Today on the Joseph Carlson showed the stock market
continues its decline. It's now down three point six,
seven percent for the S&P 500 over the past five days.
The QQQ is down, 6.25 percent over the same time period.
The fairing greed index which is a rough estimate of investor
sentiment. Now is that a 13?
Which is in the extreme. Fear category, investors are
becoming increasingly concerned and for good reason, Bill
Ackman. Recently did a tweet storm of
how we're already in World War 3.
Al's not 128 the highest it's been since 2008 and President
Biden says that he's going to ban Russian oil imports so we
have a lot of craziness going on in the market right now.
We also have this popular graphic being shared around, all
of social media, the surgeon Energy prices, suggests high,
probability of a recession and the graphic shows that every
time oil prices have gone up 50 percent which they just now have
that is quickly, proceeded a recession.
So I'll give you my thoughts on this and if I think, This is a
true indicator of a recession. Now, we also have some other
news that Disney plus is going to launch a cheaper ad-supported
tear later this year to their service and I want to go through
the benefits and the potential downside of Disney plus having
an adverse in of their service. So as always, we have a lot to
jump into in this episode a lot of ground to cover.
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All right now let's go ahead and start off looking at the market
overall year-to-date, the S&P 500 is down 13 percent so it's
well into correction territory headed towards a bear Market.
The queue is down 20 percent year-to-date and it's well into
a bear Market overall. So both of those major indices
are in a correction or a bear market and the Dow Jones, the
Last of the three has entered into correction territory as
well. So all of these are headed down
across the board. Stocks are going down and it's
clear to me that investors are becoming increasingly fearful
the fear and greed index on CNN. Now shows that investors are in
the extreme Fair category and I think this is mostly accurate,
from what I see investors are incredibly fearful no longer
investors talking about this story of companies.
Their total addressable markets, they're not talking about the
Future Vision and growth of the company's there.
Now just He's looking for places to not lose money.
That's basically what every investors doing right now,
they're not looking at the growth plans.
They're looking at the defensiveness of every company
they own. Is it going to be sold off more
tomorrow? That's the biggest concern.
Now, if we look at this gauge in historical context, I actually
think it's pretty accurate. The fear and greed index showed
that investors were extremely greedy leading up to March of
2020. So, going into that time period,
I remember that being the case I made videos.
Sarcastically saying that the stock market is this magical
money-making machine where you can buy any company and it will
go up in price the next day. And that's exactly what was
happening in late, 2019 and early 2020.
Then of course, the 2020 pandemic happened sentiment
quickly shifted from extreme greed, all the way to extreme
fare during March of 2020. That's the point where this
gauge got all the way to the worst reading in extreme Fair.
Now, after this point the gauge has shifted back and forth
somewhere between the two. Ooh, and it's normal radius.
But now, it's starting to shift way back down into that extreme
fear category my guess is this is going to continue with all
the events unfolding right now. I can see this gauge going all
the way back down to the very bottom of extreme fair.
So that's the situation we're working with here.
We know that the QQQ, the S&P 500 and even the Dow Jones are
all selling off. All of them are now in
correction territory. In the queue, is in a full-on
bear market and it looks like it may continue on this way, unless
we get some Really good news. We can see this with our
portfolios as well. My portfolio over the past one
week. Period is down 3.25 percent.
So it's holding up a little bit better than the market better
than the S&P 500 but I'm still down 11 thousand, one hundred
dollars that's eleven thousand dollars in one week gone.
Then if we look at the past month I'm down 7% That's twenty
five thousand six hundred dollars gone.
Then if we look at the past 1/4 the past, 90 days, I'm Down
forty two thousand dollars forty two thousand dollars gone in a
three-month period. So this is affected my portfolio
like crazy looking overall, I used to be at gains of eighty
thousand dollars three months ago.
Now I'm at gains of 37 thousand dollars and if this selling
continues, if the broad Market selling across-the-board,
indiscriminate Lee continues on my portfolio is eventually going
to go all the way back into the red.
I have a little bit of buffer room right now, I'm still up to
37 thousand. First.
But if we go down another 12 or 13 percent, we could see my
portfolio. Go back into the red overall.
Now, this can be a little depressing to say the least, to
see your gains vanish away. And just the order of a couple
of months, to see this much loss over Justice time period.
I think is very difficult to deal with for a lot of
investors. I'm getting a lot of questions
from different investors. Different people that are part
of the community hair that are asking me questions.
Like look, I invested in companies that I thought were
good value, their great companies.
