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[Slide 1 00:00:00] Over the Wall of Worry, Opportunities Still AwaitGood afternoon, everyone. This is Neil George, and I'm your editor for Profitable Investing. Welcome to our September webinar. As our topic for today's discussion, we're using the title of Over the Wall of Worry, Opportunities Still Await. Like the fellow there that's scaling the wall, perhaps he's looking to get his first corner office as a young person starting on the business world—that's one way to get the corner office. The easier way perhaps might be simply to work their way up or provide some of the more interesting ideas for the company profitability.[Slide 2 00:00:45] Upward BoundWhat we are going to be talking about is looking at a different sort of wall of opportunity. We're looking at the Standard & Poor's 500 Index over the past year, and of course, this has been a fairly good success story. I know that for much of this year at the initial sell off that occurred late January, into February, we basically saw a lot of up and down, back and forth with the S&P. That's something that I talked a lot about over the past many months, about that range-bound condition of the general stock market And yet we finally saw that the market's caught on to a lot of the underlying fundamentals, things that were working quite well for the underlying US economy. The consumer that has been out there, quite content and feeling good about their personal finance conditions, and therefore, they have been quite willing to spend. They've been buying all sorts of goods and services. Businesses have been seeing that and eyeing the future profits from rolling out additional goods and services. They've been making investments in capital and people, hiring a lot more ,and then making longer term commitments through fixed plant and equipment. That basically has been driving up the underlying value of so many businesses in the US economy.We finally have gotten that the stock market has been catching on. We have so many green lights in the underlying economy that the stock market finally started to push the S&P 500 general market index higher. We now surpassed the recent peak that we had in the beginning of the year, and now we're looking at are we going to continue to see some positive news. For right now, yes, as I wrote in the October issue of Profitable Investing, I am concerned because the idea is that things look so good right now.Again, a lot of the underlying conditions that I just mentioned, the consumer, the businesses out there, the confidence level is quite good. The forward leading surveys that I often times cite, including the Bloomberg consumer comfort index which, again, is not just a consumer confidence index but is a broader themed index that looks forward as far as how households are thinking about their condition. That continues to be very positive and very high numbers. We're just not seeing any major holes in the consumer side, and the same thing with businesses. I've talked a lot about the business investments and capital expenditures and so forth and different facets of that. But then I also, like the Bloomberg comfort index for consumers, you look at the business leadership survey, which is put together by the Federal Reserve Bank of New York. That looks at the budgets for longer term expenditures for large capital projects, and that continues to be in very positive territory.We've got consumers, we've got businesses, they're all in, and we continue to see all this good news. Then when I reach out to a lot of my friends in various parts of the financial markets, whether they're in your fund management, whether they're running public funds, whether they're in the business community, everyone keeps talking about that all they see are the green lights right now. Everything seems to be moving along in the right direction and when all of that is all positive, that makes me concerned. I will bring up, like I did in last month's webinar, I will reiterate some of the things that I have some concerns about a little bit later in this discussion. But for right now, the idea that, yes, as the old adage goes, a bull market climbs a wall of worry. I think that adage is very appropriate when talking about the general share market.[Slide 3 00:04:50] Bounds BoundingThen we also look at what's occurring in the bond market. Not only is the general stock market doing well, but the bond market is doing really well. Here is the overall index of the Bloomberg Barclays US corporate high yield total returned index. That's a lot of discussion on what this index is, but in simple terms, this is the lower credit rating, so that triple B space area for corporate bonds in US dollars in the US marketplace, and this market has been doing exceedingly well over the past 12 months. Bond prices are going higher. The demand for the space for corporate bonds is doing exceedingly well. For domestic buyers in this marketplace, domestic institutions, pension funds and global buyers, global fund managers, sovereign investment funds are in this space buying up a lot of these bonds.One of the significant indicators that we're getting such a great green light in the bond market has been the recent issuance by AT&T. AT&T of course had to raise billions as part of its payoff of its acquisition from Time Warner. It brought out issues in the domestic market, and also brought out its issues in a variety of other markets around the world. They were gobbled up and abandoned by a lot of fund managers, because they liked the name even though it's not a triple A rated bond market for that company.It's part and parcel of how this market has been doing so well. There is the underlying confidence that the economy is doing well. Businesses that are operating in this good economy are seeing their cash revenues continue to increase. They're able to service more debts. They're able to take on more debt, and they are taking on more debt to invest in their businesses. Therefore, we have the stock market doing well and we have the corporate bond market doing well. Again, we're getting the green lights. This is one of the reasons that we brought in the Osterweis bond fund into the model portfolios, and it's one that has a real particular focus on this corporate space. Then, going forward, again as I promised you, I'm going to be bringing in some closed-end funds that are even more tied to this particular space that will help to bolster our yield and make sure we're cashing in on this continued growth in this marketplace.[Slide 4 00:07:37] Banks BounceThen we start looking at the individual segments that I've been drawing your attention to. I'll go through these fairly quickly, and then we're going to get to one of the particular areas in the technology space that I was promising you in the invitation. We're going to start off with the banking part of the marketplace. Now, banks and financials are always one of those good key indicators that a healthy, robust general stock market and healthy robust economy. If the banks aren't doing well, that is a red light. As we can see, we have if not a bright green light, at least it is a green light. Here what we're looking at is the KBW Regional Bank total return index. Now, KBW is one of the investment houses that has a particular expertise in the banking and financial space, and they have a series of indexes that track the banks.Here we're looking at the regionals. These are the areas that are really focused on the domestic US economy, on what's happening on Main Street, whether it's nationwide or whether it's in some of the local areas scattered around the US. Therefore, this index has seen, and continues to see, a fairly positive movement. Within this space, of course, we have two representatives fit into the space in the Total Return Portfolio. We have Citizens Financial Group, and then we have the addition that I brought in, which was Regions Financial.Again, both of these are very well placed to be able to continue to capitalize on the regulatory reformation that is helping the economy and particularly helping the banking market. We're seeing that banks now are becoming less encumbered to be able to actually go out and make some loans, and we're starting to see them do that. They have lost some of their talent, I think, because I've looked at some of the new business loans that have been occurring and we're not seeing as much growth as I would have expected.My analysis seems to be that a lot of companies have stepped away from the banks, because the banks really weren't there to make loans, because it was so expensive for a bank to do their loans and keep all their compliance with all the regulatory problems that they had to deal with that they, I think, they've really gone to more of the nontraditional lenders. That's why I think you've seen a lot of the business lending that has gone to the alternative bank space, and that's why we have been part and parcel of that. On the tech banking side, I've brought you Hercules Capital. They make business loans in the tech space. We also have Main Street Capital in the Incredible Dividend Machine. They're focused on making loans to, as the name on their door says, Main Street Companies. They are small and middle market lenders. Entities like these and some others have been taking the space that has been left by the banking market. I think we're going to see more of the banks return in this space, and I think we're going to see more profitability from them, and that's why I've been recommending the citizens and the regions as part of this play in the segment.