Welcome back to another meet! Kevin Report: We make sure we've got everything cooking right. It looks like we should be okay, but I would make sure there we go. This is looking very good. All right.

Welcome back to the studio and me. Kevin Report number 71. It's crazy to think we're already in the 70s. Obviously quite a bit to talk about this morning, specifically regarding oil and some uh, other fears that are cropping up in various different places.

So we'll talk about all of that. I'd like to start by taking a quick uh, check at what's going on with the five-year break-evens uh and uh yeah. As expected, Unfortunately, they're moving up again. Uh, this is a generally a bad leading indicator for what's going on or what could be coming with our good friend.

Jay Powell Uh, so hopefully we can maintain the lead, but uh, in the meantime, yeah, take a look at this particular chart here. This is our five year break even, and unfortunately, this one's uh, definitely sliding up a little bit. Looks like we had a little bit of a banking crisis relief here, but now the five-year Break Even is moving up again. Why is potentially The Five-Year break even moving up again? And what the heck does that even mean? Well, let's talk about exactly that So well.

The oil crisis, the oil crisis now, and massive oil price cuts are probably exactly what our leading oil uh, or in five-year Break Even Inflation rates to start skyrocketing Again The Five-Year break-even rate. Remember what this is? This is a difference between inflation protected securities and yields on the five years. Okay, that might not sound like English either. but basically the higher this chart goes, the more Angry Jerome Powell generally gets.

So this is why over here in February After that hot January data we got these five-year break-evens really ran away and the Federal Reserve had to get quite aggressive. Really Fed speaking us into this idea that hey, we're gonna go a lot higher for longer. You know we said 5.1 percent. Remember what Jay Pal said on February Uh First and second he says hey, you know we said 5.1 percent as a terminal rate in December Yeah, yeah, if I had to redo those numbers now, I'd revise them a lot higher.

partly because the Breakeven rate of inflation was started to Skyrocket. You know, even though we just had good numbers on the Breakeven or on on Pce, which is the Fed's preferred inflation gauge, why would this particular chart be skyrocketing? Why, Why would this be going up? Well, it's of course now because we've got OPEC Plus cutting oil by over a million barrels of oil a day now. Yes, we have countries like Brazil Canada and Norway in the United States trying to increase production. but I Just want you to understand the difference here.

Brazil Canada Norway and the United States are trying to increase production to the tune of 100 000 barrels per day. OPEC plus is now trying to cut production by a million barrels per day. Why is that? Well, basically because they want more money per barrel of oil. That is the whole point of OPEC to try to maximize profits for oil producing.

Nations instead of driving prices straight down. The idea is let's get as much capacity as possible and basically print barrels when prices are high. If prices fall too low, then let's just cut production together and prices will go back up and we'll all make more money per barrel of oil. Unfortunately, that's quite inflationary.

Now, one of the reasons these Cuts didn't come so sooner is a because oil hadn't been falling that heavily. I mean beyond the bubble of sort of that crazy peak in the 120 Barrel range that we saw when uh Putin invaded Ukraine Oil's kind of been bobbing around relatively decent levels. However, in this last quarter, oil plummeted and it had its worst quarter since April of 2020.. uh, that's uh, that's that's pretty extreme.

In fact, oil fell as much as seven percent just last week, which is pretty wild. Uh, part of that had to do because of. um, we, uh, actually let me rephrase that. Uh, so Rephrasing Oil had its worst quarter since April of 2020.

but uh, last week we did have some drama that actually it didn't fall last week. We actually had a little bit of a rally last week because of the drama between Iraq and Turkey. Those exports are expected to resume. Uh, that is.

Some oil exports were paused in the region there Lee Leading oil to actually already run up nine percent. Now it's moving up another six percent. On top of that, Maybe if that oil production continues, maybe we'll see that kind of nine percent rally go away and sort of extinguish that six percent that we're seeing today. But the point is, a lot of news coverage is focused on what OPEC Plus is doing and not necessarily just what's going on between Iraq and Turkey.

Why does that matter? Well, much of oil pricing has to do with speculation in the Futures Market Why is that important? Well, it's important because if people again start trying to believe that oil is going to go to a hundred bucks a barrel, we'll start seeing that pricing into the market. Now we might not actually make it to a hundred dollars per barrel, but you do tend to start seeing that Trend towards it right now Brett said 84.43 and uh, WTI is basically at 80 bucks seeing Brent move up another 10 bucks to 95 on these oil. Uh OPEC Price Cuts possible. And the problem with that is as oil rise is inflation, expectations unfortunately go up.

That's why we're seeing the spike in the break evens. A Because the financial crisis of woes started fading away. The fact that oh yeah, the banking crisis for sure was going to destroy our economy. that seemed to have been a little bit more of a passing moment here.

This financial crisis and hopefully the riskiest Banks uh have have now gone through their pain and hopefully there aren't any other Silicon Valley Banks out there. Hopefully. But then again, remember, hope is not an investing strategy, so you could always expect for more of a banking Crisis coming. But this this surge over here in Breakevens today? Really? this this surge on the right over here is clearly because of, uh, the oil price Cuts over OPEC or sorry, the oil production Cuts Uh, and it is inflationary.

Uh, it's absolutely an inflationary impetus. In fact, let me show you a chart and this chart is pretty neat because this chart basically lines up inflation and oil prices and it's pretty obvious. So if I grab this chart here from JP Morgan pop it on screen right here. what do we see us? CPI which is obviously our inflation gauge and Brent that is the international blend of oil not to be confused with WTI when you hear WTI just think western w Western and then also think when when you think win, think how you could win 12 free stocks with Weeble by going to Metcaven.com Free and sponsored.

But anyway. okay, so CPI and bread. What do we have here? Percent year-over-year gains. Okay, so this is a chart of year-over-year gains and it looks like Brent is the first line over here? Uh, the the black line that is.

and you see this pretty clear correlation. In some cases, it actually looks like the black line goes up first and then inflation goes up. Now, keep in mind, this is not core, so it makes sense. Energy is obviously a big part of headline inflation, so it does make sense that you see the black line move up and when it moves down, CPI could potentially come down so they're not perfectly.

Uh, it's not perfectly clear that one leads the other. I Think many of us will make the argument though that obviously if oil prices go up, inflation is going to go up. and look at this. Oil prices have come down and inflation has come down.

