Episode Transcript
[00:00:00] Speaker A: The markets, we just can't get enough of them.
[00:00:03] Speaker B: Markets are the drivers of your wealth and investment strategy.
[00:00:07] Speaker A: Welcome to Magic Markets with your co hosts the Finance Ghost and Mohammad Nalla.
[00:00:13] Speaker B: Together we have more than 25 years of combined experience in the markets.
[00:00:18] Speaker A: You already know about the crypto arbitrage offerings at Future Forex. If you don't, refer Back to episode 170 for full details on how to avoid your annual offshore investment allowances going to waste while generating returns which have consistently outperformed the market. And now building on that success, future Forex's FinTech Forex offering is currently disrupting the mainstream banks with a full suite of services that make international money transfers cheaper and more effective. Listen to episode 199 for full details from Harry Scherzer on how they are doing this. Future Forex SA Pty Limited is an authorized FSP number 51884 welcome to episode 200 of Magic Markets. I actually can't believe it. 200. That really is a pretty great milestone. Thank you to those of you who have been with us since the very beginning. There are some of you out there who have definitely followed us throughout this journey and thank you so much for that. I just got sent an Instagram reel of someone using a chicken to trade gold on the Asian exchange. And the chicken kind of chooses what to trade and what level and what stop loss. And long or short. I like to think the analysis we do on Magic Markets is a little bit better than the chicken trading mo. Although the markets can certainly be random. And before we get into talking about what we're doing on this show, I do just also want to thank Future Forex for sponsoring this show. Go back and listen to episode 199 where Harry Scherzer joined us to talk about their Forex offering. Future Forex is no stranger to you. If you've been with us for a long time, you probably know about their crypto arbitrage offering and they have now expanded well beyond that to make Forex simpler and cheaper. Two things that everyone likes. So go and check that out. Go check out the Future Forex website, Go listen to episode 199 and let's get into episode 200 mo. And what better to cover than Big Tech? Feels like we've built this whole business around global stocks and big Tech. There's nothing more important than that, is there?
[00:02:08] Speaker B: Indeed. Ghost, I was laughing at your chicken story there because it can either be a chicken I saw some time ago, I think there was an octopus. You know, we use Octopi to try and predict who's going to win a World cup as well as trade markets. Clearly maybe the octopus can put more complex trades on because they've got like eight tentacles going. I don't know. Chicken can just kind of peck at your keyboard. Not really a winning strategy. I'd be concerned there. Ghost, let me pivot from that into something more important and let's talk big tech because we've just gone through this week where it was really super busy in the US on the earnings front as we are recording this show. There's also the US election that's going on, so lots of risk in the market and that's why it's so important to just go and have a look at the underlying businesses. What are they actually doing? Are they making money? Are they saying what they say on the box? Or is it just a chicken effectively driving some of the decisions there? And why am I laughing and saying this? Tongue in cheek, is that it was really a mixed bag last week. You know, we had some disappointments. We had some companies actually doing quite well. And I don't know where you want to start because it's an assortment of whether we call it Fang, you know, some of the Fang stocks were in there or Mag 7, not all of them, but an assortment of them, really. Lots of results. So, Ghost, I'm going to let you drive. Maybe you can jump in with regards to which stock you want to look at first. And I'm happy to interject just based on, you know, what I had seen. And we can also comment on some of the work we've done in Magic Markets Premium before because we have covered almost all of, if not all of big tech and we have positions in these companies and I know you and I differ on some of those. So for example, Microsoft, that's one that we're actually covering this week. If you're a premium subscriber, go and have a look at that. If you're not, it's only 99amonth. But go and have a look at that. On Microsoft, we differ because you've held throughout the time period. I've actually taken some profits. So I think those subtle dislocations are also important and we can touch on some of those. But Ghost, why don't you jump straight in?
