Welcome to the latest episode of the Capitalist Investor podcast, where Tony, Luke, and Derek discussed some fascinating insights into the investment landscape! Today, we tried something different where we talked about five hot topics in five minutes each. Those topics include Bitcoin, Mortgage Backed Securities, Cash, Auto Loans, & U.S. Treasuries.
Here are three key takeaways from this episode:
1️⃣ Move beyond traditional investments: Luke, Tony, & Derek explored three alternative ways to invest your money - treasuries, CDs, and lending through the bank. Treasuries, in particular, caught their attention as a low default rate option, but with varying durations from three months up to 30 years.
2️⃣ The Federal Reserve may have lost control: Despite the Federal Reserve not raising rates, yields increased by 1% over a month and a half. This surprising development suggests that the free markets are now pricing in the increasing and decreasing rates, highlighting factors like geopolitical conflicts, economic risks, and inflationary concerns. Prepare for potential significant and rapid movements in either direction.
3️⃣ Big changes in the housing market and beyond: The episode delved into the impact of various factors on the housing market, including the potential entry of Airbnb properties, risk-off periods, and high interest rates.
Tune in to the latest episode of the Capitalist Investor podcast to gain valuable insights and stay updated on the ever-changing investment landscape.
Hello and welcome to this week's episode of The Capitalist Investor. I am back better than ever, reinvigorated after a couple weeks off. And as always, we got Tony and Luke. How we doing, boys? You shouldn't be Arnold Schwarzenegger. I'll be back. I am back. I'm doing well. Excellent. That's it. Just Tony and Luke. I have a smile on my face. I got an email from a client with a good podcast topic. What we're going to talk about today. He's like, Luke, I hope you're smiling today. I am smiling. It's a good day. Happy? Absolutely. You're always smiling, but what comes out of your mouth is different than your facial expressions. We're going to try something new. Tony, what are we trying today? Oh. So, to keep the show moving, upbeat and hot takes is what I'll call it. We are going to set a timer today for four minutes and 30 seconds. When it goes off, you got 30 seconds to wrap it up. So we don't get long winded. But we got five topics, five minutes, and that's what we're going to do. We're going to try and come with our hottest take on a certain subject and go from there. What do you think? What do we got first off? All right, crypto. Who doesn't like some bitcoin? So bitcoin is jumping. What's it up for, Luke? Maybe 20% in the last week. Yeah, I think 25%. Yeah. That makes wonder why percent this year? 105. Well, it's still 50% off its high, though. True. Anyway, why is it popping? Why is it taking off in the last week? Why is it up 20 plus percent in the last week? So I guess I'll just go with it first. I think it's FOMO. There's talk about ETF approval is imminent. And it also could be like a short squeeze on BlackRock, right? BlackRock ETF. Spot ETF out there. Yeah. It's a big company, blackrocks of the World. Everyone knows the name BlackRock. That's where the news is surrounding it, for sure. But the main purpose behind it is that if they create an ETF, it makes it more accessible to the average investor. You don't have to go buy a crypto wallet and know your phase words and get hacked and stuff. Like, you own an ETF, right. And you can participate at 1% 5% of your portfolio, whatever you want to do, and probably then short it. Right? Yeah. It's just increasing investment options. Right. That's the main reason, because now they're talking about it. But then I saw something today where they're like, oh, yeah, the Congress people are like, yeah, we're going to kick it to the state for regulation. And they're like, now it's dead again. The state has more programs to really schooling and items like that that Congress doesn't necessarily worry about. So this could be dead on arrival again. Thoughts? Yeah, I think actually it seems strange that bitcoin specifically would get such a huge bump up 25% just for it hasn't been approved or anything like that. Right. Speculation. Yeah. It was just an ETF appeared somewhere in some documents. Right. But when you think about it, more, how many people out there are really getting on Coinbase, buying crypto directly? How many people are using it like it was intended, which is decentralized. Right. That's the whole point. So I'm not sure what the point is of owning crypto in an ETF, obviously, outside of the investment aspect of it, but owning it in an ETF isn't really accomplishing what bitcoin is set to do, which is basically be detached, deregulated, away from everything. Well, I think that's