That's great. But what happens Now if because of these essentially production Cuts Uh, inflation takes back up again. Well, then we're stuck with the higher for longer regime of the Federal Reserve And maybe we have to start undoing some of the price cuts of, uh, the interest rate hikes that we're expecting for the Federal Reserve markets have started after the banking crisis. Pricing: in that the Fed's going to cut rates as soon as June because of the banking crisis and after they cut rates in June, then by December, they'll have ended up, uh, cutting a cumulative 100 basis points which is essentially one percent so a star of a 25 BP cut it potentially in June and then thereafter more.

Cuts That's been heavily priced in because of the banking crisis. but if the banking crisis is a nothing burger and we go back to worrying about inflation and inflation, then gets accelerated by oil price cuts and we end our oil production I Keep getting saying that, wrong oil production. Cuts then we end up having larger problems and we're not in the kind of market right now where we really want larger problems. now.

so far, even though oil prices are generally speculative in terms of the Futures pricing, so far, markets aren't reacting too terribly. I mean some tax stocks are down a little bit more than you would expect Tesla's down. Uh, Nasdaq's down about point six percent even after Tesla smashed its delivery expectations which we'll talk about separately. But really I Think the fear now is okay.

banking crisis gone means maybe less chance of fed cut, maybe time to sell. but then again, positioning in the stock market is already terribly low. I mean consider the data we talked about yesterday: Bank of America told us that positioning in the stock market is at an 18-month low. uh Bank of America also told us that cash positions are at a a three-year high for individuals.

Goldman Sachs says people haven't been this little allocated to stocks since the beginning of the 2000s. Uh, so in other words, potentially somewhere up to a 20-year low allocation to stocks and Goldman Sachs surveys suggesting that 85 of their clients are either bearish on stocks or neutral on stocks. And that's leading them to say where are the Bulls So on one hand, a lot of this seems like it would be bad news if we have more inflationary pressures and we have to start undoing the rate. Cuts we're pricing in.

maybe stock should fall, but then again, if stocks have such little allocation uh, and people are already so bearish on the market, Is it possible the market can hold up well if we use Bitcoin maybe as somewhat of a leading indicator Bitcoin doesn't seem to care that much now. What's remarkable here about Bitcoin is it has been sitting uh, at this Uh 28 200 level, which is one of its Fibonacci retracement lines here off of the low of 15-4 This is actually a fantastic sign that maybe the fears of this oil price disaster are a little overblown. Not entirely sure, but it's a good potential indicator if you believe that Bitcoin pricing is reflective of, maybe more of a market pricing. You have an open order book 24 7 rather than uh, sort of more of a market-based timing when you're when when you're just in the stock market.

even though we have pre-markets and aftermarkets, liquidity is so little in the stock market sometimes Bitcoin could be a good indicator and this would not be an indicator of fear though. Uh Larry Summers says we have a 50 chance of repeating the banking crisis. This could obviously lead uh to fears that at the same time as a new banking crisis, we could end up having sticky inflation. We could even be in an environment where we're still doing and conducting quantitative tightening while at the same time uh, cutting? Uh, cutting interest rates? Which then you wonder? Okay, well, which is going to be worse And it's possible a quantitative dieting could be worse.

You could have low rates and a tightening cycle. Uh, and it. It would be somewhat confusing to markets because not even markets understand. and anytime there's uh or what would happen with the Fed, the FED itself doesn't even know what quantitative tightening will end up doing to the economy.

and generally when there's confusion in the stock market, stocks tend to go down. Uh, so that'll be quite interesting. Uh, at the same time you've got the Uh European Central Bank Warning. Look now we've got inflationary concerns that could end up being sticky.

We've got some Financial woes. And on top of that, the real estate fund Market in Europe has tripled over the last 10 years. It's a 1.1 trillion dollar market, and if there's any kind of surge in Redemption requests which we've already been seeing in America, then you could end up seeing an increase of housing inventory and Commercial Real Estate inventory leading to real estate pain. Which potentially real estate pain could lead to Consumer pain as Robert Schiller told us it's not actually stocks going down that affect people's spending.

it's actually real estate spending or or real estate net worth that affects people's willingness to spend. That's scary because if that's true, then that means the real pain is still ahead. That means the real estate price paying is still ahead. But if that real estate pain comes to fruition, then we actually get the real EPS pain EPS Pain is of course what Morgan Stanley's Mike Wilson has been pounding the table about for months suggesting hey, hey, whoa whoa hey We're probably going down because once those earnings prices are and well, earnings forecast for companies actually come in, uh, accurately based on the spending we're expecting and people have run through the amount of excess spending they are savings they have, then we're going to face real problems.

That's sort of been Morgan Stanley's point of view. and it's not only just him, it's also other writers over at: Morgan Stanley Here's another piece from Morgan Stanley Just out this morning and they're talking about. Given the events of the past few weeks, we think guidance is looking more and more unrealistic and Equity markets are at a greater risk of pricing in much lower estimates for earnings ahead. This is typically how bear markets end.

I.E PE multiples fall precipitously and unexpectedly catching many investors off guard. The recent underperformance of small caps and low quality stocks suggests this could be imminent I Mean now you've got Morgan Stanley Basically saying there's an imminent massive stock market crash coming and the oil price cuts and fears around inflation. Start that with the uncertainty of whether or not we're going to get more banking, right? Uh, more of a banking crisis. And now, well, you've got too many indicators lining up for Morgan Stanley to be happy over here, suggesting hey, hey, hey, we're going too fast here.

Inverted yield curve has never been wrong before. Why would it be wrong now? And this is actually something that JP Morgan reiterates as well. Let's go back to that JP Morgan piece here. and if we go to their chart of the inverted yield curve, which you've probably already familiar with, this consensus view for a soft Landing but the yield curve thus far has never been wrong I Suppose then the question is okay.

Well, who says uh, you know a soft Landing can't just be a little shallow recession like a little baby recession. But then the question is, well, does a baby recession actually going to be enough to get inflation down? That's the big question, because if you can't get rid of inflation, then uh, then you end up with higher for way longer and that's something that nobody's looking forward to. So how do we reconcile all of this? Well look, I've I've been of the mindset pretty heavily that the best way to. get through the this is with pricing power style stocks and a Goldman Sachs analyst here I think made an interesting point they actually wrote here a bull case for Tech and they talk about basically how if there ends up being growth scarcity.

that is if if the market overall ends up having less growth and that is basically companies that are Staples uh defensives oops spelled out wrong defensives, real estate, uh, health care and utilities. If if these and even some discretionaries. if these slow down and we end up having a growth scare where all of a sudden a lot of the S P 500 stocks are actually starting to suffer what could do well in a low growth environment or a slow growth environment? well Goldman Sachs goes as far as suggesting it's tack. It's actually Tech Tac is going to potentially be that Survivor where when there's a lack of growth everywhere, investors just go.

