[SPEAKER_02]: This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time.

[SPEAKER_02]: Here's your host, Luke Guerrero.

[SPEAKER_01]: Good afternoon, fellow investors, and welcome to the first edition of the Invest Talk in the month of September, this September first, 2026.

[SPEAKER_01]: As we head into the last month of the third quarter and it deeper into a year that is moving so quickly, our mission remains the same.

[SPEAKER_01]: We come here five days a week, except on holidays.

[SPEAKER_01]: With one goal to help make you a better and more informed investor.

[SPEAKER_01]: To that end, before we go over what happened in the market today and run down our show topics.

[SPEAKER_01]: Well, let's start off by answering this caller question now.

[SPEAKER_04]: Good morning, gentlemen.

[SPEAKER_04]: This is Brett from New Jersey.

[SPEAKER_04]: Thanks for all that you do calling in about sugar symbol SLB.

[SPEAKER_04]: I am interested in buying it.

[SPEAKER_04]: I just wanted to know if you guys think this is a good buy.

[SPEAKER_04]: Or if I should wait a little longer, be looking for a different price target.

[SPEAKER_04]: Again, thanks for all that you do.

[SPEAKER_04]: Have a good long.

[SPEAKER_01]: SLB is SLB limited.

[SPEAKER_01]: It is an $89 billion dollar market cap company.

[SPEAKER_01]: And it's the world's largest oil field services company.

[SPEAKER_01]: It used to be a slumber j limited.

[SPEAKER_01]: What did they actually change in their name?

[SPEAKER_01]: That's interesting.

[SPEAKER_01]: Let's take a look.

[SPEAKER_01]: Anyway, they're changing their name recently.

[SPEAKER_01]: It is doing pretty well this year.

[SPEAKER_01]: You're today.

[SPEAKER_01]: It's up 48.91% up 55.13% over the past 52 weeks.

[SPEAKER_01]: There seems some pretty solid revenue growth over the past five years, 8.6% on an annualized basis going back in the past five years, they only got $10 billion in debt, and the return on equities pretty solid, about 14.3% relative to the rest of their competitors.

[SPEAKER_01]: their enterprise value but does kind of middle of the range actually on the upper end of the range forward looking price to earnings as well really the highest amongst the large cap competitors within the space.

[SPEAKER_01]: Now they're ported earnings in the middle towards the end of July actually July 24th.

[SPEAKER_01]: How they do revenue, beat consensus estimates up 3% quarter over quarter, 5% year over year, just at earnings per share, beat by, looks like about 6% net income, was up 22% year over year.

[SPEAKER_01]: For them, looks like the primary drag that slowed down growth a little bit.

[SPEAKER_01]: was due political disruptions out of the Middle East, right, a rock remained under force, moushure, and so that obviously hurts a company like this who's soul, source of revenue, and who's real business is servicing oil fields.

[SPEAKER_01]: But, couple that with the fact that they did have a good quarter.

[SPEAKER_01]: They are having a good year.

[SPEAKER_01]: Yes, the headline year over your numbers are a little bit softer than expected, or rather a little bit softer than they were last year.

[SPEAKER_01]: But in spite of everything, having a genuine beat on both revenue and earnings per share against some pretty depressed expectations, decent.

[SPEAKER_01]: They also had free cash flow improvement.

[SPEAKER_01]: Now, if we cash those rejected to come in softer than last year, but still, improvement quarterly.

[SPEAKER_01]: I don't know.

[SPEAKER_01]: For me, when you have a company that beats expectations like this, it's, I don't know what you mean, expectations like the consensus.

[SPEAKER_01]: I mean, based upon some really, really rough headwinds, that's certainly a reason to want to include it in your portfolio.

[SPEAKER_01]: That being said, it is a little bit expensive, the reason being it's,

[SPEAKER_01]: Well, it's run up a bit, and it ran up a, it's kind of as continued to run post-earning.

[SPEAKER_01]: So at some point, I mean, it did, did it of a fall about 4.9% today, as you did see some tensions starting to rise again in the Middle East.

[SPEAKER_01]: But still trading at the upper end of its five-year reign.

[SPEAKER_01]: So for me, I'd keep this on my watch list for now, but it's a solid company.

[SPEAKER_01]: We like it.

[SPEAKER_01]: We used to own it for clients.

[SPEAKER_01]: A bit expensive.

[SPEAKER_01]: Still a solid, solid performer.

[SPEAKER_01]: Thanks for the call.

[SPEAKER_01]: And we got a great show for you today, but before we move forward, I want to talk a little bit about yesterday.

[SPEAKER_01]: On yesterday's show, we talked about Ali Baba's $10 billion AI bet and what that investment meant about the global AI race.

[SPEAKER_01]: We also answered a listener question on a favorite of ours and favorite of yours as well because we get questions on it all the time.

[SPEAKER_01]: Let's take our CCJ, Camico Corp.

[SPEAKER_01]: If you have an omiss yesterday's episode, I encourage you to check it out.

[SPEAKER_01]: Remember the best way to never miss an episode of Invest Talk is to subscribe wherever you get your podcasts.

[SPEAKER_01]: All right, onto today in a month, my main focus point, how to invest in AI infrastructure who really wins when big tech goes all in.

