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How the Fed got it so wrong + what to buy now to get it right

Oct 04, 2023

Good morning! 👋

There’s some green on the screen in the overnight session.

Don’t hold your breath… it’s probably nothing more than computers doing a little reflex buying driven by mean reversion or relative valuations.

Blast shields up!

Fed’s Mester is open to another hike if the economy continues on its current path while Bostic sees one rate cut late in ‘24. [doh]

Here’s my playbook.

How the Fed got it soooooo wrong

This is very simple.

The Fed tackled inflation from the demand side of the equation rather than as a supply issue. That’s why they continue to focus on slowing the economy.

Powell may as well be taking blood from his left arm and putting it in his right.

This is a supply problem, pure and simple, as long as the government continues to spend money. It doesn’t matter whether we’re talking stimmies, shortages, or even just plain stupid decisions that were years in the making—like offshoring virtually all of our critical-parts production including chips, medicine, food, and more. Cutting oil production was another genius move and a nail in the proverbial coffin.

The Inflation Reduction Act created more than $500 billion in new investment and related spending… and that’s according to the Treasury Department. I think the figure may actually be $2+ trillion when the dust settles.

It’s no wonder the economy continues to grow and companies continue to hire.

This isn’t rocket science.

Econ 101 dictates that prices fall when there is too much supply, but that’s not the case right now. Prices actually rise despite excess supply when there is too much money in the system.

Powell can raise rates until the cows come home, and it won’t matter until the government stops spending money and companies get a handle on supply chains.

Technology, in particular, is racing forward while driving a new wave of investment that will not stop in our lifetime. How we feel about what’s happening is moot.

Oh, and Mr. Chairman, if you’re reading along… I’d be more than happy to draw this out on a cocktail napkin for ya. I hope to hear from you soon!

Wall Street is the only place on Earth where people fear a sale

Stocks are getting shellacked, and people are starting to scream at the top of their lungs… OMG, what am I going to do??!!!


I own the companies I want, and I plan on buying more, a point I made this morning during an appearance on Mornings with Maria. (Watch)

Hopefully, you do too—especially if you’ve been reading along!

As a side note, I apologize for the short length of the interview. Xfinity failed mid-broadcast; I got my connection back a minute later, but my shot had already been dropped. Not surprisingly, Xfinity is already trying to bury my comments on Twitter while pretending to care and using chatbots that convey the appearance of caring.  Yeesh.

Why the markets are really selling off

The real fear isn’t rates.

The markets are selling off because they fear the Fed won’t recognize slowing economic data and supply problems.

The Fed is still wrong about rates and labour.


What to buy right now

I could be snarky and tell you, “Practically everything,” but that’d be inappropriate.

All joshing aside…

Your best friend right now is going to be low-beta, high-dividend stocks of companies making products and services we cannot live without.

Like General Mills, for example.

Quite a few were firmly in the green yesterday, including a number of names I recommend in my paid research journal, One Bar Ahead®. I’d love to have you on board if that’s of interest, BTW.

Meanwhile, if you’ve got this handled, excellent! Most investors don’t have a clue, and they’re paying a nasty price for the Fed’s arrogance, err… avarice.

You are missing 50% of the profit potential if you’re not playing both sides

Make no bones about it.

You are missing half the profit potential if you’re not playing both sides of the market.

There are profits up for grabs in both directions—up and down.

Contrary to what many investors think, it’s not complicated.

In fact, it’s easier than ever with specialized inverse funds that appreciate as the stocks/indices they’re tied to decline.

Stay away from the leveraged stuff, though. That’s asking for trouble unless you know what you’re doing and have a serious handle on risk management.

Meanwhile, learning to buy companies when prices are down is an important skill and something every serious investor needs to get comfortable with.

The markets ALWAYS reward discipline.

Bottom Line

It’s always better to play offense, even if you must think defensively to do it.

Hang in there!

Every storm on record eventually gives way to sunshine.

MAKE it a great day!

Keith 😊

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