Smart Investing with Brent & Chase Wilsey

Target (TGT) and Walmart (WMT), Rising Interest Rates Impact the Real Estate Market, Housing Supply, Supply & Demand in the Energy Market, and Harrison Johnson, CFP®: Tax Filing vs. Planning

Target (TGT) and Walmart (WMT)

We have seen companies like Target (TGT) and Walmart (WMT) get absolutely hammered this earnings season with WMT down close to 25% from its 52-week high and TGT down over 45% from its 52-week high. While valuations may start to appear attractive in the retail industry, be careful as inflation could weigh heavily on these companies. In an inflationary environment like this, you want to find companies that have pricing power and that can offset their cost inflation. In the retail space I am more interested in companies that own their own brands as I believe that right names can increase prices to offset rising costs. 

 

Rising Interest Rates Impact the Real Estate Market

It appears those rising interest rates could now be impacting the real estate market. New home sales in the month of April fell 16.6% compared to March and were down 26.9% from April 2021. At an annualized rate of 591,000 units, the result greatly missed the estimate of 750,000 and was the slowest sales pace since April 2020. While new homes sales account for a smaller percentage of overall home sales it is based on signed contracts in the month which can be considered more up to date when comparing against closings. The slower sales pace resulted in a 9-month supply of newly built homes. A 6-month supply is generally considered a balanced market between buyers and sellers. One other major negative for builders is that they are starting to see an uptick in cancelation rates. This is just one indicator, but with affordability remaining difficult I am still looking for a small pullback over the next 6-12 months, which could present some buying opportunities. 

 

Housing Supply

Could rising mortgage rates and cooling housing demand actually increase housing supply? According to Realtor.com the supply for homes increased 9% last week compared to the same time period last year. This was the largest gain since the company began tracking the metric in 2017. Redfin also announced new listings rose nearly twice as fast during the 4-week period ending May 15^th compared to the same time last year. The concern of perhaps a housing peak could cause more sellers to try and lock in gains before prices fall. This comes as pending home sales dropped 4% in the month of April and were down 9% compared to April 2021. Again, I want to be clear.... I do not foresee a housing crash but rather a reasonable pullback in housing prices to increase affordability. 

 

Supply & Demand in the Energy Market

Last week I discussed the supply issues that are causing price increases for gas and diesel. On the demand side of the equation, it is not looking positive for prices. The US Department of Transportation reported Thursday that total miles driven in the US surpassed pre-pandemic levels. Americans drove 277.4b miles in March, up from 272.4 billion miles during the same month in 2019 (+1.8%), and up from 269.4 billion miles in March 2021 (+3.0%). Higher demand and lower supply will continue to produce an imbalance and higher prices in the energy markets. 

 

Harrison Johnson, CFP®: Tax Filing vs. Planning

Energy Prices, Energy Market, Retail Sales, Options Trading, Apple (AAPL), and Harrison Johnson, CFP®: Estate Planning and Beneficiaries

Energy Prices
Energy prices continue to climb as regular gas prices at a national level hit a record $4.523/gallon and diesel prices hit $5.573/gallon. Last month gas prices were at $4.08/gallon and diesel prices were at $5.028/gallon. If we look at last year, gas prices were at $3.045/gallon and diesel prices were at $3.171/gallon. For us lucky CA residents, prices for regular gasoline have topped a record average of over $6/gallon. 

Energy Market
You have seen a lot of rhetoric about price gouging from energy companies as the reason for higher gas prices. But realistically, the answer is much simpler and can be understood by supply and demand. To begin oil and gasoline/diesel are different. Oil is used to refine products such as gasoline and diesel and is an input cost. There is a correlation between the two, but oil does not fully account for changes in gas/diesel prices. 

Retail Sales
Retail sales had a very similar report to last month as the growth was strong, but much of the growth can be attributed to inflation and price increases. The headline number shows April retail sales climbed 0.9% compared to March and were up 8.2% compared to April 2021.