[SPEAKER_01]: This week's earnings season delivered a clear message.

[SPEAKER_01]: The AI infrastructure build out is not a zero sum game, and the capital being deployed is staggered.

[SPEAKER_01]: But with meta-ready planning and AI driven layouts and soft banks seeking another $1 billion, or sorry, $10 billion alone, just for open AI's exposure,

[SPEAKER_01]: investors need to think hard about where the real returns will float.

[SPEAKER_01]: Also, we're going to talk a little bit about Congress punting the health insurance cliff to December 11th, what that means for your costs.

[SPEAKER_01]: Start about Japan.

[SPEAKER_01]: We saw Bond yields touching 3% yesterday, the first time in really long time.

[SPEAKER_01]: And to the end of the show, we'll talk about the corporate bond market and how there's a lot of money that needs to be refinanced into what is the worst stretch for treasuries since the mid 2000s.

[SPEAKER_01]: We also got some voice bank calls ready to play, including one on risks of losing money if an ETF company fails, as well as one on ticker G-E-V.

[SPEAKER_01]: Some questions that came in from the comment section of the Invest Talk YouTube channel and hopefully we hear from some of you live throughout the show.

[SPEAKER_01]: Going to New Break, it's a quick one.

[SPEAKER_01]: Please remember, you can call any time and leave your questions on the Invest Talk voice bank.

[SPEAKER_01]: If you're listening via our live stream or on aim 1220 in the Bay Area, give me a call now at 888-99 chart.

[SPEAKER_01]: We come back, talk about today's market activity.

[SPEAKER_02]: Your questions are free, the answers are unbiased.

[SPEAKER_02]: Luke Guerrero is here now ready to take your calls live.

[SPEAKER_02]: Investor 8899 chart.

[SPEAKER_01]: Pretty poor day in the market yet again.

[SPEAKER_01]: The Dow is down almost 80 bips on the day, S&P down 71 NASDAQ down over a percent and the Russell 2000 down 1.23% on the day.

[SPEAKER_01]: A bit of a defensive rotation.

[SPEAKER_01]: You saw growth names, cyclical names, lower, while more secular sectors where amongst the better performers, those momentum names, semis, memory, all amongst the worst performers on the day.

[SPEAKER_01]: Software saw a big decline, max seven down.

[SPEAKER_01]: Not a lot of bright spots, you know, across the market.

[SPEAKER_01]: On the bond side, treasuries were a bit weaker, yields up 3 to 6 basis points, $1.30, bips, gold down 1.9% silver down 2.4, crude oil, big rally, near finishing near its best levels up about 5.2% on the day, on more kinetic activity going on in the Middle East.

[SPEAKER_01]: Now,

[SPEAKER_01]: I would say the reason for this defensiveness and yesterday's defensiveness as well.

[SPEAKER_01]: Recibel, rising global bond yields.

[SPEAKER_01]: I mean, the US treasure yield, 30 year yield, those up seven out of the past nine sessions, following that brief if ill-fated August buyback from the treasury, there was no help from a risk appetite perspective from headlines out of the Middle East.

[SPEAKER_01]: We had a fresh US strikes on Iranian targets, which saw oil, diesel costs,

[SPEAKER_01]: Rocketing ahead again WTI is now over 9% over the past four trading sessions and if you were looking for relief from the data Well economic data missed expectations as well now from a data perspective There is a lot being released this week.

[SPEAKER_01]: I would say probably what is more important is next week's August CPI release.

[SPEAKER_01]: That's what's going to matter most for the Fed and therefore for the market

[SPEAKER_01]: Speaking of data, July Jolts job openings missed at 7.27 million.

[SPEAKER_01]: Also, June was revised down to the lowest level since February.

[SPEAKER_01]: August, ISM Manufacturing missed as prices paid was unchanged.

[SPEAKER_01]: New orders, it's lowest since March.

[SPEAKER_01]: The employment index ticked down month over month.

[SPEAKER_01]: Though still an expansion territory.

[SPEAKER_01]: Not a lot of good.

[SPEAKER_01]: We're going to head to the rest of the week, ADP private payrolls and factory orders out tomorrow morning.

[SPEAKER_01]: We get the Fed beige book in the afternoon, trade balance on farm productivity, initial claims and ice and services on tap for Thursday.

[SPEAKER_01]: Then Friday brings the August employment report Wall Street looking for a 55,000 increase in August, an August non farm payrolls following a 23,000 decline in July.

[SPEAKER_01]: four point one percent.

[SPEAKER_01]: All right, let's keep things moving and take a look at this question that came in on investor.com.

[SPEAKER_01]: And it says

[SPEAKER_01]: I asked about a refiner and forgot to put the ticker symbol.

[SPEAKER_01]: Oh, I remember this question.

[SPEAKER_01]: We just talked about these yesterday.

[SPEAKER_01]: Yes, it is always good to include ticker symbols when we're asking questions because then we can answer them.

[SPEAKER_01]: So you were looking at,

[SPEAKER_01]: Sinclair Corporation, ticker DI, I know it says the stock I wanted to ask about and forgot was dyno again, PD ratio is low, but is trading around 52 week highs?

