[SPEAKER_01]: This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time.
[SPEAKER_01]: Here's your host, Justin Klein.
[SPEAKER_02]: Good afternoon, fellow investors, and welcome back to another edition of Invest Talk.
[SPEAKER_02]: This is our Tuesday, June 2nd, 2020, 6th edition of Invest Talk.
[SPEAKER_02]: And there's a lot of moving parts in today's market.
[SPEAKER_02]: We are here to help with all of it.
[SPEAKER_02]: There's so much to unpack from what's going on with inflation, the economic impacts of political instability that we are seeing.
[SPEAKER_02]: obviously sectors that some are booming, some are not doing so hot.
[SPEAKER_02]: And that's always the case, but I have not seen a market in my 25 years of doing this that's as disperses this.
[SPEAKER_02]: Chips stocks and memory stocks, stocks, absolutely moaning.
[SPEAKER_02]: And usually it's smaller cap names that can happen.
[SPEAKER_02]: We're small cap names are the ones that are really moving.
[SPEAKER_02]: They're illiquid and they usually marks the end of a bull market.
[SPEAKER_02]: But that's not what we're getting now.
[SPEAKER_02]: We're getting the bigger names of all sizes, just to all about the narrative that's really driving in.
[SPEAKER_02]: So the rate flexibility of what's going on today's market,
[SPEAKER_02]: movements are impacting, or option positioning or moving stocks bigger than they used to, same with the added kind of fuels that fire, which is passive index investing.
[SPEAKER_02]: All this amounts to a very unique market that we kind of never see.
[SPEAKER_02]: And so our job here is to guide you so you're not falling through the many pitfalls
[SPEAKER_02]: that you're seeing with a reflexivity across all different sectors, all different asset classes, comes big rallies, big sell offs, a lot of risk, a lot of, like I said, pitfalls that you can fall into and our job is to help you avoid those, but still capitalize on the opportunities that are out there because there are plenty.
[SPEAKER_02]: Despite people say, say, what people say about valuations and all this stuff, there are great opportunities.
[SPEAKER_02]: This takes a little more work than normal.
[SPEAKER_02]: Guess what?
[SPEAKER_02]: It's not by reading headlines.
[SPEAKER_02]: It's not by watching the CNBC.
[SPEAKER_02]: It's about understanding the market structure, understanding the companies that are likely to do well derably over time, not just a flash in the pan, a few good quarters.
[SPEAKER_02]: So our job here is to,
[SPEAKER_02]: help you become a better investor so that you can navigate this very interesting world we're working in.
[SPEAKER_02]: Now, as you likely know, you wrapped up our latest and best talk with Webinar on May 6th.
[SPEAKER_02]: Just a less than a month ago, it was about inflation.
[SPEAKER_02]: And thank you for all those that participated, but if you missed it, you can go check it out now or free over on the Invest Talk YouTube channel and heads up.
[SPEAKER_02]: We do have a new wealth webinar coming up.
[SPEAKER_02]: Tuesday, June 30th, yeah, now less than 30 days away just a few, just four weeks from tomorrow, I believe.
[SPEAKER_02]: From 12 to 1 pm, civic time.
[SPEAKER_02]: The title is Beyond the Yield, how to invest for your income needs.
[SPEAKER_02]: Actually, it's two weeks, two weeks from today.
[SPEAKER_01]: There you go.
[SPEAKER_02]: So make sure you head over to best.com and register now.
[SPEAKER_02]: Just to be able to talk about today's market formance, run down the show topics as usual.
[SPEAKER_02]: But first, let's tackle this color question now.
[SPEAKER_06]: Hey, this is Pete and Nual.
[SPEAKER_06]: First, thanks for a great show.
[SPEAKER_06]: My question is about tenant health care.
[SPEAKER_06]: To make sure I was looking to invest in some retirement housing.
[SPEAKER_06]: and didn't do my due diligence seems that they're more especially hospitalist mostly in a few services.
[SPEAKER_06]: I really like to think I find out what you guys think of THC.
[SPEAKER_06]: I've got a near flow position at 185.
[SPEAKER_06]: Thanks again.
[SPEAKER_02]: All right, looking at tenant health care, they provide health care services.
[SPEAKER_02]: They operate hospitals, ambulatory segment.
[SPEAKER_02]: Yeah, acute care, insularial patient facilities.
[SPEAKER_02]: This is typically an area that does well because of demographics, demographics, they would say, demographics are destiny.
[SPEAKER_02]: And in some ways that's true.
[SPEAKER_02]: Now, you don't know how those demographics are, or how those people with those demographics are going to, how they're going to actually act in the economy, but you can kind of get a sense by their current patterns
[SPEAKER_02]: normal spending patterns change over time.
