☕️ The market has been telling you something for 329 days. Are you listening?

Howdy! 👋 

Welcome back after what I trust was a great Labor Day weekend if you were here in the US and otherwise terrific weekend and Monday if you’re somewhere else in the world! 

Let’s get to it. 

Looks like we’re in for another “red” day as I type given that all three indices are decidedly negative. 

Makes sense. 

Oil is higher following more nastiness in Iran, rising trade tensions between the US and Canada, and worries that the Fed will raise rates to cope with inflation. 

The real question – and what people want to know, myself included – is whether or not rising yields worldwide reflect better than expected economic growth, higher than expected inflation or a looming debt crisis. 

There are really only three choices. 

My money is on number one… better than expected economic growth even though today’s selloff is largely being attributed to Fed-related fears and perceived inflationary challenges. 

Remember what’s what. 

S&P 500 companies have reported the strongest earnings growth since 2021 with profits up an average of 40% year over year in Q2 on double digit revenue gains and estimates beaten by the widest margins in years. That’s now 12 straight quarters of profit growth. 

So – my advice – forget about the economists, pundits and pontificators who fear what “might” happen and, instead, concentrate on what’s likely to happen. 

Companies report what they’ve made, when they’ve made it and how. Economists and analysts report what they think even though they don’t work at XYZ, haven’t ever built anything or – in most cases - run real money. 

Rising yields reduce the present value investors assign to future profits, a particular risk for high-growth tech names, but if yields are climbing because the economy is strengthening and profits are improving, the “damage” to stocks tends to be limited. Volatile, but limited. 

So here’s the skinny. 

One of my mentors drilled it into my head years ago; that the best prices and fattest profit potential often arrive when everyone else has given up hope. 

Worth remembering this morning at a time when the markets are red, the headlines are ugly, and the earnings underneath have never looked stronger. 

Speaking of which and, of course, here’s my playbook. 

1 – The market has been telling you something for 329 days. Are you listening?  

Hang with me. 

The S&P 500's 200-day moving average – basically a smoothed-out line tracking the market's underlying trend – has now risen for 329 straight trading sessions, the 4th-strongest such streak in the last decade. 

So? 

Since 1999, when this line is rising, the S&P has returned about 8.5% a year on average and 0.1% when it’s declining according to the Kobeissi Letter. 

Invest accordingly – your portfolio will thank you. 

Using the right tactics helps tremendously. 

2 – 90% of America's proxy votes run through two companies — now the SEC wants receipts 

On September 4, the SEC asked a federal court in Philadelphia to force Institutional Shareholder Services to hand over years of client proxy voting data. ISS has registered as an investment adviser since 1997, and now the SEC wants the voting database at the center of its business. 

ISS says no while arguing that full compliance could violate its First Amendment rights. (Read)

Caramba! 🤦‍ 

ISS and Glass Lewis run over 90% of the proxy advisory business in this country… meaning 90% of the vote recommendations that decide who sits on boards, what executives get paid, and which shareholder proposals live or die at nearly every public company in America. 

Most investors have never put 2 and 2 together… but they should. 

I think the old adage “where there’s smoke, there’s fire applies.” 

This isn’t the first time the ISS has raised identical First Amendment defenses, so I’ve got to wonder what’s really afoot. 

Keith’s Investing Tip: When a company with fiduciary duty starts arguing about its constitutional rights instead of answering questions, pay attention to what (and who) it’s protecting. Follow the money. 

3 – Did Palantir just cook Anthropic’s goose? 

Palantir has named Nebius as the control layer for what they're calling "sovereign AI." (Read) 

I think Anthropic’s goose may just have been cooked… and plenty of other so-called frontier AI, too. 

Companies increasingly don’t want to rent AI but own the infrastructure around it to protect their IP. 

$200 a share. 

4 – Nike: Just couldn’t do it 🙄 

I’ve told you repeatedly over the years that Nike is dead money for a variety of reasons, not the least of which is poor management and a desperately flawed business model. 

Case in point, specifically warned investors on 15 May, 2021, that “Owning Nike shares at this point could be riskier than many think.” (See #2) Shares were trading at ~$135.93 back then and are now ~$38.40 a decline of ~71.8%. 

Roughly $157 billion’s been vaporized faster than an ice cube at a water station during a hot marathon. Now, adding insult to injury, the company is being unceremoniously booted from the S&P 100. (Read) 

I am seeing some very smart people argue that it’s incredibly undervalued lately – a gutsy call no doubt. 

Would I buy it? 

Not in a million years. 

It doesn’t fit with where I see opportunity. 

For example, Oxford Economics estimates that AI infrastructure project spending could be $32T by 2050 with nearly half of that in the US. To put that in context, that’s 45X the cost of the entire US highway system and nearly 10X the cost of the entire global internet buildout. 

Sports shoes may account for $150B… and that’s being generous. 

Keith's Investing Tip: Sometimes what you don't buy is every bit as important as what you do. Buy the best, ignore the rest®. 

5 – Gas prices just broke a 14-year record 

Gas hit $4.15 a gallon nationally on Labor Day – the highest price ever recorded for the holiday, blowing past the old 2012 record of $3.82. Diesel's worse: $5.90 a gallon, up from $3.71 a year ago. (Read) 

Makes me glad I drive an EV, but that’s another story for another time. 

Every time energy spikes like this, it splits the market into winners and losers.  

• Winners: Energy majors and refiners. My personal fave has increased dividend payouts for nearly 4 decades, is 51% less volatile than the market and has returned ~170% over a 5-year period compared to a lesser but still plenty respectable ~70% from the SPX (a popular S&P 500 ETF). It’s also got a superior TSY – “True Shareholder Yield” which – according to my research – makes it a keeper. 
• Losers: Airlines. Fuel is one of the biggest line items on their income statement, and they can't pass those costs on overnight. I've told you to steer clear of this group for a while now – high fixed costs, brutal competition, and, now, a fuel bill that just got a lot heavier. This is exactly the kind of headwind that validates staying away.

Hopefully you’re actively investing in the former because they’ve got great profit potential and steering clear of the latter because they don’t. 

Doing so will help keep you and your money One Bar Ahead® – pun absolutely intended. 

Bottom Line 

Every morning you have two choices. You can sleep with your dreams or you can get up and make them happen. 😀 

You got this — I promise. 

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

Keith 😀