the reason it's up. I think it's more that it's rising because it's wanting to rise because of some of the cracks we're seeing in the world, because the financial markets have taken a little bit of a hit the past couple of weeks, past month. Right. You're seeing a divergence, I think, between bitcoin and the stock market. Used to be the stock market rose, bitcoin would rise more. Stock market was down, bitcoin would go down more. I think there's a divergence happening because bitcoin is kind of doing what it's supposed to do. A hedge against the financial system. Right. I think that's part of the reason it's up. I think that actually an ETF is bad. So you're saying, like, the bitcoin is like gold kind of. It's going to be starting to act. Like a digital gold commodity, kind of hedge. Hedge. I think that's the reason it's up, mainly. I think the ETF is actually bad for bitcoin in the end. All right, I just thought of this. What if this is like so it popped 25% on speculation. If the ETF were to come out tomorrow, sell off, sell the news. Right. Sell the news. That's what would happen. Right. That would be my problem. Because the ETF provides liquidity and liquidity is not necessarily a good thing. Sometimes, especially what you said. How are people using coinbase? I can tell you how they're not using it. They're not logging in there and day trading and selling bitcoin. People that are buying bitcoin and are holding it, holding it forever, to hold it against the hedge, against the system. So there's not much liquidity. So more liquidity, I think, is actually. A bad thing for just I tried to get in my Coinbase wallet and I forgot my password, so I'm locked up. He's got, like probably coinbase is easy. You still got your JPEGs, though, right? Oh, yeah, dude. I'm getting offers for those every day. You got them, right? When's that going to take off? In like, ten years. Are they going to come back? Right? I don't think they are. I don't think they're going to come back. A really bad ringtone for a timer. That's terrible. Or moving on. All right, timers up. All right, Luke, why don't you tee up this next one? Sure. So mortgage backed securities, there are securities investments that package together mortgages. I mean, it's as simple as that, right? One of the reasons that 2008 2009 happened, there's a bunch of junk, full filled mortgage backed securities. That's why we had the housing crisis, because people weren't paying their mortgages. And those securities blew up because it. Blew up because they were giving loans, loans to guys working at Pizza Hut. Correct. Like, oh, you can afford a $500,000 house on your minimum wage salary. Boom. Done. What is interesting is MBB, one of the ETFs that tracked mortgage backed securities, one of the biggest, is actually down 15 or 20% more than it was during 2008 2009. It actually only got hit like 3% during the 2008 2009 crisis. So I want to talk a little bit about why one of the biggest investments in ETFs and mortgage backed securities is way lower than it was during the financial crisis. I think if you look at the chart, it is falling off a cliff. It is going down quickly. So is there just no faith in people paying 8% mortgages? Because I think a lot of people are still buying houses with the intention of getting an 8% mortgage and refinancing, refinancing in the next six to twelve months. Well, higher for longer. That's what the Fed is saying, right? Yeah. So is that a reason? That would be my immediate thought. And one of the things I follow this guy on Twitter X, whatever you want to call it, Kabishi letter, and he was showing that 1.2 million houses are underwater. So they bought it for 400 and now it's worth 350. Wonder where that's at. I know here housing market really hasn't taken a turn. He also points out in another tweet that he did was there's a point where there's a lot of cities with heavy investor driven properties. So a city like that would be austin, new Orleans, phoenix. Vegas. Those properties are down nearly 50%. He uses the word a ton, so whatever a ton is, but he goes, wait till the airbnb properties start hitting the market and supply is going to hit. In this high interest rate environment, you're going to see a lot of house depreciation. But I don't know what a ton means. And does that mean here in Ohio houses take a hit where there's not a lot of investment property? So is it just going to help deflate the areas that are inflated right now and keep a city like Cleveland where housing prices are definitely going up, but they're not up? 400% thoughts on this, guys? So why would the airbnb people be selling their houses? Because people aren't traveling as much. Maybe going to those areas. That would be my initial thoughts. That's the other thing. And also maybe to get out of the property while making zero to minimal profit. But I also think that