Stocks Pop as Fed SETS Rate Cut Time, Microsoft ROCKETSHIP, & Biden

Federal Reserve just set expectations as

to when we should start to see those

rate cuts. Remember what J House said

about going to zero? They get a little

bit of a time frame in terms of when the

Fed wants to start. They also talk a bit

about the labor market. Morgan Stanley's

take on some of the worst sectors to

invest in right now. I'll add my own

take to that as well. And Microsoft's

deepseek reaction. Is it still evolving?

The answer to that is yes. I'll touch on

that a little bit on politics and some

additional commentary on yes, the Biden

situation. But first, it's worth noting

a couple things. We actually just made

progress on the reconciliation bill. It

was blocked on Friday in committee and

it just passed through as some uh folks

ended up voting present to help the bill

make progress. So, we're slowly but

surely making progress on that tax plan.

TBD what the final version will look

like. But so far it looks like that tax

bill is going to end up passing through

budget reconciliation which remember

only requires a simple majority for

revenue related bills. You could usually

use budget reconciliation about three

times uh you know per year and this is

expected to be one of those. Uh that way

Democrats can't block the Republicans

passage of the bill as long as they can

get it through a Republicans and B the

Senate parliamentarian. Another small

note to keep in mind is that Buffett

plans to skip the stage at the 2026

annual shareholder meeting for Berkshire

Hathaway. This to me just breaks my

heart. It's it's just sad because I

think once you go into

retirement, you're on the downhill

slope. That's just my take. Anyway,

let's go ahead hit the Fed news this

morning. So, Fed warnings this morning.

We saw Bostic and Williams talk to us

about time frames. And Bostic is the

first to actually say something that

Jerome Powell has not been saying.

Jerome Powell has been telling us that

long and medium-term inflation

expectations have been relatively stable

and unconcerning. However, Bostic

doesn't care about that medium to longer

term end. He says that we're seeing

inflation expectations move in a quote

troublesome way and that before we move,

we need to let things sort themselves

out. And so therefore, he only expects

one rate cut this year. Now, I've kind

of been teeing up for a September rate

cut. I've been saying since earlier this

year that even June or July, you're just

going to be too early to know. Is the

economy going to tank? Is it not going

to tank? We we don't really know. So

far, the economy is holding up just

fine. But Williams came out this morning

and also said that we probably need

beyond June and July to get a clearer

outlook. Now, this aligns with the

potential for a September firsttime rate

cut, but it does mean that before we get

any kind of panic or break as Jerome

Powell says, where we break into the

direction of recession and we end up

going to zero rapidly or we break into

the direction of a sort of a liftoff

economy where we've stuck the soft

landing and now we're on liftoff and

maybe we actually keep rates higher for

even longer before we break into that

direction. It'll take some time, says

JPAL. If obviously we break towards

recession, hey, they can cut to zero

very rapidly. But Bonik and Williams

were providing that clarity that don't

get your hopes up on anything over the

next few months as it's just going to

take unfortunately patience and time to

get that data. And so markets

immediately responded to this and we are

now pricing in a 93% chance for a rate

cut September 17th. We are only pricing

in an 8.4% 4% chance of a rate cut June

18th in about a

37.4% chance combined chance for July

30th. So, in other words, it looks like

we're leaning more towards that

September period. Now, something else

that I've been talking about with uh

course members, that's also something to

pay attention to, not just in markets,

but a quick note on Tesla. Those of you

in the Alpha Report, you know about

this. I think one of the reasons Tesla

isn't seeing as much BTD buy the dip on

some of this Moody's downgrade is

because we're getting really close to

buy the rumor, sell the news time frame.

If June 1st is robo taxi, sell the news,

some people think if we have anything

other than a really grandstand

Whimoesque showing, there could be some

near-term downside in store for Tesla.

Just something to keep in mind. That

said, the Wall Street Journal has a

fantastic piece on what they call the

Great Hesitation. And this is really a

reference to, you know, the Great

Depression, Great Recession, Great

Moderation of inflation. They call it

the Great Hesitation. And the Great

Hesitation basically just has to do with

the labor market. In other words,

corporations aren't laying people off,

but when it comes to hiring, companies

are kind of, we're going to slow down a

little bit. you know, maybe we'll use

contractors versus hiring. And the Wall

Street Journal says this is really

common during periods of uncertainty.

