Ray Dalio's Debt Crisis Warning: Is the US Heading for a Fiscal Breaking Point?

This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time. And now, here are Justin Klein and Luke Guerrero. Good afternoon, fellow investors and welcome back to Invest Talk. This is our Tuesday, August 5th, August 25th, 26th edition of Invest Talk. We're time travelers, I wish and that is the voice of Luke Guerrero. So we have a special Tuesday edition. Have you ever done a Tuesday together? I'm sure at some point, right? Yeah, maybe at some point. But it's definitely the first Tuesday of 2026 that we're doing the show together. So we're excited for this hour with you. You get both of us double trouble today. Whether you want it or not, whether you want it or not. Yep, yep, and we're ready for your questions. So if you're going to ask a question on any given show, this is the time to do it. You get two for one special here. So we're excited for this hour, help you become a better investor. Answer your finance and investment questions, bring you data and perspective, develop over 25 years of investment experience. Now in just a bit, we'll talk about today's market performance and run down the show topics. But as usual, we'll tackle this first colleague question now. But yes, this is Brett calling from California. I wanted to get your insight on a company called, well, actually, you know, this company Costco. I'm just trying to get in a high value company and has good strong fundamentals. I know the price share price is kind of high. I just want to see if you think it's a good long term investment and just dollar cost average it. Thank you. Well, for all the days to have, I know, but both of us profit, but most importantly, Luke on the show, it's to have a question about Costco. Luke, once you tell the audience about your love for Costco, before we even get into the actual business or investment pieces, et cetera. This is only an hour long show. It's true. And so I don't think we have the time to go over all of it. Though I will say I did used to deliver five rotisserie chickens to my house every Costco order. Is it crazy? No, I don't need rotisserie chicken anymore. A lot of sodium. Not that sodium is bad for you if you drink enough water. Again, this is not a nutrition show. This is about Costco. The stock, of course, the big box wholesale retailer. Probably one of the most successful membership models, I would say. I think that's really what separates Costco from a lot of these other businesses. Is that a lot of their revenue is kind of baked in already, right? That's why they have the ability to offer the volume that they do at such discount pricing. That's one of the reasons why we held Costco for years, although we sold it middle of last year. And frankly, since the end of 2024, it's kind of just been sideways. What are your thoughts on this name? Well, like you said, we've owned the company in the past. So we certainly like it. Luke loves the company. He probably got, how often you go to Costco once a week? No, no, no. Actually, again, we're talking about shopping habits again. But I have shrunk it down to, I get everything I need once a month. Got it. Okay. Yeah, efficiency. So, you know, it produced about $8.8 billion in free cash flow, which is still near an all-time high. I would say close to half of that probably comes from Luke himself. But then return of equity is 29%. So it's a very quality business. And it has about $6 billion in net cash on its balance sheet. So, you know, debt free. But when you look at things like enterprise value EBITDA, you're about 30 times, which is pretty expensive for a company of this large that it was growing kind of high single digits on the revenue side and earning side, kind of around 10% range. So you're going to pay a premium for this name, absolutely. But, you know, that's one of the reasons why we sold it. The valuation got a little stretched. And then the momentum started to wane as well. And that's why we, going back to what I talked about yesterday, opportunity cost. We found we said, okay, if it's just going to try to chop sideways, then we much rather put this money in something that's actually going to start to advance. It's a better chance to advance that a much better valuation. And that's been certainly a correct call. And, you know, valuations can correct in multiple ways. It can decline in price. That's the most common. But often, the performance can just be substandard for a long period of time, while the business continues to produce profits cash flow for shareholders. And that's kind of the case here with Costco, because the enterprise value EBITDA peaked back in 2025 at about 36 times. So now we're at about 29 times. So, you know, it's getting better. It's becoming more attractive. But is it cheap yet? I mean, I think low 20s, I'd probably play pay. Enterprise value EBITDA for this name. Oh, I'd pay more than that. I mean, you know, it's, it is, it first off, I mean, low 20s. It probably hasn't touched that in, what, three, four years. So you, you had to miss down on a lot of gains post 2022. I think that, that, that multiples for this name are generally justified. I mean, they have 13 and a half percent EPS growth. They're in renewal rate on their membership is 93%. But I agree