the biggest problem that could happen with the airbnb if that's a thing, if that starts selling off, think about who's buying that. That's an investor. And if that investor was smart, they would put that airbnb in an LLC. And if that LLC goes bankrupt and forecloses, it doesn't really affect any they're not liable, quote, unquote. It'll affect other people for paying more insurance and stuff. But that individual investor, what does he care? Yeah, it doesn't mess up his real. Quick just because I know we got 30 seconds. I think D was going to hit on this as well, and me and D were talking about it. You can chime in, but duration is, I think, the main reason here. I actually talked to one of our investment team members about this, and his thought process was back then, AAAS and double B's, that's what the ETF holds, is high quality STUFFAs. And AAS didn't get hit that much during the great financial cris. It was the junk that got hit. What was that, like 20% of the loans out there? Yeah, really bad. Yeah, the 20% are the ones that got hit, the junk. Right. The other 80% didn't get hit. And plus, they lowered rates. They went from high interest rates to lower interest rates to combat the financial crisis. We are in a rising interest rate environment, and the duration right now on MBB is six and a half years. So as interest rates rise, that duration gets hit, because now you have to discount the duration. Right. That's the reason why MBBS hit down a lot outside of possibly the faulty housing market, some faults. So it could be a combination of both, I think. I think so, yeah. Because, I mean, an investment property, they're okay, maybe taking on a six, seven, 8% mortgage because they think they can rent it out, but when it's not vacant, when it's vacant, then they're cash flow negative. Got five minutes up. All right, D, you want to start off maybe with a third one? All right, let's do it. So basically now we're not in a zero interest rate environment anymore. So this is the question from one of our listeners. One of our listeners, one of our clients. Yeah. So basically the question was kind of what options are out there now? Because we're in a higher interest rate environment if we're wanting to, whether it just be cash on the sidelines that we want to get invested or pull a little off the table as far as risk goes and take advantage of the interest rates while we're kind of hiding out a little bit. So what are some of the tools, what are some of the mechanisms that we can get these higher interest rate environments? That we can get interest in, these higher interest rate environments? So I'll go first. I think, number one, everyone needs to realize if there's cash on the sidelines or if it's just in your non qualified investment account, we're going to be paying taxes on this interest. So even though the headline interest is five and a half percent, if you're getting five and a half percent annualized, and you're in, say, the 22% tax bracket, you're probably netting out about 4%, which is obviously still good, but something you need to consider. And obviously inflation is higher than 4% right now. So even though it feels nice to be getting interest, we're still not necessarily making big bucks. But what I like to do with my cash on hand, I just have an online savings account. I use Ally bank. I know American Express has a good program, too. So it's just an online savings account. You can transfer money in and out, link it to your other bank accounts. And I'm getting four and a half percent interest right now, and there's no restrictions, it's not locked up. I can take it all out if I need it. So just a way I'm going to retire off the interest that I'm earning. But it's just a good way to earn a little bit of your emergency reserves. Yes, luke yeah, I mean, it's the same thing. I just opened up another high yield savings account. Earning 4.3 is not as high as a 4.5, as long as you really want to get closer to that 5% area, as close as you can. Right now with Fed funds trading at 5%. So savings account is the easiest, most accessible, most liquid. It's not going to be tax advantaged. Um, I would not go CD route. There's no point in going CDs. No, CDs are paying you exactly what you can get into savings. There's really no advantage and you have to lock up money. It's personally, my thought process is, why would you buy CDs when you earn the same in savings account? Where's the timer? 