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InvestTalk is made possible by KPP Financial, a registered investment advisor firm serving clients throughout the United States.Here is KPP Financial portfolio manager, Luke Guerrero.
Good afternoon, fellow investors, and welcome back to Invest Talk.My name is Luke Guerrero, and it is Friday.It is not Thursday.It is Friday, November 8th, 2024.
Now, before we head off for what I hope is a relaxing weekend, which I think, you know what, we all deserve a relaxing weekend, we have some work to do.And we'll dig into what that work is.
what the stories are that I brought for you today, what the effect those stories may have on the market in the weeks, the months, the years ahead, and how that all can affect your strategy for investing and achieving your financial goals.
But most importantly, I hope to hear from you.Now we have questions ready.We have voicemail questions.We have YouTube questions, but we prefer the live ones.And hopefully we have some of those today.
Now, just a bit, we're going to talk about today's market performance and run down those show topics, but let's tackle this caller question now.
Hello, InvestTalk.My name is Brian.I'm calling from Ohio.I was wondering if you could go over the stock Western Union, WU.I always like to listen to the program.Thanks.
So Western Union, ticker WU, is a lender money transfer service.Primarily they do money transfer and payment services.It essentially is like a hard payment transfer service, right?
Not thinking about your Venmos or your PayPals, but it's been around for an incredibly long time. And it's pretty big producer of cashflow for the size of the business.The margins have slipped since 2022, right?
You're seeing the EBIT margin falling from about 23% back in 2021 down to about 17.6%.This year net margin falling as well from 20% in 2022 down to about 16 is where it's projected to be this year.
And a big part of why this stock is at a rough time since really the middle of the pandemic Sales revenue has fallen.
There's been a rise in digital money transfer services, disrupting this industry as a whole and moving away what was an old and integrated company. Another issue here is, well, management here has made some questionable capital allocation decisions.
They have sought out mergers with existing digital platforms that have not really panned out.
And so in spite of the cash flow, in spite of also returning capital to shareholders, right, they went from about 420 million shares outstanding back in 2020 down to about 340 now, it's pretty solid.
But I mean, their dividend yield is 8.78% for a reason, right?It hasn't been underneath, you know, 6.8% since before 2022.I mean, look at this market-wide underperformance, look at this industry-wide underperformance going back through the pandemic.
And so for that reason, you know, you may look at this and say, oh, it's trading at six times four looking earnings. Yeah, that looks cheap, but but it's not right.This is a company that is producing cash flow, but there's no growth.
There are questionable management decisions and it's continued to underperform and it likely will continue to underperform in the future.So for Western Union, ticker W. You going to have to pass on that one.
We've got a lot of ground to cover in the next 45 minutes or so, and here's a little bit of what I have planned for you.My main focus point concerns this topic, spotting breakout stocks, seven essential strategies for investors.
From analyzing competitive advantage to tracking market trends and monitoring volume patterns, investors can learn to spot the next big winner. We'll also touch on how Christmas is coming early for many industries.
Anytime there's a new administration that comes into place, it's time to put together your wishlist.And that is exactly what Wall Street is doing.
So we'll talk about how Wall Street would like to move regulation from the SEC and bank capital requirements
We'll also touch on the market's interpretation of Powell's comments earlier in the week, what the Fed's next move could be, and what really that's going to depend upon.
And should we have time at the end of the show, we'll touch on China, who unveiled a pretty large debt package to help local municipalities in what has been for some time a struggling economy.
but really no direct capital stimulus, no direct injection.So we'll dive into that should we have time at the end of the show.
We also have voice bank questions ready to play, including one on Lumen Technologies, L-U-M-N, and some questions that came in from the comment section of the Invest Talk YouTube channel.
And of course, I welcome your finance and investment questions now or anytime throughout the show. Now we're headed into a break, and on the other side, we'll talk about today's market activity.By the way, we did it.Or really, you did it.
We all hit the 60 million download mark on Wednesday night, so thank you.Please remember that you can call anytime and leave your questions on the InvestTalk Voicemail 888-99-CHART.
