Good morning! Welcome back to another pre-market open live stream today. We are just five days away from the expiring coupon code link down below. No sponsors on this channel except myself. So check out those programs on building your wealth and maximizing your knowledge.

Whether whether it's fundamentals in real estate stocks or making more money in our Elite Hustlers Group which is getting new and exclusive weekend live streams. Stay tuned for more updates on that uh I'd love to have yet love to have you as part of the group. All right today. We've got a lot going on we'll be talking about Microsoft and what the heck happened on that earnings call.

We'll actually go through that earnings call together. We'll go through some of the other wildness that's going on in the stock market as well. Keep in mind today is probably biggest Catalyst uh for earnings and for maybe many of our portfolios is Tesla Tesla reports earnings after the Bell uh, obviously. uh I Expect to be covering that in detail and I'm sure there will be many videos made about Tesla after the today.

Uh, do feel free to come back here at around 1pm California time for that Tesla live stream and we'll cover uh, any of the other earnings going on as well. But of course the focus will be on that slide deck released by Tesla A lot of expectations for margin. Uh, Tesla's earnings expectations have been written down substantially. I I Do think that a lot of the retail Community uh is expecting a substantially worse report than than I Personally think we're going to get uh I'm potentially a little bit more optimistic about this report, mostly because if you think about it, most of the price cuts for vehicles for Tesla's actually occurred.

Uh well. we started with incentives in December and most of the price Cuts with the exception of China occurred in here q1 in January. So I actually don't think the margin impact for Teslas will be that terrible. and hopefully we'll see some more commodity cost reductions for Q1 production.

although I'm sure we'll get some guidance and commentary on that, so we'll certainly be paying attention to that. That'll be a big deal, but again, personally, I'm not that negative. uh as as I believe the market is is pricing in for Tesla But uh, then again, a lot of work could come down to forecast so we'll see. All right, we have a five-year break evens today.

Let's take a look at our good old break even inflation rate, five-year break-evens uh, sitting up again a little bit 2.32 really waiting for a plummet in that number before I think we'll ever expect to see any kind of fed U-turn seeing pre-market turn a little bit red. Here we've got uh oh, it's actually quite a bit more red than it was earlier. Uh, we've got Dow futures down roughly half a percent 0.57 s p Eight One NASDAQ 1.31 Amazon's drug Subscription Service uh RX pass costs five bucks a month with Amazon Prime And uh, apparently this Uh enables you, uh, essentially discounted uh, generic drugs and uh, it's it's been deemed sort of a non-profit Venture However, Mark Cuban's Cost Plus drug uh, drugs is still deemed to be two to three times cheaper than the Amazon shrug uh. delivery service service Walmart By the way, we were going through the Walmart earnings uh for yesterday.

Uh, we'll actually talk a little bit about Walmart and wages in just a moment. but uh, we're going through some of the earnings yesterday and boy, they took like a 3.6 billion dollar write down because of opioid related settlements. and it just makes me think man, I don't know if you want to be non-profit in in, uh, in the pharmacy Biz if uh, if if you're potentially subject to uh, uh, you know, massive legal settlements uh, like that as as a pharmacy because that, like, like Walmart is So obviously that's different from being an actual pharmaceutical manufacturer whom I've been uh, critical of on the channel. Especially yesterday when we talked about, uh, what the Wall Street Journal had to say uh, and it was pretty dang convincing.

what the Wall Street Journal had to say? Uh, so you have to watch the morning opening live from yesterday to see that that was on the 24th and phase was down quite a bit yesterday after a cut from Piper Sandler on potentially weaker solar demand dipping as they noticed solar loans started falling. Now that actually does not surprise me. Uh I am a big believer in the real estate slow down bringing a Slowdown to the solar sector. Uh I Uh, really hope to be able to pick up end phase for substantial discounts within about the next six months.

So uh, I I'm very, very excited to add my position or at a very large position to this company. Uh, but uh, given the recessionary dynamic I think in the short term, their uh, their pricing power will be somewhat Limited Uh, so let's see Boeing uh just went ahead and reported results. We've got adjusted free cash flow of 3.13 billion. That beats the 2.89 expected backlog of 404 billion dollars.

Wow, that's quite a backlog Revenue Coming in at 19.98 basically meeting expectations of 20 bill good Lord 20 billion dollars of Revenue and a quarter, it's pretty impressive. Uh, with with about that three billion dollars at 3.13 billion dollars in adjusted free cash flow 737 program stabilizing production rate at 31 planes per month, it's impressive. Remember, they just shut down the 747 production line about a month and a half ago. plans to ramp the 787 production up to 10 per month in fiscal 2025 and 2026 delivered 152 commercial airplanes recorded 376 net orders in Q4 net orders would be removing cancellations I Mean that's that's actually an impressive statistic.

Uh, Boeing is actually falling slightly down about 1.3 percent of the pre-market but delivering a hundred and or or taking 376 net orders in the cube in Q4 really shows you that there's still a lot of demand for planes. This is something that I noticed we were talking about this a little bit yesterday regarding the airplane manufacturer embroider. uh, noticing that, uh, the plane that I bought that was many that was manufactured by Embraer uh still has a two-year waiting period And There's not a single one of my planes with an American registration available for sale right now, which is remarkable because it's one of the most popular, uh, and desired business uh, planes that that exist right now, so it's it's quite surprising, but um, you know I'm not sure I'm not exactly sure how to evaluate that, whether that's an inflationary impulse uh for for markets or it's a um, uh, you know, a pricing power sign for for the airplane manufacturers. uh I Personally think that's pricing power for the manufacturers I Think the airlines get screwed by that because you don't get your planes when you need them, and as you enter potentially a recessionary environment, you, you end up uh, suffering from not only a higher debt load, but potentially more competitive costs.

Whereas for airplane manufacturers I think they have plenty of latitude to still raise prices uh, as as much as that could contribute to inflation I'm not convinced that airplane manufacturing is, uh, a heavy enough weight to, uh, it's it certainly wouldn't be in a CPI basket, right? This might be in like PPI but uh Actually I don't even know where that is measured. It has to be just considered as part of freight uh, or or transfer rotation or something. but I I cannot imagine that the cost of planes sits anywhere near a consumer. The Consumer Price Index But um, It's actually an interesting question.