And this is especially true in the IT

market, especially with companies that

are more midsized, like 20 to 100

people. Uh they actually observed, hm,

this is interesting. If the labor market

really is softening, why did it

unemployment go down to 4.6% from 5%

last, you know, last month? That seems

good, right? But then when they looked,

they realized the IT workforce shrunk 5

to 6%. The entire workforce shrunk

because it's so much harder to find a

job, especially as any kind of intern or

entry-level IT programmer gone thanks to

AI. Even advanced degrees aren't working

anymore. And now because applications

are being reviewed by AI, a lot of

programmers are finding it frustrating

to try to actually get in front of an

interviewer because everything's just

getting fed through AI first. And if you

don't hit those particular buzzwords the

algos are being asked to look for,

you're just not getting the phone call.

And so when you kind of combine this

with the Fed and sort of positioning

where we are, we're kind of in this like

stasis almost. Like when I think of

Stasis, I think of like the Jello- clone

just kind of like hanging in the vat and

we're kind of

like it's like kind of a really boring

summer is what we're, you know, like

stocking up for here. But frankly,

businesses aren't firing people in mass.

So, you don't really have a recessionary

loss of jobs. If anything, we saw a

really good surge of hiring when Trump

was elected. Uh, and even leading into

the tariff debacle because people were

trying to a frontr run tariffs, but

well, I guess b front run tariffs and a

they were excited about the the the

Trump win and potentially a pro business

administration. The the question now

though is do those hiring enthusiasms

last or do we break to the downside? Do

we break to the upside or do we just

sort of stay in stasis? It's kind of

crazy because it feels like that's where

we are. Fortunately, Morgan Stanley

gives us a little bit of a guide in

terms of what to expect in terms of

tailwinds. So, they say that earnings

breath revisions for the S&P 500 are

now5% versus negative 25%. In other

words, fewer companies revising their

earnings forecasts down, which is good.

And they actually go as far as saying,

do not rely on the two things that could

really moonshot our stock market right

now. Number one, a dovish Fed. Don't

rely on that right now. It ain't coming

anytime soon. And number two, a 10-year

Treasury yield under 4%. Don't rely on

that without a recession anytime soon.

Obviously, if we get a recession, the

10-year yield, all all yields are just

going to tank. I mean, that's that's an

obvious

play. But Morgan Stanley says the only

thing we could really rely on right now

for the stock market continuing to go

up, earnings. That's it. You've got to

pay attention to earnings. And this is

actually interesting because one of the

reasons we started talking about set

trailing stops and enjoy sort of this

upward momentum we're getting is because

Q1 earnings are of course good and not

only good because everybody sort of

pulled forward their spending to Q1 but

we don't have to worry about Q2 until

July. Uh so in other words we got quite

a while to go before we really get end

mass those Q2 earnings. And frankly July

is just the start of the earning season.

most of the Q2 earnings might not

actually be out until August. So, in

other words, kind of clear path right

now just hanging out in the stasis

chamber. Uh that said, uh Morgan Stanley

does not see a rate cut this a year and

they are bearish on two particular

sectors which I thought was very

interesting. So they suggest that

discretionary goods sectors and small

caps both of those sectors are late

cycle poor performers. And I think

that's an interesting POV. They say that

early cycle small caps can

outperform and early cycle consumer

discretionary goods can outperform

relative to other sectors. That's

because people have extra money and

they're basically spending at every

business across the board. So

everybody's a winner. But late cycle,

these tend to be

underperformers. They do not perform as

well as we're in a later cycle. And

that's what a lot of people would argue

we're in right now. We're in this sort

of late cycle period of okay, things are

slowing down. Growth is slowing down.

Does that mean we're going into a

recession? Nobody knows. But so far, all

we know is we're in the trajectory of

slowing. And those are the sectors to

stay away from. Now, I would add to

that. absent a recession, uh, you know,

mortgage companies, Nphase, bonds,

rocket mortgage, really tough

investments to make right now. They're

potentially good hedges for a recession,

but who knows when this talked about

recessions ever going to show

up. I thought it would show up by the

third and fourth quarter of

2026 or sorry, of this year, 2025. Uh,

by the third and fourth quarter of this

year, it could still happen.

