Chit Chat Stocks - China's Enron Moment. Plus, Why Is Tesla Stock Rising? (TSLA)

Episode Date: April 28, 2024

The Investing Power Hour is live-streamed every Thursday on the Chit Chat Stocks YouTube channel. This week we discussed: (09:19) The Cybertruck and Tesla's Future (25:57) The Best Business in Big Tech (36:12) Valuation of Visa and Mastercard (43:39) The Chinese Real Estate Bubble (53:14) The Impact of Higher Capital Gains Tax Rates ***************************************************** Subscribe to our YouTube channel: https://www.youtube.com/@ChitChatStocks  Follow us on Twitter/X: ⁠https://twitter.com/chitchatstocks  Follow us on Substack: ⁠https://chitchatstocks.substack.com/  ********************************************************************* Options are not suitable for all investors and carry significant risk.  Option investors can rapidly lose the value of their investment in a short period of time and incur permanent loss by expiration date.  Certain complex options strategies carry additional risk.  There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, among others, as compared with a single option trade. Prior to buying or selling an option, investors must read and understand the “Characteristics and Risks of Standardized Options”, also known as the options disclosure document (ODD) which can be found at: www.theocc.com/company-information/documents-and-archives/options-disclosure-document Supporting documentation for any claims will be furnished upon request. If you are enrolled in our Options Order Flow Rebate Program, The exact rebate will depend on the specifics of each transaction and will be previewed for you prior to submitting each trade. This rebate will be deducted from your cost to place the trade and will be reflected on your trade confirmation. Order flow rebates are not available for non-options transactions. To learn more, see our Fee Schedule, Order Flow Rebate FAQ, and Order Flow Rebate Program Terms & Conditions. Options can be risky and are not suitable for all investors. See the Characteristics and Risks of Standardized Options to learn more. All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, Inc., member FINRA & SIPC. See public.com/#disclosures-main for more information. ********************************************************************* FinChat.io is The Complete Stock Research Platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠https://finchat.io/chitchat/?lmref=J3bklw  ********************************************************************* Check out https://www.firmreturns.com/ for value-focused equity research  Use our link and get a 20% discount on a premium plan: firmreturns.com/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome to Chit Chat Stocks. This is our weekly investing power hour. I'm Ryan Henderson, your co-host, joined by Brett Schaefer. As always, we are talking all things investing this week. There's some news in the week. It's officially earning season, so we can certainly talk through some of those. And I'm sure Brett came prepared with a couple

news stories as well as always if you are listening to this on our podcast player on your podcast player we do these shows live on youtube and thursdays at 9 30 pacific time 12 30 eastern time and you can ask questions there so we're going to take questions from the audience today as normal but before we get into things brett it's earnings season busy time how are you feeling good feeling good it's exciting luckily for someone that doesn't own a ton of stocks it's more of a entertaining time or just kind of perusing some various earnest reports i'm interested in and the few stocks i actually own you know it's not that stressful this is when it's much more fun to not own 50 stocks as opposed to just 10 or fewer um but yeah i thought

It'd be a little tough. As always, the Tesla earnings were fascinating, as they like to make them out to be, always. Chipotle was a little interesting, although that's kind of a boring, in some regards, where it's the same formula every quarter. It's just kind of dependent on what investors are going to react to. And I didn't know, even though I should have known since it's on my watch list, but I will say I was under the weather this week, so I'll use that as an excuse. And one of our favorite fintech companies, Adyen, reported and stocks down.

So we had someone suggest that we go through that. And I haven't looked at the earnings report, so we could probably go through that live during the show. So I think I'm excited to do that as well. And, oh, one thing I read this week, there was a great report in the Wall Street Journal on the Chinese real estate market and how the bubble got so big. and found some interesting quotes there on how they ran a little bit of the Enron playbook at some of these companies. Yeah. All right. Well, I look forward to that story. But before we get into things, we want to talk about our friends, public options traders. Listen up. I want to tell you a bit about public.com. But first, have you ever actually thought about all the fees you are

paying to trade options. Aside from the regulatory fees, there are commissions and most platforms also charge per contract fees too. That's what makes today's sponsor, public.com, so interesting. Public doesn't charge commissions or per contract fees. And in an industry first, they offer a rebate of up to 18 cents per option contract traded. Check it out. If you trade a thousand option contracts on public, you'll get up to $180 in rebates. If you trade 10,000 contracts, you could earn almost 2000 bucks. More importantly, the rebate means you can maximize your profits and minimize your losses. To recap, no commissions, no per contract fees, and up to 18 cents on every contract traded. See why NerdWallet recently awarded public five stars for options

trading and start earning up to 18 cents per contract traded only at public.com. This is paid for by public investing. Options are not suitable for all investors and carry significant risk. NerdWallet overall rating 4.6 out of 5 as of April 2024. Full disclosures in the podcast description us members only let's get right into earnings season i think that's a fun place to start we could call this the earnings palooza episode or maybe we can think of something a little sexier to uh attract some listeners but uh you want to start with tesla or were there any reports how about this were there any reports that have actually stood out to you i don't know if there's any that stood out it's still pretty early i guess

the reaction to tesla was probably the one that stood out the most because the numbers looked bad and maybe a little worse than people were expecting like the expectation was that they were going to be bad and you know the numbers were pretty bad but there was this i guess they're very good at telling their story so they hyped up a lot of the future products and people got excited about that and i was surprised to see the stock so much up so much on that react or you know on that report the reaction was quite positive and i really thought it was going to be negative but yeah besides that not really again i've been kind of sick so i haven't read every report maybe we'll look at addion and i'll be surprised at that