[SPEAKER_02]: And so that's why it tends to be pretty easy to say, okay, there's this amount of many people at the certain age.
[SPEAKER_02]: This typically spend as much on health care or whatever.
[SPEAKER_02]: And you get a good sense of the changing direction to changing dynamics within the economy.
[SPEAKER_02]: So you would think as baby members, retire and they're still very wealthy for the most part.
[SPEAKER_02]: and that it's spreading money on healthcare services, a lot of it's because it's needed.
[SPEAKER_02]: You saw earnings up 7% this year expected after being up 41% last year.
[SPEAKER_02]: However, earnings next year is just a drop 1% and I think this all has to do with Medicare and Medicaid.
[SPEAKER_02]: So that's what I'm worried a bit about.
[SPEAKER_02]: is will, are the changes in Medicaid going to impact their overall profitability and analysts are saying, yes, yes it is.
[SPEAKER_02]: And this is where analysts come in.
[SPEAKER_02]: This is a good lesson on analysts.
[SPEAKER_02]: By and sell recommendations, I almost would never listen to an analyst, whether you should buy or sell a security.
[SPEAKER_02]: What they're good at is understanding the trajectory of the underlying business.
[SPEAKER_02]: Now what?
[SPEAKER_02]: The multiple they would trade at in the market is analysts don't know that, so that's a good lesson for everybody, so don't look at the buy-and-sell recommendations, but you can't look at earnings expectations, like I said, $17.74 next year, which is down 1%.
[SPEAKER_02]: There's an end downtrend, it's down, where are we?
[SPEAKER_02]: What, close today, let me close today, 160 something.
[SPEAKER_02]: What I will say is the next big sport level is down around 142 and after what I've seen so far this week, I think it probably gets there.
[SPEAKER_02]: Let me look at the balance sheet here.
[SPEAKER_02]: Yeah, they do have a decent amount of debt.
[SPEAKER_02]: Pretty good profitability, pretty good cash flow, 3.3 billion dollars and free cash flow and a 14 billion dollar market up.
[SPEAKER_02]: That's very good.
[SPEAKER_02]: What are they doing with that cash flow?
[SPEAKER_02]: Well, they are buying back shares.
[SPEAKER_02]: That's a good thing.
[SPEAKER_02]: And I would imagine they're paying down a bit of debt.
[SPEAKER_02]: Yeah, they are.
[SPEAKER_02]: No dividend, but I think that's good in this case.
[SPEAKER_02]: They need to probably right-sized their balance sheet.
[SPEAKER_02]: Overall, I'm fine with it, because now it's trading at a multiple nine times that looks attractive.
[SPEAKER_02]: Technically is where the issue is.
[SPEAKER_02]: And technically, this does look like it's headed down to 142.
[SPEAKER_02]: You better be okay with the volatility.
[SPEAKER_02]: The you bought it wrong.
[SPEAKER_02]: It's hard to buy everything at the right time.
[SPEAKER_02]: I would hold it.
[SPEAKER_02]: I think it's a solid name.
[SPEAKER_02]: I like what it does.
[SPEAKER_02]: I like the business, like I said, because it's demographics.
[SPEAKER_02]: So I would be hesitant to dump it even though you aren't down.
[SPEAKER_02]: Now we've got a lot of ground to cover over the next 45 minutes or so and at a time for many, we'll get to all of it.
[SPEAKER_02]: The main concern is the 10-year treasure yield.
[SPEAKER_02]: Is it about to break out?
[SPEAKER_02]: What rising rates mean for bond investors?
[SPEAKER_02]: And investors probably because of the knock-on effects of high-interest rates across the financial sector?
[SPEAKER_02]: So we're gonna look at that.
[SPEAKER_02]: In addition, we have other topics on the docket.
[SPEAKER_02]: One is the space X IPO.
[SPEAKER_02]: Whether it makes sense for the average investor, and then we'll look at the IPO part IPO market more broadly.
[SPEAKER_02]: For this year, what's gross into issue and excuse me, issue and supposed to look like and has that compared to the past?
[SPEAKER_02]: We also have voice bank calls, one is on dividend investments, as well as J-A-A-A-J-N-S, Henderson-Triple-A-C-L-O-E-T-F. And of course, most importantly, are your caller questions.
[SPEAKER_02]: So give me a call now at 888-99 chart.
[SPEAKER_02]: We're heading into our first break.
[SPEAKER_02]: So whether you're listening on our live stream on invest.com or possibly an aim to tell 20 in the day area, or listening after hours, either way the number is the same as
[SPEAKER_02]: And up next, I will comment on today's market activity.
[SPEAKER_01]: This is Invest talk.
[SPEAKER_01]: Now closing in on 63 million downloads.