Maybe somebody can evaluate that and leave a comment uh, Anywho, so uh, okay, uh Boeing Uh, let's see here: I'm just gonna take a peek at how it's reacting. you know, obviously. Microsoft Actually, you know going going. Okay, Boeing's down about four percent now.

Uh, we're getting a sort of a reversal on a lot of the Um excitement Yesterday in Cloud uh, yesterday when I covered Microsoft's earnings. one of the big things I uh talked about was this idea that I'm nervous about Cloud I was I was initially optimistic by the Microsoft results prior to them providing their forecasts right? Their forecast is what tanked uh, the market. but I was initially concerned about Microsoft Uh, well, the software sector thinking that I would prefer to be in the chip sector mostly because you have higher free cash flows and in my opinion, you have higher pricing power longer term. Uh.

Just given the the Uh, the capex requirements in Uh in essentially manufacturing and Chip design, then uh than it compared to software I believe software is substantially more competitive and I Think this is very simply exemplified by Taiwan Semiconductors, which has a 92 percent uh, a grasp on the advanced microchip Market that is massive. This is a massive grasp that they have now, of course. Uh, the software sector is is also getting a lot of negative attention, not just now because of the negativity coming out of the earnings call from Microsoft which apparently was also suffering technical difficulties which doesn't help, but also there there are substantial downgrades that we're seeing from Wall Street for example prior, this is prior and then I Want to cover what happened with Microsoft Prior to the Microsoft report application we we had uh Wall Street reports suggesting that application software companies likely face Revenue downgrades ahead of Q4 earnings calls. Several percentage points of growth expectations may be shaved off going into 2023.

Analysts think that average revenue growth rates could come in below 15. while the current consensus for software is 17 to 18 now I Want you to keep that in mind that the consensus is 17 to 18 software growth because we're about to go through the Microsoft earnings report and uh, well, we're going to go through the earnings call and while Azure Microsoft Azure actually beating expectations uh, for the last quarter, their forecast was not not so great. in fact, spoiler alert. Their forecast for Azure was flat for the next quarter and forecasts from Wall Street were that future Cloud growth would be somewhere between 17 to 18 in aggregate.

You've got uh, consensus estimates here. Uh, that? I'll go ahead and show up on screen. Now these are consensus estimates here and you can see Revenue Growth consensus estimates calendar period here: Bill.com Expecting to have grown a double in 2022, but only growing by about 36 to 30 percent in 23.24 Now that's not like, actually terrible. That's actually still pretty dang good.

Intuit Expected to only grow about eight percent in 2023, followed by 13. Uh, we've got ADP over here. Seven and seven Paycom 2322 GoDaddy Six nine Shopify coming down to 2022 Squarespace 11 and 14 Wix 9 14 Average consensus here: 17 to 18 percent. Uh, just based on on sort of this, uh, this group here we do notice obviously that uh Microsoft is is not in this uh, uh, this list here.

but uh, you know, coming in with essentially flat expectations for growth on Azure Not great And that comes despite uh, expectations that the server, uh, industry will actually do well downgrades uh, coming due to obviously, uh, slower commercial seat adoptions uh, or expectations for that slower consumer growth, limited pricing leverage. That's actually interesting because you're going to see that in the Microsoft earnings call. In just a moment, you're going to see limited pricing leverage which I like to call PP So you're going to see limited PP Why are you going to see limited PP Well, because you're going to see Microsoft Executives Talk about optimizing growth. Uh, and that's not them optimizing growth, it's their customers optimizing and they think we're actually going to go through about a one-year period of optimization.

Now, they believe that once you optimize and after you optimize, then you will be able to get back to doing more work. However, they think we're going to go through a one-year period of optimization, lengthier sales cycles, and slow, lower approval time frames are potentially likely to stall user expansion and limit pricing. A Power suggests a Bloomberg The net percentage of business owners expecting the economy to improve is close to all-time lows at negative 51 percent, and this is likely to weigh on discretionary tax spending. Keep in mind yesterday we were looking at Mike Wilson's Morgan Stanley report uh or Mike Wilson's uh, flood report I should say from Morgan Stanley uh and uh We we talked about uh, exactly business confidence and how potentially low that business confidence is right now and how I actually think when business confidence is low, it's one of the best times to potentially cannibalize your competition, work harder and do your best to keep growing and not Contracting Very important.

Uh, okay, so let's go jump into that Microsoft Earnings call. So Microsoft Earnings call right here. so let's take a look. I'm just going to read the in my opinion, the most Salient pieces.

That doesn't mean I hate everything here just doing my best here. Uh, so we've got the CEO here suggesting as I meet with customers and partners. A few things are increasingly clear. Just as we saw customers accelerate their digital spend during the pandemic, we are now seeing them optimize that spend.

That's a red flag, right? Optimizing spend is basically a euphemism for uh, people ain't spending as much money with Microsoft Steppro We saw new highs for game pass on gaming with game streaming hours and monthly active devices at a record surpassing 200 or 120 million devices during the quarter. That's fantastic. And thanks to lower energy costs, they uh, they were actually able to uh, increase their Uh margins on Microsoft cloud better than expected by two percentage points a year over year. However, excluding the impact of an accounting estimate for useful lives whoopsies Microsoft Cloud Microsoft Cloud gross margin percentage decrease roughly one percentage Point Driven primarily by a sales mix to Azure Uh, so apparently a little bit of a lower pricing structure there.

if you introduce a lower mix, you end up with a lower, um, a a lower margin. Uh, keep that in mind I Think a lot of folks get confused by that. I'll just explain that really quickly. So let's say that you run a dollar store and I Love this Dollar Store example I Think it's the easiest to understand you're the owner of a dollar store when you sell the little water gun squirt guns for a buck, it only costs you 10 cents per squirt gun to buy.

So you're looking at 90 cents of gross profits A dollar Revenue Cost of goods sold 10 cents 90 cents A gross profit, right? That's on little squirt guns at the Dollar Store, let's say. But now let's say it's a recession and people are coming in going. Sorry Charlie Yeah, bite your finger. We're not buying you a squirt gun this time.

Instead, we have to spend the dollar that we have on toothpaste. And the toothpaste margins are a lot worse Because when you go shopping for toothpaste, you actually have to spend 80 cents to acquire that toothpaste. Well, now your growth profit Gross Profit is a buck minus 80 cents or 20 cents. substantially less.

