The Fagan Financial Report

August 27th, 2023

Episode Transcript

(00:00):
Good morning, and welcome to theCapitol District's Money and Investment program. You're
listening to the fag in Financial Report. I'm Dennis fig and Aaron is off
today, so feel free to giveme a call at one eight hundred talk
w g Y one eight hundred eighttwo five five nine four nine, unless
you want a twenty four minute monologue, and if you do, don't be
driving because it'll get kind of boring. So anyways, give me a call

(00:21):
if you have any questions. Questionsabout your portfolio, questions about retiring,
questions about social security, questions aboutthe market, questions about asset allocation,
question about these seasonably kind of rockytimes, choppy times, question about the
giants, you know, give mea call one eight hundred Talk w g
Y one eight hundred eight two fivefive nine four nine. So we are,

(00:42):
as I just alluded to, ina seasonably weak period. You know,
Aaron and I have talked about itprobably for the past couple of months,
coming into August. At August andSeptember are the two worst months for
the stock market, and you knowthis month is not proving to be much
different. If you look at themajor in a seasar down all, you
know, two three four percent,depending upon which when you look at and

(01:04):
after the run we saw from theOctober twelfth, two thousand and twenty two
closing lows. Now you still havethe Dial up around seventeen or eighteen percent
from that low, s and Pup twenty three percent and has like up
thirty one percent. US total marketup twenty two percent. The Russell two
thousand, which is the second thirdthousand largest American stocks, is up less

(01:25):
than ten percent, and that continuesto lack as as this market, you
know, continues to be led bytech stocks, despite the fact that in
videos sold off and maybe that's aprecursor really or prelude of things to come
we will see. But in Videocrushed earnings and then sold off. Opened
high, so it had earnings afterthe bell on Wednesday, and after market

(01:49):
action it was up maybe six orseven percent, opened up just about at
five hundred dollars a share, andsettled down to close Thursday at about four
hundred and sixty bucks a share fourseventy a share, and then Friday was
down another ten or eleven to closethe week at four hundred and sixty dollars.
In eighteen cents, so you know, after the run it's had.

(02:13):
You know, I don't see anysurprise that there will be some profit taking.
I don't really see weakness in theAI market. Maybe just things that
have been a little overbought, asthe NAS that gives a little overbought.
So investors use this week season willbe period a period of time to do
things. So what are we doingat Tagan Associates and basically use it this

(02:36):
time to trim back peripheral positions,do some tax plus harvesting, both in
stocks and bonds. Interest rates.If you look at interest rates from the
close of last year, you havethe two year treasury closed Friday at five
oh three, ended last year atfour forty one. The ten year closed

(02:57):
at four twenty six, ended lastyear at three eighty eight. So if
you just look at the ten year, if the closed last year at three
eighty eight and right now it's atfour twenty six, that's a change to
the downside of point three eight percent. If you divide that into three point
eight eight, you're talking to lossof about ten percent. So the ten

(03:19):
year treasury even if you got threepoint eight eight percent, and you didn't
because it's not let Anio's let's sayyou get three of the four you're gonna
get this year, so you're stilldown around five or six percent in the
bond market. So it's not abad idea because that interest is taxable the
federal level. If you're reinvesting itinto an ETF, it's not a bad
idea to trim some of those profitsthere. Moved from the ten year treasury

(03:43):
ETF to an eight year treasury ofseven year treasury, you'll be able to
write off that loss if it's ina non taxable account and you move on.
So we're using these two months too. Like I said, trim peripheral
positions, tax loss harvest both onthe stock end by side, and maintaining
you know what I would consider,and we wrote this in our snapshot that's

(04:04):
released every every Sunday morning to ourclients and also those who want to maintain
were maintaining a healthy balance in moneymarkets are yielding about five percent. We
have so we have some money markets. We have some other fixed income securities,
shorter term treasuries, intermediate term treasuries, and I wouldn't find an intermediate
term treasury as anything from about threeto eight years three to ten years maybe,

(04:29):
So that's kind of what we're doing, and I recommend that during this
period you do the same. Soa mixed bag this week for Equitis,
SMP, NASTAC in total market indexrose, the dollar weighted Dow, and
the MidCap Russell two thousand, aswell as a transport average, all pulled
back fractionally, which for me isa sign of profit taking. Nothing was
wildly out front and nothing nothing wildlylagged. And also you have pretty even

(04:57):
dispersion between all all of the whatwe measured like the performance of the sectors
by the select sector a spider,the SMP depository received ETFST exchange traded funds,
and there's eleven different sectors technology,consumer, discretionary, real estate,
communication services. We'll talk a littlebit about this after the half hour air
and I about about those different sectorsindustrials, utilities, financials, materials,

(05:21):
healthcare, consumer staples, and energy. And the technology is up two point
two seven percent for the week,Energy down one point three seven So that
dispersion of roughly three point six fourpercent is not that great and shows there's
pretty much even dispersion all along theway. The bottom four materials healthcare,

(05:43):
consumer staples, and energy. We'redown point oh four point z nine point
eight two and one point three sevenpercent. So to me, that just
shows profit taking. And in thismonth of August, you know, not
that big of a deal. Infact, the market rallied sharply on Friday,
with the Dow up just about threehundred points as that casts up a
little over one percent. So whoknows, maybe maybe things will be a
little bit different this year seasonally,but you know, and and I mentioned

