[SPEAKER_03]: This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time.
[SPEAKER_03]: Here's your host, Luke Guerrero.
[SPEAKER_01]: Good afternoon, fellow investors, and welcome to the Thursday, July, today, July 16th, 2026 edition of Invest Talk.
[SPEAKER_01]: I'm your host Luguro, and I'll be with you of the next hour as we dissect the stories that matter.
[SPEAKER_01]: And prepare for the second half of the month, diving into earning season, and most importantly, answer your finance and investment questions.
[SPEAKER_01]: To that end, before we talk about today's market performance and run it down those show topics, let's tackle this color question now.
[SPEAKER_00]: What do you think of Cincinnati financial corporation?
[SPEAKER_00]: See for China, high for India, and for Norway, F for France.
[SPEAKER_00]: Do you think it's a good long-term hold?
[SPEAKER_00]: Thank you, bye.
[SPEAKER_01]: C-I-N-F is Cincinnati Financial Corporation.
[SPEAKER_01]: It is a property and casualty life insurance, so they got those commercial line insurance, personal line insurance, life insurance, and then they also have an investment division that makes up about 21% of their revenue.
[SPEAKER_01]: So it's pretty diversified, or it's probably gonna be mostly baked into their annuity business, but still, they have a pretty diversified revenue stream.
[SPEAKER_01]: Now, we hold this name in one of our strategies that is focused on income, and the reason why is because this name has had 65 years of dividend increases.
[SPEAKER_01]: Pretty significant, so if you're looking for income, this is a pretty solid name for that strategy.
[SPEAKER_01]: It's yields about 2.1% over
[SPEAKER_01]: But from a total return basis, it's pretty solid as well, especially if you compare it to the industry.
[SPEAKER_01]: I mean, for the past three years, are really two in change going back to 2024.
[SPEAKER_01]: It's up or four, but it's industry by seven to 10%.
[SPEAKER_01]: On an annualized basis, I mean, in 2024, to perform the S&P by about 16%.
[SPEAKER_01]: Overall, it's a very solid name.
[SPEAKER_01]: Now, most recently, they reported earnings and operating EPS was a beat at 194 that beat by 8.25% total operating revenues are up 12% year over year.
[SPEAKER_01]: They're property and casually net written premiums, grew by 7% and then you compare that to an industry that grows about 4%.
[SPEAKER_01]: That's pretty solid beyond industry, really prime growth here compared to its peers.
[SPEAKER_01]: It's also has a $31 billion investment portfolio.
[SPEAKER_01]: Instead of capital ratios, only about five percent.
[SPEAKER_01]: That's a pretty conservatively financed insurance company.
[SPEAKER_01]: And you're seeing annual premium growth outpacing the 4% industry average by about double.
[SPEAKER_01]: You know, I think that
[SPEAKER_01]: It's not all perfect, right?
[SPEAKER_01]: You have across the industry rising costs.
[SPEAKER_01]: You have, despite the company's strong history of bringing earnings estimates, guidance that is, that's a cautious towards modest growth.
[SPEAKER_01]: But overall, for,
[SPEAKER_01]: Income focused investors who are searching for insurance exposure in a diversified way for a company that is a track record of dividend growth and really overall growth of the business, I think this probably one of the most reliable names within the insurance.
[SPEAKER_01]: industry.
[SPEAKER_01]: Given my note, looks like we got earnings coming up in 11 days, so you know the general rule I like to follow no buying within two days on either side of earnings, because then you just give that earnings volatility.
[SPEAKER_01]: You're not really learning much about the business.
[SPEAKER_01]: That is CINF, Cincinnati Financial Corporation.
[SPEAKER_01]: Thanks for the call.
[SPEAKER_01]: Let's see.
[SPEAKER_01]: Yesterday we looked into a great story.
[SPEAKER_01]: I would say about retail investors and how
[SPEAKER_01]: Honestly, they tend to chase shiny objects whilst ignoring more broadly diversified investments.
[SPEAKER_01]: And so, just to explore the psychology behind why the trend, or this trend, and why chasing shiny objects almost always ends poorly,
[SPEAKER_01]: We also answered a listener question on Airbnb.
[SPEAKER_01]: If you happen to miss that episode, I encourage you to check it out and remember the best way to never miss an episode of Invest Talk is to subscribe wherever you get your podcasts.
[SPEAKER_01]: That was yesterday, but today we got another great focus point for you on the AI rally and how in a way it might be ignoring real geopolitical threats to tech stocks because even as
[SPEAKER_01]: Chip talks to the Nasdaq bounced, they bounced back sharply, as investors bet that AI driven earnings growth outweighed any geopolitical headlines.
[SPEAKER_01]: Now we started to see that on a line in the previous couple of days, but we'll dive all into that topic.
[SPEAKER_01]: We also have a group
[SPEAKER_01]: great many questions to answer, including one of the financial sector and another on Berkshire Hathaway and a couple of great stories, I've said great a lot, but a couple important stories to bring you as well, including one on oil traders warning that the market is close to essentially running on empty given the Hormuz closure.
