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What will Jay say today, and what to buy before he does

Dec 14, 2022

Good morning!

The markets are muted ahead of the Fed’s next follies. The markets expect 50 bps, but as I noted on both Varney & Co and The CowGuy Close yesterday, I can’t shake the nagging feeling that Powell may raise by 75 bps.

Here’s my playbook.

What will Jay say: 50 or 75 bps?

Jerome Powell is widely expected to raise rates by 50 basis points or 0.5%. However, I think there’s an outside chance he’ll put up 75 basis points or 0.75%, for the simple reason that he must portray his Fed as “tough” on inflation.

The Street will be looking at what are presumably fresh projections with regard to how high rates may go. I believe the new range is probably 4.5%, up from 4%. Anything higher could spook traders, but that’s clearly not something Powell seems to care about.

The emperor has no clothes, but there’s not a lot we can do about that.

We can, however, get ready.

If it’s 50 bps—there might be a round of quick profit taking, but that would likely bring more money off the sidelines. If that’s true, existing investments could take off like a rocket, particularly big tech names we talk about frequently. Predictably, loads of people will get left on the sidelines.
If it’s 75 bps—the markets may choke as algorithms hit the “sell” button and big traders are forced to quickly deleverage. I suggest a few speculative put options or even inverse funds if you’re keen to punt. Again, I’ve recommended these consistently; I hope you’re prepared because there will be no warning bell.

Remember: JPow wants you to lose your job, and he wants to destroy demand to “fix” our economy. I’d hate to see what he’d do if he were actually concerned about breaking something. 🤦‍♂️

Don't get too excited about a single inflation report

I’m constantly asked about buying XYZ or PDQ “now that inflation is abating.”

That’s foolish.

Inflation’s raging, not abating, and that means continuing to play defensively. There are still more questions than answers.

I suggest companies with three things in common: 1) they’re best in class; 2) they make “must have” products and services, not “nice to haves”; and 3) they’re still putting up excellent numbers.

Translation: Companies that will be there, companies that can protect margins, and companies that will generate the profits you need long after the current mess passes. Upgrade to paid

MSFT wants to give Starlink a run for its money

Elon Musk’s SpaceX as made all the headlines when it comes to internet connectivity via Starlink, but there’s a new player in town.

Microsoft wants to secure internet access for 100 million people in Africa by 2025. That’s expected to be a needle mover for the bottom line. Shares are dirt cheap at just 27.6X earnings and down around 25% from 52-week highs. (Read)

You know what to do.

Keith’s Random Thought Bubble: It’s not a coincidence that Visa has decided to invest $1B+ in Africa because all that infrastructure will enable hundreds of billions of dollars in new credit card usage. (Read)

Breakthrough or bust

Scientists at Lawrence Livermore National Laboratory have achieved a fusion reaction that produced more energy than it put in. Predictably, that news lit the world on fire yesterday.

I have my doubts.

Not about the fusion, mind you, but about the way it was achieved.

Lawrence Livermore’s experiment required 10 football fields of highly inefficient lasers, which means that it’s very unlikely that what they’re doing can be scaled. Kinda like using a locomotive to squash a pumpkin.

The better approach will be one that’s considerably smaller, scalable, and doable. One that’s commercially viable.

The company closest to making that happen is Seattle-based Zap Energy, which is building a cheap, compact, and scalable fusion core that requires orders of magnitude less money than the Livermore setup. Zap achieved verified fusion reactions in 2018. (Learn more)

Full disclosure: I am an investor, right alongside the likes of Chevron, Shell Ventures, and other breakthrough energy funds. Meanwhile, you can “backdoor” the situation through Chevron or Shell stock. It’s an indirect play, albeit one that’s better than nothing, IMHO.

Want to buy (a piece of) Twitter?

CEO Elon Musk is auctioning off furniture, appliances, statues, expresso machines, and more. Heritage Global Partners is organizing the sale, which will be conducted online on January 17, 2023. (Read)

I think the public will be appalled by what hits the auction block. That, in turn, will raise questions about legions of otherwise spoiled-rotten Silicon Valley brats who once reveled in the idea that work was play and something that the rest of us—meaning you and me—did.

I also believe this will change the IPO market forever because investors will (finally) start to question where their money is going. Frankly, that’s long overdue.