarter point to fivehundred and fifth to five point five percent.
Markets are priced in for a softlanding. There are two other types

(00:42):
of landings that we could have.Corporate news ups Teams has reached labor deal,
Meta platforms, Microsoft Alphabet all reportearnings, and Elon could be pro
fact their strike or they came toan agreement agreement on their strike this week.
So a lot of news. Howare you are I'm really good.
How are you good? Good?To see you. Hey, you as
well. Celebrated Aunt Best's sixty thirdbirthday at the clamor he Lama. They

(01:07):
had like, you know, awhole stage for kids to like kids toys
and stuff like that. So youknow, the ant Beet's grandkids are their
core. And Hudson and Jude wasthere and you know, yeah, it
was great to say, you know, they were really you know, great
with Jude and you know it wasjust nice. You know, it was
good time. Yeah, good time. Anyways, let's let's get right to
it. It's past Thursday. Youknow, the Dow fell after thirteen consecutive

(01:30):
updates, tying the longest such streak. And I wrote this since the eighteen
nineties, Yes, the eighteen ninetiesand not the nineteen eighties. When you
think about that, thirteen up daysin a row for the Dow, I
wouldn't have thought you'd go back tothe eighteen nineties for thirteen game winning streak.
If you think of if you thinkof the Dow movements day to day,
and I often say this, andyes, not one day it was

(01:52):
pulled back, but you know,I guess all streets have to be broken.
What would you think about it ifyou think out the Lakers thirty five
game win streak. Baseball has acouple maybe thirteen game win streaks. And
you know, and this is notto trivialize money, but money dollars and
cents or statistics. Not much differentnumbers, Yeah, not much different than

(02:13):
LA games in a row. Yeah, a while ago. I forget that
that might have been during the nineteeneighties that they won thirty five games in
a row. If you have alull in the action, I will,
I will, I will, Iwill, you will set up I might,
I might, I might. Butwould you have thought I would have
thought it wouldn't have gone back thatfar? If someone told me the doo,
when's the last time the dow wasup thirteen days of the row?

(02:36):
I would have sens been like,yeah, during a bull market maybe,
you know, coming out of twothousand and nine. Uh yeah, it's
just something something then you know,maybe during like the nineteen twenties when there
was like a lot of a rationalityin the market. You know, I
wouldn't have thought of it. Nowwhen there's a lot of you know,
uh, you know, pros butalso cons you know, to the market,
or it thinks people could be nervousabout even with geopolitical pensions and things

(03:00):
like that, you'd think at leastone day in what three weeks of trading
almost that something would have stumbled.Wouldn't have thought we'd go back to the
eighteen nineties. So but anyways,so thirty three games. The longest win
streak in the NBA belongs to theLa Lakers in nineteen seventy one and seventy
two. That's how many games theywin there. The Knicks one in seventy
three. I don't know, butthey had thirty three game win streak before

(03:21):
being beaten by the Bucks. AndI was a huge basketball fan as a
kid who had played in high school, played in college, as did you
know, as did Uncle Chris andMike Um. But the reason I'm saying
that is is that I remember whothe Bucks had. They had Oscar Robertson.
That was nineteen seventy two, nineteenseventeen, and they stilleen games.

(03:42):
Alcindor, Kareem Abdul Jabbar. Ithink that they won the finals. Yeah,
Jerry West, Jerry West, Ican the Elgin Balor. I was
on that team. Pat Riley Ithink was on that should be better at
that immaculate grid basketball should you canname that many people as well? They
don't, they don't ask all thatis that is good? Maybe I will,
Maybe we'll be the Lakers and theBucks. Who knows. But anyway,

(04:02):
so that thirteen thirteen days in arow where the mark was up,
three consecutive upweeks for the market,continuing a trend it really has persisted since
October twelfth, two twenty two,closing low, better than expected earnings,
improved consumer confidence, adequate economic dataenough good economic data. Uh, kind

(04:24):
of no major up bed that whatpolitical kind of happened? Um? Yeah,
so I think it was kind ofall in a lighter volume. So
you know, all signs that say, hey, you know, why not
I think I think I think whynow that I think why there hasn't been
a wind streak that long is becausethe market is very random over the short

(04:46):
period of time. So although there'sthe market's only a fifty three percent of
days. So if you take youknow, point five times point five times
point five times point five, theodds are very low. Obviously less than
one percent. I would say,yeah, obviously because thirteen eighteen nineties,
you know, But but it alsopoints to a couple of things. One

(05:10):
is that there is a randomness tothe market over the short term, as
you mentioned the market of fifty threepercent of the time, and it reminded
me of a quote from Warren Buffettthe bull. First of all, I
just want to preface that would saythe bull rally that we're experiencing in twenty
three is somewhat of the mirror imageof twenty two last year. Laggarts have

(05:31):
been leaders of this, and we'lltalk about Mike, you know, Mike
Wilson for a minute in really glowingterms, and for the people who don't
know he is, will discuss that. But as opposed to twenty two,
twenty twenty three is a pleasant reminderthat the near term direction of the financial
markets is impossible to predict. Andthe quote Warren Buffet who said that in

(05:55):
the short run, the market isa voting machine. And this is where
we insert, even by investor speculationsentiment in the media, the long run
is a weighing machine, driven reallyby the strength of the US economy,
the kind of the overwhelming strength ofthe US economy despite short term pitfalls and
company fundamentals, you know, Soit's important to remember that despite the good

