The Trillion-dollar Interest Bill Nobody Votes On

This is InvestTalk from KPP Financial, helping investors make sense of the markets one day at a time. Here's your host, Justin Klein. Good afternoon, fellow investors, and welcome back to another edition of InvestTalk. This is our Tuesday, August 18th, 2026 edition, and it was a red day in markets. I've been talking for a few days now. I'm getting that, that's, the hair is standing up in the back of my neck, say that, when it comes to the market. I've been doing this for 25 years. You know, you kind of know the patterns, you feel the patterns, you absorb the patterns that you see in markets, and then you're digging into kind of the, you know, the, the you know, the patterns that you see in markets, and then you're digging into kind of the, you So I would hold off on it, because I think the whole space is just about to go through a deeper correction than what we saw in the month of July. Could be wrong, but I don't think this is over. And today's a good example. This stock itself was down 14%. It's down another 1.7% after hours. So the whole space, to me, is set to fall apart in the short term. And that's why I would stay away from it. Now, we have a great show. We had a great show yesterday, actually. We do have a great show today, but we had a great show. We looked into global shipping under siege. Talk about the supply chain bottlenecks that all the hostilities in the Middle East are causing, what that means for different sectors in your portfolio. We also answered a listener question on the Vanguard Total World Stock ETF. And if you happen to miss it, go check it out. It's the best way to get every show is to follow InvestTalk wherever you get your podcast. I have a lot of ground to cover over the next 45 minutes or so. And time permitting, we'll get to all of it. And our main focus point today concerns the story of the trillion-dollar interest bill nobody votes on. Federal government will spend about a trillion dollars on interest this year alone. Roughly what it spends on national defense. And every rate increase makes that number larger. So we'll explain why the government's own borrowing costs now shape. Monetary policy and what that means for long-dated bonds and why central banks around the world are buying gold at the fastest pace in years. So we'll look at that topic. In addition, the world's largest car makers, they're looking to avoid some pain and some supply chain issues by switching the type of oil they're using in your car. This is a microcosm of what's going on more broadly. And then last. Lastly, Goldman Sachs is trying to get in on the derivative ETF game. Is this a smart move? It's a smart move for you to buy these buffer ETFs, covered call ETFs, things that overlay an amount of or a certain amount of option activity within the portfolio. So we'll look at that as well. We also, most importantly, will have your voice bank calls to answer. One is on Drip Stocks and then Avantis International Equity ETF, A-V-D-E. And of course, your questions that came in via the InvestTalk YouTube channel. But by far, most importantly, will be your live call. So if you pick up the phone, you will be put in front of the line. You'll be put in front of all the different topics that we talk about throughout the day. So don't hesitate. But right now, we're going to go to a quick break. There's going to be a call anytime. Leave your question on the InvestTalk voice bank. And if you're listening via our live stream on InvestTalk.com or possibly on AM1220 in the Bay Area, you can call right now at 888-99-CHART. Up next, I'll comment on today's market activity. Justin Klein is here and he's ready with answers to your finance and investment questions. Call InvestTalk. 888-99-CHART. Let's go talk about the market rotation we are in the midst of. We kind of had that in the month of July. And you had the bounce back and a lot of the AI names in the first half of August. Now we are rolling back over and seeing that rotation. You saw a lot of weakness today in the hardware names from NVIDIA to Micron. To SanDisk. To Marvel Technologies. Even Meta down 4% on the day. Tesla down. Oracle and Amazon down. And then a lot of the industrial companies related to AI. Caterpillar. G.Vernova. Applied Materials. Lamb Research, etc. But there was a lot of green in places like healthcare. Eli Lilly up 3.6. Johnson & Johnson 3.3. AbbVie up over 3. Gilead up over 3, etc. The finance space was a bit mixed. A lot of the big banks were strong with J.P. Morgan and Bank of America up. Same with Charles Schwab and American Express. But you had some losses in names like Robinhood. Clearly linked to tech portfolios, shall we say. So I think this is a rotation that is about to resume. Could be wrong. But that's what the hairs in the background. In fact, my neck are telling me. We also had news from the Financial Times, which is reporting that Kevin Warsh is expected to use the Jackson Hole speech coming up in 10 days on the 28th to unveil a new framework for the Fed. Clarifying where things that he might have said didn't really hit with markets. What would that reaction be? We'll see. But that's something the market is starting to brace for. What's