They're all being sold off. I'm in the red on almost every
single one of them. What do I do in this situation?
And I think that's the most important question.
What do we do in this situation? Now, to answer this question,
I've gone through an outlined what I think are the most
objective and reasonable options.
We have available to us, these are the different things we can
do with our money and our investments.
The first thing is we could look at growth stocks.
These are the companies that have been beaten down already
quite a bit. Girl, stocks are a category of
companies that are growing their revenue faster than other
companies. So if their top line revenue
growth is above 10 or 15 percent.
That's probably in the growth stock category.
If it's slower than 10%, it's probably no longer a growth
stock. So, these companies are valued
based on their future growth, not really their earnings or
their profitability. And the problem with growth
stocks right now is that interest rates Rising, make
these companies, less valuable. So they get further and further
discounted, and knowing that the feds going to increase interest
rates in the future, Makes it so that the multiples these
companies trade at is continually Contracting as a
multiples, come down the price comes down.
So even though growth stocks have been hit a lot already.
They've came down and prices the multiple contraction may
continue and they might continue to come down in price now.
Of course, we could look at the other group of companies, the
value stocks. These are companies that aren't
growing their top line revenue as fast as growth stocks.
So they might grow out less than 10% per year, but they do have
higher amounts of earnings. And they have Our free cash flow
that's typically what defines a value stock.
NOW, value stocks have done better than growth stocks for
the past six months, but the valuations of these defensive
value stocks has actually gotten quite High, feel like the
valuation of most of these companies, it's the highest
they've been in the past five years.
So a lot of the future prospects and defensiveness of these
companies has already been largely priced in and if you
pile money into am now, you might risk.
Those multiples Contracting like growth stocks in the future.
Now, outside of these girl, group of companies, we have the
specific group of Commodities. This is the hottest trade right
now. This is what every Traders
doing. They're piling money into
Commodities and you can see this reflected in the share prices
ExxonMobil. For example, is the highest
price that has been for the past five years, in just the past 30
days, it's up 13 percent while the rest of the market stinking,
and you can see the same thing with Chevron.
It's the highest price has been in the past five years, the
price is going parabolic, and there's a ton of momentum in
this company. So the commodity trade, right?
No, is working out well for a lot of investors.
They're making money, buying Exxon, Mobil and Chevron.
The issue I have with this trade is that there's a lot of day
traders in it. There's a lot of momentum
investors in it, not just long-term investors so the
prices are being pushed up like crazy right now and eventually
those momentum investors will move on to something else.
And if you make the mistake of buying towards the top of the
peak and momentum investors decide, it's time to move on.
You could be hurt in this trade now after Commodities, we We
could look at bonds, maybe that's an option but we know
that we're going to be earning real negative returns with bonds
so we might earn 2% on a bond and actually have five percent
inflation. So we're losing three percent
and of course with cash we just have it being eaten Away by
inflation. We also have the option of
trying to become a market timer selling, now exiting the market
and hoping that we can get back in at a better time.
And of course, timing the market in this way, I think is an
ill-advised strategy that you're more likely to lose money by
tying it incorrectly. Then actually timing it
correctly. So overall, when I look at all
the options here, none of them look great.
In my opinion, this is kind of a situation where you can pick
your poison. You can choose different options
here. You can go different routes but
I have left out one important option available to us and that
is to do nothing. Do nothing, May in fact be the
best option. If we go back to Terry Smith's
investment letter, he summarizes his strategy in three different
steps by good companies. Don't overpay and the third one,
which he intentionally leaves in.
As part of the three steps is to do nothing.
And I think this is the one that investors really struggle, the
most with their good at buying companies and I think a lot of
investors are even good at not overpaying.
They look at valuations, they look at PE ratios and price to
sales and try to determine a good value for the company, but
they struggle the most with the step of doing.
Nothing sitting on your hands and doing nothing while watching
gains vanish away is incredibly difficult and that can't be
understated. This is The most difficult part
of investing. And I think this is why
investors like Carrie Smith have done really well, is because
they're really disciplined and doing nothing.
So my portfolio, that's the strategy that I'm following, I'm
not doing the latest Trend. I'm not jumping from growth to
value and value to growth going into Commodities, going into
Cash, trying to time the market or doing, all of these things
that have been proven time and time again to lead to inferior
Returns. What I'm doing is buying good
companies. In fact, I'd consider them to be
great company. Knees.
I'm not overpaying for them and then I'm sitting on my hands and
patiently doing nothing. And that third step is very
difficult. The pendulum swings from that
greed to fear all the time. And I plan on waiting until
investors become bullish again on this Market because this
isn't going to be the end of it. The market isn't always going to
be an extreme fear mode eventually at some point.
