1 00:00:00,120 --> 00:00:03,200 The Federal Reserve's Jay Powell has finally said that the time 2 00:00:03,200 --> 00:00:07,040 has come to cut rates. He's noticed that the labor 3 00:00:07,040 --> 00:00:09,960 market is getting a little weak. It's cooling down a little bit. 4 00:00:10,280 --> 00:00:13,240 Meanwhile, inflation is already quite low. 5 00:00:13,240 --> 00:00:16,600 It's down below 3%. So according to Jay Powell, our 6 00:00:16,600 --> 00:00:20,600 Fed chair, he is now saying that the calculation has shifted. 7 00:00:20,600 --> 00:00:23,760 Things have changed. We're no longer focused solely 8 00:00:23,760 --> 00:00:27,400 on bringing down inflation. Now the risk of the labor market 9 00:00:27,400 --> 00:00:31,160 doing worse, even worse than inflation, has become greater. 10 00:00:31,560 --> 00:00:34,440 So the time has come to cut rates. 11 00:00:34,960 --> 00:00:38,040 But what does this mean exactly? What happens when we cut rates? 12 00:00:38,240 --> 00:00:42,080 So far over the past couple of years, we've seen interest rates 13 00:00:42,360 --> 00:00:47,120 go from nothing, from .08 federal funds rate all the way 14 00:00:47,120 --> 00:00:50,640 up to 5.3. This is a record high increase, 15 00:00:50,640 --> 00:00:54,200 a record fast pace of increasing interest rates, and now we have 16 00:00:54,200 --> 00:00:57,160 the Fed chair announcing that they're going to go back down. 17 00:00:57,440 --> 00:00:58,720 What does this mean for companies? 18 00:00:58,720 --> 00:01:00,200 What does it mean for our portfolio? 19 00:01:00,200 --> 00:01:02,240 What companies will do well because of this? 20 00:01:02,240 --> 00:01:04,680 Which ones will do poorly? We're going to be breaking down 21 00:01:04,680 --> 00:01:07,800 all of this and going over the impact that rate cuts will have 22 00:01:07,800 --> 00:01:09,960 on the market. Now, we also have some other 23 00:01:09,960 --> 00:01:11,600 news. Intuit reported earnings. 24 00:01:11,600 --> 00:01:14,160 Apparently the market thinks that Intuit's earnings weren't 25 00:01:14,160 --> 00:01:15,920 so great. Well, I disagree. 26 00:01:15,960 --> 00:01:20,400 I really like the earnings and I bought $5000 more of Intuit this 27 00:01:20,400 --> 00:01:21,840 morning. We'll be going over the 28 00:01:21,840 --> 00:01:24,680 earnings, breaking it down with the data, looking at what 29 00:01:24,680 --> 00:01:27,040 happened and what they're projecting, and we'll be going 30 00:01:27,040 --> 00:01:29,240 over why I think the stock is a buy. 31 00:01:29,320 --> 00:01:30,840 Now, we also have some other news to get to. 32 00:01:30,880 --> 00:01:34,000 That's rather bizarre. This is the type of news that I 33 00:01:34,000 --> 00:01:36,440 would not guess in a million years, I'd never be able to 34 00:01:36,440 --> 00:01:39,040 predict it. It comes so far out of left it 35 00:01:39,040 --> 00:01:43,400 just seems totally random. Chick-fil-A is reportedly 36 00:01:43,400 --> 00:01:46,400 launching a streaming service for some reason. 37 00:01:46,840 --> 00:01:48,400 That's what the actual news report says. 38 00:01:48,800 --> 00:01:53,000 Now, I verified this because, again, when I first heard this, 39 00:01:53,240 --> 00:01:56,800 I thought it was so weird. It's so bizarre that I I thought 40 00:01:56,800 --> 00:01:59,360 it might be a joke. I thought it might be just fake 41 00:01:59,360 --> 00:02:01,800 news or parody. This is real. 42 00:02:01,800 --> 00:02:05,720 Chick-fil-A is starting a streaming service, so naturally 43 00:02:05,720 --> 00:02:07,440 I got very intrigued. What is going to be on the 44 00:02:07,440 --> 00:02:09,360 streaming service? What is the game plan here? 45 00:02:09,639 --> 00:02:11,760 What does this mean for companies like Netflix and 46 00:02:11,960 --> 00:02:14,880 Paramount Plus? What is Chick-fil-A doing? 47 00:02:15,280 --> 00:02:17,040 We'll be addressing that in this episode. 48 00:02:17,240 --> 00:02:19,600 Now, we start off by jumping into the main story today, which 49 00:02:19,600 --> 00:02:21,880 is the Fed meeting in Jackson Hole. 50 00:02:22,160 --> 00:02:24,920 This is a highly anticipated meeting that all financial 51 00:02:24,920 --> 00:02:27,880 markets have been looking forward to for weeks now. 52 00:02:28,200 --> 00:02:30,600 For the past couple of days, we've been talking about this 53 00:02:30,600 --> 00:02:33,520 and seeing it on CNBC and the Wall Street Journal and the 54 00:02:33,520 --> 00:02:36,920 Financial Times in Bloomberg. The highly anticipated Jackson 55 00:02:36,920 --> 00:02:39,360 Hole meeting. Now, if you're wondering why 56 00:02:39,360 --> 00:02:42,760 they actually meet in Jackson Hole, the meet in Jackson Hole 57 00:02:42,760 --> 00:02:47,080 because in the early 1980s, the Kansas City Fed leaders learned 58 00:02:47,320 --> 00:02:50,840 that the best way to ensure that the Fed Chairman Paul Volcker 59 00:02:50,840 --> 00:02:54,280 would accept an invitation to meet was to locate the premise 60 00:02:54,280 --> 00:02:55,960 in somewhere that had good fly fishing. 61 00:02:56,720 --> 00:03:00,160 Now, after that initial meeting with Paul Volcker and the good 62 00:03:00,160 --> 00:03:02,320 fly fishing, it's become tradition. 63 00:03:02,640 --> 00:03:05,720 So the reason that the Fed goes all the way to Jackson Hole, 64 00:03:05,720 --> 00:03:08,200 Wyoming is specifically for fly fishing. 65 00:03:08,480 --> 00:03:10,640 And that's where we get some of the most important monetary 66 00:03:10,640 --> 00:03:12,960 policy laid out for us. Now, in this meeting, the 67 00:03:12,960 --> 00:03:15,680 Federal Reserve Chair, Jerome Powell gave his strongest signal 68 00:03:15,680 --> 00:03:17,480 yet. The interest rate cuts are 69 00:03:17,480 --> 00:03:21,200 coming soon, saying that the central bank intends to act to 70 00:03:21,200 --> 00:03:24,680 stave off further weakness in the US labor market. 