Options Trading
Are the small investors getting smarter or did they get burnt so bad by options trading that they’re now backing away? The most recent data shows at the end of March, small investors made up 26% of total option activity. This was a decline from last year when it hit 30%. The good news for investors is with less option activity this could reduce the volatility in the market. That does not mean it will not continue adjusting downward, but it should mean the swings should not be as brutal if many small investors do not hold options and begin panic selling.

Apple
One of the famous investors from the Big Short, Michael Burry, has now turned his attention to Apple and is betting the stock will decline. Burry is utilizing bearish puts to hopefully profit from a decline in Apple's stock. Even with the recent pullback, Apple still trades at over 20x 2023 expected EPS of $6.54. For a company that is now looking at sales and EPS growth in the single digits I would not say this company is a value play. While we do not short or place bets against stocks, I would not be a buyer of Apple at these levels.

Harrison Johnson, CFP®: Estate Planning and Beneficiaries, New information from the IRS, Individual Retirement Account (IRA), Making sure your beneficiary is set up properly.

 

Other Companies Discussed:

Ready Capital Corp (RC)

Occidental Petroleum Corporation (OXY)

Global X MLP & Energy Infrastructure ETF (MLPX)

Camping World Holdings Inc (CWH)

 

 

U.S. Airline Bookings, CPI (Consumer Price Index), Coinbase Stock (COIN), and Harrison Johnson, CFP®: Series I Savings Bonds

U.S. Airline Bookings
I have said that I believe the economy will be held up by a shift from goods to services throughout the rest of this year. I was a bit worried with my prediction when I saw a headline that U.S. airline bookings dropped 17% last month from March.

CPI (Consumer Price Index)
I'm still sticking with my prediction that inflation likely peaked last month at 8.5%. All that means to me is that is likely the highest reading we will see. It does not mean that inflation will not remain a problem. 

Coinbase stock (COIN)
Coinbase stock (COIN) has been absolutely hammered this year as it is down nearly 80% and in the last week alone it is down close to 50%. There was a recent disclosure in the company's recent 10-Q that is filed with the SEC that would absolutely spook me as an investor. 

 

Harrison Johnson, CFP®: Series I Savings Bonds

April Employment Numbers and JOLTS Report, Declines in the Markets, Foreign Currencies, Money Market Funds and Special Guest Robert Behic

• April Employment Numbers
  Employment numbers came out on Friday and while unemployment rates stayed the same as last month at 3.6%, not as good as the expected 3.5%, the economy still recovered 428,000 jobs above the estimate of 391,000 jobs. 
• Declines in the Markets
  If you’re feeling a little bit uncomfortable with declines in the markets, it is justified. 
• Foreign Currencies
  It is no secret that inflation numbers are running high, but I do see inflation numbers cooling off over the next six months for various reasons. One of the reasons is a strong US dollar as our interest rates continue to increase. 

 

• Special Guest: Robert Behic
  Robert Behic runs Countywide Mortgage Lending which has been named one of the TOP 100 MORTGAGE COMPANIES IN AMERICA every year since 2012.  He has been serving the community now for over 30 years, and has also been recognized as one of the top 1% producing loan officers in the country for multiple years. Over the course of Robert's career he has helped thousands of people experience the joy and benefits of owning a home. He enjoys helping people who thought they couldn't afford to buy a home and he even helps his clients with credit repair when needed. Coaching families and individuals through the process of buying a home for the first time, and helping seniors with new and improved reverse mortgages, are both areas of Robert's expertise. He is very active within the local community, including supporting military organizations and children's causes. Countywide Mortgage was proud to be recognized by the Better Business Bureau when they received the coveted Torch award for Ethics in the business marketplace.  As they say at Countywide, "It all starts with a conversation".

 

• Discussed Topics: What is going on the mortgage market / Any important information to know about the mortgage market

• The Purchase market is still very strong. Where refinancing has slowed to a crawl.
• Our Belief the value of Real Estate will be the same or greater at the end of 2022 than it was at the beginning. 2023 could have a different outcome for home values.
• Investors continue to buy rentals.
• First Time Homebuyers and the population boom.