(06:18):
feelings generated this year by the bullmarket, you know, the bear markets
and corrections are part of the flowof the longer term direct market. It's
part of the process. So thisyear we're kind of and we're kind of
getting paid for sticking with it lastyear. Now, um yeah, you
know, I think even let's say, you know, the last bear market

(06:43):
was brought upon by you know,an overstimulation of the economy, which in
turn, you know, uh,I guess exacerbated uh you know, the
large cat text dox money flowing intothat. So you know, on a
value, it was it was acorrection that, in my opinion, was
um as much of a valuation questionas anything. And I think this year
you're kind of seeing that although therewas a reset of valuations, these companies

(07:06):
that led our last bull market arestill doing very well. You know,
we're seeing them even in having theirfoot in the door in you know,
like technologies that might bring us towhere we are in ten years. So
you know, as in the past, you've seen you know, let's say,
companies like US Steel be leaders inthe economy. You know, in

(07:27):
their early nineteen hundreds, you know, a steel company can only diversify so
much outside of what they're good at. And I think what we're seeing now
is these companies that you know,led the last bull market that we have
only been around for twenty years.You know, in a technology space,
it's much easier to continue to bein technology spaces, but in emerging technologies
as well, it's easy. It'seasier for them to diversify because you know,

(07:49):
where we see ourselves in ten yearsis still technologically related. Maybe it's
not industrial like it had been,you know, in the nineteen hundreds,
it's you know, with technology leadingthe way, it's easier for them to
get pivot into into newer technology.And you're seeing that, and you are
saying that, you know, andwe are in communication services, consumer discretionary,
and technology, which is kind oflike if you had to label those

(08:13):
companies ten years ago, you wouldhave labeled them all technology, kind of
leading leading the way this year consumercommunication services of forty three percent, technology
of forty three percent, and he'sconsumer discretionary of nearly thirty four percent,
followed by industrious materials, financials,utilities, energy, and healthcare bringing up

(08:33):
the rear thus far this year,and we're getting to the point. Really
June twenty fourth was one of theclosing lows four I think it was June
twenty two for the market last year, followed by the ultimate closing low in
October twelfth of two thousand and twentytwo, and the market thus far the

(08:54):
Dallas twenty one percent above that closinglow, the S and P five hundred
and twenty eight. Now I thinkI think to get to get to well,
let's let's let's talk about Mike Wilsonfor a minute. Mike Wilson pop
strategies for Morgan Stanley really predicted totwo thousand and twenty two direction of the
market and kind of hung on tothat direction of the market, thinking that

(09:15):
the market would get down about thirtytwo hundred as represented by the S and
P five hundred, the SMPF I'vehunt to close Friday at forty five eighty
two. Mister Wilson, you know, issued kind of like Amacopa the apology
earlier in the week, saying,look, you know, we got it
wrong for this year, not notrecognizing the kind of the strength of AI

(09:35):
we were wrong. Wilson wrote inthe Declines twenty and twenty three has been
a story of higher valuations that weexpected at falling inflation and cost cutting.
Now he has a price target offorty two hundred, you know, maybe
seven or eight percent below the currentlevel. I was saying before the show
that I do not envy him atall. Yeah, and you know,

(09:56):
yeah, I think what he calledhe had called to the market to go
thirty two hundred? What did it? What did it bottom out at?
Like? Um? So, youknow, close but no cigar, I
guess. And that's the kind ofit's like the vankless part of his job.
You know, he was pretty closeto being right at one time,
but did call for another dip atthe at you know, we saw the
October lows market go up a littlebit and he did still call for a

(10:20):
call for it to go down toabout thirty two hundred. So he was
wrong. But uh yeah, it'sit's a tough job. We're talking about
that before should we were? Andbut here's what I say about that.
You know, I don't value himany less now, no, either at
all. He paid to have anopinion, you know, he had an

(10:41):
opinion based on you know, specificmacroeconomic factors as well as valuations of companies
that went into it. I thinkit was a pretty good prediction. You
know, he was wrong. Wetry not to take two short term,
short term predictions like that. Wetry and you know, allocate people correctly
based on where we see the marketthere. But you know, we don't
over you know, it's thirty twohundred bottom like he would. We know

(11:03):
the market goes up over time,and we kind of and we try to
stick to that thesis. I'm raisingcash when we when we think the market's
a little bit over value, deployingcash when we think it's undervalue. But
you know, his job is tobe is to do that, and I
guess he was a little bit offand on the margins was where we raise
in lower yesh our income portfolio iszero to fifty percent in the market,

(11:26):
her growth in income, unless morespecifically specified by the client fifty to seventy
five and a growth portfolio seventy fivepercent and over. So if you're an
investor with Sagan Associates, you signedsomething for one of those three different objectives
and you're gonna fall within that.So for bullish on the market and you're
a growth in income investor, you'regonna have more than you know you're gonna
closer to seventy five percent in themarket. If you're we're growth in income

(11:50):
and we're we're a little barish onthe market, you're gonna fall, you
know, lower than that, lowerthan when we were bullish. So so
it's on the margin. But butthat goes it goes back to Warren buffets
come meant then in the short run, the market is a voting machine.
And then I added, driven byinvestor speculation, sentiment in the media.
What bothers me a boat about aboutand not Mike Wilson, but also the