71 00:03:24,720 --> 00:03:28,400 Quote, we do not seek to welcome further cooling in labor market 72 00:03:28,400 --> 00:03:31,840 conditions. The time has come for policy to 73 00:03:31,840 --> 00:03:33,280 adjust. Now, normally when you're 74 00:03:33,280 --> 00:03:35,560 reading Fed statements, you have to read between the lines. 75 00:03:35,560 --> 00:03:37,640 You have to figure out what they're really trying to say. 76 00:03:37,960 --> 00:03:40,920 But that's not the case here. Jerome Powell is coming right 77 00:03:40,920 --> 00:03:45,160 out and saying it clear as day. the Fed is ready to lower rates. 78 00:03:45,440 --> 00:03:47,560 There needs to be a change in direction. 79 00:03:47,800 --> 00:03:51,560 He goes on to say, quote, the direction of travel is clear and 80 00:03:51,560 --> 00:03:55,360 the timing and pace of rate cuts will depend on incoming data, 81 00:03:55,600 --> 00:03:58,440 the evolving outlook and the balance of risks. 82 00:03:58,520 --> 00:04:01,400 He didn't say exactly when. He didn't lay out exactly what 83 00:04:01,400 --> 00:04:02,840 quarter or what month they'll do it. 84 00:04:02,840 --> 00:04:05,040 But we know that rate cuts are going to happen and they're 85 00:04:05,040 --> 00:04:07,480 going to happen soon. Now, the reason that the Fed is 86 00:04:07,480 --> 00:04:11,000 deciding to pivot today is because the Fed has dual 87 00:04:11,000 --> 00:04:13,000 mandates, meaning they have two different things they're 88 00:04:13,000 --> 00:04:15,840 focusing on. One part of their job is price 89 00:04:15,840 --> 00:04:18,320 stability. Price stability means that you 90 00:04:18,320 --> 00:04:21,680 don't have runaway inflation, that you don't have deflation. 91 00:04:22,079 --> 00:04:25,280 It means that you have stable prices, that your dollar today 92 00:04:25,680 --> 00:04:28,000 will be able to purchase around the same amount of stuff 93 00:04:28,320 --> 00:04:30,800 tomorrow and next year and the year after. 94 00:04:31,200 --> 00:04:34,960 The target range for the Fed in terms of inflation is what they 95 00:04:34,960 --> 00:04:39,040 call a symmetric 2%, which means that year over year your 96 00:04:39,040 --> 00:04:43,440 purchasing power can purchase about the same amount -2%. 97 00:04:43,680 --> 00:04:47,240 So you have around 2% inflation, give or take year over year. 98 00:04:47,440 --> 00:04:51,160 If one year it's 1%, one year it's 3%, you have a symmetric 99 00:04:51,160 --> 00:04:53,840 2%. A little inflation is a good 100 00:04:53,840 --> 00:04:55,400 thing. It's good for the national debt. 101 00:04:55,400 --> 00:04:58,160 It's good for price stability. It's better than deflation. 102 00:04:58,160 --> 00:05:02,160 So that's what they like to focus on, having 2% inflation. 103 00:05:02,400 --> 00:05:07,920 And right now we're below 3%. So we're right close to that 2% 104 00:05:07,920 --> 00:05:09,760 goal. And in terms of where Jerome 105 00:05:09,760 --> 00:05:12,760 Powell sees things, he says clearly that we haven't 106 00:05:12,760 --> 00:05:14,840 completed the task here. We still have a little bit to 107 00:05:14,840 --> 00:05:16,240 go. It's going to take more time. 108 00:05:16,600 --> 00:05:19,320 We're pretty close. Inflation is not a big deal 109 00:05:19,320 --> 00:05:22,240 anymore. Prices are still high, but 110 00:05:22,240 --> 00:05:24,760 inflation means that prices continue going up. 111 00:05:25,120 --> 00:05:28,280 And from today, prices aren't going up that quickly. 112 00:05:28,520 --> 00:05:30,680 They're only going up 3% year over year. 113 00:05:31,160 --> 00:05:33,240 So that's one part of their mandate. 114 00:05:33,760 --> 00:05:37,680 The next part is keeping stable employment, making it so that 115 00:05:37,680 --> 00:05:39,960 people looking for jobs can find employment. 116 00:05:40,240 --> 00:05:42,920 And this is where we're starting to see cracks in the data. 117 00:05:43,000 --> 00:05:45,360 We're starting to see an increase in the amount of people 118 00:05:45,360 --> 00:05:48,240 looking to be employed. Now, Jerome Powell was very 119 00:05:48,240 --> 00:05:50,680 clear here as well when he went through employment. 120 00:05:50,960 --> 00:05:53,760 He said that the problem with the jobs data is not because 121 00:05:53,760 --> 00:05:56,880 companies are firing people. It's not like there's massive 122 00:05:56,880 --> 00:05:58,680 layoffs across different companies. 123 00:05:59,120 --> 00:06:02,120 There have been slight cutbacks, but nothing unusual. 124 00:06:02,440 --> 00:06:05,080 The problem with the job market is not that people are being let 125 00:06:05,080 --> 00:06:07,680 go, it's that there's a lot of new people looking for work, 126 00:06:07,960 --> 00:06:09,880 people entering into the job market. 127 00:06:10,200 --> 00:06:13,600 The unemployment rate is only including people actively 128 00:06:13,600 --> 00:06:15,640 looking for work. So if you're not in the 129 00:06:15,800 --> 00:06:18,440 employment market, if you're not seeking jobs, if you're not even 130 00:06:18,440 --> 00:06:21,360 looking for one, then you're not considered unemployed. 131 00:06:21,760 --> 00:06:24,840 Unemployed people are people looking for work that can't find 132 00:06:24,840 --> 00:06:26,760 work. And the amount of people looking 133 00:06:26,760 --> 00:06:30,800 for work is increasing rapidly. So we have an issue here where 134 00:06:31,200 --> 00:06:33,920 now the mandate and the focus of it has shifted. 