with you where it is right now is, is, is far too expensive. So like you said, it in one of two ways, it's going to have to correct either by the price following EBITDA or earnings expanding from, from growth that's not currently priced in. Yeah, that could certainly happen. But also the price is what would have to not advance as well at the same time. So, you know, that's certainly possible. Now when we bought it, I think we bought it in 2023 roughly. Yeah, that was, that's when it was trading in that low 20s, kind of runs 20 times enterprise value. Even so, you know, we, we, we sold it when it was closer to 35 times. So, you know, I would want it closer to 20 times. It's a great name to have, everybody should have Costco on their watch list. It's, there's not an argument about whether it's a good business or not. It absolutely is. It's just, what are you willing to pay? Yeah. And to me, it's, you know, the big catalyst for me always was, they raised membership fees by $5. It's a crazy amount of revenue they did. Oh, yeah, and they do it up to the bottom line. It's straight to the bottom line. It's seven to seven eight years. So, I like the business. I wouldn't buy it yet. But certainly like you said, I keep it on my watch list. Yeah. Now we had a great show yesterday. I looked in the story about regulations around visual assets and what that regulatory framework could mean for the ordinary investor. I also answered a question about cracker barrel. And if you happen to miss it, go check it out. That's what we get every Invest Talk show. There's a follow Invest Talk where every you get your podcasts. Now we have a lot of ground to cover today. Over the next 40 minutes, that was a long answer, I think. So we started talking about shopping. I know. I know. Whenever we get you on the Costco topic, you know, it drags for sure. But my focus points, and that's my fault to be fair. My fault. Now our main focus point is about Ray Dalio's debt crisis warning is to have US heading for a fiscal breaking points. Ray Dalio warned this week that Treasury Secretary Scott Bessent's market intervention signals the debt crisis is getting closer. So we're going to dig into those alarm bells and give our opinion on that one way or the other. We have other topics on the docket as well. Oil, oil markets with the war in Iran have been royal to some degree. Maybe not as much as others expected. But clearly there are our problems there in the Middle East. And there's a story from a lot of different players within the oil patch and different governments. And the question is, what is the reality? So we're going to look into the numbers when it comes to how much oil is really coming out of the straight up or moves right now. And then clean energy. President Trump and his administration has kind of pulled back on clean energies. What we call them subsidies subsidies. That's the word I'm looking for subsidies. But that hasn't stopped the deployment of a lot of green energy projects. So we're going to look at those numbers as well. But most importantly, we'll be your calls. We have voice bank calls. One is on saving up for a house. The other is energy energizer holdings in our as well as questions that came in via the comment section on the Invest Talk YouTube channel. Now we're going to head to a quick break. You can call anytime and leave your question on the Invest Talk voice bank. But most importantly, if you're listening are via our live stream on Invest Talk. Or possibly on Amtell 20 in the Bay area. You can call right now at 888 99 chart. Next we will comment on today's market activity. The calls are free. The unbiased answers are free. So what are you waiting for? Call Invest Talk 888 99 chart. Let's go take a look at the market today. It was a nice little bounce back day, especially for the AI trade. Some of the connectors did pretty well. AMD up nearly 5%. Nvidia up to as we head into remember earnings for Nvidia tomorrow after the bell. So that's going to be big news. But today you had oil prices pull back. And therefore names like X on the chevron were a bit weak. But kind of a mixed bag. It dowels up a third of 1% S&P same NASDAQ about two thirds of 1% and then rustle up about half a percent. What did you take away from today's market? Maybe not much. I mean you have like you said Nvidia earnings. You have other high profile earnings for the rest of the week. Really across various sectors that I think the market is waiting for. You had a couple good data points, consumer confidence slipping today, weekly payrolls up from the prior four-week rolling period, which actually broke seven straight weeks of declines. I think the most interesting thing to me today was really this rate rally in lower oil, especially on the back of that op-ed from the Treasury Secretary talking about, you know, not just what we're going to do militarily to Iran, but the economic sanctions. I don't know if you read that about the, quote unquote, economic D-Day. So the market is essentially saying, yeah, we don't believe you. So because you expect if you had, if you had economic pressure, recent leading to rising tensions, you think oil would be up, right? But it seems the market, once again, is just shaken off things geopolitically. Yeah, it looks like both Oman and Iran