[00:03:57] Speaker A: Yeah. In Satya we trust. Absolutely. Still a big Microsoft fan. I'll tell you where I've been spectacularly, Ron. So why don't we start there is on Netflix. You were right, Mo. Well done. And I was just. Yeah. Just wrong. Just bluntly wrong. I was too focused on, you know, will they ever get the free cash flow right, et cetera, et cetera, and lots of competition. And then to be fair, I think Disney just gave it to them on a silver platter, basically. And a lot of the sort of traditional TV networks are not really doing anything actually to compete. Netflix is just objectively a brilliant business and they've now managed to emerge as a consistent free cash flow generator. Just really, really good and criminally left out of the Magnificent Seven. So it used to be in fan with the N, obviously, was Netflix not in the Magnificent Seven. And for me, that's one of the big misses of what's happened in big tech. And I can certainly put my hand up and say that I was wrong about Netflix and it's done much better than I expected. And I wish I'd been part of it. I was part of it because I was paying a subscription the whole time, which flowed into their earnings mo which you were smart enough to take advantage of. So well done to you, indeed.
[00:04:59] Speaker B: Ghost, I don't want to start with one that I won. You know, I will start on Netflix because I let you start. But I mean, Netflix is one of those where I think we differed early on. I think we had covered Disney and Netflix ages ago, right at the inception of Magic Markets Premium, and we even covered it in some of our free shows. And I liked Netflix back in the day simply because of the growth story. I must be honest, I haven't ridden Netflix all the way up to where we are today. You know, I took profit on Netflix along the way. I was a lot more tactical. I was in and out over a certain time period. And then very recently, as it stands today, I do not own any Netflix. And there's a big reason for that, is that I see that the growth story is starting to creak a little bit. The core markets are very mature. A lot more of that growth is going to come out of the emerging markets. And again, in the premium show, we tell you what, some of our concerns are there. So I'm not going to take away from that because that would be unfair to our premium subscribers. But again, yes, Netflix has made me decent money over the years. I was involved early days, and that's been a nice one. Another one that maybe I want to pivot to a little bit because I'm not certain about what your view was on. This was actually Alphabet or Google. I still call it Google. Everyone's like, no, it's Alphabet. So we'll call it Alphabet and I'll just say Google. But Alphabet's something that I think you were bullish on earlier on. I don't know if you actually took profit on that because I remember speaking some time back and you were concerned around, you know, just some of the issues around the macro, the advertising side of the business, you know, some of the competitors coming in. You can maybe just give us some insight on whether you stayed involved. I was then not involved in Google and then subsequent to that and in fact, just prior to the release of the last results, I had a look at it because the stock actually had come off and it come off its highs and you know, again, if you look at it, around $195 a share got all the way down to around 150. And again, I've been a lot more tactical in this tech space simply because of one reason and one reason only. Valuations have become very, very extended just on traditional measures, if you want to call it that. And so I was a little concerned around the market being led by big tech and those valuations being frothy. So I wasn't involved in Google. And then after that sell off, I actually got involved in and around the 150 odd dollar level. And thankfully since that, that was prior to the last earnings, that stock has actually rallied nicely and we're now back at around 170. So what's your positioning on Alphabet? Because if we looked at that, if we looked at earnings per share, those beat market expectations by quite some margin was around $2.12 a share versus 184 that the market expected. They also beat the revenue forecast. So this was a good look. It was beating on earnings, it beat on revenue as well. And their growth in Cloud and YouTube advertising revenues was really quite strong. But again, as we know, lots of competition in that space. So the share price on the day actually didn't do fantastically, but it wasn't terrible. It was down around 2%. But in average aggregate, from the lows we had seen, we've seen a decent rally. Ghost, what's your view and your positioning on that stock?
