Matt Frankel

Yeah, so tax loss harvesting is the thing we're gonna talk about that's not really noise.

It's a legitimate investment concept.

It means selling positions at a loss with the specific goal of using that loss to then lower your tax liability.

Now, this can be used to offset a capital gain from a stock you sold or just to lower your taxable income.

You can use up to $3,000 of losses per year to offset the rest of your taxable income.

But the important thing you got to keep in mind, and honestly, this is the topic we could spend an entire episode of this on, is that it's not a great idea to sell just because you want a tax break if you're still interested in owning the stock otherwise.

No.

I mean, if it's a stock that you're like on the fence about selling and could use the loss for your taxes, then go for it.

But if it's something that you like that just went down, it's not worth selling just to get a tax break.

What are these two about?

Yeah, and these are just rules of thumb, and they work until they don't.

There's another one you didn't mention called sell in May and go away.

The market tends to have a weaker summer than during the busy winter season.

But the Santa Claus rally that you're talking about refers to the historically strong performance of the stock market during the last five days of December and the first two days of January of the trading year.

So since 1950, the stock market has risen 79% of years in this period, and by an average of 1.3%, which is a pretty big move in a seven-day period.

It's often considered to be a bad sign by investors if the market doesn't produce the Santa Claus rally.

And similarly, the January barometer, it's a common belief that if the market

gains in January, it's a good indicator that it's going to gain for the full year.

I mean, some of this is just the market's upside bias over time, but whether the market rises in January or not has accurately predicted a positive or negative full year return 85% of the time since 1950.

It's only gotten it wrong, I think, 11 times.

Well, first of all, as a certified financial planner, I've never suggested clients buy stock a week before the end of the year and sell the first week of January to take advantage of a Santa Claus rally.

I don't do anything like that.

And you're absolutely right.

You hit the nail on the head with that 2021 example.

is that these are rules of thumb that work until they don't.

And when they don't, you can miss out on a lot.

You know, the sell in May and go away in 2021 didn't really work out very well if I'm remembering my calendar correctly.

But the market has an upward bias over time.

If you look at any calendar period, anyone, you know, the first two weeks of September or the last three weeks of October, whatever the calendar period may be, if you look at the market's history,

It's more likely than not to go up over any period of time because the market has a long-term upside bias.

So that's really the key takeaway here is that none of these percentages, whatever time period, are going to be below 50%.

And so it's always a good idea to be invested whatever time of year it is or whatever you think the market's going to do or whatever some indicator says it's going to do for the rest of the year.

The stock's down, spoiler alert, after earnings.

So the headline story is...

is the Tesla return to growth.

It produced a 12% revenue growth year over year after two straight quarters of declines.

That sounds great on the surface.

I wonder how much of this, which clearly a lot of it had to do with the pending expiration of the EB tax credit, which expired in September 30th.

In full disclosure, my wife and I bought our first electric vehicle about three days before that because the tax credits were about to expire.

So a lot of sales were pulled forward.

Besides that, earnings didn't miss expectations.

And when you combine an earnings miss with a revenue beat, it generally indicates worse than expected margins, which is the case here.

And in the earnings call, it's revealed that the full self-driving system, which is, I mean, that's one of Tesla's big strengths.

Only 12% of customers are paying for it, which is a lot lower than a lot of people expected to hear.

And they spent most of the call talking about what they're gonna do next year.

Build the cyber cabs, start doing the semi truck.

They're releasing their next generational battery storage system.

Tesla has a strong history of producing great products

after they say they were going to, like a year or two late.

So investors are less than convinced by these earnings is kind of my big takeaway.

Yeah.

And you mentioned that operating margin.

A big factor of that, too, has to do with those EV credits expiring.

Tesla's average sale price has declined significantly.

People are buying the less expensive cars because if you're not familiar, the credit was capped by the vehicle price.

For an SUV, it couldn't be more than, I think, $85,000.

For a sedan, it was a lot less than that.