he going to say? And how will that impact the trend of interest rates, which certainly have been higher? Will you get a breakout in rates or maybe a pullback in rates? or maybe nothing at all, but we'll see. We have NVIDIA earnings coming up on the 26th. That's the next big area of focus for AI that's coming up in a little over a week. But like I said, it's really about a market that is rotating. The Middle East, there's no real action there. Oil continues to kind of grind higher. I could easily see a breakout to the upside in the medium term. The dollar was flat on the day. Treasuries were unchanged. To a bit stronger, you saw yields were down one to two basis points, but that's after a pretty big rise. So it's kind of a one-day little pullback. We'll see if that gains any momentum, but unlikely. Gold finished down 1.2%. Silver down 3.3%. Bitcoin was up 2.8%. So a rare day where Bitcoin's outperforming gold as of late. WTI crude settled up 0.4%. Like I said, just kind of grinding higher as no resolution in the middle. The Middle East. So that was the market today. Kind of a mixed bag, but mostly red with the tech names, especially the tech hardware names, dragging down the indices. Let's go answer a YouTube comment question. Jimmy says, I've looked into some oil and gas names that might be a good investment for the moment. These names are Valera Energy, Marathon Petroleum, and Phillips 66. You just mentioned Valera on your show, so I won't ask about that again, but I would appreciate if you give me your thoughts on Marathon and Phillips. Thank you. Thank you very much for the show. So I've been saying this for the past couple of months, which is the lack of huge upside follow-through in the oil market kind of tells me there's a cap on what we call the right tail risk. So when you look at a normal distribution of outcomes of returns, you get kind of that two standard deviations where you're going to have a lot of returns, but most 95 out of 100 times, you're going to get outcomes that are within that range. It's a normal distribution. You have three standard deviations, that's roughly 98%, and then you keep going out, and if you get further out into the right or the left, those are extremely rare scenarios. On the right side, it's usually in the markets parlance, it's a good outcome, meaning returns are, are sky high versus far left. That is very, very low, right? Big crash, shall we say. So what this has told me about oil is that the right tail is not that high. Now, part of this is the strategic oil reserve. And I understand that, but it's clear that there's a lot of oil out there. The market kind of figures that out. It's easy to move oil around the world. What's, what it's hard to do is to move and increase capacity for refining. And so that's why I'm starting to like a lot of the refineries long term. Now, what you named are just three of the biggest refining companies. For Marathon is about a hundred billion. Phillips 66, PSX is about 95 billion. And then Valero is right around that. So they're all about a hundred billion in market cap. So all very good companies. It's just a matter of, you know, what you prefer, frankly. I know last time I checked, Marathon had a lot of debt on its balance sheet. I know that's been repaired to some degree. So that's a positive. Let me look at these different profitabilities. I mean, you're kind of getting a pure play exposure no matter what. So, you know, I would go with the one that has the better long-term profitability metrics, and frankly, that's Marathon. So that's M-P-C. Thanks for the question. We're heading to a break. Give me a call now at 888-99-SHARP. - There are a few things that make KPP Financial special. One of them is parallel investing. This means they invest right alongside their clients. Here's how it works. When KPP Financial makes a trade for their clients, Justin Kline makes the same trade for himself and KPP on the same day, at the same price and same percentage. No front-running, no special treatment. Learn more about parallel investing at investtalk.com. - Let's go talk about a supply line, supply chain, bottleneck, second-order effect. And it's on motor oil. That crazy? You think it's all about gasoline or diesel? No, it's refined products. And this is one of many issues that the war in the Middle East is creating. Car makers from Volkswagens, Atlantis, Toyota, they're all looking at alternative blends of fuel to put in their cars. Because the big refinery that supplied most of the industry was a shell refinery in Qatar, which was hit by an Iranian missile back in March. So car makers are running out of inventory of high-quality fuels that are needed in these engines, you know, internal combustion engines. Throughout the years, they've become more and more advanced. Even the most basic four-cylinder, you know, cheap car has a pretty sophisticated engine. You know, the engine that needs good oil. A lot of times, synthetic oils that, once again, are come from these refineries. Now, the price of what are called Group 3 base oils has tripled since before the war, to about $4,000 per ton, both in Europe and here in the US. And they said, even if the Strader moves open tomorrow, there would still be