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☕ If the you know what hits the fan

Apr 19, 2024

Good morning! 👋

To say the markets are nervous given everything happening in the Middle East would either be a) an amazing understatement or b) in firm command of the obvious.

Probably a little of both.

Here’s my playbook.

1 – If the you know what hits the fan

I told you recently that, if I understood Israel the way I thought I did, that they would issue a measured response (to Iran) within the week. That has apparently come to pass if reports – which are still coming in as I type – are correct. (Read)

The markets have shaken off a quick overnight jump in oil prices and a fall in futures as I type but I think there’s a good chance that changes by the time you read this.

I also suspect, unfortunately, that the old adage that “chaos creates opportunity” is about to get a whole lot truer than I’d like to see.

How do you prepare for this?

If you’re a trader, then volatility is going to hand you an opportunity the likes of which you’ve never seen before. It cuts both ways even though most people are going to read this and think only to the downside. The biggest, most computerized stocks are going to be deepest and most liquid because the gamma is highest. So that’s where you’ll want to be looking.
If you’re an investor, then volatility is still your friend but for different reasons. Here you’ll want to stay IN the game even though the temptation is to run for the hills. Quality names only and using tactics to control risk should be your SOP. Get your buy list ready now and don’t worry so much about finding “the” bottom because chances are “any” bottom will be an opportunity to buy shares at a discount.

MyPOV: If there were ever a case when I hope I’m wrong, this is it. Either way, history is very clear... we want to invest as if the sun comes up in the morning and we’re all still here.

On a related note, if you’re interested in hedging and a lot of people are at the moment, I wrote something a while back that you may find helpful, Your 5 Minute Guide to Hedging. OBAers get it as part of their membership but you can buy it separately if you’d like.

And finally while we’re on the subject, I recommended a quick speculative weekend trade in UVXY a week ago that worked out as intended and which could be what I call a “rinse and repeat” situation today, too. Alternatively, ATM SP500 Putskies – meaning put options - just understand that you’ll fight time decay and the potential whammy of a relief rally come Monday.

Note: If you have no idea what I am talking about, do NOT try anything stupid. There are a wide variety of folks reading along with even wider skill levels. It’s okay to be a rookie and it’s equally okay to be a card-carrying member of the grey beard club like I am. There's always room to learn!

2 – Netflix to Wall Street: Get real!

I'm grinning year to ear!

One of the biggest problems with quarterly earnings, particularly with tech, is that Wall Street has invented statistics for years to entice investors into the game.

Netflix has had enough.

The company announced yesterday that it will no longer provide membership numbers and average revenue per user but instead force Wall Street to focus on revenue and operating margin. (Read)

What a concept! 😊

Shares are down about 6% because the boffins aren’t amused but I think it’s great.

Trading idea: Selling cash secured puts or buying on the dip could be simple, effective way to go shopping or add to existing positions in NFLX.

3 – Meta’s latest “me too” is scary but probably very profitable

Meta has started rolling out its free AI assistant across WhatsApp, Instagram, Facebook, and Messenger. Apparently Meta AI can answer questions, create images, and even animations.

El Zucko says it’s now the most intelligent AI assistant “you can freely use.”

I think that’s debatable but that doesn’t matter.

What catches my attention is that somehow Meta has convinced Google and Microsoft to play in the same sandbox because Meta’s AI apparently provides answers that come from both companies’ search engines.

Reports suggest there’s already a more powerful version in the works. (Read)

My POV: If it were any other company, I would say this is a phenomenal development but given Zucco’s long history of predatory business practices including exploiting users without their knowledge, deliberately designing harmful, addictive programming and more, I find this to be a super scary if not downright appalling development.

Wall Street won’t care if there’s a buck to be made.

META’s returned 44.91% YTD.

4 – Regional banks and commercial real estate

Right on cue... the commercial real estate market is beginning to collapse. (Read)

We’ve talked about this many times.

REIT investors could get a rude wakeup call if the funds they own have not appropriately managed the situation; and,
Regional bank investors may get plowed if the banks they own have large commercial exposure.

There are easy ways to get around this problem, not the least of which is buying specialized REITs that do not invest in commercial real estate and which are driven by much larger macroeconomic themes I call the 5Ds – Digitalization, Defense, Distribution, Diffusion and Dislocation.

My fav has a rock-solid rent roll and has returned nearly 30% over the past 12 months, roughly 7% higher than the SPY and with a fraction of the risk. Upgrade to Paid