But maybe not. Maybe it'll end up

getting too late and it'll be the third

and fourth quarter or 26 or it just

won't come at all. Nobody knows. And so

that's one of the tough things. You

really have to have balls of steel to be

investing in uh in in these right now

just based on where we sit. Although

when we start talking like that, it kind

of makes you scratch your head. Does it

become time to start actually buying

those because they're so horribly

unpopular right now? TVD on your own

allocations. That said, there's an

interesting story out on Microsoft and

uh Microsoft's reaction to sort of the

deepseek moment and it was really

awesome and I really admire sort of the

CEO leadership of what happened here. So

much so that it it makes me want to be

like this when it comes to running House

Hack. Y'all know I see that as my little

Birkshire Hathaway. We want to build

that into not just a real estate uh

company that buys and renovates homes,

but also build it into a developer,

which we're already doing with accessory

dwelling units or even spec build homes

or developments in the future, which is

really exciting. Uh and then expand from

there. So, I really see that as sort of

my the legacy company we're building.

And if you want to get in to that

investment preipo, remember we have a

nonacredited round preo you can invest

in. you get paid a 5% yield and the

upside in the stock. Should there be

upside, knock on wood, I obviously hope

that there is a lot of upside because

I'm deeply invested in it myself as

well. So, I'm a little biased. But

anyway, risk with every investment. Go

check that out over at house hack.com.

For now though, let's talk about

Microsoft. So, there's a story out on

Nadella's reaction to the deepseek

moment. They talk about how in the days

after the Deepseek moment in January,

there were emergency meetings, uh,

contacts with the the company that

created DeepSeek, sleepless nights, and

ultimately they ended up legitimizing

and validating DeepSeek. They

incorporated into Azure as an option for

people to choose as an AI model. Uh, and

they decided, you know, this is the pure

example of the commoditization of AI.

It's cheaper to operate. We can save

money on this. And frankly, I love it.

Now, initially I'm like, "Yeah, but you

know, Microsoft has their own AIs. Like,

aren't they competing directly with

OpenAI?" And the story answered it. The

story was actually about how Microsoft

said, "You know what? We have licenses

for OpenAI in their bleeding edge model.

So, let's let OpenAI keep running the

bleeding edge models on the most

sophisticated, most expensive, hardest

to compute AI possible." But at

Microsoft, since we have that license,

we've got that site covered. Why are we

going to compete with them? Let's just

try to make money off the commodity,

give people access to Deep Seek, add our

own Azure fees on top of it, and

basically just sell the pickaxes. Like,

who cares what the pickaxes are selling

for? We'll just sell the pickaxes. Or if

you ask Copilot a dumb question, no such

thing as a dumb question. Okay, Kevin.

If you ask Copilot a dumbass question,

they'll just give you a deepseek answer.

If you ask a really really complicated

answer that's more than encyclopedic and

requires some levels of reasoning and

self-prompting or otherwise or or time

or you know data querying. Well then

they might use some of the uh more

bleeding edge models like OpenAI. Now,

this I think is really interesting

because it comes at the same time as

Microsoft is pulling back on their own

data center projects around the world.

And they actually say that data centers

are basically a real estate asset. Now,

I don't actually think that's a dish on,

you know, or a diss on real estate. I

think what it is to say is Microsoft is

a software business with insane software

margins. Leave the real estate to real

estate companies. In this case, that

would be a coreweave and we'll just

focus on providing the software

integration into you know word or

outlook or bing or you know whatever.

And so as a result, you're seeing

Nadella basically say, "Hey, where can

we use Deep Seek to basically provide

value to people but also save on costs

and that sort of reiterates the slowing

economy that we're in because Microsoft

added another DeepSeek model in March

and they were able to rent it for a half

the price of an equivalent OpenAI

model." Uh, and so it's fascinating also

because you're seeing this costsaving

which you usually see in a slower

economy. Look at this. The last five

years we spent building, you know, it

doesn't matter. Spend, spend, spend,

spend. It's basically just build

everything. Right now, Nadella is

telling folks, burn the ships.