Invest Talk is made better when listeners add their voices.This is Nick from Seattle.Hey, this is Steve out of Charleston, South Carolina.
Could you comment on Barrick Gold?G-O-L-D.
And Justin Klein and Luke Guerrero are always ready to provide unbiased answers.Be patient.Don't rush into anything.Understand what you own.
I would probably trim here, but I don't see any reason why you'd want to sell out of it.
Voice bank calls are very important, but so are the spontaneous questions that come in during the InvestTalk live stream.
Let's pivot over to a live call.We love those.Looks like we got our first live call.I love live calls.
If you've never called, what are you waiting for?Let's go take another live call.Tell your friends, live a little, live a little.Looks like we got a live call.Call InvestTalk weekdays from 4 to 5 p.m.Pacific time.That make sense?
I appreciate the advice.888-99-CHART.InvestTalk.Your questions are free.The answers are unbiased.Luke Guerrero is here now.888-99-CHART.
Let's talk about the market today.U.S.stocks finished higher in what was really uneventful trading coming off a, well, eventful week.The Dow up 59 basis points, S&P 500 up 38, NASDAQ up nine basis points, Russell 2000 small caps up 71.
NASDAQ and S&P set fresh all-time highs, major indices all notching big gains on the week.Our performers included airlines, trucking, and regional banks.
Homebuilders, hotels, looks like underperformers, semis, energy, industrial, precious metals, chemicals, not faring well today though.There weren't many strong underperformers on the day. Dollar stronger on the day, up 40 basis points.
Gold finished down 40 basis points.Crude oil settled down another 2.7% today.Copper slightly lower at 2.8%, just beating crude oil down.Quiet finish to, like I said, what was a pretty busy week.
The market's been underpinned primarily by this unwinding of election-related hedges, right?You're seeing that in the retreat of the VIX.You're also adding on favorable seasonality, and all these things are pushing the market higher.
Some concern about tariff implications, though, hidden within the noise for both growth and inflation, how widespread tariffs could reduce growth expectations into next year and bring back a little bit more inflation than I think people would be comfortable with.
Preliminary University of Michigan Consumer Sentiment beat as well, highest it's been in six months.One-year inflation expectations ticked down by about 10 basis points to 2.6%, though nothing really meaningful.It is the lowest number since December
2020 though, though the long run ticked up about 10 basis points, all marginal changes there.In terms of bullish news this week, quick and clear decisive election outcome is always good because we say this all the time, markets hate uncertainty.
Even if there's uncertainty about policy, at least there's a certainty of uncertainty in it. Digger Regulation and M&A Narratives definitely taking a hold here as the regulation path changes.
Heightened probability of the red sweep brought corporate tax cut likelihood more into play.That could potentially boost S&P 500 EPS by about 4% to 5%.
On the bear side, Trump win expected to ratchet up global trade uncertainty given longstanding tariff threat.Wall Street expects that should those tariffs go into place, it could weigh on GDP growth and push inflation up.
Tariff expected to hit US consumers with the NRF estimating probably a $46 to $80 billion reduction in annual spending power broadly amongst US consumers. A likely sweep keeps the fiscal deficit concerns in play.
The Committee for Responsible Federal Budget estimated that the plan as proposed could add $7.5 trillion to the national debt.That could raise up long-end borrowing costs.It could also dent the Fed easing cycle.
Continuing claims highest since November 2021.That's certainly good news for the bears and overall external to the United States internationally.It's a little bit of political uncertainty in Germany.
The ruling coalition could be collapsing and Germany being a front line of the European economy could have ramifications at home here as well.
Looking ahead to the next week, Tuesday brings the NFIB small business sentiment and the Fed senior loan officer survey.October CPI, the highlight on Wednesday, while PPI hits on Thursday.
Retail sales, empire manufacturing and industrial production are all out on Friday. Looks like we have our first live call.Let's go to Andre in California, who has a question about economy numbers.Hey, how are you?Good.How are you?Good.
Thank you.Hey, just a thesis.I had one to run it past you.Um, I subscribe and I hope this is okay to say his newsletter.Um, John Williams, John Williams, shadow stats.He's been around for a long time.
