Welcome back, Uh to another meet. Kevin Report Episode number 85 We are on April 17th. We've got Empire manufacturing coming out in about 10 seconds. uh, and then later around Uh 7 A.M Pacific We'll get some housing data, but otherwise we'll be looking at Uh, permits and some other catalysts coming up, uh, later this week.

Wow. Interesting. Empire Manufacturing actually comes in at 10.8 versus the expectation of 18 and the prior read of negative 24.6 That's actually really good. and it's a potential indicator that maybe the economy isn't exactly going into uh, this this recessionary environment that's a that's a really good beat right here on Uh Empire Manufacturing A lot of fear right now that the economy is going straight into recession and there's really nothing that's going to stop, uh, the recession from happening.

After all, we've got one of the deepest inversions of the yield curve that we've seen since the 1980s early 1980s when Paul Volcker came around. Let's listen to quickly to Cnbc's reaction and I'll pull up the actual report. See a couple of bases Point pop in two years? Uh, maybe a little bit of a reversal and pre-opening equities. The big themes this week? Keep an eye on the Dollar Index Becky and Joe uh on Thursday It closed at a one-year low.

Uh, we have seen that uh, economists and some forecasting and some issues regarding labor market are pushing up some Fed forecasts, maybe taking away some of the more dovishness at the end of this year in the form of reversals or easing back and that has helped the dollar a bit. you know, tax day, how much money we're going to be taking in how that'll affect it? That city is a biggie. And finally, I'll leave you with two issues: two year and ten year yields right now. or at the high intraday highs of the month of April and EU Supply should weigh on interest rates this week, keeping them a little bit on the lofty side.

It's interesting actually. you saw the NASDAQ drop a little bit after. uh, after this survey I Think there are some fears still lingering in the market that uh, oh, you know any good news is bad news because uh, it's inflationary. but uh, the reality is, there's there's been a lot of, uh, a lot more fear that, uh, no, we're it's not a Paul Walker issue.

What we're actually facing is potentially a real deep recession from the FED haven't been cut too much. So threading this needle of getting bad news and good news seems to be exactly what what has been happening this last year. Uh, well, probably more. the last like six to eight seven months we've been getting this data that's kind of like wait a minute, inflation is falling.

But wait, are we going into a deep recession then? Well, no. I don't know. some of the data is still strong. It's quite interesting.

Uh, so uh so I suppose we'll see, but uh wow. I Have to say that I'm trying to get the actual report. it's not actually on their website yet. They still have their last report on their website at New York Fed So we'll get this report when we can.

But overall, that, uh, that certainly comes in hotter than expected. and uh, yeah. I Personally, it seems to me if manufacturing is coming in strong, it's a sign that hey, maybe things just aren't as recessionary as expected. Uh, although again, most of us expect a recession, so who knows, maybe maybe it'll end up being self-fulfilling See if we get any other reaction here while I try to load the report.

Otherwise, we'll get into some of the other segments. today. It's the first time to sort of calibrate its policy accordingly. And and try and read the tea leaves a little bit.

So Julia would you view the strong, relatively strong labor market is a blessing or a curse for what the Fed's trying to do. And so I don't think that you know we're not in a Phillips curve world we haven't been, we still are not. And what we are seeing is that companies are reporting what we call Labor hoarding. They're more strategic and more inclined not to just quickly turn to layoffs, but to hold on to some of their key employees as revenues soften.

That could provide the US economy better resiliency. So you know I think ultimately, a good strong labor market is and can only be seen as a blessing primarily and uh, something that the FED should try to balance as it fights inflation. So Tyler I asked Julia two or three questions I think do you have? Do you agree with everything she said you have some Nuance or totally disagree. What do you think I broadly agree with with what Julia just said I Would All right, we're gonna back off this.

Let's go. Uh, let's do a little bit of a catalyst. Uh, for this week? Uh, we've got quite a few. So uh, let's hit Catalyst And uh, then we're gonna jump into some other topics.

Quite a few to cover this morning. Uh, and uh, we'll get going. Okay, so uh, the first thing that we're gonna do is, uh, let's look at economic data that comes out this week and try to synthesize how to put it together. So we'll start with, uh, the economics.

Let's uh, put a little note of that and we will start in five seconds. There we go. All right. Well, we've got a lot of catalysts to talk about this week for the stock market, including 420s Tesla earnings.

We're going to talk about what some of the expectations are for Tesla earnings, but let's also go through some of the economic data we're expecting this week and which matter the most this morning. for example, we got Empire manufacturing that came in a lot stronger than expected at 10 points versus negative 18 for the survey or negative 24.6 prior suggesting maybe the recession isn't as close as people might think it is. Tomorrow, on the 18th we'll be getting building permits. It'll be a little bit of an indicator for what we're seeing in housing as well as housing starts.

We're looking for a 1.5 or 1.45 million permits. That's a month-over-month decline of 6.5 percent. Is it going to come in hotter than expected along with housing starts Expected to be negative 3.5 percent. Will those rise? as the real estate market so far this year has actually been booming, very little inventory leading real estate prices actually to to rise some of those year over year.

fears that we were looking for in May may not end up coming to fruition. Initial jobless claims are expected for a Thursday at 4 20 at a 4 20. and then on Friday we'll get some manufacturing PMI services, pmis, and then a combined Fpmi. All of those expected to be around 49 to 51.

