HPE earnings, bitcoin mining, discount retail sector plays: Market Domination

On Wednesday’s episode of Market Domination, hosts Jared Blikre and Julie Hyman discuss retail sector plays, Kerrisdale Capital’s call to short Riot Platforms (RIOT), and the afternoon’s trending tickers.

Snowflake (SNOW) shares are under pressure in the midst of its Data Cloud Summit, with Riot Platforms trending in the same direction as Kerrisdale Capital’s CIO calls the bitcoin mining industry “sort of a scam.” Yahoo Finance reporter Anjalee Khemlani joins the show to explain why pharmaceutical companies focused on psychedelics are under pressure after a Food and Drug Administration (FDA) panel voted against adopting MDMA treatment for PTSD.

Later, Freedom Capital Markets Chief Global Strategist Jay Woods joins Market Domination host Julie Hyman to do a price check on his previous retail sector call. His advice: avoid Dollar Tree (DLTR). Hewlett Packard Enterprise (HPE) CEO Antonio Neri also speaks with Brian Sozzi; the CEO says he’s not surprised by the reaction to the company’s earnings, saying “the market is finally waking up to the idea that HPE has a big role to play in AI.”

This article was written by Gabriel Roy

Video Transcript

Hello and welcome to market domination.

I’m Julie, I alongside J in for Josh Lift.

And today we are live from our New York City headquarters and we are giving you the ultimate investing playbook to help tune out the noise and make the right moves for your money.

And here’s your headline blitz getting you up to speed before the closing bell rings on Wall Street.

Yes, the headline number is solid.

But what we’re seeing is weakness in manufacturing, but also weakness in B to B businesses tied to white collar jobs and professional business services and information.

So this is a not a one note jobs market.

There’s some weakening trends tied to both consumers and producers that bears attention.

The FED does face a tricky situation though.

You know, I think there’s a sense that if they leave rates at this level for too long, it could trigger a recession.

So the FED is trying to balance the risk, you know, they want to start trimming rates.

But there’s a real question as to whether those rate cuts will start in time to make it a soft landing rather than something of a, you know, more serious downturn when we look at the depreciation expense coming through from all this Capex build, we think we have it in the models and uh as long as the top line growth is there, uh and, and they cut back on employees and other expenses which we’re seeing across the space.

We think they can, they can manage the extra depreciation that’s coming through over the next few years.

Story continues

We’ve got one hour to go until the market close.

So let’s start with the major averages here and see where we stand.

We are seeing a rally across the board here today.

Although we still have divergence as we’ve seen recently between the Dow and the NASDAQ.

So the Dow is higher about a third of 1% about 100 and 20 points or so.

But the NASDAQ is up 1.7%.

So big gap between those two averages, which shows the strength that we’re seeing in technology today.

And then there’s the S and P 500 which is up 1% sort of in the middle here.

What you have is economic data today going sort of against the grain of what we heard yesterday from IM Manufacturing today.

We had Im Services that came out ahead of estimates at the same time, prices paid below estimates.

So a better recipe for a stock rally today.

And at the same time, we continue to have yields that are pushing lower to their lowest since around March now, four point to 9% on the 10 year note.

So if we look at what’s going on sector wise here today, you’ll see that technology is indeed strong.

The XL K up 2.1% industrial communication services and materials doing well.

So cyclically led recovery or cyclically led rally today and then you have the more defensive staples uh that are falling as we talk about what’s going on in tech today.

Gotta talk about what’s going on in the NASDAQ 100 where you see, I know we’re not saying Magnificent seven anymore.

But the Magnificent Seven are rallying today.

Let’s just say that NVIDIA leading the way, we’re going to dig into that a little bit later, but it’s a 4.5% right now.

But you see the other large cap tech stocks are also gaining ground, Jared.

Yeah, it looks like the NASDAQ 75 there or the mag 75.

I think investors will take that.

So it’s another day.

It’s another drumbeat of data.

And according to ad P private payroll growth, it slowed in May to a four month low, providing yet another sign of weakness in the labor market here to discuss what the latest readings mean for the broader market and your portfolio.

We’re joined by Glenn Smith, Chief Investment Officer at G DS Wealth Management and thank you for joining us here today.

Uh What do you think about these, about these economic reports.

We’re getting AD P a little bit out of consensus today.

Everybody looking ahead to that big payrolls report on Friday.

I think the market’s trying, trying to digest all this information.

Um, the, the payroll numbers Friday, we, we think they’re gonna be in line with the last few months, probably expecting about 200,000.

Um, 22 hun 200,000 number, maybe 100 and 95,000.

That along with next Wednesday’s CP I numbers is gonna give the fed a, a couple of things to digest in terms of what they’re gonna do with uh rate cuts going forward.

I think the market is softening a bit a bit and as evidenced by the 10 year treasury uh coming down.

So I think um there’s gonna be some opportunities here going forward in terms of volatility and, and there are some signs of a little bit of a slowdown.

Uh That being said, unemployment numbers have been almost 27 months now, sub 4% which is the longest streak we’ve had since the 19 sixties.

So, on a positive note, the economy uh Rear, rear looking has done well, just forward looking.

I think it could be a little bit of a different picture.

