Smoke and Mirrors - Once Again
The ❤️ button will get the market UNDER control. Do NOT panic - NOW is the time to PLAN your next steps.
Note: In my public emails, I offer powerful broad guidance to advance your thinking. Inside my investment community, I discuss specific levels and actionable strategy to help you become an outstanding equity analyst.
Dear Public Investment Community,
Look folks, I am NOT a trader. I am a researcher and investment strategist. Hence, I don’t prefer to provide that many frequent updates publicly.
But given that the market has turned somewhat into a casino (up 900 one day, down 1000 the next), I’m guessing you might want a little additional guidance.
And truth be told, I love writing to my community about markets and life perspective (more than 3000+ of you now via email). So here it goes.
I’m going to keep this email informal, brief, and digestible.
Here’s what I’m going to do:
Help you understand what the Fed actually meant from yesterday
Keep you calm, keep you level-headed
And give you some details of what we did inside our community if you want additional guidance
If you’re not yet on my email list, I send out periodic emails to help our community at-large stay on the right side of the trade in markets. If you are on my public list, and find this post helpful to you psychologically, emotionally, or financially, then share my email list with ALL your friends and family where they can expect integrity-driven advice.
Also, follow me on Instagram and Twitter where I post more frequently than I write emails.
What did the Fed do yesterday & How You Should Think About Markets
Simply put, Fed Chief Jay Powell told James Bullard (the biggest Hawk in his committee) to shut up and stop making the Fed look so hawkish to the public.
Powell reiterated to the markets that the Fed is not actively considering a 75BP hike.
Now here’s where it gets tricky, let’s look at the facts:
Powell said in his opening remarks at least 4-5 times that price stability was one of the Fed’s most important priorities.
75BPs are not “actively being considered” which means that it’s off the table for now. But that doesn’t mean it’s off limits forever.
50BPs are the expectation in the “couple of” upcoming meetings - for the rest of the year, we have June, July, Sept, Nov, and Dec.
If the Fed follows through on 50BP hikes in each meeting, that’s 5 meetings where a 50BP hike would bring Fed Funds Rates (FFR) to 3.25%-3.5% from its current .75%-1% target range.
Fed Funds Rates at those levels would, in my opinion, cause mortgage rates to go much higher and cause demand destruction in the housing market.
FFR at those levels would also cause companies with high-valuations and even Mega Caps that are struggling to grow in this macroeconomic environment quite a bit of trouble.
So net/net, I actually do NOT believe that yesterday’s Fed Meeting clearly tells us where the path of rates will be going forward. We are once again left with the status of where we need to once again forecast inflation figures.
Every economic data point from Jobs, Unemployment, CPI, to PMIs will start to be considered in meetings going forward. Also, there will be a closer eye on China’s Zero Covid Policy and the Russia-Ukraine crisis.
Powell has established a base case of 50BPs per meeting unless anything changes. That’s not the most hawkish scenario, but it’s a setup that is certainly going to cause problems in certain pockets of the stock market and real estate sector.
Structural increases of 50BPs is going to significantly weaken the economy by the end of the year.
Now, if you’ve chosen to be on my email list, I want to provide you some psychological reassurance and reminders.
Markets are entering a very volatile phase as macro winds point to a recession here in the U.S. but that does NOT mean that opportunities are over.
Investing is ONLY one part of your wealth-building strategy
Bear markets eventually DO end, but you do have to have a strong mind and be ready.
This is an accumulation year, and that means that if you are serious about getting the best prices in the market, you start formulating plans and ideas NOW.
What we have been doing inside our investment community.
We all know that markets have been exceptionally challenging this year, but we have discussed maneuvering that has helped our community navigate upside risk/reward and also navigate DOWNSIDE risk/reward as well.
I believe passive index investing is this environment can be dangerous. The macro environment is too uncertain to simply let an index fund do the work for you.
I believe that investing in the right themes at the right times in the coming months will be immensely helpful to you.
Examples of where we discussed adding when risk/reward was APPROPRIATE (see Instagram Posts below)
When VIX was at 35 last week, we advocated to add exposure in Semis (AMD at 85, SOXX at 405, and AVGO at 570)
When Alibaba had retraced back down to ~10.5X P/E (85/shr), we discussed adding exposure on COVID peaking in China.
Examples of Risk-Reduction at counterintuitive moments
Shopify is a name in my portfolio. I’ve talked about this in previous emails.
But after seeing EBAY AND ETSY get crushed after-market yesterday with poor guidance, I immediately informed our members that I would be doing a partial position reduction in SHOP around the 480/shr. range in the after-market session where liquidity was still available.
In my mind, all of ECOM - AMZN, EBAY, and ETSY have all missed. I just wasn’t sure Shopify could buck the trend.
That’s like trying to be the one good house in a shit dilapidated neighborhood.
Nah, that house is going to get valued lower.
And now, we found out today that Shopify missed on earnings and the company is now down 13-18%.
Listen to me: Shopify WILL come back. But being proactive allows me to take advantage of WHEN it does.
Look folks, once again, I am NOT a miracle worker. But our research and strategy does give us an edge, however fickle this market may be.
When markets are down, I’m right there with you. I’ve been humbled many times in the market, and like any mortal, will be humbled again many times in the future.
But I will give you an edge.
When markets are up (or even flat), I can certainly tell you that we will be ahead of the market. And if markets are up, we will be trouncing the market.
Tactically speaking, adding alpha here and there while reducing risk in vulnerable areas will add up to rebounding faster when markets recover.
And now that markets are down and fear is high, this could be your opportunity to step up your analyst skills and gain more certainty from my thoughtful research and insights.
I urge you to see this moment in time as an opportunity for you to sharpen up your analyst and investment strategy skills so that when markets bounce, you are absolutely on top of it.
Monetary Tightening means there’s less money out there but there’s still Free Stocks from our friends at Webull!
In times like this, I also want to remind you that my relationship with Webull allows them to give you free stocks if you sign up for a free account with them and make a deposit of $1. You can get up to 5 free stocks. It’s free money at a time when monetary policy is tighter, so take advantage of it! Doesn’t cost you anything, whatsoever.
You win, I win. WE win.
I use 4 brokerages: TD, Chase, M1 Finance, and Webull. All 4 of them are great. But the other 3 don’t offer my friends here free stocks by just opening up a new account with a $1 deposit.
That’ll do for this short update.
If you’re looking to truly understand the investing environment we’re in, and want to support my research/work, let me help you inside my community. I’m on a mission to help people as many people as I can - hardworking, highly intellectual people like yourselves.
❤️ this email if you enjoyed the read. And see you in my next Youtube Video.
Until then, follow me on Instagram for some VISUAL commentary.
Your Investment Strategist,
Larry