Good afternoon. This is Josh Marnold missed her money talk with Judd Arnold. You're gonna answer your questions on stocks, bonds, mutual funds, how you should position your investment dollars including your IRA in four oh one k. You do have to give us a call at nine five two nine two five five six oz eight. That's nine five two nine two five five six o eight. You always get straight talk, not sugarcoated advice. What a week it
has been on Wall Street? What a week market has gone up and down, in and out on concerns primarily about the debt ceiling and any deal that can be designed between the President and the Speaker. Speaker of the House, negotiations are getting hot and heavy, though I've always questioned how heavy are they
going to be? Given the Senate has gone on a week plus hiatus, and the House members were told that they could go home for the weekend, but be ready to come back to Washington as soon as there is a deal. On Friday, Secretary of the Treasury Janet Yellen came out and said, well, the due date we found and recalculating our numbers is not June first, which would be next Thursday. It's the following Monday, June fifth, so that gives both the Democrats and the Republicans a few extra days to to
cut a deal on the debt ceiling. But some say the debt ceiling debates is all all a lot of uh, will say Babbel, But the and the real the real concern is not the debt ceiling, but what the FIT is going to be doing with interest rates, given that the economic numbers are
still showing inflation, though that inflation has been coming down. The hawks amongst the Fed governors who vote are still adamant that interest rates still need to go up before there is any pause in raising rates, as they indicate there's still more and more work to be done. Some of the US are saying, well, we need to pause at least a little bit to see the effects
of our eleven increases in interest rates in the last year plus. We're still concerned with the bank crisis that has been going on, and the bank crisis creating a credit crunch, particularly in the mortgage market, with mortgages going up and becoming tougher to get and business loans also being tougher tougher to get, and the case of any credit tightening cycle could definitely slow the economy down, insomuch as not nunely reduce inflation, but actually bring about there's one economist Don
Luskin said, a deflationary cycle. Now that's going to be debated, but the odds right now are a little bit better than fifty fifty that come the June meeting of the Fed, interest rates are going to go up at least twenty five basis points, but there's still a few weeks to go with that. Meanwhile, meanwhile, the indices have been moving up on the backs of a select group of companies and two primary industries, the chips and the home
builders. The chips for the most part on fuego, particularly any company that is directly involved in artificial intelligence or generative artificial intelligence. And this has been a move that started about a month ago at Microsoft's Developers Conference when Microsoft unveiled their chat GPT integration with Being and that boosted first Microsoft, then Google, but the biggest beneficiary has been chip company Novidio. In video, Oh my
god, what a what a run. It is staggering, unbelievable moves that this this stock made from um we'll say Wednesday night when it reported its earnings and the stock was trading at three hundred UM three hundred dollars a share after a big run by the way after moving up from a bottom at the low of one hundred and twenty five dollars a share, and it finished the week
at the three hundred and ninety dollars a share. Unbelievable and many are saying that this is the place to be, and well, you're a night. You had a nice trade there. I had a very nice plotting on the end. We like in video. We've struggled because it's such an expensive stock and it has had now four fifty percent of greater pullbacks in the last I
want to say seven year on the way up. Uh. Yes, it has had some very and this pullback, the most recent pullback I think was seventy five m to the low with the whole tack liquidation at the end of the year. And it has been expensive all year on the way back up, and it was correct. This is one of the biggest earnings beats we've seen. Um. And when I say biggest earnings beats, we've seen the
things that come to mind. Certainly in my career Facebook when they had the blowout when they figure out mobile two or three hurtings calls in post ipo when the stock was up thirty five percent and street numbers, that's estimates went up fifty Yeah, let's just put put put a pen to paper. They guided to it is eleven billion of revenue. The video guided to eleven billion of revenue, which was the street were four billion above where the estimates, Well,
