[SPEAKER_01]: On radio, on YouTube, streaming live on investtalk.com, and for our podcast subscribers, this is invest talk, independent thinking, shared success.
[SPEAKER_01]: Invest talk is made possible by KPP Financial, a registered investment advisor firm, serving clients throughout the United States.
[SPEAKER_01]: Here is KPP Financial Chief Executive Officer, Financial Advisor, Justin Klein.
[SPEAKER_02]: Good afternoon fellow investors and welcome back to another week of Invest Talk.
[SPEAKER_02]: To discuss, to start this week, obviously, a lot of headlines around the Iran conflict and volatility amongst different sectors, different asset classes, the AI trade in some ways is helping certain sectors in other ways.
[SPEAKER_02]: Herding other sectors, and we are going to unpack all of it on today's show, we're going to talk about as much as we can, while also mainly answering your finance and investment questions that's with this show is mainly about.
[SPEAKER_02]: I can sit here and talk about everything on my mind, but I need to know what is on yours.
[SPEAKER_02]: And when you call in, ask your question, you are not only helping yourself, who are probably helping some other investors talk listeners, walkers, I've had been doing this for a long time.
[SPEAKER_02]: I've been in the podcast now for almost 20 years.
[SPEAKER_02]: So I've seen it all, and I do see similar questions.
[SPEAKER_02]: So once again, you call, you are helping you and the rest of the
[SPEAKER_02]: So that's what this hour will be about.
[SPEAKER_02]: Helping me come a better investor so that you can make smarter decisions with your money.
[SPEAKER_02]: And as you know, probably no.
[SPEAKER_02]: We racked up our latest investment stock wealth webinar.
[SPEAKER_02]: Last Wednesday, topic was about inflation and it will soon be up on our best talk YouTube channel.
[SPEAKER_02]: So make sure you check that out this week.
[SPEAKER_02]: Now just to be able to talk about today's mark performance and run down the show topics.
[SPEAKER_02]: But as usual, we'll tackle this first call a question.
[SPEAKER_06]: Hey guys, I was looking at Venture Global Stockticker VG Victor G. I just wanted to see what you guys thought trying to get into the LNG space and was hoping to take a position here soon, but wanted to see if you guys saw it made sense.
[SPEAKER_02]: Thanks.
[SPEAKER_02]: We're looking at Venture Global VG is the symbol.
[SPEAKER_02]: Here's my issues and your term they're they're definitely making more money expected to make all-time high the dollar 33 this year.
[SPEAKER_02]: But that's in context what's going on in the Middle East.
[SPEAKER_02]: How long is that conflict going to drag on?
[SPEAKER_02]: Do you want to buy into something that's earning this much simply based on a conflict that likely has a finite timeline?
[SPEAKER_02]: Because next year, I needed to fall back to a 262 cents, and to the $11.62 cents right now.
[SPEAKER_02]: So roughly 20 times forward looking earnings, which frankly is kind of expensive.
[SPEAKER_02]: I would look past this year because that's what you're looking at.
[SPEAKER_02]: This is the flash in the pan.
[SPEAKER_02]: You want to know what the long-term earnings durability is.
[SPEAKER_02]: And 20 times that level is frankly, not cheap.
[SPEAKER_02]: Free cash flow remains negative.
[SPEAKER_02]: You have a lot of debt on its balance sheet.
[SPEAKER_02]: Three capital intensive business.
[SPEAKER_02]: And the technicals are just so, actually.
[SPEAKER_02]: Yeah, it's rally since the beginning of the year from around five or six dollars to a high recently around 17 in change.
[SPEAKER_02]: but it's pulled back to 1162.
[SPEAKER_02]: That one meant some thought that great.
[SPEAKER_02]: It's kind of lost all of them, and we lost a couple of weeks.
[SPEAKER_02]: So I think you're chasing headlines, chasing something that just doesn't have durability.
[SPEAKER_02]: So I would be a no on VG venture global.
[SPEAKER_02]: Now we have a lot of ground to cover over the next 45 minutes or so and time for meeting will plan to get to all of it.
[SPEAKER_02]: And the market has been hot.
[SPEAKER_02]: But is this where investors get hurt?
[SPEAKER_02]: We'll talk about higher inflation, higher interest rates, and housing could all be flashing a state discipline mindset.
[SPEAKER_02]: We'll dig into that story in much, much more, including AI.
[SPEAKER_02]: That's just AI infrastructure.