He's a older gentleman that used to work for corporations where, or they actually had to know what the real numbers were. And he puts out alternative stats for CPI, unemployment, et cetera, inflation.
And the numbers that come out of the BLS, it should be called the BS, because they're wildly understated or overstated, depending on what the government wants out of us.
So my thesis is that this is why the Fed can never nail it, because they're using statistics that are not accurate. And to say that they are is disingenuous at best to pretend.
It's like pretending that you believe, you know, it's like the tooth fairy.Oh yeah, we believe in the tooth fairy.Well, it's not true.And I just wanted to get your thoughts on that.Again, I'm not being antagonistic.
It's just, it is blatantly obvious that the numbers that come out of the government are cooked. the way they want them.They're not accurate.Of course, Wall Street will use those numbers because that's what people believe.
Okay, well, you know, here's the thing, right?The Bureau of Labor Statistics reports baskets of things, and you can say that, okay, CPI is not representative of inflation, and that could be true, right?
It's not representative of what we are feeling when we do costs, right?The methodology can be a little bit skewed as well.Why? You know, you look at the lagged effect of rents.Rents are a 12-month average.
Is it representative of where housing prices are going now?Is it representative of stable or changing rents?Does it give you an accurate picture of, again, what American consumers are feeling?So you can hear, okay, inflation is only at 2%, right?
And you're saying, okay, well, I'm spending this much at the grocery store.It doesn't define your experience. of what you're getting at the grocery store, but that's not really what inflation in aggregate is.
And so, yes, these numbers don't compute with most American consumers because it's not purely describing your experience.There's a lot that goes into it.There's tens of thousands of things that go into inflation.
There's a lot that goes into a lot of this data.And frankly, the Fed doesn't even use CPI, they use PCE, they use a bunch of figures that we don't even really pay attention to.And the reason why they can't really get it right is
It's pretty darn hard to move this ship.The U.S.economy is an absolute behemoth of a thing.There are many things that push the dollar around, for example.You have interest rate parity between cross-currency trades.
You have balance of trade between countries that is moving demand for dollars.That being said, again... You can say the numbers are cooked, but I don't agree.
You can say that I think a better way to put it is the way that numbers are perceived are not how I experience them because we have been taught to think about inflation and relate it to things in our lives.
But the inflation data that comes out, the inflation numbers that come out aren't really meant to describe the experience of the individual person out there.Does that make sense?
It does, but just to push back really quick on one point, if I could.Inflation is caused by the government, 100%.People that say it's caused by price gouging, etc., it's wrong.Inflation is inflating of the base currency.
It's dilution of the currency.It's caused by the government.It's a tax on us, and they are causing it. And that's why they cook the books.So you can call me a conspiracy theory or what, but I disagree with you.
That's entirely fair.That is entirely fair to disagree with me.This is a free country.We're able to disagree with each other. Baseline economics tells you that inflation is caused by cost push or demand pull.It can be caused by printing money, right?
Printing money, putting money in the hands of people is what pushes things on the demand side.I agree with you.The government can cause inflation that way.The other way inflation can be caused is with supply chain disruptions, right?
You don't have as many goods out there to meet the demand.This is a story that can last for hours.The conversation can last for hours.I love it when you all call in.I love it when you all are opinionated.But either way, We have to go to a break.
So thank you, Andre, for giving a call.We'd love to hear from you all.Paul from Palm desert.I hope you're still hanging on.
Cause you are next when we come back for them as a break, still to come on this podcast and radio show on AM 1220, we'll talk to more of your voice bank calls and get to the main focus point.So stay with me.
Every investor is working to build a secure financial future.The more you learn about how the market works, the better your chances for success.Invest Talk, 888-99-CHART.
Paul from Palm Desert, thank you for waiting.You have a question about JPM.Do you own it or are you looking to buy it?
I own it and I just wanted to get your take on valuation maybe and Maybe if it's time for me to take some profit after more than doubling the last two years.What do you think?
Well, you know, I like to say from time to time that nobody ever went broke taking profits.