[SPEAKER_01]: And Justin Klein is here taking your questions live.
[SPEAKER_01]: 88899 chart.
[SPEAKER_02]: Let's go take a quick look at the market today.
[SPEAKER_02]: It was overall, another positive day.
[SPEAKER_02]: I think we're kind of a flat-ish to down day yesterday.
[SPEAKER_02]: Although, today was an interesting one, because unlike many of the previous days over the last week, the large cap tech did not do very well.
[SPEAKER_02]: You had to Google down about 4% in Microsoft, also down about 4% in Microsoft,
[SPEAKER_02]: was off about 1% on average and video down 0.7 apple was the standout here about up to 0.9 broad come up for 0.7.
[SPEAKER_01]: It was broad come up for the bell today.
[SPEAKER_02]: Yeah, looks like it was after the bell.
[SPEAKER_02]: It extended its gain.
[SPEAKER_02]: So we'll see what that looks like tomorrow.
[SPEAKER_02]: Cisco is a 5.5% on the day.
[SPEAKER_02]: Then you had anything around manufacturing or chip manufacturing
[SPEAKER_02]: It's some pretty negative names around AI, names like Palantir, a lot of the software names that had been doing well, like ServiceNow, that was down 6% on the day.
[SPEAKER_02]: So a pullback across the software patch, and you continue to see a rotation into hardware Qualcomm of 5% today.
[SPEAKER_02]: Text instruments up 5%.
[SPEAKER_02]: Corning up 13% on the day.
[SPEAKER_02]: So a very, very interesting day as the geopolitical situation just has not changed.
[SPEAKER_02]: We're still in the stalemate, the straightive removes the still closed, and ultimately that means the means of production is hampered across the world, and that's why hard assets are doing better.
[SPEAKER_02]: What else did we get?
[SPEAKER_02]: Job openings were up.
[SPEAKER_02]: The highest level on was two years.
[SPEAKER_02]: but the hiring rate deteriorated.
[SPEAKER_02]: So, their job openings, and that's increasing, but the hiring rate can't went from 3.5 then 3.2.
[SPEAKER_02]: But layoffs slipped again from 1.2 to 1.1.
[SPEAKER_02]: So the labor market continues to be very odd.
[SPEAKER_02]: What else do we get?
[SPEAKER_02]: The rest of the market you had, rates are about flat.
[SPEAKER_02]: So no big move there.
[SPEAKER_02]: Same with the dollar was flat.
[SPEAKER_02]: Gold was at 0.3% of the day.
[SPEAKER_02]: Silver up 0.4.
[SPEAKER_02]: Bitcoin down.
[SPEAKER_02]: That was kind of the big story of talking about major asset classes.
[SPEAKER_02]: Down 6.6% at 67,000.
[SPEAKER_02]: What's really notable here is what's going on and many have talked about it predicted is what's called micro strategy or strategy they call it now.
[SPEAKER_02]: In many ways, it's kind of getting margin called it needs money.
[SPEAKER_02]: It needs dollars and so it's selling Bitcoin.
[SPEAKER_02]: That's putting pressure.
[SPEAKER_02]: Just as it was actually one of the big reasons it rallied so dramatically above a hundred thousand dollars.
[SPEAKER_02]: per coin last year, the exact opposite is happening on the other side, that's that unwind.
[SPEAKER_02]: And this is a good example on a micro level of why you need to understand flows, flows, matter, most of all when it comes to what's happening in the short term.
[SPEAKER_02]: It's month, this quarter, even this year.
[SPEAKER_02]: But remember, flows can reverse.
[SPEAKER_02]: And it usually reverses for particular reasons,
[SPEAKER_02]: And leverage usually turns into forced selling.
[SPEAKER_02]: And that's what you are seeing right now in Bitcoin.
[SPEAKER_02]: Everything else holding up.
[SPEAKER_02]: It's clearly this micro strategy issue.
[SPEAKER_02]: And then there's the STRC with that new one, the yielding 12% it was the fastest growing, most money put into this thing, those yielding this high.
[SPEAKER_02]: And it had to do is backed by the strategy stock.
[SPEAKER_02]: And that's also crumbling now as well.
[SPEAKER_02]: And these are lessons when it's too good to be true, it probably is.
[SPEAKER_02]: And that risk is coming to fruition.
[SPEAKER_02]: Right now.
[SPEAKER_02]: Now we're heading to a break.
[SPEAKER_02]: Who's ever been calling any time?
[SPEAKER_02]: At eight, eight, nine, nine chart.
[SPEAKER_01]: Get ready for an all-new Invest Talk Welp webinar beyond the yield.
[SPEAKER_01]: How to invest for your income needs.
