SARA SILVERSTEIN: Hello. And welcome to the Action Alerts PLUS November members-only call. I'm here on the floor of the New York Stock Exchange. And I am joined by your portfolio managers Bob Lang and Chris Versace. Now, for the last few months, I have forced Chris and Bob to start with their biggest mistakes. But today, I'm feeling a lot nicer. So I want to start with a really big win.

Bob and Chris, you took over the portfolio a little over a year ago. And a few days into your reign, you decided to completely exit AAP's position in Facebook or Meta. The position was up over 400% when you got out. But the most impressive side of this for me is that you avoided the over 70% drop since you exited the position. Now, our members would've given up most of those gains had you stayed in. So, Bob, I want to start with you. And what indicated that it was time to sell Facebook when you did?

BOB LANG: So I follow the technical, Sara. And looking at the charts back then, a little over a year ago, it was pretty clear that the stock was fighting some moving averages, the most important one being the 20-week moving average. So that basically had been the line in the sand for the stock for the better part of a couple of years prior to 2021. And you can see from the chart there the purple arrows that I put up there.

Back in September, about a month or so before Chris and I took over the Action Alerts PLUS portfolio, I could see that the stock once again was fighting beginning part of October. I signaled this to Chris and said, hey, look. You know what? On a technical basis, this looks like it's ready to crumble. And he matched it together with slowing fundamentals in the company.

And you know what? We didn't think twice about this. And it was I think probably our first or second stock that we dismissed from the portfolio in October. I think we sold it around $330 there. And ever since then, it's just been down. I don't think it ever went up above the price that we sold it over the past 13 months since we got rid of it.

So it was one of our prouder moments of running the portfolio of Action Alerts PLUS. And we've had several since then. But that was probably one of our best.

SARA SILVERSTEIN: And I want to make sure everybody, Bob, understands the chart. I love how ugly it is. That's how you know it's so smart because it's hideous to look at.

So can we go back to the zoomed in version? So this is the week moving average is that turquoise line. Right? And if we go into the zoomed in one-- so that first arrow, you're saying that the price was fighting the 20 week moving average. And what time period was that?

BOB LANG: So that was back in September and October of 2021, so a little bit over a year ago. So the 20 week moving average, Sara, takes you back over a year, almost a year. And we want to see, how does the price work above there?

So big institutional investors, pension funds, hedge funds, mutual funds, that sort of thing in big banks, they look at these moving averages, very important markers to decide whether they're going to be in the name or not. And this 20 week moving average is an important one. And again, it was fighting it. We really didn't get more than one or two closes above that moving average. And then, of course, it fell apart just a couple of months after we got out of the name. So again, the second arrow is right around the October area.

SARA SILVERSTEIN: Where was your exit? Oh, yeah. Go ahead. Where was your exit is what I wanted to know.

BOB LANG: So our exit was right around that second arrow from the left or the one in the middle there. That was around the beginning of October. I want to say it was around October 5 or 6 that we got out of the name. And again, we had a few more weeks of going sideways. And then you see that big red bar over to the right hand side. That was a day that the stock got clocked. And it never really recovered after that.

SARA SILVERSTEIN: Great. Thank you. It's really fun to look at that now a year later, especially when you're right. I mean, it's probably not as fun when things go the other way. And to that point, Bob, it seems like what is driving a decision like this, the risk management discipline that you and Chris are bringing to this portfolio? What's your approach to that?

BOB LANG: Well, as Chris mentioned recently, that said-- look. I mean, you got a big game like that. We're up over 400%. You can't sit there and let a gain like that fall away from you. I mean, 100%, 200%, 300%. That's a phenomenal gain. You've got to take at least a little bit off the table.

But at that point in time, we thought, you know what? We had other places to put our capital. And we liked the gain there. We just didn't see very much more happening with the name. So risk management is the first discipline we have when it comes to managing money whether it's for Action Alerts PLUS or for anybody else or for our own money. I'm always looking to manage the risk and say to myself, you know what? Where am I willing to lose money?

And in this particular case, Sara, we just didn't feel like this was a name that we wanted to be in any longer as it was going to just lead to losses after losses. And fortunately, we were right. And we haven't been right on everything, of course. But in this particular case, it was the right move at the time. And even afterwards, it still would've been the right move.

SARA SILVERSTEIN: Absolutely. And, Chris, I mean, one of the big things part of making portfolio decisions is what you're not in. And one of the things that some of the members have noticed recently is that the portfolio hasn't been very actively trading recently. Can you talk about that? What's been going on in the last few weeks? And what are you looking for?

CHRIS VERSACE: Well, the last few weeks was really the kickoff in the September quarter earnings season. And as we had talked about right before that, we were a little concerned about the confluence of factors, everything from the dollar, concern over the consumer, slowing business spending, tech falling apart, all of these things. So we really wanted to see how the September quarter earnings season was performing. Again, we thought more revisions to the downside were likely to be had. And that is what's actually playing out.