[00:07:57] Speaker A: Yeah, so no position currently, but of course I do have a position because I own the index. So maybe that's an important point, which is if you own the index, you definitely have a decent chunk of the Magnificent Seven in your portfolio. A decision to have single stock exposure means you want to be overweight on one of them. So I decided not to be overweight on Alphabet just because I felt like the advertising story was a Bit difficult. And you know, people are changing the way they behave online. I think what Alphabet has done quite well is they've pushed through on cloud and it's really come to them. You know, they've kind of gone through that inflection point. I think that's done, that's done pretty decently. YouTube is a great business. So I actually noticed in their earnings that YouTube has now surpassed the $50 billion revenue mark on a trailing 12 months basis. I mean, what a business. So you know, their advertising side is around $35 billion. I actually went and checked it out and did the maths and then they don't specifically tell you what the subscription side is, but clearly it has to be around $15 billion. So really impressive. I think once you have YouTube Premium you literally just cannot go back. You can't go back to watching those adverts. It's terrible. So you know, Every month it's YouTube Premium and it's Netflix and it's all these little subscriptions that we all add on to our monthly bill Spotify and that's what's driving these big international groups. So no position on Alphabet. It's not one of my specific holdings, but I'll tell you which one is. And I'm very happy that I decided to get back in on the stock. Proof that you can data stock more than once and that is meta. It feels like the share price has performed in line with Zuckerberg's reputation actually, and also his hairstyle and his general fitness levels and you know, even his tan. So it really is doing very nicely. Pretty much a similar year to date return actually as Netflix when I looked so happy to have gotten meta even though I missed out on Netflix. Just a great business. It's just a good example of where AI actually has a home to land in in the form of all of those apps. I mean it's over 3 billion people using a meta app every single day. It's just immense distribution and it's not hard to see how you add a little bit of AI into that and just create a much better business. I can tell you as from our own use of the apps. Without a doubt the feed has changed. Even Facebook, it's way less now. About your Tunny's holiday and you know where she went on holiday and everyone else, it's not that anymore but it's more about just serving creator content and it works, it actually works. So you know, clearly it works because it's in the numbers. They're making a lot of money. AI is doing a better job on the feeds. It's doing a better job of helping advertisers. So we'll see what happens with Meta. I think they learned a hard lesson a couple of years ago when they threw the kitchen sink at deciding that everyone is going to wear those silly goggles forever. By the way, I remain bearish on the goggles. I've got to tell you, even within Apple, I just, I don't see it. My everyone wants a smartphone, it fits in your pocket. I do not know. There is not a single person I know who has said to me, wow, I really wish the goggles were available in South Africa. All I want to do is wear them. I do not know one person like that. Maybe I just don't know enough techie people.
[00:10:57] Speaker B: I'm, I'm laughing, I'm laughing because I wanted to discuss Meta next. So you kind of preempted that for me. It's, it's because that's a stock that I haven't been involved in for some time. I was a shareholder a while ago and again, just on a tactical basis, it's really run so hard. Again, listeners to the premium show will know that I do look at the technicals. I overlay that from a tactical perspective, certainly on the shorter term stuff that I'm doing and based on valuations. It's why a lot of the tech has now pivoted into my shorter term, more tactical portfolio. Met has been fantastic. Absolutely. You know, they beat on the earnings, they beat on the revenue, the market, like that. I'll tell you what concerns me. So again, you talk about use case and I'm not a big Meta user other than maybe WhatsApp to stay in touch with people. I'm not very prevalent on Facebook. You know, I think that's still a thing with older people like me. I'm not really involved on Facebook. I've stayed away from Instagram, you know, for the longest time, maybe correctly or incorrectly. So. But that doesn't mean that millions or billions of other people don't, you know, they're in there. It's the battle for eyeballs. MET has really done that quite well. And even if their goggles are absolutely terrible and we'll get to Apple just now, even if you look at that, I think there are other issues of concern for me at Meta and I think when the market looked at these recent results on the day, the share actually dipped 3% just after the earnings. So not massive. Again, these are not massive moves, but again, just signaling some of the sentiment, some of the froth might actually come out of the market. The challenge for me here is that Meta actually, while they beat on revenue and earnings, they actually missed the market's forecast on user growth. Now, that makes sense. I mean, it's billions and billions of people, so you run into base effects here. But there's concern of a slowing in terms of user growth and then just this massive investment that the Zuck has done into the AI infrastructure, the Metaverse, that's been something that I know, Ghost, you've been very bearish on. I like the