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Inflation, interest rates, and what we're looking at as the year closes.

This is Brad this is the Redfish 411, the date today is October the 28th it's about 12:30 in the afternoon and I'm kind of excited this is by far my favorite time of year and normally I have a little bit more energy this time of year but as some of you know I came down with COVID and that really can put a damper on your energy level let me tell you I'm I was fully vaccinated the doctor just told me I was exceptional I enjoyed hearing that part but it just really threw me for a loop not me down pretty good so I was down about 10 days and this week I'm in the office about half days as I've noticed that right around 2:00 o'clock my energy just leaves I just I've got nothing in the tank so I end up heading to the house so hopefully by next week I'll be back to full time here in the office hopefully by next week we'll be moving into a new office as we've continued to build out is we're still waiting on doors and I'm going to get to doors and inflation and all that kind of stuff in a minute but we still don't have doors at our office so we're still waiting on all that to take place so that we can finally get moved into the new space.

This time of year is by far my favorite as many you know I'm a huge baseball fan and my Astros are in the World Series again third time in five years playing the Atlanta Braves and so it's just as bad as most fun as I can have is being able to watch that it's not real good for my nerves you know the stock market does what it does commodity markets does what it does Dutton move the needle don't make me flinch you know it really doesn't but a baseball game with my Astros are playing or they get down there's two strike I've got no nails left an I am exhausted at the end of every one of these games largest starts laughing at me I have to stand I'm in my house I'm standing in front of the TV we get down by two strikes and I just.

Anyway it's been a little bit nuts but I do love this time of year I love college football that's going full swing and also as many you know I love to hunt and fish and this is hunting season and it's also the best time to be fishing down on the coast not that I've been able to do a whole lot of that I've been really busy and I wish I could be doing some more but this is my favorite time of year fireplace will be on here before too long I got some trick or treaters I know come into the house I love the littles and Halloween time those are my favorite costumes I can do without the teenagers dressing up and whatever they dress up and come by and grab a handful of candy I like the littles they just make me laugh every time I see him so I am excited for this time of year.

Another reason why I am excited for this time of year as historically not always but historically the last three months of the year in January 10 to be the best time to be invested in the markets as that's when they tend to do well so if you go back to 1950 to the president October has historically returned a brown .9% November 1.5% December 1.6 in January 1% so yeah that is 5% right there that typically comes in the matter in the matter of just a few months the markets can move rather rapidly so for those of you have been with me for awhile I've been investing for you for awhile you know that you tend to be a little more fully invested during this time of year and I start to lighten up heading into spring in the summer and that's when we'll have a little bit more cash in the portfolio but I'm just really excited about this time of year so let's kind of get into some details if you will and what's been going on out there.

What I'm looking at as far as the stock market is concerned so we're close to these all-time highs we've had some rough patches I think as on the heels of the delta variant we are right smack dab in the middle of earnings season so this is when the companies are reporting how they did and there's two parts of earnings that I think are important number one we need to know that the third quarter earnings reporting period is typically the worst reporting period there are for companies so it is the toughest quarter historically for companies to meet and beat Wall Street expectations on how much money they should be earning now across the four earnings are really strong really strong where there's been a bit of a disconnect is after the earnings are reported in the numbers are officially reported we have what's called an earnings call with the CEO and the CEO oh where they tend to go on the air an in the CFO they tend to go they tend to go on the air on these calls and tell us a little bit about the last quarter but more importantly what they see going forward and what I'm hearing kind of consistently across the board on all of these earnings calls is they're really trying to temper expectations going forward so stock ABC XYZ whatever it may be has come out with earnings and they just crushed it but then the CEOs are talking people down and talking back a little bit they're trying to make us a little bit more conservative about what they see in the future I'm just looking at the data and when you look at the amount of growth that some of these companies especially the big tech guys they're reporting Microsoft and Amazon Google and Microsoft premier Li it is huge return but we're talking that they're gaining on their earnings are growing by 45% somewhere in that neighborhood that's insane so there's still growing quite rapidly let's not say quietly their growing growth is strong right now but the CEOs are trying to tamp it down and talk us down a little bit and say well it may not be so strong going forward I kind of understand where they're going because they can't get on there's a business is so good I can hardly stand it I don't sleep at night column his work seven days a week I love it they can't say that they're trying to talk us down a little bit and part of one of the reasons where they're talking is down as they are looking at inflation so inflation was to big talk if you remember I did a couple of my podcasts here on inflation not too long ago because everybody was screaming about his coming is coming inflation is coming so let's keep in mind this look at the 30 year treasury bond and I'm just going to talk about the yields.