But also too, right before that, we had added I won't say a slew of new names. But we added I think three or four new names-- Lockheed, Martin, Elevance. We wound up adding Clear Secure in early October and a few overs-- a few others, excuse me-- over the last few months. We really wanted to let those start to play out.

What happened I think as we all saw is the notion of the Fed starting to maybe slow the bite size of their interest rate hikes really kind of took over. That led to that nice rally that we enjoyed during the month of October. But as Bob pointed out, we're now bumping up against some key technical resistance levels with the S&P 500. So I think depending on what happens next and what the Fed has to say later this afternoon, if we're right, that the rally's a little infused with, one of my favorite words, a little "hope-ium" if we see the market pull back, I think we'll have some opportunities to add to some of those more recent names.

SARA SILVERSTEIN: Right. And, Bob, I'm giving you all the easy questions, all the fun ones. The portfolio had five holdings that reached or nearly reached all time highs last month. Can you lay those out for us?

BOB LANG: Sure, absolutely. So one by one, we had Elevance and Lockheed Martin, which Chris said we had added within the last five, six weeks to the portfolio. These were new names. We had Pepsi, which we added in the summertime. XLE also went up to a new all time high last week. And then more recently, AMN Health Care. So there's five names there that reached all time highs in the past week or a week and a half.

So as Chris said, we added some new names. And we just wanted to step back a little bit in October, let these things perform, and let's see how they do. And I think, Sara, there's one common theme here with those four names. If you were going to ask me, why did these stocks go up and hit all time highs where others did not, they are not technology names. These are names that are either in industrial, defense, health care, or energy.

So we have names that are spread around a lot of different sectors. Diversification is something that we truly believe in, is the one thing that will save you in a market that is soft or possibly even in a bear market as we're in right now. So that sort of diversification allows us the flexibility and the freedom to get into names that are not related.

And again, when we first stepped into the portfolio over a year ago, Sara, we were really top heavy in technology names, just not just internet names but also semiconductor names. And we've really made a huge transition out of some of that heaviness in the technology names. We do still have some. Of course, we have Google. We have Apple and Amazon and a couple of others. But we've really made that transition out of that heaviness area into some areas that we think could grow in a bad economic environment or a good one.

SARA SILVERSTEIN: And as we turn to the portfolio to review the portfolio and the positions in it, I do want to open it up and make sure you guys know that a lot of this is going to be based on your questions. So please keep sending in your feedback and your questions to And, Chris, to return right into the technology names that you have purposely been very light in-- let's see. Oh, there was a lot of tech earnings last week. What were your big takeaways from the tech earnings that you saw, Chris?

CHRIS VERSACE: Not to pat ourselves too hard on the back, Sara, but I would say there was a lot of confirmation. When we exited a bunch of the names that Bob had talked about earlier this year and then more recently with AMD, Nvidia, we were really concerned about the end market exposure whether it was PCs gamings. We were concerned about slowing data center spend, dollar headwinds, and then, of course, what the potential impact was of new efforts by the White House to really clamp down on China with regards to AI and some more advanced semiconductor technologies.

And by and large, those reasons that we exited those positions pretty much all played out. I think the other question that people are starting to ask us is, well, OK. You did the right thing. When are you going to think about getting back in? And we heard from AMD last night that the PC market continues to weaken. There's some concern over in China with fresh lockdowns and what that might mean for smartphone production.

So I think the path that we've taken just kind of sitting on the sidelines and waiting is one that we're going to continue with tech. As I was joking earlier in the week, we could talk all about PEs. We could all talk about other metrics like price to sales. But when the E and the S are coming down, it's a little hard to get enthusiastic about these names and say that they're cheap.

SARA SILVERSTEIN: And from a fundamental standpoint, since they have gotten beat up so much, what would you be looking for for tech to be turning around, Chris?

CHRIS VERSACE: Yeah. So when we look in various industries, there's indicators that the worst is over. So in the industrial world, for example, if an industry or a company backlogs bottom out, that tells you the worst is over. And I think we would be looking for that in an analogous way for technology. So for example, if it was the PC market, all of a sudden, the monthly numbers are no longer going down, they've bottomed out, then we can start to find the footing for chips. And then the same goes for other areas as well.

And I think that's what we're looking for. But I don't think we're going to see that in the very near term. Remember, we're hearing about a lot of companies that are starting to dial back their spending. Remember too that when the pandemic first happened, a lot of companies went on a technology buying spree to make sure that people could work from home. And a lot of that equipment is still perfectly good. So I think we have a little way to go before we start seeing that bottoming out.

SARA SILVERSTEIN: And, Bob, from a technical standpoint, I'm wondering the same thing. And I know some of our members are as well. Are you more looking for a way when to get out and eliminate these positions? Or are you looking for the signal to scale back up? And how do you know?

