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yes we're going to see those rate hikes come and everybody's raising that ray forecast now even though the fed powell said three uh at his testimony yesterday uh goldman sachs said it's gonna be four now they changed from three when we actually did our last podcast about three four weeks ago and now jamie dimon said i'll be surprised if it's just four so you're seeing inflation i think the market's expecting it and hopefully if it moderates it's probably gonna be a positive maybe that's why you've seen the markets go up right now i think that's exactly why you you hit it on the head with the narrative and they got in front of this they're trying to manage expectations you hear this term a lot this soft landing versus hard landing hard landing would be where they're jacking interest rates up and really shocking or surprising people of how quickly and how fast they're doing it the soft landing would think of the concept of hey we can guide this lower we're going to have some bumps and volatility but overall it's all going to manage out smoothly and then we'll turn back to growth and all that kind of stuff whether or not you whatever side of the argument you take on there the reality is everything is up frank markets are up crypto's up oil's up gold is even up today and the the takeaway there is you have to pay attention to the narrative because to your point when they're when things are everybody hates uncertainty markets hate uncertainty i don't agree with everything they're trying to do and i don't think they're going to have a lot of success but to your point jamie dimon made a great comment he he thinks the consumer is very strong this year is going to be great too one of his comments he made recently at the healthcare conference was quote the consumer balance sheet has never been in better shape they're spending 25 percent more today than pre-covered their debt service ratio is better than it's been since we've been keeping records in 50 years one more thing for you you constantly pound the table in a good way about debt servicing don't just look at the amount of debt somebody has or a corporation has but look at the ability that they have to pay that so at t everybody likes to talk about billions of dollars in debt but they have billions of free cash flow to cover all those debt expenses he's saying the consumer does that's a big deal that also helps narrative the narrative of hey higher prices are here but we're in good shape to handle this as long as they can control this 800-pound gorilla yeah and it's funny that you bring up at t because uh you know joe is my nephew about on the podcast a few times and i was just going over a lesson with him saying you know how to look at the numbers and 18t i went over with me yesterday and said listen everyone says att they're gonna go out of business they have so much debt whatever 170 billion dollars in debt and that's all people cite but they don't look at the full balance sheet uh or you know the free cash flow coming in and when i went over the numbers with him i said you're looking at the next five most of his long-term debt due in like you know 30s 40s 50s whatever that they took out uh it's investment grade debt uh which you know is the easy way out saying it's okay but when you really look at the numbers uh to service their debt over the next five years i think it's 30 billion or something like that they got 21 billion in cash they're generating on average every single year 25 billion of free cash flow right so 25 billion free cash flow over the next five years 125 billion dollars that's easily going to cover all their debt due in the next five years which is i think it was like 30 35 billion do uh and they have 56 billion on top of that in liquidity so you know revolving credit lines and stuff so you have to look at a full picture i know it's a great story to say holy they got more debt than anything but 18t just gets checks every single month free cash shows the money you get back when everything else is paid uh it's it's remarkable it's the cable companies it's it's you know that constant payment coming in uh and you have to look at both sides and that's jamie dimon is talking about where you look at the consumer their house home prices are up 18 the average price just to go over daniel uh so basic human needs such as food heat shelter uh global food prices are are up an average of 27 lumber prices remember lemon price is supposed to come down yes they did come down but they're up 40 the past four months not a good sign with interest rates going higher and we're looking at at mortgage rates for 30 years at what 3.6 3.7 they were three i locked in at like 3.2 uh not too long ago so it shows you how you know rates are going up uh you're looking at heating costs up 30 oil 43 this is all year over year and again we're hoping this moderates the consumer is in good shape i mean you're looking at you know household wealth is at record highs and a lot of has to do with you know money being tied up in your house and then that home value going higher uh wage growth is up as well at five percent but you know how long could this continue where what happens if we put price controls in which was done when we had massive inflation that means you're limiting the amount of money you can make which is limiting the margins now you're not making those margins companies are able to pass off the higher costs but what if they can't and you're seeing that you're seeing people change their habits right now not going to to certain restaurants and not going to to on vacation you know and saying okay maybe we'll wait or you know when you're changing those habits that's we have to worry about because if prices stay high uh consumers may be you know saying okay our expenses are up through the roof let's play it safe and let's cut back and that could happen and it is going to happen if inflation stays high but i could tell you the fed's really worried about daniel and you know they should be i like what they're doing now because what did they do nine months ago six months ago three months ago which we said this is a joke they're like it's trans trans stories translated to worry about it and we were like after that and we were like there's no you know everybody you have to be a genius all you got to do is not be an economist and you got this right right that's all you did don't be an economist and you got this right because they're going to look at other things in the past this has never happened before when you're handing money directly to people most economists have a lot of money they don't understand the markets they don't i don't even know if they do their own shopping or their own driving everyone out there saw the higher prices in every single thing that they did and that wasn't going away you handed checks directly to the it wasn't like the credit crisis uh where you backstop the banks this money flow directly directly into the system it bypassed the whole working angle it's hey you need money here you go here's a check you got a couple kids here's a check you got a business here you go you don't have to pay it back in a ppp loan it was going to absorb inflation we're hoping that you know we don't see higher inflation and you know looking for from moderation this thing to come down a little bit and that's going to be a positive and there's a lot of hope there but at least the fed now now finally is going over the top saying we got to do this quicker inflation is a problem it's not transitory so now that sentiment has changed it's resulted in a lot of volatility in the markets but at least the sediment is right now where they're freaking worried because they weren't worried uh you know nine months six months even three months ago now you can tell they're worried absolutely and you you make a lot of good points there for investors to take away from that be boring and i frank and i have joked about this and i would i say this as a compliment but today's for cruiser research advisory subscribers the new pick i would i would say is boring frank you're going to agree i mean hell it's not that anybody hasn't heard of the company you're recommending yes but it's very easy to overlook the forest from the trees type deal and it's okay to be boring we need to we need to i need to get better frank and beef up the marketing side on how to be boring and sell that idea because last week when i was filling in for you i talked about can you think of a better stock in general to be boring and keep things as simple as possible for an inflationary time other than berkshire hathaway yeah inflation protection across railroads transportation insurance not to mention i liked what you said earlier about att and going out of business as an investor and i'm not talking about trading here but as an investor you want to talk about total risk of loss is your ultimate risk going out of business going to zero berkshire has how many 100 and some billion dollars in on their balance sheet google real quick here when i was in ohio on my three week vacation as you pointed out earlier a friend of mine said man i i want to be in the stock market i'm tired of thinking i'm just i put a bunch of money in google he was half asking my opinion more more just telling me and i thought well that's that's smart because you're picking a great well-known great business and you're just going to camp out there frank google's trading at around 25 times forward earnings for next year it's three year average and again take all this with a grain of salt it's 27.