(12:11):
bulls last year, is that investorspeculation is going to speculate negative. Investors
will speculate negatively when all the mediais presenting negative things, and sentiment will
be negative as well. The mediacan drive sentiment and can drive speculation by
who they choose to put where theychoose to put them. When's the last

(12:33):
time he saw Mike Wilson on CNBC? Yeah, I think we just saw
he said sorry the past week.But before that, not a lot he
was on. Was he was Idon't know if he's not. Was he
on CNBC? No, I wasn'teven on it. No, that's the
last time he was even mentioned wasyou know, yeah the press release that
you said. But yeah, thelast time he was on it, I
can't remember. So I want toknow what he's thinking now, I really

(12:54):
do. I want to know becausewhat if he said he's wrong, now,
I'd say he was wrong about thethirty two. Uh. Yeah,
I still want to see what hethinks to market where the market is going
to mean he's not doesn't mean likeyou banish him off, you know,
right, right right, very goodat his job, and his opinion is
extremely uh I think should be soughtafter even when he iss wrong. So

(13:16):
yeah, I would like to knowwhat he thinks from here. Yeah I
would too, because and you said, you know, prior to the show
that um that his opinion is valuableand he was right last year and he's
gonna be right again at some pointin time. Yeah. So it's almost
like a contrairi an indicator. HisMaja Kulpa is almost Man, I'm a
little more nervous about the market ifhe's gonna throw in the towel him.

(13:39):
Yeah, maybe we run kind offar enough for a while, you know.
Yeah. So anyways, UPS teamstersreach a labor deal to avoid the
strike, three hundred and forty thousandmembers of the Teamsters, existing part time
workers getting twenty one bucks an hour, full time workers forty nine dollars an
hour and mean pay bumps. Itwill be up twenty and seventy five cents

(14:01):
more an hour this year in sevenfifty an hour more during the five year
contracts. So that was good.I mean, I think it negatively impacted
ups searnings. We also had acouple other companies in Netflix. Yeah,
can you kind of wait, whatdo you want to which one do you
want to kind of put your twocents in on? Like what it would
you know, in order of strinking. I think the one that was the

(14:24):
best going forward would be Google inthat you know, this year has kind
of been uh marqueed by AI chatGPT leading the way, and that would
be you know, Microsoft surtey,you know, one hundred million downloads et
cetera. Uh, you know,fastest downloads in in in whatever history.
Before you know, Instagram came outwith their threads thing, but um,

(14:46):
you know, they continued to showtheir strength in search and add So I
think that's the main point here is, you know, even with the down
the downloads of chat GPT, GoogleSearch isn't going anywhere. You know.
I think what we saw, youknow, last year and even at the
beginning of this year it did laga little bit, was you know,

(15:07):
manage people weren't as confident in managementum. Their only products still being search,
needing more avenues of revenue. Butyou know, I think what we're
seeing here is, you know,you know, now on Google they do
have their bar, they do haveAI, and that they kind of weathered
the storm of this chet GPT thusfar they still have what revenue with seventy
four point six billion dollars that's inone quarter. So you know, we

(15:31):
saw strength in Google, and Ithink you know what we saw this week
is you know, you have Google, you have Metta, you have even
Netflix is you know, these companiesthat you know, may may get overvalued
over time, still have a hugemoat in what they're doing. You know,
look at Netflix, look at allyou know. Yeah, in the
past three four years, we've seena stream of other streaming devices and other
services which would be you know,even Disney, Warner Brothers, Paramount Peacock.

(15:56):
You're seeing, you know, somany of these companies come out with
these with these new platforms, whichkind of hurt Netflix to begin with.
But look at how all these companiesare just struggling. They're all struggling.
You know, even HBO I wouldsay they're close competitor Disney loss subscribers.
So you know, it's it's toughfor other companies out there, and they

(16:17):
just Netflix continues to maintain their lead. Maybe had five billion dollars of free
cash so that they can use toyou know, make more content. Um
it was increased a little bit bythe writer strike, which actually helped their
free cash flow. But you know, I think you know, as we
were talking about the beginning of theshow in that um, how were we

(16:37):
talking about, Well, you knowwhat I was going to say is,
you know Netflix needs to get thesecompanies, need to give us a reason
for them to sell wholesale. Youknow, we do work at the margins.
You know, you have ten pluspercent in any of these companies because
of capital gains. It's it's youknow, prudent to pair it back.
But you know, to completely sellthese companies is way too hard because of

(16:59):
not only where they where they areand where they can be going forward,
but also they're extremely strong financial statements. And these are tech companies, but
you know they're not tech company oftwenty twenty five years ago. These are
very stable investments now and you mentionedthat they can move into different areas.
It's it's broad, it's technology ismuch more of a broader type of environ
industry and industry. And then whichwhich making wholesale changes like again again not

(17:23):
to go back to Mike Wilson's call, but you know when you make a
wholesale change or sale Alphabet, it'sdone. I mean Alphabet was land based
it earlier in the year because theyMicrosoft came out with with their with their
AI uh search, and everybody felt, well, you know, Alphabet is
behind the eight ball, but itwas excuse me, yeah, behind the
curve. But but that's indeed indeedturning out not to be the case.