[SPEAKER_01]: a hot button topic recently being the housing market and essentially across the political spectrum people are angry that Wall Street has been involved but what will push in Wall Street out of the housing market really do and should we have time at the end show we'll touch on how millions of workers are still locked out of an improving job market.
[SPEAKER_01]: Along with those questions that I mentioned, we also have voice bank calls ready to play and questions that came in from the comment section of the Invest talking YouTube channel.
[SPEAKER_01]: And hopefully, we hear from you live throughout the show.
[SPEAKER_01]: Read it into New Break.
[SPEAKER_01]: Please remember, you can call anytime and leave your question on the Invest talk of voice bank.
[SPEAKER_01]: If you're listening to your livestream or possibly on aim 12, 20, the Bay Area, give me a call now at 888-99 chart.
[SPEAKER_01]: When we come back, we'll talk about today's market activity.
[SPEAKER_03]: Total lifetime downloads for the Invest Talk podcast are now more than 63 million.
[SPEAKER_03]: So tell your friends when they have financial investment questions don't forget to call Invest Talk 888-99 chart.
[SPEAKER_01]: It was pretty negative day today, but depending on where you're concentrated, I mean, you had a bit of a different experience.
[SPEAKER_01]: The Dow is down 20 BIPs, the S&P was down 51, the Nasdaq was down way more at 1.47, and the Russell 2000 barely negative at about six basis points.
[SPEAKER_01]: And on the market was training pretty low all day, it did climb back a little bit, but obviously across the board still negative.
[SPEAKER_01]: But as has been the case recently, I mean, not all bad news.
[SPEAKER_01]: You had positive breadth the RSP, which is the equal weight S&P 500, actually outperformed the cap weighted index by about 160 basis points.
[SPEAKER_01]: So it was over 1% positive on the day.
[SPEAKER_01]: As has been the case, a source of the antelind.
[SPEAKER_01]: You had pressure with the semi-space, with memory, with AI infrastructure, the drag into big tech as well with Google, one of the worst performers.
[SPEAKER_01]: Really, really bright spots in the market today was hospitals and Medtech Abbott had a big day today, and food and beverage and staples names are reeds.
[SPEAKER_01]: Those are some of the only positive at performers on the day.
[SPEAKER_01]: On the bottom side, treasuries, not much change.
[SPEAKER_01]: You'll just wrap about one basis point on the front end, but I mean, not really anything meaningful there.
[SPEAKER_01]: Gold was down one and a half percent.
[SPEAKER_01]: It's now back below $4,000 an ounce.
[SPEAKER_01]: Good oil.
[SPEAKER_01]: Down 80 basis points as well.
[SPEAKER_01]: You know, aside from that rotation out of momentum and into those select cyclicals as more defensive pockets of the market, you know, you either had, you also had other areas that the market was focusing on.
[SPEAKER_01]: You had more, more push and pull around the Fed narrative.
[SPEAKER_01]: You have multiple governors talking about the potential for higher rates.
[SPEAKER_01]: And then you had the latest economic data that was a bit more resilient.
[SPEAKER_01]: You had the continuing risk from the state of Hormus, from the oil supply, and you have this effect that we've really seen over the past G. Six months to a year of bond spreads and credit default swaps showing a bit more stress from those hyperscalers that are taking on more and more debt.
[SPEAKER_01]: On the day-to-front headline, June retail sales is up 20 basis points, month over month that was in line with consensus, but a bit below May, which was upwardly revised to 1% had July, affiliate Fed Manufacturing at 41.4, it was actually forecasted.
[SPEAKER_01]: 13, well above June's 10.3, so this big rise, really reflecting stronger new orders, stronger shipments,
[SPEAKER_01]: initial jobless claims was at 208,000, expectation was 217 and last week was 216 so good jobs market data and you would continue in claims at 1.805 million versus the 1.82 million consensus.
[SPEAKER_01]: Last data point I thought was important to note, June pending home sales down 5.6 per cent month over month because that is the worse.
[SPEAKER_01]: It actually has the worst and highest media in home price and highest mortgage rate in nearly one year.
[SPEAKER_01]: Let's keep things moving and get a listener question that was submitted via YouTube comment.
[SPEAKER_01]: It says, EGFs I'm looking at are power, volt, or AIP-O.
[SPEAKER_01]: It says, hey, Justin.
[SPEAKER_01]: I was wondering what you thought about investing in AI data centers for the long-term.
[SPEAKER_01]: I'm sure this has come up before, but I can't remember specifically.
[SPEAKER_01]: Also, for people who may not be able to buy a significant amount of individual stocks, do you think ETFs are a good alternative?
[SPEAKER_01]: Some of the ETFs I'm looking at are P-O-W-R, V-O-L-T, or A-I-P-O, any of these look good to you.
[SPEAKER_01]: Those are great questions, you know, ETFs are of course an excellent way to play, not just this theme, but anything without having to pick those individual winners and take on that individual stock volatility that individual risk.
[SPEAKER_01]: Obviously, you know, we've covered a data center infrastructure pretty extensively across the board.