[SPEAKER_01]: I have a small position and wanted to know if this got invest talks.

[SPEAKER_01]: Blessing.

[SPEAKER_01]: So look at Sinclair, you know, this is a one that we

[SPEAKER_01]: I feel like we used to get a lot of questions about these names tend to cycle.

[SPEAKER_01]: I would say in terms of how frequently we get questions, but taking a look at this name, it is a refiner name, it's 17.72 billion dollar market cap.

[SPEAKER_01]: It's a solid year, up 125.63% year to date, up 104.34% over the past 52 weeks, revenue over the past five years, up 20% on an annualized basis.

[SPEAKER_01]: Projected to be up about 20% year over year, yeah, about 20% year over year at this pace.

[SPEAKER_01]: And it's trading at a pretty average multiple, I mean, 9.7 or 8.8 times price to forward looking earnings.

[SPEAKER_01]: It is below the five year average in this range.

[SPEAKER_01]: But it's going on a run.

[SPEAKER_01]: It's been on an absolute tear since April of last year and just has not stopped.

[SPEAKER_01]: Now from a margin perspective, it looks pretty solid.

[SPEAKER_01]: Even margin projected to go 10.7 return equity projected to surge to 25.3.

[SPEAKER_01]: This is a situation where I'm a bit hesitant to go max long in this name.

[SPEAKER_01]: The reason being yes, it has a reasonable price to forward looking earnings.

[SPEAKER_01]: Yes, return on equity is expanding from 6.2 to 25.3.

[SPEAKER_01]: But at a certain point,

[SPEAKER_01]: What happens is, things snap back to reality.

[SPEAKER_01]: And a name that's up 125% year to date 46.83% over the past 52, sorry, over the past three months.

[SPEAKER_01]: There's a bit of downside risk there.

[SPEAKER_01]: It is odd that with such an earnings beat, you have a bit of a cell-side signal there, the consensus target is still sitting at 95 with a hold rating.

[SPEAKER_01]: But if you want to ride the momentum on this name for a little bit, I think that's perfectly reasonable.

[SPEAKER_01]: I would just be a little bit concerned because valuation doesn't always tell you the whole stored.

[SPEAKER_01]: So, although I like this name, it has run up quite a bit.

[SPEAKER_01]: Like I said, having a small position would be fine, it'd be hesitant to have a massive position in this name.

[SPEAKER_01]: Right now, that is sin-clayer corporation, to your D-I-N-O, thanks for watching.

[SPEAKER_01]: By 24-7 voice bank, never closes, so you can leave your finance and investment questions anytime at 888-99 chart.

[SPEAKER_01]: I will continue, after the break.

[SPEAKER_07]: I would like to know more about the company which I've been tracking for some night.

[SPEAKER_03]: Luke Guerrero is here and ready to tackle your questions.

[SPEAKER_08]: And I was just wondering, are there any investment accounts with different banks that you would recommend something that may offer a good resources?

[SPEAKER_03]: Don't forget to call, in best talk, 888-99 chart.

[SPEAKER_01]: The investment business, it's a trust business.

[SPEAKER_01]: But you shouldn't have to just trust that your advisor will hold your assets safely.

[SPEAKER_01]: At KPP Financial, we use established custodians like Charles Schwab and Fidelity.

[SPEAKER_01]: They hold your assets.

[SPEAKER_01]: KPP provides investment management and financial advice.

[SPEAKER_01]: Learn more about working with us at KPP Financial.

[SPEAKER_01]: It all starts with a free portfolio review and invest.com.

[SPEAKER_01]: The House passed a continuing resolution today, 370 to 48.

[SPEAKER_01]: Meaning the government is funded through December 11th, and the real budget fight, including the future of enhanced ACA premium credits, just got pushed past the midterms.

[SPEAKER_01]: Now we've talked about the 2027 premium numbers, we've talked about that a few weeks ago, but this punt.

[SPEAKER_01]: And it makes this urgent again because the clock is ticking and nobody in Washington is watching it.

[SPEAKER_01]: So as you review,

[SPEAKER_01]: Here's the tuition, the enhanced premium subsidies that were keeping marketplace insurance affordable.

[SPEAKER_01]: They expired.

[SPEAKER_01]: Three million people have already dropped coverage.

[SPEAKER_01]: And the 2027 rate filings are in median increases of 15% across 276 insurers with a range from negative one to positive 54 or 63% of insurers filed for increases between 10 and 25%.

[SPEAKER_01]: Meaning, insurance costs are going up.

[SPEAKER_01]: And they're not just going up, regionally.

[SPEAKER_01]: And now, whether any relief comes, depends on a December 11th lame duck vote happening after midterm elections that could shift the balance of power and Congress.

[SPEAKER_01]: I'm being honest, the enrollment math is ugly.

[SPEAKER_01]: The 3 million who drop coverage skewed heavily towards healthier individuals.

[SPEAKER_01]: People most likely to leave when premiums rise.

[SPEAKER_01]: That leaves a sicker, more expensive risk poor for the insurers, surrounding policies, which is exactly why insurers are booking 4% to 7% morbidity adjustments into their rates.

[SPEAKER_01]: The healthy people leaving makes insurance more expensive for the sick people staying.