outlined a framework to restore navigation through the straight-armus, basically saying that they're now in charge of the streets of the straight-armus. So it's unclear how that's really going to stand with the US, which talk a little bit later about how much oil is still moving through that region. And it's kind of working, but clearly there's a pressure on oil near-term on that news. Let's see what else I know after hours into it head earnings. So that was down, I think it was about 10% on the day or after hours. So I think it's going to probably weigh, especially on software tomorrow. So that'll be interesting to see how that evolves as we move into the Nvidia earnings. Treasuries, like you said, were a bit firmer down, yields down about five-day base points at the back end of the curve, which is pretty good. Pretty good move there. Dollar down 0.1%. Gold finished up 0.1. Silver up 0.1. Bitcoin up 0.1. So interesting. A little correlation there. WTI was down 3.1% on the day. So that was the market today, still kind of waiting once again on the Nvidia earnings. Now, let's pivot over to a question that came in via our website. And this one said, what would be a reasonable entry price for TYM technologies? This symbol is TTMI. Let's take a look. I haven't heard of this one. 11 billion dollar market cap manufactured printed circuit boards. So clearly in the electronic manufacturing business is good earnings up 97% this year to $4.84. That's the expectations. Then $6.91 next year. So if you're looking based on four looking earnings, Luke, you're talking about a high teens multiple. So it looks pretty cheap. Does that mean it's a buy? Well, it does look cheap. I mean, if you look back on more historical growth rates, excuse me, and kind of choked on my words a little bit. You see not much from 2020 into 2023, really 2024, the big explosion in both top line bottom line was over the last year. Naturally, that's going to push earnings expectations for the subsequent year up higher as well. Does that mean, because again, we've been talking a lot about what moves multiples, does that mean that the earnings expectations are potentially a bit unrealistic, given where they've been? I mean, I don't know. Usually the current profitability is the best predictor future profitability. And it had a billion dollar quarter for the first for the first year. I've never frankly looked at this name from a balance sheet perspective, and from kind of a growth story. I think it's pretty compelling. Yeah, it looks like it operates in aerospace and defense, commercial radio frequency, especially components, et cetera. So I like their focus on automation, medical, industrial, instrumentation, networking, et cetera, data, data center, computer, compute, and markets. So I like the business. My couple of worries I have is cash flow. Free cash flow is still slightly negative. That's not great. Turn equity after such a banner, a few years is still only about 13%. Obviously, we'll head higher as profitability continues. They're issuing more shares again, which I don't love. But I do like the chart. It did pull back kind of to the level that it broke out from back in April. So I think there's some good support here. I think it's high risk, but I like the balance sheet, no debt, and I like the area that it's in. So I'm going to give it a thumbs up. Our 24/7 Invest Talk Voice Bank never closes. You can leave your finance and investment questions right now or anytime at $88.99 chart and work continues after this break. So lifetime downloads for the Invest Talk podcast are now more than 63 million. So tell your friends when they have finance and investment questions, don't forget to call Invest Talk 888.99 chart. Let's talk about oil. Now the current administration says that there are a large volume of oil that's moving through the streets. Energy Secretary Chris Wright said last week that the US military has helped ships over 15 million barrels of crude oil get through the waterway. That was last Tuesday, and they say over seven day period more than 8 million barrels a day are being moved. And over the last seven days, it's at 9 million barrels. So what do you think? Do you think they are being truthful or do you think that they are? It has that line with maybe some of the other sources. Yeah, I mean, the more commercial ship trackers see not really just a little bit less, but a lot less. I mean, two to six million barrels per day. You know, is that from Washington inflating the numbers? Is it from tankers crossing at night at a time when they turn transponders off? And so you essentially have to recreate the journey once it gets to port. It could be either of those. I think notably though, right at some point, the oil has to show up somewhere. And so if buyers are purchasing oil that doesn't appear for delivery, like the true volume becomes known once it gets to its importation point. And thus far, importation from Asia doesn't really back up the larger numbers, right? It kind of pegs it more at the four to six million barrels per day. And the UK maritime trade operations, this is related to the Royal Navy. So not US. They said that over the weekend US facilitated 74 trains. It's through the straight of her moves from Thursday through Saturday around 25 per day. The