(06:08):
at the present, what we're doingbiding our time a trimming peripheral positions.
You don't want to make wholesale changesbates upon what I say or Aaron says,
or anybody says, because nobody reallyknows where the market's going over the
short term. But so you workon the periphery. You say, Okay,
I think it's going to do this, or I think it's going to
do that, or this looks likeit has a little more risk, or
and videos run ups. Let metrim a little bit or or so and

(06:30):
so has come way down, andwe still like this long term this area.
So I've got for an energy forexample, so let's add some energy
that's kind of what you do duringtimes like this. You don't listen to
the radio or watch CNBC or Bloombergand filh my gosh, Joe Schmos said
this, let me, let memake major changes to my portfolio. So
work, work on the periphery,make sure that your longer term asset allocation

(06:55):
or you're ascid alimation allocation model conformsto your longer term jacktives. And then
you go through times like this andyou enjoy the day. You know,
enjoy the the longer days, althoughthey are getting shorter and the nice weather.
We've had eight WGYE five nine fournine. Two big events for the

(07:15):
week and thus far a year todate. I would consider them the two
biggest events year to date and twoof the most anticipated events all coming in
one week. One was the KansasCity FEDS Jackson Hole Symposium and Jackson Hole
Wyoming. I think it's much ballyhoodor much much greatly anticipated because of the

(07:38):
of the noise that fed Cherepalas madeover the past couple of years in regard
to inflation, and especially last yearwhen he when he basically brought down the
gauntline on inflation and you know,cause the market to you know, sell
off ultimately bottoming on October twelve.So investors, economists, both retail and

(08:01):
institutional, we're kind of watching tosee what he'd say. And he didn't
really say anything that was out ofthe ordinary, and he didn't say anything
that you would say, Okay,this is a new direction for the Fed,
you know. It basically said,it's a Fed job to bring inflation
down to our two percent goal,and we will do so. So they

(08:24):
are going to bring inflation down.That's one of their mandates two percent inflation
and sustainable growth. He's basically goingto do that. And that's kind of
what you want to do. Youwant to maintain a hawkish, hawkish rhetoric
while working while going through the functioningof interest rate policy to either loosen it

(08:48):
up a little bit. You cando so through money supply, you can
do so. Maybe you're going tobe selling less bonds into the market,
whatever, although I don't know howthey're going to do that given the given
the the deficit. He says,we have tightened policy significantly and over the
past year, and although inflation hasmoved down from its peak, and it

(09:09):
certainly has down from a high ofroughly eight or nine percent to three percent
where it is now. He callsit a welcome development. It remains too
high. We are prepared to raiserates further if appropriate, intend to hold
policy at a restrictive level until weare confident that inflation is moving sustainably down
toward our objectives. And I thinkthat's the key. I think the keyword

(09:31):
in all of that paragraph would besustainably. You know, if you look
at the Fed's policy during the nineteenseventies, and that's kind of the benchmark
or the barometer for FED policy today. It was it was that FED.
The FED took their foot off thebrake, so to speak, if they

(09:54):
have their foot in the brake inthe nineteen seventies, raising rates, raising
rate and then they took that offand then allowed inflation to kind of bubble
up again. And a lot ofit's just about expectancies more so, you
know where inflation expect is expected togo so it doesn't get embedded in the

(10:16):
economy. That was I think theFED share back then was Arthur Burns,
and so he's the that was followedby Paul Boker, who literally squashed out
inflation. So that's kind of whatFED share pile does not want to go
down as another Arthur Burns. ArthurBurns initially raised rates, raised rates,
cut off. Inflation took us footoff the brake. Inflation became embedded in

(10:37):
the economy. Inflation expectations became embeddedin the economy. If you think about
it, if you are let's say, UPS just approved a new wage and
benefit agreement, and it was prettysubstantial for their rank and file. But
the more embedded inflation becomes an economy, it's harder to get a wage package
and wage benefit agreement. Wage andbenefit are even completed because on one side,

(11:03):
the employees don't want to settle forsomething that they think is a paid
package that's going to be eaten awayby inflation too quickly, and from a
management's perspective, they don't want togive away the farm. So that's the
FEDS role right now is to remainhawkish, make sure that inflation pulls back

(11:24):
sustainably from its peak, and thengo from there. Statement goes on to
saying it's I think it's a fifteenor twenty page statement that power presents that
I think it was seven in themorning Eastern time, ten, ten o'clock
whatever, time it is in Wyoming. I was ten o'clock, so yeah,
at ten o'clock, and I thinkit's specific time. He goes on
to say the lower monthly readings forcore inflation in June and July and welcome,

(11:46):
But two months of good data areonly the beginning of what it will
take to build confidence that inflation ismoving down sustainably toward our goal as it
offen. As the case, we'renavigating by the stars, under cloudy skies
and such circumstances. Risk management considersour critical upcome many meetings. We will
assess our progress based on the totalityof the data and the evolving outlook and
risks. Based on this assessment,we will proceed carefully as we decide whether