the stream is, yes, street was it? I thought the street was an eight street was at seven dollars. This just doesn't and I guess for people listening, this can happen with a smaller capitalization stock in video has what forty analysts that cover the stock correct and for it to be to be consensus by over fifty percent, just it doesn't happen. No, this is
this is just un unreal. The only other one was Zoom Video during the pandemic the first earnings where they beat the street by seventy percent, but that was sort of like, okay, it's the pandemic, and that was still like an infant, like this is it's it's unbelievable. So there we go. The stock actually de rated from fifty times earnings to forty times earnings, which is you know another it just goes to show so unbelievable. You had a great little tree trade. It's nice to make big numbers. So even
though, yeah, you got to be intellectually flexible in this business. A lot of people were set up short into this print because the stock was at a nosebley valuation. It turned out to be one of those rare times where here before before we go for a break. But it is very interesting, and I know that I know Cathy Woods is getting a lot of heat from the to the talking heads because she did not she had sold her in the video position in January before the big run, saying that the stock was no
longer considered we'll say breakthrough technology. It's so hard to call this stuff, right, you know, Apples and an all time all time high for Apple pretty close to an all time high. Amazon's working well. You don't have to win every road. Yeah, we like to get some trades working well. Amazon, which will come back to got a nice, nice boost because it is also now now painted with the artificial intelligence brush. But both Apple
and Amazon have been leaders in artificial intelligence for many many years. When we come back, talk more about artificial intelligence, what is working and what is not in the market. But it is going to be a long weekend, so plenty of time to study and get ready for a short week next week and then in to June. This is Josh Arnold, mister money Talk with Judd Arnold. We're always here to help help you. Nine five two nine
two five five six o eight. This is johnsh Arnold missed her Money Talk with Judd Arnold here to answer your questions on stocks, bonds, mutual funds, how you should position your investment dollars including your IRA and four oh one K. Don't hesitate to give us a call at nine to five two nine two five five six o eight. That's nine to five two nine two five
five six o eight. Artificial intelligence any company around artificial intelligence has gotten a big boost this past week, and a few have been getting some pretty good moves up in the last month since Microsoft made their announcement of dealing with open Aiye, the company behind chat GPT. Microsoft desire to use this product was to enhance their being search engine so that they could better compete with Google or
alphabet. Google's search engine, which is the dominant dominant force so after Microsoft, which has continued to move up and has seemed to be a huge beneficiary going forward with art in dealing with artificial intelligences, so as it adds it to its products. Then we have Facebook in their analysts update a couple of weeks ago mentioned how it is using its own artificial intelligence um we'll say chat bot to enhance their advertising results. So we'll say Meta or Facebook has continued
to climb up. Now Meta also gets a lot of props for Mark Zuckerberg's i'll say pivot away from the metaververse and back to his we'll say, back to his roots with Facebook, Instagram, YouTube not YouTube YouTube as Google's um and and reels as a way to develop that business and really to to work
out and enhance their advertising space. Now I we have been very, very big an Apple and Amazon for forever, I'll say for forever, and Amazon has been which I've shared, shared with you, shared with my clients, a huge, huge bit of frustration. While it's not frustrating anymore. Back, no, it is not frustrating anymore. Not trying to be cavalier about it, because there's an overriding point, which is the big tech stocks are
back doing this year. What they've done for twelve thirteen years. And it's really only the big ones at this point, which is they are shrugging off everything. Oil goes up, oil goes down, interest rates go up, interest rate, they don't care. They're just getting all the flows. It is the top of the SMP five hundred that you know, it's seven or eight stocks that are just driving the index and continue to get equity flows and
they're immune. Why do I bring up the bond marketing, Well, the six months yield and the two year yield are back near all time eyes. And this all last year. It's really from the end of twenty twenty one all the way through twenty twenty two. Body yields up, tech stocks down, and they are just shrugging everything off. Right now, Well, you've got you've got a group of companies that generates an unbelievable amount of cash.