[SPEAKER_01]: Tuesday, June 30th, noon to one Pacific time.
[SPEAKER_01]: Learn more and register now at Invest Talk.com.
[SPEAKER_02]: We're going to head up to Pleasanton and talk to Robert looking at P.A.
[SPEAKER_02]: H.C.
[SPEAKER_03]: Yes, that's correct, Justin.
[SPEAKER_03]: Okay.
[SPEAKER_03]: So I bought this stock a while back.
[SPEAKER_03]: Did very well with it for a while because I really kind of liked the thesis of, you know, animal health and people willing to spend a lot of money to keep their pets healthy.
[SPEAKER_03]: But it recently looks like it kind of fell off a cliff and I can't really see anything in the numbers that would indicate why that happened.
[SPEAKER_03]: Um, they, they beat on earnings the last time they reported, um, they're now down into like a single digit PE, uh, maybe you could help to shed some light on why the stock has tanked so bad and it's this perhaps an opportunity to pick up some more shares.
[SPEAKER_02]: Alright, looking at fibroanimal health care, they develop manufacturing market animal health and mineral nutrition products.
[SPEAKER_02]: Okay, $1.1 billion markup now, which is like you said, that's because it's down 52% from its 52 week high, now trading around $29.00 and change.
[SPEAKER_02]: Let's make $3.34 next year, or the assessments are coming down, but even based on that, it's still pretty cheap, right?
[SPEAKER_02]: About nine times forward looking earnings.
[SPEAKER_02]: Although if you look at their free cash flow,
[SPEAKER_02]: It's peak was 50 million, so if you're looking based on that, it's not that not as cheap as the earnings make it sound.
[SPEAKER_02]: Not to say it isn't on the cheaper side, but it's not a fire sale, even though my feel like it to you.
[SPEAKER_02]: But turn equity 30%, they do have a good amount of dead.
[SPEAKER_02]: They're balance sheets, 778 million.
[SPEAKER_02]: So that could be one of the reasons here, where you have higher cost of debt.
[SPEAKER_02]: Have you looked at their debt maturity schedule?
[SPEAKER_02]: No.
[SPEAKER_02]: That's what I'd be looking at is there issues when you have fairly low free cash flow.
[SPEAKER_02]: And what they're projected for you cash flow might be, which I have to go to my other system to look at that.
[SPEAKER_02]: But it takes a little bit longer.
[SPEAKER_02]: That's what I would be worried about.
[SPEAKER_02]: A company that has a good amount of debt about, this is about $800 million in long-term debt, on a $1.1 billion market cap, with a free cash flow, trending 12 months, it will only $12 million.
[SPEAKER_02]: In fact, if you look at it's free cash flow last quarter, it was only $890,000.
[SPEAKER_02]: So, it looks to me like this is,
[SPEAKER_02]: There was an omit should never rally it is not that much.
[SPEAKER_02]: And this is coming back into a more reasonable valuation considering the debt load.
[SPEAKER_02]: And so I, this is the time and aim out almost ignore the earnings.
[SPEAKER_02]: I'd be looking at and monitoring that cash flow and can they roll this debt because the price chart is telling you there's a worry that it can't.
[SPEAKER_02]: Now, I will say it's getting into some support and the major support is right around 26 and change.
[SPEAKER_02]: Now, our 28 and change.
[SPEAKER_02]: So, you know, not too far from here.
[SPEAKER_02]: To you might want to use, you know, maybe the 25, you know, probably go all the way down to maybe 22 as your hard out.
[SPEAKER_02]: I still like what you're looking at, I agree with what you were saying with the sector that this is in and the long-term performance of profitability.
[SPEAKER_02]: I like that, but I do worry a bit about that debt and it's not shocking to see this sell off in the midst of what looks to be a more muted earnings picture going forward.
[SPEAKER_02]: Thank you for the call.
[SPEAKER_02]: Let's go with a YouTube comment question.
[SPEAKER_02]: SSJ baller says can I get your take on MLI good company to hold on to or not MLI this one of those names it has been just doing well for a long while now what do they do the manufacturer self-copper brass aluminum plastic products mainly for the AI data infrastructure industry now it's one of the reasons we own copper miners
[SPEAKER_02]: because we think that there is secular demand for copper and all types of products, especially these AI data centers.
[SPEAKER_02]: And that's a big part of what they do, and that's why earnings have boomed from 2019, pre-pandemic only 90 cents a share in earnings.
[SPEAKER_02]: This year's will be $8.10 and $8.68 next year.
[SPEAKER_02]: It's trading at now a reasonable evaluation based on forward-looking earnings, but it's going to be very sensitive if there's an AI infrastructure capex pullback.
[SPEAKER_02]: Which I do expect at some point.
