December 2, 2023 • 21 mins
In this episode Abdul dives into the volatile world of tech stocks. Join the conversation as we dissect the recent performance of industry giants such as Nvidia, Google, Apple, Amazon, Microsoft, and Meta. He also discusses the intricate relationship between interest rate hikes, inflation concerns, and the ever-sensitive stock market and there is also discussion about the possibility of rate hikes topping out.
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Episode Transcript
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(00:01):
Welcome back to the Investors Diet Podcasts, where we help you work smarter and
harder by providing you market updates andinsights. If you notice I didn't say
weekly this time, that's because we'rechanging the format of our podcast. We'll
be uploading every two weeks just dueto personal commitments of mean part. But
with that said, the quality ofour podcast will not change at all.
(00:24):
If anything, I think we willbe providing you guys with longer episodes moving
forward. And with that being said, let's jump into our topics today,
where we'll talk about rates and thepossibility of being at the top of great
hikes, and then some updates onthe SoC return. So great hikes?
(00:48):
Are we at the top? Allyear? In markets, there's been give
or take one question which is likea kid in the backseat, you know,
are we there yet? And investorshave been wondering if the FED is
done raising rate and increasingly they thinkit is. Markets have rallied almost eleven
percent in the month of November onthe back of expectations of the FED is
just about done. So the marketreaction is pretty unamvigorous. You know,
(01:11):
across the board. In US markethas been stock celebrating bond celebrating credit spreads
are tightening. It's very much thevibe, you know, the vibe is
of soft landing. You know,the rates have peaked, they're going to
come down, and that gives everyonekind of a good feeling. It's the
opposite of what we saw in twentytwenty two, which is when rates went
up, it killed the mood.Everyone's feeling, you know, terribly down,
(01:37):
even though you know we're printing,you know, five hundred thousand dollars
a month. Everyone's feeling like we'reon the brink. But now it's kind
of the opposite. Following rates area bit positive to some. It's you
know, a bigger pie at leastas far as investors are concerned, and
everyone's feeling pretty good. It feelslike, so, yeah, the mark
has decided, right or wrongly,that the top is in, which is
(01:57):
something I express in earlier episodes.The rhetoric, if you like, from
big central banks, chiefly the Fed, is okay, we're going to tread
carefley from here. We've raised ratesreally fast, really high. Everybody knows
the interest rates that have what everyoneknows that the interest rates have these long
and variable lags and so know theeconomy is not sinking into a giant hole
(02:20):
yet, but let's kind of stepback from this rate rising cycle and see
what happens next and not just keepon plugging on. Is what the fed,
what the fat stance is? Ifeel. So the guidance from the
central bank is okay, inflation iskind of under control. Let's just take
it easy for a bit. Themarket has taken this and run and has
(02:42):
community run with it, right,and I mean really run with it.
For example, you see some sockswhich we'll talk about later on our next
segment, but they're up eleven percentsince end of October. You know that's
a lot. And right now we'reup eleven percent year on date on the
S and P five hundred, soit's a really solid year, you can't
knock it. We're thirty six percenton the NASAC and so all these kinds
(03:02):
of very techy stocks that they lovebut we love love low rates have just
completely gone off to the races inthe bond market. So the government bond
markets supposed is supposed to be likesupposed to be very boring, but it's
it's supposed to move really slowly andthat's that's that was how it used to
(03:23):
work in the good old days.But it's also kind of really got its
rally boots on. So you see, when yields fall, that means prices
have risen. So yields were upfive percent on the ten year US treasury
in late October. That's come rightback down from five percent to about four
point four is percent. So themoves are so big that some investors are
(03:45):
telling are saying, oh, Ijust can't deal with this, you know.
And this is actually putting some sortof slower moving investors off because they
wanted to cash the market when itwas at five percent. Now it's back
at something like I said, aboutfour point five four point four is.
But the message from other investors is, look, if you miss that five
percent yield, then don't be anidiot. Don't miss the four print five
(04:06):
percent, you know, get innow. This is for real. Yields
are only going in one direction,and find the question is how far are
they going to go in that otherdirection? And there's quite a few assumptions
baked into this that make me feela little bit uneasy. You know.