(12:07):
to tighten further or instead to holdthe policy rate constant and wait further data.
So the Fed's working at the margins, They've come a long way.
Maybe there'll be a rate hike inSeptember. I think the second the one
after that is six weeks later inearly November. You know, maybe not,
but I think we're maybe talking oneand done, none and done,
or two and done, and we'llgo from there again. Inflation less inflation

(12:30):
rears its ugly head or you know, gets its mojo back, so to
speak. Right now we are thinkingnone ends September nineteen twentieth and then go
from there. Mortgage rates are backabove seven percent. I was talking that.
We were at a wedding last nightfor friends of our's daughter and her
husband, and I was talking aboutthat. We're talking about you know,

(12:54):
my two children, Karen. Ourtwo children are and who works with me,
and Sam, who also works withus. They bought a house or
three years ago. They both boughthouses and their rates under three percent.
Right now, the rate according toFreddie Mack and I think the retail rates
are a little bit above that atseven point two three percent. So if
you've got two point seven three percent, you're four and a half percent above

(13:16):
that right now. If you goto get a thirty year mortgage, so
I for every hundred thousand dollars youare talking forty five hundred dollars more in
interest. Now the median housing pricesare I think of pushing it about of
the average, maybe about five hundredthousand. But let's say in the Capitol
district they are four hundred thousand.You put twenty percent down. You've got

(13:37):
a three hundred and twenty thousand dollarsmortgage. That means for three hundred and
twenty thousand dollars, you are basicallyspending fourteen hundred and forty dollars a month
more now than you were three yearsago when you bought a mortgage. That's
seventeen thousand dollars more year in interest. Wire housing prices staying up because they're

(13:58):
staying higher because inventory is low.No one's moving. Would you move,
you know, if your mortgage ratewas you know, so people that are
moving are divorces, job relocation deaths, and those that don't have to to
take a mortgage out. But unfortunatelyit's not the millennials, it's not that
those those people under forded, thosethose that's the that's the backbone really of

(14:20):
the mortgage market and the housing market, excuse me, and the backbone of
the mortgage market because those people,those individuals cannot afford really to just go
out there and pay cash for afour hundred thousand dollars house, so they're
taking out mortgages. So kind ofa little bit sticky situation right now for
the housing market. Don't see itcollapsing just given the fact that inventory is
so tight. But and and therefore, if inventory is so tight, you're

(14:46):
really probably not going to see abig pullback in in uh in prices home
prices either, So we're kind ofstuck in this limbo. I think for
quite some time. I mentioned earlier, the other big issue that the market
was looking forward to is is earningsfrom Nvidia, you know, really manufacturing

(15:11):
the chip that that is the backboneand I hate to keep using the same
words, but the backbone of theAI market in Nvidia blew out earnings in
the first quarter and blew them outagain in the second quarter. The Ray
one hundred ship is I think it'sselling for forty thousand dollars a chip,
and they're sold out for the resieablefuture. They've been working on it for

(15:33):
twenty years, and just Jentin Huang, the CEO, just brilliant job anticipating
the demand for AI and really movingor evolving chips that they had that they
had developed along the way for gamingand graphics into something that really can could

(15:56):
be used for artificial intelligence. Notreally a lot of competition right now for
their chip, so their stock basicallypummeled revenue and earnings estimates. One of
our it's one of our largest holdings. We don't have it for everybody,
never have something for everybody. Butat the end of last month, you

(16:17):
know, Nvidio was our piece.Pardon my just looking this up. It
was our seventh largest holding as faras individual securities, including ETFs and our
It's closed Friday, as I mentioned, at three sixty or so, and

(16:37):
our average cost is seventy eight bucksa share, so we've held it for
quite some time. Yet it's beenexpensive. It's been expensive for a long
time. Close Friday at four sixty. You know, we would buy more.
If that thing pulled back to aroundfour hundred bucks a share, we
would buy more. And if apulled back to three sixty or so,
we would buy more on top ofthat. But right now, I think

(17:00):
you got to wait till the dustsettles there. But circling back to their
earnings, the earnings blew out estimatesand the revenue also blew out estimates.
This after both did the same thing. In the first quarter revenue of Chiefs
revenue of thirteen point five billion estimateswere eleven point two two billion, so
two more billion then anticipated it's sorevenue more than twenty percent of ast above

(17:23):
estimates. Also earnings to two dollarsseventy cents a share versus estimates of two
oh nine. The company also projectedrevenue of sixteen billion in Q three,
which would be if achieved, itwould be one hundred and seventy percent jumped
from the year ago period. Soyou have good things going on in technology.

(17:45):
We had stayed the course. Weare, generally speaking, leading towards
secular growth companies as opposed to cyclicalgrowth companies. Just want to call them,
which would be considered value. Didn'twork last year, it's worked over
the three five ten year period,and it's working with us for this year.