135 00:06:34,200 --> 00:06:37,480 It's shifted from price stability to employment. 136 00:06:37,840 --> 00:06:41,520 And that shift means that it's time to take interest rates down 137 00:06:41,520 --> 00:06:45,160 because the primary tool the Fed has to help people find work is 138 00:06:45,160 --> 00:06:47,800 interest rates. It's a blunt tool, but it does 139 00:06:47,800 --> 00:06:50,840 help in this case. Lowering interest rates should 140 00:06:50,840 --> 00:06:53,800 increase the amount of jobs. And Jay Powell is optimistic 141 00:06:53,800 --> 00:06:55,320 here. He thinks that things aren't so 142 00:06:55,320 --> 00:06:57,160 bad. He says quote with an 143 00:06:57,160 --> 00:06:59,800 appropriate dialing back of policy restraint. 144 00:07:00,080 --> 00:07:03,520 Policy restraint means high interest rates, high interest 145 00:07:03,520 --> 00:07:07,200 rates 5.5%. There is a good reason to think 146 00:07:07,200 --> 00:07:10,600 that the economy will get back to 2% inflation while 147 00:07:10,600 --> 00:07:13,080 maintaining a strong labor market. 148 00:07:13,560 --> 00:07:17,000 That would be the best of both worlds, having a strong labor 149 00:07:17,000 --> 00:07:21,240 market and 2% inflation. That is the Goldilocks scenario. 150 00:07:21,520 --> 00:07:24,280 That is the soft landing, and that's exactly what J Pal's 151 00:07:24,280 --> 00:07:26,520 looking for. Now with these comments from J 152 00:07:26,520 --> 00:07:29,360 Pal saying that he's lowering interest rates, that it's time 153 00:07:29,360 --> 00:07:31,640 for change. We already have the markets 154 00:07:31,640 --> 00:07:33,920 pricing this in today. And you'll see the markets 155 00:07:33,920 --> 00:07:37,000 reacting and the bond market reacting in different ways. 156 00:07:37,280 --> 00:07:40,720 For example, right now, most Fed officials and most investors 157 00:07:41,000 --> 00:07:44,000 agree that there's going to be a cut in September. 158 00:07:44,440 --> 00:07:46,640 They'll probably be a 25 basis point cut. 159 00:07:47,040 --> 00:07:51,840 So 1/4 percent interest rate cut in September looks very likely. 160 00:07:51,960 --> 00:07:54,400 I agree with this, and I think this is going to be the start of 161 00:07:54,400 --> 00:07:56,360 the interest rate cuts. Now, if we give the interest 162 00:07:56,360 --> 00:07:59,640 rate some context, this line here is the effective federal 163 00:07:59,640 --> 00:08:02,480 funds rate, meaning it's basically what the federal funds 164 00:08:02,480 --> 00:08:06,040 rate is at at the time. Now, if we go back to 2009, 165 00:08:06,320 --> 00:08:09,240 you'll notice that it's near the X axis here. 166 00:08:09,520 --> 00:08:12,040 It's so low, it's basically zero. 167 00:08:12,080 --> 00:08:17,320 We have zero effective interest rates from 2009 to 2016 and this 168 00:08:17,320 --> 00:08:21,520 is like investing in easy mode. It is like selecting the easiest 169 00:08:21,520 --> 00:08:24,080 mode on a video game. It's really forgiving. 170 00:08:24,320 --> 00:08:27,320 The reason that it's so easy is because interest rates directly 171 00:08:27,320 --> 00:08:29,720 impact the relative value of stocks. 172 00:08:30,120 --> 00:08:34,159 If interest rates are 5% and you can buy a risk free treasury for 173 00:08:34,159 --> 00:08:39,200 5%, it makes the bar of buying a stock all the higher because now 174 00:08:39,200 --> 00:08:42,679 you need to buy a stock that will outperform a 5% treasury. 175 00:08:43,120 --> 00:08:46,360 So you're comparing and contrasting every investment to 176 00:08:46,360 --> 00:08:50,040 that risk free rate. If interest rates go up to 8%, 177 00:08:50,360 --> 00:08:52,880 well, that's even tougher. Try to find a stock that will 178 00:08:52,880 --> 00:08:55,960 outperform an 8% risk free investment. 179 00:08:56,280 --> 00:08:58,960 That's really tough to do. So you can see that the higher 180 00:08:58,960 --> 00:09:04,000 and higher the federal funds rate goes from 3% to 5% to 7 to 181 00:09:04,000 --> 00:09:07,760 10, the higher and higher the risk free treasury yield is. 182 00:09:08,040 --> 00:09:12,720 Treasuries go up from 3% to 5% to 10%, and then every single 183 00:09:12,720 --> 00:09:16,080 stock, relatively speaking, is less attractive because you have 184 00:09:16,080 --> 00:09:19,240 this investment over here that's looking better and better risk 185 00:09:19,240 --> 00:09:21,760 free. So everything with investing is 186 00:09:21,760 --> 00:09:24,680 relative. The value of a stock is relative 187 00:09:24,680 --> 00:09:27,600 to the federal funds rate. That's why Warren Buffett says 188 00:09:27,600 --> 00:09:29,520 that interest rates are like gravity. 189 00:09:29,720 --> 00:09:33,160 As interest rates go up, it pulls down the relative value of 190 00:09:33,160 --> 00:09:36,880 all other assets. It's so important in everything 191 00:09:36,880 --> 00:09:39,640 we do. It has a major impact in all of 192 00:09:39,640 --> 00:09:42,560 the financial markets. It is the most powerful tool 193 00:09:42,560 --> 00:09:45,040 that the Federal Reserve has now. 194 00:09:45,120 --> 00:09:49,040 At the current time, we have interest rates of 5.3%. 195 00:09:49,160 --> 00:09:51,600 Now. 5.3 percent is nothing insane. 196 00:09:51,600 --> 00:09:55,160 It's not 10% returns risk free, but it's still enough to make it 197 00:09:55,160 --> 00:09:57,440 so that it's relatively competitive against stocks. 