think it could be a buying opportunity but yeah um what about you no no i read some of the snippets of the tesla conference call which i mean whenever elon is on there saying something big's about to happen in either this year but uh maybe next year certainly no more than two years then you know they uh or or it's pumping season um and so yeah there was a quote in the conference call they were talking about well he was talking about how one's full self-driving without any assistance from a driver and he's been saying this for a while obviously once it gets approved the it'll be the biggest value unlock in like corporate American history. And maybe there's some truth to that because if you can license it to other OEMs,

it's obviously just a huge profit driver. But he said, I wouldn't be surprised if we do sign a deal. I think we have a good chance we do sign a deal this year, maybe more than one year. But yes, it would probably be three years before it's integrated with a car. So he's talking about licensing full self-driving to other OEMs. now the timeline on this i think he said something similar in 2016 um yeah so you know what's the reality here i think this is like textbook elon um but it works it works i didn't think the numbers were very good i can go through some of them now but automotive gross profit just continues to decline. Um, let's see here. Total gross profit. Let's get to the year over year change. Sorry.

I know you guys can hear me clicking around here. Um, yeah, so year over year, total, total gross profit was, or let's do automotive minus 24% year over year on the automotive gross profit so that's really the big driver for the business here um make no mistake about it what and gross profit i think they maybe take some cost of goods sold and put it into general and administrative so they kind of juice the gross margins a little bit would be my guess uh because or maybe it's not the gross margin sorry the adjusted margins adjusted ebita has been getting really close to gross profit margins which i find kind of funny um yeah well just ignore that number yeah but how much of this do you think is tesla specific versus just electric vehicle demand has

declined well if you look at some of the startups they're struggling as well ravines seems to have hit a wall although we'll see what happens with them this quarter but if you look at some of the legacy players they're doing fine because they have ice vehicles hybrids and electric vehicles you see someone like toyota doing fine general motors i think just reported uh better margins than tesla from a bottom line perspective or at least ebit margins um yeah we just had a comment here byd and gm had positive ev sales so i think it's a little bit industry-wide and a little bit tesla specific especially because they're coming out of their core market you know they dominated the west coast in california for so long and i think

going to other areas is tougher plus the cyber truck i don't know if it's definitive yet but i will call it maybe 50 of the way to a flop so far no one seems to be buying it when they did that recall of uh the entire vehicle fleet of of cyber trucks and they admitted that there was less than 4 000 on the road i think that shows there's not very much demand there even though there's videos out there of people driving them um so we'll see and that that seems to have terrible unit economics given that it's built out of stainless steel and i mean that whole thing is an engineering debacle but yeah you know i saw one on the road and i was i i don't know it's a little smaller than i thought like you kind of picture him being this

big truck and it just wasn't it i didn't realize how low it was it didn't it wasn't as pretty on the eye as i was expecting it to be yeah i mean it's it's terrible car but the and it's never going to make money because of the design flaws um like you're making it out of stainless steel and with sharp edges it's just it breaks every rule of the design flaw of of car design but I guess it's going to come down to their next vehicle which could be out in a year, two, three or something like that

and they're betting all this stuff on okay, we're actually an AI and robotics company, we're spending a billion dollars on AI CapEx I thought it was really funny reading the earnings slides when they had their Dojo supercomputer, which I gotta say is a good

name for a supercomputer, that's not a bad That's not a bad nickname for it. They showed, like, a picture of it. And they had to, since they use so many renderings in their corporate history, they had to specifically say that it's not a rendering because it looks so, like, futuristic or something like that, which I thought was quite funny.

But, I mean, they're saying they're spending a billion dollars on AI CapEx. They're talking about this humanoid robot. They're talking about the AI chips. which may be part of AI CapEx. They're talking about robo-taxis. I mean, we have these questions here. Do you think robo-taxis are going to work? Do you think Uber and Lyft handle robo-taxis?

Is there a critical mass component to self-driving once there's a 30% zero-accident self-driving cars? Makes them safer than, you know, human drivers? I mean, these are a lot of ifs. Like, none of this stuff's been solved yet. i mean uber would probably struggle a bit if there was a full self-driving service and they can you know it hurts their competitive positioning a little bit but i don't know no i i would worry okay there's a lot of reasons i think i would worry if i were a shareholder

and obviously with the tesla shareholder base a lot of them are quite fanatic about the company so they don't really have the intention to sell anyways but yeah i'd be pretty concerned about the earnings power going forward it feels like competition has begun to we were talking about competition being a concern three years ago and now it feels like it's starting to eat away at the market just because there really are so many options and we're seeing that in the results of the big oems so i guess we'll see but yeah i don't think the cyber truck will be a real profit driver for this business and a lot of those big value unlocks robo taxi full self-driving if they ever come it's not it's not gonna be for a while but uh yeah i'd be a little worried about

the earnings power of this business for the next couple of years. Let's hit some other. Okay, go ahead. Yeah, to close things out, I would say that Tesla and Musk, they have made mistakes in the past. I mean, look at the solar roof tile.

There's a lot to criticize them about, but they have, excuse me, they have pulled the rabbit out of the hat a lot. And I think if you're buying it today or holding it today, you're betting on that happening again. That's not how I invest, but hey, it's worked out in the past.

And I don't think it's going to work out in the future, but they've pulled off miracles before and they might be able to do it again. True. All right. I want to talk about, I think, O'Reilly. O'Reilly Automotive. Oh, wow. Everyone's probably interested in that. Yeah, I'm sure people are dying to listen to this.

