Good News: We CAN Invest Our Cash With The New Investing Narratives and "Known Knowns"
Hey Subscriber,
I must say my rather large "heed" has been spinning around like a quarter spinning on a marble floor since last week with this simultaneous stock market crash then rebound and US bond market crash while the "Screw You Russia" highly volatile energy/ metals/ fertilizer /wheat/corn/bulk shipping bull market that we have been TRADING on our All-Access platform have given us some stupid ridiculous profits up to 2200% at the same time.
Moreover, our Ultra Income portfolio is now up 42% so far this year (with dividends received in Q1 2002 so far) while the S&P Index is a minus -6.2%.
I'll take it...hope you do too (feel free to brag at will).
Yet... at the same time, "ULTRA SAFE" 10-year US Treasury bonds are down 7.1% in value and yields are up 67 basis points since Feb 20th (so much much for bonds as the "barbell" hedge for stocks, eh?).
But even more astonishing to me is yesterday Chairman JPow came clean...and the stock market loved it? The bond valuation crash is deepening (you know the drill...bond yields go UP when bond valuation/prices go down) after yesterday's comments where the Chairman said the Fed is prepared to act even more aggressively to tackle inflation.
Who knew? The stock market LOVES it when you do something to stave off imminent stagflation!
JPow Quote: "If we determine that we need to tighten beyond common measures of neutral (i.e. an interest rate that neither hinders nor fuels economic growth which the Fed ex-member Bullard estimates at 2.4%) and into a more restrictive stance, we will do that," said JPow during a speech at the National Association for Business Economics. He even went as far to say that the central bank is prepared to raise interest rates by 50 basis points at the next policy meeting. Consumer prices took a turn for the worse in February as CPI growth rose by 7.9%, representing the largest 12-month increase since January 1982.
What happened to transitory? This happened--a magical thinking intervention. "In my view, an important part of the explanation is that forecasters widely underestimated the severity and persistence of supply-side frictions, which, when combined with strong demand, especially for durable goods, produced surprisingly high inflation."
As we have shared for a while--when a 70% service economy transformed almost overnight into a 70% GOODS economy during the pandemic, the existing global supply chain for "stuff" was overwhelmed (to put it mildly). It is STILL overwhelmed (want new furniture or a new car at a reasonable price? You might as well build it yourself).
Yet in a shock of shocks, The Chairman is somewhat optimistic that central bankers will be able to engineer/thread the GDP needle and orchestrate the so-called yet elusive soft landing, in which the Fed Funds/Prime Rate rate is raised high enough to keep the economy from overheating but not so much that it triggers a recession. "While some have argued that history stacks the odds against achieving" this, there are three episodes - in 1965, 1984, and 1994 - where the Fed "significantly" raised rates without a downturn. I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context - very little is straightforward in the current context."
Note to self: the stock market LIKES a cocktail of honesty from the Chairman of the Federal spiced with a little shot of optimism!
Key Point: But it is the complete inversion of the "higher rates torpedo higher multiple tech stock valuations" narrative that is truly stunning. In the last 12 months, a 1.75% 10-year bond rate has been kryptonite to secular growth stocks (especially "long duration" aka no earnings ARKK stocks crashed down 60-80%).
Our remaining Game Over Global Digital Platform stocks (remember we sold Facebook, Shopify, Adobe, and Salesforce in January because of high p/e multiples or in Facebook's case its broken biz model with Apple's change of personal data sharing) roared back to life (in addition to massive "tear your face off" short covering in the Cathie Wood/ARKK no earnings disruptor stocks as should be expected in ALL bear markets).
Microsoft down 9% for the year up from 18% down. Apple is now up 3% for the year. Google up 6% in the last 5 trading days. Amazon up 15% in the last 5 trading days (thank you for the 20-for-1 stock split).
Key points: For you keeping score at home, the stock market "stocks that go up in value" narrative transformation is basically a head spinner: IN the short term (until Putin gives up his jihad to return Ukraine to the Russian motherland):
A) Any commodity that Russia and Ukraine exports to the West (or dry bulk/LNG/container shipper yea $SBLK $FLNG $GOGL) especially energy and fertilizer is going up in price UNTIL hostilities end in Ukraine (at which point oil and natural gas and fertilizer and palladium and steel and aluminum stocks will pull back at least to their pre-invasion levels when the speculators take profits)
B) The market applauds the JPow Fed who has the stones to stand up to 7%+ inflation (and wait until the March 8.5% print!) and is willing to take Fed rates to 2.4% or higher (the neutral rate) but NOT the draconian Paul Volker 20% Fed Funds rate of 1981 (and prime rate of 21%--oy!).