[SPEAKER_01]: That's just actuarially how it happens.

[SPEAKER_01]: Now, if you're an early retiree, bridging from 62 to Medicare on Marketplace plans, this is the single largest controllable line item in their retirement budget, and it's now hostage to December vote.

[SPEAKER_01]: Managing your Magi to stay below the subsidy cliff at 6380 for a single fileer.

[SPEAKER_01]: Critical using HSA contributions and pre-tax retirement contributions to reduce

[SPEAKER_01]: Be careful about Roth conversions, the timing of that since a $5,000 conversion that pushes you above that cliff would actually cost you 8 to 12,000 in lost subsidies.

[SPEAKER_01]: And there's an investing question in here too.

[SPEAKER_01]: They December 11 deadline stacked against midterm results in a new Congress.

[SPEAKER_01]: That creates a window for volatility, meaning towards the end of the year, health care stocks and shirts stocks, anything sensitive to federal spending policy within healthcare is likely to see a whips of a market through the end of the year.

[SPEAKER_01]: Why do we fit in a listener question now?

[SPEAKER_06]: I wanted to see what your thoughts were on industrial, wheat, stag, industries, ticker symbol, STAG.

[SPEAKER_06]: We're looking at some exposure, wondering if you could take a look, and maybe give me a good entry point.

[SPEAKER_06]: Thank you.

[SPEAKER_01]: Tiger S T A G is a real estate investment trust from a return perspective.

[SPEAKER_01]: It's been pretty boring for quite some time.

[SPEAKER_01]: I mean, it's been trading between 30 and 40 for the most part since 2022.

[SPEAKER_01]: It's only got about a 4% dividend yield.

[SPEAKER_01]: take a look at this total return here so we make sure we're grabbing everything.

[SPEAKER_01]: I mean total return annualized over the past five years one point one eight percent on an annualized basis.

[SPEAKER_01]: Not very exciting.

[SPEAKER_01]: What they do is they own an operate single tenant industrial properties.

[SPEAKER_01]: What the heck does that mean?

[SPEAKER_01]: Well, I mean it's warehouses, distribution centers, some manufacturing spaces,

[SPEAKER_01]: But their tenant-based skews a bit towards, looks like e-commerce, manufacturing users.

[SPEAKER_01]: So the idea here is it's supposed to be a durable income industrial real estate plan.

[SPEAKER_01]: To you, look at how things have moved over the past couple months.

[SPEAKER_01]: Looks like core funds from operations per share was up about 3.2% year over year about revenue.

[SPEAKER_01]: revenue pretty much in line with consensus estimates guidance management raised their full year guidance for their core funds from operation.

[SPEAKER_01]: Same store net operating income guidance higher, which is a bit positive

[SPEAKER_01]: If you look at operating metrics, if you look at this company, you know, they had a solid quarter.

[SPEAKER_01]: They had a acquisition that was well executed.

[SPEAKER_01]: They have a credit rating that was recently upgraded.

[SPEAKER_01]: But the stock sold off, like 5% anyway, on that news over the past, over the past, month or so.

[SPEAKER_01]: I think the question is, what's going to drive this thing higher that hasn't driven it higher over the past four, five years?

[SPEAKER_01]: I think amongst the space, it's pretty boring and as yields are continuing to be elevated, the reason for holding on to a name like this, less and less.

[SPEAKER_01]: There's STAG, thanks for the call.

[SPEAKER_01]: On the next investment talk, we'll look into this story, Japan, yen intervention, 2026, what 96 billion.

[SPEAKER_01]: Tell us about currency wars.

[SPEAKER_01]: Japan's spent a record 96.5 billion over the past month, defending the yen, and treasury secretary Scott Besend is now warning that disorderly yen moves can destabilize global markets.

[SPEAKER_01]: That's tomorrow.

[SPEAKER_01]: For now, I'm Luke Guerrero, and we are ready to take your calls anytime at 88, 99 chart.

[SPEAKER_00]: at KPP Financial.

[SPEAKER_00]: Accountability means more than advice.

[SPEAKER_00]: It means we invest alongside you through our parallel investing approach when we recommend an investment for clients.

[SPEAKER_00]: One or more KPP principles invest their own capital at the same time.

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[SPEAKER_02]: Luke Guerrero is here now taking your calls live.

[SPEAKER_02]: Invest Talk 888-99 chart.

[SPEAKER_01]: Jets and Wank had an earnings call last week and said something pretty remarkable.

[SPEAKER_01]: He gave a revenue forecast for the next fiscal year, 70% growth.

[SPEAKER_01]: That would mean roughly $673 billion in revenue.

[SPEAKER_01]: For one company, just selling chips that he added, our demand is much greater than 70%.

[SPEAKER_01]: Our supply allows us to confidently deliver 70.

[SPEAKER_01]: And that's an interesting note, ready's telling you, his growth weight is not limited by demand.

[SPEAKER_01]: It's limited by how fast his suppliers can manufacture chips.

[SPEAKER_01]: And the Q2 numbers confirmed it, 96.2 billion in revenue.

[SPEAKER_01]: Data Center revenue at 89 billion up 117% year over year.