So people were buying the cheaper models to take advantage of the credits.

And those are the lower margin models.

Tesla makes higher margins on like a Model S or a Model X is the big SUV.

But a lot of those don't qualify for the credits.

So I'm really curious to see how things roll out in the fourth quarter when they're unassisted by tax breaks.

And that especially when so many other automakers, like we didn't buy a Tesla, we bought a GM vehicle.

So many other automakers are rolling out so many new EV models that are very competitive.

Speaking of Etsy stock price, we bought shares of Etsy in my wife's IRA years ago, right around when Amazon was launching Amazon handmade and the stock cratered because everyone thought it was going to die.

So our cost base is about $6 a share.

It's more than 10X from there, even after the big slump.

So my wife gets to claim the title of best stock picker in the house because her Etsy is a 10 bagger.

But...

On the ChatGPT thing, I think that's a really interesting development because they're not the only ones partnering with OpenAI to offer AI-powered shopping.

Shopify is rolling it out to all of their merchants who want it, and that's a big deal.

But Etsy is unique in the sense that there's a ton of potential for AI-driven shopping for a company whose specialty is unique in handmade goods.

People who have absolutely no artistic ability like myself, if I want something custom, AI could be a great way to help me find what I want.

And there's just a lot of different implications for that technology with a business like Etsy.

So out of all the companies, and it's not just Shopify, there are others too, that have announced that they're gonna partner with Etsy.

I think Walmart might be one of them with OpenAI.

Etsy is the one that I'm most excited about and I think has the most potential.

But as far as the stock that's on my radar, the list was really interesting.

And I had to dig in because some of these have been removed from the S&P 500 because they don't exist.

Discover Financial being one of them.

It was acquired by Capital One.

So the stock doesn't exist.

It can't be in the S&P 500.

But one that does exist and was actually moved all the way down from the S&P 500 to the S&P small cap 600...

Because of a dramatic fall in its price was Enphase Energy, ticker symbol ENPH.

I see why it's down.

It's a bad time cyclically for solar.

The current political and regulatory environments aren't exactly solar friendly.

The company's international growth has been impressive.

They've made some really smart pivots, like moving a lot of their component production to the U.S.,

And the company's innovation does remain very strong.

There's a big long-term opportunity here in solar and for Enphase in general.

And while this stock could be a rollercoaster ride for a while, I think investors who get in here could have a long-term winner on their hands.

First of all, all the big banks, including all the ones you mentioned and others, beat expectations for earnings.

Strong numbers so far, but there are some big winners among the group.

I'd say, in order, my biggest winners of earnings season so far among the banks are Wells Fargo, Morgan Stanley, and Bank of America.

With the latter two, Bank of America and Morgan Stanley, they both benefited from a robust IPO and M&A market, which I think John's going to talk about more in a second.

This led to investment banking fee growth of 43% and 44% year-over-year, respectively.

for those two.

Equities trading revenue was really strong.

It beat expectations.

And not only that, but Bank of America reported a surprise decline in their credit loss provision, which is going to come into play a little later in our conversation.

But in general, investment banking was really strong.

And Wells Fargo,

is particularly interesting because they don't depend as much on investment banking.

We're a big winner.

Their stock's up 10% since earnings.

One major thing is that management is now expecting 17% to 18% returns on tangible common equity.

over the medium-term, up from the previous estimates, after the Federal Reserve lifted their asset cap finally after seven years.

The bank is now going on offense.

Charlie Scharf, the CEO, said that Wells Fargo aims to be the No.

1 consumer bank, a lofty goal, and a top-five investment bank.

I don't even think they're a top-10 investment bank right now.

Plus, like Bank of America, Wells Fargo decreased their loan loss provision significantly.

Some really big surprises so far.

Look, I have mixed thoughts, just like Tyler does, mainly because the sharp declines in the loss reserves from both Bank of America and Wells Fargo really seem to contradict Jamie Dimon's statement on credit quality.

I agree, and I've been saying for a long time that the auto lending industry, especially the subprime market, could be a bit of a house of cards.