BOB LANG: I agree with Chris. I think as far as the technicals are concerned, Sara, these stocks are a sell to rip variety here. So when we had a big rally last week, for instance, in names like Apple, these are opportunities to scale back and take some money off the table because we are still mired in a bear market. It's going to be for quite some time. And Fed's going to be raising interest rates again later today, again later on this year in December, the last meeting of the year, and more than likely early in 2/2023.

So we have to understand that the market is going to have to deal with a much higher rate environment. And it's going to be for a longer period of time. So not 1, 2, 3, or 4. Fed governors have already said they're not going to cut interest rates in 2023. Maybe at the earliest 2024. And I the market is not pricing that in right now, Sara. But still, we have to be aware that what the Fed is saying and what they are doing.

So I think by and large, on the technical basis, every rally whether it's just in the markets or whether it's individual stocks become a sell to rip type of an operation here. And where is the bottom? I don't know. I'm not a bottom picker. And there's only one bottom that really matters. It's the last one.

So as we make lower highs, lower lows on the way down, you know what? We'll figure it out down the road. We make a higher low and a higher high to the right hand side of the chart. So for now, I think sell to rips is the apropos thing to do.

SARA SILVERSTEIN: Great. Chris, cybersecurity has been a huge theme. And you've added to it now with Clear Secure. Can you talk a little bit about Clear Secure and about where you see the cybersecurity theme going?

CHRIS VERSACE: Sure. So, I mean, there's really two avenues to look at. So when we look at Clear Secure, it's really more in the identity camp. And when we talk about cybersecurity, we have to remember why are bad actors doing this. Well, they're looking to attack companies to get increasingly personal information so they can monetize it on the dark web. That means we as individuals are potential victims of these large companies getting attacked. So we need to protect ourselves and really shore up our identity and our privacy. And I think Clear Secure is a great way to do that.

But it also has applications in identity particularly at airports. And what we've heard is from United Airlines, American Airlines, American Express, Visa, Mastercard, that traveling is back. And I saw some news this morning that there's crazy congestion over Heathrow. And I think where Clear comes in with their identity solution is it actually speeds your way through the airport.

So I think that in partnership with American Express, we're actually going to see a very positive quarter from the company because people, they're back traveling. But [LAUGHS] the patience for waiting in long lines at TSA or pre-check or global entry, what have you, it's simply not there. So I think there's going to be a good uptake there.

But the larger theme of cybersecurity, I was just reading the other day fresh reports that we're seeing new record levels of ransomware attacks. And there's all sorts of new types of attack vectors that are coming out. And remember, longer term, we have IoT, which means a huge, huge explosion in the number of connected devices, another wave of potential attack vectors for these bad actors. So for us, cybersecurity, it's a huge pain point. And it's got I would argue multi-year legs as we continue to become a digital society and have more connected devices.

BOB LANG: Hey, Sara.

SARA SILVERSTEIN: Seems to be a much wider spread theme. Yeah, please, Bob.

BOB LANG: Sara, if I could, I mentioned the last few days, I was in Orlando, Florida, for the money show and also for some of my trading people. And leaving Orlando airport yesterday did see eight Clear Secure booths. And they were busy. Usually I've seen them empty. But actually, they were busy. They were about four or five deep on Clear Secure.

The airport was pretty busy as we left last night. So I was very encouraged to see that. Always having boots on the ground looking for research and looking to see how our companies are doing. So I was pretty surprised to see that. So pleasantly surprised.

SARA SILVERSTEIN: Well, I will tell you anecdotally, I have been a Clear member since they opened since I was really late for one flight a few years ago. And I really, really love it. And my dad just asked me this week if he should do it. And I said yes. So anecdotally, I am also a fan.


Let's move on to the defensive plays. Lockheed Martin, which we recently upgraded, was one of the very few companies to maintain its guidance this earnings season. Chris, do you expect similar strength when Axon reports later this month?

CHRIS VERSACE: So I do. These both fall into the camp of positive spending of Washington that we talk about. And it touches on several other companies in the portfolio as well. But with Axon in particular, remember, the Biden administration is looking for $35 billion in spending to really re-equip, let's say, police and first responders around the US. What I like about it, though, is the real transition in their business.

A lot of people tend to think of Axon still as this old taser company. But the juice, if you will, the secret sauce here is what they're doing with their body camera business. And the recurring business that they have is software as a service for all the video and the digital evidence that's collected. That's the real key. And as that continues to grow and more funding flows in for that, I think we're going to see a real flip not only in the business model but how people are thinking about the company. That's the opportunity that we really want to capture.

SARA SILVERSTEIN: And, Chris, Elevance also proved itself a winner with strong earnings last month. Are you expecting more strength in health care when AMN reports tomorrow?

CHRIS VERSACE: Oh, absolutely. I mean, this ongoing nursing shortage-- you can just Google those two words "nursing shortage." And you will see almost across the country that whether it's hospitals, assisted living, doctors offices, what have you, they simply cannot find enough nurses. And there's a genuine supply issue because there's only so many approved colleges for nursing.