[SPEAKER_02]: Until then, I think this continues to march higher.
[SPEAKER_02]: So I like the type of business that it's in, I think they're secular tailwinds, but understand that it will get caught up in the next cell-off of the AI data infrastructure properties, but that could be after another 50% rally from here.
[SPEAKER_02]: And the technicals are fine.
[SPEAKER_02]: So I would actually buy it like the momentum, but understand the risk there.
[SPEAKER_02]: The next and best talk we'll look into this story.
[SPEAKER_02]: Gold's confusing signal by the safe haven trade isn't playing out as expected.
[SPEAKER_02]: We'll talk about tomorrow but give me a call now 8-8-99 chart.
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[SPEAKER_02]: Let's talk about the 10-year Treasury yield and the fact that in some ways it's about to break out.
[SPEAKER_02]: What does that mean for bond investors?
[SPEAKER_02]: The market as a whole has been kind of an edge for the past two months in the midst of the U.S. Iran.
[SPEAKER_02]: War, and markets have been routed and inflation expectations continue to climb.
[SPEAKER_02]: And whenever that happens, that is a challenge for fixed income investors.
[SPEAKER_02]: So should you be repositioning for this higher for longer world?
[SPEAKER_02]: We've been saying this for a little while now.
[SPEAKER_02]: And for a number of years, really since COVID, which was rates are likely to head higher.
[SPEAKER_02]: That's just how the cycle works.
[SPEAKER_02]: And this shift is, or I was already having ramifications across asset classes, across markets, and you've seen that.
[SPEAKER_02]: the traditional 60-40 portfolios and working as well.
[SPEAKER_02]: And it's testing the traditional assumption that treasuries are a ballast against stock market declines.
[SPEAKER_02]: Now, historically, it's true when you get deflationary shocks.
[SPEAKER_02]: But as I've been saying for a number of years, once again, is that their risk is not now to the downside, it's actually to the upside.
[SPEAKER_02]: It's a crash up in asset prices, which pressures
[SPEAKER_02]: inflation, and pressures longer dated securities.
[SPEAKER_02]: And then you add fuel to the fire of the Iran war.
[SPEAKER_02]: Well, the wonder you're getting inflation numbers pushing up into the fours once again.
[SPEAKER_02]: And investors demanding compensation for that level of inflation.
[SPEAKER_02]: And they continue to worry
[SPEAKER_02]: as well as the budget deficit and the amount of bond supply that's hitting markets.
[SPEAKER_02]: So that is why the 60 day correlation between the S&P and the Treasury returns are now at highest level and over two decades.
[SPEAKER_02]: So the bonds are now amplifying market swings as opposed to being a hedge against them.
[SPEAKER_02]: Historically, there's a negative correlation between stocks and bonds, not a positive one.
[SPEAKER_02]: Now it's 0.63%.
[SPEAKER_02]: And like I said, this issue has been building for a while.
[SPEAKER_02]: Does it just stay around war situation?
[SPEAKER_02]: The bonds can be helpful in a portfolio as a diversifier, but it's the right type of bonds.
[SPEAKER_02]: The biggest takeaway here is keep your duration short.
[SPEAKER_02]: Keep your liquidity high.
[SPEAKER_02]: Now what do I invent liquidity?
[SPEAKER_02]: One of the big reasons why people with money and treasuries is because it's very liquid you can go and get your money whenever you want.
[SPEAKER_02]: Guess what isn't liquid?
[SPEAKER_02]: Private, credit, and many instances that's having issues while right now.
[SPEAKER_02]: But some might look at the 10 year treasury and say, well, that yields pretty good.
[SPEAKER_02]: Now, pushing up above 4.5%, much better than what you were getting on the shorter and now, which is close to the 3.5%.
[SPEAKER_02]: The term premium right now is about 0.86%.
[SPEAKER_02]: It was down below 0.5% in February, so you can see that move.
[SPEAKER_02]: It means the yield curve is steepening.
[SPEAKER_02]: So the calculus for bond investors is changing.
[SPEAKER_02]: And that's why I always say, you probably want to create your own portfolio.
[SPEAKER_02]: If you do a bonds in it by buying individual bonds, it's what we do for clients.
[SPEAKER_02]: We ladder them out, but we're able to keep the duration short.
[SPEAKER_02]: So that's usually the best way to gain access to the bond market is buying individual securities.
[SPEAKER_02]: Bond funds, especially index funds, you're taking a lot of duration risk.
[SPEAKER_02]: If you're owning them in a targeted fund, for example, or just buying like the Ag, Barclays Agerget bond index,
[SPEAKER_02]: It's a lot of treasuries, but it's a lot of longer data treasuries, which you don't want to be.