[SPEAKER_01]: But, you know, I would say the first question you have to ask is does this continue to be a good long-term theme?
[SPEAKER_01]: I mean, absolutely, yes, right?
[SPEAKER_01]: Goldman Sachs has showed the sheer amount of money that is being shifted in here.
[SPEAKER_01]: I mean, the max 7 alone are deploying over 500 billion in AI data center capex in 2026.
[SPEAKER_01]: So there is real money moving here.
[SPEAKER_01]: Looking at these indices you mentioned or other ETFs, you have powers the U.S.
[SPEAKER_01]: I share U.S. power infrastructure ETF.
[SPEAKER_01]: It looks at an index of U.S. companies involved in power infrastructure.
[SPEAKER_01]: It's relatively inexpensive.
[SPEAKER_01]: It's about 40 basis points.
[SPEAKER_01]: It's got big funding management.
[SPEAKER_01]: I mean, it's I share, so it's black rock, right?
[SPEAKER_01]: They got solid infrastructure, tighter spreads.
[SPEAKER_01]: They get institutional grade pricing.
[SPEAKER_01]: This has really been what we've been talking about with these picks and shovels names.
[SPEAKER_01]: volts, a bit different.
[SPEAKER_01]: They're an actively managed ETF so they focus on really just full electric electrification rather than generation and transmission and all these other utility plays.
[SPEAKER_01]: I think that this name, it's been more expensive, right?
[SPEAKER_01]: It's new.
[SPEAKER_01]: It's only got an 18-month track record.
[SPEAKER_01]: I tend to stray away from ETFs that are new less managed for a shorter period of time.
[SPEAKER_01]: Then you've got AIP out.
[SPEAKER_01]: It's the Defiance AI and Power Infrastructure ETF also actively managed.
[SPEAKER_01]: But it's extremely seven months of history, seven, eight months of history.
[SPEAKER_01]: And I think that generally out of these three, the best overall choice to attack the theme would probably be power, and it's cheap.
[SPEAKER_01]: It's got 40 basis points that's very reasonable for what it's invested in.
[SPEAKER_01]: It's on the eye shares platform.
[SPEAKER_01]: So the fund is likely to continue to grow gain liquidity, black rock, obviously, an institutional manager with excellent execution,
[SPEAKER_01]: It doesn't mean it's the best performing amongst these three, but I think that of these three, given track record, given history, given cost, given who's managing it, I would tend to tilt towards a POWR.
[SPEAKER_01]: Thanks for watching.
[SPEAKER_01]: This invest talk in our 24-7 avoid spank, never closes.
[SPEAKER_01]: You can leave your findings and invest in questions anytime on 888-99 chart.
[SPEAKER_01]: Our work continues after this break, so see you on the other side.
[SPEAKER_04]: Look, Guerrero is here and ready to tackle your questions.
[SPEAKER_07]: Is it a good idea to sell your losses in a Roth IRA and just use whatever you have left to reinvestance a better stock?
[SPEAKER_07]: Just wanted to ask you about one stock that I'm looking at in Turkey, ETR.
[SPEAKER_04]: Call in Vestock, 888-99 chart.
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[SPEAKER_03]: On the same day, at the same price, and same percentage.
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[SPEAKER_03]: Learn more about Parallel Investing at Investalk.com.
[SPEAKER_01]: So, let's look at it at the Financial Times and they had what was probably one of the most alarming assessments I've seen in the oil market since the war began.
[SPEAKER_01]: because the ceasefire that briefly reopened the straight.
[SPEAKER_01]: I mean, it's absolutely collapsed.
[SPEAKER_01]: The US military has conducted nine waves of strikes on Iran since July 7th, Iran targeted
[SPEAKER_01]: as little as two or at least rather two ad knock super tankers each carrying about two million barrels in the straight on Tuesday.
[SPEAKER_01]: And at least one person was killed.
[SPEAKER_01]: That's why you see Brent surging again up more than 10% for the week.
[SPEAKER_01]: And the reason why it's more alarming now
[SPEAKER_01]: is because this time, I mean, the safety nets are gone.
[SPEAKER_01]: You look at the IEA, they've confirmed that nearly three quarters of the planned 400 million barrel emergency stock releases been used.
[SPEAKER_01]: There's only a few weeks of reserves that remain before those surprised essentially dry up completely.
[SPEAKER_01]: And the market had roughly 400 million barrels of excess inventorys before the war.
[SPEAKER_01]: Now, we have nothing.
[SPEAKER_01]: Coupled that, with the fact that the market has been for the past couple months, pretty complacent around this issue, and this is kind of the exact thing that sets you up for a prolonged correction.
[SPEAKER_01]: Before this is fire, we had four months of closure.
[SPEAKER_01]: And during this time, governments essentially pulled every lever that they had.
[SPEAKER_01]: Western countries released record volumes from strategic reserves, China,
[SPEAKER_01]: The White House, even hinted at a certain point that it might intervene in future markets to essentially suppress price movements.
[SPEAKER_01]: And those levers were really what kept Brett crude from going above 126, despite what effectively may have turned out to be, really the worst supply to rather the worst disruption to oil supply in history.
