Ep. 6: Software Crash Bargains, Income ETF Innovation & Global Diversification

Welcome back to the deep dive. It is Friday, February 27th, 2026. And I got to say, looking at the
financial headlines this morning, it really feels like the market has developed a severe case of
split personality disorder. Oh, it completely has. It's, it's really a tale of two tapes right now,
just completely schizophrenic. Yeah, because on one side of the aisle, you have the tech sector,
specifically a software. And it is acting like the sky is falling. I mean, people are calling it the
sauce apocalypse. We're seeing these massive red numbers on screens that you used to be permanently
green. Right. But then, then you walk across the street to the income strategy side of the
market. And it is just an absolute bananza. That is the exact disconnect we're living in today.
You have this extreme fear in what used to be the reliable growth engine. And then you have massive
innovation. And frankly, some greed to happening over in the boring income corner. So that's our mission
today. We are going to try to make sense of this disconnect for you. We've got a massive stack of
reports here analyzing why these blue chip software companies are trading at bargain bin prices.
And we're also going to look at the explosive growth in these new wave income ETFs from giants
like Goldman Sachs. And the big question we need to answer for you listening is pretty simple. Is
this tech sell off a disaster you should run away from? Or is it actually the buying opportunity of
the decade? Yeah. And on the flip side with these new income funds yielding 10, 15, even 20%. How do you
grab that cash without getting your hand bitten off? Because as we're going to see, not all high
yields are created equal. But let's start with the carnage. The sauce apocalypse rate the fun stuff.
Yeah, exactly. For those who don't live in the acronyms, sauce is software as a service.
The subscription model that basically powers the modern economy. I was looking at the charts
for Salesforce ticker CRM. It is down 47% from its highs. Into it, the turbo tax guys,
they're down 42%. Hubspot down 46%. I mean, this looks like an absolute blood bath.
Well, if you just look at the price action, yeah, it looks terrifying. It looks like the .com
bubble bursting all over again. But if you actually open the hood and look at the valuation,
it's a completely different story. Let's take Salesforce. Okay. This is basically the poster child
for the whole sector. Historically, investors have happily paid a price to earnings ratio, a PE
of somewhere between 40 and 60 for the stock. Right. Because it's a high growth machine.
You pay a premium for that kind of reliability and dominance in the market. Exactly.
But do you know where it's trading today in late February, 2026? I saw this in the notes and I actually
double checked it because I thought it was a typo. It is not a typo. It is trading at a forward PE
of 15. 15. That is, I mean, that's utility company territory. That's what you pay for a water
company that grows 2% a year. It is the cheapest valuation Salesforce has ever had in its history.
And here's the kicker. The business isn't shrinking. It's not like they're hemorrhaging money.
They generated $14.4 billion in free cash flow. They have negative net debt, which is just a
fancy way of saying they have more cash in the bank than the other. Exactly. And they just announced
a $50 billion share buyback. Okay. So let me play devil's advocate here. If the fundamentals are really
that strong. Record revenue, record cash flow, huge buybacks. Why is the market dumping it?
I mean, the market isn't usually this wrong for absolutely no reason. What is the narrative driving
the fear? The narrative is AI fear, specifically what they call the death thesis. The market has
basically convinced itself that artificial intelligence is going to replace software entirely. Why?
The idea is that within the next 12 to 24 months, AI agents will be able to manage customers,
write code, handle accounting, all by themselves. So the logic is why pay for a Salesforce subscription
or a quick book seat if an AI agent can just do it for free? Precisely. That is the fear.
But the sources we're looking at today argue that this is a massive miscalculation of the timeline.
They point out that enterprise transitions moving a massive Fortune 500 company from one system
to another take 10 to 20 years, not 12 months. I mean, it's hard enough getting a corporation to
update Windows, little on replace their entire operating brain. That is so true. And critically,
Salesforce isn't just sitting there waiting to die. Their AI product agent force is growing
incredibly fast. So step in the research, actually, they closed 29,000 agent force deals recently,
which is a huge number. So they are actually selling the very thing that is supposed to kill them.