230. Bring it over here. I need to see 230. We got time. I know it's down there in the bottom. All right, so the way that we do it with our clients well, there's three different ways, and I don't want to say all these are for clients, so treasuries are one thing. So the con with a treasury is duration and credit risk. Believe it or not, there's some credit risk with the US government treasuries, but duration, because you can get a three month, six month, twelve month, two year, ten year, we can go forever up to 30 years. First of all, there's a highly unlikely default rate with the treasury, and a treasury is almost like a CD, but it's through the US government where the CD is more through the bank right. And their lending process. My suggestion, if you're going to go the treasury route, I would look at the three to six month, even the six month. So I did that. I have a fund going to take my kid to Disney in like, two years, so I don't need it in the stock market going bananas. But earning 5% would be nice. I put it in a six month treasury. Six months ago, that was paying four and a half percent. Today it's paying five and a half. There's five and a half percent options. So the interest rates kept on going up and I was stuck in something paying four and a half for six months. So is that a lot of money? No but it's still 1% and that's just more money right? So that would be duration risk. You're locked in. Interest rates could either go up or down. So that's either a pro or a con in the credit risk. CDs, we talked about that. I think it's a very similar idea to treasuries but there's default risk is higher with a CD than I think a treasury and the penalty is you got to give up some of your interest if you need the money right away. And the same. Thing with treasury. If you need to sell it early, you might be subject to losing some of your principal. I like the option of a money market mutual fund through, like, schwab. So that's where I parked my money. I put it in my non qualified account. I moved it from my bank to my non qualified and swvxx. This is not just a mutual fund that is paying over 5%, almost five and a quarter, but it's very liquid. So that is something that I do. We do that with some of our clients who just want to put a portion of their money into cash right now. It can be sold tomorrow without price depreciation. It just stops the interest payment, I think real quick. The key thing to this is interest rates will not remain this high forever. I think we all can agree on that. So it might be nice for another year. Year and a half to get these kind of rates but the question then becomes, and rates do go back to lower and you're not earning five and a half percent risk free anymore what do you do then? And that's why we're paying attention to this stuff very closely to really understand all the moving parts and pieces of the market to then deploy capital as rates start going lower right all right number four, topic number four, what do we got? Auto loans yep auto loan delinquencies something I've seen quite a bit on TwitterX as well I couldn't pull up the article on my phone but I believe the number of loans in delinquency the. Percentage is 60 days late 60 days late? Just over 60 days late is what its delinquency is. Yeah. Is the highest of all time. Right. Last 30 years. Last 30 years, yes. And the car payment is the highest it's ever been in ever history. Average car payment. So we got a lot going on in the auto industry in general. It seems that this is kind of off topic, but it just popped into my head. It seems that people are giving up on the Was. Don't say coming. I think GM basically just abandoned it. They said they're not going to pursue it because people are revolting. No one's buying the cars, no pun intended there with the Volt, but that's good. They don't work. And their range is people aren't going to be comfortable with the range. Electronic cars are nice commuter cars, but that's just not what people are used to. But I think such a big EV push has caused prices of everything to go up. Right? R d costs are insane. Ford spent billions of dollars, they've lost billions of dollars on their EV line. So cars are just more expensive. We've seen used cars. Their prices also crazy, and people need cars to get around, so they're kind of making do with what they have as far as what they can buy, what they can afford. They're always stretching it, and this is the result of it, and I think we're going to see it for quite some time. Well, I think a lot of people are stuck in pandemic cars because they needed a new car. They weren't making new cars, so they had to buy a used car. And used cars were going through the roof, like Derek just said. And I think they're still elevated. They are. So new cars. The difference between a new car and a used car really isn't that much money. And I think as prices go up and they're stuck in seven plus percent interest rates if you didn't buy the car in cash, when it comes down to everything inflating around you, housing, food, it comes down to decision making process. Like, hey, I can be 60 days late and they're not going to repo my car. Okay, well then I'm not going to make my car payment this month, so I can go buy food. Right. So the delinquency rate is about 6%. It's not