So I think that's always a good idea, especially after this run up, especially given kind of the positivity from the banking sector broadly headed into next year with a new administration that is likely to
maybe reduce capital requirements, maybe allow more merger activity, stuff we'll actually all talk about with one of the stories we have for you today.But let's dive into this.J.P.Morgan, it is the largest bank on planet Earth.
It is a very, very, very large company.They have a very strong balance sheet.They are fundamentally sound.They touch about every aspect of the U.S.economy.
And they recently released earnings, a lot of banks released earnings, and they were pretty strong. And so they have a bunch of cash on their balance sheet, a lot of cash.They have a lot of debt as well, but you know, it's a banking business.
That's how it goes.Their cashflow has been improving.Their profitability has been pretty solid as well.Their net interest income has been growing at 10% annualized over the past five years.
Now over the past three years, a lot of that's due to the rise in interest rates.So there could be some issues with margins due to interest rates falling, but maybe they're not falling as much as we think they're going to fall.
And I think the core driver of banks going forward could be the ability for them to take on, well, more risk than they have been able to take on, honestly, since the financial crisis.So I would say J.P.Morgan is a very strong company.
There's a reason why it is such a large bank that has been so successful.They pay a really solid dividend.It's consistent.If you're going to own a mega bank, I think this is the one to do it.
But you've had a crazy run-up over the past couple years, and it's into the territory of long-term capital gains.It may be time to look at it and think about rebalancing a little bit, but I certainly wouldn't sell out of all of it.That sound good?
Sounds good.Appreciate your insight.
Awesome, have a wonderful day.Shift gears over to our main focus point today, which is about how to spot breakout stocks.So let's dive in.And in order to dive in, let's first talk about what a breakout stock is.
A breakout stock is one that surpasses a support or a resistance level, so breakout doesn't necessarily mean it's a good time to buy. It could be breaching support, it could be headed down.
So breakout just means it's moving away from its usual band over which it's been trading for a period of time.And these levels really represent price points a stock struggles to move beyond.
A breakout is often viewed as a strong indicator that a stock may continue in a particular trend.It doesn't say it's going to go up or down, it's just telling you that the trend may continue in the direction that it has decided to move.
And so the question becomes, how can we find when breakout stocks can be potential winners?And here are seven ways that you may be able to spot these winners.First and foremost is focusing on breakout companies with a competitive advantage.
Patented technology, strong brand recognition, unique business model, these can all give a company an advantage over its peers, which increases the chance that the breakout will continue along that trend.
Secondly, we want to look for key market trends.You want to stay up to date on these trends because they can help you identify not just stocks but sectors that have outsized growth potential.Thirdly, flow dynamics.
You want to monitor the volume of the stock, the price movements of the stock, because breakout stocks often see a surge in trading volume and that signals increased investor interest going forward.
This next one's really important because it's not just about the trends in stocks, right?Technical things can only get you so far.We care about fundamentals.So we need to focus on companies with strong fundamentals.
Look for indicators like increasing revenue, increasing margins, better profitability, growing profits, positive cash flows.All of these things show companies with solid fundamentals, which are more likely to experience sustained upward movement.
The fifth strategy is looking at the stock's relative strength.This is just talking about momentum, right?
Compare how a stock is doing to a sector, how it's doing to the specific peers within that sector, how it's doing relative to the overall market over various timeframes.
Breakout stocks often outperform both the market and their sector, hinting at further growth potential.Number six, keep an eye out for a catalyst.What are catalysts?Well, catalysts are developments that may drive stock prices higher.
Think successful product launch or favorable regulatory decision, or maybe there's a merger on the horizon. Positive earnings surprises, or even upwards earnings revisions can also act as strong catalysts.
Finally, and most importantly, or definitely in the top three, know when to exit.Once a stock reaches your target price, it's wise to take profits.You don't need to exit fully, but start to take profits.
Many stocks that break through resistance levels often retreat soon afterwards.When the time comes, move on.Seek the next opportunity. So although identifying breakout stocks isn't easy, these strategies can give your portfolio an edge.