so you're getting it a little bit below it's three year average again are you worried about google going out of business and i'm not saying put all your eggs in one basket i'm simply saying this is how to keep it simple and it's okay to be boring it's trading below it's three year average on its forward p e it's about 20 percent higher than the market of 21 but yet it's blown out earnings and revenue growth and it has the optionality because of all the strength on its balance sheet it's huge high margins it can do whatever it wants thinking about it and investing during tougher times inflationary times that's what i want to get across and hopefully i think we can provide a lot of value to investors to think about that hey tougher times more tough environments are coming ahead inflation is a huge shift for the last several several years in markets and that's going to funnel down in the markets but you can still make a a lot of money and i don't want to say it's easy and sound arrogant but you can make a lot of money off boring businesses that to your point just like unless you're an economist or overthinking it you can put yourself in a great position to benefit yeah and and also dave when you're looking at comparing this to the 80s and where inflation was it's a different time to the point where you're looking at high double-digit inflation in the 80s but you know what the savings rate was it was like eight nine percent i mean that's pretty cool so if you have money right one if you have money in the bank higher rates are good uh your banking companies your margins are going to expand insurance companies it's good for so you know you're looking at even you see oil companies do well right and that's you know maybe not so much a function of interest rates but more of a function of just yeah supply demand issues uh so things do work in this environment but now you're looking at rates skyrocketing and you know let's see with savings rates and you know inflation was still you know negative and negative but yeah people failed to mention that when you know in the 80s yeah holy you know getting a mortgage 18 whatever it was back then right in the early 80s but you know your savings rate i mean eight nine percent is pretty cool so not to mention i mean we're not huge bond guys but hell if interest rates spike and you could go park money in something and earn eight percent why the hell would you yeah i mean we love stocks we're always going to find great stocks like that but hell we'll be the first to tell you yeah go buy a cd for three years and earn eight percent annually and absolutely stop compounding money it doesn't matter what vehicle you use listen guys it's if you look back at history it's been you know value then sometimes growth value sometimes growth it's been a pure growth market right then it's been a pure growth market since the credit crisis like growth stocks just outperforming and that's fine because you had interest rates super low you know more money into the system but now you're seeing the transition into the value not seeing the transition out of the market completely s p's get not getting smoked there's certain areas that are getting smoked right so you have to be careful uh you know but when i look at you know you mentioned the stock being uh you know boring to the point where people know it but when you see the story and you see the video for cra which comes out today it's very very exciting because this is a company that's growing tremendously it's trading at a much cheaper valuation the overall market yet it's going to be competing and right now taking market share from nvidia which is a 800 billion dollar company right so you know plus seeing this company at cs it was remarkable but more importantly is they're paying a dividend dividends are going to come into play now dividends are going to be huge now so if you're paying a a nice yield you have lots of free cash flow you're buying back your stock which you're gonna see massive buybacks a lot of these companies have a lot of cash on their balance sheet uh buybacks are good i mean you look at where the market is where's s p it's up three percent off its highs all the companies that brought back their stock for how many years it was a great buy on average right i mean a lot of these guys apples buy back their stock a lot of these guys buy back their stock right reduces the shares outstanding uh increases you know your share a percentage wise but it's you know of ownership and you're seeing that that benefit of these companies lots and lots of buybacks are going to come over the next year you're going to see probably record buybacks this year uh which is going to put a floor on some of the companies which means be careful buying high-growth names that you know are expected massive growth you know five seven years esg companies you're looking at marijuana companies you're looking at ev companies right tesla's gonna get away with it it's fine they're growing still tesla's the only company out there really has a car on the road uh all these are coming let's see if they come and how they do you know the manufacturing part and getting these things out i still don't know how they're going to do that it you know in the year time frame they're expected the year 18 month time frame but a lot of these companies and their growth models going out really really far and you're not worrying about earnings and just saying hey we're going to see sales growth but we're going to report huge losses those are the ones that are getting hit the hardest right now because it's not going to be as easy to borrow money it's not going to be easy to raise money as you know capital is going to get you know harder to come by as you see higher rates not going to be as much as an easy monetary policy but that's what's going on now it's more of a shift in allocation not hey run away run for the exits holy you know but a lot of you are probably sitting on companies that are down 35 40 percent that just got wrecked if you're a little aggressive however those are the same companies that are probably up to three hundred percent off their lows during covert so you have to look at it that way well doesn't that depend on when you bought tell that to the people that bought recently and are down i know hey that's the world we live in you
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