issue with that is you have no idea how much oil are on those tankers or even if there's oil on them, right? It's just talking about ships crossing. So there's a lot of merciness in these numbers that are reported by so many different kind of independent sources that's all conflict in some way, shape or form. Ultimately, it's the rubber rest of the road where the barrels have to hit the market, right? And that is what's reflected in the price. And if you go look at all the all the independent sources, it looks like the number of barrels moving through the straight of her moves in August are much lower than July. And I think that's a bigger reason why you kind of continue to see a March higher, what are we Brent in the 90s with WCI or what in the high 80s correctly. So I mean, is this is this going to continue through the midterms? They have enough strategic oil reserves to keep the market at bay. I mean, in a lot of ways, the market seems to think so, right? You have had the premium between physical and paper oil, right? Those oil futures kind of collapse in the past three months. So that's effectively the market saying, okay, there's enough oil getting out right now, whether it's being escorted by the US or on the Oman side or through that, you know, UAE Saudi bypass pipeline or even a run allowing it to pass such that, you know, the market can clear. At this given price. And so I think that's probably the best indicator. Now that means if we're wrong about the supply and there's less of a cushion, if it's thinner, then there's a lot of risk to the upside. Yeah. And to me, the the ultimate tell is how much how much oil is moving out of the strategic goal reserve. It's still consistent. And that means that there's deficit in the market. And to me, what happens when that stops? We'll see. Let's move back to the Invest Talk voice bank. You know the number. It's 8899 chart. Hey guys, good evening. It's Larry down in South Florida. I had a question about a stock MTW. The company is managed to walk. It's a small cap industrial crane maker. Just kind of curious about where you might see a company like this, fitting in, considering all the trade and tariff talk. Thanks guys. Take care. All right, looking at Manitoba. This is a name. It's funny. I haven't doing this a long time. And you you look at a name, especially some of these smaller names. You're interested in maybe I think we might have owned this at some point way back in the day. And then you know, here for about it for a while and then it comes back. I was just thinking about 709 million dollar market up. So very small earnings are supposed to be up pretty big this year, 100% to 92 cents, but then flat next year, also 92 cents. The child looks pretty good. But I think it's a reason why there's a reason why it's been a small count. that for a long period of time, right? - Yeah, I mean, they had a bit of a turnaround in more recent years. I mean, the chart looks good. It's certainly juicy in the past month or so. It's pushed it up to near the top end of its five-year valuation range. And frankly, performance is kind of all over the place. You have revenue kind of being flat for a couple of years, some solid growth in some years. It's pretty volatile, Nate, which is something that you inherently expect from those small caps. I think it's a bit inflated here. You know, obviously we don't put analyst targets as gospel here, consensus target at 14, kind of across the board, sell rating here. I think, frankly, it's become a bit expensive, especially considering earnings are supposed to kind of reset next year. - Yeah, I think my problem is that if you go look at the market cap, it has the same market cap that it did back in 2006. And it doesn't, it's only paid a small amount of dividend since then. So you're basically 20 years of no growth here. And it shows in, if you go look at the return equity, it's been kind of oscillating between positive and negative for a long period of time. I just don't think there's a good business here. For a trade, sure, but this is not a long-term hold. The next and best talk we're looking to the story. Germany's aging population and their record social spending is a preview of America's fiscal future. Let's talk about that tomorrow. But for now, I'm Justin Klein with Luke Carrero and we are ready to take your calls any time on 8 at 8.99 chart. At KPP financial, accountability means more than advice. It means we invest alongside you. Through our parallel investing approach, when we recommend an investment for clients, one or more KPP principles, invest their own capital at the same time. Same day, same price, same percentage. If your portfolio moves, ours does too. That is alignment. That is transparency. That is the KPP difference. Visit investtalk.com to get your free portfolio review. In the early days, invest talk was Jerry Klein and Steve Peasley. Now the torch has been passed and a new generation of hosts is on the job. Justin Klein and Luke Carrero. So when you've got finance and investment questions, don't forget to call Invest Talk. 888.99 chart. Luke Carrero and Focus Point today is about Ray Dalio's debt crisis warning. First off, what do you think of Ray Dalio? I don't know. He loves giving warnings. He does. The man has never missed an