☕ Yields just hit a 2004 high – I think stocks rally anyway into 2027

Howdy! 👋 

The markets are down this morning as rates rise. 

We’ve been talking all week about why. 

The news outlets are seeking all sorts of explanations but, and as usual, fail to report the one that really matters. 

Money’s just gotten more expensive as global yields rise, the US10YR, in particular which means that big money traders are simply deleveraging. It’s mechanical, computerized and quantitative… and it has very little to do with the underlying business case for owning great stocks.  

The problem is that doesn’t sell advertising, clicks or generate viewers. 

Fine with me. 

This isn’t rocket science. 

Find companies generating more profits faster and buy those. Or, use strategies that can accommodate higher rates. 

Here’s my playbook. 

1 – Yields just hit a 2004 high – I think stocks rally anyway into 2027 

The 30-year Treasury yield touched about 5.44% this morning – the highest since 2004 – and stocks are predictably down as big traders unload to reduce their VaR – value at risk – a standard institutional move in the ol’ playbook. 

I believe there’s a good case that stocks rally into 2027 anyway. 

• There’s a pile of cash on the sidelines looking for a home 

• Technology is actually a deflationary input 

• Upcoming changes in the Fed’s measurement tools – like the PCE – will soften the very same inflationary pressures many are worried about (but few understand) 

• The Fed is learning and, dare I say it, might have raised rates for the last time this year even though the markets are now predicting higher rates 

Economists say “no way.”  

Like we haven’t heard that before… lots. 

Reminds me of something Warren Buffett said years ago in a February 29, 2016 interview in response to a question about why he doesn’t pay any attention to economists... “name me one super-wealthy economist.” 

Indeed. 

Buffett’s point – and mine – is that economists don't make much money buying and selling stocks, yet the people who do buy and sell stocks listen to ‘em. 

Let that marinate a moment. 

Keith’s Investing Tip: Be in to win or you won’t… win. 

2 – Xi hits "Send" first, before the handshake 

Chinese President Xi Jinping is at the White House today for a two-day summit with President Trump. (Read) 

Hours before the two sat down, Beijing confirmed something big. 

The U.S. and China have held their first AI dialogue as part of their trade talks. China's Commerce Ministry says the two sides reached "multiple points of consensus." (Read) 

I can’t wait to see what that looks like given that China’s used the word first, but I digress. 

MyPOV: Notice who went public first. You don't rush to put AI safety talks on the record unless you want the world to know you're at the table. Or unless you need to be. 

Invest accordingly! 

3 – Island hits $6.4B valuation is a hint as to what’s next 

Executives are practically in blank check mode when it comes to protecting their data against rogue AI and all sorts of other cybersecurity shenanigans. 

Island isn’t public yet but raising $400M and hitting a $6.4B valuation is worth a minute. (Read) 

I expect a slew of new cybersecurity offerings – like Island - in the next 12-24 months because AI is the next major use case. The usual caveats will apply… the biggest of which is that IPOs are a rigged game for enriching insiders… but that doesn’t change what’s happening nor does it reduce the investing potential. 

In fact, I believe that cybersecurity may just print the next generation of millionaires. 

That’s why and meanwhile, I’m going to stick with proven and related choices that are best in class because they’ve got the customers, the cash flow and the chutzpah to overcome the critics. 

For example, if you had invested $1,000 when Palantir made its move, you’d be sitting on stock worth ~$19,179 today versus just ~$2,291 in the SPY if you’d put $1,000 into the popular ETF at the same time and over the same time frame.  

Or ~$1,788 if you’d invested $1,000 when it was trading under $110 a share this past June after Michael “Big Shortimus Maximus” raised yet another misguided stink versus ~$1,048 in the SPY. Nearly a double versus 4.82% to be clear. 

Obviously, there are no guarantees but that’s always true and – importantly – if you cannot stomach the idea that you may lose money, then I urge you to rethink investing in the first place. But that’s a story for another time. 

Back to Palantir (and other great choices like it).

I’ve told you repeatedly to ignore the critics and I hope you have. 

$500 by the end of the decade, imho. Perhaps sooner. 

And btw, don’t think I haven’t noticed that Burry is trumpeting the fact that he’s adding fresh shorts on Palantir. Various news outlets are reporting that he’s doubling down. (Read) 

I wish him luck because I think he’ll need it. 

Shorting the markets is a losing proposition over time even though it seems smart at moments in time. 

Buy the best, ignore the rest!® 

4 – Starbucks: you can’t prune your way to profits 

Starbucks is closing roughly 250 more North American cafes. (Read) 

That's roughly 1% of its 18,000-plus locations there. It's also the second round of closures in CEO Brian Niccol's two years on the job. 

The company also cut its outlook and now expects 440 net new cafes – most of ‘em overseas - this fiscal year, down from 600 to 650. 

The cleanup will cost about $300 million in restructuring charges of which roughly $200 million of that goes to breaking leases early and paying severance. 

Starbucks' COO says these are locations where the company doesn't see "a path to acceptable financial performance.”  

I’m struck by the company's regulatory filing which says it still sees "significant longer-term growth opportunity ahead in North America." 

Ummmm…  

Call me crazy but it seems like somebody might have a bridge to sell ya. 

I think the public has had it with $10 flavored water. Personally speaking, I got such terrible coffee and rude service the last time I visited that I’ll never return. 

I wonder if it breaks $80. 🤷‍ 

Putskies, short, and avoid. 

Keith’s Investing Tip: I respect any management willing to make the hard calls, but you can’t prune your way to a great company by making “n+1” choices. I’d rather invest in “0 to 1” businesses any day of the week like those we favor here and in One Bar Ahead® because they’ve got considerably better profit potential, double digit growth and, in many cases, rock solid dividends, too. 

5 – Great news… for anybody renovating a birdhouse 

Lowe's is launching drone delivery with DoorDash and Alphabet's Wing. (Read) 

The idea is this.  

Order through DoorDash, and more than 100 products can land at your door in as little as 20 minutes. 

Sounds good in theory. 

Lowe's is even saying it's the first home improvement retailer to offer drone delivery. 

The pilot is live at one store in Matthews, North Carolina. 

But here’s a kicker.  

Each drone carries about 2.5 pounds and flies within a 5-mile radius. 

Great news for anyone renovating a birdhouse. 🤦‍ 

I don’t think this is a needle mover until drones can deliver 2x4s. 

Meanwhile, I still see sparsely filled carts, smaller orders and customers who are replacing a sink rather than redoing the bathrooms which tells me – drones or not – consumers are more strapped than strung. 

A drone that drops off a box of screws in 20 minutes doesn't change that, even if you live within a 5-mile radius. 

Keith’s Investing Tip: People think they’ve got to buy a hot stock to win. That’s a mistake. Investing is constantly a series of alternatives. If Lowe’s is stuck on the landing pad, the question becomes what else can you buy and where else can you put your money to – you know – make money.  

As usual, I’ve got a few ideas and I’ll be here along with thousands of OBAers who tell me regularly that what they’ve learned about investing has changed their lives. I’d love the opportunity to earn your trust, goodwill and business, too. 😀 

Bottom Line 

Profit potential is directly correlated to the ability to change your mind when presented with accurate information that contradicts your perception and your beliefs. 

You got this — I promise.  

As always, let’s MAKE it a great day. 

Keith 😀