Good morning!

Markets down on inflation fears but those fears are overblown.

Here’s my playbook.

1 – Rising rates can produce some of the best profits

Inflation fears are overblown for two reasons: 1) rates are rising because they signal explosive growth ahead, and 2) the point at which equities and rates diverge is historically around 4% and we’re a long way from that today with the ten-year yield at 1.347% as I type.

Read this next sentence carefully, please.

Since 1998 there have been only a few times where real bond yields and bond prices had negative correlations – meaning rates up and stocks down. One was following the Dot.com crash in 2000 and the other was following the Global Financial Crisis in 2007-2009.

Equity growth has been positively correlated with rising rates for the rest of the past 20-some odd years.

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2 – What to buy today (and as long as rising rates are a thing)

This, too, is very simple. Buy companies making products and services that can expand/protect profit margins faster than inflation can devalue the dollar or, indeed, any home currency. You know the list … big tech, health and medicine, some financials.

I named three this morning on Varney & Co.

Watch now

3 – The real reason Walmart raised minimum wages to $15 an hour

Chances are you know that Walmart is raising wages from an average of $14 an hour to $15 an hour for 425,000 employees.  There’s discussion about whether that’ll help or hurt millions and we’ll leave that for another time.

What’s important is something called the Cobb-Douglas Production Function, a production function model developed and tested from 1927-1947 by Charles Cobb and Paul Douglas that shows the technological relationship between two or more inputs but particularly capital and labor.

I think Walmart will a) raise prices to make up some of that ground but b) dramatically increase technology investment to compensate for the efficiencies it’ll need to offset wage-related staffing changes (translation … job losses and compensation composition resulting from higher average pay).

Minimum wage proponents seldom think beyond the initial consequences.

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4 – Apple engineers help this firm boost production by 4,000%

Apple announced Monday that COPAN Diagnostics shipped more than 15 million COVID-19 sample collection kits following help from Apple’s production engineering experts.

Imagine what Team Cook could do with virus distribution if only the government would wake up and truly involve private enterprise expertise!

It’d be like playing a country music song backwards goes the old joke … dogs and cat would live together, the tractor would run, the pickup truck wouldn’t be busted and the fields would plow themselves!

All joking aside, I think the vaccine distribution will be celebrated as a victory within the next few years because leaders have no choice but to glad-hand themselves but will likely be viewed as a colossal failure in government action 100 years from now.

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5 – Chinese consumers want to bank with Bond (or at least Buckley)

Buckley … Darren Buckley. Chances are you’ve never heard of him but many wealthy Chinese consumers have. He’s shown in a series of advertising videos like this one where he skis, drinks martinis, masters kung fu, and pursues a raven-haired beauty named Aphitchaya Boonkhong who is, incidentally, his real-life wife.

Who said banking was boring!

Watch

Bottom Line

This may be the last dip before stimulus, before explosive earnings activity, and before the vaccine rollout really takes hold.

Do NOT waste it!

I’ll be with you every step of the way,

Keith

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