The market is saying not just thatthe Fed is done raising rates, but
it's going to cut rates pretty prettyquickly into next year. And I don't
(04:30):
know about you, but I'm like, are you sure about that? But
I'm a trying to kill your fouryou here, But it's also like who
will buy all those bonds? Andyou know on October nineteenth is when the
ten year yields peaked at you know, at five percent. Today that four
point four and I mean that's asixty basis point move in the ten year
(04:51):
in just about a month. Sothat's a huge move. That's just something
has changed, if not in thefundamentals, then at least in the market
echology. And I mean, Ithink there's a clearly concrete economic news that
you can point to, the bigone of course being inflation. Right,
we've got more inflation data confirming thesignals that we've been seeing development for some
(05:13):
months, which is that inflation,how we're in entrence you may or not
be, doesn't look as scary asit looked six months ago, and that
some of the some of the stickyour categories are moving back down and the
distribution of price increases, which iswhat the FED I think really cares about,
is shifting back towards being centered attwo point five maybe even three percent,
(05:33):
And of course, you know we'renot back at two percent, still
about three or so, but there'sbeen enough improvement in some of the kind
of composition of inflation, some ofthe details under the hood, elements that
I think the FED can feel alittle calmer about. And their willingness to
say we're on pause, we're takinga break, we're going to evaluate,
suggests that they're feeling less panicked inless than a rush to you know,
(05:57):
we've got to raise, you know, get rates higher, because this inflation
problem could really spiral and get outof control, you know, that phase
all over Happily, I'm glad,and they're in a kind of strategic patients
phase, and they're going to waituntil it's dead obvious, until it's completely
obvious that inflation is under control beforethey start cutting or you know, cutting
(06:18):
rates and considering that at all.But that in itself is a kind of
a shift in markets. You knowthat we've really confirmed that the FED doesn't
need you know, another fifty basispoints or you know, hell, like
there was one hundred basis points tightening. So it wasn't so long ago that
Jamie Dimmon said, yields would goyou know, rates would go to six
(06:41):
seven percent. You know, it'sa huge change in the markets. And
uh, there was a point thata few weeks ago where it started to
feel a bit panicky and yields werejust getting higher and higher. And suddenly,
like I said, there was awhole you know, this whole thing
about who's going to buy the bonds? Fiscal Deaths said like literally on our
last episode, and you know,yeaha being very terrible and yells just you
(07:04):
know, going to keep cranking higher, and that's terrible for everybody. And
as I said, now that there'sa big shift in the mood, and
there's an enormous consensus that yields aregoing to keep pushing lower. Something like
sixty percent of fund manager looking atthe Bank of America survey that it puts
out every month and are expecting loweryields over the course of next year.
(07:25):
So there's a pretty substantial positive beton treasury. It's one of the biggest
positive bets on US government bonds ofthe past couple of decades. And the
thing that gives me, well,it gives me a good hunch, a
good hunch and a really really realisticview that the fans going to cut rates
(07:46):
early next year is because of thebusiness that we're seeing in the stock market
now, and it's kind of almostpredicted that idea. Like, look,
rates are coming down, but thinkabout it, this is this is through
like things through while it veris comedown. The only reason why the Fed
would cut interest rates when infatian isstill running ahead of the target is because
(08:09):
something awful happened. It's because there'sbecause there really were a hideous there was
a really hideous massive recession. Doyou do you really want to be owing
owning risky assets? Do you reallywant to be owning stocks, tech socks
and all the rest of them?Cryptocurrencies? Uh maybe not cryptocurrency. Sorry,
they're always like a hedge against themarket in gold. But in the
(08:31):
event that we get an actual properrecession that bites hard early next year,
I think what the bulls are sayingthese days, it's not it's not just
in a recession, defend would cutrates. They have different scenarios that they
have in mind. This is theidea of like they rate normalization, which
is what the FED cares about,is not necessarily the norminal interest rate.
(08:54):
Like when you when you google whatis the Fed's fund rate today, you'll
get some number. They really careabout the real interest rate, which is
the policy setting interest rate minus whateverinflation is at that moment. And the
logic is that as inflation falls,that mechanically raises the real interest rate.
So as inflation comes under control,Defed may need to tax thead just a
(09:16):
little bit, you know, fiftybasis points to something lower nominal rates to
keep the real rate steady. Thisis called normalization. The idea is the
stance of monetary policy stays the sameeven though the nominal rate itself changes,
and in theory that would be aboost for markets. I think, you
know, my issue with that thinkingis it is optional, right that the
(09:39):
Fed has total optionality over whether theydecide now is the time to normalize.
You know, we've got to bringthe real rate in line because inflation has
come down, and I mean,it could be a while before they're really
like about that, and there's nourgency to it, and trading on the
expectation that that's coming in the nextcouple of months seems you know, premature
(10:03):
with that kind of without any indicationsthat the FED is seriously considering that because
again, nothing's forcing their hand tocut rates the way something was forcing their
hand naming inflation is raising them.Right now, let's go into our next
story, which is stock stock returns. Let's talk about in the video first,
which was pretty controversial last time wetalked about it, but both me
(10:24):
and Parth are pretty much prone avideo and the earnings were unbelievable. Wall
Street's expectations were sky high. Theycrushed even those, and in the immediate
aftermath, the stock didn't move.So everyone knows the stock is killing it
and the question is is it sorarely priced that it can possibly do anything
(10:46):
to get the stock another leg up, So you know, we could argue
that it's surprised in people should assumethe video is going to keep crushing the
expectations and hence, by the stotdidn't really move after this news broke out.