[SPEAKER_02]: That's a common story right now.
[SPEAKER_02]: talk about what it kind of spits out.
[SPEAKER_02]: Once you talk to it and how that compares with a professional.
[SPEAKER_02]: And a core layer to that is the AI spending spree.
[SPEAKER_02]: We have a new round of earnings from Q1 and updated guidance on CapExpend, cash flow generation, free cash flow generation, stock buybacks,
[SPEAKER_02]: tech industry, revolution, transforms the financials of these big companies.
[SPEAKER_02]: But think of that.
[SPEAKER_02]: And if we have time, how companies are using AI to make workers do more, not necessarily fire them.
[SPEAKER_02]: And I think that's the low hanging fruit from most businesses right now.
[SPEAKER_02]: And while you're in this low higher low fire,
[SPEAKER_02]: environment because big reasons.
[SPEAKER_02]: So we'll dig into that story as well.
[SPEAKER_02]: We also have questions about KLA 10 core and the TGA X corporation TGX company TGA Max as well as some questions that came in via the comment section over on the investment on YouTube channel as well.
[SPEAKER_02]: And of course I welcome your finance and investment question is right now.
[SPEAKER_02]: So I encourage you to call.
[SPEAKER_02]: But we're going to head to a quick break.
[SPEAKER_02]: Do you see any of our live stream or on AMTL 20 in the Bay Area?
[SPEAKER_02]: Go right now.
[SPEAKER_02]: I'll chart up next that we'll comment on today's market active.
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[SPEAKER_03]: Parallel investing means Justin invests right alongside KPP Financial clients.
[SPEAKER_03]: He makes the same trade for KPP Financial on the same day at the same price and the same percentages as KPP clients.
[SPEAKER_03]: There's no front running and no special treatment.
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[SPEAKER_03]: Millions of downloads have proved there's value in every invest talk podcast call any time 24 seven Invest talk 88899 chart Let's go take a look at the market today.
[SPEAKER_02]: It was a very interesting day overall Market was higher
[SPEAKER_02]: Despite what looks to be a continued in-pass between the United States and Iran when it comes to some sort of peace negotiation, President Trump called Iran's latest peace proposal unacceptable, but the market didn't care, the oil prices were up, but so we're equities, NASDAQ up 0.1% on the day, S&P up about 0.2% on the day,
[SPEAKER_02]: Large, sorry, midcap growth certainly did the best.
[SPEAKER_02]: It was a very mixed day overall.
[SPEAKER_02]: You had some of the big tech names like Google, Microsoft, meta, Amazon, all down all the day, same with Apple, slightly, and video up 2% test love about 4%.
[SPEAKER_02]: And then you had more red out of the financials, names like Wells Fargo, Dynams, 3% they can America down a percent and a half.
[SPEAKER_02]: So some weakness there, consumer staples Pepsi down 3.3% on the day, but energy is you would imagine, up, Exxon 3.5% on the day, product manufacturing, so the industrial space, applied materials, caterpillar, continued strength out of the AI data infrastructure, ecosystem that continues to power the market higher you could.
[SPEAKER_02]: names like Qualcomm up about 8% on the day.
[SPEAKER_02]: Memory producers like Western Digital up 7.5% on the day.
[SPEAKER_02]: So, continue the strength on that side.
[SPEAKER_02]: Now when you look at the recent notes from Citadel, only 22% of the S&P's SB 500 names have outperformed the index over the past 30 days.
[SPEAKER_02]: So very, very narrow rally that you've seen lately.
[SPEAKER_02]: This is a 30 year low, 30 year low.
[SPEAKER_02]: Okay, that over a 30 day period that only 22% are outperforming the market.
[SPEAKER_02]: That's down from 65% of the market in February was outperforming the broader index.
[SPEAKER_02]: And they noted that 28 of the 503 names in the S&P account for 50% of the recent returns.
[SPEAKER_02]: Citadel also noted that net retail equity buying last week in the 98th percentile of weekly flows since 2018.
[SPEAKER_02]: So this is certainly being chased by the retail investor,
[SPEAKER_02]: And momentum indicators are pushing up to extreme historical percentiles, meaning that market is very, very overbought.
[SPEAKER_02]: Now, in the economic front, existing home sales increase point 2% month over month, a bit better than consensus.
[SPEAKER_02]: Actually, bit lower than consensus.
[SPEAKER_02]: All right, guys.
[SPEAKER_02]: So you're seeing a kind of steady housing market.