Big Tech Companies Start to Struggle, GDP Report, College Students Starting Salary, Bitcoin (BTC-USD), Harrison Johnson, CFP® will be discussing The Augusta Rule

Big Tech Companies Start to Struggle
I'm quite excited to see many big tech companies start to struggle. I have been hesitant on the group the past few years as the valuations just did not fit in to a value investors strategy. 

GDP Report
While the headline GDP number of a -1.4% missed the estimate of 1.0% growth, the underlying numbers still don't worry me about the start of a recession. If you look at the details, you'll see net exports subtracted 3.2% from the headline number. 

College Students Starting Salary
Many college students in the class of 2022 are out of touch with reality when it comes to expectations for a starting salary. According to a recent survey, on average these students are expecting to earn $103,880 in their first job.

Bitcoin (BTC-USD)
You may think Bitcoin is going up because it’s becoming more popular, but it’s also becoming more popular with hackers. In 2021 there was $3.2 billion stolen in relation to cryptocurrencies. 

Harrison Johnson, CFP® will be discussing The Augusta Rule

Streaming Services, Bonds and CA Legislation (calling for a 32-hour workweek for companies with more than 500 employees), Harrison Johnson, CFP®: Working smart, not hard

• Streaming Services
  After Netflix's results yesterday that saw the company lose 200,000 paid subscribers and forecast a loss of 2 million subscribers in the second quarter, it is clear the streaming competition is catching up with the company. I do believe this loss of subscribers is going to be isolated to Netflix as other streamers continue to play catchup. For example, HBO & HBO Max saw subscribers climb 3 million compared to last quarter and 12.8 million compared to last year. 
• Bonds
  I have recommended investors stay away from bonds over the last few years and now you are beginning to see why. As interest rates rise, bond prices fall. There has been no real safe place in bonds to start the year and I believe this is likely to continue. 

 

• Harrison Johnson, CFP®: Working smart, not hard

Inflation, CPI Report, March Retail Sales, General Motors, Ford, Toyota Stock, Russia/Ukraine Impacts Fertilizer and Harrison Johnson, CFP®– Tax Changes When You Get Married

Inflation
Comparisons of our current inflation to the late 70s in my opinion is not the same. From 74 to 79 the consumer price index was 8.1% however unemployment was at 7.9%. Recent unemployment just released is 3.6%. 

CPI Report
The inflation problem has only gotten worse as CPI came in yesterday at 8.5%. This is the highest year over year gain since 1981. There is some good and bad news here.

March Retail Sales
I was quite disappointed with the retail sales number this morning. Although the March number climbed 0.5% compared to the previous month and rose 6.9% compared to March 2021, this number did not keep up with the inflation rate of 8.5%. Retail spending is not adjusted for inflation so this shows me cracks in the consumer confidence to spend on discretionary items may be starting to show.

General Motors, Ford, and Toyota Stock
If you’re wondering why the stocks of car makers like General Motors, Ford and Toyota have fallen off their highs, look no further than the first quarter sales reports. 

Russia/Ukraine Fertilizer
We all talk about how the Russia/Ukraine situation has impacted the energy markets, but it is also having a major impact on fertilizer. 

 

Harrison Johnson, CFP®– Tax Changes When You Get Married

Walt Disney (DIS), Index Investors, Nasdaq and Treasury Markets, Bitcoin Update, and Harrison Johnson, CFP®– “Generalized” Financial Advice

Walt Disney
I held Walt Disney in the portfolio many years ago and I’ve been waiting for a correction to come to put this wonderful business back in my portfolio. I always liked it because it was a family type business. Now the company seems to be getting away from the family orientation. 

Index Investors
It was not a good start for index investors in the first quarter of 2022. The S&P 500 fell 4.9%, the Dow Jones was down 4.6% and the tech heavy NASDAQ was down 9.1% in the quarter. 

Nasdaq and Treasury Markets
We saw a quick reversal in the markets today and in particular the Nasdaq and treasury markets. I believe these two markets will be hit the hardest by Fed actions and rising rates. The reversal came after hawkish comments from Lael Brainard who is generally considered a dovish member. 