opportunity to give a warning or point to his books. And he certainly did not miss the opportunity recently. Are you saying he's a bookhuckster? I'm just taking a back. Are you from the 1930s? Who would say something like that? Bookhuckster? Yes, salesmen. He's always been a salesman. I also heard not the funnest guy to work for. It's all I'm going to say. Well, what he said recently was that Secretary of the Treasury Scott Besson, his announcement on debt buybacks fits a broader pattern that signals a forthcoming crisis in the debt markets. He says he's guessing three years plus or minus two, which calls it that's one to five years basically. And he said investors should own less bonds, more gold and cryptocurrency. Now, I generally agree with that sentiment. Cryptocurrency is probably a lot less. He says the same thing. But clearly, the government's fiscal situation is worsening at a rapid rate. The question is, are we at the inflection point that he's warning about? It's funny. I point to the supposedly AI written op-ed from Drunken Miller earlier. And I don't care who wrote it. The opinion-- that was his opinion. And one of those pointy things that was said, whether he wrote it or clawed it, was that the bond market is the last fiscally austere member of the US government. It is the last entity that is trying to pinch the purse here. Because the things that he's prescribing, right now he's prescribing, and talking about this inflection point and what typically happens with sovereign debt crises and what comes next is something that everybody knows needs to be done. The reality is, is this situation is not going to be fixed without cutting spending and raising taxes. Those are the only two ways to get us out of this situation. Now, my contention is, although that is what is required, will it happen? Is it politically feasible? I think is a fundamentally different thing. Is it more likely that we just go back to the early 2020s playbook of running crazy deficits, having inflating away the debt? Probably, but the conclusions that he has of being underweight bonds holding a good allocation in gold, I certainly agree with. Yeah, and I think when it comes to sustainability, the debt, I would say, if you go look at the post-World War II era, we ran pretty large deficits, but we spent that on the country. We didn't spend that on wars in the Middle East, for example. Because wars in the Middle East don't really grow our economy, and they do not, at least on a sustainable basis, that's for sure. So much better to spend it on an interstate highway system, for example, than on wars. That's a much more politically tenable way to spend money. And I think that's the question. Like you said, I don't think the government can shrink the amount of spending, but they can certainly spend the money wiser on ways that make the economy more efficient and grow. And so that's one thing that, remember Doge? Doge was spending that didn't happen. Obviously, right now, we spend more than 40% more than we bring in the US budget deficit top $432 billion just in the month of July alone. So-- Yeah, I mean, I think that we always focus on the spending being more austere and spending and whatnot. But I think he points out correctly the uncomfortable truth that we have a revenue problem. We're just not bringing in money. Look at the fiscal trajectory of the United States at the end of the '90s. You had a Democratic administration with a Republican Congress and a balanced budget. And then subsequent decades of just cutting revenues. Because the reality is, is we kind of know and can project out how spending is going to change. Obviously, we spent a bunch of money on a long war for 20 years that we didn't project out. But where we are now, we just have a situation where the uncomfortable truth is probably the one that's politically untenable. Nobody wants to cut social safety nets. Nobody wants to raise taxes. But at some point, we're going to have to do it. Yeah, that's what he says is that we need to reduce spending, raise revenue, and lower interest rates. And right now, the current administration is kind of trying to do the latter. And that's pretty much it, you know, with trying to make excuses of not raising rates, doing the bond buyback and the long end, issuing on the short end, they'll probably try to cut rates. And I think that's the one lever they could probably pull. In the near term, doge didn't work. So not cutting, spending clearly. And we have the off-balance sheet liabilities of Medicare and Medicaid continuing. That's not going anywhere as more baby boomers retire each and every day. And then, like you said, tax revenue, I think, as long as-- I think it was interesting. I was looking at the percentage of tax revenue that comes from corporations. Do you know what it is? Probably very small. What do you think it is? Percentage of tax revenue. The total tax revenue that comes from corporations, yep. Oh, 10, 15, 10%. 8%. Yeah, it was close. 