Yeah, and I’m curious, uh you guys have about a billion dollars under management.

What are you hearing from your clients about whether they feel like the economy is slowing or what their concerns are around the market.

Main concern we’re hearing is regarding inflation.

Um while it has come down from nearly 9% trending to that two, number 2% number the Fed wants, it’s still higher than people would like.

And the best opportunity to beat inflation when it comes to investing is gonna be with equities.

So it’s so most of our clients have, I would say 60 to 90% of their portfolio in equities knowing that it gives them the best opportunity to beat uh to, to beat that inflation number.

Um It’s important on a fixed income side of the portfolio to remember if you’re, if you believe that interest rates are gonna come down some uh in the next year or two, you wanna look at extending your duration on the bond pilot portfolio to give you a little opportunity to for, for a little bit extra yield.

I’m wondering what you uh what you like in terms of sectors here.

Tech is outperforming today as it has the uh entire year, but we’ve seen other sectors uh rise and fall in various fits and starts.

Financials have reared their head.

Uh We’ve also seen some of the cyclicals pick up and uh just wondering where on the spectrum you fall when it comes to some of these uh large cap sectors.

Well, tech’s been amazing.

I think a lot of the easy money has been made at this point.

Uh the two sectors that we find most attractive are gonna be financials and energy financials.

We love JP Morgan.

Best of Breed Bank, in our opinion, while it’s had a rough couple of years with investment banking, we think that’s gonna start turning around in terms of um if interest rates stay elevated has a bit of a hedge net interest margin should do amazing with JP Morgan and if rates do come down, uh lending should pick up um and you can invest in the JP Morgan at 11 times earnings, which is very attractive when you compare it to a magnificent seven.

If you will, in terms of energy, we love Halliburton.

It also can be, can be invested in at 11 times earning one of the largest oil service providers on the globe.

And it, it’s doing very well financially even though oil is, is only at about 70 bucks a barrel, uh which is a sweet spot and we think it’s a bit of a hedge geopolitically if uh things start to kick up in the Mideast again and oil goes, Halliburton will do that much better at a 80 $90 a barrel.

And Glenn, I’m curious here about Halliburton in particular because the financials might look good, but the stock price doesn’t really, we’ve seen it actually underperform the rest of energy.

So I’m curious why you want to get leverage to oil through a services provider like Halliburton versus a pure sort of E MP play.

We think we think the little bit of a dip it’s had is actually an opportunity for our client.

It’s not a catastrophe.

Um, if you’re looking for a short term play, I, I it’s anybody guesses, long term, we think it’s still priced very attractively and a recent dip could work in our favor.

Um, dollar cost averaging at, at these, at these levels with a, with a stock like a Halliburton.

What’s on your horizon?

What are you looking forward to as a in terms of a potential catalyst or what are you concerned about in terms of a potential headwind?

In terms of a headwind?

It’s, it’s gonna be this inflation.

Um It’s gonna be interesting as the fed digests the, the numbers coming out.

Um We no longer think there’s gonna be a rate cut in June or July at this point.

We’re thinking there’s gonna be a rate cut in September.

Um And what we’re hoping for is just not to have sticky inflation or that the, the fed cuts rates too soon.

And we have a situation like the 19 sixties where Arthur Burns cut rates too soon and we had persistent inflation for many years to come.

So our, our main concern right now is inflation and how do we fight that in our portfolios?

Uh uh So I, I wanna circle back on that front to the allocation to stocks, right?

You, as you mentioned, 70 to 90% that seems pretty high, Glenn.

Uh You know, it’s so that’s interesting.

Like over, over history of investing for clients, how often have you been at 70 to 90% in stocks?

It depends on every client’s gonna be a little bit different.

Most of the clients that we work with, um, they’re, they’re pulling out 3 to 4% of their portfolio and when interest rates are, are at their place at, at where they are.

Now, we have, we’re a little bit more heavy fixed income today than we’ve probably been in, in over the last 67 years because you can get a attractive corporate yield or a treasury yield where you couldn’t two years ago.

Say so right now, we’re, we’re a little bit more on a fixed income heavy side than we have been in recent past.

But we think over the over a 10 year period to give you the best opportunity to beat inflation, it’s gonna be uh equities where historically they’ve done 10% versus a fixed income where you’re gonna look at 4 to 5%.

Glenn real quick.

We got about half a minute.

Anything uh we missed here today that you want to tell investors.

I would just say this is a great time to look at your portfolio.

Make sure you’re diversified.

Um A lot of allocations and kind of gotten out of whack with, with magnificent seven, everything going on.

Make sure you’re not over concentrated in any one sector or stock that might be a little bit speculative at this point.

Glenn.

Thanks a lot.

Appreciate it.

Thank you.

We’re just getting started here on market domination.

Coming up, Hewlett Packard enterprise shares, touch a record high in today’s session after strong A I server sales fueled a revenue beat in the company’s most recent quarter.

Our executive editor Brian Sazi spoke with the H PE CEO about the blockbuster results.

That conversation is coming your way next on market domination.

One of the hottest stocks in the market today, our shares of H pe after a much better than expected quarter and a pretty upbeat outlook amid all things.

A I, let’s get right to H pe ceo Antonio, Nari Antonio, always great to get some time.