I'm a shareholder. I think it's a really solid business. we've talked about the economies of scale in this industry on the show before for them and AutoZone. They reported earnings. And I guess there was nothing that eventful, but I will say I bought and a day later, the stock was down 7%. So that was a real bummer. But this is one where it kind of gives me so much comfort in the fact that when you have a company who is really committed to a buyback program and returning capital to shareholders that way.

And it's a company that tends to trade at a reasonable valuation. I take solace in any sort of stock declines because I know not only can I add some, but also I know the CEOs are buying back shares as well or the whatever, the CFO department, if you want to call it that. So, nice little drop in O'Reilly today, but there really is not anything that sexy to talk about for the business.

The only thing I say is this idea that the transition to EVs is going to ruin O'Reilly's moat or O'Reilly's growth opportunities, it just doesn't seem to be materializing. And we're actually seeing, like we've been talking about with Tesla and some of the other OEMs, the demand for electric vehicles is starting to decline a bit. Maybe that's just a short-term issue, but it feels like O'Reilly, AutoZone, those businesses will be in a solid place for well north of a decade, probably another two decades. yeah i wonder how yeah like a lot of people are still buying hybrids i'm sure those still need work um yeah i mean did any is it just kind of steady as it goes no concerns just three and a half percent comp sales what it i think it looks pretty similar for that business all the time it's like three to five percent comp sales maybe you'll have the

odd year where it's a little more than that they expand their store count basically it's probably around one to two percent a year but they add around 200 stores a year and it's always like top line three to five percent gross margin ticked up just marginally and earnings were up whatever, 8%, 9% and earnings per share were up like 12% because you're getting the buyback as well. So it's always kind of nice to see. And it was one of those where I feel like I own so many businesses where I'm kind of not fretting, but I'm concerned going into the earnings report. And I'm thinking like, what's this going to look like? Am I going to finally see turnaround that I'm looking for or something like that. And with O'Reilly, you know what

you're getting. And even if the stock drops, you have, like I said, some comfort in the fact that it doesn't change the overall outlook of the business. It's very much just like a time... I don't want to say time arbitrage, but it's a difference in people's time horizons. A lot of the people that are selling it off because it was, whatever, half a percent below the comp sales estimate it seems like that's mostly short-term oriented and for anyone that's a long-term shareholder you kind of you know what you're getting and you it's easy to buy on drops you don't have to think about it as much yeah it seems like a hard place to lose money good way to just compound at a solid rate over over the long term it could easily be a never

sell position it's probably not going to get overvalued true i have found that it's fun to own businesses where you don't dread listening to the management on conference calls um so i'm looking forward to that for the future with o'reilly they're super plain right just yeah exactly how you'd imagine an auto parts retailer yeah exactly and yeah they're not they're not talking about ai capex no gosh yeah that's another one we could talk about meta oh man it mark zuckerberg just toys with investors yeah he doesn't seem to care about like how they feel in the short run which has worked out but yeah he's like we're gonna here has been the three-year history for meta we're investing everything behind the metaverse we don't care

about losses in the short term okay stock sells off what was it 70 80 percent people like who knows where the spending goes and then zuckerberg spends like one conference call being like well obviously we're not gonna spend an absurd amount we want operating income to grow all of a sudden the stock is up fivefold and he's like oh you know what maybe we can start to juice capex again and actually we're going to layer on some ai capex as well because we have llama 3 now which is our meta ai um but it is mind-blowing how much capex they are putting into this business for such a capital light business yeah well is it 40 billion dollars i mean it is well it's not the good the business the businesses that drive the results of meta are capitalized

well not anymore it's changed the game's changed how tiktok changed it what do you mean because it requires a i cap x spend sure i mean if that's the only reason they caught up and that's the only reason they caught up to tiktok it even with that the spend on ai infrastructure really it's still pretty capital light relative to most businesses in the world uh somewhat i mean they're gonna spend more on capex than i think microsoft and google this year and they don't have a cloud division they have an internal cloud division which is a lot of data intensive yeah i guess but relative to what they're earning on facebook blue and instagram instagram i did not realize

that's where the ai spend is going to the algorithms for big blue and big blue and uh and instagram yeah i'll be curious what the return is on that ai spend but oh yeah i'm i think often you know they didn't want to do that but tiktok kind of forced their hand well maybe tiktok tiktok no more here um it appears because it's been uh signed or supported right by the president of the united states now so i'm not sure what the process is really like there i assume there will be some sort of appeal process that goes on for a while but it feels like this has the backing of pretty much all the important people uh all the important organizations in america the without tiktok who's the biggest beneficiary

probably first Instagram then YouTube pretty simple then maybe Snapchat but it's hard to really bet on them I think it's definitely YouTube and Instagram because what's interesting is