Basically, shut down things like Skype

or whatever. Uh, and minimize the

expenses. Let's lay off 3% of the

workforce. Even though that's being

branded as just middle management, we

know from what we're hearing on the

ground, could be wrong, that a lot of

people are being affected by this, who

aren't even managers in any regard. Uh,

and so it to me it screams that

Microsoft is actually turning into this

insane

costconscious machine and I love it. I

think that is so important for business.

And again, it's why I'm inspired as the

CEO of House Hack, you know, tiny little

company, uh, preIPO company that that

wants to emulate that sort of efficiency

in business. That's, you know, in 2024,

we we cut a lot of our expenses. We're

still cutting expenses today because we

think that's that's very important in a

slower growth environment. Now, let's go

take a look at Microsoft because I want

you just to see for a moment just how

much money this company really makes and

the margins that they have, which are

really mind-blowing. So, when you look

at Microsoft's financial statements, I

think there's something you should

always remember is look at Microsoft's

net income. $25 billion for three

months. Okay? Three months. $25 billion.

But I what what I want you to do is I

want you to remember that that is the

net income number. We're not talking

about gross profit here. We're talking

about net, okay? Software business. All

right? This is why this is the most

valuable company in the world. $25.8

billion net in 3 months. That's insane.

That's, you know what, $300 million a

day, something like that. Okay. Now,

divide that by their total revenue of 70

and their net margin. In other words,

when Microsoft gets paid $100 for your,

you know, Microsoft Word subscription or

whatever, they are putting about $37

into their pocket. It is such a high

margin business. And I have to say, dang

it, dang it, dang it. This Nadella guy

is just smart. He's brilliant. And it's

just going to keep pushing this stock

higher and higher and higher because

they just make so much freaking money.

And while they're making this much

money, a 37% net margin, you've

literally got the CEO

going, "Where else can we save money?

Let's save money by using Deepseek.

Let's save money by firing people. Let's

save money by quote unquote burning the

ships of things we don't need anymore."

And I'm just like, "Oh my gosh, this

guy's so smart." I mean, look at this.

their s their their general and

administrative expenses literally fell.

This company is the most valuable

company in the world with a 37% net

margin. Nobody would tell them that they

need to go cut expenses and they

literally cut their general and

administrative costs by

9.1%. Their sales, so like their

marketing department stayed flat.

Meanwhile, they grew their top line by

over 13%, which

is what? You didn't advertise a dime

more and you grew your top line 13%.

What? Well, it's because they're going

around and they're like, "Oh, we got all

these people who are basically pot

committed to Microsoft Word." And then

they go raise the prices on you. And all

of us are like, "Damn you for raising

the prices. How could you, you greedy

bastards?" And and then of course, you

know, we're like, "All right, we'll just

cancel it." But we never do.

It's because they got this really sticky

service, right? So, I mean, this is just

I'm killing myself over here. It's just

so impressive. I mean, don't even look

at the fact that they've got $80 billion

of cash and short-term investments right

here available. And they have current

liabilities. If you take out the

unearned revenue over here, take their

114 in current liabilities, take out

their unearned revenue. I never take

that off of current liabilities. $69

billion of current payables, income

taxes, other liabilities, acred

compensation, current portions of

long-term debt, blah blah blah. So, in

other words, we've got an extra $10

billion of cash that we're sitting on,

not including the fact that we also have

another $51 billion of accounts

receivable. Could you imagine waking up

and your QuickBooks saying you have

pending payments of $51 billion coming

your way and you're just like what? Like

yeah, this company is you realize their

profit margins are substantially higher

than Apple's, right? And this is what I

think blows people's mind is they take

37% of the bottom line. I think Apple's

somewhere around like 22 24%. We'll look

it up for sure in just a moment. But the

the reason for that is Apple has to

create hardware. Microsoft is a service

business. They're really not creating a

lot of hardware. In fact, them wanting

to stay out of the the data center play

and start reducing some of their data

center, in my opinion, it's smart

because whoever builds all those

facilities, you know, coreweave, if for

whatever reason those chipsets become

less valuable in future because there's

either a new version or we just don't

need the newest versions or we don't

need as much growth anymore in in all

these chipsets, then anybody who's

holding the bag of those assets has to

write down their inventory and their

balance sheet. Coreweave is probably

going to be one of those bag holders.

