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Sep 25, 2023

Good morning! 👋

The markets are down in early going, which isn’t surprising given the headlines and budget concerns lurking under the surface like Jaws in 1975’s smash summer hit by the same name.

At the risk of dating myself, cue the music...

duunnn dunnn… duuuunnnn duun… duuunnnnnnnn dun dun dun dun dun dun dun dun dun dun dunnnnnnnnnnn dunnnn

Here’s my playbook.

US 10-YR Treasury now at levels not seen since 2007

Doh! [face palm]

Higher rates mean a) higher borrowing costs big leveraged traders don’t want and b) more uncertainty around the headlines. Either way, they’re on the “sell” button as I type.

Not a lot of people connect the dots but probably should.

The 10-YR rate is a reflection of “economic health,” not just a rate like most think.

Conventional thinking is that higher rates mean investors will park their cash in interest-bearing choices like Treasuries instead of the stock market, but that’s old-line thinking. The Fed’s most recent hikes and the market’s reaction to ‘em are simply proving to be a case of “too far, too fast.”

People simply don’t know how high rates could go, whereas in the last week or two, the markets thought they had a handle on it.

I’m inclined to return to my favourite “steady Eddies” this morning. Both have low betas, high return on capital, and great growth. Upgrade to Paid

What a government shutdown means for your money

As I noted to the fantastic David Asman this morning ahead of the opening bell, we’ve been there, done that so many times when it comes to a looming debt shutdown that we have the proverbial T-shirt. (Watch)

I think what’s happening is disgusting, but that’s just me; it’s also an opportunity for the right stocks.

Chaos is funny that way.

Uncertainty typically creates volatility, lower prices, and even a bigger profit potential than would otherwise be there. Energy, some tech, and even consumer stocks are at the very top of my shopping list this morning, for example.

LowBall Orders work nicely in situations like this, as does Selling Cash-Secured Puts.

I’ll have more in today’s One Bar Ahead® update, so keep an eye on your email if you’re an OBAer (and click here if you’d like to learn more about becoming one).

Amazon to OpenAI: “Oh, yeah?!”

Amazon is dropping $4B on Anthropic, the “other” ChatGPT rival. People are saying that the company wants to bet big on AI, but I don’t think that’s right. It’s more like “keep up” with Microsoft and Google. (Read)

AWS is the proverbial “ace in the hole”—a poker reference, which means having an ace (the highest-value playing card) hidden in one’s hand—that is not revealed until it’s advantageous to do so.

Naturally, the newly formed strategic partnership has chosen AWS as its primary cloud provider from the get-go. My guess is that it’ll be good for a few points, but I’m still leery about AMZN in general.

Yes, drugstore stocks are still a losing proposition

I have repeatedly encouraged investors to steer clear of drugstore-related stocks for the past few years because I believe the risks are simply too high.

No surprise this morning—at least to me anyway—that Rite Aid is reportedly negotiating the terms of a bankruptcy plan that would involve closing up to 500 stores. My guess is the number will eventually top 1,000. (Read)

Reminds me of Sears when the bloom came off the rose. People thought reorg plan after reorg plan would be “the one,” only to find out the hard way that the earth had shifted under the once-proud mainstream brand’s feet.

Anybody owning Rite Aid or other drugstore stocks like Walgreens or even CVS Health Corp. had better think seriously about an exit or at least be prepared for some super-rough sailing ahead.

It’s only a matter of time before margin eaters like Walmart, Costco, and Mark Cuban’s Cost Plus Drug Company kill ‘em.

Ex-Wall Streeters help Washington divvy up $100B to win the global chip race

This is rich.

Washington is turning to former Wall Street execs from KKR and Goldman Sachs to help divvy up $100B in loan guarantees and subsidies as a way of returning America to semiconductor glory. (Read)

The thinking is that execs will use their dealmaking skills to make sure the government money goes further and gets spent more productively.

Is there a catch?

Yes, to my way of thinking.

As usual, the government will want to spread the money around in some sort of open competition, but there are only a few top players capable of making a realistic play (and a decent return).

Not to be a spoilsport, but remember Foxconn’s WI adventure?

The company was supposed to invest $10B, aided by $3B in subsidies, of course. A few years later, the investment has been slashed to less than $700 million, and there are only about 1,500 jobs on the table, down 88.47% from the originally anticipated 13,000.

Buy the best, ignore the rest!

Your portfolio will thank you.

Bottom Line

If you want to run with the big dogs, you’ve got to get off the porch.

As true in life as it is in the markets.


As always, let’s MAKE it a great day and get a strong start to the week!


Keith 😊

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