(18:06):
We don't really change our stripes thatmuch. We think that provides our
clients with predictability within you know,given the VOUTI the equity markets going forward.
Guy one hundred eight two five fivenine four nine. China also,
when we talk about this a littlebit in the second half, China also

(18:26):
inviting not not China, but theBrick countries Brazil, Russia, India,
and China and South Africa, theFive Bricks inviting six more companies into their
fold in order of the companies Iran, the UAE, the United Arab
Emirates. Let me see here,who else is in there? Right in

(18:52):
front of Egypt, Argentina, Ethiopia, And I think that's it one two
three in Saudi Arabia. I mean, think about Saudi Arabia and Iran in
new bricks, so Indian China inthere together. I know, we receive
a lot of calls, emails andcomments about the competition for for the dollar,

(19:18):
perhaps the displacement of the dollar,and we still don't see it anytime
soon in their foreseeable future. Andthe main reason is even if you look
at China, you know, thinkabout it, would you want the economies
of the world based upon the Ramindy? You know, I don't. I
don't think so, you know,so I think you as investors, you

(19:42):
kind of have that as something thatyou're concerned about. You're always concerned about
something in this in this in thisbusiness. But I certainly see in it
as a backbone at him, andthey also candidly, I think I think
it's see it as I don't know, I think Shigiping. You know,
we podcasted the second half, soI know what the second half's about.

(20:03):
So I don't want to steal thatthunder, but it's a good second half.
We podcasted in Friday afternoon, Aaronand I and we talk about that.
We talk about China bit, andyou know, you think about shi
Jing Ping. I just think,you know, government with the government determines
the direction of the economy. Ithink you run into trouble. Eventually,

(20:25):
run into trouble. Hijing Ping thoughtit was the other way. He thought
a democratically elected society would present problemsbecause of the inability really for a cohesive
policy. But that when that cohesivepolicy comes from the top rather than market
driven, and when it when itcomes from autocrats bureaucrats, I think that's

(20:45):
where eventually you run into a problem. Yeah. Right, might work for
the short term, but over thelong term it doesn't work. So I
think there's I'm not saying it's adesperate play from China, but I think
they're in trouble. I really do. You know. I'm sixty one,
and I'd be surprised if if inmy lifetime Chinese economy maybe on a GDP
basis outpaces are but it's certainly notgoing to happen on a per capita basis

(21:07):
as far as income goes. Whatelse we got cut a few more minutes.
Yeah, interest rates you continue to, oh, continue to kind of
rise a little bit, especially alongthe intermediate term. At the point of
the curve we write something remember playinghide and seek as a kid. Well,

(21:27):
as we all know, eventually thatgreat hiding place gets discovered and becomes
quite crowded. And despite the factthat it's noted above, we talked about
some other things we have been wehave been biding our time by holding a
little more cash, and we likedduring these dog days of summer. Eventually
we're going to deploy that cash becausethe over the long term, you know,
stocks outperform bonds and bonds out performcash. So I think you've got

(21:51):
to be careful here of you ofusing of you know, hiding in your
hiding place a little bit too long, becoming discovered and waking up to the
money market rates at two and ahalf or three percent and finding that you
know, you kind of have beendiscovered and the horses out of the barn
there, So be careful of that. It's comforting, it's comforting in violatile

(22:17):
days in the market, but eventuallyit gets it gets found out. This
past Friday, the Investment Company Institutepublished data that assets within money markets were
nine hundred and twenty five billion fromyear ago levels. So that's just in
money markets up nine to twenty fivebillion. Remember a lot of money came
out of money markets and went intotreasuries as well, and that's kind of

(22:37):
we've we've parlayed treasuries and money markets, and yeah, we're holding a little
more cash and usual, I thinkour cash positions up to about eleven percent
in the aggregate, that's all ofour accounts together, we manage about six
hundred and forty million dollars or so, so we probably have maybe sixty million
dollars in cash. So so we'rekind of looking at that and kind of
you know, probably waiting through it'sgoing to be a period that historically the

(23:03):
market is chopping through the middle ofOctober. Then we have a good bounce
at the end, and all thingsbeing equal, that's how we're going to
play it out. But again,you know, at the periphery, like
I said, the second half hour, a good piece on China, a
good piece on you know, justyou know, who would be some of
the alignment to your company to yourtier holding. So a lot of good

(23:23):
things to come in the second halfhour, but right now it's ten thirty
on the station you depend upon forFagan Financial port first of all, not
first of all for news, weatherand information, News Talk eight ten and
one to three one w Guy,Good morning, and welcome back to the
second half hour of the Capitol District'sMoney and Investment program. You're listening to
the Fagan Financial Report. I'm DennisFagan, sitting here with my son Aaron,

(23:45):
drinking coffee every Sunday right here onNews Talk A ten and one to
three. One wost to the footballseason, two close, one week closer
to football season. Man, I'mthis is my stock market slash football comment
about the Giants. I'm cautiously optimistic. I'm I'm pessimistic. I'm actually quite
pessimistic. While there's a big addition. Yeah, we just signed Simmons safety

(24:07):
from Arizona Arizon. I guess he'sreally really good at you know, Zach
would probably know more about him thanme. But yeah, you know,
hey, after the zero, afterthe mess. You know, we made
the playoffs last year. You know, if if Uncle Chris is around,
we'd probably be doing the you know, if Stock was your quarterback, who
is the quarterback? Quarterback? Butyeah, who's your right? If you

(24:30):
had to pick your four favorite,I guess we can do that if you
had if you had aligneman, right, so if you haven't, all will
do offense. If you had anoffensive lineman, what Stock would be your
offer? All right? So howabout that? And this is purely flying
by the seat of our plants,so to speak, or hail Mary.
There's football terms, no like Ithink if I had a you know,

(24:52):
for those that don't pay attention tosports, you know, alignment, you
know, durable, trustworthy, sturdy, you know, smart generally speaking,
not that fast, you know,just just like a rock in the middle
that that allows your quarterback to besafe, opens up holes for your running
back. You know, these aren'ttypically companies being tested either. We're not.