198 00:09:57,680 --> 00:09:59,640 Many investors have been buying Treasuries because they're 199 00:09:59,640 --> 00:10:03,280 getting a nice yield and my savings account, I get a 5% 200 00:10:03,280 --> 00:10:07,040 yield, that's pretty great. So a lot of my money might be in 201 00:10:07,040 --> 00:10:10,280 savings accounts and a lot of investors money is in savings 202 00:10:10,280 --> 00:10:13,520 accounts risk free instead of in the stock market. 203 00:10:13,920 --> 00:10:18,360 So as this interest rate goes down and as saving yields go 204 00:10:18,360 --> 00:10:22,520 down and as treasury yields go down, stocks become relatively 205 00:10:22,520 --> 00:10:25,440 more attractive and more investors will be likely to take 206 00:10:25,440 --> 00:10:29,000 on the risk of stocks. We can see that during this time 207 00:10:29,000 --> 00:10:33,600 period from 2009 to 2016, this was with relatively no 208 00:10:33,600 --> 00:10:36,120 competition for stocks. There is no alternative. 209 00:10:36,120 --> 00:10:38,760 Buying Treasuries at that point was very expensive. 210 00:10:39,080 --> 00:10:41,760 The cheapest thing in the financial market were stocks. 211 00:10:42,040 --> 00:10:45,000 So investors during this time period, it was like they're 212 00:10:45,000 --> 00:10:48,280 investing in easy mode. They had it very easy. 213 00:10:48,280 --> 00:10:50,800 You could buy almost anything and it would go up. 214 00:10:51,400 --> 00:10:53,680 This time period that we're investing in has been much more 215 00:10:53,680 --> 00:10:55,640 difficult. You have to buy the right 216 00:10:55,640 --> 00:10:57,200 stocks. You have to buy companies really 217 00:10:57,200 --> 00:10:59,760 growing their earnings. There's no easy mode here. 218 00:11:00,160 --> 00:11:03,600 But as interest rates go further and further down, investing in 219 00:11:03,600 --> 00:11:06,080 stocks becomes easier and easier and easier. 220 00:11:06,120 --> 00:11:08,560 This also doesn't impact stocks equally. 221 00:11:08,600 --> 00:11:11,800 Some companies get impacted much more than others when interest 222 00:11:11,800 --> 00:11:15,800 rates go up and down, especially leverage companies or companies 223 00:11:15,800 --> 00:11:17,880 that are reliant on consumer financing. 224 00:11:18,360 --> 00:11:20,200 So we look at the type of companies that I think this will 225 00:11:20,200 --> 00:11:23,560 have the largest impact on. It's ones like VICI. 226 00:11:24,000 --> 00:11:28,240 Vici's a company that very much competes with treasury yields. 227 00:11:28,520 --> 00:11:32,160 A primary reason that investors invest in REITs is to get that 228 00:11:32,160 --> 00:11:35,280 juicy dividend yield right there, the dividend yield of 229 00:11:35,280 --> 00:11:38,680 5.14%. Well, why would investors buy a 230 00:11:38,680 --> 00:11:42,120 stock, a company that needs to be managed and run when instead 231 00:11:42,120 --> 00:11:44,560 they could just buy a treasury bond or put their money in a 232 00:11:44,560 --> 00:11:47,200 high yield savings account? See, it's relatively difficult 233 00:11:47,200 --> 00:11:50,840 to argue for VICI when you have a high yield savings account and 234 00:11:50,840 --> 00:11:54,160 that's why the stock so far year to date is only in the green by 235 00:11:54,160 --> 00:11:58,120 .43%. But as interest rates go down, 236 00:11:58,440 --> 00:12:01,800 this dividend yield stays the same, so it becomes relatively 237 00:12:01,800 --> 00:12:05,120 more attractive and you can see this already being priced in in 238 00:12:05,120 --> 00:12:07,880 the past month. VICI has way outperformed the 239 00:12:07,880 --> 00:12:10,160 market over the past month because there's greater 240 00:12:10,160 --> 00:12:12,520 anticipation of interest rates coming down. 241 00:12:12,920 --> 00:12:15,600 My expectation is that as interest rates continue to come 242 00:12:15,600 --> 00:12:20,840 down, VG stock will go back up to 3536, maybe even back up to 243 00:12:20,840 --> 00:12:24,760 $37 per share depending on how much interest rates come down. 244 00:12:25,320 --> 00:12:27,800 Other companies that are going to be impacted to a huge extent, 245 00:12:28,040 --> 00:12:30,560 and you can already see them reacting today, are ones like 246 00:12:30,560 --> 00:12:33,640 Tesla, because the great majority of Tesla customers rely 247 00:12:33,640 --> 00:12:35,960 on financing. They have to go to a bank, they 248 00:12:35,960 --> 00:12:38,640 have to ask for a loan, and then they get an interest rate on 249 00:12:38,640 --> 00:12:40,960 that loan. Higher federal funds rate means 250 00:12:40,960 --> 00:12:43,480 higher interest rate means the car is more expensive. 251 00:12:43,920 --> 00:12:47,480 So the interest rates determined to a large extent how expensive 252 00:12:47,480 --> 00:12:50,080 Tesla's product is. When interest rates went up 253 00:12:50,080 --> 00:12:54,000 dramatically in a single year, Tesla had a combat that by 254 00:12:54,000 --> 00:12:57,720 lowering prices on their cars over and over again the entire 255 00:12:57,720 --> 00:12:59,600 year. Lowering prices has caused 256 00:12:59,600 --> 00:13:02,040 Tesla's operating margins to drop dramatically. 257 00:13:02,040 --> 00:13:04,520 Its first level thinking that if interest rates going up cost 258 00:13:04,520 --> 00:13:07,880 Tesla to lower prices, then interest rates going down gives 259 00:13:07,880 --> 00:13:10,280 Tesla a bit more pricing flexibility. 260 00:13:10,360 --> 00:13:13,280 And this is the same for any company reliant on consumer 261 00:13:13,280 --> 00:13:16,360 financing companies where the customer has to go out and get a 262 00:13:16,360 --> 00:13:19,000 loan to buy the product the company sells. 263 00:13:19,280 --> 00:13:20,760 So we can look at any of them today. 264 00:13:21,040 --> 00:13:23,760 We can look at Home Depot. How's Home Depot doing today? 