[SPEAKER_01]: Fast forward to today is really no leverage
[SPEAKER_01]: If this closure lasts months, and frankly, it might.
[SPEAKER_01]: I mean, you effectively, if you're a run, you have the ability to keep pressure on the White House ahead of the midterms.
[SPEAKER_01]: It's hardly clear where replacement oil comes from.
[SPEAKER_01]: Saudi Arabia, yeah, they've rerouted some exports through Red Sea ports, with crewed shipments rising to about five million barrels a day from that route, versus the roughly seven million this and off
[SPEAKER_01]: But a rocket and Kuwait remain almost completely cut off.
[SPEAKER_01]: Then you die even deeper.
[SPEAKER_01]: And this report looked at refined products.
[SPEAKER_01]: And the picture is even worse.
[SPEAKER_01]: European wholesale diesel futures are up 14% this week.
[SPEAKER_01]: Ukrainian drone strikes on Russian refineries have disrupted diesel supply than the world's second largest exporter.
[SPEAKER_01]: That's why the IA is now warning of a potential petrol and diesel supply crunch.
[SPEAKER_01]: And the posts he's fired a client in prices.
[SPEAKER_01]: I mean, that was driven by a temporary glut, golf countries, rushing to empty their storage tanks, not by any structural normative normalization.
[SPEAKER_01]: The president said Wednesday that oil has gone up quote, because I have to take tough action, but predicted $55 oil once Iran is defeated soon.
[SPEAKER_01]: The market's not pricing $55.
[SPEAKER_01]: Price and 85.
[SPEAKER_01]: And if you look at that, the trajectory towards triple digits could be possible if this drags on past August.
[SPEAKER_01]: There's a reason, oil traders are worried and equity traders aren't.
[SPEAKER_01]: The oil traders are looking at physical inventories.
[SPEAKER_01]: The equity traders are looking at earnings estimates.
[SPEAKER_01]: The reality is though, as tends to be the case, only one of those competing sides is going to be right.
[SPEAKER_01]: See if we can answer a quick listener question right now.
[SPEAKER_07]: All right, I've been looking at Reddit, our DBP.
[SPEAKER_07]: I use Reddit a lot, and they know a lot of people do.
[SPEAKER_07]: Can you, let me know what you think about this doc, and then if you think that'd be good at it, yeah.
[SPEAKER_07]: Thanks a lot.
[SPEAKER_01]: Take a look at Reddit.
[SPEAKER_01]: If you're not familiar, Reddit is a social media, kind of forum website.
[SPEAKER_01]: I use Reddit a lot.
[SPEAKER_01]: It's not doing very well.
[SPEAKER_01]: It's a 38 billion dollar market cap company down about 20% year-to-date, though it's still crushing it from its IPO back in March of 2024 at IPO at about $46 per share.
[SPEAKER_01]: In all the way up to about $2.25, then back down, now it's settled around 185.
[SPEAKER_01]: The most recent quarter you had pretty solid revenue, up 69% year over year, that was a beat you had, a GAPEPS, which was a beat as well.
[SPEAKER_01]: You know, I mean, it is a better place than it was when an IPO, certainly it was losing money.
[SPEAKER_01]: Now, EBITDA margins have had about 20% and 20% and 25 projected to grow at 43.5% this year.
[SPEAKER_01]: It's solid revenue growth, solid margins, free cash flow margins at 47% now.
[SPEAKER_01]: But that's a combination that a lot of public companies can't match.
[SPEAKER_01]: It's been expensive training at 34 times price to forward looking earnings.
[SPEAKER_01]: It's on an uptrend looking for some level of resistance.
[SPEAKER_01]: I'm going to need to see a couple more quarters of positive growth before I want to enter this.
[SPEAKER_01]: Why don't make sure it's not a one off, but I like it a lot more than I did a year ago.
[SPEAKER_01]: Thanks for the call.
[SPEAKER_01]: On the next investor talk, we'll look into this story.
[SPEAKER_01]: War bonds versus war stocks, how treasuries are really responding to the Iran conflict.
[SPEAKER_01]: That's from our, but for now, we've got plenty more to talk about.
[SPEAKER_01]: And I'm glad we're ready to take your calls anytime, at 888-99 chart.
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[SPEAKER_01]: Earlier in the week, the president declared the United States the guardian of the state of her moves and reinstated what he called the Iranian blockade.
[SPEAKER_01]: He demanded about 20% reimbursement on all cargo's ship through the straight and the Iran and U.S. exchanged fresh air strikes.
[SPEAKER_01]: Seas of our collapsed oil surged.
[SPEAKER_01]: The chipsawks got hammered.
[SPEAKER_01]: My crown is down, AMD is down, Intel is down, Sandisk is down.
[SPEAKER_01]: Then on Tuesday, you saw rally.
[SPEAKER_01]: You saw the NASDAQ recovery.
[SPEAKER_01]: You saw wholesale prices come in, surprisingly soft, and investors just shrugged it off.