(25:14):
You know, we do have offensivelineman's in our portfolio, but they
might be different than you know.What comes to mind instantly is like pepsi
coke. Yeah, you know,but well no pepsi a coke. Pepsi
and coke is not alignment to me. That's a good defensive end, you
know what I mean? Alignment tome? In my mind right now,
alignment is chevron alignment is that's good, you know, fundamentally sound good leadership.

(25:36):
It pays a dividends, a dividend, you know what I mean is
reliable, you know, I thinkthat would that would be something, you
know, and if you look atyou know, for those of you out
there that are and we invest inETFN would be as well. You know,
our largest holding in that area isUH as far as the ETFs is,
the XLA, the spider energy,you know. I think Schlumberja is

(26:00):
maybe a little more outside the middleof the line, more technologically based.
I think that would so that wouldbe that would be some lineman that I
would use. I think in technology, despite the volatility in it, you
know, I think AMD is probablya decent lineman in that area. You
know, Google, I think it'sa core, a core holding. I
think. You know, it's funnywhen we started this, let's say ten

(26:22):
years ago, probably not maybe likeeight years ago. When we started playing
this game, we played it withbaseball, we played it with you know,
football, we played with basketball.But it was different. You know,
Google ten years ago would have beenlike your wide receiver now or your
quarterback let's say you know, butnow, yeah, it would be it
would it would be more of ayou know, a very strong balance sheet,

(26:47):
great free cash flow, reliable,not overly expensive. You know,
it almost switched positions based on youknow, how it's developed its business.
And know they talk about like,you know, the last year's blue chips
aren't distant ye's blue chips. Butit's like almost the same with like you
know, every single sector value growth. You know, so you know,

(27:07):
yeah, Google is a growth company, but you know it's also becoming much
more stable. It's a it's ayou know, a legacy growth company almost.
There are some consistent things that youwant to pay attention to with investing,
and I think, you know,Warren Buffett is you know, one
of the premier investors of all time. It talks about, you know,

(27:30):
patients and the stock market is amechanism that you know, transfers wealth from
the impatience to the patient, andthat's that's definitely true. However, I
think you want to stay patient withan asset classes and what I'm kind of
talking about referring to here is thatyou want to migrate with changes. The
largest companies in the unit in theworld. We have the fifty, the

(27:53):
world's fifty most valuable companies, andwe'll get back to those line in a
minute. But you're looking at Apple, I mean, think of Apple's Apple
compared to IBM. You know,IBM is a legacy company. You know
Tom Watson, not if not thefounder, a venerable CEO a long time
ago, named the Watson named afterhim. Now, Apple's the largest company.

(28:18):
Really came into into prominence with theMac to a certain extent. But
when John Scully was managing or CEOat the time, gave way to Steve
Jobs. I think in the midnineties, really the company was floundering.
So you're talking about a company probablycame into its stride probably thirty years ago.
You also look at you know,a company like Microsoft, you know,
founded in the late eighties by SteveJobs in Nvidia, you know,

(28:42):
passing one trillion, and really thebuzz to the two biggest news items this
week and probably this year will betoday, excuse me, the Jackson Hole
speech. And we're podcasting this Fridaymorning, ten o'clock. And you know
the first half hour of this showwas live and I talked about I talked
about the Jackson Hole speech. Thisis a podcast, so we don't know

(29:03):
what Chair Powell was going to saytoday. You know, we can,
we can pontificate, but why botherSo in video passing a trillion dollars in
market kept their earnings, this peekblew it out and then the Jackson Hole
speech probably the two biggest events ofthis year thus far, you know,
in video quent public in nineteen ninetynine, you know, and I think

(29:25):
what you have to be careful ofis technological innovation has accelerated to such an
extent that companies become you know,on the cutting edge and then also ran
quite quickly. Will that ever happento Apple? I don't know, but
you know, the the the historywould suggest that it will that, you
know, and I think what youhave to do is like always keep that

(29:48):
in the back of your mind.So like you know that that is the
case, that you know, yesterday'swinners aren't today where today's winners. Like,
I think that's something you always haveto keep in the back of your
mind. But like allow company needsto I guess defy that statistic. That's
goople a little bit. You know, we only have like, let's say
eighty years of reliable stock market data, and you know in the world has

(30:10):
just changed astronomically since then. Ithink, you know, I don't know
the exact stats with us steal,but in the early nineteen hundred, us
steal made about two thousand dollars peremployee. You know, Meta makes about
two million dollars in revenue per employee, if not more. You know,
US steals Even just today, USsteals operating margin is seven percent and their

(30:33):
gross profit margin is thirteen percent.You know, Google's operating margin is twenty
five percent, almost more than triple, and their gross margins are fifty five
percent. So like you know,companies that you know, US steal being
the largest company in the world.Let's it's like you know, when the
around when the SNP was founded orthere are nineteen hundreds and now you have

(30:55):
just just this you know evolution ofyou know, the stock market companies in
general, and that you know,you're having so much more available space and
how you earn money. You know, so you have so much higher margins
that it's allowing these companies nowadays togo into other, uh you know,
business ventures, you know, increasedtheir you know, scope of their businesses.