265 00:13:24,080 --> 00:13:25,520 Well, it's beating the market dramatically. 266 00:13:25,520 --> 00:13:28,480 It's up almost 2%, while everything else is up only half 267 00:13:28,480 --> 00:13:30,320 a percent. We can look at Lowe's. 268 00:13:30,880 --> 00:13:33,280 Why are Lowe's and Home Depot up so much today? 269 00:13:33,560 --> 00:13:37,400 Because to do big home projects, to buy homes, to do anything 270 00:13:37,400 --> 00:13:40,240 with homes, it requires a lot of financing. 271 00:13:40,560 --> 00:13:42,080 Customers aren't paying out of pocket. 272 00:13:42,080 --> 00:13:44,920 They're not paying with cash. We have Pool Corp Pools are 273 00:13:44,920 --> 00:13:46,680 expensive. You want to get a pool, most 274 00:13:46,680 --> 00:13:49,800 likely you'll need a loan. So Pool Corp is up above the 275 00:13:49,800 --> 00:13:52,360 market because it's reliant on consumer financing. 276 00:13:52,640 --> 00:13:54,720 We can look at examples like Sunrun. 277 00:13:54,880 --> 00:13:57,240 I'm guessing, and this is, that's not right. 278 00:13:57,520 --> 00:14:00,440 Is it RUN Sunrun? Yes, the solar company. 279 00:14:00,760 --> 00:14:03,800 I'm guessing that every solar company bounced big today 280 00:14:03,880 --> 00:14:07,000 because solar is a product that nobody is buying in cash. 281 00:14:07,040 --> 00:14:09,800 They're financing it. So any of these stocks are going 282 00:14:09,800 --> 00:14:11,840 to have a good day. It's up 6% today. 283 00:14:12,000 --> 00:14:14,160 So as you're looking at different companies, the biggest 284 00:14:14,160 --> 00:14:17,560 differentiator in performance today is going to be companies 285 00:14:17,560 --> 00:14:20,480 that are reliant on consumer financing and ones that aren't. 286 00:14:20,720 --> 00:14:23,080 Ones that aren't, aren't going to be affected by this news. 287 00:14:23,240 --> 00:14:24,840 For example, we can look at Netflix. 288 00:14:25,240 --> 00:14:28,600 Netflix is in the red today because Netflix doesn't care 289 00:14:28,600 --> 00:14:32,200 about interest rates. It doesn't impact Netflix at 290 00:14:32,200 --> 00:14:34,080 all. Interest rates going up didn't 291 00:14:34,080 --> 00:14:36,080 hurt Netflix. Interest rates going down 292 00:14:36,080 --> 00:14:39,640 doesn't help Netflix because nobody finances their Netflix 293 00:14:39,640 --> 00:14:42,360 subscription by taking out a loan from the bank. 294 00:14:42,720 --> 00:14:45,200 So companies like this are not going to be impacted. 295 00:14:45,480 --> 00:14:50,040 Companies like VICI, Sun Run, Tesla, Home Depot, you name it, 296 00:14:50,200 --> 00:14:53,600 ones that rely on big projects or consumer financing are going 297 00:14:53,600 --> 00:14:55,960 to have a good day. Now moving on, we have a company 298 00:14:55,960 --> 00:15:00,040 in My Portfolio, specifically in my passive income portfolio here 299 00:15:00,720 --> 00:15:03,040 it's in the financial category, which is Intuit. 300 00:15:03,400 --> 00:15:06,680 Intuit reported earnings yesterday and it was after 301 00:15:06,680 --> 00:15:09,040 market close. Initially, the stock went up 302 00:15:09,040 --> 00:15:12,320 around 2% after reporting earnings because they beat on 303 00:15:12,320 --> 00:15:13,760 everything. They beat on their earnings per 304 00:15:13,760 --> 00:15:16,440 share, they beat on their revenue, they even beat on their 305 00:15:16,440 --> 00:15:19,080 full year guidance. But then something during the 306 00:15:19,080 --> 00:15:22,040 call caused the stock to go down and that was because of their 307 00:15:22,040 --> 00:15:24,760 fiscal Q1 forecast was lower than expected. 308 00:15:24,920 --> 00:15:28,080 So as of right now, the stock is currently down at 7%. 309 00:15:28,360 --> 00:15:31,520 It's flat. Year to date, it's up just 1.6% 310 00:15:31,520 --> 00:15:34,960 and it pays a small dividend. Now when I look at this position 311 00:15:34,960 --> 00:15:38,760 with the stock going down after this earnings, I decided to buy 312 00:15:38,760 --> 00:15:42,120 $5000 more of Intuit. That buy went through this 313 00:15:42,120 --> 00:15:43,760 morning. If we look at what's going on 314 00:15:43,760 --> 00:15:47,080 with Intuit, the first thing I say every time I have a company 315 00:15:47,400 --> 00:15:50,960 where the stock goes up seven to 10% after earnings or it goes 316 00:15:50,960 --> 00:15:55,160 down 7 to 10%, is that that should not inform you of how the 317 00:15:55,160 --> 00:15:58,760 company is fundamentally doing, what direction the company's 318 00:15:58,760 --> 00:16:00,760 moving and what the future value is. 319 00:16:01,240 --> 00:16:04,280 A lot of this type of trading immediately after earnings is 320 00:16:04,280 --> 00:16:08,120 driven by big institutions. It's driven by bots, it's driven 321 00:16:08,120 --> 00:16:10,920 by options and leverage. There's a lot of other factors 322 00:16:10,920 --> 00:16:13,520 that drive very short term trading results. 323 00:16:13,840 --> 00:16:16,480 So I don't use this as an indication to say that Intuit's 324 00:16:16,480 --> 00:16:19,040 doing poorly. Intuit's gaining in market 325 00:16:19,040 --> 00:16:20,600 share. It's in an increasingly strong 326 00:16:20,600 --> 00:16:23,080 position. If we look at the breakdown of 327 00:16:23,080 --> 00:16:26,200 their revenue by segment, which this is updated as of last 328 00:16:26,200 --> 00:16:29,000 quarter, we can take a look here and see that it's steadily 329 00:16:29,000 --> 00:16:31,720 growing. We have 13% growth across all 330 00:16:31,720 --> 00:16:33,560 segments. That's the total revenue of the 331 00:16:33,560 --> 00:16:35,960 company. That's fast top line growth for 332 00:16:35,960 --> 00:16:38,720 a company of this size. Now, if we look at the different 333 00:16:38,720 --> 00:16:42,120 segments, we can see that Credit Karma is struggling. 