But for those data junkies out there, earlier this week, we got the September JOLTS report. And again, it showed a huge, huge mismatch between the number of health care job openings and the number of hires. So that just reinforces our view that AMN's contract labor offering is going to remain in demand.

SARA SILVERSTEIN: And there have been a lot of emails, happy members that were happy about the calls for Lockheed and Elevance. Bob, a few questions, though, about is it too late to buy shares at the current levels?

BOB LANG: We like these names. They've made a huge move. So I think it'd be difficult to tell members if they haven't bought any shares yet of these after such a large run to go ahead and buy them right now. I'll be honest with you. Again, these stocks making such a nice run in the middle of a bear market. And I think a little bit of a pullback would be in order. Maybe 4% to 6% pullback on Elevance or LMT or even AMN or something like that would probably be a good spot to enter their position.

But if they have some gains in the stock right now, by all means, certainly a good idea to take some money off the table. We have a lot of cash right now. These are smaller positions for us in the portfolio. So we don't really want to take anything off the table. AMN being the exception. That's actually the number one name in the AAP portfolio right now in terms of dollars. But as far as the others are concerned, you know what? Wait for a little bit of a pullback before adding some more shares.

SARA SILVERSTEIN: And, Chris, PepsiCo reported earlier this month there's been a lot of consumer companies including Kraft Heinz announcing significant price hikes in their popular products. Do you think PepsiCo will be OK? Will they weather the inflation storm?

CHRIS VERSACE: Oh, absolutely, I do. And it's not just Kraft Heinz. Key competitor for PepsiCo Coca-Cola said that in 2023, they're likely to push through larger than usual price increases. So that actually clears the way probably for Pepsi to match those price increases or at least come close, continuing to give them some operating leverage.

And what I like about this-- and Bob and I talk about this all the time. These price increases for these consumer packaged goods companies, they rarely come down. And what this means is eventually when the Fed has tamed inflation and some of these input costs actually fall, these price hikes become great margin levers down the road. So that's one of the things that we like much longer term. But to answer your question, yeah, I think PepsiCo's going to weather the storm just fine.

SARA SILVERSTEIN: And are they already adding to margin? I've seen-- and maybe these are just popular tweets-- people talking about how much prices are going up and how much margin that's already adding. Or are they increasing the prices to catch up?

CHRIS VERSACE: It's a little bit of both. So when PepsiCo reported or even another AAP holding McCormick reported, they said that given the number of price increases thus far, they're now starting to see some recoup on the margin pressure. So I think what we are now is starting to level out. Perhaps this next round of prices should they come in later this year of 2023, that might start to begin some incremental margin leverage. But the real opportunity is going to be when the input prices come down and those prices continue to stay relatively high.

SARA SILVERSTEIN: And Chipotle, pretty much the same question. How big is food inflation going to play into the thesis there?

CHRIS VERSACE: So there's a couple of ways around that. One, when we looked at their earnings, clearly pricing was a driving factor. They're not at the point really where they're gouging their customers, although they are starting to see some pull back in terms of the number of tickets that are being written. But nothing demonstrative yet.

I think the other side of it, though, that people tend to forget is that food inflation runs across the restaurant industry. And the areas that are really getting hit, fine dining, casual dining. And we're seeing pretty much as we suspected consumers who want to eat out are shifting to more fast casual fast food. So that's very good for Chipotle. And I know that we have Wendy's in the bullpen. They report next week. We might have an opportunity to take a fresh look at that company as well.

SARA SILVERSTEIN: And looking at Ford, there was some mixed news for Ford. Sales for October dipped 10% from last year. Chris, is another strong showing from the F-150 Lightning make up for it? Or what's the big thesis around Ford?

CHRIS VERSACE: Yeah, so this is an interesting one. We've been I won't say distancing ourselves from Ford. But we haven't been as bullish in the near term. We have been concerned about rising interest rates and what that might mean for auto loans and therefore new car demand.

And I think if I remember the way we wrote it to members, we said, look, we're going to be patient with this. The next catalyst that we really need to understand really begins in 2023 with the Biden EV tax credit around I think it's $7,500. That's a 10 year program. If we start to see the shift in the mix towards EVs as the ramping production, this tax credit can take a nice hefty bite out of that incremental loan cost. So if we start seeing the right thing January, February, March, then I think we're back off to the races with Ford shares.

SARA SILVERSTEIN: And, Bob, is the chart telling you anything about Ford? Or does something like the election totally mess up the technicals? How do you read a chart at a time like that?

BOB LANG: Yeah. So Ford had a nice little run recently, especially towards the latter half of October. But right up to the 50 day moving average where it's battling right now, that's been an area of concern. That's where it brought down at the latter part of September and made its way all the way down to near $10, $11. And it picked up some buyers down there because I think most investors like that big fat yield, the dividend yield that Ford puts out there.

