Stock Contest – NFT – Problems at Costco (COST) and Inflation do’s and dont’s

Podcast Transcript

Hey, this is Jeffrey with another edition of Stock Smart, the March 5^th, 2021 edition. Hope you’re doing well. So I wanted to start off, we’re going to have this Stock Smart stock picking contest, I think we’re going to run it quarterly, I think we’re going to limit it to people who are like 18 to 25, because I want to get younger people involved in investing but we’re going to have this contest and we’ll have a stock picking contest, and yours truly will pick against you. It’ll be a fundraiser will donate some money to something and have a couple of prizes and gifts and we’ll do that pretty soon, working on that and getting that set up. So going to talk about NFT soon, non fungible tokens, which are being used as part of this crypto craze. I wanted to talk a little bit about the history of this art this new digital art that’s becoming so prominent and being sold for a lot of money.

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These are assets being held by individuals who would normally hold traditional art pieces, now they’re holding this digital art and it’s pretty exciting marketplace. Doing a lot of research and taking a bunch of calls from people who are experts in this field, and we’re gaining more knowledge in it and we’re going to be talking about it in the near future. So we’re oversold in the S&P 500 oscillator which we sold off big in the morning and now we’ve had a little bit of a rebound. So it looks like we’re getting to points where critical levels of buyback.

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But again the 10-year goes up, the 10-year hit 1.56 today, there’s concern or there’s thoughts that by the end of the year that the 10 year will hit 1.99 or 2%, that’s going to be a concern as we continue to move up, the high growth stocks are becoming less in favor. VIX is up a little bit. It’s undulating back and forth not up a lot not down a lot but it’s been in between a range here, 25, 26 and right now it’s at 27, down a little bit but it was up and down and up and down, at 27 right now. You know I want to talk about vehicle inflation.

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So inflation is happening everywhere, cost of materials are going sky-high and where it’s going to hit next and this is going to be like a double triple hit for people and hopefully you’re set in your car. You know, what happened a lot during Covid, where people had these leases, and this lease trading business became big. I don’t know if you know about this but lease trading is essentially where you have a lease on a car and you go and give it up and you list it on a marketplace and there’s a bunch of these marketplaces that you can do it and you trade in your lease and essentially what you do is someone can assume, they can’t really assume, assumable means you can just send it to them and they can take over the payment.

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It’s not really assumed but what they can do is they can call your financing company and they can take your lease over for the term of the lease. A lot of people did that and there were a lot of really good opportunities to get these leased cars cheap because of the last year, driving was way down because of Covid so that became a big opportunity in terms of cars. So hopefully you took advantage of that and picked up one of these leases because now if you picked one up and it had a lot of extra miles on that say someone is usually driving 12000 miles, last year, they may have only driven 3000 miles, you could get a car maybe with 15,000 you can go all over the US and it’ll be cheap for you and you’re not going to be able to turn it in with a mileage overage.

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But in terms of cars, you’re going to take a big hit in cars. If you need to buy a car in the near future, you’re going to be paying through the nose for it because there’s major inflation in the car industry. This is really interesting. So they’re paying, the raw materials have gone up dramatically, platinum steel copper have all increased in price. We also have the chip shortage. So those are going up in price, right? So you get a shortage you’re going to get a price increase. So inflation in terms of cars is going crazy right now. I don’t know if you’ve looked for a car lately, but prices are going up up up. And then what do you get on the back end of that? You get interest rates.

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So you get a combination of inflation or cost of the goods going up then the car makers have to raise the price of the car. And then when you buy the car you’re going to have to pay more interest on that thing you did a year ago or even six months ago or even 3 months ago. So if you’re buying a car, let me just make it clear. You’d better buy it right now.

STOCK WATCH

So hey a stock that we entered in a position today just because it’s been so oversold. And we talked about it yesterday, Costco, COST. Down on earnings, they’re having major inflationary pressures, they had a lot of problems during Covid, the supply chain for them is screwed up, but it’s so overdone and it’s Costco. It’s not going anywhere. They have that great membership package that everyone who signs up and they keep signing up and keep signing up.

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My guess is membership has probably gone down a little bit because I’ve been buying my Costco, my  membership actually expired and I didn’t even know it because I hadn’t been to Costco because that was not a place I wanted to go to during Covid. So I haven’t been there my membership actually expired. I think there’s a lot of people who have memberships that have expired but we’ll be renewing those now in the near future, Costco’s down a lot of different reasons, supply chain, prices going up without them raising prices, cost of incoming goods without them raising prices, a lot of problems for Costco, stock has gotten just smacked down pretty hard in recent weeks and into earnings yesterday did not do well. Costco’s down to about 311 down two and a half percent today. It’s got a lot of support in that channel.

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It has a lot of support down there. So I don’t think that Costco is going to you know, I think it’s had such a big fall from its highs and almost 400 range down to this 311. I think if you buy here, you’re going to be okay and do it the smart way. Add a little bit here, if we get some more days of really rough markets, add a little bit more, dollar cost average in, build your position slowly. There’s no rush to get into anything right now with these inflation rates going up, these higher-growth higher price stocks are going to be in trouble for a little bit as we’re getting this cyclical rotation into the financials and in the energy stocks right now.

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So these are a little bit out of favor, but Costco’s always a good play. It isn’t going anywhere and I would recommend after this big oversold period. It’s a good time probably to get in and establish some sort of position right now and build to it. We also did the same thing with Walmart, which is also oversold right now.

THE AVERAGE INVESTOR

So question from Jane, Jane wants to know how can she benefit from rising interest rates. Well there’s a couple things to do. In the stock market, you can do what we did which is invest in commodities. Interest rates go with inflation, inflation is the price or increase of raw good and materials and or services.

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So if you invest in something like a commodities kind of ETF which we recommend you can benefit from that so a good commodities ETF could be something like the DBC which is the Invesco DB commodity index, up again one and a half percent, has a parabolic type chart, you know from about $12 in November up to 17-18%, that’s a big rise. And so that’s something you can do to protect against interest rates rising, so commodities, that’s one option. Another thing you can do, is you can do is invest in brokerage firms like JP Morgan, Schwab, those are great options because they’re going to make more money because they’re holding a lot of cash.

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So the more cash that they hold, you know, if the Fed funds rate goes up they’re going to be able to make more money on that money they’re holding, so major brokerages like Schwab, JP Morgan those are good Investments as well. What people are doing now, and this is what we’re getting the cyclical rotation where people are going out of high growth stocks, where they need to borrow money or get leverage to keep going on. That’s why you see a lot of the tech stocks and a lot of the biotech stocks having trouble now because they need money still to grow their business. So what you want to do is invest in good cash-rich companies, you know companies that have good debt to equity ratios.

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The higher the debt-to-equity ratio is, the more that they’re going to benefit and those are the companies that people want to be in right now. They’re not exciting they’re not sexy. They’re not going to make the market or your portfolio go up 25% but they’ll be little incremental growth kind of companies, companies that have been out of favor for the last 12 years are just in favor right now, you know, if you are someone who was going to buy something like your home right now, we’ve seen a big bump in mortgage rates. So if you are going to refinance you’re thinking about refinancing in 3 months or 6 months do it right now, now is the time to do that. So those are some ways that you can benefit from a rising interest rates. Thanks again for the question Jane.

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Thanks to all you for listening, and we’ll see you guys next time on Stock Smart.