[SPEAKER_01]: Q3 guidance of 108 billion that blew past 104 billion consensus.

[SPEAKER_01]: This saw was up crazy, and I had almost half a trillion in market gap in a single session.

[SPEAKER_01]: And yet, this earnings season and their performance delivered a message that's not as easy as hey, just buying video and let it be.

[SPEAKER_01]: There's a report in the financial times that Big Tech profits got $160 billion boost from unrealized gains on stakes in other AI companies.

[SPEAKER_01]: Meta is planning AI driven layoffs, soft bank, once another $10 billion loan specifically to fund its open AI stake.

[SPEAKER_01]: Alphabet's free cash flow went negative for the first time in its history oracles credit to fault swaps or it $215 basis points.

[SPEAKER_01]: The company's spending the most on AI are generating the least free cash flow.

[SPEAKER_01]: How do you play this?

[SPEAKER_01]: The answer is by walking through the AI supply chain layer by layer.

[SPEAKER_01]: Because returns are being distributed very differently depending where you sit.

[SPEAKER_01]: The semi-conductor layer is where the returns have been clear, right?

[SPEAKER_01]: In video is the obvious winner, but the story is broader than one company you have memory.

[SPEAKER_01]: That's been the huge surprise performer of 2026 because AI models require extraordinary amounts of hype in with memory that only three companies produce.

[SPEAKER_01]: Then you got TSMC, manufacturing almost every advanced AI chip, giving it leverage over the entire ecosystem.

[SPEAKER_01]: And some I conductor equipment makers, they benefit because every new Fab built to produce AI chips and needs their tools.

[SPEAKER_01]: So this layer is, and has a real scarcity.

[SPEAKER_01]: They have real pricing power and real earnings.

[SPEAKER_01]: It's the picks and shovels trade that has worked for three years.

[SPEAKER_01]: Then you got the infrastructure.

[SPEAKER_01]: That's your data centers, your power, your cooling, your networking.

[SPEAKER_01]: It's where those companies are spending money.

[SPEAKER_01]: But their turns are a bit harder to capture.

[SPEAKER_01]: Some companies are going fast.

[SPEAKER_01]: Many of them aren't yet public.

[SPEAKER_01]: You have utility names that are connected to data center demand.

[SPEAKER_01]: They benefit from load growth.

[SPEAKER_01]: You have a construction and industrial companies building the physical facilities that are seeing a revenue tailwind.

[SPEAKER_01]: On the other side, you have soaring materials costs, that's pressure on margins.

[SPEAKER_01]: You have back lashes from communities, right?

[SPEAKER_01]: We talked before about roughly 50 billion and canceled projects and Q on a loan.

[SPEAKER_01]: So they're creating a real uncertainty around the infrastructure layer.

[SPEAKER_01]: Then you go to platform layer, that's a hybrid scaler.

[SPEAKER_01]: They're spending the most to their controlling the distribution and will ultimately they hope monetize AI through their cloud platforms.

[SPEAKER_01]: But right now, 94% of operating cash flows going cap X. I mean, buybacks are pretty much gone.

[SPEAKER_01]: They're issuing debt in a pace that has CDS spreads, credit to fall to swap spreads, hitting absolute records.

[SPEAKER_01]: But these margins are getting squeezed by the same memory prices that are making memory companies rich.

[SPEAKER_01]: The hybrid scalars will probably

[SPEAKER_01]: Maybe they hope with the long game, but the long game is long and the market is tired of waiting.

[SPEAKER_01]: You got the application layer, you're in a price software, you're AI services, your workflow automation, it's where returns will eventually be the largest, but where visibility is the absolute worst.

[SPEAKER_01]: You have something, ooh, those announced months ago, which I always thought was interesting then, and still think it's interesting now, which is anthropics venture with Goldman and Blackstone to deploy AI into private equity portfolio companies, really just getting a foot in the door, intertwining their systems together,

[SPEAKER_01]: You know, you have companies like Salesforce and service now and Palantir all embedded AI into their platforms, but the revenue from these deployments, it's true.

[SPEAKER_01]: The token price index we've been tracking is down 20% from its may-high, so that suggests practicing pressure there.

[SPEAKER_01]: And then you've got Chinese AI that, if and successful, gives you a permanent discount.

[SPEAKER_01]: I said a lot.

[SPEAKER_01]: But there's a lot of ways to attack this.

[SPEAKER_01]: And I think your approach should be waiting which layer you believe in most.

[SPEAKER_01]: Brought AI infrastructure ETFs, they give you diversified exposure across the stack.

[SPEAKER_01]: There's plenty of them that exist there.

[SPEAKER_01]: Some I conduct or ETFs that are, I ETFs we talked about.

[SPEAKER_01]: Robo ETFs yesterday, data center, industrially ETFs.

[SPEAKER_01]: Recent drawdowns, some I conductor in memory layer, probably, is the best bet today because the scarcity is real, they have a real pricing power and the earnings are real.

[SPEAKER_01]: If Nvidia is what they say they are, supply constraint not demand constrained, that boasts really well for earnings.

[SPEAKER_01]: Eventually the application layer will get bigger.

[SPEAKER_01]: We'll get larger.

[SPEAKER_01]: I suspect these large software companies will integrate rather than be beat.

