Broken Pie Chart

Jay Pestrichelli once again joins Derek Moore whether stocks never make new lows after retracing half a bear market drawdown. Plus, how many in the industry have never see a rising rate environment. Then, deconstructing earnings, profit margins, and revenues to go under the hood and how the US dollar strength plays into all of this.

Have stocks ever went on to new lows after retracing half a bear market drawdown?

Looking at the 2000-2002 bear market

Reviewing the 2008-2009 great recession

Chart crimes

Most investment professionals haven't seen a rising rate environment

Relationship between profit margins and earnings

Relationship between revenues and earnings

Playing devils advocate on net profit margins

How the US Dollar strength is affecting earnings

Some TV show recommendations

Mentioned in this Episode:

Debating what a recession is https://podcasts.apple.com/us/podcast/debating-what-a-recession-is-someone-is-wrong/id1432836154?i=1000571629306

Does a strong dollar pose problems for US companies? https://podcasts.apple.com/us/podcast/is-the-strong-us-dollar-a-problem/id1432836154?i=1000571388439

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3Je7xqa

Contact Derek [email protected]

Derek Moore is back to talk about the difference between diversifiable risk and systematic market risk. Diversification might fail the very time you want it most. The argument for diversification + hedging. Why bonds didn't act as a diversifier this year.

Diversifiable risk

Systematic market risk

2007-2009 Period where diversification failed

Why diversification is better than concentrated stock positions

Comparing some individual companies vs indexes in 2008

Why bonds failed to diversify during 2022's bear market

How interest rates are the main driver of bond market value changes

Why new investors should diversify

Comparing single stock volatility to well diversified indices

Mentioned in this Episode:

Download full whitepaper on hedging single stock concentrated risk https://static.twentyoverten.com/5b313bf81c53ec3270915df3/27gJFrs2H/Concentrated-stock-positions-Full-White-Paper.pdf

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek [email protected]

Derek Moore is back to discuss the war on share buybacks after a rumored 1% excise tax announcement. What are share buybacks? Why do companies do them? Plus, when you'll officially here whether we are in a recession.

Recessions are called long after they start

NBER Nation Bureau of Economic Research committee dating business cycles

What NBER criteria uses to call recessions

Are share buybacks good or bad?

1% excise tax on share buybacks

Dilution vs anti-dilution of share issuance and share buybacks

How share buybacks affect EPS Earnings per Share

Walmart share buybacks and net income effects to EPS

Amazon has more shares today than in 2006

Employee stock-based compensation and share buybacks

How little corporate taxes represent of total revenues of US government

Dividend yield vs share buyback yield

Total augmented stock yield (buybacks + dividends)

Mentioned in this Episode:

Debating what a recession is and isn't podcast https://podcasts.apple.com/us/podcast/debating-what-a-recession-is-someone-is-wrong/id1432836154?i=1000571629306

NBER business cycles – when a recession or end of recession was called https://www.nber.org/research/business-cycle-dating/business-cycle-dating-committee-announcements

Apple's buyback yield https://finbox.com/NASDAQGS:AAPL/explorer/buyback_yield

Economic PI site http://econpi.com/index.php

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek [email protected]

Jay Pestrichelli once again joins Derek Moore to discuss the disconnect between the market's expectation of future interest rate raises and the Fed's stated intentions. Did the market hear the right things from Jay Powell? How earnings through Q2 have held up and are still growing despite pessimistic calls otherwise. Plus, the debate about what a recession is and is not.

Someone is wrong on interest fed rate raises

Debate about what is a recession

Why 2 quarters is not a recession

How the NBER is the arbiter of official recessions

Q2 earnings rise along with revenues despite pessimistic forecasts

What happens if inflation is over 8% when release in August?

Disconnect between market and inflation

Inflation 2x2 and EPS analysis

4 outcomes on EPS and inflation and what it means for markets

Post midterm election bounce in the S&P 500 Index?

What sectors are growing, and which are declining per Q2 earnings

Stagflation discussion

Can we really have a recession with low unemployment?