Okay, well then let me go back to growth stocks which is mostly Tech right now now I personally refine that further and I suggest you want pricing power style Tech And that's where I like investing in the miners so to speak of uh of of um, pricing power, artificial intelligence which to me are high free cash flow companies that are potentially getting those big fat stemi checks from the government. whether it's uh, energy, uh, like an end phase or autonomy plays or AI plays like Nvidia I think these are great opportunities and I think those are the ones with pricing power. Now some people say oh, Kevin it's Google but I get really worried about Google as we talked about in the course member live stream uh, just last week which remember you can get lifetime access to those course member live streams linked down below the course member livestream. Just last week, we were looking at Google and 69 of their revenues come from Search.

How the hell are you going to tell me that if 69 of Google's revenues vanish, Google's going to do good from AI Now yeah, they could grow their AI income, but you're starting at zero whereas the big bulk of your income is advertising Revenue based around search. But if AI replaces 50 of search now, you've just lost like 34 35 of your Revenue. The value I replaces the need to ever use a search engine. You just lost 69 of your Revenue Good luck growing from there Now All of a sudden you go from looking cheap and like a value play with your multiples to actually being a value trap and people actually paying five times the multiple they think they are paying today.

Scary things to keep in mind: Fundamental analysis is a lot more than just plugging data into an app and then looking at the app outcome and going oh the PE Ratio looks good. Oh yes. So I've advised this stock because the ratio is look good like the story also has to make sense around it and it doesn't make sense for Google right now. It's not to say that Google can't float up with the rest of the equity Market But all in all, yeah, I mean these these are things that create nervousness.

I Personally think most of the inflationary concerns uh will will be that we require more patience. uh, but that we continue with downtrend. Uh, and these fluctuations and oil prices I think will be offset by the fact that oil prices and oil demand rather natural gas demand has been declining since 2019. we peaked out an oil demand in 2019 and we're obviously trying to, uh, manufacture more or produce more.

We can't produce as much as uh as OPEC plus chem, so we can't fully offset it so we're going to have some price increases. But then the question is how much of that is just pure speculation? Because if we do end up trending towards even a shallow recession, oil prices will probably have a lot more to fall. One of the reasons, by the way, you are seeing oil, uh, not do so well at the beginning of this year and one of the reasons it had its worst quarter since April of 2020 which I realized that's a month compared to this first quarter. Uh, that just kind of.

that was a magnitude drop which was insane in April of 2020.. the point is to compare this quarter this first first quarter and say it's been bad. Okay, it hasn't been this bad in a while for oil. One of the reasons is because the speculation that China's reopening was going to lead oil prices to Surge and commodity prices to Surge I Remember pounding the table in December Going? That's bullcrap.

It's not going to happen. Sure enough, it didn't happen. Now you have speculation. Okay, well, without oil.

Opex cutting. whatever. Eventually, OPEC will be irrelevant. Yes, in the near term, they're still very relevant.

So yes, there is some headline inflationary impetus uh to this and a lot of it. I Think is based off oil speculation. so it is a downside. uh, risk.

Uh. However, and hopefully it's transitory now. I Don't like using that word, but it is entirely possible that the speculation of oil is going to 100 oils. Going to 100 leads to short-term rally in oil and then people start taking their attendees just like they should have done in January When oil kind of capped out before this quarter began, we'll see all I know is this is a perfect opportunity to remind you you get life insurance in as little as five minutes by going backcoming.com Life You get lifetime access to those programs on building your wealth linked down below.

Met Kevin.com Join or just Go to Meet Kevin.com You can see everything I Got there Affiliates the ETFs I manage the courses on real estate or stocks and site and really I'm sticking strong to my strategy I put my money where my mouth is I put my money all in my PP uh uh, you know pricing, power, stocks and and I think we're gonna keep doing well so we'll see I'm optimistic, hope you are too and I hope we're right. Thank you. Alrighty then now we've got to talk about Tesla days. Etc Although we do have the Bell coming up here very soon, so we go to Baylor coming up.

and then we've got to talk about Tesla and Kevin's hair is a little bit of a mess, but that's okay. there's a lot to talk about. uh, but they've been listening to Bloomberg for a moment. Good old Doomberg.

Let's see what they have to say. We're going to go a little longer this morning of course. Remember, Livestream will be at about 7 00 a.m and uh and hopefully I can fix my schedule. All right, Let's listen it over here.

This isn't working I Don't hear anything. Why not that works. That's not very fair I Don't like that I cannot hear no. that's a bummer.

Uh uh yes. Is it. Is it just Doomberg that I can't hear? Let's see am I using the wrong button. This is not working I will fix it I will fix it.

Uh, audio audio it is on. It says it is on I have no sound. How am I supposed to listen to Isabel's and I must fix it. Uh, video audio that is quite strange.

This is very strange I didn't know. Oh well. All right, we'll have to do something else. Is it this? Hold on a sec.

No. How Bizarre Nope. I must have broken something that's unfortunate. All right.

well I'll I'll just have to sing the Bell or not myself. Um, that is really odd. All right. I will try a different way.

We will just go to Shambishi.com and I will try it that way and then that way we can at least listen to something for a moment. Yeah, that works and I will try to fix that. Let's see here if I press this button. there's a separate deal with Uh that was signed in 2021 so that's around uh for a while as well.

They think they have a juggernaut and they already um in the way that he has tried to think of the properties they have now in the UFC is going to try to leverage the whole thing into different areas, whether it's subscription or streaming. It's going to be interesting to see whether other streamers come out and trying to negotiate new New Deals as well. or if our parent company NBC Universal and Fox, for example re-up their own deals. There's a lot on the plate still to be done.

Aside from all of that, they still have a new board to fill out. There's going to be 11 seats Endeavor is going to fill six, WWE is going to fill five. They have to fill out a lot of stuff and then they're going to go public again. Well, okay so let's say people at home, we're trying to figure out what it's worth.