[Slide 5 00:10:47] Petrol PowerThen of course we have the other great growth story which is the petroleum market. One of the major engines of the US economy has been the idea that we're seeing the petroleum market has been very receptive. Pricing has been very much on a tear for the last 12 months and when looking at the West Texas Intermediate which is … the Bloomberg ticker CL1 in the white. We're seeing that very strong performance which we've seen oil in the $70 range.We've seen Brent Crude which is the global standard in the $80 range, and that's basically been very positive for the companies and all the related services and pipeline companies and so forth, which is a big engine that continues to help to drive the economy.It's not just about the Texas story. It's also about North Dakota. It's about California. It's about New Mexico. It's also about Pennsylvania. It's about other parts of Ohio and there's a lot more of that. Then, it's also the offshore parts of the equation.It's also the refinery space, whether we're talking about New Jersey and the Pennsylvania area or down along the gulf in Louisiana. It's also about the liquified natural gas story. All of this is because of the insatiable demand of the globe to have more oil which is still the largest single source of energy for the globe despite of some of the advancements in some of the renewable space and therefore, to take advantage of that. I've been rolling out and talking about the oil focused on the US marketplace.We added Viper Energy into the space, that's doing quite well. That's the company that has a lot of land focused on the Permian Basin in Texas and beyond that doesn't … They have to worry about setting up its own wells that leases out its space and gets royalty interest from that oil, doing really well. You're going to be seeing another company in this space coming soon.We also have the companies that are part of the technology of the field development. That's where the US has its leadership role. If it weren't for technology, we wouldn't be seeing the Permian doing so well. We wouldn't see the further development of the Delaware Basin in the US. We wouldn't see a lot of the other future production that's going to be coming out of the US Bank. That's now made the US the largest single producer of oil and we also have the gas story.What we're looking at here is the general play that we've had in the market to get in this space which is the synthetic version of the marketplace which is XLE. This is the Energy Select SPDR ticker, XLE, which we have in a Total Return Portfolio, that's in orange. Again, we're seeing some positive movement, but it's still lagging behind the general oil market. Now, I think looking at the bigger producers and so forth, I think it's still basically seen at a real value here. They really haven't been rewarded for what's happening on their revenue. They're not seeing it on what's on their balance sheet with their oil assets.You have to remember that even the big guys have positions in the Permian. They also have a lot of interest in what occurs in this market. What also people don't realize is that this ETF and through its synthetic features also brings in the pipe space. It also brings in the refiner space, it also brings the field services space, so it's the one-stop shop for this very important marketplace and again, big good engine of growth for the US economy.[Slide 6 00:14:39] REITs are RighteousThen, of course, you move on to the next segment. The real estate investment trusts. Here, we're looking at from that bottom that we identified back on February 8th. To date we've seen the general market is represented by the Bloomberg, US REIT Index, has done exceedingly well. Within the REIT space, with two exceptions that I'll address in a moment, we're seeing the real estate investment trust space doing really well. Why? Because the economy is doing well. There's demand for a variety of real estate assets. There's demand for residential real estate. There's demand for office space. There's demand for distribution center space. There's demand for data center space.You look at the companies that we have, they're capitalizing on this demand. They're able to have very lucrative leases. They're able to price new leases even better and we're seeing appreciation in the underlying property values and we're getting the dividends all along the way.The W. P. Carey's are very well positioned in this space. We have the digital realty trust, very well positioned within the data center space. At the same time, we have two laggards which are giving me pause, which I recently put on hold. We have had Tanger, the outlet mall area. Traditionally, very well managed, very risk-adverse, but the market just doesn't seem to like what they're seeing as far as this space in how it is playing itself out.There's some problems in which some of the tenants have been leaving. They've been replacing them very, very quickly. Much more quickly than in the traditional mall space, but now a lot of people are starting to rethink the outlet space. As they look at some of the traditional retailers, the Macy's, the JCPenney's and so forth that are just aggressively discounting their goods so that some are saying, "Well maybe, it doesn't make sense to have to drive out to an outlet mall. We'll just go to the local Macy's store." Therefore, there is that, in the market, that's kind of causing that near term weakness.The other company we put on watch again is Healthcare Trust of America, HTA. This was we were seeing some promise then it wasn't doing as well. I put it back on hold. Relooked at its numbers which it seemed like it was still quite sustainable of some good quality assets and the returns and the capital rates were a little lower than some of the other parts of the real estate space but the cap rates were still okay. Therefore, we brought it back as a buy. I'm putting it back on hold and I just have concerns because the market just doesn't seem to recognize any of its value right now.I think there are some other opportunities in the REIT space, a few already mentioned and a few we have that I think will be coming. Particularly some that are even in the niche investment sections, like corporate office that have been talked about recently. Therefore, the REITs are doing very well. I think we're going to have a little shake up in that portfolio looking at Tanger and then also looking at the Healthcare Trust, but other than that, I think this is a very good space to be in right now.[Slide 7 00:17:48] Utilities UpThen of course, I started to draw your attention this summer to the utility part of the US marketplace. Now, a lot of people were concerned, that fear in the early part of the year that they saw rising interest rates. They thought that was going to be bad for utilities as they traditionally are seen to be as an alternative to fixed income, but a lot of people misunderstood that in a growing economy, one that's expanding at such a great pace as the US has been doing, utilities do very well.They have more and more customers that are buying more and more power, more water, more telecommunications, and so forth and as a result, they're getting more revenue. They're seeing that revenue growth and so it's part and parcel of a great economy, the utilities are doing well. That utilities have both their regulated part which have a set return and they have their non-regulated part of the equation, which they can fully market price what they're providing to the open marketplace.Therefore, companies like NextEra Energy, NEE, that I've been really focusing your attention on, not only does it have great regulated business and a good growth market in Florida but they have … their unregulated business is around the country as well as some coops in Europe and also in Canada. It particularly focused on the green space, through wind and solar and they're arguably one of the largest producers of wind and solar power, so they have a lot of revenue gains. It's been a great part of the utility sector and again, utilities in general are having a good year, particularly from this summer to date.[Slide 8 00:19:26] Small is SublimeThen we have another part of the thing I've been drawing your attention to, which is the smaller companies. Now, smaller companies in the US, and this is what we're using as the fit in for this is this is the Russell 2000 Index, the 2000 smaller companies that are listed in the US marketplace. Again, it's doing quite well for the past 12 months. It's arguably done even better than the general S&P and we have some very specific reasons for this. Small and mid-sized companies are really much more focused on the domestic economy, so they're less tied into some of the global upheavals and softness that we're seeing in other parts of the planet.They have a lot more value that they can bring to the marketplace. If a smaller company adds in the distribution center, that can make a dramatic impact to the revenue stream. If they bring in, add some additional plant equipment, they can increase their production by a significant fold. Therefore, there is a lot more that can be brought immediately forward as far as revenue growth and the value of the underlying businesses.I think that the small space, I think, is going to continue to do fair well. Now, I've brought to your attention some of the smaller stocks that have come into the portfolio in different industries, and then one of the particular ones I'll focus your attention on is Compass Diversified Holdings. That's the CODI that we brought in, and this company is a company of companies, so they have a collection of these smaller companies in the US marketplace that make very high quality products, that are highly valued in their particular spaces.Therefore, it's a way that we really have been honing in on this small space. Then I mentioned earlier, because of the financing needs of these smaller businesses, like I mentioned earlier, the Hercules Capital, the Main Street Capital, and some others that have been lending money and financing the smaller companies. This is basically all part and parcel of the story, that small really is doing quite well, and I think it's going to continue to do well for the coming quarters.