Focus on companies with strong fundamentals, compare their strengths to the market, and prioritize those with a competitive advantage.These are just a few ways to profit from breakout stocks poised to rise past their resistance.
On the next Invest Talk, we'll look into this topic, how to accurately value real estate, three proven strategies for investors.
From analyzing comparable sales to estimating construction costs and future income potential, there are techniques that offer powerful insights into real estate valuation.
That's Monday, but for now, I'm Luke Guerrero, and I'm ready to take your calls at 888-99-CHART.
I would like to know more about a company which I've been tracking for some time.
Luke Guerrero is here and ready to tackle your questions.
And I was just wondering, are there any investment accounts with different banks that you would recommend, something that may offer good resources?
Don't forget to call InvestTalk, 888-99-CHART.
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Hi, Justin and Luke.I'm calling in with a question on the stock Lumen Technologies.The symbol is L-U-M-N. I currently hold some shares, and I purchased it at $11, and now it's shot up.
And just wanted to see what the thoughts are, whether it would be good to continue to hold, or is it time to sell?Thanks for your show, and I'll be listening to the answer there.Thank you.
So Ticker, L-U-M-N, Lumen Technologies, is a communications company.They have a bunch of services, right?They operate through networking, through cloud security, collaboration services.And so...
Taking a look at this company, its fundamentals, its balance sheet, it's a $9 billion market cap company with a whole lot of debt, 18 billion in debt.That means its interest coverage ratio, based on its most current quarterly earnings, .36.
So for those of you who, you know, we haven't explained this in a while, interest coverage ratio is your EBIT, your earnings before interest and taxes, divided by your interest expense.
So what it's telling you is, based on your income after depreciation and amortization and all that stuff, How many times over can you pay off your debt?And the answer here is 0.36 times.And so it hasn't made money since 2021.Cashflow is falling.
It's profitability again, falling pays no dividend.It's short interest is in a range where it couldn't really be helped out by a squeeze, but it's still something to notice about 7% right now.
And so the reason why it's up is because they recently reported earnings and they had a decline in revenue but still a significant increase in cash flow driven by one particular business segment, revenue growth, paid-in revenue growth.
But honestly, what I see here is a company that had a spike that has been really suffering since long before the pandemic, a company whose sales have been falling, right?
They had 23 billion in revenue back in 2018, predicted to be about 12 billion this year.This has been a steady fall year over year.In that same time, margins have collapsed.
Cashflow, although it is starting to turn around, has still fallen precipitously.And all the while, they have had a lot, a lot, a lot of debt.So honestly, This looks like a company that has a lot of debt and not a lot going for it.
Cashflow, maybe it's turning around, but it's not just about if this company will start to do better.It's how will this company do relative to others?The opportunity cost of it.
I just think there are better opportunities out there than Lumen, ticker L-U-M-N.Let's go to Richard, San Francisco, who has a question about FLMX.Do you own it?Are you looking to buy it?
Yeah, I have a little bit of it, Luke. My question is, because I'm also asking about, because they're kind of related, FLMX, the Mexican ETF, and then FLIN, the Franklin, the Indian ETF.
My question in general is, given the outcome of the election and, you know, talk about tariffs and all that kind of thing. I know that, uh, international exposure though, portfolio is still important.There may be, you know, opportunity there.
Uh, I know that Justin talked about, you know, the country that he, one of the best countries in terms of, uh, international investing was Mexico.And, uh, also India has kind of gotten that thumbs up given what's the outcome of the election.
Do you think it's still though at this point to get into those two ETFs, the FLMX and the FLIN?
That is an excellent, excellent question, Richard.And so we have talked about this before, right?The concept of reshoring and friendshoring has moved a lot of production to Mexico, to Vietnam, to other countries in Asia, and to India as well.
India is a incredibly fast-growing economy with a market we talked about yesterday, which has essentially given access to far more investors than a lot of markets have.And so, the number one thing that drives asset prices is flow dynamics.
And India has excellent flow dynamics, as well as production growth.
And so, yes, given with both this current administration, the Biden administration's emphasis on manufacturing, no matter who had won this election, they were both pretty much the same in terms of industrial policy.