Metaverse thinking because I think at some point in time, this augmented reality world is one that we're going to move into. I just don't know what that looks like. I don't know if it's with people wearing ugly goggles on their face. Remember, Meta also has the Ray Ban sunglasses, and that's actually been on social media. It's actually very popular because you can walk around with these sunglasses or glasses on your face and then take pictures and generate content. Guess what Zuck's just done? He's given you another way to create content that makes his platform stickier, that helps him make more money. So I think there are some concerns, but in aggregate, Meta is strong business. I'm not getting involved at these crazy levels. In my view, I might be wrong. I certainly have been wrong, given the last push in the share price. But I want to move from that into a view on Apple. And why Apple is. Because Apple is this behemoth of a company and they beat on earnings. They also beat on revenue, but some concerns there because again, the stock was kind of flat after the earnings announcement, but the concern here was a slight decline in iPhone sales. Now, does this make sense? I recently got an iPhone 15. I say recently, it's over a year ago, and when you look at the launch of the iPhone 16, we're back into that phase of just incremental changes. They've got a nice little camera button, the camera's a little better. And that's the risk. With a business like Apple that relies so heavily on specific products or specific verticals. I think there are concerns in the shorter term around the iPhone. Those vision goggles, I don't know who's buying those because they're so expensive. Would I buy them? Long story short, yes. If the price was lower, if it was priced in the same region as Meta's Quest headset, I would definitely buy them because it looks. Certainly looks very attractive. But the current price tag, that's More for early adopters, not for me. What I like of Apple in the longer term is that ecosystem is getting stronger and stronger. You reference YouTube Premium. That's where you spend your money. Guess what? I've canceled my Disney subscription because I don't really use it. They haven't come out with great content for the kids recently. So I've recently canceled my Disney subscription and I would reorientate that money towards maybe YouTube premium. But guess what? In Apple as an iPhone user with the iPads, the kids sharing your family's photos, that is a compelling cloud ecosystem and they make it easy. So I can guarantee you Apple's making money there on the cloud from me and they're also making money on Apple Care because if I buy a new device, I go and buy Apple Care because pretty much they'll sort out anything that goes wrong with the device over the lifespan of the device that services part of Apple. That's very, very compelling for me. And again it's what makes this company and the stock certainly quite interesting, despite the fact that it also, like a lot of big tech, does look extended. I'd probably be more partial to Apple than a meta ghost. What about you?
[00:15:25] Speaker A: I mean Apple's obviously a huge powerhouse, right? And it's very much the services story. I mean if you look at it, the gross margin for services in the latest quarter was 74%. It was only 36.3 for products. So where you want them to grow without a doubt is clearly in services. But that cannot keep growing forever unless the base of installed devices keeps ticking over as well. And that's where the hardware services combo has been so strong for them historically. Look for me, I am lon Apple. I've ummed and ah'd about cutting it but the reality is that it is still a strong business. The services underpin is coming through. Look, I do have a different view to you on the Vision Pro glasses. I was imagining you now wearing Vision Pros on our podcast and was mildly frightening. It's very Star Wars. I'm not sure. I'm not sure it looks remotely good. I might stomach the Ray Bans. It's like Top Geek instead of Top Gun. Still not convinced at all. But it is one of those things. I am probably the wrong person to ask. I mean I have a rubbish multi year old xiaomi of becoming my dad of like I just wanted to make phone calls, you know, which is actually a bit sad in a way. But the reality is that the big excitement over new iPhones does seem to be waning. You know, it's just like no one cares if it's a 40 megapixel camera or 36. What do you do with the four extra megapixels? It's like anything in life. The rate of improvement has to slow down at some point. It's the same issue that the European car manufacturers are facing right now against their Chinese threats, is there's a lot of the new features that are trying to justify the price of the European car manufacturers. No one actually asked for them or particularly wants to pay for them. They'd rather just get a car that works, that is cheaper from China. It's the same with Android phones, at least for a portion of the market.
[00:17:02] Speaker B: I want to jump in because again, I delayed upgrading my phone. I had an iPhone X or 10 a while ago and again those incremental changes didn't make a material difference to me. But once the device was suitably aged, the new iPhone made sense. I've got young kids. The picture quality is immense. And that's the one reason why I would consider those. The ski goggles from Apple, right, is because I take lots of panoramic shots. There's great scenery up here in Canada. I take that with the kids.
[00:17:29] Speaker A: Image is not improving for me at all. I'm imagining you walking with the kids through a forest looking like something out of Dune and just, no, no, ma, you can't do this.