(31:18):
But kind of still in the technologicalfield. So you know, I
think what what I'm kind of sayingis, you know, these companies are
leaders of technology today, but youknow also tomorrow. You know, they're
not squeezed for cash like you know, industrials that have led the stock market
in the past, like even likea ge And I think You've been making
that point for a couple of years, and I tip my stets into you

(31:41):
because I think the I think whatyou see now is I've been hearing lately
as AI. The development of artificialintelligence gives THEE makes it more likely that
the larger companies are going to outpacethe smaller companies. It's going to be
more difficult to really for a smallcompanies to they have to build a company

(32:02):
as well as you know, theyhave to build a company as well as
as an idea. You know,Google already has the money in the cashlow
to throw you know, ten billiondollars at a project right from the get
go. They don't have to raisethis money. They already have a They
already have a head start because theydon't have to think about, you know,
creating a business plan. For venturecapitalists to try and start something you

(32:22):
know they started ten years ago.Waymo has just released some of their driver
lists cars with no drivers in itinto the public in California and Arizona as
robotaxis. You know, you're seeingUber do that. So you know,
you're already seeing these larger companies havetheir you know, foot in the door
into these emerging technologies, even Microsoftwith their investment into chat GPT, you

(32:46):
know. And I saw I sawtwo clients this week and actually one potential
client, knock On would a reallynice couple, and he showed me his
the inherited IRA that he had gottenfrom his dad, and he had names
that literally I could have looked atit and said, okay, this is
a person's portfolio who bought this justbuy and hold, has not looked at

(33:10):
it for fifty years. And yousee names in there that really are not
on the cutting edge anymore. Alot of the baby bells or at once
time, we're baby bells right now. He has Verizon and AT and T
and IBM I think was in thatportfolio and a lot of things like that.
I think you got to be careful. And he said, this is
my dad's portfolio. Really don't wantto get rid of it. You know,
I don't really like change it.Well, you don't roll your window

(33:31):
down anymore, you know what Imean? You basically you know, you
have the button that pushes it upand down. So that's one store.
So you've got to change in,migrate when when the situation dictates. So
we try to do that if Faganassociates, but not being too nimble.
The second thing is a client ofmine set and this goes to your point,
are that this one guy, youknow, really really nice man.

(33:55):
I met later in the week andhe has two cars. He has like
Mom and I, we have awe have I have a pickup truck that
runs on gas. And then Momhasn't a Volkswagen ID four that runs electric,
and he has one. I thinkhe has a Chevy Vault that's about
seven or eight years old. It'sa hybrid. And he said, I
want to go to all electric.I said, that's good. Yeah,

(34:15):
whatever, you know, I don'tknow what I said, really, you
know, that's great, you know, and he's and he said, uh,
you know, I like computers andand that's kind of you know with
cars nowadays, every three or fouror five years. Man, if you
have the financial wherewithal you know,they change a lot, you know,
and I think you're seeing you're seeingthat that that which you were saying earlier

(34:38):
that I think technology really is sobroader ranging now than it was, you
know fifteen or twenty years ago,where you know, Apple sold computers now
Apple's computers, healthcare, their theiriPad, their I watch, uh services
storage. So anyways, what elsecan from the most valuable companies before we

(35:00):
going on to another topic. Youknow you're looking at you know, Eli,
Lilly with their with their drug Amazonweb services I think is huge.
Google with weymo, Amazon web services. They're developing their own chip now as
well. They are into prescriptions,you know, so you're you're continuing to
see these you know, larger companieshave you know, uh, you know,

(35:22):
different segments of revenue that are working. You know, it's not just
like ideas. These are working.You know, the larger cap companies that
mega cap tech companies have done agreat job and really kind of taking over
the cloud they have you know thatwasn't really around ten years ago. It's
kind of interesting too, is Ilook at this and if you want to

(35:42):
if you're listening out there and youwant just Google virtual capitalist, the world's
top fifty most visual capitalist or visualcapitalist. So, and what you see
is the companies. They kind ofput it on a chart, and the
large companies are represented by a largerblocks than the smaller companies, and also

(36:04):
have a color coded for industries.I think, what's kind of interesting about
it on top of the fact thatApple's two point eight trillion on this and
Microsoft's two point four. I don'tknow the info is as of August sixteenth,
but I think to the to thecommon person or the casual watcher of
the market, if I said toyou Google or Alphabet, where would it

(36:24):
land? People would say technology.It's communication services along with meta Facebook in
ten cent. If I said youAmazon, you might say consumer discretionary and
that's where it is. But alot of you would say perhaps technology and
you know there's such that Walmart.Yes, it's it's in consumer service staples,