shortages, at least through early October. So car makers are looking to find alternatives that meet their standards and will not ruin the engines of their customers and the cars that they're building, right? Because they're still building new cars. Now, they may be forced to become more flexible, but at the end of the day, this is a huge problem. You're already seeing delays in oil changes at certain dealerships, both in Japan and elsewhere, because of the shortage of these fuels. Stellantis is evaluating reformulated lubricants that still meet the industry standards, but are different than what they normally get. German car makers also secured necessary supply for now, but once again, they're running low, and they're looking for alternatives that comply with their technical specifications and quality requirements. The one company that's done fairly well so far is Toyota. They secured alternative supplies many months ago, but once again, there are still issues that are building up. But because of the price of oil, this is feeding into the economy, into inflation. It's forcing taxis to raise their prices for consumers, for example, because if you're a taxi driver, you're changing oil all the time because you need to. You're driving a lot of miles. So I wanted to highlight that because this is an under-discussed element of, you know, you're driving a lot of miles. They've been around for a long time. It used to be, back in the day, you'd just go buy Coca-Cola or IBM or any of the blue chip names that pay a dividend, and at that time, the commissions were very high. So if you wanted to go buy more shares, that was kind of expensive, but instead, they set up these dividend reinvestment plans where instead of you taking the cash, it would automatically take that cash and buy more shares of the stock. And over time, that compounding can be very, very powerful as long as it's a company that remains relevant, remains profitable, and especially continues to increase that dividend over time. So the idea of a drip made a ton of sense in an era of high commissions, but we're no longer in that era. It costs you nothing to go take that cash from your dividend, maybe go buy a different stock, maybe split it up, maybe buy a little bit of the stock that paid you, maybe another one, maybe keep a little on the sidelines because you're waiting for a better buying opportunity. There's just a lot more flexibility of not having to worry about the commissions. Now, how do we do it at KPP? We take it as cash because we want that cash ready so we can deploy it strategically on a market pullback and by rebalancing the portfolio. Just because a company paid us a dividend, is that? the name that we want to buy more of maybe there's another name that might be slightly underweight. You want to buy that name instead and use that cash for that position. So no, I don't think, I think drips are fine if you're kind of a buy it and hold it and forget about it type of investor. But if you're actively managing the portfolio, I'd take it as cash. The next invest talk, we look into the story. Small cap woke up. Is the rally finally broadening? The Russell 2000 set a fresh record to close out the last week, even as large caps struggled. So we'll look into that leadership rotation tomorrow. But for now, I'm Justin Klein and we're ready to take your calls anytime at 888-99-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 principals, 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. Every investor is working to build a secure financial future. How they get there and when they get there, that depends on many factors. The more you learn about how the market works, the better your chances for success. So don't forget to call InvestTalk, 888-99-CHART. Now, our main focus point today is about the trillion dollar interest bill nobody ever voted on. We voted for the politicians that spent and spent and spent, despite many of them espousing that they would stop spending or reduce spending, and that just never happened. So now we have interest that's topping 100% of debt to GDP ratio. Deficits, around 6% to 7% of deficit to GDP ratio. That means every year, that number is going up about 6% to 7%. Total debt. Total debt compared to our GDP. So it used to be just a small line item. Now it is a structural macroeconomic driver because it's part of spending. A lot of people don't realize this, but this is now basically mandatory spending. Just as Medicare or Social Security, mandatory spending, we basically have to spend this interest. And those are dollars that go out into the system. And this is part of what has created fiscal dominance. As I said before, everyone talks about the Fed. Sure, the Fed is an impact. But fiscal matters far more. Fiscal is dominating the monetary policy picture. And so we know this is a big reason why interest rates are going up and why central banks are pivoting to gold. So let's talk about it. So one of the big issues with having such a high deficit to GDP ratio is that if it's higher than economic growth, then debt starts to compound. So, for example, if your deficit to GDP ratio is 6%, but you're growing 7, 8, 9%, your overall debt to GDP goes down. But that's not the case. Last