That's why I kind of call them the

industry bag holder, which the stock,

don't get me wrong, right now

financially things are great, okay? Like

they can forex their business. They've

got excellent cash flow. When people

glance at them, they're like they're

losing money. That's not actually true.

They've got a crapload of depreciation.

Uh it's it's actually in the short term

like great. It's just a long-term bag

holder. But anyway, look at this. This

is Apple 2478 net. Divide that into

total sales of

95.3. Their net margin is 26%. Now on

their services side, their margins

obviously a lot better, but that's like

the Microsoft style business. Their

gross profit on services

is let's see

here 70 75% gross margin which is

awesome. And then of course they got the

SGNA and all the other stuff and

probably brings them down closer to

about 40%. Which is roughly in line with

Microsoft. But the point is Microsoft's

whole business is basically services.

Whereas the majority of Apple's revenue

is still products, iPads, iPhones. That

services side is growing beautifully,

especially with sort of like the Apple

cloud features and family features and

all the other crap. Apple TV, you know.

I actually just watched an Apple at

least I think it was. Gosh, what was it?

Is the gorge. I'm pretty sure the gorge

recommendation by the way. Uh is an

Apple TV

exclusive. I think it was really good.

They got the same chick from um oh,

what's it called? Uh the Queen's Gambit,

which was fantastic as well. Uh highly

recommend. Really enjoyed it. Super

cool. Uh so that said, uh yeah, let's

get into the next topic. So that's uh

that's MSFT for you. And I think the

takeaway from that is you know bullish

Microsoft bullish house uh and then also

just sort of bullish this uh this this

recognition that the companies that are

slowing down their expenses those are

companies that are probably setting

themselves up to be winners which is a

good thing. You know you want to be

careful no matter what you see like

Microsoft if we go into a recession

they'll be fine. If we don't go into

recession they'll also be fine. They'll

just be even more profitable. So, that's

the beauty about cutting some expenses

and just being a little bit more

cautious, so to speak. All right. Uh, as

far

as the reactions to Biden's cancer

diagnostic, uh, I have to say I I

personally just think like leave the

poor guy alone. You know, you shouldn't

wish cancer upon anyone. And it's it's

always sad when things become so

politicized. Uh, but they did

immediately. I mean, it took like 20

minutes for things to get politicized

over the Biden thing. And so now a lot

of people like, "Oh my gosh, Democrats

knew." Look, Democrats knew that Biden

had probably dementia, massive

forgetfulness, and that he really wasn't

fit for office. That was a disgusting

cover up. We know that. Uh and and I

think the Wall Street Journal's

editorial board actually puts it very

well. They actually go as far as saying

that Democrats in the media covering up

Biden's health denied Americans another

presidential choice. You know, they end

up saying that Democrats who actually

appropriately called out how bad Biden's

health was, like the special counsel who

said Biden wasn't fit to stand trial

because he was too old and incapable. Uh

this was um special counsel Robert or

Mr. Phillips, the Minnesota congressman,

saying Biden couldn't win due to his

health. They were right. And the Wall

Street Journal editorial board is like

they are owed an apology.

But while while that whole cover up is

bad, and I totally agree it's bad, I

don't know that it makes sense to assume

that Biden purposefully didn't disclose

that he had cancer because I personally

think he would have probably gotten

treatment. You know, if they actually

ran PSA screenings, they would have seen

this cancer and they would have started

treating him. And I don't think we would

see Biden the way he looks in public

even today the way he looks if he was

undergoing treatment. Now maybe I'm

wrong about that. Okay, I could be

wrong. Maybe you could undergo treatment

and just look totally normal or fine.

But I don't certainly don't look like

you've been undergoing any kind of

chemo. I don't know that anybody would

want to just hide that they have cancer

and basically kill themselves uh just to

not reveal it. I think what's more

likely is the monkey see no evil

attitude, which is that because people

knew Biden's health was deteriorating. I

think it was more likely that they chose

not to run tests on them for fear of

finding potential problems. So, I think

it's much more likely they did the na na

na. We'll just do the bare minimum here.