C) Chairman Xi (who was shocked at the 80% down crash HE created) has made the "Univestable" China Stocks investable again.
4) In a high inflation/stagflation world, digital stocks with pricing power at 80% gross margins are the most attractive stagflation fighters.
Yea I know...for the 60+ crowd you're having a bad trip flashback to the 25% interest rates on credit cards and 15% mortgage rates in the early 80s aren't you?
Final Point: YES-- the world has transformed AGAIN...the pandemic taught us how vulnerable humanity is to viruses in a global economy and transformed what turned out to be our ephemeral safety and security.
The pandemic taught us that when we offshored/globalized supply chains our Nike shirts and critical manufacturing to China and Vietnam (and imported deflationary prices for our stuff compounded by eCommerce/Walmart/Amazon), there is a major risk and hidden cost we did not account for.
Putin has magically reunited Europe (and the West in general) to comprehend that the road to decarbonization has serious potholes when you outsource 40-60% of your daily energy needs to a religious zealot who believes that "God put him on the earth to restore Russian lands."
Note: We are going to add some new energy trusts and maritime shipping plays this week--STAY TUNED!
Just bear in mind that WHEN not IF the Russian invasion results as we expect into a fiasco stalemate, and China reopens Shenzen and other manufacturing regions, we are going to have a pullback to pre-invasion commodity prices.
My point? There is no such thing as "easy money" in the equities markets. You might feel a lot smarter than your golf buddies who are crying over the crappy performance of their "balanced" stocks and bond portfolios but don't kid yourself: our massive outperformance over SP 500 or Nasdaq 100 stocks has a shelf life.
IN our managed accounts, we have been slowly taking profits in our Ultra Income stocks up 200-400% on energy spikes to get our clients down to ZERO COST basis... meaning all the dividends they get paid is an INFINITY return on their risk capital.
No one is going to "ring the bell" when Russia has had enough.
Europes radical transformation away from being a hostage to Russian energy (whilst Russia turns to China at 25-30% discounts to international energy prices to buy their energy) means that we are NOT going back to $40 oil/$2.5 BTU nat gas basically ever (until the next pandemic).
So count on it...we WILL HAVE a 20%+ correction in ALL the "Screw Russia" commodity trades that are now so profitable WHEN the Russians say "nyet."
IF you want to trade the Screw Russia trades, join us trading short-term options on the volatility (if you are a trader).
Otherwise, my advice is to slowly take your cost basis down on our massive winning Ultra Income stocks and MLPs on nat gas or oil spikes and get to as near to ZERO cost basis as you can...there is NO GREATER feeling than getting $2.05 a year dividend on 10,000 $USAC shares with a near-zero cost basis, ok?
When this shit show cools down, and Fed funds rates are 2.5% or higher, there are once again going to be incredible wealth-building bargains. The odds of JPow threading the soft landing with the historic disembowelment of supply chains and the 3rd largest energy supplier in the world are, IMO, about 100-to-1 against.
And I want to have some serious cash on hand to scoop up the incredible stock market bargains IF we slide into the dreaded "stagflation" world where inflation rates exceed GDP growth.
No one can say with certainty how this double-barrelled global economic transformation turns out. For instance--IF we re-shore a significant amount of offshore supply chains, your Nike shirt and WalMart/Costco stuff is going to cost 25% more at least.
IF Europe tells Russia to go fu**k themselves and goes headlong into importing LNG from America and other leading LNG exporters, nat gas prices are going to be higher for longer (and we going to ride that trade for a LONG while).
If somebody takes out Putin, on the other hand, the world changes again and energy prices drop like a stone.
All I am saying is this is NOT THE TIME to be greedy with the life-changing profits and dividends we are sitting on. Slowly building cash on oil or nat gas spikes instead of chasing these stocks is the PRUDENT approach--we have already made 50 years of profits in our Ultra Income plays and growth stocks since 2020--don't be a pig--be a smart steward of your hard-earned wealth.
Sermon over--look for some new plays this week--and if you want to TRADE this insane volatility in Chinese and Screw You Russia Energy and Fertilizer and metals and steel/aluminum etc, click here, scroll down to the bottom of the registration page and join us in the All Access trading room for some historic profit opportunities.
Toby