TikTok forced a few things first it forced these companies to really invest in the AI algorithms that were you know that that the good ai algorithm what do you think for society or not it's what drove people you know if it's good for society or not that's a different question but it drove usage over to tiktok they had to invest in that as opposed to you know youtube just searching for videos and

kind of filtering it yourself they worked on that recommendation algorithm especially with youtube shorts instagram instead of it just being your social feed they turned into a whole video ai service very similar to tiktok and what's happened there is i think it's kind of converged a lot of these social platforms into just video watching services and i think tiktok which did i believe i read about six to seven billion dollars in advertising revenue in the u.s last year growing at a really healthy rate um i think that mostly goes it has to go to youtube and instagram right yeah who do you think generates more revenue uh instagram or youtube ad revenue no it's instagram easy well it's pretty close but yeah it's it's very close actually or it

was in 2021 but the instagram's revenue was disclosed as a part of this uh ftc suit like a couple weeks ago and unless you obviously youtube shares most of its revenue but instagram was slightly larger i was surprised by that i thought youtube might have been a bigger advertising platform i think instagram's a lot higher um it's much more it's much better for e-commerce top of funnel? Higher CPM. Because you go to YouTube to watch,

you go to Instagram to browse kind of deal? Yeah. Yeah, I could see that. Except they have been converging because of this TikTok stuff. Yeah. If you layer on YouTube

premium revenue, I wouldn't be surprised if YouTube is larger. but maybe yeah or any kind of just about that all of youtube stuff and i think you didn't set up give the instagram doesn't have any business where it's sharing ad revenue right like yeah it's not sharing it with the creators yeah which on the one hand is kind of amazing that they're able to do that uh from a business model perspective but on the other hand i think youtube has set itself up with with a much better you know long-term outlook for

business durability like we don't even make very much money on youtube but it would be hard for us to leave i think just because one you have the chance to grow your audience so much and two you they it's a seamless way to to make some money what do you think because i was working on a content piece for this so i'm curious on your thoughts what do you think is the best business in big tech you have to strip out like nvidia doesn't count it's it's kind of you know it's not really like i'm talking about the Best subsidiary. I got no takes on NVIDIA either.

Between Apple, Microsoft, Google, Amazon, and Meta, if you could pull one subsidiary out of those, what would you take? At this point in time, it depends on price, I guess. What do you think? You mean just highest quality, like highest durability?

Yeah, you're paying 10 times earnings for any of them. For all of them, yeah. For durability and growth. for paying 10 times earnings assuming normalized earnings i'd probably either say youtube just because i think monetization still is a long long way to go i think somewhat instagram is is more they increase monetization a lot more because if you look at advertising on youtube it's still quite low on an ad load even though people start complaining about that it's still like what one every 10-15 minutes

honestly I'm trying to go through in my head I mean LinkedIn's honestly not bad given the numbers but I'm not sure how large that business could get and I'm not sure how durable it is trying to go through all these subsidiaries Google Cloud too

honestly even assuming normalized earnings let me give you some options here LinkedIn, Microsoft Office uh azure android gcp aws amazon prime amazon advertising whatsapp wow that's good that's a low starting base yeah there's uh high upside there i guess uh instagram facebook blue uh the app store the apple app store um app store is not bad i think if we got through to the other side of any sort of regulation app store would be really solid

would you rather have app store or safari app store because chrome already has half market share on on um apple devices or maybe just iphones so yeah yeah but safari's always going to have some real estate on the ios user base right and it costs zero dollars to upkeep on apple's side because it chrome's the default engine so i mean it's what a 20 billion dollar pure profit check basically yeah but the app store has no competition and chrome like true takes market share well we'll see about that if there is regulation that's what i'm saying yeah there's a big caveat on that one i'd say no for me it is youtube it's i think longest runway for growth with a really wide competitive moat like you can

look at some of the obviously google search is a you know it's a great business aws is a great business these are just a little more mature um in my mind and yeah youtube's a small part of alphabet's overall business but i think it can grow for 10 20 years pretty much unabated what What about Amazon seller services? Yeah, I mean, that's also quite a large business already. Yeah, it's probably still a large runway to grow, but isn't third-party seller, what is it, like 60% of their business now? So it's essentially betting on their entire e-commerce marketplace. Yeah, that's true.

Amazon ads? Yeah. once again it's kind of these are all like derivatives derivative bets off of the overall marketplace yeah amazon's e-commerce it's hard because they're all kind of interconnected yeah alphabets are a little more like disparate if you will linkedin is a pretty impressive business what is linkedin yeah sneaky sneaky it billion users um it is generating north of 15 billion in revenue now and that's up like almost four or five fold from the 2016 acquisition and obviously there's very low cost to attracting users just given that

you have a billion professionals like obviously there's a network effect there and it's one of the most powerful places for b2b advertising would be my guess sure yeah which is a little higher value i think than like instagram ad yeah Not bad. I like it. Xbox, what does that mean? Unless they start needing to put in AI CapEx. I don't think

they do, but if they do, that would come out with some funny quotes. Let's see, we got some questions in the chat here. We also had a lot on the Twitter machine that maybe we can go through as well. And I did look at Adyen, and spoiler alert, it's a European company, and they don't

follow any sort of reasonable rules. And it looks like they posted some first quarter results but it's only on a webcast so looks like we're gonna have to wait till next time on that one um but i do have that chinese real estate one loaded up let's see we have some questions in the chat thank you for anyone that joined um should we already talk tesla question from tyler the who joins every week thank you tyler why don't you guys own visa great question on the watch list and maybe I'm waiting,

maybe a little bit too greedy and I'm waiting for that. Waiting for a better price. Yeah, I actually have a like page in my notes app on my phone that's just like

businesses I want to own at the right price and Visa's on there. It's probably the first one I wrote down and it's always obviously the caveat there

is at the right price. The thing that When I look at Visa versus the entire opportunity set, the entire world of investments, the only thing I don't like is it's like, where do they reinvest? They couldn't turn on the growth engine if they wanted to. like if they were like let's ramp up revenue growth there's nothing they can really do um yeah which they just have to buy back yeah that is return cash to shareholders is nice you can grow without reinvesting that much but i would rather have a business where there's a massive reinvestment runway yeah but i mean it's even better when you don't have to reinvest and

it can still grow isn't that what uh the oracle says out in omaha yeah but can't you generate better then it becomes your valuation dictates your ability to generate high roic right because if you're if you're putting all the money back into buybacks what you're buying those shares back at is going to dictate the per share earnings growth right well it doesn't change You mean return – investment returns. Sorry, investment returns. Your ROI is coming from – it's at the whim of the valuation. But I would rather find one where it can generate higher returns on capital that it's investing back into its business.