Uh, more importantly, this week are going to be earnings though. So uh, today we'll be getting uh Charles Schwab Uh, although actually some of their earnings actually just already out. 93 cents on EPS Revenue slightly misses after the Bell on Monday we'll be getting a JB Hunt Now that's a transportation service and a lot of people like looking at JB Hunt as a potential inflation indicator. uh for for Freight since Freight really affects almost every company whether you're shipping servers in, you're shipping clothing out.

who knows? a lot of people like looking at freight companies, so JB Hunt might be an interesting one. A lot of talk of layoffs happening at freight companies because of weaker demand Bank of America reports before the Market opens tomorrow Johnson and Johnson Goldman Sachs Lockheed Martin A Bank of New York Mellon so some more Bank defense earnings tomorrow morning Uh and then then things get entertaining. Then we get into what Ryan Reynolds calls one of his favorite stocks. In fact, just this morning he was on CNBC pitching I think it was newbie or Nouveau or something like this some Canadian fintech company and uh, the folks on CNBC are asking you so what do you know about financials and he's like absolutely nothing you know in classic Ryan Reynolds style and he's like I just like the emotion of companies I'm a marketer yeah and In fairness, he's a great marketer.

He's incredible. Uh, you know he's an inspiration for many uh, but uh, some other companies that he thought were an inspiration to him in addition to uh to Netflix were actually or was actually Ford I was kind of surprised. He's like oh it's a legacy company. you know, part of part of the the the the American Fabric and I'm like it's gonna be part of the American BK if they don't innovate soon with getting their costs down on those EVS But uh.

anyway. Uh, so Ryan Reynolds Big fan of Netflix He's kind of made the argument that he can't really bet against it based on the industry that he's in Netflix reports earnings at 4 pm on Tuesday and it is usually seen as the signal for kicking off attack earnings. and it seems like every earnings season we get to Netflix is the one that everybody's kind of like. Man, if Netflix comes in good, it's good.

Netflix comes in bad. It's bad. They did go back to growth in the last quarter which was great. We are expecting an A movement of eight percent on Netflix stock tomorrow afternoon.

that's down from the average movement of 12 a point three percent uh, earnings per share. Expected to come in at a or 2.87 with revenue of 8.18 billion in net income of 1.34. So we'll see what happens with Netflix after Netflix will get United Airlines Interactive Brokers those Tuesday afternoon, then on Wednesday we're going to be looking at Morgan Stanley in the morning and in the afternoon on the 19th. Uh sorry, this is already yeah, no, this is the 19th.

Okay, uh Wednesday afternoon on the 19th. Uh, we'll be getting a Tesla earnings at 405. Uh, Ross Gerber is apparently having a Tesla party on 420 the next day star sorry SpaceX is actually expected to launch potentially one of their vehicles today or tomorrow. we'll see what ends up happening.

Uh, this is The big one people have been waiting for. But anyway Tesla on the 19th Expectations we'll talk about: Tesla In just a moment, we'll Circle back to Tesla uh IBM reports uh on Wednesday afternoon as well as Las Vegas Sands and then on Thursday Thursday morning will be entertaining. We'll be getting ATT and Taiwan semiconductors along with American Express and DR Horton. So we'll be getting a look into housing.

not only DR Horton but Blackstone a lot of those wreaths A lot of Blackstones REITs are seeing liquidations. A lot of talk about paint in commercial real estate. How is that going to affect the broader economy? American Express What can they tell us about that wealthier consumer is American Express Still going to tell us that people are spending through the recession? Or are we going to see an inflection where people are no longer spending through the recession Taiwan Semiconductors Hey, what's going on with China or any potential issues with China Still present is how much is China adding to a book of business or taking away from the book of businesses Taiwan semiconductors. What about? Uh International sales to the United States Is the chip Market Really growing because of the AI Revolution I Expect to hear a lot from Taiwan semiconductors about none other than ships of course.

excuse me. Uh, and specifically because of this. AI Revolution That really began. Uh, I mean it's been going on for years, but really exploded over the last couple, uh, couple of months here.

We'll be talking a lot about Google in a different segment, especially with Uh, with the potential for Google scrambling and shaking in their boots as they may be losing some billion dollar contracts, we'll be talking about that. All of this, of course, driven by AI On the afternoon of Thursday we'll be looking at a Seagate we'll get a little bit of a look into maybe memory and uh, more specifically, storage for Seagate. Both of those are my least favorite segments as I find them to be more commodity is Ish Uh, that might be offensive to some people in that field, but I Hate to say it, but I I Feel like SD cards and Ssds and memory are a little more commodity-ish Procter Gamble On Friday morning, we'll be looking at some of those consumer staples as, uh, well as a Friday afternoon. We have nothing because you generally don't have anything on Friday afternoon.

So I said we talk about Tesla. Let's try to look at some expectations for Tesla The most important thing in my opinion for Tesla is going to come down to margin. It's going to be very simple. It's how bad did margin get in Q1 and the question isn't necessarily how bad is it going to get in Q1 since we already have estimates of that and we know that Zach The CFO told us we don't expect to go under 20 gross vehicle margin.

How bad though, is that margin going to potentially get in? Q2 Remember, in Q1, we have pretty much an entire quarter of Inflation Reduction Act credits of about 7 500. Unfortunately for Tesla and a lot of EV manufacturers, the 7 500 credit is actually going to fall to 37.50 which could potentially lead to more price cuts for Teslas. In fact, here at the top you could see is 7 500 tax credit for the Model Y and Model 3 Model 3 real-wheel Drive will be, however, reducing to 37.50 on April 18th. So you're seeing some bottles that are going to get impacted with a lower inflation reduction Act tax credit.

What does that potentially mean for Tesla Margins: If Tesla had a 7 500 credit all throughout Q1 and only has a 7 500 credit on all their vehicles for the first three weeks of the quarter. Which means you actually have a whole other 11 weeks essentially to go, Uh, a little less than 11 weeks, it'll be more like nine weeks to go. There, we go. Let's get our math right.