It is far too easy to borrow, say, $50,000 to buy a depreciating asset.

Right now, it's harder to get a mortgage, which is a safer form of a loan.

But that doesn't mean that all private credit is necessarily set for a collapse.

It could just be specific to the auto lending industry.

It's definitely worth monitoring over the next few quarters.

But over the past few years, since 2022 when the bear market happened, pretty much every fear about deteriorating credit hasn't materialized as much as we thought it would.

Tyler, you're right that so far, all of the deregulation around any type of private assets have allowed managers and investment platforms to charge high fees to investors.

We've talked about this privately before, but there are funds out there that give investors exposure to private companies like SpaceX and OpenAI and charge, let's say, ridiculous fees.

But like you, I'm conflicted.

It's both an opportunity and a threat to the retirement security of people in these 401K plans.

The statement from the executive order that the president signed allowing this is misleading.

The standard products like S&P 500 index funds are, quote, not letting people achieve secure retirements.

The S&P 500 has been a great wealth builder over the long term.

The problem is that the average person doesn't save enough for retirement.

It's not that they haven't had opportunities to build wealth.

I have conflicted feelings about this.

Like John said, there is a right way and a wrong way to do it.

I'm going to talk about one of my longtime favorite real estate companies to follow, Empire State Realty Trust, ESRT.

They own the Empire State Building and a portfolio of about two dozen other primarily office buildings in Manhattan.

Not only is the stock about 35% below its 52-week high, despite pretty strong performance from its business and the observatory on the Empire State Building, but I'm seeing signs that the New York City office market could be stronger than most experts think.

Just consider that competitor SL Green just agreed to buy a 36-story office tower right near Park Avenue for $730 million.

It's a big bet that the New York City office market will strengthen in the years to come.

If it turns out they're paying the right price,

The Empire State Building alone could be worth more than the current market cap of the company.

Forget the other two dozen properties.

Talk about a hidden gem.

I think if the New York City office market does what SL Green thinks it's going to do, Empire State could be a bargain.

Probably not.

If you compare it to a GM, for example, which is trading at six times earnings, and this is trading at something like 40 times earnings, yes, there's consistency.

Yes, it's a premium brand.

Is it worth eight times the valuation of the average legacy auto manufacturer, if you will?

Not really.

I don't think that the electric vehicle news is anything really material.

They're just the latest in a long line of companies, including some of the leaders like GM that have reduced their EV targets.

I wasn't surprised at that.

It's really the profit projections.

A Citi analyst said that this falls below their low growth case.

So, it's not surprising that the market's reacting like this.

But keep in mind, not only has Ferrari historically traded at a premium, Ferrari is still up by 645% over the past 10 years.

It has been an excellent performer for investors.

One of the big reasons is, it was a big winner of the pandemic era of luxury surge, is what I call it.

A lot of people spent money on different luxuries during the pandemic because there was a lot of stimulus, you couldn't go out and spend money.

I bought a house in Orlando, for example.

A lot of people bought Ferraris.

You saw their sales surge during that era.

It really hadn't cooled off, and we're just starting to see a delayed post-pandemic cool-off.

I'm not that worried, but it does still look like an expensive stock.

For one thing, it's not just billionaires who buy Ferraris.

There are at least three that I know of in my neighborhood, and they ain't billionaires.

It's people who just have a taste for luxury, for the most part.

To Tyler's point, the EV cut is pretty dramatic, but Ferrari is, as you mentioned, really good at not building cars that its customers don't want.

I can't remember any duds that Ferrari ever released, at least in the past 20, 30 years.

We are seeing people cut back on luxuries.

It's common not only if consumer sentiment is low, which it is right now, but it's also a function of the interest rate environment.

Even if I wanted a Ferrari right now, I wouldn't be willing to pay 10% interest to get one.

I guarantee you, a lot of people have Ferraris financed them.

Not everyone's a billionaire who pays cash.

That was my point with what I said earlier.

