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Countdown to the Fed’s next folly

Jun 14, 2023

Good morning! 👋

Before we get rolling, I want to take a moment.

As you can imagine, I’ve got thick skin given what I do for a living. But every now and then, someone writes in with a particularly nasty message that gets under my skin—as was the case recently with the law of large numbers.

Like OBA, 5 with Fitz is built on optimism, mutual respect, and a shared desire to become better investors and traders.

I’ve received thousands of wonderful emails, calls, tweets, and more over the years. Your insight impresses the heck out of me, as do the fabulous stories and experiences you share. And for that, I am thankful. I love the friendships we’ve built and have yet to build.

It’s the one or two negative, grumpy, spiteful, or otherwise just plain rude individuals—among hundreds of thousands of great and amazing ones—who surface from time to time that are a pain. Dealing with cretins and malcontents hardens my outlook and is a waste of time that could otherwise be spent finding great investments, researching our next recommendations, or helping create valuable investment education.

That’s why I cannot thank YOU enough for the many kind emails, messages, and more I received yesterday after explaining why theory differs from reality when it comes to today’s financial markets and the law of large numbers. I must have sat at my desk for a good 15 minutes reading ‘em all!

What you said put a huge smile on my face, at a time when I needed one.

Not to get all mushy or anything, just know that I am deeply honoured that you’re here and reading along. And even more profoundly humbled that you took a moment from your busy day to let me know how you felt.

Now, let’s get after it!!

Here’s my playbook.

The countdown is on

The markets have bet that the Fed will pause—or at least take a break from another hike—in light of recent data showing that inflation is moderating.

Ummm.

Let’s review...

The Fed played a substantial role in causing this mess by repeatedly failing to recognize it was happening. You know... the whole transitory thing.
Then they’ve taken blood from the left arm while putting it in the right and continuing to hike, a process that has destroyed the middle class, eviscerated savings, and wiped out $70 TRILLION or more in market cap.
And now we’re supposed to believe that Team Powell is going to do something logical??!!

I’ve got a bridge to sell you.

Here’s what I think happens...

Powell will release a statement along with data, rate projections, and economic poppycock.
Then he will make statements about the need for caution and why he will not rule out the case for future rate hikes.

How the markets will react...

If he does what I’ve just described, the markets may—just may—hold their own. But if it’s anything else, I think a quick, sharp selloff is likely as traders take money off the table (because many have huge paper profits at the moment).

Hopefully, you’ve been along for the ride since last October when I first said the bottom was in and tech would return to the head of the class. That’ll allow you to be among the profit takers.

But if you’re like millions who have to play catch-up, you’re not out of luck. You just need to play carefully using the right tactics and, for the love of God, please pick the right stocks.

I’m here if you’d like some help. Upgrade to Paid

And if you are on the fence, I get it. There’s a lot of BS out there that passes for investment research these days. You’re not here for the clown show; if you’ve been reading along for any length of time, you know what I’m capable of. Or, you can simply read a few of the testimonials I’ve been extremely fortunate to receive here, then make your own decision. Scroll down about halfway through the page.

Commercial real estate’s “Urban Doom Loop”

We’ve been talking about commercial real estate for months, and while that’s been a great discussion, I’ve never been able to articulate to my satisfaction what’s happening.

The team at NYU Stern, Columbia Business School, and NBER did.

This graphic speaks volumes about what’s happening... and for many people, it’ll be the first “look” at how serious the situation really is, especially in NYC. (Read)

Many employees never returned to the office. In 2020, office occupancy dropped from about 90% to 10%. But in New York, it’s only bounced back to 48.4%.

The trick is that many people depend on real estate for income, and I think the downward spiral is already playing out in ways that many simply don’t understand. Take San Francisco, for example, where major investors are handing over the keys to billions of dollars in real estate.

OBAers, on the other hand, own a specialized REIT that has boosted dividends by 24% since the start of COVID and has a 96%+ rent roll. Grinning like a Cheshire Cat is entirely reasonable—I am.

Choose wisely!

AMD vs. NVDA

This is what the federal government doesn’t get about competition. The best always rise to the top and competitors are always nipping at their heels. (Read)

Never betray your customers

Bud is still reeling. The latest data show that sales of Bud Light and other Anheuser-Busch products are down well into the double digits year over year. For the four weeks ending June 3, Bud Light sales were off 24.6% compared to the same period last year, according to NielsenIQ data. (Read)

I get asked about bottom fishing a lot, but I can’t see that being a good idea as long as consumer ire continues to mount.

You?

Shell raises dividend by 15%

Shell is increasing its shareholder distributions from the previous 20%–30% of cash flow from operations up to 30%–40%. The dividend is expected to jump 15% from Q2, and Shell plans to buy back at least $5 billion worth of shares in the second half of the year. (Read)

I prefer another mainstream energy company stock, but that’s moot.

The key point is one that many in the EV crowd would prefer you not understand: Dinosaur juice isn’t going away anytime soon.

Meanwhile, it’s a great investment.