So, I'm pretty certain that the Trump administration with these tariffs, should they put them in place?Should they not put them in place? We'll see in the coming months who's going to actually be trade advisors and cabinet secretaries.
But regardless, I think that this is one of those things where these are good markets to invest in, no matter how the policy shakes out, because of the growth, because we have been and will continue to reshore and friendshore, to shore up supply chains post-pandemic.
We learned our lesson with some of the dangers of globalized supply chains.And you're right.It is typically a good idea to invest in international markets. because they offer some equity diversification.Just because U.S.
markets have outperformed international markets in the recent past doesn't mean that's going to continue on into the future.So these two funds are cheap ways to get in there.FLIN in India is only about 19 basis points
FLMX is also about 19 basis points.They have good exposure along the market cap spectrum, so I like your idea.
I like that you're looking internationally, and I think Mexico and India are two good markets to do it, and I think these are perfectly fine funds to use.
Yeah, thanks for calling.Now, today is Friday, and on Friday, we genuinely try to make time to fit in a quick rundown on benchmark numbers, so let me hit you with that list now. The two-year treasury yield was at 4.25% today.
For perspective, last week, that number was at 4.201.14 weeks back, it was at 3.882.And a year ago, it was at 5.05. The 10-year treasure yield, oh, I'm sorry, that was the two-year treasure yield.That was a mistake for me.I thought that seemed weird.
The 10-year treasure yield was at 4.308 today.Last week, it was at 4363.10 weeks ago, it was at 3.921, and a year back, it was at 4.63.Gold was priced at $2,685 per ounce today.Last week, that was 2736, and one year ago, that was 1935.
Silver was at $31.24 per ounce today.Last week that was $32.47.And 38 weeks ago it was $22.80.Oil was selling for $70.38 per barrel.Last week that number was $69.66.Six weeks ago it was $67.79.And 48 weeks back that was $74.30.
The national average for a gallon of regular gasoline is $3.09, a 3 cent decrease from last week.75 weeks ago it was $3.56, 123 weeks ago it was $4.25, and 143 weeks ago it was $3.57.
California was averaging $4.51 per gallon, a 4 cent decrease from last week. Just over a year ago, that number was 532, and 130 weeks back, that was 587.For comparison, in Iowa, gas was averaging $2.85 per gallon.
That is $1.66 less per gallon than gas in California.Now another Friday tradition is briefly mentioning the newest KPP premium newsletter, which will be distributed tomorrow.
In the Insights section, we discussed deregulation and what that could mean for the U.S.economy in all of its forms. In the stock ideas section, we mentioned a casual footwear company and an oil field services company.
And in the portfolio management section, we touched on investing beyond dividends.If any of that, if all of that, if some of that sounds interesting and you want to learn more, visit us at investdoc.com and subscribe.
For those subscribers, the newsletter will come to your inbox on Saturday mornings. A lot of live calls today.We have another live call from Sammy in San Francisco, who has a question on SMCI.Do you own it or are you looking to buy it?
I own it.And the specific question I have, Luke, on this one is, I know they have been having some issues with their accounting and all that.There's been some news around that.
But what I want you to focus on is their core business and the numbers that they recently announced. So based on that, what is the assessment of the stock at this point, based on how it's trading?
I mean, someone called in.I know you want me to focus on the core numbers here, but when there are accounting issues and questions about how they're classifying revenue, it's kind of difficult to look past what the primary problem is here.
I believe somebody called in when this was trading at about 500, and I told them that there were accounting issues.You should probably get rid of it.There are better opportunities out there within this space.
better places you can move within this space, within whatever theme you are investing in.The reality is here, companies that are having accounting issues and having weird recognition of revenue, they're just not worth it.This thing could pop.
It could absolutely pop, but there's outsized risks.This has been an issue for a very long time here.
And frankly, this thing hasn't really been strong since that huge run-up it had in the beginning of the year, right before it was added to the S&P 500. I have been against this company for a couple months now, and so I'm still a no on SMCI.