But the two things I think thatI'm going to think about is one
that they've just come out with anew AI tip, So if they can
(11:07):
keep their position ahead of everyone elsein AI going, then they should do
very well. And it also dependson what happens to the sale of their
trips to China and if there's moretightening. I've also been reading about some
of the kind of long term competitionpressures on the video, which you know,
people conventually think of as other tripmakers catching up. But what I'm
(11:30):
reading online is, and if I'mtalking to analysts, is that it's not
acting the video, but it's theother big texts that could you know,
let's say, if the video hasa luxury car, is the luxury car
processors Amazon, Google, Microsoft couldgive you the SUV kind of That's the
comparison I'm going for. But thisis a long term story. It's not
going to affect you know, whathappens in the rest of this year or
(11:52):
even next year. But the pointis the people who are going to be
selling artificial intelligence services are largely goingto be the large platform companies that I
just mentioned in the Microsoft, theAmazon, Google, and for them it's
going to be a cost game.AI consumes an incredible amount of computer power
and they are going to want tobuild very cost efficient ways to deliver the
product to users, and with thatsolution they get to eventually, you know,
(12:16):
that cost effected solution going to useNA videos, high specialized very expensive,
very high performing products or something thatis cheap and cheerful and made in
house. Right, that's the question. I think that's the long term question
really, but again that's not happeningin twenty twenty four. Yeah, right,
so again long term. But let'stalk about one of the companies that's
(12:39):
listed, you know, Google,another pick that performed very well in the
last couple of months, up elevenpoint two percent. Google's had a kind
of a cloud story recently. Thatseems to be the big part of earnings
that investors fixate on, and thestock it took a bit of a beating
on its last early earning call Ihad a strong but decelerating sales the cloud
(13:00):
division, and investors took a bigchunk out of the price because of that.
It's very unfair, I feel GoogleCloud is up twenty two percent.
That's the slowest pace of growth ina couple of years. But if you
have one section of your business that'sthat everyone's interested in, it's up twenty
two percent. I don't think it'sfair that the stock sells off, you
know, after that, even thoughyou know it was one of the slowest
(13:20):
paces the last few years. Butit's also very important that despite murmurs that
we're you know, the grain thefastest but the fast growing US iconic mind
just be slowing down Google's business andthe advertising business is economically sensitive, and
it also took a hit, andI think they were really punished because they
(13:41):
couldn't really point to anything to dowith AI and cloud. If they had,
I think it doesn't matter. Ifit was the smallest amount of money,
then I think the stock could havegone upwards. But just because they
couldn't, then it didn't matter whatother numbers. It was showing the fact
that overall business is growing very fastand things are doing great. I mean,
you know, the one thing weshould talk about maybe is a bit
(14:03):
is regulation. I don't think it'sgoing to split off a bit to the
parent company or Google apart, butit's really under pressure at the moment.
It's got multiple cases against it acrossmultiple parts of its business, and that's
going to you know, get moreuncomfortable as the year goes on and you
know, going into twenty twenty fouras well. But another stock tech giant
(14:24):
that's under I mean almost every techgiant is under you know, regulary scrutiny.
But we'll talk about Apple now,which is the worst of the uh,
you know, the Big six texttalks six techt sooks if you will,
which you know is down two pointtwo percent in the last few months.
Apple has been facing a lot ofproblems recently, uh, mainly with
(14:45):
its manufacturing part of Fox Con.It's under investigation in China now, which
people think could be a form ofyou know, kind of Chinese government retaliation.