And so that's an example where somebody could still spend a dollar on your goods and services on your gas, so to speak. Uh, that's an accounting phrase. Uh, but your your margin went to crap. Instead of having 80 cents a gross profit, you only have 20 cents A gross profit.

Terrible. Your margins got destroyed because people shifted to a product that has lower margins for you. Unfortunately, it sounds like compared to Microsoft cloud Azure uh provides a lower margin. It's quite interesting.

Okay, uh. However, they are excited about Azure With constant currency growth in the mid 30 percent, that's Looking Backward Just wait for the forecast. All right. Ready for that? Here we go.

So Microsoft tells us in our Commercial Business we expect business trends that we saw at the end of December to continue into January February and March. While customers are more cautious in their spend, we also have the opportunity to improve our execution given our strong position in global growth markets. in commercial bookings with a declining expiration base or expiring base and a strong prior year of comparable sales. Essentially, for Azure contracts, we expect growth to be womp womp womp relatively flat year over year.

we expect consistent execution across our core annuity sales motions, blah blah blah. Basically, hey, we think the company is still going to do great and we're super excited about our company. But unfortunately the Slowdown we saw in December is going to continue in January and uh, and and everybody else is at fault. We're still performing and firing on all cylinders.

but everybody's just spending less money. And unfortunately, that means instead of being excited about 30 growth for Microsoft Azure, we're actually going to be flat. and given that Bloomberg is pricing in 18 to 20 percent. Uh, or Wall Street potentially is pricing in 18 to 20-ish percent? Maybe it was 17 to 18? anyway.

uh, growth for cloud and we're going to be growing at a grand total of zero. Maybe we'll even be negative. things just ain't that great right now. Okay, that's like my like, super basic explanation of what Microsoft said.

And so if you're wondering why, uh, in the pre-market you are seeing uh, software companies sell down C3ai down about 2.75 you've actually got trade Desk down 2.5 percent Crowd Strike down 2.5 Microsoft down 2.4 Uh I mean almost the entire software as a Services business has has rotated down on these Microsoft Journeys This is why, although most of the market is red here in pre-market including the solar companies uh such as uh and phase, uh, Sun Power and Sunrun uh, all down about four to four and a half percent solar Edge only down about three percent I Do expect that to continue. so if you're exposed to solar stocks I do expect that sort of pain to continue. However, I expect there to be some opportunities to really increase your share of ownership in solar companies once we get to more pain in the real estate sector. in Azure our per user business should continue to benefit from the Microsoft 365 Suite momentum.

Though we expect continued moderation in the growth rate given the size of our installed base. In other words, thank you! Law of large Numbers Law of large Numbers means once you have so many people on your platform, it's really hard to continue growing and ultimately you just hope to keep things stable. Oh no, but what do we have here? As I noted earlier, we exited the last quarter of 2022 with Azure growth in the mid 30s, we expect Q3 growth to potentially decelerate four to five points in constant currency. So that is Uh, you know to be reiterated by over here about this potential uh, growth that is flat year over year.

So in other words, uh, this is actually a little bit confusing and constantly I don't know. Expect Q3 growth to say this I wonder if this is this could be overall uh I wonder if this right here must be overall growth or sweet growth since they did say Azure they expect to be somewhere flat. but either way I mean you could see the information here and try to make your own deduction. Um, in our on-premise server business, we expect Revenue to decline in the low single digits.

Uh, that is the revenue decline I said that correctly. Revenue Decline Low single digits. that's a decline of again, maybe three four percent as demand for our hybrid Solutions will be more than offset by the unfavorable. Foreign Exchange Impact Search and advertising excluding total acquisition costs should be in the high single digits roughly seven points faster.

Now, this is actually good, right? We like to hear that advertising spend is up and you are seeing companies like Carnival Cruise Lines for example, boost their spending substantially just to try to fill up ships. That's what they're really trying to fill up right now is they're trying to make sure that if they are sailing, which they are they are, sailing with the highest amount of potential paying customers. Tech as a percentage of GDP is likely to be higher going forward. However, this is.

uh, this is a this is a subtle way of saying hey, look, you know, even if we go into a recession, uh, we think people are going to spend less money on other things relative to Tech. In other words, if the rest of the world Falls I'm just going to make an extreme example here: 10 and spend Tech might only fall five percent and spend just as an example, right? That's roughly what they're making an argument there of and one of the things we're looking back to, or some savings. uh, for workloads and that's okay. This is the optimization cycle that I was talking about where at first you optimize, you take about a year to optimize, and then you can start thinking about new projects.

This is really the CEO of trying to. This is really the CEO trying to paint this Vision that hey look man in life, we optimize and and sometimes you go through about a year of optimizing and then you're back at making money again. So don't worry, the future is bright for Microsoft I Don't think it's going to take two years I Think it'll take one year of pain. So in other words, a little bit of, um, you know, trying to exemplify what's going on.

Uh, Microsoft is doing so Uh, however, still painting the picture of pain. So if you're wondering why we're having some software issues, this could potentially be why now I Want you to also think logically for a moment about software. Okay, so let's let's understand this for a moment. Let me give you an example.

Let's say you have a team of interns and you want everyone to make uh I don't know to add to edit tick tocks. Okay, and what you're going to do is you're going to buy everyone uh, an Adobe Cloud subscription so that they that way they could use Premiere right? You want everyone on Premiere editing your your tick tocks right? Let's just say as an example and then let's say you go into a recession and you're a normal company with I don't know a thousand interns right? Well in boom time you're like everybody gets an Adobe Cloud subscription. Let's go a thousand Cloud seeds. Well, in a recession most businesses say okay.

well we're actually not going to hire uh, new people, we're actually going to lay off and we're going to be stuck with uh, let's just say 900 people instead of a thousand. Well, immediately, what you've done for Adobe is you've actually not provided Cloud growth. You actually just provided Cloud contraction Because by by laying off people in a recessionary time, what happens? Well, you just cut 10 of your Workforce Well, you just took away 10 seats from Adobe But not only that, you might also say hey, do we really need 900 seats? Or how about like 300 of y'all just borrow the other dudes login or computer when you need it since 300 of y'all are focused on I Don't know, playing basketball more instead or basically doing something else at the company. Let's just in addition to laying off people, let's also optimize how many people we're paying for cloud seats for.