You have a situation where the stock price is pricing in a worst-case scenario, total obsolescence.
But that simply isn't showing up in the financial statements.
It's like a value trap, but in reverse.
Yeah, it's a value opportunity disguised as a failing growth stock.
But it's not just the software builders, though. It's the payment rails, too.
Let's talk about Visa, ticker V. Because this is one of those stocks that for the last decade,
you just bought it and forgot about it. It always went up. Until now.
Visa is fascinating right now because it's caught in this massive sector rotation.
Investors are fleeing tech and financials to buy safe stuff.
You know, consumer staples, took paste, and toilet paper stocks.
But because of that Exodus, Visa is trading at a PE of about 23.
That is the cheapest it has been in five years.
But aren't there specific risks with Visa beyond just a sector rotation?
Because I was reading the reports about the potential interest rate caps from the administration.
And then there's the crypto threat, you know, stable coins.
Those are the scary headlines, yes. But we really need to unpack them because the nuance
matters. Take the administration's interest rate cap. They want to cap credit card interest rates.
Now that sounds bad for credit cards. But does it actually hurt Visa?
Well, I would assume so. Less interest means less money floating around.
For the banks, yes, for JP Morgan or city, that is a big problem because they are the ones who lend
the money. But Visa, Visa is just the toll booth. They collect a fee on the transaction itself.
They don't lend the money so they don't collect the interest.
So the regulation is aiming at the lenders, but the market is punishing the toll collector.
Exactly. It's a fundamental misunderstanding of the business model.
And regarding stable coins, you know, this idea that crypto will replace credit cards,
the source material makes a really great point here. Think about Apple Pay.
When that came out, people said, oh, Visa's done. Nobody needs cards anymore.
Did Apple Pay replace Visa?
No, I mean, my Apple Pay is just a digital wallet for my Visa card.
Exactly. It layered on top. And the argument here is that stable coins will do the exact same thing.
Visa is already integrating stable coins into their network. They aren't going to be replaced by
the new technology. They're going to be the rails for the new technology.
So again, we have this huge disconnect between the fear narrative and the actual economic
mode of the company. Right. Before we move off the apocalypse, we have to briefly mention
into it in fact set. We do into it ticker IMTU down 43%. Yet it effectively owns the tax code
and small business accounting in America. I mean, who is switching away from QuickBooks just because
of a bad earnings report? Nobody. The ecosystem is incredibly sticky. Yeah.
And fact set ticker FDS. They power all the financial data for Wall Street. They're trading at a P
E of 11. These are companies with decades of growth treating like they're going out of business next
Tuesday. It really does seem like a kid in a candy store moment if, and this is the big if,
you have a time horizon longer than six months. For sure. But okay, let's pivot.
Because while the growth investors are crying over their sales force charts,
the income investors are popping champagne. They really are. The innovation and the income space
over the last year has been staggering. I want to talk about Goldman Sachs because they have entered
the chat in a big way with these ETFs, GPIX or the SB500 and GPIQ for the NASDAQ. The growth here
is just wild. We're seeing 6X asset growth in just one year from Feb 2025 to now.