So when we started out the year the yield on the 30 year treasury was at 1.24% as low as it got 1.24% so you give your money buy a treasury bond your return is 1.24% a year for 30 years that slow now in everybody started talking about interest rates and that rates digit rates the market got a little spooked and if you remember in may in spite to 2 1/2% so moving from one in 1:45 and a half is a massive move up it has come back down today we're sitting at 1.96 so we're down underneath two again and so there's not as there's still a lot of inflation talk and I think a lot of people are looking at the cost of inflation wondering how CEOs especially wondering how it's going to affect their business so I do have some thoughts on what's been driving the inflation and where I think that it's going and I'm it's still this still in the same school of thought that I was before that the primary reason why we see commodity price inflation or just goods inflation let's not say commodity goods inflation of goods and services that you're needing to buy across the board I think it's still the result of the COVID pandemic that swept the nation the reason why I think it's still a condition of that is when the pandemic hit when I talked about how we have more money in accounts the what we called into the never before really I don't want to say in American history but in decades people had more money per capita than they had in decades man I American consumers do one thing we spend money so the American consumers continued to spend money but with the pandemic and the shutdown of the factories there were no goods to buy so the number of goods the supply decreased the demand stayed the same and people continue to buy goods they continue to want to buy houses but the supply wasn't there so that pushed the prices up as more and more people were chasing less product the other side of that is that with transportation and trucking so the products that they weren't being they weren't being built but then they were getting shipped the ports still I know you probably been reading the out in LA you know they're running seven days a week now 24 hours a day they're trying to work through this backlog of now that the people have been going back to work in the factories have been back open and transportation is running there trying to get the products down to the in consumer but they're not here yet we haven't worked through that backlog and I still don't I still think it's going to take some time to work through it I've heard some people say that will be back fully operational by January that may be a little early in my opinion but going back to my office in the doors see this is the perfect example this is the perfect example there's lots of people who wanted to build out offices wanted to build homes and they needed stuff like doors you can get them you can order him but that doesn't mean you're going to get him because they have to get there to build them then they have to ship them then they have to get onto you and then you can get him installed.

We've seen it right here just in this little silly example of the doors in my office I think that's what we're seeing on a national level is that we're unable to get the goods that we need which is caused us inflation so we're seeing it from guys like the dollar store Dollar General they've all said they've got to raise their prices so far in in restaurants we've seen this definitely to be true the consumer is still willing to pay now we make gripe about it but the consumer is still willing to pay there in other words are able to pass along the prices to the consumer without the consumers saying OK I'm not going to buy the product it's still happening it's happening in real estate it's happening not as much on the commercial side but definitely with home buyers where the supply is down and the demand is increasing as more and more people have been moving especially here in Houston outdoor area in Cypress the demand is ridiculously hot for home prices and so there's what you're seeing in so you're seeing these prices spike I don't think this lasts forever I do think that it will start to come down a little bit now once it starts to come down a little bit that's when you'll see on the going back to the earnings for these companies their earnings I think should shine heading into 2022.

