The Investible Bottom RETEST Now Waits for Fed's 50 Basis Point Rate Hike & Russia To Just Do Something

Hey Subscriber,

Today I was reminded of the old stock market axiom "You don't get trampled going INTO the "theatre" (aka the stock market)--you only get trampled trying to get out!"

And, as I get ready to tape a reboot pilot of my FNC "Bulls and Bears" stock market show now called "Buy Sell Hold" tomorrow morning (with tentative carriage deals with TV streamers Prime Video, Hulu, and Roku--fingers crossed), I am reminded of the first episode of Bulls and Bears on FNC hosted by my dear departed friend Brenda Buttner (the show was created when Jim Cramer was fired from the original "The Street.com" show on FNC) when I came in with Pets.com puppet and proclaimed in May 2020 that "The Dot Com Bubble Has Burst--Sell ALL Your Dot Com Stocks and ETFs on Monday or You Will Be Down 70-80% by the next year!!"

Yea, I am bringing him OUT of Retirement for the show tomorrow as the single best example of stock market manias. It's always the same--just the names and faces are different. The ads that Pets.com ran on the Super Bowl in 2000 reminded me of the crypto trading ads this year--just saying.

Look--as we have beat the drum since the November Come to Jesus Fed meeting, "In a Fed Monetary Stimulus removal cycle, we will have 3 bear markets--the last will be 10-20% down GARP mega tech on simple basic P/E ratio contraction--the next to last will be the 20-40% down of cash flow positive SaaS and semiconductors.

But the first to sink 50-80% like a lead balloon aka the rush for the exits sure enough was the Cathie Wook ARKK no earnings "creative destruction disruptors" which, in reality, are nothing but super crowded scientific wild ass guesses that only worked because of the new S-curve pull-forward of demand for Work at Home technology in the pandemic + the "Free Money/TINA" monetary world that 50 million new FOMO/YOLO GenZ/Millennials brokerage accounts walked into with the "stimmy" checks.--which all peaked in February 2021.

As in ANY exponentially rising S-curve event, when the exponential growth curve flattens (which means new incremental demand has flattened or worse been satiated), it's time to get out! The S-curve framework—which is used in various disciplines to simply and graphically represent the beginning, the ascension, the straight-up slope of rapid growth/adoption, and then the saturation point via an S-shaped curve-- also applies to Central Bank monetary policy and specifically the Fed's "the rate of the rate of change" (the "second derivative" for you math and physics fans).

The old saw "Markets Hate Uncertainty" starts to apply when 1) the stocks that worked for 10 years stop working. Add in 2) $8 trillion of unprecedented monetary expansion/stimulus transforms to rapid monetary de-stimulation to fight 7.5% inflation with the bond market pricing in a rapid tightening of Fed monetary policy and 3) an aging Russian Czar who sees weakness in NATO leaders ( see Afghanistan) and has 170,000 troops surrounding Ukraine. PS the Russian military machine is building a network of field hospitals and getting massive blood donations from patriotic citizens as I type these words.

Put it all together and the triple whammy of rapid Fed Tightening/the rapid rise in the odds of a Very Real of War with the largest supplier of oil and natural gas to Europe, and the nerve and conviction to rush in and buy ANY stocks other than low p/e HIGH dividend-paying stocks evaporates.

PS: I love this graph of a Silicon Valley technology s-curve:

bubble started bursting will go down as one of my prouder moments. We made a LOT of quick profits in about 15 warrant trades from late November to February--and then Wall Street-funded over 300 SPACS in 90 days. Thus the YOLO/FOMO "stealth" bear market started in March 2021 when 500+ SPACS+ IPOs from 2020-2021 flooded the public venture capital market that ultimately tanked because they literally ran out of YOLO/FOMO incremental buyers of these very high risk/no earnings stocks.

And then a good percentage of those YOLO/FOMO buyers moved on to crypto or options or just dropped out. December trading in Nasdaq listed stocks through phone apps like Robinhood/EToro etc dropped from 45% in early 2021 to just 14%--buh bye!

Yes, Virginia, Fed Monetary Policy IS That Powerful

The same reality has of course deflated Cathie Wood's ARKK "price and valuation do not matter" anti-financial gravity cult--when there was no more cash in 50 million new YOLO FOMO trading accounts, the price-insensitive incremental money dried up.

Ms. Wood and her cult members did not take the "How To NOT LOSE 60-80% of Your Money In a Major Macro Monetary Transformation" class. I saw her on CNBC today and she looked like she had not slept in a week and was wearing the same dress, too. That she was making the case that "just wait 5-10 years out and many of her stocks would double or triple in price made me think "Well they better, because when you are down 80% in anything, it takes 160% return just to get back to even."

Note to Self: Repeat after me--"when the Fed does everything possible to make stocks/homes go up in value (aka the "wealth effect") to RAISE household buying power and GDP in a pandemic, don't fight the Fed. But when the Fed starts doing everything they can to POP the asset bubbles IT purposely created by adding $8 trillion to the monetary system and REDUCE the incremental buying power of households with discretionary buying power, you do NOT fight the Fed either."