There's a new Co and then there's an oldco what's oldco Old Co is Endeavor as we've known it with, right all of the other see I always thought was really good, but it's never really gotten any evaluations. Well Andrew was asking you which one which name you'd want it on going into this deal. Oh I know, let me look. I I Look I have the love subscription business.

This could be any subscription businesses that we're talking about. This is one of the stickiest I Know because a friend of mine who worked at the Street worked there and we were like one point marveling that no one cancels. Well, you know you were in an environment where streamers are trying to take content and amortize it across the world. but you got language barriers.

There are no language barriers with this. No. and you I mean can you I mean just think about it, right? And that's I think how everybody's trying to get their arms around it Now You got the UFC You got the WWE uh all now Under One Roof You've got, you know, two businesses that have excelled in live sports which are the gold standard of Television these days and they think the power I'll figure it out I Cannot figure it out now. it's just very annoying.

We will talk about something else. So all right. uh well then I guess we may as well talk about as the next topic which is Tesla Uh, we'll talk about that in just a moment. and uh yeah, so that's my take on oil.

uh and the Fed that we looked at inflation? Let's go get a Tesla spreadsheet here. I'll play around with this. somebody donated 10 that is somebody donated lunch I am a luxury right share driver I Fill up every day with some fuel. My largest cost by far.

Do you see any relief for fuel prices soon? Well no I mean no, not with what we just had with OPEC So no, sorry. All right, let's go over here. Okey-dokey Then let us talk Tesla and we'll look at Price a Tesla valuation a little bit as well. Okay, so let's get started.

So Tesla just beat expectations for, well, some expectations and see, that's one of the things that's really blurry about Tesla See here in pre-market Tesla's actually red to the tune of about 3.3 percent after delivery numbers came out. Now this comes in the back of Tesla being up 6.24 Tesla was up 6.24 on Friday Today it's starting the day out down about 3.3 percent. Why is that happening? Especially if Tesla potentially beat? Well, the question is, be what. See, at least according to Goldman Sachs Uh Tesla reported Q1 a deliveries of about 423 000 vehicles per quarter.

That's up about four percent quarter on quarter and about 36 percent year over year. And that's a production. That's with a production of about 441 000. Vehicles Now that compares Uh to potentially being roughly in line with the Bloomberg consensus estimates of deliveries at 421..

Now the question here is: was this consensus really what people were looking at or why is Tesla falling? Were people looking at a bigger Uh a a larger beat or people looking at more optimistic potential Uh deliveries for Tesla Or is it possible that this number right here is creating some nervousness for Tesla? Let's talk about that. So first of all, we look at Tesla as a growth company and the goal for Tesla is to see growth between 30 to 50 percent year over year. And we've got a 36 percent year-over-year growth rate on deliveries here, which seems fantastic. But the problem is quarter over quarter deliveries only Rose four percent.

And in my opinion, that annualized rate of growth could be creating some nervousness for Tesla investors. Most Tesla evaluations and valuations are based on the idea the Tesla have at least 30 percent Eps growth, but a four percent quarter over quarter bump in deliveries is not as exciting for folks as we would hope, especially following the January price cuts which we now know are going to show up in margins in Q1. And we've known that since the last earnings report that we're and certainly upon price cuts that we were expecting to see some margin compression. But a four percent quarter over quarter annualizes? And remember, you don't go exponential here.

you want to just simply go with multiplying by four four times four equals what? Well, it equals a 16 annualized growth rate. So it's entirely possible that the market is selling Tesla off after these delivery numbers because of an annualized growth rate. That's actually not that fantastic. Now, look, don't get me wrong, deliveries of 423 000 Vehicles is great.

It represents somewhere around 1.7 million vehicles per year, assuming no additional growth growth Beyond This level Obviously, we expect production to continue to grow, especially as Giga Berlin and Giga taxes continue to grow and ramp, and hopefully we end the year closer to as Elon Musk sort of projected around 1.8 million vehicles for the end of the year. Potentially, if all things go fantastically, maybe we can get to 2 million vehicles per year, but not at the rate where we sit. Now at the rate where we sit now we've got in the bag, maybe about 1.7 million units. But the growth rate really matters for Tesla because even if we get from 1.7 to 1.8 the concern is if the growth rate for Tesla has to start getting written down from say, 30 percent to 16 percent, well then the valuation for Tesla looks twice as expensive now.

I'll show you exactly how this looks and I'll give you obviously my opinions on this. So let's take a look. Let's go into a 2025 estimate for for Tesla So let's grab. Let's see here if I press this button, there we go.

I did it. Uh oh. I Kind of messed up the little picture-in-picture thing because I've been messing around here. Hold on, let me see if I can fix it I don't think I don't know that I can't All right? Whatever, we don't need picture a picture right now.

So anyway, so what do we have? This is I haven't modified this yet after these numbers and I don't know that I really need to. But if we project uh, 4 million vehicles for uh, at the end of 2025 with 47 000 of Revenue per vehicle, leases by the way are moving up. So these are coming in at about five percent now so more people are leasing now. So I'm going to move this up to about five percent being leases.

That'll change things slightly over here. Then we'll do total revenue from Services we'll grab that. uh, and that actually does pump our revenues a little bit over here if more people are leasing. but we're still assuming these numbers here unless of course, lease is potentially cannibalize some of those sales.

That might be a little bit more adjusting to do, but relatively nominal here. If we sit at that 25 percent margin which might end up being high, we might go as low as uh sorry. We might go as low as an expense here of around 80 percent, right? So if we sit at 75 expense, it's a little lower on leases. Uh, then we're looking at probably a price target of around 531 dollars assuming a 1.67 times PEG ratio at 30 EPS growth.

So let me try to explain exactly what that means over here. So if you assume a 30 percent EPS growth then the way you figure if that growth continues using a 1.67 peg, then you could assume the company is selling for a 50 times P E ratio, then you take the earnings and you multiply it by the P Easy. However, if that EPS growth rate plummets to say 15 percent and you want to stay at a 167 Peg. Well, now all of a sudden you're only selling for a 25 P E ratio.