It'll move all the way back up to extreme greed.
That will happen again eventually.
And that's the time when you should be taking gains and
selling Out of positions, not when investors are incredibly
fearful. So while this may not be the
most exciting strategy that comes with the most drama.
I think it's the best one for making money and that's what I
plan on doing in the future. Now, moving on, we gotta jump
into this news of Bill, Ackman the famous investor, now saying
that were already in World War 3.
We just haven't realized it yet. His reasoning for this is pretty
simple. He says that even though we're
not fighting Russia directly, the ukrainians are were
supplying them with money were supplying them with weapons and
we're doing harsh. Economic sanctions all across
the world against Russia. So we're basically at war with
them even though we're not directly boots on the ground
fighting them and I think in that respect he's probably
correct but I wouldn't really categorize this as world war
three. What I have been astonished by
is how unified all of the West has been in coming together and
going against Russia. It's actually been pretty
incredible to see every single major company that I track is
pulling out of Russia. The latest to do it is
McDonald's. Donald's will temporarily closed
850 restaurants in Russia. Nearly two weeks after Putin
invaded Ukraine. So even McDonald's is pulling
out of Russia. You have companies like Netflix
and Disney opposing Russia. You have Visa Mastercard
implementing restrictions, we have sanctions across the board
that are going to further cripple the Russian economy and
the US and Europe are now saying that we're going to reduce the
amount of oil that we import from Russia.
So a lot of this is semantics is This World War 3?
Well I don't really know. It depends on what you define as
World War 3. Not fighting directly against
Russia. But we're certainly sanctioning
them offering resources to people that are fighting them
and the unified West are doing a lot to damage their economy
through the amount of companies being pulled out of Russia.
And it seems like a lot of this may have been underestimated by
Putin. Putin May argue that this is all
going according to plan, and he had all of this baked in this is
all expected. But I think that that assumption
is probably ridiculous. I think Putin did underestimate
Ukraine's resistance and I think he probably underestimated, the
length that the West is Link to go to punish their economy.
I really don't believe that this is all going to plan for Putin.
I think a lot of this has backfired.
He's now resulted that just bombarding cities, trying to
reduce them to Rubble. They say that President Vladimir
Putin could still reduce cities in Ukraine to Rubble.
But European countries, say they are not as intimidated by
Russian Ground Forces as they were in the past.
So, in the vision of all of Europe, This is actually weaken
their view of the Russian Ground Forces, they no longer view
Russia. As ground forces as this
Unstoppable army, they now view it as something that can be
defeated. So Putin, in the eyes of his
enemy has actually lowered the view and the respect that his
army has by doing this for now. Of course this war has caused
oil prices to go up. And now there's a lot of people
predicting that the high price of oil will lead to a recession
within the us. And this came about with this
chart here, this chart shows all the way back to 1970, the price
of oil and then highlighted in vertical.
Lines a recession. So you get to see where the
price of oil is, and where recession starts and as they
Circle hair, every time oil has gone up over fifty percent
inflation. Adjusted it is preceded, a
recession. Not every single recession has
started this way, but every time oil prices have gone this High,
it has preceded a recession. So we see that pattern six,
different times since 1970 and now we're in the same situation,
oil prices inflation, adjusted have again gone up above. 50%.
So the concern is, this might proceed another recession.
Now these charts are interesting to look at, but ultimately, I
don't think that they prove much.
This doesn't mean that we have to enter into a recession.
It's happened six times before. But there's a lot of times where
we were just shy of that 50% Mark and we didn't enter into a
recession, like just a couple years ago, we are about 49
percent. So is this the perfect line that
if we got two percent higher oil prices we would have entered
into a recession a couple of years ago?
I don't link. I think that this is just a
rough gauge and something that we see crop up after the fact
even the firm that put this graphic together, says quote, I
don't expect an economic disaster but what we're seeing
in oil prices will have significant impact on growth and
I think that that's fair to say we also have few economists say
that the u.s. is in danger of recession.
Since the economy is underpinned by strong labor market.
Solid consumer spending and better-than-expected corporate
profits but many expect growth to slow further.
ER, if inflation continues to rise, the war in Ukraine has
injected further volatility into the markets, just as a Federal
Reserve enters the rate hike cycle.
They're saying there's a lot of volatility going on right now
because of all the chaos going on.