[SPEAKER_02]: It's kind of what I'm expecting for a long period of time, which is from a transaction standpoint, kind of hanging out this 4 million annualized mark is probably where we'll be plus or minus, you know, a couple hundred thousand, a few hundred thousand.
[SPEAKER_02]: But prices will stagnate and probably go lower in a lot of markets over time.
[SPEAKER_02]: Now, prices continue to march
[SPEAKER_02]: Modestly higher, a 0.9% year over a year, so caught flat-ish on an aggregate, some markets, gaining nicely other markets in negative territory.
[SPEAKER_02]: CPI is due to Mar, that's the big news here is what's going to happen with inflation, what do the inflation readings look like, and has that feed into overall fed policy.
[SPEAKER_02]: Treasuries were a bit, a wrap on the day about, sorry, prejudiced or down on the day with the yields up about 36 basis points across the curve.
[SPEAKER_02]: Doll in the next 0.1% gold finished fractionally lower, Bitcoin up 2.3% on the day, WTI ended up 2.8% on the day.
[SPEAKER_02]: Silver was the strong performer on the day.
[SPEAKER_02]: Let's go talk to Sammy in是不是isco.
[SPEAKER_02]: Let's talk about Netflix.
[SPEAKER_00]: Well, hey, just in thanks for taking my call.
[SPEAKER_00]: So I have been picking up Netflix for the last six months or so.
[SPEAKER_00]: I think my highest point was 1 or 6.
[SPEAKER_00]: Then I picked up some more at 95, and picked up some more around 84, 85.
[SPEAKER_00]: What do you recommend now, given where we're at today and based on the earning.
[SPEAKER_00]: or still the commendation now, or some would like me.
[SPEAKER_02]: Well, I still think this is in correction mode.
[SPEAKER_02]: Long-term, I think you'll be in a good place, but in near turn, the momentum is certainly down.
[SPEAKER_02]: Yes, it had the bounce from what February until just a few weeks ago, but it started to roll over
[SPEAKER_02]: And to me, the next major support level isn't down until about 60.
[SPEAKER_02]: And if you look at the momentum of earnings and revenue, it is all decelerating into the single digit level.
[SPEAKER_02]: 2014, sorry, 2024, earnings are up 65%.
[SPEAKER_02]: Revenue is up 15%.
[SPEAKER_02]: But this year, I was sorry, next year, earnings are supposed to decelerate to only up 8%.
[SPEAKER_02]: And revenue of 12.
[SPEAKER_02]: So I think what you're seeing as multiple contraction, the way I would play this is actually be selling puts lower.
[SPEAKER_02]: Because I do think we're headed for lower prices.
[SPEAKER_02]: And we wanted to be paid
[SPEAKER_02]: to wait and pick up those shares at lower prices, probably first round 75, and then as it, if it goes all the way to 60, that's where I really wanna pick up that one.
[SPEAKER_02]: Thanks for the call.
[SPEAKER_02]: We're gonna head into our first major break of the day, so can we call now at 8.99.
[SPEAKER_03]: You've got finance and investment questions, and Justin Klein is ready to provide his unbiased answers.
[SPEAKER_03]: Call now or any time, 888-99 chart.
[SPEAKER_04]: Hi there.
[SPEAKER_04]: Duncan from New York.
[SPEAKER_04]: Thank you for all that you do.
[SPEAKER_04]: I'm actually looking into stock ticker, k, l, a, c, cl, corporation.
[SPEAKER_04]: It deals with the semiconductor and semiconductor equipment.
[SPEAKER_04]: I'm just looking to get your thoughts about it what it seems like it has great return on equity and return on assets and also seems like it has like a mode to and when you look at the technical so it's just been going up now I know that I might be too late, but you know this would actually go in my raw IRA.
[SPEAKER_04]: It looks like this will have a long mode and these have my conductor space and would like to add.
[SPEAKER_04]: a partial position now and maybe another position later.
[SPEAKER_04]: So thank you for all that you do and have a great day.
[SPEAKER_02]: Bye.
[SPEAKER_02]: Looking at KLA corporation, you speak called KLA 10 core now, just KLA.
[SPEAKER_02]: It's been on the run along with the other large ship manufacturers, which we own one of the other one of their competitors.
[SPEAKER_02]: So we like the space.
[SPEAKER_02]: It's just this is second on the list within the large
[SPEAKER_02]: Now, we generally like these names over the actual chip manufacturers, usually.