[SPEAKER_01]: But monetization is uncertain and they continue to be down in hyper-scalers.

[SPEAKER_01]: I mean, they are some of the largest names in the market, but I wouldn't chase them at valuations where free cash flow is turn negative and credit spreads are saying, hey, hold on.

[SPEAKER_01]: Regardless, they I build that's real.

[SPEAKER_01]: The spending is insane.

[SPEAKER_01]: The question isn't whether the infrastructure gets built, because we'll get built, right?

[SPEAKER_01]: It's about which layer captures the returns and what you're willing to pay for that.

[SPEAKER_01]: Right now, the answer is, the company's making the scarce components are capturing most of the value.

[SPEAKER_01]: Everyone else is spending to capture the value and that hasn't really materialized yet.

[SPEAKER_01]: Which brings us to a lesson that can be applied really across the board.

[SPEAKER_01]: Follow the cash flow, seek companies getting it, not using it.

[SPEAKER_01]: It's been the back of the invest stock voice bank.

[SPEAKER_01]: You know the number?

[SPEAKER_01]: 888-99 chart.

[SPEAKER_05]: Hey, this question is for Jefferson or Luke and Joe from South Carolina here.

[SPEAKER_05]: When it comes to ETF, something that I'm kind of having a hard time understanding is, let's say like a financial crisis, depression type scenario, when you buy an ETF, do you actually

[SPEAKER_05]: small slices of the underlying stock, or do you own a slice of the EPS that just tracks, you know, those stocks that it is tracking, for example, DOO that would be 500, and I guess my question is, what is the risk of you losing your money because the EPS

[SPEAKER_05]: fails or the company that manages the ETF goes under, but the actual underlying 500 stocks that is tracking or maybe aren't doing great, but they're not all going at a business.

[SPEAKER_05]: Is there a chance of losing money in an ETF that is entirely dependent on the stocks of sales that's maybe dependent on the manager or the company that runs that ETF?

[SPEAKER_05]: Thanks so much and I will listen to the answers on the podcast.

[SPEAKER_01]: That is a great question.

[SPEAKER_01]: So I want to take the high level approach first and kind of explain what an ETF is.

[SPEAKER_01]: And I know most of you understand what an ETF is at a high level.

[SPEAKER_01]: But how it works, right?

[SPEAKER_01]: When you send money, when you buy shares in an ETF, an ETF uses what's called an authorized purchaser or AP, they get that cash and then they give a slice called a creation basket, or if you're getting your money back or a redemption basket is what's sold.

[SPEAKER_01]: to that ETF, so the ETF doesn't see the money.

[SPEAKER_01]: Mutual funds, they get the cash, they buy things, they sell things, ETFs, they get these creation baskets from authorized purchasers, okay?

[SPEAKER_01]: You own shares in an ETF, which represent an interest, a pro-rata, proportional interest, in the assets of that fund.

[SPEAKER_01]: Now generally, you're not gonna redeem them in kind for those assets, but you own those assets.

[SPEAKER_01]: You have a share in those assets.

[SPEAKER_01]: Now, ETF assets, they are held in a separate legal trust.

[SPEAKER_01]: They are not on the ETF companies' balance.

[SPEAKER_01]: She's meaning if, well, BlackRock or Vanguard went under, we'd probably have bigger issues.

[SPEAKER_01]: But if they did, creditors cannot touch the underlying stocks in the ETF.

[SPEAKER_01]: It is fundamentally different from owning stock in the ETF company itself.

[SPEAKER_01]: So if the creditors came knocking, they would get the company's assets.

[SPEAKER_01]: Now, the fund assets.

[SPEAKER_01]: What would likely happen is a new sponsor or new management company would happily take over those existing assets.

[SPEAKER_01]: If nobody acquires it, the fund gets liquidated all the underlying stocks are sold and cash is distributed to shareholders based upon

[SPEAKER_01]: what they're earning is.

[SPEAKER_01]: So you would receive your share of the net asset value the nav in cash deposited into your account.

[SPEAKER_01]: You don't lose the money.

[SPEAKER_01]: You just no longer own the ETF.

[SPEAKER_01]: So the worst case scenario would be fun liquidation.

[SPEAKER_01]: Right?

[SPEAKER_01]: You get your money back at nav.

[SPEAKER_01]: That's good.

[SPEAKER_01]: You'd be forced to pay taxes because it's a taxable event.

[SPEAKER_01]: And then you'd have to redeploy the cash elsewhere.

[SPEAKER_01]: But to answer your question in short, no, if a company goes under that manages your ETF,

[SPEAKER_01]: Your assets are not gone.

[SPEAKER_01]: Great question.

[SPEAKER_01]: Thanks to the call.

[SPEAKER_01]: Alrighty, when people take the time to leave this question on the Invest Talk, or rather leave us an Invest Talk podcast around iTunes, we'd like to thank them.

[SPEAKER_01]: For their courtesy by getting to their questions quickly, this one says looking at adding AOS to my Roth and maybe some MCD is it too early to get into these names,

[SPEAKER_01]: All right, let's take a look at these.

[SPEAKER_01]: A-O-S is A-O Smith.

[SPEAKER_01]: Excuse me.