Bitcoin Update
Here is a bitcoin update. Over the last 12 months investors in bitcoin are down over 22%. The global bitcoin industry is also continuing to really suck power for production of the cryptocurrency. Consumption by the global bitcoin industry is 135 Terawatt hours which is more than the entire country of Norway consumed at 124 Terawatt hours. One terawatt equals 1,000,000,000,000 Watts. Or put another way it is the equivalent of 10,000,000,000 100-Watt bulbs. 

 

Harrison Johnson, CFP®– “Generalized” Financial Advice

 

Listen to More Episodes: THE SMARTINVESTING2000 PODCAST

March 2022 Jobs Report, JOLTS, 401(k) Accounts, Yield Curve Inversion, and Harrison Johnson, CFP®: Financing with Higher Interest Rates

March 2022 Jobs Report

To no surprise the job recoupment continued in the month of March as non-farm payrolls grew by 431,000. This did miss the estimate of 490,000, but the previous two months saw revisions total a gain of 95,000 which more than offset the miss.

Job Openings and Labor Turnover Survey (JOLTS)

The Job Openings and Labor Turnover Survey (JOLTS) continues to post elevated numbers. In the month of February there were 11.27 million job openings which compares to the total number of people counted as unemployed at 6.27 million. This now means that there is a record 5 million more openings than people that are unemployed!

Previous 401(k) Accounts

With the level of quits we have seen in the JOLTs report many are deeming this era of time as the Great Resignation or the Great Reshuffle as employees are changing companies at an elevated rate. One item to be cognizant of if you have changed jobs is your 401k at that old employer. As of last year, it is estimated Americans had about $1.35 trillion in old employer 401(k) plans.

Yield Curve Inversion

People are now worried about the yield curve inversion. This is when shorter term bonds offer higher yields compared to longer term bonds. While this has been a reliable indicator of recession in the past, it by no means is something to panic over.

Harrison Johnson, CFP®: Financing with Higher Interest Rates

Apple’s New phone, Electric Planes, Energy Sources, the 10-Year Treasury and the Housing Market, Harrison Johnson, CFP®: Financing with Higher Interest Rates

• Apple’s New Phone: SE
  I recently read about all the hype on Apple products from the recent product event and special notice was taken to the big push on their new phone the SE which starts at $429 versus $699 for the cheapest iPhone 13. 
  
• Would you fly in an airplane that uses only electricity?
  The electric vehicle market has taken off, but there’s always the question would you fly in an airplane that uses only electricity? Most of the time the answer is no but there is another alternative for clean energy. General Electric developed the use of hydrogen to run gas turbines to generate power which generates zero carbon emissions. They are now adopting hydrogen to be used with jet engines
  
• Energy Sources
  Electric vehicles seem to receive all the hype, but I believe it would be best to have multiple sources for energy. If we become too dependent on the electric grid, outages or supply disruptions could cause major price spikes. 
  
• 10-Year Treasury and the Housing Market
  The 10-year treasury crossed the 2.5% mark today. Last year I thought we would hit that level by the end of 2021, it came about three months later than I expected. This could cool the housing market as mortgage rates continue to rise pushing more and more people out of the housing market as the monthly payment becomes too expensive. 
• Harrison Johnson, CFP®: Financing with Higher Interest Rates

Increases in the Economy, Oil Companies, Inflation & Consumers, and Harrison Johnson, CFP®: Early Retirement

• Increases in the Economy: Retail sales came out today with a headline miss as they grew 0.3% compared to January below the estimate of 0.4%. A major positive in the report was January was revised upwards and compared to December, retail sales grew 4.9%. The initial January report showed a gain of just 3.8%. 
• Oil Companies
  If you hold in your portfolio oil companies like BP, Shell, or Exxon you may want to be prepared for a write down of assets against earnings in the next quarter or two if the Ukraine Russia war does not change course soon. 
• Inflation & Consumers
  Many comparisons are being made to the 1970s with the current situation of inflation and rising gas prices. One big difference today versus then is that in the 70s food and energy costs consumed 20% of consumers budgets.
• LA Ports
  Things are improving at the ports of Long Beach and Los Angeles in regard to container ships. The number waiting for berths at the port has now dropped to 50 roughly half of the 100 at the peak back in January. This could be a positive for inflation as more goods hit the markets.
• Harrison Johnson, CFP®: Early Retirement

