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A pairs trade that could pay off handsomely

Dec 08, 2022

Good morning!

The markets want to snap a five-day losing streak, but will they?

That’s up to the Fed.

As long as “good news” (about the economy) is bad news for the Fed’s take on rates, the consensus remains that the Fed cannot or will not tap the brakes.

I disagree, but that’s moot for now.

Here’s my playbook.

A pairs trade that could pay off handsomely

The best companies are not cowering in fear of a recession. They’re charging forward to make their businesses stronger, despite all that’s happening.

Take Apple, for example. The company plans to offer end-to-end encryption on iCloud backups, Notes, Photos, and other services to protect users. Team Cook is also modifying messages to make it harder for bad actors to gain access to super-critical and confidential information. My friend and colleague, the fabulous Ray Wang, founder, chairman, and principal analyst of Constellation Research, agrees with me, BTW. (Watch)

A pairs trade could work nicely. Apple’s gonna be in the driver’s seat for a while longer. El Zucko is gonna take another billion-dollar hit. A pairs trade comes to mind… long Apple/short Meta.

Exxon plans to raise spending in '23

Exxon plans to raise spending in 2023 to $25 billion while also expanding carbon curb emissions investments. That’s at the upper end of guidance and, to my way of thinking, a smart move.

I like another “Big Oil” even better because it’s already one of the single largest renewable energy players in the game. Shares have backed off their highs recently, but support appears to be building. There’s super-strong support for the dividend too. Upgrade to paid

Dinosaur juice isn’t going away anytime soon, much to the chagrin of EV proponents worldwide.

DOJ tries carrots instead of sticks

What’s happening. The DOJ is overhauling its approach to corporate criminal enforcement by encouraging companies to voluntarily disclose their misdeeds—including a promise that companies doing so will not be forced to enter a guilty plea. (Read)

Why this is a big deal. Companies used to get the stick, so they’d do everything they could to settle, enter into a deferred prosecution agreement, and pay a fine, rather than enter into lengthy criminal proceedings or litigation. Banks have paid more than $200 billion in fines since 2008, most of which was tied to behaviour during or resulting from the Global Financial Crisis.

The move makes tremendous sense, especially if it’s targeting cryptocurrencies, which, arguably, the DOJ doesn’t understand as completely as it should. However, I’ve got to wonder how “admission/disclosure” will play into potential civil suits on related actions.

MyPOV: I’m willing to bet there are quite a few lawyers on speed dial at the moment. I think it’ll be fascinating to see if SBF of FTX fame avoids jail time.

How to factor layoffs into your stock analysis

Many investors are struggling when it comes to layoffs because they don’t know how to analyse the situation when it comes to stocks they own or want to buy.

Here’s what I suggest.

First, Powell is as wrong about labour as he was about transitory inflation. That’s a given, so bin that right away.

And second, not all layoffs are the same. Companies that are cutting hard and fast are the ones to watch. Especially if their business plans remain rock solid and they’re still putting numbers up. Those that are relying on the “dog ate my homework” excuses are to be avoided, particularly if they’re voiced during earnings calls. (Watch)

ChatGPT will reset education stocks

I see trouble brewing. I wrote to you recently about a new AI-driven chatbot that is so good, it’s virtually indistinguishable from humans. Not only can the dang thing answer questions, but ChatGPT can also admit when it makes a mistake, reject inappropriate requests, and challenge incorrect premises.

Education stocks are particularly at risk because take-home tests and homework could become irrelevant. Too early to tell if it reinforces teachers who have no place in the classroom or makes them harder to fire for appearing stronger. The best will, of course, learn how to make ChatGPT a super-powerful complement to learning.

And, on a related note, as observed earlier this week...