Uh, Well, then the bulk of Q2 is actually not going to have the full 7500 credit and that could really hit margins more. So, what are expectations right now in terms of margins? Well, expectations are the following: Uh, let's go ahead and pull these up on screen. here. these are the A Margin expectations that we have.

The expectations are simple. We're looking at Uh Automotive gross margins set to decline once again with our peak in Q1 2022, where we actually broke over 30 margins. But the expectation is that these could go down to as low as about 23.1 23.1 percent. There are 17 analysts interviewed by Reuters and the average estimate is 23.1 Some estimates are lower, some are higher, but this is going to be a big deal and I think the biggest part is going to be hey, what are those expectations for Q2 Because again, this right here on screen is the Q1 expectation.

Now we'll look at the expectations for actual earnings, but uh, I think there are going to be two main things we're going to be looking at. I'll explain the second in just a moment. But number one is going to be gross margin, including the path forward on gross margin. Right now, we're expecting an implied one-day move on Tesla stock.

After earnings of 6.51 that is in line with the average movement of 6.4 regarding earning, we're looking at an adjusted EPS of 86.3 cents Gap EPS of 77.1 cents revenue of 23.46 Billies, that's the Top Line Looking for a net income of 3.05 billion, operating profit of 3.06 billion? Uh, and that's the adjusted net income. By the way, an Evita at 4.43 Now, keep in mind that Tesla has had sort of a mixed record on or earnings here when it comes to adjusted EPS Five out of eight times you beat. However, they're almost always right on net income. If they miss here, it could be painful because they'd be breaking a trend.

They have beat eight out of the last eight times on uh, on on net income adjusted net income. so we'll see if they continue to beat this time around. These are the current estimates, again margin being the number one, but I think there's also a number two. I think the number two thing that we really want to pay attention to for Tesla is going to be the free cash flow.

Now the reason I mentioned free cash flow is because I personally believe that Tesla doesn't have as much cash as people like to say they do. Now some Tesla Bulls think I'm just trying to be a bear. or for some reason I'm trying to like click bait people into thinking there's a problem. But the reality is, the Tesla's cash isn't as great as it seems.

In fact, if we jump over to their cash flow statement, first of all, we see that regularly Tesla spending about 1.8 billion dollars in Uh cap X expenditures and from the third quarter to the fourth quarter which the fourth quarter is usually that really big sell-through push for vehicles, we actually saw free cash flow decline from just over 3.3 billion dollars of free cash flow down to about 1.3 billion dollars of free cash flow And the concern is, what if that contracts even more in Q1? We'll see if there were any potential credits that could potentially hold this up as well. Uh, for for maybe um, electric, uh, charging inputs or or electric charger manufacturing from the Biden Administration. But consider when we jump over to, uh, the balance sheet over here. Yes, everybody likes to look at the Top Line right here of suggesting.

yeah, Tesla's got 22 billion cash? That's fantastic. They've got a lot of money in cash, and we know they've got about 12.8 billion in inventory. but they've got bills sitting on their desk of over 23 billion dollars. I Mean just the first couple lines over here on the right shows you 22.3 billion dollars of payables and accrued liabilities that need to be paid.

Now that's not even including customer deposits, deferred revenue which I Generally don't consider those as debts anyway. Uh, and then of course, you've got other long-term debts here at 5.3 billion. So you add up all the debts, you're sitting between 23 to 28 29 billion dollars substantially. You know, more than the amount of uh, cash that Tesla has.

Which means we want to see continued cash flow. I'm not offended by the cap balance sheet at all. I'm just worried that if we start seeing free cash flow, go under a billy, maybe we start going towards, uh, somewhere around 50. You know, 500 million.

uh, personally I get a little bit. I'm going to start scratching my head a little bit about hey, is Tesla going to have to enter any kind of financing agreements to get through 2023 and these are probably the worst times to enter into Finance agreements? In fact, Morgan Stanley's Mr Mike Wilson has the argument that usually what happens is in in a recessionary environment is that you end up seeing earnings slow gradually and then suddenly he had a piece and now he's always. We know he's a bear. Okay, we know he's bearish.

He talks about a trillion dollars having left the banking system over the last year. He talks about small business credibility shrinking uh to its lowest level in 20 years while interest rates are at a 15-year High Keep in mind a lot of entrepreneurs and business owners uh end up uh with uh with um Teslas because they they use Teslas as a tool uh for advertising their business or or they just want a Tesla whatever it is. But Mike Wilson talks about this idea that we could have a gradual and then sudden decline in earnings And the reason for that is right now you see this gradual decline in earnings, but you could all of a sudden drop off a cliff like we have in the past. In fact, these are sort of generally what we tend to see here.

In 2007 to 2008, you saw this gradual decline in earnings and then all of a sudden you saw a crash in earnings. You jump in over here. in the uh, the covet era. What do you see? You kind of see this: this gradual softening in 2019, late 2018, and then of course the covet crash.

I Personally would remove the covet Crash from this analysis because I think it's a little ridiculous to have the covet crash in here. but I think it's a good analogy to look back at 2007 and Eight and say hey, look, this gradual decline in earnings became a massive decline in earnings. And part of the reason that happens is because businesses are able to uh as earnings gradually decline, businesses are basically able to refinance through the pain of with with cash that they have. They're not actually exposed to debts yet.

But what happens when that cash runs dry? when earnings declined to the point where you don't actually have as much cash anymore? Now you have to go to the bank at really expensive rates. What happens, you're basically screwed. and then earnings suddenly, uh, decline now again. I think Morgan Stanley here and uh Mr Mike Wilson Really only give us one good example of this.