What is NEW in 2022 is of course the Fed is fighting 40-year high 7.5% inflation rates that are primarily caused by pandemic-based economic scarcity--6 million missing workers, 5 million retired Boomers, one million+ dead from Covid-19 (and God only knows how many deaths in 2022-2023 from uncared for cancer and heart conditions. Then add global supply chain and semiconductor SNAFUs extending into 2023 in many cases plus WAGE inflation for hourly labor that is sticky--raised hourly wages and benefits don't go down much (if at all) and monetary tightening does NOTHING to take that embedded wage inflation back to pre-pandemic levels.

And of course, Fed rate hikes can do nothing about near 70-year-old Vladdy Putin's dream of regaining old USSR territory for Russia before he retires to his $1 billion castle on the "Russian Riviera" (it's good to be the king).

Advice: Buy the SHORT QQQ ETF SQQQ Mar 18 2022 42 Calls on any pullback

We are hedged in our managed accounts Russian geopolitical risk via a natural gas ETF ticker $BOIL and long a QQQ short vehicle ETF ticker SQQQ and 35% cash.

PS: Here is my "POV" aka points of view for the show tomorrow--to give you some more color on why we are STILL long re-opening energy, bulk and LNG shipping, and energy infrastructure (and how about our $SBLK going to $31 on a 60% rise in the quarterly dividend today!)

In fact, in an all-out dismal week for most stocks, our Ultra Income portfolio is now UP 24% for the year and up this week (including dividends)! Take that Cathie Woods!

A BLOCK: "A series of cyberattacks on Tuesday knocked the websites of the Ukrainian army, the defense ministry, and major banks offline as tensions persisted over the threat of a possible Russian invasion. Considering an invasion appears imminent, what does this mean for the global economy and, more importantly, the US stock market?"

First I'd characterize our hedging as being more safe than sorry--we manage investors' money for a living and they really like it when we make them richer.

#2-- there's no actual evidence thus far that Russian forces are receding "post-exercise" and #3 our military experts tell me that the active building of field hospitals AND the cyber denial of service attack which was the worst in Ukrainian history is considered a common precursor to Russian pre-military activity.

Finally, even IF there are diplomatic talks, that's not the language Putin acknowledges--Putin only understands strength and exploitable weakness and will 100% use any diplomatic talk to justify whatever it is he wants to do.

Bottom line, we don't see a pathway to de-escalation in the near term and we are willing to put a little cash towards it. As far as the global economy goes, the economies of countries that have hydrocarbon energy supplies like North America will perform better than countries that do not i.e., much of Europe and Asia--but oil prices at the margin could easily hit $125 a barrel from $95 today and natural gas prices double or triple in Europe and Asia which import a lot of natural gas and crude oil from Russia.

ALL of which pardon the pun "pours gasoline on the existing inflation bonfire" aka crippling levels of energy and food price inflation--people forget virtually ALL the fertilizer for their salads and vegetables is made from natural gas--it's not just for cooking and heating your home.

B BLOCK

"A relentless surge in U.S. inflation reached another four-decade high last month, accelerating to a 7.5% annual rate as strong consumer demand collided with pandemic-related supply disruptions. And today, we hear Federal Reserve officials at their meeting last month discussed an accelerated timetable for raising their benchmark interest rate beginning with an anticipated increase in March, amid greater discomfort with high inflation. So what is Wall Street thinking and how should investors brace for the potential impact of higher interest rates?

Our advice to investors in advance of a Fed monetary tightening shift back in late November was 1) SELL any no earnings 10x+ Revenues valued tech FOMO YOLO stock because they had flown WAY TO HIGH and would crash 50%+ (and they all have) and B) Make sure you have a LOT of exposure to dividend-paying Global re-opening beneficiaries like energy/energy services/dry bulk shipping and transport infrastructure + Get Me On A Plane to SOMEWHERE in 2022 stocks like Expedia, SABRE, AirBnB, Boyd's Gaming, Marriot and Hilton Vacations (all of which has our managed accounts UP 26% in 2022 including dividends while the market is crashing.)

The Fed meeting minutes said THEY expected "substantially higher inflation, and a notably tighter labor market," that a faster pace of increases in the target range for the federal funds rate than in the post-2015 period would likely be warranted"

Let me translate for our audience: The FED KNOWS their transitory inflation call for 2022 was and is dead wrong--and as we like to say on Wall Street "they are behind the inflation curve". So-while attempting to look like they are NOT PANICKING, they will run off of $9 trillion Fed balance sheet FASTER = higher 10-year rates/lower prices...and moving Fed Funds to a positive 1% by July on the back of what we expect to be 6% ish CPI YOY print for Q1 2022 CPI in April.

This means 4% mortgages from 2.2%, higher auto loan/lease payments, and tighter business credit ALL of which slow the US economy.

But higher interest rates do NOT unload the hundreds of container ships or eliminate semiconductor shortages from tapped-out semi manufacturing fabs--so supply chain and chip shortages will remain with us through most of 2022!

C BLOCK Prediction: Buy Bulk Shipping Giant Golden Ocean Group GOGL--they will pay a 30% dividend in 2022--beats working!

Toby
PS: Feel free to forward this Update to Friends and Family....they can still turn around 2022 if they jump on the Transformity Research Ultra Income Portfolio Train ...here is a link to click on for them to subscribe!

Toby