(17:48):
But let's say we we took informationand and and you know, digested and
sold all of Alphabet. I thinkthat's where you're making mistake of tax consequences.
And you also have you know,consequences that you're wrong right now.
If just justin common stock, Microsoftor Apples are largest holding file by Microsoft,
then Alphabet Rose and AMD you know, further down the listed seven is

(18:11):
in Vidio than Amazon, and thenyou get down to h you know,
other companies obviously, but other otherwe do it. We do have a
nice diversified portfolio with low Starbucks,the Chevron master Card, yeah, JP
Morgan and they'll like in there.So you know, I think I think,
you know, if you're managing yourportfolio by yourself, you know,

(18:33):
and you're not a hedge funder,you know, a quant firm, you
know, I think you have torealize that, like, you know,
the market's up seventy five percent ofyears, you know, give our take
a percent or two, and youknow you have to you have to when
you invest your own portfolio, youhave to know that, like if you're
wrong, you still should be participated, you know what I mean. You
have to participate and if and ifyou're wrong on whatever call you make,

(18:56):
well, hey I'm still participating inthe market going up. You know,
maybe I raised a little bit ofcash, but my stocks are still going
up, right, And I lookat that, Yeah, I look at
I look at the waiting the sANDP five hundred. I mean, yeah,
you certainly wanted to be somewhat correlatedto that because it's also a market
capitalization waiting in the next one wyone, two, five, five,

(19:18):
nine, four nine. Microsoft didnot have great earnings. Um, yeah,
that was the only it was theonly consideration AI or excuse me.
They did not have as great earnings. Their stock price fell a little bit.
Still one of our larger holdings withjust get some weakness in there in
their core segments. You know,five days, though it's one down one

(19:41):
point nine to five percent, it'sstill up for the month up a percent,
and three months is up ten percent. So you know, I think
we got a little bit carried awayon this chat GPT thing. You know,
I think their office three sixty fiveis still strong, although they did
point to weakness and strong Yeah,so you know, I think Microsoft is
one of the ones that has justhad such a good year that you know,
a zoo was zoo is a littleweek. I think that's what a

(20:03):
little week. Then yeah, zerowas a little weak, weaker than expected.
So you know, I think Microsoftis kind of going to be in
that needing a catalyst to to movesubstantially higher. I mean, revenue with
revenue growth was stronger than Alphabet,and yet Alphabet it's much more reasonably valued
on a PP to growth ratio.That I think that's why Microsoft got hit

(20:27):
a little bit. But Microsoft ayear to data is up you know,
right, forty one forty two percent, so right, So that's a little
reason for a little and I thinkthat what marketing general is we could take
a pullback for sure in that uh, not complaint about this year or even
this year as compared to last.Yeah s andp's up twenty percent if it

(20:48):
does ten or eleven percent. Historicallyit's been a good year thus far.
Um. That's not saying I thinkit's going to go back to you know,
up ten or eleven percent. Butyeah, I think we're gonna need
another catalyst of this market to gohigher. And I think we have a
few unknowns out there, and youknow, if the Fed's in kind of
await in se mode, I thinkthe stock market's going to be in a
wait and see mode as well.I agree, so that you know,

(21:11):
one of our last things to reallytalk about me we got a couple of
minutes. FED raises the FED fundsrate by a quarter point to five and
a half percent, following it's twoday meeting that concluded this past Wednesday,
a couple of comments from Jerome Powellfed Shair after the meeting in the press
conference. The worst outcome for everyone, of course, would be not to
deal with inflation now, not getit done. Whatever the short term social

(21:32):
costs of getting inflation under control,the longer term social costs of failing to
do so, our greater and historicalrecord is very very clear on that.
The second thing he said is inregard to further hikes. Powell stated that
we have to be ready to followthe data, and given how far we've
come, we can afford to bea little patient as well as as as
well as resolute, kind of talkingthe boat out of the boat side of

(21:52):
his mouth. Now, at thistime, we believe the FED will not
raise rates at its next meeting Septembernineteen through twenty. You know, look,
I think it's that's a close call. We also believe that rates will
stay in around these levels, whichis historically normal. But we do thinks
they're going to be up up inhere if we if people call them elevated,
we call it historically normal. Andtherefore we think industrates are going to

(22:15):
kind of stay in here for longerthan was originally expected by the market where
I think the market is going tobecome accustomed to rates up here as well.
People want to buy houses with mortgagesat six or seven percent, and
slowly the economy will begin to say, okay, we're still okay here,
uh and and we we'll still dookay. Yeah. So I think also,

(22:37):
I think if you if the marketcan handle this from from an equity
side, from the fixed income side, I think you got to start laddering
your securities, uh, and makesure that you take advantage of the ten
year or I think we're right nowgenerally speaking, we're out two to eight
years with our treasuries, uh,you know. And and would recommend that
you the listeners, do the same. So from this point forward, though,

(23:00):
I think that the said you know, hikes rates at the margins and
does so if they are going todo so, does so not at every
meeting, which is not going tobe market movie ten thirty on the station
you depend upon for news, weatherand information, new STALKA ten and one
O three one w g Y,Good morning, Welcome back to the second
half hour of the Capitol District's Moneyand Investment program. You are listening to

(23:22):
the Fagin Financial report Dennis and AaronFagan sitting here every Sunday, as we
do from ten to eleven every Sundayright here in new Stalk K ten and
one O three one w g ysecond half. We are going to talk
about what could go wrong with themarket. You know, we talk quite
often about what could go right.You know, we are in the throes