(36:45):
but you know they're online services.You know, kind of should it
be partially with consumer discretionary, testlasconsumer discretionary and yet it crosses over into
technology. So I think these linesbecome quite blurred. Really, Aaron,
I don't know how you feel aboutit, But when I look at when
someone says to me, what percentageof your assets do you have in financials?
You know, yet do you includeyou know, my MasterCard and Visa

(37:07):
the payment process or those are twobiggest holdings. I think maybe JP Morgan's
a little bit larger, but MasterCardand Visa represent you know, some of
our biggest you know, holdings inquote unquote financials, and yet there they
are a subsector of financials and notreally negatively impacted by this rise and interest
rate. So, you know,and that I guess we can we can

(37:28):
we can touch on the black Rocktwenty twenty three mid year outlook. We
can get into that a bit,uh, you know, because it's kind
of going on the same lines aswhat we've been talking about, you know,
leaders of today and tomorrow, andyou know, you know, it
is a mid year outlook, butit's you know, it's it kind of
talks more about themes that I thinkwe're going to see in the next few

(37:49):
years come come to play and werealize it's not the mid year anymore too,
by the way, you know,and it's just kind of good topics.
We've kind of been wanting to talkabout it for a while I touched
on in a little bit shoot.But you know, yeah, we have
you know, what it basically talksabout is, I think what we've all
been talking about, geopolitical fragmentation,transition to a low carbon economy, and

(38:10):
an aging an aging population, artificialintelligence, you know, four things that
they think will be uh, youknow, front and center for I think
the second half of this decade.And you know, we have you have
to agree with all these being thingsthat you kind of need to talk about
going forward. But you know,I think what our job is too is

(38:30):
to kind of identify these see what'swhat we think is important, what's not,
and you know, what companies willdo well in these specific environments.
So you know, you know,the first one that we're seeing really is,
you know, geopolitical fragmentation. Ithink we saw that a little bit
this week with the introduction of whatsix new countries into the bricks. You

(38:51):
know, I think and I thinkthere's about a fifty percent chance at any
time there will be a civil warin one of the twenty or whoever.
So brickss they are all quite volatilefrom a societal standpoints, a civilian standpoint,
But you know, I think we'regonna continue to see that going forward.

(39:12):
I don't know who said it,but they basically said, you know,
they would be surprised if China didn'ttry and take over Taiwan by twenty
thirty. Yeah, you know,that's seven years from now. But you
know, I think we're going tocontinue to see geopolitical tension. Well you
know, and you know what thatmeans for specific companies. Well for those

(39:37):
this is it's a great topic,and it's a topic as an American and
also as a topic for those ofus in the financial world. The Brick
Nations Brazil, Russia, India,China, and South Africa decided to invite
some other emerging and basically they're emergingeconomies, and they invited Saudi Arabia,
the UAE, the United Alabama's,Egypt, Argentina and Ethiopia into and Iran

(40:01):
into that. So Saudi Arabia andIran, I don't know, you know,
India and China already in it.I think they're they're they're kind of
coalescing around the common enemy, whichreally is the West, you know,
economic enemy, which really is theWest and the dollar, and you know,

(40:21):
and here and so so to broadenthat out a little bit. Yeah,
So, so to take it fromone side, they have their own
set of issues China. You know, for those of those of you who
think China's going to take over theworld, they got some huge issues over
there. Their economy is twenty percent, unemployment rate for the for youth,
stagging, a horrendous property market,real estate market. Not only that.

(40:42):
For those of you that are afraidof China that are are on the right,
your biggest fear domestically is when there'stoo much government intervention. Hello,
China is run by the government.They basically have destroyed their private sector,
technological private sector over the past threeor four years shi Jing ping uh with,
you know, basically curtailing their theirability to do business outside of China

(41:07):
by by infiltrating the companies and thenkind of controlling the information that's given and
received so that outside the Western doesn'treally want to deal with some of the
Chinese companies. You know, China'smedian income per household is something like twenty
thousand, twelve thousand dollars. Ijust read it today, so it's twelve

(41:28):
thousand dollars. You know, howdoes how does the Chinese government. Their
main goal four or five years agowas was to increase that and to build
that up. You know, theycan't do that without the Western economies.
You know, they're doing this waytoo soon, in my opinion. They're
trying to become isolated a little bitto themselves, way too soon. While
they don't have the consumer yet.They don't have the consumer. We're about

(41:50):
seventy five twenty five consumption them tomanufacturing or consumptive capital investment. They're about
the flip side, you know.Yeah, twenty thousand and eight fifty Chinese
and this was in the New YorkTimes. China's national income per person reached
about twenty eight fifty last year,below the current threshold of thirteen thousand and
eight forty five that the World Bankclassifies as the minimum for a high income
country. Japan's per capita is fortytwo four forty in the US is seventy

(42:14):
six four. So, you know, I think they've got some real problems.
But that said, my biggest fearover here, you know, and
I'm gonna you know, this isgonna cause problems, I think, but
and I hate to say it,but I fear that either side of the
political aisle. You know, we'renot up to the we're not up to