They didn't decide to go back further into history, potentially because maybe it doesn't rhyme uh the way Morgan Stanley's Mike Wilson prefers uh and and I don't think you can really include Covet here, so he's got a good example for 2007 and eight I'll give him that he's not wrong That yes, margin degradation can be a lot more sudden. uh as as at first Revenue slowly disappointed and then all of a sudden you get a more meaningful acceleration than the clients. I Personally think that margin squeeze could really occur if the event occurs where Tesla needs to borrow to continue to fund their expansion. now.

Uh, according to Uh, Bloomberg Tesla we already know this. Tesla delivered a record 423 000 Vehicles globally in Q1, that's 36 average growth year over year, maintaining 50 average volume gains, but putting profit a gross profit at risk. That's what we're getting. Production: Uh, uh.

surge. Um, let's see the surge failed to Halt a rise in inventory? Yeah, uh. let's see here: Consensus calls for 1.8 million vehicles to be sold in 2023, not exceeding 3 million until 2026, with an average growth rate of just 20 percent expected for Tesla according to Wall Street While the company targets 50 myself, I'm sitting somewhere between 30 to 35 percent on my projection. so I'm with the midpoint there.

Tesla's EV market share Uh, it has. Uh has hit 86 percent in Q3 of 2018 and it's slipped to an EV market share of just 50 57 in Q4. Though many argue that as the pie grows, you actually need less less of the pie to continue to to push, the strength of Tesla Tesla has also cut prices quite a few times and uh, the the question is, how are those price Cuts really going to hit? We've seen most of the price Cuts I believe about five price Cuts Now since January and we haven't had an earnings report, that kind of gives us some light into those price Cuts until, well, two days from now. so that's going to be a concern.

Now there will be some potential uh relief, and some of that potential relief may come in projections. The Tesla or Elon Musk gives us. In terms of the battery packs, we know that Shanghai is expected to manufacture, uh, expand the Shanghai gigafactory and manufacture a substantial set of Mega packs, potentially as many as 10 000, but that's going to be expensive to ramp before we start seeing those numbers come through. Same thing for Giga Northeast Mexico And if there's another gigafactory that ends up being announced in, say Vietnam or Indonesia or ever, these are all expensive projects that aren't leading to cash flows just yet.

So those are all things that we're going to be looking for in this next earnings report. Biggest thing for me though, uh, margin, cash flow and uh, and and then, of course, hopefully we get something to soften the blow in the way of not just batteries, but also FSD FSD will be a potential uh tool for maybe propping up some of these revenues if we see a larger take rate on Fsds and maybe we could start including a little bit more revenue for FSD. We do know that uh Zach the CFO of Tesla has told us we will be seeing more FSD revenues recognized as they continue to roll out full self-driving they did just roll up for FSD 11. I think they're already on the third or fourth update for number 11.

I've certainly done at least two updates on number 11 and I'm usually a little bit behind in the updates I just don't drive that much. but I will say just as sort of an anecdote between myself and you: Tesla full self-driving on version 10.0 95 of the time I could trust the car, but there were certain parts around my town where I'm like it just it can't handle this. It can't move from uh, you know, a right turn exit off of a freeway and then needing to get across four lanes to make an immediate following left turn. It was incapable of doing that.

It has gotten substantially better at being able to do that. It still doesn't get all the way, but it's probably gotten eight times closer to making that left turn lane. And there's also a part in my town where it, uh, it. Usually when I used to get on top on a highway, there were some construction barriers that came up pretty suddenly I would hold it until the last second to see if FSD would ever turn and on Version 10, it wouldn't And I'm like, all right I guess I Gotta take over.

Version 11 has solved that. Uh, Version 11 has also solved uh, some funky merges where it used to cut off bike lanes and and basically use right turn Lanes into neighborhoods before getting to the main intersection. So you're kind of coming up on a main intersection and it just turns right so early that it cuts off the bike lanes and the neighborhood right turns when it should actually stay in more of one of the primary lanes and then turn right into its. Its Right Trembling FSD 11 has done that.

So the FSD is getting really incredible. You really can't make a long-term bet against Tesla in my opinion, but if you're making short-term plays, there are plenty of reasons to potentially be disappointed on the 19th. But don't worry, 420 is just the day later and you could party or sadness away. So my take here on Catalyst I'm honestly not terribly concerned about Tesla It's gonna do what it's going to do.

It usually goes down after earnings, so if you're nervous about it, sell some calls. I I I'm not optimistic about seeing a big upside surprise. Uh, but hey, you know if if you're if you're thinking there's a potential for an upside surprise, add some shares or maybe sell some puts, who knows, maybe it'll stay stable. More importantly to me, for Catalyst I want to know what's going on at American Express I think American Express is going to be a much bigger Catalyst Even though it's not going to get the news as much as Tesla for me, it's going to be a bigger Catalyst As to whether or not this recession is actually coming, I think American Express is going to be a tool for that and I understand that American Express really focuses on the higher net worth consumer and the higher income consumer.

but generally the companies that I'm investing in are exposed to that consumer base. So from a personal point of view, that is the company that I really want to pay attention to for sort of that broad-based spending as well as of course the artificial intelligence Drive which I think will get a lot of insight in from Taiwan Semiconductor. so we'll see, but those are my expectations on catalysts for the week including Tesla So look at that. I Went a whole segment without pitching you once on either the program's not building your wealth link down below the paid promotion on life insurance.

you can get in as little as a five minutes or a streaming with me at Stream Yard by going to Metcaven.com Stream Yard. Let's now move on. All right next segment. We got a few things to cover here.