quarter, our GDP was up about 1.5%. Real, I think nominal was like 4.5%. But our deficit was 6 to 7. That's when our debt accelerates aggressively. Right now, the $1 trillion bill, that's about 14% of all federal outlays. And in 10 years, that's expected to grow to 30%. So this is impacting the bond market. There's a treasury imbalance, mainly because traditional foreign buyers are now buying a lot less. Treasury is having to roll trillions of dollars in new bonds every single month. Just to fund the new deficit and to refinance the old. This is why the 10 and the 30-year yields are rising. That puts an upward floor on long-term rates. And this feeds into mortgage rates, auto loans, corporate debt. Et cetera. It weighs on the economy. And estimates are for every percentage point of increase in debt to GDP, it pushes up long-term interest rates by about 1.5 to 4.7 basis points. So if debt to GDP goes from 100 to 120, you're talking about a potential 1% increase in interest rates, roughly. And that's what you're seeing. Right now, the market's starting to price in that debt spiral. And so are central banks around the world. Not just China and Russia, who they've been aggressively selling treasuries or swapping treasuries. A lot of them haven't really been selling. They've just been allowing them to mature. And instead of reinvesting those in treasuries, they're buying gold. To protect them from U.S. sanctions, as well as fiscal instability. Okay. Because gold is a liability-free asset. It's a hard currency. It can't be printed or defaulted. Remember the brick currencies there we were talking about? Oh, they're going to start this brick currency. Brazil, Russia, India, China, blah, blah, blah. No. You know what that is? It's gold. That is the brick currency. And we know now that gold holdings on central bank balance sheets has now exceeded U.S. treasuries. The dollar share of global reserves has fallen from 71%. In 1999, it's around 54% today. So those are all dollar-denominated assets. That includes stocks, corporate bonds, and treasuries, et cetera. So this is the impact that this trillion-dollar bill is having on our government, as well as our economy. Now, let's invest stock. Let's play a fresh listener question now. Good afternoon, gentlemen. I've heard you all loud and clear about upping your international market. I've heard you all loud and clear about upping your international exposure. So I've been looking for some ETFs that will help me out in that category. I'm not much of a stock picker. So I found an ETF, A-V-D-E. It's an ETF from Advantis. It seems to have a low expense ratio. Am I looking in the right direction right now? I don't have much international equity exposure at all. Am I barking up the right tree? Let me know. Thumbs up, thumbs down. Thank you so much. All right. Looking at the Advantis International Equity ETF, A-V-D-E is a symbol. And you're correct. You want more international exposure. Now, this is more of a large cap blend slash value. It kind of leans value. But it's more of a blend ETF. About 100, see 3,300 names. So a lot of holdings here. Top holding is ASML, 1.4% of the portfolio. That's the biggest holding. So you can see how well diversified. This really is about 10 and a half percent is in basic materials. I like that. I like that double digit exposure. Not many ETFs have that financial services were at 25%. That's a little high for my book, but I still like that sector as a whole. And the banking sector, especially internationally has done very, very well. And I expected to do that. Well, going forward, industrials about 20% of the portfolio. That's the second highest waiting there. That's much better than the category average. So I like that exposure energy. We're at 7.4. The category average is only four. So it's definitely leaning in the type of sectors that, that I like. So yeah, I think of the international ETFs, this is one of the best ones to gain that exposure. If you're not a stock picker, just getting that broad based exposure. Now the expense ratio is about 23 basis points. So nearly a quarter of 1%, which is, I would say for an international ETF. It's fine. It's not low. It's not high. It's about probably where it should be. So I'm going to give a V D E Advantis international equity, ETF, a thumbs up. Let's go pivot to another voicemail question. Now. This is Jane from New York. I just have a question about shorting the stock versus buying puts on the stock. I know they're both bearish sentiments, but what is the fundamental difference? Between these two and why would someone do one versus the other, which one is more profitable, which one is more risky? Just wanted to understand this more. Thank you so much. Have a great day. This is a, this is a great question because there are different risks here involved. So with the shorting of stock is you're selling it today and you're hoping to buy it back later at a lower price. You're borrowing it from the broker. You're selling it today. You're hoping to buy it back later at a lower price. That's the simple mechanism. The risk there is that it could go up indefinitely. But there's no limit. There's no limit on how high it can go. So you can get short squeezed out of it. You