And boy, uh we were sitting here three months ago, this was a different story.

We’re talking about some delayed orders, maybe things slowing down a little bit, but I didn’t get that vibe uh on this quarter.

What in the world happened here?

Well, Brian, uh thanks for having me today.

Uh Actually, we have been a consistent story.

I think the market is finally waking up to the idea that HP has a big role to play in A I.

And I’m very pleased on the fact that we continue to execute the strategy and delivering the results.

We did like in Q two where you see that we beat revenues and non gap earnings per share on the back of the uh the uh A I system revenue conversion, which more than doubled from Q one now exceeding $900 million for the quarter.

So HP is uniquely positioned to capture the A I inflection point that we see continue to drive the momentum hybrid cloud.

And obviously the networking piece of this is super important as the market in that particular segment recovers.

But today is an A I story, no question.

And uh as we think about the market evolution, we continue to see very strong demand.

We continue to see that demand accelerating.

And what I’m really pleased about the demand is now that more than 15% of our cumulative orders now represent enterprise A I.

You’ve always been good in in sharing how much in terms of dollar value in order of A I related uh products and services you have.

What’s the number now?

Because you have been very consistent with us every quarter.

We talk to you Antonio, that number has gone up pretty significantly.

Yeah, we execute two with a cumulative A I order book of $4.6 billion.

In that number, we converted more than $900 million in revenues.

But what is important to realize is that that revenue had solid gross margins, operative margins.

And that’s because we have been very prudent in managing our structure being super disciplined about the deals we pursue where we see path to profitability, but most importantly, drive our portfolio of products and services without just focusing on the server itself.

And you can see in our disclosures, Brian is that we start disclosing the services pull through, which is now getting bigger and bigger also because in many of these deals, we actually not only ship the server but actually provide the full data center infrastructure and actually we run those systems on behalf of customers.

Last time we talked to Antonio, you really one of the first executives to bring up to me, at least in the in the tech space companies having trouble implementing the A I stuff they are ordering because of of energy, they couldn’t get enough energy into their various systems.

Where does that stand?

Now?

We’re still constrained, Brian, we’re still constrained.

And as I think about the future, right, we’re gonna be constrained is not just the space, obviously, there is a lot of new build outs that we see in the market in the US and but also in other geographies, I think the sovereign clouds will have incremental demands on that data center capacity.

And obviously, we need more clean energy, more sustainable energy as we go forward.

And as you think about this silicon accelerated computing that’s coming next.

As you saw in the road maps announced by NVIDIA, for example, they would require 100% directly quick cooling.

It’s a unique opportunity for H Pe because H Pe is one of the only companies that can actually do all type of cooling air cool, which is the traditional way to do it today, but that’s not going to be sufficient when you exceed the 1000 watts per socket.

And the next generation is going to be close to 1700 watts.

Then you have what I call the hybrid, which is most of the companies do today.

There is a 70% liquid cool but also using funds to cool the environment NHP does both.

But what HP is unique is the 100% direct liquid cooling.

And we have done this for many customers.

And in fact, through three of the largest system, we have deployed for generative A I are today 100% direct liquid cooling.

So it’s a combination of space cooling and the technology used to cool this, this cool down the systems with direct liquid cooling.

Yeah, it sounds like you got a lot of cool stuff working Antonio.

Why, why were the margins down in your various segments?

And when did those start to improve?

Well, I think overall margins were now because of the mix of the business, right.

So obviously, as we know, the the networking markets go to a transition and we have done a fantastic job over the last two years, adding $2 billion of revenue in our networking segment, which obviously comes with a different structural growth margin profile.

And as the market is going through the what I call digestion of the inventories.

By the way, we expect a modest sequential demand improvement in networking as we go forward here, which is a positive news.

Uh Obviously that drives the entire company’s margin.

But if you look at our, our server segment, we grew revenues 18% and we deliver 11% of in profit, which is in the ranges.

We got to the street between 11 and 15%.

So it’s very, very positive since you work so closely with NVIDIA.

You know, you know, Jensen um for, for a while, I imagine how important is that company to the the A I build out around the world because all we hear about media land is uh maybe there’s an A I bubble, uh they can’t get off chips out, we see A MD doing chips, but just from an NVIDIA perspective, like how important are they?

I think they are changing the world with an amazing innovation, obviously that the company and Jensen himself have been driving for more than two decades.

You know, when you hear him talking about it, right?

It has taken him personally two decades to get where we are today.

I think we’re all a little bit surprised about the advancement of generative A I from the algorithm perspective, but from the silicon perspective, I’m no surprise at all.

And so I think, you know, together with a company like us, we will change the world for better in my mind.

And HP has unique value to bring to the table through our expertise of decades, you know, deploying A I A scale to our services organization to the ability to build this system.

Brian.

So HP today is one of the largest companies that has the water cool infrastructure to build the system.

It’s not just cooling the systems, but to build the systems, you need a lot of water capacity and power to build it.

NP has one of the largest footprint.

So Jensen understands that.

But ultimately how we engineer solutions in a way that is easy to deploy.

This is going to come down to the experience, not just the system performance and the sustainability of the systems and the return on investor capital, but it’s going to be that experience and enterprises need a simplified experience to deploy this amazing technology which is going to change the world forever.