SPACs, Oil Price Spikes, Tax on Big Oil Companies, and the JOLTS Report

SPACs: You may not remember about 18 to 24 months ago when the big rage was SPACs. These are special purpose acquisition companies, and many were formed back in 2020. We talked about not investing in these blind pools for fear of being hurt and losing money.

Oil Price Spikes: Russia has made a bold call that if the West proceeds with a ban on energy exports, oil prices would skyrocket to $300/barrel if not more. This would be a devastating situation for our economy, but I do not see this as likely. Currently the major oil companies and the government are playing a blame game with one another.

Tax on Big Oil Companies: I was disappointed to see congress members solution to higher oil prices is to tax big oil companies at extremely high rates. The proposal which comes from Elizabeth Warren and Sheldon Whitehouse would require oil companies that produce or import at least 300,000 barrels of oil per day to pay a per-barrel tax equal to 50% of the difference between the current price of a barrel and the average price from the years 2015 to 2019. 

JOLTS: Our favorite Job Openings report (JOLTS) came out today and the openings continue to remain strong with 11.26 million in the month of January. This level is currently 4.75 million more than those that are counted as unemployed.

Stocks, February Jobs Report, Harrison Johnson, CFP®: Beneficiary Designations

• The Right Stocks Will Do Well Over The Long Term
• US Electric Grid: The United States electric grid is becoming older by the day. In 2020 there were over 180 power disruptions
• February Jobs Report: The Russia/Ukraine news continued to dominate the markets and what was for the most part a strong jobs report flew under the radar. Nonfarm payrolls saw an increase of 678,000 in February which easily topped the estimate of 440,000 as jobs continued to be recouped from Covid.
• Harrison Johnson CFP® – Beneficiary Designations

SEC, Tax Returns, Stop Loss Orders, The Future of Money, and What is a CFP?

• The SEC: Recently the Securities and Exchange Commission also known as the SEC passed a proposal that would force hedge funds and private equity funds to provide basic disclosures to their investors and guard against conflicts.  
• Tax Returns: Did you have problems reaching the IRS last year? You wouldn't have been alone as the IRS had just 16,000 workers charged with fielding 240 million calls that’s about 15,000 each. 
• Stop Loss Orders: Reasons to not use stop loss orders 
• The Future of Money: There is an excellent book about digital currencies titled the future of money: how the digital revolution is transforming currencies and finance. 
• What is a CFP?

Inflation, Household Debt, Oil, Federal Gas Tax Holiday and Harrison Johnson, CFP®: 401k Rollover

• Inflation:

We reported last week that inflation year over year was up 7.5%. Companies are doing their best to hide these increases in many ways such as reducing the portion size at restaurants or reducing the number of ounces of a product you buy in the store. Another trick they are using is not increasing the price but adding overpriced accessories that you may buy on a car or another similar product.

• Household Debt:

Total household debt increased by $1.02 trillion last year due to higher prices on homes and cars.

• Oil:

We all know that prices at the pump are increasing as demand for oil is high and supplies are low. One thing you may not know is that spending on exploration and production in the US has dropped dramatically from before the pandemic when it was close to $190 billion to the current level around $75 billion.

• Federal Gas Tax Holiday:

The idea of a federal gas tax holiday has been floating around as a potential solution to curb energy inflation.