know, if it keeps going up, you're going to lose a ton of money. Maybe you shorted at $50, it goes to $500. You lose 10x your money with the amount you shorted, right? That's the potential. Now, that's very rare, but that could happen. So that's number one for short selling. When buying a put, the good news about a put is you have very limited downside. Whatever you paid for that put, that's your downside. You could go to zero. But the odds of going to zero are fairly high. Most options expire worthless. So depending on what strike you pick and expiration and all of that, you could certainly lose your principal. But you can make a ton, right? If you say the stock's at $50, you buy a 40-strike put. And it goes to $20, well, you made $20 on whatever premium you paid, right? Because you could basically sell it for $40 and buy it for $20. The risk, though, is what's called theta decay. But over time, the time value, you lose money on. With shorting a stock, you never have to worry about that. There's no time decay there. You can hold that short for. As long as you want, as long as you're not squeezed out of it. So I like the idea of buying a put, but you want to give it time. You actually want to buy a lot of time, probably six months to a year plus for your thesis to play out. And then there's kind of leverage involved there. So different risks, but I like the way you're thinking of which one is best for you. So do a little more research and figure out what makes sense for your portfolio. Let's go take a live call. Bill in Northern California. It's Chevron. Hey, Justin. Good afternoon. Yeah, I have the stock. I've owned it for like two years. I bought it in the low 40s, maybe down to $35 a share. You know, I like it as a long-term and a dividend holding, but I'm also just learning over time to sell some shares when stocks are high. And then they're not liquidated. I like the whole position, but sell some of it. And then when it dips back, make the decision whether to buy some more back. And that way kind of, I just don't like riding stocks up and down 20, 30%. It kind of makes you feel like other people are taking advantage of you. But I put in a, you know, good to cancel order for like a little, a few shares for like 208 and some for like 250. But what do you think the long-term trend is on, on like Chevron? I mean, you know, in the next two to four years, not 10 years. And in general, what do you think about selling some at this level or a little bit higher than this? Yeah. Well, first off, don't take advantage of it. You're just in a name that is very cyclical. You'll look at the earnings, you know, it's up and down. It made $18 and 83 cents. And then last year, they only made $7 and 29 cents. And then back to 15 and change this year and then 13 next year. So it's the type of name that's all over the board. Why? Because it's a commodity producer. They are what we call a price taker for the most part. Now, the good thing about Chevron is that they are fairly, fairly diverse. They're not just an EMP company. They're not just finding oil. They are doing that, but they're also refining oil. And that's part of their business. That's doing very, very well right now. So the question is, to me, longer term is what do you want? Just kind of this plug and play diversified energy name. And Chevron is, as you said, a good long-term player in that sense. But it's still going to be very volatile and very up and down, especially as oil prices and the crack spreads move. So it's up now. I think there's some more upside in the near term. I will say that mainly because the problems in the Middle East are not really going anywhere. There's a stalemate. I highly doubt that we're going to get any resolution in the, the short term. And I've been saying that for a number of months now, and some people call me crazy, but I said, this is going to drag on into the midterms. And it certainly has at least so far. And you're starting to get those supply issues that everyone was worried about. Initially starting to creep up. We talked about the, the engine oil, but also supplies of actual raw crude are starting to dwindle as well. So I would continue to hold it. I actually wouldn't, I actually think this could break out probably closer to I would trim it right around two 32 32 35 in that range. I definitely think it could get there in the medium term, but I like what you're thinking is what my grandpa always said, said was buy when they're sellers and sell when there's buyers. So right now there are buyers. I would just had a pullback through April, May and June and July kind of reset sentiment to me. This has just started a recent uptrend. And I think there's some more upside. It's a come. So I like what you're thinking, but I'd still be a little more patient with it. And by when things are really, I would say bad for the oil market or good, however you want to look at it. Good for Chevron. If price is really spike, which I think they very well could between now and year end. So to me, I would be selling into that type of a search. That's yeah, that's what I'm, that's what I'm looking at. I appreciate your, your input. Thank you. Thank you so much. Yeah. Yeah. So I would just, just be a