334 00:16:42,320 --> 00:16:45,280 This is one where they had explosive growth in 2022. 335 00:16:45,560 --> 00:16:48,600 It slowed down a bit and now they're starting to regrow this 336 00:16:48,600 --> 00:16:51,200 section. Credit Karma is a valuable asset 337 00:16:51,200 --> 00:16:53,280 that's being plugged into different parts of the business. 338 00:16:53,560 --> 00:16:56,360 So even though this is flat, I still like this segment of 339 00:16:56,360 --> 00:16:59,320 business. The pro tax section is also slow 340 00:16:59,320 --> 00:17:01,400 growing. We have the consumer category, 341 00:17:01,640 --> 00:17:04,400 which is growing a little bit faster, but still below the 342 00:17:04,400 --> 00:17:08,839 average of the company, 7.5%. So all of these three segments 343 00:17:09,280 --> 00:17:12,079 are not growing as fast as I would like, but the main thing 344 00:17:12,079 --> 00:17:14,800 they're focusing on is this segment right here, small 345 00:17:14,800 --> 00:17:17,800 business and self-employed. This is the QuickBooks section 346 00:17:17,800 --> 00:17:20,240 of their company. It's the biggest segment and by 347 00:17:20,240 --> 00:17:22,640 far the one with the most growth opportunity. 348 00:17:22,920 --> 00:17:25,400 This is the one where they're putting the most effort in 349 00:17:25,400 --> 00:17:29,360 developing a fully fledged CRM, very similar to Salesforce, but 350 00:17:29,360 --> 00:17:32,200 for smaller businesses. You can see the rapid growth 351 00:17:32,200 --> 00:17:36,000 year over year, 18.6% in this segment, and they're 352 00:17:36,000 --> 00:17:38,480 incorporating AI into all different aspects of this 353 00:17:38,480 --> 00:17:39,960 business. A lot of people still 354 00:17:39,960 --> 00:17:43,280 incorrectly view Intuit as a tax company, but that's becoming an 355 00:17:43,280 --> 00:17:45,280 increasingly smaller portion of their revenue. 356 00:17:45,600 --> 00:17:49,080 The greater portion that's growing the fastest is their CRM 357 00:17:49,080 --> 00:17:52,240 for small businesses. They're becoming a fully fledged 358 00:17:52,240 --> 00:17:54,560 management tool for small businesses, and they're 359 00:17:54,560 --> 00:17:56,640 integrating AI into everything they're doing. 360 00:17:56,680 --> 00:17:59,520 On the earnings transcript of this most recent call, the CEO 361 00:17:59,520 --> 00:18:02,840 of the company emphasizes how much they're focusing on AI. 362 00:18:02,840 --> 00:18:04,320 It's the first thing he brings up. 363 00:18:04,400 --> 00:18:07,400 Intuit is a global AI driven expert platform that is powering 364 00:18:07,400 --> 00:18:10,600 prosperity for consumers, small and mid market businesses. 365 00:18:10,960 --> 00:18:14,800 Our strategy and five big bets position into it as a mission 366 00:18:14,800 --> 00:18:18,120 critical platform to deliver end to end solutions driving 367 00:18:18,120 --> 00:18:20,000 sustainable growth. They say that we've made an 368 00:18:20,000 --> 00:18:23,120 early bet on AI. We have significant advantage 369 00:18:23,120 --> 00:18:26,120 with our scale of our data, investments in AI capabilities 370 00:18:26,120 --> 00:18:29,040 such as knowledge engineering, machine learning and Gen. 371 00:18:29,120 --> 00:18:32,680 AI and our large network of AI powered virtual experts. 372 00:18:33,000 --> 00:18:36,040 This is enabling us to disrupt the categories in which which we 373 00:18:36,040 --> 00:18:37,920 operate. And this isn't just fluff. 374 00:18:37,960 --> 00:18:41,480 They have entire investor presentations 30 pages long 375 00:18:41,480 --> 00:18:44,280 where they detail all the effort they're doing in AI. 376 00:18:44,360 --> 00:18:47,440 The CEO continues on explaining their five big bets and they're 377 00:18:47,440 --> 00:18:50,280 basically different ways that they're implementing AI into 378 00:18:50,280 --> 00:18:52,960 different aspects of the company and the products to further 379 00:18:52,960 --> 00:18:55,640 create a Moat from Intuit and different would be competitors. 380 00:18:56,160 --> 00:18:58,920 When I look at what Intuit's doing, I like the fact that the 381 00:18:58,920 --> 00:19:01,280 company's still in heavy reinvestment mode. 382 00:19:01,560 --> 00:19:03,960 They're growing quickly. When we look at the numbers of 383 00:19:03,960 --> 00:19:06,560 this company, the thing that impresses me the most out of 384 00:19:06,560 --> 00:19:09,840 every other metric is if we look at the free cash flow per share 385 00:19:09,840 --> 00:19:12,640 growth, Intuit is one of the fastest free cash flow per share 386 00:19:12,640 --> 00:19:15,200 growers in the market. Of all the different companies I 387 00:19:15,200 --> 00:19:18,640 look at, I'm constantly trying to do analysis on which ones can 388 00:19:18,640 --> 00:19:20,720 grow free cash flow per share the fastest. 389 00:19:21,040 --> 00:19:23,920 Intuit continually comes up as one of the top ones. 390 00:19:24,240 --> 00:19:26,520 They've grown their free cash flow per share at a rate of 391 00:19:26,520 --> 00:19:29,160 around 20% for the past 10 years. 392 00:19:29,520 --> 00:19:32,080 That is incredibly fast. That's much faster than my 393 00:19:32,080 --> 00:19:36,120 hurdle rate of 15%. So they are growing free cash 394 00:19:36,120 --> 00:19:38,400 flow explosively fast and into it. 395 00:19:38,400 --> 00:19:40,880 Even raised their guidance on the full year for revenue and 396 00:19:40,880 --> 00:19:44,240 earnings. Now Intuit is one of the higher 397 00:19:44,240 --> 00:19:46,800 multiple companies in My Portfolio when I'm doing 398 00:19:46,800 --> 00:19:48,440 analysis on different stocks I own. 399 00:19:48,760 --> 00:19:51,400 This one also shows up as a more highly rated company. 