[SPEAKER_01]: Shugged off the blockade, the rhetoric.
[SPEAKER_01]: Like it was nothing.
[SPEAKER_01]: I've been doing this for long enough to know that when stocks are used to go down on bad news,
[SPEAKER_01]: Either the bad news is genuinely less threatening than it appears or the other possibility.
[SPEAKER_01]: Market is starting to build a little bit of a trap.
[SPEAKER_01]: So let's not call it both these because I think reasonable people can honestly disagree about which scenario we're in.
[SPEAKER_01]: The case for optimism always has to start with earnings.
[SPEAKER_01]: S&B companies beat estimates by 18.2% last quarter.
[SPEAKER_01]: That's meaningful.
[SPEAKER_01]: Tech earnings are growing 43% annually memory companies, generating 80 cent gross margins.
[SPEAKER_01]: I mean, the physical AI built out.
[SPEAKER_01]: It's contracted.
[SPEAKER_01]: It's committed.
[SPEAKER_01]: You can't cancel the data center that's already under construction.
[SPEAKER_01]: AI demand exists on a fundamentally different timeline.
[SPEAKER_01]: then the Middle East conflict.
[SPEAKER_01]: Whether the straight is open, whether the straight is closed, Microsoft still needs its GPUs, anthropics still needs its compute, you still need to ask Claude where you're gonna go to dinner.
[SPEAKER_01]: And every enterprise in America is essentially trying to deploy AI before their competitors do because they understand the impact it's gonna have.
[SPEAKER_01]: And then you look at history, and you can see the U.S. economy is structurally more insulated from oil shocks than it was in previous conflicts.
[SPEAKER_01]: So we are a net energy exporter.
[SPEAKER_01]: Yes, the Iran War hurts consumers at the pump.
[SPEAKER_01]: It compresses margins for energy-intensive industries, but it also generates windfall profits for U.S. energy companies and the military industrial complex.
[SPEAKER_01]: The sectors that are most exposed to oil,
[SPEAKER_01]: Airlines shipping chemicals.
[SPEAKER_01]: They've already been reprised.
[SPEAKER_01]: The sectors that drove the S&P 500 tech healthcare financials, they are less directly affected by these issues.
[SPEAKER_01]: Now the case for it being dangerous complacency.
[SPEAKER_01]: has to start with the recognition that the market has been wrong about hormones pretty much at every turn in March priced in a quick quick resolution in April.
[SPEAKER_01]: It priced in the ceasefire holding in June priced in the MOU normalization occurring and flows normalizing every time every time the optimism proved well I guess it's a bit premature.
[SPEAKER_01]: Now Trump's recent Guardian of Hormuz, which sounds like a Marvel movie, but Guardian of Hormuz Declaration, it's probably the most aggressive he's been sent.
[SPEAKER_01]: Demanding actually 20% of all cargo value as a payment for U.S. military protection?
[SPEAKER_01]: That's not the escalation.
[SPEAKER_01]: That's permanent American control of what is the world's most critical shipping lane, which Iran's never going to accept.
[SPEAKER_01]: Certainly not voluntarily.
[SPEAKER_01]: Now we're already talked about it a little bit, right?
[SPEAKER_01]: The IEA reported this week that three quarters of the planned $400 million dollar barrel emergency stock release, sorry to have been used.
[SPEAKER_01]: There's no left for left.
[SPEAKER_01]: No strategic reserve to release, no inventories to draw down.
[SPEAKER_01]: Just a raw gap between what supply exists.
[SPEAKER_01]: And what demand is, no, I don't want to scare anybody.
[SPEAKER_01]: And I don't want to overblow or oversell this as a crisis because I don't think it is this.
[SPEAKER_01]: But I'm going to draw a little comparison because the markets do miss this missiveness of geopolitical risk is analogous to the way it treated subprime in 2007.
[SPEAKER_01]: I mean, the problems were visible then.
[SPEAKER_01]: The data was deteriorating then.
[SPEAKER_01]: But investors kept saying it's contained.
[SPEAKER_01]: It's contained.
[SPEAKER_01]: until it's not, and again, I'm not predicting if financial crisis.
[SPEAKER_01]: The situations are completely and structurally different.
[SPEAKER_01]: What I am doing is pointing out that people psychologically have a habit of ignoring risk because stocks keep going up, but it doesn't mean the risk isn't there.
[SPEAKER_01]: So I would have to take for Middle East tensions to trigger a sustained tech cell off.
[SPEAKER_01]: Probably a couple of things that were a little bit closer to than the market wants to admit.
[SPEAKER_01]: First, oil by the 100 for sustained period, not at one day spike, but I mean, weeks, months and triple digits.
[SPEAKER_01]: That would reignite inflation expectations.
[SPEAKER_01]: That would force the Fed to hike.
[SPEAKER_01]: That would compress growth stock multiples through higher discount rates.
[SPEAKER_01]: And we've been through this twice already in 2026, but it hasn't been sustained.
[SPEAKER_01]: The third time, with no buffer left, I mean, that could be the one that actually sticks.