So let's talk about regulation.The banking and finance industries are gearing up to push for lighter regulation under the Trump administration in 2025.
Wall Street sees a unique opportunity to shape policy, and various trade groups are really already crafting these wish lists that happen with every administration for regulatory relief that they're going to present to the Trump transition team.
One of the biggest asks from the banking sector is the rollback of the proposed Basel III endgame rules. These rules would require large banks to hold more capital to minimize risks.
Banks have been lobbying regulators for months, and they now hope that a new administration will revise or start fresh with these rules.
Additionally, banks are seeking relief from fair lending regulations, simpler stress tests, and an easier path for bank mergers.It's also keen interest in tax policy.
Many of Trump's tax provisions that he enacted in the first term are set to expire, and the finance sector is pushing to maintain lower corporate tax rates.
The private fund industry in particular is looking to keep favorable tax treatment for carried interest. allowing it to be taxed as capital gains rather than as ordinary income.
And so Trump's transition team has, I would say, been more proactive this time around than the first time around in reaching out to these industry players and asking for insights not only on policy changes, but also on potential appointees to regulatory positions.
And so this kind of suggests that maybe we see stronger alignment with industry objectives than we saw during the first term.
Still, new regulatory leaders may be installed immediately, as top cabinet appointees are expected to really take precedence in the Senate's confirmation progress.
One group, the Alternative Investment and Management Association, is pushing for a more collaborative relationship between industry players and regulators, because over the past four years, it's kind of been adversarial.
Private funds have already challenged the SEC's rulemaking efforts in court, scoring a significant win this year with overturning of some major SEC rules.
Industry reps hope for a more friendly environment marked by the traditional rulemaking process and proactive engagement within the industry rather than taking an adversarial stance from the get-go.
For Wall Street and the finance sector, a return to lighter regulation could really be a game-changer, opening pathways to increased growth and profitability and reduced oversight, though it does carry lots of risks.
Whether or not these hopes become reality depends on the political landscape heading into next year and the decisions made in Washington in the coming months.Let's go ahead and roll in another fresh listener question now.
Hi, Dave from Ohio.I'll get your take on Archer Daniels Midland.He DM missed its earnings and it's a small cap, $25 billion. Market cap, get your opinion on a, I guess, a long-term play on it.And I know it had some accounting issues too, too.
This would be a goodbye to get into it.It closed at like $52.Thank you.I'll be listening.
So Archer Daniels Midland, that is ticker A-D-M, is a processor and trader of agricultural commodities and they manufacture and sell food and feed products.
And so they recently reported earnings, Q3 earnings, or sorry, they recently postponed Q3 earnings because they needed to amend some reports because of some changes to their accounting. And I mean, it's a big company.
It's one of the leading players in the global grain processing area.It's a $25 billion market cap company.They have a little bit of debt, nothing too crazy, about $11.8 billion in debt.
Their cash flow looks like it has improved pretty well over the past couple years.Now, year to date, they're down about 27%. or I'm sorry, yeah, 27%, about 27% as well on the one-year timeframe.And the revenue's fallen over the past three years.
That's certainly not something we like to see.Their net income also fallen, their margins fallen as well.And with all this happening, while their price earnings trading at 10 times their five-year average of 12.6, price to book about 1.1%.
And so let's take a look at their, at their geographic breakdown of the revenue too, before we make a decision here, it's like 41% from the United States, 21% from Switzerland.
It's pretty diversified in an areas that are probably unlikely to be heavily affected by trade policy.And so I think the big problem for me here is one, I'm uncertain how, uh, this company's
production processes would be affected by immigration policy changes.That's certainly a big factor that could be weighing down on this year.
But aside from that, we just have a situation where growth has fallen off, cash flow has improved, yes, but profit margins are slipping as well.And in this time, they've also taken on about $2 billion more in debt in the past quarter
It pays solid dividend, about 3.81% dividend yield.That's about within the range of the past five years.The dividend per share has also grown as well.You know, honestly, I think this is a situation where revenue has fallen off.
Growth has been stalling a little bit.The valuation seems probably about fully valued.