(23:45):
of a new bull market one wayor another. You call it a bear
market rally if you want. Withthe SMP five hundred more than twenty percent
above it's October twelfth closing low.We are in good shape. Inflation is
coming down, which is good.Initial claims run to benefits down around two
hundred twenty thousand last week. That'sa big positive. The dollars easing,

(24:07):
which is good. Free explores upa little bit more than expected two point
four verse two percent, so personalconsumption expenditures, the inflation rate down again.
During the month of July. Wehave the hype over ai UM,
so there's a lot of uh andand we have the fomo trade fear of
missing out. Yeah, consumers say, yeah, so there's a lot of

(24:29):
like you know, we always saythat where everyone does. The market climbs
a wall of worry. And thisisn't a wall of worry though, this
is you know, this is thepositive. But we are going to talk
about the worries and because it isthe bust that you don't see that really
strikes you, um and uh anddoes the damage. So we're going to
talk about what some of those thingsmay be that we do see as potential

(24:51):
headwinds for the market. Um.But but all in all, it was
a good week last week. Theweek that ended the twenty first was one
that looked like more profit taking thananything else. And I think this week
was an indicator just in an additionbecause of the stronger earnings, even earnings

(25:12):
from Intel. As we discussed alittle bit in the first half, we're
we're pretty strong. Yeah, Andyou know, I think as we talked
about a little bit on the firsthalf, is you know, it's going
to take a lot I think foryou know, companies to go up significantly
when they beat when they you know, if they beat earnings. But I
think there's a lot of downside protectionas well. I think you saw X

(25:33):
on Mobile Friday was down, Itdid not have good earnings, and you
know, I signed out, butyou know, Xon was down is down
a buck eighty five, so,you know, one point seven five percent
ish, you know, give ourtake a little bit on Friday. So,
you know, I think we're kindof an environment where we're seeing fair

(25:56):
valuations to the upside and to thedownside. I think that's good overall for
the direction of the market. Butyou know, I think we're just you
know, seeing this earning season asyou know, hey, companies, I
think are where they should be,and I think we're going to need the
catalyst to go significantly higher. Butyou know, do we really want that
right now? Right? So whatyou're saying is fair evaluations for the upside

(26:17):
and downside, meaning that, uh, there seems to be enough earnings to
h to support stocks at this level. But as you just mentioned, we'll
need a catalyst to the upside,you believe, And you saw that a
little bit with Google. Um,you know they you know, again,
as we talked about in the firsthalf, we saw Google maintain their their
lead even with you know this chatGPT in an add YouTube was still very

(26:40):
strong as well. UM market shareon you know They're on search was very
strong. You know, Meta continuesto be strong. I think from evaluation
standpoint. You know, they're undervaluation of last year and getting back on
the right track. But Microsoft wasa little weak, and you know Intel
was a little strong. So youknow, I think we're seeing a lot
of conflicting data, you know,company by company data specific, company specific

(27:04):
things that are coming out that Yeah, yeah, I think you know,
as I was saying, you reallyneed a catalyst for something to go higher.
Yeah, and um. And alsoI mean we're that catalyst could be
that we're we are in a periodwhere we could we could have had trough
earnings. It could be this quarteror next quarter when you think about it,
because last year was really the yearthat the economy slowed down a bit

(27:29):
and the FED was raising interest ratesseventy five bases point three, three meetings
in a row. We had thewar in the in the Ukraine's still going
on obviously, but the the initialshock of it influence in the oil market.
Oil is still you know, tenor twenty bucks of barrel above where
it is now. So these arethe pros. We haven't even gotten into
the conject and so so to transitionto the cons, I think the main

(27:52):
con really is the tight FED.You know, I think if you take
a look at that, you're you'retalking about federal funds rate now at five
and a quarter percent. As thelisteners, no, watchers of the market.
No, the Fed raised interstates bya quarter of a point at two
o'clock, announced it at two o'clock. They had a two day meeting that

(28:15):
that ended at two o'clock. Thispass Wednesday, they raised the Fed funds
rate to five and a quarter percent. Subsequent rates went up. In fact,
the three month treasury bills now atfive to forty or so, the
six month at five fifty, thenine month at five forty, the one
year at five forty, the twoyear at about five, the three year
at four to fifty five, thefive year at four twenty, the ten

(28:37):
year at just about four percent.So you can get you can you can
ladder treasuries over ten years and uhpick up over four percent return. Now
you that that most people think thatthat's a that's a good level of a
disbursement from your account to maintain yoursources of looking that's a good approximation of
what you can get. Now it'snot adjusted for inflation, but you know,

(29:00):
four percents a pretty good rate thatyou can lock in over ten years.
Um we'll talk about that later.That that is the alternative. But
um so the tight fed But butand and I think Jerome Powell's comments this
week are were one that here,so here's a question for you. Actually,
the con could be we're not goingto have a soft landing. We're
not going to have a hard landing. We're gonna have a re acceleration of

(29:23):
the economy. Yeah, and basicallyJerome powellill have to really, you know,
do something. We're not talking abouta quarter point rate hikes. Will
probably talk about a half point ratehikes if inflation doesn't ease. If inflation
doesn't ease, and if the consumerremains strong like it has. You know,
you're seeing some signs in a littlebit of weakness, whether it be
from job hirings or or or wages. But yeah, the economy still seems