Yeah. Yeah. I mean, it's a fairly mature business. What's nice is that it's inflation protected. I did see that they think they still have a massive opportunity, obviously. They think that. But in their conference call, they did give three areas that they think they can continue to steal share in, which was ACH and other forms of e-wire transfers, which makes sense. Like if they can start to carve into that with like a Visa bill pay, that would be huge. Cash and check is still quite large. And then what was the last one? A lot of card issuers still rely on domestic networks abroad and getting them to transition off to a Visa or a MasterCard would be great. But I don't see it growing that quickly unless inflation is super high. yeah that's true

they probably grow you know GDP plus inflation plus 2-3% which isn't bad they can't increase their take rate though for 5 years after this new resolution or no yeah they probably shouldn't

that's a regulatory nightmare um they are upselling with analytics fraud detection stuff like that i don't think it's that big of a deal they like to talk about that a lot on their investment conferences stuff like that the other question here it says what pe would you buy a visa in mastercard at i'd say maybe in between 20 and 25 times earnings i know it got to that point it's

a couple of times over the last few years but i didn't i hadn't followed visa as much I haven't I've only gotten comfortable with owning it recently so I'd wait for that I'm a little worried to say what PE I would buy it at because I don't know what PE it trades at

so I'm afraid I'm going to say something where it would like it's already there no I think 20-25 times yeah I would be comfortable buying Visa and MasterCard it's still one of the best businesses in the world Yeah, he says they're trading below that on forward.

Shoot. All right. I don't know. I don't have to go by. It's hard. It's more of a... I'm sure he's under... Like, is it under 25 or under 20?

Because I'm seeing, like, 33 trailing. I don't know. So... If I were... It would have to be an awesome place to work. Visa or MasterCard. because they are – I remember doing kind of this just going back and looking at the financials over the last – I think it was like 15 years.

And they have had 65% operating margins for 15 years. I bet you every year they're like, all right, we got to find a place to put this. We don't want to get above 70% operating margins. So I guess we're giving huge bonuses out because we don't know what else to do. I guess we'll roll out an advertisement on some random sporting event. No, that's important. But they're selling to the banks. No, but those are worthwhile advertisements.

You need to have customers be aware that Visa is good anywhere in the world. What customer knows what Visa actually does? No, they know that it's the Visa card. you know these are yeah there's a reason american express merchants accept it what yeah they how does that change but you're not as a customer you aren't you're picking whatever your card issuer gives you not my i mean i make sure it's visa i make i make sure you have an amex card at least i i make sure i have a visa or master card at all times because i know that's accepted everywhere i'm yeah i mean if if it was some obscure network i would be like okay this

might be an issue but i don't need at this point maybe like abroad maybe there's certain markets where they don't know the value of visa being accepted everywhere but for them to run a visa ad at a sporting event in america i think it's pretty pointless we all don't think so i think where it's similar to coca-cola just reinforcing that it's like the monger speech reinforcing that every year widening that moat i think it's true here we have some notes here on the valuation it's not under 25 times we got the confirmation here uh in between 27 and 28 times forward for visa 32.2 on mastercard i've never understood why mastercard gets such a premium they're not growing that much faster um it's smaller more upset is that why maybe maybe people just look

at it like oh you know they both have a huge opportunity i'll pick master car because they're smaller yeah i i think yeah with visa again maybe in between 20 and 25 times i'd think about it probably closer to 20 just given the growth rate and the fact that they've already expanded margins so much and it's probably not gonna there's not gonna be that much more going forward but let's talk about our friends first before we move on here let's give a little say i was gonna try to lead you in with a little segue that you know where i put visas at one of the top of my watch list and you know how i track that is our good friends at finchat.io right yes our good, good friends at FinChat, and they actually just launched a huge update, in my

opinion. FinChat v3, the biggest changes here are really around the AI. And I'm going to be totally honest. I have not been a constant user of FinChat AI. I would be lying if I said I was. And I just felt like the main value for it was that you could easily find metrics. because you could just ask for them, but I thought it was easy to do at the clicks. Now, I have some real value out of it because they've gotten better at qualitative prompts. So if you ask for... The one thing I've been doing constantly is summarize company X's conference call, especially earnings season, the companies that I don't follow that closely, where I don't want to read the whole thing. It's gotten really good at summarizing those.

I recommend you at least go in, check it out, try it out, and just do that one time. Summarize, you pick your company, summarize their latest conference call, and I think you'll be surprised with the results. You can basically get the outlook, the big headline numbers, the most important KPIs, and management's commentary all in one place very easily. Our link, finchat.io slash chitchat. If you're interested in any paid plans, we'll get you 15. That's finchat.io slash chitchat.

And Brett is showing the Visa charts here. It's a pretty chart. I know. I know. I'm going to be kicking myself in 20 years for not owning a Visa. I also want to mention Firm Returns, our friend. It is a financial blog. Well, investing blog, I should say.

