Why fear brings Wall Street running (and how to beat it)
Oct 12, 2023Good morning! ๐
The major averages were positive after the CPI report but quickly flipped to red in the early going.
No surprise.
The Fed’s Bostic and Collins speak Thursday, and both are not exactly in favour of lowering rates, even if there’s a growing mountain of evidence that the Fed’s policies are like watching a slow-motion trainwreck.
Could we have a repeat of Friday’s fast turn higher?
Dunno, but it’s definitely possible.
Here’s my playbook.
Why fear brings Wall Street running
We talk frequently about why retail investors’ nervousness is like catnip to big traders.
The short answer—if you’re just joining us—is that market mechanics often have nothing to do with the underlying fundamentals. Especially lately when highly technical trading has made price discovery all but impossible on a day-to-day basis.
Wall Street’s merry marauders push your buttons because they know that the short-term lottery mentality they’ve worked so hard to create works in their favour. Speaking bluntly, nervous investors are easier to separate from their money.
DON’T. PLAY. THAT. GAME!
The fantastic Cheryl Casone asked about that last Friday, which, if you recall, was a massive swing day that started out in a decidedly negative mood before shooting higher into the close. (Watch)
Buy on cannons, sell on trumpets
Famed early-20th century American financier Bernard Baruch reportedly said, “Buy on cannons, sell on trumpets.”
Sadly, I think that advice fits now (although I wish to heck it didn’t, honestly).
The saying captures the essence of something we talk about constantly… that it’s better to buy during times of extreme fear, crisis, and uncertainty and sell when there is jubilation, euphoria, and positive sentiment.
I know that’s hard to imagine and even harder to do—fear is a powerful profit deterrent.
History is very clear, though.
Meanwhile, best names only.
Why?
Because my research and that of others a lot smarter than I am shows that world-class companies tend to fall least, stabilize fastest, and recover quicker than lesser alternatives. Upgrade to Paid
Why “rolling coal” could finally be the death of Meta
This catches my attention.
The DOJ is going after eBay, alleging that the company allowed the sale of 343,000 illegal rolling coal devices on its platform. CNBC reports that each of the transactions could involve a fine of up to $5,580. (Read)
What catches my attention, though, is something the prosecutors said…
“eBay has the power, the authority, and the resources to stop the sale of these illegal, harmful products on its website. It has chosen not to.”
Social media relies on Section 230 of the Communications Decency Act, which specifies that…
“No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”
If the DOJ prevails, I can imagine a quick pivot to Meta, X, and other social media sites that rely on the ability to defend or abuse free speech and more.
This strikes me as a potentially very lucrative speculative trade, particularly with nearly everybody and his monkey looking for META to press higher.
Long-term putskies.
MSFT to IRS: See ya in court!
The IRS has apparently notified Microsoft that it owes another $28.9 billion in taxes, to which the company replied, “Pfffffft.”
I’m paraphrasing, of course, but you get the idea.
Microsoft disagrees with the IRS and says that it will contest the charges in court if necessary. Meanwhile, the company will go through the IRS’s administrative appeals process, which in cases like this can take years. (Read)
MyPOV: The IRS has been after Microsoft for decades, so this is simply piling on. I think there’s a good possibility that the IRS doesn’t understand its own accounting rules, especially when it comes to digital investments. But that won’t stop ‘em.
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If you’re a trader, I could make the case for another few points to the downside, but I think that’s already a crowded trade. Chances are the high-speed crowd has already come and gone on that headline.
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What I’d rather do as an investor is use the increase in volatility to my advantage and go shopping for shares as low as I can by selling high-probability Cash-Secured Puts or impossibly low LowBall Orders.
The hullabaloo will probably blow over pretty quickly if past cases are any indication.
Tesla + Tesla = Uber/Lyft-killer
According to a press release from the Tampa Downtown Partnership, a private, membership-based not-for-profit 501(c)(6), people will be able to share a Tesla-powered ride service in Tampa’s downtown for as little as $2.
Talk about a nasty wakeup call for Lyft and Uber.
Three guesses what’ll happen next, and the first two don’t count.
The service will quickly go autonomous if it works, and that speaks to much stronger Tesla fleet sales.
Count me interested.
It’s a trend I’ve been watching for several years.
An older report from Fortune Business Insights suggests that the global ride sharing market was $76.48 billion in 2020 and could hit $242.73 billion by 2028. If the numbers prove out—and I think they will—that’s a CAGR (Compound Annual Growth Rate, pronounced “KayGrrr” ๐) of 16.3% from 2021–2028.
Meanwhile, long Tesla, short Ford, GM, and Stellantis while the UAW strike drags on or, worse, accelerates.
Bottom Line
“People fear change because they overvalue what they have, and undervalue what they could have if they gave that up” —James Belasco
My experience matches up.
Opportunity often knocks when you least expect it.
As always, let’s MAKE it a great day!
Keith ๐