[SPEAKER_02]: So overall, bonds are what we call certificates of confiscation.
[SPEAKER_02]: It's dealing your real purchasing power.
[SPEAKER_02]: So what you want to do is probably reduce your bond exposure, have the right type bond exposure that's once again locked short and duration you want to take some credit risk and take some of that money actually, probably put in a harder assets with its goals, silver,
[SPEAKER_02]: That's keep things moving and put it back to the best luck voice bank in eight and eight, ninety nine chart.
[SPEAKER_04]: Hello.
[SPEAKER_04]: I have a question regarding J, A, A, A. I heard this before on one of the calls that is the CLO, the way I understood it.
[SPEAKER_04]: It's a private credit or it's the same what's happened before during the financial crisis.
[SPEAKER_04]: This is also a
[SPEAKER_04]: kind of frisky, it's the same thing, the different name, but just I want to double check so I'm looking forward, I find it to give a little bit more dividend, but I know there is no free lunch.
[SPEAKER_04]: Please let me know what you thought on it, but this is the way that I understood before it.
[SPEAKER_04]: It's a private credit and has a lot of interest.
[SPEAKER_04]: Thank you.
[SPEAKER_02]: Yeah, basically what you are buying it.
[SPEAKER_02]: This is the J triple A.
[SPEAKER_02]: It's the Janice Anderson triple A CLO ETF.
[SPEAKER_02]: Do CLO sound vaguely familiar?
[SPEAKER_02]: Remember the CDOs, collateralized debt obligations?
[SPEAKER_02]: Well, these are collateralized loan obligations.
[SPEAKER_02]: Similar to CDOs, but instead of backed by mortgages, they're backed by typically private credit.
[SPEAKER_02]: And they're doing the same thing, while she's doing the same things they did back then.
[SPEAKER_02]: Is they're taking a pool of loans?
[SPEAKER_02]: Now it's typically the corporations that are used in private equity buyouts and things like that.
[SPEAKER_02]: And they're cutting them up, and they're trotting them.
[SPEAKER_02]: Like they did with CDOs, and they're saying, okay, these are AAA, because once again, same, you'll watch the big short, it's the same type of structure.
[SPEAKER_02]: What that means is that at some point, if things get bad enough, and you have a deep, large deflation impulse, you get a large default cycle, the AAA won't look as AAA is, it looks on the screen in front of you, and defaults could occur.
[SPEAKER_02]: Now, I like taking some credit risk here, but I wouldn't be, I call this picking up pennies in front of a steamroller, because of the old thickness of the securities, the underlying companies that are backing these loans, et cetera, it's just not worth it for me.
[SPEAKER_02]: I know you're gonna look at and say the, let's see, with the 30 day SEC yield, is 4.74% versus, if you go look at,
[SPEAKER_02]: Like Esca, it's probably the simplest, straightforward, very short-term, treasury market ETF, 3.53%.
[SPEAKER_02]: You're getting about 125 basis point premium here, but you're also subjecting yourself to a lot of risk.
[SPEAKER_02]: Now, that might be OK as part of a broader portfolio.
[SPEAKER_02]: But don't think this is the same.
[SPEAKER_02]: You're just going to get your yield and never have to think about it.
[SPEAKER_02]: Ah, there's risk here.
[SPEAKER_02]: You might be okay with that risk, but don't confuse this with cash.
[SPEAKER_02]: Now, from time to time, we see questions via web form of our invest talk.com.
[SPEAKER_02]: Here's one that came in.
[SPEAKER_02]: Earlier, hey, guys, let me show.
[SPEAKER_02]: Could you take a look at Barrett Business Services, BBSI, zero debt.
[SPEAKER_02]: Good return equity as far as I can see.
[SPEAKER_02]: Should I keep an eye on it?
[SPEAKER_02]: See, we'll support it around 25.
[SPEAKER_02]: Let me show this plenty of plenty of missing.
[SPEAKER_02]: So thanks for the help.
[SPEAKER_02]: Let's look at B, B, S, I. Barrett Business Services, see what do they do?
[SPEAKER_02]: I got signed out the thing out of other systems.
[SPEAKER_02]: All right.
[SPEAKER_02]: So he, he made a resource management earnings so let's be down the 32% this year.
[SPEAKER_02]: From 208 last year to $1.42, bounced back to 20 next year.
[SPEAKER_02]: That seems odd to me.
[SPEAKER_02]: Turned back to 24% Mark have entered 29 million.
[SPEAKER_02]: Brothers drinks $45 to kind of middleing not terrible, not great.
[SPEAKER_02]: So there's $33 per share.
[SPEAKER_02]: 1% dividend yield.
[SPEAKER_02]: I like that it's finding some strength here.