[00:17:38] Speaker B: It's the playback, right? I walk with my device and when I get home I can relive that experience in this augmented, very immersive reality that the goggles are going to give me. Let me stop there because I haven't bought it yet, right? At that price tag, I'm not going to buy it if it's cheaper. Yes, absolutely.
[00:17:52] Speaker A: Thank goodness.
[00:17:52] Speaker B: But you reference car manufacturer, so you know where I'm going with this next one, right? Is that Tesla? Tesla's. I don't even think that's Mag seven, right? It's the non magnificent one of the seven.
[00:18:04] Speaker A: Well, I mean, if you. Yeah, look, I mean this is the one that I was, you know, I might have been wrong on Netflix, but I wasn't terrible on Tesla. You needed to buy this thing pretty much pre pandemic to get the big money and once the story was in it, I mean, it's pretty flat this year, isn't it? The share price hasn't done much. It's pretty flat.
[00:18:19] Speaker B: And I mean, you reference European car manufacturers and cars that work and I was thinking, well, Tesla kind of works. Let Me backtrack a little bit, you know, over the summer, they launched the Cybertruck. And I was lucky enough, I went, I had a look at the cybertruck. I got the girls to sit in the cybertruck and play around. I'll tell you a couple of things. A, I think it's hideous, right?
[00:18:37] Speaker A: You're redeeming yourself after the goggles. Thank goodness we can still be friends.
[00:18:40] Speaker B: It's terrible, right? But the build quality on the cybertruck, I literally asked the individual at the showroom, I said, is this just like a dummy version that you guys roll out the showroom so people can kick it around and stuff? And he's like, no, no, no. This is the quality. And he was very proud of it. And I was like, this is terrible. I'd buy a Ford truck, Lightning over your Tesla. That's just the Cybertruck. But going to Tesla, the company, you know, they reported decent earnings. I think they beat market expectations a little bit there. But in aggregate, the issue for me on Tesla is the valuation. First and foremost is that this is priced beyond perfection. It's not priced. As an automotive manufacturer, I'm not going to dwell on that point, because automotive manufacturers are really priced very poor. The story with Tesla is whether you believe in all of the blue sky. We know I like blue sky, so I kind of like the Metaverse at Meta. I like the Vision Goggles at Apple. Right? But when it comes to Tesla, it's. Do you believe in what Elon Musk is telling you around the Optimus Robot? Do you believe in what Elon Musk is telling you about the Cyber Cab? Do you believe in all of these fantastical stories that he's put on the table? And at the initial kind of level, I would say yes. I'm a buyer of, for example, the Optimus Robot. I see the use case for that. I would be a customer for that. And again, I'm the person who just loves to part with his money.
[00:19:56] Speaker A: Goes well with your goggles.
[00:19:58] Speaker B: With my goggles.
[00:19:58] Speaker A: Right. But that's why you cancel Disney, because you're trying to create Star wars in your house.
[00:20:04] Speaker B: So I see the use case goes for the Optimus Bot if it can do what they say on the box. My issue is that every single time Elon Musk comes out and tells you about this fantastic initiative, and guess what? It's going to happen within the next two years. Guess what? In two years time, it hasn't happened. He backtracks. It's another two years and it's A less fantastical story. So I have a high degree of caution around Tesla. I'm not a shareholder in Tesla because I think there's so much optimism. Some people just believe everything Musk is telling them. Yes, he's a visionary. He's done fantastic things as an investor. I'm not going to be buying Tesla stock at these levels. Would I buy Optimus Bot if it eventually comes through? Yes. If it actually does what it says on the box, yes. There's upside potential. So it's buying a call option. Tesla for me is a call option on all things Elon Musk. And you either like that or you don't. Ghost, I'm going to let you jump in here because I know how much you hate this thing.