Stock research service. And it really is global coverage. and a lot of obscure companies. On this show, we can't always talk about obscure companies because we realize that people don't care. But frankly, that's where a lot of the best returns are going to be. And the Firm Returns blog is going to cover a lot of that, especially they lean more towards the UK as it's his home market

and he has easier access to management in that market. One of the companies that I've really enjoyed reading about is TinyBuild. It's a little game developer in the UK, and he's had great coverage on that. He gives four in-depth research reports on new companies each year. There's no precise schedule to it. And then he's got a bunch of free articles on there as well for his company coverage. It's size agnostic. It'll be, like I said, small companies, large companies. It's really good write-ups, very thorough. And as I mentioned, when he invests on the smaller end of the spectrum, He actually builds relationships with the management team so he can give you a little bit of hand-holding.

If you're a shareholder in these companies and you don't have access to management, you can get some of the conversations that he's had with the executives so that it's a little easier during times of turbulence. He said it served him really well with TinyBuild last year when there was a lot of volatility in the stock. But go ahead and check it out. It's firmreturns.com slash chitchat. And you'll get your discount code that Brett's showing it on the screen right now. It's a 15% off, I believe. And correct me if I'm wrong there, Brett, 15% off. Yes.

Yes. You ask every week, but yes, it is 20% off. 20%. Okay. Yeah. Yeah. Yep. That's what I'm downplaying the discount.

So people are even more happy when they hear about the 20%. But yeah, firmreturns.com slash chitchat. Go ahead, check it out. At least check out some of the free articles if you're interested. Let's keep talking. Any other – let's hear about China's real estate market because I rely on you for those reports. Let's see. Let's bring up this article here.

I probably don't need to share the screen. Here is – let's start with a quote from the intro here. is pretty much long form read so i'm not gonna just read the whole thing but it says a new york hedge fund manager went to a glitzy new apartment complex in northern china um and he wondered how on earth the developer would fill that space quote it had apartments starting at one million dollars and plans for an office tower bigger than the empire state building an opera hall shopping malls and hotels his total square footage was to exceed the land area of monaco was there a plan for attracting buyers he asked polo said the marketing agent showing him around polo you mean

the horse thing exactly he recalled saying so apparently this place um was a founded by a billionaire polo enthusiast and uh they started this housing development this is just an example of what they were trying to do and how big the chinese real estate bubble got but think about how large this place was and stuff like that um let's you know this is back in uh 2016 this is just when the bubble was getting started and these companies these investment managers which i think is a lesson is that a lot of people are shorting these stocks and it was just at the start of the bubble so it doesn't look like they made any money or much money even though they were right and a lot of these companies went bankrupt but if we look through what happened here

so here's some more broad stuff for the listeners this is a quote from the article more than 50 chinese developers have defaulted on their international debt around 500 000 people have lost their jobs a private think tank uh said some 20 million housing units across china have been left unfinished again 20 million housing units and an estimated 440 billion dollars usd is needed to complete them um let's see other stats 20 million is a lot of housing units yeah think of the incentive that's like 15 years of new builds in the u.s yeah which their population is about three four times as large right four times as large so still though especially when you have all these vacant apartment places like you don't actually

it's like the opposite um okay if we were just yeah if we were just assuming that go ahead sorry no no you go you go you go if we were just assuming that they have like similar new builds per capita annually um it would be probably around four to five million new builds every year just i don't know if that's a fair connection to draw yeah that means that's four years worth of new builds left undeveloped yeah also that's a huge amount yeah and also they basically went and took the great financial or the the housing bubble and put it on steroids so right now they don't need any uh and their population is declining like at a fairly rapid or it's going to start declining at a very rapid rate now here's some interesting things that

happened with this that i think will fascinate any listeners and especially scared me once again from investing in overseas companies especially china so here's a quote tulip and stevenson paid special attention to evergrande's parking garages remember evergrande this is the famous one that has gone bankrupt now many were nearly empty by the reckoning evergrande had built some 400,000 parking spaces it was struggling to rent or sell yet in audited statements it continued to value the space at 7.5 billion dollars or nearly 20,000 dollars per space remember these are audited too buy one of the big four price hot price uh pwc i think price whatever it's priced waterhouse coopers i think uh and here's how they here's what's interesting about it and this is where

they get this is where i call it a little n ronnie the developer booked the parking spaces as investment properties rather than inventory assets and accounting treatment unusual among its peers that allowed evergrande to overstate their value and book gains early the two accountants said i I mean, that's exactly what Enron did, right? Remember? From that book, no? Yeah, I don't remember what they would call it exactly. Remember when they would put the earnings on it when they built it?

The stuff? Oh, yeah, yeah, yeah. It was on the new stuff, right? Not the old pipelines? They would build something, and then they would, like, say, well, we project it's going to make this much money, and then they would go, well, let's just book it all today. And then they're like, well, what's the number?

Of course, that makes perfect sense. Yeah. Oh, why wouldn't we do that? And then a bunch of analysts are out there saying the company is insolvent, the auditors are asleep. But the thing is, is this went on for a long, long time, even through the pandemic. And this is back in 2016, 2017. In 2017, home sales rose 11%. And Evergrande's Hong Kong listed shares, do you want to guess how much the stock was up? In that year, one year. In what time frame, sorry? Just in 2017.