400 00:19:51,640 --> 00:19:56,200 It trades at a 34 Ford PE if you use non GAAP analysis. 401 00:19:56,360 --> 00:19:58,680 If you're looking at it from gap and factoring in stock based 402 00:19:58,680 --> 00:20:01,320 comp, it trades more in line at A50 PE ratio. 403 00:20:01,720 --> 00:20:03,840 They are getting stock based comp under control. 404 00:20:03,840 --> 00:20:06,440 They're doing some layoffs. They're also cutting costs. 405 00:20:06,440 --> 00:20:09,720 But either way, this company is higher priced, so it's going to 406 00:20:09,720 --> 00:20:11,720 trade with more volatility than the other earnings. 407 00:20:12,040 --> 00:20:14,440 But as far as I'm concerned, looking at these earnings, 408 00:20:14,440 --> 00:20:17,560 looking at the progress of the business, I see no red flags 409 00:20:17,560 --> 00:20:19,200 here. I see a company that's well on 410 00:20:19,200 --> 00:20:22,040 track to continue generating growing free cash flow per 411 00:20:22,040 --> 00:20:23,880 share. Now, moving on, we get to a 412 00:20:23,880 --> 00:20:26,880 report here that at first glance, I really thought it 413 00:20:26,880 --> 00:20:29,880 might be parity or fake news. I, I didn't know what to think 414 00:20:29,880 --> 00:20:31,520 of it. I had to verify it. 415 00:20:31,520 --> 00:20:34,080 But through multiple sources, it has been verified. 416 00:20:34,480 --> 00:20:38,640 Chick-fil-A is hatching a plan for streaming services as 417 00:20:38,640 --> 00:20:43,040 reality TV comes home to roost. It's a pretty good headline. 418 00:20:43,040 --> 00:20:44,840 I I like it. A couple puns in there. 419 00:20:44,840 --> 00:20:47,920 Good job Deadline. Now that headline is correct. 420 00:20:48,160 --> 00:20:51,200 Chick-fil-A is planning a streaming service and this has 421 00:20:51,200 --> 00:20:53,320 been verified. Now why would Chick-fil-A do 422 00:20:53,320 --> 00:20:54,840 such a thing? Well, we can take a look at the 423 00:20:54,840 --> 00:20:57,640 report here. Yes, Chick-fil-A is looking to 424 00:20:57,640 --> 00:21:00,200 launch a streaming platform. The fast food chain has been 425 00:21:00,200 --> 00:21:03,120 working with Hollywood production companies and studios 426 00:21:03,120 --> 00:21:06,360 to create family friendly, mostly unscripted original 427 00:21:06,360 --> 00:21:09,480 shows. The Chicken House is also in 428 00:21:09,480 --> 00:21:12,480 talks to license and acquire content, according to the source 429 00:21:12,720 --> 00:21:15,720 that pitched the project. One of such programs is the game 430 00:21:15,720 --> 00:21:19,680 show from Glassman Media, NBCS The Wall and Sugar 23. 431 00:21:19,680 --> 00:21:24,160 Netflix's 13 Reasons Why, which has been given a ten episode 432 00:21:24,160 --> 00:21:27,920 order. Now this is a little confusing. 433 00:21:28,400 --> 00:21:33,280 I don't think that Chick-fil-A is licensing from Netflix, and I 434 00:21:33,280 --> 00:21:36,000 definitely don't think they're licensing 13 Reasons Why. 435 00:21:36,000 --> 00:21:38,520 That doesn't seem like the most family appropriate fun 436 00:21:38,520 --> 00:21:42,040 unscripted show. And also Netflix doesn't license 437 00:21:42,040 --> 00:21:44,320 to other people. I've never seen a Netflix TV 438 00:21:44,320 --> 00:21:47,360 series on a different streaming service or different service 439 00:21:47,360 --> 00:21:49,640 altogether. Netflix keeps all of the content 440 00:21:49,640 --> 00:21:53,040 they own and make to themselves, and they license shows from 441 00:21:53,040 --> 00:21:55,960 other people back onto their platform, not the other way 442 00:21:55,960 --> 00:21:57,760 around. I'd actually be really shocked 443 00:21:57,800 --> 00:22:01,600 if Netflix starts licensing anything to anyone else. 444 00:22:01,600 --> 00:22:04,320 That would be a shocking change in direct and I don't think they 445 00:22:04,320 --> 00:22:06,800 need to do that. But anyways, not to get 446 00:22:06,800 --> 00:22:09,200 sidetracked here. The budgets for unscripted are 447 00:22:09,200 --> 00:22:12,880 around $400,000 per hour. Sources indicate Chick-fil-A is 448 00:22:12,880 --> 00:22:15,480 also considering scripted projects as well. 449 00:22:15,520 --> 00:22:18,280 It seems like a lot of money for unscripted shows. 450 00:22:18,360 --> 00:22:21,080 We always look at unscripted shows as being cheap, but 451 00:22:21,080 --> 00:22:24,320 there's still almost half, $1,000,000 per hour, which I 452 00:22:24,320 --> 00:22:27,240 guess is lower than the average cost of like a drama. 453 00:22:27,400 --> 00:22:28,880 Let's be honest here, this is Chick-fil-A. 454 00:22:29,000 --> 00:22:31,480 When I go to a Chick-fil-A, it seems like one single location. 455 00:22:31,480 --> 00:22:34,920 The one that I'm at is making $400,000 per hour. 456 00:22:35,000 --> 00:22:37,240 Chick-fil-A is printing money at every location. 457 00:22:37,240 --> 00:22:39,720 They're going to have no trouble affording this now. 458 00:22:39,720 --> 00:22:43,640 They also are are dabbling in scripted projects as well as 459 00:22:43,640 --> 00:22:46,560 animation stuff like Top Gear and The X Factor. 