[SPEAKER_02]: And analysts are seeing earnings bounce back.
[SPEAKER_02]: So if earnings are going to bounce back, I feel a lot more comfortable with this.
[SPEAKER_02]: Overall though, I don't know.
[SPEAKER_02]: I'm very picky with my capital and you should be too.
[SPEAKER_02]: You want middleing names that I got.
[SPEAKER_02]: It's fine.
[SPEAKER_02]: That's terrible.
[SPEAKER_02]: It's not great.
[SPEAKER_02]: It's fine.
[SPEAKER_02]: It doesn't get me super excited.
[SPEAKER_02]: It doesn't get me juiced up and thick.
[SPEAKER_02]: Oh, that is a steal.
[SPEAKER_02]: That is a great business.
[SPEAKER_02]: It does a great balance sheet.
[SPEAKER_02]: That's everything's lining up.
[SPEAKER_02]: That's really not.
[SPEAKER_02]: I'm being honest with you.
[SPEAKER_02]: So I don't hate it.
[SPEAKER_02]: I like the chart a little bit because it has moved about the 100-day moving average so I'm liking them a momentum here.
[SPEAKER_02]: But once again, it just doesn't get me super excited.
[SPEAKER_02]: It does have a good balance sheet.
[SPEAKER_02]: Be cash flows 18 million, that's not great.
[SPEAKER_02]: It's, I don't know, pass.
[SPEAKER_02]: Let's take it excited about it and I'm passing it.
[SPEAKER_02]: Let's talk about the IPO market.
[SPEAKER_02]: I think this is the most under-discussed story right now.
[SPEAKER_02]: And drop it just file for IPO, I think SpaceX goes out when X-Friday, the 12th.
[SPEAKER_02]: So how does this cycle compare to history?
[SPEAKER_02]: In 1999, 300 88 companies went public raising about $57 billion.
[SPEAKER_02]: You'd find your mind, $57 billion.
[SPEAKER_02]: Then, 2021, as a boom market right all that liquidity, post-COVID, 251 companies went public.
[SPEAKER_02]: names like Rivian, Roblox, Warby Parker, Bumble, Robin Hood, they raise the 115 billion.
[SPEAKER_02]: Let's talk about this cycle, Goldman Sachs estimates that the US equity demand and supply will show that in 2026 they'll be a hundred and sixty billion to a two hundred and twenty five billion dollars raised in IPOs this year, but it's not just about the IPO, it's about subsequent issuance as well.
[SPEAKER_02]: The SpaceX alone is, we'll raise about 75 billion when it goes public in just a handful of and just what, 10 days.
[SPEAKER_02]: Then opening AI is supposed to raise 60 billion and you combine those two, that's more than all the dot com listings put together.
[SPEAKER_02]: And it doesn't include anthropic, sheen, data bricks, stripe, and then all the private equity companies trying to go public as well.
[SPEAKER_02]: So there's a massive amount of share issuance coming to market.
[SPEAKER_02]: Now upon issuance, about 5% of the expected 1.75 billion chart trillion dollar valuation of SpaceX will be
[SPEAKER_02]: in the float, meaning traded in the market.
[SPEAKER_02]: But over time, once the lock up period ends, usually between 90 and 160 days after the IPO, insider's can sell.
[SPEAKER_02]: The Goldman S. may set 10% of SpaceX shares
[SPEAKER_02]: will gradually come to market in the first six months.
[SPEAKER_02]: Sorry, in the first 90 days.
[SPEAKER_02]: Then 28% after six months and 46% after the IPO, or sorry, year after the IPO.
[SPEAKER_02]: So it's staggered.
[SPEAKER_02]: And what you're seeing is that there would be a lot of follow on issuance, convertibles, issued, et cetera.
[SPEAKER_02]: And they expect total corporate-inch issuance
[SPEAKER_02]: that's before investor lockups.
[SPEAKER_02]: So what you're seeing is it's not just about the IPO, it's subsequent supply, and that is gonna put pressure on markets, I think, through the end of the year.
[SPEAKER_02]: It doesn't mean you have to roll over, but as it's, you know, it's a way down the back of markets, especially as these big tech companies are not buying back as many shares as they've been.
[SPEAKER_02]: So watch out for this as a catalyst.
[SPEAKER_02]: We're heading to a break.
[SPEAKER_02]: Give me a call of eight and a nine chart.
[SPEAKER_01]: You've got finance and investment questions, and the investor's talk phone lines never close.
[SPEAKER_01]: Call any time, 88899 chart.
[SPEAKER_00]: Hello, I'm Vasita, I was calling in, we're running a question on whether or not to reinvest dividends.