Well, 25 P E. Going back over here for a moment and changing this multiple to 25 halves the end of 2025 price target for Tesla. So you can see that this then would be 15 growth assumed on Eps. So I'm using 1.67 as a peg by the way, because this is where I see a lot of tech companies generally do well and I'm talking profitable Tech not profit less tech.

profitless tech would have an infinite number here because they don't have earnings right? Uh, and and some of the SAS companies sit somewhere around three or four times on a PEG ratio for a company like Tesla makes a manufacturing and AI 167 I think is very reasonable. Apple's actually a little Rich sitting closer to about 2.2 right now. so I think Apple's a little Rich right now, whereas end phase is a little inexpensive right now, sitting closer to about one peg. Fine.

But the point is, this growth rate is everything. This is basically the one variable you have to adjust and that's what I like about using these formulas is I Just have to look at what's the growth rate for EPS Well, the growth rate for EPS halves. well. Then you're looking at a maybe a 265 future value for Tesla.

If the present value of Tesla right now is 200, it's actually still not bad. That gives you a compounded annual rate return of about 10 percent. That's not bad, even at half of the forecast right? with just a 25 p E, It's not bad, but it's not what people are hoping for. People are really hoping for at least 30 percent growth on EPS which would give you that 50 here, which really gives you closer to a 38 compounded annual rate of return.

And that's really nice because that's a two and a half X in the next three years. That's fantastic. But again, the delivery numbers in my opinion uh, that we just got here suggest an annualized growth rate of about 16. Uh, and so that is potentially where markets are saying okay, that's lower than we expected.

Let's price in a little bit of pain for Tesla That's not the only reason Tesla stock could be falling. Uh, and who knows, maybe it'll end the day of green. You know the Market's funny. But the second thing that happens with Tesla is you have a lot of people who speculate on Tesla stock.

So it's very possible that you ended up having a lot of potential buying before, uh, deliveries. and now you're having the potential uh, uh, profit taking or loss taking depending on whatever position they took. but basically closing out those trade positions Tesla is heavily exposed to retail Traders And so it's entirely possible at some of the fluctuations we could be seeing in Tesla price today could be trading. So if we look at this Goldman Sachs piece here again, I think the biggest red flag is that EPS growth rate.

It's a little on the slow side. we want to see that really pick up as Berlin and Austin ramp. but again, you know we're already expecting that. So any kind of Miss on expectations just isn't good.

If we look at Goldman Sachs forecast though, for Tesla, we can see here that they believe Q123 is consistent with the belief that Tesla is really prepared for long-term growth. That's great, but at what valuation, right? And the debates from here include: will Tesla have to reduce prices further? if so, how much and if they make additional price Cuts how are those going to end up affecting margins Bloomberg Had a pretty detailed piece this morning about basically how the automotive sector is under a significant amount of stress because of high financing rates. It's been very expensive to finance a new car with a lot of rates over six and a half percent. now potentially a size seven and a half percent for a car that makes owning a car very very expensive.

When I bought my Tesla Model X in 2017, the interest rate I got was 1.49 My actual payment on that is mostly principal because the interest rate is so low I financed the whole thing because the rate was so low and my payment on it is 13.37 which is I think a pretty leak number if I if I say so myself. But anyway, uh, I haven't paid that thing off even though they're only like 10, there's like 10K left on it because I'm like 1.49 I ain't giving that up. That's just funny for the memes itself. but right now, rates are so much, substantially higher.

uh, to finance a vehicle. Uh, and that potentially adds more stress uh to uh uh. You know people actually being able to buy cars like a Tesla uh. Now if you look at uh, the Federal Tax credit.

hey, we had a great Q1 here. potentially boosted by the Uh tax credits uh, from the Inflation Reduction Act. But what happens when those tax credits go away? They were supposed to expire March 31st. Now they're expected to expire when.

Oh, April 18th. That's great. But April 18th is only less than three weeks into the quarter. So what happens when some of those go away now Tesla is buying down some of the interest rates on their vehicles.

And if you put 10 down for example, on a Model 3, you're looking at something like this right here. which puts you around a 5.5 six percent APR uh interest rate. but again, that also is including some Tesla buy Downs I believe Uh, which would hit uh Tesla margins. So continuing on here: Margins: TBD Uh.

also TBD on uh, what we think could happen in terms of actual Uh earnings growth rates. But what do we have over here? We believe that with cost reduction drivers, this is Goldman Sachs here. Tesla can exceed a 20 non-gaap Automotive gross margin in Q1 and the margins will improve over the course of the year. Now that's actually optimistic.

Now one of the things that I've talked about is that I think Q1 is going to probably be the worst set of margins for Tesla and Goldman Sachs is reiterating that belief. Goldman Sachs is making the argument that yes, Q1 could exactly be the worst quarter for Tesla in terms of margins, but if Q1 has the worst margins and then Q2 has worse deliveries because maybe the inflation reduction act goes away. You do have some reason for fear ahead of you if you're trying to short-term play. Tesla I Still maintain my belief that Tesla is one of the greatest pricing power plays that's available right now, because even in this disastrous environment, people are still buying an incredible amount of Teslas It's insane when we consider that.

so I'm optimistic about that, but I'm also cautiously optimistic. I don't want to come across as thinking that's it, Tesla's guaranteed going to the Moon because uh, you know, even though maybe that'll be true in the long term I Definitely think there's still potentials for pain between now and then, and that really makes me want to encourage folks to be careful with Too much exposure or really any exposure to margin. So heads up now. one of the nice things is Tesla does still have nice cash flow, but the question is, is it going to last? Take a look at this in Q4 Uh Tesla Ended up with this delicious uh uh, capital or cash flow? Uh, or let me start, let me start here in: Q3 in Q3 Tesla Had this delicious cash flow? of 5.1 billion dollars.

That 5.1 billion was offset by about 1.8 in Capex, which are like your factory expenditures which brought you to about free cash flow in Q3 of 3.3 billion dollars wonderfully insulated if that's very good, but that free cash flow already sunk in the fourth quarter coming in at Uh 1.42 So your free cash flow actually halved in the fourth quarter. and that's likely because we're ramping so heavily. Uh, at Tesla and margins are starting to get squeezed. When margins get squeezed, you're operating income Falls And obviously, if you're still spending 1.8 billies per quarter approximately, which has been roughly the trend here, you could see that right here: 1.8 1.76 1.73 1.8 1.85 Uh, Well then the expectation is uh oh, we might go from free cash flow to potentially no free cash flow.