So it's consolidating here. Let's call it around $12.50 to $14 on the high side. If we can get a breakout above $14, make a run towards that 200 day moving average, which comes in at about $14.40, it would be a good decision point. But it'll create a nice high or low in the chart, Sara. So we like that opportunity there.

Again, it moves with the market, of course. So we'll have to see what Ford does. General Motors came out with good earnings and moderate guidance. Tesla, of course, also came out with good earnings and moderate guidance. So we'll see how Ford does going forward. But again, above that $14 level would be positive.

SARA SILVERSTEIN: Right. And ChargePoint I know was one of your favorite stocks last month when we talked. What does the chart look like for you there? How are you feeling about ChargePoint?

BOB LANG: ChargePoint came back a little bit. It was on a huge run there a couple of months ago. And it's pulled down back into the zone where it was at between $12 and $14. Currently trading at $13.60 right now.

You would still select the opportunity here with ChargePoint. It's going to be a volatile name. And we've told the members that. You've got to be patient with this name. Again, this is another company that-- again, boots on the ground. Back in the summertime in July, went out to Provincetown and saw quite a few ChargePoint stations out there in the Cape Cod area in Massachusetts here.

So again, this is just one little anecdote here. But I think ChargePoint is really on the cusp of things. They're going to get a generous amount of the infrastructure money that has been laid out for electric vehicle companies and EV charging stations. So we do like ChargePoint here. Again, just trading in this range here, 12 to 14. It breaks that above that 14, 14 and 1/2 level. Good to go for some higher prices.

SARA SILVERSTEIN: And, Chris, one of our members asks, if the Republicans regain control of the House and/or the Senate, how will that change the outlook for renewable energy and EVs? Pointblank, should we sell ChargePoint and Ford on the news? You touched on it a little bit. But can you give us a little more guidance?

CHRIS VERSACE: Yeah. Yeah, sure. So let's separate the two. So renewables, that's going to be solar, wind, and some of those other energy programs, maybe even hydrogen, for example. So I think we need to see what the midterms bring. If the Republicans come in, I suspect given where oil is and where it's likely to go, it'll be drill, drill, drill as some folks like to say. So we will want to watch that avenue.

But I think when it comes to EVs, we've already seen the industry really start to pivot away from combustion engines towards EVs. And I think, as I just mentioned earlier, the Biden tax credit really comes into play in 2023. So I'm not as concerned about that.

As far as selling ChargePoint, no way. And I say that because two reasons. One, the flow of funds that Bob just talked about is about to happen. And as the overall number of cars continues to shift towards EVs, we have a major, major problem here where we need to grow the amount of charging stations and shrink the footprint of regular gas station-- sorry-- gas stations. So that's going to be evolving thing. And it's not something that happens in one, two, three years. This is a multi-year play. And we intend to stick around for the long play.

SARA SILVERSTEIN: And for United Rentals and Vulcan Materials, you've mentioned that they can weather a slower economy better by capitalizing on Washington infrastructure spending. Is any of this political? How much of this is related to the election that's coming up?

CHRIS VERSACE: None. These programs have already been passed. So there might be some timing and some hiccups on that. Washington, they do like to gum things up. But we're already hearing from Caterpillar. Their US construction sales are up 29% year over year in the September quarter. People are clearly getting ready for this.

And then even this morning, aggregate company Martin Marietta came out. And they said, look, for 2023, we see essentially flat demand. But when you dig into that, the strength on the infrastructure side is going to offset the weakness in single family home. And again, single family home, we've seen that market just roll over as mortgage rates have ticked higher. So I think when we step back on whether it's Vulcan, United Rentals, ChargePoint, or even some of the other names, Sara, the idea that we were leaning in the companies and areas that were going to benefit from spending out of Washington, especially if we see either a slowing economy or a recession emerge, I think it's been the right call for the portfolio.

SARA SILVERSTEIN: And I know one of your favorites has been Deere. But one of the members is asking-- it's come down pretty quickly over the last few days. And when you look at the one year chart, though, it looks like a blip. Can you speak to that at all?

CHRIS VERSACE: Yeah. So I guess it depends on not to be flip but what those few days were because when we look at the chart, it's been strong over the last several weeks just like the market. And I think we ask ourselves, OK, what is driving the replacement demand for ag equipment? It's really two things. One, the need to become more productive. That's going to help the upgrade cycle towards precision ag. No real question about that.

But as we talked earlier in the year, it's not until we get into the fall harvest season that we really have a good sense of what corn, wheat, and soybean commodity prices are going to be. Those are the key crops for farmers. They have-- excuse me. They have climbed higher. The prospects for farmer income and therefore the replacement cycle for ag equipment has continued to improve. And I think this bodes well for ag equipment sales in general but especially for Deere in the coming months.