like 25 or something crazy, but it's still high historically. Right. And don't confuse that with default. That's where they start repoing your car. They're just delinquent. They can catch up, probably pay a penalty and get back on track. But are they going to if it's starting to creep up now? Do people really catch up? Typically they don't, because that money is going somewhere else to spend for some. Reason on X, Twitter, whatever, Instagram, I don't know where it's popping up. Facebook, maybe. But I've been seeing a lot of people that have $1,200 a month car payments. Even these people that work for these car dealerships that going around interviewing, what kind of car do you have and how much is your car payment? Like, yeah, I got a $55,000 truck. My car payment is one $200 a month. I got the $65,000 Porsche or $70,000 Ford Porsche that I bought used, and I have a $1,300.01 $400 a month payment. Some of these guys have two or three cars too. It's insane what's happening right now. The amount of borrowing that's going on. And it doesn't surprise me at all that delinquencies are going up. So I think it's a tale of the spending addiction that we have that we talk about all the time. People starts at the top with the Instagram. It's about, hey, I have this nice truck. I'm going to show it off on Instagram and Facebook for everyone to see. I don't care how much I pay for it, but I got to let everyone know that I have this nice car. Car is a status symbol sometimes, you know what I mean? And that's the way I think we live. It's not a necessity. I've always enjoyed having a nice car, but at the end of the day, it's a depreciating asset. It's a luxury of buying a higher end. Telling you middle class America. Buy Mercedes and Beamers. I mean, it's happening all over. Yeah. Anyway, but really quick on the EVs, man, he got me started on that. I think Mark made a good comment. He said that he saw a report from like Morgan Stanley guy that really hones in on cars. And that guy from Morgan Stanley, I don't know his name, but he said the American automakers for GM and whatever Dodge is and Chrysler is, it's called something else now. They should abandon it, maybe stick to hybrids and just let the EVs give it to Elon. He does it better. He's way more advanced. And I bet you that's where they go. Because in America, if we started transitioning to EVs, it would eliminate 30% of the work hours, 30% less work hours. Guess what that means? Less people are working. Here's a quick take. One of the biggest profitability cars, or non cars, I should say, is our trucks. Trucks are the biggest profitability. Where they're Ford, GM, Chevy, where all these companies make the most money is these trucks. Blue collar americas hasn't been blue collar America in a while because people are going to college. They're expecting these white collar jobs. People aren't going to these blue collar jobs anymore. The necessities for trucks are actually on a decline that's concerning for the housing or for the car market. As think like, I think people, if they buy a truck, they're like, me, I like big cars just to know, just like a big car driving around. My one person like I had an SUV, and they're like, look at that land yacht. And I think that's the only reason. People don't need a truck. But they like driving it because like, hey, maybe I'm going to have to load up something I don't want to worry about cramming into my truck. Sure, I get it. Anyway. All right, one last topic. We've got Bill Ackman. Yeah. Who's bill ACMAN. So Bill Ackman is one of the Pershing Square Capital, one of the biggest and most well known hedge fund managers he's multibillionaire. He's kind of like Jamie Diamond. He got really famous for what happened back in the early two thousand s with that Ponzi scheme, pyramid scheme, weight Watchers, I think it was. Right? It was Weight Watchers or another one, one of the ponzi schemes out there that he was calling. He was going against one of the biggest other investors, hedge fund managers. Anyway, wasn't it like the vitamin company or something like that? Something like that. Derek's looking it up as he's looking it up. Fact check. Bill Ackman has shorted treasuries. It's been a phenomenal call. I mean, as yields go higher, bond values go down. Right? So long duration Treasuries, these 30 year Treasuries have lost 52% of their value this year or the past. From the top. This year they're down 20%. So he's made a ton of money on the way down. Shorting betting against these Treasuries, another duration risk. What if you had a two year treasury, ten year treasury, carl icon, that was paying like 3%, that was paying 3%, now they're paying five. You got to sell your bond, your treasury at a discount. So that's why when we mentioned where to park your money, if you're going to park it in a treasury, make sure it's only a three to