8%. Very close. And I wasn't biting my time to use AI to find that. You can hear me typing when I did. Yeah, I mean, you have a global race to the bottom, right? Everybody wants to incentivize corporations to be in their jurisdiction. I would argue one of the best benefits of having a corporation in your jurisdiction is the tax revenue generated from that corporation. So we've been given a lot recently without a lot in return. It's just an uncomfortable conversation. Eventually, we're going to have to have. Yeah, and finding that balance of cutting spending without destroying the economy, because that's, frankly, an issue. Because if you go look at the formula to calculate GDP, government spending is in there. And so that's a big aspect. Big G. Big G. And so that'll be interesting to see. And then obviously tax revenue is difficult. And so it's cutting interest, especially if the dollar declines, that creates inflation, et cetera. So it's definitely a quagmire. We'll be dealing with for a long time. Let's put it to the Invest Talk voice bank from 8-899 chart. Oh, this is Kayla from Rhode Island. Let's call him and ask about energizer whole thing. Simple echo November of Romeo. It looks like it has pretty cheap forward earnings, but it's charged, obviously, just kind of got nowhere in the past a little bit. I'd imagine the main reason is because of its debt level. And maybe people are using more rechargeable batteries instead of theirs, not looking at the dividend. But I am wondering if you'll believe they'll cut it or reduce it. Maybe it would cause a further push. down. I guess they probably should to manage their debt level. Yeah, I'm just wondering what you think would be a good risk versus reward for this, or if you think I should just move on for a while from this name in the list. I do not currently hold any of it. Thank you. All right, looking at Energizer Holdings, and yes, this is the battery company as you would expect. They manufacture both batteries and lighting products. What's interesting is their businesses kind of man, even though everyone knows the brand, it's based though basically a commodity. Earnings in 2021 were $3.48, and this year they're supposed to make $3.30 down 6% from $352 last year, and then $3.38 next year. So talk about non-existing growth here. This is the epitome of that. Now, like the caller said, Luke, they do have a lot of debt. It looks about $3.2 billion and net debt on a $1.5 billion market cap on the only $149. Well, decent amount of free cash flow. That's the good thing. But the repair ratio is right out of 100%. So do you think the dividend is going to be cut, or do you think they'll just kind of continue to try to take that cash flow and pay down debt? Probably continue. I don't know if in the foreseeable future, it's going to be cut. I think that from what I'm seeing, it looks like this EPS shortfall, this most recent one, was primarily due to one time credit that didn't repeat. So there wasn't really any change in demand. There was no demand weakness that drove poor performance year over year. But I mean, there's just no growth. There's no growth. It's trading at 6.4 times, priced before looking earnings for a reason. I'm not excited. I'm not excited. Yeah, as well as the days, if you look at return equity, it's really high, 46%. But that's because of the large amount of leverage. The return investment capital is still only 2%, which is extremely low. So I just don't see any reason. Because even though it has pretty good cash flow, it's free cash flow yield is about 10%, which is good. But the problem is that cash flow needs to go to support the debt and pay down the debt. And they're just not producing enough. And it's kind of a commodity business. So I would stay away from energizer. Now, from time to time, we get questions. A bit of a YouTube. So let's go at answer 1. Now, Rich P says, what do you think of pure play data center reads like digital core REIT? Is it a good strategy to make it part of a long-term income strategy? What are the risks? Digital core. Do I, have I looked at that one? Digital core. Oh, there we go. Oh, digital core. This looks like a pink sheets. Am I wrong? That's what I'm seeing too. Maybe I'm looking at the wrong exchange here? DGTCF is what I have. Well, there's DCRU as well. But that doesn't look good. Neither does digital core. Nothing looks good. It's up 47. Well, I mean, I guess it's probably, it's first I would say I wouldn't buy this one that it's pink sheets first off. Free cash flow is pretty good. But that does a lot of debt. So I don't really love that. I rather if I'm going to play the space over their own like a digital reality, for example, kind of the equinix, those are the top two. Is equinix still public? Equinox, there we go. Yeah, those are kind of the top two. The question is in the era of data centers and the buildouts, are we building too much capacity? And maybe the Skype skills are crowding out. The peer-play data center reads. What are your thoughts on that? Well, if there is one issue that seemingly unites Americans, it's that they hate data centers. Absolutely hate data centers. They didn't three years ago. I probably think the backlash is a little bit overplayed. I think from a policy perspective, the way it'll bear itself out is, hey, meta, if you want to build the data center in my neighborhood, you got to give 1% of the compute, you know, revenue to our schools indefinitely. That's probably how it's going to bear itself out. But that being said, I agree with you this specific database reach is definitely not the way to go. But