[00:20:52] Speaker A: I can't talk anymore about Tesla. I think my views are noted. I agree with you. It's very much binary. You have to believe in Musk and the huge vision. Call option is exactly the right word. And if he does get some mega breakthrough, then absolutely it will do incredibly well. There's no question. And at some point if he doesn't and it really is just a car company, then car economics are not great. That is the ugly truth of it all. And that's why I'm not lon Tesla is because I'd rather be lon the other stuff where I don't need to have heroic assumptions to believe that Meta can keep growing or for that matter, Amazon. And let's end off there because you know, we're over. We're coming up to the end of the show. Let's do Amazon before we're done. And Amazon year to date is actually above Alphabet, above Apple, well above Microsoft. And some of that is obviously aws, which has been their cash cow up until now. Bit of a different play on cloud. So unlike at Alphabet and certainly at Microsoft, they don't have. And actually at Meta as well. It's not like they have this big user base of people to push AI solutions into. That's not Amazon's business. Yes, there might be some AI in the e commerce play, I'm sure, but basically Amazon in the form of Amazon Web Services is very much an infrastructure cloud provider. It's where you would go and store your data, run your applications. So big enterprise style consumers, startups, SMEs maybe to a point, yes. You know, pretty interesting place. They compete directly with Azure, as I say, they just don't have this big installed user base to go and put the stuff into. But they still compete extremely well. And of course the E commerce business has come into its own. You know, after years of being a free cash flow nightmare, a little bit like Netflix, actually, it finally hit that inflection point. And I'm glad to have tracked that story and seen what can happen with these things because it did help me buy something like Uber, which is in the green for me. Another example of a tech company, obviously nowhere near Mag7 status that has gone through that profitability inflection point. So just really interesting. The reality is if you bought a basket of these companies, you've done really well this year. And of course the one we didn't get time to talk about. But I mean, how much can we really add to the discourse around us? Nvidia up 180% this year. I mean, for as long as there's AI, they will keep making this stuff, people will keep paying crazy multiples for the thing, but the growth is there, the business is amazing. I don't know, I don't understand the tech deep enough to know whether or not it is a bubble. So that's why I've kind of stayed out of it. I just feel like you need to really understand it. For momentum traders, it's been an easy one. And at some point, will the music stop? I don't know. I mean, no one knows with those kind of gains, you have to believe at some point it slows down or competition comes through or whatever the case is. But again, I own it through the index. It wasn't something that I had a specific position on because I just don't know if it is a game of musical chairs. Well done. To those who have written it all the way, you've done very, very well.
[00:23:34] Speaker B: Yeah, I think wrapping up there ghost on Amazon, it's arguably for me not as extended as some of the other MAG7 stocks. You know, great business. Amazon Web Services, they're doing a lot of good things. You know, they've got Prime. I'm an Amazon customer. I love that. I've been shopping a lot more now. My wife actually has been shopping a lot more on Amazon. That bodes well for the company. I think the economics are good and I see the use case wrapping on Nvidia. I think they've got about two weeks to go. They're like one of the last of the MAG7 stocks to report. So we'll see whether the share price where it is right now is justified by the underlying performance in the business. Again, I just get worried around a lot of the froth that comes into some of these thematic plays. Like AI and Nvidia's, you know, the quintessential gainer in that space. Let's watch that closely. You know, it's probably one we want to cover once those results are out, but unfortunately we've run out of time. We've tried to cover so much on the show. It was a lot of fun. And I think it just highlights the fact that you've got to do some detailed research if you want to take an overweight position on specific stocks. As Ghost indicated, if you just own the S&P 500, you're getting a lot of these stocks anyway. But if you think that there's a story there that you like that resonates with you over the longer term, hey, maybe you actually like Tesla, right? Maybe you think there's some optionality there. Maybe you want to go over with that. I can see Ghost smirking a little bit. I'm waiting out on that one. In aggregate, though, I think a very interesting subset. Mixed results, not really giving us a clear indication of a mega slowdown in the markets, but elections today in the US Time will tell what event risk brings. Let us know what you thought of the show. Hit us up on social media. It's at Magic Markets Pod. One word at finance coaching Muhammad Nala. All on X or go find us on LinkedIn. Pop us a note on there. Until next week, same time, same place. Thanks and cheers. Ciao.
[00:25:14] Speaker A: This podcast for informational purposes only and is not financial or investment advice. Please speak to your personal financial advisor.