So that is another risk factor for Tesla. Uh, in the short term again I Still believe substantial amount of pricing power? Uh, and that's fantastic in this environment and plenty of reasons for upside. But there's also a reason for realistic caution. Uh, now.

uh, do keep in mind as well that a lot of folks like to argue that Tesla has so incredibly much cash. They make this argument that well, Tesla has 22 bill in cash Kevin Why are you complaining about potential free cash flow? Well, because if you actually go to the current liabilities, you can see they've got about 26 billion dollars in bills to pay? I Mean if I just take uh, payables and current liabilities, you're at 22 Billies right here alone. That right there are the Bills on the desk. and yeah, you got 22 billion cash.

But you got to pay the bills so you got to keep operating right? This is why really, the balance sheet isn't as strong as people think? Uh, yes, there's still free cash flow at this point, but we'll see how that goes. especially after Q1 margin. Uh uh, margin comes in. So that's our near term hit.

Q1 margin. and then the next near term hit is is that 7 500 credit going to get half for some models of Teslas So we'll see. So definitely reason to be. You know not.

YOLO Optimistic I Think in the long term optimism on Tesla makes sense I Think there's a lot of pricing power, but we do want to get through this recession. and certainly I Believe that if we go into a shallow kind of baby short recession I Think growth will actually outperform. Uh, because people will want to seek out that growth. Tesla will be one of those if we go into a deeper recession.

All bets are often. Probably all stocks will do poorly, so that's something to keep in mind. But I Do think there's substantial upside for Tesla Once we get through this recessionary time, it's just going to require some patience. All right, That is my attention discussion.

Uh, sure. And now what else do we have? Let's see what else we have to cover today. So we talked about Tesla We talked about, uh, the inflationary problem of oil Now I Suppose we can do a little bit of a bearish piece, we're going a little bit deeper into JP Morgan that might be worth it. Yeah, that's a pretty good piece.

Yes, gasman here says I worry it could be sub 20 gross margin? Yeah, Yep. Yep. Yep. Absolutely definitely possible that uh, margin could be below 20.

I don't think it'll be substantially below 20. But yeah, there's absolutely risk. Uh. And then of course there's this question of how strong McDonald's pricing power is.

You know McDonald's has a lot of pricing power over there franchisees and I think that's where McDonald's is is actually that's the only reason I think McDonald's actually is a phenomenal uh company I wouldn't invest in McDonald's right now because I think that pricing power is going to wane their ability to keep raising prices on their franchisees I think does fade. uh and that will not last so we'll see. uh, but uh, I'm Uh, you know we just heard about the McDonald's price or uh, McDonald's corporate layoffs coming this week as well. So buckle up.

Uh, they sent all their corporate people I think they have somewhere between 130 to 150 000 people. They sent all of them home. Uh, and and they said, all right, everybody work from home this week because we're working on layoffs and we want to lock the doors because we're worried about riots. Okay, they didn't actually say that, but but they are expecting to do a pretty large wave of layoffs here pretty soon.

It's gonna be quite interesting. So yeah, uh-huh JR says why are you talking about vehicle margins when uh, operating margin is the only thing that matters? It's not actually the only thing that matters. Uh, the vast majority of Tesla's Revenue comes from vehicle margins, not energy. And yes, energy could be a nice little Tailwind to the Future people are always going the big cabin.

But if you take all of the icing in the cake and try to bake it into your fundamental analysis, you have no margin of safety left. And right now, revenues from energy projected to be like less than one percent of total revenues. so you know it. It doesn't make sense in my opinion to uh, uh to to focus so heavily on energy at this point.

Don't get me wrong, I Think the mega packs uh, batteries, uh, are going to be, uh, phenomenal opportunity. The mega packs for industrial or or cities? uh, and then of course home batteries I think they're phenomenal I think they're high margin. but do I think it's necessary to really, uh, triple down on this belief that? oh, let's let's just adjust the spreadsheet and and joink everything up on energy? No. I mean even with with the energy margins right now, they're at like, you know, 82 cost, so your margins are even worse on energy right now than they are on the vehicles.

So uh, yes, in the future, will energy be a larger part? Yes, of course. But again, you know you start baking in all the icing on the cake in what I think is already a bullish outlook for Tesla Well then I think it gets to the level of like Ridiculousness where where you know that you potentially get too euphoric over a stock and then you don't diversify to other stocks, so you want to be careful with that in my opinion. Uh, that's that's why I Personally I like allocating maybe maybe 20 25 of every dollar to Tesla right now if someone's investing. obviously that's not personalized.

Financial advice for any individual, it's a sort of broad. a broad suggestion. uh yeah, does that potentially make sense? Sure, but I think the other 75 cents need to go into something else. So again, still heavily bullish.

but uh, but not blindly bullish. Uh yeah. okay, like hedged bullish. Dare I say maybe we'll use that as a phrase hedged Bullish hedge British that sounds a little like Hezbollah All right next, All right.

JP Morgan Uh, okay, let's see what we got. Oh my. Lord All right. Well, JP Morgan Just released A 194 page bear piece.

Yes, 194 pages of being a bear, about equities and about saying we were British inequities in December Sure And then they happened to go up in January Okay, JP Morgan Take all the credit and now they say they're bearish. Let's take a look at some of the 194 pages and see what's leading them to be so pessimistic. Let's get started with page three and don't worry I'm not going to page through all 195 Pages because that could potentially lead to epileptic seizures with how many pages there are. And quite frankly, I'm not convinced that all of you have already gone out of your way to take five minutes and sign up for life insurance.

Check out the sponsor, go to Metcaven.com Life and you can sign up in those little five minutes. It's right next to the link down below to get 12 free stocks with Weeble Met Kevin.com Free! All right. What do we got here? So the main disconnect that the market will need to Grapple with revolves around the hope for a soft Landing without much pain to profits, labor, or credit, but at the same time the expectation that inflation will come down. So in other words, JP Morgan starts the piece by saying: look, people are optimistic that inflation is going to come down without corporate profits actually falling a lot or unemployment going up As a result, JV Morgan Thinks that's basically ludicrous.

It's too bullish, and therefore, they believe that stocks are going to weaken for the rest of the year. So this is the the anti-nike swoosh. I Mean this is like this is like the clickbait Nike Swoosh Where you come down, you start forming uh, the Nike Swoosh and they're like, yeah, no, we're going to do that. That's like the lightning bolt.

We don't want the lightning bolt. We want the Nike Swoosh. Their core view is that the activity upswing seen around the turn of the year was helped by falling gas prices in Europe and by Chinese reopening. However, that's unlikely to lead to a continued acceleration of growth in the second half, and as a result their bearish equities.

They also think that excess consumer savings have been eroded. This is despite the fact that this is a JPMorgan piece and Jamie Diamond doesn't think that, uh, for the lowest tier of individuals, the lowest income of individuals lowest income cohort, that their savings would actually be eroded until about Q3, which is what was one of the reasons why a lot of people aligned the idea that a recession could be around Q3 Q4 Uh, as as savings actually start eroding Bank of America Obviously believed at the beginning of the year that people still people who had five thousand dollars in the checking account in 2019 today have like 12 or 13 thousand dollars substantially more savings than we previously had. So it's all going to come down to how much strength did did the covet Pandemic really actually give us? Did it really Act actually strengthen us? or was it all Fugazi? Fugazi. Anyway, we'll see.

Oh, we held a view over the past two years that corporate earnings will be resilient, but this might start changing as profit margins are at a record and they may start turning negative. Now, They cast this as sort of a broad net here, right? It's entirely possible that those Uh margins go down for non-pricing power stocks which could be most of your Staples and most companies. That's been my belief, but they're casting this pretty wide here, suggesting that the better option right now is actually International Equity that you should be overweight Japan the United Kingdom and insurance, but underweight the United States. They're also neutral on mining.

they're neutral on Tech very interesting, neutral on Tech but underweight which means bearish on the United States overweight defensive value. Although they do see litigation risks for health care, this right here is actually one of the charts in my opinion that they're using to suggest this could be us. So this is when there was this real euphoria that oh China was basically going to go to the Moon once Covid got removed. So you got this 57 rally in the Msci China uh index, which is kind of like the S P 500, but the Msci version for China.

Anyway, just think a basket of Chinese stocks? okay, up 57. and now since the beginning of the year, well probably about the end of January as the reopening was progressing. actually down about uh uh 11 which is very interesting. Uh, then uh, we've got let me go to I've highlighted the in my opinion, the most Salient Pages here? uh and I want to go to just those.

So what do we have over here? This gives you the correlation of plans to raise prices or not Correlations: This is just a survey, a survey on on company plans to raise prices in the next three months. I Think they're using this as a way to suggest that earnings might fall I Personally see this as a way to suggest that inflation is actually coming down quite meaningfully. Of course we did just have a little bit of an oil shocker which could potentially lead headline inflation to rise, but if we look at the Zillow rent index versus core CPI for shelter, you can see we we still have had no adjustment in Uh inflation from housing and this is expected to come down. and there's expected to be about a six month lag between Zillow's rent index and when CPI actually comes down.

so that remains to be seen. Which is actually good because maybe inflation will come down down and maybe inflation will prove to be transitory. but not if earnings end up getting crushed because then that ends up creating more pain. Here's that natural gas pricing in Europe which could have fueled some rallies.

uh and uh. Then over here, we let me go to the next one. Hold on. There's so many pages here.

I Really, just want to get to some of the core ones that I marked up. Uh, here you could see Job Cuts skyrocketing uh, announced Job Cuts Now I Think this chart is actually pretty neat because rather than waiting for that lagging unemployment report, it really gives you this idea of hey, look generally when Job Cuts Spike we're in a recessionary environment. Look at that every time this little red line that I just drew goes up recession and it's likely that we're going to see that sort of softish uh, at least a shallow recession here, which doesn't necessarily have to be a soft Landing Some people say that any recession is not a soft Landing Uh, but anyway, this this is a fair indicator here that yes, yes, job cuts are here Now Some people counter this and say hey, yes, we know the inverted yield curve has never been wrong in history and yeah, we're probably going to hit a recession, but maybe we could survive that recession with pricing power stocks. That's one argument or another argument is that hey, people have enough savings and the reason we're seeing these job Cuts is really for companies to increase their margins so their EPS growth can can essentially maintain a a growth a level of growth which could actually help EPs and valuations hold through any kind of shallower recession.

I Maintain that if we go through a harsh and deep recession, all bets are off. Stocks will do poorly, but uh, JPMorgan also uses this. U.S Savings Rate I Think it's very convenient that they could have 194 pages of bearish charts and not include any kind of charts on how much household savings are actually higher right now than they were in 2019. and instead they just show us the savings rate.

which, yes, we know the savings rate has gone down. Interestingly though, it's actually starting to take up again in the last uh, personal consumption expenditures measure. We actually did see uh, personal savings rise again, which was good. uh.

And then of course here they argue that the lag time between the lowest unemployment rate and the next recession is surprisingly short. Now this was quite an interesting chart. It's not. It's not a chart that I've actually paid attention to before or really I've analyzed before and I Do think it's interesting that look at this.

basically the the lowest unemployment rate on the chart always comes right before a recession. But then again, I Kind of look at this as like you know the question of causation correlation. Doesn't it make sense that the lowest unemployment rate would be right before recession? Because a recession is defined by increasing unemployment. So of course you're always going to have a lower rate by before recession.

I Don't know necessarily that that means this low is bad, right? Because in theory, and and it's not necessarily the case, but in theory, just to sort of make an argument here, is it not possible that this could continue trending down? and then let's say a recession is over here in 2030 or something like that. And then that's actually where you draw the circle right? We don't know that for sure it's going to be here. We assume it would be because there have been so many layoffs announced recently, but who knows, You know, to some extent, by some measures, it seems like the job market still has some strength to it. I'm not necessarily making that argument.

I Do think the unemployment rate is likely to take up? Uh, in which case, then yeah, there's our shallow recession. Potentially, we'll see. So I Do think the the the recession coming is is a reality. Uh, how deep it is? Uh, that I think is more important and uh, requires some betting.

So let's go to another one. I Highlighted I I Saw this and I'm like, no, they're saying the Pp will shrink. Uh, pricing power will be lost. This is what they're doing here is they're saying Global EPS So they're not solely looking at pricing power stocks.