[SPEAKER_01]: Second, something that is talked about a little bit less because it's a knock on effect.
[SPEAKER_01]: If the supply change disruption actually hits semi-conductor manufacturing directly.
[SPEAKER_01]: You know, we did a webinar way back when about, or maybe it was a deeper focus video or a YouTube video, and all blends together.
[SPEAKER_01]: But we talked about helium, and other critical elements, transmit through the Gulf.
[SPEAKER_01]: So if these shipping disruptions throttle wafer fabrication, this chip rally confronts a physical constraint, not just a valuation one.
[SPEAKER_01]: Lastly, I mean, the market has been propped up for some time by earnings, if Q2 guidance disappoints, specifically on monetization of AI, and we're gonna start to see this next week.
[SPEAKER_01]: If hyper-scalers report massive capex, but signal slower than expected to revenue from workloads, then it starts to be an issue.
[SPEAKER_01]: It gets scary, right?
[SPEAKER_01]: The market is pricing in a world where AI earnings power transcends geopolitical risk.
[SPEAKER_01]: And for months, that's been the right bet.
[SPEAKER_01]: But the margin for error here is thinner than it's been all year.
[SPEAKER_01]: The Mac 7 has gained just 1.1% while the broader market's up 10%.
[SPEAKER_01]: There's a rotation into small caps and to staples into health care.
[SPEAKER_01]: It's accelerating.
[SPEAKER_01]: Smart money is an ignoring geopolitical risk.
[SPEAKER_01]: It's rotating away from the stocks most exposed to it.
[SPEAKER_01]: So here is not a warning of some impending crisis, but a reminder, if you're concentrated at AI names and assume the word doesn't matter to your portfolio, now's the time to wake up and pay attention.
[SPEAKER_01]: All right, let's get to another fresh listener question that came in from Detroit.
[SPEAKER_05]: Hey guys, this is Randy from Detroit.
[SPEAKER_05]: I'm calling Bob Berkshire Hathaway.
[SPEAKER_05]: I've been holding up BRK.B for a few years now.
[SPEAKER_05]: It's been kind of choppin sideways for the past year.
[SPEAKER_05]: I'm up like 50 percent, but I heard that because they're sitting on so much cash, it's actually harder for them now to find decent investments that are going to actually make a
[SPEAKER_05]: So I was just wondering what you guys thought about that, whether I said buy more or whether I should sell or just hold, thanks very much.
[SPEAKER_01]: Berkshire Hathaway is of course the company that was for so long run by Warren Buffett and Charles Munger.
[SPEAKER_01]: But that all changed.
[SPEAKER_01]: January 1st, 2026 when Greg Abel officially took over his first act, I think, was this acquisition of Taylor Morrison, about $8.5 billion all cash deals, spending down some of that cash that's pending a shareholder but vote.
[SPEAKER_01]: But it's essentially a big bet that Berkshire is deciding to make on the US housing market and would add that company to really an incredible portfolio of diversified businesses.
[SPEAKER_01]: Now, it has been a range for quite some time.
[SPEAKER_01]: It has been dead money since really the middle of 2025.
[SPEAKER_01]: I mean, it's 52-week return is 4.63%.
[SPEAKER_01]: And so, where is it now in our thinking?
[SPEAKER_01]: Because it has been a name that over the years, on and off, we've held for clients.
[SPEAKER_01]: I mean, it's the reason being is the returns are solid and the companies are strong.
[SPEAKER_01]: You have a public equity portfolio that is anchored by giants, like Apple and MX and Coca-Cola and Chevron.
[SPEAKER_01]: And now you have, how much cash do they have on it now?
[SPEAKER_01]: Almost 400 billion, geez.
[SPEAKER_01]: Almost 400 billion in cash, earning pretty solid yields.
[SPEAKER_01]: I mean, this is the largest corporate cash hoard in history.
[SPEAKER_01]: They've been able to push it into treasuries when rates are meaningful.
[SPEAKER_01]: I mean, think about it.
[SPEAKER_01]: If you are earning 5% on this, that's like 20 billion in annual interest income with, I mean, not zero risk, but near zero risk.
[SPEAKER_01]: They're operating earnings is growing about 18% with insurance.
[SPEAKER_01]: And most recently, what is your valuations?
[SPEAKER_01]: This thing has taken forever to load here.
[SPEAKER_01]: Because it's really been a problem for me.
[SPEAKER_01]: They're rather the problem for me has been where their valuation has been.
[SPEAKER_01]: I think historically speaking,
[SPEAKER_01]: a good indicator of when you would want to get into birch your halfway is is birch your halfway buying shares.
[SPEAKER_01]: And more recently when the price had been elevated when they're training about 5, 13, being a 25, maybe they stopped buying shares.
[SPEAKER_01]: Now their price to book value is training it about 1.5 times price to book.
[SPEAKER_01]: Relative to, or sorry, 1.4 times price to book relative to a five year average of 1.5.
[SPEAKER_01]: I mean, it's the cheapest that it's been in years or training at 23 times price to for looking earnings.
[SPEAKER_01]: That's still above their average.