Pretty amazing time to be in tech good session for shares of HP after a better than expected quarter and relatively upbeat, Alec Antonio NRI.

We’ll talk to you soon.

Thank you, Brian and sticking in the A I space.

The top trending ticker on Yahoo Finance right now is Invidia stock hitting a new all time high intra day and the company hitting a $3 trillion market cap.

And uh yeah, you can see it on your screen there.

And um you know, we’ve been monitoring nvidia’s progress from 1 to 2 to 3 trillion.

And uh yeah, it keeps going up.

I guess that’s the trend that we take note of here.

I guess that is the trend.

I mean, let’s just pause for a moment.

What a remarkable, I, I know that we talk about NVIDIA every day.

Josh Lipton frequently jokes that we’re contractually obligated to mention it at least once a show.

And we mentioned it a lot more than once a show.

But, you know, it is remarkable the journey that this company has been on in the past few years with its triple digit revenue growth now, uh getting to that three billion dollar market cap, by the way, its market cap is now larger than that of apples.

Um And so, you know, it is, it is just remarkable because of this demand for these A I server chips.

And the fact that investors are still piling in here ahead of the that, that they see the stock split also as a catalyst is quite interesting, the stocks about to split, you know, which is sort of here, neither here nor there in some ways, but it’s seen as something that maybe could drive some more demand, what impresses me here.

And by the way, I was just watching Apple and NVIDIA here, trade places.

That, that was what I was trying to point out.

If you’re lucky, you might catch it, happen here.

But my point is Nvidia’s multiple has stayed relatively the same.

And that just means that they’re actually meeting the hype that uh expectations of investors are being met and consistent exceeded.

So and speaking, consistently exceeded.

On Monday, we got a fresh New Street high price target for NVIDIA of $1500 a share that came to us from Bank of America.

So there is still this optimism that it’s gonna keep going.

Um Yeah, so yeah, soon to be 150.

Exactly.

Because of the stock that just a quick thing to mention here is that because of the NVIDIA ecosystem, it’s not exactly a rising tide lifting all boats today, but it’s lifting some other boats because also got a report that Taiwan Semiconductor, a company that it partly owns called Vanguard International Semiconductor that they’re gonna be uh begin uh construction of a facility in Singapore to sort of um diversify the manufacturing holdings that’s gonna be in cooper operation with NXP semiconductor Taiwan Semis up today.

NXP is up today.

Of course, there’s the NVIDIA Taiwan semiconductor connection here.

A SML is gonna provide some of its uh advanced chip making equipment.

So like uh you know, again, it’s this whole whole ecosystem and all of them are hired today.

Yeah, it’s a confluence of a lot of government money meeting actual demand and just the whole thing just kind of feeds on itself in a uh it’s called a virtuous cycle.

It does.

And then on the flip side from all of that going on, you see a company like Snowflake which is under pressure today.

That’s a top trending ticker.

Um There was an upbeat response initially to its user conference this week.

The company CEO saying he is looking for deals in A I to stay competitive with peers.

Now, the same time today, there was a deal done by one of its biggest competitors, data bricks which is buying a company called tabular.

But some of the analysts in following this conference did express a little bit of skepticism here.

Um One analyst at evercore said the company is still in show me mode as analysts like to say they all.

So, so this is also Evercore which rates of stock outperform price target 225.

They also said the pace of innovation and urgency to ship A I products has accelerated, but it is in the early days of the A I front and let’s go to the Wi Fi Interactive.

I just want to show what has happened over the last month in software.

You’re seeing a lot of red.

So that’s just kind of the picture I wanted to show.

Now, look at semiconductors and I’ll give an equal weighted view.

That’s just the polar opposite there.

So vast difference between service uh excuse me, software and chips now.

Yes.

Speaking of swapping places, right?

Like we’ve seen, well, that’s, that’s what we’ve seen with semis and, and software as well.

Um let’s talk about another group that is under pressure today in a very different industry.

Companies in the pharmaceutical sector, specifically focused on psychedelics are under pressure.

That’s after a key vote from the Food and Drug Administration, Angeli Klane is here with the details and both of you and I are fascinated by this story.

There was an exploration and so there was an exploration of MD MA to treat post traumatic stress disorder.

So there was some question about whether the FDA panel was going to recommend that to prove it and they did not right.

And that’s just the panel.

We have to remember that the FDA still has until August 11th to take action on this.

So what happened was one company like o got their chance in front of this panel to explain and describe this clinical trial.

Now, the problem that the panel had is that uh what was effectively un blinding.

So we know that the gold standard for clinical trials is to make sure there’s a placebo group and a uh group that receives the treatment.

Now in taking MD Ma also known as ecstasy or Molly, you can’t, you really, you, you’re right, you can’t know that you’re not on it.

And so that’s sort of where the conversation took place and that’s where it went.

There’s also questions about whether or not you can prevent it from being abused, which is also come up.

It’s important to point out in conversations about marijuana and those of medical marijuana cases trials and that has been a point of contention as well.

There important to remember FDA has not approved any medical marijuana for you.

They just use stuff that related to other parts of the cannabis plant.

And that’s why it come up as strongly in conversation as we saw with this.