[Slide 9 00:21:35] What's Driving the MarketWhat's driving this market? Again, things look so good. I mentioned earlier at the beginning, the consumers are spending. They are confident. They, as I refer to the Bloomberg Consumer Comfort Index, it's the comfy index. Consumers are super comfy and when consumers are super comfy, they spend more and when they spend more, business is noticed, and so businesses are noticing and they're, in turn, are spending more to expand what they can to facilitate more sales. Therefore, when businesses sell more stuff and they build their value, then if their private, their private holders are very happy, if they're in the public space then public shareholders are noticing.Therefore, we're seeing this show up in the Russell 2000 for the smaller company. The S&P 500 Index for the larger scale companies and we're seeing it in so many different industries like I just illustrated, the banks, the real estate companies, the utilities and there are several other parts of the equation, all basically are doing very well so why is this happening?We've had a very helping hand of government of recent. We had the tax cut so business incorporate tax rates were slashed and therefore, that is very good news for businesses. It doesn't just apply to General Motors and the big guys, it also applies to a lot of smaller companies and a lot of the pass-through partnerships so the local plumbing company, the local carpentry company, the local real estate development firm.All of that has seen their taxes come down, that makes their profitability that much better. That means they have more cash to invest in their business, more cash to pay out to their shareholders, more cash to pay out to themselves and therefore, more cash means they can spend more on themselves or other projects and therefore, that drives other businesses as well.Then, you've had this great regulatory reformation that has been occurring in which you're seeing both congress act as far as rolling back a lot of the what occurred in the prior administration and therefore, getting a lot of relief for the financial services area, for the banking market and we're seeing it also coming across for the petroleum industry. Everything from the producers to the pipeline companies and the refineries, they all are getting a lot of relief and they're turning around and they're firing up their businesses.Therefore, that is driving more investment and driving profitability and we can see a lot of other industries that are getting this relief that has been so needed to bring growth back and we're seeing it show up in the GDP numbers. The second quarter, the 4.2 number. The current quarter, we're looking in the 3% range and in the fourth quarter, we're looking at that 3% range.Things are growing very well. We have a lot of confidence and that is all working quite well and then we get to the monetary policy, and so the idea that we're continuing to see that gradual normalcy in the targeted rates for fed funds and that normalcy rate is not punitive, it basically means that the banks and financials have a little wiggle room finally so that they can price their loans at rates that give them some margin against what they're paying for deposits or paying for some of their liabilities to fund their loan book.Therefore, that's showing up in the Net Interest Margin that I've talked about so you look at the Net Interest Margin, what banks pay for their liabilities and what they're earning on their assets, we're seeing improvements. That's what I keep drive your attention to, the region financial. We're seeing the same thing with Citizens Financial Group and we're seeing it in other financials.We're even seeing that differential is also helpful even for some of the alternative finance companies like MFA Financial in the mortgage base that I've been drawing your attention to. The idea that MFA is getting more normal rates, more stability in the refinancing of their mortgage portfolio. That means their mortgage portfolios are much more stable.That means they can be valued at higher rates and therefore, that basically helps their performance for their portfolio management is all the better. It all comes down to just normalizing interest rates and on top of that, we still have the fed has its massive portfolio bonds that it bought during the post 2007, 2008 and all that bond buying and that portfolio has not been sold so that the idea that we're not seeing a crowd out in the marketplace and therefore, that's helping the corporate bond market I talked about earlier is doing so well.There's so much demand for the corporate bonds base and therefore, the fed is really, in its own rights, still being accommodative to the economy and as we've been watching, I've been drawing your attention to, inflation is nowhere to be seen. The Personal Consumption Expenditure Index, the PCE on a core basis is still very low, just a tick below the 2% range and the fed in its own open market committee has said, they'd be content to see the PCE at a core level, climb into the mid 2% with a good robust economy.They would deem that as still being healthy and not an inflationary threat and therefore, as far as I see the fed actions and so forth, it's all generally a positive for the economy. We're still getting into, heading towards normal levels and we are nowhere close to being punitive or restrictive. Then, the last part of the equation, the global messes we have out there.We have Europe which is still in a disarray from its political wranglings. You have the general European commission is at odds with many of its members throughout the European Union. We have Britain which is still battling with Brussels and Strasbourg over the idea that Strasbourg and Brussels want to punish Britain for trying to run their own country and to run their own economy and as a … Britain is basically saying, "You know what? We're just going to thumb our noses at you and we can just leave without cutting a deal and see how you like it."That's not good news for the Europeans. That's not good news for that marketplace. That creates instability and that makes the US where we're firing in all cylinders and we're growing and our investments are doing well. Europeans looking for where they're going to put their money, they're sending it across the Atlantic to the US. Now, we look at Asia.China basically is completely flummoxed. Xi Jinping and his economic team are taking advice from US politicos that are giving him advice on how to deal with trade negotiations and it's not going well. Their economy, I think, is going to see more subdued growth rates. That basically puts the fear. It puts a lot of fear in Beijing as they need growth to keep stability which is their number one objective for guidance of that nation and even this week, we have seen China announce that they are going to be scaling back or cutting some of the tariffs on US goods because they need them and they don't want to have their businesses and consumers pay more for them.We're seeing this for machinery, machine parts. We're seeing it in textiles. We're seeing it in a lot of component goods. We're seeing it in some of the agricultural products. China basically is waving the white flag. They're crying, uncle, because they know they need the US. That basic uncertainty of what's going to be happening is not boding very well right now.There are other parts of Asia that still are going through some of their instabilities. All of that makes the US look good and then we turn to South America. Brazil is in an election crisis. Their economy is in a complete mess. There is a massive brain drain of some of their talent and some of their capital. You have Argentina which has gone through its further economic mess. You still have the Venezuela story. There's not much that's looking attractive in that part of the world and again, that mess makes the US look even better and therefore, that's where I think … That story, I think, is still going to be with us for some time.[Slide 10 00:30:22] What Could Go WrongAgain, I'm always looking for what's going to go wrong because so far, all I've talked about is all the good stuff in the marketplace and there's so much to talk about. I can expand further and I will in a moment in a particular facet about the market that we haven't really addressed yet. I'll draw your attention to politics. The midterm elections are very vital for a lot of what's been very positive in the marketplace. We've got the tax relief. We've got regulatory reform and relief. If we see a change in leadership in the house, that will cause a great deal of uncertainty, it will lock up a lot of legislative potential for the economy and for the markets.That will be problematic and you know that if there's a leadership change in the house that there is going to be a barrage of attacks coming at the White House that will potentially take up time and effort as far as for the reforms in the economy. That's going to be a bad thing for the market and so I keep watching a lot of the local and regional races very carefully.If the senate changes leadership which is less likely, then you're going to shut down the judicial reforms that we're seeing which has been very positive for a lot of business interests and therefore, very positive for the marketplace and again, that also extends to a lot of the appointments in the executive branch for all the agencies which have done a tremendous job at basically changing the capricious application of regulations to a host of industries including … We talked about the petroleum industry.The past week, we saw the further roll back of some of the methane emission rules that are done by producers, refineries and so forth and the idea that they were going to overregulate the oil and gas industry while not regulating the leading cause of methane which is the agricultural producers in the US. Therefore, the idea that this capricious targeting of petroleum was very detrimental to this industry, and now that we're seeing a relief.It's a further evidence that regulatory relief means more money for the companies, better market performance and it's better for our portfolio. If we see a change in this in November, that's going to be a threat for us. The trade tirade, it's really more in the storyline, it's more of a general narrative but so far, it's not necessarily showing up for companies. There are a lot of exemptions that are occurring and a lot of … Then, I mentioned with the Chinese this week came out and have rolled back a lot of their tariffs that they just imposed.Therefore, I think the trade tirade is going in favor of the US. I think it's less of having an impact on the market. It's less having impact on a lot of the companies that are driving the market. It makes for great headlines, makes for great discussions but right now, it's not necessarily showing up for a problem. I mentioned the Europe mess. We again have a lot of leadership conflicts that are occurring between Brussels and a lot of the individual member states who have mental sanctions that are being discussed against Poland.We have concerns over leadership in Hungary where the people have voted. They've elected their leadership and that leadership is not viewed as favorably in Brussels and therefore, there's lot of vindictive policies that are being waged within the European Union. That's not good for the economy. That's not good for stability and that's even before you get to Britain's exit which will be occurring this coming year.Therefore, that uncertainty, again, it's not good for the globe's economy. I think in general terms, it makes the US look attractive because the US is right now, the growth engine but again, if it spreads further as far as the European contagion and the world starts slowing down, the US can only keep up its ends for so long so I'm watching the European discussions as I always have.Then, we come to the credit market. Now, I had this slide up earlier where I was looking at and showed you the banks are doing much better thanks to the reforms. We're starting to see improvements on the credit side as far as they're entering the consumer and business credit markets. We talked about some of the alternative credit companies like Main Street, like Hercules and others.Yeah, they're doing well but there's still some of the concerns out there. One of the big things is the BBB so the investment grade but the lower end of the investment grade, more of the higher yield market. I showed you that chart and showing how well that's done because there's so much demand for bonds and higher yield in the corporate space that the BBB segment is now 40% of the US bond market right now.That basically means that 40% is off slightly lesser grade credit. Therefore, if we were to see some slowdown, if we were to see the economy start to pull back, if we're going to start to see some of the companies, starting to see a little bit of a revenue squeeze and that starts to hit on some of their bond issues and the bond market for the higher yielding starts to pull back from some of its strong performance that we've seen particularly over the past 12 months.That would be a crack that would really grab my attention and I think that would change a lot of the rosy view that we have had of the US economy and of the US stock market and for the bond market so I'm watching what's occurring in that BBB space and I think that is going to be one of those warning signs that really will grab my attention and then we're also looking at the bank business loans.I talked earlier in this conversation about banks now are starting to lend but we're actually seeing not as much business bank lending growth as I would've expected particularly in the last quarter. I think one of the reasons that it's come to my attention and I'm still looking at getting some more proof element beyond anecdotal discussions are I think banks, because they weren't really allowed to make a lot of business loans.I think they lost a lot of their talent to the alternatives to banks and some of the hedge funds that make loans and participate in some of the financing of businesses, the business development companies like I mentioned earlier. Therefore, I think it's just a catch up that's happening in the bank but again, I'm watching the bank lending to businesses as being one of those other indicators that if we see a pull back, not just a slower growth but a pull back, that would be a warning sign.The credit markets are something that's going to give us a warning signal before other things will and so I'm keeping an eye on that so the idea that right now, I think things look very good but again, that makes me worried when everything looks really good so I'm watching for the cracks and the warning signs and I will be telling all … I will bring those forward if I see a problem.[Slide 11 00:37:44] Prepare for ChallengesAgain, we always need to be prepared and that's one of the things that we need to … Okay, we're back. There's always a glitch on these things every once in a while. Again, we're always prepared for the challenge including the textbook challenges that I've always had with a webinar. How are we being prepared if there's going to be problem.We start off with the general allocations. We have in the Total Return Portfolio, we have the 60/40 split between the equity participation and the fixed income, so the idea that we have that balance between the bonds and the stocks that will basically help to cushion. If the market were to run into some significant headwinds or some dramatic downshifts, we have some balance in the allocations within the model portfolios.At the next part of the equation is that even in the equity space, you've noted that this year, I really have been really honing in on the yield part equation. I want the dividend payers there so the idea that if we have more of the bigger dividend paying stocks, having those dividends coming in, having the yield from our bond funds, having the interest coming off of our bond instruments, the preferred shares and the common stocks and other common stock varieties that pay us those bigger dividends from the read space, some of the toll takers and the pipelines.From some of the newer companies like MFA Financial, like Compass Diversified, like the Main Street Capital in the business space, like Hercules Capital. All of these companies have in common is that they have those higher dividends and it's that dividend payments that can buy us time during market trials and therefore, that also … Those stocks tend to hold their value during some of the times of precariousness in the marketplace.We always want to be keeping a passing glance at the rear view mirrors. The idea that we look at the past as being, seeing all the success in economy, seeing all of the success in the general market, seeing the success in some of the various individual sectors of the economy and we look at all the things that have gone right.Also, I keep an eye in the rear view mirror as far as what has gone wrong in the past and like the credit market corrections that we saw in the summer of 2007 and so forth so I'm always keeping an eye on that but I also want to have us focused on the eyes on the road ahead so the idea that I mentioned earlier. Consumers are looking forward and they're saying, "We are prepared to spend more money."We're looking at businesses from various surveys and they're saying, "We have not only committed capital to projects that are going to be taking place over the next months and quarters but we basically have our budgeting going even further than that that we're going to be spending even more." Those are positive long range things so the idea that we're looking at the road ahead like that picture in front of you.It can be easy to notice the clouds instead of a blue sky. We don't want to necessarily ignore the clouds. The threats are always out there but we want to see that there is blue sky out there and there's some progress that can be ahead of us and so that's basically what I want to be focused on. Yes, I always have concerns. I mentioned a few of them earlier, but at the same time, there's lot of positive things that are occurring.[Slide 12 00:41:09] Tech TriumphThat brings me to the highlight of what I wanted to talk about in this webinar today which is the technology space so there has been quite a triumph in the technology space and here, what we're looking at is the S&P 500 Information Technology Sector Index so this takes the S&P 500 companies and carves out those that are in the technology space so you have various companies that range from the equipment companies as well as some of the companies that are part of the service part of the equation and some of the consumer products.They all basically fit into this and this index has not only outperformed the general S&P but has done so without much of the drama that we saw in the S&P in the first part of the year. A little drama but not quite the same thing as the S&P experienced and it never really went into a range amount. It just kept plowing higher as this has been a very transformative marketplace not just in bringing their new products and equipment and services but shareholder performance. This has been a spot that I think it has been a great success for us that I see it progressing even further going forward.[Slide 13 00:42:26] Leaders & LaggardsWith that in mind, what has been occurring in the space and what has not necessarily been working all that well? The key thing that has been happening as one of the major drivers in the technology space has been to shift away from unit sales and shifting towards reoccurring revenue, recurring revenue rather.What this means is that in the past, you'd look at a company that like … For an example, looking at like Cisco Systems which we have in the Incredible Dividend Machine. They basically would be focused on selling their routers, selling some of their switches and they would have to meet sales, selling those units each and every quarter in order to justify a higher share price.That basically is less important than what it was in the past. You also look at Microsoft where by Microsoft used to have to worry every quarter about how many new pcs were being sold that they in turn, would get to sell their Windows operating system to fit on each one of those pcs or laptops and then in turn, they would reach one of those, they would hope to sell their office software and other software products with their CD and their boxes.Therefore, it was all about the units and what is really happening now is that companies like Cisco and Microsoft and others, their goal is not necessarily to sell individual products but to sell more subscriptions and their services and so you're looking at the idea that Cisco is moving to bundling their hardware with the services and software that goes with their products and that they sell the licensing and well as the support for those over several years in a time period.Therefore, they get to build out their client base and have … That revenue is going to be showing up quarterly, semiannually, annually that they can keep building on. Microsoft, the same thing. Microsoft has moved away from selling the box of software to selling more of the services so they have their office software, it comes in a subscription form and businesses, individuals subscribe to that where they get constant updates so they won't have to worry about version 10, 11, 12.They're getting the latest thing that's updated month after month and therefore, it's easier to deal with. It's much less disruptive for individuals and businesses and that's all good. On top of that, we have the Cloud part of services. The idea of having rooms full of these heat generating equipments with all these wires and having all the IT people and the army of IT people in business, in companies and that is gone.Businesses are waking up to the idea that they can basically have this outsourced to Cloud services so you have the Microsoft, you have the Amazon, you have the Alphabet through Google. These are providing these Cloud services where they will provide all the hardware, the software and all the expertise that companies can pay to subscribe to and therefore, they can have much more reliability.They can have all the backup and they don't have to have the expense and worry of having to replace equipments every so many years and hiring all these local IT guys to worry about the machinery and the software. They don't have to have the super cooler rooms to keep all these equipment and that's all in the past. As a result, companies that are part of this new reformation in the tech space are able to roll up and lock in these customers for long periods of time and have this revenue coming in quarter after quarter, month after month and year after year and they can build this out.That's why you look at the performance of Microsoft which is part of that general tech index I showed you earlier and it's in the Total Return Portfolio. The stock is reflecting of this that we're now seeing revenue growth. It used to be in that little slow low basis. It's starting to advance at a much faster pace largely because of the services part of the equation that Microsoft is capitalizing on.More services, less hardware and therefore, that's what's really one of the big drivers in the space and the other part of the equation is to grow the universe and the idea that if you can get more customers that are locked into you within your space, that basically, it means that you can capitalize on keeping those customers very sticky going forward. It means they're not going anywhere.You have Alphabet with their Google unit. You Google through their Android operating system, rules the phone market system and since they're on the majority of phones and handheld devices, Google can effectively capitalize on all that data, all that ad space and all other revenue because people are locked into their universe of Android and no one.Not even Apple effectively can put a sizeable dent in that universe. You have Amazon who has not bought or does not shop on Amazon, that number is a fairly low percentile of the US general consumer. Amazon has an increasingly lock on its space and that space is constantly expanding to various facets, books, music and we also talked about the Cloud services a moment ago.Amazon is still the ruler of the Cloud services through its Amazon Webster, its AWS division and you now have Amazon attacking the pharmaceutical industry through its pharmacy development, through its acquisition that has happened earlier this year. You have the news and information space which they already have the Washington Post and they have other initiatives that are occurring in the space.Then, of course you have the smart speaker and the smart home technology that even surpasses what Alphabet isn't able to do. Through their Alexa and other related services, Amazon is increasing their universe and that is a very impressive and improving space. I already talked about Microsoft space and then we get to Apple. Now, Apple is still increasingly a bit player when it comes to the phone market.As far as the hardware, we're seeing the Chinese and Asian manufacturers aren't eating their lunch when it comes to handsets. You have Xiaomi. You have TCL. You have a variety of other manufacturers that dwarf Apple in their production and also recognize that Apple is really not a tech developer. They are more of a marketing company because so much of their products are outsourced and are developed by others.If it weren't for Samsung Electronics, if it weren't for a lot of the other chip manufacturers and display manufacturers, Apple would not have their iPhone. Apple would not have their iPad. Apple would not have their Macintoshes and other products nor their watches. However, what Apple has been trying to do is that they finally awoken to the fact that they are really tied to the old way of looking at their unit sales.We just had the roll out of yet another batch of their very expensive handheld devices and their watches and we'll be looking at yet another quarter by the actual unit sales and then there's how many new phones and devices running their iOS system are actually out there and if you look at the last couple quarters, their unit sales just haven't been there. They're still focused on the revenue number.Therefore, if they can sell fewer more expensive phones then their revenue looks good for now but that means that their universe, the number of people that are running Apple and living in Apple world with the iTunes and their iOS software, that's not necessarily growing to the same extent that has been occurring for Android devices or what's been occurring within Microsoft's world.Therefore, Apple really needs to step up with addressing this and recognizing, it's not about the unit sales, it's all about the generate, that reoccurring revenue and they talk about their services part of the equation which is part of what is sold through their iTunes and related platform but they need to have more people that are on that in order to get more of that revenue to be on with the leaders in the tech space.Apple really is challenging that in that base so again, less unit, more reoccurring and ones that have big universes and are expanding their universe and keeping more of their customer sticky and happy within their universe, that's where we're getting the leadership and of course, that is really focused on the clouds, focused on the mobile part of the equation and it's all about subscribing to services, not owning the stuff.[Slide 14 00:51:45] Capture Gains, Control RisksWe are the ones that really are part and parcel of a lot of these capturing of these games and controlling the risk. I mentioned Microsoft. Microsoft has been one of the early adaptors to the switch over. They have really have done a fabulous job of moving away from their unit sales to the recurring income parts. Their Cloud services is ramping up very aggressively and they're competing well with Amazon and not necessarily threatening them but carving up their space that they're able to offer their version of the Cloud along with their productivity software and their software which people already have a lot of expertise and have history with.They're basically doing "well" and the idea that they have their customers locked into their services and all of their files and all their ... Yeah, that makes them very sticky so that even when the economy slows a bit, they still will have a reliable base of their business that can carry them through. Cisco, another company which has been a little slower to awaken.This past year has shown real progress in which we went from slow to negative sales growth as they started to turn the ship around from trying to sell the individual units of their routers and other equipment to trying to bring in that reoccurring income. The reoccurring income right now is sitting in the 30% range. We're trying to get that into the 50% range in very short order.I think we're going to see it move even further. There's still a lot of work to do but they've been proving that out in the last quarter after quarter after quarter. We're starting to see the progress happening and that's why I want to invest in companies even if they're not there yet but if we can buy and own them as they're going through the transformation with proof.Each quarter, I look and seeing what do they promise? How'd they come through? What are their plans going forward and are they going to make it so on those goals and Cisco right now is moving in that direction. Oracle, not necessarily in the portfolio but it's one that I wanted to draw your attention that I'm looking at. Again, we're looking at that software space that they can basically provide that subscription, that recurring income that companies can utilize the software for a lot of their operations, management and so forth.It's one that's very well placed to cash in on these outsourcing of technology and the outsourcing of their software management so again, I think it's one of those leaders that I like a lot in the space. I talked about Amazon a moment ago. This is a company that again, it has never been a good value but it just keeps getting bigger and bigger and therefore, it just keeps expanding its universe of customers.The idea that this expansion and the stickiness of this company across so many different facets of businesses and of individual households continues to be ever more impressive and it now is basically is not just losing money. It is profitable and there is a lot more to drive that going forward and therefore, I continue to admire this as a company and see that there truly is some maturity in the leadership of the company as there is a vision to grow their businesses and by expanding their universe and looking for that recurring income.Alphabet, with Google and their Android universe, they really command and really control so much of the globe's market for mobile devices which is how the majority operate on a daily basis. That means all of that data, all of that personal information, all of that basically is extremely valuable and therefore, Alphabet is able to monetize that increasingly well, not just through ads but through selling that information to other partiesTherefore, that is a great business model to be in and one that, through thick and thin, Alphabet were able to generate some significant cash flows. That's impressive. Walmart, again, like Microsoft and Cisco, this is a company that's turning itself around. They were slow to it but now, they have been stepping up with a vengeance. They were slow to recognize that having the standalone stores in different parts of the US and in different parts of the world and basically getting people to come to see them and buy their goods.That business model has its place but it's not as big a place as what Amazon has proven itself to be which is the online space and being able to compete with Amazon and be able to offer that universe for their customers, not just in the US but globally, Walmart is stepping up to do that. They have made significant acquisitions both in the technology as well as in the online space with and others.Then, and the retailers that already are capitalized on their relationship from a distance to their customer base whether it's in clothing, whether it's in other consumer goods. Walmart's made some very strategic acquisitions not just to buy those brands, but to buy that expertise of those successes. Therefore, that's really what it needs, is to be very impressive for this company, and what I think is driving my recognition that like for Amazon, like for Alphabet, like for Oracle, there's some interesting things that I think are happening that very well might justify some investment.Of course, a synthetic way to get access to these companies and others that are in the model portfolios, I added in the Vanguard Information Technology, ETF, the VGT. Other ones are similar at across the board and the various mutual fund portfolios but this one is in the total return and of course, it's in the Vanguard portfolios as well as in the ETF portfolios in the Model Mutual Fund Portfolios. Again, these are the primary ways in which we can be able to capture that.[Slide 15 00:58:10] Maximize Yield from TechnologyThen to look at the yield for the technology, again, we have several plays in this thing. I mentioned Hercules Capital. This is the company that is the merchant bank to the technology center headquartered in Palo Alto. They hunt down the kids in the hoodies that have the next wisdom idea and they fund them, develop them, take an equity interest in them and help them to come to the marketplace.They do a fabulous job and pay a lot of cash with that great yield. Then, you have the digital space. Those data centers for all those Cloud computing area and we have two players in this that are … We have Digital Reality Trust, DLR, the yields come down they think because the share price is doing so well and yet, the cash distributions have been rising. Then, you have Corporate Office Trust. I brought that into the niched portfolio.This is one of the prime operators for Amazon through its further development of its data centers particularly in the high traffic, crucial hub area of Northern Virginia. Therefore, this is one that is in niched investments. Keep an eye on it. If you have extra cash, this is a great target in stock in this space. OFC is the ticker, and again, you're getting a nice above market yield in that process. Again, we can have growth and we get yield from the tech space.[Slide 16 00:59:28] Other Techs To RememberThen, of course, technology is not just about the gizmos, the cloud, and the electronic space, and so forth. It's the other parts of the tech space that all sourcing the expansion. I talked about the petroleum industries being one of those drivers for this economy, and it's a technology that has really made the antiquated oil well that we see in the past become much more antiquated, but also, so much more productive.It's the tech that really has made the US the leader in the fracking technology, everything from different drills, multiple directional drills, different technology relates to how fracking sand, different liquids, different viscosity of various liquids that are used in the fracking process. Nobody beats the US when it comes to this tech space. You have some of the companies that are still not necessarily being fully recognized by this, like Schlumberger, which is the Total Return Portfolio, and there's so much others.They're cashing in on this like Viper, and like the synthetic version that we have with the Spider, with XLE. Then, of course, you have the technology in the energy space. You have those annoying wind turbines that not only disrupt the nice views in various parts of the country, but also make a lot of needless noise, and kill many of the migratory birds. However, that along with solar, is what's driving a lot of the improvement. Therefore, we have next era energy, has been one of those great capitalizers on this renewable energy. Therefore, we can capitalize on some of that tech that's coming from that green energy space.[Slide 17 01:01:04] You Have Questions, I Have AnswersWith that being said, I'm going to start dealing with some of your questions and comments that you've been sending in and let's see how things pan out here. I'm going to start off with Richard who asked about, "Do a compared interest of what's happening with utilities versus treasuries."Well, Richard, as I've mentioned earlier, utilities have started to come on for the summer to date. People basically waking up to the concept that utilities have a lot more pricing power, a lot more profitability with the expanding economy. Treasuries have been basically fairly stung depending upon the overall maturity. It actually have a little bit of a negative return for this year. Therefore, utilities have really been turning on as being much more attractive.In addition, as I brought earlier, the corporate bond space has really been outperforming treasuries. That being said, treasuries are still well-demanded around the world, but again, there are still off a lot of supply. If you look at how the treasury has been doing their issuance, there's been a lot more of the short to intermediate term issuance to make up for some of the near term deficits as a result of the initial wave of tax changes from the Tax Cut and Jobs Act.Therefore, that also has created a little more of a backup in some of the shorter term yields in the treasury markets, which again has really not been punitive, because the corporate space has been well received so it hasn't been crowding out the credit markets. Utilities look really good to me. Treasury is not so much for return. Corporate bonds look really good. Then, James Wright, "What's the status of the FANG stocks?"Therefore, the idea of looking at Facebook, Amazon, Netflix, and Google. That's odd collection. Well, again, I talked about Google and Amazon. Again, I think they're very admirable companies. I like them a lot. I'm looking at them in a lot more detail of recent. Facebook I think has major problems. I think they have a PR nightmare in seemingly on a constant stream as far as how they run their business.They gather a lot of personal information and they use it for the best of their profitability, with really not much concern for how that the various pictures and verbiage, and so forth, that their users place on their side. They just lost very innovative people that developed and brought Instagram, which is one of the big drivers for that company's revenues. Therefore, I think that's going to be a problem.We look at the rate of growth of subscribers as really slowing down quite a bit. Netflix need a lot of competition out there, including competition from our Incredible Dividend Machine member, AT&T. Thanks to its Time Warner acquisition. There are going to be a lot of other alternatives in Netflix. They're entering the market including some streaming services that are going to be happening from AT&T.We also have some streaming services that really are taking hold very quickly coming out of Disney including the ESPN stream service, which really hit some great numbers in the past month and they're fighting Netflix. That will have some challenges. Those are some of the things that I'm looking at there. George says, "I'm having some difficulty understanding the criteria used for recommending for tax-free or taxable. Please clarify."Well, George, I've been bringing a lot about in the Q&A section within the issues and we've talked about this in some of these webinars. I think the key thing is that when I looked at the tax or the tax-free, when I looked at the tax-free, I'm looking at basically our common stock in which typically it was going to be a qualified dividend. It's able to be taxed into lower rate, and therefore I look at the idea that there's no major tax advantage.In other words, it just pays its dividends and it's going to be ideal if you don't have to pay a tax on that item. If I put it in the tax account, it's going to be an investment that has some tax advantages built into it. A real estate investment trust in which you get to, thanks to the Tax Cuts and Job Act, you get to deduct 20% of the dividend as far as how much tax you're going to have to pay on it. If you look at the pass-through securities, so that the partnerships in various things that have the return of capital.The depreciation, deflation, allowances and so forth that reduces the tax, the current tax liability. Those fit ideally in the tax account because you're not going to have to pay much taxes on those distributions. Therefore, if something has a tax advantage for it that have been inputted in my tax or recommendation. If it doesn't have any tax advantage, then it's going to be is ideally in a tax-free account.I can't provide specific tax advice but that's the general guidance that I keep reiterating. Then, Richard asks, "Suggestions for portfolio devoted to grandchildren." Well, Richard, I think that's great idea to look forward to the next generations and help them get a leg up. I'd encourage you to involve your grandchildren if they're enough to the idea that you bring up the Wall Street Journal and you point out to the stock symbols and start the education process.I remember in the old days, a lot of parents and grandparents would give the individuals, his kids and grandkids, the actual stock certificates. Therefore, that would give them that tangible tie to the marketplace. That doesn't really happen anymore. It can't really happen. Now, we have our stocks on screens or we have it on a statement. Instead, the idea of having a joint account or set up with their grandkids, and then showing their statement, and going down and talking about what the individual companies are, and talking about why you have those stocks.Getting them involved at the beginning as soon as they're old enough to start appreciating this, even if they might look at you cross-eyed or want to do something else, or play with their phones, getting them involved early I think is a good idea. Beyond that, I think the portfolio granted is the same thing I recommend in general terms. You're looking for growth and income. You can't just simply make a bet on a particular segment and just throw it on some growth strategy.You have to have a balance. Therefore, even if you might say, "My grandkids aren't going to need … They're not going to need income for a while, why do I have the dividend stocks? Why do I need to have income?" Well, the idea that that income basically stocks up. It gets reinvested and it builds up value overtime, and it also provides some of the shock absorbers to either markets that head into period of malaise like we had in the S&P for the middle part of this year, or where we have those downturns.I think the general portfolio that we have in the total return is like that's the ideal for anyone, whether you're a kid or whether you're a grandparent. Then, another, George says, "What's a safe investor making 3% to 6% costly more than a money mark without much more risk?" Well, George, again, I think you look at a lot of the stocks I've been bringing into the space in the total return that they're bringing in those dividends.We brought in the Compass Diversified. We brought in the Hercules Capital. We brought in Regions which also has a little bit of a dividend side. Again, look at these things along with some of the pipelines that pay some decent income with some tax advantages. Again, I'm always looking for that target range of getting that 6%, 7%, 8% on the dividend side, and I think those companies I think can provide some protection even when the market had some downturns.Then, Ken asked, "What are your thoughts in Digital Realty Trust given the acquisition just then?" Well, Digital Realty Trust basically with, in cooperative by of Ascenty, which is based in Brazil with Brookfield infrastructure, which is an Australian global firm, in which the Ascenty base, he has data centers in Brazil. I only mentioned Brazil as a basket case but you still have Amazon. You still have Microsoft and others that operate and have customers down there that they have contracts that they pay in dollars, not in reals.Therefore, Ascenty basically has sold its interest with Brookfield taking a 49% and Digital Realty having the 51% interest of this. Brookfield also helped to finance the transaction. In addition to that, there is also the additional secondary issuance of chairs. I think it was done at a lower price at 113 share, which has put a little near term pressure on the current share price. I think it should've been priced a little bit higher.I think it's actually going to trade higher when it actually … He gets placed. Again, that's what's created a little bit of a near term pullback in the share price and one that I would use to buy more shares of this very impressive company, one of the leaders in the cloud computing space, or the actual data centers that it has, not only around the US, but around the world, including for its new acquisition in down in Brazil.Kenneth basically asked, "What are your views on US-China negotiations? I'm hearing lots of posturing that could be resulted in some favorable changes." Well, Kenneth, as I mentioned just a moment ago in this webinar, China is already backing down from some of its initial tariffs against the US. They're saying, "We're going to cut these tariffs. We're going to roll them back. It's hurting us more. It's going to hurt the US. We need these products."I think the negotiations are going to be working very well in favor of the US. China has a very rational leadership. I think they were somewhat misled by some of their hired help from the US as far as guiding them on some negotiations with the White House. I think they're waking up to the idea that they're smarter than their advisors. Xi Jinping is a very, very good leader. He understands the complexities of products and he's very good at getting true problems and challenges.I think this is going to work out favorably. I think it's less of a problem for the market, less of a problem for the economy. Then, Paul asks about, "McDonald's and Johnson & Johnson increased a bit since I made it my sale recommendations." He says, "Some of buys have gone down common." Well, Paul, of course things go up and down and I'll take some ownership for it both, some of in your term, drops, as well as some of the gains we've had.I sold McDonald's for a very specific reason, very expensive stock, very problematic business model with their franchise system that is still very much at risk for some judicial decisions that might very work against them on different levels. They also have still major challenges with their product mix. They haven't necessarily fully embraced the modern taste of fresher foods. They also have a major threat as far as their fresh food initiatives in order to keep the quality across their system without having viruses and other bacterial problems that could doom the company like it did for Chipotle, which I had an investment long ago.Johnson & Johnson, again, the reason we sold that was major problems for the revenue and for the profitability. Unlike some of their peers in the consumer product segment, they talked about the idea that they were going to be cutting costs and they were going to be able to make and look at all of their products and make some cuts or change their focus. They didn't come through in the quarters. Therefore, again, talk is cheap for me.I need to see proof and unlike some of the other consumer products companies that we have in the portfolio, Johnson & Johnson just isn't one that's justified. Again, even though they might have gone up further with the general marketplace appearing much better, I think they are not very well ran companies and they're not justified in the current marketplace. Thomas says, "Is Disney a buy now or they overextended the balance sheet with their Fox deal?"Disney is not a buy. We do not have it in the portfolio. I do not have plans to have it. I think Disney should go through a breakup and the idea is having their parks and their movie franchises, if that makes sense. I think the idea of selling ESPN would make a tremendous sense because there is a lot of positive things that might be happening in the streaming side but there are some major challenges from the cable and other outlets that they have to rely on.Disney is not a buy unless I were to see some restructuring that might be occurring. Then, Paul asks, "You still have Buckeye on the toll takers list as a buy under 43. Currently it's in the 30s. Any concerns over the … Or at least in the coming dividend?" Well, Paul, as I've been iterating, the idea that I see Buckeye as a pass-through. Therefore, as a pass-through, it passes through the line share, the profits to the shareholders.Now, what Buckeye I think should be doing is it should be more variable on how its dividends are paid. When it's flush, we get more. When it's less flush, we get less. That I think, but Buckeye has been taking the plan as far as we're working on much more of a managed dividend flow, so there's not much change in the dividend. Buckeye's had some challenges in which some of the business for some of its gas products are for them, not really been in demand.Some of their terminal facilities has not been utilized. Therefore, we're seeing some changes. As I've written, Buckeye's management team has a very good track record of getting through challenging times. I see them basically making various initiatives and going through in very quick fashion some changes, which I think will include a little bit of a reduction in the payout as far as the dollar figure, because of the current cash flows just aren't there.I think some of the changes and some of their assets, I think it might very well be coming, but I think management is worth is sticking with right now. That's why I still have it as a buy for now. Then, Richard basically asked, "I'm retired. I have limited money to invest. Can you find some in what to sell in the Total Return Portfolio to the best of new recommendations?" Well, Richard, if you read the October issue, I put two new sales out there.I'm taking our profits from Berkshire Hathaway, the idea that the thing was trading at such a huge premium to its underlying book value, and Buffet for all of his wealth and all of his great ideas in the past, the idea of simply coming forward and trying to buy back stock just wasn't really justified. Again, recommended selling, that out of the portfolio. Then, we looked at the idea that we also have on the other sales in the marketplace there as well.Again, there are some things that we're sold and I think we're going to see potentially some other sales and some other shake ups in the coming months. Again, I always look at what's the best place to put your money, and I'll put my recommendations out there for you. Then, Leo asked, "Just that I looked for closed-end bond funds." Well, Leo, we have been … I'm doing I think fairly well with a closed-end bond funds for the municipal bonds in the Total Return Portfolio.We have the BlackRock municipal income, the Nuveen EMT Free, EMT Free and the Nuveen municipal credit funds. They're throwing off a lot of cash and doing fairly well in the muni space, which has been a good space to be in this year. Then, we also have the Flaherty & Crumrine closed-end fund as well. Again, I'm also looking at some of the closed-end corporate funds and analyzing them. Some of them are trading. It's a nice discount and I think you'll see more of those going forward.The idea I think there's some great opportunities in that closed-end fixed income space. Then, Michael asks, "Opinion on reinvesting in this period of rising rates?" Well, Michael, as I mentioned earlier in this webcast, I think the REIT space has been quite well. Again, it was really mis-sold in the beginning part of the year with misunderstanding of the Tax Cut Act actually had a tax cut for reinvestments and enabled them to make investors to deduct part of their distributions as taxable.The idea that RITs are able to capitalize on the growth in the economy, rising rents, a lot of the vibrancy in their tenants. Therefore, I think they're capitalizing on all the good parts of the economy. The idea that RITs basically are able to … They look at what is their net cost of assets versus their net revenue? The idea that for their borrowings in the market, the credit market is very attractive right now, and therefore their ability to fund their development is very attractive.I think the REIT space is going to continue to do very well. Then, Joseph asks, "What's the future for General Electric?" Well, Joseph, I think General Electric is a real problem. I think that's why I talked about it in a derogatory terms. I recommended the exiting and the idea that I've read about in my weekly Dividend Digest, which is published by InvestorPlace. I talked about the idea that GE should just be broken up and should go away.It should take each of his businesses and look to sell them. If you own it, again, it'd be virtually impossible for me to have a positive spin on that company right now. Brian asked, "Can you evaluate stocks using the price-earnings multiples rather than the price-to-book, which I don't understand." Well, Brian, the reason I don't talk about the price-to-earning multiples is that earnings is something that can be highly manipulated in quarter to a quarter.Of