It's huge. We are talking billions of dollars flowing into these strategies. And the reason is
simple. It's the returns. Both funds delivered around 14% total returns over the last year with yields
sitting in the 8 to 9.8% range. Now for the listener who might be used to just buying a regular dividend
stock like Coca-Cola, how is Goldman generating a 9% yield from the S&P 500? Because the S&P
doesn't pay 9%. No, it pays like 1.5%. So this is the new era of active income that was allowed by
the 2019 ETF rule changes. What Goldman is doing is active management. They buy the stocks in the index,
but then they sell or write call options on about 25 to 75% of the portfolio. And selling a call
option that's essentially agreeing to sell your stock if it goes above a certain price in exchange
for a cash payment right now. Exactly. That cash payment is called the premium. So they capture the
normal dividends from the stocks, plus that option premium. It smooths out the ride because you get cash
even if the market is flat. And it boosts the yield significantly. It's not magic. It's just
utilizing the natural volatility of the market to pay the shareholder. Speaking of boosting yield,
there is a very controversial idea in our source stack today regarding realty income. Ticker O,
the monthly dividend company. This is the sacred cow of dividend investing. You do not speak ill
of realty income. It is the holy grail for many. And yet the source suggests selling it. Yes,
selling it. Absolutely. Blast me. I can hear the listeners typing angry emails right now. But
walk us through the logic here. Why sell O? It comes down to valuation and efficiency. Realty income has
pumped recently. It's trading over $60 a share. And because the price went up, the yield has dropped
to around 5.5%. Okay. The argument is that it's become expensive for the amount of income it actually
provides. So the suggestion is to swap it for a new ETF called IRI, the NEO's real estate income ETF.
And what is IRI that realty income doesn't? Well, first off, it yields about 11%. So you are
effectively doubling your income stream immediately. But here's the real nuance. IRI actually holds
realty income as one of its top positions. Wait, so you aren't really leaving the company completely?
No, you're just changing the vehicle you use to access it. You hold the underlying reads, but the ETF
managers write options on them, just like Goldman does, to generate that extra income. Plus, the source
highlights a major tax benefit. About 94% of that IRI distribution is classified as return of
capital. Explain return of capital for us. Why does that actually matter at tax time? Normal
dividends are taxes income right away. Return of capital is not taxed immediately. Instead, it lowers
your cost basis. Essentially, you defer the taxes until you sell the ETF years down the road. It's
highly tax efficient if you're holding it in a regular taxable account. It's like upgrading your
vehicle. You're still driving on the same road real estate, but you're in a car that gets
better gas mileage and has a much bigger trunk for cash. That's a great analogy. It's about not being
married to a single ticker symbol just because you've held it for 10 years. If the math changes,
your strategy should change. But this is a massive, but we have to be careful here. Because when we
start talking about 11% yields or 15% yields, people get greedy. They see the big number and they
stop thinking. And there is a serious trap waiting for them. The yield trap. Or specifically,
what we call NAV erosion. Let's explain this concept because it is critical for anyone listening
to understand what is NAV erosion and why is it so dangerous? NAV stands for net asset value. It's
basically the price of the share. NAV erosion is when a fund pays you a dividend by just giving
you back your own money. Imagine you have a bank account with $100. The bank sends you a check
for $10, but then takes $10 out of your account. You have a $10 yield, but your account is now worth $90.
But you haven't actually made any money. You've just made it withdrawal. Exactly. And if this happens
every single month, the chart of the share price looks like a ski slope headed straight for zero.
You get a monthly check, but your principal investment just evaporates. And we have a perfect example
of this in the sources, the battle between two funds, IWNY and IWMI. Right. IWNY, that's the defiance
fund, had a headline yield of 57%. 57%. That just sounds like free money. It sounds way too good
to be true. And it was. It sounds great until you look at the total return. The total return,
which is dividends plus the price change, was only about 13%. Wow. Why? Because the share price
crashed by 30%. You got a huge check, but your principal collapsed. Now compare that to IWMI,
the NEOS version. It had a much lower yield around 13%. Just still great, by the way. It is. But
crucially, the price held up. The total return for IWMI was over 21%. So the boring 13% yield actually
made you far more money than the flashy 57% yield. So the lesson here is look at the total return,
not just the raw yield. Always. And look at the price slope. Pull up a chart. If the yield is high,
but the line goes down from top left to bottom right steadily, you are just withdrawing your
own savings and probably paying taxes on it. That is the literal definition of a yield trap.
Okay. So if we want to avoid the traps, where are the safe high yields?
The sources identified a few hidden gems that passed the no NAV erosion test for 2026.