(29:48):
to be rolling along, and peopleare still spending a lot of money,
you know. You know, it'syou know, we become from a background
of you know, statistics and mathand and data, but you know,
just the the eye test of goingout and seeing you know, people are
still spending money, whether it traveling, target, whether it be traveling,
whether it be at restaurants. Youknow, people are still out there spending

(30:08):
money and um, and until thatreally slows down and until people start getting
scared about their finances, um,yeah, I could. You could see
some some of this stickiness of inflationhere here for a good amount of time.
And I think like eighty percent ofmortgage rates are below four percent,

(30:29):
you know, nine, you know, seventy some below three percent, maybe
sixty six, sixty seven. Sothe Fed raising rates has done little really.
Yeah. It impacts credit cards abit, It's impacted new automobile loans
and used automobile loans a bit.It's impacted consumer loans a bit, But
the people's big nut is their mortgage, which is a y So this is

(30:52):
irrelevant to these people. Yeah,you know, more or less. So
that's why I think you're seeing likePoulte Group do well with companies like that,
because that's there. That's the onlyoption right now for a lot of
people, and that is to buya new construction home because people aren't leaving.
Yeah, you know, no matterhow much I don't, if I
didn't like my house right now inthe two point three percent range, I'm
not I'm not leaving. I'm notgoing anywhere. Yeah, you think about

(31:14):
that. For let's say you've gota mortgage today at six point three every
one hundred thousands question you four thousanddollars more a year, which is,
you know, three hundred and thirtyfive dollars more a month for your mortgage
for your interests for one hundred thousand, So multiply that by the average home
might have a three hundred thousand dollarsmortgage. This is on a national basis,
and probably thousand dollars a month,thousand bucks a month extra. And

(31:37):
there are many people that can't itemizeanymore because you have caps on mortgage interest
in the like. So so there'sa lot of different things going on that
are in in in New York,there's a lot of different things going on
obviously nationally that are it's keeping inventorytight and therefore keeping do you just look
at the low supply and demand.Supply is tight, and demand stays constant,

(32:02):
then it keeps it'll keep prices atleast where they are. So so
that's something that a tight fed.And also if you look at the yield
curve, if you look at thetight fed, the FED is keeping interest
rates high, which is provides aheadwind to really economic growth. To begin
with, we're talking about, youknow, just commercial real estate firms and

(32:24):
the fact that you know, youmight you could have eighty percent occupancy and
still float you know, a noteat three percent. You can't have eighty
percent occupancy and float a note atseven or eight percent. The business model
doesn't run at seven or eight ornine percent. So commercial real estate should
slow down. We just mentioned residentialreal estate. So automobile. Automobile still

(32:47):
seem relatively strong. So there's alot of things going on. The hit
to people's pocketbooks. Also with food. Energy prices though have come down,
but you have a tight FED anda FED that's seem to want to remain
tight because they're looking at the serviceside of the equation. So that is
a negative for the market that itis a tight fed, which kind of

(33:07):
leads me to that that second there, that tight fed. I just mentioned
all the interest rates there are alternativesnow to the stock market, and how
how how how important is that orlike if if you if, like,
how much of a headwind do youthink these higher interest rates that people can
convert to treasuries and CDs you know, how important is that as a headwind

(33:31):
to growth in the stock market oris ai what it's all about? Really?
Yeah, you know, I guessI'll tackle the you know, just
two interest rates, you know,yeah, it's it's it's hard to think
of interest rates right now. JustI'm like, you know, if most
of our clients are in retirement ornearing retirement, it's hard to see that

(33:52):
as a negative, although it obviouslyobviously is it right? Is it hard
to see it as a negative becauseit just makes you know, it makes
our not our job, but people'sjob and the job of your portfolio,
which is you know, distributions mucheasier. It's hard. It's a negative
for the stock is a neative.So I'm saying it's hard to think of

(34:14):
it as a negative for people ingeneral, for investing in general. You
know, it brings down the volatilityof your overall portfolio. It makes distributions
a little bit easier. So Ithink it's obviously good in the long run.
Um, you know, it obviouslyisn't as good for growth your stocks.
But you know what, I thinkwhat we're seeing and we saw this
earning season is you know, companiesthat have extremely strong balance sheets, have

(34:37):
very good free cash flow, willcontinue to do good despite this. Is
the rising interest rate environment is alittle bit irrelevant to them until it starts
affecting the consumer. You know,but you know they don't need this.
You know, they don't need theseinterest rates for UH to grow their own

(34:57):
business. You know, they needa strong consumer. So that's where it
would, I guess start to negativelyaffect them is if you know, businesses
start to slow down, AD spendingstarts to slow down, things like that.
But you know, from a froma portfolio management standpoint, this is,
you know, in my opinion,is a great thing for people.
It's a great thing for people.But where you might have had a seventy
let's say, have a million dollarsand we all wish everybody did well if

(35:22):
you had a million, If everyonehad a million, dollars, would be
inflationary. But if you if youlet's say you needed a seventy thirty ratio
to meet your goals and objectives.When interest rates were one percent, you
know, on one hundred thousand dollars, you were getting a thousand dollars a
year interest. Now you're getting fourthousand dollars a year in interest, So
you might have had to take morerisk in the stock market than you do

(35:45):
now, because which would provide ahead winter growth, it would provide constant
liquidity. As the market went up, people take some profits and put it
into something more secure. I mentionedthe ten years about four percent now,
whereas a ten year two three yearsago was under one. That's right.
So that's that's got to be ain conjunction with the tight fed which we