six month. I wouldn't go much more than that. Now the thought process could really move. The thought process is now becoming, though, do you start looking at longer duration because of how high interest rate lock. In the high rate. Now 30 year mortgage interest rates are at 5%. You could lock in. Theoretically you have duration risk, but theoretically you lock in 5% of your money almost in 30 years. Now the question becomes, do interest rates go higher from here? But Bill Ackman just covered his short position earlier this week, so he made a lot of money. Now he's like, there's too many geopolitical risks out there. Given the whole Middle East situation, given potentially what could happen in China, and know if that stuff were to happen, there's going to be a risk off, trade yields will go down, treasury values will go up. That's kind of what he's betting on. So he didn't buy Treasuries, he just covered his short, saying that he doesn't believe that there's got much more farther. To go with I think he's onto something there. The geopolitical risk is always that black swan of events that can turn the market negative. And with what I'll call World War three about to pop off. Know you mentioned it, ukraine, Russia, then we have the Middle East, and the next shoe to drop would be China and Taiwan, because we're already parking, what, aircraft carriers and stuff like that in the mean is that sea big enough? Because China's there. We're there. There's a lot of action in that sea. It was herbalife. Just so everyone knows what I was talking about. It was Carl icon. Herbalife is what it was. And everyone there's a documentary on, I think on Netflix, on both of them. I think everyone should watch it. Very good documentary. Anyway, so think of this. So I actually saw this. China owns about 800 billion of Treasuries, and Japan owns about $1 trillion of Treasuries. And there has been quite a bit of sell off from China. Just think if we went to war with China, man, just wipe those Treasuries right off the books. They'll just either sell them, right, and regardless if they're at a discount or what, doesn't matter to them. But they're one of our biggest debt holders, and if they sell our interest on, our 30 trillion plus debt goes even higher. So as our interest payments on our debt are ballooning and no one really understands that. Right. I was very outspoken last week about it. I think one thing we got to talk about is the fact that the Federal Reserve has controlled interest rates for a long time, or at least the perceived thought is they controlled interest rates. The fact that they aren't raising rates anymore, and we saw yields go up 1% without the Federal Reserve hiking anymore, like, the ten year treasury went from 4% to 5% in the matter of a month and a half by itself means that the Federal Reserve could have lost control of interest rates. With the increasing rates, decreasing rates, it's more now. The free markets pricing in. Like you said, it's geopolitical conflicts, risk in the economy, inflationary risk. I think that's something we got to consider because there could be some dramatic moves, I think, very quickly in either direction. I don't know what direction is going to be. I think yields could go crazy higher or they go crazy lower. Very I would say that the path of least resistance is that yields go higher because people are going to need their money, because we're funding warships and ammunitions. Because no one buying Treasuries right now. No countries like China, no one buying it. Like you mentioned, it takes billions of dollars to send across the seas to take care of everybody. So that money's got to come from somewhere. Yeah. Well, we got five minute, five segments. I think that was pretty hot. I don't know. I think that was pretty intense. I like that. Yeah, that was good. Yeah. Hopefully you got to the point no rambling, good topics. All right. Yeah, I'll pat myself on the back on that one. There you go. Well, if you guys, listeners, viewers, clients like that, let us know. We'll keep on doing that. If you like the kind of to the .5 different hot topics, what's going on in the world, let us know. We got a couple of emails this past week, and we appreciate feedback all the time. That's why we do this, is to educate, but also helps us keep on track on know, outside of just our daily lives of everything. Yep. Cool. All right, well, good stuff. Well, thanks, everyone, for listening out there. Happy to be back after a little hiatus. If you have any questions, comments, ideas like Luke said, send them in to Info@swpconnect.com and We'll Talk To You Next week. Or email your trusted advisor. Or email your trusted advisor. All right, guys. We'll talk to you next week. The opinions expressed in the podcast are for general information purposes only and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.