Hold on one second. All right, let's go next segment Google What the hell? Actually, it's not really What the hell. kind of saw it coming. All right, and by 10 seconds for Google and a sip of coffee? All right.

Well, Google is down four percent in pre-market and people are freaking out that Google's dying about two weeks ago. I actually filmed a segment on the Meet Kevin report and I never posted the actual video of it separately, but we'll look at that later. The segment that I posted was all about analyzing Google's fundamentals and its massive risk to artificial intelligence. We'll review some of those numbers here, but boy oh boy.

a piece in the New York Times this morning really is starting to drive Nails into the back of Google and potentially into their coffin. and it's not that great. Take a look at this New York Times piece, which is pretty damning for Google. It is not something to be very excited about if you are a Google investor.

I personally have no exposure to Google stock either in a long or short. In fact, when I first said I want to stay away from Google uh, after this AI Revolution this sucker was somewhere around 100 bucks a share and even though it's down four percent right now, that still leaves it at 105. So again, I ain't trading Google but I tell you long term I'm a little bearish on Google right now and I love Google I use Google for everything. Absolutely love the company, but boy oh boy.

I think they got caught flat-footed here. Listen to this from: The New York Times Google Devising radical search changes to beat back AI Rivals Folks, they are shaking in their boots. They got caught with small PP at a time. You better have a little big one, not a small one.

This is not good for Google's a pricing power at all. So what do we see here? We see: Google's employees were shocked when they learned in March that the South Korean Consumer Electronics Giant Samsung was considering. it hasn't happened yet, but considering replacing Google search engine with Bing as the default search engine on its devices, folks default search engines are the lifeblood of Google You will get an iPhone you open up Safari Yes, you could change the default search engine. Guess how many people actually change it? Maybe one percent.

Yes, you can download a different browser on your phone. Guess how many people actually do? Maybe one percent. I Don't know, but most people don't actually even go through the settings on their phone. they just use what it is when that default search engine is Google The default is more add money to Google Well, that domination might be getting questioned here.

Listen to this. Google's reaction to Samsung's threat was quote: Panic According to internal messages reviewed by the New York Times an estimated three billion dollars in annual revenue is at stake with the Samsung contract. An additional 20 billion dollars is tied to an Apple contract which is also up for Renewal. This year now Google is racing to build an all new search engine platform powered by Google's AI technology, which so far Google's technology has kind of falling a little flat in demonstrations.

In fact, in their popular demonstration that they rushed together after open AI released their chat gpt3 publicly and now we're on four, Google's presentation flopped because their AI gave some false data which is a terrible explanation or a terrible example of their AI Now Google's been working on AI for years, but one of the concerns Google had even about five six years ago was that Google had a their AI had a tendency for providing false or unbiased results. Well, that was still true in their presentation a couple months ago, actually only about a month ago and so now Google's trying to rebuild an all new search platform to combat this potential pain coming for basically a search engine shakeup. Uh, in other words, Google could literally lose its dominance. Now, why is this really important? Well, what I want you to know is, look at Google's last earnings.

Okay, look at their Q4 earnings now. I Usually go through earnings in depth with course members, but let's give you a little preview of what's going on here. Google search makes up 69 of their revenue, but it's not just Google search folks. you have to understand a company like these publishing companies that run a lot of ads.

Companies like the New York Times They get 50 of their reach from search networks. So in other words, when people like Google news or Google or whatever and the New York Times pops up, that creates 50 of the New York Times views. What happens when AI steps in and says you don't even have to go to those websites anymore? Well now, not only do you potentially lose the Google search Revenue because rather than searching 10 times for an answer, people just search once and your Google search ad Revenue goes from 69 to potentially 6.9 percent. Obviously, it wouldn't scale that way, but as an example, it would basically Fall by by a factor of 10..

The other thing that you're also going to lose, folks: Google Network Advertising Look over here. Google Network Advertising is when Google advertises on a web page that somebody hosts. So if you go to like Zero Hedge or the New York Times and you see an ad Google might be placing Those ads, Well, that network is worth 8.4 billion dollars in a quarter to Google Go! Google Search is worth 42.6 billion dollars in a quarter. Combine those two together you have over 50 billion dollars of Revenue simply from things.

that search could absolutely destroy their total revenue, total revenue, all everything combined. Google Cloud services, you name it with 76 billion dollars for Q4. Well, if you potentially drop search and net and website placement by 90, then you're left with five instead of 50 billion, right? And so now all of a sudden, your revenues at the company plummet. You go down to 31 billion dollars of quarterly revenues instead of 76 billion.

That is a decline of roughly 60 percent. Google Earnings could decline 60. Now think about that from a valuation point of view for a moment. If we just look at the earnings per share for here, and let's go ahead and annualize them for Giggles Okay, this is not exactly what you're supposed to do, but we're just going to play: Are you here? You know we'll take the year end.

Let's take the year end. Uh, rather than annualizing the quarterly, we'll take the year-end EPS of 5.6 Uh, Okay, and then let's put a little uh 5.6 right here. So 5.6 is the EPS Well, that means this company right now at 105 bucks is selling for. let's divide 105 by 5.61 They're selling for about 18.7 times.

Price to earnings. Let's say their forward is about six. Let's give them a forward of six, Right? If their forward is six, then we're looking at 17.5 on a forward PE basis. Right now.

On a PEG ratio basis, Let's say they're expecting to grow earnings at twenty percent. They'd be selling for a one pack. Little under a one pack. It'd be wonderful, right? But wait a second.

What happens if there are earnings instead of being a forward of six actually drop sixty percent? Uh oh Well, all of a sudden, you'd be looking at a company that has a forward P E ratio uh, or a forward earnings per share of 2.4 Now all of a sudden, 105 divided by 2.4 the company would be selling for 43.7 times at a forward. P that's very expensive. You'd be at a 2.15 ish. Peg that's very expensive.

There are better opportunities at that pricing, so the stock probably tanks on that kind of hit now. I Don't actually think that Google is going to get hit by like uh uh, you know 60 decline in Revenue But I want you to see how much of their revenue is at stake. And there's a reason why they are freaking out. They are freaking out because of a lot of their revenue being at stake.

Now under the new project name code Magi Uh, we got some Gamers over there. Uh, there's a new project named Magi and basically what they're doing is they're throwing together designers Engineers Executives and they're freaking out in these rooms called Sprint Rooms to modernize their people's experience with AI powered search features that will launch soon. Uh, the AI powered search will include ad placements underneath. Uh, the the the uh those uh those segments.

Uh. So the goal is that they would still be able to provide a search Revenue But again, if people are searching one-tenth as much when you're providing AI search. even with ads, you're not going to protect that mode as much. This is coming as a shock to Google employees.

Uh, initially here it is they held off on AI because it was prone to generating false and biased statements. Now the Magi project has 160 people working on it full time. Uh, they're racing to try to mix ads in to search results that are generated by AI now I Have to say when you Google how many employees does Google have see in the future we could chat GPT that or maybe AI let's say. but anyway, they had somewhere around 187 000 employees in September of 22.

they have 160 people working on Magi I mean it starts making Wonder Wait a minute dude. If if your most important project that represents potentially 60 of your revenue is in the hands of 160 people out of 187 thousand, either how important is the project to you or how important are the other 186 000 people working at, Google I mean just to give you an understanding of how Wild this is, this is literally 0.08 of their Workforce the legal drinking limit. The blood alcohol limit for your blood alcohol content for driving is 0.08 percent. They literally have the legal blood alcohol limit of their staff working on what's probably the most important project of Google's sole existence.

hahaha I Don't know it sounds low to me. I'm just gonna put it that way. it's either we're seeing massive layoffs coming or that number's too low. Probably layoffs Honestly, because like how how many people do you need to revise the search engine I mean the more people you put in, the more clunky things might get I don't know Company plans to release initial features to 1 million people, progressively increasing that to 30 million by the end of the year.

They plan to incorporate tools like Jiffy that would use AI to generate images for you in Google search result or Trivoli tutor which would teach you a new language through open-ended AI Conversations can also give you some insights into what activities are near you when you are uh, looking at um, uh, Airbnbs look you actually had Google CEO uh freak out yesterday on CNBC I'm sorry he was on 60 Minutes uh it's not CNBC it was on 60 Minutes yesterday he uh he discussed that Society is not prepared for the rapid advancement of AI that AI will impact every single product and every single service at every single company. This is actually very much in line with what I've previously said and I'm not trying to Pat myself on the back but but people have asked asked me like it was like Kevin how are you going to use AI in your style Yeah it's like listen, every company in the future is going to use AI Just like every company uses email, you don't have to create your own AI you could take a chat GPT and then train it to be what you want it to be. Every company in the future is going to use AI Just like every company used to use fax machines and then emails, It's going to happen and the companies that don't will die. but I love the the analogy because that uh that the the CEO gave because he mentioned look if if a radiologist has to go through a hundred Radiology scans for potential cancer every morning they wake up AI might be able to sort those from highest priority to lowest priority for uh for the the doctor for the radiologist and this could potentially prioritize care for people.

That was just one example. I Found that example very relatable because I use that as real estate. That's what we do with our AI. We use our AI as a way to prioritize which deals in a certain Market are most desirable or most likely to be consistent of a wedge deal for us so that a we don't miss the most important ones because they have a highlighter through them and we can focus our attention on those, right? That's what we're doing.

It's uh, househag and this is very similarly what I expect to happen throughout the rest of the world when it comes to AI use but AI is trembling. uh and Uh it's not A or Google is trembling because of AI And it's not a surprise. This is a massive piece and it's something that we've been talking about for a while now. We'll do a little bit of a deeper dive into Google's revenues again, but we've already done a pretty good dive here.

and I have to say I I Think the message here is clear for me: Google has way too much risk. It's not something I could consider investing in I Basically think the mode of Google is gone like everybody's still using Google, but the mode of Google is going on. In fact, look at some of these notes that I wrote down. I wrote these notes down on February 9th February 9th is when I did this course member live stream where I went through these numbers and I wrote down the following in red in Orange is when I came back later and I wrote down a couple little things in Orange there.

but in red is what I wrote down in Q4 And here's what: I wrote down: I wrote Google negatus flat slash week advertising even their YouTube revenues are falling right? I mean you can see it right here. Look at this you go to Q4 YouTube Hold on a sec. Q4q4: Where's it? Where's it? Where's it? Ah, now I can't find it. Anyway, their YouTube revenues are falling.

Not only are you there here, it is. Uh. YouTube Revenues falling. 7.8 Google Search following 1.6 Google Network Nine percent Yeah.

Google Cloud is growing, but it's still a small part. So what did we write down over here in red Google Negatives: Flat slash weaker advertising growth AI could weaken that Search growth even more. you become a results Engine versus a search engine. and I'm personally not convinced that Google is going to be the best beneficiary of AI I Wrote that down because that's the fact of the matter.

We don't know that Google is going to be the best AI right? It's easy to invest in Google when we know they're the best search engine. but if the mode is gone, who knows. see I wrote here. Who actually wins from AI Is it the neural net? Or is it the company training the neural net? Is it the processors, the data centers? Is it the Nvidia Is it Infiniband Ethernet for the connections on those servers? Is it Apple or is it chip makers? We don't know now who really benefits from AI Well, it's going to be consumers and businesses, right? Consumers and businesses are going to be the ones that benefit from AI If Google usually makes five cents per sure search and somebody searches 10 cents for an answer versus one time, that's your factor of potentially 10 in terms of of loss right of Revenue.

But who loses with AI search engines and labor right? Who benefits? maybe advertisers? Maybe if they can figure it out. but almost certainly the people who win are businesses and consumers who learn to harness the power of AI am I Convinced that even if Google provides more Ai and advanced AI platforms that they are going to somehow be the greatest beneficiary of AI Absolutely not. And so that's where I Have to say I'm not wholly enthused about the potential for Google as an investment I actually think there's a lot of risk in Google as an investor and for me, that makes me want to pass I Don't like a lot of risk I know sometimes people think I'm crazy. you're not and that's fine.

You know, maybe I am. Probably yeah. but I don't really like Risk I'm a little baby I Like companies I Really believe in and huddle without the risk of the remote going away. That's not cool.

All righty now. Uh, we have. uh, let's see here. All right.

next up, my friends. Next up we have oh uh. Musk says the pressure and valve appears to be frozen for the starship. So that means potentially no launch today thanks to a frozen pressure valve.

Come on. Elon Get that Starship Together All right. Launch is scrubbed says Brian Huh Uh well it says unless it unfreezes. Uh, that darn Texas video? oh no, it is Now CNBC is saying it's scrub unless that begins to work.

Uh, very soon there will be no launch today. I'm just hearing from somebody at the launch site that it may be. uh, all right. whatever.

it'll be the next day or so or whatever. Next up, we need to talk about another topic. Oh, there's always something to talk about. It's I actually I I don't know I I Enjoy it.

We We actually did good. Wow, We hit a lot of topics. I mean put I put quite a few different segments together here. Uh, today.

By the way, I'm going to be trying to, uh, start the um, uh, politics meet Kevin report uh I have uh, taken your advice I like to listen to my audience I appreciate you, thank you. But I'm going to be separating uh, politics from these live streams. So that way we have the financed live and the politics live. So that way people who come for the beat.

oh Jesus I almost just spilled all my coffee. um Antonio's Lord's name in vain? Come on. Kevin God Oh no. I did it again.

All right unless I'm just gonna move on here. Uh, anyway, we need to move on. We need to. We've got.

we got a few minutes here before the course member livestream. Oh, which reminds me I did not put the course member livestream link up of course member live that really quick and then we've got some goodies to talk about here. For the last segment, this segment's gonna be pretty neat. Um, this is, uh, this is going to be this is this one's.

gonna be a little bit of a combo though, of finance and uh, politics. It's gonna be about China and the dollar and that, which I think is quite important. Course Member Live 417. All right there we go.

and let's drop that in here as well. Okay, Perfect. There we go. All right.

Get this one out of the way. All right. So let's do um uh oh yeah, here it is Okay. Perfect.

Fantastic. Oh wait a second. it's actually going to be. We need to put this piece up here One second.

Where did I put it? Oh, this was good. Very good piece. Okay, yeah, all righty ready. Ready.

Down time we are looking at. Wow. Already 49 minutes in? That's impressive. 49.15 All right here we go.

Well, holy smokes, China's cyber attacks could potentially take down our entire Financial system. That's not good if you're exposed to stocks and we have to analyze. Is it possible that China could potentially launch a war against Taiwan and what would potentially hacker groups do to America What parts of America could get hit? could take talk potentially be weaponized to destroy our ability to respond to a threat against Taiwan in the defense of Taiwan which Joe Biden has promised. if China were to invade Taiwan we have promised to respond well.

China just drove one of their warships through the Taiwanese straight against International commitments. And folks, the fog of War seems to be thickening and a lot of people are suggesting what could happen now. in my opinion. Well, I'll save my opinion towards the end when I talk about what People's Bank of China is actually up to right now.

But what I'd like to start with is a piece by Politico on what might happen if China invades Taiwan Take a look at this. If China invades Taiwan they are likely to unleash a volley of digital strikes in the United States at the same time which I wrote. it makes you wonder if Tick Tock could be weaponized as part of their Cyber attack strategy. but it's not even just Tick Tock Take a look at this.

Uh, we're going to go through. We'll jump over here. Here we go. Here is how China could potentially attack: Us Number One military systems and transport methods for sending troops and supplies to Taiwan are likely to be at the top list of of attack for Chinese hackers.

Ultimately, this could mean that ports on the west coast potentially like Port Hueneme Los Angeles Long Beach could come under attack to help limit The Troop and Supply movement from the United States the United States to Taiwan and so potentially Chinese strikes on our ports are being reported by Politico. This isn't me making this up. Politico is literally analyzing the real threats that American systems could face. One of these we'll be talking about in a moment is our financial system, but ports are actually at a threat now.

Usually when I think about moving troops and supplies I Just think about uh Halo and the anime has captured Captain keys and they're holding them aboard one of their Cruisers The Truth and Reconciliation the ship is currently okay and then Cortana the ship is used to transfer troops and Supply whatever this this is childhood memories I Don't know why that tangent is coming up, but the point is like now it's actually feeling like real like targeting the movement of troops and supplies could happen. But it's not just that the reports stressed that such a strike would be designed to her the U.S military from being able to even decide what to do but listen to this inducing societal panic and then therefore interfering with the deployment of U.S forces. Now this is where when they talk about societal panic: I think there's nothing more that you could do to create societal Panic than potentially blowing up people's phones somehow and I have to say after I read this article, I made sure Tick Tock was not installed on any of my devices. I'll go I'll go on with a VPN and on like a like a computer or something like that.