They provide products or services that people are going to use, regardless of whether we have inflation deflation, whether you have a booming economy or a recession. Well that was all true last year and the year before. I point I was making, which not to discount you, but to politely disagree or push back to me. What it says is equity flows are not at risk right now. The money that was going to come out came out, and now
people are repositioning. I think you also have another dynamic that is really important to understand for the average person, which is, this is another year and we've had a lot over the last twelve more so than we've ever had in the preceding forty. Where the difference between the S and P five hundred, which is marketcap weighted, and the equal weighted SMP five hundred, which is weighting them all the same, that divergence is massive. It is ten percentage
points on return. So the SMP five hundred, the one that everybody knows and loves, is up nine point eight percent. The equal weighted SMP five hundred is down point three percent for the year. That's a that's a that's a big, big un that is huge. And what you see is a lot of the big mutual funds they benchmark to the S and P five hundred and what you have going on, especially in video, but you're also singing
with Amazon, Apple and whatnot. Most big actively managed mutual funds are underweight growth and have been underweight the big stocks well I think that most of the most of the mutual mutual funds across the board have have been and most advisors, I would venture to guess again, Um, just by listening to the advisors that show up on Financial TV, I think they're they're all underweight stocks as you you mentioned, and overweight. Uh. They're very much overweight bonds
and overweight Uh. We'll call it the value stock. That's what I'm saying. They're overweight value, and the value stocks have been hit and most of the values stox have been um in financial services, primarily in bank in banking. Yes, this is going to be one of the worst years in the history of active managements. Not for us. We're overweight. Our two biggest positions are Apple and Amazon. Not for not for us, but for active management in general. This is going to be verse the index, probably a
worse. It is going to be one of the worst years that I've seen in my life. You know. Now, last years, as I've talked, you know, I underperformed the index. Uh, not by a lot, but still underperformed the index. And this year we've got to put that. You've got to put that in context on a rolling five year basis,
you have to go back I think to O two. So the last time you were underperforming the index under rolling five year Yes, but I mean I'm just but we got well just because of our overweight position and the fact that we run correct postury concentrated focused the portfolios. Of course they're not not for
everyone, but they've they've continued to work. And something that I found many years ago that being concentrated in and names that offer well, first off, big liquid we have no liquidity risks soever you can't, but they're generated during um companies that still have a lot of growth potential going forward. Well, look, we're gonna come back again, but we'll take a little interlude for those listening to our commentary on the death ceiling. Here's the commentary. They
always figure it out and it doesn't matter. What I mean is they've always figured it out secondarily, and if they actually do screw this up and we default as a government, you're supposed to buy a lot of stocks that day because they'll figure it out in the next day. And under no circumstances, as anybody who is a lender to the US, the US government's always going to pay back a hundred sets on the dollar. Correct, it's just a question of when. And I don't think it would be the worst thing ever
if they did default. From our perspective, we got plenty of cash or ready to buy. And you know, these politicians need to see the air in their ways every once in a while, and I just it's always kabuki theater with these things. But that's not the issue. That The issue that is scary that will be a catalyst for something later in the year is the banking system is still in a lot of pain. Lending has been really restricted and interest rates continue to go up, which is even more fuel makes it
really difficult for the banks. And it's no, it's very difficult to want to own banks, but you lot of money going there, right, We're more focused on the other on the second derivative, which is bank You know, bank lending is really going to be curtailed. I want to come back back to that when we come back bank lending being curtailed, and maybe some
opportunities that might present present itself. Say this is Josh Arnold miss or Money Talk with Judd Arnold here to answer your questions on stocks, bonds, mutual funds, how you should position your investment dollars including your IRA in four to one k. Call us nine five two nine two five, five six o
eight. This is Josh Arnold missed or money Talk with Judd Arnold here to answer your questions on stocks, bonds, mutual funds, how you should position your investment dollars including your IRA in four one k. Don't hesitate to give us a call nine five two nine two five, five six or eight. That's nine five two nine two five five six oh eight. We always get
straight talk, not true coded advice. We're talking about banks and the concern with tightening tightening credit due to higher interest rates and the banks investment portfolios being will say underwater on a market market basis. More underwater now is rates of just skyrocketed back rates came in, which makes bond prices go up in March and we are back to the wides as they say on yield, which is the lowest for bonds. It is an ugly, ugly thing to be a
bond investor. And we were on the brink of default. We're probably not going to default. We don't think the fault is going to matter if you just tune in. If it does default, by everything you can, because it'll be resolved pretty quickly. But man, what a tough time for banks. On top of it, even a freights weren't going up. These banks, they're on the wrong side of this whole thing. They got a huge surgeon deposits. Deposits I think are about seventeen point one trillion. If they
were at their historical run raid who would be about fifteen trillions. You need two trillion to come out twenty three trillion of bank assets out there, two point two or two point three trillion of bank book equity of banks, almost one hundred percent of the book aquity of banks has to be refunded to the depositors. That's so what's gonna happen, right, What's gonna happen On a practical basis, Banks are gonna have to shrink their balance sheets inaggregate by about
