Cash is Not Trash

1. Story of the Week 👉 JPMORGAN EARNINGS

2. Genevieve’s Corner 👉 CASH IS NOT TRASH

3. Matt Allen’s Corner 👉 EARNINGS METRICS

4. What’s Moving The Market 👉 MACRO ANALYSIS

5. Comin’ Up 👉 EARNINGS AND ECONOMIC DATA

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1. JPMorgan Earnings

BETTER THAN PREDICTED

JPMorgan reported that its earnings for the quarter ending in September stood at $13.15 billion, or $4.33 per share. This increase of 28.9% compared to the same time frame the previous year significantly surpasses the expected consensus of $3.36 per share.

The bank also highlighted that managed revenues grew by 21% to $40.69 billion, slightly above the analysts' prediction of $39.57 billion.

Furthermore, net interest income surged 30% to an all-time high of $22.9 billion. This increase is attributed to the prevailing high-interest rate conditions, which counterbalanced the decline in global transaction fees due to a shortage of new listings and acquisitions this year.

They have also allocated $1.38 billion for potential loan defaults, which is considerably lower than the anticipated $2.5 billion by market analysts. There's a noted emphasis on the latent losses in bond portfolios, which are tied to the recent spike in Treasury yields from early August to the end of September. This rise has added roughly 70 basis points to the 10-year benchmark notes.

🎯 GRIT TAKE:

Amidst higher rates this year that adversely affected the net interest income of smaller rivals, JPMorgan…Upgrade to a VIP here to read our full GRIT takes! 🤩

2. Genevieve’s Corner

CASH IS NOT TRASH

Hello Everyone 👋

In November 2022, amid the Federal Reserve's series of rate hikes, I took steps to mitigate risk in my portfolio. I allocated a portion of my capital to the Horizons High-Interest Savings ETF (CASH-TSX), which initially offered a 2% yield. As interest rates continued to climb, I increased my position in March 2023 (yield rising to 3.34%) and again in September 2023 (yield reaching 4.79%). Presently, this ETF delivers an impressive yield of +5.4%, comprising over +20% of my portfolio.

At the time, neither I nor most of the world could have predicted that the FED would go on to raise interest rates 11 times, marking the fastest rate hike cycle since the 1980s. If I had known, I might have adjusted more of my portfolio away from tech stocks, as rising interest rates tend to impact their valuations negatively. However, this year has been extraordinary because interest rates and tech stocks have risen against all expectations.

One major catalyst fueling the ascent of tech stocks is the fervor surrounding artificial intelligence (AI), evoking memories of the tech bubble in 2001. Among the top-performing tech giants, I hold positions in 5 out of the 7, including NVIDIA, Microsoft, Apple, Amazon, and Alphabet (although I don't own Meta or Tesla). Astonishingly, my portfolio has thrived amidst the dual momentum of climbing interest rates and the tech sector's upswing.

While things have gone well for me so far, the question now is, what lies ahead, and how should we navigate these uncertain waters?

🎯 GRIT TAKE:

It's a bewildering landscape out there…

If you'd like to continue following my investing journey and read my full GRIT take, consider upgrading to become a VIP subscriber HERE. 🤩

Until next time. Incessantly Chasing ROI,

Genevieve Roch-Decter

3. Matt Allen’s Corner

COMPLEX FINANCIAL TOPICS MADE SIMPLE

Hey friends!

I get tons of questions from new investors about the most important metrics to look at during earnings season. I will explain what I look for when evaluating a stock’s quarterly performance. Remember that these are the four that I look at, and it doesn’t necessarily mean that I am right or wrong.

The first metric I look at is revenue (sales). This is the total amount of money a company generated over the past quarter for selling its products and/or services, not accounting for any costs to make this money. In other words, revenue is pure money before any other number, like the costs of producing a product/service, plays a part.

The second metric is free cash flow, which is the amount of money the company can give back to its shareholders. On Shark Tank, Mr. Wonderful always asks about the free cash flow. Let’s say Mr. Wonderful owns 10% of a business with $100,000 in Free Cash Flow. This means at the end of the year, the business will distribute to him $10,000 as owner distributions. If a company has tons of free cash flow, it will reward investors in the form of dividends, share buybacks, or growth of the company, which will make the stock go up. Free Cash Flow is my favorite metric to study.