SARA SILVERSTEIN: And Verizon, Bob, has come down quite a bit this year. Is it time to cut our losses and consider a competitor? What are your thoughts on the chart for Verizon?

BOB LANG: Well, competitors T-Mobile and AT&T actually came up with really strong earnings. Verizon did beat their numbers. But it provided a little bit more soft conservative guidance, which is probably why the stock hasn't moved nearly as much as those other two. But we still like the opportunity here Verizon. We were looking for it to hold that $35 level it recently did on a technical basis.

So I'm looking for the stocks there to just go sideways for the next several weeks, several months. We did get it a little bit early. But now, the stock sports a ginormous dividend yield of over 7%. And I think Chris mentioned to me not too long ago that this was a time around the area of 7 and 1/2, almost 8% the stock bottomed out last time around. And then it zoomed higher as people were trying to capture that strong dividend yield.

So they've got reliable cash flows. Money is moving into Verizon. A lot of customers here. And they do have some growth initiatives coming out. More recently, one it announced is a partnership with Walmart. So I like staying with Verizon over here. Again, a little bit of sideways action would be a little consolidation here around this $35 to $37 level. And then we get to move right back up when lower moving averages start catching up to it.

SARA SILVERSTEIN: And from a fundamental standpoint, Chris, how do you like Verizon compared to T-Mobile to address our member question?

CHRIS VERSACE: Yeah. So Verizon clearly has a bigger footprint. They've also got the Fios business, which is another anchor. So they can actually bundle and make their products a little stickier. I also agree with Bob. I like the fact that they are reaching out and partnering with Walmart and others to expand the reach in terms of their customer base.

But the one thing that they have that T-Mobile doesn't have-- and Bob touched on this-- is the dividend. So in this area when the market is a little unsure-- let's just be kind and say that. As Bob pointed out, we're going to collect 7% on this. And if you look at that over the year thus far, 7% return has been actually stellar.

So I think when we look at the historical valuations as Bob alluded to as well, typically it's bottomed out around 7 and 1/2% dividend yield. So not a lot of downside. And we're going to get paid to wait for some of these newer initiatives to come through. So I actually think it's quite a great place to be.

SARA SILVERSTEIN: It's a great point. Gas prices, Chris, has stayed in the headlines. We haven't talked much about the XL ETF in the portfolio. But now we're heading into the colder months. What's the consensus between you two, Chris, on XLE?

CHRIS VERSACE: So I think we both like it. The weather forecast, as you pointed out, is for colder temperatures. But the big issue for us and why we've been able to ride that pullback that you're seeing in the chart there during the late summer months is because of the supply issues. Remember that OPEC+ has been under producing. And they've talked about a production cut.

But also too, in a couple of weeks, the EU is actually going to-- this may not be the technical term. But effectively, this is what they're going to do. They're going to stiff arm Russia with their oil imports. So that scarcity issue is going to get even bigger. So I think that's going to trump the concerns that we're seeing about a slowing economy. So I continue to like XLE.

SARA SILVERSTEIN: Great. And, Bob, with inflation where it is, is GLD or our gold exposure behaving the way that you expect it to? And what are we looking for here?

BOB LANG: Yeah. Sara, I like the GLD position as not only just an inflation hedge. But it's also a good, smart position to have in times of uncertainty, in times of war. We do have a war going on in Europe right now between the Ukrainians and the Russians. Will it spill over into the rest of the world? It's hard to know. Potentially some conflicts happening down the road between China and Taiwan. And the United States is certainly going to have a voice in that dispute if that ever comes to a head.

So I think in terms of, again, times of uncertainty and in times of inflation-- which we have a raging higher inflation across the globe. And we saw some more numbers this morning that certified that. So I think at those times, it's good to have some gold. It's good to have precious metal. Hard currency is something that is really needed in these times.

So you know what? We're not up on the gold right now. We're down slightly. But it's been a good inflation hedge for us and for the rest of the portfolio.

SARA SILVERSTEIN: And we have quite a few hedges in here with the CBOE and the short triple Qs and the short S&P ETFs. Where do you look at things to turn around? And will you look to add long positions? Or will you look to take off these hedging positions first?

BOB LANG: Yeah. So let's start with the hedging positions of PSQ and SH. So SH, of course, is a proxy for the SPY, inverse for the SPY. The PSQ is the inverse for the [INAUDIBLE] and the NASDAQ. Of course, the NASDAQ has been the worst performing index in 2022, down close to 30% and at its worst was down about 35 and 1/2, almost 36%.

So we like having these hedges in place to blunt the portfolio volatility. And in a perfect world, Sara, we wouldn't have these hedges on at all because the market would be going up every single day, and we'd all be rich. But we know that that's not a reality here.

But what we really have to understand is in a world where market volatility is elevated, we're still at about 26%, 27%. More recently, we spent a great amount of time on volatility above 30% on the VIX. So I mean, literally about 12 out of 14 days, we were above 30%. So what does that represent? That represents a market that is expecting 2% moves on a daily basis. So that's sort of volatility in the markets.