little more patient with, but very good idea. And that's a lesson for everyone out there, especially when you're in cyclical names like this, go look at the history of earnings. Is it up and down or is it just kind of steady, consistent growth? The names that are up and down when times are good, you got, you know, that that will eventually turn. They were saying commodity markets, the cure for high prices is high prices. So if you're in a commodity name and prices are up dramatically and it's easy to bring on new supply, guess what? The market will do that and that will turn profits. And so these are the lessons you have to learn throughout the years as you're managing your portfolio. Now we're heading into our final break. So I'm ready to take your questions now at eight at eight 99 chart. It's official total lifetime downloads. For the invest talk podcast are now more than 63 million. Justin Klein is here now taking your calls live invest talk eight, eight, eight 99 chart. Hi Justin. Hi Luke. I have a question. I've been buying some software names and I recently bought Accenture, Salesforce and service. Now they're all up, you know, between 15 and 35%. Is this still, is this still an area that you guys feel is undervalued? I appreciate your input. Thanks. Bye. I love this call. It's an interesting call because, well, I think in general, the area is undervalued. There are landmines within this sector subsector because every software vertical is different. Some are very, very susceptible to AI displacing them or a competitor who can spin up another offering using AI easily while others are more insulated. Now Accenture is, I wouldn't even call it software. It's more of a IT consultant. Problem is, is that, that's an area I think that IT can, or AI can probably help resolve or help, help augment. And it shows in the results this year, revenue is only supposed to be up 6% and 4% next year after being up 7% last year and earnings are decelerating as well. So you're talking about a very low growth business versus things that Salesforce is another vertical where I think it can be easily, easily displaced CRM. That's why the symbol is CRM. Even it's called Salesforce is customer relationship management software. It's basically a spreadsheet in the backend on customer data notes. All of that. Yeah. There's some integrations and things like that. And I'd say Salesforce is going away overnight. I'm not, I'm talking about the risk of the business over the medium to longterm. To me, I would put Accenture at higher risk than Salesforce and then Salesforce higher risk than your other name, which is service. Now this is more deeply integrated into the process of big corporations. And once again, it shows in the number of Salesforce earnings were up 10, 23% last year, only 13% this year. And then 10% next year versus service. Now you're still seeing growth. decelerate, but not nearly to the same degree. Earnings are up 26% last year up 16 this year but then up 23 next year revenue was up 21 last year supposed to be up 22 this year 19 next year so it's relatively stable so it's a much better business now you are paying a bit of a premium for that but it's still relatively cheap i mean forward-looking earnings at 502 that's about a 20 what are we 24 times multiple it's not bad for a name that has just consistent cash flow and once again a more protected economic moat that's what you need here you need companies that have an economic moat that is sustainable in this era and there are a lot of names that just i don't think will be so i think part of the sell-off in ai you is justified sorry in software part of the sell-off in software has been justified but there have been a lot of babies being thrown out with the bath water but there are more of these names that are the bath water and not the babies right and so you want to be identifying those babies to me of those three service now is the one that is the one worth saving shall we say well that about does it i'm justin clinton i appreciate you all tuning in to this latest episode of invest talk and i remind you about kpp financials parallel investing we make a trade for our clients make the same trade for ourselves same day same price same percentage no front running no special treatment we've got right alongside our clients we show the same risk and potential for success you can learn more by heading over to invest talk.com and please tell your friends and family about our free podcast downloads where you can find anytime at itunes or spotify or check out our videos over on youtube as well please be sure to rate and review on itunes independent thinking should success this is invest talk good night invest talk is a trademark of kpp financial 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 not all comments made will apply to them not all comments made will apply to them nothing said shall 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 klein pavlis and peasley financial a registered investment advisor firm which retains all rights for more information regarding kpp's investment advisors call 1-800-557-5555 thank you for listening and your comments and questions are welcome on our 24-hour listener line at 888-99-CHART you