(42:35):
the up to the test really oneither side of the political aid right now.
But with our leaders too much inNgley. And you may say,
well, Trump's better than buying orby That's I'm not saying that. I'm
saying both of them need. Ithink we need somebody new at the helm
other than those two left or rightor whatever. You know, I'm not
talking left or right. I'm talkingfresh, new, energetic blood, h

(43:00):
someone who the country can rally aroundto lead us here, you know,
rather than rather than the same old, same old. That's going to really
allow China to you know, overcometheir problems perhaps and make further inroads.
So from from the from the that'swhat China has going for them. They
don't have to squabbling that you know, they haven't like the political back and

(43:22):
forth and squabbling that we've seen thepast, you know, six seven eight
years, you know, so theyhave an authoritarian government that you know,
are they making the right policies,we don't know, but at least they're
you know, they're getting their policieswhat they're trying to accomplish, and they've
guarded there I think, you know, if Sheijing Ping ran for election,

(43:45):
my guess if it was a democraticallyelectric country, he would not win.
Okay, I don't know what theaverage Chinese citizen, you know, I
don't know how much. There's somuch propaganda over there that I don't know
how much people like him or evendon't like him. You know, As
an investor, we really have littleor no assets in China other than perhaps
ETFs that are in there that youknow, that have minimal amounts we have.

(44:08):
We have no literally go to zeroover nature or that or that,
not even right zero. But alsoyou're investing in a DRS, you're not
actually investing in the stock of thecompany that you know, especially with China,
That's something that I think you reallyneed to take into account, you
know. But you know, Ialso think energy independence when you have Iran,

(44:29):
you know the world's second largest gasreserves, you know, Saudi Arabia
in the brick. So it's youknow, it is a formidable opponent to
the West as far as population,especially in natural resources. A lot of
these generally speaking, the emerging marketshold a lot more natural resources than the
developed markets. They just can't harnessthem. And export them. But you

(44:52):
know, the West has its ownset of problems, you know, political
squabbling, a stagnant population. Uh, leaning too much, social programs that
take too much out of the lyingtoo much on manufacturing of the East.
Yeah, relying too much for alot of things. So so, but
I think we're going to continue tosee geopolitical fragmentation. It's certainly something for
the West to deal with aging populations. We touched on that a little bit

(45:16):
there. Uh yeah, what whatwhat? What give me? Give me
some more feedback, give me somemore from this from this mid the black
Rock mid year that that kind ofstrikes your top fancy to talk about on
a topical basis over the next threeminutes. I don't know, what do
you think? I think? Youknow, I think I think let me

(45:36):
see talked about ail. I thinkbeing nimble. It talks about being nimble.
Yeah, and what do you whatdo you think about nimble? I
think it kind of goes with whatwe were saying at the beginning. You
know, with large cap technology,I think we're at you're in my opinion,
when when when you value them,you value them with you have to
what I think is like you haveto prove me wrong before I get out
of these companies like a Missouri showme stay, yeah, show me stay,

(45:58):
show me that you guys are kindof old news and you don't have
your foot in the door in emergingtechnology that will bring in revenue. You
know, you see stumbles once ina while, you know, I think
you saw some stumbles with Google executives, and I think they got lazy with
how they treated Google just their theirsearch platform, with how they were deciding

(46:20):
who goes on the tip. Ithink so, I think they got lazy.
They listened to the consumer and theyswitched that around, as we saw
in their last quarter when their actuallytheir numbers actually went up for search and
adds. So, you know,I think Apple with with with their services
sector, you know, what whereare they going to find their next source
of revenue? Apple with that,you know, so I think Amazon with
Amazon Web Services, Microsoft with ChatGPT. So you know, I think

(46:44):
these companies are going to have to, you know, really prove you wrong
over a few years to really nothave them be you know, probably the
largest holdings of your portfolio if ifyou want some correlation to the market as
well, you know, then beingsuch a large percentage of these and p
I think, you know, thestock price will drift in and out of
favor over time, like we sawlast year, value over growth this way,

(47:05):
and you know, I think that'sit. It's gonna consistently be a
valuation question with these companies, andthat's okay with me. It's never gonna
be a management issue. Really,it's never gonna be a revenue issue.
It's never gonna be a balance sheetissue. It's gonna be Hey, is
this stock over price? And Ican live with that if it's overpriced once
in a while, yeah, butcertainly with an eye on the fact that
it might not be. You knowwhat I mean. I think we've seen,

(47:27):
you know, a lot of companiesmisstep and you saw a Target,
you saw Anheuser Bush with some oftheir you know, some of their advertising.
So there certainly can be issues outthere. But generally speaking, I
think if you stay within sectors thatare in demand and a secular growth opportunities,
you know, I think you're you'rein pretty good shape, you know,
buying homework Jim Kramer said that,and it's always stuck in my mind,

(47:51):
not buy and hold buying homework.You always want to do your homework.
You know, we watch the youknow we pay attention to the geopolitical
news, the company's specific news,industry specific news, who's obviously interest rate
environment, and go from there.All right, that I was just about
do it. Thanks for listen.If you want to get a hold of
us five one, eight, two, seven, nine, ten forty four,
check us out on the web faginasset dot com, or like us
on Facebook. Enjoy the rest ofyour day and air happy anniversary, Thank

(48:14):
you, Thank your boy.