ten percent. That means as loans come due and mature, probably only eight out of ten people with a banking relationship are going to get there they're loan or their credit line renewed. Banks are who's gonna say, sorry, we have to shrink. Tough luck, and the impact on the economy is gonna be pretty bad. Can we get through this shirt like it's shaping up to be a lot like the SNL crisis of nineteen ninety to ninety two, where
pockets of the market really did quite fine. Real estate got obliterated. No real estate got obliterated because you had the savings and loan crisis at that point. The resolution Trust Company came in and brought up a lot of or took over a lot of underwater or failed well savings and loans and sold off a lot of commercial real estate and you know, apartment buildings and the like. And we'll say different, I'll say groups of individuals or small companies who had
cash available and they made a killer. That's gonna be different this time is I think there's still there's always a killing to be made now, whether there's an RTC, and I think we're gonna need an RTC when this is all said, then we're gonna lose a few more banks that thanks that we've lost already this year, Silicon Valley Bank, Signature Bank, First Republic. Guess what, the Feds still holding a lot of that paper. The buyers of
those institutions didn't take the entire love bookcase. It's underwater now the FEDS are holding over one hundred billion dollars of paper. They may be holding five hundred billion by the time this is done. San Francisco real estate, Chicago commercial real estate, New York commercial real estate, Oh oh boy. And that's how by insurance companies and their investment portfolios. That's just gonna be a work as well as some pretty large institutions, whether it's Blackstone, black Rock,
oh, all sorts, that's what I own a lot of them. I mean, the math is really simple, which is a lot of commercial real estate was bought or refinanced assuming somewhere between a four and five percent cap rate. Some of the best New York commercial stuff was a three percent cap rate. Now they got to those cap rates, which is just you know, it's an in person a phe multiple at higher higher occupancy. Well, everybody's well aware that occupancy for commercial real estate downtowns is a hack of a lot
lower, and obviously rents with it. So what we're looking at is really the wholesale destruction of the equity portion a lot of these deals and a lot of the loan portion, especially if they have multiple tranches of debt via first mortag second mortis third mortgage. A lot of that debt is impaired, and this is going to take a wild work through. It doesn't mean that downtown New York, downtown Minneapolis, downtown Chicago, or downtown San Francisco isn't going
to revitalize and find a way. Certainly downtown Detroit in a nice twenty years story. But that's the problem. It's a twenty years story. So that's a long story. Well, I wanted to bring this up because I happened to notice a reek that was run by an old neighbor of yours, Barry Sternwick, at Starwood Capital. When they came out with their earnings down to not too long ago, the stock dropped from about eighteen dollars a yeare down
to sixteen. This is a primarily a mortgage reets. What a mortgage read is it's a real estate investment trust that the assets are our mortgages, they're not actually buildings. And you know this, This particular reet, under current prices has got to yield just under eleven percent, So the whole do not number one one of our number one rules. We have a lot of number one rules. When the yield looks too good, to be true. It's
too good to be true. Now I want to I want to bring this up because very stern, which has been a very sharp and shrewd real estate investor for a very long time, I would not put him yet on the same I'll say, same plateau as Sam Zale of Equity real Estate who recently passed away and seem Yeah, great guy was known iconic, classic great guy as the Grave Dance. It was the great Danswer from the sixties and seventies because he bought a bunch of businesses in a bunch of real estate when it
was in deep, deep trouble and he revitalized it. But now i'd bring it, bring up Barrett Barry sternly. Yeah. It was. One of the things that happened on his conference call was Kim talking about the amount of cash that they have in their portfolio and available to go out and buy both mortgages and buildings on the on the cheek. And we're not talking about, you know, a million dollars of cash. We're talking over a billion dollars. And that to me looks very interesting. It's there's gonna be a lot
to buy. The problem with the star Wood that takes TWD or any of these things. The problem that I struggle with, and the banks have it the worst is you're really excited about to go forward, correer. You really wish that you could buy just to go forward without buying as well the legacy correct. And that's the problem. And Steve Robin, the big New York developers Vernado ticker VNO have some water. Look at you. You know,
I'm a little bit worried about you. There have some water. Okay, you really want to buy going forward, and it's really hard to find something where you get to going forward and you don't have to accept buying what they've done to get here. And that's the problem. So I it's great positioning, I think very stern like he is going to make a lot of money with all his new funds, but you got to find out. You gotta find something clean, and we've struggled so all the stuff. It's just kind
of wait and see and wait wait for it to play out. And that's that's right, be there. It's gonna get worse before it gets better. As my guess. Well, I want to just touch on one other, you know, big time investor who's getting his his his skid, his sale is um Carl. I care who's publicly treated fund and he is the majority share hole of it. I ep Look, it's good that the stocks guy not a lot lord. Carl's lost a ton of money. Whatever he does
is unclear. There's there was a big short report a couple of weeks ago. It looks like he's in a world of trouble. But you don't know how much money he has outside that fund. People say he's gonna get margin called. I don't know how you can margin call him if you're the margin lender. He made the mistake of lending against the liquid stock and he's got ninety percent of it. If they if they easy stock to sell it, they're gonna lose a lot more money. They got to work with them.