And what is 2%? 2% of the S&P 500 would be about 72 points up or down or some kind of combination every single day. So that makes people a little bit nervous, a little bit worried that they're going to be losing their money. Again, volatility goes in both directions here. But when it's going down, people feel a lot worse than they do when the market is going up. So I think having these hedges in place like a PSQ or an SH even all the time would probably be a smart thing to do because we're always going to have down moves.

And of course, in a bull market, we could certainly lessen the amount of exposure we have to these vehicles. But as of right now, I don't see that happening yet. And certainly when the Fed starts raising rates even more than they're at right now-- I think right now, we're currently at 3%, Sara, which is probably a neutral rate. If they raise rates even further, if they come back down to where we are right now, listen, volatility is not going to go away.

SARA SILVERSTEIN: And we always lump the CBOE in here as one of these hedges. But it doesn't exactly work that way. We just love the story so much about what you've put together here. But can you talk to us a little bit about this? I think it's much more nuanced than that.

BOB LANG: Well, I'm the options guy. So I do trade options in another part of my life. So yeah. The CBOE is an amazing company here. And they take advantage of whatever opportunities there are out in the future. So they're a huge product source of volatility. They create a lot of new products as it relates to trading volatility for those who want to dabble in that.

They also create a lot of options. About 10 years ago, they started with this weekly option thing. And it's become wildly popular. They continue to make money hand over fist. They're just like a cash machine, like an ATM machine almost.

So listen. I mean, going forward, I mean, as long as CBOE is innovating and providing products for people to hedge their portfolios, hedge their accounts, and so forth, they're going to be on top of it. And this is going to be one of the best vehicles to play out there.

Now, we like CBOE. And in fact, we mentioned five names that were at all time highs last week. CBOE is right near the all time high as well too. So I'd like to see them go a little bit higher so we can say six names have actually hit all time highs from our portfolio.

SARA SILVERSTEIN: That's great. And that's the only reason I feel like we need to break it out because if it's going to do that well when the market's doing a little bit better, then it feels like it needs its own category. Chris, I want to go back to the market outlook. And I want to go back to the election because we've had so many member questions. A lot of them were stock specific, which we talked about. But just generally, what are you thinking about heading into the election? And what are the biggest changes to the portfolio that you would make based on what happens?

CHRIS VERSACE: Sure. So the consensus right now I think is that the Republicans take back the Senate and the House. If that does happen, it calls into question a lot of agenda items for the Biden administration in the balance of the current term. So not really sure what's going to happen in that regard other than things will get gummed up like I was saying earlier. And probably nothing happens.

But in terms of what we have in the portfolio, for a number of the names, the spending programs are already in place, like I mentioned. The one area that I think we'd have to watch would be on the defense spending side. But given the need to continue to upgrade what we have here at home but also the ongoing war in Ukraine, typically I think both the Republicans and the Democrats would come together on that as a sense of national security. I don't think it would probably be as much in jeopardy as some people might think. So I don't think we would have much to deviate from. I think we just would want to watch out and see what spending actually might get passed and take advantage of that in 2023, 2024.

SARA SILVERSTEIN: And cash is always one of the big questions-- how to treat cash, how to move out of cash. And, Chris, a lot of members are asking-- it seems like one of the ways that members decide how much AAP they want versus how conservative they want to be. So if someone has a bigger cash allocation than the AAP portfolio right now, do you recommend that they start nibbling on the number ones in the rating system and over what period? Or should they be keeping that cash for the new opportunities that are coming around?

CHRIS VERSACE: Well, that's actually a very nuanced question because as we're sitting here-- and I would ask Bob to weigh in on this. We've wrote and shared with members that the market has faced some stiff resistance at 4,100. And of course, whatever we hear today from the Fed could dictate whether or not the market rally that we enjoyed in October continues, if they signal that they're more dovish. But if they signal that, hey, we are going to continue to be on the path, there will be some pain, effectively reiterating what they've said before, I think that the market is going to give back some of the gains that we've enjoyed over the last few weeks.

So I wouldn't say spring into action today. I think we want to wait until we get the Fed's words and the press conference in hand and in ears so to speak so we can make a smart decision on that. But generally speaking, if they're overweight, the level of cash relative to what we have in the portfolio, I think that if you want to put money to work as we start adding newer names to the portfolio, or if the market pulls back, and we start to revisit some of those newer names that we've put in at better prices than we can today, that's where you want to start.

SARA SILVERSTEIN: And, Bob, did you want to add something to that? I know we are expecting a FOMC hike by another 75 basis points later today. Is that what you're expecting? And based on what happens after that, how will that impact what you're looking for?