Now there are other companies out there.

Mind me being one of them that analysts are focused on that has a better mid stage clinical trial coming up that could surpass what like had.

So there is still a little bit of hope essentially.

But right now, what you’re seeing is just pressure on the industry, pressure on the sector in particular to really think about how they can actually bring this to market and really prove the medical use case.

And it seems like if one, we’re trying to draw parallels to the cannabis movement and how it became legalized, it was illegal for decades and decades.

And then suddenly there’s a groundswell movement, it gets approved by the States.

This is different, it looks like quite different, this is different.

There’s no talk of recreational legalization at all.

In fact, because there is also talk about how there will be access to it.

It already is access to it has been for decades, um off market in the uh illegally.

And so that could continue and then push the illegal use of it further as a result.

So there’s been a lot of focus on some of the same sort of topics but different angle because it’s a different drug altogether with different uh sort of impacts to the person’s body.

So that’s sort of where the conversation goes interesting.

All right.

Thank you.

Of course.

And moving on, we are watching shares of riot platforms.

Shares are down about 2%.

Well off the lows of the session.

The move coming after short seller, Kerrisdale Capital is out with a call to guess what, short the stock and also while being Long Bitcoin.

So a Paris trade joining us now is Kerrisdale Capital founder and Cio Sam Rangi and thank you for joining us here today.

Um Just tell us uh what’s your thesis here?

Your investment thesis Long Riot and then maybe pairing that with a Bitcoin position as well or excuse me, Short Riot and then the Long Bitcoin.

Yeah, I mean, I think our investment thesis is that this sector is just not going to be around in five years.

Um Bitcoin mining is one of the stupidest business models we’ve come across in our time short selling over the past 15 years or running Kalle um basically barriers to entry are zero.

companies from all over the world uh can buy these A six from China.

Um take them next to a a waterfall in South America and get much cheaper access to electricity um and be a lower cost producer.

And basically, if you look at the economics behind all the Bitcoin miners in the United States, they don’t make money, they just issue shares to pay themselves, you know, healthy stock comp and buy more Asic and, you know, never really generate a return.

And the whole thing is sort of a scam and we sort of published on Riot Today, plan to publish on more.

Um you know, as this whole sector ultimately goes to zero.

Some, I have many questions.

First of all, if it’s just a com if it’s just a commodity and there’s nothing differentiating what makes that a scam.

I mean, some something could be a bad, bad business model without being a scam that has, that has some connotations here that there is something illicit or illegal going on business.

Sure, it’s a horrible business model.

It’s not necessarily um technical, technically, um you know, a complete uh fraudulent illicit actions, but, you know, I mean, this is just as bad of a business model as you can get and what you see with terrible business models.

I mean, think back to cannabis companies in 2017, 2018.

Uh when you’re the ceo of, of such a terrible business, um there’s a lot of shady things that you do and uh essentially you’re just sort of enrich yourself at the expense of shareholders and that’s what’s happening here.

I want to read a statement that came to us via riot and this is uh here we go, we disagree with the characterization of the Bitcoin mining industry and a riot and the equally unsound conclusions reached in the Kerrisdale capital report, we believe these areas will be demonstrated through the execution of our ambitious 2024 growth plans and resulting financial performance.

Uh What do we know about these growth plans?

And then I guess, how do you balance that against the incredible shares that have been minted, diluting the shareholders to pursue its growth?

Yeah.

Isn’t that absurd?

This company has diluted shareholders by 18% already year to date this year.

I mean, I’m looking forward to that growth and delusion over the course of the year.

Maybe they might be able to even get up to diluting shareholders by 50% just this year, maybe another 50% next year.

Um Since 2020 the company has is increased its share, uh share count by multiples.

Um And this is just a part of the chorus across the entire industry.

I mean, when they talk about growth, they just mean spending more on Capex and buying more computers.

But you know what?

So is everyone else in the US and so is everyone across the world.

Um And so what you sort of see is that um the network cash rate just increases over time, they each month uh each of these miners including in riot get less and less Bitcoins even as they’re plowing all of the cash that they’re raising from shareholders back into buying more computers it’s just basically one big hamster wheel uh where they take money from investors, buy more computers and then produce less Bitcoin per share each, each uh subsequent year.

Some.

Why if the, if the whole industry is so terrible, why?

Single out riot?

We got to start somewhere.

And so we started with riot.

And uh the other thing that we haven’t talked about here is Bitcoin mining is horrible for the environment.

I mean, China has kicked Bitcoin miners out of their country because it’s such an absurd concept.

Uh You burn all of this fossil fuel to f uh to fuel speculation uh around an imaginary asset.

Uh This doesn’t belong in, within us borders.

The whole industry should just get kicked out and be banished to, you know, other countries that want to deal with it.

Well, I mean, it’s bad for the environment.

We all share an environment.

So if it’s bad for the environment here, it’s bad for the environment.

Anyway, before we look out though, I do want to ask you about another short call that you had on micro strategy.

Similarly were short micro strategy long Bitcoin.

Um You made that call, I believe on March 28th since then kind of flattish for both, right?

So how long do you think it’s gonna take for that to play out?

And you know, if you’re talking about that sort of the stuff that it’s necessary to fuel Bitcoin mining is such a dirty business.