The dividend's attractive, but from a long-term potential or even a short and medium-term potential, I just think there's other places to put your money that are a little bit more exciting.
If you're looking for a dividend that is solid and sustainable, this could be the company, but not a lot of growth over the past couple of years.Thanks for the call.
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We haven't done it yet today, so let's dip into the InvestTalk YouTube channel comment section questions.And this one came in from... Courtney Corey, both of those spelled with a K and it's on foreign stocks.
It says, I have very little exposure to foreign stocks, but I think in the coming months it would be a good idea to start picking up some specifically Chinese stocks.
If Trump gets his way with the tariff increases, then China is going to be making a boatload of money from the U S. Okay.So let's dissect this.So if the U S imposes tariffs on China,
then the cost is pushed on to importers, so US companies and then US consumers.So China isn't going to make any money from the US if the US imposes tariffs.So that's, I'm not sure about that.But let's talk about Chinese stocks broadly, right?
We talked about it earlier in the week. The Chinese economy is in a weaker position than it was in the last time there were trade tensions, right?
That's why I think that even if we were to impose tariffs on China, they would be in less of a position to retaliate in the same way that they did before.If you recall in 2017, 2018, when we imposed tariffs, it did cause a cost to farmers, right?
The government ended up paying 28 or 30 billion to bail out some farmers because of it.
But I don't think that given the economic position that China is in right now, and how fragile their economy is, that they can really fight back as much as they could back then.Now, another thing here is it's important to note that one of the
campaign promises of the U.S.House candidates was to remove most favored nation trading partner status with China, right?That could also affect the Chinese market.
I think I read a story about them talking about how to go through with that early in the next congressional session.And so I have been of the opinion for a while now that
investing internationally is a good idea, but that the Chinese market just didn't look as attractive to me as it has to other people.I think given the election outcome, I tend to hold that position even further.
So should you be getting exposure to foreign stocks?Yes.Uh, I do not think China is the route to go down at least at this time until we get some clarity on, well, a whole lot of things.
Now lastly, before we head off, I want to talk about the Federal Reserve because the future path for rates is now clouded with uncertainty.
On Thursday, the Fed cut rates by a quarter point, meeting expectations following another half point cut in September, but already markets are reducing bets that another rate cut will follow in December.
Fed funds futures now apply only about a 25% chance that rates will stay unchanged at the December meeting, up from just 14% a month ago.Further out, the outlook is even hazier.
For example, at its September meeting, the Fed projection showed that by the end of 2025, the target policy rate would drop to somewhere between about 3.25 and 3.50.That's 3.25 and 3.5%. down from its current range of 4.5 to 4.75.
That would mean pretty significant easing is expected, possibly including one more rate cut in December and several more next year.
However, FedWatch data now shows the probability of a quarter rate point cut or less by June 2025 is now 17%, up from zero at the time of the September meeting.
At Thursday's press conference, Fed Chair Powell hinted that the economic outlook might be brighter than anticipated.
He pointed to strong job growth, healthy retail sales, and recent revisions to government data, which suggested that some downside risks to the economy may be lessened.
But next year's outlook brings in a new factor, the policies of a new administration.And so Powell emphasized that fiscal policy changes, like tax cuts, take time to go through Congress.
And when you cut taxes, it also takes time for the economy to feel the impact.It's a longer, medium, longer-term change.
But some policies, such as tariffs or adjustments to immigration enforcement, mass deportations, could come through executive action.It doesn't require legislation.And that could impact inflation.It could raise inflation expectations.
It could tamper down economic growth.But it could do that in a more short time frame than what legislation does.And so for the Fed, what this could mean is grappling with a resurgence of rising costs and a potential growth slowdown at the same time.
We're already seeing more shifts in financial conditions, rising bond yields, an example of this.And so these changes can impact the economy long before any tax bill comes into law.
The Fed has eased some of the pressure on markets with a total rate reduction of about three quarter points so far, but how much further relief is on the way and when it can come is very difficult to predict.
And I'm Luke Guerrero, and this completes another InvestTalk program.We thank you for listening, and we encourage you to tell your friends and family members about our free podcast downloads.
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