course, it includes a lot of one-off items and so forth and it's just not a very clean way. It's a great way for Wall Street people to build and pitch things. Therefore, that's why people are using it because they have been taught to use the earnings number. It's really way which the investors can be managed and herded into certain stocks. I don't like to be herded.Instead, I look at the price-to-sales. It's very easy to mangle the earnings number to fit your narrative. Unless you're flat out committing fraud and lying about how much you sold, it's very hard to lie and fib about your sales. I can look at how much you sell and what you sold over the trailing 12 months, and how that relates to the price of your stock. That's a cleaner way to look at things. Same thing I look at it in price-to-book.I look at it on a compared … On an Apple's to Apple's business. I look at the book value of the peer groups in each individual industries and that gives me a pretty clear idea of what the actual assets of the company are. Therefore, and what I'm having to pay for them. It's a cleaner way to compare company to company within each industry group. [Amet 01:20:48] asked," stock price keep fluctuating very often. How feasibly is a further market gains?"Amet, as I mentioned earlier in the webinar, the market does jump around periodically. I think a lot of it has to do with the increasingly growth in the indexed part of the marketplace, the ETF space, a lot of the past investment. I think that adds to the volatility in the marketplace at any given day. In general terms with the economy doing quite well, with the consumers in the businesses doing their thing, I think the market is still very feasible to market to see these further gains.Barbara asks, "What about the rising interest rates?" The idea that we've seen the normalizing interest rates by the fed and some other market, targeting the fed funds rate and that's basically giving some breathing space to the federal markets as there's little more wiggle room in the shorter-term interest rate market. In the credit markets where the real borrowing is occurring, businesses and corporations are having a much easier time getting access to credit and they're getting it at attractive rates.It's been very positive for the economy, very positive for so many businesses. That's what's helping the economy. That's what's helping the general stock market. Then, Samuel asked about looking at the advanced decline index, which was highly followed by Richard Band. Well, Samuel, again, the advanced decline basically takes the number of stocks on any particular market index and it takes against so many stocks that are going up versus a number of stocks that are going down.Therefore, if you're looking at the idea that if this advanced decline line is positive, it means that more stock are going up. If it's going down, it means there are more stocks that are going down. Well, that means in general terms that it would be an indication that general stock index for any particular group of stocks you're looking at would intend to be heading in a negative fashion if more of the stocks are heading lower.Now, of course, the key thing is how indexes are done on a weighted basis. The S&P 500 is heavily weighted to a handful of stocks. The Russell 2000 is less weighted, so it has less of an impact. The idea that you have to look at what particular index you're looking at and how the stocks are weighted, and how many stocks or index you already have, see the viability then. That being said, the Bloomberg basically cumulative overall stocks on the listed market in New York for the past 12 months, is up by 17.71%.It means that if you take the unweighted amount, just the number of stocks, that actually has been very positive and more so than the general S&P 500 index or the Dow. Therefore, yes, I look at various synthesis. If I were going to see there were something measurable to draw your attention to, I would, but right now it's just confirming to me that there are more stocks going up than there are going down, and that is across the board in various index groups.Yes, I keep an eye on it but I'm only going to draw your attention to it if it's meaningful. If I see a divergence, I'll draw your attention to it. Then, we have a question from Dennis about Andeavor and Marathon Petroleum have voted this week, yes, on the merger. How will the shares basically work out? Well, as I wrote in the journal this week on Tuesday, they will show up in New York count as of, on or about October 1st.You will get 1.87 shares at Marathon for each share of Andeavor that you have and any fractional shares will be paid to you in cash and credited to your account. Again, for right now, again, if you have Andeavor shares, hold them and let the transformation happen. If you didn't buy them, I don't have a screen in front of me at the moment. It's still the Andeavor shares are still trading at a slight discount to what the equivalence of what they're going to be transferring into Marathon.Therefore, what I recommend is look at the Marathon share price at the moment. Multiply that by 1.87 and therefore what that price is, you can pay no more than that for each Andeavor share and that would be the best deal you're going to get if you don't have Andeavor shares right now. Then, Dianne asked, "With tech being such a big part of the Standard & Poor's, it doesn't make sense that you're recommending a focus on tech sector right now."Well, Dianne, yes it does, because I could say the same thing with all the other facets. I talked about banks and financials. They're a big part of the S&P. I can look at things, but the idea is having this sector focus and driving more your attention to that, I think makes more sense because a tech sector is outperformed in the S&P, and they're so much occurring in that sector that makes it very attractive, not only in an index or in the synthetic version via the ETF, with the Vanguard ETF, but also in some of the companies now.I talked about including some of the ones I brought up in this webinar. Then, Trevor asked, "Is the Fidelity Capital & Income an acceptable substitute to the Osterweis bond fund?" FAGIX versus OSTIX. That's Fidelity charges of $50 fee for each purchase of the Osterweis. Well, Trevor, unfortunately, no. The Osterweis fund is very specific and it's very focused currently on the credit opportunities which I've talked about earlier.It's the credit part of the bond market that's doing very, very well. The Fidelity Capital & Income is not remotely the same thing, different assets, different management team. If you want to basically avoid the cost, you can deal directly with Osterweis and avoid that fee. Then, I think we have I think a room for one more. We have Rex says, "What do you see the future for cryptocurrencies in a cashless society?" The cryptocurrency of everything from Bitcoin to Ethereum, and so forth, again, I think I've talked about this in the past.The real problem that I have with this, given the fact that during the '90s, my bank marked 20. We actually engineered an e-cash product eCash, in which you have to have two things. You have to store a value and you have to have an instrument for each exchange for goods. Right now, cryptocurrencies don't have a store value because they don't represent anything and they're very speculate. That's why you see in variations of the price and it's very difficult and near impossible to use them for exchange of value.They just don't work right now in their current iteration. Therefore, I see them as merely as a sideshow right now. Then, well, I don't recall what the exact question is. I remember I had it in my list I was looking at, there was a question concerning the cannabis market, which is creating a lot of activity with some of the Canadian stocks. We have the ETF marketers is trying to make a wager in the US marketplace for this.A lot of excitement for this, a lot of people in other newsletters have been talking about this space. I just want to draw your attention to the fact that, yes, there might be a lot of excitement for this, but there's not a lot of credibility and a lot of the underlying companies in this space. I do think that given that we still have national federal laws that prohibit various uses and still we don't have a uniform standard across stateliness and a nice evidence was an interesting news blurb I saw this morning, which some older California couple was travelling from California where they purchased marijuana and they were going to give them as gifts in an Eastern State that also allows legal use of it.I think it was actually in the Washington City area. They were travelling. They were driving across the country and they were stopped for a traffic violation or something in Nebraska. The trooper I guess must have smelled marijuana. They confiscated it and they were under arrest. The idea that medical, even medical marijuana, it's illegal to possess in many, many states and a lot of people don't realize that's the case.I think there's a lot of room to go here, and yes, you might speculate like you might in other things, but I think what's going to happen in this space, you're going to see some of the leading companies in the pharma space. You're going to see some of the leading companies in the consumer good space and the agriculture industry. Once we get federal approval, that's when we're going to see some of the real progress.Right now, I'm not seeing the initiative to make that happen, and therefore I still think it's highly speculative and very difficult to be able to place values, really your placing bets. I'm not really a betting guy when it comes to recommendations. That's why that's not how I want to run the model portfolios of Profitable Investing. With that, I think I'm told I'm going to have to stop. I know that we have other questions that I haven't got a chance to get to.I'll try to address them in the journal and so I really greatly appreciate you attend the webinar. Note that we'll the transcript posted later. We'll have the slides available and the recording will be posted on the Profitable Investing website. We'll be looking to schedule a next one for next month. If you have ideas for the webinars or certain topics you'd like me to cover, please e-mail me those. I'll be looking forward to that.With that, I'll close our September webinar. I'm Neil George for Profitable Investing. Thank you very much. ................
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