So now all of a sudden we're going to take that down to 600.. So all of a sudden you have a 40 drop in in seats that are being offered to Cloud uh, subscription services and so what do you have? Well, you have a disaster. all right. So so this this is a situation where it's basically if you're growing at zero.

So basically if if you're a cloud provider and you could keep like Revenue stable during a recession, you're actually doing good. So as much as Microsoft is sort of this, this negative Canary in the coal mine for software services companies, zero percent growth in a recessionary environment is actually good when it comes to Cloud Especially in an environment where we're seeing as many Tech layoffs as we are seeing. so that's something pretty important to pay attention to. Uh, my take now, uh, how could this affect the chips Market It's actually a great question Shane Huff here in our chat, asked that question, how will Microsoft affect chips like Taiwan semiconductors and AMD yeah So first, it's worth noting them open.

AI uses uh Microsoft uh cloud services and most of the cloud services provided by Microsoft use hard Hardware like Nvidia chips mostly Nvidia chips but also AMD chips and obviously a reduction in the expansion in Cloud uh makes us Wonder like hey, isn't it possible if if Cloud spend is going to go down, that chip spent could go down absolutely and I think a lot of that we have already seen. We've already seen a lot of that pain. Uh now there were some pieces which I thought was actually very interesting. There were some pieces that I was reading about yesterday.

let me see if I can find it here. There were some pieces about how we could potentially actually see an acceleration uh in uh Microsoft or sorry in chip spent as uh, the demand for a higher quality servers accelerates the refresh cycle for chip spend so keep that in mind as as these Cloud companies want to get back to growth, they have to figure out. Okay, well how do we potentially uh, differentiate ourselves from our competitors? Well, unfortunately, the way you differentiate yourself from your competitors is you try to prove that your product is a better product or a faster product or a more capable product. And unfortunately you do that by refreshing the chipsets that you have in your server industry or your server division.

So uh, well, obviously we expect the chip sector to slow down. There is at least some enthusiasm that as Cloud slows down, companies that suffer from those Cloud slowdowns are going to be very incentivized to try to get back to growth as quickly as possible, potentially double down on their investments into chips to make that a potential reality. That's just an idea. Uh, you know I think ultimately everything slows down when we go into a recession.

Hardware Uh, certainly being one of those sectors that that is expected to slow down. Uh, and a lot of that fortunately seems to have been priced in already. Obviously no guarantees on that. but um, that's uh, that's quite interesting.

In fact. I have a piece here. Let me see. I'll read this out because I think the question is very good.

This isn't exactly the one that I was looking for, but this one could be interesting. Talks about Taiwan semiconductors and Samsung sales Taiwan semiconductors and Samsung and other foundries could expect revenue of their Advanced packing business. Key to producing chiplet based semiconductors to double by 2025 and become a major growth structure. Chiplets structures are likely to become increasingly popular in laptops following the introduction of Amd's first shiplet-based laptop semiconductor.

That's quite interesting I Think this has to do with the five nanometer chipsets I'm actually not super familiar with chip chiplets and and I can't find that piece right now. but I'm going to try to Google it really quick. uh server chips? uh, shorter, shorter refresh cycle? That's what you kind of want to look for is that potential server refresh cycle I will do one more hike. Uh, look here.

but uh, I'm generally a big fan of being the pickaxe seller versus uh, investing in the gold now. uh, that can come with risks obviously as well because it does still rely on gold performing very well. But uh yeah, okay, that doesn't look like I'm gonna be able to get that article, but I'll find it eventually and uh, I will Circle back on that. But I think that's a very good question.

So anyway, that that explains some of the softness that we're seeing in software and it probably is going to weigh on uh, the the overall stock market today until we get some more earnings that that hopefully give us a little bit better news. So in case you're wondering, why are things red today, there's your answer. All right, let's see here, what else do we have? and yeah, I'm so surprised I cannot find it because I had it and I saved it. but I didn't know where I put it all right.

let's go ahead and listen in here to this talk on ATT six that people have. So when we have companies trading at high premiums, you know today Microsoft announced earnings and they're talking about slowing Cloud growth I mean Microsoft tasted 24 times earnings We Own It We own a small piece of it, but it's a big part of the S P. so it's over five percent. So we're getting into an area where I think investors are going to be looking to see what do I want to own for the next two to five years, especially if rates are going to stay kind of where they are uh, if not a little bit higher if you own Microsoft And if they're talking about the slowing crowd Cloud growth does that mean you sell it at this point? I Think you'd be very careful.

we're looking at it very carefully. I think they're going to be other opportunities there? uh I I don't know I would own it in the size that is in the market I Like the company I Like a lot of attributes, it's cash flow positive, a lot of recurring Revenue uh but I think you can. You can look for other opportunities, especially if it's a sizable position. so Rod thanks I I didn't ask you do you own ATT or Verizon uh, we do not own either of those we own Microsoft Okay, so right.

thanks. Always great to see you all right coming up the Department of Justice suing Google over its dominance in the ad Market will break down that suit with former White House technology head in East Chopra and uh then next plus uh Tesla up big so far this year. but can it keep the momentum going? We'll hear the Bull and Bear cases as the company gears up for uh, earnings squat box. We'll be right back.

Oh well, that should be entertaining. We can. We'll definitely, uh, chime in for that. We'll see what we have.

Uh, on the Uh Bull and Bear thesis for Tesla Uh, right? So yeah, I uh, on the Google um investigation I can provide some quick uh, insight into that. So uh, basically the Department of Justice sued They say that Google has a monopolistic control over the digital ad. Market The accusation is that uh, essentially Google is using anti-competitive exclusionary and unlawful means uh to to essentially assert its dominance over advertising and digital. Tech The United States says Google is violating the Sherman Antitrust Act which prohibits activities that restrict interstate commerce and competition in marketplaces.

Department of Justice says Google has um, let's see here. let's see uh, competitive control because it controls numerous aspects of the digital ad. Market including websites I use by Uh Publishers to sell ad space Google says the Department of Justice is doubling down on a flawed argument that with slow Innovation raise advertising fees make it harder for thousands of small businesses and Publishers to grow. Uh, yeah, I I don't know I mean it's I don't know.

The amount of times Google gets sued is quite shocking. Uh, and it's regularly created a substantially large headwinds for companies like Meta and Google uh for for people's uh, interest in investing in the companies because they are so exposed to uh lawsuits. the bigger you get, the more you get sued I Think that ultimately is the case. but then again, you know, like Google's like, probably just one of the better Services is one of the crazy things to think about.