So Graphics, like this may be interesting to look at and you
might be able to get a better gauge of when a recession is
going to start. But even if you were able to
accurately predict exactly when a recession starts, you're still
not able to predict the stock market.
In many cases, the stock market doesn't trade down, Chloe with
the recession and back up with the recovery.
A lot of times it dips down before the recession starts and
starts to recover during the recession.
They're not always perfectly correlated.
So trying to time this type of stuff I still think is a losing
game now. Lastly we have a strategy change
in Disney with Disney plus so far their service has been where
you sign up and just like Netflix you have no ads, you pay
a certain amount every month and you get access to their library
of content. That's constantly updated.
But now Disney has Decided to add in a cheaper ad-supported
care to their subscription options.
So you'll be able to choose between paying more and having
no ads or paying less and having ads in the mix.
Now, I have some thoughts on this and the strategy change,
and I want to see if you notice the type of companies that are
adding in the ad-supported tears, let's go ahead and read
through some of them that are doing this HBO.
Max last year, introduced a ten dollar a month plan that shaved
five dollars off of the ad free Price.
Although in addition to adding Commercials the cheaper plan.
Also is limited to HD content, not the 4K.
Peacock is another one. It takes a more varied approach.
A smaller selection of content with ads is available for free
with a $4.99 per month. Tear that offers the full
library with ads, and then there's the 10 dollar plan for
peacock. That allows customers to
download titles to watch offline and get rid of most, but not all
of the commercials. So peacock has the most varied
approach. They have three different Tears
with ads, and no ads and everything in between and even
Hulu, which Disney now owns and operates offers an ad-free and
advertisement supported version Hulu with commercials is seven
dollars a month, the ad-free version is $13 per month.
So there's a lot of streaming companies that are taking this
approach of having a mixture of ads and no ads in their
services, they have varied approaches and doing this in
varied strategies. And the reason that they do
this, of course, is because it raises that ARP.
You that Average revenue per user, introducing ads increases,
the average revenue per user by a lot.
For example, peacock with their free tear, the completely free
tear has an average revenue per user of around $10 per month.
They load you with so many ads. When you're watching this, that
they're still making $10 per month off of you.
So, that's the reason they charge ten dollars per month for
their premium version. Just so that they can have the
same amount of average revenue per user that they do with the
free tier. And I know that Disney's looking
at peacock and saying, wow, they're getting $10 per month
per user just with the ad Revenue.
That's so much money on a per user basis.
Maybe we should allow that option as well.
So Disneys, following peacock, and HBO, and all these other
companies with this strategy, do you notice the group of
companies that have so far been unwilling to follow this ad
Revenue model? Netflix is one of the few
companies that only offers options for streaming that don't
include ads. They have no add Model.
Another one is Apple TV. + Apple TV + only has the option to have
ad free. They will not include ads on
their service or at least they haven't done.
So, so far and the other one is Amazon Prime video so far.
They don't have ads included in their service.
The big differentiator, I noticed between these two groups
of companies is all the ones that are embracing an ad version
of their platform. Are all the traditional cable
companies. These are all the Legacy
companies. Embracing their legacy model
peacock is From Comcast, they're happily embracing ads.
We have now even Disney a legacy company embracing ads with both
Hulu and now Disney plus. And we have HBO Max of course
with AT&T and bracing ads on their services.
Well, all of them in varied forms are embracing ads while
the tech companies. The newer companies like Netflix
Amazon, Prime, and Apple tv plus so far.
None of them are really embracing this ad model and I
think that's an important distinction to make the reason
that the average Netflix user watches for over.
Hours per day, probably has to do with the fact that they have
not embraced an ad version of their subscription.
They refused to do so. So their engagement stays
incredibly High because you have no reason to disengage you go
from one episode to the next with no ad breaks in between.
So overall, I think this will be a good thing for Disney in the
short term. I think that in the short term,
they'll have a higher average, revenue per user.
So Disneys going to make more money.
And I also think that they're going to gain subscribers
quicker, having the dual options, but in the long term, I
see a potential downside to this.
Having an adverse in of a streaming service is kind of
like trying to just remake cable TV on the internet.
And I don't think that's exactly what people want.
And I see this actually as a potential for Netflix and Apple
tv plus and Amazon Prime to differentiate themselves from
all these cable Legacy companies.
While they're all going into the ad-supported revenue streams,
the services with Netflix and Apple tv plus, and Amazon Prime
probably stand to benefit from it.
So, that's all for this show. I'll have more content out this
weekend, so if you haven't already, hit the Subscribe
button and you can follow along for free.