For me, you've been cutting out a little bit, so I don't know if it's being heard. Just in 2017, how much was the stock up? Let's go 50%. I have absolutely no clue. 460%. So, pretty tough one to short. Yeah, and then they go through a lot of anecdotes

about Chinese people pouring money into real estate. let's see it's a long article so i'm going to try to figure there's there's one other thing on here that i thought was interesting let's see oh yeah this was also this one was fun as well so they would do this thing called what the and this one is right for a scandal where they say uh they call it holding so i'll just read the quote here says one popular tactic which bankers and investors nicknamed hole digging involved using shell subsidiaries to borrow money guaranteed by the parent development companies. The guarantee was valid all year long, except according to documents reviewed by the Wall

Street Journal for June 30th and December 31st, which were the cutoff days most Chinese property companies used to base their financial results on. So essentially, they were hiding debt off balance sheet. again exactly like enron right enron-esque yeah i would say that's that's literally the enron playbook you know what has served me well honestly is just the no just don't invest in china policy for myself yeah and here is what also concerns me or should i think concern anyone now this is kind of what scared me about the chinese property market in general or maybe just the chinese economy in general uh and this is the last quote i'll have quote the total value of chinese homes

and developers inventory hit 52 trillion dollars according to goldman sachs twice the size of the u.s residential market and bigger than the entire u.s bond market chinese people had nearly 78 percent of their wealth tied up in residential property compared with 35% in the U.S., according to a report by China, I can't pronounce that, Bank, and Southwestern University of Finance and Economics. That's a lot.

Yeah. Yeah, it's also nice that the Wall Street Journal covers this because I would probably have no way of discovering most of this myself. Exactly. Yeah. Let's talk about our last sponsor for the episode, Public. Earlier in the show, you heard us talk about the investing platform, public.com. That is where you can trade options with no commissions or per contract fees, and you get a rebate of up to 18 cents per contract

traded. NerdWallet recently gave Public five out of five stars for options trading. If you want to see why, go to public.com and start getting a rebate of up to 18 cents per contract traded. It's paid for by public investing. Options are not suitable for all investors and carry significant risk. NerdWallet overall rating 4.6 out of 5 as of April 2024. Full disclosures are on the podcast description, US members only. I want to do something, Brett. I want to add a new part to the show. Every week, I think we used to do this too. I can't remember. But Uh, every week I want to do an anecdotal evidence. I want to start bringing this back.

Something that you saw in the real world that you had some investing takeaway on it, like applies to some public company. Okay. Did you have anything? Let's take it from your entire trip and that you were gone in Costa Rica and Columbia. Did you have any takeaways, any anecdotal evidence? if you can invest in the local beer company it's probably a good bet because the country the national beers always seem to dominate each country it's weird do you know what it was called

in columbia in columbia it's called aguila spelled a g u i l a i don't know if that's how you officially pronounce it and then in costa rica it's imperial i'm not sure who owns them they could be owned by someone else but interesting that's the same in all these all throughout north and south america i'd assume i mean us is a little different but and yeah they sell different beers everywhere but it's interesting that those dominate okay and you know what i'm pretty sure norbert lou the episode we did on him where best investor you've never heard of kind of thing he made a bunch of money on some investment in i think it might have been the main was it the main beer producer in argentina yeah kilmes i think kilmes

yeah anyway that's an interesting thesis all right latin american beer producers i think a lot of them maybe they're not public or something like that but who knows my takeaway those seem really terrible to me okay uh my anecdotal evidence for the week i went to las vegas and right for a wedding that's why i don't know if it's a positive takeaway but some of the casinos there was so the win is very kind of upscale and very valuable property there and i saw something about there was like this quote from i think his name was steve win the original founder and it was this quote on a conference call that he said that was like rich people want to be around other rich people to feel good and that's what we cater to and

It just made me realize that a lot of people will pay just to seem rich. And I think for those luxury casino resorts, that is just kind of an ultimate driver of continued success. The other one, I think if I had to buy a casino property down there, I think MGM would do quite well. Yeah. And do you remember we did the show on them? Do you remember what they own now? Because they own more than just MGM. obviously that one is really good it has all the the sporting stuff now and it's so big

yeah they have like a number of vegas strip properties but they also have a bunch of regionals around the country as well yeah and i believe they own now essentially all the ones surrounding the the one that's actually called mgm but i forget we did that episode a little while back but i can't remember exactly what they all own it these exchange hands a good amount of time but they seem like good assets to me i think they own like some of the luxury ones now like the higher end ones could be like the aria but maybe we should revisit maybe we should revisit them because i technically own it still because i own iac iac oh that's right yeah i think mgm uh the online thing could work well too and just having that entire tie-in with like the rewards

ecosystem it makes a lot of sense to me but yeah and they're they're a consistent repurchaser of stuck also i do have some ethical questions about investing in maybe not the casino properties like the resorts because it's also really like hospitality driven as well but some of the online gambling we talked about it the other week i worry about yeah the money that's flowing there i'm not worried about the ethics i'm worried about the regulation or any sort of scandal blowback i mean what happened didn't i don't i didn't follow it closely but didn't an nba player and i found his twitter account he bet like three four million dollars on nba games and he just got banned for life like these things um there's also that the famous baseball player too yeah that guy

went to high school around the seattle area that's true yeah he and one of his close friends bet i think it was eighty thousand dollars on the under for him yeah so like betting that he would have less points than was projected and then he subbed himself out and said he was sick yeah exactly that's could you be more obvious though i know and i i am i can't think of his twitter handle right now but he had a twitter handle that they came out with in the report and the twitter handle is just pumping crypto and these penny stocks it's pretty hilarious oh my gosh he was an nba player was a crypto day training whatever um let's see we got a lot of comments here let's see when i asked for some questions on twitter so i'm going to maybe name them off until you

find one that i think is interesting um sorry guys the comments are too much today you guys can interact with yourself okay let's see first one what do you think what do you two think happens in a higher for longer interest rate regime if interest rates stay at five percent for the next 10 years what do you guys think happens to assets debt heavy companies banks and insurance auto home builders pass or you want to take it i think higher for longer is okay as long as it's for uh like for banks home builders stuff like that where it's real interest rate sensitive. I think it's okay as long as it's not continuing to accelerate. Like for Ally, I'm just trying to think through this. You can do all right with higher rates,

but it's the acceleration in the rates that causes the net interest margin compression, just because the loan book is faster than what they give out to their customers. Or sorry, the loan book is longer dated than what they give out to their customers. home building it's i think you'll have lower home sales over an extended period of time with higher rates even if it just like prolonged six percent rates or whatever like let's say the mortgage stays at eight percent you're probably not going to get back to your 2021 home sales levels for a long time but i still think home builders can be okay in that environment yeah I mean, that's what's happened so far.