(36:06):
talked earlier, in conjunction with acouple of the things which seventy I think,
I don't know what the exact andyou know, I'm just kind of
thinking I'll go out too. Andit's obviously not good for the stock market.
But like if historically seventy percent ofyou know, companies that publicly traded
aren't publicly trade anymore, these companieswere going to go under eventually and just
trade high or not, you know, right, I don't know, yeah,

(36:29):
um, but but that reflects backon the economy. Really, excuse
me, as long as the economystays strong. But from a from an
investment perspective, it allows us totake less risk. I think our stock
weighting has come down by about fivepercent recently, as we've locked in some
gains in the market and moved themtowards uh, some fixed income at at

(36:52):
you know, you know, fouror four plus percent. I think that's
kind of the crux of the situationor the crux of the the con or
the negative for the market is thatthere are other people that you know,
Okay, we're not going to putmoney in national grid at a four percent
of it end or whatever the casemay be, because we don't want to
accept the volatility, or we don'twant to put money into another utility or

(37:13):
whatever the case may be, ora bank the bank hasn't moved anyways,
Let's take it and put it ina CD or a treasury at four and
a half or five percent, andI think that's going to be a head
whine for the market. The problemwith that is that that is going to
renew if the FED does get inflationunder control, and they will Drone Pile
seemed pretty adamant about that Wednesday duringhis press conference that I do think that

(37:37):
he's going to get inflation under controlone way or the other, so so
that that's soft landing. You know, we're almost you know, we run
the risk of really, you know, the the economy accelerating again and then
maybe being choked off. But inmy opinion, that's that's not the baseline.
The baseline cases that the economy continuesto ease and you are seeing some

(38:00):
signs of the weakness in the economythat are that are very important. So,
um, you know, I thinkwe're still on a good track for
that. The past couple months havebeen, you know, a little not
the market's been I think a littlea little overwhelmed with I guess good news
or hope. I guess I hopemore than anything that hoping that you know,

(38:22):
there will be a soft landing andcompanies will continue to, you know,
I guess go up parabolically or skyrocketand um, and I think you
have to kind of realize sometimes too, is just because if we're you know,
companies can still get overvalued even ifwe don't hit a recession, definitely,
you know. And I think justfor the fact that even if we

(38:43):
do, you know, have asoft landing, you know, these companies
can still be overvalued, which Ithink, you know, I think you're
you're kind of on the brink alittle bit of that right now, right
and then, but but we hadthat twenty five percent correction or barrel market
last year, so the market doesn'twork really in lockstep with the economy.
So maybe that was it, andthe hope for AI monetizing AI will be
a whole nother that we're dealing withlike that in this earning. I didn't

(39:06):
either. I didn't either. Youknow you mentioned mentioned the economy. The
index of Leading Economic Indicators put upby the Conference Board has been negative seven
or fifteen months in a row,and I think always that has led to
a recession. So that's the otherthing that I think. If you look
at the FED tightening and tightening andtightening, it's almost like wrangling a you

(39:30):
know, a steer or something likethat. Man, I think I'm buck
around. I didn't get loose oncein a while. I mean, I'm
gonna go to a whole nother thingthat I've been watching on Instagram. It's
like the Python Hunter. You eversee her? The Huntress? I am?
I am. If I wasn't doingthis job, I would be in
Florida right now, a long hateseventy or one hundred bucks of steak down
there. I don't care what youneed, A permit, I guess it's

(39:50):
not that hard to get a permit. But I'm anti invasive species. Yes,
I'm anti invasive species as well.Yeah, makes sense right right,
So you're gonna go wrangle pythons.I wasn't doing this here there is a
shell and well on Instagram they havea one woman wrangles pythons, I assume,
so, yes, which, wellyou gotta she catches them. Wrangling

(40:14):
was just I went from a steerover to python. But she she definitely
wrangles them, and I think shethey dispatch of them. Yeah, it's
good the environment. Well, they'reeating raccoons, they're eating deer, you
know what I mean. And they'renot native to the environment. There's someone
make call and say, look they'rethere. Neither are a lot of other
species. That's true. So I'mI'm definitely you know, negative the pythons

(40:37):
in the Florida ever grades. Yes, so but anyways, so you wrangling.
So the index of leading economic indicatorshas been negative fifteen months in a
row, which historically has always beenindicative or uh yeah, indicative of of

(40:57):
of a recession or predicting accurately predictstheir recession. So I think that's a
negative. You know, and we'llsee where evaluations take us. Like I
said, there's a debate now,oh, eventually what wrangling. Eventually the
FED is gonna gonna reiin in inflationand going to slow down the account.
You know. I think what we'resaying a little bit is now is the

(41:22):
FED going to or are we goingto no matter with the feeder without their
help? And we were just saying, you know, what do you mean
by eighty percent of mortgages are belowx Percently the FED can only do so
much by raising rates until it's kindof out of their hands. Well,

(41:44):
I think it's a reason to fifteen. But eventually people are going to move.
Eventually people are going to be haveto move. You know, you
may not have to move because youworked and live locally, but other people
are going to be transferred. Peopleare going to age out, people are
going to want the job. Youknow, let's say people in their seventies
and eight in nineties and people intheir fifties are gonna die. Other people
are gonna want to buy that house, you know, so they're gonna have

(42:04):
to pay a six percent mortgage rate. So so eventually this is going to
filter down into the economy. Youknow, not everybody, not everybody has
a mortgage a but the people thatdo are going to need new homes.
People are gonna get out of college, they want to work in this and
that. So there's gonna be alot of things that are going to transpire
as people migrate through their lives thatare going to it's going to negatively impact
economy. Automobile loans, it continuethat could could could take a while.