Mentioned in this Episode:

Does a strong dollar pose problems for US companies? https://podcasts.apple.com/us/podcast/is-the-strong-us-dollar-a-problem/id1432836154?i=1000571388439

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3Je7xqa

Contact Derek [email protected]

The US Dollar has been surging (getting stronger) as the Fed is raising rates more than some other countries or regions central bank. So why is a strong dollar problematic? How does a strong or weak US Dollar hurt or help US companies? Derek Moore is back to give some easy to understand examples plus how USD denominated debt from other countries will come under pressure with a stronger dollar.

Why a strong US Dollar can hurt companies

Why a weak US Dollar can help companies

US Dollar at parity with the Euro

How sales in foreign countries are affected by changes in the US Dollar

Does FactSet data on Q2 earnings disprove the strong dollar bad for earnings narrative?

US companies report earnings in US dollars no matter where their sales are from

What is the dollar index?

What is the trade weighted dollar index?

Exchange rates explained between two countries' currencies

Examples of how changes in currency exchange rates impact sales and costs

Mentioned in this Episode:

Current makeup of Trade Weighted US Dollar Index The Fed - Foreign Exchange Rates - H.10 - Currency Weights (federalreserve.gov)

FactSet earnings and revenues comparison companies with less than 50% of revenue from outside US and companies with greater than 50% of revenues from outside the US https://t.co/ZS4eCCc1v6

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek [email protected]

Michael Lewis wrote the book "The Big Short" that later was turned into a movie starring Christian Bale, Steve Carrell, and Ryan Gosling, Brad Pitt, and Jeremy Strong. The movie focused on 3 different investors who bet against mortgage bonds before the Great Recession and housing market collapse using credit default swaps. Want to get a primer on swaps and how they work before you watch or re-watch the movie?

What are Credit Default Swaps (CDS)?

What do bond ratings mean?

What are the annual premiums on credit default swaps?

How to convert basis points to an interest rate percentage?

What is counter party risk?

What does Michael Burry use to short housing in the Big Short Movie?

How did people bet against the housing market?

What does the spread on credit default swaps mean?

Using Credit Default Swaps to hedge or speculate

Mentioned in this Episode:

Current Credit Default Swaps Spreads on Sovereign Country Bonds https://www.cnbc.com/sovereign-credit-default-swaps/

Michael Lewis Book the Big Short https://amzn.to/2SNhUr1

The Big Short Movie https://amzn.to/31ROJrc

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek [email protected]

This week Derek Moore notes the historic start to the year in bonds given the rise in interest rates and how low they were at the beginning of this cycle. Then Derek discusses target date funds. Popular in 401k plans, many investors don't fully understand what they are and the different types of risks inherent in them.

Historic first half drawdown in the US Aggregate Bond Index

What are target date funds?

What is the glide path for target date funds?

What the intent of target date funds is

Why investors might believe they have less risk than they do

The 2008-09 experience for investors in target date funds

Post Great Financial Crisis hearings on target date funds

How target date funds with same date experienced so variation in returns

Examining some near-term retirement date funds

Chapter 2 from the book Broken Pie Chart and target date funds

Mentioned in this Episode:

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

Public hearings 2009 on retirement target date funds https://www.sec.gov/spotlight/targetdatefunds/targetdatefunds061809.pdf

This week Derek Moore is joined again by ZEGA Financial CEO Jay Pestrichelli to talk about the recent blowups in Crypto and review some contrarian picks that worked and didn't work. Plus, what is the recent backup in rates in the bond market telling us about the probability of a recession and negative GDP for Q2?

Yields backing off predicting a recession?

Flattening & Inverted (once again) yield curve

Crypto winter and blowups

What is the bond market telling us?

Contrarian corner - what has aged well and what has not?