And it has had a variety ofother anti trust problems in the West,
two in the US, and you'reup. Uh, the EU is
looking at its at its eye messagebusiness. It's got issues and unfortunately he
is dragging down in my portfolio alittle bit as a result. But there's
(15:11):
a problem with the sales in China. There's a serious this is a serious
problem. Uh. There's a reasonthat you know, Tim Cook is flying
out to Beijing and trying to showhow the company's products are still popular with
consumers because there has been government actionto reduce sales of iPhones, although they
are still the most popular smartphones inthe world. That has to count for
(15:31):
something. Apple hasn't really come outof anything new. We've got virtually you
know, virtual reality heads is coming. You know, it's too excited about
that. No self driving car yet, and it still has its incredible popular
products that that interlocking services. Soit's a huge company. There's no growth,
(15:52):
but it's still incredibly profitable and itmakes a lot of cash. I
think it's sort of an almost safestock, but safe massive stock. I
don't know. You know, itmight not be the biggest company in the
world next year, who knows,we'll see. But structurally, uh,
this is like the best company inthe history of companies in terms of return,
probibility, barriers to entry. It'sa monster. You know, it's
(16:12):
not a coincidence that warm Broffett haslike a third of his total portfolio and
Apple, right. You know,he's looking at the structural characteristics of this
business and saying, this is onethat you can really screw up. So
it does have your Apple has anincredible history of proving that it can reinvent
itself across multiple product lines and thatyou know, it doesn't and it doesn't
(16:33):
need to have even many similarities toeach other. And it has again long,
long history too, and so youknow, it has the people as
well, the proven history of innovation. It has the resources and the cash
and it has the brand. Imean, I think there's a lot to
be excited about, even if themarkets have been down a little bit.
And you know, but both ofthe business I think are doing fine.
(16:56):
The online retail business is growing itkind of mid to high single digits and
just sort of, you know,turns along and it's very good. The
the A w S the cloud businessgrows significantly faster than that did well this
quarter. And the business, Isaid, is doing well. But let's
(17:18):
now shift and talk about another techsorry, another huge company, and then
the giant, which is Amazon.Uh. We did cover a few weeks
ago that it was also facing youknow, some ranks scrutiny. But let's
talk about the stock. You know, the issue is Amazon. It has
been tossing turning in my bed becauseI think I've picked the stock, you
(17:45):
know, the business. I pickedthe stock because it's you know, it
has one of the fastest growing partsin all of in all of the stalks
I've picked in my portfolio. Inwhich the advertising part of their business this
is charging you know, a thirdis to charge third parties to appear in
(18:07):
certain positions, and they have adsappear on Amazon's own website, and it's
always a twelve billion dollar a quarterbusiness. It's a huge business, and
it's growing almost twenty five per perquarter. It's truly a monster and really
why I have Amazon picked as agreat hold for the next year. But
(18:30):
it's also precise to the business thatthe FDC is suing them for right why
they are having, you know,why they're under regultary scrutiny at the moment.
It says we covered as last Fusica, but it says an Amazon behaze,
you know, anti competitively, andthat it uses its dominant position in
online retail to both keep its pricehigh and to kind of pick winners among
(18:51):
the people who sell on this platform. So it's a serious case. I
don't know how it's good to go. But again we've all read the complain
and all I can tell you is, you know, Amazon's fastest growing business,
and the US government has it,you know, has in its sites.
And I would say the one thingis it has on the side is
or all of those things outside,but one of the things that that has
(19:14):
on a side is the fact thatnew CEO and Ani Jassy is supposed to
have a good or better relations withpolicy makers than Bezos did. So you
know, he's more, he's lesscombative, better assorting and mending bridges.
So that's going to help, andso that that's going to help. But
moving on, let's talking about Microsoft, another tech giant, which is another
(19:37):
big cloud name. Twenty four percenta year over year growth in this cloud
division, which is accelerating from thesecond quarter. The kind of bizarre thing
is like, in terms of growthrates, it's actually about the same as
Google and almost the total revenues,it was pretty comparable. But the accelerating
versus decelerating, it seems what themarket cares about in the cloud division.
So although they have the same numbersapp Google was decelerating compared to Microsoft's accelerating.
(20:03):
So that's why Micolf's really did doa lot better than than Google.
But Micol's pretty boring. That's howI like it. It sells the big
businesses. Big businesses are better insulatedagainst economic turbulence than small businesses. There's
a cloud business that's growing, youknow, that's doing really well, and
it's all you need to know.It's going to sit there and win pretty
much, be very slow, butit will do good, be long term
(20:26):
and I've got some numbers that Ithink are less boring on Microsoft, which
was the fact that it has apossible twenty nine billion dollar bill for back
taxes. It's you know, completeda seventy five billion dollar deal for Activision
that uh, you know, itdidn't really want to buy anymore, but
kind of had to because you know, so long gone now, but now
it really wants to be involved inthe open AI. So that's another few
(20:49):
billion potential business of dollars that it'sgoing to invest. I actould say that
I actually like the talk and Ithink I could be one of the it
could be one of the biggest companieson the market next year. So that's
all. We did. Skip Facebookand Meta but there wasn't much to and
Tesla but there wasn't too much toto to see there. Test us down
(21:10):
pretty much, you know, dumpsterfire, disaster Meta Meta Meta is okay,
but not really too much to sayfrom those two socks. But that's
around from the rest of the podcast. Thank you very much for tuning in
and catch us back in two weeksfor more in depth episode, maybe even
(21:33):
longer than this one, but yeah, thank you very much. Cash later, Peace,
Welcome back to the Investors Diet Podcasts, where we help you work smarter and
harder by providing you market updates andinsights. If you notice I didn't say
weekly this time, that's because we'rechanging the format of our podcast. We'll
be uploading every two weeks just dueto personal commitments of mean part. But
with that said, the quality ofour podcast will not change at all.