• Harrison Johnson, CFP® | Financial Planner: 401k Rollover

Oil and Gas Lines, Super Bowl Sunday, Trade Deficit, The Housing Market and Harrison Johnson, CFP® : The Time Value of Money

Highlights:

• On Friday, February 4 China and Russia announced a new oil and gas deal valued at roughly $118 billion. It should also be known that last year the trade between the two countries hit a record $147 billion.
• The big game is now just a couple of days away!!! As always we like to take a look at some numbers before enjoying the game.
• The trade deficit has now reached $859 billion on a yearly basis, that’s an increase of 27% over the previous year.
• The numbers are in on inflation and it’s no surprise that inflation rose by 7.5% over the past year. It was the largest annual increase since February 1982. What affects will this have besides the obvious?
• Harrison Johnson, CFP® : The Time Value of Money

 

Learn more about our investing strategies at: smartinvesting2000.com

Jobs Report, Facebook (FB), Apple (AAPL) and CFP® Harrison Johnson: Inheriting Annuities

• Jobs Report

The jobs report blew past the estimate of 150,000 today as nonfarm payrolls grew 467,000 in January. Also, November and December saw a huge revision upward as it totaled 709,000. While I was surprised by the magnitude of the beat, I wasn't surprised to see a good report. We can't forget that employers are still desperate for workers as the job openings in December totaled nearly 11 million which was 4.6 million above the total unemployment level. It's also important to remember that we are continuing to regain jobs that were lost due to the Covid lockdowns. Currently, total employment is still about 1.7 million below where it was in February 2020.

• Facebook

Facebook/Meta lost over $200 billion of market cap this morning because earnings did not please growth investors.

• Apple

Last week Apple reported record numbers and investors cheered the results and pushed the stock up a little more. That enthusiasm may temper going forward as the details of the numbers have come out showing that greater China revenue increased 21% to a record $25.8 billion during the quarter and accounts for approximately 21% of the $124 billion in sales. 

• CFP® Harrison Johnson: Inheriting Annuities

 

GDP Report, Public Pension Funds, Oil Companies, CFP® Harrison Johnson: Inheriting Annuities

Mentioned Topics:

• GDP Report

The GDP report came in very strong this morning as Q4 saw an annualized growth rate of 6.9% which blew past the estimate of 5.5%. While this is a positive, there was a large gain of 32% from private domestic investment which is a gauge for business spending and inventory build.

• Public Pension Funds

In an effort to increase their performance US public pension funds have been putting more dollars into higher risk private equity.

• Oil Companies

People are concerned about investing in oil companies because they believe there is a very short timeframe before the EV market will reduce oil consumption. 

• CFP® Harrison Johnson: Inheriting Annuities

Peloton (PTON), Netflix (NFLX), Interest Rates

• The problems keep on coming for Peloton (PTON) as the stock traded as low as $23.25 today. That's a decline of more than 20% just for the day and compares to the company's all time high of close to $170 back in January of last year and is also lower than the IPO price of $29. In terms of market cap
• Has competition got the best of Netflix? In trading Friday morning, the stock was down over 20% trading under $400 well off the $700 high. 
• I know that some people were disappointed that the Build Back Better plan did not go through. I was not one of them because I feel with our debt at $29 trillion that is enough. One thing people don’t think about is if we added another couple trillion dollars to the debt as interest rates go up the government has to pay more in interest.

Big Tech Names, Bitcoin, Federal Reserve, Consumer Price Index (CPI)

• We have talked before about how the big tech names like Apple and Microsoft continue to carry the NASDAQ. Proof of that was showing last week when 38% of the NASDAQ stocks had fallen 50% or more from their 52-week highs. 
• You may feel safe with Bitcoin because it’s estimated that 114 million people hold Bitcoin. There are 7.9 billion people in the world by the way. The 114 million does include people who have lost their passwords and cannot access their Bitcoin. But more importantly 0.01% of Bitcoin holders control 27% of the 19 million Bitcoin in circulation. Why is that important? 
• We have all heard and know that the Federal Reserve plans on hiking interest rates this year at least three times. What you may not have heard of that does not sound as exciting is the reduction of the Feds balance sheet. 
• The inflation reports continue to remain at levels not seen in years as the CPI came in at 7% year over year which was the highest level since 1982.