[SPEAKER_01]: I don't know, it's tough.
[SPEAKER_01]: I like this company.
[SPEAKER_01]: I think that the cash pile is a blessing.
[SPEAKER_01]: It can be a burden in a way simultaneously, but they're getting a real returns on that.
[SPEAKER_01]: And at a time where rates may be moving higher, certainly can be a positive for them as well.
[SPEAKER_01]: I would just say though, it's been dead money for a while.
[SPEAKER_01]: I would wait to see valuations come down a little bit more.
[SPEAKER_01]: I'm not seeing any meaningful buybacks from them.
[SPEAKER_01]: That tends to be the real signal here.
[SPEAKER_01]: But when you get back in at a good valuation, this is certainly a great company to hold, just because it's an absolute behemoth with an incredible diversified portfolio.
[SPEAKER_01]: It's Berkshire Hathaway Inc.
[SPEAKER_01]: Thanks for the call.
[SPEAKER_01]: Why don't we keep things moving with one more question before our final break?
[SPEAKER_06]: I just an welcome calling today about the financial sector.
[SPEAKER_06]: I was curious if you feel like now is a good time to invest in financial sector.
[SPEAKER_06]: I do understand that there are a lot of different areas, but then there for instance, insurance, I do own interactive rules.
[SPEAKER_06]: I'm sorry, each IG and all state, they're interactive brokers, there's consent companies such as NU.
[SPEAKER_06]: So I do own some of those, but what I don't really don't hold is one of the big banks.
[SPEAKER_06]: I'm wondering if you think now is a good time to get into the banks?
[SPEAKER_06]: Say, bank with America, to the BAC, or just the insurance or financial sector, appreciate any help that you can give.
[SPEAKER_06]: Thank you for talking back.
[SPEAKER_01]: There's a great question about the financial sector pretty broadly.
[SPEAKER_01]: And so to answer this, you really got to understand what the macro set up means for financials, because you have, you know, industry, analysts saying generally the outlook for this year is stable.
[SPEAKER_01]: You have central banks that are transitioning from a easing cycle to a,
[SPEAKER_01]: simultaneously hold it elevated levels above pre-COVID norms.
[SPEAKER_01]: Maybe hikes cycle, you have the Iran War and the ensuing energy issues complicating the rate picture.
[SPEAKER_01]: You have inflation higher than the Fed would like it.
[SPEAKER_01]: Meaning you can't cut.
[SPEAKER_01]: You have a bit of a reluctance to hike, though most recent data has shown.
[SPEAKER_01]: Maybe that's where we need to be.
[SPEAKER_01]: And you have this higher for longer plateau.
[SPEAKER_01]: Maybe starting to manifest themselves as
[SPEAKER_01]: I don't know, a sweet spot.
[SPEAKER_01]: First, certain financial names, you know, by math, I would say cautiously optimistic about big banks.
[SPEAKER_01]: No net interest margin tends to benefit from higher rates.
[SPEAKER_01]: Banks are obviously borrowing short.
[SPEAKER_01]: These are the deposits.
[SPEAKER_01]: They're lending along.
[SPEAKER_01]: These are your mortgages, your commercial loans.
[SPEAKER_01]: And in rates are higher, they happen at wider spreads.
[SPEAKER_01]: You also have capital ratios at peak levels.
[SPEAKER_01]: that tends to allow you to absorb any ensuing credit stress.
[SPEAKER_01]: Obviously, everyone's been paying attention to mega IPOs.
[SPEAKER_01]: You would SpaceX, who got in,thropy, you got to open the eye.
[SPEAKER_01]: Well, that means that investment banking and trading revenues are absolutely surging.
[SPEAKER_01]: And then with the SLR, this supplementary leverage ratio, you have deregulation headwinds.
[SPEAKER_01]: But I mean, that being said, banks tend to move negatively in recessions because alone loss is spike.
[SPEAKER_01]: You have commercial real estate still being a major overhang, but at the same time that's mostly going to affect, you know, this smaller, those regional banks, not necessarily the big banks.
[SPEAKER_01]: I think, you know, we've talked about it.
[SPEAKER_01]: We don't give out names specifically to you asked about names.
[SPEAKER_01]: We're happy to talk about them, but we've talked about the names that the big banks attend to be the best in class ones that have fortress balance sheets.
[SPEAKER_01]: a diversified businesses.
[SPEAKER_01]: Those are the ones you want to be in with the big backs.
[SPEAKER_01]: Now, insurance?
[SPEAKER_01]: I mean, higher rates just directly boost investment income.
[SPEAKER_01]: Absolutely.
[SPEAKER_01]: Life insurance and annuity sales, they are booming as people tend or people are getting older, the trend of people are getting older.
[SPEAKER_01]: you have premium repricing here.
[SPEAKER_01]: So I think insurance is an absolutely great place to be in exchanges, market infrastructure, very bullish as trading from banks and retail investors tends to surge.
[SPEAKER_01]: So I mean generally speaking, I think there is some risk in the financial sector, but given the macro environment, I like the positioning.
[SPEAKER_01]: Thanks to the call.