(00:24):
If anything, I think we willbe providing you guys with longer episodes moving
forward. And with that being said, let's jump into our topics today,
where we'll talk about rates and thepossibility of being at the top of great
hikes, and then some updates onthe SoC return. So great hikes?
(00:48):
Are we at the top? Allyear? In markets, there's been give
or take one question which is likea kid in the backseat, you know,
are we there yet? And investorshave been wondering if the FED is
done raising rate and increasingly they thinkit is. Markets have rallied almost eleven
percent in the month of November onthe back of expectations of the FED is
just about done. So the marketreaction is pretty unamvigorous. You know,
(01:11):
across the board. In US markethas been stock celebrating bond celebrating credit spreads
are tightening. It's very much thevibe, you know, the vibe is
of soft landing. You know,the rates have peaked, they're going to
come down, and that gives everyonekind of a good feeling. It's the
opposite of what we saw in twentytwenty two, which is when rates went
up, it killed the mood.Everyone's feeling, you know, terribly down,
(01:37):
even though you know we're printing,you know, five hundred thousand dollars
a month. Everyone's feeling like we'reon the brink. But now it's kind
of the opposite. Following rates area bit positive to some. It's you
know, a bigger pie at leastas far as investors are concerned, and
everyone's feeling pretty good. It feelslike, so, yeah, the mark
has decided, right or wrongly,that the top is in, which is
(01:57):
something I express in earlier episodes.The rhetoric, if you like, from
big central banks, chiefly the Fed, is okay, we're going to tread
carefley from here. We've raised ratesreally fast, really high. Everybody knows
the interest rates that have what everyoneknows that the interest rates have these long
and variable lags and so know theeconomy is not sinking into a giant hole
(02:20):
yet, but let's kind of stepback from this rate rising cycle and see
what happens next and not just keepon plugging on. Is what the fed,
what the fat stance is? Ifeel. So the guidance from the
central bank is okay, inflation iskind of under control. Let's just take
it easy for a bit. Themarket has taken this and run and has
(02:42):
community run with it, right,and I mean really run with it.
For example, you see some sockswhich we'll talk about later on our next
segment, but they're up eleven percentsince end of October. You know that's
a lot. And right now we'reup eleven percent year on date on the
S and P five hundred, soit's a really solid year, you can't
knock it. We're thirty six percenton the NASAC and so all these kinds
(03:02):
of very techy stocks that they lovebut we love love low rates have just
completely gone off to the races inthe bond market. So the government bond
markets supposed is supposed to be likesupposed to be very boring, but it's
it's supposed to move really slowly andthat's that's that was how it used to
(03:23):
work in the good old days.But it's also kind of really got its
rally boots on. So you see, when yields fall, that means prices
have risen. So yields were upfive percent on the ten year US treasury
in late October. That's come rightback down from five percent to about four
point four is percent. So themoves are so big that some investors are
(03:45):
telling are saying, oh, Ijust can't deal with this, you know.
And this is actually putting some sortof slower moving investors off because they
wanted to cash the market when itwas at five percent. Now it's back
at something like I said, aboutfour point five four point four is.
But the message from other investors is, look, if you miss that five
percent yield, then don't be anidiot. Don't miss the four print five
(04:06):
percent, you know, get innow. This is for real. Yields
are only going in one direction,and find the question is how far are
they going to go in that otherdirection? And there's quite a few assumptions
baked into this that make me feela little bit uneasy. You know.