But we'll see. I don't think that story is over. It doesn't really impact a lot of stuff. No, but I think that's a very interesting story. Let that be a lesson everybody. Don't get don't over lever a liquid stuff. Well, that is one thing that we don't do. Please stay away from leverage period relating to your portfolio, and leverage can be in the form of being out on margin or it could also be taking excessive risk in the options market. Do give us a call nine five two nine two
five five six oh eight. That's nine to five two nine two five five six oh eight. You always get at straight talk, not sure coded advice. I am Josh Arnold, mister money talk with Judd Arnold here to help you. This is Josh Arnold missed or money talk with Judd Arnold here to answer your questions on stocks, bonds, mutual funds. You should position your investment dollars including your IRA and four oh one K. Don't hesitate to give us a call at nine five two nine two five five to six o eight.
That's nine to five two nine two five five six o eight. You always get straight talk, not sugarcoated advice. Very interesting. Also, not only do we have some of the semiconductor companies reporting earnings this week that did very well, two in particular Navidia, and then on Thursday, that was on Wednesday night, and on Thursday night Marvell came out with their report.
Marvell jumped, so hit stock go from forty nine dollars a share at the close on Thursday night the closing on Friday at sixty five dollars a share. Yes, they both beat and raised, but they talked about artificial intelligence, and as we said at the beginning, anything that seems to be around artificial intelligence is getting a big, big, big boost. We also had this past week some retail earnings, and we have more retail earnings coming in in
the next week. And the retail earnings were very, very mixed, and it can give you a will say, strange view of what is actually going on in terms of UM we'll say consumer consumer behavior. On one hand, you see a company like Deckers, which will say more a specialty retailer, and I've never understood some of the I'll say that the desire to own or where TeV sandals or Ugs boots. But Deckers also is big into Hoka shoes,
which have been very hot athletic shoes. Deckers continues to print print money, and you know, both Ugs and Hoka are higher, higher end shoes, and the stock continues to work going forward. Dick's Sporting Goods another beat and raise UM quarter, big time bright spot on what they've what they've accomplished their stock or they keep saying, athletes continue to come into their stores and
that's all kinds of athletes. You've had some other stores that seem to be more on a turnaround, such as as Gap Gap stores and doing a turnaround. And you had Best Buy, which beat on the earnings, they missed
on the revenue. They said sales of electronics are are difficult. But a number of analysts have come out and said, hey, that electronics move over the next year is going to turn and Best Buy is still the only electronic retailer out there, and they've their price target well over one hundred and I think it's one hundred and ten dollars stock trading at in the low low seventies. But then there is a Dollar Tree, which should be a you know,
a big beneficiary of a slower economy. This is first order of thinking. I just that's all right, but you can have my first order thinking. I think my my point to talk get to have a budget. Yeah, because it's budget, I know, but I'm just going to bring out the dollar. Dollar Tree missed top line, bottom line, guided down.