[SPEAKER_02]: It's not always the case.
[SPEAKER_02]: You don't want to be dogmatic about it, but certainly there is, as the college said, their profitability or turn equity tends to be very high, which you want to find.
[SPEAKER_02]: You want to see, return invest the capital 42%.
[SPEAKER_02]: Certainly like that.
[SPEAKER_02]: Now, that is the highest.
[SPEAKER_02]: It's kind of been in a while.
[SPEAKER_02]: So is it over earning right now, potentially?
[SPEAKER_02]: But it is, as a good business, good cash flow, $4 billion for cash flow, pretty much no debt.
[SPEAKER_02]: It's taking that cash.
[SPEAKER_02]: It's paying out a little bit of a dividend.
[SPEAKER_02]: It's buying back shares.
[SPEAKER_02]: It's doing all good things with its cash.
[SPEAKER_02]: And earnings are expected to go to $50 per share next year from 37 this year and 33 last year in 23 in chain three or before.
[SPEAKER_02]: So a big move over doubling of earnings in just three years.
[SPEAKER_02]: But it is trading for about $1845 per share.
[SPEAKER_02]: So even on four looking earnings of 50, you're talking about what's that?
[SPEAKER_02]: 30, mid to high 30s, that is four looking multiple.
[SPEAKER_02]: Not cheap.
[SPEAKER_02]: So what you're getting here is, good momentum, a very good business.
[SPEAKER_02]: Still is somewhat sick of a little business,
[SPEAKER_02]: a good business.
[SPEAKER_02]: And so you need to have a longer term time horizon because the biggest downside here is that it's not cheap.
[SPEAKER_02]: Even based on those forward-looking earnings.
[SPEAKER_02]: So, while the momentum is good now, probably a point in the next 12-18 months where moments of not that great.
[SPEAKER_02]: And you get a broader pullback.
[SPEAKER_02]: To me, that's a better time to be adding to this for a long-term play.
[SPEAKER_02]: That's it.
[SPEAKER_02]: I would be waiting for because like I said, this is a cyclical business.
[SPEAKER_02]: That right now is price to perfection.
[SPEAKER_02]: What we know about cyclical businesses is that that's cyclicality comes back and makes everything look not quite as rosy.
[SPEAKER_02]: The market will punish it for that.
[SPEAKER_02]: The hedge funds will dump it, because momentum is no longer positive.
[SPEAKER_02]: The retail investor will dump their shares because they tend to have weekends as well.
[SPEAKER_02]: And then, though, that is the time when it looks to be attractive.
[SPEAKER_02]: Right now, to me, it's just a momentum play.
[SPEAKER_02]: Not a long term entry point.
[SPEAKER_02]: Although, you may do fine long term because as you said, and I just said,
[SPEAKER_02]: Let's talk a little bit about AI and investing.
[SPEAKER_02]: And there's some recent studies that basically turn the market loose, or turn AI loose on trading, as well as giving financial advice.
[SPEAKER_02]: So let's start off with a financial advice side, because it's really easy to open up chat, should you be tea or cloth or whatever, Gemini and ask it a bunch of questions.
[SPEAKER_02]: Create a portfolio, et cetera.
[SPEAKER_02]: But is it helpful?
[SPEAKER_02]: Or is it going to, or it will give you advice that's misguided?
[SPEAKER_02]: Is it a substitute for a licensed professional?
[SPEAKER_02]: Here was the test.
[SPEAKER_02]: Basically, gave the instructions of, you are a three-year financial advisor, tasked with managing my long-term investment portfolio for the next month.
[SPEAKER_02]: Here's my age profile.
[SPEAKER_02]: three out of five wrist tolerance and a million dollars.
[SPEAKER_02]: And it's a taxable account.
[SPEAKER_02]: What should you do?
[SPEAKER_02]: And it gave the advice of 50% equities, looking at VTI, Hughes, S-H, Z-V-I-G, International equities, fixed income, REITs, and cash.
[SPEAKER_02]: But the problem started with, it didn't give the recommendation that corresponded with Monica Sh that I wanted to hold.
[SPEAKER_02]: So it ignores certain instructions.
[SPEAKER_02]: And this is one of the problems with the outputs here, is remember, they hallucinate, they make mistakes, even though they say it with a lot of authority.
[SPEAKER_02]: And that's the biggest issue with AI.
[SPEAKER_02]: So after the break, I'll pick this up, and then we'll get to our main focus point.