Yep. Yep. Bare minimum looks good, which

is also BS, right? But as as far as like

they got PSA screens and they're like,

"Oh, dude, you probably have cancer.

Let's hide that." I don't think that's

very likely. Uh, you know, and Biden's

had sort of scares with cancer in the

past. He's had skin lesions removed and

things like that. You know, this is when

people are now quoting him, uh, saying,

"Why have cancer, had cancer," or

whatever. It's like, "Yeah, he did skin

forms." So, people say that, "Oh, he

knew he had prostate cancer years ago."

An aggressive form of prostate cancer

does probably take at least a year to

metastasize at least. Probably more like

two to four. So, it's quite likely he

had this while he was president. I mean,

it's almost certain he had this while he

was president given that, you know, he

was president as of 6 months ago. It's

actually guaranteed he had this while he

was president. But again, the I think

the bigger question is if they didn't

run any PSAs, why would they not? And do

we have PSAs on Trump? Right. the

screening panels, the pro prostate uh

screening panels uh was probably

probably would be a good idea. Maybe

that should be a mandatory disclosure,

right? But I my guess is this is just a

big case of no no, we're not going to

look and if we don't look, we don't have

to disclose anything. You know, it's

kind of like it's kind of like a seller

for real estate who's kind of like, hey,

um um yeah, man. I I haven't been to the

property, so I can't really disclose

anything. And then the buyers are like,

okay, well, what if it's a crap hole?

like why don't you go there and look?

It's like nah, I don't want to look cuz

then I might have to say, you know, it's

like now the Wall Street Journal

editorial board goes a little further

and they get pretty aggressive here.

They actually say Jake Tapper from CNN

is totally complicit in this cover up.

Uh they say that uh Mr. Tapper quoted a

White House dismissal of the stories

regarding concerns around Biden's

health, including sneers that the Wall

Street Journal, who is reporting on

Biden's health, is simply an

organization owned by News Corp, which

is run by the Murdoch, as if that

rebutted the story. Uh, basically saying

Biden is fine, totally dismissing any

concerns around Biden's health, and then

interviewing a Democrat who dismissed

Biden's health issues. The Wall Street

Journal editorial board basically says

Jake Tapper is

complicit in convincing people to vote

for Biden or support Biden, which if

Biden dropped out in 2023, they say

maybe Democrats could have had a

different choice and maybe Democrats

wouldn't have been stuck now with Trump

because there could have been a

reasonable candidate who was platformed,

somebody who actually won a primary

unlike Kla Harris who didn't.

So, the Wall Street Journal editorial

board suggests that as a journalist,

like you should be exploring the truth.

The fact that you hit it up, you know,

hit it makes you complicit for now

having Trump so Democrats can't

complain. In other words, uh, now they

also suggest that Jill Biden is heavily

to blame. Now, this one goes deep

because they go as far as saying that

Jill Biden should know better than

anyone else the health condition of Joe

Biden and that it's actually in part

Jill who deserves heavy blame. The Biden

family, especially Jill Biden, she's she

more than anyone could see his decline.

Yet, Democrats say the first lady was

more determined than anyone that Joe

could run

again. Wow, this is intense. Anyway,

there you have it for today. Make sure

to check out house hack over at

househack.com. Open to nonacredited

investors. PreIPO investment. You get 5%

yield plus all of the upside in the

stock. Imagine investing in venture

capital investment that pays you 5% paid

out to you on a monthly basis and you

get the upside in the stock. Now,

obviously there's risk with every

investment. It's an investment, right?

So, it's not like guaranteed it can't go

bad. But let's just put it this way. I'm

all in on this baby. Well, heavily

exposed to the company. I'm physically,

mentally, everything about me is all in

on it. Uh, and and I'm I'm very very

excited about the company. So, folks, go

check it out. Houseack.com. We'll see

you in the next one. Goodbye and

goodbye. Why not advertise these things

that you told us here? I feel like

nobody else knows about this. We'll

we'll try a little advertising and see

how it goes. Congratulations, man. You

have done so much. People love you.

People look up to you. Kevin Praath

there, financial analyst and YouTuber.

Meet Kevin. Always great to get your

take.