[SPEAKER_00]: I know some shows that you suggest that to reinvest the dividends, whether
[SPEAKER_00]: O times you suggest not to be invested dividends, but wait and then you can control it better when you want the stock or ETF price that you want to buy into at.
[SPEAKER_00]: So just wanted to see for instance I was retirement age but still investing in the VO of the S&P 500.
[SPEAKER_00]: So is that something where I think is it just best to just
[SPEAKER_00]: get the dividends and then once it's accumulated by more shares, I'll just make a purchase then at that point rather than just reinvestidating it automatically, so just wondered what your opinion is on that and I'll be listening to your podcast.
[SPEAKER_00]: Thank you so much.
[SPEAKER_02]: Well this is a great question.
[SPEAKER_02]: It's something that I think evolved over the years, especially as commissions have changed.
[SPEAKER_02]: It used to be, you know, you get a dividend, it's a small amount, are you not going to take that money and can commit it, commit more to that position and pay another dividend.
[SPEAKER_02]: And so dividend reinvestment was a way kind of around that word automatically be reinvested in that stock that's paying it.
[SPEAKER_02]: And then you can go and sell it whenever you need that income.
[SPEAKER_02]: But we're now in an age where stock trades are nothing.
[SPEAKER_02]: There's no cost there.
[SPEAKER_02]: And I think it's depends on the person.
[SPEAKER_02]: If you're a set it and forget investor, it's not that you're buying viewing view up.
[SPEAKER_02]: If you're a VLO guy or gal, then it doesn't really, there's no real, you're not actively watching when that's gonna dip and buy back in.
[SPEAKER_02]: If you're a more active investor and you maybe want to use that money to diversify and be more targeted with that new fresh cash that's in your account,
[SPEAKER_02]: If that's who you are, then I would not reinvest the dividends.
[SPEAKER_02]: Like I said, if you're a passive investor, just reinvest it.
[SPEAKER_02]: Because otherwise it's going to sit in your account and who knows when you're going to actually get that put in, you're probably going to do it at a time where you go randomly check your account or you see people talking about the market and how good it's doing.
[SPEAKER_02]: You go check your account.
[SPEAKER_02]: Oh, I have some cash in there and you throw it in and it's usually at about time.
[SPEAKER_02]: CBC says, you know, market sell-off or market panic or whatever.
[SPEAKER_02]: Those are usually the times that you do want to buy into the market.
[SPEAKER_02]: So just depends on who you are.
[SPEAKER_02]: But it's certainly changed over the years, like I said, because of the shift away from having to pay commissions at all.
[SPEAKER_02]: But I like that you're buying dividend things stocks.
[SPEAKER_03]: That's great.
[SPEAKER_02]: So thanks for the call.
[SPEAKER_02]: Do you have time for one last call?
[SPEAKER_02]: Let's do it.
[SPEAKER_05]: Hello, you've got to talk.
[SPEAKER_05]: I was wondering if that's the looking to the fan park you did back each year.
[SPEAKER_05]: He told, suddenly rated him, that's real.
[SPEAKER_05]: So this is that very, I wanted to know what you back then.
[SPEAKER_05]: Thank you so much for your attention.
[SPEAKER_02]: All right, looking at VO, Vanguard midcap index, I like midcaps.
[SPEAKER_02]: I definitely like midcaps, especially in today's world, which you're seeing is a lot of midcaps are benefiting from the AI data infrastructure buildup.
[SPEAKER_02]: Because if you go look at this ETF, it's going to look very different than the S&P.
[SPEAKER_02]: Industrials are 18%
[SPEAKER_02]: which is I think double the S&P exposure technology is about 18% which is about half of the S&P exposure.
[SPEAKER_02]: So I like this shift that also kind of leans in the value side of the market which is good.
[SPEAKER_02]: And it's just breaking out.
[SPEAKER_02]: So I like this as a way to diversify your portfolio beyond just the mega-cat main ETFs is really digging in and finding, being able to get exposure to, once again, those names that are supplying the major tech names in their battle for,
[SPEAKER_02]: AI data infrastructure, uh, supremacy.
[SPEAKER_02]: If you look at the top holdings here, you have Western digital C gate, vertive, quanta, howell met, constellation energy, Cummings, slumber j, et cetera.
[SPEAKER_02]: So, you know, those are the names that are certainly doing well in this environment.
[SPEAKER_02]: So, I am a fan of you.
[SPEAKER_02]: Well, that about doesn't, I'm Justin Klein, reminding you about KPP Financial's Parallel Investing when we make a trade for our clients, make the same trade for us.
[SPEAKER_02]: So, same day, same price, same percentage.
[SPEAKER_02]: No front running, no special treatments, which means we invest right alongside our clients, and you can learn more by heading over to investtalk.com.
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