[SPEAKER_02]: On the next in Vestock, we'll look into this story.
[SPEAKER_02]: Gold price forecast 2026.
[SPEAKER_02]: Save Havenor, pick them of rate and certainty.
[SPEAKER_02]: That's story tomorrow, but for now I'm just in decline and we are ready to take your calls anytime on 8-899 chart.
[SPEAKER_03]: There are a few things that make KPP financial special.
[SPEAKER_03]: One of them is parallel investing.
[SPEAKER_03]: This means they invest right alongside their clients.
[SPEAKER_03]: Here's how it works.
[SPEAKER_03]: When KPP financial makes a trade for their clients, Justin Klein makes the same trade for himself and KPP.
[SPEAKER_03]: On the same day, at the same price, and same percentage.
[SPEAKER_03]: No front running, no special treatment.
[SPEAKER_02]: Learn more about Parallel Investing at Investalk.com.
[SPEAKER_02]: And I started off saying, basically, it gave a pretty generic portfolio break down using index ETFs, but it ignores certain directions.
[SPEAKER_02]: And so it shows you that you have to double check.
[SPEAKER_02]: It's work like most AI output.
[SPEAKER_02]: Now, that's not really an issue except for when you have it.
[SPEAKER_02]: help you with adjusting to headlines, for example.
[SPEAKER_02]: What about asking it to navigate the warner on?
[SPEAKER_02]: What should you do?
[SPEAKER_02]: Well, first off, it suggested trimming international stocks and adding what's called a hedge sleeve.
[SPEAKER_02]: And that sounds great and practice, but
[SPEAKER_02]: It was the same advice that was given when trying to asking help to deal with potential shutdown back in the fall.
[SPEAKER_02]: And it suggested using options at a time when a professional would tell you probably not.
[SPEAKER_02]: After the market had already moved, when options were already expensive.
[SPEAKER_02]: And the vice was similar when the trade war happened last year.
[SPEAKER_02]: Back then, it also said,
[SPEAKER_02]: thought that would outperform.
[SPEAKER_02]: Well, since then, since this was in October, since then, Lockheed Martin was at 5.5% and this and he was at about 8% so lagged the overall market.
[SPEAKER_02]: And then it asked about leverage ETFs.
[SPEAKER_02]: And it gave your bullet-prep warning about how they're dangerous, right out the risks.
[SPEAKER_02]: But then it said, how did it would identify ETFs that might make sense in the right situation?
[SPEAKER_02]: And then identified three, and asked if you wanted to help you figure out which ones to use, despite the warnings.
[SPEAKER_02]: And the biggest issue, I think, with all AI in a lot of capacities when you're trying to give it get advice, is that a lot of times it will tell you what you want to hear.
[SPEAKER_02]: It will confirm your bias.
[SPEAKER_02]: It won't be that true sounding board that will keep you away from harm.
[SPEAKER_02]: So that's a clear indication that AI is good for helping to understand concepts.
[SPEAKER_02]: Help you explain things in the market like what a leverage ETF is, but when it comes to the brass tax of actually putting money to work, not really a great tool.
[SPEAKER_02]: And that's confirmed by another set of studies around running actual strategies.
[SPEAKER_02]: There have been multiple attempts at this.
[SPEAKER_02]: Alpha Arena, which is a tech startup, put it eight major frontier systems against each other, like anthropics, cloud, Google's AMP Gemini, OpenAI, CHHGBT, Elon Musk, Grock, and four others.
[SPEAKER_02]: Give them $10,000.
[SPEAKER_02]: As a whole, portfolio loss money.
[SPEAKER_02]: of the 32, so it allowed them to run at each of the eight to run four times.
[SPEAKER_02]: Only six times of the 32 did it actually make money.
[SPEAKER_02]: Pretty crazy, right?
[SPEAKER_02]: So clearly, they're not set up to run real money.
[SPEAKER_02]: You need a human.
[SPEAKER_02]: Now, LMs are good for something like doing research, finding, and employing the direct correct tools to use.
[SPEAKER_02]: but often if they're left to their own devices, they trade too much, incorrect, incorrectly size their positions.
[SPEAKER_02]: And they miss time their trades as well.
[SPEAKER_02]: So this is the clear takeaway right now.
[SPEAKER_02]: Now this could change, but like most things in the world in AI, it's all about them being great tools to help, to augment some work that you,
[SPEAKER_02]: would have to do that.
[SPEAKER_02]: I take a lot longer.
