Broken Pie Chart

This week Derek Moore discusses why Tesla's 3-1 stock split and Amazons 20-1 stock split don't really matter except potentially making them eligible to join the Dow Jones Index. Plus, some have made comparisons of the selloff in tech to the 2000 Dotcom crash. As Derek explains, they are different and not similar given the numbers then and now. Finally, Derek gives some surprising data points about who the number one weighted stock was in March of 2000 in the Nasdaq 100 Index. You'll never guess it!

Who was the highest weighted company in March 2000 in the Nasdaq 100 Index (QQQ)?

Comparing companies in the Dotcom crash era to today's highest weighed tech companies

Why this is not a Dotcom 2.0 situation

Comparing the forward earnings multiple then and now

Is Tesla going into the Dow Jones Index?

Will Amazon join the Dow Jones Index?

What companies remain in the top 10 QQQ today vs. 2000?

Sirius Satellite cumulative 10-year earnings 1990-2000

Why stock splits don't matter explained

Why stock splits do matter given companies were probably already moving higher

How the S&P 500 Index and Nasdaq 100 Index weight companies compared to the Dow Jones Index

Mentioned in this Episode:

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

Tesla announces 3-1 stock split https://finance.yahoo.com/news/tesla-stock-split-june-2022-212130185.html

What does Amazon's 20-1 stock split mean for investors https://www.morningstar.com/articles/1097120/what-does-amazons-stock-split-mean-for-investors

Derek Moore gives an in-depth explanation of each of the components that make up GDP. No, 2 consecutive negative quarters of GDP do not mean a recession! How to use GDP nowcasts to spot trends in GDP and spot recession risks. How the NBER declares recessions and what they look at.

How is GDP calculated?

What are components of GDP?

What are the most important components driving GDP?

Business investment vs consumer spending

Government spending is not the most important aspect

Explaining Change in Private Payrolls

Consumer Spending PCE

Residential Investment

Non-Residential Fixed Investment

Change in Private Inventories

Government spending

What is the NBER National Bureau of Economic Research

How NBER declares recessions

Why NBER declares recessions and recoveries after the fact

Historical list of recessions

Mentioned in this Episode:

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

Atlanta Fed GDP Nowcast https://www.atlantafed.org/cqer/research/gdpnow?panel=3

BEA contributions to percent change in real gross domestic product https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2&isuri=1&1921=survey#reqid=19&step=2&isuri=1&1921=survey

Podcast most telegraphed recession ever? https://podcasts.apple.com/us/podcast/most-telegraphed-recession-ever-the-4-rs-recession/id1432836154?i=1000563145394

Real GDP precent change historical https://fred.stlouisfed.org/series/A191RL1Q225SBEA

NBER historical recessions https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions

How NBER declares a recession based on 4 or 2 categories https://www.nber.org/research/business-cycle-dating

Derek Moore is back to discuss historical bear markets. How long do they last and how long does it take to get back to previous highs? What lessons can we take from prior bear markets? Are people too pessimistic about the economy? Plus, why the high yield market may be in better shape given the maturity schedule.

How long do bear markets last?

How long after a bear market do stocks recover their losses?

Are high yield bond underlying companies financially, ok?

Did high yield bond companies already refinance into lower rates?

When will high yield companies need to refinance when bonds mature?

Reviewing some surveys that point to extremely pessimistic investing public

Does the length of market declines tell us how long to recover?

Explaining what happens when companies' debt matures

What is a call provision on a bond?

Mentioned in this Episode:

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

Historical bear market drawdowns and time to recovery since 1950 https://awealthofcommonsense.com/2022/05/how-long-do-bear-markets-last/

ZEGA CEO Jay Pestrichelli joins Derek Moore to discuss the current economic and market environment. Topics include the 4 Rs Recession, Rates, Reduction of Multiples (PE Ratios), and the conflict in Russia.

Why the Fed raising rates may not help inflation

Impact of Walmart and Target earnings results on net profit margin expectations

End of 2021 market was pricing in higher margins and growth

Earnings so far have held up well

Earnings expectations have increased not decreased

Why interest rates matter for many putting values on companies and markets

Is Russia factored into markets?

Everyone is talking recession so is it so obvious people may be wrong?

The market continues the 2021 trend in 2022 by reducing the forward PE ratio

A detour to explain how a reverse discounted cash flow on Tesla shows in the end its buyers and sellers

Retail sales as something to watch in the aftermath of Walmart and Target

Mentioned in this Episode:

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

Jay Pestrichelli's Book Buy and Hedge https://amzn.to/3wHn1gz

How interest rates affect market valuations https://podcasts.apple.com/us/podcast/why-interest-rates-effect-stock-market-valuations/id1432836154?i=1000561458590

CME Fed Interest Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

Derek Moore explains why commentators on CNBC and Bloomberg have been talking about valuations coming down due to interest rates increasing. Why do interest rates matter to stock valuations? How would you explain it to someone? Plus, how all these inputs are estimates and can change over time.

How to understand the present value of future cash flows

DCF or discounted cash flow model

Earnings estimates on the market for 2022, 2023, and 2024

Intrinsic valuation of the S&P 500 Index based on different index rates

What is the equity risk premium?

What is the discount rate?

How does the 10-year treasury bond interest rate factor in?

What is the terminal rate of growth for markets?