They're looking at all stocks And they're saying we think all stocks as a whole will ultimately be in a situation where you're going to get the Halo announcer saying lost the lead Yeah now hopefully individual stocks that have the highest amount of pricing power which is my investment thesis will continue to be in a position of yeah, it didn't work. Why is it my button Network my button's not working. Something's wrong with button number three, but it's supposed to be getting the lead I screwed up my board I guess I'll fix it. But anyway.

uh so anyway, profit margins are at record highs right now and can Trend down fine. Let's keep going. So here's the next one that I highlighted. This is on page 43 Activity: momentum stabilization scene in the last six months might be done.

The driver of a sustained expansion is missing. They're basically saying Hey look, we kind of got lucky. maybe with EPS holding up because companies were able to shave off the the you know from the edges to increase their margin and people were able to spend through the pain up until now. but that could end up going away and when it goes away, we're potentially going to face even more problems.

So JP Morgan Not not very optimistic here on on of a lot of their various different metrics over here. Uh, you also have this gold to Copper ratio which I think is very an interesting chart as well. This is on page 180. they talk about how when, uh, the gold, uh, when gold prices move up relative to copper prices, it's generally a recessionary indicator.

That's because gold is a fear metal whereas copper is a production metal. So as production goes down, copper prices go down and prices of gold go up which increases the ratio. As the ratio increases, this line goes up and they suggest that we're actually approaching another fear Peak on the right over over here. uh and uh and that would aligned with potentially a recessionary environment.

Which makes sense because again, people fleeing to Gold creates fear where people are like, okay, maybe maybe we need to spend less money on stuff and actually start saving money. Well well, cash is trash so let's save money with gold. That's an idea. Now at the same time, we're also seeing semiconductor inventories which have done this.

Of course, they didn't really give us much detail as to whether or not they flow into 2023 over here because I do think yes, Global semiconductor inventory has skyrocketed. but I think it's come down. Although they don't show that in the chart here it is Eerie though to compare it to the.com Bubble because uh, you look at those global semiconductor Peaks over there. Yikes.com.

bubble is not what we want to compare to, especially since stocks came down three times as fast this time compared to the.com Bubble I Think the last thing you really want to do is compare to the.com Bubble Because that was a three-year crash. We've already been through a one-year crash and it's painful enough. Do we really want to go through another two years of this? Hell? Absolutely not. No, no way.

Jose So anyway, uh, they're actually still I I'm blown away by this. They were actually optimistic on Staples Specifically European Consumer Staples They say Staples valuations are less challenged and and could still hold up I Personally doubt that uh I I think that's wild now. We did also just get some data out. uh on uh ISM uh.

Prices paid. which was somewhat of a little a catalyst. we could look at it. we could see hey, what's data from a minute ago? uh, look like and how does it compare to what JB Morgan is saying? Well, ISM Price is paid.

Oh wow, that's actually fantastic ISM Prices paid. The expectation was 51.1 versus 51.3 in the prior. We actually came in at 49.2 A number under 50 is a price contraction which is good. Uh, that's actually fantastic.

That's great news. Construction spending came in at negative point one percent. We were expecting zero. So that's good to some extent in terms of uh, uh, pricing, nominal pricing s p Global Manufacturing Pmis came in slightly below expectations.

So at 49.2 also in contractionary territory, dare I say recessionary territory? Uh, compared to the 49.3 expected. Uh, but that price is paid on ISM That's fantastic. That's really good. Uh, now the market hasn't really reacted to this too heavily.

Uh, mostly because the NASDAQ is bouncing around down about somewhere around half a percent. A lot of that is due to the give back at Tesla today because you had that six and a half percent rally on Friday and you're getting the give back today with it now down about 4.4 So uh, continuing to look at the JP Morgan Page the uh. they are neutral here on consumer discretionary and they specifically point out Autos as being vulnerable to a consumer. Slowdown So red flag here for Autos It's unclear if that would be a red flag for all Autos or just specifically average Autos right? Because obviously Tesla's as an example, cater to a higher income audience with the median income being over a hundred ten thousand dollars for a Tesla customer.

Uh, Also, those Tesla customers still predominantly male, expect at some point maybe, uh, if they have a little bit more of a mommy friendly car, that might change I Really think they need some kind of van like a a sprinter style van I Think that'll come anyway. Us small caps look cheap as says uh JPMorgan However, some say Morgan Stanley Released a paper this morning and said look, small caps going cheap is actually a red flag that the recession is knocking on the door. When small caps start looking cheap, it's a sign. he's going down more.

so you kind of have a little bit of balancing to do there. Now, a lot of this. JP Morgan piece. Uh, probably 50 of the JP Morgan piece focuses heavily on uh Europe and different section sectors of Europe that they think are uh or or expensive.

I Personally like looking at the U.S sectors. Uh, here's another potential Uh page here where they show: U.S Equities exhibited a significant growth tilt U.S Leadership over other regions has been consistent with growth outperforming value and Tech outperforming Banks and see I agree with that because I specifically think that growth, especially pricing power stocks are the safest. Uh, but I don't want to sound redundant I want to specifically look at the counter Theses uh and again, they're they're neutral Tech JPM is actually bearish stocks, but neutral Tech That's very interesting. Uh, so overall JP Morgan Not very happy They think stocks are going to go down uh for the rest of the year.

Uh, now this comes at the same time as U.S Positioning and stocks isn't that great and the allocation to stocks is pretty low by some accounts. It's the lowest that we've seen since the.com bubble, and maybe that it could actually lead to some kind of rebound uh, or continued Nike Swoosh growth Uh, in stocks we'll see, but this is JP Morgan's take I Want to know what you think? Let me know in the comments down below what you think? about Jpmorgan's take here: bearish equities overall. Uh, it seems like if you believe in what JP Morgan is saying, maybe the best thing to do is just sit in cash and wait for opportunities. Of course I think the best opportunity coming ahead of us that's still to come when it comes to sitting in cash is buying real estate.

I'm really convinced that most people watching the stream could become millionaires, no matter what your job is, can become a millionaire through investing in real estate. That's why I have a program that shows you how to do that step by step called the Zero to Millionaire Real Estate program I Encourage you to check that out. Link down below comes with lifetime access to all the course member live streams and the lectures on building your wealth uh, which. Those are fantastic because you get overall long-term added value of the fundamental analysis that we could do in the course member live streams as well as the recorded lectures.

So check those all out via the links down below next to the links for life insurance and 12 free stocks with Weeble I Gotta run on over to the course member livestream now. Thank you very much for being here and we'll see you in the next week!.