I'm pretty bullish going forward into 2022 and some of the things that as far as what I think the market can continue to do as you've heard me saying I've been pretty bullish I'm following the data I'm following the earnings they have stayed strong kind of across the board and so I'm continuing to stay bullish that's why you see your portfolios we are not fully invested as I'm rarely fully 100% invested with no cash but we're getting we're getting less cat you're holding less cash than typically you have in the last couple of years because I am still rather bullish on what we're seeing I want to comment on three different little sectors and they'll kind of give you some feel for what we're seeing in the markets for what I'm seeing in the markets let's definitely talk about energy prices which is obviously close too many of us here in Houston close to our hearts so in last year the average cost per barrel so in 2020 the average cost of all peril was $39 that was the average 12 month cost for all of 2020 right now we're running at about 66 on the average currently we're above 80 so we are actually looking at some of the best prices on oil the highest prices since I best some of the highest average since 2014 where we hit $93 a barrel so I think what you're going to see is as we is more and more drillers I think we'll start to drill this is what's crazy about the energy market folks in the past drillers are a little bit nutty when it comes to their balance sheet if they think the price of oil is going up there poking holes in the ground and they are going nuts they're getting a tremendous amount of money they're leveraging out their book as much as they can they're working on high debt limits and their punching holes in the ground and then a bus would happen and then you had to turn over half the energy companies learn their lesson this is a great question to ask have especially some of these drillers have they learned their lesson because the drill the drill rig count yes it's going up the rate count is increasing but not as much as it normally does during these times of price increase that we've seen so is a little bit shocking that all of a sudden drillers are becoming fiscally conservative that's why I don't I don't think I've ever seen that when I granted I haven't been in the business forever but I can look back in history and I can look at where companies were spending money especially these drillers and they were not nearest conservative as they are today so that tells me that we could see some more price increase in the price of oil because again the supply and demand we need more oil coming out of the ground two master demand so the demand is continued to go up the coming out of COVID the supply wasn't there so we have this little bit of an imbalance.

I would love to see if we can average at this $68- $66 a barrel for the entire year 2021 into 2022 I think that would be incredibly strong for the majors who are running their books based on I think $50 crew somewhere in that neighborhood and so if you're running your books if you run the entire balance sheet of the company on $45 -$50 a barrel crude and you're getting $66 on average that's obviously a big hit to the earn a big jump in the earnings the dividends should remain to be fully covered so I really like the majors more than I like some of the drillers out there they just still kind of scare me a little bit I do like the guys that supply the drillers I do think drilling has to increase a little bit but I'm just still a little bit leery I'm a little bit leery and then also with the had a good conversation with my add name is an email or conversation don't remember going off the cuff here with my buddy Ryan Krueger and one of the things that we were talking about is how ESG which environmental type investing has really said OK we're not going to invest in oil until oil starts to make money I'm word I'm going to I'm betting you're going to see a lot of these funds that I say their ESG they're going to say well you know what Exxon is doing a much better job now of being environmentally friendly so we're going to include them in the portfolio green will always win on Wall Street so I want you to kind of keep an eye on these ESG funds and who they're allowing in and who they're not it's not going to shock me if you start to see some energy in some of these portfolios.

One of the other areas I want to touch on real quick or banks and large banks we talked about inflation going up and talk about rates going up keep in mind that third quarter results again are usually pretty weak for banks but yet they reported pretty strong earnings kind of across the board especially in the asset managers commercial loan growth maybe growing by 1 to 3% of the total net revenue which I think would be a positive that's what we really got to see below where the real where is going to really help these banks as if we do get interest rates to go up remember how it works in the banking world you deposit money with the bank they have to pay you something on those deposits and then they also take your money and then they lend it out so that they're lending it out for X they're paying you why the differences seen all the spread so the faster that rates go up on the higher the trace go the bigger the spread GIFs in other words they make more money as interest rates go higher so is everybody is talking about interest rates going higher it kind of makes sense to me as long as we're still expanding from an economic standpoint and you do have the loan growth that would make sense to be invested in some of these banks as we are so we continue to hold on to those.