[SPEAKER_02]: But it still takes a human being.
[SPEAKER_02]: The parse through it and actually find the real value.
[SPEAKER_02]: AI will not do it on its own.
[SPEAKER_02]: It's just an assistant.
[SPEAKER_02]: Now let's go answer a voicemail question next.
[SPEAKER_05]: I'm a question about
[SPEAKER_05]: I do have a small position and not sharing with the good entry point and the fundamental search drawn if you can give me your expert opinion that would be great.
[SPEAKER_05]: Thank you once again.
[SPEAKER_05]: I will listen your answer on the podcast.
[SPEAKER_05]: Thanks.
[SPEAKER_05]: Bye-bye.
[SPEAKER_02]: Looking at Devon Energy DVN is the symbol earnings is here so see up 39% to $5.46 and then be fly next to it's an uptrend like most oil stocks it's pulled back recently and to me
[SPEAKER_02]: if you're trying to add oil in general.
[SPEAKER_02]: And Devon Energy is a very strong quality chale name.
[SPEAKER_02]: It operates in the Delaware base and Eagle Ford Chale, Barnett Chale, Regions, British oil and natural gas.
[SPEAKER_02]: 55, 54 billion dollar market cat very little debt like that.
[SPEAKER_02]: And once get earnings are expected to continue to rise.
[SPEAKER_02]: But a lot of this does have to do at least in the short term of what happens in Middle East.
[SPEAKER_02]: I'm in the belief, and you saw that another headline today, but this is going to continue to drag until there's a real break.
[SPEAKER_02]: Talking about oil at 150 or higher, that's probably where the economy truly can't handle it.
[SPEAKER_02]: Right now it's a new sense, it's an annoyance, it's a drag a bit on consumer spending, but most of the consumer spending comes from the top,
[SPEAKER_02]: 23% of the wage earners anyway, who could afford another $150 a month to fill up their tank.
[SPEAKER_02]: So it matters, so it doesn't matter as much as most people think.
[SPEAKER_02]: And so that could be a break, it could be another supply chain break, something around
[SPEAKER_02]: These are all potential breakpoints where, okay, I think of it like COVID.
[SPEAKER_02]: Remember COVID, people were talking about it, things were kind of bad in China, but nobody really thought it would hit United States or the mark was kind of whistling past the graveyard on that.
[SPEAKER_02]: Then, Tom Hanks got COVID, Rudy Gobert, the NBA got COVID, so they shut down the NBA, and then it kind of snowballed from there.
[SPEAKER_02]: And the world kind of shut down, right?
[SPEAKER_02]: Not saying the world's going to shut down, I'm just saying there's going to be a wake-up cause is that's going to hush United States into a more consulatory posture posture where they're likely to give in to some degree.
[SPEAKER_02]: It's pretty clear that the IRGC and the current
[SPEAKER_02]: projecting over the undersea cables and kind of holding them hostage when I say that the undersea internet cables that connects Europe to Asia, et cetera.
[SPEAKER_02]: Which to me is in some ways a bigger bargaining chip than closing the streets of America.
[SPEAKER_02]: But it's clear that it's unlikely to resolve, I think, in a time for him, that the market
[SPEAKER_02]: So in that case, I do think oil prices and energy companies continue to go up.
[SPEAKER_02]: So I would probably be a buyer of Devon on this pullback.
[SPEAKER_02]: The only main focus point is about this hot market.
[SPEAKER_02]: And kind of connects to what we just talked about.
[SPEAKER_02]: If stocks are pushing higher, we know that, but it's very narrow.
[SPEAKER_02]: Tomorrow we get CPI.
[SPEAKER_02]: March CPI came in at 0.9% month over month, the largest increase in the June of 2022.
[SPEAKER_02]: annualized inflation up to 3.3 percent will likely go higher once we get the April numbers.
[SPEAKER_02]: But despite that, despite what's going on in the Middle East, momentum in the markets still strong.
[SPEAKER_02]: But are we at a point where enough investors are off sides?
[SPEAKER_02]: You could certainly argue it both ways.
[SPEAKER_02]: The bullish view is earnings are good, earnings have been very good.
[SPEAKER_02]: So even though the ISM manufacturing price index is at the highest level since April 2022, because of Tarius, because of energy cost pass through all of that, it's not hurting profits.
[SPEAKER_02]: In fact, in fact, profit guidance is at the highest of the level it's been all year, but then there are the concerns.