460 00:22:47,240 --> 00:22:49,680 But we don't really know. These are all inside reports, 461 00:22:49,680 --> 00:22:51,160 things that they might be doing now. 462 00:22:51,160 --> 00:22:53,560 Even though Chick-fil-A can easily afford this, it's still 463 00:22:53,560 --> 00:22:56,680 unclear why they're doing it. Streaming is a brutal industry 464 00:22:56,680 --> 00:22:58,840 to be in. The first thing required to be 465 00:22:58,840 --> 00:23:01,880 profitable in streaming is to have massive scale. 466 00:23:02,120 --> 00:23:05,000 Massive scale requires massive investments. 467 00:23:05,280 --> 00:23:07,680 You have to invest so much to build an audience to get 468 00:23:07,680 --> 00:23:10,480 millions and millions of subscribers that don't turn off 469 00:23:10,480 --> 00:23:12,320 the second you stop producing content. 470 00:23:12,800 --> 00:23:16,480 And only a couple companies, in fact, I think two or three have 471 00:23:16,600 --> 00:23:19,160 achieved that scale or will ever achieve that scale. 472 00:23:19,480 --> 00:23:22,400 Companies like Disney, Amazon with Amazon Prime Video, and of 473 00:23:22,400 --> 00:23:24,560 course Netflix. And I think the biggest rewards 474 00:23:24,560 --> 00:23:26,560 by far will go to the very top companies. 475 00:23:26,640 --> 00:23:29,040 So obviously with Chick-fil-A, they're smart enough to know 476 00:23:29,040 --> 00:23:30,960 that they're never going to reach scale of Netflix or 477 00:23:30,960 --> 00:23:33,160 Disney. They don't have Amazon with 478 00:23:33,160 --> 00:23:35,880 Amazon Prime, they're never going to have hundreds of 479 00:23:35,880 --> 00:23:38,560 millions of subscribers. So what is the play here? 480 00:23:38,560 --> 00:23:40,720 What is the goal? Obviously, they have a different 481 00:23:40,720 --> 00:23:43,240 intention. Chick-fil-A itself has yet to 482 00:23:43,240 --> 00:23:46,640 announce or publicly comment on the programming initiative, but 483 00:23:46,640 --> 00:23:49,080 a pivot into entertainment companies could be part of a 484 00:23:49,080 --> 00:23:51,960 bigger advertisement or customer data play. 485 00:23:52,040 --> 00:23:55,000 Disney does it with Disney Plus, and it drove Walmart's interest 486 00:23:55,040 --> 00:23:58,120 in streaming, which ultimately led to partnering with Paramount 487 00:23:58,120 --> 00:23:59,800 Plus. So obviously there's a bit of 488 00:23:59,800 --> 00:24:02,080 skepticism here. What is Chick-fil-A trying to 489 00:24:02,080 --> 00:24:03,640 get out of the streaming service? 490 00:24:03,640 --> 00:24:05,000 What are they trying to accomplish? 491 00:24:05,400 --> 00:24:08,080 The Verge suggests that it may be because of data. 492 00:24:08,560 --> 00:24:12,120 Chick-fil-A simply wants to accumulate data and extract it 493 00:24:12,120 --> 00:24:13,840 out of their customers and monetize it. 494 00:24:14,320 --> 00:24:16,800 That could be the play. Maybe they're willing to do 495 00:24:16,800 --> 00:24:19,640 that, but I don't think so. I think a company with the 496 00:24:19,640 --> 00:24:22,680 reputation of Chick-fil-A, the good standing they have with 497 00:24:22,680 --> 00:24:25,160 their customers and the relationship that they've worked 498 00:24:25,240 --> 00:24:28,320 decades to build, I don't think they're willing to forfeit that 499 00:24:28,320 --> 00:24:30,840 by doing a cheap data extraction program. 500 00:24:31,200 --> 00:24:34,040 That is short term thinking. That's the type of thinking that 501 00:24:34,040 --> 00:24:35,680 would destroy a business like Chick-fil-A. 502 00:24:36,360 --> 00:24:39,000 I think it's much more likely that the goal of Chick-fil-A is 503 00:24:39,000 --> 00:24:41,560 to simply create a service centered around families. 504 00:24:42,040 --> 00:24:44,440 Family friendly entertainment, Light hearted entertainment. 505 00:24:44,840 --> 00:24:49,320 Nothing highbrow, No huge drama series that are violent and 506 00:24:49,320 --> 00:24:51,680 riddled with sex scenes. None of that stuff. 507 00:24:51,880 --> 00:24:53,560 Just family friendly entertainment. 508 00:24:53,840 --> 00:24:56,160 Unscripted comedies, light hearted comedies. 509 00:24:56,160 --> 00:24:59,400 Things that parents can switch the TV to and not worry about 510 00:24:59,400 --> 00:25:01,720 what their kids are watching. Chick-fil-A is a company 511 00:25:01,720 --> 00:25:03,120 centered around Christian values. 512 00:25:03,120 --> 00:25:06,840 Right on their website. Our purpose in bold riding, they 513 00:25:06,840 --> 00:25:10,480 say, is to glorify God by being a faithful steward to all that 514 00:25:10,480 --> 00:25:13,920 is entrusted to us, to have a positive influence on all who 515 00:25:13,920 --> 00:25:15,800 come in contact with Chick-fil-A. 516 00:25:16,080 --> 00:25:18,320 Now obviously these companies can put whatever they want on 517 00:25:18,320 --> 00:25:20,040 their websites, whatever sounds good. 518 00:25:20,040 --> 00:25:22,600 But when you go to Chick-fil-A and you get treated the way you 519 00:25:22,600 --> 00:25:25,640 do, it has a different feeling than most fast food companies. 520 00:25:25,640 --> 00:25:27,800 It feels different because of the way that it's ran. 521 00:25:28,320 --> 00:25:30,480 When I look at Chick-fil-A, I don't think this is going to be 522 00:25:30,480 --> 00:25:32,840 a data play. I don't think it's going to be a 523 00:25:32,840 --> 00:25:35,800 growth plan for the future. I think it's something to just 524 00:25:35,800 --> 00:25:38,840 enhance the brand and offer people a different entertainment 525 00:25:38,840 --> 00:25:41,360 that's more family focused. So again, I would have never 526 00:25:41,360 --> 00:25:43,880 guessed that Chick-fil-A would be building a streaming service, 527 00:25:43,880 --> 00:25:46,600 but this is 2024. Anything can happen. 528 00:25:47,000 --> 00:25:48,680 That's all for now. See you in the next one.