The market is saying not just thatthe Fed is done raising rates, but
it's going to cut rates pretty prettyquickly into next year. And I don't
(04:30):
know about you, but I'm like, are you sure about that? But
I'm a trying to kill your fouryou here, But it's also like who
will buy all those bonds? Andyou know on October nineteenth is when the
ten year yields peaked at you know, at five percent. Today that four
point four and I mean that's asixty basis point move in the ten year
(04:51):
in just about a month. Sothat's a huge move. That's just something
has changed, if not in thefundamentals, then at least in the market
echology. And I mean, Ithink there's a clearly concrete economic news that
you can point to, the bigone of course being inflation. Right,
we've got more inflation data confirming thesignals that we've been seeing development for some
(05:13):
months, which is that inflation,how we're in entrence you may or not
be, doesn't look as scary asit looked six months ago, and that
some of the some of the stickyour categories are moving back down and the
distribution of price increases, which iswhat the FED I think really cares about,
is shifting back towards being centered attwo point five maybe even three percent,
(05:33):
And of course, you know we'renot back at two percent, still
about three or so, but there'sbeen enough improvement in some of the kind
of composition of inflation, some ofthe details under the hood, elements that
I think the FED can feel alittle calmer about. And their willingness to
say we're on pause, we're takinga break, we're going to evaluate,
suggests that they're feeling less panicked inless than a rush to you know,
(05:57):
we've got to raise, you know, get rates higher, because this inflation
problem could really spiral and get outof control, you know, that phase
all over Happily, I'm glad,and they're in a kind of strategic patients
phase, and they're going to waituntil it's dead obvious, until it's completely
obvious that inflation is under control beforethey start cutting or you know, cutting
(06:18):
rates and considering that at all.But that in itself is a kind of
a shift in markets. You knowthat we've really confirmed that the FED doesn't
need you know, another fifty basispoints or you know, hell, like
there was one hundred basis points tightening. So it wasn't so long ago that
Jamie Dimmon said, yields would goyou know, rates would go to six
(06:41):
seven percent. You know, it'sa huge change in the markets. And
uh, there was a point thata few weeks ago where it started to
feel a bit panicky and yields werejust getting higher and higher. And suddenly,
like I said, there was awhole you know, this whole thing
about who's going to buy the bonds? Fiscal Deaths said like literally on our
last episode, and you know,yeaha being very terrible and yells just you
(07:04):
know, going to keep cranking higher, and that's terrible for everybody. And
as I said, now that there'sa big shift in the mood, and
there's an enormous consensus that yields aregoing to keep pushing lower. Something like
sixty percent of fund manager looking atthe Bank of America survey that it puts
out every month and are expecting loweryields over the course of next year.
(07:25):
So there's a pretty substantial positive beton treasury. It's one of the biggest
positive bets on US government bonds ofthe past couple of decades. And the
thing that gives me, well,it gives me a good hunch, a
good hunch and a really really realisticview that the fans going to cut rates
(07:46):
early next year is because of thebusiness that we're seeing in the stock market
now, and it's kind of almostpredicted that idea. Like, look,
rates are coming down, but thinkabout it, this is this is through
like things through while it veris comedown. The only reason why the Fed
would cut interest rates when infatian isstill running ahead of the target is because
(08:09):
something awful happened. It's because there'sbecause there really were a hideous there was
a really hideous massive recession. Doyou do you really want to be owing
owning risky assets? Do you reallywant to be owning stocks, tech socks
and all the rest of them?Cryptocurrencies? Uh maybe not cryptocurrency. Sorry,
they're always like a hedge against themarket in gold. But in the
(08:31):
event that we get an actual properrecession that bites hard early next year,
I think what the bulls are sayingthese days, it's not it's not just
in a recession, defend would cutrates. They have different scenarios that they
have in mind. This is theidea of like they rate normalization, which
is what the FED cares about,is not necessarily the norminal interest rate.
(08:54):
Like when you when you google whatis the Fed's fund rate today, you'll
get some number. They really careabout the real interest rate, which is
the policy setting interest rate minus whateverinflation is at that moment. And the
logic is that as inflation falls,that mechanically raises the real interest rate.
So as inflation comes under control,Defed may need to tax thead just a
(09:16):
little bit, you know, fiftybasis points to something lower nominal rates to
keep the real rate steady. Thisis called normalization. The idea is the
stance of monetary policy stays the sameeven though the nominal rate itself changes,
and in theory that would be aboost for markets. I think, you
know, my issue with that thinkingis it is optional, right that the
(09:39):
Fed has total optionality over whether theydecide now is the time to normalize.
You know, we've got to bringthe real rate in line because inflation has
come down, and I mean,it could be a while before they're really
like about that, and there's nourgency to it, and trading on the
expectation that that's coming in the nextcouple of months seems you know, premature
(10:03):
with that kind of without any indicationsthat the FED is seriously considering that because
again, nothing's forcing their hand tocut rates the way something was forcing their
hand naming inflation is raising them.Right now, let's go into our next
story, which is stock stock returns. Let's talk about in the video first,
which was pretty controversial last time wetalked about it, but both me
(10:24):
and Parth are pretty much prone avideo and the earnings were unbelievable. Wall
Street's expectations were sky high. Theycrushed even those, and in the immediate
aftermath, the stock didn't move.So everyone knows the stock is killing it
and the question is is it sorarely priced that it can possibly do anything
(10:46):
to get the stock another leg up, So you know, we could argue
that it's surprised in people should assumethe video is going to keep crushing the
expectations and hence, by the stotdidn't really move after this news broke out.