[SPEAKER_02]: By inflation, private credit issues, job displacement fears around AI.
[SPEAKER_02]: So as the earnings growth strong enough to overwhelm these risks, or investors getting too comfortable, that is the big question.
[SPEAKER_02]: Let's talk about it.
[SPEAKER_02]: Gasoline prices are up to 21% since March.
[SPEAKER_02]: The broader energy indexes up 10.9%.
[SPEAKER_02]: This is part of the CPI calculation.
[SPEAKER_02]: Be sure about food and energy, rose 0.2%, only 2.6% year over year, not that.
[SPEAKER_02]: But we know eventually that will feed through to services
[SPEAKER_02]: and so inflation is headed higher.
[SPEAKER_02]: We know that will squeeze the consumer, but most importantly, for markets, it has to do with the Fed.
[SPEAKER_02]: Right now, there's about an even chance that the raise or lower rates are now in your end.
[SPEAKER_02]: We know Scott Bessant is gonna be pushed by the president to cut rates.
[SPEAKER_02]: And you have one Fed member that is aggressively trying to cut rates, Steven Merritt.
[SPEAKER_02]: He was one of the centers in the latest FOMC meeting, but three of them, three of the four, actually said, no, no, no.
[SPEAKER_02]: We should not have an easing bias.
[SPEAKER_02]: We should have a neutral bias.
[SPEAKER_02]: And if you start with a neutral bias and you see inflation accelerating, what are you going to likely move to?
[SPEAKER_02]: A more hawkish bias?
[SPEAKER_02]: Probably.
[SPEAKER_02]: And so to me, that is the real question.
[SPEAKER_02]: What is this battle going to look like?
[SPEAKER_02]: Because what you see here is that the Fed does nothing, and rates rise.
[SPEAKER_02]: Excuse me, if inflation rises, which it is, and rates stay roughly the same, you now have deeper and deeper negative real yields.
[SPEAKER_02]: It depends at three and a half to three and three quarters, and the inflation surge is the four, four and a half percent.
[SPEAKER_02]: Guess what you have.
[SPEAKER_02]: You have negative real, real, real yields.
[SPEAKER_02]: And when you have negative real yields, what do investors do?
[SPEAKER_02]: They go in chase, hire yields, they go and buy equities, they go and buy corporate bonds,
[SPEAKER_02]: But do we get to a point where we get a four and a half percent inflation print or maybe a five percent inflation print?
[SPEAKER_02]: Does that precipitate?
[SPEAKER_02]: a more hawkish fed.
[SPEAKER_02]: No matter what drone, no matter what Stephen Marin says, no matter what Kevin wore says.
[SPEAKER_02]: But the other fed members say no, no, no, no.
[SPEAKER_02]: We can't sit here and watch inflation spiral higher.
[SPEAKER_02]: We need to hike rates.
[SPEAKER_02]: To me, that is the biggest risk in markets
[SPEAKER_02]: where financial conditions would tighten to a degree where you're no longer seen, continued grinding to new highs in V-bottoms.
[SPEAKER_02]: What you get is something more similar to 2022.
[SPEAKER_02]: Remember then?
[SPEAKER_02]: That's where Fedac restlessly hike rates to reduce inflation.
[SPEAKER_02]: That is the biggest risk in markets right now.
[SPEAKER_02]: So despite the market being hot, you have to watch out for that.
[SPEAKER_02]: That's where you could see a market pivot.
[SPEAKER_02]: Hey, probably new highs.
[SPEAKER_02]: We continue view about it.
[SPEAKER_02]: That was the best thought I'm just in climbing.
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[SPEAKER_07]: Hi, this is Dan from Wanda Creek.
[SPEAKER_07]: Thanks for taking my call.
[SPEAKER_07]: I had a question about TJ Maxx to stock simultaneously, JX.
[SPEAKER_07]: Return on that quote, it looks really good, but it's forward PE still pretty high close to 30.
[SPEAKER_07]: And it's pretty cash, low, compared to it's total outstanding dead, it's the dead.
[SPEAKER_07]: It's like about almost three times as much.
[SPEAKER_07]: And it's been on a downturn lately, as tourists to know what your thoughts are on this stock.
[SPEAKER_02]: Looking at T.J. X a name that we do own for clients in one of our strategies.
[SPEAKER_02]: We've done it for a while.
[SPEAKER_02]: It has a bit of a pullback as of late.
[SPEAKER_02]: Beaked around 165 or so.
[SPEAKER_02]: Now we're at 148.