Maybe maybe. but then again, I haven't even used it recently. But anyway, so to highlight, Uh okay, here's the next one where they could get you China has invested a lot of money into. Guess what? U.S ports.

So they'll go as far as basically talking about crane malware that lawmakers now were alleging that China could literally shut down the trade. the cranes that move equipment uh, and supplies onto a ship, uh, or or our military vessels China could literally just shut down the cranes potentially because they manufactured them. They also have cameras on these cranes, which some folks say the cameras on our cranes and our American ports could potentially be used by China to spy on us. How much are we moving? What kind of troops and supplies are we moving? Maybe in the case of cranes, it would be uh, supplies rather than just troops.

But anyway, Uh, the question now is, hey, how much of a defense does the United States actually have against these things? What kind of cyber warfare, weapons and defenses do we actually have to safeguard our military networks? Those are questions. Another thing that could absolutely be open for attack are our energy infrastructure. After all, in 2021, a ransomware attack on a major East Coast gas line here, as political says, temporarily caused widespread gas shortages and led to long lines at the pump. In illustrating the societal disruption that China could cause.

and China could do this to create panic in chaos, but it would just not be energy or electricity. could also be water. Take a look at this a hacker in 2021 gained access to networks in a Florida Water treatment center and what they did is they tried to poison the water supply I Did some more research on this and what they tried to do is remotely access the water supply network and then increase the level in the water of sodium hydroxide that is a base that's used for pH balance and they basically tried to 100 Exit which then makes the water become corrosive. It could decompose tissue, cause chemical burns.

It's important to handle sodium hydroxide with gloves and eye protection because it is so corrosive. It's used to make soaps and other chemicals. Uh, they said a water districts in Southern California where I live have been targeted as well. And look at this business and financial markets: China has a history of hacking U.S Companies remember they just stole more Trade Secrets From Asml and Advanced Ship and Advanced Lithography manufacturer and China has a history of hacking these sorts of companies.

They've prioritized financial gain in stealing intellectual property, which may be if they go over to boxable, they'll realize there is no intellectual property and there's nothing to steal, but at other companies they might actually steal stuff. They could also try to hit U.S Financial markets by potentially causing disruptions within the New York Stock Exchange or the NASDAQ causing to a freezing of the stock market. I Mean imagine how crappy things would feel if all of a sudden your stocks are tanking, you don't have water and electricity, and our China at the same time is trying to invade. Uh or yeah, China's trying to invade Taiwan And we can't even get our troops organized because we can't get our ships loaded up because cranes all of a sudden a sudden are shut down.

We can't get anything moving because oopsie, do sees, we've created too many problems uh and become too reliant on either China's cranes or or allowed, uh, too much of a a buildup of weaknesses within our cyber security. This is scary. So you want to get life insurance in as little as five minutes by going to Metcaven.com life which is of course a paid promotion on the channel. But let's listen to what Donald Trump actually suggests when it comes to, uh, our preparedness.

it. Hopefully this is not just hyperbole, hopefully this is real and gives us a little bit of cause for Comfort. But Tucker Carlson asked Donald Trump about the Nordstrom Pipeline and who blew it up? Donald Trump talks a little bit about our military capabilities which I'm actually bringing up because I think Well, this is exactly where we want to talk a little bit about our military capabilities. Listen in here to Donald Trump on Tucker Carlson So I won't answer the question only because I don't want to get our country yeah any deeper than they already are.

but it sort of all starts we have. You know, we have the most incredible equipment I rebuilt our whole military. We have things that are you can do anything we're equipped to do anything but I refuse to say it because I want our country to be pristine. but okay, that's actually a pretty useful clip from Donald Trump here.

Uh, it gives us maybe maybe some hope that maybe our cyber warfare is stronger than we think. I mean consider the fact that we have conducted joint exercises uh with Israel uh to attack Iranian nuclear enrichment plants we have blocked internet access to Russia's troll Farms during elections. We've done everything we can to to aggressively attack our enemies already with our cyber warfare. But how would we fare against China We're not entirely sure, but we do know that we're losing some of our strength.

certainly in the Middle East I mean consider this: In the last three years, ah, three to four years, we have sent over two and a half billion dollars of foreign aid to Egypt And what is Egypt now doing well? Egypt is now apparently considering sending tens of thousands of rockets to Russia Wait a minute, we provide foreign aid to Egypt to the tune of two and a half billion dollars over the last four years. and now that's dropped to about 174 in 2022. Maybe they're pissed we're not sending them as much money anymore, but uh, that's based on, uh, information from Foreignassistance.gov and this piece from political here. But it makes you wonder: could American dollars be used to actually arm Russia What's happening? Well, it's a power vacuum that's being created in the Middle East and people are becoming more reliant on countries like China because they can't trust the United States as much anymore.

Whether that's because we're not giving them as much money anymore, or because of our botched withdrawals from the Middle East. But now the question is, what are the odds of China actually doing this well? Fortunately, there's one thing we have on our side, and that's the fact that China's economy isn't doing that great right now. China is pouring cash into the financial system. They're keeping rates set at 2.75 They just offered another medium-term lending facility to Banks of 25 billion dollars.

They're reducing reserve requirements. They've done this for five months in a row. Basically, China's trying to turn the money printer on because their economy is just not killing it like they thought it would after the release of Covet Zero. So maybe a Saving Grace out of all of this? Maybe just maybe.

is that China's economy isn't doing as well as people had hoped. and maybe that would actually keep us in a situation where, hey, maybe just maybe China doesn't end up going to war with Taiwan because they're focused on their economy. That does it for us. Thank you so much going over the course member live stream and we'll see in the next.