Bitcoin, Inflation and Coke (KO)

Podcast Transcript

Hey, this is Jeffrey with another edition of stock smart the February 10th, 2021 Edition. Hope you’re all doing well. We’re little overbought in the market right now. So when we look at the S&P 500 oscillator numbers are a little bit high and usually at this time, we’ll take a pause in the market and drop down a little bit as it unwinds a bit. So I would look for the market to flatten down in the next few days as it continues to unwind. Look at inflation numbers. Inflation numbers came out again today. Inflation did again increase especially in the area of gasoline.

[00:00:34]
So if you look at Energy prices, Energy prices are up 7%. So essentially what that’s saying is if you had $100 worth of energy and the CPI and energy is up you would actually have to spend $107 to get the same value you had for $100 last month. So it’s up a bit and you’ll notice if you look at the XLE, which is the energy ETF. It’s up 10% in the past 2 weeks. So you get how this works. So energy is increasing that was the largest increase, but gradually we’re seeing an increase in inflation and we’ve seen this since May as inflation has gone up routinely a little bit, I’d say about 0.05% or 0.05% every month that this is taken and now we’re back up to about 1.5.

[00:01:25]
So you’ll start to see this gradually continue to increase and that’s why we would recommend things like inflation-protected securities and the short-term inflation-protected Securities, you’re going to see interest rates that are going to have to follow this as again the FED mandates inflation increases. A lot of this is because of the cheap money and as the money supply grows prices generally have a tendency to go up. So that’s something to keep an eye on definitely as an investor and then when that pushes interest rates up, so if you’re looking at the 10-year bond when that starts moving towards to 2-3% you know, when it gets there you’re going to start seeing people fleeing from the equity market in to safer bonds to get to 2-3% return.

[00:02:07]
So we’ve were talking about Bitcoin yesterday and I want to talk a little bit more about Bitcoin and who accepts it for payment because this is going to be a growing story as more and more companies feel like they should accept it for payment. So right now if you wanted to buy something with Bitcoin you would have what they call a digital wallet. So essentially something that may be on your phone where you share a key and the key is exchanged and the bitcoin is exchanged with the merchant. There are lots of places that are actually accepting it and I did some research on who’s accepting it. Wikipedia is taking donations for it. Microsoft in some instances will take it.

[00:02:43]
AT&T will take it as payment. Burger King, so fast food joints like subway, KFC, Pizza Hut will take it professional sports teams are taking, the Miami Dolphins have taken it for payment for tickets and so have the Dallas Mavericks, but that’s you know with their pioneer owner Mark Cuban so not a surprise there. But it’s interesting for businesses. Because let’s say that you all of a sudden you accept and Bitcoin is down today about 4-5% So again, it is correlated to the overall S&P 500 or the regular stock market. It is moving down when the stock market moves down.

[00:03:18]
So today the markets down a little bit and you see Bitcoin now again trending that way but let’s say you’re a merchant and all of a sudden and we know that bitcoin’s extremely volatile, price shifts and price can move greatly from day to day. But let’s say you take a payment for an item that cost $1,000. Let’s say you sell your good and it’s $2,000 and then all of a sudden Bitcoin drops by 20%. Well, if your margin on that product was only 15% , you’ve lost 20% in the payment that you’ve taken, you’re now down 5% so you can see how this is going to be a very difficult thing for merchants to do on a regular basis, especially for larger transactions.

[00:03:57]
So when Tesla says oh we’re going to take Bitcoin potentially for payment imagine you spent $60,000 on a vehicle, Bitcoin drops the next day, you pay in Bitcoin, Bitcoin drops the next day 20% and that just will crush their profit margins. So the big problem again is the price fluctuations. Many businesses are experimenting with it but you can see maybe in smaller transactions like Burger King, which is an average probably 5 to $6 transaction that may make more sense right now so that they can check it out. But again until the market matures that’s when it will stabilize and we know that there’s still two million plus Bitcoin that will still be created and put in the marketplace. But until it’s a mature Market it won’t make sense really for businesses to do it. Probably until the price remains more in a constant.

[00:04:43]

STOCK WATCH

Let’s look at a stock Coca-Cola, which reported earnings early in the day, the pre-market was up 1-2% a little bit volatile today so it may trade flat or slightly down. Not an exciting stock. I mean, it’s not in the huge growth area of the tech space. You know most of their revenue comes from fountain drinks, there’s a big margin in that so for a movie theater that’s selling a coke that may cost them $0.05 for something they charge you $6 for, so it’s also a big margin for Coca-Cola and that’s where a lot of their revenues are going to come from when their fountain drink space opens up again, but what I’m really interested in for Coke, is their new hard cider which is going to be from their Topo Chico brand. Now it’s only really being launched in Latin America and some other overseas markets but it is coming here soon.

[00:05:30]
There is not a specific target date. I would not be surprised to see it towards the summer when the hard ciders make sense when the weather gets a little warmer. That would be a good product target date for Coca-Cola. But again, it excites me because of the distribution channels because Coke is everywhere. So if Coke is you know working with one of their their clients, they’re going to say hey, we really want you to take this hard cider well they’re going to take it. And I want you to look at maybe the stock of SAM which is the Boston beer company. That’s the Sam Adams company that became a multi-distributor of many products but in the past year their stock has doubled plus and that’s based on the release of a lot of their hard cider and differentiated alcohol products.

[00:06:12]
So if you think Coke could do the same thing, I’m not saying Coke stocks going to double but I definitely think it’s very interesting and I think it’s undervalued right now coming being still a stock that will do better much better. Once the market is open again, in terms of Covid meaning restaurants are open, theme parks are open things like that. So it’s a stock you could get in now and then ride it out a little bit, technical chart is good. It’s starting to make a nice up pattern. So technicals look really good, inexpensive, there is a little bit of a dividend but you might have to wait a bit for this Topo Chico to realize itself, very early innings for Coke on that.

THE AVERAGE INVESTOR

So question from Fred. Fred asked me, and thanks for the questions by the way. We’re getting 15-25 a day. You can reach me at Jeffrey@jeffreykamys.com and I appreciate the questions and I appreciate the growth of the show.

[00:06:59]
Fred asks, what’s the right amount of stocks in a portfolio? Well, it’s a really interesting a great question even professional investors, so a professional manager who’s managing a slew of portfolios. Maybe, let’s say he’s managing 25-50 portfolios. Probably unless he’s got a big team probably can only really be knowledgeable about 20 stocks to really watch them to watch them on a daily basis get all the incoming news, look at the technical patterns of the charts be in tune with when earnings are coming up. An actual professional probably should only be managing like 20 in the portfolio, so an individual who is doing it for themselves, maybe only like 5 to 10, 10 at the most because it takes a lot of your time.

[00:07:42]
Now, if you’re an inactive person in terms of management of your portfolio, it’s probably best for you to be in index funds. You know, you could be in the SPY maybe the triple Q’s which should be a little more tech risk or one of those various index funds but someone who’s watching stocks if you have time to watch every day, even 10 might be a lot, professional maybe grab 20, so I would think it’s very difficult to stay on top of multiple stocks. That’s up to you it’s a personal call, but it really depends on how much time you can put into it. So hey, thanks again will see you tomorrow. Another great show. Appreciate all the good feedback I’m getting. See you tomorrow on Stock Smart.