Will the earnings story hold up? (Margins, EPS, inflation, inventory)

Top Gun movie gets a recommendation

Mentioned in this Episode:

Contact Derek Moore [email protected]

Derek Moore's book "Broken Pie Chart" https://amzn.to/3OGm1RG

ZEGA Financial www.zegafinancial.com

Jay Pestrichelli Book "Buy and Hedge" https://amzn.to/3y4wwak

MicroStrategy Bitcoin play https://podcasts.apple.com/us/podcast/is-bitcoin-play-by-microstrategy-ceo-michael-saylor-crazy/id1432836154?i=1000567039227

Podcast 4 R's recession, rates, reduction of https://podcasts.apple.com/us/podcast/most-telegraphed-recession-ever-the-4-rs-recession/id1432836154?i=1000563145394

Death of 60/40 Portfolio https://podcasts.apple.com/us/podcast/death-of-60-40-portfolio-markets-during-midterm/id1432836154?i=1000555384965

Earnings Multiple expansion vs earnings expansion (or reduction) https://podcasts.apple.com/us/podcast/desconstructing-stock-price-earnings-multiple-expansion/id1432836154?i=1000545436987

This week Derek Moore tries to answer the question of why things like TIPS Bonds (Treasury Inflation Protected Securities) down YTD are even though inflation is up. Plus, golds response to inflation. Finally, can we have a recession with low unemployment plus why Bitcoin thus far has not been an inflation hedge despite claims otherwise.

Why TIPS bonds (Treasury Inflation Protected Securities) were down YTD even though inflation was up

Duration risk and interest rate risk for bonds

TIPS bonds had negative yield to maturities earlier in the year

What about gold as an inflation hedge this year?

Bitcoin has proven not to be a good inflation hedge in its first test

Bitcoin has traded more like a risk-on asset

What questions to BLS surveys use to determine if you are employed or unemployed

What is the labor force participation rate?

Can we have a recession with low unemployment?

Mentioned in this Episode:

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

BLS Unemployment – How They come up with unemployment number https://www.bls.gov/cps/cps_htgm.pdf

Marcel Benjamin explains in detail how TIPS bonds work https://podcasts.apple.com/us/podcast/tips-inflation-protected-bonds-explained-interest-rate/id1432836154?i=1000535445537

Marcel Benjamin's deep dive on High Yield Bonds plus what are Zombie companies https://brokenpiechart.libsyn.com/marcel-benjamin-high-yield-bonds-explained-what-are-zombie-companies

This week Derek Moore discusses the news around MicroStrategy's leveraged Bitcoin strategy and the impending margin call should Bitcoin close below 21,000. Why would a company put their cash in a volatile asset like crypto? Derek explains the situation and news coverage considering Bitcoin's recent drop in price.

How much Bitcoin does MicroStrategy hold?

How much has MicroStrategy lost on Bitcoin?

What is digital asset impairment charge due to Bitcoin drop?

Leveraged Bitcoin strategy by Michael Saylor CEO of MicroStrategy

Terms of Bitcoin loan

When will a margin call occur on MicroStrategy's collateralized Bitcoin loan?

MicroStrategy issued debt including senior notes, convertible notes, and common stock to fund Bitcoin purchases.

Why not just buy other stocks (sarcasm) if a company is going to buy a volatile asset like crypto?

What about Tesla's Bitcoin holdings?

Did Michael Saylor say to mortgage your house to buy Bitcoin?

What is MicroStrategy's average cost on their Bitcoin holdings?

Mentioned in this Episode:

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

Forbes talks accounting treatment of Bitcoin for companies https://www.forbes.com/sites/shehanchandrasekera/2022/06/01/bitcoins-accounting-treatment-is-artificially-degrading-microstrategys-bottom-line/?sh=c4abb4433e11

MicroStrategy Q4 2021 report https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/microstrategy-announces-fourth-quarter-2021-financial-results_02-01-2022.pdf

MicroStrategy Q1 2022 report https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/events-presentations/Q1-2022_microstrategy-earnings-presentation.pdf

MicroStrategy Bitcoin margin call on loan https://fortune.com/2022/05/04/michael-saylor-microstrategy-margin-call-bitcoin/amp/