Um, so anyway, all right, let's uh, take a brief listen and see what uh Bloomberg has for us and I think that's the downside. It's like as soon as you have a really good product service and become so large I Bloomberg So and so as soon as you have a better product or service and uh, he actually becomes so strong in a market that you end up uh, getting said, oh, you're too good, you're too strong. It's pretty wild. So looking at some stocks here on pre-market expi, uh, real estate stock down about five percent.

uh I'd Actually personally be a little bit concerned about a lot of activity here in pre-market Actually a little bit concerned about the how many Realtors are going to be leaving the industry I'm not a big fan of investing in real estate related stocks including Airbnb right now I Actually think we might be going through a little bit of an Airbnb bubble. We'll see what happens. Uh, well, uh there. Shopify Actually up about two percent here in the pre-market Let's see how that ends up moving.

Uh, and that's probably on the backs of them having increased rates about uh, 30 on some of their their fees. Uh, those aren't seven a.m candles? Yeah, no kidding. All right, let's see here. Uh, load me up with gold.

Oh, buy real estate with house hack and load up the houses with safes of gold I don't I don't know I don't know about that. Heard about top officials in Ukraine resigning after being rocked by corruption. Uh I mean it doesn't surprise me that uh, you're going to end up face I haven't heard that, but it wouldn't surprise me I Think it's very difficult when you barely have a government together and people are dying all over the place. Not to expect at least some degree of elevated corruption.

Uh Azure is nice until Microsoft cloud outage hits the kids Xbox Yeah, no kidding. Microsoft layoff plans to lay off about 10 000 and then wants to invest 10 billion in AI Coincidence I I I mean you know I I Know there's there's a lot of um, there's actually a lot of social media slamming going on for Microsoft around this idea. and and you're not wrong. It's like it's kind of like oh well, you know, don't you have enough money to pay for the employees? But really what it is, it's um, you end up in a in a situation where as a business you you have to optimize right? and if you have people who who aren't uh, performing or or or just aren't necessary in the business, they shouldn't be there.

Uh, whereas uh, making investments in the future is still very important. uh, it's sort of like hey, Tesla you're spending billions of dollars on new gigafactories. Why are you laying off white collar workers? Uh, because we don't need you. You know I mean like it's harsh, but I mean that's capitalism and and hey, look I'm not here to say that.

uh, you know there shouldn't be social safety nets But Ultimately, people just have to get a different job. uh uh yeah, look at that meet Kevin Thank you JPM reduced their price Target from 125 to 120 on Tesla Oh yeah, let's go JPM The global recession isn't as bad or as long as we expect Commodities will jump again on stronger than expected recovery in a second wave of inflation. Yeah, that does assume that there will be a second wave of inflation 1 PMP T 4 pm for Tesla time. That's true Eastern Yeah, you know I I I Still, um I know that Commodities are a little bit harder to solve Supply chains on relative to uh, you know, increasing your manufacturing output potential, but uh, you know, even even within the commodity sector and even just the transporting of Commodities I'm pretty optimistic that uh, companies are in a position where they would love excess Demand right now and they would love to fill that demand.

And as long as they can fill that demand, you don't need to have inflation. Remember as as if demand goes up, as long as Supply is willing to meet demand it, you don't necessarily have to move up the equilibrium Price Right Which means you don't necessarily have to have inflation. Over the last 40 years, we've had substantial Uh growth in GDP with very little inflation. Uh, and that's something to consider, right? So uh, let's let's draw that out for a moment and give that a little bit of a look.

So all right. Uh, let's see here. Okay, they are not doing the Tesla chat just yet on Um CNBC so we'll pay attention to that. But anyway.

yeah. so so if you have uh, let's see here. Demand Curve A Supply curve. Price Quantity demanded.

So I mean basic, just Econ 101 stuff here. Generally what we think of is as the quantity demanded goes up. uh, the the Uh and the Supply stays constant. You have to move up the supply chain.

Uh, and and then price will go up right? You'll you'll end up move it, shifting price up as the quantity demanded moves up. And essentially you get this this new Uh curve right here, right? Uh, But my belief is that you're not actually going to see something like this. My belief is that as uh, demand quantity uh moves up. So in other words, we go from demand quantity demanded let's say zero to quantity demanded.

Uh one. What you're actually going to find is I believe you'll find a new line a new Supply demand curve where yes, demand moves up, uh, and and uh on this on the supply curve here. But we end up with a completely new chart basically where we end up with new demand Say here. But then we also end up with new Supply that comes online.

Let's say there. So let's move this over a little bit and what do you end up with? There we go: Quantity demanded. Uh Prime What do you end up with Actually potentially exactly the same price? So I think you? you actually basically as quantity demanded goes up I Believe uh, quantity supplied will go up, which is likely to actually keep prices stable. Uh, now that's just a thesis obviously.

and I understand that there are limitations to how much of Commodities can be supplied. but I believe that the logistics associated with commodities have, uh, greatly improved. and I think that where you're probably most likely to see commodity issues is maybe in the Lithium carbonate section sector. But but beyond that I Don't think in terms of like iron copper.

Lumber We're going to see the kind of explosions that we saw uh, in Um in in 2021 Uh with with massive supply chain dislocations and and not even having enough trucks or ships or trains to move things on. I Don't think you're going to run into that issue. That's just my thesis. Could be wrong obviously.

So if I look at the one year right now and I go to Metals Let's see what we have. So one year on Metals we're looking at negative 12 on aluminum. Negative five-ish percent on copper. Four to five percent on copper leads down about 10 tins down about 29.

Zinc's down about four percent Iron Uh is is plus. depending on what kind of iron you've got one that's up eight percent. One that's down six percent. Steel's down about 19 to 20 percent Gold's up about four percent.

Silver's down about one and a half percent. So it seems like you have more of a commodity. Trend To the downside, you do, though, have an increase in nickel prices of about 28 year over year and Lithium prices Olympian braces have gone up substantially. So that's that's my thesis at least on uh, you know, supply and demand? Yes.

Charlie on trades. Oh, that perfectly reminds me. Remember, you have five days left to check out the programs on building your wealth and linked it down below. Uh, that is going to be the uh last uh coupon that we have massive coupon and uh, after.

and then you get a three month price guarantee thereafter. uh and uh. So in other words, prices will be going up. So if you want to join and get lifetime access, no better time than now to do so.