There's immigration, there's migration patterns, family formation, the demographic pyramid, all that stuff. Yeah, I don't think it's going to be as bad as most people think, except maybe in commercial real estate. And I also don't think it's going to be as beneficial for some. I think it's just not going to be as impactful as people are assuming. People just put so much energy into this damn Federal Reserve interest rate. i don't care that much um let's see other questions there was one adian and unfortunately they are a european company that doesn't know that you should put out a press release with your numbers uh so i'll have to watch that webcast or read it on finchad later let's see

uh firm returns our sponsor says jd sports buying hippots don't really know about that making a bid for anglo-american do you know about hibbets i don't know anything about that deal but i know one of our friends the science of hitting talked about them on a write-up one time and it's like a it's not very popular up here in the northwest but i know throughout like the south it's it's a popular retailer yeah uh and it was actually it had done well over the last like five years it had done a decent job growing despite having a big presence in like malls which i would have thought would just be like a constant outflow or a constant decline in traffic but they've done all right and i'm curious yeah i'll read more up on this jd buying them i don't know

what jd sports is to be honest please tell me that's not like a subsidiary jd.com i don't think so i don't think so uh he asked about a mining acquisition sorry he asked about the footsie hitting uh all-time high i'm sorry i don't know about that um do you think we i don't care about emerging markets right do you think we overlook european markets too much yeah because their investor relations teams are uh i'm trying not to use a curse word not good yeah uh let's see i've seen some pitches for uk companies and for some reason it just doesn't maybe it's i don't know the market which that's another pitch for going and checking out firm returns who does know the market um there's probably i mean there's got to be a lot of

opportunities there it's cheap yeah it seems cheap it's obviously a more mature economy but it's it's safe i don't look there enough yeah it's not like you're investing in you know it's not going to have the currency risk of an egypt or a turkey you know yeah no then against those places but the currencies have been quite volatile um i know we're going a little bit long but i want to hit all the questions there's only a couple left so we can hit them quickly this one's a fun one i always this one got a lot of takes yesterday 44.6 capital gains tax ryan would this the question is would this eliminate some of the lure in growth investing and move people towards income-based investing i don't know what this

means but also this is assuming you're going to be making a million dollars a year because isn't the proposal only for people that earn a million dollars every year i don't know i honestly that's what i saw i know we have a lot of uh international listeners but there's headlines like this constantly in america about like capital gains rates increasing and it really hasn't moved a whole lot in like 30 years if i'm not mistaken so i don't know until anything is like solidified i tend to just ignore it true did you read anything about this like proposal yeah i read uh that it would be essentially i saw i was like oh well okay what is that like Let's look at who it's going to apply for.

And then I read, and I was like, well, this will apply to only people that earn a million dollars a year. And I was like, oh. What does it mean, earn a million dollars a year? Is that like – Income. On capital gains or – okay. So people that have income, the capital gains is not included? I think so.

I think so. Oh. All right. Well. But I also could have been – it was a news – it's a news article. So we know that a lot of the news gets the financial intricacies wrong of all these things. So who knows? Either way, that affected basically no one.

Yeah, I say fade it until anything is solidified. I'd be kind of bummed out if it ever affected me and there was a capital gains tax rate that high. And yes, it would definitely skew me more towards income investing if it actually affected me. also i think if you have that much income coming in i would be spending zero time worrying about taxes like i don't care maybe yeah i mean the reality is most people make that much money if i have if i have enough wealth that it doesn't matter i would literally not why would i spend my life worrying about that it sounds sounds dumb um okay other one this one can be quick luxury again hermes it's beating everyone 14 revenue growth

i kind of don't want to touch luxury right now oh well i hope that means that it's going to be a buying opportunity soon did you see that the ftc is suing to block the acquisition uh or the combination of what was it like michael kors and some other luxury brand and they're like they're gonna it might result in raising prices i'm like there are like 20 competitors yeah that's just they're gonna they're not even true luxury yeah they're gonna try to block everything yeah anyway i don't think it's a surprise we've gone a little long so So, Hermes, once again, is a step above the rest. We have something on selling ally or coupon with the temptation to take profits.

Not really, no. We're not ones to sell on a 30% pop. That's not really our game. And that is the last one. So, thank you for all the questions to everyone. And Ryan, do you want to hit us and close us out with a disclosure? Sure. I always get this disclosure wrong, but I'll go for it anyways. Thank you all for tuning in. We will see you next week for our Power Hours, which we do every Thursday at 9.30 Pacific Time,

12.30 Eastern Time, live on YouTube. Anything Brett and I say is not financial advice or a formal recommendation. We may buy, sell, hold securities that are discussed about on this podcast. So don't take it as financial advice. Do your own research. And thank you all for tuning in. See you next time.