BOB LANG: Yeah. So [CLEARS THROAT] I just want to make one comment to tag along what Chris was saying about the cash. The cash has been used as a good defensive measure in the portfolio. And again, as Chris said, we're looking for opportunities all the time. It's always good to have a good hoard of cash especially in a bear market that allows us to have the freedom and the flexibility to find new names but also to pause and to wait and be patient for stocks to come our way.

As a good example from late September and October, we waited for a name like Elevance and Lockheed Martin to come back down to some support areas. And that was the time when Chris and I decided to strike while the iron is hot and say, look, this is a good time to get into these names. They're strong. They're bold. They're going to do well whether we're in a recession or whether we're in a good strong growth environment. So that's the sort of action we like to do.

And as it relates to the Fed, Sara, yeah, I do believe the Fed will be raising 75 basis points, what the market is expecting today. They're pricing then. And of course, they could certainly surprise with a lesser amount. But about 90% probability that 75 basis points today.

We are still seeing inflation raging not just around the world but also here in the United States. I shared with Chris earlier this morning, Cleveland Fed now casting, which comes out with inflation predictions based on their criteria. Also showing a new number for November is coming in at around 8%. October, they're already predicting 9.2% increase annualized month over month inflation on the CPI. And that number is coming out next week.

So listen, you know what? We're not out of the woods yet. It's going to be a difficult slog to go through. I think the Fed is still behind the curve. Unfortunately, Sara, back in March, when they first did their rate hikes, 25 basis points in March, they brought a squirt gun to a raging fire.

And I think that has put the Fed way behind the curve. And it have been ever since 2021 when they started with all that transitory language. It's disappointing because it makes us all pay for the mistakes that the Fed has made. But they have to make up for it. And they have to do it in a way that is probably going to hurt more people than help them in the economy.

It's just the way it is. It's the thing we have to deal with. And they are going to raise interest rates probably well above 5% before it's over and keep rates higher for longer. So that's the environment that we're in. And Chris and I are trying to manage the portfolio against that backdrop.

SARA SILVERSTEIN: And, Bob, with higher interest rates for longer, what is the total return you expect to see on equities long term? It's not 20%, right?

BOB LANG: Yeah, we're not going to be in the 20% range anymore. That was a return that you could get under ZIRP, which is called zero interest rate policy. We're not going to have ZIRP anymore unless there's some sort of a disaster or something like that that people need money.

The pandemic happened in 2020. Once in a 100 year move there. We had, of course, 9/11 happen a little over 21 years ago. And again, that was the time where it was a disaster. It was a surprise that we didn't really expect to happen. And the Fed could open up and help the economy. Unless something like that happens again into the future, don't expect the Fed to come to the rescue here and help support markets.

I think going back to single digit returns if possible. Companies are going to have to tighten their belts. We're going to see a lot of layoffs coming in 2023 into 2024. The Fed is looking for that and are expecting that to happen.

And I think some of the data that we had this week already-- Chris already talked about the JOLTS. He talked about the ADP earlier this morning. Strong numbers coming out of the jobs market is not what the Fed wants to see right now. They want to see a softening of that so they can consider backing off rate hikes. The data that came out this week is not going to push the Fed into that camp.

So right now, I think that we have to pay attention to that. Equity returns probably going to be at best single digits, maybe 6% to 8% in the very near future. So in that environment, 3 and 3 and 1/2% Fed funds rate is probably appropriate for what we could expect.

SARA SILVERSTEIN: And, Chris, what do you think is the single most thing that people are not thinking about right now that they need to? What are you worried about in the market?

CHRIS VERSACE: Oh. I think that the market's been so focused on is it 75, is it 50 in December. And I would argue that, to some extent, it doesn't really matter. As we've shared with members, the size of the Fed funds rate going into 2023 is significantly higher than it was going into 2022.

And if the data from the Cleveland Fed is right, if the data that we saw from ADP this morning, like Bob alluded to, stronger than expected jobs-- but the wage gains year over year. We're still at 7.7%. The Fed can't be happy that. It's not really showing a lot of progress. It means that interest rates are indeed going to go higher. And I don't think we've seen earnings expectations for 2023 really reflect that.

We do have to remember, of course, that there's a lag associated with monetary policy, six to nine months. It means a lot of that is going to be showing up as we move into 2023. And I think when companies start to give their forward guidance for 2023 in formal fashion-- that tends to be January-- we're going to see some expectation resetting even more so compared to where they are today. I don't think people are really thinking about that. The mindset is between now and maybe the December Fed meeting. But we need to look past that.

SARA SILVERSTEIN: Right. And we have been getting a lot of your comments from everybody at home on the rating system for AAP. We are collecting those and compiling those. And we plan to decide on that and unveil a new system before the end of the year. So it's not too late to send in your thoughts and comments on that. So please weigh in.

And that's really it for today's call. Thank you so much for your time, Bob and Chris. And everyone who's watching, next month, we will be back after the election and to set you up for your portfolio for the new year.