The third metric is unit sales, which is simply the number of units a company sold compared to its previous quarter. Let’s say that Apple crushes its earnings, but iPhone sales are showing weakness. The stock couple possibly went down because of this.

The fourth metric is earnings per share (EPS). A higher EPS number means a company is more profitable, has the potential to grow faster, and can pay out more to its shareholders through earnings increases and/or dividends. Many incredibly successful investors obsess over this number, but I spend more time on free cash flow.

🎯 GRIT TAKE:

When you own a company, you should study how their earnings did. However, it is incredibly important… Upgrade to a VIP here to read our full GRIT takes! 🤩

Stay Gritty,

Matt Allen

4. What’s Moving the Market

MACRO ANALYSIS

This week, all eyes were glued to the CPI print as the battle against inflation rages on. The headline CPI figure came in at 3.7%, above expectations of 3.6%, while the core came in at 4.1%, in line with estimates. Shelter remains a significant contributor, increasing 7.1% YoY as 30-year fixed mortgage rates reached 7.9% last week, a high not seen since 2000.

Why is this number so significant? The Fed has a dual mandate: stable jobs and stable prices. The CPI print is critical to understanding the anticipated path of the Federal Funds Rate, which sets lending rates for the overall economy. When prices (inflation) run wild, the Fed increases rates to put a lid on an over-stimulated economy. This ultimately has a ripple effect by slowing growth through increased borrowing costs. The tricky part is getting this right: limiting inflation while not crushing growth. Achieving this balance can be even more complicated than dating Taylor Swift, but Jerome Powell is channeling his inner Travis Kelce (for now).

🎯 GRIT TAKE: This print doesn’t change anything for November. Heading into the print, the odds of a hike…Upgrade to a VIP here to read our full GRIT takes! 🤩

5. Comin’ Up

EARNINGS AND ECONOMIC DATA

💰 Earnings:

Monday: Charles Schwab

Tuesday: Johnson & Johnson, Bank of America, Lockheed, Goldman Sachs, Lockheed Martin

Wednesday: Tesla, Netflix, Morgan Stanley, Proctor & Gamble,

Thursday: Taiwan Semiconductor, ATT, Blackstone

Friday: American Express

📈 Major Economic Events:

Monday: Philadelphia Fed President speaks

Tuesday: US Retail Sales, Industrial Production

Wednesday: New York Fed President speaks

Thursday: Initial Jobless claims

Friday: Cleveland Fed President speaks

The author of this newsletter owns ETF’s (exchange traded funds) that may hold ownership interests in the companies discussed in this newsletter as of the published date of this newsletter.

Sources

(1) Three takeaways from Fed Chair Powell following July hike decision (Elisabeth Buchwald- July 26 2023): https://www.cnn.com/2023/07/26/business/fed-powell-takeaways/index.html
(2) Microsoft Investor Relations (July 27, 2023): https://www.microsoft.com/en-us/Investor/default.aspx
(3) Mostly Borrowed Idea’s Twitter Account (July 25, 2023): https://twitter.com/borrowed_ideas/status/1684007357787918342

(4) Microsoft Investor Relations (July 27, 2023): https://www.microsoft.com/en-us/Investor/default.aspx
(5) Meta Investors Relations (July 27, 2023): https://investor.fb.com/financials/default.aspx
(6) Alphabet Investor Relations (July 27, 2023): https://abc.xyz/investor/
(7) Siblis Research (July 27, 2023): https://siblisresearch.com/data/us-stock-market-value

(8) Wall Street Breakfast: Cancel the Recession (Seeking Alpha - July 27 2023): https://seekingalpha.com/article/4620376-wall-street-breakfast-cancel-recession 

(9) JPMorgan Chase Earnings Outlook Brighten https://www.investing.com/news/stock-market-news/jp-morgan-chase-earnings-outlook-brightens-on-revised-estimates-93CH-3197373

(10) Bank Earnings Kick Off Another Period Of Rising Rates Bad Loans https://www.cnbc.com/2023/10/12/bank-earnings-kick-off-after-another-period-of-rising-rates-bad-loans.html