There are some really interesting ones. KSLV is a silver strategy. It holds silver bullion
on rights covered calls. It had an 84% total return recently. 84% on silver. That's wild. Silver
has been hot. And the option strategy just amplified it. Another one is USGF. That's gold plus calls.
Up 61% total return. Now these are commodities. So they are volatile. They aren't savings accounts.
Right. But for something more steady, the source is pointed to IQQQ. It's a NASDAQ income play.
It's boring, steady, pays monthly. And most importantly, the price doesn't collapse.
Boring and steady. Sounds pretty good right about now. But let's broaden our horizon a bit.
We have been very US-centric today. Sales force, gold men, US real estate. But 2025 was actually a great
year for international stocks. It was. And for 2026, diversification is key. You don't want all your
eggs in the US tech basket. I mean, as we're seeing this week with the sell-off. So what are the
picks for going global without getting burned? The sources recommend keeping it simple and low-cost.
SCHY is a favorite. It's the international cousin of the really popular SCHD ETF.
It screens for high dividends and quality companies with low fees. Then there's ViGI for dividend
growth. Those are companies that raise their payout every single year. And if you just want to buy
the whole world and be done with it, there's VT. One ticker to rule them all. Exactly. It owns everything.
Now, I want to zoom in on one specific opportunity that actually connects back to our very first segment.
It's a BDC, a business development company called Hercules Capital, ticker HTT.
Hercules is a beast. It yields about 12.48% right now. It trades at a premium to its net asset value
because it is widely considered the gold standard of the sector. They have record investment income,
a huge coverage ratio of 120% and very low non-accruals. For the listener who doesn't know,
what does a BDC actually do? BDC's are like banks for companies that can't use regular banks.
They lend money to small and medium-sized businesses. Hercules specifically lends money
to venture-backed growth companies, basically startups. And this is where the connection comes in.
Who are those startups? They're a largely software and tech startups. The exact same companies that
are currently in the SaaS apocalypse. Exactly. And this is the critical risk. If the market
narratives write if AI really is going to wipe out software companies in the next two years,
then Hercules' borrowers are in duck trouble. If those startups go bust, they obviously can't pay back
their loans to Hercules. So holding Hercules is essentially a bet against the software death thesis.
In a way, yes, it's a derivative bet. If you believe, like our earlier sources,
that the software panic is overblown and these companies will adapt just fine, then Hercules is
a scream buy at a 12% yield. But if you think software is truly dying, you might want to stay away.
It is all connected. The ecosystem relies on these companies surviving.
That has a fascinating connection. It really shows you can't just look at stocks in a vacuum.
Everything touches everything else. It really does. Before we wrap up, we promised a lightning round
for the brave souls with maybe 10 grand looking for aggressive income. What was on that list? These are for
the aggressive bucket. Handle with care. We had Ellington Financial, ticker EFC, that's a mortgage
re-ealding over 12% are as capital, ARCC, another massive BDC, extremely well run, and Starwood
Property Trust, STWD for commercial real estate exposure. These are high yield, but you need to watch
them closely. This is not a set it and forget it list. So let's try to synthesize all of this.
It is late February 2026. The headlines are screaming that tech is dead. But the cash flow
statement say tech is printing money. And income investing has evolved from just buying a utility
stock to complex option strategies like GPIX and IRI that can essentially double your yield.
But you have to watch out for the NAV erosion trap. You always have to check the total return.
So what is the one big actionable thought for our listener today?
It is about selectivity. You cannot just buy tech and hope it goes up anymore. You have to look at
the PD ratio. Is it 15, like Salesforce, or is it 50? And for income, you can't just buy raw yield.
You have to look under the hood a mechanics. 2026 is a stock picker's market. The rising tide is
not lifting all boats. It's drowning the leaky ones. And I'll leave you with this final thought to chew
on over the weekend. We talked about the fear that AI is going to destroy software companies in the
next two years. If that is true, why are those exact same companies using AI right now to generate
the highest free cash flow in their entire history? Is the market pricing in a ghost?
That is the question. Thanks for diving deep with us. We will see you next time.