All right. What's this developing story? CNBC Filing an Anti-Trust suit against the Silicon Valley Giant Boring. We already covered that I Don't really care about them right now? Okay, we actually have other news to cover. Ah, so let's get to other news.

And the other news that I really want to hit is Ah yes, the FED Oh okay, no excuse me, Juicy one. Hmm. All right, stand by. So obviously the Federal Reserve is key to what's going on in markets and we expect that the Federal Reserve at some point will be forced to U-turn Uh, but it is going to require inflation coming down.

So what happens in the event inflation does fall faster than expected and what kind of signals has the Federal Reserve just potentially sent to us? Well, in order to find signals from the Federal Reserve I Personally like to visit our favorite Federal Reserve mouthpiece and that is Nick T Over at the Wall Street Journal Nick T at the Wall Street Journal. Seems to be the guy who gets text messages from the Federal Reserve and seems to get some pretty interesting insights from the Federal Reserve And just about two hours ago, he tweeted a piece that was actually put together by John Roberts uh, who used to be a Fed Economist and the piece was titled what if inflation comes down faster than the Federal Reserve expects Now this is actually quite an incredible piece because it provides us a little bit of insight into a Federal Reserve Economist base case for what the FED is going to do and a potential future case of what if inflation Falls faster than expected. Now what's really remarkable about that is given that Nick T from The Wall Street Journal retweeted this. Some say it is possible that Jerome Powell or somebody at the FED could have sent a little message over to Nick T and said hey, would you mind sharing some light on how we might potentially U-turn and actually cut rates sooner than we're saying.

we're going to cut rates just so we could kind of deal out how the market responds because certainly we don't want to say it. But if you say it, it's okay. This is literally how the FED plays their communication game. They kind of just talk.

They talk, talk talk talk. They talk the market kind of in the direction they want. And the fact that Nick T is sending this out this or is posting this. this uh, John Roberts piece gives me a little bit of Hope and Hopium is not investing strategy, but gives me a little bit of a hope that we're actually going to get a little bit more of a dovish Jerome Powell at the next Fomc press conference.

But let's go ahead and take a look at this piece because it is fascinating and as usual, I have done the highlighting for us. I Actually really? I don't know why I tell Lauren I Go. Oh my gosh, there's a new piece on the fan I gotta go read it. she's like dude Anyway, so um now uh John Roberts did post this uh, at the end of Uh 2022, but it was just retweeted uh by Nick T two hours ago.

So for the sake of uh, our purposes this is this is fresh uh from the signal in my opinion that it sends and it really sets a very interesting path because initially they say this is sort of your intro here. If inflation comes down more quickly than the Fed anticipates, the FED would likely cut interest rates sooner sooner for example, than their most recent economic projections when they cut when where the first cut was actually being priced in in 2024, and the FED has been saying we won't cut rates in 2020. Uh, three at all. However, if inflation Falls faster, what could that scenario look like? And is it possible that the FED could actually then reduce the pain on unemployment Now I have to just take a moment to Pat myself on the back and no, I'm not trying to do that to Pat myself on the back, but I am patting myself on the back yesterday.

I actually talked about this Uh, about the Federal Reserve and the Mike Wilson fun pieces and I said look, nobody is pricing In the fact, in my opinion, that the FED can actually slow down the pain they cause to unemployment, the FED has a dual mandate maximum employment and stable prices. and if prices are stable, they will take the foot off the the sort of economic breaks and stop with the pain they're causing to unemployment because they don't want people to lose their jobs people employed is actually a good thing and it's part of their mandate. So as long as prices are stable, they'll stop crushing jobs. We talked about that idea yesterday.

So with the base case Mr John Roberts from Uh or the former, Federal Reserve Economist assumes on his base case that the FED will actually reach a terminal rate of 5.1 percent. Uh, now that's the base case scenario and at the same time, we'll probably see some form of increase in the unemployment rate, especially as we hit a recession since the smallest increase in the unemployment rate in a recession was in 1950 and it was around one and a half percent and you usually tend to see at least a one percent increase in Unemployment uh, one to one and a half percent increase in unemployment. at least expectations are such in history as such, in a recession, so there is a likelihood of getting to about that 4.6 percent unemployment rate in 2024, unless of course, inflation happens to fall faster than expected. And this is where John Roberts gives us the case for a low inflation alternative.

I Now consider an alternative scenario, in which case, inflation Falls faster than Baseline inflation might be lower than most forecasts expect for a number of reasons. To be clear: I assume or consider lower than expected inflation to be a risk. In other words, that is not the Baseline scenario. It is sort of a you know more other scenario.

It's like if your Baseline scenarios I think something is 60 likely to happen, then you have what are called tails. You usually have a left tail and a right tail. Those might be 20 chances higher inflation, lower inflation, right as an example in this case. So uh, Supply conditions.

And here are some reasons why inflation could come in lower Supply Conditions could improve more quickly than expected. Now this is what I believe, right? I I We mentioned this sort of as we just went through our supply and demand curves and I suggested that as as we see here, it's entirely possible that we could see the entire supply and demand curves shift to the right where quantity demanded actually goes up, but price is paid, actually stay stable or go down and continue that path of disinflating or potentially deflating. That is entirely possible if Supply chains are or have improved the way that hopefully they are expected to have. Now John Roberts Goes on to say, prices could prove especially sensitive to reductions in aggregate demand, especially among Goods that were in short supply during the pandemic.

The latest Consumer Price data suggests that might be happening amongst core Goods already, and that could end up happening in Services as well. The very light labor market could rebalance more quickly uh than the change in unemployment rate would typically suggest reducing pricing pressures in unemployment In these scenarios, with lower inflation in both scenarios, with quarterly core inflation in the first quarter of next year falling to or 2023 already falling to about three and a half percent and potentially two and a half percent by the second quarter, then the Federal Reserve could come become convinced by the second quarter of 2023 about the durability of lower inflation, and then begin cutting rates by the second quarter. That's pretty remarkable. Nobody's expecting the FED to start cutting rates by Q2 at least some of the bond market, yes, is expecting some rate cuts by the end of the year, but the bond Market's really only seeing those as soon as maybe the third or fourth quarter, but not the second quarter.

