Morning Download from Invincible Money

Personal finance + economics + markets

Finance in 5 minutes a day to help you make better money decisions.

Good morning investors! If you haven’t already, please subscribe to my YouTube for more money videos. The next video is about the Retirement Crisis.

In today’s issue: The debt ceiling lowers the debt-to-GDP ratio, but not enough. A breakdown of how to use P/E ratios.

📊 Economy 

Debt Ceiling

📉 Dow was down 200 points yesterday as traders wait for the House to vote on the debt ceiling bill. S&P 500 futures are flat after the close.

💰 The CBO estimates the Debt Ceiling deal will “save” $1.5 Trillion. The GOP wanted $5 Trillion over 10 years, so they got 30% of what they wanted. On the other hand, the White House said they wouldn’t negotiate at all and ended up giving up some concessions.

• The debt-to-GDP ratio will go from 118% to 114% by 2033. The original House GOP bill called for 106%.

Our take: This lower ratio is good, but the U.S. debt is still going in the wrong direction. If Washington can’t or won’t cut spending, then the U.S. has 2 other options:

1. The U.S. economy grows faster. That won’t happen soon, but it can happen eventually. A 4% growth rate, rather than the current 1-2%, would stabilize things and generate more revenue to pay bills.

2. Inflate the debt down. A long term inflation rate of 4-5% would inflate the debt down to more manageable levels. In fact, some economists have wondered if the Fed wants higher rates for longer because it’s the most likely way out of the almost $32 Trillion in debt.

📰 News

Trouble at Amazon

Amazon employees planned a walk out on Wednesday to protest the company's recent return-to-office mandate, layoffs, and its environmental record and a “lack of trust in company leadership’s decision making.” Ouch!

• The walkout is being organized in part by Amazon Employees for Climate Justice, an influential worker organization that has repeatedly pressed the e-retailer on its climate stance.

• Over 2,000 employees worldwide walked out at 3 p.m. ET yesterday, with about 900 of those workers gathering outside the Spheres, the massive glass domes that anchor Amazon's Seattle headquarters.

🇺🇸 American Airlines Raises Outlook

American Airlines raised its adjusted earnings outlook for the second quarter, citing strong travel demand and lower fuel prices.

• The Fort Worth, Texas-based airline now expects unit revenues in the three months ending June 30 to come in 1% to 3% lower than the same period last year.

• American's shares were up close to 1% yesterday while the S&P 500 closed slightly down.

📈 Stocks

🤝🏼 Trustworthy: Investors like putting money in companies that are trusted and have a good brand. Here are the 7 companies with the best reputations in the U.S. (full list here):

1. Patagonia

2. Costco

3. John Deere

4. Trader Joe’s

5. Chick-fil-A

6. Toyota Motor Corporation

7. Samsung

• Amazon was 8th and Apple 10th.

💾 Nvidia briefly crossed $1 Trillion market cap., but closed at $934.50 billion. Regardless, they’ve entered the Big, Big Leagues, ranking #6 by market cap.

Most of their revenue comes from their data center business, which is growing quickly. However, their revenue is still smaller than rival Intel (more on that below).

🔐 Crypto

The crypto markets were down 1.2% yesterday on the positive debt ceiling news.

🇭🇰 Hong Kong legalizes retail crypto trading - starting today! However, the existing exchanges have to register first before they can offer the services.

Bybit exits Canada due to regulatory environment.

⛏️ Tether plans to start mining Bitcoin by partnering with a company in Uruguay. The company recently announced it will invest 15% of profits into BTC.

💵 Personal Finance

Let’s compare 2 competing stocks and take a look at their vast differences in valuation:

Nvidia - $1 Trillion (stats)

Intel - $125 Billion (stats)

Intel’s revenues are higher at $56 billion (vs. $25.8 billion for Nvidia) and their EBITDA is also higher at $9.85 billion (vs. $6.b billion), so why is Nvidia worth 8x more?

Let’s look at 3 numbers:

Return on equity for Nvidia is 18.85%. For Intel it’s -2.81%.

Quarterly earnings growth for Nvidia was 26.30%, while at Intel there was no growth.

Lastly, profit margin at Nvidia is 18.52%, while Intel is -5.06%

Our take: So while Nvidia doesn’t make as much money as Intel, it’s a growing company, with much better margins and currently has a lot of good press thanks to the sales of their GPUs for AI processing, while Intel is shrinking and not making as much from their operations and are therefore valued less.

Also, Nvidia’s graphic cards are widely considered to be better, run cooler, have been compatibility and have better support.

💰 Be a Better Investor

🧠 Get Smarter

What’s the difference between Forward P/E (Price to earnings) and Trailing P/E?

Trailing P/E and forward P/E are two different ways to calculate a company's price-to-earnings ratio. Trailing P/E is calculated by dividing the current share price by the company's earnings per share over the past 12 months. Forward P/E is calculated by dividing the current share price by the company's estimated earnings per share for the next 12 months.

In general, a lower P/E ratio is considered to be more attractive, as it means that investors are paying less for each dollar of earnings.

Here are some of the key differences between trailing P/E and forward P/E:

• Trailing P/E is based on historical data, while forward P/E is based on estimates. This means that trailing P/E is a more accurate reflection of a company's current performance, while forward P/E is a more forward-looking measure.

• Trailing P/E is more stable than forward P/E. This is because forward P/E is more sensitive to changes in earnings estimates.

• Trailing P/E is more widely used than forward P/E. This is because trailing P/E is a more accurate reflection of a company's current performance.

Ultimately, the best way to use P/E ratios is to compare them within the same industry. This will help you to get a better understanding of whether a particular stock is overvalued or undervalued.

👩🏽‍⚖️ Legal Stuff
Nothing in this newsletter is financial advice. Always do your own research and think for yourself.