But the two things I think thatI'm going to think about is one
that they've just come out with anew AI tip, So if they can
(11:07):
keep their position ahead of everyone elsein AI going, then they should do
very well. And it also dependson what happens to the sale of their
trips to China and if there's moretightening. I've also been reading about some
of the kind of long term competitionpressures on the video, which you know,
people conventually think of as other tripmakers catching up. But what I'm
(11:30):
reading online is, and if I'mtalking to analysts, is that it's not
acting the video, but it's theother big texts that could you know,
let's say, if the video hasa luxury car, is the luxury car
processors Amazon, Google, Microsoft couldgive you the SUV kind of That's the
comparison I'm going for. But thisis a long term story. It's not
going to affect you know, whathappens in the rest of this year or
(11:52):
even next year. But the pointis the people who are going to be
selling artificial intelligence services are largely goingto be the large platform companies that I
just mentioned in the Microsoft, theAmazon, Google, and for them it's
going to be a cost game.AI consumes an incredible amount of computer power
and they are going to want tobuild very cost efficient ways to deliver the
product to users, and with thatsolution they get to eventually, you know,
(12:16):
that cost effected solution going to useNA videos, high specialized very expensive,
very high performing products or something thatis cheap and cheerful and made in
house. Right, that's the question. I think that's the long term question
really, but again that's not happeningin twenty twenty four. Yeah, right,
so again long term. But let'stalk about one of the companies that's
(12:39):
listed, you know, Google,another pick that performed very well in the
last couple of months, up elevenpoint two percent. Google's had a kind
of a cloud story recently. Thatseems to be the big part of earnings
that investors fixate on, and thestock it took a bit of a beating
on its last early earning call Ihad a strong but decelerating sales the cloud
(13:00):
division, and investors took a bigchunk out of the price because of that.
It's very unfair, I feel GoogleCloud is up twenty two percent.
That's the slowest pace of growth ina couple of years. But if you
have one section of your business that'sthat everyone's interested in, it's up twenty
two percent. I don't think it'sfair that the stock sells off, you
know, after that, even thoughyou know it was one of the slowest
(13:20):
paces the last few years. Butit's also very important that despite murmurs that
we're you know, the grain thefastest but the fast growing US iconic mind
just be slowing down Google's business andthe advertising business is economically sensitive, and
it also took a hit, andI think they were really punished because they
(13:41):
couldn't really point to anything to dowith AI and cloud. If they had,
I think it doesn't matter. Ifit was the smallest amount of money,
then I think the stock could havegone upwards. But just because they
couldn't, then it didn't matter whatother numbers. It was showing the fact
that overall business is growing very fastand things are doing great. I mean,
you know, the one thing weshould talk about maybe is a bit
(14:03):
is regulation. I don't think it'sgoing to split off a bit to the
parent company or Google apart, butit's really under pressure at the moment.
It's got multiple cases against it acrossmultiple parts of its business, and that's
going to you know, get moreuncomfortable as the year goes on and you
know, going into twenty twenty fouras well. But another stock tech giant
(14:24):
that's under I mean almost every techgiant is under you know, regulary scrutiny.
But we'll talk about Apple now,which is the worst of the uh,
you know, the Big six texttalks six techt sooks if you will,
which you know is down two pointtwo percent in the last few months.
Apple has been facing a lot ofproblems recently, uh, mainly with
(14:45):
its manufacturing part of Fox Con.It's under investigation in China now, which
people think could be a form ofyou know, kind of Chinese government retaliation.
And it has had a variety ofother anti trust problems in the West,
two in the US, and you'reup. Uh, the EU is
looking at its at its eye messagebusiness. It's got issues and unfortunately he
is dragging down in my portfolio alittle bit as a result. But there's
(15:11):
a problem with the sales in China. There's a serious this is a serious
problem. Uh. There's a reasonthat you know, Tim Cook is flying
out to Beijing and trying to showhow the company's products are still popular with
consumers because there has been government actionto reduce sales of iPhones, although they
are still the most popular smartphones inthe world. That has to count for
(15:31):
something. Apple hasn't really come outof anything new. We've got virtually you
know, virtual reality heads is coming. You know, it's too excited about
that. No self driving car yet, and it still has its incredible popular
products that that interlocking services. Soit's a huge company. There's no growth,
(15:52):
but it's still incredibly profitable and itmakes a lot of cash. I
think it's sort of an almost safestock, but safe massive stock. I
don't know. You know, itmight not be the biggest company in the
world next year, who knows,we'll see. But structurally, uh,
this is like the best company inthe history of companies in terms of return,
probibility, barriers to entry. It'sa monster. You know, it's
(16:12):
not a coincidence that warm Broffett haslike a third of his total portfolio and
Apple, right. You know,he's looking at the structural characteristics of this
business and saying, this is onethat you can really screw up. So
it does have your Apple has anincredible history of proving that it can reinvent
itself across multiple product lines and thatyou know, it doesn't and it doesn't
(16:33):
need to have even many similarities toeach other. And it has again long,
long history too, and so youknow, it has the people as
well, the proven history of innovation. It has the resources and the cash
and it has the brand. Imean, I think there's a lot to
be excited about, even if themarkets have been down a little bit.