it's also a trade that's been maybe a bit overextended recently. Yeah, I think my worry is kind of broadly with the the amount of capex that's going into these data centers, and how will the AI industry evolve? Will far more compute be needed for far more AI queries be done on device? For example, I know that I think over the long term from a consumer perspective that most of those queries are going to happen on your iPhone, for example, because of the context that just is contained within the iPhone. For example, now there's another question about inference on the commercial side as well as training of these models, et cetera. So there's a lot of murkiness to the future of the AI space, and I wonder what happens if demand starts to drop? Like I know, hasn't the cost of renting GPU started to fall? Have you seen those charts? I've seen some charts. My worry is that companies are starting to right size their need for compute based on actual productivity. That's my biggest worry about the data center rates is that there's just a lot of capacity throughout the industry, and do you get some sort of the fiber issue in the.com bubble when there's all this fiber being laid, but majority of it wasn't needed. So in five years, will we need as many data centers we're building now if so much of so many of these models can be ran on device? I mean, it's possible. I think we're just at a point where it's in its infancy of what we actually we don't really know much about what the future is going to look like. We never do. It's part of this business, but I think there's a big uncertainty specifically in this space. Like you said, around whether or not the amount of compute that we've built out, the amount of data centers, we've built out, is a bit much for the actual end use. There is a lot of evidence that smaller, more localized models are pretty good at most tasks. Not everybody needs frontier models. I think that would definitely hurt this industry. Yeah, so I don't mind having a little bit that I wouldn't go overboard with that exposure. Let's go answer another YouTube question. Paul Brown says, "I held TROW for three years. It's paid a good dividend and dividend looks to be secure, but I'm down nine percent for what I paid for it. Phenomones are strong, but the market doesn't seem to like the stock. Is it time to sell to avoid further declines in price? What do you think, Luke? T-Rote Price. T-Rote Price, big asset manager. Obviously, a lot of the revenue coming from the investment advisory business, probably 70% of the revenue may be coming from the investment advisory business. At the same time, margins or rather fees tend to be compressing over the past a decade. Revenue is only at 3.3% growth on an annualized basis. EBIT is down over the past five years. Net income's down earnings per share down one and a half percent. I think it was a peak out in 2021 at about $13.12 was the earnings per share. Now, I like this part of the financial services sector. They have over $1 trillion, $1.7 trillion, big asset manager, but the transfer of this specific company trying to fight against the currents of fee compression has been pretty difficult. You bet you're getting a really high free cash flow yield. Enterprise value is $22.5 billion. You're talking about free cash flow at $2.8 billion. That's about a 12/13 investment free cash flow yield. What are they doing? They're paying out a dividend, about 4.5%, but then the rest are just buying back shares. That's been as allowed them to grow their earnings, 4% last year, 5% this year. I do think it's a pretty good value play. The question is more around will the tide turn on indexing and move more towards active management as we enter a more volatile world? There's some potential there. I kind of like it because I think there's a lot of value there. Those are the best talk. I'm Justin Klein. We have one goal here each and every week today, so I hope you achieve your own version of financial freedom. And I work continues after this final break. It's your question's in right now at $8.899. You've got two for the price of one. Justin Klein and Luke Guerrero are here and they're taking your finance and investment questions now. $8.8899 chart. I'm in my upper 20s. Me and my fiance live together. This isn't really an investing question. The more of a savings question. We're probably looking to buy a home, I'd say within the next two to three years. I know housing markets are kind of localized, but I was curious what you guys would recommend as for like, savings towards a house. I have like a socket counter for one. Okay, but I don't feel right for like money out of that. I know it's there for me to use, but like, I just got the six figures. It was like a big milestone. And now I'm starting to see those compounds. It just doesn't seem right. I was just curious what you guys would recommend. We both have pretty good jobs. They can like, mid, uh, like offer 200s. No, 100s. So I was curious what you guys thought. Thanks. Well, we started off the show with the question right up, Luke Sally. And we end one as well. Second favorite topic is the idea of buying a home, especially an expensive markets like the coastal regions, I guess. I guess you could speak to your thoughts on it, Luke. But I didn't really understand