[SPEAKER_01]: Mayo Smith does, they do water heaters, they do water treatment.

[SPEAKER_01]: They're kind of a bread and butter industrial name that's been beaten down, but they've been beaten down for a reason.

[SPEAKER_01]: Q1 earnings missed badly.

[SPEAKER_01]: They had a collapse in their China segment.

[SPEAKER_01]: They cut their guidance.

[SPEAKER_01]: They've been downgraded across the board.

[SPEAKER_01]: It might be interesting in a Roth if you expect

[SPEAKER_01]: You know, dividends, compounding, tax-free forever, but with that name, you know, you have a situation where you're coming off a couple of missed earnings.

[SPEAKER_01]: It looks cheap, much as it down here today.

[SPEAKER_01]: It's down 12.54%, it's pushed itself into a situation where from a valuation perspective, it's now trading at the lower end of its five year range, price earnings and price

[SPEAKER_01]: I mean, growth is kind of just flatline.

[SPEAKER_01]: They're growing at 6% annualized since 2020, but most of that was 2020 into 2022.

[SPEAKER_01]: I mean, from a non-inflation adjusted basis, if you think about it from 2023 in revenues down.

[SPEAKER_01]: Net margins are down, return on equity is down.

[SPEAKER_01]: For me, there's just really nothing to get excited about here.

[SPEAKER_01]: And understand that these four looking multiples, they can change multiple ways, because the price changes are the denominator changes.

[SPEAKER_01]: And so if earnings expectations go down yet again, which they have recently,

[SPEAKER_01]: Well, then, valuations adjust as well.

[SPEAKER_01]: All of a sudden, it doesn't look cheap.

[SPEAKER_01]: The price continues to fall.

[SPEAKER_01]: The McDonald's is an interesting one, because McDonald's corporation ticker mcd, you know, it doesn't really need an introduction.

[SPEAKER_01]: It's, I think it's definitely the largest fast food enterprise on planet Earth.

[SPEAKER_01]: There's now a down 18 point.

[SPEAKER_01]: Sorry, 16.72% over the past 52 weeks down 14.57% over the past.

[SPEAKER_01]: Sorry, here to date.

[SPEAKER_01]: It's trading at the low end of its valuation range.

[SPEAKER_01]: You know, revenue is.

[SPEAKER_01]: still solid growth.

[SPEAKER_01]: I mean, it's still near the 7% annualized growth.

[SPEAKER_01]: They've been getting year over year free cash flow is up.

[SPEAKER_01]: A long-term debt is at 54 billion on 186 billion dollar market cap company.

[SPEAKER_01]: I think this one's in a bit of a different situation, right?

[SPEAKER_01]: This is a company that's going to have solid net margins because it's a franchise machine

[SPEAKER_01]: You know, they have also do really well when things get expensive because people tend to trade down on things they can trade down on and food gets cheaper, but at the same time.

[SPEAKER_01]: That's who's going to really expense it.

[SPEAKER_01]: I don't have to tell you that.

[SPEAKER_01]: You can't even buy a burger at McDonald's for cheaper than $78 these days.

[SPEAKER_01]: So amongst these two, I would probably say McDonald's is the stronger move right now.

[SPEAKER_01]: Now it's been beaten down a little bit more.

[SPEAKER_01]: It looks like it may be finding a bottom from a momentum perspective.

[SPEAKER_01]: Certainly from the valuation perspective.

[SPEAKER_01]: Return on equity is still pretty solid.

[SPEAKER_01]: And you don't have the consistent downgrades with the poor Chinese exposure.

[SPEAKER_01]: Now, are they too early?

[SPEAKER_01]: I would say you'd probably be, that's a difficult to say, right?

[SPEAKER_01]: We don't try and time here.

[SPEAKER_01]: But generally speaking, if I had to choose between the two, from a mid-medium to long-term perspective, I think I like where McDonald's is more.

[SPEAKER_01]: It was MCD.

[SPEAKER_01]: Thanks to the call.

[SPEAKER_01]: We are heading into our final break of the day.

[SPEAKER_01]: We answered plenty of questions.

[SPEAKER_01]: We had plenty of stories, but there's still one segment left in the show.

[SPEAKER_01]: You have a question that cannot hold until tomorrow.

[SPEAKER_01]: I encourage you to pick up that phone and dial 88, 99 chart.

[SPEAKER_03]: Luke Guerrero is here and ready to tackle your questions.

[SPEAKER_07]: I would like to know a more about the company when I've been tracking for some time.

[SPEAKER_08]: Quick question on a very risky play.

[SPEAKER_08]: It is a company that caught my attention because the ROE is like close to 100%.

[SPEAKER_03]: Invest talk is ready 24-7.

[SPEAKER_08]: And I was just wondering, are there any...

[SPEAKER_08]: investment accounts with different banks that you would recommend.

[SPEAKER_08]: Something that's that may offer a good resource.

[SPEAKER_08]: Call in Vestock.

[SPEAKER_08]: 888-99 chart.

[SPEAKER_08]: 24-7 Rainer Shine.

[SPEAKER_03]: There's always value in the Invest Talk podcast.

[UNKNOWN]: 888-99 chart.