[SPEAKER_01]: As in Vestock, I'm Lou Greer, we have one goal here to help you achieve your financial freedom.
[SPEAKER_01]: Our work continues after this break, so get your questions and now it eight, eight, eight, 99 chart.
[SPEAKER_03]: Millions of downloads have proved there's value in every invest talk podcast called any time 24-7 invest talk 88899 chart You may have gotten lost in the noise recently, but last week the 21st century road to housing act passed despite the president refusing to sign it
[SPEAKER_01]: The reason being congressional support was nearly unanimous across both parties, which I mean in and of itself is remarkable.
[SPEAKER_01]: And this law does something that would have been unthinkable five years ago.
[SPEAKER_01]: It bans institutional investors who already own more than 350 family homes from buying anymore of the existing housing stock.
[SPEAKER_01]: Let's sink in.
[SPEAKER_01]: the scattered site strategy that firms like invitation homes in American homes in foreign and private equity back landlords use to accumulate tens of thousands of single family homes over the past 15 years dead.
[SPEAKER_01]: Now their narrow exceptions like severely distressed homes needing major renovation and deals with the tenant is offered a path towards eventual ownership.
[SPEAKER_01]: But the main game is absolutely over.
[SPEAKER_01]: What it does is, instead, nudge big landlords towards this build-to-rent model.
[SPEAKER_01]: Constructing entire rental neighborhood from scratch is exempt from these restrictions.
[SPEAKER_01]: Logic is that building new supply is good for the housing market.
[SPEAKER_01]: hoarding existing supply is not it's a genuinely interesting policy distinction you can be a large scale landlord if you add to the housing stock but not if you compete with individual families for the homes that are already existed.
[SPEAKER_01]: Now the law in my opinion is my opinion here is direction correct and social buyers competing with first-time home buyers for starter homes.
[SPEAKER_01]: It's been a genuine problem in a lot of markets in Atlanta and Phoenix and Tampa, but the economics of build around don't really look compelling enough to actually absorb that capital.
[SPEAKER_01]: I mean, if you look at these built-to-rent developments, Capriates are running at about five to five and a half, with the tenure treasury at 46, the spreads raise their thin for an asset class that carries a lot of development risk, political risk, regulatory risk, limited exit flexibility.
[SPEAKER_01]: You can't really sell individual units in a build-to-rent community to retail buyers, the way you can with scattered homeside to the premium is, I don't know, 10 to 20 percent above what an investor would pay.
[SPEAKER_01]: And if you look at the market itself, there's early signs of investment.
[SPEAKER_01]: They're already visible.
[SPEAKER_01]: Eight large institutional investors were net sellers of more than 3,000 homes in Q2.
[SPEAKER_01]: That's a fivefold increase in net selling from the same period last year.
[SPEAKER_01]: Some smaller investors plan to cash out by selling homes to individual buyers over time or unloading portfolios to large competitors.
[SPEAKER_01]: The lot doesn't prevent corporate landlords from selling to each other.
[SPEAKER_01]: So the biggest players, I mean, they could just consolidate further.
[SPEAKER_01]: That's why you're seeing both stocks up 20% from their lows earlier this year.
[SPEAKER_01]: Now, the risk here for renters, it's counterintuitive, but I mean, it's real.
[SPEAKER_01]: With the less institutional capital flowing in a rental housing, the supply of professionally managed rental homes, it's gonna tighten.
[SPEAKER_01]: You have to remember, rents were actually flat in May, year over year.
[SPEAKER_01]: But if capital strikes do exit, faster than new built rent supply comes online, basic economic, basic economics, tells you rents could rise, that it could hurt exactly the people that will always design help.
[SPEAKER_01]: good intentions don't always produce good outcomes and the housing market is a system where every intervention always creates unintended consequences.
[SPEAKER_01]: Well, folks, that does it for another episode of Invest Talk.
[SPEAKER_01]: Justin and I thank you for listening, and encourage you to tell your friends and family members about our free podcast downloads.
[SPEAKER_01]: As always, you can get those iTunes and Spotify and remember the easiest way to do it is to remember to subscribe at one of those locations.
[SPEAKER_01]: So those things automatically download to your phone.
[SPEAKER_01]: I want to remind you, if you haven't already checked out our latest Invest Talk Welp webinar, which I thought was very informative, went very well.
[SPEAKER_01]: It's called Beyond the Yield, focused on how you might structure your portfolio for income.
[SPEAKER_01]: I encourage you to check that out now over there on our YouTube channel to search Invest Talk with two T's and while you're over there, you want to leave a comment or a question in the comment section.
[SPEAKER_01]: We read each and every one and sometimes we tackle those on the show.
[SPEAKER_01]: Lastly, if today's show made you think about your personal financial circumstances, your investment, your retirement, whether or not you're saving enough for your kid's future, anything at all, I encourage you to head over to investsock.com and schedule a free portfolio review.
[SPEAKER_01]: Just in a nice speak to people just like you, each and every day.
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[SPEAKER_01]: This is invest talk.
[SPEAKER_04]: Good night.
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