And this is a case where John Roberts a former Federal Reserve Economist is saying: Look, if inflation ends up proving itself to be more stable and lower than what the Federal Reserve is expecting by the first and second quarters of 2023. now, then we could actually end up seeing the Federal Reserve cut rates by Q2. That's as soon as getting Cuts That's basically getting a pause in March because I think we're going to get 25 in February I think we get a pause in March uh And then it's possible we start getting cuts by May or June and that's basically what uh John Roberts here is suggesting. not as a base case, but as a potential case.

As a result, Financial Conditions ease. this would mean stocks up and treasure yields down. With the 10-year treasury yield potentially dropping 60 basis points. that would be the 10-year sitting around Uh, potentially 2.9 percent.

That's where we're going to start getting into a territory where it's going to be. We're going to start looking at by the dip time for Real Estate Especially as inflation Falls Quickly, the real estate market will will probably recover quite quickly and so I'm very excited to prepare for our dip shopping. But anyway, the unemployment rate is 4.2 percent in the scenario. In this scenario, only slightly higher than uh, when uh, uh uh.

basically uh, the forecast by the end of 2024, the Improvement is still larger with the unemployment rate at about four percent uh versus the 4.6 expectations. Inflation averages 2.75 in 2023 and is close to the Fed's two percent Target From 2024 onwards, could a still more aggressive policy response lead to a better income? In the simulation shown with green dots dashed above the FED Cuts rates by one percent by the middle of 2024, or Sorry by the middle of 2023, after which it rises gradually. uh, or sorry. After After which it rises gradually, the 10-year yield Falls to three percent.

such a policy would eliminate any increases in the unemployment rate. Okay, so essentially he's going through these different potential scenarios here where you could actually see the FED Look at that, you could actually see the Federal Reserve Take two stances. In the event, and inflation comes down more quickly than expecting expected, they could actually end up cutting rates from four to five percent down to one percent, and then slowly raise rates again to two and a half percent. Or they could cut rates to about two to two and a half percent and then essentially keep them there.

So John Roberts actually goes through two scenarios where if inflation comes down faster than expected, the FED is actually going to prioritize saving jobs. He's basically saying the Fed's going to flip flop and they're going to do everything in their power to save jobs, even if that means aggressively cutting rates and then raising rates again. Now, there's a big concern on Wall Street that while the FED doesn't want to repeat the mistakes of the 70s, cut rates and then have to raise rates again, However, if inflation proves to stay low, then that's not actually a problem. The problem in the 1970s was that The FED started cutting rates before they were convinced that inflation was actually down or would stay down and inflation break evens hadn't actually come down uh at all.

Expectations were that five-year well I mean they'd come down somewhat, but not to to low levels. um, inflation break evens were substantially High uh in in the 70s, mostly because it was the first time we were fighting inflation on a currency backed by nothing other than air and Trust that's because we left the Gold Standard in the early 70s. So you do have a lot of elements that are different about this cycle, but then again, suggesting this time is is different is is generally dangerous. Now keep in mind this is not a base case, right? This is.

this is just a like what if inflation comes down faster. But the fact that the Fed's mouthpiece Nick T over the Wall Street Journal is retweeting research about how the FED could potentially dramatically cut rates In the event inflation Falls quickly by the second quarter of 2023 is actually, in my opinion, quite remarkable because it shows that the FED is starting to think about uh oh, what do we do If inflation plummets? They're starting to think about that And that I think is quite interesting. Now of course, that does leave us to where markets and the FEDS still disagree and it has to do with wages and the wage inflation problem. Now we actually did just have Walmart increase wages.

Uh now I Want to give you a little bit of insight into Walmart Okay, because initially, this makes us concern Walmart Just announced that they're raising wages from 12 to 14. Some folks suggest that this is possibly going to uh, indicate to the FED that workers still have pricing power Wage pricing power. uh and that ultimately this could lead to some form of wage price spiral I Disagree Here's why I disagree. First of all, Walmart raised wages to 12 in 2021.

However, Target raised wages to a minimum of 15 dollars in March of a 2021. uh, actually. oh sorry, it was March of 2022. that uh, that came briefly after Walmart raised wages to 12.

It took Walmart almost an entire year to go from twelve dollars to fourteen dollars. Still not as high as Target Took them almost an entire year to try to compete with Target And this is possibly because Walmart actually lost money in the third quarter and their free cash flow is is trash. Don't get me wrong, in the second quarter of 2022, Walmart had 2.1 billion dollars of net income. However, they spent 4.7 billion dollars on inventory.

and if you look at their cash flow statement, they actually ended up with negative 3.7 billion dollars in operating cash in a quarter where they actually had net income. Well, unfortunately, then if you go to Q3 because of their opioid lawsuit settlement where they had to write off 3.6 billion dollars or spend money on this opioid settlement, they actually ended up with a loss in Q3. So Walmart actually hasn't been in a great position to be able to raise wages because they don't have that much freaking money. Which is insane because Walmart's stock has actually not performed terribly over the last year.

But that's not because of fundamentals in my opinion. I Believe Walmart stock has done well over the past year because it's the most stupid proof trade ever. Oh my. God We're going into a recession.

What do you you do? You shift to Staples What are Staples Walmart Costco It's simple energy, right? It is the most simple and stupid proof tactical trade you can make. recession. Uh, Staples That's literally what institutions and Wall Street suits do. It's stupid in my opinion though, because it ignores fundamental realities and that's that.

Walmart has a cash problem. I Know Again, that sounds insane to say. but if you look at their cash flow statements, if you look at their earnings over the past few quarters, they are massively negative in free cash flow. It's scary.

Uh, and now part of that again, because the inventory build up. But consider this. I Did some very quick math and assumed a two dollar wage increase. Well, I mean they said they're raising the wages two dollars, so that's not actually an assumption.

Uh, and we believe that is actually going to affect about 340 000 of Walmart's 1.6 million employees. And if you take 304 and that's not even a considering the effect that it might have on all the upper individuals planning to get more pay then as well. But anyway, a two dollar price increase on three hundred and forty thousand workers assuming 20 hours worked per week at just 46 weeks per year. And the reason I do that is because of paid time off or whatever.