Why long Bitcoin at all?

Well, I mean, I think as a trade, um uh we want to be hedged, you know, so we’re short the miners, we think they’re going to zero.

Who knows what’s gonna happen to Bitcoin.

Your guess is as, is as good as mine in the case of micro strategy.

Uh I think if it owns $14 billion of Bitcoin, the company should be valued at $14 billion by the market.

Um What you see is a premium that makes no sense, you know, situations where they own $15 billion of Bitcoin, but the market is valuing them at 35 billion.

I mean, uh you know, uh a bank holding $100 is valued at $100 it shouldn’t be valued at $500.

Um So that’s micro strategy.

In the case, the Bitcoin miners is just a terrible business.

Um And in both those cases, we own Bitcoin.

Uh Just because we think that the those stocks are gonna go down relative to Bitcoin.

So if, well, you know that way, we don’t have a view on whether Bitcoin goes up 100% or goes down 50%.

We’re hedged.

Sam.

Thanks so much.

Um Good to get your perspective on all of these different ideas.

Appreciate it.

Absolutely.

Thank you up next, a trip down memory lane in our latest edition of Goodbye or Goodbye.

We’re checking in on a call from January to see if it’s held up over the past six months.

That’s next on market domination.

It’s a big noisy universe of stocks out there.

Welcome to, goodbye or goodbye.

Our goal to help cut through that noise to navigate the best moves for your portfolio today, we’re doing a price check on retail with the goodbye or goodbye score card back with us is J Ws Freedom Capital Markets Chief Global strategist.

Now Jay earlier this year back in January, you were here on the show and you liked Costco and you said say goodbye to Dollar Tree.

So here’s the trade since then, January was where we were.

Dollar Tree is down by 16%.

Cost goes up by 23%.

So it turned out pretty well.

It did and Dollar Tree is now down 20% after earnings today.

So unfortunately, the slide continues for Dollar Tree.

It does.

And so you are sticking with the same situation here.

So let’s run through it for people and let’s take Costco first as your goodbye, the stock that you liked and you still like.

So let’s let’s get to the technicals first because I know that is your bread and butter is it is.

And when I came on last time, we wanted to look at it from a longer term perspective because something big was happening, it was trending up uh as we see here and then it kind of stalled in this area when I came on last time in January as a technician, the first thing we look at is price and something that changes.

And we saw a major break out on a weekly pattern.

And to me this was, it’s time to buy the stock.

It’s making the next leg higher.

So the technical basis was there, then you add in some of the fundamentals and it was one of those stocks was tough now to love.

So that is why we looked at it on the five year.

Now.

Uh I think you may have a one year next.

Here you go.

So now what we 50 day moving average and this is the 200 day moving exactly.

Now the stock has continued to trend higher.

After breaking out, it consolidated a little bit around the 50 day moving average and it took another leg higher.

Now, the stock is up 25% year to date.

Uh It may not run like we’ve seen here.

But when comparing the two stores, I think there’s more juice to be weed in this trade.

And uh over the long term, I think this is a better name to be in.

Uh it is slightly over bought in the RSI.

We’ll talk about that when we say things I don’t like about the stock.

But um right now it, it remains best in brief.

OK.

So let’s get to some of your other points on the more fundamental side, you say the earnings here.

Pretty consistent, extremely consistent.

They’ve beaten, uh, nine of the last 10 times.

They’ve traded higher, only seven of the last 10, the last two times.

They actually traded lower.

You know why they traded lower because they didn’t raise the prices on their membership.

That was the complaint.

They beat their guidance was solid, but they didn’t raise prices on their membership.

Well, is that gonna continue to be a headwind Because in this economic environment where people are feeling a little under pressure, are they gonna be able to raise prices?

And is that gonna continue to be a little bit of a headwind for?

They had the opportunity and the story to do so and they didn’t, that’s why their customer base is so loyal and that’s why the brand is, is iconic in his own sense.

So that’s what we keep seeing out of them.

So when that’s the negative story, I’m pretty positive on the stuff you’re not convinced.

And then some of the other fundamentals you’re looking at, you talked about the membership, that’s part of it.

Um And then just that sales is consistent and they have a strong worker base, strong sales in the worker force.

There was a survey, I don’t know where the survey came from, but it’s the happiest worker for workforce at a big retail.

And when you see an industry where people complain a lot and they, they, they look for better opportunities.

The the Costco worker is very happy to be there and, and that, you know, if you ever go in, it’s such a great environment.

Uh And I think that just feeds to the, the Costco narrative.

So it, it hits on technical fronts, fundamental fronts and uh you know, it’s a stock that you just want to hold on to, will it make that euphoric rise that we got to catch in January?

Maybe not.

But I think it’s something that’s gonna continue to slowly rise over time.

A steady winner perhaps.

All right, let’s get to what you mentioned.

Maybe potential downside here.

Yeah.

Well, last time I was here, I said, well, one of the headwinds pe ratio is historically high.

It was in the low forties at the time.

Now it’s at 50 that is relatively high versus an average of the thirties.

Uh I’m not much of a pe guy but uh it is getting a little frothy.

And then when you look at technically the run uh on its relative strength index, it is overbought.