this question. Well, it sounds to me like he's set on buying a home. OK. Which is fine. Which is fine. It's mathematically probably the poor decision, but that's fine. We all fulfill our own utility function. But I think his question is, essentially, if I'm trying to save money for a house, what do I do with it? Because I'm trying to buy this house in the next couple of years, do I put it in something risky? Do I separate it into a different account, kind of like high yield savings account, do I do bonds? What should my investment strategy be? Well, we always say if you have a two, three-year time horizon, which sounds like you do, which I think to maybe close to the three years is probably a good time to buy a house, to be honest with you. I think there's going to be a two to three-year corrective period, and housing more broadly now are localized markets and everything. But in general, we don't know where this gentleman lives. But yeah, you should probably be pretty conservative with that money. Short-term treasuries is probably the best way to go. I mean, do you supercharge it with something a little riskier, maybe, corporate bonds? I don't know. What are your thoughts on that idea? Options on MedTech stocks. No, I think that I agree with you. Two to three years is pretty short-term. You're set on buying your house, though. Have a portfolio review, maybe I'll convince you otherwise. And you can't risk the money, right? Right now, you're getting 3 1/2, 4%, 3 1/2% from treasuries. That's a pretty good yield. Here's my question for you. I mean, what's a two-year? What's a two-year at right now? A two-year yield of over 3 1/2, 3/75. Something like that? 4191? 4191, OK. That's pretty good. Do you put it in something like that? Do you just buy two-year treasuries? I'm finding being short duration. You're getting what, 50, 60 basis points of extra yield on that money? Maybe do that. Not a bad idea. Now, Luke, let's say he's in a market where the cost of rent is high. Now, this is rare. This was calm in the decade, plus a go. And definitely the middle parts of the country, you mainly, the Midwest, where the cost of rent was actually higher than the cost of rent. In that case, would you recommend buying? Well, how do you define the cost of rent being? Total cost. Total cost of your mortgage, plus your taxes, plus everything else. After you take into consideration this crazy fiscal deficit driven market and equity premiums we're seeing, including that opportunity cost in there as well, I think there's more to it than how much does my rent cost, versus how much does my mortgage cost. We also live in an inflationary environment where fixing your home is going to be more expensive than it has been in quite some time. You're talking about the opportunity cost of that down. Yeah, maybe in January we got some new tariffs on Canada. Hopefully you don't need any Canadian lumber to fix your East Coast home. I just think that generally speaking, unless you have a utility for, we talk about this all the time. Buying a house is not an investment. If you and your partner want a house because you want a house, that's fine. Just understand that especially right now, the math a little bit against you. Be a shame it's something happened to that door where you need some Canadian lumber. Mm-hmm, mm-hmm, one of those markets. Yeah, there you go. Well, a very interesting conversation about housing. I tend to lean in your direction, Luke, that you a lot of real estate investors, they rent. They buy, they do, and they rent, they rent themselves. And so, I do think renting is underrated now. Everyone's situation's different, so. Every market is different. Every market's different, everyone lives. We have clients in 40 plus states, so. We have clients where renting is a great option, others where buying is a great option. So it just depends on your own life situation. Well, that about does it for the special additional investment with both myself and Luke Guerrero. And we won't remind you of K.P. financials parallel investing. We could trade for our clients, make the same trade for ourselves, same day, same price, same percentage, no front running. No special treatments, we invest right alongside our clients. We should have the same risk and potential for success. You could learn more by heading over to investtalk.com. Please tell your friends and family about a free podcast downloads, which you can find anytime, iTunes, or Spotify. Be sure to rate and review on iTunes as well. Independent thinking, short success. This is invest talk. Good night. Invest talk is a trademark of K.P. financials because of the nature of the interactive dialogue inherent in the format of this program. It's important for the listener to understand that not all comments made will apply to them. Specifically, nothing said she'll be taken to be investment advice, or shall statements on this program be considered an offer to buy or sell security. Because such advice is rendered solely on an individual basis, and at times will require that the investor review a prospectus before investing. Invest talk is a copyrighted program of client, Pavless, and Peasley financial, a registered investment advisor firm, which retains all rights. 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