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Doubling down makes sense if oil goes to $100

Jan 05, 2023

Good morning!

Futures were mixed in early going, but I as I suspected might be the case, the strength we saw yesterday may have been nothing more than a blip. The markets opened red and remain that way as I type.

I believe there’s still six months of rough sledding ahead but, critically, see a stronger finish to the year—for reasons I will share this Friday in my 2023 Outlook. Upgrade to Paid

Meanwhile… I popped into the TV studio for a quick chat with the super-savvy Stuart Varney who asked me for my take on current market action and what I’m buying. As you might expect and in keeping with my research, I’m running into the fight! (Watch)

Here’s my playbook.

Oil will go back to $100—get ready

It’s a pretty simple story, really. China’s keen to get its hands on every last drop of oil it needs, and it’s willing to create deals that guarantee that—even if it means doing so at the expense of everybody else.

That’s why I warned so forcefully about China’s Middle Eastern charm offensive last year. The $50B deal it struck with Saudi Arabia and other suppliers will leave the West fighting over table scraps. It could also further undermine the dollar while opening the door for the digital yuan (something else I’ve been cautioning about for years that is now coming to fruition).

Buy big energy while you have the chance. The West is pricing oil like there’s a recession coming. China is pricing oil because they know they need it to survive. Doubling down makes all the sense in the world if oil prices rise as expected. Oh, and the dividends most of the biggies pay could provide some nice bling, too.

Fed: The beatings will continue until morale improves

The Fed says that it’ll stick with high rates for “some time.” 🤦‍♂️

Reminds me a lot of something Captain Bligh of Mutiny on the Bounty fame reportedly said: “The beatings will continue until morale improves.”

Let’s not mince words. The Fed wants you to lose your job and to stop spending, and the fact that you and your money are a casualty is an acceptable cost of business to Team Powell.

OBA Action Item: Stick to the very best names you can buy, preferably those that are a) tapped into big growth that will happen, recession or not, b) paying rock-solid dividends, and c) making “must-have” products and services the world cannot live without. Studies show they fall less, stabilize first, and come roaring out of the bottom fastest.

If you’ve got this covered, cool beans. If not, I’m here (and thrilled you are, too)!!

Hedges at maximum, meanwhile. Buy putskies, inverse funds, bearish spreads… there are dozens of tactics that can help you make hay even though the sun may not shine for a bit. Learning to trade around core investment positions is a key skill many would be wise to learn, probably sooner rather than later.

Like that’ll happen… 30-year fixed at 5.25%

Bankrate forecasts that rates for 30-year fixed-rate mortgages will drop to 5.25% by the end of this year. That’s 1.49% lower than the current rate and nearly two percentage points below 2022’s peak of 7.12%, reports CNBC. (Read)

Why you should care: Team Powell is on a mission to raise rates, and mortgage companies have got to charge higher rates to book the “spread” and make money. There is no way in you-know-what that mortgage rates come down to 5.25% when the fed funds rate is projected to crest at 5.25% or higher.

Makes me think defaults rise, credit bureaus get creative, and housing continues to struggle. Shorting mortgage lenders may be the play. Putskies could work nicely, too.

Bed Bath & Beyond may not survive

Bed Bath & Beyond may not survive more than a few months. (Read)

This isn’t rocket science. Companies that are struggling to attract customers can’t make it in ideal business conditions, let alone when the SHTF. I’ve urged you repeatedly to steer clear.

OBA Implication: Knowing what stocks to own is every bit as important as knowing what stocks to avoid. That’s why I’ll be sharing a list of 5 stocks to avoid like the plague in this month’s issue. Some big household names are on the list and may catch a lot of folks by surprise. Upgrade to Paid

Dell to China: See ya!

Dell Technologies is the latest company to begin phasing out chips and other components made in China from its products. The company intends to stop using chips from China completely and plans to have greatly reduced other components by 2024, less than a year from now. (Read)

There are only a handful of companies around the world capable of taking up the slack. I sure hope you own ‘em, especially since prices have been beaten down so significantly.

It’s only a matter of time before global leaders deem chip making a national strategic priority, and you can easily imagine what’ll happen to the right stocks at that point!