Overbought does not mean it’s not going, it’s gonna turn, but it’s gonna struggle to go much higher from these levels.

So I think the stock could stall, consolidate in this area, but it could probably be setting up for another leg higher in a few more months.

All right.

And then on the flip side, you got dollar tree here.

It was underperformed.

You say the price action has been negative.

So let’s get straight to your chart on this one.

Here’s a weekly performance as well.

Yeah, this is five years and I like to look at it on two time frames, the longer term, what we said and we talked about it last time.

It kept making a series of lower highs, not the greatest line in the world.

But um what we’re seeing is the stock, very toy and rolling over.

What did it do?

It just broke its 200 weekly moving average.

Uh It’s not a line in the sand, but it’s very negative.

And then when you look at the fundamental stories behind it, they’ve had some struggles.

Yeah, but let’s look at that.

I know you wanted to look at the one year chart as well.

So that’s what we have here.

And I love that we have gaps in the chart.

Some people don’t like the line charts with the gaps, but these, I I’m picking on you.

I know.

And then there’s another gap sadly under uh the ironically enough, uh what we’ve seen here is the stock gap down and failed to fill that gap.

And then it’s what did it do?

It rallied to the 50 day moving average, which is declining, went down, it went back to the 50 down.

Uh This is what we call a nice downtrend.

And then when you look at the story behind it, you can see why it’s in that downtrend, they’ve got some work to do.

So let’s get to that big retailers, including Dollar Tree struggling here lowering prices.

I mentioned the sort of bigger environment.

Yeah.

Well, we saw Dollar General get hit last week.

Five below comes out after the belt today.

You see how they’re doing and down trends and then their biggest competition, Walmart and Target, they’re lowering prices now.

Uh, that’s even more competition for them because their margins are tight enough being that it’s a discount store.

So those big retailers lowering prices, it’s gonna make it even tougher for them going forward.

And then there’s the albatross that we talked about before.

Family dollar.

Now, dollar tree says they’re thinking about getting rid of family dollar after they fought so hard to buy that company a billion dollars in 2015 is what they spent to buy family dollar.

And uh they have over 8000 stores of family dollar 16,000 in the general family.

So that’s half of what’s going on.

They have not been doing well.

Uh Shrink has played a major factor.

Shrink for those that don’t know at home.

Uh theft and damage in the stores.

Uh That has been an issue they’ve been addressing again and again and again, they are finally consolidating and they said today they’re exploring their options going forward, as you said.

So that means they’re exploring possibly a sale, a spin.

I don’t know if that would work, but right now, they’re trying to, you know, curtail the damage that, uh, that brand has done to their overall brand of dollar tree.

What could go?

Right.

What could go?

Right.

Well, we, we could shrink the amount of stores.

We have a family dollar, we could consolidate there.

That’s good.

Uh Their numbers weren’t too bad.

So we’re seeing progress made, but it’s gonna take some time.

They’re not just gonna snap their fingers overnight.

Um, so improve those existing locations and then they’re not expanding.

So, you know, that wave of expansion and we saw some of that, you know, during COVID, when, you know, people, uh especially at the low income retailers were getting, you know, an opportunity to go there and get a good deal.

I I it’s just not there so maybe rates coming in that could help them.

But uh, they’ve got to kind of curtail what they’re doing now.

It looks like they’re making progress in that.

But price action, it’s negative today wasn’t that bad as far as earnings go.

And we still sold off watch near term 1, 12, longer term 103 to support levels.

If not, we could be in a double digit number uh in the next three months and that could be bad.

All right.

So you’re sticking with it.

Buy Costco, avoid dollar Tree.

Do you have a position?

I don’t, I wish I, I wish I listened to myself though.

Costco was a good one.

But uh no, I think there’s uh more juice to be squeezed in these trades and it’s good to revisit them, especially after Ernie and Dollar Tree.

I frequently wish I’d listened to myself, Jay Watts.

Thank you so much for being here.

Good to see you.

Um And uh we are thank you so much for watching.

Goodbye or goodbye.

Sorry.

When we bring you new episodes three times a week at 3:30 p.m. Eastern, we’ll be right back with more market domination as we fix to talk about fixed income in our investor playbook.

Treasury yields heading toward their fifth straight day of declines, which could be a signal of economic weakness.

We’re looking at how to navigate these moves with the Yahoo Finance playbook.

And joining us now is Michael Kushman cio of broad markets fixed income at Morgan Stanley along with Chip, a managing director of fixed income at Truest.

And uh let me just begin with the tenure with you, Michael.

Uh We’ve seen this these five days of declines here.

We’re approaching 4.25% the lowest in about two months.

What do you, what do you make of this decline?

Well, I think it’s a, it’s a reaction to the overreaction when yields rose right, quite dramatically in April and May.

On the back of some bad auctions, there was some inflation data in the first quarter that wasn’t very good yields got up to about 470.

Um and that was probably an overreaction to data, which was, it was technical, it wasn’t that much of a deterioration in fundamental data.

And since then, so not only do we have a, a cheap tenure at that point, but the data in terms of inflation data and economic growth data have all been very positive for the reignite reign of this soft landing story that the fed will cut rates, economy slows down, inflation slows down but not too much on the growth side and everything is good.