[SPEAKER_02]: It's not a dramatic pullback.
[SPEAKER_02]: But for a name that tends to consistently grind higher, that is notable.
[SPEAKER_02]: on a market cap of where are we?
[SPEAKER_02]: 170 billion.
[SPEAKER_02]: It's not a huge fee cash for the yield, but consistent.
[SPEAKER_02]: It turned out that it was 60% and turned out that the capital 25% both very, very good numbers.
[SPEAKER_02]: Very little debt on its balance sheet.
[SPEAKER_02]: And it's a serial buyer back of shares.
[SPEAKER_02]: That is it.
[SPEAKER_02]: 10 years ago, at 1.3 billion shares outstanding now, it has about 1.1 billion shares I've seen.
[SPEAKER_02]: So more that goes down, actually, the better it is.
[SPEAKER_02]: The more shares they can buy.
[SPEAKER_02]: Now does this need potentially a broader pullback into the low 130's, I think maybe this reset sentiment, you gotta be fine.
[SPEAKER_02]: But it's always gonna trade a bit of a premium because it's just a consistent performer.
[SPEAKER_02]: They're good and bad economies, they do well.
[SPEAKER_02]: And in this case, shape the economy, they do even better.
[SPEAKER_02]: Why?
[SPEAKER_02]: Because this is for the lower end consumer.
[SPEAKER_02]: The bargain hunter, they buy excess inventory from the big guys and they sell it for cheap.
[SPEAKER_02]: Maybe doing that for years and they know how to make good money out of it.
[SPEAKER_02]: And so yeah, we would buy it.
[SPEAKER_02]: Is there some more weakness in the return potentially, but we'd be a buyer in any weakness.
[SPEAKER_02]: Let's talk about free cash flow, mainly big text free cash flow and their
[SPEAKER_02]: Oh, the past number of years, that is starting to strain some of their finances talking by Amazon, Alphabet, Microsoft, and Metaminely free cash flow are expected to fall to roughly 4 billion in the third quarter for all four of those names combined.
[SPEAKER_02]: Now, I'm from 45 billion in each quarter since the COVID-19 pandemic started six years ago.
[SPEAKER_02]: Their full year free cash flow guidance is that it's lowest level since 2014, when their revenues were about a seventh of the current size.
[SPEAKER_02]: These companies are rapidly transforming from a very asset light business to a very asset intensive business, where they are the world's biggest investor in physical infrastructure.
[SPEAKER_02]: Why is this important?
[SPEAKER_02]: Because free cash flow tends to be a good measure of how much money these companies have left over to do things like service debt or return capital shareholders through dividends or stock buybacks.
[SPEAKER_02]: And for years, they had a ton of cash, like I said, $45 billion that they were mainly taking and buying back shares.
[SPEAKER_02]: Why?
[SPEAKER_02]: Because most of them have good balance.
[SPEAKER_02]: They don't really have much debt.
[SPEAKER_02]: But now Amazon is expected to spend more cash than it generates this year.
[SPEAKER_02]: Meta will burn cash in the second half.
[SPEAKER_02]: As we'll Microsoft in at least one quarter.
[SPEAKER_02]: Now, Alphabet's full year free cash flows expect to be positive, but to the lowest level in more than a decade.
[SPEAKER_02]: So what you're seeing here is these companies and that's one of the reasons why earnings are going up because
[SPEAKER_02]: They're opening up their balance sheet.
[SPEAKER_02]: They're opening up their spending to the rest of the economy as opposed to just buying back shares.
[SPEAKER_02]: So it's with boost to the overall economy.
[SPEAKER_02]: It's a boost to the companies that are helping with the AI data center in the structure.
[SPEAKER_02]: Build up.
[SPEAKER_02]: They're catching up through the demand.
[SPEAKER_02]: The question is, how sustainable is it for them and the rest of the market?
[SPEAKER_02]: We'll continue to watch that, and see how their free cash flow evolves, and they're spending, most importantly, we'll evolve.
[SPEAKER_02]: With that about a dozen, I'm Justin Klein reminding you about KP Financial's Parallel Investing.
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[SPEAKER_02]: We invest for right alongside our clients.
[SPEAKER_02]: You can learn more by visiting investtalk.com.
[SPEAKER_02]: Thank you for tuning in.
[SPEAKER_02]: Once again, independent thinking should success.
[SPEAKER_02]: It's the best talk.
[SPEAKER_02]: Good night.
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