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Morning! 5 with Fitz! - 10/14/20

Keith Fitz-Gerald

October 15, 2020

Good morning!

Futures are mixed as I type and that’s normal with everything going on. I’m planning to use the “pause” to shore up my investments because being “in to win” is actually how you … win!

Speaking of which, here’s what has caught my attention today and what I’m watching with my own money.

1. Bank Earnings – A real split between those who are well positioned for a recovery and those who are not

I alluded to this earlier today on Mornings with Maria noting that the problem children will be reporting today including Bank of America and Wells Fargo. Goldman Sachs killed it on bond trading. The former missed revenue while the latter still has operational issues including, potentially staffing challenges that will reduce profits. Goldman Sachs is an outlier.

My money’s on JPMorgan ($JPM)

2. China’s buying Japanese government bonds (but not because it likes Japan)

The real game is China trying to control Yuan appreciation which has shot higher as the Chinese economy recovered. Buying Japanese bonds then swapping back to US dollars gives them an extra return while also curbing the Yuan’s inflation potentially. Then, there is the fact that Japanese bonds are actually at the top of the chart in a zero yield world versus normal safety related Swiss and European bonds that are deeply negative (meaning depositors have to pay, not get paid, interest). Not that people like negative rates but, still.... sigh.

Chinese stocks like $BABA are still worth a look, even if you hate the thought. I don't own any at the moment, preferring to invest "because of China" through choices like Apple and Microsoft instead.

3. Apple doubles again in 12-24 months

Apple’s shiny new iPhones are 5G enabled and at very attractive price points. The real key here isn’t the iPhones themselves but the 5G because that draws users farther into the ecosphere where data and subscriptions become the high margin item. The watches, the wearables, the medical devices – many of which have not yet hit the market – will all depend on it. Wearables did $6.45 billion last quarter alone!

The healthcare pivot and wearables are very real and, admittedly, I’m feeling pretty good having identified this several years ago even as people openly laughed in my face for suggesting that this will be Apple’s future, not phones or devices.

Mark my words, it will not be long before Apple devices are prescribed by Doctors which means insurance companies pay for ‘em which boosts profits and, unfortunately, premiums, too. Here’s a glimpse.  

I’m very focused on adding shares.

4. The Law of Unintended Consequences bites again

San Francisco’s sale tax revenues have dropped by 40% this spring highlighting the consequences of urban flight dramatically. You and I were talking about this last February as a possibility but now we know for sure that we were right on target. Don’t forget that companies including Facebook, Microsoft and Twitter have already given some employees the opportunity to work remotely permanently.

Income investors should take note - I think REITs and municipal debt are at significant risk as this problem magnifies (and am reexamining my holdings with that in mind).

5. A dead heat according to this AI tool … but …

Fortune is reporting that Expert.ai, an AI company with a proprietary forecasting model says “dead heat” when it comes to the Presidential Election. I don’t know that I buy it but the implication is things are a lot closer than the media would suggest, bias or not. If that’s true, then the real bet is a “contested” election and rising volatility.

I’m planning to use the chaos as an opportunity to sell puts and buy on dips, sticking to the “best but not the rest” naturally.

The Bottom Line

Markets change, just not often. So stop trying to will them into doing what you want. Instead, concentrate on doing what they want. Prices are usually blind to themselves but don’t have to be to YOU if you know what you’re looking for.

Especially when it comes to the “best” companies making world class products and services the world cannot live without. I talk about Apple, Microsoft, JPM, V and other names frequently for a reason - because those are EXACTLY the companies meeting this criteria (and where I’m putting my own money).

Make it a GREAT day!

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