Uh, that could potentially or just even unpaid time off. That could increase Uh Walmart's costs by 625 million dollars per year. 625 million dollars per year of cost is about 156 million dollars of cost per quarter when they're already free cash flow negative per quarter. Then you look at a potentially uh A A A A A, You know, maybe 25 hours worked per week.

At 52 weeks per year, you're sitting at somewhere at Uh at closer to 200 million dollars per quarter or 885 million dollars. almost a billion dollars in higher costs just because of a two dollar wage increase. So it's no surprise that Walmart has so substantially lagged Target in raising wages. In my opinion, it's because they don't have that much money.

You know people like to say how great Uh A Walmart is doing, but personally, not that enthused by that. Now this is expected to increase the average hourly wage at Walmart, but to about 18. Uh, sorry, 17.50 Uh and uh, this is actually according to a piece put together by The Wall Street Journal So I'm not kind of pulling this on the thin air. I always like to provide sources so this uh that we can actually see that on screen here.

take a look at this. starting next month Walmart will increase wages to 14 up from twelve dollars. Uh, that is to try to compete with competitors like Amazon and Target with a 15 minimum wage. This will push the company's average hourly wages to Uh around.

Well, they say over 17 and 50 cents a per hour. Uh, Walmart uh suggested that the average would be around Seventeen dollars. This is also where we see uh, around 340 000 individuals at Walmart expected to get these pay bubs despite recently announced layoffs and they would see this raise on their March paycheck. So if you work at Walmart marches when you expect to see a difference here.

Now what I thought was actually very interesting about this because there is this concern of okay, well what does this have to do for the FED Like is this potentially going to send negative signals as as like a wage price spiral right? Uh well so what I did is I I thought to myself okay well where where do we measure average hourly earnings for the United States and and maybe where can we get some insights and then I'm like oh well, there happens to be this thing called The Bureau of Labor Statistics Labor Report. But by the way, this is the kind of stuff we do in the office all day long. We just sit and look at charts and data and research. and in a weird way, we kind of love it.

But anyway, we're like, oh, look how convenient we have payrolls data And what does payroll data tell us for December of 2022? Well, it tells us that the average hourly earnings in the United States are actually 32.82 Which means the average Walmart worker is still working for somewhere around 40 percent of well I I Guess yeah. No, that's true. Average pay is 17.50 That means the average hourly worker at Walmart is making just 53 of what the average worker in America is making. So if you want to make more money and you're working at Walmart, be average somewhere else and you'll nearly double your in cup.

It's kind of crazy. Let's see which particular areas you could make more money. Look at this. You want to become a miner.

Look at that or a logger. Miners And loggers are making an average of 37 bucks an hour. Go into manufacturing, you're making about 31 bucks an hour. Go work for Tesla Uh, you want to go work in, uh, in retail trade? Oh wait, that's what Walmart is.

No surprise. it's the lowest category actually. sorry Leisure and hospitality is actually the lowest category So if you want to make the least amount of money, go work in Leisure and Hospitality Want to make the most amount of money? Go be a miner or a logger now. I That might sound crazy.

Or look at this: go work in utilities be alignment for the utilities. or wow. go work in financial services. 42 bucks an hour.

48 bucks an hour for utilities. That's really impressive. Get yourself a license in something and get into professional business services. 39 bucks an hour.

You can't make this stuff up. if you work in retail or in Leisure and Hospitality you're probably making substantially less money than the average worker in America. So if you want more money, be average in a different industry. Something fascinating to think about.

But anyway. Um, you know this is sort of my response to this idea that this this Walmart price increase is is really going to be indicative of some kind of wage price spiral. I Don't think so. Uh, However, we do have this Barons piece that I want to go through as well.

Uh, and this talks about you know, the Fed and Market sort of diverging here a little bit. uh, consumer demand falling evidence by slower retail sales, wholesale prices are cooling, suggesting further inflation relief on the horizon. Uh. However, because of uh, despite these signs of economic slowing, uh, the FED is still pledging interest rates hikes.

You know, we've got a lot of communication that we're expecting this 25 BP hike. and uh, and then the FED wants to get over five percent. You know they. They've said that probably 300 times in the past week alone.

Okay, I'm obviously exaggerating, but they're pretty clear. at least at this point, they want to get over five percent. That's because they have to lie to us. Okay, I'm not trying to be tinfoil hat here, but the FED cannot come out too early and say, well, things are looking great with inflation the second that happens.

I guarantee you S P 500 is up 10. Any kind of uh tech stocks up 20 to 30 percent. The the market move would be so violent. To the upside, you probably get circuit breakers going off.

to the upside, it'd be insane. That's why they have to do that slowly. That's also why the stock market is coming off bottoms. But anyway.

uh, uh. okay. let's see here. Wall Street and fan path forward.

Okay, what do we have over here? Fed officials laser focused on ensuring that the core Services sector inflation slows uh, other, and we're starting to see that certainly in housing. But we've got to make sure those come down. The Fed's concerned. uh, is that even as good prices, uh, deflate housing costs, slow inflation will hit a floor well above its two percent? Target That's the concern due to persistent strength in what's known as these super core Services These would be things uh like Medical Services uh transportation services.

These are things that we want to pay attention to. certainly wages, right? Uh Leisure Hospitality Services those are some of your more Super core uh Services Generally you take out um housing and I believe you take out auto insurance and repairs for Super Core. but I have to double check the Auto One Certainly housing comes out because it represents like 30 something percent of CPI. But anyway, recent progress on average hourly earnings was a good sign that the economy was Cooling in terms of the inflation fight.

Obviously bad sign for the overall economy. Fed still isn't convinced the longer Market discounts the importance of the FED places on wages. So really, you've got a a Baron's piece here saying look, the FED wants to prevent the unwarranted easing of financial conditions which would complicate the path forward. This is what I was talking about with the FED having to keep that hard face on.

So a little bit of a piece here from Barons on this from the Federal Reserve I Personally think that Walmart information is is quite fascinating. Uh, and it's It's worth noting that really here. uh, blue collar is what's actually holding ground I Was thinking about this actually a lot for a house hack and I think maybe over the next couple years Blue Collar areas for Investments for house hack could actually be quite interesting because there will be a lot more reshuffling in white collar and a less reshuffling in Blue Collar Where wages are going up and people are are you know, making more money at their jobs which is great but uh, White Collar You know layoffs create risk for for Real Estate So this is something that uh that I'm fascinated about paying attention to. so I don't know I find that interesting.

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