But they do a great job, like John said, of keeping demand just ahead of supply.

For that reason, they tend to hold up better than most automakers.

They don't oversupply their dealers.

They don't put out cars that don't have long wait lists when they come out.

The last point I'd make is that for Ferraris, compared to most other cars, the used Ferrari market is very strong right now.

Maybe a lot of customers, they're just not buying new ones, they're going to the used market where they can get a little more for their money.

Ferrari has so many different dynamics than the average car company.

I think this is the same old, in the sense that you're going to have a few meme stocks that win long-term, a few, which we saw in 2021.

Robinhood was considered a meme stock back then, and its investors have done very, very well.

But most will cool off, exactly what happened to most meme stocks in 2021.

I almost view this ETF as being riskier than buying individual meme stocks or trying to find the ones that are actually going to be decent businesses and work out well, like the Robinhoods of the world.

You're buying a basket of stocks, and you know 80% to 90% of them are not going to work out well.

You might as well just take a chance and buy the ones that you think are going to be the winners.

Like John said, I can't call a top here or anything like that.

If anything, I think we're a little bit away from a top, just because the people who launched this ETF, they already had the framework in place.

They already knew what to look for.

It's less reactionary than the first time around.

Less, not completely unreactionary.

I'm not investing in it, but I don't know what you guys are going to do.

I was actually narrowing it down to the two on the list that, to me, are not real businesses yet.

That's QuantumScape and Oklo.

I went with Oklo.

They're a pre-revenue nuclear reactor company.

They're building small-scale nuclear reactors.

Generally, the thesis here is that the latest tech trends, specifically AI, are going to have a lot of power demand that really wasn't accounted for.

Even the future power forecast from 10 years ago, AI power demand wasn't included.

No one wants to build the old, dirty sources of power.

The newer, renewable sources of power, like solar and wind, may not be able to meet all the demand by itself.

Nuclear is a very, very natural option.

The problem is, it takes forever.

There's a lot behind the scenes that goes on with building big nuclear plants.

They're trying to build smaller nuclear plants to be more local to where these data centers and things like that are.

They're building a prototype right now.

It's called a small modular reactor.

The first revenue is a couple of years away.

The first profit isn't expected until 2030.

They might not even have enough revenue on their balance sheet to get there.

They have a little over half a billion dollars in the bank.

It's estimated they're going to need like a billion to a billion and a half over the next five years.

in just cash burn.

But at the current valuation, they'll have no problem raising that.

It's about a $20 billion market cap.

This is really a lookout to 2050 stock.

It's not about what it's going to do in 2030 when it's generating its first dollar of profit.

It's a lookout to 2050 stock, where if they could figure out how to make these small reactors viable and profitable,

There's a massive opportunity here with the ever-expanding power needs of AI.

That's one that I think could turn into a really interesting business.

I think the $20 billion market cap, as you said, for all these, the valuation is a little bit stretched, to put it mildly.

It's more than 10X in the past year.

That's one that I think will be really, really interesting to watch, just because I really like the technology and think it does have real potential.

The stock that's on my radar right now is Target.

I mentioned this one a while ago, right after it reported earnings and the stock went down.

It's gone down even a little bit more.

Its yield is about 5.1% right now, close to the highest ever.

It trades for about 10.5X earnings.

It's down for a good reason.

Consumers have shifted away from Target, which is a little bit more of an upscale big box retailer, toward Walmart, which is common when consumer sentiment is low and it favors discount retailers.

They have new leadership now, they're making the necessary moves to get back on track.

Target has a very strong history of navigating difficult environments for the business, including the pandemic.

Nobody did omnichannel better than Target in the earlier days of the pandemic.

Just to name one example, in the financial crisis, they did a great job of doing exactly what they need to do now and getting people to go to Target more than Walmart.

It's a dividend king, over 50 years of consecutive dividend increases.

I do not think Target is Kmart 2.0.

I think this company still has a very bright future, and it's a really good buying opportunity.