(42:29):
It certainly nine years right now,I think it's like the longest ever on
record. So yeah, I guesspeople will have to get into It could
take a lot longer, and Ithink that. But I think if you
go back to your statement that youmade two or three minutes ago, that
is the reason. I think thatthe that the market, that the economy
has not slowed down that much becausea lot of people took the opportunity with

(42:49):
interest rates below three percent to purchasea home, get into the home.
And those those that are in stickershock are still in sick sticker shock and
either living in apartments or living inbasements. And you know, with a
strong economy, you know, goingback to COVID, I think less than
one percent of people during COVID whomade more than seventy five thousand dollars lost
their job, and that people whomake a significant amount of money, you

(43:14):
know, this interest rate hike ininflation hasn't hit them yet. So people
who have money, people have discretionarymoney to spend, still have that.
So, you know, I thinkthis inflation can be here to stay until
you see, you know, thosewith incomes over one hundred and fifty grands
start getting hurt by this. Ithink we're going to continue to see inflation

(43:35):
at least hover around here, Iagree, Which kind of leads me to
another point is the lingering impact ofinflation, the inability perhaps of the FED
to get inflation down to their targetlevel of two percent, which means that
you may have an economy that stumblesa bit eventually, but you know,

(43:59):
but inflation remains higher than the Fedanticipates, which means that the FED keeps
interest rates higher for longer than themarket anticipates in an economy that's not really
doing that well. I think that'skind of what what you were that would
be, that would that would that'sdefinitely a negative for the market as you
move forward from here. And Idon't mean to be. We started out

(44:21):
this second half of saying, youknow, we're pretty much fairly valued in
here, but if you want tolook at some of the negatives, I
think, and you know what,and that totally escapes me. And I'm
so disappointed that it does. Whatdoes that call? What type of inflation
is that call? What type ofeconomy is that call? Where you have
inflation without a really growing economy?Stagflation? I'm sorry, thank you?

(44:42):
So you have a stagflation every econdof I think that's one of the risks
moving forward as we come as aswe move from here, other risks that
we might have, you know,I don't know, Um, you have
a situation right now where investors we'veWe've got a couple of calls this week.
The FOMO trade is still kind ofyou know, despite the fact that
there are alternatives. We mentioned thoseearlier uh CDs and like people you know,

(45:08):
investors are are enthusiastic, you know, and we have and you have
people that are they fear that they'regoing to miss out. Like I said,
we had two calls this week,one one that wanted to get more
into the large cap tech stocks andthe other that wanted to got out of
the market three or four months ago, or maybe seven or eight months ago,
wanted to get back in. AndI think that's somewhat of a contrarian

(45:30):
indicator. How do you feel aboutwhen you know, I think, you
know, if we see all thecompanies that have done well, I think
you're people that want to go intothose companies. Yeah, it's obviously a
contrarian indicator. You know what todo if you do have I guess and
overweight in those you know seven companies. You know, we do own the

(45:51):
RSPA, we own some energy thathasn't done well this year, but I
think we'll continue to do well asyou know, the economy still continues to
you know, do pretty well.GDP was at two point four percent as
opposed to to you know, Chinakind of can't go anywhere but up from
here, which I think should begood for oil. So yeah, I
guess I would I would remain morediverse than ever, you know, going

(46:15):
forward. But that said, youknow, just from this past week,
we did talk about Microsoft, Googleearnings, Intel. You know, you're
still seeing companies do well. Youknow, Microsoft was down a few percent
after they had earnings, but theyweren't awful. You know, um,
I think they beat both on thetop and bottom line, but you know,
revenue was a little bit weak withyou know, the Microsoft office suites.

(46:38):
But these companies continue to do wellthat you know, every time you
think about selling them, it turnsout not to be the right decision to
make. But I think that's whereyou can maybe pair a little bit back
here if it's over if you're overallocatingin them, and yeah, go to
more of an rsp or. AndI do think company, I do think

(46:59):
the energy sector still is a prettygood investment going. I think most people
see energy as a cyclical play.That's why it's kind of slowed down this
year. But I think it's asecular, long term story that I think,
as you mentioned just a few minutesago, I think I think it'll
it'll pick up again. So Ikind of kind of synopsize where we think

(47:21):
we are. We think we're fairlyvalued in through here. If there's a
tailwin, it's because of an investor'senthusiasm, it's because of AI, it's
because of fear of missing out.If there's a headwind, It has much
more to do with the fact valuation. You know, hawk ish fed,
a slowing economy and the like,and you could always have pros and cons

(47:42):
about the market. But yeah,sometimes the market is boring, you know,
although we are in the midst ofearning season, I think you know,
a boring market would be good forthe market in general for the next
few months. And I also thinkthat that over the long term, you
know, keep your asset allocation intactand you'll do well. Give us call
during the week five on eight,two, seven, nine, ten,

(48:02):
forty four checkers on our web faginasset dot com or like us on Facebook.
Have a good day.