And you know, but both ofthe business I think are doing fine.
(16:56):
The online retail business is growing itkind of mid to high single digits and
just sort of, you know,turns along and it's very good. The
the A w S the cloud businessgrows significantly faster than that did well this
quarter. And the business, Isaid, is doing well. But let's
(17:18):
now shift and talk about another techsorry, another huge company, and then
the giant, which is Amazon.Uh. We did cover a few weeks
ago that it was also facing youknow, some ranks scrutiny. But let's
talk about the stock. You know, the issue is Amazon. It has
been tossing turning in my bed becauseI think I've picked the stock, you
(17:45):
know, the business. I pickedthe stock because it's you know, it
has one of the fastest growing partsin all of in all of the stalks
I've picked in my portfolio. Inwhich the advertising part of their business this
is charging you know, a thirdis to charge third parties to appear in
(18:07):
certain positions, and they have adsappear on Amazon's own website, and it's
always a twelve billion dollar a quarterbusiness. It's a huge business, and
it's growing almost twenty five per perquarter. It's truly a monster and really
why I have Amazon picked as agreat hold for the next year. But
(18:30):
it's also precise to the business thatthe FDC is suing them for right why
they are having, you know,why they're under regultary scrutiny at the moment.
It says we covered as last Fusica, but it says an Amazon behaze,
you know, anti competitively, andthat it uses its dominant position in
online retail to both keep its pricehigh and to kind of pick winners among
(18:51):
the people who sell on this platform. So it's a serious case. I
don't know how it's good to go. But again we've all read the complain
and all I can tell you is, you know, Amazon's fastest growing business,
and the US government has it,you know, has in its sites.
And I would say the one thingis it has on the side is
or all of those things outside,but one of the things that that has
(19:14):
on a side is the fact thatnew CEO and Ani Jassy is supposed to
have a good or better relations withpolicy makers than Bezos did. So you
know, he's more, he's lesscombative, better assorting and mending bridges.
So that's going to help, andso that that's going to help. But
moving on, let's talking about Microsoft, another tech giant, which is another
(19:37):
big cloud name. Twenty four percenta year over year growth in this cloud
division, which is accelerating from thesecond quarter. The kind of bizarre thing
is like, in terms of growthrates, it's actually about the same as
Google and almost the total revenues,it was pretty comparable. But the accelerating
versus decelerating, it seems what themarket cares about in the cloud division.
So although they have the same numbersapp Google was decelerating compared to Microsoft's accelerating.
(20:03):
So that's why Micolf's really did doa lot better than than Google.
But Micol's pretty boring. That's howI like it. It sells the big
businesses. Big businesses are better insulatedagainst economic turbulence than small businesses. There's
a cloud business that's growing, youknow, that's doing really well, and
it's all you need to know.It's going to sit there and win pretty
much, be very slow, butit will do good, be long term
(20:26):
and I've got some numbers that Ithink are less boring on Microsoft, which
was the fact that it has apossible twenty nine billion dollar bill for back
taxes. It's you know, completeda seventy five billion dollar deal for Activision
that uh, you know, itdidn't really want to buy anymore, but
kind of had to because you know, so long gone now, but now
it really wants to be involved inthe open AI. So that's another few
(20:49):
billion potential business of dollars that it'sgoing to invest. I actould say that
I actually like the talk and Ithink I could be one of the it
could be one of the biggest companieson the market next year. So that's
all. We did. Skip Facebookand Meta but there wasn't much to and
Tesla but there wasn't too much toto to see there. Test us down
(21:10):
pretty much, you know, dumpsterfire, disaster Meta Meta Meta is okay,
but not really too much to sayfrom those two socks. But that's
around from the rest of the podcast. Thank you very much for tuning in
and catch us back in two weeksfor more in depth episode, maybe even
(21:33):
longer than this one, but yeah, thank you very much. Cash later, Peace,
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