And one of the big things that they based on now dollar Tree also is a turnaround institution, but they added to to something that targeted at it added too, and that is shrinkage continues to go up, and I've seen that with other retailers being concerned about this is a This is a real time for retailers. That's what it is. Shrinkage is higher and supply chain inflation. It's a tough business. It's a business with low margins and lots of inventory
turns. And these dollar stores in anyway, I mean they were the Darling ten years ago. My whole point is this shrinking shrinkage. Your shrink shrinkage is up, and they're going to be a lot of areas that are going to be losing losing stores just because of the shrinkage. And that was mentioned not only by by Dollar treat but definitely by Target and Walmart. So as you can say the number of retailers is going to or physical stores. I
mean, it's really crazy. The shrinkage in the United States is now approaching emerging market levels. That's another way to say it, Okay, I mean it's a little bit sad. You know when people say America is the third bold country, Well, according to shrinkage, which is people's people stealing from stores. Uh, the quantity on a quantitative basis, just looking at the
numbers we kind of we are, which is and the shames. It's happening primarily in urban areas, not so much in uh suburban or rural areas. But you can debate and the people and who's the biggest loser the people those urban everybody has to pay the tax of higher prices to offset the shrinkage. It's not a victimless crime. But you know, I'm preaching to the choir, so the yes, yes you are. But again, I think my point is if you're even looking in retail, which has just been hurt,
I don't like. Right, Well, let's talk about this is another one. We last week talked about media and how terrible it is. I don't want to touch anything in media. It's too hard. I can't figure it out. Who's gonna win. You know, let's just gets you talk about media that just gets gets worse by the by the day. Those I mean Paramount, which is a cop merger of Viicon and CBS no return for twenty years. Oh, it's been been off and Sherry Redstock just had to bring
in minority investors to help shore her up because she's over levered. I mean, she might have to dump everything. So anyway, there's a lot of places that you don't want to touch in this market. You don't want touch banks, you don't want touch retail, you don't want to touch media. It's hard. Energy is not working. Although I'm sticking with I'm sticking with my guns with energy. I think they're too cheap. But oh, energy
definitely is too cheap. Nobody care. We had a bunch of hold on if it's so, it's so cheap that You've had a number of mergers in the in the oil and gas space. RG mergers look like they're going to be a creative Chevron or Chevrod. Start of the week with a nice merger of PDC, and you had C Drill and Board Drilling report this week is blow out numbers, great green commentary. Those that's offshore, all of these
stocks, anything that that's economically sensitive and quote unquote cyclical. The people who own it think they're paying nothing and they're nobody. There's no new money flowing in. And that was sort of how we started the show, which is all the stuff, all the money has flown to the biggest stocks. That's gonna keep flowing there as those keep working. And other than that, there's
not a lot of new money coming into equities. So the other, the other, the other point that I want to make is, no, there is not a lot of new money coming in. There's still a lot of cash on the on the sidelines. And most advisors, at least that I can I can see just listening even to a fin TV have been very heavy on recommending stuff like bonds, value stock, private equity. Yeah, all
the credit, I'll lose it. I'll lose it. So the SMP five hundreds up on was nine point eight percent of the year, the equally in SMP five hundred down for the years down like point two percent. That ten percent spread is one of the biggest. It's going to be one of the bigger spreads that we've seen in a long time. And the underperformance of active
management. Not us, We're over we were in concentrated Apple and Amazon and a few others, but the underperformance inaggregate of mutual funds and active management. This is gonna be one of the worst years versus the index. It already is. I'm saying it's probably gonna end up that way, so so be it. Well, we'll keep We're here to help you, and definitely we we think much different or differently from from the crowd. And if you want a different point of view, give us a call. Nine two nine two
five five six h eight. This is Josh Arnold, mister Money Talk with Judd Arnold here to help you. But before we go, it is Memorial Day weekend. I do want to uh make a comment, as I've done every year on radio at Memorial Day and on Veterans Day. I give a shout out particularly the family and friends of my high school classmate who was killed in action in Vietnam in March of nineteen seventy, Corporal William Calmly, and
to those who have served, including our parents and grandparents. We'd like to honor them this weekend. Josh Arnold Investment Consultant is a registered investment advisor located in the state of Minnesota. All securities discussed are for informational purposes only. Investing contains risks, including risk of loss. Consult your investment professional before making any decisions about your investment portfolio.