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Buy the price makers, not the price takers

Oct 17, 2023

Good morning! 👋

A morning of hits and misses…

Higher rates have crept back into the picture with the 10-YR up 0.111% to 4.821%.

You know what that means… rates pop, stocks drop.

Here’s my playbook.

Retail sales 133% hotter than expected

The boffins estimated retail sales would come in at 0.3%, but in fact, the number came in “hot” at 0.7%, or 133% higher than expected.

Traders hit the sell button almost immediately.


Because they’re thinking that a) the economy is still hotter than the Fed wants and that b) Team Powell will use this information as an excuse to raise rates again.

I agree.

Not to sound like a broken record, but I’ve been talking for several months now. I expect Team Powell to raise rates at least once more this year, then again mid-Q1 2024.

Preparing for what happens next isn’t rocket science.

Inflation continues to rage, no matter what the Ministry of Whitewash has to say about it. And sadly, it will continue to rage as long as the government continues to spend money. The prospect of a wider war in Israel is also a significant inflationary input.

Your best move will be to buy the price makers, not the price takers.

We talk about many of ‘em right here and in substantially more detail in One Bar Ahead®, my paid research journal. If you’ve got this covered, fabulous! If not and you’d like some help, you know where to find me. 😊

Big bank earnings give me a new trade idea

BofA announced first and handily beat on both the top and bottom lines while net interest income passed all estimates. Goldman Sachs also reported a “double,” meaning beating top and bottom-line estimates, largely due to better-than-expected bond trading results. Morgan Stanley reports tomorrow.

Many investors are looking at the numbers with bated breath, but I’m here to tell you they’re “not all that.”

Big financials are strong because they have the size, scope, and scale to survive current market conditions. Smaller banks not so much, and they’re very likely to come in weak on the heels of the SVB crisis that roiled markets a while back.

Gives me an idea.

Pairs trade:

  • Long the Roundhill Big Bank ETF (BIGB)

  • Short SPDR S&P Regional Banking ETF (KRE)

You could do the same thing using options, functionally speaking.

J&J rocks a double beat & raises guidance

Johnson & Johnson beat on earnings and hiked the company’s outlook as MedTech, pharmaceutical sales surge. (Read)

No surprise.

The company has a long history of making diversified health care products at a time when the world needs ‘em. We’re all getting older, need more meds, etc.

Thing is that as much as I like J&J, there’s another medical stock that I like even better, now that AI’s on the way and breathtaking advances are around the corner.

Other investors have tossed shares to the curb, which, if you know your market history, is the best time to buy if you understand the distinction between building wealth over time and trading at moments in time.

Could Jim Jordan save Big Tech from big regs?

Normally, I don’t do politics, but occasionally the two meet.

CNBC is reporting that Republican Rep. Jim Jordan could put anti-trust regulation on hold during his tenure. (Read)

Makes sense.

Jordan is very angry about what he perceives to be the Biden administration’s relentless pressure on companies, not the companies themselves. Those who oppose him have centered their ire on censorship, speech, and wealth distribution.

As always, it’s important to keep your political views out of it as an investor. You and I might agree, or we might not. That’s actually moot.

The question we want to focus on as investors is whether what’s happening is enough to move the needle.

I don’t think so.

That said, this is clearly an important input in the scheme of things because Jordan’s actions—if he pursues this line of thinking—would remove a potential impediment that has clearly caused at least some “weight” on Big Tech stock prices.

One that could be worth a few points to the upside for all of ‘em.

China needs Apple more than Apple needs China

CEO Tim Cook has apparently surfaced in Beijing, a surprise trip by all accounts. (Read)

Western media is interpreting his journey as a sign that he’s there to appease the Chinese, but I don’t think that’s true based on my experience there over the years.

Let me explain.

Apple’s made no bones about moving production to India and opening that market, which means, practically speaking, that China is no longer the center of Cook’s universe. Beijing won’t like that because much of the Chinese global narrative is built on the assumption that it holds all the cards.

I believe that Cook may leave with a deal in hand or at least in progress that actually lowers Apple’s production costs while also allowing broader market access and enhanced competitive footing versus Huawei, particularly at the top end of the market.

Beijing won’t admit as much, but China needs Apple more than Apple needs China.

Bottom Line

Markets aren’t the issue.

Your mindset is.

No excuses.

Now and as always, let’s MAKE it a great day!

You got this.

Keith 😊

Straight to your inbox from Keith himself!

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