So we’re back to that to that your goldilocks world again.

Well, speaking of back to that um chip, I wanna bring you into this because what my alludes to is kind of like this whip saw that we’ve been under, you know, there’s gonna be six cuts, there’s gonna be three cuts, there’s gonna be no cuts.

Well, maybe there are gonna be, I mean, like it seems like we’re kind of back to maybe a cut or two this year.

You I think you think that there’s maybe a cut in September, like how do you even trade this when there has been so much volatility in those rate cut expectations?

Yeah, it’s it’s been very volatile, but I do think the fed is going to want to see some more disinflationary evidence before it initiates that first rate cut.

But the past couple of weeks of data suggests that those trends may be starting.

It may be laying the foundation for the fed to be able to go ahead and move.

So we do think that the FED will ultimately lower the FED funds rate for the first time in September.

Leave that optionality open for a potential second cut in December, but allow the data to dictate that Michael.

What’s your opinion of the entire conversation surrounding the soft landing?

And I’m asking it because this has happened maybe once arguably in 1995 according to Fed lo economy was doing very well.

But the reason I asked this is, it looks like a soft landing until it isn’t until the data rapidly deteriorates and it is very predict uh unpredictable.

What gives, what do you think the, where do you think the confidence comes with all these soft landing predictions?

I think it really comes to an uh uh to a, a repeat of the 9495 scenario.

Um I’m old enough that I was actually involved in markets in 9495.

I remember distinctly that that period where the fed raised rates very aggressively in 1994 from 3 to 6% in one year, which was unheard of for at least a decade and yet nothing much happened to the economy.

And the reason being is the economy had fundamental strength and there weren’t a lot of imbalances.

So coming in this whole rate hiking cycle, there wasn’t a lot of credit, you know, credit overhangs the private sector was deleverage.

The government sector re levered up.

We know the government deficit and debt has gone up a lot.

But the private sector has been really, really good shape.

So the rate hikes haven’t reached the levels that would cause distress amongst important components of the economy.

And the lack of distress, which is similar to what happened in 9495 allows the economy to continue.

I’m doing just fine.

However, the Fed did pivot in 95 they realize in 9596 their rates were on the, on the high side.

So they cut rates about 100 basis points.

I think that’s what’s the most likely scenario.

I don’t know if it’ll be September, December or over the next 12 months, we are likely to see 100 basis points of rate cuts just to get things more in line with what is a stronger economy but uh not accelerating economy we need.

So how I if we’re gonna get cuts whenever we’re gonna get cuts, let’s talk about then how you position yourself within fixed income chip.

I’m gonna take this one to you.

You know, we talked to one portfolio manager earlier who said many of his clients are 70% to 90% in equities right now, sort of as an inflation hedge.

I imagine that’s not what you’re telling folks at the moment, but talk to us about, first of all, sort of allocation wise, how people should be thinking about fixed income in this environment.

One thing that we’re really talking a lot about is reinvestment risk because we have seen a tremendous amount of demand in the first couple of years of the yield curve, right.

So as the fed starts to talk about and then ultimately initiate those, those cuts whenever they may come, we do expect over the next year or two to see yields in that part of the curve start to come down.

And that creates reinvestment risk that when those maturities then come due, we are then in a lower interest rate environment.

So what we’re seeing based on where we are in the fed cycle now is an increased value in duration, you know, yields out a little bit longer are still very productive and you can lock in those yields for a little bit longer period and, and, and provide some insulation from that volatility that comes along with the fed ultimately starting its rate cut cycle and chip.

Let me ask you about uh corporate credit right now.

Spreads have been pretty tight with respect to sovereign bonds.

Uh Not that much more than uh a government issued bonds such as from the United States.

When what are the conditions under which you would see that expect to see that change?

Um What is coming down the pike that might turn that table?

Yeah, we need in our view, we would be patient around corporate credit right now.

Because as you said, spreads just remain very, very tight, historically tight.

And we don’t think that really aligns very well with very tight fed policy and a little step down in growth that we’re seeing from a really torrid pace back in 2023.

So we would want to see those spreads just better reflect the economic realities that we currently face.

And then we may see more value there and we think that opportunity is coming.

But for now, we would be patient until we see that adjustment to to wider spreads, better compensation for that and a more improved kind of risk, reward, landscaping credit and Michael, we got 20 seconds.

Can you give us your real quick strategy as well?

Uh The the strategy is simple short term versus long term.

From a long term perspective, fixed income hasn’t been this attractive for 20 plus years.

You have to go back to the pre global financial crisis, early two thousands with yields at this level.

From a long term perspective, this is probably as good as it gets 10 year, 10 year corporate bonds yielding 5.5% high yield yielding around 8%.

These are very attractive.

Absolute yields of inflation stays in that 3% area in the short term.

However, the curve is inverted, you’re not paid very much or you’re not paid at all to extend duration.

We think you could be patient to extend duration because we’re not that worried about a recession.

We don’t think the fed will aggressively cut interest rates so the curve will stay inverted for a much longer period than people expect.

So, stick to sort of two year to five year part of the Michael Chip.

Thank you so much.

Really appreciate it.

Thanks.

We’ll be right back with the closing bell.

Don’t go anywhere.