The last area that I'm really don't say excited about excited to watch just because I'm also a sports nut though is I'm still looking at gambling an offer to be talked about this and you've read what I've written about this so gambling from what they're saying is we're kind of starting out the gold rush if you will for some of the gambling stocks so what's kind of break it let's break that down so in May of 2018 so this kind of windows start there was called the professional and amateur sports protection act which was a federal act that had been around since 1993 that said only in the state of Nevada can you bet on sports so it was New Jersey that challenged it the state of New jersey and they wanted and they won so the Supreme Court found in a six to three majority decision that it was unconstitutional that this particular act to the pass but act was unconstitutional so that then opened up other states to allow sports betting so where we kind of move from that is we need to kind of look at OSB which is online sports betting SB that's where I think the growth is going to be so if you look at OSB it was we started out with nothing he said that you had to go to Las Vegas to do it.

As of June of 2021 there are 27 jurisdictions across the United states which represents about 46% of the population they now have legalized sports betting of some sorts of some sorts so it's not completely all legalized but it's getting there the state in New York has approved it legislation wise but it is not gone live so if you've been watching any television at all especially on sports look at the ads what are you seeing ads for Caesars is running ads left and right on their new sports app and you can you download it to your phone course here in the state of Texas is not legal you can download the app and I did research and so I'm looking at so I download the app but you can't bet on it because I'm in the state of Texas and I have a tracking device in these apps that know where you are that's what keeps them out of trouble and keeps me from doing something illegal here in the state of Texas so you've seen at UC DraftKings FanDuel so all of these different companies that you're seeing a lot of their ads on betting because this market they're guessing that this market by the year 2030 so let's say eight years this round up to 2022 on the conservative side a $25 billion a year market only $5 billion that's on the conservative side now we've seen some that say no this is going to be 40 to $50 billions of addressable market for north Americans for OSP gaming that's a lot of money.

So what you have now is I mentioned the gold rush what you have now or people who are trying to get the bettors who where people are going to bet we've always seen that we think people are going to continue to wager on sports whatever dollar amount doesn't matter to me I'm not thinking about that you sit at home you're watching the game even mid game you can go you know what I think the Longhorns are going to check this up because I've been doing that a lot lately and they're not going to play defense and so I'm going to bet on the other team they're going to come back and beat the horns it would be a winning bet that kind of betting I think is only going to increase through the app doing it at home sitting on your phone so more and more people will start doing that it's just a matter of where are they going to go and so everybody's trying to open up there stores their apps their fronts so that people can do this watch the commercials and then try to follow along and see who's going to be getting all that gambling money somebody there's going to be plenty for everybody but somebody's got to get the majority is it going to be draft kings is going to be in GM is going to be Caesars is going to FanDuel I don't know somebody is going to get it and somebody is going to make a tremendous amount of money.

Looking at the clock now I've been going out for 25 minutes like I've mentioned I always try to keep these to be semi short a little bit but Needless to say I want to I want to wind it up by saying how excited I am for the end of the year I really think this could be a tremendous into the year I really think my Astros are going to win it I think it's going to be a good year for the economy I think it's going to be good here in households I think COVID is winding down a lot of people tend to concentrate on the negatives but I'm telling you folks it is beautiful out there when I look at the horizon I think it is absolutely beautiful and I think it's going to be reflected in jobs and people spending money and it's going to be a great Christmas I think for many families across the nation I know it's not everybody someone always wants to point out where it's rough I get it but I'm very optimistic about where we are in this country from an economic standpoint very optimistic from and Astro standpoint but I'm just very optimistic so it's been great speaking with you all as always we love to get your comments we'd love to talk you know I love the talk give us a call shoot us an email let us know what's going on check out the web page at put your comments in there you can also click on there to follow all of our newsletters all of our podcasts all of our emails that we send out to various people all you have to do is click there when you first pull it up you click on the box that carries set up for you in there and then you're good to go you'll start receiving all of the information from there we really appreciate your business this has been a banner year for us just a banner year and it's because of you and so we just appreciate everything that you've done for us we're doing our level best to do everything we can for you talk to you later, bye.


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