[SPEAKER_01]: something happening yesterday that has not happened for 30 years.

[SPEAKER_01]: First time since September 1996, the 10 year government bond yield in Japan touched 3%.

[SPEAKER_01]: Meaning an entire generation of people has never seen a Japanese bond yield this high.

[SPEAKER_01]: The five-year hitter record, 226, the two-year, reached 1795, that was a 31-year peak.

[SPEAKER_01]: And the big of Japan is expected to hike its policy rate from 1 to 125, but it's September 17th, and 18th meeting, there's an 80 to 90 percent market implied a probability there.

[SPEAKER_01]: Now I don't know what you're thinking, why should I?

[SPEAKER_01]: a non-Japanese investor.

[SPEAKER_01]: I'm not saying we don't have any Japanese listeners or people from Japan, but I would argue there's more likely people that, or there's more people on the earth not from Japan than there are people from Japan.

[SPEAKER_01]: So why should you?

[SPEAKER_01]: Most likely a non-Japanese investor care about Japanese bond yields.

[SPEAKER_01]: That's because Japan has been the world source of free money for 30 years and that era is gone.

[SPEAKER_01]: How did that happen?

[SPEAKER_01]: Well, when Japanese interest rates were near zero, Japanese investors, insurance companies, your pension funds, your banks, they had to go overseas in order to earn any return at all.

[SPEAKER_01]: They bought US treasuries, they bought Euro bonds, they bought corporate debt.

[SPEAKER_01]: Trillions of yen flowed into global markets, pushing yields lower everywhere.

[SPEAKER_01]: The same time hedge funds and carry traders borrowed yen at near zero rates, and they took that money, and they invested the proceeds in higher yielding assets around the world.

[SPEAKER_01]: That trade, and mentioned it before, borrowed cheap and Japan, invest expensive elsewhere.

[SPEAKER_01]: That was one of the largest and most persistent flows in global finance.

[SPEAKER_01]: at 3% on a bond, logic reverses.

[SPEAKER_01]: The Japanese insurance company can now earn 3% at home.

[SPEAKER_01]: In their own currency with no exchange rate risk.

[SPEAKER_01]: If you were them, why would you buy US Treasury at 4.7 and take the dollarian volatility when they can earn 3% risk free in the end?

[SPEAKER_01]: So when you have lose like this, the calculus starts to shift at the margin.

[SPEAKER_01]: And at the margin, that's where yields are set.

[SPEAKER_01]: Today, Japan holds some 1.2 trillion in U.S. treasuries, and it's the largest foreign position.

[SPEAKER_01]: Any reduction in that holding year even a slowdown in new purchases that removes a lot of demand at the long end of the U.S. yield curve and pushes yield higher at a time when mortgage rates are headed back toward seven, and this is happening at the same time the treasuries issuing record amounts of new debt for essential banks are selling.

[SPEAKER_01]: 215 billion in corporate bonds are hitting the market in September.

[SPEAKER_01]: That's a lot of flows pointing the same direction.

[SPEAKER_01]: Now the global government debt benchmark, it's a composite of major sovereign yields.

[SPEAKER_01]: also has been on the rise.

[SPEAKER_01]: It hit its highest levels in 2008, 3.72% the US 30 is above 525 after 55 closes above 5 this year.

[SPEAKER_01]: It's the most since 2006 UK 30 year yields.

[SPEAKER_01]: They reached a highest level since 1998.

[SPEAKER_01]: This is a, this is not just one country.

[SPEAKER_01]: This is a synchronized global bond cell off and Japan's exit from zero is something that is accelerating.

[SPEAKER_01]: Now, if you've international and global bond funds, you're owning the risk.

[SPEAKER_01]: Japanese government bonds are in most aggregate international bond indices.

[SPEAKER_01]: If JGB yields keep rising, the price of these bonds fall.

[SPEAKER_01]: Because newly issued on the run bonds have better yields than existing ones.

[SPEAKER_01]: And your funds have, it takes a hit.

[SPEAKER_01]: Most investors have no idea they're exposed.

[SPEAKER_01]: If you will listen to our Vestock, we talk about this all the time.

[SPEAKER_01]: We saw it with TLT.

[SPEAKER_01]: So after 30 years of being an investable,

[SPEAKER_01]: Japanese fixed income, it's suddenly offering a real yield for the first time in a generation.

[SPEAKER_01]: You can tolerate the exposure, 3%, that's a legitimate allocation, even if the bank of Japan's hiking cycle pushes yields higher from here.

[SPEAKER_01]: All right, 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, which you can get at iTunes and Spotify, and while you're over there, we would really appreciate it if you left us a rate and review.

[SPEAKER_01]: Additionally, if you have not already, I encourage you to check out our YouTube channel and this head over to YouTube, search Invest Talk with two teas.

[SPEAKER_01]: And if today's show made you think about your specific financial circumstances and whether or not everything is aligned in your financial plan, in order to achieve your goals, I encourage you to head to invest.com and schedule a free portfolio review, super simple, submit some statements, we run a report, you have a 30 minute conversation, hopefully you leave a little bit better piece of mind.

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[SPEAKER_01]: This is Invest Talk.

[SPEAKER_03]: Good night.

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