Mentioned in this Episode:

Jurrien Timmer of Fidelity 2-Year Treasury Yield Implied PE vs Forward PE S&P 500 Index https://twitter.com/TimmerFidelity/status/1525190396413894657

Professor Aswath Damodaran S&P 500 valuation estimate worksheet https://aswathdamodaran.blogspot.com/2022/05/in-search-of-steady-state-inflation.html

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

Spencer Wright of Halbert Wealth is back on with Derek to discuss what races in the Senate to watch. Predictions for the House to flip Republican or say Democratic. And a way to early look at the 13 Keys to the White House and the state of things as they are now. Plus, what do markets historically do pre and post the midterm elections.

How many 2022 Senate races are considered up for grabs?

Reviewing the big edge republicans have in the generic ballot polls.

What does win of one or both houses do for the party in power?

Why the midterms matter for the stock market.

Reviewing the 13 Keys to the White House as they stand now.

Discussion of the state of the economy in the short and long term.

What historically has happened around midterms in the past for markets?

Where can people follow key races?

What is the generic congressional polling telling us?

How does the economy play into House and Senate races?

What will be the impact of inflation on elections?

Mentioned in this Episode:

Updated Senate Consensus predictions map https://www.270towin.com/2022-senate-election/consensus-2022-senate-forecast

Updated House Consensus predictions map https://www.270towin.com/2022-house-election/

13 Keys to the White House predictive model https://pollyvote.com/en/components/models/mixed/keys-to-the-white-house/

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

ZEGA Financial CEO Jay Pestrichelli is back to discuss what asset classes have the best real, after inflation returns historically. Plus, is bad news good news around economic releases as it pertains to chances the Fed can't raise rates as much? What would a bad Q1 GDP print mean for markets? Then they discuss the volatility regime and touch on talk about recessions by Deutsche Bank.

Does bad news mean good news if the Fed can't raise rates as much?

Talking real after inflation returns historically and how commodities have lagged

Deutsche Bank calling for a recession

Why raising rates can't solve supply chain issues but can tamp down demand.

Bonds having a bad year

With the Q1 GDP announcement what would surprise the markets?

Midterm elections and the markets

Earnings still growing along with revenues

Market multiple re-rating continues

Mentioned in this Episode:

Contact Derek Moore [email protected]

ZEGA Financial www.zegafinancial.com

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

Buy and Hedge by Jay Pestrichelli https://amzn.to/3KA40Se

White Paper On Hedging Low Basis Concentrated Stock positions (right hand side to download) https://zegafinancial.com/products/concentrated-stock

Derek Moore explains that drops like Netflix this week are not that rare in single stocks. There are tons of examples, especially around earnings releases. Why do people have concentrated portfolios? Diversification vs. single stocks. Problems with selling low-cost basis stocks. How to hedge large, concentrated positions.

What caused Netflix to drop 35% after earnings?

The risk inherent in holding large, concentrated positions in stocks

Reasons investors hold concentrated stock positions

Low-cost basis concentration reasons versus the YOLO (You Only Live Once) crowd

Examining why investment advisors haven't been able to offer value for concentrated low basis shares

The numbers don't lie when it comes to standard deviation and risk compared to markets

Examples of past single day drops after earnings

Surprisingly, many stocks are down 40% or 50% from all-time highs

Single stock risk versus market risk

When diversification on its own failed

Why diversification plus hedging works

Mentioned in this Episode:

Contact Derek Moore [email protected]

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

White Paper On Hedging Low Basis Concentrated Stock positions (right hand side to download) https://zegafinancial.com/products/concentrated-stock

Derek Moore takes listener requests by taking a deep dive into the how and why when it comes to market values of bonds changing. How to understand what duration is and why it matters to measure risk in bonds to changes in interest rates. What about mortgage-backed bonds? Bonds can be confusing, but Derek breaks down the terms so next time you hear someone talking on CNBC you know what they are referring to.

What is a bonds duration in relationship to interest rates?

How to calculate a bonds duration.

What is negative convexity with mortgage bonds?

Why are lower coupon bonds more at risk for changes to interest rates?

Why are shorter maturity bonds less susceptible to interest rate risk?

How do cash flows from coupon payments effect bond market values?

What is the after-inflation calculation for return?

What are real returns (after inflation)

Mentioned in this Episode:

Contact Derek Moore [email protected]

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

Tips Treasury Inflation Protection securities | Interest Rate Risk and Duration https://brokenpiechart.libsyn.com/tips-inflation-protected-bonds-explained-interest-rate-risk-duration-and-more-with-marcel-benjamin

Senior Loans and Leveraged Loans explained https://brokenpiechart.libsyn.com/dan-mcmullen-talks-senior-loans-leveraged-loans-clos-and-more

High Yield Bonds Explained plus what zombie companies are https://brokenpiechart.libsyn.com/marcel-benjamin-high-yield-bonds-explained-what-are-zombie-companies

Derek Moore gives a contrarian take on the Fed raising rates. What if raising rates causes a major component of the CPI to increase rather than decrease? If the Fed raises rates, mortgage rates rise, demand increases for rents, and owner's equivalent rents rise? In this episode, Derek explains what is measured in the CPI and explains how OER or Owners Equivalent rent and rents are calculated by the BLS each month.

What percentage of the CPI is housing?

How is OER or Owners Equivalent Rent calculated by the BLS?

How mortgage rates impact the supply and demand of housing

Study showing housing rents increase during monetary contractionary shocks

Financing costs for home builders

How the construction of housing costs was changed by BLS in 1983

Discussing relationship between mortgage rates and housing prices

The type of inflation we are experiencing

Supply side vs demand side inflation

Mentioned in this Episode:

Contact Derek Moore [email protected]

Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

Study referenced showing housing component rises doing contractionary monetary shocks https://onlinelibrary.wiley.com/doi/full/10.1002/jae.2679

How BLS creates housing data https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf